Costco 2000 Annual Report Download - page 12

Preopening expenses totaled $42,321, or 0.13% of net sales, during Ñscal 2000 and $31,007, or 0.11% of
net sales, during Ñscal 1999. During Ñscal 2000, the Company opened 25 new warehouses compared to 21 new
warehouses during Ñscal 1999. Pre-opening expenses also include costs related to remodels, expanded fresh
foods and ancillary operations at existing warehouses, as well as expanded international operations, and the
opening of two new regional oÇces.
The provision for impaired assets and warehouse closing costs was $7,000 in Ñscal 2000 compared to
$56,500 in Ñscal 1999. The Ñscal 2000 provision includes a charge of $10,956 for the impairment of long-lived
assets, which was oÅset by $3,956 of gains on the sale of real property. The Ñscal 1999 provision includes a
charge of $31,080 for the impairment of long-lived assets and $30,865 for warehouse and other facility closing
costs, which were oÅset by $5,445 of gains on the sale of real property. The provision for warehouse closing
costs in Ñscal 1999 includes $24,773 for future lease obligations and $6,092 for other expenses directly related
to the closedown of warehouses and other facilities. At September 3, 2000, the reserve for warehouse closing
costs was $11,762, of which $8,887 related to future lease obligations.
Interest expense totaled $39,281 in Ñscal 2000, and $45,527 in Ñscal 1999. The decrease in interest
expense is primarily due to an increase in capitalized interest related to construction projects and a decrease in
the interest rate related to the 7±% Senior Notes due to entering into a ""Ñxed-to-Öoating'' interest rate swap
agreement in December 1999 that eÅectively converted the Ñxed rate of 7±% to a Öoating rate indexed to the
30-day commercial paper rate. In August 2000, the swap agreement was amended to index the Öoating rate to
the three-month LIBOR rate.
Interest income and other totaled $54,226 in Ñscal 2000 compared to $44,266 in Ñscal 1999. The increase
was primarily due to higher rates of interest earned on higher balances of cash and cash equivalents and short-
term investments during Ñscal 2000 as compared to Ñscal 1999 and improved earnings from Costco Mexico; a
50% owned joint venture.
The eÅective income tax rate on earnings was 40% in both Ñscal 2000 and Ñscal 1999.
Comparison of Fiscal 1999 (52 weeks) and Fiscal 1998 (52 weeks):
(dollars in thousands, except earnings per share)
Net income for Ñscal 1999 was impacted by both a $50,000 fourth quarter pre-tax provision for impaired
assets and warehouse closing costs, as well as the one-time $118,023 non-cash, after-tax charge recorded in
the Ñrst quarter of Ñscal 1999, reÖecting the cumulative eÅect of the Company's change in accounting for
membership fees from a cash to a deferred method. The impact of these two charges resulted in net income
for Ñscal 1999 of $397,298, or $.86 per diluted share compared to Ñscal 1998 net income of $459,842, or $1.01
per diluted share. Excluding the impact of these two charges, net income in Ñscal 1999 would have been
$545,321, or $1.18 per diluted share. Assuming the newly adopted accounting treatment for deferring
membership fees had been in eÅect in Ñscal 1998, net income for Ñscal 1998 would have been $444,451, or
$.98 per diluted share; and the year-over-year earnings per share increase, adjusted for these items, would have
been 20%.
Net sales increased 13% to $26,976,453 in Ñscal 1999 from $23,830,380 in Ñscal 1998. This increase was
due to: (i) higher sales at existing locations opened prior to Ñscal 1998; (ii) increased sales at 16 warehouses
that were opened in Ñscal 1998 and in operation for the entire 1999 Ñscal year; and (iii) Ñrst year sales at the
14 new warehouses opened (21 opened, 7 closed) during Ñscal 1999. Changes in prices did not materially
impact sales levels.
Comparable sales, that is sales in warehouses open for at least a year, increased at a 10% annual rate in
Ñscal 1999 compared to an 8% annual rate during Ñscal 1998.
Membership fees and other revenue increased 9% to $479,578, or 1.78% of net sales, in Ñscal 1999 from
$439,497, or 1.84% of net sales, in Ñscal 1998. This increase is primarily due to membership sign-ups at the
14 new warehouses opened in Ñscal 1999 and a Ñve dollar increase in the annual membership fee for both
Business and Gold Star members eÅective April 1, 1998 in the United States and May 1, 1998 in Canada.
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