UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

For the fiscal year ended September 2, 2001

OR

Commission file number 0-20355

Costco Wholesale Corporation
(Exact name of registrant as specified in its charter)

999 Lake Drive, Issaquah, WA 98027
(Address of principal executive offices) (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:

    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 / /

    Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /x/

    The aggregate market value of the voting stock held by nonaffiliates of the registrant at November 2, 2001 was $17,836,501,654.

    The number of shares outstanding of the registrant's common stock as of November 2, 2001 was 452,221,033.

DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on January 30, 2002 are incorporated by reference into Part III of this Form 10-K.

COSTCO WHOLESALE CORPORATION
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 2, 2001

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Part I

Item 1—Business

    Costco Wholesale Corporation ("Costco" or the "Company") began operations in 1983 in Seattle, Washington. In October 1993, Costco merged with The Price Company, which had pioneered the membership warehouse concept in 1976, to form Price/Costco, Inc., a Delaware corporation. In January 1997, after the spin-off of most of its non-warehouse assets to Price Enterprises, Inc., the Company changed its name to Costco Companies, Inc. On August 30, 1999, the Company reincorporated from Delaware to Washington and changed its name to Costco Wholesale Corporation, which trades on the NASDAQ under the symbol "COST".

General

    Costco operates membership warehouses based on the concept that offering members very low prices on a limited selection of nationally branded and selected private label products in a wide range of merchandise categories will produce high sales volumes and rapid inventory turnover. This rapid inventory turnover, when combined with the operating efficiencies achieved by volume purchasing, efficient distribution and reduced handling of merchandise in no-frills, self-service warehouse facilities, enables Costco to operate profitably at significantly lower gross margins than traditional wholesalers, discount retailers and supermarkets.

    Costco buys nearly all of its merchandise directly from manufacturers for shipment either directly to Costco's selling warehouses or to a consolidation point ("depot") where various shipments are combined so as to minimize freight and handling costs. As a result, Costco eliminates many of the costs associated with multiple step distribution channels, which include purchasing from distributors as opposed to manufacturers, use of central receiving, storing and distributing warehouses, and storage of merchandise in locations off the sales floor. By providing this more cost-effective means of distributing goods, Costco meets the needs of business customers who otherwise would pay a premium for small purchases and for the distribution services of traditional wholesalers, and who cannot otherwise obtain the full range of their product requirements from any single source. In addition, these business members will often combine personal shopping with their business purchases. The cost savings on brand name and selected private label merchandise are the primary motivation for individuals shopping for their personal needs. Costco's merchandise selection is designed to appeal to both the business and consumer requirements of its members by offering a wide range of nationally branded and selected private label products, often in case, carton or multiple-pack quantities, at attractively low prices.

    Because of its high sales volume and rapid inventory turnover, Costco generally has the opportunity to receive cash from the sale of a substantial portion of its inventory at mature warehouse operations before it is required to pay all its merchandise vendors, even though Costco takes advantage of early payment terms to obtain payment discounts. As sales in a given warehouse increase and inventory turnover becomes more rapid, a greater percentage of the inventory is financed through payment terms provided by vendors rather than by working capital.

    Costco's typical warehouse format averages approximately 137,000 square feet. Floor plans are designed for economy and efficiency in the use of selling space, in the handling of merchandise and in the control of inventory. Because shoppers are attracted principally by the availability of low prices on brand name and selected private label goods, Costco's warehouses need not be located on prime commercial real estate sites or have elaborate facilities.

    By strictly controlling the entrances and exits of its warehouses and by limiting membership to selected groups and businesses, Costco has been able to limit inventory losses to less than three-tenths of one percent of net sales—well below those of typical discount retail operations. Losses associated with

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dishonored checks have also been minimal, since individual memberships are generally limited to members of qualifying groups, and bank information from business members is verified prior to establishing a check purchase limit. Memberships are invalidated at the point of sale for those members who have issued dishonored checks to Costco.

    Costco's policy is generally to limit marketing and promotional expenses to new warehouse openings, occasional direct mail marketing to prospective new members and annual direct mail marketing programs to existing members promoting selected merchandise. These practices result in lower marketing expenses as compared to typical discount retailers and supermarkets. In connection with new warehouse openings, Costco's marketing teams personally contact businesses in the area that are potential wholesale members. These contacts are supported by direct mailings during the period immediately prior to opening. Potential Gold Star (individual) members are contacted by direct mail or by providing such mailings to be distributed through credit unions, employee associations and other entities representing individuals who are eligible for Gold Star membership. After a membership base is established in an area, most new memberships result from word-of-mouth advertising, follow-up contact by direct mail distributed through regular payroll or other organizational communications to employee groups and ongoing direct solicitations to prospective wholesale members.

    Costco's warehouses generally operate on a seven-day, 68-hour week, and are open somewhat longer during the holiday season. Generally, warehouses are open weekdays between 10:00 a.m. and 8:30 p.m., with earlier closing hours on the weekend. Because these hours of operation are shorter than those of traditional discount grocery retailers and supermarkets, labor costs are lower relative to the volume of sales. Merchandise is generally stored on racks above the sales floor and displayed on pallets containing large quantities of each item, thereby reducing labor required for handling and stocking. In addition, sales are processed through centralized, automated check-out stands. Most items are not individually price marked; rather, each item is bar-coded so it can be scanned into electronic cash registers. This allows price changes without remarking merchandise. Substantially all manufacturers provide merchandise pre-marked with the item numbers and bar codes and many provide special, larger package sizes.

