Financial Statement Analysis Class

Discussion Case: Costco

Financial Statement Analysis

ACC 411
Winter 2017

Professor Charles E. Wasley

Simon School of Business

University of Rochester

Professor Charles Wasley 1

Assignment for Class

This is a class discussion case on applied financial analysis which is designed to tie
together and illustrate the topics discussed so far in the course. While the case contains
questions, you are not required to prepare detailed answers to any of them. I will
basically present the case in a lecture/class discussion format.

So you can participate in the class discussion of the case and so that you get the
maximum out of that discussion, I suggest you sketch out in your head, or on paper if
you like, how you would go about addressing the case questions. You can then compare
it with how I went about addressing the assigned questions as well as with the
suggestions made in class by students.

The case assignment includes financial statement data for Costco, some other financial
information related to Costcos operations and some ratio analysis. Familiarize yourself
with this information because it will be used to address the case questions. When we
discuss the case in class I will assume that you have carefully read the case itself and that
you are totally familiar with all of the information (e.g., ratios etc.) included in the case
assignment.
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Question 1

1) What are 4 main financial features of Costcos

business model?

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Question 2

2) What are 4 important drivers of Costcos

FUTURE success?

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Question 3

3) Agree or disagree, memberships have been

critical to Costcos profitability over the 1997 to
2001 period. Either way, provide quantitative
support for your answer.

Professor Charles Wasley 5

Question 4

4) After a 3 martini lunch, Professor Wasley was overheard

making the following comment about Costco:

Costco does a great job of squeezing costs out of the supply and
distribution channels and passes along the savings to customers
rather than retaining them as profits. As a result, it operates on a
very low net margin, about 2.0% (or even a little less). Professor
Wasley went on to say that Costco would be even better off if it was
able to reduce its net margin close to 0%.

Before he could explain the rationale behind his comment, Professor

Wasley passed out (after gulping down his 4th martini, which was
shaken not stirred). Briefly comment on the sensibility of Professor
Wasleys suggestion for Costco. Does it have merit, why or why not?
Professor Charles Wasley 6
Question 5

5) Use the information given in the original case

and/or that handed out with the case assignment
(i.e., the ratios I calculated for you) to analyze the
changes in Costcos profitability over the past 3
fiscal years (1999, 2000 and 2001).

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Question 6

6) Costcos ROE declined from about 16.2% for fiscal 2000

to about 13.2% in fiscal 2001.

One interpretation of this change is it reflects a significant

deterioration of the firms operational efficiency.

I believe there is an alternative interpretation for the ROE

decline which is not as onerous (i.e., as negative) as the one
above. What is it?

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Question 7

7) Use the information given in the original case and/or that

handed out with the case assignment (i.e., the ratios I
calculated for you) to analyze the changes in Costcos asset
utilization, liquidity and solvency over the past 3 fiscal years
(1999, 2000 and 2001). For example, among other things,
has Costco become more or less efficient over time (1999-
2001).

Professor Charles Wasley 9

Question 8

8) The case contained information about Costcos

potential competitors and the case assignment also
contains information about competitors.
a) Identify and justify the firm or firms you would define as Costcos
closet competitor.
b) What are the 4 most important observations you would make to
differentiate them?

Professor Charles Wasley 10

 Question 9

9a) Costcos Net Sales increased by 8.0% in 2001 and 17.2%

in 2000.
Why must an analyst interpret the annual growth in Costcos Net Sales
(excluding membership fee revenue) with caution?

9b) Information in the case assignment includes data on

average and total sales per store (warehouse).
How could you use this information to get a better handle on the
nature of Costcos annual growth in Costcos Net Sales?

Professor Charles Wasley 11

Question 10

10a) How much of Costcos (average) investment in

Inventory during the fiscal year ending 9/2/2001 was in the
form of the firms own resources?

10b) Costcos days inventory held was about 30 for the

fiscal year ending 9/2/2001. If this had instead been 25
days, how much more or less cash would Costco have
generated (i.e., had on hand)?

