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401(k) RETIREMENT PLAN
EIN 91-1223280
PIN 002
FINANCIAL STATEMENTS AND SCHEDULE
AS OF DECEMBER 31, 2000 AND 1999
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Costco 401(k) Retirement Plan
Financial Statements and Schedule
December 31, 2000 and 1999
INDEX
| REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS | | |
FINANCIAL STATEMENTS |
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Statements of Net Assets Available for Plan Benefits as of December 31, 2000 and 1999 |
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Statement of Changes in Net Assets Available for Plan Benefits for the Year Ended December 31, 2000 |
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NOTES TO FINANCIAL STATEMENTS AND SCHEDULE |
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SUPPLEMENTAL INFORMATION |
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Schedule I—Schedule of Assets Held for Investment Purposes as of December 31, 2000 |
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Report of Independent Public Accountants
To the Benefits Committee of
the Costco 401(k) Retirement Plan:
We have audited the accompanying statements of net assets available for plan benefits of the Costco 401(k) Retirement Plan as of December 31, 2000 and 1999, and the related statement of changes in net assets available for plan benefits for the year ended December 31, 2000. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for plan benefits of the Plan as of December 31, 2000 and 1999, and the changes in its net assets available for plan benefits for the year ended December 31, 2000, in conformity with accounting principles generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets held for investment purposes is presented for purposes of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Seattle, Washington
April 19, 2001
Costco 401(k) Retirement Plan
Statements of Net Assets Available For Plan Benefits
As of December 31, 2000 and 1999
| | 2000
| | 1999
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| ASSETS: | | | | | | |
| | Investments at fair value— | | | | | | |
| | | Shares of registered investment company funds: | | | | | | |
| | | | Equity Income Fund | | $ | 93,145,608 | | $ | 94,708,446 |
| | | | Spectrum Income Fund | | | 51,391,451 | | | 53,948,751 |
| | | | Spectrum Growth Fund | | | 109,114,922 | | | 109,518,397 |
| | | | New Horizons Fund | | | 30,715,405 | | | 18,667,199 |
| | | | Mid-Cap Growth Fund | | | 57,328,132 | | | 41,157,400 |
| | | | Equity Index Fund | | | 24,823,075 | | | 20,122,982 |
| | | | International Stock Fund | | | 6,861,243 | | | 3,104,443 |
| | | Common commingled trust fund: | | | | | | |
| | | | Stable Value Fund | | | 108,162,277 | | | 97,058,613 |
| | | Costco Wholesale Corporation Common Stock | | | 376,473,092 | | | 345,724,304 |
| | | Participant loans | | | 42,835,764 | | | 34,411,486 |
| | | Cash and cash equivalents | | | 2,509,839 | | | 217,840 |
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| | | | | Total investments | | | 903,360,808 | | | 818,639,861 |
| | Contributions receivable— | | | | | | |
| | | Employer | | | 59,903,404 | | | 51,112,854 |
| | | Employee | | | 3,356,682 | | | — |
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| | | | 63,260,086 | | | 51,112,854 |
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| NET ASSETS AVAILABLE FOR PLAN BENEFITS | | $ | 966,620,894 | | $ | 869,752,715 |
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The accompanying notes are an integral part of these statements.
Costco 401(k) Retirement Plan
Statement of Changes in Net Assets Available For Plan Benefits
For the Year Ended December 31, 2000
| NET INVESTMENT INCOME (LOSS): | | | | |
| | Net depreciation in fair value of investments— | | | | |
| | | Shares of registered investment company funds | | $ | (24,097,258 | ) |
| | | Common stock | | | (38,376,428 | ) |
| | Interest | | | 3,680,016 | |
| | Dividends | | | 41,069,309 | |
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| | | | Total net investment loss | | | (17,724,361 | ) |
| CONTRIBUTIONS TO THE PLAN: | | | | |
| | Employee | | | 75,501,323 | |
| | Employer | | | 73,267,816 | |
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| | | | Total contributions | | | 148,769,139 | |
| DISTRIBUTIONS TO PARTICIPANTS | | | (34,176,599 | ) |
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| NET INCREASE IN NET ASSETS AVAILABLE FOR PLAN BENEFITS | | | 96,868,179 | |
| NET ASSETS AVAILABLE FOR PLAN BENEFITS, beginning of year | | | 869,752,715 | |
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| NET ASSETS AVAILABLE FOR PLAN BENEFITS, end of year | | $ | 966,620,894 | |
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The accompanying notes are an integral part of this statement.
