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COSTCO WHOLESALE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts 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 September 2, 2007, Costco operated 488 warehouses: 379 in the
United States and 4 in Puerto Rico; 71 in Canada; 19 in the United Kingdom; 6 in Japan; 5 in Korea;
and 4 in Taiwan. The Company’s 50%-owned joint venture in Mexico operates an additional 30
warehouses.
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 $302,550 at September 2, 2007 and $270,304 at
September 3, 2006. The equity in earnings of Costco Mexico is included in interest income and other in
the accompanying consolidated statements of income, and for fiscal 2007, 2006 and 2005, was
$33,499, $26,646 and $24,949, respectively. The amount of retained earnings that represents
undistributed earnings of Costco Mexico was $193,176 and $159,677 at September 2, 2007 and
September 3, 2006, respectively. The investments and equity in earnings of other unconsolidated joint
ventures are not material.
The Company, in accordance with Staff Accounting Bulletin No. 108, “Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (SAB
108), adjusted its beginning retained earnings for fiscal 2006 in the accompanying consolidated
financial statements. See Note 11 for additional information on the adoption SAB 108.
Fiscal Year End
Costco operates on a 52/53-week fiscal year basis with the fiscal year ending on the Sunday closest to
August 31. The fiscal year ended September 2, 2007 included 52 weeks. The fiscal year ended
September 3, 2006 included 53 weeks, with the 53rd week falling in the fiscal fourth quarter. The fiscal
year ended August 28, 2005 included 52 weeks.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to prior fiscal year amounts or balances to conform to the
presentation adopted in the current fiscal year.
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