Costco 2002 Annual Report Download - page 32

Note 1—Summary of Significant Accounting Policies (Continued)
Closing Costs
Warehouse closing costs incurred relate principally to the Company’s efforts to relocate certain warehouses
that were not otherwise impaired to larger and better-located facilities. As of September 1, 2002, the Company’s
reserve for warehouse closing costs was $11,845, of which $10,395 related to lease obligations. This compares to
a reserve for warehouse closing costs of $15,434 at September 2, 2001, of which $6,538 related to lease
obligations.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of Financial Accounting Stan-
dards (SFAS) No. 109, “Accounting for Income Taxes.” That standard requires companies to account for de-
ferred income taxes using the asset and liability method.
Under the asset and liability method of SFAS 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributed to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and tax credits and loss carry-forwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences and carry-forwards are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to
be realized.
Net Income Per Common and Common Equivalent Share
The following data show the amounts used in computing earnings per share and the effect on income and
the weighted average number of shares of dilutive potential common stock.
52 Weeks Ended
September 1, 2002
52 Weeks Ended
September 2, 2001
53 Weeks Ended
September 3, 2000
Net income available to common stockholders used in
basic EPS ..................................... $699,983 $602,089 $631,437
Interest on convertible bonds, net of tax ............... 10,602 9,992 9,772
Net income available to common stockholders after
assumed conversions of dilutive securities ........... $710,585 $612,081 $641,209
Weighted average number of common shares used in basic
EPS(000’s) ................................... 453,650 449,631 446,255
Stockoptions(000’s) .............................. 6,267 6,851 10,135
Conversion of convertible bonds (000’s) ............... 19,345 19,345 19,347
Weighted number of common shares and dilutive potential
commonstockusedindilutedEPS(000’s) ........... 479,262 475,827 475,737
The diluted share base calculation for fiscal years ended September 1, 2002, September 2, 2001 and Sep-
tember 3, 2000, excludes 6,908,000, 7,108,000 and 3,659,000 stock options outstanding, respectively. These op-
tions are excluded due to their anti-dilutive effect as a result of their exercise prices being greater than the
average market price of the common shares during those fiscal years.
On November 30, 2001, the Company’s Board of Directors approved a stock repurchase program authoriz-
ing the repurchase of up to $500,000 of Costco Common Stock through November 30, 2004. Under the program,
the Company can repurchase shares at any time in the open market or in private transactions as market conditions
warrant. The repurchased shares would constitute authorized, but non-issued shares and would be used for
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