<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
Costco Wholesale Corporation
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
---------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------
(5) Total fee paid:
---------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
---------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
---------------------------------------------------------------------
(3) Filing Party:
---------------------------------------------------------------------
(4) Date Filed:
---------------------------------------------------------------------
<PAGE> 2
[COSTCO LOGO]
999 LAKE DRIVE
ISSAQUAH, WASHINGTON 98027
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO OUR SHAREHOLDERS:
Notice is given that the Annual Meeting of the shareholders of Costco
Wholesale Corporation (the "Company") will be held at the Doubletree Hotel
Bellevue, Evergreen Ballroom, 300 112th Ave. SE, Bellevue, Washington 98004 on
Thursday, January 25, 2001 at 10:00 a.m. for the following purposes:
1. To elect four Class II directors to hold office until the 2004 Annual
Meeting of Shareholders and until their successors are elected and qualified.
2. To consider and ratify the selection of the Company's independent
auditors.
3. To transact such other business as may properly come before the meeting or
any adjournments thereof.
Only shareholders of record at the close of business on December 8, 2000
are entitled to notice of, and to vote at, the meeting.
All shareholders are requested to be present in person or by proxy. For the
convenience of those shareholders who do not expect to attend the meeting in
person and desire to have their shares voted, a form of proxy and an envelope,
for which no postage is required, are enclosed. Any shareholder who later finds
that he or she can be present at the meeting, or for any reason desires to do
so, may revoke the proxy at any time before it is voted.
Please complete, sign, date and mail promptly the accompanying proxy card
in the return envelope furnished for that purpose, whether or not you plan to
attend the meeting. Your cooperation is appreciated since a majority of the
common stock must be represented, either in person or by proxy, to constitute a
quorum for the conduct of business.
By Order of the Board of Directors,
/s/ JOEL BENOLIEL
--------------------------------------
Joel Benoliel
Secretary
December 11, 2000
<PAGE> 3
[COSTCO LOGO]
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
JANUARY 25, 2001
------------------------
SOLICITATION AND REVOCATION OF PROXY
Proxies in the form enclosed are solicited by the Board of Directors of
Costco Wholesale Corporation (the "Company") to be voted at the annual meeting
of shareholders to be held on January 25, 2001, or any adjournments (the "Annual
Meeting"). The individuals named as proxies are Jeffrey H. Brotman and James D.
Sinegal. The accompanying notice of meeting, this Proxy Statement and the form
of proxy are being first sent to shareholders on or about December 13, 2000.
All shares represented by proxies received will be voted in accordance with
instructions contained in the proxies. In the absence of voting instructions,
the shares will be voted for:
- the nominees for director listed in these materials and on the proxy; and
- the ratification of the Company's independent auditors.
A shareholder giving a proxy has the power to revoke it any time before it
is voted by providing written notice to the Secretary of the Company, by
delivering a later dated proxy or by voting in person at the Annual Meeting.
Only shareholders of record at the close of business on December 8, 2000
(the "Record Date") will be entitled to vote at the Annual Meeting. At the close
of business on the Record Date, there were 448,098,396 shares of common stock,
par value $.005 per share (the "Common Stock"), outstanding, which represent all
of the voting securities of the Company. Each share of Common Stock is entitled
to one vote. Shareholders do not have cumulative voting rights in the election
of directors.
A majority of the Common Stock entitled to vote at the Annual Meeting,
present either in person or by proxy, will constitute a quorum. Other than
proposals relating to the election of directors, the affirmative vote of at
least a majority of the Common Stock present at the Annual Meeting, either in
person or by proxy, is required to approve each proposal. With respect to the
election of directors, the four directors receiving the highest number of votes
will be elected to the Board of Directors. Shareholders who abstain from voting
on any or all proposals will be included in the number of shareholders present
at the meeting for purposes of determining the presence of a quorum. Abstentions
and broker non-votes will not be included in the vote totals and will not affect
the outcome of the vote.
In addition to mailing this material to shareholders, the Company has asked
banks and brokers to forward copies to persons for whom they hold stock of the
Company and request authority for execution of the proxies. The Company will
reimburse the banks and brokers for their reasonable out-of-pocket expenses in
doing so. Officers and employees of the Company may, without being additionally
compensated, solicit proxies by mail, telephone, facsimile or personal contact.
All proxy soliciting expenses will be paid by the Company in connection with the
solicitation of votes for the Annual Meeting. The Company may employ an outside
entity to assist in the solicitation process, but no arrangement has been
finalized for such solicitation.
1
<PAGE> 4
PRINCIPAL SHAREHOLDERS
As of November 30, 2000, the Company was not aware of any person owning
more than 5% of the outstanding shares of the Common Stock of the Company. This
is based solely on the statements on filings with the Securities and Exchange
Commission (the "SEC") or other reliable information.
