Costco 2002 Annual Report Download - page 38

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Note 4—Stock Options (Continued)
On August 13, 2002 the Company announced that it would adopt the fair value based method of recording
stock options consistent with Statement of Financial Accounting Standards No. 123 (SFAS No. 123) for all em-
ployee stock options granted subsequent to fiscal year end 2002. All future employee stock option grants will be
expensed over the option vesting period based on the estimated fair value at the date the options are granted.
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:
2002 2001 2000
Net income:
As reported ................................... $699,983 $602,089 $631,437
Proforma .................................... $624,240 $537,012 $570,669
Net income per share (diluted):
As reported ................................... $ 1.48 $ 1.29 $ 1.35
Proforma .................................... $ 1.32 $ 1.15 $ 1.22
The effects of applying SFAS No. 123 on pro forma disclosures of net income and earnings per share for
fiscal 2002, 2001 and 2000 are not likely to be representative of the pro forma effects on net income and earnings
per share in future years.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions used for grants in 2002, 2001 and 2000:
2002 2001 2000
Risk free interest rate .................................. 4.45% 4.96% 6.56%
Expected life ......................................... 5years 5 years 5 years
Expected volatility .................................... 46% 43% 42%
Expected dividend yield ................................ 0% 0% 0%
Stock option transactions relating to the aggregate of the Old and New Stock Option Plans are summarized
below (shares in thousands):
2002 2001 2000
Shares Price(1) Shares Price(1) Shares Price(1)
Underoptionatbeginningofyear........... 39,578 $29.15 36,021 $26.09 36,778 $19.89
Granted(2) ............................. 7,641 38.10 8,822 34.18 7,501 42.76
Exercised .............................. (3,571) 18.77 (4,457) 14.04 (7,688) 12.74
Cancelled .............................. (687) 37.12 (808) 31.35 (570) 25.47
Underoptionatendofyear................ 42,961 $31.49 39,578 $29.15 36,021 $26.09
(1) Weighted-average exercise price/grant price
(2) The weighted-average fair value based on the Black-Scholes model of options granted during fiscal 2002,
2001 and 2000, were $17.83, $15.47 and $20.35, respectively.
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