Costco 2005 Annual Report Download - page 31

third-party investment managers. Short-term investments generally have a maturity of three months to five years
from the purchase date. 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 avail-
able for current operations. As the majority of these instruments are of a short-term nature, if interest rates were
to increase or decrease immediately, there is no material risk of a valuation adjustment related to these instru-
ments. For those instruments that are classified as available for sale, the unrealized gains or losses related to fluc-
tuations in interest rates are reflected in other accumulated comprehensive income or loss. Based on the
Company’s cash and cash equivalents and short-term investments balances at August 28, 2005, a 100 basis point
increase or decrease in interest rates would result in an increase or decrease of approximately $15,000 to interest
income (pre-tax) on an annual basis.
Most foreign currency transactions have been conducted in local currencies, limiting the Company’s ex-
posure to changes in currency rates. The Company periodically enters into short-term forward foreign exchange
contracts to hedge the impact of fluctuations in foreign currency rates on inventory purchases. The fair value of
foreign exchange contracts outstanding at August 28, 2005 was $42,901.
MANAGEMENT REPORTS
Management’s Report on the Financial Statements
Our management is responsible for the preparation, integrity and objectivity of the accompanying con-
solidated financial statements and the related financial information. The financial statements have been prepared
in conformity with accounting principles generally accepted in the United States of America and necessarily in-
clude certain amounts that are based on estimates and informed judgments. Our management also prepared the
related financial information included in this Annual Report on Form 10-K and is responsible for its accuracy and
consistency with the financial statements.
The consolidated financial statements have been audited by KPMG LLP, an independent registered public
accounting firm, who conducted their audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). The independent registered public accounting firm’s responsibility is to express
an opinion as to the fairness with which such financial statements present our financial position, results of oper-
ations and cash flows in accordance with accounting principles generally accepted in the United States.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial report-
ing as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the prepara-
tion of financial statements for external purposes in accordance with generally accepted accounting principles and
include those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accu-
rately and fairly reflect our transactions and the dispositions of our assets; (2) provide reasonable assurance that our
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally ac-
cepted accounting principles, and that our receipts and expenditures are being made only in accordance with appro-
priate authorizations; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on our financial statements.
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