Kodak 2011 Annual Report Download - page 92

$661 million and $172 million, respectively, with various expiration dates through 2031.
The Company has been granted a tax holiday in certain jurisdictions in China. The Company is eligible for a 50% reduction of the income tax rate
as a tax holiday incentive. The tax rate currently varies by jurisdiction, due to the tax holiday, and will be 25% in all jurisdictions within China in
2013.
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 changes its indefinite reinvestment assertion to allow greater
flexibility in its cash management. As a result of the change in its assertion the Company recorded a deferred tax liability (net of related foreign tax
credits) of $396 million on the foreign subsidiaries’ undistributed earnings. This deferred tax liability was fully offset by a corresponding decrease in
the Company’s U.S. valuation allowance, which resulted in no net tax provision. The Company also recorded a provision of $34 million for the
potential foreign withholding taxes on the undistributed earnings.
The Company’s valuation allowance as of December 31, 2011 was $2,560 million. Of this amount, $417 million was attributable to the Company’s
net deferred tax assets outside the U.S. of $964 million, and $2,143 million related to the Company’s net deferred tax assets in the U.S. of $2,096
million, for which the Company believes it is not more likely than not that the assets will be realized. The net deferred tax assets in excess of the
valuation allowance of $500 million relate primarily to net operating loss carryforwards, certain tax credits, and pension related tax benefits for
which the Company believes it is more likely than not that the assets will be realized.
The Company’s valuation allowance as of December 31, 2010 was $2,335 million. Of this amount, $280 million was attributable to the Company’s
net deferred tax assets outside the U.S. of $849 million, and $2,055 million related to the Company’s net deferred tax assets in the U.S. of $2,286
million, for which the Company believes it is not more likely than not that the assets will be realized. The net deferred tax assets in excess of the
valuation allowance of $800 million relate primarily to net operating loss carryforwards, certain tax credits, and pension related tax benefits for
which the Company believes it is more likely than not that the assets will be realized.
Accounting for Uncertainty in Income Taxes
A reconciliation of the beginning and ending amount of the Company’s liability for income taxes associated with unrecognized tax benefits is as
follows:
(in millions)
The Company’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, 2011, 2010 and 2009, the Company recognized interest and penalties of approximately $(60) million, $5
million and $8 million, respectively, in income tax (benefit) expense. Additionally, the Company had approximately $14 million and $74 million of interest
and penalties associated with uncertain tax benefits accrued as of December 31, 2011 and 2010, respectively.
If the unrecognized tax benefits were recognized, they would favorably affect the effective income tax rate in the period recognized. The Company has
classified certain income tax liabilities as current or noncurrent based on management’s estimate of when these liabilities will be settled. These current
liabilities are recorded in Accrued income and other taxes in the Consolidated Statement of Financial
2011
2010
2009
Balance as of January 1
$
245
$
256
$
296
Tax positions related to the current year:
Additions
12
1
10
Tax positions related to prior years:
Additions
2
-
8
Reductions
(183
)
(11
)
(58
)
Lapses in statutes of limitations
-
(1
)
-
Balance as of December 31
$
76
$
245
$
256
90