The following table sets forth the shares of the Common Stock owned by each
director of the Company, each nominee for election as a director of the Company
and all directors and executive officers as a group on November 30, 2000.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED PERCENT
------------------------ ------------------ -------
<S> <C> <C>
James D. Sinegal....................................... 5,054,511 (1) 1.1%
Jeffrey H. Brotman..................................... 4,735,525 (2) 1.1%
Richard D. DiCerchio................................... 386,684 (3) *
Richard A. Galanti..................................... 449,616 (4) *
Benjamin S. Carson, Sr., M.D........................... 28,000 (5) *
Hamilton E. James...................................... 130,620 (6) *
Richard M. Libenson.................................... 230,912 (7) *
John W. Meisenbach..................................... 370,500 (8) *
Charles T. Munger...................................... 211,768 (9) *
Frederick O. Paulsell, Jr. ............................ 78,500(10) *
Jill A. Ruckelshaus.................................... 78,000(11) *
All directors and executive officers as a group (17
persons)............................................. 12,286,310(12) 2.8%
</TABLE>
------------
* Less than 1%.
(1) Includes 838,000 shares issuable under currently exercisable stock options
and options exercisable within sixty days of November 30, 2000.
(2) Includes 3,816,703 shares held by a trust of which Mr. Brotman is a
principal beneficiary. Mr. Brotman disclaims any beneficial ownership of
such shares. Also includes 20 shares owned by a trust for the benefit of
Mr. Brotman's son. Also includes 829,166 shares issuable under currently
exercisable stock options and options exercisable within sixty days of
November 30, 2000.
(3) Includes 76,002 shares issuable under currently exercisable stock options
and options exercisable within sixty days of November 30, 2000.
(4) Includes 318,500 shares issuable under currently exercisable stock options
and options exercisable within sixty days of November 30, 2000.
(5) Includes 28,000 shares issuable under currently exercisable stock options
and options exercisable within sixty days of November 30, 2000.
(6) Includes 105,000 shares issuable under currently exercisable stock options
and options exercisable within sixty days of November 30, 2000.
(7) Includes 163,632 shares held by a trust of which Mr. Libenson is a
co-trustee and beneficiary. Includes 28,000 shares issuable under currently
exercisable stock options and options exercisable within sixty days of
November 30, 2000.
(8) Includes 150,000 shares held by a trust of which Mr. Meisenbach is the
principal beneficiary, of which he may be deemed to be beneficial owner,
and 220,500 shares issuable under currently exercisable stock options and
options exercisable within sixty days of November 30, 2000.
(9) Includes 60,000 shares issuable under currently exercisable stock options
and options exercisable within sixty days of November 30, 2000.
(10) Includes 44,000 shares issuable under currently exercisable stock options
and options exercisable within sixty days of November 30, 2000.
2
<PAGE> 5
(11) Includes 76,000 shares issuable under currently exercisable stock options
and options exercisable within sixty days of November 30, 2000.
(12) Includes 3,095,142 shares issuable under currently exercisable stock
options and options exercisable within sixty days of November 30, 2000.
PROPOSAL 1: ELECTION OF DIRECTORS
The Board is divided into three classes. Directors are elected, by class,
for three-year terms. Successors to the class of directors whose term expires at
any annual meeting are elected for three-year terms. Each of Benjamin S. Carson,
Sr., M.D., Hamilton E. James, Frederick O. Paulsell, Jr. and Jill S. Ruckelshaus
is nominated as a member of Class II, to serve for a three-year term until the
annual meeting of shareholders in 2004 and until his or her successor is elected
and qualified.
Each of the nominees has indicated that he or she is willing and able to
serve as a director. If any nominee becomes unable or unwilling to serve, the
accompanying proxy may be voted for the election of such other person as shall
be designated by the Board of Directors. The proxies being solicited will be
voted for no more than four nominees at the Annual Meeting. Each director will
be elected by a plurality of the votes cast, in person or by proxy, at the
Annual Meeting, assuming a quorum is present. Shareholders do not have
cumulative voting rights in the election of directors.
DIRECTORS
The following table sets forth information regarding each nominee for
election as a director and each director whose term of office will continue
after the Annual Meeting.
<TABLE>
<CAPTION>
EXPIRATION OF TERM
NAME CURRENT POSITION WITH THE COMPANY(1) AGE AS DIRECTOR
---- ------------------------------------ --- ------------------
<S> <C> <C> <C>
James D. Sinegal President, Chief Executive Officer and 64 2003
Director
Jeffrey H. Brotman Chairman of the Board of Directors 58 2003
Richard D. DiCerchio Senior Executive Vice President and 57 2002
Director
Richard A. Galanti Executive Vice President, Chief Financial 44 2003
Officer and Director
Benjamin S. Carson, Sr., M.D. Director 49 2001
Hamilton E. James Director 49 2001
Richard M. Libenson Director 58 2002
John W. Meisenbach Director 64 2002
Charles T. Munger Director 76 2002
Frederick O. Paulsell, Jr. Director 61 2001
Jill A. Ruckelshaus Director 63 2001
</TABLE>
------------
(1) For a description of certain committees of the Board and the members of such
committees, see "Committees of the Board" below.
