Kodak 2005 Annual Report Download - page 81

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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 in 2004 and 2003. The pro forma
information is as follows:
Year Ended December 31,
(in millions, except per share data) 2004 2003
Net earnings, as reported $ 556 $ 253
Deduct: Total stock-based employee compensation expense determined under
fair value method for all awards, net of related tax effects (12) (17)
Pro forma net earnings $ 544 $ 236
Earnings per share:
Basic — as reported $ 1.94 $ .88
Basic — pro forma $ 1.90 $ .83
Diluted — as reported $ 1.94 $ .88
Diluted — pro forma $ 1.90 $ .83
The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted
in the following table. Expected volatilities are based on historical volatility of the Company’s stock, management’s estimate of implied volatility of
the Company’s stock, and other factors. The expected term of options granted is derived from the vesting period of the award, as well as historical
exercise behavior, and represents the period of time that options granted are expected to be outstanding. The risk-free rate is calculated using the
U.S. Treasury yield curve, and is based on the expected term of the option. The Company uses historical data to estimate forfeitures.
The Black-Scholes option pricing model was used with the following weighted-average assumptions for options issued in each year:
2005 2004 2003
Weighted-average risk-free interest rate 3.9% 3.1% 3.6%
Risk-free interest rates 3.6% – 4.5% 2.5% – 3.8% 3.5% – 3.8%
Weighted-average expected option lives 5 years 4 years 7 years
Expected option lives 3 - 7 years
Weighted-average volatility 35% 37% 35%
Expected volatilities 31% – 36% 36% – 40% 34% – 35%
Weighted-average expected dividend yield 1.8% 1.6% 3.9%
Expected dividend yields 1.5% - 1.9% 1.6% – 1.8% 1.8% – 5.8%
The weighted-average fair value per option granted in 2005, 2004 and 2003 was $7.70, $8.77 and $7.70, respectively.
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 comprehensive income and its components
in fi nancial statements. SFAS No. 130 requires that all items required to be recognized under accounting standards as components of comprehensive
income be reported in a fi nancial statement with the same prominence as other fi nancial statements. Comprehensive income consists of net (loss)
earnings, the net unrealized gains or losses on available-for-sale marketable securities, foreign currency translation adjustments, minimum pension
liability adjustments, and unrealized gains and losses on fi nancial instruments qualifying for cash fl ow 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 from continuing operations, earnings (losses) from continuing operations before interest, other income (charges), net
and income taxes, earnings (losses) from continuing operations and certain expense, asset and geographical information about its reportable