10c) Costcos days payable outstanding was about 28 for

the fiscal year ending 9/2/2001. If this had instead been 40
days, how much more or less cash would Costco have
generated (i.e. had on hand)?
Professor Charles Wasley 12
Question 11

11) A slide appearing at the end of the case assignment

describes a change in accounting for Membership Fees that
Costco made in 1999.
a) Which policy was more aggressive, the new one or the old one?
Why?
b) How much higher or lower, state which, would Costcos pretax
income AND net income have been in the fiscal years ending
8/29/1999, 9/3/2000 and 9/2/2001 if the change in accounting had
not been made?
c) What impact did the change have on Costcos cash flow in 1999?

Professor Charles Wasley 13

Average Sales per Store

AVERAGE SALES PER WAREHOUSE (IN MILLIONS)

# OF
YEAR OPENED WAREHOUSES
2001 32 $57
2000 21 $55 $64
1999 14 $65 $77 $86
1998 17 $50 $58 $72 $77
1997 10 $56 $70 $85 $99 $106
1996 18 $46 $53 $61 $68 $80 $83
1995 19 $51 $58 $69 $76 $82 $92 $93
1994 27 $57 $60 $68 $76 $83 $90 $99 $101
1993 34 $59 $62 $69 $74 $79 $84 $90 $98 $101
1992 & BEFORE 153 $84 $82 $83 $82 $85 $91 $98 $107 $117 $121
TOTALS 345 $84 $78 $76 $75 $77 $83 $87 $94 $101 $101

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

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 Total Sales per Store
TOTAL SALES PER WAREHOUSE (IN MILLIONS)
# OF
YEAR OPENED WAREHOUSES
2001 32 $1,824
2000 21 $1,155 $1,344
1999 14 $910 $1,078 $1,204
1998 17 $850 $986 $1,224 $1,309
1997 10 $560 $700 $850 $990 $1,060
1996 18 $828 $954 $1,098 $1,224 $1,440 $1,494
1995 19 $969 $1,102 $1,311 $1,444 $1,558 $1,748 $1,767
1994 27 $1,539 $1,620 $1,836 $2,052 $2,241 $2,430 $2,673 $2,727
1993 34 $2,006 $2,108 $2,346 $2,516 $2,686 $2,856 $3,060 $3,332 $3,434
1992 & BEFORE 153 $12,852 $12,546 $12,699 $12,546 $13,005 $13,923 $14,994 $16,371 $17,901 $18,513
TOTALS 345 $12,852 $14,552 $16,346 $17,481 $19,287 $21,486 $24,183 $27,389 $31,541 $34,676

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
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New Store Openings (Actual and
Projected)

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Capital Expenditures
(Actual and Projected)

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Change in Accounting Method
for Membership Fees

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Financial Information

To facilitate your preparation for class, the

following pages contain:
Some ratio analysis and other financial analysis I
prepared for Costco.
Some ratios for Costco, Wal-Mart and BJs
Wholesale Club.
Costcos financial statements.

Professor Charles Wasley 19

Costco Wholesale Corp
RATIOS
FISCAL YEAR ENDED 9/2/2001 9/3/2000 8/29/1999 8/30/1998
RETURN ON EQUITY
ROE 13.2% 16.2% 12.2% 16.9%
ROA MARGIN (NOPAT MARGIN) 1.7% 1.9% 1.4% 1.9%
ASSET TURNOVER 3.72 3.99 3.99 4.14
ROA 6.4% 7.7% 5.8% 8.0%
COMMON EARNINGS LEVERAGE 1.01 1.01 1.00 0.97
FINANCIAL LEVERAGE 2.05 2.08 2.12 2.16
ROE = NOPAT MARGIN * A/T * CEL * LEV 13.2% 16.2% 12.2% 16.9%
ROE = ROA * CEL * LEV 13.2% 16.2% 12.2% 16.9%