    Costco's merchandising strategy is to provide the customer with a broad range of high quality merchandise at prices consistently lower than could be obtained through traditional wholesalers, discount retailers or supermarkets. An important element of this strategy is to carry only those products on which Costco can provide its members significant cost savings. Items which members may request but which cannot be purchased at prices low enough to pass along meaningful cost savings are usually not carried. Costco seeks to limit specific items in each product line to fast selling models, sizes and colors. Therefore, the Company carries an average of only 3,700 to 4,500 active stockkeeping units ("SKU's") per warehouse in its core warehouse business, as opposed to discount retailers and supermarkets which normally stock 40,000 to 60,000 SKU's or more. These practices are consistent with Costco's membership policies of satisfying both the business and personal shopping needs of its wholesale members, thereby encouraging high volume shopping. Many consumable products are offered for sale in case, carton or multiple-pack quantities only. Appliances, equipment and tools often feature commercial and professional models. Costco's policy is to accept returns of merchandise within a reasonable time after purchase.

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    The following table indicates the approximate percentage of net sales accounted for by each major category of items sold by Costco during fiscal 2001, 2000, and 1999:

    Costco has direct buying relationships with many producers of national brand name merchandise. No significant portion of merchandise is obtained by Costco from any one of these or any other single supplier. Costco has not experienced any difficulty in obtaining sufficient quantities of merchandise, and believes that if one or more of its current sources of supply became unavailable, it would be able to obtain alternative sources without experiencing a substantial disruption of its business. Costco may also purchase selected private label merchandise of the same product, as long as quality and customer demand are comparable, and the savings to its customers are greater.

    Costco reports on a 52/53-week fiscal year, consisting of 13 four-week periods and ending on the Sunday nearest the end of August. The first, second and third quarters consist of three periods each, and the fourth quarter consists of four periods (five weeks in the thirteenth period in a 53-week year). There is no material seasonal impact on Costco's operations, except an increased level of sales and earnings during the Christmas holiday season. Fiscal 2001 was a 52-week fiscal year.

Membership Policy

    Costco's membership format is designed to reinforce customer loyalty and provide a continuing source of membership fee revenue. Costco has two primary types of members: Business and Gold Star (individual) members. In addition, the Company offers an Executive Membership program to both Business and Gold Star members.

    Businesses, including individuals with a business license, retail sales license or other evidence of business existence, may become Business members. Costco promotes Business membership through its merchandise selection and its membership marketing programs. Business members generally pay an annual membership fee of $45 for the primary and spouse membership card with add-on membership cards available for an annual fee of $35 (including a free spouse card).

    Individual memberships are available to employees of federal, state and local governments, financial institutions, corporations, utility and transportation companies, public and private educational institutions, and other selected organizations. Individual members generally pay an annual membership fee of $45, which includes a spouse card.

    Executive Memberships are available to all members for an annual fee of $100. The Executive Membership program offers members additional savings and benefits on various business and consumer services offered by Costco, such as merchant credit card processing, small business loans, auto and home

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insurance, long-distance telephone service, check printing, and real estate and mortgage services. The services offered are generally provided by third-party providers and vary by state. In addition, Executive members qualify for a 2% reward (which can be redeemed at Costco warehouses), up to a maximum of $500 per year, on all qualified purchases made at Costco.

    As of September 2, 2001, Costco had approximately 4.4 million Business memberships and approximately 12.7 million Gold Star memberships. Members can utilize their memberships at any Costco warehouse location.

Labor

    As of September 2, 2001, Costco had approximately 86,000 employees, about one-half of whom were part-time. Approximately 12,450 hourly employees in California, Maryland, New Jersey, New York and one warehouse in Virginia are represented by the International Brotherhood of Teamsters. In addition, one warehouse in the Canadian province of British Columbia is represented by the Retail Wholesale Union. All remaining employees are non-union. Costco considers its employee relations to be good.

Competition

    The Company operates in the rapidly changing and highly competitive merchandising industry. When The Price Company pioneered the membership warehouse club concept in 1976, the dominant companies selling comparable lines of merchandise were department stores, grocery stores and traditional wholesalers. Since then, new merchandising concepts and aggressive marketing techniques have led to a more intense and focused competitive environment. Wal-Mart has become the largest retailer in the United States (and the world) and has expanded further into various food merchandising formats. Target has also emerged as a significant retail competitor. Approximately 917 warehouse clubs exist across the U.S. and Canada, including the 324 warehouses operated by the Company in North America; and every major metropolitan area has one, if not several, club operations. Low-cost operators selling a single category or narrow range of merchandise, such as Home Depot, Office Depot, PetSmart, Toys-R-Us, Circuit City and Barnes & Noble, have significant market share in their respective categories. New forms of retailing involving modern technology are boosting sales in certain stores, while home shopping and electronic commerce over the Internet is becoming increasingly popular. Likewise, in the institutional food business, companies such as Smart & Final, which operates predominately in California, Washington, Oregon, Florida and Arizona, are capturing an increasingly greater share of the institutional food business from wholesale operators and others.

