COSTCO WHOLESALE CORPORATION. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) NOTE (4) -- COMMITMENTS AND CONTINGENCIES (CONTINUED) Additionally, the Company announced plans to reorganize and consolidate the administration of its operations in Canada. Anticipated costs related to the reorganization are estimated to total $26,000 pre-tax ($15,600 after-tax, or $.03 per diluted share), to be expensed as incurred over the next three to four fiscal quarters. NOTE (5) -- SEGMENT REPORTING The Company and its subsidiaries are principally engaged in the operation of membership warehouses in the United States, Canada, and Japan; through majority-owned subsidiaries in the United Kingdom, Taiwan and Korea; and through a 50%-owned joint venture in Mexico. The Company's reportable segments are based on management responsibility. UNITED STATES OPERATIONS CANADIAN OPERATIONS OTHER INTERNATIONAL OPERATIONS TOTAL ------------- ---------- ------------- ----------- TWENTY-FOUR WEEKS ENDED FEBRUARY 18, 2001 Total revenue......................... $13,045,447 $2,218,259 $ 679,881 $15,943,587 Operating income (loss)............... 404,402 96,708 (1,915) 499,195 Depreciation and amortization......... 106,196 16,480 10,943 133,619 Capital expenditures.................. 650,513 24,127 53,682 728,322 Total assets.......................... 7,734,541 1,018,995 752,746 9,506,282 TWENTY-FOUR WEEKS ENDED FEBRUARY 13, 2000 Total revenue......................... $11,917,461 $2,172,814 $ 590,224 $14,680,499 Operating income (loss)............... 417,215 96,738 (420) 513,533 Depreciation and amortization......... 89,088 17,156 8,180 114,424 Capital expenditures.................. 432,234 21,023 61,861 515,118 Total assets.......................... 6,431,002 1,078,600 598,744 8,108,346 AR ENDED SEPTEMBER 3, 2000 Total revenue......................... $26,170,108 $4,743,657 $1,250,531 $32,164,296 Operating income (loss)............... 848,605 192,310 (3,465) 1,037,450 Depreciation and amortization......... 198,436 36,563 19,398 254,397 Capital expenditures.................. 998,429 41,962 188,030 1,228,421 Total assets.......................... 6,833,440 1,134,998 665,502 8,633,940 YE 18 1 EXHIBIT 28 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Costco Wholesale Corporation: We have reviewed the accompanying condensed consolidated balance sheet of Costco Wholesale Corporation (a Washington corporation) and subsidiaries as of February 18, 2001, and th...
COSTCO WHOLESALE CORPORATION. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) NOTE (1)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SHORT-TERM INVESTMENTS At May 7, 2000 and August 29, 1999 short term investments consisted of the following: MAY 7, 2000 ------------ AUGUST 29, 1999 ---------------- Municipal securities............................... $ 6,453 $ 97,966 Corporate notes and bonds.......................... 97,451 89,872 U.S. Treasury/Agency securities.................... 2,340 43,699 Certificates of deposit............................ 33,490 24,841 Foreign Bonds...................................... 1,312 -- Other.............................................. Total short-term investments..................... 62 -------- $141,108 ======== 310 -------- $256,688 ======== The Company's short-term investments have been designated as being available-for-sale. The fair market value of short-term investments approximates their carrying value and unrealized holding gains and losses were not significant at May 7, 2000 or August 29, 1999. Realized gains and losses are included in interest income and were not significant in the first thirty-six weeks of fiscal 2000 or 1999. RECEIVABLES Receivables consist primarily of vendor rebates and promotional allowances and other miscellaneous amounts due to the Company, and are net of allowance for doubtful accounts of $3,257 and $4,582 at May 7, 2000 and August 29, 1999.
COSTCO WHOLESALE CORPORATION. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) 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 for membership fee income from a "cash basis" to a "deferred basis" whereby membership fee income is recognized ratably over the one-year life of the membership. The change to the deferred method of accounting for membership fees resulted in a one-time, non-cash, pre-tax charge of approximately $196,705 ($118,023 after-tax, or $.25 per diluted share) to reflect the cumulative effect of the accounting change as of the beginning of fiscal 1999. WAREHOUSE CLOSING COSTS The Company recorded a charge of $30,865 for warehouse and other facility closing costs in fiscal 1999. In the first and second quarters of fiscal 2000, the Company recorded additional charges of $1,000 and $1,500, respectively, in net warehouse closing costs. At February 13, 2000 the reserve for warehouse closing costs was $20,686, primarily representing future lease obligations. Warehouse closing costs incurred relate principally to the Company's efforts to relocate certain warehouses that were not otherwise impaired to larger and better-located facilities.
