Costco 2005 Annual Report Download - page 47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data) (Continued)
Note 1—Summary of Significant Accounting Policies (Continued)
Employees,” and related interpretations in accounting for stock options. Because the Company granted stock op-
tions to employees at exercise prices equal to fair market value on the date of grant prior to fiscal 2003, no com-
pensation cost was recognized for these option grants.
Had compensation costs for the Company’s stock-based compensation plans been determined based on the
fair value at the grant dates for awards made prior to fiscal 2003, under those plans and consistent with SFAS
No. 123, the Company’s net income and net income per share would have been reduced to the pro forma amounts
indicated below:
Fiscal Year Ended
August 28,
2005
August 29,
2004
August 31,
2003
Net income, as reported .......................................... $1,063,092 $882,393 $721,000
Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects .................. 43,344 23,000 7,513
Deduct: Total stock-based employee compensation expense
determined under fair value based methods for all awards, net of
related tax effects ........................................ (63,012) (58,388) (70,257)
Pro-formanetincome ........................................... $1,043,424 $847,005 $658,256
Net Income per share:
Basic—as reported ......................................... $ 2.24 $ 1.92 $ 1.58
Basic—pro-forma .......................................... $ 2.20 $ 1.84 $ 1.44
Diluted—as reported ........................................ $ 2.18 $ 1.85 $ 1.53
Diluted—pro-forma......................................... $ 2.12 $ 1.78 $ 1.40
Fair Value of Financial Instruments
The carrying value of the Company’s financial instruments, including cash and cash equivalents, receivables
and accounts payable approximate fair value due to their short-term nature or variable interest rates. Short-term
investments classified as available for sale are recorded at market value with unrealized gains or losses reflected
in other accumulated comprehensive income or loss. Short-term investments designated as “hold-to-maturity”
securities are recorded at cost and approximated market value at August 28, 2005 and August 29, 2004. The fair
value of fixed rate debt at August 28, 2005 and August 29, 2004 was $841,399 and $1,581,368, respectively, in-
cluding the senior debt that the Company entered into “fixed-to-floating” interest rate swap agreements.
Closing Costs
Warehouse closing costs incurred relate principally to the Company’s efforts to relocate certain warehouses
that were not otherwise impaired to larger and better-located facilities. The provision for fiscal 2005 included
charges of $11,619 for warehouse closing expenses and net losses of $881 related to the sale of real property. The
fiscal 2004 provision included charges of $16,548 for warehouse closing expenses offset by net gains of $15,548
related to the sale of real property. As of August 28, 2005, the Company’s reserve for warehouse closing costs
was $9,556, of which $9,118 related to future lease obligations. This compares to a reserve for warehouse closing
costs of $10,367 at August 29, 2004, of which $9,184 related to future lease obligations.
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