Costco 2009 Annual Report Download - page 34

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2008 vs. 2007
The net provision for impaired assets and closing costs was a nominal amount in 2008, compared to
$14 in 2007. The provision in 2008 included charges of $9 for warehouse closing expenses, and
impairment charges of $10, primarily related to a location in Michigan that was demolished and rebuilt.
These charges were offset by $19 of net gain on the sale of real property, largely former warehouse
locations.
At the end of both 2009 and 2008, the reserve for warehouse closing costs was $5 and primarily
related to future lease obligations.
Interest Expense
2009 2008 2007
Interest expense ...................................... $108 $103 $64
2009 vs. 2008
Interest expense primarily relates to our $900 of 5.3% and $1,100 of 5.5% Senior Notes (2007 Senior
Notes) issued in 2007. The increase in interest expense is primarily due to a decrease in capitalized
interest related to reduced new warehouse and remodel construction activity year-over-year.
2008 vs. 2007
The increase in interest expense resulted primarily from the issuance of our 2007 Senior Notes in
February 2007, partially offset by lower interest expense resulting from the repayment in March 2007 of
the $300 5.5% Senior Notes.
Interest Income and Other
2009 2008 2007
Interest income ....................................... $27 $ 96 $128
Earnings of affiliates ................................... 33 42 36
Minority interest and other .............................. (15) (5) 1
Interest Income and other .......................... $45 $133 $165
2009 vs. 2008
The decrease in interest income was largely due to lower interest rates, year-over-year, on our cash
and cash equivalents and short-term investment balances resulting from a change in policy to invest
primarily in U.S. government and agency securities, which earn a lower interest rate. In addition, we
recognized $12 of other-than-temporary impairment losses on certain securities within our investment
portfolio in 2009 compared to an impairment loss of $5 in 2008. See further discussion in Liquidity and
Capital Resources. The decrease in the earnings of affiliates is primarily attributable to our investment
in Costco Mexico (a 50%-owned joint venture). Costco Mexico’s earnings were lower in 2009, primarily
due to the peso weakening against the U.S. dollar. The decrease in minority interest and other is
primarily due to a negative $5 mark-to-market charge in 2009, compared to a $6 gain in 2008, related
to our forward foreign exchange contracts. See the Derivatives section for more information.
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