Costco 2011 Annual Report Download - page 41

Impairment of Long-Lived Assets and Warehouse Closing costs
We periodically evaluate our long-lived assets for indicators of impairment, such as a decision to
relocate or close a warehouse facility. Our judgments are based on existing market and operational
conditions. Future events could cause us to conclude that impairment factors exist, requiring a
downward adjustment of these assets to their then-current fair market value.
We provide estimates for warehouse closing costs for leased and owned locations to be closed or
relocated. Judgment is involved in determining any impairment or our net liability, particularly related to
the estimated sales price of owned locations and the potential sublease income at leased locations.
These estimates are based on real estate conditions in the markets and our experience in those
markets. We make assumptions about the average period of time it would take to sublease the location
and the amount of potential sublease income for each leased location. We reassess our liability each
quarter and adjust our liability accordingly when our estimates change.
Insurance/Self-Insurance Liabilities
We use 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, directors and officers liability, vehicle liability, and
employee health care benefits. Liabilities associated with the risks that we retain are not discounted
and are estimated, in part, by considering historical claims experience, 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.
Income Taxes
The determination of our provision for income taxes requires significant judgment, the use of estimates,
and the interpretation and application of complex tax laws. Significant judgment is required in
assessing the timing and amounts of deductible and taxable items and the probability of sustaining
uncertain tax positions. The benefits associated with uncertain tax positions are recorded in our
consolidated financial statements only after determining a more-likely-than-not probability that the
positions will withstand challenge from tax authorities. When facts and circumstances change, we
reassess these probabilities and record any changes in the consolidated financial statements as
appropriate.
Recent Accounting Pronouncements
See discussion of Recent Accounting Pronouncements in Note 1 to the consolidated financial
statements included in this Report.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to financial market risk resulting from fluctuations in interest and foreign currency
exchange rates. We do not engage in speculative or leveraged transactions or hold or issue financial
instruments for trading purposes.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our investment holdings
that are diversified among money market funds, U.S. government and agency securities, Federal
Deposit Insurance Corporation insured corporate notes, and corporate notes and bonds with effective
39