Costco 2002 Annual Report Download - page 37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data) (Continued)
Note 3—Leases
The Company leases land and/or warehouse buildings at 80 of the 374 warehouses open at September 1,
2002, and certain other office and distribution facilities under operating leases with remaining terms ranging
from 1 to 40 years. These leases generally contain one or more of the following options which the Company can
exercise at the end of the initial lease term: (a) renewal of the lease for a defined number of years at the then fair
market rental rate; (b) purchase of the property at the then fair market value; or (c) right of first refusal in the
event of a third party purchase offer. Certain leases provide for periodic rental increases based on the price in-
dices and some of the leases provide for rents based on the greater of minimum guaranteed amounts or sales vol-
ume. Contingent rents have not been material.
Additionally, the Company leases certain equipment and fixtures under short-term operating leases that
permit the 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 2002, 2001, and 2000, was $69,894, $70,394, and $67,886, respectively.
Future minimum payments during the next five fiscal years and thereafter under non-cancelable leases with terms
in excess of one year, at September 1, 2002, were as follows:
2003 ............................................................ $ 67,955
2004 ............................................................ 64,469
2005 ............................................................ 64,806
2006 ............................................................ 65,540
2007 ............................................................ 61,662
Thereafter ....................................................... 771,348
Totalminimumpayments ......................................... $1,095,780
Note 4—Stock Options
The Company’s 1993 Combined Stock Grant and Stock Option Plan (the “1993 Plan”) provided for the issu-
ance of up to 60 million shares of its common stock upon the exercise of stock options and up to 3,333,332
shares through stock grants. During fiscal 2002 the 2002 Stock Incentive Plan (the “2002 Plan”) was adopted fol-
lowing shareholder approval. The 2002 plan authorized 30 million shares of common stock for issuance, subject
to adjustment. For future grants, the 2002 plan replaces the 1993 plan and the 1993 plan has been amended to
provide that no more options or stock grants may be issued under such plan. Any shares under the 1993 plan that
remain available for future option grants (and any additional shares that subsequently become available through
cancellation of unexercised options outstanding) will be added to the number of shares available for grant under
the 2002 plan. The 2002 plan authorizes the Company to grant stock options to eligible employees, directors and
consultants. Options granted under these plans have a ten-year term and a vesting period of 5 years. At Sep-
tember 1, 2002, options for approximately 19.8 million shares were vested and 26.6 million shares were available
for future grants under the plan.
The Company applies Accounting Principles Board Opinion (APB) No. 25 and related interpretations in
accounting for stock options. The Company grants stock options to employees at exercise prices equal to fair
market value on the date of grant. Accordingly, no compensation cost has been recognized for the plans.
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