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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 3, 2023
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-20355
Costco Wholesale Corporation
(Exact name of registrant as specified in its charter)
Washington
91-1223280
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
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:
Title of each class Trading Symbol
Name of each exchange on
which registered
Common Stock, $.005 Par Value COST The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financials statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting stock held by non-affiliates of the registrant as of February 12, 2023 was $221,351,787,419.
The number of shares outstanding of the registrant’s common stock as of October 3, 2023, was 442,740,572.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on January 18, 2024, are incorporated by
reference into Part III of this Form 10-K.
Table of Contents
COSTCO WHOLESALE CORPORATION
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 3, 2023
TABLE OF CONTENTS
Page
PART I
Item 1. Business 3
Item 1A. Risk Factors 8
Item 1B. Unresolved Staff Comments 17
Item 2. Properties 17
Item 3. Legal Proceedings 18
Item 4. Mine Safety Disclosures 18
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities 18
Item 6. Reserved 19
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 28
Item 8. Financial Statements and Supplementary Data 30
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 60
Item 9A. Controls and Procedures 60
Item 9B. Other Information 61
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 61
PART III
Item 10. Directors, Executive Officers and Corporate Governance 61
Item 11. Executive Compensation 61
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 61
Item 13. Certain Relationships and Related Transactions, and Director Independence 61
Item 14. Principal Accounting Fees and Services 61
PART IV
Item 15. Exhibits, Financial Statement Schedules 62
Item 16. Form 10-K Summary 65
Signatures 66
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INFORMATION RELATING TO FORWARD LOOKING STATEMENTS
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 and may relate to such matters as net sales growth, changes in comparable
sales, cannibalization of existing locations by new openings, price or fee changes, earnings performance, earnings per share, stock-based
compensation expense, warehouse openings and closures, capital spending, the effect of adopting certain accounting standards, future financial
reporting, financing, margins, return on invested capital, strategic direction, expense controls, membership renewal rates, shopping frequency,
litigation, and the demand for our products and services. In some cases, forward-looking statements can be identified because they contain
words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “might,” “plan,” “potential,” “predict,”
“project,” “seek,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms. 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, including, without limitation, the factors set forth in the section titled “Item 1A-Risk Factors”, and other factors noted in the section
titled “Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations” and in the consolidated financial
statements and related notes in Item 8 of this Report. Forward-looking statements speak only as of the date they are made, and we do not
undertake to update these statements, except as required by law.
PART I
Item 1—Business
Costco Wholesale Corporation and its subsidiaries (Costco or the Company) began operations in 1983, in Seattle, Washington. We are
principally engaged in the operation of membership warehouses in the United States (U.S.) and Puerto Rico, Canada, Mexico, Japan, the United
Kingdom (U.K.), Korea, Australia, Taiwan, China, Spain, France, Iceland, New Zealand, and Sweden. Costco operated 861, 838, and 815
warehouses worldwide at September 3, 2023, August 28, 2022, and August 29, 2021. The Company operates e-commerce websites in the U.S.,
Canada, Mexico, the U.K., Korea, Taiwan, Japan, and Australia. Our common stock trades on the NASDAQ Global Select Market, under the
symbol “COST.”
We report on a 52/53-week fiscal year, consisting of thirteen four-week periods and ending on the Sunday nearest the end of August. The first
three 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). The material seasonal impact in our operations is increased net sales and earnings during the winter holiday season. References to 2023
relate to the 53-week fiscal year ended September 3, 2023. References to 2022 and 2021 relate to the 52-week fiscal years ended August 28,
2022, and August 29, 2021.
General
We operate membership warehouses and e-commerce websites based on the concept that offering our members low prices on a limited
selection of nationally-branded and private-label products in a wide range of categories will produce high sales volumes and 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, these volumes and turnover enable us to operate profitably at significantly lower gross
margins (net sales less merchandise costs) than most other retailers. We often sell inventory before we are required to pay for it, even while
taking advantage of early payment discounts.
We buy most of our merchandise directly from suppliers and route it to cross-docking consolidation points (depots) or directly to our warehouses.
Our depots receive large shipments from suppliers and quickly ship these goods to warehouses. This process creates freight volume and
handling efficiencies, lowering costs associated with traditional multiple-step distribution channels. Our e-commerce operations ship
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merchandise through our depots and logistics operations, as well as through drop-ship and other delivery arrangements with our suppliers.
Our average warehouse space is approximately 147,000 square feet, with newer units being slightly larger. Floor plans are designed for
economy and efficiency in the use of selling space, the handling of merchandise, and the control of inventory. Because shoppers are attracted
principally by the quality of merchandise and low prices, our warehouses are not elaborate. By strictly controlling the entrances and exits and
using a membership format, we believe our inventory losses (shrinkage) are well below those of typical retail operations.
Our warehouses on average operate on a seven-day, 70-hour week. Gasoline operations generally have extended hours. Because the hours of
operation are shorter than many other retailers, and due to other efficiencies inherent in a warehouse-type operation, 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, reducing labor required. In general, with variations by country, our warehouses accept certain credit cards, including Costco co-
branded cards, debit cards, cash and checks, Executive member 2% reward certificates, co-brand cardholder rebates, and our proprietary
stored-value card (shop card).
Our strategy is to provide our members with a broad range of high-quality merchandise at prices we believe are consistently lower than
elsewhere. We seek to limit most items to fast-selling models, sizes, and colors. We carry less than 4,000 active stock keeping units (SKUs) per
warehouse in our core warehouse business, significantly less than other broadline retailers. We average anywhere from 9,000 to 11,000 SKUs
online, some of which are also available in our warehouses. Many consumable products are offered for sale in case, carton, or multiple-pack
quantities only.
In keeping with our policy of member satisfaction, we generally accept returns of merchandise. On certain electronic items, we typically have a
90-day return policy and provide, free of charge, technical support services, as well as an extended warranty. Additional third-party warranty
coverage is sold on certain electronic items.
We offer merchandise and services in the following categories:
Core Merchandise Categories (or core business):
• Foods and Sundries (including sundries, dry grocery, candy, cooler, freezer, deli, liquor, and tobacco)
• Non-Foods (including major appliances, electronics, health and beauty aids, hardware, garden and patio, sporting goods, tires, toys and
seasonal, office supplies, automotive care, postage, tickets, apparel, small appliances, furniture, domestics, housewares, special order
kiosk, and jewelry)
• Fresh Foods (including meat, produce, service deli, and bakery)
Warehouse Ancillary (includes gasoline, pharmacy, optical, food court, hearing aids, and tire installation) and Other Businesses (includes e-
commerce , business centers , travel, and other)
Warehouse ancillary businesses operate primarily within or next to our warehouses, encouraging members to shop more frequently. The number
of warehouses with gas stations varies significantly by country, and we have no gasoline business in Korea, China, or Sweden. We operated 692
gas stations at the end of 2023. Our gasoline business represented approximately 13% of total net sales in 2023.
Our other businesses sell products and services that complement our warehouse operations (core and warehouse ancillary businesses). Our e-
commerce operations give members convenience and a broader selection of goods and services. Net sales for e-commerce represented
approximately 6% of total net sales in 2023. This figure does not include other services we offer online in certain countries such as business
delivery, travel, same-day grocery, and various other services. Our business centers carry items
E-commerce and business centers are allocated to the appropriate merchandise categories in the Net Sales portion of Item 7.
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tailored specifically for food services, convenience stores and offices, and offer walk-in shopping and deliveries. Business centers are included in
our total warehouse count. Costco Travel offers vacation packages, car rentals, cruises, hotels, and other travel products exclusively for Costco
members (offered in the U.S., Canada, and the U.K.).
We have direct buying relationships with many producers of brand-name merchandise. We do not obtain a significant portion of merchandise
from any one supplier. When sources of supply become unavailable, we seek alternatives. We also purchase and manufacture private-label
merchandise, as long as quality and member demand are high and the value to our members is significant.
Certain financial information for our segments and geographic areas is included in Note 11 to the consolidated financial statements included in
Item 8 of this Report.
Membership
Our members may utilize their memberships at all of our warehouses and websites. Gold Star memberships are available to individuals;
Business memberships are limited to businesses, including individuals with a business license, retail sales license, or comparable document.
Business members may add additional cardholders (affiliates), to which the same annual fee applies. Affiliates are not available for Gold Star
members. Our annual fee for these memberships is $60 in the U.S. and varies in other countries. All paid memberships include a free household
card.
Our member renewal rate was 92.7% in the U.S. and Canada and 90.4% worldwide at the end of 2023. The majority of members renew within
six months following their renewal date. Our renewal rate, which excludes affiliates of Business members, is a trailing calculation that captures
renewals during the period seven to eighteen months prior to the reporting date. Our membership counts include active memberships as well as
memberships that have not renewed within the 12 months prior to the reporting date.
Our membership was made up of the following (in thousands):
2023 2022 2021
Gold Star 58,800 54,000 50,200
Business, including affiliates 12,200 11,800 11,500
Total paid members 71,000 65,800 61,700
Household cards 56,900 53,100 49,900
Total cardholders
127,900 118,900 111,600
Paid cardholders (except affiliates) are eligible to upgrade to an Executive membership in the U.S., for an additional annual fee of $60. Executive
memberships are also available in Canada, Mexico, the U.K., Japan, Korea, Taiwan, and Australia, for which the additional fee varies. Executive
members earn a 2% reward on qualified purchases (generally up to a maximum reward of $1,000 per year), redeemable at Costco warehouses.
This program offers services that vary by state and country and provide access to additional savings and benefits on various business and
consumer services, such as auto and home insurance, the Costco auto purchase program, and check printing. Executive members totaled 32.3
million and represented 45.4% of paid members. The sales penetration of Executive members represented approximately 72.8% of worldwide
net sales in 2023.
Human Capital
Our Code of Ethics requires that we “Take Care of Our Employees,” which is fundamental to the obligation to “Take Care of Our Members.” We
must also carefully control our selling, general and administrative (SG&A) expenses, so that we can sell high quality goods and services at low
prices. Compensation and benefits for employees is our largest expense after the cost of merchandise and is carefully monitored.
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Employee Base
At the end of 2023, we employed 316,000 employees worldwide. Approximately 95% are employed in our membership warehouses and
distribution channels, and approximately 5% are represented by unions. We also utilize seasonal employees.
