Costco 2014 Annual Report Download - page 49

Cash and Cash Equivalents
The Company considers as cash and cash equivalents all cash on deposit, highly liquid investments with
a maturity of three months or less at the date of purchase, and proceeds due from credit and debit card
transactions with settlement terms of up to one week. Credit and debit card receivables were $1,383 and
$1,254 at the end of 2014 and 2013, respectively.
Short-Term Investments
In general, short-term investments have a maturity at the date of purchase of three months to five years.
Investments with maturities beyond five years may be classified, based on the Company’s determination,
as short-term based on their highly liquid nature and because they represent the investment of cash that
is available for current operations. Short-term investments classified as available-for-sale are recorded at
fair value using the specific identification method with the unrealized gains and losses reflected in
accumulated other comprehensive income (loss) until realized. Realized gains and losses from the sale of
available-for-sale securities, if any, are determined on a specific identification basis and are recorded in
interest income and other, net in the consolidated statements of income. Short-term investments
classified as held-to-maturity are financial instruments that the Company has the intent and ability to hold
to maturity and are reported net of any related amortization and are not remeasured to fair value on a
recurring basis.
The Company periodically evaluates unrealized losses in its investment securities for other-than-
temporary impairment, using both qualitative and quantitative criteria. In the event a security is deemed to
be other-than-temporarily impaired, the Company recognizes the credit loss component in interest income
and other, net in the consolidated statements of income. The majority of the Company’s investments are
in debt securities.
Fair Value of Financial Instruments
The Company accounts for certain assets and liabilities at fair value. The carrying value of the Company’s
financial instruments, including cash and cash equivalents, receivables and accounts payable,
approximate fair value due to their short-term nature or variable interest rates. See Notes 2, 3, and 4 for
the carrying value and fair value of the Company’s investments, derivative instruments, and fixed-rate
debt, respectively.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. Fair value is estimated by
applying a fair value hierarchy, which requires maximizing the use of observable inputs when measuring
fair value. The three levels of inputs are:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market
data.
Level 3: Significant unobservable inputs that are not corroborated by market data.
The Company’s valuation techniques used to measure the fair value of money market mutual funds are
based on quoted market prices, such as quoted net asset values published by the fund as supported in
an active market. Valuation methodologies used to measure the fair value of all other non-derivative
financial instruments are based on independent external valuation information using “consensus pricing.”
The "consensus pricing" approach uses market prices from a variety of industry-standard independent
data providers or pricing that considers various assumptions, including time value, yield curve, volatility
factors, credit spreads, default rates, loss severity, current market and contractual prices for the
underlying instruments or debt, broker and dealer quotes, as well as other relevant economic measures.
All are observable in the market or can be derived principally from or corroborated by observable market
data. The Company reports transfers in and out of Levels 1, 2, and 3, as applicable, using the fair value of
the individual securities as of the beginning of the reporting period in which the transfer(s) occurred.
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