FISCAL YEAR ENDED 9/2/2001 9/3/2000 8/29/1999 8/30/1998

KEY DRIVERS OF RETURN ON EQUITY
COST OF GOODS/SALES 87.9% 88.1% 88.0% 88.1%
GROSS PROFIT MARGIN 12.1% 11.9% 12.0% 11.9%
SGA/SALES 9.0% 8.6% 8.5% 8.5%
INTEREST INCOME /SALES 0.1% 0.2% 0.2% 0.1%
INTEREST EXPENSE/SALES 0.1% 0.1% 0.2% 0.2%
Preopening expenses/SALES 0.2% 0.1% 0.1% 0.1%
Provision for impaired assets & closing costs/SALES 0.1% 0.0% 0.2% 0.0%
TOTAL OPERATING EXPENSES/SALES 9.2% 8.7% 8.8% 8.7%
EBT/SALES 2.9% 3.3% 3.1% 3.2%
EBIT/SALES 2.9% 3.2% 3.1% 3.2%
EBITDA/SALES 2.9% 3.2% 3.1% 3.2%
INCOME TAX/ SALES 1.2% 1.3% 1.3% 1.3%
NET INCOME/SALES 1.7% 2.0% 1.4% 1.9%
Professor Charles Wasley 20
Costco Wholesale Corp
FISCAL YEAR ENDED 9/2/2001 9/3/2000 8/29/1999 8/30/1998
ALTERNATIVE DECOMPOSITION OF ROE:
ROE (FROM ABOVE) 13.2% 16.2% 12.2% 16.9%
OPERATING ROA:
NOPAT 595,361 622,470 398,055 472,366
SALES 34,797,037 32,164,296 27,456,031 24,269,877
NOPAT MARGIN 1.7% 1.9% 1.4% 1.9%
NOPAT MARGIN (FROM ABOVE TO CHECK) 1.7% 1.9% 1.4% 1.9%
OPERATING WORKING CAPITAL -570,018 -372,433 -126,915 -5,190
NET LONG-TERM ASSETS 5,468,320 4,482,946 3,732,976 3,351,924
NET ASSETS 4,898,302 4,110,513 3,606,061 3,346,734
OPERATING ROA (NOPAT/NET ASSETS) 12.2% 15.1% 11.0% 14.1%
OPERATING ASSET TURNOVER (OAT) 7.1 7.8 7.6 7.3
OPERATING ROA (NOPAT MARGIN * OAT) 12.2% 15.1% 11.0% 14.1%

FINANCIAL LEVERAGE EFFECT:

NET DEBT 336,692 224,318 357,063 629,733
STOCKHOLDERS' EQUITY 4,561,610 3,886,195 3,248,998 2,717,001
NET FINANCIAL LEVERAGE 7.4% 5.8% 11.0% 23.2%
(INTEREST EXPENSE - INTEREST INCOME) -11,214 -14,945 1,261 20,873
TAX RATE 40.0% 40.0% 40.0% 40.0%
NET INTEREST EXPENSE AFTER TAX (NIEAT) -6728 -8967 757 12524
NET INTEREST RATE AFTER TAX (NIRAT) -2.0% -4.0% 0.2% 2.0%
SPREAD (OPERATING ROA - NIRAT) 14.2% 19.1% 10.8% 12.1%
FIN'L LEVERAGE EFFECT (NFL*SPREAD) 1.0% 1.1% 1.2% 2.8%

ALTERNATIVE ROE CALCULATION:

OPERATING ROA 12.2% 15.1% 11.0% 14.1%
FIN'L LEVERAGE EFFECT 1.0% 1.1% 1.2% 2.8%
OPERATING ROA + FINL LEVERAGE EFFECT 13.2% 16.2% 12.2% 16.9%
ROE (FROM ABOVE) 13.2% 16.2% 12.2% 16.9%
DIFFERENCE (SHOULD BE ZERO) 0.0% 0.0% 0.0% 0.0%

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Costco Wholesale Corp
ASSET MANAGEMENT RATIOS 9/2/2001 9/3/2000 8/29/1999 8/30/1998
A/R TURNOVER 139.43 187.53 161.38 152.28
INVENTORY TURNOVER 11.70 12.05 11.73 11.89
ACCOUNTS PAYABLE TURNOVER (PURCHASES) 12.53 13.92 13.91 14.40
ACCOUNTS PAYABLE TURNOVER (CGS) 12.43 13.78 13.74 14.25
DAYS' RECEIVABLES 2.58 1.92 2.23 2.36
DAYS' INVENTORY 30.76 29.87 30.69 30.29
DAYS' PAYABLE (PURCHASES) 28.74 25.86 25.88 24.99
DAYS' PAYABLE (CGS) 28.97 26.12 26.20 25.26
PP&E TURNOVER 6.53 7.36 7.52 7.41
NET LONG-TERM ASSET TURNOVER 6.36 7.17 7.35 7.24
OPERATING WORKING CAPITAL TO SALES -0.02 -0.01 0.00 0.00
OPERATING WORKING CAPITAL TURNOVER -61.05 -86.36 -216.33 -4676.28
CASH CYCLE (IN DAYS) 4.60 5.93 7.04 7.66

