<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 13, 2000
</TABLE>
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
COMMISSION FILE NUMBER 0-20355
------------------------
COSTCO WHOLESALE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
WASHINGTON 91-1223280
(State or other jurisdiction (I.R.S.Employer
of Identification No.)
incorporation or organization)
</TABLE>
999 LAKE DRIVE, ISSAQUAH, WA 98027
(Address of principal executive office)
(Zip Code)
(Registrant's telephone number, including area code): (425) 313-8100
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ----------------------------------------- -----------------------------------------
Common Stock $.005 Par Value The Nasdaq National Market
</TABLE>
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES /X/ NO / /
The registrant had 446,760,866 common shares, par value $.005, outstanding
at March 10, 2000.
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<PAGE>
COSTCO WHOLESALE CORPORATION
INDEX TO FORM 10-Q
PART I--FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
ITEM 1--FINANCIAL STATEMENTS................................ 3
Condensed Consolidated Balance Sheets..................... 10
Condensed Consolidated Statements of Operations........... 11
Condensed Consolidated Statements of Cash Flows........... 12
Notes to Condensed Consolidated Financial Statements...... 13
ITEM 2-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................. 3
PART II--OTHER INFORMATION
ITEM 1--LEGAL PROCEEDINGS................................... 8
ITEM 2--CHANGES IN SECURITIES............................... 8
ITEM 3--DEFAULTS UPON SENIOR SECURITIES..................... 8
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS................................................... 8
ITEM 5--OTHER INFORMATION................................... 9
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K.................... 9
Exhibit (3.2) Bylaws of Costco Wholesale Corporation
Exhibit (27) Financial Data Schedule
Exhibit (28) Report of Independent Public Accountants..... 19
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Costco Wholesale Corporation's ("Costco" or the "Company") unaudited
condensed consolidated balance sheet as of February 13, 2000, and the condensed
consolidated balance sheet as of August 29, 1999, unaudited condensed
consolidated statements of operations and cash flows for the 12- and 24-week
periods ended February 13, 2000 and February 14, 1999 are included elsewhere
herein. Also, included elsewhere herein are notes to the unaudited condensed
consolidated financial statements and the results of the limited review
performed by Arthur Andersen LLP, independent public accountants.
The Company reports on a 52/53-week fiscal year, consisting of 13 four-week
periods and ending on the Sunday nearest the end of August. Fiscal 2000 is a
53-week year ending on September 3, 2000. The first, second, and third quarters
consist of 12 weeks each and the fourth quarter consists of 17 weeks.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements contained in this document constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. For these purposes, forward-looking statements are statements that address
activities, events, conditions or developments that the company expects, or
anticipates may occur in the future. Such forward-looking statements involve
risks and uncertainties that may cause actual events, results or performance to
differ materially from those indicated by such statements. These risks and
uncertainties include, but are not limited to, domestic and international
economic conditions including exchange rates, the effects of competition and
regulation, conditions affecting the acquisition, development and ownership or
use of real estate, actions of vendors and other risks identified from time to
time in the Company's reports filed with the SEC.
It is suggested that this management discussion be read in conjunction with
the management discussion included in the Company's fiscal 1999 annual report on
Form 10-K previously filed with the Securities and Exchange Commission.
The Company's Board of Directors approved a 2-for-1 stock split of Costco
Common Stock whereby shareholders received one additional share of common stock
for every share held on the record date of December 24, 1999. The common stock
began trading at a post-split price on January 14, 2000, and all per share data
reflects this 2-for-1 stock split.
COMPARISON OF THE 12 WEEKS ENDED FEBRUARY 13, 2000 AND FEBRUARY 14, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income for the second quarter of fiscal 2000 increased 19% to $181,608,
or $0.39 per diluted share, from $152,032, or $0.33 per diluted share, during
the second quarter of fiscal 1999.
Net sales increased 17% to $7,613,601 during the second quarter of fiscal
2000, from $6,484,445 during the second quarter of fiscal 1999. This increase
was due to opening a net of 18 new warehouses (24 opened, 6 closed) since the
end of the second quarter of fiscal 1999 and an increase in comparable warehouse
sales. Comparable sales, that is sales in warehouses open for at least a year,
increased 14% during the second quarter of fiscal 2000, reflecting new marketing
and merchandising efforts, including the rollout of various ancillary businesses
to certain existing locations. Changes in prices of merchandise did not
materially contribute to sales increases.
Membership fees and other revenue increased 14% to $123,386 or 1.62% of net
sales in the second quarter of fiscal 2000 from $107,913 or 1.66% of net sales
in the second quarter of fiscal 1999. Membership fees include new membership
sign-ups at the new warehouses opened since the end of the second quarter of
fiscal 1999. Membership fees in both fiscal years reflect the change from a cash
to a deferred method of
3
<PAGE>
accounting for membership fees, beginning in the first quarter of fiscal 1999,
whereby membership fee income is recognized ratably over the one-year life of
the membership.
Gross margin (defined as net sales minus merchandise costs) increased 18% to
$821,234 or 10.79% of net sales in the second quarter of fiscal 2000 from
$695,792 or 10.73% of net sales in the second quarter of fiscal 1999.The
increase in gross margin as a percentage of net sales reflects increased sales
penetration of certain higher gross margin ancillary businesses and private
label products and improved performance of its international operations, offset
by the Company's on-going efforts to continually lower prices to its members.
The gross margin figures reflect accounting for merchandise costs on the
last-in, first-out (LIFO) method. The second quarter of fiscal 2000 includes a
$2,500 LIFO provision compared to a $3,500 LIFO provision in the second quarter
of fiscal 1999.
Selling, general and administrative expenses as a percent of net sales
decreased to 8.36% during the second quarter of fiscal 2000 from 8.38% during
the second quarter of fiscal 1999. This improvement in selling, general and
administrative expenses as a percent of net sales was due to the increase in
comparable warehouse sales noted above, and a year-over-year expense improvement
at the Company's core warehouse operations and Central and Regional
administrative offices, which was partially offset by higher expenses associated
with international expansion; continued expansion and rollout of certain
ancillary businesses; the opening of a new regional buying office and the
increase in credit card discount fees associated with the rollout of a new
co-branded credit card program.
Preopening expenses totaled $8,108 or .11% of net sales during the second
quarter of fiscal 2000 compared to $3,951 or 0.06% of net sales during the
second quarter of fiscal 1999. Six warehouses were opened in the second quarter
of fiscal 2000 compared to one warehouse opened during last year's second
quarter. Additionally, the opening of a Southeast Regional Office to strengthen
the administrative support of the region contributed to this increase.
Preopening expenses also include costs related to remodels, including expanded
fresh foods and ancillary operations at existing warehouses, as well as costs
associated with expanding international operations.
A provision for warehouse closing costs of $1,500 was recorded in the second
quarter of fiscal 2000 compared to $3,000 in the second quarter of fiscal 1999.
The provisions include actual and estimated closing costs for warehouses being
relocated to new facilities during the fiscal year.
Interest expense totaled $10,576 in the second quarter of fiscal 2000
compared to $10,995 in the second quarter of fiscal 1999. Interest expense
primarily includes interest on the 3 1/2% Zero Coupon Notes and the 7 1/8%
Senior Notes. The decrease in interest expense is primarily attributable to a
decrease in the interest rate related to the 7 1/8% Senior Notes, due to
entering into a "fix-to-floating" interest rate swap agreement on December 10,
1999 that effectively converted the fixed rate of 7 1/8% to a floating rate
indexed to the thirty day commercial paper rate.
Interest income and other totaled $14,983 in the second quarter of fiscal
2000 compared to $11,192 in the second quarter of fiscal 1999. The increase
primarily reflects higher rates of interest earned on higher balances of cash
and cash equivalents and short-term investments during the second quarter of
fiscal 2000, as compared to the second quarter of fiscal 1999.
The effective income tax rate on earnings in the second quarter of both
fiscal 2000 and 1999 was 40%.
COMPARISON OF THE 24 WEEKS ENDED FEBRUARY 13, 2000 AND FEBRUARY 14, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Net operating results for the first half of fiscal 2000 reflect net income
of $310,926, or $0.66 per diluted share, compared to net income of $138,243, or
$0.30 per diluted share during the first half of fiscal 1999. Net income in the
first half of fiscal 1999 included a $118,023 non-cash, after-tax charge,
reflecting the cumulative effect of the Company's change in accounting for
membership fees from a cash to a
4
<PAGE>
deferred method. Before the impact of this non-cash charge, net earnings were
$256,266, or $.55 per diluted share.
Net sales increased 17% to $14,437,798 during the first half of fiscal 2000
from $12,378,683 during the first half of fiscal 1999. This increase was
primarily due to an increase in comparable warehouse sales and opening a net of
18 warehouses (24 opened, 6 closed) since the end of the second quarter of
fiscal 1999. Comparable sales, that is sales in warehouses open for at least a
year, increased 13 percent during the first half of fiscal 2000, reflecting new
marketing and merchandising efforts, including the rollout of fresh foods and
various ancillary businesses to certain existing locations. Changes in prices of
merchandise did not materially contribute to sales increases.
Membership fees and other revenue increased to $242,701 or 1.68% of net
sales in the first half of fiscal 2000 from $211,753 or 1.71% of net sales in
the first half of fiscal 1999. Membership fees include new membership sign-ups
at the new warehouses opened since the end of the second quarter of fiscal 1999.
