Costco 2010 Annual Report Download - page 31

penetration of the Executive Membership two-percent reward program negatively affected gross
margin by six basis points. In addition, gross margin was favorably impacted by nine basis points due
to reversing the $32 LIFO reserve established in the prior year as we experienced net deflation, year-
over-year, in the cost of our merchandise inventories.
Foreign currencies, particularly in Canada, the United Kingdom, and Korea, weakened against the U.S.
dollar, which negatively impacted gross margin in 2009 by approximately $258.
Selling, General and Administrative Expenses
2010 2009 2008
Selling, general and administrative expenses ......... $7,840 $7,252 $6,954
SG&A as a percent of net sales .................... 10.28% 10.38% 9.80%
2010 vs. 2009
SG&A expenses, as a percent of net sales, improved ten basis points compared to 2009. If the effect
of gasoline price inflation on net sales in 2010 is excluded, these expenses increased three basis
points compared to 2009. Warehouse operating costs, excluding the effect of gasoline price inflation,
increased seven basis points, primarily due to higher employee benefit costs, particularly employee
healthcare and workers’ compensation. SG&A expense comparisons were positively impacted by six
basis points related to: the recovery of amounts expensed in fiscal 2007 and 2008 on behalf of certain
employees in Canada to cover adverse tax consequences resulting from our previously announced
stock option investigation; and a charge recorded in 2009 to write down the net realizable value of the
cash surrender value of employee life insurance contracts with no comparable charge this year.
Foreign currencies, particularly in Canada, Korea, and Japan, strengthened against the U.S. dollar,
which negatively impacted SG&A for 2010 by approximately $140.
2009 vs. 2008
SG&A expenses, as a percent of net sales, increased 58 basis points compared to 2008. Increased
warehouse operating and central administrative costs, as a percent of net sales, negatively impacted
SG&A by approximately 56 basis points, resulting primarily from lower sales levels and higher
employee health care costs. Higher stock-based compensation expense had a negative impact of one
basis point. In addition, we recorded an adjustment to the net realizable value of the cash surrender
value of employee life insurance contracts, which negatively impacted SG&A, as a percent of net
sales, by two basis points. The net realizable value of the insurance contracts is largely based on
changes in investment assets underlying the policies and is subject to conditions generally affecting
equity and debt markets. In 2008, we recorded a $16 reserve in connection with a legal settlement,
which positively impacted the comparison to current year’s SG&A expense, as a percent of net sales,
by two basis points.
SG&A expenses, as a percent of net sales, for 2009 were adversely impacted by the decrease in the
price of gasoline, as it produced a decline in sales dollars without a comparative reduction in labor or
other administrative costs. Foreign currencies, particularly in Canada, the United Kingdom, and Korea,
weakened against the U.S. dollar, which positively impacted SG&A for 2009 by approximately $217.
Preopening Expenses
2010 2009 2008
Preopening expenses .................................... $26 $41 $57
Warehouse openings, including relocations .................. 14 19 34
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