Costco 1998 Annual Report Download - page 31

MERRILL CORPORATION NETWORK COMPOSITION SYSTEM CPICARD // 3-DEC-98 18:50 DISK004:[98SEA7.98SEA2097]DW2097A.;6
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COSTCO COMPANIES A/R (Y/E 8-31-98) Proj: P1826SEA98 Job: 98SEA2097 File: DW2097A.;6
Merrill/Seattle [phone] Page Dim: 8.250N X 10.750NCopy Dim: 38. X 54.3
COSTCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
Note 3—Leases (Continued)
Company to either renew for a series of one-year terms or to purchase the equipment at the then fair
market value.
Aggregate rental expense for fiscal 1998, 1997, and 1996, was $55,375, $54,019, and $55,686, respec-
tively. Future minimum payments during the next five fiscal years and thereafter under noncancelable
leases with terms in excess of one year, at August 30, 1998, were as follows:
1999 ................................................... $ 60,036
2000 ................................................... 60,930
2001 ................................................... 59,449
2002 ................................................... 58,995
2003 ................................................... 57,422
Thereafter ............................................... 589,088
Total minimum payments $885,920
Note 4—Stock Options
The Costco Companies, Inc. 1993 Combined Stock Grant and Stock Option Plan (the New Stock
Option Plan) provides for the issuance of up to 20 million shares of the Company’s common stock upon
the exercise of stock options or up to 1,666,666 shares through stock grants. Prior to the merger of The
Price Company and Costco Wholesale Corporation, various incentive and non-qualified stock option plans
existed which allowed certain key employees and directors to purchase or be granted common stock of The
Price Company and Costco Wholesale Corporation (collectively the Old Stock Option Plans). Options
were granted for a maximum term of ten years, and were exercisable upon vesting. Options granted under
these plans generally vest ratably over five to nine years. Subsequent to the merger, new grants of options
are not being made under the Old Stock Option Plans.
The Company applies Accounting Principles Board Opinion No. 25 and related Interpretations in
accounting for stock options. Accordingly, no compensation cost has been recognized for the plans. Had
compensation cost for the Company’s stock-based compensation plans been determined based on the fair
value at the grant dates for awards under those plans consistent with Statement of Financial Accounting
Standards No. 123 (SFAS No.123), ‘‘Accounting for Stock-Based Compensation’’, the Company’s net
income and net income per share would have been reduced to the pro forma amounts indicated below:
1998 1997 1996
Net income:
As reported ......................................... $459,842 $312,197 $248,793
Pro forma .......................................... $438,053 $301,947 $246,208
Net income per share (diluted):
As reported ......................................... $ 2.03 $ 1.47 $ 1.22
Pro forma .......................................... $ 1.93 $ 1.42 $ 1.21
The effects of applying SFAS No. 123 on pro forma disclosures of net income and earnings per share
for fiscal 1998, 1997 and 1996 may not be representative of the pro forma effects on net income and
earnings per share in future years.
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