Gross margin (defined as net sales minus merchandise costs) increased 17% to
$1,525,230 or 10.56% of net sales in the first half of fiscal 2000 from
$1,302,245 or 10.52% of net sales in the first half of fiscal 1999. The increase
in gross margin as a percentage of net sales reflects increased sales
penetration of certain higher gross margin ancillary businesses and private
label products and improved performance of its international operations, offset
by the Company's on-going efforts to continually lower prices to its members.
The gross margin figures reflect accounting for merchandise costs on the
last-in, first-out (LIFO) method. The first half of fiscal 2000 includes a
$5,000 LIFO provision compared to a $6,000 LIFO provision in the first half of
fiscal 1999.
Selling, general and administrative expenses as a percent of net sales
decreased to 8.54% during the first half of fiscal 2000 from 8.58% during the
first half of fiscal 1999. This improvement in selling, general and
administrative expenses as a percent of net sales was due to the increase in
comparable warehouse sales noted above, and a year-over-year expense improvement
at the Company's core warehouse operations and Central and Regional
administrative offices, which was partially offset by higher expenses associated
with international expansion and continued expansion and rollout of certain
ancillary businesses; the opening of a new regional buying office and the
increase in credit card discount fees associated with the rollout of a new
co-branded credit card program.
Preopening expenses totaled $18,442 or 0.13% of net sales during the first
half of fiscal 2000 compared to $14,658 or 0.12% of net sales during the first
half of fiscal 1999. Twelve warehouses were opened in the first half of fiscal
2000 (including 1 relocated warehouses) compared to nine new locations during
the last year's first half (including two relocated warehouses). Preopening
expenses also include costs related to remodels, including expanded fresh foods
and ancillary operations at existing warehouses, as well as costs associated
with expanding international operations.
In the first half of fiscal 2000, the Company recorded a pre-tax provision
for warehouse closing costs of $2,500 compared to a pre-tax provision for
warehouse closing costs of $5,000 in the first half of fiscal 1999. The
provisions included closing costs for warehouses closed in each respective
fiscal year, including exit costs associated with warehouses which were or are
being relocated to new facilities. There was one relocation in the first half of
fiscal 2000 compared to two relocations in the first half of fiscal 1999.
Interest expense totaled $20,973 in the first half of fiscal 2000 compared
to $21,907 in the first half of fiscal 1999. Interest expense primarily includes
interest on the 3 1/2% Zero Coupon Notes and the 7 1/8% Senior Notes. The
decrease in interest expense is primarily attributable to a decrease in the
interest rate related to the 7 1/8% Senior Notes, due to entering into a
"fix-to-floating" interest rate swap agreement on December 10, 1999 that
effectively converted the fixed rate of 7 1/8% to a floating rate indexed to the
thirty day commercial paper rate.
Interest income and other totaled $25,650 in the first half of fiscal 2000
compared to $17,231 in the first half of fiscal 1999. The increase primarily
reflects higher interest rates earned on higher balances of
5
<PAGE>
cash and cash equivalents and short-term investments during the first half of
fiscal 1999, as compared to the year-earlier first half.
The effective income tax rate on earnings in the first half of both fiscal
2000 and 1999 was 40.0%.
LIQUIDITY AND CAPITAL RESOURCES
(DOLLARS IN THOUSANDS)
EXPANSION PLANS
Costco's primary requirement for capital is the financing of the land,
building and equipment costs for new warehouses plus the costs of initial
warehouse operations and working capital requirements, as well as additional
capital for international expansion either directly or through investments in
foreign subsidiaries and joint ventures.
While there can be no assurance that current expectations will be realized,
and plans are subject to change upon further review, it is management's current
intention to spend an aggregate of approximately $800,000 to $950,000 during
fiscal 2000 in the United States and Canada for real estate, construction,
remodeling and equipment for warehouse clubs and related operations; and
approximately $100,000 to $150,000 for international expansion, including the
United Kingdom, Asia, Mexico and other potential ventures. These expenditures
will be financed with a combination of cash provided from operations, the use of
cash and cash equivalents and short-term investments (which totaled $663,502 at
February 13, 2000), short-term borrowings under revolving credit facilities and
other financing sources as required.
Expansion plans for the United States and Canada during fiscal 2000 are to
open approximately 20 to 25 new warehouse clubs, including three to five
relocations of existing warehouses to larger and better-located facilities. The
Company expects to continue expansion of its international operations and plans
to open two to three additional units in the United Kingdom through its
60%-owned subsidiary and an additional unit in Taiwan through its 55%-owned
subsidiary during the year. Through the end of the first half of fiscal 2000,
the Company opened 12 new warehouses (including one relocation). Expansion plans
for the remainder of fiscal 2000 include 10 to 14 new openings in the U.S. and
Canada (including two to four relocations) and two to three warehouses in the
United Kingdom. Other international markets are being assessed.
Costco and its Mexico-based joint venture partner, Controladora Comercial
Mexicana, each own a 50% interest in Price Club Mexico. As of February 13, 2000,
Price Club Mexico operated 17 warehouses in Mexico and plans to open two new
warehouse clubs during fiscal 2000.
BANK CREDIT FACILITIES AND COMMERCIAL PAPER PROGRAMS (ALL AMOUNTS STATED IN
US DOLLARS)
The Company has in place a $425,000 commercial paper program supported by a
$425,000 bank credit facility with a group of 11 banks, which expires in
January, 2001. At February 13, 2000 no amounts were outstanding under the loan
facility or the commercial paper program.
In addition, a wholly-owned Canadian subsidiary has a $138,000 commercial
paper program supported by a $97,000 bank credit facility with three Canadian
banks, which expires in March 2001. At February 13, 2000 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 $522,000 combined amounts of
the respective supporting bank credit facilities.
6
<PAGE>
LETTERS OF CREDIT
The Company has separate letter of credit facilities (for commercial and
standby letters of credit) totaling approximately $287,000. The outstanding
commitments under these facilities at February 13, 2000 totaled approximately
$122,000, including approximately $45,000 in standby letters of credit.
DERIVATIVES
The Company uses derivative financial instruments only to manage
well-defined interest rate and foreign exchange risks. Forward foreign exchange
contracts are used to hedge the impact of fluctuations of foreign exchange on
inventory purchases. The amount of interest rate and foreign exchange contracts
outstanding at quarter-end or in place during the first 24 weeks of fiscal 2000
were not material to the Company's results of operations or its financial
position.
Effective December 10, 1999, the Company entered into a "fixed-to-floating"
interest rate swap agreement on its $300 million 7 1/8% senior notes, replacing
the fixed interest rate with a floating rate indexed to the 30-day commercial
paper rate.
YEAR 2000
The Company implemented a project to ensure that its systems were year 2000
compliant and fully operational prior to the year 2000 and on into the 21(st)
Century. Virtually all systems--including information technology systems and
non-information technology equipment--have worked properly in the year 2000
without any significant operational difficulties. In addition, the Company has
not experienced any material year 2000-related problems with its significant
suppliers with which its systems interface or exchange data. The total costs
related to the year 2000 efforts were approximately $7,500--in line with prior
estimates and were fully expensed as incurred during the relevant fiscal
periods.
FINANCIAL POSITION AND CASH FLOWS
Working capital totaled approximately $447,000 at February 13, 2000 compared
to $450,000 at August 29, 1999. Working capital was positively affected by an
increase in net inventory levels (inventories less accounts payable) of $73,000,
an increase in receivables of $18,000 and an increase in other current assets of
$59,000, which increases were offset by a decrease in cash and cash equivalents
and short-term investments of $34,000, an increase in deferred membership income
of $29,000 (the result of accounting for membership fees on a deferred basis),
and an increase in tax accruals and other current liabilities of $90,000.
Net cash provided by operating activities totaled $408,453 in the first half
of fiscal 2000 and $424,294 in the first half of fiscal 1999. The year-over-year
decrease in net cash from operating activities is primarily a result of
increased net income, adjusted for the non-cash cumulative effect of accounting
change in fiscal 1999, during the first 24 weeks of fiscal 2000 compared to the
first 24 weeks of fiscal 1999, offset by a reduction in the change in net
receivables, other current assets and accrued and other current liabilities.
Net cash used in investing activities totaled $397,418 in the first half of
fiscal 2000 compared to $571,942 in the first half of fiscal 1999. The investing
activities primarily relate to additions to property and equipment for new and
remodeled warehouses of $515,118 and $367,075 in the first 24 weeks of fiscal
2000 and 1999, respectively. The Company opened 12 warehouses (including one
relocation) in the first 24 weeks of fiscal 2000 and has plans to open 15 to 17
new warehouses (including two to four relocations) during the remainder of the
fiscal year compared to 21 new warehouses (including seven relocations) opened
during fiscal 1999. Net cash used in investing activities also reflects a
decrease in short-term investments of $103,587 since the beginning of fiscal
year 2000 compared to an increase of $228,361 in the first half of fiscal 1999.
7
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Net cash provided by financing activities totaled $53,745 in the first half
of fiscal 2000 compared to $106,543 in the first half of fiscal 1999. This
decrease is primarily attributable to a decrease in bank checks outstanding.
The Company's balance sheet as of February 13, 2000 reflects a $603,345 or
8% increase in total assets since August 29, 1999. The increase is primarily due
to increases in merchandise inventory and property and equipment primarily
related to the Company's expansion program.