LIQUIDITY RATIOS 9/2/2001 9/3/2000 8/29/1999 8/30/1998

CURRENT RATIO 0.94 1.02 1.16 1.20
QUICK RATIO 0.23 0.22 0.30 0.28
CASH RATIO 0.15 0.15 0.15 0.16
OCF TO CL RATIO 0.27 0.34 0.37 0.35

Solvency and COVERAGE RATIOS 9/2/2001 9/3/2000 8/29/1999 8/30/1998

LTD / (LTD +SE) 15.0% 15.7% 20.6% 23.9%
LTD / SE 17.6% 18.6% 26.0% 31.4%
TOTAL LIABILITIES / TOTAL ASSETS 50.5% 49.6% 51.3% 50.9%
TOTAL LIABILITIES / STOCK EQUITY 104.3% 101.1% 109.1% 107.5%
SE / TOTAL ASSETS 48.4% 49.1% 47.1% 47.4%
DEBT-TO-EQUITY RATIO 21.6% 18.9% 26.0% 31.4%
NET DEBT-TO EQUITY RATIO 9.1% 5.4% 6.3% 16.6%
DEBT-TO-CAPITAL RATIO 17.8% 15.9% 20.6% 23.9%
NET DEBT-TO-NET CAPITAL RATIO 8.4% 5.1% 5.9% 14.2%
OCF TO TL RATIO 0.22 0.26 0.27 0.24

INTEREST COVERAGE (EARNINGS BASIS) 30.99 26.41 18.89 16.56

INTEREST COVERAGE (CASH BASIS) 95.59 63.90 46.59 35.08
COMMON SHARES REPURCHASES TO OCF 0.00 0.09 0.00 0.00
OCF TO CAPEX RATIO 0.71 0.87 1.19 1.29

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Costco Wholesale Corp
COMMON-SIZE BALANCE SHEET (ASSETS)
FISCAL YEAR ENDED 9/2/2001 9/3/2000 8/29/1999 8/30/1998
CASH 5.97% 6.07% 5.87% 5.78%
SHORT-TERM INVESTMENTS 0.05% 0.56% 3.42% 1.21%
ACCOUNTS RECEIVABLE 3.22% 2.02% 2.25% 2.74%
INVENTORIES 27.14% 28.84% 29.45% 30.52%
OTHER CURRENT ASSETS 2.10% 2.70% 3.19% 1.73%
TOTAL CURRENT ASSETS 38.48% 40.19% 44.18% 41.99%
PROP, PLANT & EQUIP (GROSS) 73.10% 71.13% 66.94% 69.19%
ACCUMULATED DEP 15.35% 15.14% 14.89% 14.95%
PROP, PLANT & EQUIP (NET) 57.75% 55.99% 52.06% 54.24%
Other assets 3.77% 3.82% 3.76% 3.77%
TOTAL LONG-TERM ASSETS 61.52% 59.81% 55.82% 58.01%
TOTAL ASSETS 100.00% 100.00% 100.00% 100.00%

