Kodak 2011 Annual Report Download - page 93

Position. Noncurrent income tax liabilities are recorded in Other long-term liabilities 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 settling ongoing audits or the expiration of statutes of limitations. Such changes to the unrecognized tax
benefits could range from $0 to $30 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.
During 2011, the Company agreed to terms with the U.S. Internal Revenue Service and settled the federal audits for calendar years 2001 through 2005. For
these years, the Company originally recorded federal and related state liabilities for uncertain tax positions (“UTPs”) totaling $115 million (plus interest of
approximately $25 million). The settlement resulted in a reduction in Accrued income and other taxes (including the UTP previously noted) of $296
million, the recognition of a $50 million tax benefit, and a reduction in net deferred tax assets of $246 million.
During 2011, the Company agreed to terms with a tax authority outside of the U.S. and settled audits for calendar years 2001 and 2002. For these years, the
Company originally recorded liabilities for UTPs totaling $56 million (plus interest of approximately $43 million). The settlement resulted in a reduction in
Accrued income taxes and the recognition of a $94 million tax benefit.
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 2006. The Company
’s U.S. tax matters
for the years 2007 through 2011 remain subject to examination by the IRS. Substantially all material state, local, and foreign income tax matters have
been concluded for years through 2006. The Company’s tax matters for the years 2007 through 2011 remain subject to examination by the respective
state, local, and foreign tax jurisdiction authorities.
Net Operating Loss Rights Agreement
On August 1, 2011, the Company entered into a Net Operating Loss (NOL) Rights Agreement (NOL Rights Agreement) designed to preserve stockholder
value and tax assets. The Company’s ability to use its tax attributes to offset tax on U.S. taxable income would be substantially limited if there were an
"ownership change" as defined under Section 382 of the U.S. Internal Revenue Code. In general, an ownership change would occur if "5-percent
shareholders," as defined under Section 382, collectively increase their ownership in the Company by more than 50 percentage points over a rolling three-
year period.
In connection with the adoption of the NOL Rights Agreement, the Company’
s Board of Directors declared a dividend of one preferred share purchase right
for each outstanding share of the Company’s common stock. The preferred share purchase rights were distributed to stockholders of record as of August
11, 2011, but would only be activated if triggered by the NOL Rights Agreement.
Under the NOL Rights Agreement, preferred share purchase rights will work to impose significant dilution upon any person or group which acquires
beneficial ownership of 4.9% or more of the outstanding common stock, without the approval of the Company’s Board of Directors, from and after August
1, 2011. Stockholders that own 4.9% or more of the outstanding common stock as of the opening of business on August 1, 2011, will not trigger the
preferred share purchase rights so long as they do not (i) acquire additional shares of common stock representing one one-thousandth of one percent
(0.001%) or more of the shares of common stock then outstanding or (ii) fall under 4.9% ownership of common stock and then re-acquire shares that in the
aggregate equal 4.9% or more of the common stock.
The NOL Rights Agreement has a three-year term, although the Company’s Board of Directors will review the plan periodically.
NOTE 17: RESTRUCTURING AND RATIONALIZATION LIABILITIES
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.
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