Costco 2007 Annual Report Download - page 42

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We hold interest-bearing instruments that are classified as cash and cash equivalents and short-term
investments. Our investment policy is to manage our cash and cash equivalents and short-term
investment balances to preserve principal and liquidity, while seeking to enhance the return on our
investment portfolio through the investment of available funds. We diversify our investment portfolio by
investing in multiple types of investment-grade securities through a combination of internal and third-
party investment management. 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 available for current operations. As the majority of these instruments are of a
short-term nature, if interest rates were to increase or decrease, there is no material risk of a material
valuation adjustment related to these instruments. For those instruments that are classified as
available for sale, the unrealized gains or losses related to fluctuations in interest rates are reflected
within stockholder’s equity in accumulated other comprehensive income or loss. Based on our cash
and cash equivalents and short-term investment balances at September 2, 2007, a 100 basis point
increase or decrease in interest rates would result in an increase or decrease of approximately $15.2
million (pre-tax) to interest income on an annual basis.
Most transactions of our foreign subsidiaries are conducted in local currencies, limiting our exposure to
changes in currency rates. We periodically enter into short-term forward foreign exchange contracts to
hedge the impact of fluctuations in foreign currency rates on inventory purchases. The notional value of
foreign exchange contracts outstanding at September 2, 2007 was $75.0 million.
40