Regulation

    Certain state laws require that the Company apply minimum markups to its selling prices for specific goods, such as tobacco products and alcoholic beverages. While compliance with such laws may cause the Company to charge somewhat higher prices than it otherwise would charge, other retailers are also typically governed by the same restrictions, and the Company believes that compliance with such laws does not have a material adverse effect on its operations.

    It is the policy of the Company to sell at lower than manufacturers' suggested retail prices. Some manufacturers attempt to maintain the resale price of their products by refusing to sell to the Company or to other purchasers that do not adhere to suggested retail prices or that otherwise sell at discounted prices. To date, the Company believes that it has not been materially affected by its inability to purchase directly from such manufacturers. Both federal and state legislation is proposed from time to time which, if enacted, would restrict the Company's ability to purchase goods or extend the application of laws enabling

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the establishment of minimum prices. The Company cannot predict the effect on its business of the enactment of such federal or state legislation.

    Certain states, counties and municipalities have enacted or proposed laws and regulations that would prevent or restrict the operations or expansion plans of certain large retailers and warehouse clubs, including the Company, within their jurisdictions. The Company believes that, if enacted, such laws and regulations could have a material adverse effect on the Company's operations.

Item 2—Properties

Warehouse Properties

    At September 2, 2001, Costco operated 345 warehouse clubs: 264 in the United States (in 34 states); 60 in Canada (in 9 Canadian provinces); 11 in the United Kingdom (9 in England; 2 in Scotland); 5 in Korea; 3 in Taiwan; and 2 in Japan. The following is a summary of owned and leased warehouses by region:

NUMBER OF WAREHOUSES

    The following schedule shows warehouse openings (net of warehouse closings) by region for the past five fiscal years and expected openings (net of closings) through December 31, 2001:

    As of September 2, 2001, the Company operated (through a 50%-owned joint venture) 20 warehouses in Mexico. These warehouses are not included in the number of warehouses open in any period because the joint venture is accounted for on the equity basis and therefore their operations are not consolidated in the Company's financial statements.

    The Company's headquarters are located in Issaquah, Washington. Additionally, the Company maintains regional buying and administrative offices, operates regional cross-docking facilities (depots) for the consolidation and distribution of certain shipments to the warehouses, and operates various processing, packaging, and other facilities to support ancillary and other businesses.

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Item 3—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 4—Submission of Matters to a Vote of Security Holders

    The Company's annual meeting is scheduled for 7:00 p.m. on January 30, 2002, at the Nob Hill Masonic Center in San Francisco, California. Matters to be voted on will be included in the Company's proxy statement to be filed with the Securities and Exchange Commission and distributed to stockholders prior to the meeting.

Item 4A—Executive Officers of the Registrant

    The following is a list of the names, ages and positions of the executive officers of the registrant.

    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 and The Price Company (the "Merger"). From its inception in 1983 until 1993, he was President and Chief Operating Officer of Costco Wholesale Corporation and served as Chief Executive Officer from August 1988 until October 1993. Mr. Sinegal was a co-founder of Costco Wholesale Corporation 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 co-founder and Chairman of the Board of Costco Wholesale Corporation from its inception. Upon the consummation of the Merger, Mr. Brotman became the Vice-Chairman of the Company, and has served as Chairman since December 1994. Mr. Brotman is a founder of a number of other specialty retail chains.

    Richard D. DiCerchio was named Senior Executive Vice President of the Company in 1997 and he is currently Senior Executive Vice President and 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 Wholesale Corporation in August 1992 and was appointed Executive Vice President and director of Costco Wholesale Corporation in April 1986. From June 1985 to April 1986, he was Senior Vice President, Merchandising of Costco Wholesale Corporation. He joined Costco Wholesale Corporation as Vice President, Operations in May 1983.

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    Richard A. Galanti has been Executive Vice President and Chief Financial Officer of the Company since the Merger and has been a director of the Company since January 1995. He was Senior Vice President, Chief Financial Officer and Treasurer of Costco Wholesale Corporation from January 1985 until the Merger, having joined Costco Wholesale Corporation as Vice President—Finance in March 1984. From 1978 to February 1984, Mr. Galanti was an Associate with Donaldson, Lufkin & Jenrette Securities Corporation.

    Franz E. Lazarus was named Executive Vice President, Chief Operating Officer—International Operations in September 1995 and assumed the additional responsibilities over Manufacturing and Ancillary Businesses in August 2000. From August 1994 to September 1995, Mr. Lazarus served as Executive Vice President, Chief Operating Officer—Northern Division of the Company. Subsequent to the Merger in October 1993, he served as Executive Vice President, Chief Operating Officer—Eastern Division. He was named Executive Vice President, Chief Operating Officer—East Coast Operations of Costco Wholesale Corporation in August 1992. Mr. Lazarus joined Costco Wholesale Corporation in November 1983 and has held various management positions prior to his current position.