James D. Sinegal has been President, Chief Executive Officer and a director
of the Company since October 1993 upon consummation of the merger of Costco
Wholesale Corporation ("Costco") and The Price Company (the "Merger"). From its
inception until 1993, he was President and Chief Operating Officer of Costco and
served as Chief Executive Officer from August 1988 until October 1993. Mr.
Sinegal was a co-founder of Costco and has been a director since its inception.
Jeffrey H. Brotman is a native of the Pacific Northwest and is a 1967
graduate of the University of Washington Law School. Mr. Brotman was a founder
and Chairman of the Board of Costco from its inception. In October 1993, upon
the consummation of the Merger, Mr. Brotman became the Vice Chairman of the
Company and has served as Chairman since December 1994.
3
<PAGE> 6
Richard D. DiCerchio has been Senior Executive Vice President of the
Company since 1997. He is Chief Operating Officer--Merchandising, Distribution
and Construction, and has been a director of the Company since October 1993.
Until mid-August 1994, he also served as Executive Vice President, Chief
Operating Officer-Northern Division. He was appointed Chief Operating
Officer-Western Region of Costco in August 1992 and was appointed Executive Vice
President and director of Costco in April 1986. From June 1985 to April 1986, he
was Senior Vice President, Merchandising of Costco. He joined Costco as Vice
President, Operations in May 1983.
Richard A. Galanti has been a director of the Company since January 1995,
and Executive Vice President and Chief Financial Officer of the Company since
October 1993. He was Senior Vice President, Chief Financial Officer and
Treasurer of Costco from January 1985 to October 1993, having joined as Vice
President-Finance in March 1984. From 1978 to February 1984, Mr. Galanti was an
Associate with Donaldson Lufkin & Jenrette Securities Corporation.
Benjamin S. Carson, Sr., M.D. has been a director of the Company since May
1999. He is the Director of Pediatric Neurosurgery at Johns Hopkins University.
Dr. Carson is also a director of Kellogg Company.
Hamilton E. James has been a director of the Company since October 1993 and
was a director of Costco from August 1988 to October 1993. Mr. James is a
director of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"); he has
been Chairman of DLJ's Banking Group since 1995 and Chairman of DLJ's Merchant
Banking since 1991.
Richard M. Libenson has been a director of the Company since October 1993.
He was a director of The Price Company since its formation in 1976 until October
1993, and was an executive officer of The Price Company from 1976 until October
1989, when he retired from active involvement as an officer of The Price
Company. He served as Chief Operating Officer of The Price Company from August
1986 through October 1988, and Vice Chairman of its Board from October 1988
through September 1989.
John W. Meisenbach has been a director of the Company since October 1993
and was a director of Costco since its inception. He is President of MCM
(Meisenbach Capital Management), a financial services company, which he founded
in 1962. He also currently serves as a director of Expeditors International and
M Financial Holdings. Mr. Meisenbach is a trustee of the Elite Fund, an
investment company registered under the Investment Company Act of 1940.
Charles T. Munger has been a director of the Company since January 1997. He
is also Vice Chairman of the Board of Berkshire Hathaway Inc., Chairman of the
Board of Directors of Daily Journal Corporation and Chairman of the Board of
Directors of Wesco Financial Corporation.
Frederick O. Paulsell, Jr. was a director of the Company from October 1993
until June 1994 and was elected again as a director of the Company in January
1995. He was a director of Costco since its inception. From 1973 through March
1982, he was Executive Vice President of Foster & Marshall Inc., and he was
Executive Vice President of Foster & Marshall/American Express Inc. from March
1983 through June 1985. Mr. Paulsell was President of Foster, Paulsell & Baker,
an investment banking firm, between 1985 and 1995. Since early 1995, Mr.
Paulsell has been a Principal of Olympic Capital Partners, L.L.C., a
Seattle-based investment banking firm. Mr. Paulsell serves on a number of boards
of various companies and organizations including Stewart Title Holding Company
and TRM Copy Centers.
Jill A. Ruckelshaus has been a director of the Company since February 1996.
Ms. Ruckelshaus serves on a number of boards and organizations, including
Lincoln National Corporation.
COMMITTEES OF THE BOARD
The Board of Directors has adopted a charter governing the duties and
responsibilities of the Audit Committee. A copy of the Audit Committee charter
is included in this proxy statement as Appendix A. Pursuant to the charter, the
function of the Audit Committee is:
- to provide the opportunity for direct communication between the Board of
Directors and the Company's internal and external auditors;
4
<PAGE> 7
- to monitor the design and maintenance of the Company's system of internal
accounting controls;
- to select, evaluate and, if necessary, replace the external auditors;
- to review the results of internal and external audits as to the
reliability and integrity of financial and operating information and the
systems established to monitor compliance with the Company's policies,
plans and procedures and with laws and regulations; and
- to review the relationships between the Company and the external auditors
to ascertain the independence of the external auditors.
