Kodak 2006 Annual Report Download - page 103

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Deferred tax assets (liabilities) are reported in the following components within the Consolidated Statement of Financial Position:
(in millions) 2006 2005
Deferred income taxes (current) $ 108 $ 100
Other long-term assets 642 450
Accrued income taxes (103) (81)
Other long-term liabilities (1) (33)
Net deferred tax assets $ 646 $ 436
At December 31, 2006, the Company had available net operating loss carryforwards both inside and outside of the U.S. of approximately $1,767
million for income tax purposes, of which approximately $663 million has an indefinite carryforward period. The remaining $1,104 million expires
between the years 2007 and 2026. Utilization of these net operating losses may be subject to limitations in the event of significant changes in stock
ownership of the Company. The Company also has $353 million of unused foreign tax credits at December 31, 2006, with various expiration dates
through 2016.
The valuation allowance as of December 31, 2006 of $1,849 million is attributable to $324 million of foreign net deferred tax assets, including certain
net operating loss and capital loss carryforwards and $1,525 million of U.S. net deferred tax assets, including current year losses and certain tax cred-
its, which the Company believes it is not more likely than not that the assets will be realized.
The valuation allowance as of December 31, 2005 of $1,328 million is attributable to $212 million of foreign net deferred tax assets, including certain
net operating loss and capital loss carryforwards and $1,116 million of U.S. net deferred tax assets, including current year losses and credits, which
the Company believes it is not more likely than not that the assets will be realized.
The Company has recognized the balance of its deferred tax assets on the belief that it is more likely than not that they will be realized. This belief is
based on an assessment of all available evidence, including an evaluation of scheduled reversals of deferred tax assets and liabilities, estimates of
projected future taxable income, carryback potential and tax planning strategies.
The Company has been utilizing net operating loss carryforwards to offset taxable income from its operations in China that have become profitable.
The Company has been granted a tax holiday in China that became effective when the net operating loss carryforwards were fully utilized during
2004. The tax holiday thus became effective during 2004, and the Company’s tax rate in China was zero percent for 2005. For 2006, 2007 and 2008,
the Company’s tax rate will be 7.5%, which is 50% of the normal 15% tax rate for the jurisdiction in which Kodak operates. Thereafter, the Company’s
tax rate will be 15%.
Retained earnings of subsidiary companies outside the U.S. were approximately $2,031 million and $1,906 million at December 31, 2006 and 2005,
respectively. Deferred taxes have not been provided on such undistributed earnings, as it is the Company’s policy to indefinitely reinvest its retained
earnings, and it is not practicable to determine the deferred tax liability on such undistributed earnings in the event they were to be remitted. However,
the Company periodically repatriates a portion of these earnings to the extent that it can do so tax-free, or at minimal cost.
The Jobs Creation Act was signed into law in October of 2004. The Act created a temporary incentive for U.S. multinationals to repatriate foreign
subsidiary earnings by providing a 85% dividends received deduction for certain dividends from controlled foreign corporations. The deduction is
subject to a number of limitations and requirements, including adoption of a specific domestic reinvestment plan for the repatriated earnings. The
Company repatriated approximately $580 million in dividends subject to the 85% dividends received deduction. Accordingly, the Company recorded a
corresponding tax provision of $29 million with respect to such dividends during 2005.
NOTE 16: RESTRUCTURING COSTS AND OTHER
The Company is currently undergoing the transformation from a traditional products and services company to a digital products and services company.
In connection with this transformation, the Company announced a cost reduction program in January 2004 that would extend through 2006 to achieve
the appropriate business model and to significantly reduce its worldwide facilities footprint. In July 2005, the Company announced an extension to this
program into 2007 to accelerate its digital transformation, which included further cost reductions that will result in a business model consistent with
what is necessary to compete profitably in digital markets.
In connection with its announcement relating to the extended “2004-2007 Restructuring Program,” the Company has provided estimates with respect
to (1) the number of positions to be eliminated, (2) the facility square footage reduction, (3) the reduction in its traditional manufacturing infrastruc-
ture, and (4) the total restructuring charges to be incurred.
The actual charges for initiatives under this program are recorded in the period in which the Company commits to formalized restructuring plans or
executes the specific actions contemplated by the program and all criteria for restructuring charge recognition under the applicable accounting guid-
ance have been met.