    W. Craig Jelinek has been Executive Vice President, Chief Operating Officer—Northern Division since September 1995. He had been Senior Vice President, Operations—Northwest Region since September 1992. From May 1986 to September 1994, he was Vice President, Regional Operations Manager—Los Angeles Region and has held various management positions since joining Costco Wholesale Corporation in April 1984.

    Paul G. Moulton has been Executive Vice President, Real Estate Development since February 2001. He had been responsible for Marketing, E-commerce and Member Services since October 1999. He was Senior Vice President, Information Systems from November 1997 to August 1999. From 1995 to 1997, he was Senior Vice President, COO of Costco Asia; and from 1992 to 1995 he was Senior Vice President, COO of Costco Europe. From 1990 to 1992, Mr. Moulton was Vice President of Finance and Corporate Treasurer and has held various management positions since joining Costco Wholesale Corporation in 1985.

    Joseph P. Portera has been Executive Vice President, Chief Operating Officer—Eastern Division of the Company since August 1994 and assumed the additional responsibilities of Chief Operating Officer—Canadian Division in September 2000. He was Senior Vice President, Operations—Northern California Region from October 1993 to August 1994. From August 1991 to October 1993, he was Senior Vice President, Merchandising—Non Foods of Costco Wholesale Corporation, and has held various management positions since joining Costco Wholesale Corporation in April 1984.

    Dennis R. Zook has been Executive Vice President, Chief Operating Officer—Southern Division of the Company since the Merger, which includes management responsibilities for the Company's joint venture operation in Mexico. He was Executive Vice President of The Price Company since February 1989. Mr. Zook became Vice President of West Coast Operations of The Price Company in October 1988 and has held various management positions since joining The Price Company in October 1981.

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Part II

Item 5—Market for Registrant's Common Equity and Related Stockholder Matters

    Costco Common Stock is quoted on The Nasdaq Stock Market's National Market under the symbol "COST."

    The following table sets forth the closing high and low sales prices of Costco Common Stock for the period January 1, 1999 through November 2, 2001. The quotations are as reported in published financial sources.

    On November 2, 2001 the Company had 8,041 stockholders of record.

DIVIDEND POLICY

    Costco has never paid regular dividends and presently has no plans to declare a cash dividend. Under its two revolving credit agreements, Costco is generally permitted to pay dividends in any fiscal year up to an amount equal to 50% of its consolidated net income for that fiscal year.

Item 6—Selected Financial Data

SELECTED FINANCIAL AND OPERATING DATA

    The following tables set forth selected financial and operating data for Costco for the ten fiscal years in the period ended September 2, 2001, giving effect to the merger of Costco Wholesale Corporation and The Price Company using the pooling-of-interests method of accounting and treating the non-club real estate segment as a discontinued operation prior to its spin-off in 1994. This selected financial and operating data should be read in conjunction with "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations," and the consolidated financial statements of Costco for fiscal 2001.

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COSTCO WHOLESALE CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(dollars in thousands, except per share data)

(a)

Includes the effect of adopting SFAS 121, a $65,000 pre-tax ($38,675 after-tax or $0.09 per diluted share) provision for asset impairment.

(b)

Represents a one-time non-cash charge reflecting the cumulative effect of the Company's change in accounting for membership fees from a cash to a deferred method.

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COSTCO WHOLESALE CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(dollars in thousands, except warehouse data)

(a)

Includes relocations, as well as new warehouse openings.

(b)

Includes relocations, as well as outright closings.

(c)

Includes the acquisition of two warehouses in Korea formerly operated under a license agreement.

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Item 7—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, ownership or use of real estate, actions of vendors, and other risks identified from time to time in the Company's public statements and reports filed with the SEC.

Comparison of Fiscal 2001 (52 weeks) and Fiscal 2000 (53 weeks):
(dollars in thousands, except earnings per share)

    Net income for fiscal 2001, a 52-week fiscal year, decreased 5% to $602,089, or $1.29 per diluted share, from $631,437, or $1.35 per diluted share during fiscal year 2000, a 53-week fiscal year.

    Net sales increased 8% to $34,137,021 in fiscal 2001 from $31,620,723 in fiscal 2000. This increase was due to higher sales at existing locations opened prior to fiscal 2000; increased sales at 21 warehouses (25 opened, 4 closed) that were opened in fiscal 2000 and in operation for the entire 2001 fiscal year; and first year sales at the 32 new warehouses opened (39 opened, 7 closed) during fiscal 2001. Changes in prices did not materially impact sales levels.

    Comparable sales, that is sales in warehouses open for at least a year, increased at a 4% annual rate in fiscal 2001 compared to an 11% annual rate during fiscal 2000.

    Membership fees and other revenue increased 21% to $660,016, or 1.93% of net sales, in fiscal 2001 from $543,573, or 1.72% of net sales, in fiscal 2000. This increase was primarily due to the increase in membership fees across most membership categories, averaging approximately $5 per member, which became effective beginning with renewals on October 1, 2000. Additionally, membership sign-ups at the 32 new warehouses opened in fiscal 2001 were also a factor in this increase.

