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September 3, 1998 at 12:00 AM EDT

Costco Companies, Inc. Reports August Sales Results And Responds To Concerns Over Membership Fees Accounting Issue

ISSAQUAH, Wash., September 3 -- Costco Companies, Inc. (“Costco” or the “Company”) (Nasdaq: COST) today reported net sales of $1.88 billion for the four weeks ended August 30, 1998, an increase of 10 percent from $1.71 billion in the same four-week period of the prior fiscal year. On a comparable warehouse basis, that is warehouses open at least a year, sales increased 6 percent.

For its 52-week 1998 fiscal year, which ended August 30, 1998, the Company reported net sales of $23.83 billion, an increase of 11 percent from $21.48 billion during its 52-week 1997 fiscal year. Comparable warehouse sales for the comparable 52-week period increased 8 percent over the prior year’s level.

The Company ended its 1998 fiscal year on August 30, 1998, with 278 warehouses in operation: 211 in the United States, 56 in Canada, seven in the United Kingdom, three in Korea, and one warehouse in Taiwan. An additional eight to nine warehouse openings (including two relocations) are planned for the U.S. and Canada in the Fall, prior to the Christmas holiday season. The Company also operates 14 warehouses in Mexico with a joint venture partner, and plans to open two additional warehouses in Mexico prior to the Christmas holiday season.

Yesterday, Costco received dozens of calls regarding a rumor in the marketplace that Costco had recently been contacted by the Securities and Exchange Commission (“SEC”) relative to its accounting practices in the recognition of membership income.

While it is the Company’s policy not to comment on rumors, which it intends to adhere to in the future, this rumor is false. Costco has not been contacted by the SEC on any accounting matter during the past several years. The Company has been consistent in its recognition of membership fees since its inception in 1976.

Costco has not and does not engage in improper accounting practices. As with all of its accounting policies, the Company has followed generally accepted accounting principles (GAAP) with the concurrence of Arthur Andersen, its independent accountants. Additionally, in past years, when filing various financial documents with the SEC (most recently a Form S-4 related to the PriceCostco merger in 1993) the SEC staff, as part of its normal review process, has inquired about the Company’s accounting policies, including its policy of accounting for membership income on a “cash basis” rather than a “deferred basis”. In each instance, the Company responded to their questions and comments as requested. The Company believed that any issues related to its accounting policies were resolved to the satisfaction of the SEC, since there have been no further communications with respect to this issue. In addition, the Company believes that there are substantive differences between Costco’s membership program and those of other membership-type businesses in different industries.

While the Company continues to believe that its current membership accounting policy is in accordance with both generally accepted accounting principles and industry practice, it is important to note that a change to the “deferral” method would not have a material effect on its financial condition, cash flows or ongoing operating results. If the Company were to adopt such an accounting change in the future, either voluntarily or because of a change in generally accepted accounting principles, it would record a one-time non-cash charge at the time of adoption, and on an ongoing basis the effect on the Company’s reported earnings would be immaterial.

CONTACTS: Costco Companies, Inc.
Richard Galanti, 425/313-8203
Bob Nelson, 425/313-8255