Costco 2006 Annual Report Download - page 12

Our warehouses accept cash, checks, certain debit cards, American Express and a private label
Costco credit card. Losses associated with dishonored checks have been minimal as members who
have issued dishonored checks are identified and prevented from cashing checks at the point of sale
until restitution is made.
We have direct buying relationships with many producers of national brand name merchandise. No
significant portion of merchandise is obtained from any one of these or any other single supplier. We
have not experienced any difficulty in obtaining sufficient quantities of merchandise, and believe that if
one or more of our current sources of supply became unavailable, we would be able to obtain
alternative sources without experiencing a substantial disruption of our business. We also purchase
selected private label merchandise, as long as quality and customer demand are comparable and the
value to our members is greater.
Financial information of our segments and geographic areas is included in Note 12, Segment
Reporting, to the accompanying consolidated financial statements.
We report on a 52/53-week fiscal year, consisting of thirteen four-week periods and ending on the
Sunday nearest the end of August. The first, second and third quarters consist of three periods each,
and the fourth quarter consists of four periods (five weeks in the thirteenth period in a 53-week year).
There is no material seasonal impact on our operations, except an increased level of net sales and
earnings during the winter holiday season. Fiscal year 2006 was a 53-week year, and fiscal years 2005
and 2004 each consisted of 52 weeks.
Membership Policy
Our membership format is designed to reinforce customer loyalty and provide a continuing source of
membership fee revenue, which allows us to offer low prices.
Members can utilize their memberships at any Costco warehouse location. We have two primary types
of members: Business, and Gold Star (individual). In addition, members can upgrade to an Executive
Membership. We continue to experience strong member renewal rates, currently at 86.5%. As of
September 3, 2006, our membership base was made up of the following (in thousands):
Gold Star .................................................. 17,338
Business .................................................. 5,214
Total primary cardholders ................................. 22,552
Add-on cardholders .......................................... 25,127
Total cardholders ............................................ 47,679
Businesses, including individuals with a business license, retail sales license or other evidence of
business existence, may become Business members. Business members generally pay an annual
membership fee of $50 for the primary and spouse membership card, with add-on membership cards
available for an annual fee of $40 (including a free spouse card). A significant number of our business
members also shop at Costco for their personal needs.
Individual memberships (Gold Star memberships) are available to individuals who do not qualify for a
Business membership. Individual members generally pay an annual membership fee of $50, which
includes a spouse card.
Executive Membership is available to all members in the U.S. and Canada for an annual fee of $100.
The Executive Membership program offers members additional savings and benefits on various
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