Kodak 2006 Annual Report Download - page 102


During 2005, the Company reached a settlement with the Internal Revenue Service covering tax years 1993-1998. As a result, the Company recog-
nized a tax benefit from continuing operations of $44 million, including interest. Net income from discontinued operations for 2005 was $150 million,
which was net of a $203 million tax benefit. The $203 million tax benefit for 2005 resulted from the Company’s audit settlement with the Internal
Revenue Service for tax years covering 1993 through 1998.
During 2004, the Company reached a settlement with the Internal Revenue Service covering tax years 1982-1992. As a result, the Company recog-
nized a tax benefit of $37 million in 2004, which consisted of benefits of $32 million related to a formal concession concerning the taxation of certain
intercompany royalties that could not legally be distributed to the parent entity and $9 million related to the income tax treatment of a patent infringe-
ment litigation settlement, and a $4 million charge related to other tax items. The Company also reached a favorable resolution of interest calculations
for these years, and recorded a benefit of $8 million. Finally, the Company recorded net charges of $13 million for adjustments for audit years 1993
and thereafter.
The Company and its subsidiaries’ income tax returns are routinely examined by various authorities. In management’s opinion, adequate provision
for income taxes has been made for all open years in accordance with SFAS No. 5, “Accounting for Contingencies.” A degree of judgment is required
in determining our effective tax rate and in evaluating our tax position. The Company establishes reserves when, despite significant support for the
Company’s filing position, a belief exists that these positions may be challenged by the respective tax jurisdiction. The reserves are adjusted upon the
occurrence of external, identifiable events, including the settlement of the related tax audit year with the Internal Revenue Service. A change in our tax
reserves could have a significant impact on our effective tax rate and our operating results.
Deferred Tax Assets and Liabilities
The significant components of deferred tax assets and liabilities were as follows:
(in millions) 2006 2005
Deferred tax assets
Pension and postretirement obligations $ 935 $ 1,132
Restructuring programs 126 91
Foreign tax credit 353 447
Investment tax credits 147 156
Employee deferred compensation 143 106
Tax loss carryforwards 554 269
Other deferred revenue 214 —
Other 475 447
Total deferred tax assets 2,947 2,648
Deferred tax liabilities
Depreciation 177 519
Leasing 71 78
Inventories 74 116
Other 130 171
Total deferred tax liabilities 452 884
Valuation allowance 1,849 1,328
Net deferred tax assets $ 646 $ 436