PART II--OTHER INFORMATION
(DOLLARS IN THOUSANDS)
ITEM 1. LEGAL PROCEEDINGS
The Company is involved from time to time in claims, proceedings and
litigation arising from its business and property ownership. The Company does
not believe that any such claim, proceeding or litigation, either alone or in
the aggregate, will have a material adverse effect on the Company's financial
position or results of its operations.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was held on January 27, 2000 at
the Doubletree Hotel in Bellevue, Washington. Stockholders of record at the
close of business on December 10, 1999 were entitled to notice of and to vote in
person or by proxy at the annual meeting. At the date of record, December 10,
1999, there were 222,387,354 shares outstanding. The matters presented for vote
received the required votes for approval and had the following total, for,
against and abstained votes as noted below. The number of shares voted does not
reflect the 2-for-1 stock split, which was approved by the Company's Board of
Directors for shareholders of record on December 24, 1999, because the date of
record for those entitled to vote preceded the stock split record date.
(1) To elect three Class I directors to hold office until the 2003 Annual
Meeting of Stockholders and until their successors are elected and
qualified.
<TABLE>
<CAPTION>
TOTAL SHARES FOR AGAINST WITHHELD AUTHORITY AND
VOTED/(%) VOTES/(%) VOTES/(%) ABSTAINED VOTES/(%)
------------ ----------- --------- ----------------------
<S> <C> <C> <C> <C>
Jeffrey H. Brotman 175,087,870 172,259,356 -- 2,828,514
(Class I) 78.73% 98.38% -- 1.62%
Richard A. Galanti 175,087,870 172,241,114 -- 2,846,756
(Class I) 78.73% 98.37% -- 1.63%
James D. Sinegal 175,087,870 172,255,855 -- 2,832,015
(Class I) 78.73% 98.38% -- 1.62%
</TABLE>
8
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(2) To consider and approve indemnity agreements to be entered into between
the Company and each of its directors and certain of its executive
officers.
<TABLE>
<CAPTION>
TOTAL SHARES FOR AGAINST WITHHELD AUTHORITY AND
VOTED/(%) VOTES/(%) VOTES/(%) ABSTAINED VOTES/(%)
------------ ----------- ----------- ----------------------
<S> <C> <C> <C> <C>
175,087,870 133,658,428 40,476,052 953,390
78.73% 76.34% 23.12% .54%
</TABLE>
(3) To consider and ratify the selection of the Company's independent public
accountants, Arthur Andersen LLP.
<TABLE>
<CAPTION>
TOTAL SHARES FOR AGAINST WITHHELD AUTHORITY AND
VOTED/(%) VOTES/(%) VOTES/(%) ABSTAINED VOTES/(%)
------------ ----------- ----------- ----------------------
<S> <C> <C> <C> <C>
175,087,870 173,303,280 103,106 1,681,484
78.73% 98.98% .06% .96%
</TABLE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein or incorporated by reference:
(3.2) Bylaws of Costco Wholesale Corporation
(27) Financial Data Schedule
(28) Report of Independent Public Accountants
(b) Current report on Form 8-K filed December 9, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Costco Wholesale Corporation
REGISTRANT
<TABLE>
<S> <C>
Date: March 10, 2000 /s/ JAMES D. SINEGAL
---------------------------------------------
James D. Sinegal
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: March 10, 2000 /s/ RICHARD A. GALANTI
---------------------------------------------
Richard A. Galanti
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
</TABLE>
9
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COSTCO WHOLESALE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
FEBRUARY 13, AUGUST 29,
2000 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 510,027 $ 440,586
Short-term investments.................................... 153,475 256,688
Receivables, net.......................................... 186,491 168,648
Merchandise inventories, net.............................. 2,347,621 2,210,475
Other current assets...................................... 298,289 239,516
----------- -----------
Total current assets.................................... 3,495,903 3,315,913
----------- -----------
PROPERTY AND EQUIPMENT
Land and land rights...................................... 1,442,075 1,264,125
Buildings and leasehold and land improvements............. 2,733,609 2,444,640
Equipment and fixtures.................................... 1,230,888 1,138,568
Construction in progress.................................. 122,638 176,824
----------- -----------
5,529,210 5,024,157
Less-accumulated depreciation and amortization............ (1,213,436) (1,117,269)
----------- -----------
Net property and equipment.............................. 4,315,774 3,906,888
----------- -----------
OTHER ASSETS................................................ 296,669 282,200
----------- -----------
$ 8,108,346 $ 7,505,001
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $ 1,976,294 $ 1,912,632
Accrued salaries and benefits............................. 431,989 414,276
Accrued sales and other taxes............................. 136,367 122,932
Deferred membership income................................ 255,327 225,903
Other current liabilities................................. 249,342 190,490
----------- -----------
Total current liabilities............................... 3,049,319 2,866,233
LONG-TERM DEBT.............................................. 923,414 918,888
DEFERRED INCOME TAXES AND OTHER LIABILITIES................. 68,805 66,990
----------- -----------
Total liabilities....................................... 4,041,538 3,852,111
----------- -----------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST........................................... 129,574 120,780
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock $.005 par value; 200,000,000 shares
authorized; no shares issued and outstanding............ -- --
Common stock $.005 par value; 1,800,000,000 shares
authorized; 446,401,000 and 442,736,000 shares issued
and outstanding......................................... 2,232 2,214
Additional paid-in capital................................ 1,015,062 952,758
Other accumulated comprehensive loss...................... (86,208) (118,084)
Retained earnings......................................... 3,006,148 2,695,222
----------- -----------
Total stockholders' equity.............................. 3,937,234 3,532,110
----------- -----------
$ 8,108,346 $ 7,505,001
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets
10
<PAGE>
COSTCO WHOLESALE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
12 WEEKS ENDED 24 WEEKS ENDED
--------------------------- ---------------------------
FEBRUARY 13, FEBRUARY 14, FEBRUARY 13, FEBRUARY 14,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Net sales................................... $7,613,601 $6,484,445 $14,437,798 $12,378,683
Membership fees and other................... 123,386 107,913 242,701 211,753
---------- ---------- ----------- -----------
Total revenue............................. 7,736,987 6,592,358 14,680,499 12,590,436
OPERATING EXPENSES
Merchandise costs........................... 6,792,367 5,788,653 12,912,568 11,076,438
Selling, general and administrative......... 636,739 543,565 1,233,456 1,062,555
Preopening expenses......................... 8,108 3,951 18,442 14,658
Provision for impaired assets and warehouse
closing costs............................. 1,500 3,000 2,500 5,000
---------- ---------- ----------- -----------
Operating income.......................... 298,273 253,189 513,533 431,785
OTHER INCOME (EXPENSE)
Interest expense............................ (10,576) (10,995) (20,973) (21,907)
Interest income and other................... 14,983 11,192 25,650 17,231
---------- ---------- ----------- -----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE............... 302,680 253,386 518,210 427,109
Provision for income taxes.................. 121,072 101,354 207,284 170,843
---------- ---------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE......................... 181,608 152,032 310,926 256,266
Cumulative effect of accounting change, net
of tax.................................... -- -- -- (118,023)
---------- ---------- ----------- -----------
NET INCOME.................................. $ 181,608 $ 152,032 $ 310,926 $ 138,243
========== ========== =========== ===========
NET INCOME PER COMMON SHARE:
Basic earnings per share:
Income before cumulative effect of
accounting change..................... $ 0.41 $ 0.35 $ 0.70 $ 0.59
Cumulative effect of accounting change,
net of tax............................ -- -- -- (0.27)
---------- ---------- ----------- -----------
Net Income.............................. $ 0.41 $ 0.35 $ 0.70 $ 0.32
========== ========== =========== ===========
Diluted earnings per share:
Income before cumulative effect of
accounting change..................... $ 0.39 $ 0.33 $ 0.66 $ 0.55
Cumulative effect of accounting change,
net of tax............................ -- -- -- (.25)
---------- ---------- ----------- -----------
Net Income.............................. $ 0.39 $ 0.33 $ 0.66 $ .30
========== ========== =========== ===========
Shares used in calculation (000's)
Basic..................................... 445,255 437,782 444,277 436,730
Diluted................................... 476,642 470,453 475,120 468,787
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
COSTCO WHOLESALE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
24 WEEKS ENDED
---------------------------
FEBRUARY 13, FEBRUARY 14,
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 310,926 $ 138,243
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 114,424 98,493
Accretion of discount on zero coupon notes.............. 7,431 7,586
Cumulative effect of accounting change, net of tax...... -- 118,023
Change in receivables, other current assets, accrued and
other current liabilities............................. 66,124 154,424
Increase in merchandise inventories..................... (124,369) (130,368)
Increase in accounts payable............................ 42,373 49,150
Other................................................... (8,456) (11,257)
--------- ---------
Total adjustments..................................... 97,527 286,051
--------- ---------
Net cash provided by operating activities............... 408,453 424,294
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment....................... (515,118) (367,075)
Proceeds from the sale of property and equipment.......... 33,738 30,101
Change in short-term investments.......................... 103,587 (228,361)
Other..................................................... (19,625) (6,607)
--------- ---------
Net cash used in investing activities................... (397,418) (571,942)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from long-term borrowings.................... 253 2,807
Repayments of long-term debt.............................. (5,473) (5,517)
Changes in bank checks outstanding........................ 10,608 70,793
Proceeds from minority interests.......................... 8,816 5,277
Exercise of stock options................................. 39,541 33,183
--------- ---------
Net cash provided by financing activities............... 53,745 106,543
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... 4,661 3,730
--------- ---------
Net increase/(decrease) in cash and cash equivalents...... 69,441 (37,375)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 440,586 361,974
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 510,027 $ 324,599
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amounts capitalized)..................... $ 14,531 $ 14,193
Income taxes.............................................. 118,559 108,393
</TABLE>
The accompanying notes are an integral part of these financial statements
12
<PAGE>
COSTCO WHOLESALE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
NOTE (1)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and pursuant to the rules and regulations of the Securities
and Exchange Commission. While these statements reflect all normal recurring
adjustments which are, in the opinion of management, necessary for fair
presentation of the results of the interim period, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. For further information, refer to
the financial statements and footnotes thereto included in the Company's annual
report filed on Form 10-K for the fiscal year ended August 29, 1999.