The total number of employees by segment was:
2023 2022 2021
United States 208,000 202,000 192,000
Canada 51,000 50,000 47,000
Other International 57,000 52,000 49,000
Total employees
316,000 304,000 288,000
Growth and Engagement
We believe that our warehouses are among the most productive in the retail industry, owing largely to the commitment and efficiency of our
employees. We seek to provide them not merely with employment but careers. Many attributes of our business contribute to the objective. The
more significant include: competitive compensation and benefits for those working in our membership warehouses and distributions channels; a
commitment to promoting from within; and a target ratio of at least 50% of our employee base being full-time employees. These attributes
contribute to what we consider, especially for the industry, a high retention rate. In 2023, in the U.S. that rate was approximately 90% for
employees who have been with us for at least one year.
Diversity, Equity and Inclusion
The commitment to “Take Care of Our Employees” is also the foundation of our approach to promoting diversity, equity and inclusion and
creating an inclusive and respectful workplace. We strive for an environment where all employees feel that they belong, are accepted, included,
respected and supported because of who they are. We demonstrate leadership commitment to equity through consistent communication,
employee development and education, support of diversity and inclusion initiatives within the organization, community involvement, and supplier
diversity. Costco continues its efforts to develop future leaders, including through the supervisor in training programs. In 2023, over 7,800 hourly
employees completed the 6-week course.
Well Being
Costco strives to provide our employees with competitive wages and excellent benefits. In March 2023, we increased the top of the wage scales
by 85 cents per hour in the U.S, Canada and Puerto Rico. In September of 2023, we increased the starting wage to at least $18.50 for all entry-
level positions in the U.S. We have also expanded our benefits in the U.S. to include additional mental health support for children and adults at
little to no cost to our employees. Costco is firmly committed to protecting the health and safety of our members and employees and to serving
our communities.
For more detailed information regarding our programs and initiatives, see “Employees” within our Sustainability Commitment (located on our
website). The Sustainability Commitment and other information on our website are not incorporated by reference into and do not form any part of
this Annual Report.
Competition
Our industry is highly competitive, based on factors such as price, merchandise quality and selection, location, convenience, distribution
strategy, and customer service. We compete on a worldwide basis with global, national, and regional wholesalers and retailers, including
supermarkets, supercenters, online
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retailers, gasoline stations, hard discounters, department and specialty stores, and operators selling a single category or narrow range of
merchandise. Walmart, Target, Kroger, and Amazon are among our significant general merchandise retail competitors in the U.S. We also
compete with other warehouse clubs, including Walmart’s Sam’s Club and BJ’s Wholesale Club in the U.S. Many of the major metropolitan areas
in the U.S. and certain of our Other International locations have multiple competing clubs.
Intellectual Property
We believe that, to varying degrees, our trademarks, trade names, copyrights, proprietary processes, trade secrets, trade dress, domain names
and similar intellectual property add significant value to our business and are important to our success. We have invested significantly in the
development and protection of our well-recognized brands, including the Costco Wholesale trademarks and our private-label brand, Kirkland
Signature. We believe that Kirkland Signature products are high quality, offered at prices that are generally lower than national brands, and help
lower costs, differentiate our merchandise offerings, and generally earn higher margins. We expect to continue to increase the sales penetration
of our private-label items.
We rely on trademark and copyright laws, trade-secret protection, and confidentiality, license and other agreements with our suppliers,
employees and others to protect our intellectual property. The availability and duration of trademark registrations vary by country; however,
trademarks are generally valid and may be renewed indefinitely as long as they are in use and registrations are maintained.
Available Information
Our U.S. website is www.costco.com. We make available through the Investor Relations section of that site, free of charge, our Annual Reports
on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and Forms 3, 4 and 5, and any amendments
to those reports, as soon as reasonably practicable after filing such materials with or furnishing such documents to the Securities and Exchange
Commission (SEC). The information found on our website is not part of this or any other report filed with or furnished to the SEC. The SEC
maintains a site that contains reports, proxy and information statements, and other information regarding issuers, such as the Company, that file
electronically with the SEC at www.sec.gov.
We have a code of ethics for senior financial officers, pursuant to Section 406 of the Sarbanes-Oxley Act. Copies of the code are available free
of charge by writing to Secretary, Costco Wholesale Corporation, 999 Lake Drive, Issaquah, WA 98027. If the Company makes any amendments
to this code (other than technical, administrative, or non-substantive amendments) or grants any waivers, including implicit waivers, to the Chief
Executive Officer, Chief Financial Officer or principal accounting officer and controller, we will disclose (on our website or in a Form 8-K report
filed with the SEC) the nature of the amendment or waiver, its effective date, and to whom it applies.
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Information about our Executive Officers
The executive officers of Costco, their position, and ages are listed below. All have over 25 years of service with the Company, with the
exception of Mr. Sullivan who has 22 years of service.
Name Position
Executive
Officer
Since Age
W. Craig Jelinek Chief Executive Officer. Mr. Jelinek has been a director since February 2010. Mr. Jelinek
previously was President and CEO from January 2012 to February 2022. He was President
and Chief Operating Officer from February 2010 to December 2011. Prior to that he was
Executive Vice President, Chief Operating Officer, Merchandising since 2004.
1995 71
Ron M. Vachris President and Chief Operating Officer. Mr. Vachris has been a director since February 2022.
Mr. Vachris previously served as Executive Vice President of Merchandising from June 2016
to January 2022, as Senior Vice President, Real Estate Development, from August 2015 to
June 2016, and Senior Vice President, General Manager, Northwest Region, from 2010 to
July 2015.
2016 58
Richard A. Galanti Executive Vice President and Chief Financial Officer. Mr. Galanti has been a director since
January 1995.
1993 67
Jim C. Klauer Executive Vice President, Chief Operating Officer, Northern Division. Mr. Klauer was Senior
Vice President, Non-Foods and E-commerce Merchandise, from 2013 to January 2018.
2018 61
Russ D. Miller Senior Executive Vice President, U.S. Operations. Mr. Miller was Executive Vice President,
Chief Operating Officer, Southwest Division and Mexico, from January 2018 to May 2022. Mr.
Miller was Senior Vice President, Western Canada Region, from 2001 to January 2018.
2018 66
Patrick J. Callans Executive Vice President, Administration. Mr. Callans was Senior Vice President, Human
Resources and Risk Management, from 2013 to December 2018.
2019 61
Yoram B. Rubanenko Executive Vice President, Chief Operating Officer, Eastern Division. Mr. Rubanenko was
Senior Vice President and General Manager, Southeast Region, from 2013 to September
2021, and Vice President, Regional Operations Manager for the Northeast Region, from 1998
to 2013.
2021 59
John Sullivan Executive Vice President, General Counsel & Corporate Secretary. Mr. Sullivan has been
General Counsel since 2016 and Corporate Secretary since 2010.
2021 63
Claudine E. Adamo Executive Vice President, Merchandising. Ms. Adamo was Senior Vice President, Non-Foods,
from 2018 to February 2022, and Vice President, Non-Foods, from 2013 to 2018.
2022 53
Caton Frates Executive Vice President, Chief Operating Officer, Southwest Division. Mr. Frates was Senior
Vice President, Los Angeles Region, from 2015 to May 2022.
2022 55
Pierre Riel Executive Vice President, Chief Operating Officer, International Division. Mr. Riel was Senior
Vice President, Country Manager, Canada, from 2019 to March 2022, and Senior Vice
President, Eastern Canada Region, from 2001 to 2019.
2022 60
Item 1A—Risk Factors
The risks described below could materially and adversely affect our business, financial condition and results of operations. We could also be
affected by additional risks that apply to all companies operating in the U.S. and globally, as well as other risks that are not presently known to us
or that we currently consider to be immaterial. These Risk Factors should be carefully reviewed in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations in Item 7 and our consolidated financial statements and related notes in Item 8 of
this Report.
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Business and Operating Risks
We are highly dependent on the financial performance of our U.S. and Canadian operations.
Our financial and operational performance is highly dependent on our U.S. and Canadian operations, which comprised 87% and 84% of net
sales and operating income in 2023. Within the U.S., we are highly dependent on our California operations, which comprised 27% of U.S. net
sales in 2023. Our California market, in general, has a larger percentage of higher volume warehouses as compared to our other domestic
markets. Any substantial slowing or sustained decline in these operations could materially adversely affect our business and financial results.
Declines in financial performance of our U.S. operations, particularly in California, and our Canadian operations could arise from, among other
things: slow growth or declines in comparable warehouse sales (comparable sales); negative trends in operating expenses, including increased
labor, healthcare and energy costs; failing to meet targets for warehouse openings; cannibalizing existing locations with new warehouses; shifts
in sales mix toward lower gross margin products; changes or uncertainties in economic conditions in our markets, including higher levels of
unemployment and depressed home values; and failing to consistently provide high quality and innovative new products.
We may be unsuccessful implementing our growth strategy, including expanding our business in existing markets and new markets,
and integrating acquisitions, which could have an adverse impact on our business, financial condition and results of operations.
Our growth is dependent, in part, on our ability to acquire property and build or lease new warehouses and depots. We compete with other
retailers and businesses for suitable locations. Local land use and other regulations restricting the construction and operation of our warehouses
and depots, as well as local community actions opposed to the location of our warehouses or depots at specific sites and the adoption of local
laws restricting our operations and environmental regulations, may impact our ability to find suitable locations and increase the cost of sites and
of constructing, leasing and operating warehouses and depots. We also may have difficulty negotiating leases or purchase agreements on
acceptable terms. In addition, certain jurisdictions have enacted or proposed laws and regulations that would prevent or restrict the operation or
expansion plans of certain large retailers and warehouse clubs, including us. Failure to effectively manage these and other similar factors may
affect our ability to timely build or lease and operate new warehouses and depots, which could have a material adverse effect on our future
growth and profitability.
We seek to expand in existing markets to attain a greater overall market share. A new warehouse may draw members away from our existing
warehouses and adversely affect their comparable sales performance, member traffic, and profitability.
We intend to continue to open warehouses in new markets. Associated risks include difficulties in attracting members due to a lack of familiarity
with us, attracting members of other wholesale club operators, our lesser familiarity with local member preferences, and seasonal differences in
the market. Entry into new markets may bring us into competition with new competitors or with existing competitors with a large, established
market presence. We cannot ensure that new warehouses and new e-commerce websites will be profitable and future profitability could be
delayed or otherwise materially adversely affected.
We have made and may continue to make investments and acquisitions to improve the speed, accuracy and efficiency of our supply chains and
delivery channels. The effectiveness of these investments can be less predictable than opening new locations and might not provide the
anticipated benefits or desired rates of return.
Our failure to maintain membership growth, loyalty and brand recognition could adversely affect our results of operations.
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Membership loyalty and growth are essential to our business. The extent to which we achieve growth in our membership base, increase the
penetration of Executive membership, and sustain high renewal rates materially influences our profitability. Damage to our brands or reputation
may negatively impact comparable sales, diminish member trust, and reduce renewal rates and, accordingly, net sales and membership fee
revenue, negatively impacting our results of operations.