The members of the Audit Committee are Messrs. Libenson, Meisenbach and
Paulsell. The Audit Committee met four times during the 2000 fiscal year. A
report of the Audit Committee is set forth below.
Pursuant to the rules of the NASDAQ Stock Market that take effect in June
2001, the Company's Audit Committee will be required to consist of at least
three independent directors. None of the current members of the Audit Committee
would be deemed to be independent under the rules of the NASDAQ Stock Market.
The Company intends to change the composition of the Audit Committee prior to
June 2001 in order to comply with the rules of the NASDAQ Stock Market.
The Compensation Committee's function is to review the salaries, bonuses
and stock options provided to certain executive officers of the Company and
oversee the overall administration of the Company's compensation and stock
option program. The Compensation Committee consists of Messrs. James, Paulsell,
Meisenbach and Ms. Ruckelshaus. The Compensation Committee met informally
several times during fiscal year 2000.
During the Company's last fiscal year, the Company's Board of Directors met
four times. Each member of the Board attended 75% or more of the Board meetings,
and each member of the Board who served on one of the above-listed committees
attended at least 75% of the committee meetings.
REPORT OF THE AUDIT COMMITTEE OF COSTCO WHOLESALE CORPORATION
December 11, 2000
To the Board of Directors of Costco Wholesale Corporation:
We have reviewed and discussed with management the Company's audited
consolidated financial statements as of and for the fiscal year ended September
3, 2000.
We have discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61, Communication with Audit
Committees, as amended, by the Auditing Standards Board of the American
Institute of Certified Public Accountants.
We have received and reviewed the written disclosures and the letter from
the independent auditors required by Independence Standard No. 1, Independence
Discussions with Audit Committees, as amended, by the Independence Standards
Board, and have discussed with the auditors the auditors' independence.
5
<PAGE> 8
Based on the reviews and discussions referred to above, we recommend to the
Board of Directors that the consolidated financial statements referred to above
be included in the Company's Annual Report on Form 10-K for the fiscal year
ended September 3, 2000.
By /s/ FREDERICK O. PAULSELL
-----------------------------------
Frederick O. Paulsell
Chairman
By /s/ JOHN W. MEISENBACH
-----------------------------------
John W. Meisenbach
Member
By /s/ RICHARD M. LIBENSON
-----------------------------------
Richard M. Libenson
Member
6
<PAGE> 9
EXECUTIVE COMPENSATION
The following tables and descriptive materials set forth information
concerning compensation earned for services rendered to the Company by (A) the
Chief Executive Officer of the Company (the "CEO"), and (B) the four other most
highly compensated individuals (other than the CEO) who were serving as
executive officers of the Company at the end of the 2000 fiscal year
(collectively, together with the CEO, the "Named Executive Officers").
SUMMARY OF COMPENSATION
The following table summarizes the compensation earned by the Named
Executive Officers during fiscal 2000, 1999 and 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------- ------------
OTHER ANNUAL SECURITIES ALL OTHER
FISCAL SALARY COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) BONUS ($) OPTIONS/SARS ($)(A)
--------------------------- ------ --------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
James D. Sinegal................. 2000 356,731 175,000 0 150,000 19,335
President and Chief 1999 350,000 200,000 0 100,000 19,045
Executive Officer 1998 332,692 200,000 0 100,000 17,230
Jeffrey H. Brotman............... 2000 356,731 175,000 0 150,000 17,685
Chairman of the Board 1999 350,000 200,000 0 100,000 18,050
1998 332,692 200,000 0 100,000 16,315
Richard D. DiCerchio............. 2000 407,692 95,000 0 90,000 18,185
Senior Executive Vice 1999 375,000 100,000 0 60,000 17,915
President 1998 349,904 100,000 0 60,000 16,210
Richard G. Galanti............... 2000 387,308 76,000 0 75,000 17,215
Executive Vice President 1999 350,000 80,000 0 50,000 15,580
and CFO 1998 324,904 80,000 0 50,000 15,545
Joseph P. Portera................ 2000 382,212 72,721 0 75,000 17,400
Executive Vice President, 1999 345,000 78,303 0 50,000 15,745
COO-Eastern Division 1998 320,000 75,538 0 50,000 15,695
and Canada Division
</TABLE>
------------
(A) In fiscal year 2000, amounts shown for each Named Executive Officer include
the Company's matching contributions under a deferred compensation plan of
$5,000 each, matching contributions of $500 for each of Messrs. Sinegal,
DiCerchio, Galanti and Portera and Company contributions of $11,200 for each
Named Executive Officer under the Company's 401(k) Retirement Plan. Amounts
shown for each Named Executive Officer also include premiums representing
the term insurance portion under the executive life program of $2,635,
$1,485, $1,485, $515 and $700, respectively, in fiscal year 2000.