The consolidated financial statements include the accounts of Costco
Wholesale Corporation, a Washington corporation, and its subsidiaries ("Costco"
or the "Company"). All inter-company transactions between the Company and its
subsidiaries have been eliminated in consolidation. The Price Company and Costco
Wholesale Corporation primarily operate membership warehouses under the Costco
Wholesale name.
Costco operates membership warehouses that offer very low prices on a
limited selection of nationally branded and selected private label products in a
wide range of merchandise categories in no-frills, self-service warehouse
facilities. At February 13, 2000, Costco operated 303 warehouse clubs: 230 in
the United States; 59 in Canada; seven in the United Kingdom; three in Korea;
three in Taiwan; and one in Japan. As of February 13, 2000, the Company also
operated (through a 50%-owned joint venture) 17 warehouses in Mexico. The
Company also operates Costco Online, an electronic commerce web site, at
www.costco.com.
The Company's investment in the Price Club Mexico joint venture and in other
unconsolidated joint ventures that are less than majority owned are accounted
for under the equity method.
FISCAL YEARS
The Company reports on a 52/53-week fiscal year basis, which ends on the
Sunday nearest August 31(st). Fiscal year 2000 is a 53-week year, with the
first, second and third quarters consisting of 12 weeks each and the fourth
quarter, ending September 3, 2000, consisting of 17 weeks. Fiscal year 1999 was
a 52-week year.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents.
13
<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 13, 2000 and August 29, 1999 short term investments consisted of
the following:
<TABLE>
<CAPTION>
FEBRUARY 13, 2000 AUGUST 29, 1999
----------------- ---------------
<S> <C> <C>
Municipal securities........................... $ 41,154 $ 97,966
Corporate notes and bonds...................... 85,442 89,872
U.S. Treasury/Agency securities................ 21,738 43,699
Certificates of deposit........................ -- 24,841
Foreign Bonds.................................. 4,943 --
Other.......................................... 198 310
-------- --------
Total short-term investments................. $153,475 $256,688
======== ========
</TABLE>
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 13, 2000 or August 29, 1999. Realized gains and losses
are included in interest income and were not significant in the first half 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 $4,373 and $4,582 at February 13, 2000 and August 29, 1999.
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 $16,150 at
February 13, 2000 and $11,150 at August 29, 1999. The Company provides for
estimated inventory losses between physical inventory counts on the basis of a
standard percentage of sales. This provision is adjusted to reflect the actual
shrinkage results of physical inventory counts, which generally occur in the
second and fourth fiscal quarters.
ACCOUNTS PAYABLE
The Company's banking system provides for the daily replenishment of major
bank accounts as checks are presented. Accordingly, included in Accounts Payable
are $32,138 and $21,081 at February 13, 2000 and August 29, 1999, respectively,
representing the excess of outstanding checks over cash on deposit at the banks
on which the checks were drawn.
14
<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)
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.
INCOME TAXES
Deferred income taxes are provided to reflect temporary differences between
the financial and tax bases of assets and liabilities using presently enacted
tax rates and laws.
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.
<TABLE>
<CAPTION>
12 WEEKS ENDED 24 WEEKS ENDED
--------------------------- ---------------------------
FEBRUARY 13, FEBRUARY 14, FEBRUARY 13, FEBRUARY 14,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income available to common stockholders
used in basic EPS............................ $181,608 $152,032 $310,926 $138,243
Interest on convertible bonds, net of tax...... 2,230 2,276 4,460 4,552
-------- -------- -------- --------
Net income available to common stockholders
after assumed conversions of dilutive
securities................................... $183,838 $154,308 $315,386 $142,795
======== ======== ======== ========
Weighted average number of common shares used
in basic EPS (000's)......................... 445,255 437,782 444,277 436,730
Stock options (000's).......................... 12,039 12,233 11,495 11,619
Conversion of convertible bonds (000's)........ 19,348 20,438 19,348 20,438
-------- -------- -------- --------
Weighted number of common shares and dilutive
potential common stock used in diluted EPS
(000's)...................................... 476,642 470,453 475,120 468,787
======== ======== ======== ========
</TABLE>
15
<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)
All per share data reflects the 2-for-1 stock split which was approved by
the Company's Board of Directors for shareholders of record on December 24,
1999. The common stock began trading at the post-split price on January 14,
2000.
DERIVATIVES
The Company uses derivative financial instruments only to manage
well-defined interest rate and foreign exchange risks. Forward foreign exchange
contracts are used to hedge the impact of fluctuations of foreign exchange on
inventory purchases. The amount of interest rate and foreign exchange contracts
outstanding at quarter-end or in place during the first 24 weeks of fiscal 2000
were not material to the Company's results of operations or its financial
position.
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, replacing the
fixed interest rate with a floating rate indexed to the 30-day commercial paper
rate.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which established accounting and reporting
standards for derivative instruments and for hedging activities. In June 1999,
the FASB issued SFAS No. 137, which deferred the effective date of SFAS No. 133
for the Company to the beginning of its fiscal 2001. Presently, the Company has
limited use of derivative financial instruments and believes that SFAS No. 133
would not have a material impact on its results of operations or financial
position.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
16
<PAGE>
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:
<TABLE>
<CAPTION>
12 WEEKS ENDED 24 WEEKS ENDED
--------------------------- ---------------------------
FEBRUARY 13, FEBRUARY 14, FEBRUARY 13, FEBRUARY 14,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income..................................... $181,608 $152,032 $310,926 $138,243
Other comprehensive income (expense):
Foreign currency translation................. 17,530 16,048 31,876 33,196
Income tax expense........................... (7,012) (6,419) (12,750) (13,278)
-------- -------- -------- --------
Other comprehensive income, net of income
taxes.................................... 10,518 9,629 19,126 19,918
-------- -------- -------- --------
Comprehensive income........................... $192,126 $161,661 $330,052 $158,161
======== ======== ======== ========
</TABLE>
NOTE (3)--DEBT
BANK LINES OF CREDIT AND COMMERCIAL PAPER PROGRAMS
The Company has in place a $425,000 commercial paper program supported by a
$425,000 bank credit facility with a group of 11 banks, which expires in
January, 2001. At February 13, 2000 no amounts were outstanding under the loan
facility or the commercial paper program.
In addition, a wholly-owned Canadian subsidiary has a $138,000 commercial
paper program supported by a $97,000 bank credit facility with three Canadian
banks, which expires in March 2001. At February 13, 2000 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 $522,000 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 $287,000. The outstanding
commitments under these facilities at February 13, 2000 totaled approximately
$122,000, including approximately $45,000 in standby letters of credit.
NOTE (4)--COMMITMENTS AND CONTINGENCIES
The Company is involved from time to time in claims, proceedings and
litigation arising from its business and property ownership. The Company does
not believe that any such claim, proceeding or litigation, either alone or in
the aggregate, will have a material adverse effect on the Company's financial
position or results in operations.
17
<PAGE>
COSTCO WHOLESALE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
NOTE (5)--SEGMENT REPORTING
The Company and its subsidiaries are principally engaged in the operation of
membership warehouses in the United States, Canada, 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.
<TABLE>
<CAPTION>
OTHER
UNITED STATES CANADIAN INTERNATIONAL
OPERATIONS OPERATIONS OPERATIONS TOTAL
------------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
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
TWENTY-FOUR WEEKS ENDED FEBRUARY 14, 1999
Total revenue............................. $10,282,046 $1,878,012 $430,378 $12,590,436
Operating income (loss)................... 359,672 73,358 (1,245) 431,785
Depreciation and amortization............. 77,140 14,498 6,855 98,493
Capital expenditures...................... 296,074 48,976 22,025 367,075
Total assets.............................. 5,590,996 920,537 465,757 6,977,290
YEAR ENDED AUGUST 29, 1999
Total revenue............................. $22,404,026 $4,104,662 $947,343 $27,456,031
Operating income (loss)................... 723,375 146,839 (10,087) 860,127
Depreciation and amortization............. 177,661 32,559 14,591 224,811
Capital expenditures...................... 655,924 79,583 52,428 787,935
Total assets.............................. 5,984,537 992,943 527,521 7,505,001
</TABLE>
18
<PAGE>
BYLAWS OF
COSTCO WHOLESALE CORPORATION
<PAGE>
BYLAWS OF
COSTCO WHOLESALE CORPORATION
These Bylaws are promulgated pursuant to the Washington Business
Corporation Act, as set forth in Title 23B of the Revised Code of Washington.
ARTICLE 1
OFFICES
1.1 PRINCIPAL OFFICE. The principal office of the corporation shall be
located at 999 Lake Drive, Issaquah, Washington 98027.
1.2 REGISTERED OFFICE AND REGISTERED AGENT. The registered
office of the corporation shall be located in the State of Washington at such
place as may be fixed from time to time by the Board of Directors upon filing of
such notices as may be required by law, and the registered agent shall have a
business office identical with such registered office. Any change in the
registered agent or registered office shall be effective upon filing such change
with the office of the Secretary of State of the State of Washington.
