Kodak 2011 Annual Report Download - page 39

as of December 31, 2011, (6) a provision associated with legislative tax rate changes in a jurisdiction outside the U.S., (7) a provision related to withholding
taxes in undistributed earnings as of December 31, 2011, (8) a benefit as a result of the Company reaching a settlement with a taxing authority in a location
outside the U.S. as of December 31, 2011, (9) a benefit associated with the IRS settlement for 2001 – 2005 as of December 31, 2011, (10) a benefit
associated with the release of deferred tax asset valuation allowances in certain jurisdictions outside of the U.S. as of December 31, 2011, and (11) losses
generated within the U.S. and 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.
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.
Results of Operations – Discontinued Operations
The loss from discontinued operations in 2010 was primarily due to legal costs related to a 2008 tax refund.
Earnings from discontinued operations in 2009 were primarily driven by the reversal of certain foreign tax reserves which had been recorded in conjunction
with the divestiture of the Health Group in 2007.
Extraordinary Gain
The terms of the purchase agreement of the 2004 acquisition of NexPress Solutions LLC called for additional consideration to be paid by the Company if
sales of certain products exceeded a stated minimum number of units sold during a five-year period following the close of the transaction. In May 2009,
the earn-out period lapsed with no additional consideration required to be paid by the Company. Negative goodwill, representing the contingent
consideration obligation of $17 million, was therefore reduced to zero. The reversal of negative goodwill reduced Property, plant and equipment, net by
$2 million and Research and development expense by $7 million and resulted in an extraordinary gain of $6 million, net of tax, during the year ended
December 31, 2009.
Restructuring Costs, Rationalization and Other
2011
The Company recognizes the need to continually rationalize its workforce and streamline its operations in the face of ongoing business and economic
changes. Charges for restructuring and ongoing rationalization initiatives are recorded in the period in which the Company commits to a formalized
restructuring or ongoing rationalization plan, or executes the specific actions contemplated by the plans and all criteria for liability recognition under
the applicable accounting guidance have been met.
The charges of $133 million recorded in 2011 included $10 million of charges for accelerated depreciation and $2 million for inventory write-downs,
which were reported in Cost of sales in the accompanying Consolidated Statement of Operations for the year ended December 31, 2011. The remaining
$121 million, including $105 million of severance costs, $15 million of exit costs, and $1 million of long-lived asset impairments, were reported in
Restructuring costs, rationalization and other in the accompanying Consolidated Statement of Operations for the year ended December 31,
2011. Severance and exit costs reserves require the outlay of cash, while long-lived asset impairments, accelerated depreciation and inventory write-
downs represent non-cash items. The Company expects to utilize the majority of the December 31, 2011 accrual balance in 2012.
During the year ended December 31, 2011, the Company made cash payments related to restructuring and rationalization of approximately $71 million.
The charges of $133 million recorded in the year ended December 31, 2011 included $47 million applicable to FPEG, $34 million applicable to GCG,
$9 million applicable to CDG, and $43 million that was applicable to manufacturing/service, research and development, and administrative functions,
which are shared across all segments.
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