Kodak 2004 Annual Report Download - page 62

Financials
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E A S T M A N฀ K OD A K ฀ C O M PA N Y
cluded฀in฀the฀computation฀of฀diluted฀earnings฀per฀share฀because฀the฀effect฀
would฀be฀anti-dilutive,฀meaning฀that฀the฀options’฀exercise฀price฀was฀greater฀
than฀the฀average฀market฀price฀of฀the฀common฀shares฀for฀the฀respective฀
periods.฀฀
Stock-Based฀Compensation฀฀The฀Company฀accounts฀for฀its฀employee฀
stock฀incentive฀plans฀under฀Accounting฀Principles฀Board฀(APB)฀Opinion฀No.฀
25,฀“Accounting฀for฀Stock฀Issued฀to฀Employees,”฀and฀the฀related฀interpreta-
tions฀under฀Financial฀Accounting฀Standards฀Board฀(FASB)฀Interpretation฀No.฀
44,฀“Accounting฀for฀Certain฀Transactions฀Involving฀Stock฀Compensation.”฀
Accordingly,฀no฀stock-based฀employee฀compensation฀cost฀is฀reflected฀in฀
net฀earnings฀for฀the฀years฀ended฀December฀31,฀2004,฀2003฀and฀2002,฀as฀
all฀options฀granted฀had฀an฀exercise฀price฀equal฀to฀the฀market฀value฀of฀the฀
underlying฀common฀stock฀on฀the฀date฀of฀grant.
฀On฀February฀18,฀2004,฀the฀Company฀announced฀that฀it฀will฀begin฀
expensing฀stock฀options฀starting฀January฀1,฀2005฀using฀the฀fair฀value฀
recognition฀provisions฀of฀Statement฀of฀Financial฀Accounting฀Standards฀
(SFAS)฀No.฀123,฀“Accounting฀for฀Stock-Based฀Compensation.”฀In฀December฀
2004,฀the฀FASB฀issued฀SFAS฀No.฀123R,฀“Share-Based฀Payment,”฀a฀new฀
accounting฀standard฀that฀will฀require฀the฀expensing฀of฀stock฀options฀as฀of฀
the฀beginning฀of฀interim฀or฀annual฀reporting฀periods฀that฀begin฀after฀June฀
15,฀2005.฀Early฀adoption฀is฀permitted฀for฀all฀companies;฀consequently,฀on฀
January฀1,฀2005,฀the฀Company฀early฀adopted฀the฀stock฀option฀expensing฀
rules฀of฀the฀new฀standard.฀฀฀
The฀Company฀has฀determined฀the฀pro฀forma฀net฀earnings฀and฀net฀
earnings฀per฀share฀information฀as฀if฀the฀fair฀value฀method฀of฀SFAS฀No.฀123,฀
“Accounting฀for฀Stock-Based฀Compensation,”฀had฀been฀applied฀to฀its฀stock-
based฀employee฀compensation.฀The฀pro฀forma฀information฀is฀as฀follows:฀฀
฀฀ Year฀Ended฀December฀31,฀
฀ 2004฀ 2003฀ 2002
(in฀millions,฀except฀per฀share฀data)฀ ฀ (Restated)฀
Net฀earnings,฀as฀reported฀ $฀ 556฀ $฀ 253฀ $฀ 770
Deduct:฀Total฀stock-based฀
฀ employee฀compensation฀
฀ expense฀determined฀under฀
฀฀ fair฀value฀method฀for฀all฀
฀ awards,฀net฀of฀
฀฀ related฀tax฀effects฀ ฀ (12)฀ ฀฀ (17)฀ ฀฀ (105)
Pro฀forma฀net฀earnings฀฀ $฀฀544฀ $฀฀236฀ $฀฀665
Earnings฀per฀share:฀
฀ Basic–as฀reported฀฀฀฀฀฀ $฀1.94฀ $฀฀ .88฀ $฀2.64
฀฀฀ Basic–pro฀forma฀ $฀1.90฀ $฀฀ .83฀ $฀2.28
฀ Diluted–as฀reported฀ $฀1.94฀฀฀฀฀฀฀฀฀฀ $฀ ฀.88฀ $฀2.64
฀฀ Diluted–pro฀forma฀฀ $฀1.90฀ $฀ ฀.83฀ $฀2.28฀
The฀total฀stock-based฀employee฀compensation฀amount,฀net฀of฀related฀
tax฀effects,฀for฀the฀year฀ended฀December฀31,฀2002,฀of฀$105฀million฀includes฀
a฀net฀of฀tax฀expense฀impact฀of฀$50฀million฀representing฀the฀grant฀of฀ap-
proximately฀16฀million฀new฀options฀awarded฀on฀August฀26,฀2002฀in฀relation฀
to฀the฀voluntary฀stock฀option฀exchange฀program.฀These฀options฀were฀es-
sentially฀fully฀vested฀at฀the฀date฀of฀grant.฀฀
Additionally,฀the฀2002฀total฀stock-based฀employee฀compensation฀
expense฀amount฀of฀$105฀million,฀net฀of฀taxes,฀includes฀a฀net฀of฀tax฀expense฀
impact฀of฀$34฀million฀representing฀the฀unamortized฀compensation฀cost฀of฀
the฀options฀that฀were฀canceled฀in฀connection฀with฀the฀2002฀voluntary฀stock฀
option฀exchange฀program.฀See฀Note฀20,฀“Stock฀Options฀and฀Compensation฀
Plans.”
