Costco 2011 Annual Report Download - page 75

The components of the deferred tax assets and liabilities are as follows:
2011 2010
Equity compensation .............................................. $ 89 $112
Deferred income/membership fees ................................... 134 118
Accrued liabilities and reserves ...................................... 429 392
Other ........................................................... 32 35
Total deferred tax assets .................................... 684 657
Property and equipment ............................................ 494 414
Merchandise inventories ............................................ 164 170
Total deferred tax liabilities ...................................... 658 584
Net deferred tax assets ............................................ $ 26 $ 73
The deferred tax accounts at the end of 2011 and 2010 include current deferred income tax assets of
$360 and $307, respectively, included in deferred income taxes and other current assets; non-current
deferred income tax assets of $53 and $10, respectively, included in other assets; and non-current
deferred income tax liabilities of $387 and $244, respectively, included in deferred income taxes and
other liabilities.
The Company has not provided for U.S. deferred taxes on cumulative undistributed earnings of certain
non-U.S. consolidated subsidiaries, aggregating to $2,646 and $1,972 at the end of 2011 and 2010,
respectively, as such earnings are deemed by the Company to be indefinitely reinvested. Because of
the availability of U.S. foreign tax credits and complexity of the computation, it is not practicable to
determine the U.S. federal income tax liability or benefit that would be associated with such earnings if
such earnings were not deemed to be indefinitely reinvested.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for 2011 and
2010 is as follows:
2011 2010
Gross unrecognized tax benefit at beginning of year ................. $ 83 $80
Gross increases—current year tax positions .................... 21 29
Gross increases—tax positions in prior years ................... 10 4
Gross decreases—tax positions in prior years ................... (6) (1)
Settlements ............................................... (1) (27)
Lapse of statute of limitations ................................ (1) (2)
Gross unrecognized tax benefit at end of year ...................... $106 $ 83
Included in the balance at the end of 2011, are $64 of tax positions for which the ultimate deductibility
is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the
impact of deferred tax accounting, other than interest and penalties, the disallowance of these tax
positions would not affect the annual effective tax rate but would accelerate the payment of cash to the
taxing authority to an earlier period.
The total amount of unrecognized tax benefits that, if recognized, would favorably affect the effective
income tax rate in future periods is $34 and $27 at the end of 2011 and 2010, respectively.
Accrued interest and penalties related to income tax matters are classified as a component of income
tax expense. The Company recognized $2 of expense and $7 of income related to interest and
penalties in 2011 and 2010, respectively. Accrued interest and penalties are $12 and $9 at the end of
2011 and 2010, respectively.
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