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Tax benefits strengthen Costco's Q2 income

Mar '06
Fashion retailer Costco Wholesale Corporation announced its operating results for the second quarter (12 weeks) and first half (24 weeks) of fiscal 2006, both ended February 12, 2006.

Net sales for the second quarter of fiscal 2006 increased 11 percent to $13.78 billion from $12.41 billion during the second quarter of fiscal 2005.

Net income for the second quarter of fiscal 2006 was $296.2 million, or $.62 per diluted share, compared to $305.5 million, or $.62 per diluted share, during the second quarter of fiscal 2005.

Net income during last year's fiscal 2005 second quarter was positively impacted by a one-time $52.1 million income tax benefit, resulting primarily from the settlement of a transfer pricing dispute between the United States and Canada (covering the years 1996-2003).

Additionally, during last year's second quarter the Company adjusted its method of accounting for leases (entered into over the past twenty years), primarily related to ground leases at certain owned warehouse locations that did not require rental payments during the period of construction, and recorded a cumulative pre-tax, non-cash charge of $16.0 million ($10.0 million after-tax) as a preopening expense.

Without these charges net income for the second quarter of fiscal 2005 would have been $263.4 million or $.54 per diluted share.

The current quarter's reported earnings per share of $.62 represents a 15 percent increase over the prior year's adjusted earnings per share of $.54.

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