The฀Black-Scholes฀option฀pricing฀model฀was฀used฀with฀the฀following฀
weighted-average฀assumptions฀for฀options฀issued฀in฀each฀year:฀
฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 2000฀Plan฀ Exchange฀Program
฀ 2004฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀2004
Risk-free฀interest฀rates฀ 3.1%฀ N/A฀
Expected฀option฀lives฀ 4฀years฀ N/A
Expected฀volatilities฀ 37%฀ N/A
Expected฀dividend฀yields฀฀฀฀฀฀฀฀฀฀฀฀฀ 1.63%฀ N/A
฀ 2003฀ 2003
Risk-free฀interest฀rates฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 3.6%฀ N/A฀
Expected฀option฀lives฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 7฀years฀ N/A
Expected฀volatilities฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 35%฀ N/A
Expected฀dividend฀yields฀฀฀฀฀฀฀฀฀฀฀฀฀ 3.89%฀ N/A
฀ 2002฀ 2002
Risk-free฀interest฀rates฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 3.8%฀ ฀2.9%
Expected฀option฀lives฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 7฀years฀ 4฀years
Expected฀volatilities฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀฀ 34%฀ 37%
Expected฀dividend฀yields฀฀฀฀฀฀฀฀฀฀฀฀฀ 5.76%฀ 5.76%
The฀weighted-average฀fair฀value฀per฀option฀granted฀in฀2004฀was฀
$8.77.฀The฀weighted-average฀fair฀value฀per฀option฀granted฀in฀2003฀was฀
$7.70.฀The฀weighted-average฀fair฀value฀per฀option฀granted฀in฀2002฀was฀
$8.22฀for฀the฀2000฀Plan฀and฀$5.99฀for฀the฀voluntary฀stock฀option฀exchange฀
program.฀฀
For฀purposes฀of฀pro฀forma฀disclosures,฀the฀estimated฀fair฀value฀of฀the฀
options฀is฀amortized฀to฀compensation฀expense฀over฀the฀options’฀vesting฀
period฀(1-3฀years).฀
Comprehensive฀Income฀฀SFAS฀No.฀130,฀“Reporting฀Comprehensive฀
Income,”฀establishes฀standards฀for฀the฀reporting฀and฀display฀of฀compre-
hensive฀income฀and฀its฀components฀in฀financial฀statements.฀SFAS฀No.฀
130฀requires฀that฀all฀items฀required฀to฀be฀recognized฀under฀accounting฀
standards฀as฀components฀of฀comprehensive฀income฀be฀reported฀in฀a฀finan-
cial฀statement฀with฀the฀same฀prominence฀as฀other฀financial฀statements.฀
Comprehensive฀income฀consists฀of฀net฀earnings,฀the฀net฀unrealized฀gains฀or฀
losses฀on฀available-for-sale฀marketable฀securities,฀foreign฀currency฀transla-
tion฀adjustments,฀minimum฀pension฀liability฀adjustments,฀and฀unrealized฀
gains฀and฀losses฀on฀financial฀instruments฀qualifying฀for฀cash฀flow฀hedge฀
accounting,฀and฀is฀presented฀in฀the฀accompanying฀Consolidated฀Statement฀
of฀Shareholders’฀Equity฀in฀accordance฀with฀SFAS฀No.฀130.
Segment฀Reporting฀฀The฀Company฀reports฀net฀sales,฀operating฀earnings฀
(losses),฀net฀earnings฀and฀certain฀expense,฀asset฀and฀geographical฀infor-
mation฀about฀its฀reportable฀segments.฀Reportable฀segments฀are฀compo-
nents฀of฀the฀Company฀for฀which฀separate฀financial฀information฀is฀available฀