In its 1998 annual report, Eastman Kodak reported the following information on its stock option program:

Pro forma net earnings and earnings per share information, as required by SFAS No.

123, “Accounting for Stock-Based Compensation,” has been determined as if the Company had accounted for employee stock options under SFAS No. 123’s fair value method. The fair value of these options was estimated at grant date using a Black-

Scholes option pricing model.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period (2–3 years). The Company’s pro forma information follows:

Year Ended December 31 (In millions, except per share data)

1998 1997 1996 Net earnings (loss):
As reported $1,390 $ 5) $1,288 Pro forma 1,272 (52) 1,262 Basic earnings (loss) per share:
As reported $4.30 $.01) $3.82 Pro forma 3.93 (.16) 3.74 Is stock option compensation a material item for Kodak? As a financial analyst, what questions would you raise with the firm’s CFO about this disclosure?

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