Costco 2007 Annual Report Download - page 27

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remedy adverse tax consequences related to stock options held and previously exercised by
employees outside the United States. In aggregate, these charges totaled $47.3 million.
• Excise tax refund: We received a $10.1 million refund, related to fiscal 2002 through fiscal
2006, as a result of a settlement with the U.S. Internal Revenue Service relating to excise
taxes previously paid.
• Deferred membership: In the fourth quarter of fiscal 2007, we performed a detailed analysis
of the timing of recognition of membership fees based on each member’s specific renewal
date (daily convention) as this methodology represented an improvement over our historical
method (based on the period in which the fee was collected). This review resulted in a
$56.2 million reduction to membership fee revenue and a corresponding increase to deferred
membership fees on our consolidated balance sheet. This adjustment includes both a
change in method of applying an accounting principle to a preferable method and a
correction for cumulative timing errors. Prospectively, we will account for membership fee
revenue on a deferred basis over the specific membership term using the daily convention.
We believe it is helpful to disclose the effects of these items for purposes of providing a meaningful
comparison of our current fiscal year results to prior fiscal years, as well as provide a more
representative expectation of future operating results. The impact of each of these items noted above
is presented below:
Fiscal 2007 (amounts in thousands)
Sales return
reserve
Employee tax
consequences on
stock options
Deferred
Membership
Excise tax
refund Total
Net sales .......................... $(452,553) $ — $ — — $(452,553)
Membership fees ................... — — (56,183) — (56,183)
Total revenue .................. (452,553) — (56,183) — (508,736)
Merchandise costs .................. 358,290 (157) — 8,661 366,794
Gross margin(1) ................ (94,263) (157) — 8,661 (85,759)
SG&A ............................ — (47,115) — 300 (46,815)
Operating income ............... (94,263) (47,272) (56,183) 8,961 (188,757)
Interest expense .................... — (50) — — (50)
Interest income and other ............ (1,000) — — 1,090 90
Income before income taxes .......... (95,263) (47,322) (56,183) 10,051 (188,717)
Provision for income taxes ........ 34,942 17,358 20,608 (3,687) 69,221
Net Income ........................ $ (60,321) (29,964) $(35,575) 6,364 $(119,496)
(1) Net sales less merchandise costs.
Net Sales
Fiscal 2007 Fiscal 2006 Fiscal 2005
Net sales ................................ $63,087,601 $58,963,180 $51,879,070
Effect of change in estimated sales returns
reserve ................................ 452,553 — —
Net sales, as adjusted ...................... $63,540,154 $58,963,180 $51,879,070
Net sales increase ......................... 7.0% 13.7% 10.0%
Net sales increase, as adjusted .............. 7.8% 13.7% 10.0%
Increase in comparable warehouse sales ...... 6% 8% 7%
Warehouse openings, net of relocations ....... 30 25 16
25