Note 12 - Income Taxes

9 Months Ended

Sep. 30, 2013

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

NOTE 12:  INCOME TAXES

Kodak’s income tax provision (benefit) and effective tax rate were as follows:

	Successor			Predecessor						Successor			Predecessor
(in millions)	One Month Ended September 30, 2013			Two Months Ended August 31, 2013			Three Months Ended September 30, 2012			One Month Ended September 30, 2013			Eight Months Ended August 31, 2013			Nine Months Ended September 30, 2012
(Loss) earnings from continuing operations before income taxes	$	(30	)	$	2,182		$	(301	)	$	(30	)	$	2,356		$	(1,013	)
Effective tax rate		(3.3	)%		4.4	%		(7.0	)%		(3.3	)%		6.6	%		9.5	%
Provision (benefit) for income taxes		1			97			21			1			155			(96	)
(Benefit) provision for income taxes @ 35%		(11	)		764			(105	)		(11	)		825			(355	)
Difference between tax at effective vs. statutory rate	$	12		$	(667	)	$	126		$	12		$	(670	)	$	259

For the two months ended August 31, 2013, the difference between Kodak’s recorded  provision and the  provision that would result from applying the U.S. statutory rate of 35.0% is primarily attributable to: (1) losses generated within 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, (2) a benefit associated with foreign withholding taxes on undistributed earnings, (3) tax accounting impacts related to items reported in Accumulated other comprehensive loss in the Consolidated Statement of Financial Position, and  (4) a provision associated with the establishment of a deferred tax asset valuation allowance in certain jurisdictions outside the U.S.

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 two 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.

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 our current U.S. net operating losses that had a value of $2,790 million as of December 31, 2012.  These estimates are subject to revision, as 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 $692 million of net operating losses, $564 million of foreign tax credits and $21 million of research and expenditure credits. 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.

Kodak files numerous consolidated and separate income tax returns in the U.S. federal jurisdiction and in many state and local jurisdictions. As a result of the emergence from bankruptcy, Kodak has substantially concluded all U.S. federal, state and local income tax matters through 2011.

The application of fresh-start accounting on September 3, 2013 resulted in the re-measurement of deferred income taxes associated with the revaluation of Kodak’s assets and liabilities (see Note 3, “Fresh Start Accounting”). As a result, net deferred income tax assets were decreased in the amount of $67 million.

For the one month ended September 30, 2013, the difference between Kodak’s recorded provision and the benefit that would result from applying the U.S. statutory rate of 35.0% is primarily attributable to losses generated within 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.

For the eight months ended August 31, 2013, the difference between the Company’s recorded provision and the provision that would result from applying the U.S. statutory rate of 35.0% is primarily attributable to: (1) losses generated within 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, (2) a provision associated with withholding taxes on the sale of intellectual property, (3) a benefit associated with the tax impact of the goodwill impairment recognized during the quarter (4) a provision associated with withholding taxes on foreign dividends paid, (5) a benefit associated with foreign withholding taxes on undistributed earnings, (6) a provision associated with the establishment of a deferred tax asset valuation allowance outside the U.S., (7) tax accounting impacts related to items reported in Accumulated other comprehensive loss in the Consolidated Statement of Financial Position, and (8) changes in audit reserves.

For the three months ended September 30, 2012, the difference between the Company’s recorded provision and the benefit that would result from applying the U.S. statutory rate of 35.0% is primarily attributable to: (1) 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, (2) a provision associated with legislative tax rate changes in a jurisdiction outside the U.S., and (3) tax accounting impacts related to items reported in Accumulated other comprehensive loss in the Consolidated Statement of Financial Position.

In March 2011, the Company filed a Request for Competent Authority Assistance with the United States Internal Revenue Service (IRS).  The request related to a potential double taxation issue with respect to certain patent licensing royalty payments received by the Company in 2009 and 2010.  In the nine months ended September 30, 2012, the Company received notification that the IRS had reached agreement with the Korean National Tax Service (NTS) with regards to the Company’s March 2011 request.  As a result of the agreement reached by the IRS and NTS, the Company was due a partial refund of Korean withholding taxes in the amount of $123 million.  The Company had previously agreed with the licensees that made the royalty payments that any refunds of the related Korean withholding taxes would be shared equally between the Company and the licensees. The licensees’ share ($61 million) of the Korean withholding tax refund has therefore been reported as a licensing revenue reduction in Licensing & royalties in the Consolidated Statement of Operations.

For the nine months ended September 30, 2012, the difference between the Company’s recorded benefit and the benefit that would result from applying the U.S. statutory rate of 35.0% is primarily attributable to: (1) 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, (2) a benefit as a result of the Company reaching a settlement of the competent authority claim noted above, (3) tax accounting impacts related to items reported in Accumulated other comprehensive loss in the Consolidated Statement of Financial Position, (4) provisions associated with the establishment of  deferred tax asset valuation allowances outside the U.S., (5) a provision associated with legislative tax rate changes in a jurisdiction outside the U.S., and (6) a provision associated with foreign withholding taxes on undistributed earnings.

During the nine months ended September 30, 2012, the Company determined that it is more likely than not that a portion of the deferred tax assets outside the U.S. would not be realized and accordingly, recorded a tax provision of $20 million associated with the establishment of valuation allowances on those deferred tax assets.