Costco 2011 Annual Report Download - page 52

COSTCO WHOLESALE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except share data)
Note 1—Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Costco Wholesale Corporation, a
Washington corporation, its wholly-owned subsidiaries, subsidiaries in which it has a controlling
interest, consolidated entities in which it has made equity investments or has other interests through
which it has majority-voting control or it exercises the right to direct the activities that most significantly
impact the entity’s performance (Costco or the Company). The Company reports noncontrolling
interests in consolidated entities as a component of equity separate from the Company’s equity. All
material inter-company transactions between and among the Company and its consolidated
subsidiaries and other consolidated entities have been eliminated in consolidation.
In June 2009, the Financial Accounting Standards Board (FASB) issued amended guidance
concerning whether a company’s variable interest(s) in an entity constitute a controlling financial
interest. The Company adopted this guidance on August 30, 2010 (at the beginning of its fiscal year
2011). As a result of the adoption, the Company determined that its 50%-owned joint venture, Costco
Mexico (Mexico), would be consolidated on a prospective basis beginning August 30, 2010. Costco
operates 32 warehouses in Mexico similar to Costco warehouses operated elsewhere.
Historically, the Company accounted for its 50% interest in Mexico under the equity method of
accounting. The Company’s equity method investment in Mexico included in other assets in the
accompanying consolidated balance sheet as of August 29, 2010 totaled $357, which was
derecognized as part of the initial consolidation of the joint venture on August 30, 2010. Total assets
and liabilities increased by approximately 3% due to the initial consolidation and the 50%
noncontrolling interest in Mexico of $357 was recorded as a component of equity as a result of the
initial consolidation. The initial consolidation of Mexico had no impact on net income or net income per
common share attributable to Costco (Net Income). The Company’s net income excludes income
attributable to noncontrolling interests in its operations in Mexico, Korea, and Taiwan. In December
2010, the Company and its 50% joint venture partner amended the Mexico joint venture agreements.
As a result, the Company obtained, subject to certain continuing conditions, majority-voting control of
the joint venture. As the Company had previously consolidated the joint venture, these amendments
did not impact the Company’s consolidated financial statements.
The Company operates membership warehouses that offer low prices on a limited selection of
nationally branded and select private-label products in a wide range of merchandise categories in
no-frills, self-service facilities. At August 28, 2011, Costco operated 592 warehouses worldwide which
included: 429 U.S. locations (in 40 U.S. states and Puerto Rico), 82 Canadian locations (in nine
Canadian provinces), 32 Mexico locations, 22 United Kingdom locations, nine Japan locations, eight
Taiwan locations, seven Korea locations, and three Australia locations.
Fiscal Year End
The Company’s fiscal year ends on the Sunday closest to August 31. References to 2011, 2010, and
2009 relate to the 52-week fiscal years ended August 28, 2011, August 29, 2010, and August 30,
2009, respectively.
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