Costco 2009 Annual Report Download - page 41

accounting. We use these instruments to mitigate risk and do not intend to engage in speculative
transactions. These contracts do not contain any credit-risk-related contingent features.
We seek to manage the counterparty risk associated with these forward foreign exchange contracts by
limiting transactions to counterparties with which we have established banking relationships. There can
be no assurance, however, that this effectively mitigates counterparty risk. In addition, the contracts
are limited to a time period of less than one year. See Note 1 and Note 3 to the consolidated financial
statements included in this Report for additional information related to these contracts.
We are exposed to risks due to fluctuations in energy prices, particularly electricity and natural gas,
which we seek to partially mitigate through the use of fixed-price contracts with counterparties for
approximately 24% of our warehouses and other facilities in the U.S. and Canada. We also enter into
variable-priced contracts for some purchases of natural gas and fuel for our gas stations on an index
basis. These contracts qualify for treatment as “normal purchase or normal sales” under SFAS 133 and
require no mark-to-market adjustment.
Off-Balance Sheet Arrangements
With the exception of our operating leases, we have no off-balance sheet arrangements that have had,
or are reasonably likely to have, a material current or future effect on our financial condition or
consolidated financial statements.
Stock Repurchase Programs
In September and November of 2007, our Board of Directors approved $300 and $1,000, respectively,
of stock repurchases, which expire in August 2010 and November 2010, respectively. In July 2008, our
Board of Directors approved an additional $1,000, which expires in July 2011, bringing total
authorizations by our Board of Directors since inception of the program in 2001 to $6,800.
During 2009, we repurchased 895,000 shares at an average price of $63.84 per share totaling
approximately $57. During 2008, we repurchased 13,812,000 shares of common stock, at an average
price of $64.22 per share, totaling approximately $887. The remaining amount available to be
purchased under our approved plan was $2,002 at the end of 2009. Purchases are made from
time-to-time as conditions warrant in the open market or in block purchases, and pursuant to plans
under SEC Rule 10b5-1. Repurchased shares are retired, in accordance with the Washington
Business Corporation Act.
Critical Accounting Policies
The preparation of our financial statements requires that we make estimates and judgments. We
continue to review our accounting policies and evaluate our estimates, including those related to
revenue recognition, investments, merchandise inventory valuation, impairment of long-lived assets,
warehouse closing costs, insurance/self-insurance liabilities, and income taxes. We base our estimates
on historical experience and on other assumptions that we believe to be reasonable.
Revenue Recognition
We generally recognize sales, net of estimated returns, at the time the member takes possession of
merchandise or receives services. When we collect payment from customers prior to the transfer of
ownership of merchandise or the performance of services, the amount received is generally recorded
as deferred revenue on the consolidated balance sheets until the sale or service is completed. We
provide for estimated sales returns based on historical trends in merchandise returns. Amounts
collected from members, which under common trade practices are referred to as sales taxes, are
recorded on a net basis.
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