    Gross margin (defined as net sales minus merchandise costs) increased 7% to $3,538,881, or 10.37% of net sales, in fiscal 2001 from $3,298,553, or 10.43% of net sales, in fiscal 2000. Gross margin as a percentage of net sales decreased by six basis points due to costs related to the Executive Membership two percent reward program, which was somewhat offset by gross margin improvement in the Company's core merchandising activities and ancillary operations. The gross margin figures reflect accounting for most U.S. merchandise inventories on the last-in, first-out (LIFO) method. If all inventories had been valued using the first-in, first-out (FIFO) method, inventories would have been higher by $13,650 at September 2, 2001, and $8,150 at September 3, 2000.

    Selling, general and administrative expenses as a percent of net sales increased to 9.17% during fiscal 2001 from 8.71% during fiscal 2000, due to a number of a factors, including an increase in the entry level wage rate of hourly employees beginning in the fourth quarter of fiscal 2000; continued expansion of the Company's co-branded credit card program; higher utility and energy costs; and higher expenses associated with an increase in new warehouse openings year-over-year (a net of 32 and 21 warehouses opened in fiscal 2001 and 2000, respectively) where expense ratios to sales are typically higher than in more mature warehouses.

    Preopening expenses totaled $59,571, or 0.17% of net sales, during fiscal 2001 and $42,321, or 0.13% of net sales, during fiscal 2000. During fiscal 2001, the Company opened 39 new warehouses (including relocations) compared to 25 new warehouses (including relocations) during fiscal 2000. Pre-opening

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expenses also include costs related to remodels and expanded ancillary operations at existing warehouses, as well as expanded international operations.

    The provision for impaired assets and closing costs was $18,000 in fiscal 2001 compared to $7,000 in fiscal 2000. The fiscal 2001 provision includes charges of $19,000 for the Canadian administrative reorganization (See "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations"—Liquidity and Capital Resources), $15,231 for the impairment of long-lived assets and $2,412 for warehouse closing expense, which were offset by $18,643 of gains on the sale of real property. At September 2, 2001, the reserve for warehouse closing costs was $15,434, of which $6,538 related to future lease obligations. This compares to a reserve for warehouse closing costs of $11,762 at September 3, 2000, of which $8,887 related to future lease obligations. (See Part II, "Item 8—Financial Statements"—Notes to Consolidated Financial Statements—Note 1).

    Interest expense totaled $32,024 in fiscal 2001, and $39,281 in fiscal 2000. The decrease in interest expense is primarily due to an increase in capitalized interest related to construction projects and a decrease related to the retirement of an unsecured note payable to banks with a principal amount totaling $140,000 in April 2001.

    Interest income and other totaled $43,238 in fiscal 2001 compared to $54,226 in fiscal 2000. The decrease was primarily due to lower rates of interest earned on lower balances of cash and cash equivalents and short-term investments during fiscal 2001 as compared to fiscal 2000, which was partially offset by improved earnings from Costco Mexico (a 50% owned joint venture) on a year-over-year basis.

    The effective income tax rate on earnings was 40% in both fiscal 2001 and fiscal 2000.

Comparison of Fiscal 2000 (53 weeks) and Fiscal 1999 (52 weeks):
(dollars in thousands, except earnings per share)

    Net income for fiscal 2000, a 53-week fiscal year, increased 59% to $631,437, or $1.35 per diluted share, from $397,298, or $0.86 per diluted share during fiscal year 1999, a 52-week fiscal year. Net income for fiscal 1999 was impacted by both a $50,000 fourth quarter pre-tax provision for impaired assets and warehouse closing costs, as well as the one-time $118,023 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. Excluding the impact of these two charges, net income in fiscal 1999 would have been $545,321, or $1.18 per diluted share and would have resulted in a 16% increase in net income in fiscal 2000 compared to fiscal 1999.

    Net sales increased 17% to $31,620,723 in fiscal 2000 from $26,976,453 in fiscal 1999. This increase was due to: (i) higher sales at existing locations opened prior to fiscal 1999; (ii) increased sales at 14 warehouses (21 opened, 7 closed) that were opened in fiscal 1999 and in operation for the entire 2000 fiscal year; (iii) first year sales at the 21 new warehouses opened (25 opened, 4 closed) during fiscal 2000; and (iv) fiscal 2000 being a 53-week fiscal year. Changes in prices did not materially impact sales levels.

    Comparable sales, that is sales in warehouses open for at least a year, increased at an 11% annual rate in fiscal 2000 compared to a 10% annual rate during fiscal 1999.

    Membership fees and other revenue increased 13% to $543,573, or 1.72% of net sales, in fiscal 2000 from $479,578, or 1.78% of net sales, in fiscal 1999. This increase was primarily due to membership sign-ups at the 21 new warehouses opened in fiscal 2000.

    Gross margin (defined as net sales minus merchandise costs) increased 18% to $3,298,553, or 10.43% of net sales, in fiscal 2000 from $2,806,254, or 10.40% of net sales, in fiscal 1999. Gross margin as a

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percentage of net sales increased due to increased sales penetration of certain higher gross margin ancillary businesses and private label products and improved performance of the Company's international operations. The gross margin figures reflect accounting for most U.S. merchandise inventories on the last-in, first-out (LIFO) method. If all inventories had been valued using the first-in, first-out (FIFO) method, inventories would have been higher by $8,150 at September 3, 2000, and $11,150 at August 29, 1999.