7
<PAGE> 10
GRANTS OF STOCK OPTIONS
The following table sets forth information concerning the award of stock
options to the Named Executive Officers during fiscal 2000:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(C)
OPTIONS/SARS EMPLOYEES EXERCISE OR EXPIRATION ----------------------
NAME GRANTED(#)(A) FISCAL YEAR(B) BASE PRICE($/SH) DATE 5%($) 10%($)
---- ------------- -------------- ---------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
James D. Sinegal........ 150,000 2.0 52.5000 04/03/10 4,952,509 12,550,703
Jeffrey H. Brotman...... 150,000 2.0 52.5000 04/03/10 4,952,509 12,550,703
Richard D. DiCerchio.... 90,000 1.2 43.0000 03/13/10 2,433,804 6,167,774
Richard A. Galanti...... 75,000 1.0 43.0000 03/13/10 2,028,170 5,139,812
Joseph P. Portera....... 75,000 1.0 43.0000 03/13/10 2,028,170 5,139,812
</TABLE>
------------
(A) These stock options vest 20% per year for five years from the date of grant
and expire ten years from the date of grant. The exercise price for these
stock options equals the fair market value of the Common Stock on the date
of grant.
(B) The total number of stock options granted in fiscal 2000 by the Company was
7,500,625 to approximately 668 employees.
(C) These assumed rates of appreciation are provided in order to comply with
requirements of the Securities and Exchange Commission, and do not represent
the Company's expectation as to the actual rate of appreciation of the
Common Stock. The actual value of the options will depend on the performance
of the Common Stock, and may be greater or less than the amounts shown.
EXERCISE OF STOCK OPTIONS
The following table sets forth information concerning the exercise of stock
options during fiscal 2000 by each of the Named Executive Officers and the
fiscal year-end value of unexercised options.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY OPTIONS/
FY-END(#) SARS AT FY-END($)
---------------------- ---------------------
SHARES ACQUIRED VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) ($)(A) UNEXERCISABLE UNEXERCISABLE
---- --------------- -------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
James D. Sinegal............ 19,400 348,595 778,000/630,000 17,046,734/5,687,500
Jeffrey H. Brotman.......... 19,400 348,595 769,166/630,000 16,821,651/5,687,500
Richard D. DiCerchio........ 96,000 4,228,405 124,002/338,000 1,812,236/2,801,500
Richard A. Galanti.......... 42,000 1,603,606 306,500/287,000 6,590,154/2,477,250
Joseph P. Portera........... 94,970 2,958,005 0/287,000 0/2,477,250
</TABLE>
------------
(A) Market value of underlying securities at the exercise date, minus the
exercise price of such options.
COMPENSATION OF DIRECTORS
Each non-employee director of the Company earns $30,000 per year for
serving on the Board and $1,000 for each Board meeting and $500 for each
committee meeting attended. In addition, non-employee directors
8
<PAGE> 11
receive an annual grant of options to purchase 12,000 shares of common stock,
and are reimbursed for travel expenses incurred in connection with the
performance of their duties as directors.
Richard M. Libenson has been engaged as a consultant to the Company. For
such services, a corporation owned by Mr. Libenson was paid $200,000 during
fiscal 2000. In addition, the Company paid premiums in the amount of $1,325
during fiscal 2000 for term life insurance for the benefit of Mr. Libenson under
a split-dollar endorsement plan and premiums on long-term disability insurance
in the amount of $3,681.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during fiscal 2000 were John W.
Meisenbach, Hamilton E. James, Frederick O. Paulsell, Jr. and Jill Ruckelshaus.
John W. Meisenbach is a principal shareholder of MCM (Meisenbach Capital
Management). MCM provided consulting and brokerage services in managing the
Company's employee benefit and member insurance programs. Employee medical, life
and disability benefits, together with member health, auto and homeowner
insurance premiums, totaled over $185 million. For these services, MCM received
total compensation from third party insurers of $1,608,925 in FY 2000.
Frederick O. Paulsell, Jr. is majority owner of a company that received
payments from the Company in fiscal 2000 of $1,446,442 for merchandise sold to
the Company for resale.
REPORT OF COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors of the Company (the
"Committee") determined and administered the compensation of the Company's
executive officers during fiscal 2000.
Compensation Philosophy. The Committee endeavored to ensure that the
compensation programs for executive officers of the Company during fiscal 2000
were effective in attracting and retaining key executives responsible for the
success of the Company and in promoting its long-term interests and those of its
shareholders. The Committee sought to align total compensation for senior
management with corporate performance and the interests of the shareholders. The
Committee placed emphasis on variable, performance-based components, such as
stock option awards and bonuses, the value of which could increase or decrease
to reflect changes in corporate and individual performances. These short-term
and long-term incentive compensation programs were intended to reinforce
management's commitment to enhancement of profitability and shareholder value.
The Committee took into account various qualitative and quantitative
indicators of corporate and individual performance in determining the level and
composition of compensation for the Company's executive officers during fiscal
2000. While the Committee considered such corporate performance measures as net
income, earnings per common share, stock price performance, comparable warehouse
sales, margins and rate of revenue increase, the Committee did not apply any
specific quantitative formula in making compensation decisions. The Committee
also recognized qualitative factors, such as the ability to meet annual
corporate growth and profits goals, demonstrated leadership ability and
enhancement of customer franchise.
