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Costco Companies, Inc.
YEAR ENDED AUGUST 30, 1998
Annual
Report
1998
1998
Annual
Report
1998

Table of contents

  • Page 1
    Annual Report 1998 1998 Costco Companies, Inc. YEAR ENDED AUGUST 30, 1998

  • Page 2
    ... Corporation began operations in 1983 in Seattle, Washington with a similar membership warehouse concept. Costco Companies, Inc. (formerly Price/Costco, Inc. prior to a name change in January 1997), is a Delaware corporation, publicly traded under the NASDAQ ticker symbol ''COST'', and was formed...

  • Page 3
    MERRILL CORPORATION NETWORK COMPOSITION SYSTEM LSTARKE // 9-DEC-98 19:50 DISK004:[98SEA7.98SEA2097]DE2097A.;7 IMAGES:[PAGER.PSTYLES]MRLL.BST;4 pag$fmt:mrll.fmt Free: 490DM/ 0D Foot: 0D/ 0D VJ R Seq: 1 Clr: 0 9 C Cs: 56200 FINANCIAL HIGHLIGHTS Warehouses In Operation 300 (285 at 12/31/98) 278 Net ...

  • Page 4
    ...Atlanta and the relocation of our Pomona, California warehouse to nearby Chino Hills), we ended fiscal 1998 with 211 warehouses in the U.S. Our international openings included two new warehouses in Canada (in St. Jerome, Quebec and Kingston, Ontario) and our seventh warehouse in the UK (in Edinburgh...

  • Page 5
    ... Gold Star members include discounted auto and homeowner insurance; mortgage and real estate services; and residential longdistance telephone service. Discounted services for Business Members include business credit card processing; employee health care; business checks and forms printing; business...

  • Page 6
    ... N ew Jersey (9) Brick Township Clifton Edison E. Hanover Hackensack Hazlet Union Delaware (1) Christiana Idaho (2) Boise Twin Falls Florida (11) Altamonte Springs Davie Delray Beach Kendall Illinois (2) Oak Brook Schaumburg Montana (4) Billings Bozeman 4 COSTCO COMPANIES A/R (Y/E 8-31...

  • Page 7
    ...Scotland (2) Edinburgh Glasgow Yucatán (1) Mérida Oregon (9) Aloha Bend * Excludes the 1 6 Mexico ( 5 0 % Joint Venture) locations. 5 COSTCO COMPANIES A/R (Y/E 8-31-98) Proj: P1826SEA98 Job: 98SEA2097 File: DI2097A.;17 Merrill/Seattle (206) 623-5606 Page Dim: 8.250⍯ X 10.750⍯ Copy Dim: 49...

  • Page 8
    ... a number of ancillary businesses, including the following as of December 31, 1998: ANCILLARY BUSINESSES United States Canada Other International Total Pharmacy ...Optical Dispensing Centers ...One-Hour Photo ...Food Court and Hot Dog Stands Hearing Aid Centers ...Copy Centers ...Print Shops ...Gas...

  • Page 9
    MERRILL CORPORATION NETWORK COMPOSITION SYSTEM LSTARKE // 9-DEC-98 18:20 DISK004:[98SEA7.98SEA2097]DK2097A.;25 IMAGES:[PAGER.PSTYLES]MRLL.BST;4 pag$fmt:mrll.fmt Free: 754DM/ 0D Foot: 0D/ 0D VJ R Seq: 1 Clr: 0 9 C Cs: 4559 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (dollars in thousands, except per...

  • Page 10
    ...OPERATING AND FINANCIAL HIGHLIGHTS (dollars in millions, except per share data) WAREHOUSES IN OPERATION Beginning of year Openings Closings End of year OPERATING RESULTS Revenue Net sales Membership fees and other Total revenue Operating expenses Merchandise costs Selling, general and administrative...

  • Page 11
    ...% 7% 2,170 3,553 212,772 $ 103 753 1,740 114 234 778 30% 16% 1,835 2,873 $ (113) 2,146 4,236 149 795 1,685 7% (3%) 3,228 6,088 9 COSTCO COMPANIES A/R (Y/E 8-31-98) Proj: P1826SEA98 Job: 98SEA2097 File: DL2097A.;9 Merrill/Seattle (206) 623-5606 Page Dim: 8.250⍯ X 10.750⍯ Copy Dim: 42. X 54.3

  • Page 12
    ... the 18 new warehouses opened in fiscal 1998 and a five dollar increase in the annual membership fee for both Business and Gold Star members effective April 1, 1998 in the United States and May 1, 1998 in Canada. Effective with the first quarter of fiscal 1999, the Company will change its method of...

  • Page 13
    ... above, and a year-over-year improvement in the Company's core warehouse operations and Central and Regional administrative offices, which were partially offset by higher expenses associated with international expansion and certain ancillary businesses. Preopening expenses totaled $27,010, or 0.11...