    Selling, general and administrative expenses as a percent of net sales increased to 8.71% during fiscal 2000 from 8.67% during fiscal 1999, primarily reflecting higher expenses associated with international expansion, the rollout of certain ancillary businesses and an increase in credit card merchant fees associated with the rollout of a new co-branded credit card program which was partially offset by a year-over-year improvement in the Company's core warehouse operations driven by an increase in comparable warehouse sales and improvements within Central and Regional administrative offices.

    Preopening expenses totaled $42,321, or 0.13% of net sales, during fiscal 2000 and $31,007, or 0.11% of net sales, during fiscal 1999. During fiscal 2000, the Company opened 25 new warehouses compared to 21 new warehouses during fiscal 1999. Pre-opening expenses also include costs related to remodels, expanded fresh foods and ancillary operations at existing warehouses, as well as expanded international operations, and the opening of two new regional offices.

    The provision for impaired assets and closing costs was $7,000 in fiscal 2000 compared to $56,500 in fiscal 1999. The fiscal 2000 provision includes a charge of $10,956 for the impairment of long-lived assets, which was offset by $3,956 of gains on the sale of real property. The fiscal 1999 provision includes a charge of $31,080 for the impairment of long-lived assets and $30,865 for warehouse and other facility closing costs, which were offset by $5,445 of gains on the sale of real property. The provision for closing costs in fiscal 1999 includes $24,773 for future lease obligations and $6,092 for other expenses directly related to the closedown of warehouses and other facilities. At September 3, 2000, the reserve for closing costs was $11,762, of which $8,887 related to future lease obligations.

    Interest expense totaled $39,281 in fiscal 2000, and $45,527 in fiscal 1999. The decrease in interest expense is primarily due to an increase in capitalized interest related to construction projects and a decrease in the interest rate related to the 7.125% Senior Notes due to entering into a "fixed-to-floating" interest rate swap agreement in December 1999 that effectively converted the fixed rate of 7.125% to a floating rate indexed to the 30-day commercial paper rate. In August 2000, the swap agreement was amended to index the floating rate to the three-month LIBOR rate. Effective December 12, 2000, the Company terminated the swap agreement.

    Interest income and other totaled $54,226 in fiscal 2000 compared to $44,266 in fiscal 1999. The increase was primarily due to higher rates of interest earned on higher balances of cash and cash equivalents and short-term investments during fiscal 2000 as compared to fiscal 1999 and improved earnings from Costco Mexico; a 50% owned joint venture.

    The effective income tax rate on earnings was 40% in both fiscal 2000 and fiscal 1999.

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

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additional capital for international expansion 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 $1,000,000 to $1,150,000 during fiscal 2002 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, short-term borrowings under revolving credit facilities and other financing sources as required.

    Expansion plans for the United States and Canada during fiscal 2002 are to open approximately 34 to 36 new warehouse clubs, including six to seven relocations to larger and better-located warehouses. 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 80%-owned subsidiary, and one additional unit in Korea through its 96%-owned subsidiary. Other international markets are being assessed.

    Costco and its Mexico-based joint venture partner, Controladora Comercial Mexicana, each own a 50% interest in Costco Mexico. As of September 2, 2001, Costco Mexico operated 20 warehouses in Mexico and plans to open one or two new warehouse clubs during fiscal 2002.

Reorganization of Canadian Administrative Operations

    On January 17, 2001, the Company announced plans to reorganize and consolidate the administration of its operations in Canada. Anticipated costs related to the reorganization are estimated to total $26,000 pre-tax ($15,600 after-tax, or $.03 per diluted share), expensed as incurred in fiscal 2001 and to be incurred in the first quarter of fiscal 2002. During the current year the Company expensed $19,000 related to this reorganization and consolidation process and has reported this charge as part of the provision for impaired assets and closing costs.

Bank Credit Facilities and Commercial Paper Programs (all amounts stated in thousands of US dollars)

    The Company has in place a $500,000 commercial paper program supported by a $500,000 bank credit facility with a group of 10 banks, of which $250,000 expires on November 12, 2002 and $250,000 expires on November 15, 2005. At September 2, 2001, $194,000 was outstanding under the commercial paper program and no amounts were outstanding under the loan facility.

    In addition, a wholly owned Canadian subsidiary has a $129,000 commercial paper program supported by a $90,000 bank credit facility with three Canadian banks, which expires in March, 2002. At September 2, 2001, 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 $590,000 combined amounts of the respective supporting bank credit facilities.

    The Company's wholly-owned Japanese subsidiary has a short-term 3 billion Yen bank line of credit, equal to approximately $25,000, expiring in November 2002. At September 2, 2001, no amounts were outstanding under the line of credit.

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Letters of Credit

    The Company has separate letter of credit facilities (for commercial and standby letters of credit), totaling approximately $556,000. The outstanding commitments under these facilities at September 2, 2001 totaled approximately $127,000, including approximately $29,000 in standby letters of credit.

Financing Activities

    During April 2001, the Company retired its unsecured note payable to banks of $140,000 using cash provided from operations, cash and cash equivalents and short-term borrowings under its commercial paper program.

    In October 2000, the Company's wholly-owned Japanese subsidiary issued 2.070% promissory notes in the aggregate amount of 3.5 billion Yen, equal to $29,400, through a private placement. Interest is payable annually and principal is due on October 23, 2007.

