Kodak 2011 Annual Report Download - page 29

impairment charge of $8 million during the three month period ended September 30, 2011. For the Company’s other reporting units with remaining
goodwill balances (CDG and BSSG), no impairment of goodwill was indicated.
A 20 percent change in estimated future cash flows or a 10 percentage point change in discount rate would not have caused additional goodwill impairment
charges to be recognized by the Company as of September 30, 2011. Additional impairment of goodwill could occur in the future if market or interest rate
environments deteriorate, expected future cash flows decrease or if reporting unit carrying values change materially compared with changes in respective
fair values. In the case of a sale of the Company’s digital imaging patent portfolios, licensing revenue related to those portfolios, which are included within
the CDG reporting unit, could decline significantly and materially impact the fair value of this reporting unit.
The Company’s long-lived assets other than goodwill are evaluated for impairment whenever events or changes in circumstances indicate the carrying
value may not be recoverable.
When evaluating long-lived assets for impairment, the Company compares the carrying value of an asset group to its estimated undiscounted future
cash flows. An impairment is indicated if the estimated future cash flows are less than the carrying value of the asset group. The impairment is the
excess of the carrying value over the fair value of the long-lived asset group.
Income Taxes
The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of operating losses, credit carryforwards and
temporary differences between the carrying amounts and tax basis of the Company’s assets and liabilities. The Company records a valuation
allowance to reduce its net deferred tax assets to the amount that is more likely than not to be realized. The Company has considered forecasted
earnings, future taxable income, the geographical mix of earnings in the jurisdictions in which the Company operates and prudent and feasible tax
planning strategies in determining the need for these valuation allowances. As of December 31, 2011, the Company has net deferred tax assets before
valuation allowances of approximately $3.1 billion and a valuation allowance related to those net deferred tax assets of approximately $2.6 billion,
resulting in net deferred tax assets of approximately $0.5 billion. If the Company were to determine that it would not be able to realize a portion of its
net deferred tax assets in the future, for which there is currently no valuation allowance, an adjustment to the net deferred tax assets would be charged
to earnings in the period such determination was made. Conversely, if the Company were to make a determination that it is more likely than not that
deferred tax assets, for which there is currently a valuation allowance, would be realized, the related valuation allowance would be reduced and a
benefit to earnings would be recorded. During 2011, the Company determined that it is more likely than not that a portion of the deferred tax assets
outside the U.S. would not be realized and accordingly, recorded a provision of $53 million associated with the establishment of a valuation allowance
on those deferred tax assets.
During 2011, the Company concluded that the undistributed earnings of its foreign subsidiaries would no longer be considered permanently
reinvested. After assessing the assets of the subsidiaries relative to specific opportunities for reinvestment, as well as the forecasted uses of cash for
both its domestic and foreign operations, the Company concluded that it was prudent to change its indefinite reinvestment assertion to allow greater
flexibility in its cash management.
The Company operates within multiple taxing jurisdictions worldwide and is subject to audit in these jurisdictions. These audits can involve complex
issues, which may require an extended period of time for resolution. Management’s ongoing assessments of the more-likely-than-not outcomes of
these issues and related tax positions require judgment, and although management believes that adequate provisions have 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 provisions would be reduced, thus having a positive impact on earnings.
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