1.3 OTHER OFFICES. The corporation shall also have and maintain an
office or principal place of business at such place as may be fixed by the Board
of Directors, and may also have offices at such other places, both within and
without the State of Washington, as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE 2
SHAREHOLDERS
2.1 ANNUAL MEETING
(a) The annual meeting of the shareholders of the corporation
for the election of directors and for the transaction of such other business as
may properly come before the meeting shall be held each year on a date and at a
time and place to be set by the Board of Directors.
(b) At an annual meeting of the shareholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be: (i)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (ii) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (iii) otherwise
properly brought before the meeting by a shareholder. For business to be
properly brought before an annual meeting by a shareholder, the shareholder must
have given timely notice thereof in writing to the Secretary of the corporation.
To be timely, a shareholder's notice must be
2.
<PAGE>
delivered to or mailed and received at the principal executive offices of the
corporation not later than the close of business on the one-hundred twentieth
(120th) day prior to the first anniversary of the preceding year's annual
meeting. A shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the annual meeting: (A) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (B) the name and
address, as they appear on the corporation's books, of the shareholder proposing
such business, (C) the class and number of shares of the corporation which are
beneficially owned by the shareholder, (D) any material interest of the
shareholder in such business and (E) any other information that is required to
be provided by the shareholder pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as a
proponent to a shareholder proposal. Notwithstanding the foregoing, in order to
include information with respect to a shareholder proposal in the proxy
statement and form of proxy for a shareholders' meeting, shareholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted.
2.2 SPECIAL MEETINGS. In accordance with Article III of the Articles
of Incorporation of the corporation (the "Articles of Incorporation"), special
meetings of the shareholders for any purpose or purposes may be called at any
time by a majority of the Board of Directors, the Chairman, the President, any
Executive Vice President, the Secretary or any shareholders owning in the
aggregate at least ten percent (10%) of all votes entitled to be cast on any
issue proposed to be considered at the proposed special meeting. The Board of
Directors may designate any place as the place of any special meeting called by
the Chairman, the President, any Executive Vice President, the Secretary, the
Board of Directors or the shareholders owning the requisite number of votes.
2.3 NOTICE OF MEETINGS. Except as otherwise provided in Subsections
2.3(b) and 2.3(c) below, the Secretary, Assistant Secretary, or any transfer
agent of the corporation shall deliver, either personally or by mail, private
carrier, telegraph or teletype, or telephone, wire or wireless equipment which
transmits a facsimile of the notice, not less than ten (10) nor more than sixty
(60) days before the date of any meeting of shareholders, written notice stating
the place, day, and time of the meeting to each shareholder of record entitled
to vote at such meeting. If mailed in the United States, such notice shall be
deemed to be delivered when deposited in the United States mail, with
first-class postage thereon prepaid, addressed to the shareholder at his address
as it appears on the corporation's record of shareholders. If mailed outside the
United States, such notice shall be deemed to be delivered five (5) days after
being deposited in the mail, with first-class airmail postage thereon, return
receipt requested, addressed to the shareholder at the shareholder's address as
it appears on the corporation's record of shareholders.
3.
<PAGE>
(a) NOTICE OF SPECIAL MEETING. In the case of a special
meeting, the written notice shall also state with reasonable clarity the purpose
or purposes for which the meeting is called and the actions sought to be
approved at the meeting. No business other than that specified in the notice may
be transacted at a special meeting.
(b) PROPOSED ARTICLES OF AMENDMENT OR DISSOLUTION. If the
business to be conducted at any meeting includes any proposed amendment to the
Articles of Incorporation or the proposed voluntary dissolution of the
corporation, then the written notice shall be given not less than twenty (20)
nor more than sixty (60) days before the meeting date and shall state that the
purpose or one of the purposes is to consider the advisability thereof, and, in
the case of a proposed amendment, shall be accompanied by a copy of the
amendment.
(c) PROPOSED MERGER, CONSOLIDATION, EXCHANGE, SALE, LEASE OR
DISPOSITION. If the business to be conducted at any meeting includes any
proposed plan of merger or share exchange, or any sale, lease, exchange, or
other disposition of all or substantially all of the corporation's property
otherwise than in the usual or regular course of its business, then the written
notice shall state that the purpose or one of the purposes is to consider the
proposed plan of merger or share exchange, sale, lease, or disposition, as the
case may be, shall describe the proposed action with reasonable clarity, and, if
required by law, shall be accompanied by a copy or a detailed summary thereof;
and written notice shall be given to each shareholder of record, whether or not
entitled to vote at such meeting, not less than twenty (20) nor more than sixty
(60) days before such meeting, in the manner provided in Section 2.3 above.
(d) DECLARATION OF MAILING. A declaration of the mailing or
other means of giving any notice of any shareholders' meeting, executed by the
Secretary, Assistant Secretary, or any transfer agent of the corporation giving
the notice, shall be prima facie evidence of the giving of such notice.
(e) WAIVER OF NOTICE. Notice of any shareholders' meeting may
be waived in writing by any shareholder at any time, either before or after the
meeting. Except as provided below, the waiver must be signed by the shareholder
entitled to the notice, and be delivered to the corporation for inclusion in the
minutes or filing with the corporate records. A shareholder's attendance at a
meeting waives objection to lack of notice, or defective notice, unless the
shareholder at the beginning of the meeting objects to holding the meeting or
transacting business at the meeting.
2.4 QUORUM. A quorum shall exist at any meeting of shareholders if a
majority of the shares entitled to vote is represented in person or by proxy.
Shares entitled to vote as a separate voting group may take action on a matter
at a meeting only if a quorum of those shares exists with respect to that
matter. The shareholders present at a duly organized meeting may continue to
transact business at such meeting and at any adjournment of such meeting (unless
a new record date is or must be set for the adjourned meeting), notwithstanding
the withdrawal of enough shareholders from either meeting to leave less than a
quorum. Once a share is represented for any purpose at a meeting other than
solely to object to holding the meeting or transacting business at the meeting,
it is deemed present for quorum purposes for the remainder
4.
<PAGE>
of the meeting and for any adjournment of that meeting unless a new record date
is or must be set for the adjourned meeting.
2.5 VOTING OF SHARES. Except as otherwise provided in the Articles of
Incorporation or these Bylaws, and except as required by law, every shareholder
of record shall have the right at every shareholders' meeting to one vote for
every share standing in his name on the books of the corporation. If a quorum
exists, action on a matter, other than the election of directors, is approved by
a voting group if the votes cast within the voting group favoring the action
exceed the votes cast within the voting group opposing the action, unless a
greater number is required by the Articles of Incorporation or the Washington
Business Corporation Act.
2.6 ADJOURNED MEETINGS. A majority of the shares represented at a
meeting, even if less than a quorum, may adjourn the meeting from time to time
without further notice. When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken. However, if a
new record date for the adjourned meeting is or must be fixed in accordance with
the Washington Business Corporation Act, notice of the adjourned meeting must be
given to persons who are shareholders as of the new record date. At any
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
2.7 RECORD DATE. For the purpose of determining shareholders entitled
to notice of or to vote at any meeting of shareholders, or any adjournment
thereof, or entitled to receive payment of any dividend, the Board of Directors
may fix in advance a record date for any such determination of shareholders,
such date to be not more than seventy (70) days and, in the case of a meeting of
shareholders, not less than ten (10) days prior to the meeting or action
requiring such determination of shareholders. If no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, or shareholders entitled to receive payment of a dividend, the day
before the date on which notice of the meeting is mailed or the date on which
the resolution of the Board of Directors declaring such dividend is adopted, as
the case may be, shall be the record date for such determination of
shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, unless the Board of
Directors fixes a new record date, which it must do if the meeting is adjourned
more than one hundred twenty (120) days after the date is fixed for the original
meeting.
2.8 RECORD OF SHAREHOLDERS ENTITLED TO VOTE. After fixing a record
date for a shareholders' meeting, the corporation shall prepare an alphabetical
list of the names of all shareholders on the record date who are entitled to
notice of the shareholders' meeting. The list shall be arranged by voting group,
and within each voting group by class or series of shares, and show the address
of, and number of shares held by, each shareholder. A shareholder, shareholder's
agent, or a shareholder's attorney may inspect the shareholders list, beginning
ten days prior to the shareholders' meeting and continuing through the meeting,
at the corporation's principal office or at a place identified in the meeting
notice in the city where the meeting will be held during regular business hours
and at the shareholder's expense. The shareholders list shall
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be kept open for inspection during such meeting or any adjournment. Failure to
comply with the requirements of this section shall not affect the validity of
any action taken at such meeting.
2.9 ACTION BY SHAREHOLDERS WITHOUT A MEETING. Unless otherwise
provided in the Articles of Incorporation, any action required or permitted to
be taken at a meeting of shareholders may be taken without a meeting and without
prior notice if a consent in writing setting forth the action to be taken shall
be signed by shareholders representing that number of votes of shares
outstanding which is not less than the minimum number of votes of shares
outstanding that would be necessary to approve the action at a meeting at which
all shares entitled to vote thereon were present and voted. Notice of taking any
corporate action by written consent of shareholders by less than unanimous
written consent shall be given to all shareholders who have not consented in
writing in the manner specified in the Washington Business Corporation Act.
2.10 PROXIES. At all meetings of shareholders, a shareholder may vote
by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Such proxy shall be filed with the secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
three (3) years from the date of its execution, unless otherwise provided in the
proxy.
2.11 ORGANIZATION
(a) At every meeting of shareholders, the Chairman of the Board
of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen by a
majority of the Board of Directors, shall act as chairman. The Secretary, or, in
his absence, an Assistant Secretary directed to do so by the President or the
chairman, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled
to make such rules or regulations for the conduct of meetings of shareholders as
it shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to shareholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of shareholders shall not be required to
be held in accordance with rules of parliamentary procedure.
