Costco 2000 Annual Report Download - page 24

COSTCO WHOLESALE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
Note 1ÌSummary of SigniÑcant Accounting Policies (Continued)
Accounts Payable
The Company's banking system provides for the daily replenishment of major bank accounts as checks
are presented. Accordingly, included in accounts payable at September 3, 2000 and August 29, 1999 are
$55,002 and $21,081 respectively, representing the excess of outstanding checks over cash on deposit at the
banks on which the checks were drawn.
Derivatives
The Company has limited involvement with derivative Ñnancial instruments and only uses them to
manage well-deÑned interest rate and foreign exchange risks. Forward foreign exchange contracts are used to
hedge the impact of Öuctuations of foreign exchange on inventory purchases. The amount of interest rate and
foreign exchange contracts outstanding at year-end or in place during Ñscal 2000 was immaterial to the
Company's results of operations or its Ñnancial position.
EÅective December 10, 1999, the Company entered into a ""Ñxed-to-Öoating'' interest rate swap agreement on
its $300,000 7±% Senior Notes which, as amended, replaces the Ñxed interest rate with a Öoating rate indexed
to the three month LIBOR rate. The notional amount of the swap agreement is equal to the base value of the
notes ($300,000). This swap agreement expires in June 2005, coinciding with the maturity date of the Senior
Notes.
Foreign Currency Translations
Assets and liabilities recorded in foreign currencies, as well as the Company's investment in the Costco
Mexico joint venture, are translated at the exchange rate on the balance sheet date. Translation adjustments
resulting from this process are charged or credited to other comprehensive income. Revenue and expenses of
the Company's consolidated foreign operations are translated at average rates of exchange prevailing during
the year. Gains and losses on foreign currency transactions are included in expenses.
Membership Fees
Membership fee revenue represents annual membership fees paid by substantially all of the Company's
members. EÅective with the Ñrst quarter of Ñscal 1999, the Company changed its method of accounting for
membership fee income from a ""cash basis'' to a ""deferred basis'' whereby membership fee income is
recognized ratably over the one-year life of the membership. The change to the deferred method of accounting
for membership fees resulted in a one-time, non-cash, pre-tax charge of approximately $196,705 ($118,023
after-tax, or $.25 per diluted share) to reÖect the cumulative eÅect of the accounting change as of the
beginning of Ñscal 1999. If the deferred method of accounting for membership fee income had been in eÅect
in Ñscal 1998, net income would have been $444,451, or $.98 per diluted share.
Preopening Expenses
Preopening expenses related to new warehouses, major remodels/expansions, regional oÇces and other
startup operations are expensed as incurred.
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