Costco 2010 Annual Report Download - page 55

Repair and maintenance costs are expensed when incurred. Expenditures for remodels,
refurbishments and improvements that add to or change the way an asset functions or that extend the
useful life of an asset are capitalized. Assets that were removed during the remodel, refurbishment or
improvement are retired. When assets are retired or sold, the asset costs and related accumulated
depreciation are eliminated, with any remaining gain or loss recorded.
Impairment of Long-Lived Assets
The Company periodically evaluates long-lived assets for impairment when management makes the
decision to relocate or close a warehouse or when events or changes in circumstances occur that may
indicate the carrying amount of the asset group, generally an individual warehouse, may not be fully
recoverable. For asset groups to be held and used, including warehouses to be relocated, the carrying
value of the asset group is considered recoverable when the estimated future undiscounted cash flows
generated from the use and eventual disposition of the asset group exceed the group’s net carrying
value. In the event that the carrying value is not considered recoverable, an impairment loss would be
recognized for the asset group to be held and used as the excess of the carrying amount over the
estimated fair value of the group. For asset groups classified as held for sale (disposal group), the
carrying value is compared to the disposal group’s fair value less costs to sell. The Company estimates
fair value by obtaining market appraisals from third party brokers or other valuation techniques. In
2010, 2009, and 2008, the Company recorded impairment charges of $2, $11, and $10, respectively.
In 2009, the charge was primarily related to the closure of its two Costco Home locations in July 2009.
In 2008, the charge was primarily related to an on-site relocation of a warehouse that was demolished,
rebuilt, and reopened in early 2009.
Other Assets
Other assets consist of the following at the end of 2010 and 2009:
2010 2009
Investment in Costco Mexico .................................... $357 $319
Prepaid rents, lease costs, and long-term deposits .................. 186 170
Goodwill, net ................................................. 71 71
Cash surrender value of life insurance ............................ 65 73
Other ....................................................... 60 50
Notes receivable .............................................. 54 56
Long-term investments ......................................... 0 3
Other Assets ............................................. $793 $742
The Company’s investments in Costco Mexico and in other unconsolidated joint ventures that are less
than majority owned are accounted for under the equity method. The equity in earnings of Costco
Mexico is included in interest income and other in the accompanying consolidated statements of
income, and for 2010, 2009, and 2008, was $41, $32, and $41, respectively. The amount of retained
earnings that represents undistributed earnings of Costco Mexico was $307 and $266 at the end of
2010 and 2009, respectively. The investments and equity in earnings of other unconsolidated joint
ventures are not material. The Company did not make any capital contributions to its investment in
Costco Mexico in 2010, 2009, or 2008.
Goodwill resulting from certain business combinations is reviewed 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.
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