Kodak: Big Tax Refund, Even Bigger Buyback

Eastman Kodak (EK) this morning announced plans to buy back up to $1 billion of its common stock, or about a quarter of its outstanding shares.

The company also said it received a $581 million tax refund from the IRS. The refund relates to taxes paid in 1993-1998, and consists of $306 million in taxes paid and $275 million in interest earned on the refund. The refund and additional cash on hand will be used to fund the buyback.

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

Kodak said that due to tax-loss carryforwards and other tax attributes, the company expects to retain $575 million of the $581 million in proceeds received, with the difference representing expected payments in 2008 for state income taxes.

The refund comes to about $2 per outstanding Kodak share. (The company has about 288 million shares out.) Ergo, Kodak this morning was up $1.78, or 14.4%, to $14.12.