Costco 2011 Annual Report Download - page 34

Provision for Income Taxes
2011 2010 2009
Income tax expense ................................. $841 $731 $628
Effective tax rate .................................... 35.3% 35.6% 36.4%
The effective tax rate for 2011 was positively impacted by a tax refund received by Mexico. This benefit
was offset by various discrete items recognized throughout the year.
The decline in the effective tax rate from 2009 to 2010 was primarily attributable to a change in the mix
of earnings between domestic and international operations. The 2009 effective tax rate also included
the unfavorable impact of a write-down on investments that were non-deductible for tax purposes.
LIQUIDITY AND CAPITAL RESOURCES (dollars in millions, except per share data)
Cash Flows
The following table itemizes components of our most liquid assets:
2011 2010
Cash and cash equivalents .................................. $4,009 $3,214
Short-term investments ...................................... 1,604 1,535
Total ................................................. $5,613 $4,749
Our primary sources of liquidity are cash flows generated from warehouse operations and cash and
cash equivalents and short-term investment balances. Of these balances, approximately $982 and
$862 at the end of 2011 and 2010, respectively, represented debit and credit card receivables,
primarily related to sales in the week prior to the end of our fiscal year.
Net cash provided by operating activities totaled $3,198 in 2011 compared to $2,780 in 2010, an
increase of $418. This increase was primarily attributable to a $219 increase in net income including
noncontrolling interests, an $87 increase from the change in other current operating assets and
liabilities, a $77 increase in deferred income taxes, and a $60 increase in depreciation and
amortization, partially offset by an increase in our net investment in merchandise inventories
(merchandise inventories less accounts payable) of $70.
Net cash used in investing activities totaled $1,180 in 2011 compared to $2,015 in 2010, a decrease of
$835. This decrease in cash used was primarily attributable to an $896 decrease in cash used in the
net investment in short-term investments and a $165 cash increase representing the cash and cash
equivalents on Mexico’s balance sheet as of August 29, 2010, partially offset by an increase in cash
used for capital expenditures of $235. Mexico was consolidated as of the beginning of fiscal 2011 due
to the adoption of a new accounting standard. See discussion in Note 1 to the consolidated financial
statements included in this Report.
Net cash used in financing activities totaled $1,277 in 2011 compared to $719 in 2010, an increase of
$558. This increase was primarily attributable to a $73 increase in cash used to repurchase Costco’s
common stock and a $519 reduction in the amount of bank checks outstanding. The reduction in bank
checks outstanding is due to maintaining higher balances in banks on which our checks are drawn.
Exchange rate changes increased cash and cash equivalents by $54 in 2011, compared to an increase
of $11 in 2010, an increase of $43. This increase was due to the strengthening of foreign currencies
against the U.S. dollar during 2011.
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