SEC Comment Letter for COSTCO WHOLESALE (COST) — Mar 8, 2012
COSTCO WHOLESALE CORP /NEW (COST) (CIK 0000909832)
Date: March 8, 2012 · CIK: 0000909832 · Accession: 0000000000-12-012153
AI Filing Summary & Sentiment
Reasoning
Letter
March 8, 2012 Via E-mail Richard A. Galanti Executive Vice President, Chief Financial Officer Costco Wholesale Corporation 999 Lake Drive Issaquah, WA 98027 Re: Costco Wholesale Corporation Form 10-K for the Fiscal Year Ended August 28, 2011 Filed October 14, 2011 Response dated February 29, 2012 File No. 0-20355
Dear Mr. Galanti: We have reviewed your response and have th e following additional comments. In some of our comments, we may ask you to provide us with information so we may better understand your disclosure. Please respond to this letter within te n business days by amending your filings, by providing the requested information, or by advi sing us when you will provide the requested response. If you do not believe our comments apply to your fact s and circumstances or do not believe an amendment is appropriate, pl ease tell us why in your response.
After reviewing any amendment to your filing and the information you provide in response to these comments, we ma y have additional comments. Form 10-K for the Fiscal Year Ended August 28, 2011
Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 21 Results of Operations, page 22
1. We note your response to our prior comment 1, and continue to believe that you should provide a separate operating re sults’ discussion for your Cana dian operations so investors can better understand and eval uate the performance of your business. Further, we note your assertion that your Cana dian operations, among all your operations are the most similar to your United States operations. However, it appears the Canadian operations are economically dissimilar to the United St ates operations. We note from the segment footnote that since fiscal 2009 the Canadi an operations have produced significantly
Richard A. Galanti Costco Wholesale Corporation March 8, 2012 Page 2
higher revenue and operating income growth as compared to the United States operations. In this regard, we remain uncertain how your results’ of operations discussion adequately explains the significant growth behind your Canadian operations. Accordingly, we continue to believe you should revise to address your Canadian operations separately from your United Stat es operations in future filings.
2. We note your response to our prior comment 2, and we remain uncertain how you meet the requirements of Item 303 of Regulation S- K. In this regard, it appears you are facing an inflationary merchandise cost environment. For example, we noted your gross margin as a percentage of net sales declined by 35 ba sis points in the first fiscal quarter of 2012 compared to 2011. Similarly, your 2011 fiscal gross margin as a percent of net sales decreased 14 basis points compared to fiscal 2010. In this regard, cost of merchandise sales is a material component in determini ng your gross margin amount and we believe a discussion and analysis of this material component will provide investors with the transparent information that is necessary for an understanding of your results of operation. Accordingly, we belie ve you should revise your disclosure in future filings. Note 1 – Summary of Significan t Accounting Policies, page 48
Derivatives, page 55
3. We note your response to our prior comment 5. Tell us whether the contracts you entered into to mitigate the cost of energy used for your warehouses and other facilities can be net settled or are expected to be net settled, and tell us if you have ever net settled any of the contracts. If so, explain to us how you c onsider the guidance unde r paragraphs ASC 815- 10-15-35 and 36 in your assessment on whether they qualify for the normal purchase and sale scope exception. For electric ity contracts, please also ad vise us how you consider the additional criteria under paragr aph 45c of ASC 815-10-15 in determining whether they qualify for the scope exception.
You may contact Robert Babul a, Staff Accountant, at ( 202) 551-3339 or me at (202) 551- 3377 if you have questions regarding our comments or any other questions.
Sincerely,
/s/ Andrew D. Mew
Andrew D. Mew Accounting Branch Chief
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March 8, 2012
Via E-mail
Richard A. Galanti Executive Vice President, Chief Financial Officer Costco Wholesale Corporation 999 Lake Drive Issaquah, WA 98027
Re: Costco Wholesale Corporation
Form 10-K for the Fiscal Year Ended August 28, 2011
Filed October 14, 2011 Response dated February 29, 2012 File No. 0-20355
Dear Mr. Galanti:
We have reviewed your response and have th e following additional comments. In some
of our comments, we may ask you to provide us with information so we may better understand
your disclosure.
Please respond to this letter within te n business days by amending your filings, by
providing the requested information, or by advi sing us when you will provide the requested
response. If you do not believe our comments apply to your fact s and circumstances or do not
believe an amendment is appropriate, pl ease tell us why in your response.
After reviewing any amendment to your filing and the information you provide in
response to these comments, we ma y have additional comments.
Form 10-K for the Fiscal Year Ended August 28, 2011
Item 7—Management’s Discussion and Analysis of Financial Condition and Results of
Operations, page 21
Results of Operations, page 22
1. We note your response to our prior comment 1, and continue to believe that you should
provide a separate operating re sults’ discussion for your Cana dian operations so investors
can better understand and eval uate the performance of your business. Further, we note
your assertion that your Cana dian operations, among all your operations are the most
similar to your United States operations. However, it appears the Canadian operations
are economically dissimilar to the United St ates operations. We note from the segment
footnote that since fiscal 2009 the Canadi an operations have produced significantly
Richard A. Galanti Costco Wholesale Corporation March 8, 2012 Page 2
higher revenue and operating income growth as compared to the United States
operations. In this regard, we remain uncertain how your results’ of operations
discussion adequately explains the significant growth behind your Canadian operations.
Accordingly, we continue to believe you should revise to address your Canadian
operations separately from your United Stat es operations in future filings.
2. We note your response to our prior comment 2, and we remain uncertain how you meet
the requirements of Item 303 of Regulation S- K. In this regard, it appears you are facing
an inflationary merchandise cost environment. For example, we noted your gross margin as a percentage of net sales declined by 35 ba sis points in the first fiscal quarter of 2012
compared to 2011. Similarly, your 2011 fiscal gross margin as a percent of net sales decreased 14 basis points compared to fiscal 2010. In this regard, cost of merchandise
sales is a material component in determini ng your gross margin amount and we believe a
discussion and analysis of this material component will provide investors with the
transparent information that is necessary for an understanding of your results of operation. Accordingly, we belie ve you should revise your disclosure in future filings.
Note 1 – Summary of Significan t Accounting Policies, page 48
Derivatives, page 55
3. We note your response to our prior comment 5. Tell us whether the contracts you entered
into to mitigate the cost of energy used for your warehouses and other facilities can be net
settled or are expected to be net settled, and tell us if you have ever net settled any of the
contracts. If so, explain to us how you c onsider the guidance unde r paragraphs ASC 815-
10-15-35 and 36 in your assessment on whether they qualify for the normal purchase and
sale scope exception. For electric ity contracts, please also ad vise us how you consider the
additional criteria under paragr aph 45c of ASC 815-10-15 in determining whether they
qualify for the scope exception.
You may contact Robert Babul a, Staff Accountant, at ( 202) 551-3339 or me at (202) 551-
3377 if you have questions regarding our comments or any other questions.
Sincerely,
/s/ Andrew D. Mew
Andrew D. Mew Accounting Branch Chief