Costco 2007 Annual Report Download - page 59

interest rates. Short-term investments classified as available-for-sale are recorded at market value with
unrealized gains or losses reflected in accumulated other comprehensive income. Short-term
investments designated as “hold-to-maturity” securities are recorded at cost which approximated
market value at September 2, 2007 and September 3, 2006. The fair value of fixed rate debt at
September 2, 2007 and September 3, 2006 was $2,249,977 and $574,426, respectively. The carrying
value of fixed rate debt at September 2, 2007 and September 3, 2006 was $2,167,883 and $523,892,
respectively.
Interest Income and Other
Interest income and other includes:
Fiscal 2007 Fiscal 2006 Fiscal 2005
Interest income ........................... $128,413 $113,712 $ 81,915
Earnings of affiliates ....................... 35,622 28,180 26,459
Minority Interest / Other ..................... 1,449 (3,537) 722
Total ................................ $165,484 $138,355 $109,096
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under the asset and
liability method, 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 liabilities 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 taxes 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 and penalties as deemed appropriate. To the extent that the probable tax outcome of these
matters changes, such changes in estimate will impact the income tax provision in the period in which
such determination is made.
Net Income per Common Share
The computation of basic net income per share is based on the weighted average number of shares
that were outstanding during the period. The computation of diluted earnings per share is based on the
weighted average number of shares used in the basic net income per share calculation plus the
number of common shares that would be issued assuming exercise of all potentially dilutive common
shares outstanding using the treasury stock method for shares subject to stock options and restricted
stock units and the “if converted” method for the convertible note securities.
Stock Repurchase Programs
Share repurchases are not displayed separately as treasury stock on the consolidated balance sheets
or consolidated statements of stockholders’ equity in accordance with the Washington Business
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