FISCAL YEAR ENDED 9/2/2001 9/3/2000 8/29/1999 8/30/1998

ACCOUNTS PAYABLE 27.03% 25.45% 25.48% 25.65%
ACCRUED EXPENSES 4.79% 4.89% 5.52% 5.64%
Accrued sales & other taxes 1.52% 1.85% 1.64% 1.64%
Deferred membership income 3.20% 3.04% 3.01% 0.00%
OTHER CURRENT LIAB 2.29% 4.09% 2.54% 2.17%
SHORT-TERM DEBT 1.93% 0.11% 0.00% 0.00%
CURRENT PORTION OF LTD 0.00% 0.00% 0.00% 0.00%
TOTAL CURRENT LIAB 40.76% 39.43% 38.19% 35.10%
LONG TERM DEBT 8.52% 9.15% 12.24% 14.86%
Deferred income taxes & other liabilities 1.18% 1.05% 0.89% 0.98%
TOTAL INTEREST BEARING LTL 8.52% 9.15% 12.24% 14.86%
TOTAL NON-INTEREST BEARING LTL 1.18% 1.05% 0.89% 0.98%
TOTAL LONG-TERM LIABILITIES 9.70% 10.20% 13.14% 15.84%
TOTAL LIABILITIES 50.46% 49.63% 51.33% 50.94%
MINORITY INTEREST 1.15% 1.26% 1.61% 1.68%
COMMON STOCK 0.02% 0.03% 0.03% 0.03%
PAID IN CAPITAL 11.16% 11.91% 12.69% 13.06%
RETAINED EARNINGS 38.94% 38.53% 35.91% 36.71%
Other accumulated comprehensive income (loss) -1.72% -1.36% -1.57% -2.43%
TOTAL SHAREHOLDER EQUITY 48.39% 49.11% 47.06% 47.38%
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY 100.00% 100.00% 100.00% 100.00%

Professor Charles Wasley 23

FISCAL YEAR ENDED 9/2/2001 9/3/2000 8/29/1999 8/30/1998
Costco Wholesale Corp
TREND INCOME STATEMENT (YR-BY-YR)
Net sales 8.0% 17.2% 13.2% 10.9%
Membership fees 21.4% 13.3% 9.1% 12.6%
TOTAL OPERATING REVENUES 8.2% 17.1% 13.1% 11.0%
COST OF GOODS 8.0% 17.2% 13.1% 10.7%
GROSS PROFIT 9.3% 16.9% 13.7% 12.9%
GENERAL & ADMINISTRATIVE EXPENSES 13.6% 17.8% 13.0% 10.3%
Preopening expenses 40.8% 36.5% 14.8% -1.6%
INCOME BEFORE INTEREST AND TAXES -4.4% 20.6% 9.3% 35.6%
INTEREST EXPENSE -18.5% -13.7% -4.2% -37.7%
INTEREST INCOME -20.3% 22.5% 66.0% 67.7%
INCOME BEFORE TAXES -4.6% 22.5% 12.1% 47.3%
PROVISION FOR INCOME TAXES -4.6% 22.5% 12.1% 47.3%
INCOME FROM CONTINUING OPERATIONS -4.6% 22.5% 12.1% 47.3%
NET INCOME -4.6% 58.9% -13.6% 47.3%

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 Return on Return on Revenues/ Revenue/ Total
Equity Assets Gross EBITDA of Operating Pre-tax Profit Working Total Working Cap Debt/Total Liabilities Interest
Year: 1999 (ROE) (ROA) Margin Revenue Margin Margin Margin Capital Assets /Total Assets Assets /Equity Coverage
BJ's Wholesale Club Inc. 16.87 9.01 11.21 4.92 3.77 3.79 1.76 32.6 3.91 0.12 0.04 0.72 -139.97
Costco Wholesale Corp 14.59 6.87 11.97 3.95 3.13 3.13 1.45 61.06 3.66 0.06 0.12 0.81 19.86
Wal-Mart Stores Inc. 20.98 8.86 21.9 7.18 5.83 5.26 3.18 31.86 2.78 0.09 0.19 0.79 10.19

Return on Return on Revenues/ Revenue/ Working Total

Equity Assets Gross EBITDA of Operating Pre-tax Profit Working Total Cap./Total Debt/Total Liabilities/E Interest
Year: 2000 (ROE) (ROA) Margin Revenue Margin Margin Margin Capital Assets Assets Assets quity Coverage
BJ's Wholesale Club Inc. 19.25 10.35 11.43 5.33 4.22 4.31 2.64 31.51 3.92 0.12 0 0.77 -46.9
Costco Wholesale Corp 14.89 7.31 11.95 4.02 3.23 3.27 1.96 489.12 3.73 0.01 0.09 0.8 27.79
Wal-Mart Stores Inc. 21.58 7.92 22.27 7.48 6.06 5.45 3.22 -115.28 2.37 -0.02 0.24 1 9.89

