Costco 2008 Annual Report Download - page 35

billion at the end of 2008 and 2007, respectively. Of these balances, approximately $787.5 million and
$655.2 million at the end of 2008 and 2007, respectively, represented debit and credit card
receivables, primarily related to sales in the week prior to the end of the year.
Net cash provided by operating activities totaled $2.18 billion in 2008 compared to $2.08 billion in
2007, an increase of $99.8 million. This increase was primarily attributable to an increase in net income
of $200.0 million, an increase in depreciation and amortization and stock-based compensation of
$118.2 million, as well as an increase in cash flow from the change in operating assets, liabilities and
deferred income taxes of $56.8 million, offset by an increase in net merchandise inventories
(merchandise inventory less accounts payable) of $258.0 million.
Net cash used in investing activities totaled $1.72 billion in 2008 compared to $655.3 million in 2007,
an increase of approximately $1.06 billion. The increase in investing activities relates primarily to a
decrease in cash provided by the net investment in short-term investments of $534.1 million as a result
of less cash needed to fund our decreased common stock repurchase activity. Additions to property
and equipment related to warehouse expansion and remodel projects increased $212.9 million in 2008.
Additionally, in the second quarter of 2008, $371.1 million formerly classified as cash and cash
equivalents was reclassified to short-term investments and other non-current assets.
In December 2007, one of our enhanced money fund investments, Columbia Strategic Cash Portfolio
Fund (Columbia), ceased accepting cash redemption requests and changed to a floating net asset
value. In light of the restricted liquidity, we elected to receive a pro-rata allocation of the underlying
securities in a separately managed account. We assessed the fair value of the underlying securities in
this account through market quotations and review of current investment ratings, as available, coupled
with the evaluation of the liquidation value of each investment and its current performance in meeting
scheduled payments of principal and interest. In 2008, we recognized $5.0 million of other-than-
temporary impairment losses related to these securities: $2.8 million, $1.4 million and $0.8 million in
the second, third and fourth quarters, respectively. The losses are included in interest income and
other in the accompanying consolidated statements of income. The markets relating to these
investments remain uncertain, and there may be further declines in the value of these investments that
may cause additional losses in future periods. At the end of 2008, the balance of the Columbia fund
securities was $103.6 million on the consolidated balance sheet.
Additionally, in December 2007, two other enhanced money fund investments, BlackRock Cash
Strategies, LLC (BlackRock) and Merrill Lynch Capital Reserve Fund, LLC (Merrill Lynch), ceased
accepting redemption requests. These two funds are being liquidated with periodic distributions and
the expectation is that the funds will be completely liquidated by 2010. To date, the funds have
maintained a $1.00 per unit net asset value. At the end of 2008, the combined balance of the
BlackRock and Merrill Lynch funds was $125.1 million on our consolidated balance sheet and we
received cash redemptions of $48.2 million from the BlackRock and Merrill Lynch funds subsequent to
the end of the year and through October 14, 2008.
At the end of 2008, $228.7 million remained in the Columbia, BlackRock and Merrill Lynch funds, with
$160.7 million in short-term investments and $68.0 million in other assets on the consolidated balance
sheet, reflecting the timing of the expected distributions.
On September 18, 2008, one of our government agency money market funds, The Reserve U.S.
Government Fund, announced that the proceeds from a redemption request for this fund would not be
transmitted to an investor for a period of up to seven calendar days after the receipt of the redemption
request. On September 22, 2008, the SEC granted a temporary order suspending shareholder
redemptions as of September 17, 2008 and requiring The Reserve to create a plan to effect an orderly
disposition, subject to supervision by the SEC. As of October 14, 2008, the plan to effect an orderly
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