Costco 1998 Annual Report Download - page 32

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MERRILL CORPORATION NETWORK COMPOSITION SYSTEM CPICARD // 3-DEC-98 18:50 DISK004:[98SEA7.98SEA2097]DW2097A.;6
IMAGES:[PAGER.PSTYLES]MRLL.BST;4 pag$fmt:mrll.fmt Free: 40D*/ 240D Foot: 0D/ 0D VJ R Seq: 10 Clr: 0
COSTCO COMPANIES A/R (Y/E 8-31-98) Proj: P1826SEA98 Job: 98SEA2097 File: DW2097A.;6
Merrill/Seattle (206) 623-5606 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 4—Stock Options (Continued)
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 1998, 1997 and 1996:
1998 1997 1996
Risk free interest rate ......................... 5.60% 6.40% 6.15%
Expected life ................................ 7 years 7 years 7 years
Expected volatility ............................ 34% 34% 32%
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):
1998 1997 1996
Shares Price(1) Shares Price(1) Shares Price(1)
Under option at beginning of year ........... 17,321 $19.96 16,972 $17.14 15,963 $16.71
Granted (2) ........................... 4,214 47.67 4,610 26.13 2,645 17.35
Exercised ............................. (3,996) 18.59 (4,077) 15.24 (1,272) 10.60
Cancelled ............................. (237) 19.81 (184) 18.37 (364) 18.26
Under option at end of year ............... 17,302 $27.03 17,321 $19.96 16,972 $17.14
(1) Weighted-average exercise price
(2) The weighted-average fair value of options granted during fiscal 1998, 1997 and 1996, was $19.71,
$11.47, and $7.46, respectively.
The following table summarizes information regarding stock options outstanding at August 30, 1998:
Options
Options Outstanding Exercisable
Remaining
Contractual
Range of Prices Number Life(1) Price(1) Number Price(1)
$3.50 - $18.19 .............................. 6,080 5.2 $14.94 3,125 $14.48
$18.50 - $26.88 ............................. 6,502 6.7 24.39 2,231 22.83
$28.13 - $54.25 ............................. 4,720 9.0 46.26 570 35.54
17,302 6.8 $27.03 5,926 $19.65
(1) Weighted-average
Note 5—Retirement Plans
The Company has a 401(k) Retirement Plan which is available to all U.S. employees who have one
year or more of service, except California union employees. The plan allows pre-tax deferral against which
the Company matches 50% of the first one thousand dollars of employee contributions. In addition, the
Company will provide each eligible participant a contribution based on salary and years of service. The
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