Costco 2008 Annual Report Download - page 6

serve the many businesses in that city. Our plans call for opening an additional 16 to 18 new
warehouses and relocating two more prior to the close of our 2009 fiscal year in August 2009; four of
these will be international units. In particular, we look forward to opening our first unit in Australia
during the summer of 2009. With a population of 20 million people, economic and political stability,
strong spending power and a demand for brand-name products, we believe Australia will be a good fit
for Costco. We are truly an international Company. In addition to the forty states in the U.S., we now
operate in Puerto Rico, in nine Canadian Provinces, as well as in Mexico, the United Kingdom, Japan,
Korea, Taiwan and soon Australia.
Our Company now operates six successful Business Centers in the U.S., primarily dedicated to helping
our business members. We see an opportunity to grow this business in fiscal 2009, and are evaluating
several sites in metropolitan areas.
To support our warehouse operations, we continue to enhance the efficiency of shipping and delivery
through our cross-dock depot operation. This year, we will add new cross-dock facilities in Airdrie,
Alberta; Tepeji, Mexico; and Frederick, Maryland. We consider our “state of the art” depot operations to
be one of the most efficient forms of distribution in the world.
In addition to our “brick and mortar” operations, which is the heart of our business, Costco continues to
be highly successful in the e-commerce arena, where members can order products generally not found
in our warehouses on-line. Both our U.S. business, costco.com, and our Canadian operation,
costco.ca, along with the e-commerce portion of our Business Delivery operation, posted record sales
increases in fiscal 2008, bringing in nearly $2.0 billion of revenue in the U.S. and more than $150
million in Canada, all at profitable levels. By utilizing the same creativity and efficiencies that
characterize everything we do at Costco, we have created a high level of loyalty among our online
shoppers; and we expect to grow this business to $5 billion within the next several years.
Costco is operated with the highest degree of fiduciary integrity and responsibility, and we are proud of
our healthy balance sheet and strong cash flow. We expended nearly $3 billion for three major
activities in FY 2008. The largest amount, $1.6 billion, went for capital expenditures, primarily the
construction of new warehouses and depots, as well as the remodeling, expanding and upgrading of
many of our existing buildings. We spent almost $900 million to buy back 13.8 million shares of our
common stock. Since inception, our stock buy-back program has enabled us to purchase nearly 17%
of the outstanding shares of Costco stock through the end of fiscal 2008. By repurchasing shares of
stock, the Company believes that it enhances its earnings growth and offsets dilution from stock option
exercises and restricted stock unit grants. In addition, we recently increased our quarterly cash
dividend from $.145 a share to $.16 a share; and paid out over $265 million in dividends to our
shareholders in fiscal 2008.
We continue to emphasize cost controls in every area of our business and are pleased that we were
able to reduce our operating expenses as a percentage of sales in fiscal 2008. There are ample
opportunities for Costco to improve our business, and we will continue to stress cost containment and
expense reduction in 2009.
All of us are dealing with the challenges of increased inflation. At Costco, we have experienced more
price increases from our suppliers in fiscal 2008 than any time in the 25-year history of our business. In
many instances we were able to make buy-ins (purchasing large amounts of product prior to price
escalations) in order to hold off price increases to our members for as long as possible. Since the
beginning of September (our new fiscal year 2009) we have seen some mitigating of these price
escalations as a result of falling fuel and commodities prices.
It is our total dedication to Costco’s mission statement, to continually provide quality goods and
services to our members at the lowest possible prices, that allows our Company to continue to
4