Costco 2006 Annual Report Download - page 7

industry. We are proud that they possess the skills, experience, and abilities to fully operate Costco
successfully for many years to come, and that an aggressive training program is in effect to mentor the
Company’s future leaders. Many of our executives have been with us for more than twenty years, and
some of them have worked together for nearly forty years in the retail industry. This year we added two
new members to our Executive Committee: Ginnie Roeglin, Senior Vice President of E-Commerce and
Publishing, and Louise Wendling, Senior Vice President and Country Manager of Canada.
We have assembled an outstanding team of warehouse managers, each of whom is directed to make
their highest priority the training and developing of new managers and leaders for the Company as we
prepare for expanded growth. It is very important to us that all of Costco’s employees have equal
opportunities for advancement and that our management teams reflect the diversity of the communities
in which we do business. Our turnover rate is the lowest in the retail industry, and we are grateful to
each of Costco’s 132,000 employees for their excellent work ethic, exceptional member service, and
loyalty to the Company.
During the third fiscal quarter Costco initiated an internal review of its historical stock option grant
practices to determine whether the stated grant dates of options were supported by the Company’s
books and records. The review determined that, in several instances, it was impossible to determine
with precision the appropriate measurement date for specific grants, but only a range of such dates.
Our practices did not meet the high standards to which we as a company are dedicated and which we
follow in every aspect of our business. For that, as well as the expense and distraction caused by the
inquiry, the Company apologizes to its shareholders. As previously disclosed, the Company has
recorded an adjustment to transfer $116.2 million from retained earnings to paid-in capital,
representing previously unrecorded after-tax compensation expense, and to increase the deferred tax
asset account by $31.5 million; and we have improved the controls concerning equity grants. We
believe that our actions have put this issue behind the Company, both from a financial statement and a
controls standpoint.
The successes of fiscal 2006 highlighted above only strengthen our resolve to continue our relentless
focus on our mission statement and code of ethics, which not only specify that we bring high quality
goods and services to market at the lowest possible prices every day, but that we do so with integrity at
every level of our company while valuing the interests of all of our stakeholders. It is this commitment
that has always set Costco apart and that will spur us onward successfully in the future. We recognize
that we have plenty of opportunities to improve every part of our business, and we assure you that we
will stay focused on that task.
On behalf of the entire Costco management team and all of our employees, we pledge to continue our
constant quest to turn challenges into opportunities and seek constructive ways to improve our existing
business while initiating new avenues for growth and success in the future. We are very positive and
excited about Costco’s ever-expanding potential, and we look forward to discussing our plans for the
future, as well as the Company’s fiscal 2006 results, with many of you at our upcoming Annual Meeting
of Shareholders on January 31, 2007 in Bellevue, Washington.
We appreciate the confidence you have placed in Costco and our management team, and we thank
you for your support as we prepare to enter the new year. We hope that 2007 will be a peaceful and
successful year for you and your loved ones. Best wishes for a joyous Holiday Season.
Warm Regards,
Jeff Brotman Jim Sinegal
Chairman of the Board President & CEO
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