JPMorgan - KASE

There are certain differences between the full cost method of accounting for oil and gas assets as
applied in Canada and as applied in the United States. The Corporation has reviewed such
differences and determined that no variances in financial statement balances would have
resulted from the application of full cost accounting in accordance with United States GAAP.
Consolidated statements of income
The application of United States GAAP would have the following effects on net income as
reported:
Years ended December 31
2001 2000 1999
Net income as reported in accordance with Canadian GAAP ................ 169,340 154,930 8,513
Accounting for income taxes ........................................... (6,157) 19,061 (1,687)
Amortization of debt issue costs ........................................ (540) (7,039) (324)
Amortization of discount on debt ....................................... — (981) —
Net income under United States GAAP ............................... 162,643 165,971 6,502
Comprehensive income
Foreign exchange translation adjustment ................................ (1,598) (6,111) (28,600)
Total comprehensive income ........................................ 161,045 159,860 (22,098)
Basic income per share under United States GAAP ......................... 2.04 2.35 0.15
Diluted income per share under United States GAAP ...................... 1.94 2.26 0.14
Stock based compensation
The Corporation has a stock-based compensation plan as more fully described in Note 12. With
regard to its stock option plan, the Corporation applies APB Opinion No. 25 in accounting for this
plan and accordingly no compensation cost has been recognized. Had compensation expense
been determined based on fair value at the grant dates for the stock option grants consistent
with the method of SFAS No. 123, the Corporation’s net income and net income per share would
have been reduced to the pro forma amounts as indicated below:
Years ended December 31
2001 2000 1999
Net income under U.S. GAAP:
Asreported .............................................................. 162,643 165,971 8,513
Proforma................................................................ 161,409 157,791 7,563
Basic earnings per share:
Asreported .............................................................. 2.04 2.35 0.19
Proforma................................................................ 2.02 2.23 0.17
Stock options issued during period (thousands) ............................... 342 3,990 1,795
Weighted average exercise price ............................................ 6.21 3.35 0.71
Weighted average fair value of options granted during the period .............. 3.61 2.05 0.53
The foregoing information is calculated in accordance with the Black-Scholes option pricing
model, using the following data and assumptions: volatility, as of the date of grant, computed
using the prior one to three-year weekly average prices of the Corporation’s Common Shares,
which ranged from 52% to 124%; expected dividend yield—0%; option terms to expiry—4 to 5
years as defined by the option contracts; risk-free rate of return as of the date of grant—4.86%
to 5.96%, based on five year Government of Canada Bond yields.
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