Costco 1999 Annual Report Download

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YEAR ENDED AUGUST 29, 1999
Annual
Report
1999
1999
Annual
Report
1999

Table of contents

  • Page 1
    Annual Report 1999 1999 YEAR ENDED AUGUST 29, 1999

  • Page 2
    ... Condition and Results of Operations ...Report of Management ...Report of Independent Public Accountants ...Consolidated Financial Statements ...Notes to Consolidated Financial Statements ...Market for Costco Common Stock ...Dividend Policy ...Directors and Officers ...Additional Information...

  • Page 3
    ...operations excluding asset impairment/warehouse closing costs and/or accounting change 0 1995 1996 1997 1998 1999 At Fiscal Year End 0 Comparable Sales Growth 12% 10,500 10,000 10% 9% 8% 8% 10% 9,500 9,000 8,500 8,654 7,845 Membership Gold Star Members 4,000 Business Members 3,887 9,555 3,800...

  • Page 4
    ... four new markets; opening new regional offices in the Midwest and Southeast; starting a complete new operating and merchandising team in Japan; incurring increased marketing and development expenses for the Executive Membership Program and launch of the American Express Co-Branded Card Program...

  • Page 5
    ...members. The consumer card is an American Express ''fee-free'' credit card (you still must pay for the Costco membership) that provides the cardholder with an annual rebate reward on all purchases made on the card-both at Costco and elsewhere-with the reward coupon redeemable at Costco. The business...

  • Page 6
    ... Valley Fremont Fresno Fullerton Garden Grove Goleta Hawthorne Hayward Inglewood Irvine La Mesa Laguna Niguel Lancaster Livermore Los Feliz Martinez Merced Modesto Montebello Moreno Valley Mountain View Arizona (10) Gilbert Glendale Phoenix Prescott Scottsdale Superstition Springs Tempe Thomas Road...

  • Page 7
    ... E. Wenatchee Winnipeg Guerrero (1) Acapulco N ew Jersey (10) Brick Township Bridgewater Clifton Edison Hackensack E. Hanover Hazlet Union Wayne Wharton Staten Island Westbury Yonkers Vermont (1) Colchester N ewfoundland (1) St. John's Saskatchewan (2) Regina Saskatoon Jalisco (2) Guadalajara...

  • Page 8
    ...well as a number of ancillary businesses, including the following as of December 31, 1999: 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...

  • Page 9
    ... assets warehouse closing costs . Operating income ...OTHER INCOME (EXPENSE) Interest expense ...Interest income and other ...INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE ...Provision for income taxes ...INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE ...Cumulative...

  • Page 10
    ...per share data) WAREHOUSES IN OPERATION Beginning of year Openings Closings End of year 1999 278 21 (7) 292 1998 261 18 (1) 278 1997 252 17 (8) 261 1996 240 20 (8) 252 OPERATING RESULTS Revenue Net sales $26,976 Membership fees and other 480 Total revenue 27,456 Operating expenses Merchandise costs...

  • Page 11
    1995 221 24 (5) 240 1994 200 29 (8) 221 1993 170 37 (7) 200 1992 140 31 (1) 170 1991 119 23 (2) 140 1990 104 19 (4) 119 $17,906 341 18,247 16,226 1,556 25 7 17,814 433 (68) 3 - 368 151 - - 217 - (83) 134 100.0% 1.9 101.9 90.6 8.7 0.1 - 99.5 2.4 (0.4) - - 2.0 0.8 - - 1.2 - (0.5) 0.7% $16,161 ...

  • Page 12
    ... conditions including exchange rates, the effects of competition and regulation, conditions affecting the acquisition, development, ownership or use of real estate, actions of vendors, Year 2000 issues, and other risks identified from time to time in the Company's public statements and reports...

  • Page 13
    ... with international expansion and certain ancillary businesses. Preopening expenses totaled $31,007, or 0.11% of net sales, during fiscal 1999 and $27,010, or 0.11% of net sales, during fiscal 1998. During fiscal 1999, the Company opened 21 new warehouses compared to 16 new warehouses during...

  • Page 14
    ...due to membership sign-ups at 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. Gross margin (defined as net sales minus merchandise costs...

  • Page 15
    ... of August 29, 1999, Price Club Mexico operated 16 warehouses in Mexico and plans to open two or three new warehouse clubs during fiscal 2000, including one that opened in September 1999. Bank Credit Facilities and Commercial Paper Programs (all amounts stated in US dollars) The Company has in place...

  • Page 16
    ...both information technology, such as point-of-sale computer systems and financial software applications, as well as noninformation technology equipment, including critical facilities systems, such as security systems, energy management, warehouse refrigeration, etc. As of August 29, 1999 the Company...

  • Page 17
    ... of up to $500 million of Costco Common Stock over the next three years. The Company expects to repurchase shares from time to time in the 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...

  • Page 18
    ... financial condition of the Company. Both the Company's independent public accountants and internal auditors have complete access to the Audit Committee. Richard A. Galanti Executive Vice President and Chief Financial Officer REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Costco Wholesale Corporation...

  • Page 19
    COSTCO WHOLESALE CORPORATION CONSOLIDATED BALANCE SHEETS (dollars in thousands except par value) ASSETS August 29, 1999 August 30, 1998 CURRENT ASSETS Cash and cash equivalents . . Short-term investments ...Receivables, net ...Merchandise inventories, net Other current assets ...Total current ...

