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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 11-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to __________
Commission file number 333-21093
COSTCO
401(k) PLAN FOR CALIFORNIA UNION EMPLOYEES
--------------------
COSTCO COMPANIES, INC.
999 LAKE DRIVE
ISSAQUAH, WASHINGTON 98027
(425) 313-8100
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<PAGE>
COSTCO
WHOLESALE
401(k) PLAN FOR CALIFORNIA UNION EMPLOYEES
EIN 33-0572969
PIN 004
FINANCIAL STATEMENTS AND SCHEDULES
AS OF DECEMBER 31, 1997 AND 1996
TOGETHER WITH AUDITORS' REPORT
<PAGE>
COSTCO
401(k) PLAN FOR CALIFORNIA UNION EMPLOYEES
FINANCIAL STATEMENTS AND SCHEDULES
DECEMBER 31, 1997 AND 1996
INDEX
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
FINANCIAL STATEMENTS
Statements of Net Assets Available for Plan Benefits as of
December 31, 1997 and 1996
Statement of Changes in Net Assets Available for Plan Benefits for
the Year Ended December 31, 1997
NOTES TO FINANCIAL STATEMENTS AND SCHEDULES
SUPPLEMENTAL INFORMATION
Schedule I, Item 27a -- Schedule of Assets Held for Investment
Purposes as of December 31, 1997
Schedule II, Item 27d -- Schedule of Reportable Transactions for the
Year Ended December 31, 1997
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Benefits Committee of the
Costco 401(k) Plan for California Union Employees:
We have audited the accompanying statements of net assets available for plan
benefits of the Costco 401(k) Plan for California Union Employees as of
December 31, 1997 and 1996, and the related statement of changes in net assets
available for plan benefits for the year ended December 31, 1997. These
financial statements and the schedules referred to below are the responsibility
of the Plan's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 1997 and 1996, and the changes in its net assets available for plan
benefits for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets
held for investment purposes and reportable transactions are presented for the
purpose of additional analysis and are not a required part of the basic
financial statements, but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The Fund information in
the statements of net assets available for plan benefits and the statement of
changes in net assets available for plan benefits is presented for purposes of
additional analysis rather than to present the net assets available for plan
benefits and changes in net assets available for plan benefits of each fund.
The supplemental schedules and Fund information have been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, are fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
Seattle, Washington,
June 1, 1998
<PAGE>
COSTCO
401(k) PLAN FOR CALIFORNIA UNION EMPLOYEES
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Participant Directed
------------------------------------------------------------------------------
Costco
Companies,
Stable Equity Spectrum Spectrum New Mid-Cap Inc.
Value Income Income Growth Horizons Growth Common
Fund Fund Fund Fund Fund Fund Stock
---------- ---------- ---------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments at fair value--
Registered investment company funds $1,383,211 $2,526,618 $1,205,135 $3,298,950 $174,821 $194,142 $ --
Costco Companies, Inc. common stock
--34,258 shares held -- -- -- -- -- -- 1,528,769
---------- ---------- ---------- ---------- -------- -------- ----------
Total investments 1,383,211 2,526,618 1,205,135 3,298,950 174,821 194,142 1,528,769
---------- ---------- ---------- ---------- -------- -------- ----------
Contributions receivable--
Employee 25,002 40,056 20,420 51,647 6,841 8,207 19,998
Employer 246 501 189 445 60 61 166
---------- ---------- ---------- ---------- -------- -------- ----------
Total receivables 25,248 40,557 20,609 52,092 6,901 8,268 20,164
---------- ---------- ---------- ---------- -------- -------- ----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $1,408,459 $2,567,175 $1,225,744 $3,351,042 $181,722 $202,410 $1,548,933
---------- ---------- ---------- ---------- -------- -------- ----------
---------- ---------- ---------- ---------- -------- -------- ----------
<CAPTION>
Total
-----------
<S> <C>
ASSETS:
Investments at fair value--
Registered investment company funds $ 8,782,877
Costco Companies, Inc. common stock
--34,258 shares held 1,528,769
-----------
Total investments 10,311,646
-----------
Contributions receivable--
Employee 172,171
Employer 1,668
-----------
Total receivables 173,839
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NET ASSETS AVAILABLE FOR PLAN BENEFITS $10,485,485
-----------
-----------
</TABLE>
The accompanying notes and schedules are an integral part of this statement.
