The company revealed in a statement published on 24th June that the tax refund is related to the audit of certain claims filed for tax years 1993-1998, and is composed of a refund of past federal income taxes paid of USD306mn and USD275mn of interest earned on the refund.

The federal tax refund claim related primarily to a 1994 loss recognized on the company’s sale of stock of a subsidiary, Sterling Winthrop Inc., which was originally disallowed under IRS regulations in effect at that time. The IRS subsequently issued revised regulations that served as the basis for this refund claim.

The company plans to fund the majority of a USD1bn stock repurchase program, which is authorized through the end of 2009, from the tax refund, with the remainder to come from available cash on hand. The repurchase will commence as soon as practicable, in accordance with the rules and regulations of the US Securities and Exchange Commission that govern such purchases, the company revealed

Eastman Kodak explained that the refund will have a positive impact on the company’s net earnings for the second quarter of 2008 of USD574mn. Of the USD574mn increase in net earnings, USD300mn relates to the 1994 sale of Sterling Winthrop Inc., which will be reflected in earnings from discontinued operations, net of income taxes. The balance of USD274 million, which represents interest, will be reflected in earnings from continuing operations.

Because of tax-loss carryforwards and other tax attributes, the company expects to retain USD575mn of the USD581mn proceeds received, with the difference representing expected payments in 2008 for state income taxes.

Under the terms of the repurchase program, the company may repurchase shares in open market purchases or through privately negotiated transactions. The stock repurchase activities will be conducted in compliance with the safe harbor provisions of Rule 10b-18 of the Securities Exchange Act of 1934, as amended.

“Our Board’s decision to authorize this repurchase initiative underscores the rising confidence we have in Kodak’s product portfolio, in our current financial position, and in the execution of our strategy,” commented Antonio M. Perez, Chairman and Chief Executive Officer, Eastman Kodak Company.

“With our significant liquidity and strong balance sheet, we continue to pursue a variety of long-term, value-creating growth initiatives that are well funded. In addition, we strongly believe that at the current price, the purchase of our own stock is an appropriate use of our cash and will further enhance long-term shareholder value," he added.