Costco 2008 Annual Report Download - page 73

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The components of accumulated other comprehensive income, net of tax, were as follows:
2008 2007
Unrealized losses on short-term investments ......................... $ (620) $ (815)
Foreign currency translation adjustment and other ..................... 286,281 371,404
Accumulated other comprehensive income ....................... $285,661 $370,589
Note 6—Stock-Based Compensation Plans
Through the first quarter of 2006, the Company granted stock options under the Amended and
Restated 2002 Stock Incentive Plan (Second Restated 2002 Plan) and predecessor plans, and since
the fourth quarter of 2006, the Company has granted restricted stock units (RSUs) under the Second
Restated 2002 Plan. In the second quarter of 2008, the Second Restated 2002 Plan was amended
following shareholder approval and is now referred to as the Third Restated 2002 Plan. The Third
Restated 2002 Plan authorizes the issuance of an additional eight million shares of common stock for
future grants in addition to grants currently authorized. The Third Restated 2002 Plan was amended by
the Board of Directors in July, 2008 (Fourth Restated 2002 Plan). The primary change was to allow
quarterly vesting of awards, as opposed to daily vesting on future grants. The first grant impacted by
these amendments will be in the fall of fiscal 2009. Each share issued in respect of stock bonuses or
stock units will be counted as 1.75 shares toward the share limit. The Company issues new shares of
common stock upon exercise of stock options and vesting of RSUs.
Compensation expense for all stock-based awards granted subsequent to fiscal 2002 is recognized
using the straight-line method. SFAS No. 123R, “Share-Based Payment (as amended)” (SFAS 123R)
requires the estimation of the number of stock-based awards that will ultimately not complete their
vesting requirements (forfeitures) and requires that the compensation expense recognized equals or
exceeds the number of stock-based awards vested. While options and RSUs generally vest over five
years with an equal amount vesting on each anniversary of the grant date, the Company’s plans allow
for daily vesting of the pro-rata number of stock-based awards that would vest on the next anniversary
of the grant date in the event of retirement or voluntary termination. As such, the Company does not
reduce stock-based compensation for an estimate of forfeitures because this would result in less
compensation expense recognized than the number of stock-based awards vested. The impact of
actual forfeitures arising in the event of involuntary termination is recognized as actual forfeitures
occur, which generally is infrequent.
Summary of Stock Option Activity
The following table summarizes stock option transactions during 2008:
Shares
(in 000’s)
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term (in
Years)
Aggregate
Intrinsic Value(1)
Outstanding at the end of 2007 .... 30,088 $39.26
Granted ....................... — —
Exercised ...................... (8,544) 37.28
Forfeited or expired .............. (150) 41.60
Outstanding at the end of
2008(2) ...................... 21,394 $40.04 4.67 $578,118
Exercisable at the end of 2008 .... 15,735 $39.14 4.07 $439,406
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