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ARTICLE 3
BOARD OF DIRECTORS
3.1 MANAGEMENT RESPONSIBILITY. All corporate powers shall be exercised
by or under the authority of, and the business and affairs of the corporation
shall be managed under the direction of, the Board of Directors, except as may
be otherwise provided in the Articles of Incorporation or the Washington
Business Corporation Act.
3.2 NUMBER OF DIRECTORS, QUALIFICATION. The authorized number of
directors of the corporation shall be as specified and set by resolution from
time to time by the Board of Directors. Directors need not be shareholders. No
reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION. Except as provided in Section 3.4 below, directors shall
be elected by a plurality of the votes cast at each annual meeting of
shareholders, and each director so elected shall hold office until the annual
meeting which takes place in the year in which his or her term expires and until
his or her successor is duly elected and qualified, or until his or her earlier
resignation or removal. Despite the expiration of a director's term, the
director continues to serve until the director's successor shall have been
elected and qualified or until there is a decrease in the number of directors.
3.4 VACANCIES. Any vacancy occurring on the Board of Directors
(whether caused by resignation, death, an increase in the number of directors,
or otherwise) may be filled by affirmative vote of a majority of the Board of
Directors. If the directors in office constitute fewer than a dquorum of the
Board, they may fill the vacancy by the affirmative vote of a majority of all
the directors in office, or by a sole remaining director. A director elected to
fill any vacancy shall be identified by the class (Class I, II or III as set
forth in Article V of the Articles of Incorporation) to which he or she is named
and shall hold office until the next shareholders' meeting at which directors of
the class for which such director has been chosen are elected and until his or
her successor has been duly elected and qualified, or until his or her earlier
resignation or removal.
3.5 REMOVAL. One or more members of the Board of Directors (including
the entire Board) may be removed, for cause, at a meeting of shareholders called
expressly for that purpose. A director may be removed only if the number of
votes cast to remove the director exceeds the number of votes cast not to remove
the director.
3.6 RESIGNATION. Any director may resign at any time by delivering his
written resignation to the Chairman or the Secretary, such resignation to
specify whether it will be effective at a particular time, upon receipt by the
Chairman or Secretary or at the pleasure of the Board of Directors. If no such
specification is made, it shall be deemed effective at the pleasure of the Board
of Directors. When one or more directors shall resign from the Board of
Directors, effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when
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such resignation or resignations shall become effective, and each Director so
chosen shall hold office for the unexpired portion of the term of the Director
whose place shall be vacated and until his successor shall have been duly
elected and qualified.
3.7 ANNUAL MEETING. The first meeting of each newly elected Board of
Directors shall be known as the annual meeting thereof.
3.8 REGULAR MEETINGS. Regular meetings of the Board of Directors or of
any committee designated by the Board may be held at such place and such day and
hour as shall from time to time be fixed by the Board or committee, without
other notice than the delivery of such resolution as provided in Section 3.10
below.
3.9 SPECIAL MEETINGS. Special meetings of the Board of Directors or
any committee designated by the Board may be called by the Chairman, the
President or any director or committee member, to be held at such place and such
day and hour as specified by the person or persons calling the meeting.
3.10 NOTICE OF MEETING. Notice of the date, time, and place of all
special meetings of the Board of Directors or any committee designated by the
Board shall be given by the Secretary, Assistant Secretary, or by the person
calling the meeting, by mail, private carrier, telegram, facsimile transmission,
or personal communication over the telephone or otherwise, provided such notice
is received at least two (2) days prior to the day upon which the meeting is to
be held.
Notice of any meeting of the Board of Directors or any committee
designated by the Board need not be given to any director or committee member if
it is waived in a writing signed by the director entitled to the notice, whether
before or after such meeting is held.
A director's attendance at or participation in a meeting waives
any required notice to the director of the meeting unless the director at the
beginning of the meeting, or promptly upon the director's arrival, objects to
holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the Board of Directors or any committee designated by the Board need be
specified in the notice or waiver of notice of such meeting unless required by
the Articles of Incorporation or these Bylaws.
Any meeting of the Board of Directors or any committee designated
by the Board shall be a legal meeting without any notice thereof having been
given if all of the directors or committee members have received valid notice
thereof, are present without objecting, or waive notice thereof in a writing
signed by the director and delivered to the corporation for inclusion in the
minutes or filing with the corporate records, or any combination thereof.
3.11 QUORUM OF DIRECTORS. A majority of the number of directors fixed
by or in the manner provided by these Bylaws shall constitute a quorum for the
transaction of business. If a quorum is present when a vote is taken, the
affirmative vote of a majority of directors present is the act of the Board of
Directors unless the Articles of Incorporation or these Bylaws require the vote
of a greater number of directors.
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A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting to another time and place. If the meeting is
adjourned for more than forty-eight (48) hours, then notice of the time and
place of the adjourned meeting shall be given before the adjourned meeting takes
place, in the manner specified in Section 3.10 of these Bylaws, to the directors
who were not present at the time of the adjournment.
3.12 PRESUMPTION OF ASSENT. Any director who is present at any meeting
of the Board of Directors at which action on any corporate matter is taken shall
be presumed to have assented to the action taken unless (a) the director objects
at the beginning of the meeting, or promptly upon the director's arrival, to
holding the meeting or transacting business at the meeting; (b) the director's
dissent or abstention from the action taken is entered in the minutes of the
meeting; or (c) the director delivers written notice of dissent or abstention to
the presiding officer of the meeting before the adjournment thereof or to the
corporation within a reasonable time after adjournment of the meeting. Such
right to dissent or abstain shall not be available to any director who voted in
favor of such action.
3.13 ACTION BY DIRECTORS WITHOUT A MEETING. Any action required by law
to be taken or which may be taken at a meeting of the Board of Directors or of a
committee thereof may be taken without a meeting if one or more written
consents, setting forth the action so taken, shall be signed by all of the
directors or all of the members of the committee, as the case may be, either
before or after the action taken and delivered to the corporation for inclusion
in the minutes or filing with the corporate records. Such consent shall have the
same effect as a unanimous vote at a meeting duly held upon proper notice.
3.14 TELEPHONIC MEETINGS. Members of the Board of Directors or any
committee designated by the Board may participate in a meeting of the Board or
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other
during the meeting.
3.15 COMPENSATION. The directors and committee members may be paid
their expenses, if any, or a fixed sum or a stated salary as a director or
committee member for attendance at each meeting of the Board or of such
committee as the case may be. No such payment shall preclude any director or
committee member from serving the corporation in any other capacity and
receiving compensation therefor.
3.16 COMMITTEES. The Board of Directors, by resolution adopted by a
majority of the full Board, may from time to time designate from among its
members one or more committees, each of which must have two (2) or more members
and, to the extent provided in such resolution, shall have and may exercise all
the authority of the Board of Directors, except that no such committee shall
have the authority to:
(a) authorize or approve a distribution except according to a
general formula or method prescribed by the Board of Directors;
(b) approve or propose to shareholders action that the
Washington Business Corporation Act requires to be approved by shareholders;
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(c) fill vacancies on the Board of Directors or on any of its
committees;
(d) adopt any amendment to the Articles of Incorporation;
(e) adopt, amend or repeal these Bylaws;
(f) approve a plan of merger; or
(g) authorize or approve the issuance or sale or contract for
sale of shares, or determine the designation and relative rights, preferences
and limitations of a class or series of shares, except that the Board of
Directors may authorize a committee, or a senior executive officer of the
corporation, to do so within limits specifically prescribed by the Board of
Directors.
Meetings of such committees shall be governed by the same
procedures as govern the meetings of the Board of Directors. All committees so
appointed shall keep regular minutes of their meetings and shall cause them to
be recorded in books kept for that purpose at the office of the corporation.
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ARTICLE 4
OFFICERS
4.1 APPOINTMENT. The officers of the corporation shall be appointed
annually by the Board of Directors at its annual meeting. If the appointment of
officers is not held at such meeting, such appointment shall be held as soon
thereafter as a Board of Directors meeting conveniently may be held. Except in
the case of death, resignation or removal, each officer shall hold office at the
pleasure of the Board of Directors until the next annual meeting of the Board
and until his successor is appointed and qualified.
4.2 QUALIFICATION. None of the officers of the corporation need be a
director, except as specified below. Any two or more of the corporate offices
may be held by the same person.
4.3 OFFICERS DESIGNATED. The officers of the corporation shall include
a Chairman of the Board of Directors, a President and Chief Executive Officer,
and a Chief Financial Officer, each of whom shall be elected by the Board of
Directors. Such other officers and assistant officers, including but not limited
to, one or more Executive Vice Presidents (each of whom shall also be an
executive officer), a Secretary, a Treasurer, and one or more Vice Presidents,
Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers and other
officers as may be deemed necessary may be appointed by the Board of Directors.
(a) CHAIRMAN. The Chairman shall, when present, preside at all
meetings of the Board of Directors and the shareholders and shall have such
other powers commonly incident to his office and as the Board may prescribe.
Except where by law the signature of the President is required, the Chairman
shall possess the same power as the President to sign all contracts,
certificates and other instruments of the corporation which may be authorized by
the Board of Directors. During the absence or disability of the President, the
Chairman shall exercise all the powers and discharge all the duties of the
President. The Chairman shall also perform such other duties and may exercise
such other powers as from time to time may be assigned to him by these Bylaws or
by the Board of Directors. The Chairman may only be appointed or removed by
action of a majority of the entire Board of Directors.