Return on Return on Revenues/ Revenue/ Working Total

Equity Assets Gross EBITDA of Operating Pre-tax Profit Working Total Cap./Total Debt/Total Liabilities/E Interest
Year: 2001 (ROE) (ROA) Margin Revenue Margin Margin Margin Capital Assets Assets Assets quity Coverage
BJ's Wholesale Club Inc. 19.78 10.66 11.27 5.33 4.21 4.34 2.67 27.41 4 0.15 0 0.77 2930.08
Costco Wholesale Corp 12.33 5.97 12.07 3.72 2.85 2.88 1.73 -151.47 3.45 -0.02 0.09 0.84 32.34
Wal-Mart Stores Inc. 20.08 8.06 22.27 7.43 5.94 5.23 3.26 -80.74 2.47 -0.03 0.2 0.92 8.36

Return on Return on Revenues/ Revenue/ Working Total

Equity Assets Gross EBITDA of Operating Pre-tax Profit Working Total Cap./Total Debt/Total Liabilities/E Interest
Year: 2002 (ROE) (ROA) Margin Revenue Margin Margin Margin Capital Assets Assets Assets quity Coverage
BJ's Wholesale Club Inc. 11.99 5.79 11.24 5.58 4.41 2.47 1.56 41.31 3.71 0.09 0.04 0.91 11867.64
Costco Wholesale Corp 12.29 6.02 12.33 3.8 2.92 2.94 1.81 214.39 3.34 0.02 0.1 0.78 40.12
Wal-Mart Stores Inc. 19 7.99 21.95 6.99 5.49 4.89 3.03 228.02 2.63 0.01 0.22 0.78 9.11

Return on Return on Revenues/ Revenue/ Working Total

Equity Assets Gross EBITDA of Operating Pre-tax Profit Working Total Cap./Total Debt/Total Liabilities/E Interest
Year: 2003 (ROE) (ROA) Margin Revenue Margin Margin Margin Capital Assets Assets Assets quity Coverage
BJ's Wholesale Club Inc. 19.68 9.85 10.73 5 3.75 4.02 2.23 50.06 3.96 0.08 0.01 0.88 637.97
Costco Wholesale Corp 11 5.47 12.48 3.64 2.72 2.72 1.69 60.74 3.23 0.05 0.1 0.76 32.37
Wal-Mart Stores Inc. 20.44 8.49 22.18 6.93 5.53 5.16 3.26 -115.52 2.6 -0.02 0.21 0.83 12.97

Return on Return on Revenues/ Revenue/ Working Total

Equity Assets Gross EBITDA of Operating Pre-tax Profit Working Total Cap./Total Debt/Total Liabilities/E Interest
Year: 2004 (ROE) (ROA) Margin Revenue Margin Margin Margin Capital Assets Assets Assets quity Coverage
BJ's Wholesale Club Inc. 12.3 6.09 10.04 3.73 2.43 2.5 1.53 45.65 3.91 0.09 0.01 0.89 406.09
Costco Wholesale Corp 11.57 5.85 12.5 3.8 2.88 2.91 1.83 43.79 3.19 0.07 0.07 0.81 39.22
Wal-Mart Stores Inc. 20.31 8.45 23.17 7.3 5.81 5.49 3.5 -86.31 2.47 -0.03 0.19 0.86 15.25
Professor Charles Wasley 25
Costco Wholesale Corp
FISCAL YEAR ENDED 9/2/2001 9/3/2000 8/29/1999 8/30/1998
CASH 602,585 524,505 440,586 361,974
SHORT-TERM INVESTMENTS 4,999 48,026 256,688 75,549
ACCOUNTS RECEIVABLE 324,768 174,375 168,648 171,613
INVENTORIES 2,738,504 2,490,088 2,210,475 1,910,751
OTHER CURRENT ASSETS 211,601 233,124 239,516 108,343
TOTAL CURRENT ASSETS 3,882,457 3,470,118 3,315,913 2,628,230
PROP, PLANT & EQUIP (GROSS) 7,375,174 6,141,389 5,024,157 4,330,975
ACCUMULATED DEP 1,548,589 1,307,273 1,117,269 935,603
PROP, PLANT & EQUIP (NET) 5,826,585 4,834,116 3,906,888 3,395,372
Other assets 380,744 329,706 282,200 236,218
TOTAL LONG-TERM ASSETS 6,207,329 5,163,822 4,189,088 3,631,590
TOTAL ASSETS 10,089,786 8,633,940 7,505,001 6,259,820

