Kodak 2012 Annual Report Download - page 94

Table of Contents
Accounting for Uncertainty in Income Taxes
A reconciliation of the beginning and ending amount of Kodak’s liability for income taxes associated with unrecognized tax benefits is as
follows:
Kodak’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, 2012, 2011 and 2010, Kodak recognized interest and penalties of approximately $2
million, $(60) million and $5 million, respectively, in income tax (benefit) expense. Additionally, Kodak had approximately $16 million and $14
million of interest and penalties associated with uncertain tax benefits accrued as of December 31, 2012 and 2011, respectively.
If the unrecognized tax benefits were recognized, they would favorably affect the effective income tax rate in the period recognized. Kodak has
classified certain income tax liabilities as current or noncurrent based on management’s estimate of when these liabilities will be settled. The
current liabilities are recorded in Accrued income and other taxes in the Consolidated Statement of Financial 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 Kodak’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 $40 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 Kodak. Conversely, if these issues are resolved favorably in the
future, the related provision would be reduced, thus having a positive impact on earnings.
During 2012, Kodak agreed to terms with a tax authority outside of the U.S. and settled audits for calendar years 2002 through 2007. For these
years, Kodak originally recorded liabilities for uncertain tax positions (
“UTPs”) totaling $12 million (plus interest of approximately $4 million).
The settlement resulted in a reduction in Accrued income and other taxes and the recognition of a $16 million tax benefit.
During 2011, Kodak agreed to terms with the U.S. Internal Revenue Service and settled the federal audits for calendar years 2001 through 2005.
For these years, Kodak originally recorded federal and related state liabilities for UTPs totaling $115 million (plus interest of approximately $25
million). The settlement resulted in a reduction in Accrued income and other taxes of $296 million, the recognition of a $50 million tax benefit,
and a reduction in net deferred tax assets of $246 million.
During 2011, Kodak agreed to terms with a tax authority outside of the U.S. and settled audits for calendar years 2001 and 2002. For these years,
Kodak originally recorded liabilities for UTPs totaling $56 million (plus interest of approximately $43 million). The settlement resulted in a
reduction in Accrued income and other taxes and the recognition of a $94 million tax benefit.
Kodak files numerous consolidated and separate income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions.
Kodak has substantially concluded all U.S. federal income tax matters for years through 2006. Kodak’s U.S. tax matters for the years 2007
through 2012 remain subject to examination by the IRS. Substantially all material state, local, and foreign income tax matters have been
concluded for years through 2006. Kodak’s tax matters for the years 2007 through 2012 remain subject to examination by the respective state,
local, and foreign tax jurisdiction authorities.
90
(in millions)
2012
2011
2010
Balance as of January 1
$
76
$
245
$
256
Tax positions related to the current year:
Additions
4
12
1
Tax positions related to prior years:
Additions
3
2
—
Reductions
(17
)
(183
)
(11
)
Settlements with taxing authorities
(3
)
—
—
Lapses in statutes of limitations
(6
)
—
(
1
)
Balance as of December 31
$
57
$
76
$
245