Costco 2005 Annual Report Download - page 59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data) (Continued)
Note 7—Income Taxes (Continued)
as noted above, and a tax benefit of $13,895 primarily associated with lower state taxes. The state tax benefit
recorded in the fourth quarter was primarily due to a reduction in the estimated effective state tax rate utilized in
the first through third quarters of fiscal 2005. Excluding the benefit of these two items, the fourth quarter tax rate
for fiscal 2005 would be 35.8%.
The Company has not provided for U.S. deferred taxes on cumulative undistributed earnings of non-U.S.
affiliates aggregating $865,579 and $857,963 at August 28, 2005, and August 29, 2004, respectively, as such
earnings are deemed permanently reinvested. Because of the availability of U.S. foreign tax credits and complex-
ity of the computation, it is not practicable to determine the U.S. federal income tax liability or benefit associated
with such earnings if such earnings were not deemed to be permanently reinvested.
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. The Company is also a defendant in an action purportedly brought as a class action on behalf of present and
former hourly employees in California, in which plaintiffs allege that Costco did not properly compensate and
record hours worked by employees, and failed to provide meal and rest breaks. Claims in these four actions are
made under various provisions of the California Labor Code and the California Business and Professions Code.
Plaintiffs seek restitution/disgorgement, compensatory damages, various statutory penalties, liquidated damages,
punitive, treble and exemplary damages, and attorneys’ fees. The Company also is a defendant in an action pur-
portedly 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 relief, and attorneys’ fees. In none of
these five 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.
58