FISCAL YEAR ENDED 9/2/2001 9/3/2000 8/29/1999 8/30/1998

ACCOUNTS PAYABLE 2,727,639 2,197,139 1,912,632 1,605,533
ACCRUED EXPENSES 483,473 422,264 414,276 352,903
Accrued sales & other taxes 152,864 159,717 122,932 102,367
Deferred membership income 322,583 262,249 225,903 0
OTHER CURRENT LIAB 231,078 353,490 190,490 136,139
SHORT-TERM DEBT 194,552 9,500 0 0
CURRENT PORTION OF LTD 0 0 0 0
TOTAL CURRENT LIAB 4,112,189 3,404,359 2,866,233 2,196,942
LONG TERM DEBT 859,393 790,053 918,888 930,035
Deferred income taxes & other liabilities 119,434 90,391 66,990 61,483
TOTAL INTEREST BEARING LTL 859,393 790,053 918,888 930,035
TOTAL NON-INTEREST BEARING LTL 119,434 90,391 66,990 61,483
TOTAL LONG-TERM LIABILITIES 978,827 880,444 985,878 991,518
TOTAL LIABILITIES 5,091,016 4,284,803 3,852,111 3,188,460
MINORITY INTEREST 115,830 108,857 120,780 105,474
COMMON STOCK 2,259 2,236 2,214 2,176
PAID IN CAPITAL 1,125,543 1,028,414 952,758 817,628
RETAINED EARNINGS 3,928,748 3,326,659 2,695,222 2,297,924
Other accumulated comprehensive income (loss) -173,610 -117,029 -118,084 -151,842
TOTAL SHAREHOLDER EQUITY 4,882,940 4,240,280 3,532,110 2,965,886
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY 10,089,786 8,633,940 7,505,001 6,259,820
Professor Charles Wasley 26
Costco Wholesale Corp
FISCAL YEAR ENDED 9/2/2001 9/3/2000 8/29/1999 8/30/1998
Net sales 34,137,021 31,620,723 26,976,453 23,830,380
Membership fees 660,016 543,573 479,578 439,497
TOTAL OPERATING REVENUES 34,797,037 32,164,296 27,456,031 24,269,877
COST OF GOODS 30,598,140 28,322,170 24,170,199 21,379,691
GROSS PROFIT 4,198,897 3,842,126 3,285,832 2,890,186
GENERAL & ADMINISTRATIVE EXPENSES 3,129,059 2,755,355 2,338,198 2,069,900
Preopening expenses 59,571 42,321 31,007 27,010
Provision for impaired assets & closing costs 18,000 7,000 56,500 6,000
TOTAL OPERATING EXPENSES 3,206,630 2,804,676 2,425,705 2,102,910
INCOME BEFORE INTEREST AND TAXES 992,267 1,037,450 860,127 787,276
INTEREST EXPENSE 32,024 39,281 45,527 47,535
INTEREST INCOME 43,238 54,226 44,266 26,662
EQUITY IN INCOME OF UNCONSOLIDATED
AFFILIATES 0 0 0 0
INCOME BEFORE TAXES 1,003,481 1,052,395 858,866 766,403
PROVISION FOR INCOME TAXES 401,392 420,958 343,545 306,561
INCOME FROM CONTINUING OPERATIONS 602,089 631,437 515,321 459,842
ACCOUNTING CHANGES (NET OF TAX) 0 0 -118,023 0
NET INCOME 602,089 631,437 397,298 459,842

CASH FLOW PROVIDED BY OPERATIONS 1,032,563 1,070,358 940,863 737,610

CASH PAID FOR INTEREST 14,761 21,996 27,107 29,191
CASH PAID FOR TAXES 363,649 313,183 294,860 257,352
CAPITAL EXPENDITURES 1,447,549 1,228,421 787,935 571,904
DEPRECIATION AND AMORTIZATION FROM THE
STATEMENT OF CASH FLOWS 301,297 254,397 224,811 196,315
COMMON STOCK DIVIDENDS 0 0 0 0
CASH PAID TO REPURCHASE COMMON STOCK 0 99,946 0 0
PURCHASES 30,846,556 28,601,783 24,469,923 21,603,917
TAX RATE 40.0% 40.0% 40.0% 40.0%
Professor Charles Wasley 27