Costco 2004 Annual Report Download - page 34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data) (Continued)
Note 1—Summary of Significant Accounting Policies (Continued)
Short-term investments at August 29, 2004 were as follows:
Cost
Basis
Unrealized
Gains
Unrealized
Losses
Recorded
Basis
U.S. government and agency securities ...................... $ 46,060 $102 $(107) $ 46,055
Money market mutual funds .............................. 25,112 — — 25,112
Corporate notes and bonds ............................... 216,271 95 (149) 216,217
Asset backed securities .................................. 13,283 16 (115) 13,184
Mortgage backed securities ............................... 6,161 18 — 6,179
Total short-term investments .......................... $306,887 $231 $(371) $306,747
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 an allowance for doubtful
accounts of $1,139 at August 29, 2004 and $1,529 at August 31, 2003. 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 volume rebates or other purchase discounts that are evi-
denced by signed agreements are reflected in the carrying value of the inventory when earned or as the Company
progresses towards earning the rebate or discount and as a component of cost of sales as the merchandise is sold.
Other consideration received from vendors is generally recorded as a reduction of merchandise costs upon com-
pletion of contractual milestones, terms of the related agreement, or by other systematic and rational approach.
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or market as determined primarily by the retail in-
ventory method, and are stated using the last-in, first-out (LIFO) method for substantially all U.S. merchandise
inventories. Merchandise inventories for all foreign operations are primarily valued by the retail method of ac-
counting, and are stated using the first-in, first-out (FIFO) method. The Company believes the LIFO method
more fairly presents the results of operations by more closely matching current costs with current revenues. The
Company records an adjustment each quarter if necessary, for the expected annual effect of inflation and these
estimates are adjusted to actual results determined at year-end. The Company considers in its calculation of the
LIFO cost the estimated net realizable value of inventory in those inventory pools where deflation exists and re-
cords a write down of inventory where estimated net realizable value is less than LIFO inventory. The LIFO in-
ventory adjustment for the fourth quarter of fiscal 2004 decreased gross margin by $590 as compared to an
increase of $14,650 in the fourth quarter of fiscal 2003. If all merchandise inventories had been valued using the
FIFO method, inventories would have been lower by $13,410 and $19,500 at August 29, 2004 at August 31,
2003, respectively.
August 29,
2004
August 31,
2003
Merchandise inventories consist of:
United States (primarily LIFO) ........................ $2,903,551 $2,668,342
Foreign (FIFO) .................................... 740,034 671,086
Total ........................................ $3,643,585 $3,339,428
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