<PAGE>
COSTCO
401(k) PLAN FOR CALIFORNIA UNION EMPLOYEES
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
Participant Directed
------------------------------------------------------------------------------
Costco
Companies,
Stable Equity Spectrum Spectrum New Mid-Cap Inc.
Value Income Income Growth Horizons Growth Common
Fund Fund Fund Fund Fund Fund Stock
---------- ---------- ---------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments at fair value--
Registered investment company funds $792,097 $1,200,730 $676,998 $1,812,599 $ -- $ -- $ --
Costco Companies, Inc. common stock
--18,510 shares held -- -- -- -- -- -- 465,074
---------- ---------- ---------- ---------- -------- -------- --------
Total investments 792,097 1,200,730 676,998 1,812,599 -- -- 465,074
---------- ---------- ---------- ---------- -------- -------- --------
Contributions receivable--
Employee 21,367 30,204 17,208 44,122 430 433 10,866
Employer 98 194 118 205 44 27 153
---------- ---------- ---------- ---------- -------- -------- --------
Total receivables 21,465 30,398 17,326 44,327 474 460 11,019
---------- ---------- ---------- ---------- -------- -------- --------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $813,562 $1,231,128 $694,324 $1,856,926 $474 $460 $476,093
---------- ---------- ---------- ---------- -------- -------- ----------
---------- ---------- ---------- ---------- -------- -------- ----------
<CAPTION>
Total
-----------
<S> <C>
ASSETS:
Investments at fair value--
Registered investment company funds $4,482,424
Costco Companies, Inc. common stock
--18,510 shares held 465,074
----------
Total investments 4,947,498
----------
Contributions receivable--
Employee 124,630
Employer 839
----------
Total receivables 125,469
----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $5,072,967
----------
----------
</TABLE>
The accompanying notes and schedules are an integral part of this statement.
<PAGE>
COSTCO
401(k) PLAN FOR CALIFORNIA UNION EMPLOYEES
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Participant Directed
------------------------------------------------------------------------------
Costco
Companies,
Stable Equity Spectrum Spectrum New Mid-Cap Inc.
Value Income Income Growth Horizons Growth Common
Fund Fund Fund Fund Fund Fund Stock
---------- ---------- ---------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
NET INVESTMENT RESULTS:
Net appreciation in fair value of
investments $ -- $ 230,162 $ 38,244 $ 66,171 $ 5,911 $ 16,051 $ 536,400
Interest 65,645 -- 73,396 -- -- -- --
Dividends -- 233,990 -- 333,922 4,243 2,007 --
---------- ---------- ---------- ---------- -------- -------- ----------
Total net investment results 65,645 464,152 111,640 400,093 10,154 18,058 536,400
---------- ---------- ---------- ---------- -------- -------- ----------
CONTRIBUTIONS TO THE PLAN:
Employee 575,950 899,849 482,690 1,213,745 113,045 122,400 395,051
Employer 58,635 76,607 41,715 107,881 9,198 10,132 35,095
---------- ---------- ---------- ---------- -------- -------- ----------
Total contributions 634,585 976,456 524,405 1,321,626 122,243 132,532 430,146
---------- ---------- ---------- ---------- -------- -------- ----------
DISTRIBUTIONS TO PARTICIPANTS:
Hardship withdrawals (20,685) (24,124) (17,946) (42,758) (793) (717) (16,903)
Terminations (37,212) (46,065) (20,222) (80,819) (1,700) (2,904) (22,769)
---------- ---------- ---------- ---------- -------- -------- ----------
Total distributions (57,897) (70,189) (38,168) (123,577) (2,493) (3,621) (39,672)
---------- ---------- ---------- ---------- -------- -------- ----------
INTERFUND TRANSFERS (47,436) (34,372) (66,457) (104,026) 51,344 54,981 145,966