COSTCO WHOLESALE CORPORATION. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) NOTE (2)--COMPREHENSIVE INCOME Consolidated comprehensive income is as follows: 12 WEEKS ENDED 36 WEEKS ENDED --------------------------- --------------------------- MAY 7, 2000 ------------ MAY 9, 1999 ------------ MAY 7, 2000 ------------ MAY 9, 1999 ------------ Net income...................................... $120,329 $105,877 $431,255 $244,120 Other comprehensive income (expense): Foreign currency translation.................. (30,174) 13,180 1,702 46,376 Income tax expense............................ Other comprehensive income(loss), net of 12,070 -------- (5,272) -------- (681) -------- (18,550) --------
COSTCO WHOLESALE CORPORATION. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) NOTE (1) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Effective December 10, 1999, the Company entered into a "fixed-to-floating" interest rate swap agreement on its $300,000 7 1/8% Senior Notes, which, as amended, replaced the fixed interest rate with a floating rate indexed to the three month LIBOR rate. The notional amount of the swap agreement was equal to the face value of the notes ($300,000). This swap agreement contained an expiration date of June 15, 2005, coinciding with the maturity date of the Senior Notes. Effective December 12, 2000, the Company terminated the swap agreement resulting in a gain of approximately $5,000, which is being amortized over the remaining term of the debt. Foreign Currency Translations Assets and liabilities recorded in foreign currencies, as well as the Company's investment in the Costco Mexico joint venture, are translated at the exchange rate on the balance sheet date. Translation adjustments resulting from this process are charged or credited to other accumulated comprehensive loss. Revenue and expenses of the Company's consolidated foreign operations are translated at average rates of exchange prevailing during the year. Gains and losses on foreign currency transactions are included in expenses. Membership Fees Membership fee revenue represents annual membership fees paid by substantially all of the Company's members. Membership fee income is accounted for on a "deferred basis," whereby income is recognized ratably over the one-year life of the membership. Preopening Expenses Preopening expenses related to new warehouses, major remodels/expansions, regional offices and other start-up operations are expensed as incurred. Warehouse Closing Costs Warehouse closing costs incurred relate principally to the Company's efforts to relocate certain warehouses that were not otherwise impaired to larger and better-located facilities. At February 18, 2001, the reserve for warehouse closing costs was $11,092, of which $8,110 related to future lease obligations. Income Taxes The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." That standard requires companies to account for deferred income taxes using the asset and liability method.
COSTCO WHOLESALE CORPORATION. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) NOTE (1) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Net Income Per Common and Common Equivalent Share The following data show the amounts used in computing earnings per share and the effect on income and the weighted average number of shares of dilutive potential common stock. 12 WEEKS ENDED 36 WEEKS ENDED MAY 13, MAY 7, MAY 13, MAY 7, 2001 2000 2001 2000 Net income available to common stockholders used in basic EPS.................................. $105,257 $120,329 $411,355 $431,255 Interest on convertible bonds, net of tax....... 2,264 2,230 6,792 6,691 Net income available to common stockholders after assumed conversions of dilutive securities.................................... $107,521 $122,559 $418,147 $437,946 ======== ======== ======== ======== Weighted average number of common shares used in basic EPS (000's)............................. 450,195 448,113 448,886 445,557 Stock options (000's)........................... 6,300 11,290 6,742 11,504 Conversion of convertible bonds (000's)......... 19,345 19,347 19,345 19,348 Weighted number of common shares and dilutive potential common stock used in diluted EPS (000's)....................................... 475,840 478,750 474,973 476,409 ======== ======== ======== ======== The diluted share base calculation for the fiscal quarters ended May 13, 2001 and May 7, 2000, excludes 7,091,411 and 160,000 stock options outstanding, respectively. The diluted share base calculation for the fiscal year-to-date periods ended May 13, 2001 and May 7, 2000, excludes 7,132,315 and 53,333 stock options outstanding, respectively. These options are excluded due to their anti-dilutive effect as a result of their exercise prices being greater than the average market price of the common shares during those fiscal periods. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE (2) -- COMPREHENSIVE INCOME Consolidated comprehensive income is as follows: 12 WEEKS ENDED 36 WEEKS ENDED -------------------- -------------------- MAY...