We sell many products under our Kirkland Signature brand. Maintaining consistent product quality, competitive pricing, and availability of these
products is essential to developing and maintaining member loyalty. These products also generally carry higher margins than national brand
products and represent a growing portion of our overall sales. If the Kirkland Signature brand experiences a loss of member acceptance or
confidence, our sales and gross margin results could be adversely affected.
Disruptions in merchandise distribution or processing, packaging, manufacturing, and other facilities could adversely affect sales and
member satisfaction.
We depend on the orderly operation of the merchandise receiving and distribution process, primarily through our depots. We also rely upon
processing, packaging, manufacturing and other facilities to support our business, which includes the production of certain private-label items.
Although we believe that our operations are efficient, disruptions due to fires, tornadoes, hurricanes, earthquakes, pandemics or other extreme
weather conditions or catastrophic events, labor issues or other shipping problems may result in delays in the production and delivery of
merchandise to our warehouses, which could adversely affect sales and the satisfaction of our members. Our e-commerce operations depend
heavily on third-party and in-house logistics providers and is negatively affected when these providers are unable to provide services in a timely
fashion.
We may not timely identify or effectively respond to consumer trends, which could negatively affect our relationship with our
members, the demand for our products and services, and our market share.
It is difficult to consistently and successfully predict the products and services that our members will desire. Our success depends, in part, on our
ability to identify and respond to trends in demographics and consumer preferences. Failure to identify timely or effectively respond to changing
consumer tastes, preferences (including those relating to environmental, social and governance practices) and spending patterns could
negatively affect our relationship with our members, the demand for our products and services, and our market share. If we are not successful at
predicting our sales trends and adjusting our purchases accordingly, we may have excess inventory, which could result in additional markdowns,
or we may experience out-of-stock positions and delivery delays, which could result in higher costs, both of which would reduce our operating
performance. This could have an adverse effect on net sales, gross margin and operating income.
Availability and performance of our information technology (IT) systems are vital to our business. Failure to successfully execute IT
projects and have IT systems available to our business would adversely impact our operations.
IT systems play a crucial role in conducting our business. These systems are utilized to process a very high volume of transactions, conduct
payment transactions, track and value our inventory and produce reports critical for making business decisions. Failure or disruption of these
systems could have an adverse impact on our ability to buy products and services from our suppliers, produce goods in our manufacturing
plants, move the products in an efficient manner to our warehouses and sell products to our members. We are undertaking large technology and
IT transformation projects. The failure of these projects could adversely impact our business plans and potentially impair our day to day business
operations. Given the high volume of transactions we process, it is important that we build strong digital resiliency to prevent disruption from
events such as power outages, computer and telecommunications failures, viruses, internal or external security breaches, errors by employees,
and catastrophic events such as fires, earthquakes, tornadoes and hurricanes. Any debilitating failure of our critical IT systems,
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data centers and backup systems would require significant investments in resources to restore IT services and may cause serious impairment in
our business operations including loss of business services, increased cost of moving merchandise and failure to provide service to our
members. We are currently making substantial investments in maintaining and enhancing our digital resiliency and failure or delay in these
projects could be costly and harmful to our business. Failure to deliver IT transformation efforts efficiently and effectively could result in the loss
of our competitive position and adversely impact our financial condition and results of operations. Insufficient IT capacity could also impact our
capacity for timely, complete and accurate financial and non-financial reporting required by law.
We are required to maintain the privacy and security of personal and business information amidst multiplying threat landscapes and
in compliance with privacy and data protection regulations globally. Failure to do so could damage our business, including our
reputation with members, suppliers and employees, cause us to incur substantial additional costs, and become subject to litigation
and regulatory action.
Increased security threats and more sophisticated cyber misconduct pose a risk to our systems, networks, products and services. We rely upon
IT systems and networks, some of which are managed by or belong to third parties, including suppliers, partners, vendors, and service
providers. Additionally, we collect, store and process sensitive information relating to our business, members, employees, and other third parties.
Operating these IT systems and networks, and processing and maintaining this data, in a secure manner, is critical to our business operations
and strategy. Increased remote work has also increased the possible attack surfaces. Attempts to gain unauthorized access to systems,
networks and data, both ours and third parties with whom we work, are increasing in frequency and sophistication, and in some cases, these
attempts are successful. Cybersecurity attacks may range from random attempts to coordinated and targeted attacks, including sophisticated
computer crimes and advanced persistent threats. Phishing attacks have emerged as particularly prominent, including as vectors for
ransomware attacks, which have increased in breadth and frequency. While we train our employees as part of our security efforts, that training
cannot be completely effective. These threats pose a risk to the security of our systems and networks and the confidentiality, integrity, and
availability of our data. Our IT systems and networks, or those managed by third parties such as cloud providers or suppliers that otherwise host
or have access to confidential information, periodically have vulnerabilities, which may go unnoticed for a period of time. Our logging capabilities,
or the logging capabilities of third parties, are also not always complete or sufficiently detailed, affecting our ability to fully investigate and
understand the scope of security events. While our cybersecurity and compliance efforts seek to mitigate such risks, there can be no guarantee
that the actions and controls we and our third-party service providers have implemented and are implementing, will be sufficient to protect our
systems, information or other property.
The potential impacts of a cybersecurity attack include reputational damage, litigation, government enforcement actions, penalties, disruption to
systems and operations, unauthorized release of confidential or otherwise protected information, corruption of data, diminution in the value of our
investment in IT systems and increased cybersecurity protection and remediation costs. This could adversely affect our competitiveness, results
of operations and financial condition and, critically in light of our business model, loss of member confidence. Further, the insurance coverage we
maintain and indemnification arrangements with third parties may be inadequate to cover claims, costs, and liabilities relating to cybersecurity
incidents. In addition, data we collect, store and process is subject to a variety of U.S. and international laws and regulations, such as the
European Union's General Data Protection Regulation, California Consumer Privacy Act, Health Insurance Portability and Accountability Act, and
other privacy and cybersecurity laws across the various states and around the globe, which may carry significant potential penalties for
noncompliance.
We are subject to payment-related risks.
We accept payments using a variety of methods, including select credit and debit cards, cash and checks, co-brand cardholder rebates,
Executive member 2% reward certificates, and our shop card. As we offer
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new payment options to our members, we may be subject to additional rules, regulations, compliance requirements, and higher fraud losses. For
certain payment methods, we pay interchange and other related acceptance fees, along with additional transaction processing fees. We rely on
third parties to provide payment transaction processing services for credit and debit cards and our shop card. It could disrupt our business if
these parties become unwilling or unable to provide these services to us. We are also subject to fee increases by these service providers.
We must comply with evolving payment card association and network operating rules, including data security rules, certification requirements
and rules governing electronic funds transfers. For example, we are subject to Payment Card Industry Data Security Standards, which contain
compliance guidelines and standards with regard to our security surrounding the physical and electronic storage, processing and transmission of
individual cardholder data. If our internal systems are breached or compromised, we may be liable for card re-issuance costs, subject to fines
and higher transaction fees and lose our ability to accept card payments from our members, and our business and operating results could be
adversely affected. Our failure to offer payment methods desired by our members could create a competitive disadvantage.
We might sell products that cause illness or injury to our members, harm to our reputation, and expose us to litigation.
If our merchandise, including food and prepared food products for human consumption, drugs, children's products, pet products and durable
goods, do not meet or are perceived not to meet applicable safety or labeling standards or our members' expectations, we could experience lost
sales, increased costs, litigation or reputational harm. The sale of these items involves the risk of illness or injury to our members. Such illnesses
or injuries could result from tampering by unauthorized third parties, product contamination or spoilage, including the presence of foreign objects,
substances, chemicals, other agents, or residues introduced during the growing, manufacturing, storage, handling and transportation phases, or
faulty design. Our suppliers are generally contractually required to comply with product safety laws, and we are dependent on them to ensure
that the products we buy comply with safety and other standards. While we are subject to governmental inspection and regulations and work to
comply in all material respects with applicable laws and regulations, we cannot be sure that consumption or use of our products will not cause
illness or injury or that we will not be subject to claims, lawsuits, or government investigations relating to such matters, resulting in costly product
recalls and other liabilities that could adversely affect our business and results of operations. Even if a product liability claim is unsuccessful or is
not fully pursued, negative publicity could adversely affect our reputation with existing and potential members and our corporate and brand
image, and these effects could be long-term.
If we do not successfully develop and maintain a relevant omnichannel experience for our members, our results of operations could
be adversely impacted.
Omnichannel retailing is rapidly evolving, and we must keep pace with changing member expectations and new developments by our
competitors. Our members are increasingly using mobile phones, tablets, computers, and other devices to shop and to interact with us through
social media. We are making investments in our websites and mobile applications. If we are unable to make, improve, or develop relevant
member-facing technology in a timely manner, our ability to compete and our results of operations could be adversely affected.
Inability to attract, train and retain highly qualified employees could adversely impact our business, financial condition and results of
operations.
Our success depends on the continued contributions of our employees, including members of our senior management and other key operations,
IT, merchandising and administrative personnel. Failure to identify and implement a succession plan for senior management could negatively
impact our business. We must attract, train and retain a large and growing number of qualified employees, while controlling related labor costs
and maintaining our core values. Our ability to control labor and benefit costs is subject to
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numerous internal and external factors, including regulatory changes, prevailing wage rates, union relations and healthcare and other insurance
costs. We compete with other retail and non-retail businesses for these employees and invest significant resources in training and motivating
them. There is no assurance that we will be able to attract or retain highly qualified employees in the future, which could have a material adverse
effect on our business, financial condition and results of operations.
We may incur property, casualty or other losses not covered by our insurance.
Claims for employee health care benefits, workers’ compensation, general liability, property damage, directors’ and officers’ liability, vehicle
liability, inventory loss, and other exposures are funded predominantly through self-insurance. Insurance coverage is maintained for certain risks
to limit exposures arising from very large losses. The types and amounts of insurance may vary from time to time based on our decisions with
respect to risk retention and regulatory requirements. Significant claims or events, regulatory changes, a substantial rise in costs of health care
or costs to maintain our insurance or the failure to maintain adequate insurance coverage could have an adverse impact on our financial
condition and results of operations.
Although we maintain specific coverages for catastrophic property losses, we still bear a significant portion of the risk of losses incurred as a
result of any physical damage to, or the destruction of, any warehouses, depots, manufacturing or home office facilities, loss or spoilage of
inventory, and business interruption. Such losses could materially impact our cash flows and results of operations.
Market and Other External Risks
We face strong competition from other retailers and warehouse club operators, which could adversely affect our business, financial
condition and results of operations.
