Costco 2007 Annual Report Download - page 55

Closing Costs
Warehouse closing costs incurred relate principally to the Company’s relocation of certain warehouses
that were not otherwise impaired to larger and better-located facilities. The provision for fiscal 2007
included charges of $15,887 for warehouse closing expenses, primarily related to accelerated
depreciation on buildings to be demolished or sold and $2,279 for net gains related to the sale of real
property. The fiscal 2006 provision included charges of $3,762 for warehouse closing expenses and
net losses of $1,691 related to the sale of real property. The fiscal 2005 provision included charges of
$11,619 for warehouse closing expenses, primarily related to lease obligations and accelerated
depreciation and $881 for net losses on the sale of real property. As of September 2, 2007, the
Company’s reserve for warehouse closing costs was $6,823 of which $6,086 related to future lease
obligations. This compares to a reserve for warehouse closing costs of $7,041 at September 3, 2006,
of which $5,950 related to future lease obligations.
Goodwill
Goodwill resulting from certain business combinations is included in other assets, and totaled $75,707
at September 2, 2007 and $72,953 at September 3, 2006. The Company reviews goodwill for
impairment in the fourth quarter of each fiscal year, or more frequently if circumstances dictate. No
impairment of goodwill has been incurred to date.
Accounts Payable
The Company’s banking system provides for the daily replenishment of major bank accounts as
checks are presented. Accordingly, included in accounts payable at September 2, 2007 and
September 3, 2006 are $591,936 and $564,754, respectively, representing the excess of outstanding
checks over cash on deposit at the banks on which the checks were drawn.
Insurance/Self Insurance Liabilities
The Company uses a combination of insurance and self-insurance mechanisms, including a wholly-
owned captive insurance entity and participation in a reinsurance pool, to provide for potential liabilities
for workers’ compensation, general liability, property damage, director and officers’ liability, vehicle
liability and employee health care benefits. Liabilities associated with the risks that are retained by the
Company are not discounted and are estimated, in part, by considering historical claims experience
and evaluations of outside expertise, demographic factors, severity factors and other actuarial
assumptions. The estimated accruals for these liabilities could be significantly affected if future
occurrences and claims differ from these assumptions and historical trends. As of the end of fiscal
2007 and 2006, these liabilities of $488,734 and $491,037, respectively, were included in accrued
salaries and benefits, other current liabilities and accounts payable on the consolidated balance
sheets.
The Company’s wholly-owned captive insurance subsidiary participates in a reinsurance pool. The
member agreements and practices of the reinsurance pool limit any participating members’ individual
risk. Reinsurance revenues earned of $50,897, $67,589 and $61,697 during fiscal 2007, 2006 and
2005, respectively, were primarily related to premiums received from the reinsurance pool.
Reinsurance costs of $52,179, $65,760 and $65,830 during fiscal 2007, 2006 and 2005, respectively,
primarily related to premiums paid to the reinsurance pool. Both revenues and costs are presented net
in selling, general and administrative expenses in the consolidated statements of income.
Derivatives
The Company has limited involvement with derivative financial instruments and uses them only to
manage well-defined interest rate and foreign exchange risks. Forward foreign exchange contracts are
53