Costco 2012 Annual Report Download - page 69

Tax benefits associated with the exercise of employee stock options and other employee stock
programs were allocated to equity attributable to Costco in the amount of $65, $59, and $15, in 2012,
2011, and 2010, respectively.
The reconciliation between the statutory tax rate and the effective rate for 2012, 2011, and 2010 is as
follows:
2012 2011 2010
Federal taxes at statutory rate ............. $ 969 35.0% $834 35.0% $718 35.0%
State taxes, net ......................... 59 2.1 55 2.4 56 2.7
Foreign taxes, net ....................... (61) (2.2) (66) (2.8) (38) (1.9)
Other ................................. 33 1.2 18 0.7 (5) (0.2)
Total .............................. $1,000 36.1% $841 35.3% $731 35.6%
The Company’s provision for income taxes for 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 the cash dividend declared by Costco Mexico
(included in Other in the table above); and the tax effects of nondeductible expenses for the
Company’s contribution to an initiative reforming alcohol beverage laws in Washington State.
The components of the deferred tax assets and liabilities are as follows:
2012 2011
Equity compensation .............................................. $ 79 $ 89
Deferred income/membership fees ................................... 148 134
Accrued liabilities and reserves ...................................... 461 429
Other ........................................................... 55 32
Total deferred tax assets .................................... 743 684
Property and equipment ............................................ 522 494
Merchandise inventories ............................................ 182 164
Total deferred tax liabilities ...................................... 704 658
Net deferred tax assets ............................................ $ 39 $ 26
The deferred tax accounts at the end of 2012 and 2011 include current deferred income tax assets of
$393 and $360 respectively, included in deferred income taxes and other current assets; non-current
deferred income tax assets of $58 and $53, respectively, included in other assets; and non-current
deferred income tax liabilities of $412 and $387, respectively, included in deferred income taxes and
other liabilities.
The Company has not provided for U.S. deferred taxes on cumulative undistributed earnings of $3,162
and $2,646 at the end of 2012 and 2011, respectively, of certain non-U.S. consolidated subsidiaries 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 that would be associated with such earnings if such earnings were not
deemed to be indefinitely reinvested. The Company believes that its U.S. current assets position is
sufficient to meet its U.S. liquidity requirements and has no current plans to repatriate for use in the
U.S. the cash and cash equivalents and short-term investments held by these subsidiaries.
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