Costco 2012 Annual Report Download - page 50

COSTCO WHOLESALE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except share data)
Note 1—Summary of Significant Accounting Policies
Description of Business
Costco Wholesale Corporation and its subsidiaries operate membership warehouses based on the
concept that offering our members low prices on a limited selection of nationally branded and select
private-label products in a wide range of merchandise categories will produce high sales volumes and
rapid inventory turnover. At September 2, 2012, Costco operated 608 warehouses worldwide which
included: 439 United States (U.S.) locations (in 40 U.S. states and Puerto Rico), 82 Canadian locations
(in 9 Canadian provinces), 32 Mexico locations, 22 United Kingdom (U.K.) locations, 13 Japan
locations, 9 Taiwan locations, 8 Korea locations, and 3 Australia locations. The Company also
operates online businesses at costco.com in the U.S. and costco.ca in Canada.
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. The Company’s net
income excludes income attributable to noncontrolling interests in its operations in Costco Mexico
(Mexico) (prior to the July 2012 acquisition of the 50% noncontrolling interest described below),
Taiwan, and Korea. Unless otherwise noted, references to net income relate to net income attributable
to Costco.
At the beginning of fiscal 2011, the Company began consolidating Mexico, at that time a 50% owned
joint venture, on a prospective basis due to the adoption of a new accounting standard. Mexico’s
results for fiscal 2010 were accounted for under the equity method and the Company’s 50% share was
included in “interest income and other, net.” For fiscal 2012 (prior to the acquisition) and 2011, the
financial position and results of Mexico’s operations are fully consolidated and the joint venture
partner’s share is included in “net income attributable to noncontrolling interests.” The initial
consolidation of Mexico increased total assets, liabilities, and revenue by approximately 3%, with no
impact on net income or net income per common share attributable to Costco. The Company’s equity
method investment in Mexico as of August 29, 2010 was derecognized and the noncontrolling interest
in Mexico totaling $357 was recognized as part of the initial consolidation of the joint venture on
August 30, 2010 as shown in the accompanying consolidated statements of total equity and
comprehensive income.
Acquisition of Noncontrolling Interest in Mexico
In July 2012, Costco purchased its former joint venture partner’s 50% equity interest of Mexico for
$789. In addition, Mexico declared a cash dividend of $366, 50% payable to the Company and
50% payable to Costco’s former joint venture partner. The Company used dividend proceeds and
existing cash and investment balances to fund the purchase.
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