Costco 2006 Annual Report Download - page 46

with settlement terms of less than five days. Of the total cash and cash equivalents of $1,510,939 at
September 3, 2006 and $2,062,585 at August 28, 2005, credit and debit card receivables were
$593,645 and $521,634, respectively.
Short-term Investments
In general, short-term investments have a maturity of three months to five years at the date of
purchase. Investments with maturities beyond five years may be classified as short-term based on their
highly liquid nature and because such marketable securities represent the investment of cash that is
available for current operations. Short-term investments classified as available-for-sale are recorded at
market value using the specific identification method with the unrealized gains and losses reflected in
accumulated other comprehensive income until realized. The estimate of fair value is based on publicly
available market information or other estimates determined by management. Realized gains and
losses from the sale of available-for-sale securities, if any, are determined on a specific identification
basis.
Receivables, net
Receivables consist primarily of vendor rebates and promotional allowances, receivables from
government tax authorities, reinsurance receivables held by the Company’s wholly-owned captive
insurance subsidiary and other miscellaneous amounts due to the Company. Amounts are recorded
net of an allowance for doubtful accounts of $2,423 at September 3, 2006 and $1,416 at August 28,
2005. Management determines the allowance for doubtful accounts based on historical experience and
application of the specific identification method.
Vendor Rebates and Allowances
Periodic payments from vendors in the form of volume rebates or other purchase discounts that are
evidenced by signed agreements are reflected in the carrying value of the inventory when earned or as
the Company progresses towards earning the rebate or discount and as a component of cost of sales
as the merchandise is sold. Other consideration received from vendors is generally recorded as a
reduction of merchandise costs upon completion of contractual milestones, terms of the related
agreement, or by other systematic and rational approach.
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or market, as determined primarily by the retail
method of accounting, and are stated using the last-in, first-out (LIFO) method for substantially all U.S.
merchandise inventories. Merchandise inventories for all foreign operations are primarily valued by the
retail method of accounting and are stated using the first-in, first-out (FIFO) method. The Company
believes the LIFO method more fairly presents the results of operations by more closely matching
current costs with current revenues. The Company records an adjustment each quarter, if necessary,
for the expected annual effect of inflation, and these estimates are adjusted to actual results
determined at year-end. At both September 3, 2006 and August 28, 2005 merchandise inventories
valued at LIFO approximated FIFO after considering the lower of cost or market principle.
September 3,
2006 August 28, 2005
Merchandise inventories consist of:
United States (primarily LIFO) ............. $3,620,903 $3,155,462
Foreign (FIFO) .......................... 947,820 859,237
Total .............................. $4,568,723 $4,014,699
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