The retail business is highly competitive. We compete for members, employees, sites, products and services and in other important respects
with a wide range of local, regional and national wholesalers and retailers, both in the United States and in foreign countries, including other
warehouse-club operators, supermarkets, supercenters, online retailers, gasoline stations, hard discounters, department and specialty stores
and operators selling a single category or narrow range of merchandise. Such retailers and warehouse club operators compete vigorously and in
a variety of ways, including pricing, selection and availability, services, location, convenience, store hours, and the attractiveness and ease of
use of websites and mobile applications. The evolution of retailing in online and mobile channels has improved the ability of customers to
comparison shop, which has enhanced competition. Some competitors have greater financial resources and technology capabilities, better
access to merchandise, and greater market penetration than we do. Our inability to respond effectively to competitive pressures, changes in the
retail markets or customer expectations could result in lost market share and negatively affect our financial results.
General economic factors, domestically and internationally, may adversely affect our business, financial condition, and results of
operations.
Higher energy and gasoline costs, inflation, levels of unemployment, healthcare costs, consumer debt levels, foreign-currency exchange rates,
unsettled financial markets, weaknesses in housing and real estate markets, reduced consumer confidence, changes and uncertainties related
to government fiscal, monetary and tax policies including changes in interest rates, tax rates, duties, tariffs, or other restrictions, sovereign debt
crises, pandemics and other health crises, and other economic factors could adversely affect demand for our products and services, require a
change in product mix, or impact the cost of or ability to purchase inventory. Additionally, trade-related actions in various countries, particularly
China and the United States, have affected the costs of some of our merchandise. The degree of our exposure is dependent on (among other
things) the type of goods, rates imposed, and timing of the tariffs. The impact to our net sales and gross margin is influenced in part by our
merchandising and pricing strategies in response to potential cost increases. Higher tariffs could adversely impact our results.
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Prices of certain commodities, including gasoline and consumable goods used in manufacturing and our warehouse retail operations, are
historically volatile and are subject to fluctuations arising from changes in domestic and international supply and demand, inflationary pressures,
labor costs, competition, market speculation, government regulations, taxes and periodic delays in delivery. Rapid and significant changes in
commodity prices and our ability and desire to pass them through to our members may affect our sales and profit margins. These factors could
also increase our merchandise costs and selling, general and administrative expenses, and otherwise adversely affect our operations and
financial results. General economic conditions can also be affected by events like the outbreak of hostilities, including but not limited to the
Ukraine conflict, or acts of terrorism.
Inflationary factors such as increases in merchandise costs may adversely affect our business, financial condition and results of operations. We
may not be able to adjust prices to sufficiently offset the effect of cost increases without negatively impacting consumer demand.
Suppliers may be unable to timely supply us with quality merchandise at competitive prices or may fail to adhere to our high
standards, resulting in adverse effects on our business, merchandise inventories, sales, and profit margins.
We depend heavily on our ability to purchase quality merchandise in sufficient quantities at competitive prices. As the quantities we require
continue to grow, we have no assurances of continued supply, appropriate pricing or access to new products, and any supplier has the ability to
change the terms upon which they sell to us or discontinue selling to us. Member demands may lead to out-of-stock positions causing a loss of
sales and profits.
We buy from numerous domestic and foreign suppliers and importers. Our inability to acquire suitable merchandise on acceptable terms or the
loss of key suppliers could negatively affect us. We may not be able to develop relationships with new suppliers, and products from alternative
sources, if any, may be of a lesser quality or more expensive. Because of our efforts to adhere to high-quality standards for which available
supply may be limited, particularly for certain food items, the large volumes we demand may not be consistently available. Our efforts to secure
supply could lead to commitments that prove to be unsuccessful in the short and long-term.
Our suppliers (and those they depend upon for materials and services) are subject to risks, including labor disputes, union organizing activities,
financial liquidity, natural disasters, extreme weather conditions, public health emergencies, supply constraints and general economic and
political conditions and other risks similar to those we face that could limit their ability to timely provide us with acceptable merchandise. One or
more of our suppliers might not adhere to our quality control, packaging, legal, regulatory, labor, environmental or animal welfare standards.
These deficiencies may delay or preclude delivery of merchandise to us and might not be identified before we sell such merchandise to our
members. This failure could lead to recalls and litigation and otherwise damage our reputation and our brands, increase costs, and otherwise
adversely impact our business.
Fluctuations in foreign exchange rates may adversely affect our results of operations.
During 2023, our international operations, including Canada, generated 27% and 34% of our net sales and operating income. Our international
operations have accounted for an increasing portion of our warehouses, and we plan to continue international growth. To prepare our
consolidated financial statements, we translate the financial statements of our international operations from local currencies into U.S. dollars
using current exchange rates. Future fluctuations in exchange rates that are unfavorable to us may adversely affect the financial performance of
our Canadian and Other International operations and have a corresponding adverse period-over-period effect on our results of operations. As we
continue to expand internationally, our exposure to fluctuations in foreign exchange rates may increase.
A portion of the products we purchase is paid for in a currency other than the local currency of the country in which the goods are sold. Currency
fluctuations may increase our merchandise costs and may not be passed on to members and thus may adversely affect our results of
operations.
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Natural disasters, extreme weather conditions, or other catastrophic events could negatively affect our business, financial condition,
and results of operations.
Natural disasters and extreme weather conditions, including those impacted by climate change, such as hurricanes, typhoons, floods,
earthquakes, wildfires, droughts; acts of terrorism or violence, including active shooter situations; and energy shortages; particularly in California
or Washington state, where our centralized operating systems and administrative personnel are located, could negatively affect our operations
and financial performance. Such events could result in physical damage to our properties, limitations on store operating hours, less frequent
visits by members to physical locations, the temporary closure of warehouses, depots, manufacturing or home office facilities, the temporary lack
of an adequate work force, disruptions to our IT systems, the temporary or long-term disruption in the supply of products from some local or
overseas suppliers, the temporary disruption in the transport of goods to or from overseas, delays in the delivery of goods to our warehouses or
depots, and the temporary reduction in the availability of products in our warehouses. These events could also reduce demand for our products
or make it difficult or impossible to procure products. We may be required to suspend operations in some or all of our locations, which could
have a material adverse effect on our business, financial condition and results of operations.
Pandemics and other health crises, including COVID-19, could affect our business, financial condition and results of operations in
many respects.
The emergence, severity, magnitude and duration of global or regional health crises are uncertain and difficult to predict. A pandemic, such as
COVID-19, could affect certain business operations, demand for our products and services, in-stock positions, costs of doing business,
availability of labor, access to inventory, supply chain operations, our ability to predict future performance, exposure to litigation, and our financial
performance, among other things. Other factors and uncertainties include, but are not limited to:
• The severity and duration of pandemics;
• Evolving macroeconomic factors, including general economic uncertainty, unemployment rates, and recessionary pressures;
• Changes in labor markets affecting us and our suppliers;
• Unknown consequences on our business performance and initiatives stemming from the substantial investment of time and other
resources to the pandemic response;
• The pace of post-pandemic recovery;
• The long-term impact of the pandemic on our business, including consumer behaviors; and
• Disruption and volatility within the financial and credit markets.
Factors associated with climate change could adversely affect our business.
We use natural gas, diesel fuel, gasoline, and electricity in our distribution and warehouse operations. Government regulations limiting carbon
dioxide and other greenhouse gas emissions and other environmental restrictions may increase compliance and merchandise costs, and other
regulation affecting energy inputs could materially affect our profitability. As the economy transitions to lower carbon intensity we cannot
guarantee that we will make adequate investments or successfully implement strategies that will effectively achieve our climate-related goals,
which could lead to negative perceptions among members and other stakeholders and result in reputational harm. Climate change, extreme
weather conditions, wildfires, droughts and rising sea levels could affect our ability to procure commodities at costs and in quantities we currently
experience.
We also sell a substantial amount of gasoline, the demand for which could be impacted by concerns about climate change and increased
regulations. More stringent fuel economy standards, changing public policies aimed at increasing the adoption of zero-emission and alternative
fuel vehicles and other regulations related to climate change, and evolving consumer preferences will affect our future operations and will
adversely impact certain elements of our profitability and require significant capital expenditures.
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Failure to meet financial market expectations could adversely affect the market price and volatility of our stock.
We believe that the price of our stock currently reflects high market expectations for our future operating results. Any failure to meet or delay in
meeting these expectations, including our warehouse and e-commerce comparable sales growth rates, membership renewal rates, new member
sign-ups, gross margin, earnings, earnings per share, new warehouse openings, or dividend or stock repurchase policies could cause the price
of our stock to decline.
Legal and Regulatory Risks
We are subject to risks associated with the legislative, judicial, accounting, regulatory, political and economic factors specific to the
countries or regions in which we operate, which could adversely affect our business, financial condition and results of operations.
At the end of 2023, we operated 270 warehouses outside of the U.S. (31% of all warehouse locations), and we plan to continue expanding our
international operations. Future operating results internationally could be negatively affected by a variety of factors, many similar to those we
face in the U.S., certain of which are beyond our control. These factors include political and economic conditions, regulatory constraints,
currency regulations, policy changes, and other matters in any of the countries or regions in which we operate, now or in the future. Other factors
that may impact international operations include foreign trade (including tariffs and trade sanctions), monetary and fiscal policies and the laws
and regulations of the U.S. and foreign governments, agencies and similar organizations, and risks associated with having major facilities in
locations which have been historically less stable than the U.S. Risks inherent in international operations also include, among others, the costs
and difficulties of managing international operations, adverse tax consequences, and difficulty in enforcing intellectual property rights. New
reporting obligations globally are increasing the cost and complexity of doing business.
Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex
accounting matters could significantly affect our financial condition and results of operations.
Accounting principles and related pronouncements, implementation guidelines, and interpretations we apply to a wide range of matters that are
relevant to our business, including self-insurance liabilities, are highly complex and involve subjective assumptions, estimates and judgments by
our management. Changes in rules or interpretation or changes in underlying assumptions, estimates or judgments by our management could
significantly change our reported or expected financial performance and have a material impact on our consolidated financial statements.
We are exposed to risks relating to evaluations of controls required by Section 404 of the Sarbanes-Oxley Act and otherwise.
Section 404 of the Sarbanes-Oxley Act of 2002 requires management assessments of the effectiveness of internal control over financial
reporting and disclosure controls and procedures. If we are unable to maintain effective internal control over financial reporting or disclosure
controls and procedures, our ability to record, process and report financial information accurately and to prepare financial statements within
required time periods could be adversely affected, which could subject us to litigation or investigations requiring management resources and
payment of legal and other expenses, negatively affect investor confidence in our financial statements and adversely impact our stock price.
Uncertainties around our developing systems concerning controls for non-financial reporting also create risks.
