Kodak Takes Options Expensing Route

February 19, 2004 (PLANSPONSOR.com) - Eastman Kodak Co. will treat employee stock options as an every day - rather than special - expense beginning next year, which is expected to lower net income.

In making the move, Kodak took into consideration a 2003 shareholder vote supporting options expensing as well as the wishes of the Financial Accounting Standards Board (FASB), which sets standards for corporate financial reporting, Kodak spokesman Anthony Sanzio told the Rochester Democrat & Chronicle. FASB is currently finalizing a standard for accounting for options and its international counterpart has announced the mandated start of expensing for 2005 (See  IASB Mandates Option Expensing in ’05 ).

Kodak and many other companies currently disclose an estimate of the value of outstanding stock options as a footnote in yearly reports to regulators. Had the new practice been in place in 2002, Kodak’s reported profit would have fallen from $793 million to $688 million, a drop of 13.2%, and would have left Kodak at virtually break-even the year before.

Kodak wanted to make sure that public companies would be following the same set of accounting rules before switching its policies on stock options, Sanzio said. Kodak this week also said it was strengthening other aspects of corporate governance.