---------- ---------- ---------- ---------- -------- -------- ----------
NET INCREASE IN NET ASSETS AVAILABLE
FOR PLAN BENEFITS 594,897 1,336,047 531,420 1,494,116 181,248 201,950 1,072,840
NET ASSETS AVAILABLE FOR PLAN BENEFITS,
beginning of year 813,562 1,231,128 694,324 1,856,926 474 460 476,093
---------- ---------- ---------- ---------- -------- -------- ----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS,
end of year $1,408,459 $2,567,175 $1,225,744 $3,351,042 $181,722 $202,410 $1,548,933
---------- ---------- ---------- ---------- -------- -------- ----------
---------- ---------- ---------- ---------- -------- -------- ----------
<CAPTION>
Total
-----------
<S> <C>
NET INVESTMENT RESULTS:
Net appreciation in fair value of
investments $ 892,939
Interest 139,041
Dividends 574,162
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Total net investment results 1,606,142
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CONTRIBUTIONS TO THE PLAN:
Employee 3,802,730
Employer 339,263
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Total contributions 4,141,993
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DISTRIBUTIONS TO PARTICIPANTS:
Hardship withdrawals (123,926)
Terminations (211,691)
----------
Total distributions (335,617)
----------
INTERFUND TRANSFERS --
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NET INCREASE IN NET ASSETS AVAILABLE
FOR PLAN BENEFITS 5,412,518
NET ASSETS AVAILABLE FOR PLAN BENEFITS,
beginning of year 5,072,967
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NET ASSETS AVAILABLE FOR PLAN BENEFITS,
end of year $10,485,485
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-----------
</TABLE>
The accompanying notes and schedules are an integral part of this statement.
<PAGE>
COSTCO
401(k) PLAN FOR CALIFORNIA UNION EMPLOYEES
NOTES TO FINANCIAL STATEMENTS AND SCHEDULES
DECEMBER 31, 1997
1. PLAN DESCRIPTION:
The following description of the Costco 401(k) Plan for California Union
Employees (the Plan) provides only general information. Participants should
refer to the plan agreement for a more complete description of the Plan's
provisions.
The Plan is a defined contribution plan subject to the provisions of the
Employee Retirement Income Security Act of 1974 (ERISA).
The Price Company and Costco Wholesale Corporation are wholly-owned subsidiaries
of Costco Companies, Inc. Prior to January 1, 1997, the Plan was named the
PriceCostco 401(k) Plan for California Union Employees.
ELIGIBILITY
The Plan covers all employees covered by the collective bargaining agreement
between The Price Company and The International Brotherhood of Teamsters in the
State of California over the age of 18 who have completed one year of service
containing a minimum of 1,000 hours worked. The employee enters the Plan on the
entry date following the fulfillment of these requirements.
CONTRIBUTIONS
Each year, participants may contribute from 1% to 15% of their compensation
before income taxes, subject to certain limitations set by the Internal Revenue
Service (IRS). Participants may also contribute amounts representing
distributions from other qualified benefit or contribution plans (known as
"rollover" contributions). The Company matches 50% of the employee's
contributions, up to the first $250 of participant contributions to the Plan.
PARTICIPANT ACCOUNTS
Each participant's account is credited with his or her contributions, employer
matching contributions and an allocation of plan earnings. Allocations are
based on participant account balances as defined. The benefit to which a
participant is entitled is the benefit that can be provided from his or her
vested account.
