Costco Wholesale Canada Ltd. & Costco Wholesale Corporation

Dino Galanis; Jack Alvo/416-593-5577 ext.2258, ext.2290/kgalanis@dbrs.com

Note: Commercial Paper rating based upon Costco Wholesale Corporation.

DBRS confirms the Commercial Paper and Corporate Ratings for Costco Wholesale Corporation (“Costco” or the “Company”) and Costco Wholesale Canada Ltd. as indicated above. The confirmations are based on the following considerations: (1) Costco has maintained its position as the dominant warehouse operator in the U.S. and Canada through expansion and same-warehouse sales growth. The Company is well-positioned to continue this growth as it expands and enhances its in-store ancillary offerings including photo development and pharmacies, as well as new concepts including Costco Home, which has exceeded expectations thus far. (2) Capital expenditure plans of about $1 billion during F2004 should be met using internally generated cash. (3) The Company’s strong financial profile is highlighted by its cash position of $1.8 billion, giving the Company a substantial degree of financial flexibility. This is further aided by a zero-dividend policy, lack of acquisitions, and self-funding working capital. Although the Company has the authorization to repurchase up to $500 million in shares until November 2004, DBRS expects it will not conduct any repurchases. (4) Costco’s interest income and equity earnings continue to exceed interest expense. (5) The contribution of foreign operations to profitability is increasing, and that trend should continue as additional stores are added and the existing base matures. Despite these strengths, Costco faces several key challenges including the following: (1) Competition in the retail industry remains intense, with over 950 warehouse club sites (including Sam’s Club and BJ’s Wholesale Club) across the U.S. As these banners expand, they are increasing market overlap, and many new locations are being opened in markets with an established incumbent. This may increase price competition or limit membership fee increases. (2) Margins have trended downward over the past several years as the result of increasing labour-related costs and large numbers of new warehouses, which initially cost more to run. Plans to reverse this trend include passing on some of the higher health care costs to employees, as well as sourcing more products directly from manufacturers.

Dominion Bond Rating Service Limited (DBRS) has published a full report that provides additional analytical detail.  To see this report, please click on http://www.dbrs.com/web/sentry?COMP=2900&DocId=134900.  If you do not have access to this document, please contact us at info@dbrs.com.