Costco 2004 Annual Report Download - page 48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data) (Continued)
Note 7—Income Taxes (Continued)
The components of the deferred tax assets and liabilities are as follows:
August 29,
2004
August 31,
2003
Accrued liabilities and reserves ...................................... $224,523 $168,683
Deferred membership fees .......................................... 29,805 141,005
Other ........................................................... 14,991 28,465
Total deferred tax assets ........................................ 269,319 338,153
Property and equipment ............................................ 272,310 210,822
Merchandise inventories ............................................ 74,100 64,701
Other receivables .................................................. — 91,126
Total deferred tax liabilities ..................................... 346,410 366,649
Net deferred tax liabilities ........................................... $(77,091) $ (28,496)
The deferred tax accounts at August 29, 2004 and August 31, 2003 include current deferred income tax as-
sets of $116,291 and $213,939, respectively; non-current deferred income tax assets of $6,755 and $14,316, re-
spectively; current deferred income tax liabilities of $0 and $74,002, respectively; and non-current deferred
income tax liabilities of $200,137 and $182,749, respectively.
The Company has not provided for U.S. deferred taxes on cumulative undistributed earnings of non-U.S.
affiliates aggregating approximately $857,963 at August 29, 2004, as such earnings have been reinvested for the
foreseeable future. Because of the availability of U.S. foreign tax credits, it is not practicable to determine the
U.S. federal income tax liability or benefit associated with such earnings if such earnings were not reinvested for
the foreseeable future.
Note 8—Commitments and Contingencies
Legal Proceedings
The Company is involved from time to time in claims, proceedings and litigation arising from its business
and property ownership. The Company is a defendant in two actions purportedly brought as class actions on be-
half of certain present and former Costco managers in California, in which plaintiffs allege that they have not
been properly compensated for overtime work. The Company is also a defendant in an overtime compensation
case purportedly brought as a class action on behalf of present and former hourly employees in California, in
which plaintiffs allege that Costco’s semi-annual bonus formula is improper with regard to retroactive overtime
pay. Claims in these three actions are made under various provisions of the California Labor Code and the Cal-
ifornia Business and Professions Code. Plaintiffs seek restitution/disgorgement, compensatory damages, various
statutory penalties, liquidated damages, punitive, treble and exemplary damages, and attorneys’ fees. The Com-
pany also is a defendant in an action purportedly brought as a class action on behalf of certain present and former
female managers, in which plaintiffs allege denial of promotion based on gender in violation of Title VII of the
Civil Rights Act of 1964. Plaintiffs seek compensatory damages, exemplary and punitive damages, injunctive re-
lief, and attorneys’ fees. In none of these four cases has the Court been asked yet to determine whether the action
should proceed as a class action or, if so, the definition of the class. The Company expects to vigorously defend
these actions and does not believe that any claim, proceeding or litigation, either alone or in the aggregate, will
have a material adverse effect on the Company’s financial position or results of its operations.
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