<PAGE>
2
VESTING
Participants are immediately vested in their contributions, plus actual earnings
thereon. Vesting in the employer matching contributions is based on years of
continuous service, according to the following schedule:
<TABLE>
<CAPTION>
Years of Service Percentage Vested
---------------- -----------------
<S> <C>
Less than 2 0%
2-3 10
3-4 25
4-5 50
5 or more 100
</TABLE>
FORFEITURES
During 1997, forfeitures of approximately $3,800 were used to reduce the
employer contributions to the Plan. Forfeitures can be restored to a
participant's account if the participant is re-employed by the Company prior to
the expiration of five consecutive breaks in service and repays the full dollar
amount distributed due to the termination within five years of the reemployment
date. As of December 31, 1997, forfeitures of approximately $11,500 had not
been used to reduce employer contributions. These forfeitures will be used to
offset future employer contributions.
INVESTMENT OPTIONS
Upon enrollment in the Plan, a participant may direct contributions into any of
the seven investment options listed below. T. Rowe Price is the trustee of all
investments, serves as investment manager for all funds and provides record
keeping of all participant accounts. Funds may be temporarily invested in a
cash account.
Stable Value Fund -- Funds are invested primarily in high-quality insurance
company and bank-issued investment contracts.
Equity Income Fund -- Funds are invested in common stocks of established
companies that pay above-average dividends and have prospects of future
dividend increases.
Spectrum Income Fund -- Funds are invested in a managed mix of funds
including four domestic bond funds, an international bond fund, a money
market fund and an income-oriented stock fund.
Spectrum Growth Fund -- Funds are invested in a managed mix of funds,
including five U.S. stock funds, an international stock fund and a money
market fund.
New Horizons Fund -- Funds are invested in common stock of rapidly growing
companies in a broad range of industries.
Mid-Cap Growth Fund -- Funds are invested in stock of companies with
medium-sized market capitalization that have attractive growth prospects and
established operating histories.
Costco Companies, Inc. Common Stock -- Funds are invested in common stock of
the Company.
Participants may change their investment options daily.
<PAGE>
3
UNIT ACCOUNTING
All contributions to a participant's account and the participant's account
balance are reflected in units of each fund selected or shares of Costco
Companies, Inc. common stock. As of December 31, 1997 and 1996, units held by
the Plan were as follows:
<TABLE>
<CAPTION>
Units/shares Units/shares
held at held at
Description of Asset December 31, 1997 December 31, 1996
--------------------- ----------------- -----------------
<S> <C> <C>
Stable Value Fund 1,383,211 792,097
Equity Income Fund 96,917 53,273
Spectrum Income Fund 103,356 60,446
Spectrum Growth Fund 207,090 119,802
New Horizons Fund 7,503 --
Mid-Cap Growth Fund 6,788 --
Costco Companies, Inc.
Common Stock 34,258 18,510
</TABLE>
DISTRIBUTIONS
Upon termination of employment, death or total disability, the vested interest
in a participant's account is distributed in a lump sum. Participants may apply
for a distribution of all or a portion of the vested interest at any time after
attainment of age 59-1/2. Participants are also eligible to make hardship
withdrawals from their salary deferral contributions in the event of certain
financial hardships. Following a hardship withdrawal, participants are not
allowed to contribute to the Plan for a one-year period.
PLAN ADMINISTRATOR
The Plan is administered by the Benefits Committee ("the Committee"), which is
appointed by the Board of Directors of the Company.
ADMINISTRATIVE EXPENSES
All administrative and custodial fees of the Plan are paid by the Company. All
investment management and transaction fees directly related to the plan
investments are shown as a reduction of net investment results.
2. SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF ACCOUNTING
The financial statements of the Plan are prepared under the accrual method of
accounting.
USE OF ESTIMATES
The preparation of financial statements requires the use of estimates. Actual
results could differ from those estimates.
