Costco 2006 Annual Report Download - page 26

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increased expense leverage of warehouse payroll, which was positively impacted by strong
comparable warehouse sales and a lower rate of increase in workers’ compensation costs. This
improvement was partially offset by an increase in stock-based compensation cost of approximately
five basis points in fiscal 2006.
2005 vs. 2004
SG&A expenses were $5.06 billion, or 9.76% of net sales, in fiscal 2005 compared to $4.60 billion, or
9.76% of net sales, in fiscal 2004. Had EITF 03-10 been in effect for all of fiscal 2004, SG&A expenses
as a percent of net sales would have shown improvement of four basis points as a percent of net sales
in fiscal 2005.
For fiscal 2005, warehouse and central operating costs positively impacted SG&A comparisons year-
over-year by approximately ten basis points, primarily due to improved payroll utilization at the
warehouse level, including increased leverage from increased comparable sales and cost control
measures employed in employee benefits, primarily health care. This improvement was offset by the
implementation of EITF 03-10, which negatively impacted SG&A as a percentage of net sales by five
basis points, and an increase in stock-based compensation costs approximating six basis points
year-over-year.
Preopening Expenses
Fiscal 2006 Fiscal 2005 Fiscal 2004
Preopening expenses .................... $42,504 $53,230 $30,451
Preopening expenses as a percent of net
sales ............................... 0.07% 0.10% 0.07%
Warehouse openings .................... 28 21 20
Relocations ............................ (3) (5) —
Warehouse openings, net of relocations ..... 25 16 20
2006 vs. 2005
Preopening expenses totaled $42.5 million, or 0.07% of net sales, during fiscal 2006 compared to
$53.2 million, or 0.10% of net sales, during fiscal 2005. During fiscal 2005, in response to the
February 7, 2005 letter of the Securities and Exchange Commission (SEC) concerning accounting
standards related to leases, we adjusted our method of accounting for leases (entered into over the
previous twenty years), primarily related to ground leases at certain owned warehouse locations that
did not require rental payments during the period of construction. We recorded a cumulative pre-tax,
non-cash charge of $16.0 million to preopening expense in the second quarter of fiscal 2005. Twenty-
eight warehouses (including three relocations) were opened in fiscal 2006 compared to the opening of
twenty-one warehouses (including five relocations) in fiscal 2005. Preopening expenses also include
costs related to remodels and expanded ancillary operations at existing warehouses.
2005 vs. 2004
Preopening expenses totaled $53.2 million, or 0.10% of net sales, during fiscal 2005 compared to
$30.5 million, or 0.07% of net sales, during fiscal 2004. As discussed above, fiscal 2005 included a
cumulative pre-tax, non-cash charge of $16.0 million to preopening expense related to an adjustment
to the method of accounting for leases. Twenty-one warehouses (including five relocations) were
opened in fiscal 2005 compared to the opening of 20 warehouses in fiscal 2004. Preopening expenses
also include costs related to remodels and expanded ancillary operations at existing warehouses.
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