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Note 17 - Income Taxes
 12 Months Ended
Dec. 31, 2023
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

NOTE 17: INCOME TAXES

 

The components of earnings (loss) from continuing operations before income taxes and the related provision for U.S. and other income taxes were as follows (in millions):

 

  

Year Ended December 31,

 

(in millions)

  2023   2022   2021 

Earnings (loss) from continuing operations before income taxes:

            

U.S.

 $36  $(2) $(12)

Outside the U.S.

  51   33   40 

Total

 $87  $31  $28 

U.S. income taxes:

            

Deferred benefit

  (1)  (3)  (1)

Income taxes outside the U.S.:

            

Current provision

  12   7   4 

Deferred provision

  1   1   1 

Total provision

 $12  $5  $4 

 

The differences between income taxes computed using the U.S. federal income tax rate and the provision for income taxes for continuing operations were as follows (in millions):

 

  

Year Ended December 31,

 

(in millions)

  2023   2022   2021 

Amount computed using the statutory rate

 $18  $7  $6 

Increase (reduction) in taxes resulting from:

            

Unremitted foreign earnings

  1   (2)  (1)

Operations outside the U.S.

  13   4   8 

Legislative tax law and rate changes

  —   —   (28)

Valuation allowance

  (19)  (9)  20 

Tax settlements and adjustments, including interest

  —   4   (1)

Other, net

  (1)  1   — 

Provision for income taxes

 $12  $5  $4 

 

The significant components of deferred tax assets and liabilities were as follows (in millions):

 

  

As of December 31,

 

(in millions)

  2023   2022 

Deferred tax assets

        

Restructuring programs

 $1  $2 

Leasing

  2   3 

Foreign tax credit

  281   358 

Inventories

  11   14 

Investment tax credit

  25   26 

Employee deferred compensation

  23   22 

Depreciation

  31   33 

Research and development costs

  42   42 

Tax loss carryforwards

  529   506 

Other deferred revenue

  2   2 

Other

  79   74 

Total deferred tax assets before valuation allowances

 $1,026  $1,082 

Valuation allowances

  (778)  (826)

Total net deferred tax assets

 $248  $256 
         

Deferred tax liabilities

        

Pension and postretirement obligations

 $(251) $(258)

Goodwill/intangibles

  (8)  (8)

Unremitted foreign earnings

  (16)  (17)

Total deferred tax liabilities

  (275)  (283)

Net deferred tax liabilities

 $(27) $(27)

 

Deferred tax liabilities are reported in the following component within the Consolidated Statement of Financial Position (in millions):

 

  

As of December 31,

 

(in millions)

  2023   2022 

Other long-term liabilities

 $(27) $(27)

Net deferred tax liabilities

 $(27) $(27)

 

As of December 31, 2023, Kodak had available domestic and foreign net operating loss ("NOL") carryforwards for income tax purposes of approximately $2,181 million, of which approximately $1,007 million have an indefinite carryforward period.  The $1,007 million with an indefinite carryforward period includes $150 million of U.S interest carryforward.  The remaining $1,174 million that do not have an indefinite carryforward period expire between the years 2024 and 2042. Kodak also had foreign tax and investment tax credit carryforwards of $281 million and $25 million, respectively, which expire between 2024 and 2035. A total of $147 million of the foreign tax credit carryforwards will expire in 2024 if left unutilized.  If written off, these tax attributes are expected to be fully offset by a corresponding decrease in Kodak's valuation allowance, resulting in no net tax provision.

 

As of December 31, 2023, approximately $77 million of unused foreign tax credits expired and were written off.  These tax attributes were fully offset by a corresponding decrease in Kodak’s valuation allowance, which resulted in no net tax provision. 

 

Kodak’s ability to utilize its U.S. NOLs and tax credits may be subject to limitations imposed by Section 382 of the Internal Revenue Code.  Section 382 limits the utilization of NOLs in the event of significant changes in the stock ownership of the Company. An ownership change occurs if, among other things, the aggregate ownership of stockholders owning five percent of Kodak’s stock increases by more than 50 percentage points over a three-year rolling period.  An ownership change can also occur by other events, such as the sale of Kodak shares that are owned by its 5% shareholders. Future transactions, when combined with reported transactions within the testing period could aggregate to an ownership change during the testing period in excess of 50 percentage points.

 

Kodak’s intent is to repatriate its offshore earnings when prudent. As such, it has recorded deferred tax liabilities of $16 million and $17 million for potential taxes on undistributed earnings, primarily attributable to foreign withholding taxes, as of  December 31, 2023 and 2022, respectively.

 

Kodak’s valuation allowance as of  December 31, 2023 was $778 million. Of this amount, $290 million was attributable to Kodak’s net deferred tax assets outside the U.S. of $279 million and $488 million related to Kodak’s net deferred tax assets in the U.S. of $472 million, for which Kodak believes it is not more likely than not that the assets will be realized.

 

Kodak’s valuation allowance as of  December 31, 2022 was $826 million. Of this amount, $285 million was attributable to Kodak’s net deferred tax assets outside the U.S. of $275 million, and $541 million related to Kodak’s net deferred tax assets in the U.S. of $524 million, for which Kodak believes it is not 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 Kodak’s liability for income taxes associated with unrecognized tax benefits is as follows (in millions):

 

  

Year Ended December 31,

 

(in millions)

  2023   2022   2021 

Balance as of January 1

 $3  $4  $8 

Tax positions related to the current year:

            

Additions

  —   —   — 

Tax positions related to prior years:

            

Additions

  1   1   — 

Reductions

  (1)  (2)  (1)

Settlements with taxing jurisdictions

  (1)  —   (3)

Balance as of December 31

 $2  $3  $4 

 

Kodak’s policy regarding interest and/or penalties related to income tax matters is to recognize such items as a component of provision for income taxes. Kodak had approximately $10 million of interest and penalties associated with uncertain tax benefits accrued as of December 31, 2023 and 2022.

 

Kodak had uncertain tax benefits of approximately $13 million as of December 31, 2023 and 2022, that, if recognized, would affect the effective income tax rate. 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 Other current liabilities 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.  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 2023, Kodak settled an open tax audit for the years 2013 through 2017 with a non-US taxing authority. This settlement included a cash payment of $1 million which is reflected in the provision for income taxes.

 

During 2022, Kodak settled an open tax audit for the years 2015 through 2018 with a non- U.S. taxing authority. This settlement included a cash payment of $2 million which is reflected in the provision for taxes and a decrease in net deferred tax assets of $3 million which is fully offset by a reduction in the valuation allowance.

 

Kodak is subject to taxation and files 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 2018 and state income tax matters for years through 2015 with the respective tax authorities. With respect to countries outside the U.S., Kodak has substantially concluded all material foreign income tax matters through 2013 with respective foreign tax jurisdiction authorities.