Costco 1998 Annual Report Download - page 24

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MERRILL CORPORATION NETWORK COMPOSITION SYSTEM CPICARD // 3-DEC-98 18:50 DISK004:[98SEA7.98SEA2097]DW2097A.;6
IMAGES:[PAGER.PSTYLES]MRLL.BST;4 pag$fmt:mrll.fmt Free: 175D*/ 2530D Foot: 0D/ 0D VJ R Seq: 2 Clr: 0
COSTCO COMPANIES A/R (Y/E 8-31-98) Proj: P1826SEA98 Job: 98SEA2097 File: DW2097A.;6
Merrill/Seattle (206) 623-5606 Page Dim: 8.250N X 10.750NCopy Dim: 38. X 54.3
COSTCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
Note 1—Summary of Significant Accounting Policies (Continued)
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or market as determined primarily by the
retail inventory method, and are stated using the last-in, first-out (LIFO) method for substantially all U.S.
merchandise inventories. The Company believes the LIFO method more fairly presents the results of
operations by more closely matching current costs with current revenues. If all merchandise inventories
had been valued using the first-in, first-out (FIFO) method, inventories would have been higher by $16,150
at both August 30, 1998 and August 31, 1997.
August 30, August 31,
1998 1997
Merchandise inventories consist of:
United States (primarily LIFO) ................... $1,587,285 $1,358,917
Foreign (FIFO) .............................. 323,466 327,608
Total ..................................... $1,910,751 $1,686,525
The Company provides for estimated inventory losses between physical inventory counts on the basis
of a standard percentage of sales. This provision is adjusted periodically to reflect the actual shrinkage
results of the physical inventory counts which generally occur in the second and fourth quarters of the
Company’s fiscal year.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization expenses are computed
using the straight-line method for financial reporting purposes and by accelerated methods for tax
purposes. Buildings are depreciated over twenty-five to thirty-five years; equipment and fixtures are
depreciated over three to ten years; and land rights and leasehold improvements are amortized over the
initial term of the lease.
Interest costs incurred on property and equipment during the construction period are capitalized. The
amount of interest costs capitalized was $3,542 in fiscal 1998, $4,097 in fiscal 1997, and $5,612 in fiscal
1996.
Goodwill
Goodwill, included in other assets, totaled $43,229 at August 30, 1998 and $48,136 at August 31, 1997,
resulting from certain previous business combinations. Goodwill is being amortized over 5 to 40 years using
the straight-line method. Accumulated amortization was $12,686 at August 30, 1998 and $11,574 at
August 31, 1997.
Net Income Per Common and Common Equivalent Share
In the second quarter of fiscal 1998, the Company adopted the Financial Accounting Standards Board
Statement No. 128, ‘‘Earnings per Share’’ (SFAS No. 128). SFAS No. 128 established new standards for
computing and presenting earnings per share (EPS) for entities with publicly-held common stock.
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