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Due to its rapid expansion, Costco is the third largest cash and carry wholesale membe•=ship warehouse chain in terms of sales and number of units, after The Price Company and Sam's Wholesale Club (a division of Val -dart). However, the resulting pre -opening expenses led to Costco's reporting both operating and net losses in fiscal 1984 and 1985. Importantly, the company's aggressive strategy enabled it to become the dominant wholesale membership club operator in the Pacific Northwest and to establish a strong position in other markets. Moreover, despite pre -opening expense of $1.1 million, Costco reported both an operating and a net profit in the first quarter of fiscal 1986, one period sooner than management projected at the time of the initial public offering. For the full year of fiscal 1986 (ending August 31, 1986), we believe that Costco will report earnings per share of $0.30-to-0.45. Our estimate for fiscal 1987 (ending August 31, 1987) is $0.45-to-0.65 per share, representing a year -over -year gain of about 45%-to-50%. It is important to note that while the company is not expected to pay income taxes in fiscal 1986 (due to the utilization of tax loss Carryforwards), the fiscal 1987 figure assumes a normalized tax rate of 46%. If fiscal 1986 earnings were taxed at the same rate, our estimate would be $0.16-to-$0.24 per share, and the expected year -over -year change in fiscal 1987 would be about 180%-to-190%. With its warehouse base favorably maturing beyond 1987, Costco's earnings per share growth from 1986 through 1990 should approximate 30% annually, in our opinion. This assumes that the company may utilize external financing at some point in this timeframe. At the current price/earnings ratio of 42.0 on our estimate for fiscal 1986 and 28.6 on our estimate for fiscal 1987, we believe that the common stock of Costco is attractively valued, and we are assigning it an investment rating of Above Average (2) for both the intermediate and the long-term. Costco Wholesale Corporation made an initial public offering on November 27, 1985, with 3.2 million shares offered by the company and 1.0 million shares offered by selling shareholders. Subsequent to the offering, the underwriters' overallotment was exercised, adding 630,000 shares. The remaining stock is held by the company's executive officers and directors and by a number of institutional investors. The largest of these is Carrefour S. A., the largest French hypermarket (a discount retailing format) operator, which announced on February 3, 1986 that it was converting its $20 million, 11.5% convertible subordinated note into 2.7 million shares of Costco common stock. Subsequent to this conversion, Carrefour will held approximately 18% of Costco's shares. Therefore, only about 20% of the shares now outstanding are available for trading in the open market. In addition, the closely -held shares can control the election of directors. In our opinion, therefore, the shares of Costco are most suitable for accounts that can accept speculative risk. HISTORICAL INCOME STATEMENT ANALYSIS In its first year of operation subsequent to its incorporation in August 1983, Costco Wholesale Corporation reported total revenue of $102.385 million. Of this amount, net sales from warehouses of $101.006 million comprised 98.65%, while membership fees and other equalled $1.379 million or 1.35%. The quarterly sales pattern reflected the number of warehouses operating in each period; specifically, there were two units open at the end of the first quarter of fiscal 1984, four at the end of the second and the third quarters, and seven as of September 2, 1984. The gross margin for the year was a favorable 11.21%. However, the expenses associated with the company's 3