Changes in tax rates, new U.S. or foreign tax legislation, and exposure to additional tax liabilities could adversely affect our financial
condition and results of operations.
We are subject to a variety of taxes and tax collection and remittance obligations in the U.S. and numerous foreign jurisdictions. Additionally, at
any point in time, we may be under examination for value
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added, sales-based, payroll, product, import or other non-income taxes. We may recognize additional tax expense, be subject to additional tax
liabilities, or incur losses and penalties, due to changes in laws, regulations, administrative practices, principles, assessments by authorities and
interpretations related to tax, including tax rules in various jurisdictions. We compute our income tax provision based on enacted tax rates in the
countries in which we operate. As tax rates vary among countries, a change in earnings attributable to the various jurisdictions in which we
operate could result in an unfavorable change in our overall tax provision. Additionally, changes in the enacted tax rates or adverse outcomes in
tax audits, including transfer pricing disputes, could have a material adverse effect on our financial condition and results of operations.
Changes in or failure to comply with regulations relating to the use, storage, discharge and disposal of hazardous materials,
hazardous and non-hazardous wastes and other environmental matters (such as recycling and extended producer responsibility
requirements) could adversely impact our business, financial condition and results of operations.
We are subject to a wide and increasingly broad array of federal, state, regional, local and international laws and regulations relating to the use,
storage, discharge and disposal of hazardous materials, hazardous and non-hazardous wastes and other environmental matters. Failure to
comply with these laws could result in harm to our members, employees or others, significant costs to satisfy environmental compliance,
remediation or compensatory requirements, or the imposition of severe penalties or restrictions on operations by governmental agencies or
courts that could adversely affect our business, financial condition and results of operations.
Operations at our facilities require the treatment and disposal of wastewater, stormwater and agricultural and food processing wastes, the use
and maintenance of refrigeration systems, including ammonia-based chillers, noise, odor and dust management, the operation of mechanized
processing equipment, and other operations that potentially could affect the environment and public health and safety. Failure to comply with
current and future environmental, health and safety standards could result in the imposition of fines and penalties, illness or injury of our
employees, and claims or lawsuits related to such illnesses or injuries, and temporary closures or limits on the operations of facilities.
We are involved in a number of legal proceedings and audits and some of these outcomes could adversely affect our business,
financial condition and results of operations.
Our business requires compliance with many laws and regulations. Failure to achieve compliance could subject us to lawsuits and other
proceedings and lead to damage awards, fines, penalties, and remediation costs. We are or may become involved in a number of legal
proceedings and audits, including grand jury investigations, government and agency investigations, and consumer, employment, tort, unclaimed
property laws, and other litigation. We cannot predict with certainty the outcomes of these proceedings and other contingencies, including
environmental remediation and other proceedings commenced by governmental authorities. The outcome of some of these proceedings, audits,
unclaimed property laws, and other contingencies could require us to take, or refrain from taking, actions which could negatively affect our
operations or could require us to pay substantial amounts of money, adversely affecting our financial condition and results of operations.
Additionally, defending against these lawsuits and proceedings may involve significant expense and diversion of management's attention and
resources.
Item 1B—Unresolved Staff Comments
None.
Item 2—Properties
Warehouse Properties
At September 3, 2023, we operated 861 membership warehouses:
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Own Land
and Building
Lease Land
and/or
Building Total
United States and Puerto Rico 477 114 591
Canada 90 17 107
Other International 110 53 163
Total
677 184 861
_______________
(1) 132 of the 184 leases are land-only leases, where Costco owns the building.
At the end of 2023, our warehouses contained approximately 126.3 million square feet of operating floor space: 87.6 million in the U.S.; 15.3
million in Canada; and 23.4 million in Other International. Total square feet associated with distribution and logistics facilities were approximately
33.1 million. Additionally, we operate various processing, packaging, manufacturing and other facilities to support our business, which includes
the production of certain private-label items.
Item 3—Legal Proceedings
See discussion of Legal Proceedings in Note 10 to the consolidated financial statements included in Item 8 of this Report.
Item 4—Mine Safety Disclosures
Not applicable.
PART II
Item 5—Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information and Dividend Policy
Our common stock is traded on the NASDAQ Global Select Market under the symbol “COST.” On October 3, 2023, we had 10,331 stockholders
of record.
Payment of dividends is subject to declaration by the Board of Directors. Factors considered in determining dividends include our profitability and
expected capital needs. Subject to these qualifications, we presently expect to continue to pay dividends on a quarterly basis.
Issuer Purchases of Equity Securities
The following table sets forth information on our common stock repurchase activity for the fourth quarter of 2023 (dollars in millions, except per
share data):
Period
Total Number of
Shares Purchased
Average Price Paid
per Share
Total Number of Shares
Purchased as Part of Publicly
Announced Program
Maximum Dollar Value
of Shares that May Yet
be Purchased under the
Program
May 8—June 4, 2023 107,000 $ 498.28 107,000 $ 3,740
June 5—July 2, 2023 102,000 523.05 102,000 3,687
July 3—July 30, 2023 97,000 548.20 97,000 3,634
July 31—September 3, 2023
127,000 550.58 127,000
3,563
Total fourth quarter
433,000 $ 530.67 433,000
_______________
(1) The repurchase program is conducted under a $4,000 authorization approved by our Board of Directors in January 2023, which expires in January 2027. This authorization
revoked previously authorized but unused amounts, totaling $2,568.
(1)
(1)
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Performance Graph
The following graph compares the cumulative total shareholder return assuming reinvestment of dividends on an investment of $100 in Costco
common stock, S&P 500 Index, S&P Retail Select Index, and the previously selected S&P 500 Retail Index over the five years from
September 2, 2018, through September 3, 2023. The S&P Retail Select Index will prospectively replace in the graph the S&P 500 Retail Index to
show a broader representation of industry performance and a broader index of peers.
The following graph provides information concerning average sales per warehouse over a 10-year period.
Average Sales Per Warehouse*
(Sales In Millions)
Year Opened # of Whses
2023 23 $ 151
2022 23 $ 150 158
2021 20 $ 140 158 172
2020 13 $ 132 152 184 193
2019 20 $ 129 138 172 208 216
2018 21 $ 116 119 141 172 202 214
2017 26 $ 121 142 158 176 206 237 247
2016 29 $ 87 97 118 131 145 173 204 212
2015 23 $ 83 85 94 112 122 136 163 189 199
2014 & Before 663 $ 164 165 165 170 184 191 201 228 259 268
Totals 861 $ 164 $ 162 $ 159 $ 163 $ 176 $ 182 $ 192 $ 217 $ 245 $ 252
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Fiscal Year
*First year sales annualized.
2017 and 2023 were 53-week fiscal years but have been normalized for purposes of comparability
Item 6—Reserved
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Item 7—Management's Discussion and Analysis of Financial Conditions and Results of Operations (amounts in millions, except per
share, share, membership fee, and warehouse count data)
The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to promote
understanding of the results of operations and financial condition. MD&A is provided as a supplement to, and should be read in conjunction with,
our consolidated financial statements and the accompanying Notes to Financial Statements (Part II, Item 8 of this Form 10-K). This section
generally discusses the results of operations for 2023 compared to 2022. For discussion related to the results of operations and changes in
financial condition for 2022 compared to 2021 refer to Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operations in our fiscal year 2022 Form 10-K, which was filed with the United States Securities and Exchange Commission (SEC) on October
5, 2022.
Overview
We believe that the most important driver of our profitability is increasing net sales, particularly comparable sales. Net sales includes our core
merchandise categories (foods and sundries, non-foods, and fresh foods), warehouse ancillary (gasoline, pharmacy, optical, food court, hearing
aids, and tire installation) and other businesses (e-commerce, business centers, travel and other). Comparable sales is defined as net sales from
warehouses open for more than one year, including remodels, relocations and expansions, and sales related to e-commerce websites operating
for more than one year. The measure is intended as supplemental information and is not a substitute for net sales presented in accordance with
U.S. generally accepted accounting principles (U.S. GAAP). Comparable sales growth is achieved through increasing shopping frequency from
new and existing members and the amount they spend on each visit (average ticket). Sales comparisons can also be particularly influenced by
certain factors that are beyond our control: fluctuations in currency exchange rates (with respect to our international operations); inflation or
deflation and changes in the cost of gasoline and associated competitive conditions. The higher our comparable sales exclusive of these items,
the more we can leverage our SG&A expenses, reducing them as a percentage of sales and enhancing profitability. Generating comparable
sales growth is foremost a question of making available to our members the right merchandise at the right prices, a skill that we believe we have
repeatedly demonstrated over the long-term. Another substantial factor in net sales growth is the health of the economies in which we do
business, including the effects of inflation or deflation, especially the United States. Net sales growth and gross margins are also impacted by
our competition, which is vigorous and widespread, across a wide range of global, national and regional wholesalers and retailers, including
those with e-commerce operations. While we cannot control or reliably predict general economic health or changes in competition, we believe
that we have been successful historically in adapting our business to these changes, such as through adjustments to our pricing and
merchandise mix, including increasing the penetration of our private-label items, and through online offerings.
Our philosophy is to provide our members with quality goods and services at competitive prices. We do not focus in the short-term on
maximizing prices charged, but instead seek to maintain what we believe is a perception among our members of our “pricing authority” –
consistently providing the most competitive values. Merchandise costs in 2023 continued to be impacted by inflation, however at a lower rate
than what we experienced in 2022. The impact to our net sales and gross margin is influenced in part by our merchandising and pricing
strategies in response to cost increases. Those strategies can include, but are not limited to, working with our suppliers to share in absorbing
cost increases, earlier-than-usual purchasing and in greater volumes, as well as passing cost increases on to our members. Our investments in
merchandise pricing may include reducing prices on merchandise to drive sales or meet competition and holding prices steady despite cost
increases instead of passing the increases on to our members, all negatively impacting gross margin and gross margin as a percentage of net
sales (gross margin percentage).
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We believe our gasoline business enhances traffic in our warehouses, but it generally has a lower gross margin percentage and lower SG&A
expense, relative to our non-gasoline businesses. A higher penetration of gasoline sales will generally lower our gross margin percentage.
Rapidly changing gasoline prices may significantly impact our near-term net sales growth. Generally, rising gasoline prices benefit net sales
growth which, given the higher sales base, negatively impacts our gross margin percentage but decreases our SG&A expenses as a percentage
of net sales. A decline in gasoline prices has the inverse effect.
Government actions in various countries relating to tariffs, particularly China and the United States, have affected the costs of some of our
merchandise. The degree of our exposure is dependent on (among other things) the type of goods, rates imposed, and timing of the tariffs.
Higher tariffs could adversely impact our results.
