Kodak 2009 Annual Report Download - page 91

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The Company’s valuation allowance as of December 31, 2009 was $2,092 million. Of this amount, $445 million was attributable to
the Company’s net deferred tax assets outside the U.S. of $910 million, and $1,647 million related to the Company’s net deferred tax
assets in the U.S. of $1,899 million, which the Company believes it is not more likely than not that the assets will be realized. The net
deferred tax assets in excess of the valuation allowance of $717 million relate primarily to net operating loss carryforwards, certain
tax credits, and pension related tax benefits which the Company believes it is more likely than not that the assets will be realized.
The valuation allowance as of December 31, 2008 was $1,665 million. Of this amount, $378 million was attributable to the
Company’s net deferred tax assets outside the U.S. of $722 million, and $1,287 million related to the Company’s net deferred tax
assets in the U.S. of $1,522 million, which the Company believes it is not more likely than not that the assets will be realized. The net
deferred tax assets in excess of the valuation allowance of $579 million related primarily to net operating loss carryforwards and
certain tax credits which the Company believes it is more likely than not that the assets will be realized.
Accounting for Uncertainty in Income Taxes
A reconciliation of the beginning and ending amount of the Company’s liability for income taxes associated with unrecognized tax
benefits is as follows:
(in millions) 2009 2008 2007
Balance as of January 1 $ 296 $ 303 $ 305
Tax positions related to the current year:
Additions 10 54 59
Reductions - - -
Tax positions related to prior years:
Additions 8 16 45
Reductions (58) (74) (101)
Settlements with taxing authorities - (3) (4)
Lapses in statutes of limitations - - (1)
Balance as of December 31 $ 256 $ 296 $ 303
The Company’s policy regarding interest and/or penalties related to income tax matters is to recognize such items as a component
of income tax (benefit) expense. During the years ended December 31, 2009, 2008 and 2007, the Company recognized interest and
penalties of approximately $8 million, $10 million and $10 million, respectively, in income tax (benefit) expense. Additionally, the
Company had approximately $69 million and $61 million of interest and penalties associated with uncertain tax benefits accrued as
of December 31, 2009 and 2008, respectively.
If the unrecognized tax benefits were recognized, they would favorably affect the effective income tax rate in the period recognized.
The Company has classified certain income tax liabilities as current or noncurrent based on management’s estimate of when these
liabilities will be settled. These noncurrent income tax liabilities are recorded in Other long-term liabilities in the Consolidated
Statement of Financial Position. Current liabilities are recorded in Accrued income and other taxes in the Consolidated Statement of
Financial Position.
It is reasonably possible that the liability associated with the Company’s unrecognized tax benefits will increase or decrease within
the next twelve months. These changes may be the result of ongoing audits or the expiration of statutes of limitations. Settlements
could range from $0 to $100 million based on current estimates. Audit outcomes and the timing of audit settlements are subject to
significant uncertainty. Although management believes that adequate provision has been made for such issues, there is the
possibility that the ultimate resolution of such issues could have an adverse effect on the earnings of the Company. Conversely, if
these issues are resolved favorably in the future, the related provision would be reduced, thus having a positive impact on earnings.
It is anticipated that audit settlements will be reached during 2010 that could have a significant earnings impact. Due to the
uncertainty of amounts and in accordance with its accounting policies, the Company has not recorded any potential impact of these
settlements.
The Company files numerous consolidated and separate income tax returns in the U.S. federal jurisdiction and in many state and
foreign jurisdictions. The Company has substantially concluded all U.S. federal income tax matters for years through 2000. The
Company’s U.S. tax matters for the years 2001 through 2008 remain subject to examination by the IRS. Substantially all material
state, local, and foreign income tax matters have been concluded for years through 2000. The Company’s tax matters for the years
2001 through 2008 remain subject to examination by the respective state, local, and foreign tax jurisdiction authorities.