Base salaries for the executive officers were established at levels
considered appropriate in light of the duties and scope of responsibilities of
each officer's position and the salaries paid to comparable officers by
companies which are competitors of the Company. Salaries are reviewed
periodically and adjusted as warranted to reflect sustained individual officer
performance. The Committee focused primarily on total annual compensation,
including incentive awards, rather than base salary alone, as the appropriate
measure of executive officer performance and contribution. The Committee
believes that it has established relatively low cash compensation levels in
favor of equity-linked incentive programs.
From time to time, executive officers have been eligible to receive
incentive compensation awards under the Company's annual bonus plan and stock
option plan, based upon corporate and individual performance. In approving
grants and awards under the bonus plan and the option plan, the Committee
considered the
9
<PAGE> 12
quantitative and qualitative factors and industry comparisons outlined above.
The factors taken into account in determining awards under the bonus plan were
the corporate performance measures described above.
In general, awards under the option plan are approved at various times
throughout the year. The number of options previously awarded to and held by
executive officers was reviewed but was not a determinative factor in the size
of 2000 option grants.
In general, compensation payments in excess of $1 million to any of the
Named Executive Officers are subject to a limitation on deductibility for the
Company under Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"). However, certain performance-based compensation is not subject to
such limitation. The Company's stock option plan currently qualifies for such
performance-based exception.
Chief Executive Officer Compensation. In evaluating the compensation of
James D. Sinegal, President and Chief Executive Officer of the Company for
fiscal 2000, the Committee placed emphasis on Mr. Sinegal's superior leadership
in managing the business, as well as the Company's financial and operating
performance.
The Committee noted that, despite the competitive environment which
prevailed for retailers throughout fiscal 2000 (a 53-week fiscal year), the
Company's total sales were $31.62 billion, an increase of 17% from the prior
52-week fiscal year, and comparable warehouse sales for the 2000 fiscal year
increased by approximately 11% over the comparable 53-week period of fiscal
1999. Net income for fiscal 2000 increased 59% to $631.4 million from $397.3
million during fiscal year 1999. Net income for fiscal 1999 was impacted by both
a $50 million fourth quarter provision for impaired assets and warehouse closing
costs, as well as a one-time $118.0 million non-cash, after-tax charge recorded
in the first quarter of fiscal 1999, reflecting the cumulative effect of the
Company's change in accounting for membership fees from a cash to a deferred
method. Before the impact of these two charges, net earnings in fiscal 1999
totaled $545.3 million and would have resulted in a 16% increase in net income
in fiscal 2000 compared to fiscal 1999.
Compensation Committee
Hamilton E. James
John W. Meisenbach
Frederick O. Paulsell, Jr.
Jill A. Ruckelshaus
10
<PAGE> 13
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return (stock
price appreciation plus dividends) on the Common Stock with the cumulative total
return of the S&P 500 Index and the following group of peer companies (based on
weighted market capitalization) selected by the Company: BJ's Wholesale Club
Inc.; Home Depot, Inc.; Kmart Corporation; The Limited Ltd.; Nordstrom Inc.;
Office Depot, Inc.; Staples Inc.; Target Corporation; Toys R Us Inc.; and Wal
Mart Stores, Inc. The information provided is from September 4, 1995 through
September 3, 2000, the end of fiscal 2000.
COMPARED CUMULATIVE TOTAL RETURN
AMONG COSTCO WHOLESALE CORPORATION,
S&P 500 INDEX AND PEER GROUP INDEX
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
COSTCO WHOLESALE
CORPORATION PEER GROUP INDEX S&P 500 INDEX
---------------- ---------------- -------------
<S> <C> <C> <C>
9/01/1995 100.00 100.00 100.00
12/29/1995 87.45 92.05 110.50
3/29/1996 107.53 98.38 116.43
6/28/1996 124.01 109.36 121.66
8/30/1996 113.98 108.51 118.73
12/31/1996 144.09 100.98 135.87
3/31/1997 158.42 114.72 139.51
6/30/1997 188.53 139.60 163.87
8/29/1997 206.81 146.65 167.00
12/31/1997 255.91 165.42 181.20
3/31/1998 306.81 204.10 206.48
6/30/1998 361.65 239.70 213.29
8/28/1998 304.30 241.05 180.51
12/31/1998 413.98 309.28 232.98
3/31/1999 525.09 345.13 244.59
6/30/1999 459.14 356.81 261.83
8/27/1999 441.93 338.66 252.40
12/31/1999 523.29 486.06 282.01
3/31/2000 602.86 426.51 298.48
6/30/2000 378.49 391.05 280.81
9/01/2000 405.02 350.25 293.59
</TABLE>
ASSUMES $100 INVESTED ON SEPT. 4, 1995
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING SEPT. 3, 2000
CERTAIN RELATIONSHIPS AND TRANSACTIONS
John W. Meisenbach is a principal shareholder of MCM (Meisenbach Capital
Management). MCM provided consulting and brokerage services in managing the
Company's employee benefit and member insurance programs. Employee medical, life
and disability benefits, together with member health, auto and homeowner
insurance premiums, totaled over $185 million. For these services, MCM received
total compensation from third party insurers of $1,608,925 in FY 2000.