We also achieve net sales growth by opening new warehouses. As our warehouse base grows, available and desirable sites become more
difficult to secure, and square footage growth becomes a comparatively less substantial component of growth. The negative aspects of such
growth, however, including lower initial operating profitability relative to existing warehouses and cannibalization of sales at existing warehouses
when openings occur in existing markets, are continuing to decline in significance as they relate to the results of our total operations. Our rate of
square footage growth is generally higher in foreign markets, due to the smaller base in those markets, and we expect that to continue. Our e-
commerce business, domestically and internationally, generally has a lower gross margin percentage than our warehouse operations.
The membership format is an integral part of our business and has a significant effect on our profitability. This format is designed to reinforce
member loyalty and provide continuing fee revenue. The extent to which we achieve growth in our membership base, increase the penetration of
our Executive members, and sustain high renewal rates materially influences our profitability. Our paid-membership growth rate may be
adversely impacted when warehouse openings occur in existing markets as compared to new markets.
Our financial performance depends heavily on controlling costs. While we believe that we have achieved successes in this area, some significant
costs are partially outside our control, particularly health care and utility expenses. With respect to the compensation of our employees, our
philosophy is not to seek to minimize their wages and benefits. Rather, we believe that achieving our longer-term objectives of reducing
employee turnover and enhancing employee satisfaction requires maintaining compensation levels that are better than the industry average for
much of our workforce. This may cause us, for example, to absorb costs that other employers might seek to pass through to their workforces.
Because our business operates on very low margins, modest changes in various items in the consolidated statements of income, particularly
merchandise costs and SG&A expenses, can have substantial impacts on net income.
Our operating model is generally the same across our U.S., Canadian, and Other International operating segments (see Note 11 to the
consolidated financial statements included in Item 8 of this Report). Certain operations in the Other International segment have relatively higher
rates of square footage growth, lower wage and benefit costs as a percentage of sales, less or no direct membership warehouse competition, or
lack e-commerce or business delivery.
In discussions of our consolidated operating results, we refer to the impact of changes in foreign currencies relative to the U.S. dollar, which are
differences between the foreign-exchange rates we use to convert the financial results of our international operations from local currencies into
U.S. dollars. This impact of foreign-exchange rate changes is calculated based on the difference between the current and prior period's currency
exchange rates. The impact of changes in gasoline prices on net sales is calculated based on the difference between the current and prior
period's average price per gallon sold. Results expressed excluding the impacts of foreign exchange and gasoline prices should be reviewed in
conjunction with results reported in accordance with U.S. GAAP.
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Our fiscal year ends on the Sunday closest to August 31. References to 2023 relate to the 53-week fiscal year ended September 3, 2023.
References to 2022 and 2021 relate to the 52-week fiscal years ended August 28, 2022, and August 29, 2021. Certain percentages presented
are calculated using actual results prior to rounding. Unless otherwise noted, references to net income relate to net income attributable to
Costco.
Highlights for 2023 versus 2022 include:
• We opened 26 new warehouses, including three relocations: 13 net new in the U.S. and 10 new in our Other International segment. We
opened the same number of new warehouses, including relocations, in 2022;
• Net sales increased 7% to $237,710, driven by a 3% increase in comparable sales, sales at new warehouses opened in 2022 and 2023,
and the benefit of one additional week of sales in 2023;
• Membership fee revenue increased 8% to $4,580, driven by new member sign-ups, upgrades to Executive membership, and one additional
week of membership fees in 2023;
• Gross margin percentage increased nine basis points, driven primarily by a smaller LIFO charge in 2023 compared to 2022 and our core
merchandise categories. This was partially offset by charges of $391, predominantly related to the discontinuation of our charter shipping
activities;
• SG&A expenses as a percentage of net sales increased 20 basis points, due to increased costs in warehouse operations and other
businesses, primarily wage increases effective in March and July 2022, and March 2023, as well as lower sales growth;
• The effective tax rate in 2023 was 25.9%, compared to 24.6% in 2022;
• Net income increased 8% to $6,292, or $14.16 per diluted share compared to $5,844, or $13.14 per diluted share in 2022;
• In January 2023, the Board of Directors authorized a new share repurchase program in the amount of $4,000; and
• In April 2023, the Board of Directors approved a 13% increase in the quarterly cash dividend.
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RESULTS OF OPERATIONS
Net Sales
2023 2022 2021
Net Sales $ 237,710 $ 222,730 $ 192,052
Changes in net sales:
U.S. 7 % 17 % 16 %
Canada 4 % 16 % 22 %
Other International 9 % 10 % 23 %
Total Company 7 % 16 % 18 %
Changes in comparable sales:
U.S. 3 % 16 % 15 %
Canada 2 % 15 % 20 %
Other International 3 % 7 % 19 %
Total Company 3 % 14 % 16 %
E-commerce (6)% 10 % 44 %
Changes in comparable sales excluding the impact of changes in foreign-
currency and gasoline prices:
U.S. 4 % 10 % 14 %
Canada 8 % 12 % 12 %
Other International 8 % 10 % 13 %
Total Company 5 % 11 % 13 %
E-commerce (5)% 10 % 43 %
Net Sales
Net sales increased $14,980 or 7% during 2023. The improvement was attributable to an increase in comparable sales of 3%, sales at new
warehouses opened in 2022 and 2023, and one additional week of sales in 2023. Sales increased $12,761, or 7% in core merchandise
categories, led by foods and sundries and fresh foods; while non-foods decreased. Sales increased $2,219, or 5% in warehouse ancillary and
other businesses, led by pharmacy, food court, and travel.
During 2023, changes in foreign currencies relative to the U.S. dollar negatively impacted net sales by approximately $3,484, 156 basis points,
compared to 2022, attributable to our Canadian and Other International operations. The volume of gasoline sold increased approximately 7%,
positively impacting net sales by $2,148, or 96 basis points. Lower gasoline prices negatively impacted net sales by $1,592, or 71 basis points,
compared to 2022, with a 6% decrease in the average price per gallon.
Comparable Sales
Comparable sales increased 3% during 2023 and were positively impacted by increases in shopping frequency, partially offset by a decrease in
average ticket.
Membership Fees
2023 2022 2021
Membership fees $ 4,580 $ 4,224 $ 3,877
Membership fees increase 8 % 9 % 9 %
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Membership fee revenue increased 8% in 2023, driven by new member sign-ups, upgrades to Executive membership, and the benefit of an
additional week. Changes in foreign currencies relative to the U.S. dollar negatively impacted membership fees by $76 compared to 2022. At the
end of 2023, our member renewal rates were 92.7% in the U.S. and Canada and 90.4% worldwide. More members auto renewing and higher
penetration of Executive members benefit renewal rates. Our renewal rate, which excludes affiliates of Business members, is a trailing
calculation that captures renewals during the period seven to eighteen months prior to the reporting date.
We account for membership fee revenue on a deferred basis, recognized ratably over the one-year membership period.
Gross Margin
2023 2022 2021
Net sales
$ 237,710 $ 222,730 $ 192,052
Less merchandise costs 212,586 199,382 170,684
Gross margin
$ 25,124 $ 23,348 $ 21,368
Gross margin percentage 10.57 % 10.48 % 11.13 %
Gross margin percentage increased nine basis points compared to 2022. Excluding the impact of gasoline price deflation on net sales, gross
margin was 10.50%, an increase of two basis points. This two basis point increase was positively impacted by: 18 basis points due to a smaller
LIFO charge in 2023 compared to 2022, and seven basis points due to core merchandise categories, predominantly foods and sundries. These
were offset by: 16 basis points due to the downsizing and then discontinuation of our charter shipping activities; four basis points due to
increased 2% rewards; and three basis points due to warehouse ancillary and other businesses, predominantly e-commerce, partially offset by
gasoline and business centers. Changes in foreign currencies relative to the U.S. dollar negatively impacted gross margin by approximately
$349, compared to 2022, attributable to our Canadian and Other International Operations.
The gross margin in core merchandise categories, when expressed as a percentage of core merchandise sales (rather than total net sales),
increased two basis points, driven by foods and sundries and non-foods, partially offset by fresh foods. This measure eliminates the impact of
changes in sales penetration and gross margins from our warehouse ancillary and other businesses.
Gross margin on a segment basis, when expressed as a percentage of the segment's own sales and excluding the impact of changes in
gasoline prices on net sales (segment gross margin percentage), increased in our U.S. segment, due to a smaller LIFO charge and increases in
core merchandise categories, primarily foods and sundries, partially offset by the charges related to the discontinuation of our charter shipping
activities discussed above and warehouse ancillary and other businesses. Gross margin percentage increased in our Canada segment,
attributable to increases in core merchandise categories and warehouse ancillary and other businesses. Our Other International gross margin
percentage decreased, largely due to decreases in core merchandise categories, partially offset by warehouse ancillary and other businesses.
All segments were negatively impacted by increased 2% rewards.
Selling, General and Administrative Expenses
2023 2022 2021
SG&A expenses
$ 21,590 $ 19,779 $ 18,537
SG&A expenses as a percentage of net sales 9.08 % 8.88 % 9.65 %
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SG&A expenses as a percentage of net sales increased 20 basis points compared to 2022. SG&A expenses as a percentage of net sales
excluding the impact of gasoline price deflation was 9.02%, an increase of 14 basis points. The comparison to last year was negatively impacted
by 16 basis points in warehouse operations and other businesses, largely driven by wage increases effective in March and July 2022, and March
2023, as well as lower sales growth. Central operating costs were also higher by six basis points. SG&A was positively impacted by eight basis
points due to the prior year's write-off of information technology assets and a charge related to granting our employees additional vacation.
Changes in foreign currencies relative to the U.S. dollar decreased SG&A expenses by approximately $281 compared to 2022, attributable to
our Canadian and Other International Operations.
Interest Expense
2023 2022 2021
Interest expense
$ 160 $ 158 $ 171
Interest expense is primarily related to Senior Notes and financing leases. For more information on our debt arrangements, refer to the
consolidated financial statements included in Item 8 of this Report.
Interest Income and Other, Net
2023 2022 2021
Interest income
$ 470 $ 61 $ 41
Foreign-currency transaction gains, net 29 106 56
Other, net 34 38 46
Interest income and other, net $ 533 $ 205 $ 143
The increase in interest income in 2023 was due to higher global interest rates and higher average cash and investment balances. Foreign-
currency transaction gains, net include revaluation or settlement of monetary assets and liabilities by our Canadian and Other International
operations and mark-to-market adjustments for forward foreign-exchange contracts. See Derivatives and Foreign Currency sections in Note 1 to
the consolidated financial statements included in Item 8 of this Report.