  • Page 20
    ... WHOLESALE CORPORATION CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share data) 52 Weeks Ended August 29, 1999 52 Weeks Ended August 30, 1998 52 Weeks Ended August 31, 1997 REVENUE Net sales ...Membership fees and other ...Total revenue ...OPERATING EXPENSES Merchandise costs...

  • Page 21
    COSTCO WHOLESALE CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the 52 weeks ended August 29, 1999, August 30, 1998 and August 31, 1997 (in thousands) Other Accumulated Common Stock Additional Paid-In Comprehensive Shares Amount Capital Income/(Loss) Retained Earnings Total ...

  • Page 22
    COSTCO WHOLESALE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) 52 Weeks Ended August 29, 1999 52 Weeks Ended August 30, 1998 52 Weeks Ended August 31, 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net income ...Adjustments to reconcile net income to net cash provided by ...

  • Page 23
    ... eliminated in consolidation. 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...

  • Page 24
    ...of cost or market as determined primarily by the retail inventory method, and are stated using the last-in, first-out (LIFO) method for substantially all U.S. merchandise inventories. The Company believes the LIFO method more fairly presents the results of operations by more closely matching current...

  • Page 25
    ... be used for general corporate purposes including stock option grants under stock option programs. As of August 29, 1999, the Company had not repurchased any stock under the program. Preopening Expenses Preopening expenses related to new warehouses, major remodels/expansions, regional offices and...

  • Page 26
    ... per share data) Note 1-Summary of Significant Accounting Policies (Continued) Membership Fees Membership fee revenue represents annual membership fees paid by substantially all of the Company's members. Effective with the first quarter of fiscal 1999, the Company changed its method of accounting...

  • Page 27
    ... 6.0 million shares of Costco Common Stock as a result of the call for redemption of the Convertible Subordinated Debentures. Derivatives The Company has limited involvement with derivative financial instruments and only uses them to manage well-defined interest rate and foreign exchange risks...

  • Page 28
    COSTCO WHOLESALE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) Note 1-Summary of Significant Accounting Policies (Continued) liabilities at the date of the financial statements and the reported amounts of revenues and expenses ...

  • Page 29
    COSTCO WHOLESALE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) Note 2-Debt (Continued) Short-Term Borrowings The weighted average borrowings, highest borrowings and interest rate under all short-term borrowing arrangements were as ...

  • Page 30
    ...interest to date of redemption) any time on or after August 19, 2002. On March 29, 1999, $48,000 principal amount of the Zero Coupon Notes were converted by note holders to 545,016 shares of Costco Common Stock. In February, 1996, the Company filed with the Securities and Exchange Commission a shelf...

  • Page 31
    ... and Stock Option Plan (the New Stock Option Plan) provides for the issuance of up to 30 million shares of the Company's common stock upon the exercise of stock options or up to 1,666,666 shares through stock grants. Prior to the merger of The Price Company and Costco Wholesale Corporation, various...

  • Page 32
    ... 7 years 37% 0% 5.60% 7 years 34% 0% 6.40% 7 years 34% 0% Stock option transactions relating to the aggregate of the Old and New Stock Option Plans are summarized below (shares in thousands): Shares 1999 Price(1) Shares 1998 Price(1) Shares 1997 Price(1) Under option at beginning of year Granted...

  • Page 33
    .... Note 5-Retirement Plans The Company has a 401(k) Retirement Plan that is available to all U.S. employees who have one year or more of service, except California union employees. The plan allows pre-tax deferral against which the Company matches 50% of the first one thousand dollars of employee...

  • Page 34
    COSTCO WHOLESALE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands, except per share data) Note 6-Income Taxes (Continued) Reconciliation between the statutory tax rate and the effective rate for fiscal 1999, 1998, and 1997 is as follows: 1999 1998 1997 ...

  • Page 35
    ... additional share of common stock for every share held on the record date of December 24, 1999. Additional shares will be mailed or delivered on or about January 13, 2000, by the Company's transfer agent, ChaseMellon Shareholder Services. The common stock will begin trading at a post-split price on...

  • Page 36
    ... re-incorporation and name change to Costco Wholesale Corporation in August 1999), the stock has been quoted on The Nasdaq Stock Market's National Market under the symbol ''COST.'' The following table sets forth the closing high and low sales prices of Costco Common Stock for the period January...

  • Page 37
    ... Ancillary Business Jeffrey R. Long Senior Vice President, Northeast Region Edward B. Maron, Jr. Executive Vice President, COO-Canadian Division John Matthews Senior Vice President, Human Resources and Risk Management Paul G. Moulton Executive Vice President, Marketing, e-Commerce, Member Services...

  • Page 38
    ...-Security/Labor Relations Robert E. Nelson Financial Planning & Investor Relations Gary F. Ojendyk GMM-Hardlines Richard J. Olin Real Estate & Law, General Counsel John R. Osterhaus Photo, Optical & Hearing Aids Shawn Parks Operations-Los Angeles Region Roger E. Peterson Operations-San Diego Region...

  • Page 39
    ... annual report to the Securities and Exchange Commission on Form 10-K and quarterly report on Form 10-Q will be provided to any shareholder upon written request directed to Investor Relations, Costco Companies, Inc., 999 Lake Drive, Issaquah, Washington 98027. Internet users can access recent sales...

  • Page 40