(b) PRESIDENT. The President shall be the chief executive
officer of the corporation and, subject to the direction and control of the
Board of Directors, shall supervise and control all of the assets, business, and
affairs of the corporation. The President shall vote the shares owned by the
corporation in other corporations, domestic or foreign, unless otherwise
prescribed by the Board, and shall execute all bonds, mortgages, contracts and
other instruments of the corporation requiring a seal, under the seal of the
corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the corporation may sign and
execute documents when so authorized by these Bylaws, the Board of Directors or
the President. In general, the President shall perform all duties incident to
the office of President and such other duties as may be prescribed by the Board
from time to time. The President shall, unless a Chairman has been appointed and
is present, preside at all meetings of the shareholders and the Board of
Directors. The President shall also perform such other duties
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and may exercise such other powers as from time to time may be assigned to him
by these Bylaws or by the Board of Directors. The President may only be
appointed or removed by a majority of the entire Board of Directors.
(c) EXECUTIVE VICE PRESIDENTS. At the request of the President
or in his absence or his inability to act (and if there be no Chairman of the
Board of Directors), an Executive Vice President designated by a majority of the
Board of Directors shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. Each Executive Vice President (including any Senior Executive
Vice Presidents) shall perform such other duties and have such other powers as
the Board of Directors from time to time may prescribe. If there be no Chairman
of the Board of Directors and no Executive Vice President, the Board of
Directors shall designate the officer of the corporation who, in the absence of
the President or in the event of the inability or refusal of the President to
act, shall perform the duties of the President, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the President.
(d) SECRETARY. The Secretary shall:
(i) keep the minutes of meetings of the shareholders and
the Board of Directors in one or more books provided for that purpose;
(ii) see that all notices are duly given in accordance
with the provisions of these Bylaws or as required by law;
(iii) be custodian of the corporate records and seal of
the corporation, if one be adopted;
(iv) keep a register of the post office address of each
shareholder and director;
(v) sign with the President, or the Chairman,
certificates for shares of the corporation, the issuance of which shall have
been authorized by resolution of the Board of Directors;
(vi) have general charge of the stock transfer books of
the corporation; and
(vii) in general, perform all duties incident to the
office of Secretary and such other duties as from time to time may be assigned
by the President or the Board of Directors.
In the absence of the Secretary, an Assistant Secretary may
perform the duties of the Secretary.
(e) CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
keep or cause to be kept the books of account of the corporation in a thorough
and proper manner and shall
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render statements of the financial affairs of the corporation in such form and
as often as required by the Board of Directors or the President. The Chief
Financial Officer, subject to the order of the Board of Directors, shall have
the custody of all funds and securities of the corporation. The Chief Financial
Officer shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time. The President may
direct the Treasurer or any Assistant Treasurer, or the Controller or any
Assistant Controller, or other officer of the corporation, to assume and perform
the duties of the Chief Financial Officer in the absence or disability of the
Chief Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
(f) TREASURER. Subject to the direction and control of the
Board of Directors, the Treasurer shall have charge and custody of and be
responsible for all funds and securities of the corporation; and, at the
expiration of his term of office, he shall turn over to his successor all
property of the corporation in his possession.
In the absence of the Treasurer, an Assistant Treasurer may
perform the duties of the Treasurer.
4.4 DELEGATION. In case of the absence or inability to act of any
officer of the corporation and of any person herein authorized to act in his
place, the Board of Directors may from time to time delegate the powers or
duties of such officer to any other officer or director or other person whom it
may select.
4.5 RESIGNATION. Any officer may resign at any time by delivering
written notice to the corporation. Any such resignation shall take effect when
the notice is delivered unless the notice specifies a later date. Unless
otherwise specified in the notice, acceptance of such resignation by the
corporation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract to which the officer is a party.
4.6 REMOVAL. Any officer or agent elected or appointed by the Board of
Directors may be removed by the Board of Directors at any time with or without
cause. Election or appointment of an officer or agent shall not of itself create
contract rights.
4.7 VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification, creation of a new office, or any other cause may be
filled by the Board of Directors for the unexpired portion of the term or for a
new term established by the Board of Directors.
4.8 COMPENSATION. Compensation, if any, for officers and other agents
and employees of the corporation shall be determined by the Board of Directors,
or by the President to the extent such authority may be delegated to him by the
Board of Directors. No officer shall
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be prevented from receiving compensation in such capacity by reason of the fact
that he is also a director of the corporation.
ARTICLE 5
EXECUTION OF INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
5.1 EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors may, in
its discretion, determine the method and designate the signatory officer or
officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
All checks and drafts drawn on banks or other depositaries on
funds to the credit of the corporation or in special accounts of the corporation
shall be signed by such person or persons as the Board of Directors shall
authorize so to do.
Unless authorized or ratified by the Board of Directors or within
the agency power of an officer, no officer, agent or employee shall have any
power or authority to bind the corporation by any contract or engagement or to
pledge its credit or to render it liable for any purpose or for any amount.
5.2 VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and other
securities of other corporations owned or held by the corporation for itself, or
for other parties in any capacity, shall be voted, and all proxies with respect
thereto shall be executed, by the person authorized so to do by resolution of
the Board of Directors, or, in the absence of such authorization, by the
Chairman of the Board of Directors, the Chief Executive Officer, the President
or any Executive Vice President.
ARTICLE 6
STOCK
6.1 FORM AND EXECUTION OF CERTIFICATES. Certificates for the shares of
stock of the corporation shall be in such form as is consistent with the
Articles of Incorporation and applicable law. Every holder of stock in the
corporation shall be entitled to have a certificate signed by or in the name of
the corporation by the Chairman of the Board of Directors, or the President or
any Vice President and by the Treasurer or Assistant Treasurer or the Secretary
or Assistant Secretary, certifying the number of shares owned by him in the
corporation. Any or all of the signatures on the certificate may be facsimiles.
In case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued, it
may be issued with the same effect as if he were such officer, transfer agent,
or registrar at the date of issue. Each certificate shall state upon the face or
back thereof, in full or in summary, all of the
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powers, designations, preferences, and rights, and the limitations or
restrictions of the shares authorized to be issued or shall, except as otherwise
required by law, set forth on the face or back a statement that the corporation
will furnish without charge to each shareholder who so requests the powers,
designations, preferences and relative, participating, optional, or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
6.2 LOST CERTIFICATES. The corporation may issue a new certificate or
certificates in place of any certificate or certificates theretofore issued by
the corporation alleged to have been lost, stolen, or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to agree to indemnify the corporation in such manner as it shall
require or to give the corporation a surety bond in such form and amount as it
may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
6.3 TRANSFERS
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform
any agreement with any number of shareholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such shareholders in any manner
not prohibited by the Act.
6.4 REGISTERED SHAREHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Washington.
6.5 EXECUTION OF OTHER SECURITIES. All bonds, debentures and other
corporate securities of the corporation, other than stock certificates (covered
in Section 6.1), may be signed by the Chairman of the Board of Directors, the
President, any Executive Vice President or Vice President, or such other person
as may be authorized by the Board of Directors, and the corporate seal impressed
thereon or a facsimile of such seal imprinted thereon and attested by the
signature of the Secretary or an Assistant Secretary, or the Chief Financial
Officer or Treasurer or an Assistant Treasurer; PROVIDED, HOWEVER, that where
any such bond, debenture or other corporate security shall be authenticated by
the manual signature, or where permissible facsimile signature, of a trustee
under an indenture pursuant to which such bond, debenture or other corporate
security shall be issued, the signatures of the persons signing and attesting
the corporate seal on
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such bond, debenture or other corporate security may be the imprinted facsimile
of the signatures of such persons. Interest coupons appertaining to any such
bond, debenture or other corporate security, authenticated by a trustee as
aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the
corporation or such other person as may be authorized by the Board of Directors,
or bear imprinted thereon the facsimile signature of such person. In case any
officer who shall have signed or attested any bond, debenture or other corporate
security, or whose facsimile signature shall appear thereon or on any such
interest coupon, shall have ceased to be such officer before the bond, debenture
or other corporate security so signed or attested shall have been delivered,
such bond, debenture or other corporate security nevertheless may be adopted by
the corporation and issued and delivered as though the person who signed the
same or whose facsimile signature shall have been used thereon had not ceased to
be such officer of the corporation.
ARTICLE 7
BOOKS AND RECORDS
7.1 BOOKS OF ACCOUNTS, MINUTES AND SHARE REGISTER. The corporation
shall keep as permanent records minutes of all meetings of its shareholders and
Board of Directors, a record of all actions taken by the shareholders or Board
of Directors without a meeting, and a record of all actions taken by a committee
of the Board of Directors exercising the authority of the Board of Directors on
behalf of the corporation. The corporation shall maintain appropriate accounting
records. The corporation or its agent shall maintain a record of its
shareholders, in a form that permits preparation of a list of the names and
addresses of all shareholders, in alphabetical order by class of shares showing
the number and class of shares held by each. The corporation shall keep a copy
of the following records at its principal office: the Articles of Incorporation
and all amendments to them currently in effect; the Bylaws and all amendments to
them currently in effect; the minutes of all shareholders' meetings, and records
of all actions taken by shareholders without a meeting, for the past three
years; its financial statements for the past three years, including balance
sheets showing in reasonable detail the financial condition of the corporation
as of the close of each fiscal year, and an income statement showing the results
of its operations during each fiscal year prepared on the basis of generally
accepted accounting principles or, if not, prepared on a basis explained
therein; a list of the names and business addresses of its current directors and
officers; and its most recent annual report delivered to the Secretary of State
of Washington.
