Costco 2002 Annual Report Download - page 30

Note 1—Summary of Significant Accounting Policies (Continued)
charges in fiscal 2002, and $15,231 and $10,956 in fiscal 2001 and 2000, 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 estimated market valuations for those assets whose
carrying value is not currently anticipated to be recoverable through future cash flows.
Goodwill
Goodwill, net of accumulated amortization, resulting from certain business combinations is included in
other assets, and totaled $43,920 at September 1, 2002 and $43,831 at September 2, 2001. On September 3, 2001,
the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, “Accounting for Goodwill
and Other Intangibles,” which specifies that goodwill and some intangible assets will no longer be amortized, but
instead will be subject to periodic impairment testing. Accordingly, the Company reviews previously reported
goodwill for impairment on an annual basis, or more frequently if circumstances dictate. In fiscal 2001 and fiscal
2000 goodwill was amortized on a straight-line basis over lives ranging from two to forty years and was periodi-
cally evaluated for impairment as circumstances dictated. The effects on net income and net income per share
data would not be significant if the Company had followed the provisions of SFAS No. 142 in the years ended
September 2, 2001 and September 3, 2000.
Acquisition of Minority Interest
On May 26, 2000, the Company acquired from the Littlewoods Organisation PLC its 20% equity interest in
Costco Wholesale UK Limited, bringing the Company’s ownership in Costco Wholesale UK Limited to 80%.
The acquisition was funded with cash and cash equivalents on hand. Costco Wholesale UK Limited currently
operates fourteen Costco warehouse locations.
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 1, 2002 and September 2, 2001 are $235,458
and $270,757 respectively, representing the excess of outstanding checks over cash on deposit at the banks on
which the checks were drawn.
Insurance/Self Insurance Reserve
The Company uses a combination of insurance and self-insurance mechanisms to provide for the potential
liabilities for workers’ compensation, general liability, property insurance, vehicle liability and employee health
care benefits. Liabilities associated with the risks that are retained by the Company are estimated, in part, by con-
sidering historical claims experience, demographic factors, severity factors and other actuarial assumptions.
Derivatives
The Company has limited involvement with derivative financial instruments and uses them only 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 only significant derivative instruments
the Company holds are interest rate swaps, which the Company uses to manage the interest rate risk associated
with its borrowings and to manage the Company’s mix of fixed and variable-rate debt. As of September 1, 2002,
the Company had “fixed-to-floating” interest rate swaps with an aggregate notional amount of $600,000 and an
aggregate fair value of $35,926, which is recorded in other assets. These swaps were entered into effective No-
vember 13, 2001, and March 25, 2002, and are designated and qualify as fair value hedges of the Company’s
$300,000 7
1
⁄ 8 % Senior Notes and the Company’s $300,000 5
1
⁄ 2 % Senior Notes, respectively. As the terms of the
swaps match those of the underlying hedged debt, the changes in the fair value of these swaps are offset by
corresponding changes in the fair value recorded on the hedged debt, and result in no net earnings impact.
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