  • Page 14
    ... above, and a year-over-year improvement in the Company's core warehouse operations and Central and Regional administrative offices, which were partially offset by higher expenses associated with international expansion and certain ancillary businesses. Preopening expenses totaled $27,448, or 0.13...

  • Page 15
    ... the lease of land and construction of a Costco warehouse in Fukuoka, Japan. The term of the lease is 20 years. The warehouse is scheduled to open in Spring 1999. Expansion plans for the United States and Canada during fiscal 1999 are to open approximately 25 new warehouse clubs, including three or...

  • Page 16
    ... in Mexico and plans to open two or three new warehouse clubs during fiscal 1999, including two prior to the 1998 calendar year-end. Bank Credit Facilities and Commercial Paper Programs (all amounts stated in US dollars) The Company has in place a $500,000 commercial paper program supported by...

  • Page 17
    ... open market or in private transactions as market conditions warrant. The Company expects to fund stock purchases from cash and short-term investments on hand, as well as from future operating cash flows. The repurchased shares will be held as treasury shares and used for general corporate purposes...

  • Page 18
    ... in conformity with generally accepted accounting principles and necessarily include certain estimates and judgments based on the best information available to management. The Company maintains a system of internal accounting controls, which is supported by an internal audit program, and is designed...

  • Page 19
    ... NETWORK COMPOSITION SYSTEM LSTARKE // 10-DEC-98 13:05 DISK004:[98SEA7.98SEA2097]DO2097B.;10 IMAGES:[PAGER.PSTYLES]MRLL.BST;4 pag$fmt:mrll.fmt Free: 225DM/ 0D Foot: 0D/ 0D VJ R Seq: 2 Clr: 0 9 C Cs: 48405 COSTCO COMPANIES, INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands except par value...

  • Page 20
    MERRILL CORPORATION NETWORK COMPOSITION SYSTEM CPICARD // 3-DEC-98 18:48 DISK004:[98SEA7.98SEA2097]DQ2097A.;9 IMAGES:[PAGER.PSTYLES]MRLL.BST;4 pag$fmt:mrll.fmt Free: 1315DM/ 0D Foot: 0D/ 0D VJ R Seq: 1 Clr: 0 9 C Cs: 49722 COSTCO COMPANIES, INC. CONSOLIDATED STATEMENTS OF INCOME (dollars in ...

  • Page 21
    MERRILL CORPORATION NETWORK COMPOSITION SYSTEM BSANDFO // 1-DEC-98 23:38 DISK004:[98SEA7.98SEA2097]DS2097A.;8 IMAGES:[PAGER.PSTYLES]MRLL.BST;4 pag$fmt:mrll.fmt Free: 2655DM/ 0D Foot: 0D/ 0D VJ R Seq: 1 Clr: 0 9 C Cs: 28005 COSTCO COMPANIES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For ...

  • Page 22
    MERRILL CORPORATION NETWORK COMPOSITION SYSTEM BSANDFO // 1-DEC-98 23:38 DISK004:[98SEA7.98SEA2097]DU2097A.;8 IMAGES:[PAGER.PSTYLES]MRLL.BST;4 pag$fmt:mrll.fmt Free: 199DM/ 0D Foot: 0D/ 0D VJ R Seq: 1 Clr: 0 9 C Cs: 24104 COSTCO COMPANIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in ...

  • Page 23
    .... The Price Company and Costco Wholesale Corporation primarily operate membership warehouses under the Costco Wholesale name. Costco operates membership warehouses that offer very low prices on a limited selection of nationally-branded and selected private label products in a wide range of...

  • Page 24
    ... No. 128 established new standards for computing and presenting earnings per share (EPS) for entities with publicly-held common stock. 22 COSTCO COMPANIES A/R (Y/E 8-31-98) Proj: P1826SEA98 Job: 98SEA2097 File: DW2097A.;6 Merrill/Seattle (206) 623-5606 Page Dim: 8.250⍯ X 10.750⍯ Copy Dim: 38...

  • Page 25
    ... used for general corporate purposes including stock option grants under stock option programs. Preopening Expenses Preopening expenses related to new warehouses, major remodels/expansions, regional offices and other startup operations are expensed as incurred. Membership Fees Membership fee revenue...

  • Page 26
    ... the Company's financial condition, cash flows or ongoing operating results. Foreign Currency Translation The accumulated foreign currency translation relates to the Company's consolidated foreign operations as well as its investment in the Price Club Mexico joint venture (prior to the 1998 calendar...