Costco 401(k) Retirement Plan
Notes to Financial Statements and Schedule
December 31, 2000
1. Plan Description
The following description of the Costco 401(k) Retirement Plan ("the Plan") provides only general information. Participants should refer to the plan document for a more complete description of the Plan's provisions.
The Plan is a defined contribution plan subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
Participants in the Plan are employees of Costco Wholesale Corporation ("the Company"), including The Price Company, a wholly owned subsidiary.
Eligibility
Prior to January 1, 2001, the Plan covered certain employees over the age of 18 who had completed one year of service with a minimum 1,000 hours worked. Employees could enter the Plan on the date following fulfillment of the requirements. Price Company employees covered by a collective bargaining agreement in the state of California are not eligible for participation in this Plan.
Effective January 1, 2001, the Plan was amended to cover certain employees over 18 years of age who have completed 90 days of employment. The employees enter the Plan on the first day of the month following the completion of 90 days of employment. Participation in the Plan following the completion of 90 days of employment is for the purpose of making salary deferral contributions and receiving matching contributions only. Eligibility for the Company's discretionary contribution has not been affected by these changes.
Contributions
Each year, participants may contribute from 1% to 15% of their compensation before income taxes, subject to certain limitations set by the Internal Revenue Service (IRS). Participants may also contribute amounts representing distributions from other qualified benefit or contribution plans (known as "rollover" contributions).
The Company matches 50% of the employee's contribution, up to a maximum employer matching contribution of $500 per year. The Company may also, at its discretion, make a qualified nonelective contribution. In addition, for each plan year, the Company may contribute a discretionary amount to the account of each participant who is employed by the Company on the last day of the plan year. The discretionary contribution may range from 3% to 10% of compensation based on years of service and was approved for the year ended December 31, 2000.
Participant Accounts
Each participant's account is credited with his or her contributions, employer matching and discretionary contributions, and an allocation of plan earnings based on the daily valuation of investments. Allocations are based on participant account balances as defined by the Plan. The benefit to which a participant is entitled is the benefit that can be provided from the participant's vested account.
Vesting
Participants are immediately vested in their contributions and any qualified non-elective contributions, plus actual earnings thereon. Vesting in the employer matching and discretionary contributions is based on years of service, according to the following schedule:
Years of Service
| | Percentage
Vested
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| Less than 2 | | 0 | % |
| 2-3 | | 10 | |
| 3-4 | | 25 | |
| 4-5 | | 50 | |
| 5 or more | | 100 | |
Forfeitures
During 2000, forfeitures of $700,175 were used to reduce the employer contributions to the Plan. Forfeitures can be restored to a participant's account if the participant is re-employed by the Company prior to the expiration of five consecutive breaks in service and repays the full dollar amount distributed because of the termination within five years of the reemployment date. As of December 31, 2000 and 1999, forfeitures of approximately $1,232,000 and $892,000, respectively, had not been used to reduce employer contributions. These forfeitures will be used to offset future employer contributions.
Investment Options
Upon enrollment in the Plan, a participant may direct contributions into any of nine investment options consisting of seven registered investment company funds, a common commingled trust fund and Company stock, as listed on the statements of net assets available for plan benefits. T. Rowe Price is the trustee for all investments, serves as investment manager for all registered investment company and common commingled trust funds and provides recordkeeping of all participant accounts. Funds may be temporarily invested in a cash account.
Participants may change their investment options and transfer amounts between funds daily.
Distributions
Upon termination of employment or death, the vested interest in a participant's account is payable in a lump sum. Participants may apply for a distribution of all or a portion of the vested interest at any time after attainment of age 591/2. Participants are also eligible to make hardship withdrawals from their salary deferral contributions in the event of certain financial hardships. Following a hardship withdrawal, participants are not allowed to contribute to the Plan for a one-year period.
