Costco 2007 Annual Report Download - page 70

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in fiscal 2007 for the estimated charge to remedy adverse tax consequences related to stock options
held and previously exercised by employees outside the United States. This amount primarily relates to
options exercised from 2003 through the end fiscal 2007, and represents the estimated payment the
Company would make to compensate employees for expected disallowance of the deduction
previously allowed for gains on options exercised that were previously deemed to have been granted
at fair market value.
Summary of Restricted Stock Unit Activity
RSUs are granted to employees and non-employee directors, which generally vest over five years and
three years respectively; however, the Company provides for accelerated vesting upon qualified
retirement for recipients that have attained certain years of service with the Company. Recipients are
not entitled to vote or receive dividends on unvested shares. Accordingly, the fair value of RSUs is the
quoted market value of the Company’s common stock on the date of grant less the present value of the
expected dividends forgone during the vesting period. At September 2, 2007, 7.1 million RSUs were
available to be granted to eligible employees, directors and consultants under the Second Restated
2002 Plan.
The following awards were outstanding as of September 2, 2007:
• 4,496,500 shares of time-based RSUs in which the restrictions lapse upon the achievement of
continued employment over a specified period of time; and
• 282,500 performance RSUs, of which 205,000 were approved in fiscal 2007 and will formally
be granted to certain executive officers of the Company upon the achievement of specified
performance targets. Once formally granted, the restrictions lapse upon achievement of
continued employment over a specified period of time.
The following table summarizes RSU transactions during fiscal 2007:
Number of
Units
(in 000’s)
Weighted- Average
Grant Date
Fair Value
Non-vested at September 3, 2006 .............. 1,408 $51.00
Granted ................................... 3,750 50.51
Vested .................................... (308) 50.98
Forfeited ................................... (71) 50.47
Non-vested at September 2, 2007 .............. 4,779 $50.63
Summary of Stock-Based Compensation
The following table summarizes stock-based compensation and the related tax benefits under our
plans:
2007 2006 2005
Stock options ........................................ $ 82,956 $102,473 $ 67,937
Restricted stock units ................................. 51,626 4,924 —
Incremental expense related to modification of certain stock
options ........................................... 8,072 — —
Total stock-based compensation expense before income
taxes ............................................. 142,654 107,397 67,937
Income tax benefit .................................... (47,096) (34,288) (22,539)
Total stock-based compensation expense, net of income
tax............................................... $ 95,558 $ 73,109 $ 45,398
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