Costco 2005 Annual Report Download - page 48

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Note 1—Summary of Significant Accounting Policies (Continued)
Interest Income and Other
Interest income and other includes:
Fiscal Year Ended
August 28,
2005
August 29,
2004
August 31,
2003
Interest income .......................................... $ 81,915 $31,537 $21,200
Earnings of affiliates/minority interest and other ................ 27,181 20,090 17,325
Total .............................................. $109,096 $51,627 $38,525
Income Taxes
The Company accounts for income taxes under the provisions of SFAS No. 109, “Accounting for Income
Taxes.” That standard requires companies to account for deferred income taxes using the asset and liability method.
Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributed to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and tax credits and loss carry-forwards. Deferred tax assets and li-
abilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences and carry-forwards are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A
valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized.
Significant judgment is required in determining income tax provisions and evaluating tax positions. The
Company establishes reserves for income tax when, despite the belief that its tax positions are fully supportable,
there remain certain positions that are not probable of being sustained. The consolidated tax provision and related
accruals include the impact of such reasonably estimable losses and related interest as deemed appropriate. To
the extent that the probable tax outcome of these matters changes, such changes in estimate will impact the in-
come tax provision in the period in which such determination is made.
Net Income Per Common and Common Equivalent Share
The following data show the amounts used in computing net income per share and the effect on income and
the weighted average number of shares of dilutive potential common stock.
52 Weeks Ended
August 28, 2005
52 Weeks Ended
August 29, 2004
52 Weeks Ended
August 31, 2003
Net income available to common stockholders used in basic net
incomepershare ................................... $1,063,092 $882,393 $721,000
Interest on convertible bonds, net of tax ................... 7,672 11,607 11,109
Net income available to common stockholders after assumed
conversions of dilutive securities ...................... $1,070,764 $894,000 $732,109
Weighted average number of common shares used in basic net
incomepershare(000’s)............................. 473,945 459,223 456,335
Stockoptions(000’s) ................................. 6,000 3,892 3,646
Conversion of convertible bonds (000’s) .................. 12,090 19,344 19,345
Weighted number of common shares and dilutive potential
commonstockusedindilutednetincomepershare ....... 492,035 482,459 479,326
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