    In July 2001, the Company's wholly-owned Japanese subsidiary issued 1.187% promissory notes in the aggregate amount of 3 billion Yen, equal to $25,200, through a private placement. Interest is payable semi-annually and principal is due on July 9, 2008.

    In February 1996, the Company filed with the Securities and Exchange Commission a shelf registration statement for $500,000 of senior debt securities. To date, no securities have been issued under this filing. On October 23, 2001, subsequent to fiscal 2001 year end, the Company filed with the Securities and Exchange Commission to offer up to an additional $100,000 in debt securities, bringing the total amount of debt securities registered under shelf registration to $600,000.

Derivatives

    The Company has limited involvement with derivative financial instruments and uses them 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 September 2, 2001 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 7.125% Senior Notes, replacing the fixed interest rate with a floating rate indexed to the 30-day commercial paper rate. On August 11, 2000, the swap agreement was amended to index the floating rate to the three-month LIBOR rate. Effective December 12, 2000, the Company terminated the swap agreement, resulting in a gain of approximately $5,000, the benefit of which is being amortized over the remaining term of the debt.

Financial Position and Cash Flows

    The Company was in a negative working capital position at September 2, 2001 of approximately $230,000, compared to a positive working capital position of approximately $66,000 at September 3, 2000. The decrease in net working capital of approximately $296,000 was primarily due to decreases in net inventory levels (inventories less accounts payable) of approximately $282,000 and increases in short term borrowings of approximately $185,000, offset by an increase in receivables of approximately $150,000.

    Net cash provided by operating activities totaled $1,032,563 in fiscal 2001 compared to $1,070,358 in fiscal 2000. The decrease in net cash from operating activities year-over-year is primarily a result of a 5% decrease in net income.

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    Net cash used in investing activities totaled $1,339,843 in fiscal 2001 compared to $1,045,664 in fiscal 2000. The investing activities primarily relate to additions to property and equipment for new and remodeled warehouses of $1,447,549 and $1,228,421 in fiscal 2001 and 2000, respectively. Property dispositions provided the Company with $110,002 in fiscal 2001 and $62,730 in the prior fiscal year. Net cash used in investing activities also reflects proceeds from sales of short-term investments of $41,599 and $208,959 during fiscal 2001 and fiscal 2000, respectively. Additionally, in fiscal 2001, no funds were used to acquire additional ownership in non-wholly owned subsidiaries, whereas in fiscal 2000 the Company purchased an additional 20% interest in Costco UK from Littlewoods Organisation PLC. The Company increased its investment in Costco Mexico, a 50% owned joint venture, by $28,500 in fiscal 2001. Costco Mexico operates 20 warehouses in Mexico.

    Net cash provided by financing activities totaled $394,345 in fiscal 2001 compared to $58,605 in fiscal 2000. The increase in financing activity for the current year relates to an increase in short-term borrowings (primarily through the Company's commercial paper program) of $185,942, an increase in bank checks outstanding of $216,661, net proceeds from long-term borrowings of $81,951 and proceeds from stock option exercises of $62,000, offset by retirement of long-term debt in the current fiscal year of $159,328. Included in this long-term debt retirement was the retirement of its $140,000 unsecured notes payable to banks in April 2001.

    The Company's balance sheet as of September 2, 2001 reflects a $1,455,846 or 17% increase in total assets since September 3, 2000. The increase is primarily due to a net increase in property and equipment and merchandise inventory related to the Company's expansion program.

Stock Repurchase Program (dollars in thousands except per share data)

    The Company's stock repurchase program, that was authorized by the Board of Directors to repurchase up to $500,000 of Costco Common Stock over a three-year period commencing on November 5, 1998, has expired. Under the program, the Company could repurchase shares from time to time in the open market or in private transactions as market conditions warranted. The repurchased shares would constitute authorized, but unissued shares and would be used for general corporate purposes including stock option grants under stock option programs. As of September 3, 2000, the Company had repurchased 3.13 million shares of common stock at an average price of $31.96 per share, totaling approximately $99,946 (excluding commissions). The Company did not acquire any additional shares under this program subsequent to fiscal 2000.

Membership Fee Increases

    Effective September 1, 2000, the Company increased annual membership fees for its Gold Star (individual), Business, and Business Add-on Members. These fee increases averaged approximately $5 per member across its member categories.

Recent Accounting Pronouncements

    During June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative and Hedging Activities, and in June 2000 the FASB issued SFAS 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of SFAS 133. These standards require companies to record derivative financial instruments on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the fair value of those derivatives would be accounted for based on the use of the derivative and whether the instrument qualified for hedge accounting, as defined in SFAS 133 and 138. The

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Company was required to adopt the provisions of SFAS 133 and 138 on September 4, 2000, the first day of fiscal 2001. The Company's use of derivative instruments was limited to the fixed-to-floating swap contract on its 7.125% Senior Notes, which was terminated on December 12, 2000, and foreign exchange contracts. The impact of the adoption of this accounting standard in fiscal 2001 was not material.

