Costco 2012 Annual Report Download - page 34

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Interest Expense
2012 2011 2010
Interest Expense ...................................... $95 $116 $111
Interest expense primarily relates to our $900 of 5.3% and $1,100 of 5.5% Senior Notes issued in fiscal
2007 (described in further detail under the heading “Financing Activities” below and in Note 4 to the
consolidated financial statements included in Item 8 of this Report). The outstanding principal balance
and associated interest on the 5.3% Senior Notes was paid on March 15, 2012, resulting in a decrease
in interest expense in 2012. This debt was paid with existing sources of cash and cash equivalents and
short-term investments.
Interest Income and Other, Net
2012 2011 2010
Interest income ........................................ $ 49 $41 $23
Foreign-currency transaction gains (losses), net .............. 40 9 14
Earnings of affiliates and other, net ........................ 14 10 51
Interest income and other, net ......................... $103 $60 $88
2012 vs. 2011
The increase in interest income in 2012 compared to 2011 was attributable to higher cash balances
and interest rates in our foreign subsidiaries. The changes in foreign-currency transaction gains and
losses, net in 2012 compared to 2011 were related to the revaluation or settlement of monetary assets
and monetary liabilities, primarily our Canadian subsidiary’s U.S. dollar-denominated payables. See
Derivatives and Foreign Currency sections in Note 1 of this Report.
2011 vs. 2010
The increase in interest income in 2011 compared to 2010 was attributable to increases in our cash
and cash equivalents, including short-term investments, slightly higher interest rates, and the
consolidation of our Mexico operations. See the section titled “Derivatives” in Note 1 to the
consolidated financial statements included in Item 8 of this Report. In addition, the decrease in
earnings of affiliates and other, net is primarily due to the previously discussed change in the
accounting treatment of Mexico (see further discussion in Note 1 included in this Report).
Provision for Income Taxes
2012 2011 2010
Provision for income taxes ........................... $1,000 $ 841 $ 731
Effective tax rate ................................... 36.1% 35.3% 35.6%
Our provision for income taxes for fiscal year 2012 was adversely impacted by nonrecurring net tax
expense of $25 relating primarily to the following items: the adverse impact of an audit of Costco
Mexico by the Mexican tax authority; the tax effects of a cash dividend declared by Costco Mexico; and
the tax effects of nondeductible expenses for our contribution to an initiative reforming alcohol
beverage laws in Washington State.
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