Kodak 2013 Annual Report Download - page 101

Table of Contents
Under the Plan, a substantial portion of the Company’s pre-petition debt securities, revolving credit facility and other obligations were
extinguished. Absent an exception, a debtor recognizes cancellation of indebtedness income (“CODI”) upon discharge of its outstanding
indebtedness for an amount of consideration that is less than its adjusted issue price. The Internal Revenue Code of 1986, as amended (“IRC”),
provides that a debtor in a bankruptcy case may exclude CODI from taxable income but must reduce certain of its tax attributes by the amount
of any CODI realized as a result of the consummation of a plan of reorganization. The amount of CODI realized by a taxpayer is the adjusted
issue price of any indebtedness discharged less the sum of (i) the amount of cash paid, (ii) the issue price of any new indebtedness issued and
(iii) the fair market value of any other consideration, including equity, issued. As a result of the market value of equity upon emergence from
chapter 11 bankruptcy proceedings, the estimated amount of U.S. CODI is approximately $821 million, which will reduce the value of Kodak’
s
U.S. net operating losses that had a value of $2,790 million as of December 31, 2012. The actual reduction in tax attributes does not occur until
the first day of the Company’s tax year subsequent to the date of emergence, or January 1, 2014.
IRC Sections 382 and 383 provide an annual limitation with respect to the ability of a corporation to utilize its tax attributes, as well as certain
built-in-losses, against future U.S. taxable income in the event of a change in ownership. The Debtors’ emergence from chapter 11 bankruptcy
proceedings is considered a change in ownership for purposes of IRC Section 382. The limitation under the IRC is based on the value of the
corporation as of the emergence date. However, the ownership changes and resulting annual limitation will result in the expiration of an
estimated $667 million of net operating losses, $577 million of foreign tax credits and $21 million of research and expenditure credits
generated prior to the emergence date. The expiration of these tax attributes was fully offset by a corresponding decrease in Kodak’s U.S.
valuation allowance, which results in no net tax provision.
The KPP Global Settlement provided for the acquisition by the KPP of certain assets, and the assumption by the KPP of certain liabilities of
Kodak’s Personalized Imaging and Document Imaging businesses. The underfunded position of the U.K. Pension Plan of approximately $1.5
billion was included in Liabilities held for sale as presented in the Consolidated Statement of Financial Position as of December 31, 2012.
Kodak Limited held a deferred tax asset related to the pension liability of $329 million. As a result of the KPP Global Settlement and the
release from the pension liability to the KPP, Kodak Limited has reversed the corresponding deferred tax asset.
During the eight months ended August 31, 2013, Kodak determined that it was more likely than not that a portion of its deferred tax assets
outside the U.S. would not be realized due to changes in the business resulting from the KPP Global Settlement and the related sales of the
Business. As a result, Kodak recorded a tax provision of $100 million associated with the establishment of a valuation allowance on those
deferred tax assets.
Additionally, during the eight months ended August 31, 2013, Kodak determined that it was more likely than not that a portion of the deferred
tax assets outside the U.S. would not be realized due to the change in Kodak’s business as a result of restructuring associated with the
emergence from bankruptcy and accordingly, recorded a provision of $46 million associated with the establishment of a valuation allowance on
those deferred tax assets.
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Successor
Predecessor
(in millions)
For the Four
Months Ended
December 31,
2013
For the Eight
Months Ended
August 31,
2013
For the Year
Ended
December 31,
2012
For the Year
Ended
December 31,
2011
Amount computed using the statutory rate
$
(25
)
$
825
$
(564
)
$
(265
)
Increase (reduction) in taxes resulting from:
State and other income taxes, net of
federal
2
—
1
1
Unremitted foreign earnings
36
32
35
393
Impact of goodwill and intangible
impairments
(3
)
(22
)
—
—
Operations outside the U.S.
73
(18
)
(90
)
52
Legislative rate changes
—
1
23
20
Valuation allowance
(100
)
39
312
(74
)
Tax settlements and adjustments,
including interest
1
5
(11
)
(149
)
Discharge of Debt and Other
Reorganization Related Items
24
(722
)
—
—
Other, net
—
15
21
4
Provision (benefit) for income taxes
$
8
$
155
$
(273
)
$
(18
)