7.2 COPIES OF RESOLUTIONS. Any person dealing with the corporation may
rely upon a copy of any of the records of the proceedings, resolutions, or votes
of the Board of Directors or shareholders, when certified by the President,
Secretary or Assistant Secretary.
ARTICLE 8
FISCAL YEAR
The fiscal year of the corporation shall be set by the Board of
Directors.
16.
<PAGE>
ARTICLE 9
CORPORATE SEAL
The Board of Directors may adopt a corporate seal for the corporation
which shall have inscribed thereon the name of the corporation, the year and
state of incorporation and the words "corporate seal".
ARTICLE 10
INDEMNIFICATION
10.1 RIGHT TO INDEMNIFICATION. The power, right and obligation of the
corporation to indemnify any director of the corporation shall be as set forth
in Article VII of the Articles of Incorporation.
10.2 NONEXCLUSIVITY OF RIGHTS. The right to indemnification and the
advancement of expenses conferred in Article VII of the Articles of
Incorporation shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the Articles of
Incorporation or Bylaws of the corporation, general or specific action of the
Board of Directors, contract or otherwise.
10.3 INSURANCE, CONTRACTS AND FUNDING. The corporation may maintain
insurance, at its expense, to protect itself and any individual who is or was a
director, officer, employee or agent of the corporation or who, while a
director, officer, employee or agent of the corporation, is or was serving at
the request of the corporation as an agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise against any expense, liability or loss asserted against or incurred
by the individual in that capacity or arising from the individual's status as a
director, officer, employee or agent, whether or not the corporation would have
the power to indemnify such person against such expense, liability or loss under
the Washington Business Corporation Act. The corporation may enter into
contracts with any director, officer, employee or agent of the corporation in
furtherance of the provisions of Article VII of the Articles of Incorporation
and may create a trust fund, grant a security interest or use other means
(including, without limitation, a letter of credit) to ensure the payment of
such amounts as may be necessary to effect indemnification as provided in
Article VII of the Articles of Incorporation.
10.4 INDEMNIFICATION OF OFFICERS, EMPLOYEES AND AGENTS OF THE
CORPORATION. The corporation may, by action of the Board of Directors, grant
rights to indemnification and advancement of expenses to officers, employees and
agents of the corporation with the same scope and effect as the provisions of
Article VII of the Articles of Incorporation with respect to the indemnification
and advancement of expenses of directors of the corporation or pursuant to
rights granted pursuant to, or provided by, the Washington Business Corporation
Act or otherwise.
17.
<PAGE>
10.5 PERSONS SERVING OTHER ENTITIES. Any individual who is or was a
director, officer or employee of the corporation who, while a director, officer
or employee of the corporation, is or was serving (a) as a director or officer
of another foreign or domestic corporation of which a majority of the shares
entitled to vote in the election of its directors is held by the corporation,
(b) as a trustee of an employee benefit plan and the duties of the director or
officer to the corporation also impose duties on, or otherwise involve services
by, the director or officer to the plan or to participants in or beneficiaries
of the plan or (c) in an executive or management capacity in a foreign or
domestic partnership, joint venture, trust or other enterprise of which the
corporation or a wholly owned subsidiary of the corporation is a general partner
or has a majority ownership or interest shall be deemed to be so serving at the
request of the corporation and entitled to indemnification and advancement of
expenses under Article VII of the Articles of Incorporation.
ARTICLE 11
AMENDMENT OF BYLAWS
11.1 These Bylaws may be altered, amended or repealed and new Bylaws
may be adopted by the Board of Directors, except that the Board of Directors may
not repeal or amend any Bylaw that the shareholders have expressly provided, in
amending or repealing such Bylaw, may not be amended or repealed by the Board of
Directors. The shareholders may also alter, amend and repeal these Bylaws or
adopt new Bylaws. All Bylaws made by the Board of Directors may be amended,
repealed, altered or modified by the shareholders.
The foregoing Bylaws were read, approved, and duly adopted by the Board
of Directors, of Costco Wholesale Corporation, on the ___ day of January, 2000,
and the Secretary of the corporation was empowered to authenticate such Bylaws
by his signature below.
--------------------------------------------
Secretary
18.
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 1 OFFICES.....................................................................................2
1.1 Principal Office................................................................................2
1.2 Registered Office and Registered Agent..........................................................2
1.3 Other Offices...................................................................................2
ARTICLE 2 SHAREHOLDERS................................................................................2
2.1 Annual Meeting..................................................................................2
2.2 Special Meetings................................................................................3
2.3 Notice of Meetings..............................................................................3
(a) Notice of Special Meeting...................................................................4
(b) Proposed Articles of Amendment or Dissolution...............................................4
(c) Proposed Merger, Consolidation, Exchange, Sale, Lease or Disposition........................4
(d) Declaration of Mailing......................................................................4
(e) Waiver of Notice............................................................................4
2.4 Quorum..........................................................................................4
2.5 Voting of Shares................................................................................5
2.6 Adjourned Meetings..............................................................................5
2.7 Record Date.....................................................................................5
2.8 Record of Shareholders Entitled to Vote.........................................................5
2.9 Action by Shareholders Without a Meeting........................................................6
2.11 Proxies.........................................................................................6
2.12 Organization....................................................................................6
ARTICLE 3 BOARD OF DIRECTORS..........................................................................7
3.1 Management Responsibility.......................................................................7
3.2 Number of Directors, Qualification..............................................................7
3.3 Election........................................................................................7
3.4 Vacancies.......................................................................................7
3.5 Removal.........................................................................................7
3.6 Resignation.....................................................................................7
3.7 Annual Meeting..................................................................................8
3.8 Regular Meetings................................................................................8
3.9 Special Meetings................................................................................8
3.10 Notice of Meeting...............................................................................8
</TABLE>
19.
<PAGE>
<TABLE>
<S> <C> <C>
3.11 Quorum of Directors.............................................................................8
3.12 Presumption of Assent...........................................................................9
3.13 Action by Directors Without a Meeting...........................................................9
3.14 Telephonic Meetings.............................................................................9
3.15 Compensation....................................................................................9
3.16 Committees......................................................................................9
ARTICLE 4 OFFICERS...................................................................................11
4.1 Appointment....................................................................................11
4.2 Qualification..................................................................................11
4.3 Officers Designated............................................................................11
(a) Chairman...................................................................................11
(b) President..................................................................................11
(c) Vice Presidents............................................................................12
(d) Secretary..................................................................................12
(e) Chief Financial Officer....................................................................12
(f) Treasurer..................................................................................13
4.4 Delegation.....................................................................................13
4.5 Resignation....................................................................................13
4.6 Removal........................................................................................13
4.7 Vacancies......................................................................................13
4.8 Compensation...................................................................................13
ARTICLE 5 EXECUTION OF INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION.................14
5.1 Execution of Corporate Instruments.............................................................14
5.2 Voting of Securities Owned by the Corporation..................................................14
ARTICLE 6 STOCK......................................................................................14
6.1 Form and Execution of Certificates.............................................................14
6.2 Lost Certificates..............................................................................15
6.3 Transfers......................................................................................15
6.4 Registered Shareholders........................................................................15
6.5 Execution of Other Securities..................................................................15
ARTICLE 7 BOOKS AND RECORDS..........................................................................16
</TABLE>
20.
<PAGE>
<TABLE>
<S> <C> <C>
7.1 Books of Accounts, Minutes and Share Register..................................................16
7.2 Copies of Resolutions..........................................................................16
ARTICLE 8 FISCAL YEAR................................................................................16
ARTICLE 9 CORPORATE SEAL.............................................................................17
ARTICLE 10 INDEMNIFICATION............................................................................17
10.1 Right to Indemnification.......................................................................17
10.3 Nonexclusivity of Rights.......................................................................17
10.4 Insurance, Contracts and Funding...............................................................17
10.5 Indemnification of Employees and Agents of the Corporation.....................................17
10.6 Persons Serving Other Entities.................................................................18
ARTICLE 11 AMENDMENT OF BYLAWS........................................................................18
</TABLE>
21.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-03-2000
<PERIOD-START> AUG-30-1999
<PERIOD-END> FEB-13-2000
<CASH> 510,027
<SECURITIES> 153,475
<RECEIVABLES> 190,864
<ALLOWANCES> 4,373
<INVENTORY> 2,347,621
<CURRENT-ASSETS> 3,495,903
<PP&E> 5,529,210
<DEPRECIATION> 1,213,436
<TOTAL-ASSETS> 8,108,346
<CURRENT-LIABILITIES> 3,049,319
<BONDS> 923,414
0
0
<COMMON> 1,017,294
<OTHER-SE> 2,919,940
<TOTAL-LIABILITY-AND-EQUITY> 8,108,346
<SALES> 14,437,798
<TOTAL-REVENUES> 14,680,499
<CGS> 12,912,568
<TOTAL-COSTS> 14,166,966
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,973
<INCOME-PRETAX> 518,210
<INCOME-TAX> 207,284
<INCOME-CONTINUING> 310,926
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 310,926
<EPS-BASIC> .70
<EPS-DILUTED> .66
</TABLE>
<PAGE>
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 13, 2000, and the related condensed consolidated statements of income
for the twelve-week and twenty-four-week periods ended February 13, 2000 and
February 14, 1999, and the condensed consolidated statements of cash flows for
the twenty-four-week periods then ended. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Seattle, Washington
February 29, 2000
19