Participant Loans
A participant may borrow the lesser of $50,000 or 45% of his or her vested account balance, calculated using the participant's pre-tax contribution, rollover, Company matching and Company discretionary contribution amounts. However, only the participant's pre-tax contribution, rollover and
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Company matching amounts are eligible to borrow against, with a minimum loan of $1,000. Loans are payable through payroll deductions over a period ranging up to 180 months, depending on the purpose of the loan. The interest rate is determined by the plan administrator based on Bank of America prime rate on the last day of the calendar quarter. The rates at December 31, 2000 ranged from 8.75% to 11.5%, depending on the type of loan. The loans have various maturity dates, through 2015.
Plan Administrator
The Plan is administered by the Benefits Committee, which is appointed by the Board of Directors of the Company.
Administrative Expenses
All administrative and custodial fees of the Plan are paid by the Company. All investment management and transaction fees directly related to the plan investments are netted against net investment income.
2. Significant Accounting Policies
Basis of Accounting
The financial statements of the Plan are prepared under the accrual method of accounting.
Use of Estimates
The preparation of financial statements requires the use of estimates. Actual results could differ from those estimates.
Investment Valuation and Income Recognition
Investments are stated at fair value. Registered investment company and common commingled trust funds and Costco Wholesale Corporation Common Stock are valued using the closing price of the investments on the last day of business of the plan year.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Net depreciation in fair value of investments includes the change in the fair value of assets from one period to the next, and realized gains and losses, and is computed using the moving average method.
Payment of Benefits
Benefits are recorded when paid.
3. Plan Termination
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of plan termination, participants will become 100% vested in their accounts.
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4. Tax Status
The IRS has informed the Company that the Plan is designed in accordance with applicable sections of the Internal Revenue Code. The Plan has been amended subsequent to receiving a determination letter. The plan administrator and the Plan's counsel believe that the Plan is currently designed and is being operated in compliance with the applicable requirements of the IRS.
5. Party in Interest
Certain plan investments are shares of mutual funds managed by T. Rowe Price. T. Rowe Price is the trustee and recordkeeper as defined by the Plan, and therefore, these transactions qualify as a party in interest.
6. Subsequent Events
Effective January 1, 2001, the Plan made five new investment options available. Three of these funds replace existing funds and have similar investment strategies as the funds they replaced.
| | | T. Rowe Price Small-Cap Stock Fund replaces T. Rowe Price New Horizons Fund |
| | | American Funds New Perspective replaces T. Rowe Price Spectrum Growth Fund |
| | | Davis New York Venture A Fund replaces T. Rowe Price Equity Income Fund |
| | | Invesco Blue Chip Growth Fund |
| | | Vanguard Asset Allocation Fund |
Effective February 1, 2001, no new contributions from employee's paychecks were allowed to post to the three closed funds. Existing money may be kept in these funds until June 29, 2001.
Effective July 1, 2001, any money that has not been moved out of the three closed funds to new investment options will automatically be moved to the T. Rowe Price Stable Value Fund.
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Schedule I
Costco 401(k) Retirement Plan
EIN: 91-1223280
PIN: 002
Schedule of Assets Held For Investment Purposes
As of December 31, 2000
Identity of Party Involved/Description of Investments
| | Current Value
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|---|
| *T. Rowe Price: | | | |
| | Cash and cash equivalents | | $ | 2,509,839 |
| | Equity Income Fund | | | 93,145,608 |
| | Spectrum Income Fund | | | 51,391,451 |
| | Spectrum Growth Fund | | | 109,114,922 |
| | New Horizons Fund | | | 30,715,405 |
| | Mid-Cap Growth Fund | | | 57,328,132 |
| | Equity Index Fund | | | 24,823,075 |
| | International Stock Fund | | | 6,861,243 |
| | Stable Value Fund | | | 108,162,277 |
| *Costco Wholesale Corporation Common Stock | | | 376,473,092 |
| *Participant loans, with interest rates of 8.75% to 11.5% maturing through 2015 | | | 42,835,764 |
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| | | $ | 903,360,808 |
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- *
- Represents a party in interest.
The accompanying notes are an integral part of this schedule.
QuickLinks
Costco 401(k) Retirement Plan Financial Statements and Schedule December 31, 2000 and 1999 INDEXReport of Independent Public AccountantsStatements of Net Assets Available For Plan BenefitsStatement of Changes in Net Assets Available For Plan BenefitsNotes to Financial Statements and ScheduleSchedule of Assets Held For Investment Purposes
