Kodak 2010 Annual Report Download - page 32

30
Interest Expense
The increase in interest expense for 2010 as compared with 2009 was primarily attributable to higher weighted-average effective
interest rates on the Company’s outstanding debt, resulting from the refinancing of a portion of the Company’s debt portfolio in the
third quarter of 2009 (as discussed below) and first quarter of 2010.
The increase in interest expense in 2009 as compared with 2008 was primarily due to the issuances in the third quarter of 2009 of
$300 million aggregate principal amount of 10.5% Senior Secured Notes due 2017 and $400 million aggregate principal amount of
7% Convertible Senior Notes due 2017.
Loss on Early Extinguishment of Debt, Net
On March 5, 2010, the Company issued $500 million of aggregate principal amount of 9.75% senior secured notes due March 1,
2018. The net proceeds of this issuance were used to repurchase all of the $300 million of 10.5% senior secured notes due 2017
previously issued to Kohlberg, Kravis, Roberts & Co. L.P. (the “KKR Notes”) and $200 million of 7.25% senior notes due 2013
(collectively the “Notes”). The Company recognized a net loss of $102 million on the early extinguishment of the Notes in the first
quarter of 2010, representing the difference between the carrying values of the Notes and the costs to repurchase. This difference
between the carrying values and costs to repurchase was primarily due to the original allocation of the proceeds received from the
issuance of the KKR Notes to Additional paid-in-capital for the value of the detachable warrants issued to the holders of the KKR
Notes.
Other Income (Charges), Net
The other income (charges), net category primarily includes interest income, income and losses from equity investments, and foreign
exchange gains and losses. The decrease in other income (charges), net from 2008 to 2009 was primarily attributable to a decrease
in interest income due to lower interest rates and lower cash balances in 2009 as compared with 2008, partially offset by the
favorable impact of legal settlements in 2009. The change in other income (charges), net from 2009 to 2010 was not significant.
Income Tax Provision
For the Year Ended
(dollars in millions)
December 31,
2010
2009
2008
Loss from continuing operations before income taxes
($561)
($117)
($874)
Provision (benefit) for income taxes
$114
$115
($147)
Effective tax rate
(20.3)%
(98.3)%
16.8%
The change in the Company’s effective tax rate from continuing operations for 2010 as compared with 2009 is primarily attributable
to: (1) a pre-tax goodwill impairment charge of $626 million that resulted in a tax benefit of only $2 million due to the limited amount
of tax deductible goodwill that existed as of December 31, 2010; (2) a benefit associated with the release of deferred tax asset
valuation allowances in certain jurisdictions outside of the U.S. during 2010; (3) incremental withholding taxes related to non-
recurring licensing agreements entered into during 2010 as compared with 2009; (4) changes to the geographical mix of earnings
from operations outside the U.S.; (5) losses generated in the U.S. and in certain jurisdictions outside the U.S. for which no benefit
was recognized due to management’s conclusion that it was more likely than not that the tax benefits would not be realized; and (6)
changes in audit reserves and settlements.
The change in the Company’s effective tax rate from continuing operations for 2009 as compared with 2008 is primarily attributable
to: (1) a benefit recognized upon the receipt in 2008 of the interest portion on an IRS tax refund; (2) a pre-tax goodwill impairment
charge of $785 million that resulted in a tax benefit of only $4 million due to a full valuation allowance in the U.S. and limited amount
of tax deductible goodwill that existed as of December 31, 2008; (3) losses generated in the U.S. and in certain jurisdictions outside
the U.S. for which no benefit was recognized due to management’s conclusion that it was more likely than not that the tax benefits
would not be realized; (4) the impact of previously established valuation allowances in jurisdictions with current earnings; (5) the
geographical mix of earnings from operations outside the U.S.; (6) withholding taxes related to a non-recurring licensing agreement
entered into in 2009; and (7) changes in audit reserves and settlements.