Costco 2010 Annual Report Download - page 39

We are exposed to fluctuations in energy prices, particularly electricity and natural gas, which we seek
to partially mitigate through the use of fixed-price contracts for approximately 26% 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, in addition to fuel for our gas stations on an index basis. These contracts
generally qualify for treatment as normal purchases or normal sales 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. 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 2010, we repurchased 9,943,000 shares of common stock, at an average price of $57.14 per
share, totaling approximately $568. During 2009, we repurchased 895,000 shares of common stock, at
an average price of $63.84 per share, totaling approximately $57. The remaining amount available to
be purchased under our approved plan was $1,434 at the end of 2010, $434 of which expires in
November 2010. 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 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 that under common trade practices are referred to as sales taxes are
recorded on a net basis.
We evaluate whether it is appropriate to record the gross amount of merchandise sales and related
costs or the net amount earned as commissions. Generally, when we are the primary obligor, subject
to inventory risk, have latitude in establishing prices and selecting suppliers, influence product or
service specifications, or have several but not all of these indicators, revenue is recorded on a gross
basis. If we are not the primary obligor and do not possess other indicators of gross reporting as noted
above, we record the net amounts as commissions earned, which is reflected in net sales.
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