  • Page 27
    ... instruments and believes that SFAS No. 133 will not have a material impact on its results of operations or financial position. 25 COSTCO COMPANIES A/R (Y/E 8-31-98) Proj: P1826SEA98 Job: 98SEA2097 File: DW2097A.;6 Merrill/Seattle (206) 623-5606 Page Dim: 8.250⍯ X 10.750⍯ Copy Dim: 38. X 54.3

  • Page 28
    ... the U.S. and Canadian commercial paper programs to the $589,000 combined amounts of the respective supporting bank credit facilities. 26 COSTCO COMPANIES A/R (Y/E 8-31-98) Proj: P1826SEA98 Job: 98SEA2097 File: DW2097A.;6 Merrill/Seattle (206) 623-5606 Page Dim: 8.250⍯ X 10.750⍯ Copy Dim: 38...

  • Page 29
    MERRILL CORPORATION NETWORK COMPOSITION SYSTEM CPICARD // 3-DEC-98 18:50 DISK004:[98SEA7.98SEA2097]DW2097A.;6 IMAGES:[PAGER.PSTYLES]MRLL.BST;4 pag$fmt:mrll.fmt Free: 175D / 240D Foot: 0D/ 0D VJ R Seq: 7 Clr: 0 9 C Cs: 55002 COSTCO COMPANIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (...

  • Page 30
    ... Total ...Note 3-Leases The Company leases land and/or warehouse buildings at 58 of the 278 warehouses open at August 30, 1998 and certain other office and distribution facilities under operating leases with remaining terms ranging from 2 to 50 years. These leases generally contain one or more of...

  • Page 31
    ... these plans generally vest ratably over five to nine years. Subsequent to the merger, new grants of options are not being made under the Old Stock Option Plans. The Company applies Accounting Principles Board Opinion No. 25 and related Interpretations in accounting for stock options. Accordingly...

  • Page 32
    ... the first one thousand dollars of employee contributions. In addition, the Company will provide each eligible participant a contribution based on salary and years of service. The 30 COSTCO COMPANIES A/R (Y/E 8-31-98) Proj: P1826SEA98 Job: 98SEA2097 File: DW2097A.;6 Merrill/Seattle (206) 623-5606...

  • Page 33
    MERRILL CORPORATION NETWORK COMPOSITION SYSTEM CPICARD // 3-DEC-98 18:50 DISK004:[98SEA7.98SEA2097]DW2097A.;6 IMAGES:[PAGER.PSTYLES]MRLL.BST;4 pag$fmt:mrll.fmt Free: 260D*/ 1615D Foot: 0D/ 0D VJ R Seq: 11 Clr: 0 9 C Cs: 2267 COSTCO COMPANIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (...

  • Page 34
    ... the settlement and dismissing the lawsuit. The Company's estimated portion of the proposed settlement amount is not material to the Company's financial position or results of operations. The Company is involved from time to time in claims, proceedings and litigation arising from its business and...

  • Page 35
    MERRILL CORPORATION NETWORK COMPOSITION SYSTEM CPICARD // 3-DEC-98 18:50 DISK004:[98SEA7.98SEA2097]DW2097A.;6 IMAGES:[PAGER.PSTYLES]MRLL.BST;4 pag$fmt:mrll.fmt Free: 2785DM/ 0D Foot: 0D/ 0D VJ R Seq: 13 Clr: 0 9 C Cs: 11706 COSTCO COMPANIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (...

  • Page 36
    MERRILL CORPORATION NETWORK COMPOSITION SYSTEM LSTARKE // 9-DEC-98 18:47 DISK004:[98SEA7.98SEA2097]EG2097A.;14 IMAGES:[PAGER.PSTYLES]MRLL.BST;4 pag$fmt:mrll.fmt Free: 1990DM/ 0D Foot: 0D/ 0D VJ R Seq: 1 Clr: 0 9 C Cs: 40179 MARKET FOR COSTCO COMMON STOCK Trading in Costco Common Stock commenced on ...

  • Page 37
    ... Manager- Senior Vice President, General Manager- Northern California Region Eastern Canada Region W. Craig Jelinek Dennis R. Zook Executive Vice President, COO- Executive Vice President, COO- Northern Division Southern Division and Mexico 35 COSTCO COMPANIES A/R (Y/E 8-31-98) Proj: P1826SEA98 Job...

  • Page 38
    ... & Investor Relations Operations-Northern California Region Gary F. Ojendyk Andree Brien GMM-Hardlines GMM-Softlines- Richard J. Olin Eastern Canada Region Real Estate & Law, Alan Bubitz Assistant General Counsel Director-Food Services John R. Osterhaus Don E. Burdick Photo, Optical and Hearing Aids...

  • Page 39
    ... shareholder upon written request directed to Investor Relations, Costco Companies, Inc., 999 Lake Drive, Issaquah, Washington 98027. Internet users can access recent sales and earnings press releases as well as our new Costco Online web site at http://www.costco.com. Corporate Office 999 Lake Drive...

  • Page 40