<PAGE>
4
INVESTMENT VALUATION AND INCOME RECOGNITION
Investments are stated at fair value. Registered investment company funds and
Costco Companies, Inc. common stock are valued using the closing price of the
investments on the last day of business of the plan year.
Purchases and sales of securities are recorded on a trade-date basis. Interest
income is recorded on the accrual basis. Dividends are recorded on the
ex-dividend date. Net appreciation (depreciation) in fair value of assets
includes the change in the fair value of assets from one period to the next, and
realized gains and losses, and is computed using the moving average method.
PAYMENT OF BENEFITS
Benefits are recorded when paid.
3. PLAN TERMINATION:
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate the
Plan subject to the provisions of ERISA. In the event of plan termination,
participants will become 100% vested in their accounts.
4. TAX STATUS:
The IRS has informed the Company, in a letter dated November 29, 1996, that
the Plan is designed in accordance with applicable sections of the Internal
Revenue Code. The Plan has been amended subsequent to receiving a
determination letter. The Plan Administrator and the Plan's counsel believe
that the Plan is currently designed and is being operated in compliance with
the applicable requirements of the IRS.
5. SUBSEQUENT EVENTS:
Effective February 1, 1998, the Company will contribute a match of 50% of the
employee's contribution, up to the first $400 of participant contributions to
the Plan.
Effective December 31, 1998, active employees in the Plan shall receive a
contribution based on all straight time hours worked from February 1, 1998
through December 31, 1998, up to a maximum of 173 hours per month.
<PAGE>
SCHEDULE I
COSTCO
401(k) PLAN FOR CALIFORNIA UNION EMPLOYEES
EIN: 33-0572969
PIN: 004
ITEM 27A -- SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Identity of Party Involved/
Description of Investments Cost Current Value
- ---------------------------- ---------- -------------
<S> <C> <C>
*T. Rowe Price:
Stable Value Fund $1,383,211 $ 1,383,211
Equity Income Fund 2,313,872 2,526,618
Spectrum Income Fund 1,168,971 1,205,135
Spectrum Growth Fund 3,253,999 3,298,950
New Horizons Fund 170,367 174,821
Mid-Cap Growth Fund 179,336 194,142
*Costco Companies, Inc. Common Stock 1,026,327 1,528,769
---------- -----------
$9,496,083 $10,311,646
---------- -----------
---------- -----------
</TABLE>
*Represents a party in interest.
The accompanying notes are an integral part of this schedule.
<PAGE>
SCHEDULE II
COSTCO
401(k) PLAN FOR CALIFORNIA UNION EMPLOYEES
ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
CATEGORY (iii) -- SERIES OF TRANSACTIONS IN EXCESS OF 5% OF PLAN ASSETS AT
BEGINNING OF YEAR.
<TABLE>
<CAPTION>
Costco
Companies,
Stable Equity Spectrum Spectrum Inc.
Value Income Income Growth Common
Description of Assets Fund Fund Fund Fund Stock
- -------------------------------------- -------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
PURCHASES:
Number of transactions 61 71 46 62 116
Purchase price $777,591 $1,227,673 $582,845 $1,669,133 $636,846
SALES:
Number of transactions 87 67 75 90 39
Sale price $190,964 $ 131,947 $ 92,359 $ 244,506 $109,552
Cost of asset 190,964 111,147 89,811 219,240 82,391
-------- ---------- -------- ---------- --------
Gain $ -- $ 20,800 $ 2,548 $ 25,266 $ 27,161
-------- ---------- -------- ---------- --------
-------- ---------- -------- ---------- --------
</TABLE>
THERE WERE NO CATEGORY (i), (ii) OR (iv) TRANSACTIONS.
The accompanying notes are an integral part of this schedule.
<PAGE>
EXHIBIT 99.1
ARTHUR ANDERSON LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 11-K, into the Company's previously filed
Registration Statement File No. 333-21093 on Form S-8.
/s/ Arthur Anderson LLP
Seattle, Washington
June 22, 1998
