Costco 2002 Annual Report Download - page 31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data) (Continued)
Note 1—Summary of Significant Accounting Policies (Continued)
Foreign Currency Translations
The functional currencies of the Company’s international subsidiaries are the local currency of the country
in which the subsidiary is located. Assets and liabilities recorded in foreign currencies, as well as the Company’s
investment in the Costco Mexico joint venture, are translated at the exchange rate on the balance sheet date.
Translation adjustments resulting from this process are charged or credited to other comprehensive income (loss).
Revenue and expenses of the Company’s consolidated foreign operations are translated at average rates of ex-
change prevailing during the year. Gains and losses on foreign currency transactions are included in expenses.
Revenue Recognition
The Company recognizes sales, net of estimated returns, at the time the member takes possession of mer-
chandise or receives services. When the Company collects payment from customers prior to the transfer of
ownership of merchandise or the performance of services, the amount received is recorded as a deferred revenue
liability.
Membership fee revenue represents annual membership fees paid by substantially all of the Company’s
members. The Company accounts for membership fee income on a “deferred basis” whereby membership fee
income is recognized ratably over the one-year life of the membership.
Marketing and Promotional Expenses
Costco’s policy is generally to limit marketing and promotional expenses to new warehouse openings, occa-
sional direct mail marketing to prospective new members and annual direct mail marketing programs to existing
members promoting selected merchandise. Marketing and promotional costs are expensed as incurred.
Preopening Expenses
Preopening expenses related to new warehouses, major remodels/expansions, regional offices and other
startup operations are expensed as incurred.
Fair Value of Financial Instruments
The carrying value of the Company’s financial instruments, including cash and cash equivalents, short-term
investments and receivables approximate fair value due to their short-term nature or variable interest rates. Debt
carrying fixed interest rates does not approximate fair value. The fair value of fixed rate debt at September 1,
2002 and September 2, 2001 was $1,382,569 and $1,159,486, respectively.
Reorganization of Canadian Administrative Operations
On January 17, 2001, the Company announced plans to reorganize and consolidate the administration of its
operations in Canada. Total costs related to the reorganization were $26,765 pre-tax, of which $7,765 pre-tax
($4,775 after-tax, or $.01 per diluted share) was expensed in fiscal 2002 and $19,000 pre-tax ($11,400 after-tax,
or $.02 per diluted share) was expensed in fiscal 2001 and reported as part of the provision for impaired assets
and closing costs. These costs consisted primarily of employee severance, implementation and consolidation of
support systems and employee relocation. The reorganization was completed in the first quarter of fiscal 2002.
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