Costco 2004 Annual Report Download - page 33

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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 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 29, 2004, Costco operated 441 warehouse clubs: 324 in the United States and three in Puerto
Rico; 63 in Canada; 15 in the United Kingdom; five in Korea; three in Taiwan; four in Japan; and 24 warehouses
in Mexico with a joint venture partner.
The Company’s investments 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 $178,997 at August 29, 2004 and $167,293 at August 31, 2003. The equity in
earnings of Costco Mexico is included in interest income and other and for fiscal 2004, 2003 and 2002, was
$22,208, $21,400 and $21,028, respectively. The amount of retained earnings that represents undistributed earn-
ings of Costco Mexico was $108,282 and $86,074 at August 29, 2004 and August 31, 2003, respectively.
Fiscal Years
The Company reports on a 52/53-week fiscal year basis, which ends on the Sunday nearest August 31st.
Fiscal years 2004, 2003 and 2002 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 $2,823,135 at August 29, 2004 and $1,545,439 at
August 31, 2003, credit and debit card receivables were $441,244 and $412,861, respectively.
Short-term Investments
Short-term investments have a maturity of three months to five years at the date of purchase. Investments
with maturities beyond one year may be classified as short-term based on their highly liquid nature and because
such marketable securities represent the investment of cash that is available for current operations. Short-term
investments classified as available for sale are recorded at market value using the specific identification method;
unrealized gains and losses are reflected in other accumulated comprehensive income or loss. Included within
corporate notes and bonds are investments totaling $171,179 that have been designated as “hold to maturity secu-
rities” and are recorded at cost. At August 29, 2004, the cost of these securities approximated market value.
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