Frederick O. Paulsell, Jr. is majority owner of a company that received
payments from the Company in fiscal 2000 of $1,446,442 for merchandise sold to
the Company for resale.
Richard D. DiCerchio's son and brothers-in-law were employed by the Company
during fiscal year 2000 at annual salaries of $60,000, $136,500 and $64,000,
respectively. Frederick O. Paulsell, Jr.'s son was employed by the Company
during fiscal year 2000 at an annual salary of $74,000. James D. Sinegal's two
sons and brother-in-law were employed by the Company during fiscal year 2000 at
annual salaries of $180,000, $175,000, and $146,500, respectively.
11
<PAGE> 14
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under SEC rules, the Company's directors, executive officers and beneficial
owners of more than 10% of the Company's equity security are required to file
periodic reports of their ownership, and changes in that ownership, with the
SEC. Based solely on its review of copies of these reports and representations
of such reporting persons, the Company believes during fiscal 2000, such SEC
filing requirements were satisfied, except that Richard D. DiCerchio filed an
amended Form 5 in April, 2000 reporting two sales transactions that occurred in
July, 1999. A trust of which Mr. Brotman is a principal beneficiary filed a late
Form 4 reporting several transactions.
PROPOSAL 2: INDEPENDENT PUBLIC ACCOUNTANTS AND ANNUAL REPORT
Subject to ratification by the shareholders at the Annual Meeting, the
Board of Directors of the Company has selected Arthur Andersen LLP to audit the
consolidated financial statements of the Company and its subsidiaries for the
fiscal year ending September 2, 2001. Arthur Andersen LLP has issued its report,
included in the Company's Form 10-K, on the consolidated financial statements of
the Company for the fiscal year ending September 3, 2000. Arthur Andersen LLP
has served the Company in this capacity since the Merger and Costco since 1984.
Representatives of Arthur Andersen LLP are expected to be present at the Annual
Meeting, will have the opportunity to make a statement, if they desire to do so,
and will be available to respond to appropriate questions.
The affirmative vote of a majority of the votes cast on this proposal shall
constitute ratification of the appointment of Arthur Andersen LLP.
OTHER MATTERS
Neither the Board of Directors nor management intends to bring before the
meeting any business other than the matters referred to in the Notice of Meeting
and this Proxy Statement. If any other business should properly come before the
meeting, or any adjournment thereof, the persons named in the proxy will vote on
such matters according to their best judgment.
SHAREHOLDER PROPOSALS FOR 2002 ANNUAL MEETING
In order for a shareholder proposal to be included in the proxy statement
for the 2002 annual meeting of shareholders, it must be received by the Company
no later than August 15, 2001. Proposals may be mailed to the Company, to the
attention of the Secretary, 999 Lake Drive, Issaquah, Washington 98027.
A shareholder who intends to present a proposal at the Company's annual
meeting in 2002, other than pursuant to Rule 14a-8 under the Securities Exchange
Act of 1934, must provide the Company notice of such intention by at least
October 30, 2001, or management of the Company will have discretionary voting
authority at the 2002 annual meeting with respect to any such proposal without
discussion of the matter in the Company's proxy statement.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION WILL BE PROVIDED TO SHAREHOLDERS WITHOUT
CHARGE UPON WRITTEN REQUEST DIRECTED TO JOEL BENOLIEL, SECRETARY.
By Order of the Board of Directors,
/s/ JOEL BENOLIEL
------------------------------------
Joel Benoliel
Secretary
12
<PAGE> 15
APPENDIX A
THE COSTCO WHOLESALE CORPORATION
AUDIT COMMITTEE CHARTER
REVISED AS OF MARCH 9, 2000
The Costco Wholesale Corporation Audit Committee shall be nominated and
elected by the Board of Directors every three years at an organizational meeting
of the Board. The Audit Committee will be composed of from 3 to 5 non-management
directors, 3 of which must be independent and possess financial expertise as
described by the NASD. Other personnel shall attend the Audit Committee meetings
as directed by the Chairman of the Board and CEO.
The following shall be the major functions of the Audit Committee:
A. Provide an opportunity for direct communication between the Board of
Directors and the corporation's internal and outside auditors, thereby
strengthening their independence and objectivity.
B. Monitor the design and maintenance of a system of internal accounting
controls sufficient to protect the Company.
C. The Audit Committee shall have the authority and responsibility to
select, evaluate and replace the outside auditor. The outside auditors
shall be accountable to the Board of Directors and the Audit Committee
of the Company.
D. Review the results obtained from internal and outside auditors as to:
- reliability and integrity of financial and operating information and
the means used to identify, measure, classify and report such
information.
