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COSTCO WHOLESALE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Note 1—Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Costco Wholesale Corporation, a Washington
corporation, and its subsidiaries (“Costco” or the “Company”). All material inter-company transactions between
the Company and its subsidiaries have been eliminated in consolidation. Costco primarily operates membership
warehouses under the Costco Wholesale name.
Costco operates membership warehouses that offer low prices on a limited selection of nationally branded
and selected private label products in a wide range of merchandise categories in no-frills, self-service warehouse
facilities. At August 31, 2003, Costco operated 418 warehouse clubs: 309 in the United States; 61 in Canada; 15
in the United Kingdom; five in Korea; three in Taiwan; four in Japan; and 21 warehouses in Mexico with a joint
venture partner.
The Company’s investment in the Costco Mexico joint venture and in other unconsolidated joint ventures
that are less than majority owned are accounted for under the equity method. The investment in Costco Mexico is
included in other assets and was $167,293 at August 31, 2003 and $157,312 at September 1, 2002. The equity in
earnings of Costco Mexico is included in interest income and other and for fiscal 2003, 2002 and 2001, was
$21,400, $21,028 and $17,378, respectively. The amount of retained earnings that represents undistributed earn-
ings of Costco Mexico was $86,074 and $64,674 at August 31, 2003 and September 1, 2002, respectively.
Fiscal Years
The Company reports on a 52/53-week fiscal year basis, which ends on the Sunday nearest August 31st.
Fiscal years 2003, 2002 and 2001, were 52-week years.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the date of
purchase and proceeds due from credit and debit card transactions with settlement terms of less than five days to
be cash equivalents. Of the total cash and cash equivalents of $1,545,439 at August 31, 2003 and $805,518 at
September 1, 2002, credit and debit card receivables were $412,861 and $351,788, respectively.
Receivables, net
Receivables consist primarily of vendor rebates and promotional allowances, receivables from government
tax authorities and other miscellaneous amounts due to the Company, and are net of allowance for doubtful ac-
counts of $1,529 at August 31, 2003 and $2,224 at September 1, 2002. Management determines the allowance for
doubtful accounts based on known troubled accounts and historical experience applied to an aging of accounts.
Vendor Rebates and Allowances
Periodic payments from vendors in the form of buy downs, volume or other purchase discounts that are evi-
denced by signed agreements are reflected in the carrying value of the inventory when earned and as a compo-
nent of cost of sales as the merchandise is sold. Other consideration received from vendors is generally recorded
as a reduction of merchandise costs upon completion of contractual milestones, terms of the related agreement, or
by other systematic and rational approach.
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