COSTCO WHOLESALE CORPORATION. By ------------------------------------------- Executive Vice President Attest --------------------------- Title: Assistant Secretary U.S. BANK National Association, as Trustee By ----------------------------------------- Title: Authorized Signatory Attest --------------------------- Title: Assistant Secretary First Supplemental Indenture Signature Page
COSTCO WHOLESALE CORPORATION. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) NOTE (1) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Short-term Investments At February 18, 2001 and September 3, 2000 short-term investments consisted of the following: FEBRUARY 18, SEPTEMBER 3, 2001 2000 ------------ ------------ Corporate notes and bonds........................... $15,027 $38,331 U.S. Treasury/Agency securities..................... 4,713 -- Certificates of deposit............................. 6,004 9,667 Other............................................... Total short-term investments.............. 408 ------- $26,152 ======= 28 ------- $48,026 ======= The Company's short-term investments have been designated as being available-for-sale. The fair market value of short-term investments approximates their carrying value and unrealized holding gains and losses were not significant at February 18, 2001 or September 3, 2000. Realized gains and losses are included in interest income and were not significant in the first half of fiscal 2001 or 2000. Receivables Receivables consist primarily of vendor rebates and promotional allowances and other miscellaneous amounts due to the Company, and are net of allowance for doubtful accounts of $3,580 and $3,368 at February 18, 2001 and September 3, 2000, respectively. Merchandise Inventories Merchandise inventories are valued at the lower 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 costs with current revenues. If all merchandise inventories had been valued using the first-in, first-out (FIFO) method, inventories would have been higher by $13,150 at February 18, 2001 and $8,150 at September 3, 2000. The Company provides for estimated inventory losses between physical inventory counts on the basis of a standard percentage of sales. This provision may be adjusted to reflect the actual shrinkage results of physical inventory counts, which generally occur in the second and fourth fiscal quarters.
COSTCO WHOLESALE CORPORATION. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) NOTE (2) -- COMPREHENSIVE INCOME Consolidated comprehensive income is as follows: 12 WEEKS ENDED 24 WEEKS ENDED ---------------------------- ---------------------------- FEBRUARY 18, FEBRUARY 13, FEBRUARY 18, FEBRUARY 13, 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Net income................................. $176,577 $181,608 $306,098 $310,926 Other comprehensive income (expense): Foreign currency translation............. 17,424 17,530 (38,268) 31,876 Income taxes............................. (6,970) (7,012) 15,307 (12,750) -------- -------- -------- -------- Other comprehensive income (expense), net of income taxes....................... 10,454 10,518 (22,961) 19,126 -------- -------- -------- -------- Comprehensive income....................... $187,031 $192,126 $283,137 $330,052 ======== ======== ======== ======== NOTE (3) -- DEBT Bank Credit Facilities and Commercial dollars) Paper Programs (all amounts stated in US The Company has in place a $500,000 commercial paper program supported by a $500,000 bank credit facility with a group of 11 banks, of which $250,000 expires on November 14, 2001 and $250,000 expires on November 15, 2005. At February 18, 2001, no amounts were outstanding under the loan facility or the commercial paper program. In addition, a wholly owned Canadian subsidiary has a $130,000 commercial paper program supported by a $91,000 bank credit facility with three Canadian banks, which expires in April, 2001. The Company expects to renew the facility for an additional year. At February 18, 2001, no amounts were outstanding under the bank credit facility or the Canadian commercial paper program. The Company has agreed to limit the combined amount outstanding under the U.S. and Canadian commercial paper programs to the $591,000 combined amounts of the respective supporting bank credit facilities. Letters of Credit The Company has separate letter of credit facilities (for commercial and standby letters of credit), totaling approximately $318,000. The outstanding commitments under these facilities at February 18, 2001 totaled approximately $163,000, including approximately $29,000 in standby letters of credit. Financing Activities The Company's unsecured note payable to banks of $140,000, included in other current liabilities, is due in April 2001. The Company anticipates funding this repaymen...
