Costco 1998 Annual Report Download - page 27

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: 350D / 420D Foot: 0D/ 0D VJ R Seq: 5 Clr: 0
COSTCO COMPANIES A/R (Y/E 8-31-98) Proj: P1826SEA98 Job: 98SEA2097 File: DW2097A.;6
Merrill/Seattle [phone] 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)
• In fiscal 1997, the Company recorded a pre-tax, non-cash charge of $65,000 reflecting its estimate of
impairment relating principally to excess property and closed warehouses in connection with the
adoption of the SFAS No. 121.
Fiscal 1996 Non-Cash Activities
• None.
Derivatives
The Company has limited involvement with derivative financial instruments and only uses them to
manage well-defined interest rate and foreign exchange risks. Forward foreign exchange contracts are used
to hedge the impact of fluctuations of foreign exchange on inventory purchases. The amount of interest
rate and foreign exchange contracts outstanding at year-end or in place during fiscal 1998 was immaterial
to the Company’s results of operations or its financial position.
Impairment of Long-Lived Assets
The Company adopted the SFAS No. 121, ‘‘Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of’’ (SFAS No. 121), as of the first quarter of fiscal 1997. In
accordance with SFAS No. 121, the Company recorded pretax, non-cash charges of $5,629 and $65,000, in
fiscal 1998 and 1997, respectively, reflecting its estimate of impairment relating principally to excess
property and closed warehouses. The charge reflects the difference between carrying value and fair value,
which was based on market valuations for those assets whose carrying value was not recoverable through
future cash flows. The Company periodically evaluates the realizability of long-lived assets based on
expected future cash flows.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 130, ‘‘Reporting
Comprehensive Income’’, which requires companies to report, by major components and in total, the
change in its equity (net assets) during the period from non-owner sources, and is effective for the
Company at the beginning of its fiscal 1999.
In June 1997, the FASB also issued SFAS No. 131, ‘‘Disclosures About Segments of an Enterprise and
Related Information’’, which establishes annual and interim reporting standards for a company’s operating
segments and related disclosures about its products, services, geographic areas and major customers, and is
effective for the Company at the beginning of its fiscal 1999.
In June 1998, the FASB issued SFAS No. 133, ‘‘Accounting for Derivative Instruments and Hedging
Activities’’, which established accounting and reporting standards for derivative instruments and for
hedging activities. The Company will be required to adopt SFAS No. 133 at the beginning of its fiscal 2000.
Presently, the Company has limited use of derivative financial instruments and believes that SFAS No. 133
will not have a material impact on its results of operations or financial position.
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