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Costco Wholesale Corporation Releases Fourth Quarter And Fiscal Year 1999 Results Of Operations And September Sales Results

ISSAQUAH, Wash.--(BUSINESS WIRE)--Oct. 7, 1999--Costco Wholesale Corporation ("Costco" or the "Company") (Nasdaq:COST) announced today its results of operations for the 16 weeks (fourth quarter) and the 52 weeks (fiscal year) ended August 29, 1999.

Net sales for fiscal 1999, the 52 weeks ended August 29, 1999, were $26.98 billion, an increase of 13% from $23.83 billion during the prior 52-week fiscal year ended August 30, 1998. Comparable warehouse sales increased 10% over the comparable 52-week period of fiscal 1998. Net sales for the 16-week fourth quarter ended August 29, 1999 increased 14% to $8.66 billion from $7.57 billion during the 16-week fourth quarter ended August 30, 1998. Comparable warehouse sales during the 16-week fourth quarter of fiscal 1999 increased 12% over the comparable 16-week period in the prior fiscal year.

Net income for the 16-week fourth quarter was impacted by a $50 million ($30 million after tax, or $.13 per diluted share) provision for impaired assets and warehouse closing costs, which resulted in fourth quarter reported net income of $153.2 million, or $.66 per diluted share. The majority of this charge is related to the Company's planned increase in the number of warehouse relocations to larger and better located facilities. Excluding this charge, fourth quarter earnings per share increased 20% to $.79 from $.66 per diluted share, while net earnings increased 22% to $183.2 million from $150.7 million. As of the beginning of fiscal 1999, the Company changed its method of accounting for membership fees from a cash to a deferred method. Assuming the accounting treatment for deferring membership fees had been in effect in fiscal 1998, fourth quarter fiscal 1998 membership fees and other income would have been reduced by $4.2 million; net earnings in the fourth quarter would have been $148.2 million or $.65 per diluted share and the increase in fourth quarter earnings per diluted share, excluding the provision for impaired assets and warehouse closing costs, would have been 22%.

Net income for all of fiscal 1999 was impacted by both the $50 million fourth quarter provision for impaired assets and warehouse closing costs, as described above, as well as the one-time $118.0 million non-cash, after-tax charge recorded in the first quarter of fiscal 1999, reflecting the cumulative effect 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 reported earnings for fiscal 1999 of $397.3 million or $1.73 per diluted share compared to last year's reported earnings of $459.8 million or $2.03 per diluted share. Before the impact of these two charges, net earnings in fiscal 1999 were $545.3 million, or $2.36 per diluted share. Assuming the newly adopted accounting treatment for deferring membership fees had been in effect in fiscal 1998, last year's membership fees and other income would have been reduced by $25.7 million to $413.8 million; net earnings for fiscal 1998 would have been $444.5 million or $1.96 per diluted share; and the year-over-year earnings per share increase would have been 20%.

In addition to reporting fourth quarter and fiscal year 1999 operating results, the Company today reported net sales of $2.70 billion for the five weeks ended October 3, 1999, an increase of 16% from $2.33 billion in the same five-week period of the prior fiscal year. On a comparable warehouse basis, that is warehouses open at least a year, sales increased 12%.

The Company currently has 294 warehouses in operation: 223 in the United States, 58 in Canada, seven in the United Kingdom, three in Korea, two in Taiwan and a warehouse in Japan: as well as 17 additional warehouses in Mexico with a joint venture partner. Nine additional warehouse openings (including one relocation) are planned for the U.S., Canada, and Taiwan in the Fall, prior to the Christmas holiday season. The Company also operates Costco Online, an electronic commerce web site, at www.costco.com. -0-

COSTCO WHOLESALE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)

16 Weeks Ended

52 Weeks Ended

August 29, 1999

August 30, 1998

August 29, 1999

August 30, 1998

REVENUE

Net sales

$ 8,656,721 $ 7,570,100 $ 26,976,453 $ 23,830,380

Membership fees and other

155,054

136,922 479,578 439,497

Total revenue

8,811,775 7,707,022 27,456,031 24,269,877

OPERATING EXPENSES

Merchandise costs

7,752,045 6,785,648 24,170,199 21,379,691

Selling, general and administrative

747,485 653,470 2,338,198 2,069,900

Preopening expenses

10,229 6,712 31,007 27,010

Provision for impaired assets and warehouse closing costs

50,000 2,500 56,500 6,000

Operating income

252,016 258,692 860,127 787,276

OTHER INCOME (EXPENSE)

Interest expense

(13,096) (15,170) (45,527) (47,535)

Interest income and other

16,376 7,637 44,266 26,662

Income before income taxes and cumulative effect of accounting change

255,296 251,159 858,866 766,403

Provision for income taxes

102,118 100,463 343,545 306,561

INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE

153,178 150,696 515,321 459,842

Cumulative effect of accounting change, net of tax

--- --- (118,023) ---

NET INCOME

$ 153,178 $ 150,696 $ 397,298 $ 459,842

NET INCOME PER COMMON SHARE:

Basic earnings per share:

Income before cumulative effect of accounting change

$ 0.69 $ 0.69 $ 2.35 $ 2.13

Cumulative effect of accounting change, net of tax

--- --- (0.54) ---

Net income

$ 0.69 $ 0.69 $ 1.81 $ 2.13

Diluted earnings per share:

Income before cumulative effect of accounting change

$ 0.66 $ 0.66 $ 2.23 $ 2.03

Cumulative effect of accounting change, net of tax

--- --- (0.50) ---

Net income

$ 0.66 $ 0.66 $ 1.73 $ 2.03

Shares used in calculation (000’s)

Basic

221,076 217,142 219,626 215,506

Diluted

236,480 233,501 235,560 231,685

Pro forma amounts assuming accounting change had been in effect in fiscal 1998:

Net income

$ 153,178 $ 148,169 $ 515,321 $ 444,451

Earnings per common share – basic

$ 0.69 $ 0.68 $ 2.35 $ 2.06

Earnings per common share – diluted

$ 0.66 $ 0.65 $ 2.23 $ 1.96