Provision for Income Taxes
2023 2022 2021
Provision for income taxes
$ 2,195 $ 1,925 $ 1,601
Effective tax rate 25.9 % 24.6 % 24.0 %
The effective tax rate for 2023 was impacted by net discrete tax benefits of $62, primarily due to excess tax benefits related to stock
compensation. Excluding discrete net tax benefits, the tax rate was 26.6%.
The effective tax rate for 2022 was impacted by net discrete tax benefits of $130, primarily due to excess tax benefits related to stock
compensation. Excluding discrete net tax benefits, the tax rate was 26.2%.
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes our significant sources and uses of cash and cash equivalents:
2023 2022 2021
Net cash provided by operating activities $ 11,068 $ 7,392 $ 8,958
Net cash used in investing activities (4,972) (3,915) (3,535)
Net cash used in financing activities (2,614) (4,283) (6,488)
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Our primary sources of liquidity are cash flows from operations, cash and cash equivalents, and short-term investments. Cash and cash
equivalents and short-term investments were $15,234 and $11,049 at September 3, 2023, and August 28, 2022. Of these balances, unsettled
credit and debit card receivables represented $2,282 and $2,010. These receivables generally settle within four days. Changes in foreign
exchange rates impacted cash and cash equivalents positively by $15 and $46 in 2023 and 2021, and negatively by $249 in 2022.
Material contractual obligations arising in the normal course of business primarily consist of purchase obligations, long-term debt and related
interest payments, leases, and construction and land purchase obligations. See Notes 4 and 5 to the consolidated financial statements included
in Item 8 of this Report for amounts outstanding on September 3, 2023, related to debt and leases.
Purchase obligations consist of contracts primarily related to merchandise, equipment, and third-party services, the majority of which are due in
the next 12 months. Construction and land-purchase obligations consist of contracts primarily related to the development and opening of new
and relocated warehouses, the majority of which (other than leases) are due in the next 12 months.
Management believes that our cash and investment position and operating cash flows, with capacity under existing and available credit
agreements, will be sufficient to meet our liquidity and capital requirements for the foreseeable future. We believe that our U.S. current and
projected asset position is sufficient to meet our U.S. liquidity requirements.
Cash Flows from Operating Activities
Net cash provided by operating activities totaled $11,068 in 2023, compared to $7,392 in 2022. Our cash flow provided by operations is primarily
from net sales and membership fees. Cash flow used in operations generally consists of payments to merchandise suppliers, warehouse
operating costs, including payroll and employee benefits, utilities, and credit and debit card processing fees. Cash used in operations also
includes payments for income taxes. Changes in our net investment in merchandise inventories (the difference between merchandise
inventories and accounts payable) is impacted by several factors, including inventory levels and turnover, the forward deployment of inventory to
accelerate delivery times, payment terms with suppliers, and early payments to obtain discounts.
Cash Flows from Investing Activities
Net cash used in investing activities totaled $4,972 in 2023, compared to $3,915 in 2022, and is primarily related to capital expenditures. Net
cash flows from investing activities also includes purchases and maturities of short-term investments.
Capital Expenditures
Our primary requirements for capital are acquiring land, buildings, and equipment for new and remodeled warehouses. Capital is also required
for information systems, manufacturing and distribution facilities, initial warehouse operations, and working capital. In 2023, we spent $4,323 on
capital expenditures, and it is our current intention to spend approximately $4,400 to $4,600 during fiscal 2024. These expenditures are expected
to be financed with cash from operations, existing cash and cash equivalents, and short-term investments. We opened 26 new warehouses,
including three relocations, in 2023, and plan to open up to 28 additional new warehouses, including one relocation, in 2024. There can be no
assurance that current expectations will be realized, and plans are subject to change upon further review of our capital expenditure needs and
the economic environment.
Cash Flows from Financing Activities
Net cash used in financing activities totaled $2,614 in 2023, compared to $4,283 in 2022. Cash flows used in financing activities primarily related
to the payment of dividends, repurchases of common stock, and withholding taxes on stock-based awards. In 2022, cash flow used in financing
activities included
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payments to our former joint-venture partner for a dividend and the purchase of their equity interest in Taiwan, totaling $1,050 in the aggregate,
and repayments of our 2.300% Senior Notes.
Stock Repurchase Programs
On January 19, 2023, the Board of Directors authorized a new share repurchase program in the amount of $4,000, which expires in January
2027. During 2023 and 2022, we repurchased 1,341,000 and 863,000 shares of common stock, at average prices of $504.68 and $511.46,
totaling approximately $677 and $442. These amounts may differ from the accompanying consolidated statements of cash flows due to changes
in unsettled repurchases at the end of each fiscal year. Purchases are made from time to time, as conditions warrant, in the open market or in
block purchases, pursuant to plans under SEC Rule 10b5-1. Repurchased shares are retired, in accordance with the Washington Business
Corporation Act. The remaining amount available to be purchased under our approved plan was $3,563 at the end of 2023.
Dividends
Cash dividends declared in 2023 totaled $3.84 per share, as compared to $3.38 per share in 2022. In April 2023, the Board of Directors
increased our quarterly cash dividend from $0.90 to $1.02 per share.
Bank Credit Facilities and Commercial Paper Programs
We maintain bank credit facilities for working capital and general corporate purposes. At September 3, 2023, we had borrowing capacity under
these facilities of $1,234. Our international operations maintain $756 of this capacity under bank credit facilities, of which $167 is guaranteed by
the Company. Short-term borrowings outstanding under the bank credit facilities, which are included in other current liabilities on the
consolidated balance sheets, were immaterial at the end of 2023 and 2022.
The Company has letter of credit facilities, for commercial and standby letters of credit, totaling $217. The outstanding commitments under these
facilities at the end of 2023 totaled $182, most of which were standby letters of credit that do not expire or have expiration dates within one year.
The bank credit facilities have various expiration dates, most within one year, and we generally intend to renew these facilities. The amount of
borrowings available at any time under our bank credit facilities is reduced by the amount of standby and commercial letters of credit
outstanding.
Off-Balance Sheet Arrangements
In the opinion of management, we have no off-balance sheet arrangements that have had or are reasonably likely to have a material current or
future effect on our financial condition or financial statements.
Critical Accounting Estimates
The preparation of our consolidated financial statements in accordance with U.S. GAAP requires that we make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and on
assumptions that we believe to be reasonable, and we continue to review and evaluate these estimates. For further information on significant
accounting policies, see discussion in Note 1 to the consolidated financial statements included in Item 8 of this Report.
Insurance/Self-insurance Liabilities
Claims for employee health-care benefits, workers’ compensation, general liability, property damage, directors’ and officers’ liability, vehicle
liability, inventory loss, and other exposures are funded predominantly through self-insurance. Insurance coverage is maintained for certain risks
to seek to limit exposures arising from very large losses. We use various risk management mechanisms, including a
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wholly-owned captive insurance subsidiary, and participate in a reinsurance program. Liabilities associated with the risks that we retain are not
discounted and are estimated using historical claims experience, demographic factors, severity factors, and other actuarial assumptions. The
costs of claims are highly unpredictable and can fluctuate as a result of inflation rates, regulatory or legal changes, and unforeseen
developments in claims. While we believe our estimates are reasonable, actual claims and costs could differ significantly from recorded
liabilities. Historically, adjustments to our estimates have not been material.
Recent Accounting Pronouncements
We do not expect that any recently issued accounting pronouncements will have a material effect on our financial statements.
Item 7A—Quantitative and Qualitative Disclosures About Market Risk (amounts in millions)
Our exposure to financial market risk results from fluctuations in interest rates and foreign currency exchange rates. We do not engage in
speculative or leveraged transactions or hold or issue financial instruments for trading purposes.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our investment holdings that are diversified among various
instruments considered to be cash equivalents, as defined in Note 1 to the consolidated financial statements included in Item 8 of this Report, as
well as short-term investments in government and agency securities with effective maturities of generally three months to five years at the date
of purchase. The primary objective of our investment activities is to preserve principal and secondarily to generate yields. The majority of our
short-term investments are in fixed interest-rate securities. These securities are subject to changes in fair value due to interest rate fluctuations.
Our policy limits investments in the U.S. to direct U.S. government and government agency obligations, repurchase agreements collateralized by
U.S. government and government agency obligations, U.S. government and government agency money market funds, and insured bank
balances. Our wholly-owned captive insurance subsidiary invests in U.S. government and government agency obligations and U.S. government
and government agency money market funds. Our Canadian and Other International subsidiaries’ investments are primarily in money market
funds, bankers’ acceptances, and bank certificates of deposit, generally denominated in local currencies.
A 100 basis point change in interest rates as of the end of 2023 would have had an immaterial incremental change in fair market value. For
those investments that are classified as available-for-sale, the unrealized gains or losses related to fluctuations in market volatility and interest
rates are reflected within stockholders’ equity in accumulated other comprehensive income in the consolidated balance sheets.
The nature and amount of our long-term debt may vary as a result of business requirements, market conditions, and other factors. As of the end
of 2023, long-term debt with fixed interest rates was $6,484. Fluctuations in interest rates may affect the fair value of the fixed-rate debt. See
Note 4 to the consolidated financial statements included in Item 8 of this Report for more information on our long-term debt.
Foreign Currency Risk
Our foreign subsidiaries conduct certain transactions in non-functional currencies, which exposes us to fluctuations in exchange rates. We
manage these fluctuations, in part, through the use of forward foreign-exchange contracts, seeking to economically hedge the impact of these
fluctuations on known future expenditures denominated in a non-functional foreign-currency. The contracts are intended primarily to
economically hedge exposure to U.S. dollar merchandise inventory expenditures made by our
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international subsidiaries. We seek to mitigate risk with the use of these contracts and do not intend to engage in speculative transactions. For
additional information related to the Company's forward foreign-exchange contracts, see Notes 1 and 3 to the consolidated financial statements
included in Item 8 of this Report. A hypothetical 10% strengthening of the functional currency compared to the non-functional currency exchange
rates at September 3, 2023, would have decreased the fair value of the contracts by $109 and resulted in an unrealized loss in the consolidated
statements of income for the same amount.
Commodity Price Risk
We are exposed to fluctuations in prices for energy, particularly electricity and natural gas, and other commodities used in retail and
manufacturing operations, which we seek to partially mitigate through fixed-price contracts for certain of our warehouses and other facilities,
predominantly in the U.S. and Canada. We also enter into variable-priced contracts for some purchases of electricity and natural gas, in addition
to some of the fuel for our gas stations, on an index basis. These contracts meet the characteristics of derivative instruments, but generally
qualify for the “normal purchases and normal sales” exception under authoritative guidance and require no mark-to-market adjustment.