- systems established to monitor compliance with those policies, plans,
procedures, laws and regulations which could have a significant impact
on operations and reports, and whether the organization is in
compliance.
E. Receive annually from the outside auditors, a formal written statement
delineating all relationships between the auditor and the company,
consistent with Independence Standards Board Standard 1, and actively
engage in a dialogue with the auditor with respect to any disclosed
relationships or services that may impact the objectivity and
independence of the auditor.
In order to carry out these major functions, the Audit Committee shall:
1. Request that the internal and outside auditors have full and complete
access to any of the Company's records, properties and personnel.
2. Recommend to the directors, the firm to be employed by the corporation
as its outside auditors and oversee the independence of the outside
auditor.
3. Consider the proposed scope of the outside auditor's work for the
current year, consider any proposed non-audit functions to be
performed, and review the audit plan and proposed engagement letter.
4. Review, in consultation with the outside auditors, their report of
audit, or proposed report of audit, and the accompanying management
letter, if any.
5. Consult with the outside and internal auditors (periodically, as
appropriate, out of the presence of management) with regard to the
adequacy of the internal accounting controls by establishing a schedule
of regular audit committee meetings.
6. Review the summaries of work performed by internal audit.
7. Review periodically, with internal and outside auditors, the adequacy
of the corporation's audit, accounting and financial personnel
resources.
A-1
<PAGE> 16
8. Review with management and the outside auditors, before publication,
the annual financial statements (including footnotes and any special
disclosure or adjustment problems) to be included in the annual report
to shareholders, the annual 10-K report to the SEC, or similar publicly
filed documents, and review and/or discuss disputes (resolved or
unresolved) between management and the independent auditors that arose
in connection with the preparation of the financial statements.
9. Review with the outside auditors the effect of any important new
pronouncements of the accounting profession and other regulatory bodies
on the corporation's accounting policies.
10. Review and update the Audit Committee Charter annually or as
circumstances dictate.
A-2
<PAGE> 17
PROXY
COSTCO WHOLESALE CORPORATION
999 Lake Drive, Issaquah, Washington 98027
PROXY FOR THE JANUARY 25, 2001 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
COSTCO WHOLESALE CORPORATION
The undersigned shareholder of COSTCO WHOLESALE CORPORATION (the
"Company") hereby appoints Jeffrey H. Brotman and James D. Sinegal, and each of
them, the lawful attorneys and proxies of the undersigned, each with several
powers of substitution to vote all of the shares of Common Stock of the Company
held of record by the undersigned on December 8, 2000 at the Annual Meeting of
Stockholders to be held at the Doubletree Hotel Bellevue, Evergreen Ballroom,
300 112th Ave. SE, Bellevue, Washington 98004, on Thursday, January 25, 2001 at
10:00 a.m., local time, and at any and all adjournments thereof, with all the
powers the undersigned would possess if personally present, upon all matters
set forth in the Notice of Annual Meeting of Shareholders and Proxy Statement
dated December 11, 2000.
Shares represented by all properly executed proxies will be voted in
accordance with instructions appearing on the proxy and in the discretion of
the proxy holders as to any other matter that may properly come before the
Annual Meeting of Shareholders. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS,
PROXIES WILL BE VOTED FOR ITEMS 1 AND 2, AND IN THE DISCRETION OF THE PROXY
HOLDERS AS TO ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING
OF SHAREHOLDERS.
(Continued and to be signed and dated on the reverse side
and returned promptly in the enclosed envelope)
--------------------------------------------------------------------------------
[ARROW UP] FOLD AND DETACH HERE [ARROW UP]
COSTCO WHOLESALE CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
Thursday, January 25, 2001
10:00 a.m.
Doubletree Hotel Bellevue
Evergreen Ballroom
300 112th Ave. SE
Bellevue, Washington 98004
<PAGE> 18
Please mark [X]
your votes as
indicated in
this example
THE BOARD RECOMMENDS A VOTE "FOR" ITEMS 1 AND 2.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WITHHOLD
1. Election of Class II Directors of FOR AUTHORITY 2. Ratification of selection of FOR AGAINST ABSTAIN
Benjamin S. Carson, Sr., M.D., [ ] [ ] independent auditors. [ ] [ ] [ ]
Hamilton E. James,
Frederick O. Paulsell, Jr.
and Jill S. Ruckelshaus
(INSTRUCTIONS: To withhold authority to vote for
any individual nominee, write such nominee's
name in the space provided below)
_____________________
</TABLE>
Signature(s) ______________________________________ Dated: ___________________
Please sign as name(s) appear on this proxy, and date this proxy. If a joint
account, each joint owner must sign. If signing for a corporation or
partnership or as agent, attorney or fiduciary, indicate the capacity in which
you are signing.
--------------------------------------------------------------------------------
[ARROW UP] FOLD AND DETACH HERE [ARROW UP]
COSTCO WHOLESALE CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
Thursday, January 25, 2001
10:00 a.m.
Doubletree Hotel Bellevue
Evergreen Ballroom
300 112th Ave. SE
Bellevue, Washington 98004