    In June 2001, the FASB issued SFAS No. 142, "Accounting for Goodwill and Other Intangibles", which specifies that goodwill and some intangible assets will no longer be amortized, but instead will be subject to periodic impairment testing. This pronouncement is effective for the Company beginning in fiscal 2003, but may be adopted in fiscal 2002. The Company is in the process of evaluating the financial statement impact of the adoption of SFAS No. 142.

    In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," effective for the Company on January 1, 2003. This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company is in the process of evaluating the financial statement impact of the adoption of SFAS No. 143.

    In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," effective for the Company on January 1, 2002. This Statement supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and other related accounting guidance. The Company is in the process of evaluating the financial statement impact of the adoption of SFAS No. 144.

Quantitative and Qualitative Disclosure of Market Risk

    The Company is exposed to financial market risk resulting from changes in interest and currency rates. As a policy, the Company does not engage in speculative or leveraged transactions, nor hold or issue financial instruments for trading purposes.

    The nature and amount of the Company's long and short-term debt can be expected to vary as a result of future business requirements, market conditions and other factors. As of September 2, 2001, all of the Company's debt is fixed rate. The Company's long-term debt includes its $851,877 principal amount at maturity Zero Coupon Subordinated Notes, Senior Notes with a principal amount of $300,000 and additional notes and capital lease obligations totaling $86,411. While fluctuations in interest rates may affect the fair value of this debt, interest expense will not be affected due to the fixed interest rate of the notes and capital lease obligations.

    The Company's short-term investments as of September 2, 2001 include corporate notes and bonds with maturities of less than sixty days. These investments are classified as available for sale. If interest rates were to increase or decrease immediately, it could have a material impact on the fair value of these investments. However, changes in interest rates would not likely have a material impact on interest income.

    Most foreign currency transactions have been conducted in local currencies, limiting the Company's exposure to changes in currency rates. The Company periodically enters into forward foreign exchange contracts to hedge the impact of fluctuations in foreign currency rates on inventory purchases. The foreign exchange contracts outstanding at September 2, 2001 were not material to the Company's results of operations or its financial position.

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Item 8—Financial Statements

    Financial statements of Costco are as follows:

Item 9—Change in and Disagreements with Accountants on Accounting and Financial Disclosure

    None.

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PART III

Item 10—Directors and Executive Officers of the Registrant

    For information with respect to the executive officers of the Registrant, see Item—4A "Executive Officers of the Registrant" at the end of Part I of this report. The information required by this Item concerning the Directors and nominees for Director of the Company is incorporated herein by reference to Costco's Proxy Statement for its Annual Meeting of Stockholders to be held on January 30, 2002 ("Proxy Statement"). The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the end of the Company's fiscal year.

Item 11—Executive Compensation

    The information required by this Item is incorporated herein by reference to Costco's Proxy Statement for its Annual Meeting of Stockholders to be held on January 30, 2002. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the end of the Company's fiscal year.

Item 12—Security Ownership of Certain Beneficial Owners and Management

    The information required by this Item is incorporated herein by reference to Costco's Proxy Statement for its Annual Meeting of Stockholders to be held on January 30, 2002. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the end of the Company's fiscal year.

Item 13—Certain Relationships and Related Transactions

    The information required by this Item is incorporated herein by reference to Costco's Proxy Statement for its Annual Meeting of Stockholders to be held on January 30, 2002. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the end of the Company's fiscal year.

PART IV

Item 14—Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)

Documents filed as part of this report are as follows:



1.

Financial Statements:

See listing of Financial Statements included as a part of this Form 10-K on Item 8 of Part II.

2.

Financial Statement Schedules—None.



3.

Exhibits:

The required exhibits are included at the end of the Form 10-K Annual Report and are described in the Exhibit Index immediately preceding the first exhibit.

(b)

Current reports on form 8-K filed—None.

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SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) 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.

November 15, 2001

    Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Costco Wholesale Corporation:

    We have audited the accompanying consolidated balance sheets of Costco Wholesale Corporation (a Washington corporation) and subsidiaries ("Costco") as of September 2, 2001 and September 3, 2000, and the related consolidated statements of income, stockholders' equity and cash flows for the 52 weeks ended September 2, 2001, the 53 weeks ended September 3, 2000 and the 52 weeks ended August 29, 1999. These financial statements are the responsibility of Costco's management. Our responsibility is to express an opinion on these financial statements 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 financial position of Costco as of September 2, 2001 and September 3, 2000, and the results of its operations and its cash flows for the 52 weeks ended September 2, 2001, the 53 weeks ended September 3, 2000 and the 52 weeks ended August 29, 1999, in conformity with accounting principles generally accepted in the United States.

    As explained in Note 1 to the consolidated financial statements, during the year ended August 29, 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.

/s/ARTHUR ANDERSEN LLP

Seattle, Washington
October 8, 2001

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COSTCO WHOLESALE CORPORATION

CONSOLIDATED BALANCE SHEETS
(dollars in thousands except par value)

The accompanying notes are an integral part of these financial statements.

25

COSTCO WHOLESALE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)

The accompanying notes are an integral part of these financial statements

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COSTCO WHOLESALE CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the 52 weeks ended September 2, 2001, the 53 weeks ended September 3, 2000 and the 52 weeks ended August 29, 1999
(in thousands)