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Item 8—Financial Statements and Supplementary Data
COSTCO WHOLESALE CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Reports of Independent Registered Public Accounting Firm 31
Consolidated Statements of Income 34
Consolidated Statements of Comprehensive Income 35
Consolidated Balance Sheets 36
Consolidated Statements of Equity 37
Consolidated Statements of Cash Flows 38
Notes to Consolidated Financial Statements 39
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Costco Wholesale Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Costco Wholesale Corporation and subsidiaries (the Company) as of
September 3, 2023, and August 28, 2022, the related consolidated statements of income, comprehensive income, equity, and cash flows for the
53-week period ended September 3, 2023, and the 52-week periods ended August 28, 2022, and August 29, 2021, and the related notes
(collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company as of September 3, 2023, and August 28, 2022, and the results of its operations and its cash flows for each
of the 53-week period ended September 3, 2023, and the 52-week periods ended August 28, 2022, and August 29, 2021, in conformity with U.S.
generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Company’s internal control over financial reporting as of September 3, 2023, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated October 10, 2023,
expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the
consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical
audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating
the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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Evaluation of workers' compensation self-insurance liabilities
As discussed in Note 1 to the consolidated financial statements, the Company estimates its self-insurance liabilities by considering historical
claims experience, demographic factors, severity factors, and other actuarial assumptions. The estimated self-insurance liabilities as of
September 3, 2023, were $1,513 million, a portion of which related to workers’ compensation self-insurance liabilities for the United States
operations.
We identified the evaluation of the Company’s workers’ compensation self-insurance liabilities for the United States operations as a critical audit
matter because of the extent of specialized skill and knowledge needed to evaluate the underlying assumptions and judgments made by the
Company in the actuarial models. Specifically, subjective auditor judgment was required to evaluate the Company's selected loss rates and initial
expected losses used in the actuarial models.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating
effectiveness of certain internal controls over the Company’s self-insurance workers' compensation process. This included controls related to the
development and selection of the assumptions listed above used in the actuarial calculation and review of the actuarial report. We involved
actuarial professionals with specialized skills and knowledge who assisted in:
• Assessing the actuarial models used by the Company for consistency with generally accepted actuarial standards
• Evaluating the Company’s ability to estimate self-insurance workers' compensation liabilities by comparing its historical
estimates with actual incurred losses and paid losses
• Evaluating the above listed assumptions underlying the Company’s actuarial estimates by developing an independent
expectation of the self-insurance workers' compensation liabilities and comparing them to the amounts recorded by the
Company.
/s/ KPMG LLP
We have served as the Company’s auditor since 2002.
Seattle, Washington
October 10, 2023
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Costco Wholesale Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited Costco Wholesale Corporation and subsidiaries’ (the Company) internal control over financial reporting as of September 3, 2023,
based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 3, 2023,
based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
balance sheets of the Company as of September 3, 2023, and August 28, 2022, the related consolidated statements of income, comprehensive income,
equity, and cash flows for the 53-week period ended September 3, 2023, and the 52-week periods ended August 28, 2022, and August 29, 2021,
and the related notes (collectively, the consolidated financial statements), and our report dated October 10, 2023, expressed an unqualified opinion on
those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Seattle, Washington
October 10, 2023
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COSTCO WHOLESALE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(amounts in millions, except per share data)
53 Weeks Ended 52 Weeks Ended 52 Weeks Ended
September 3,
2023
August 28,
2022
August 29,
2021
REVENUE
Net sales $ 237,710 $ 222,730 $ 192,052
Membership fees 4,580 4,224 3,877
Total revenue 242,290 226,954 195,929
OPERATING EXPENSES
Merchandise costs 212,586 199,382 170,684
Selling, general and administrative
21,590 19,779 18,537
Operating income 8,114 7,793 6,708
OTHER INCOME (EXPENSE)
Interest expense (160) (158) (171)
Interest income and other, net
533 205 143
INCOME BEFORE INCOME TAXES 8,487 7,840 6,680
Provision for income taxes 2,195 1,925 1,601
Net income including noncontrolling interests 6,292 5,915 5,079
Net income attributable to noncontrolling interests
— (71) (72)
NET INCOME ATTRIBUTABLE TO COSTCO
$ 6,292 $ 5,844 $ 5,007
NET INCOME PER COMMON SHARE ATTRIBUTABLE TO
COSTCO:
Basic
$ 14.18 $ 13.17 $ 11.30
Diluted
$ 14.16 $ 13.14 $ 11.27
Shares used in calculation (000’s)
Basic 443,854 443,651 443,089
Diluted 444,452 444,757 444,346
The accompanying notes are an integral part of these consolidated financial statements.
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COSTCO WHOLESALE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(amounts in millions)
53 Weeks Ended 52 Weeks Ended 52 Weeks Ended
September 3,
2023
August 28,
2022
August 29,
2021
NET INCOME INCLUDING NONCONTROLLING INTERESTS
$ 6,292 $ 5,915 $ 5,079
Foreign-currency translation adjustment and other, net 24 (721) 181
Comprehensive income 6,316 5,194 5,260
Less: Comprehensive income attributable to noncontrolling
interests — 36 93
COMPREHENSIVE INCOME ATTRIBUTABLE TO COSTCO
$ 6,316 $ 5,158 $ 5,167
The accompanying notes are an integral part of these consolidated financial statements.
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COSTCO WHOLESALE CORPORATION
CONSOLIDATED BALANCE SHEETS
(amounts in millions, except par value and share data)
September 3,
2023
August 28,
2022
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 13,700 $ 10,203
Short-term investments 1,534 846
Receivables, net
2,285 2,241
Merchandise inventories 16,651 17,907
Other current assets
1,709 1,499
Total current assets 35,879 32,696
OTHER ASSETS
Property and equipment, net 26,684 24,646
Operating lease right-of-use assets
2,713 2,774
Other long-term assets
3,718 4,050
TOTAL ASSETS
$ 68,994 $ 64,166
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable $ 17,483 $ 17,848
Accrued salaries and benefits 4,278 4,381
Accrued member rewards
2,150 1,911
Deferred membership fees 2,337 2,174
Current portion of long-term debt 1,081 73
Other current liabilities
6,254 5,611
Total current liabilities 33,583 31,998
OTHER LIABILITIES
Long-term debt, excluding current portion
5,377 6,484
Long-term operating lease liabilities 2,426 2,482
Other long-term liabilities
2,550 2,555
TOTAL LIABILITIES
43,936 43,519
COMMITMENTS AND CONTINGENCIES
EQUITY
Preferred stock $0.005 par value; 100,000,000 shares authorized; no shares issued and
outstanding — —
Common stock $0.005 par value; 900,000,000 shares authorized; 442,793,000 and
442,664,000 shares issued and outstanding 2 2
Additional paid-in capital
7,340 6,884
Accumulated other comprehensive loss (1,805) (1,829)
Retained earnings
19,521 15,585
Total Costco stockholders’ equity 25,058 20,642
Noncontrolling interests
— 5
TOTAL EQUITY
25,058 20,647
TOTAL LIABILITIES AND EQUITY
$ 68,994 $ 64,166
The accompanying notes are an integral part of these consolidated financial statements.
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COSTCO WHOLESALE CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(amounts in millions)
Common Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total Costco
Stockholders’
Equity
Noncontrolling
Interests
Total
Equity
Shares
(000’s) Amount
BALANCE AT AUGUST 30, 2020 441,255 $ 4 $ 6,698 $ (1,297) $ 12,879 $ 18,284 $ 421 $ 18,705
Net income — — — — 5,007 5,007 72 5,079
Foreign-currency translation
adjustment and other, net — — — 160 — 160 21 181
Stock-based compensation — — 668 — — 668 — 668
Release of vested restricted stock
units (RSUs), including tax
effects 1,928 — (312) — — (312) — (312)
Repurchases of common stock (1,358) — (23) — (472) (495) — (495)
Cash dividends declared — — — — (5,748) (5,748) — (5,748)
BALANCE AT AUGUST 29, 2021 441,825 4 7,031 (1,137) 11,666 17,564 514 18,078
Net income — — — — 5,844 5,844 71 5,915
Foreign-currency translation
adjustment and other, net — — — (686) — (686) (35) (721)
Stock-based compensation — — 728 — — 728 — 728
Release of vested RSUs, including
tax effects 1,702 — (363) — — (363) — (363)
Dividend to noncontrolling interest — — — — — — (208) (208)
Acquisition of noncontrolling
interest — — (499) (6) — (505) (337) (842)
Repurchases of common stock (863) — (15) — (427) (442) — (442)
Cash dividends declared and other — (2) 2 — (1,498) (1,498) — (1,498)
BALANCE AT AUGUST 28, 2022 442,664 2 6,884 (1,829) 15,585 20,642 5 20,647
Net income — — — — 6,292 6,292 — 6,292
Foreign-currency translation
adjustment and other, net — — — 24 — 24 — 24
Stock-based compensation — — 778 — — 778 — 778
Release of vested RSUs, including
tax effects 1,470 — (303) — — (303) — (303)
Repurchases of common stock (1,341) — (24) — (653) (677) — (677)
Cash dividends declared and other
— — 5 — (1,703) (1,698) (5) (1,703)
BALANCE AT SEPTEMBER 3, 2023
442,793 $ 2 $ 7,340 $ (1,805) $ 19,521 $ 25,058 $ — $ 25,058
The accompanying notes are an integral part of these consolidated financial statements.
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COSTCO WHOLESALE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in millions)
53 Weeks Ended 52 Weeks Ended 52 Weeks Ended
September 3,
2023
August 28,
2022
August 29,
2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income including noncontrolling interests $ 6,292 $ 5,915 $ 5,079
Adjustments to reconcile net income including noncontrolling interests to net cash provided by
operating activities:
Depreciation and amortization 2,077 1,900 1,781
Non-cash lease expense 412 377 286
Stock-based compensation 774 724 665
Impairment of assets and other non-cash operating activities, net 495 39 144
Changes in operating assets and liabilities:
Merchandise inventories 1,228 (4,003) (1,892)
Accounts payable (382) 1,891 1,838
Other operating assets and liabilities, net
172 549 1,057
Net cash provided by operating activities
11,068 7,392 8,958
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments (1,622) (1,121) (1,331)
Maturities and sales of short-term investments 937 1,145 1,446
Additions to property and equipment (4,323) (3,891) (3,588)
Other investing activities, net
36 (48) (62)
Net cash used in investing activities
(4,972) (3,915) (3,535)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of short-term borrowings (935) (6) —
Proceeds from short-term borrowings 917 53 41
Repayments of long-term debt (75) (800) (94)
Tax withholdings on stock-based awards (303) (363) (312)
Repurchases of common stock (676) (439) (496)
Cash dividend payments (1,251) (1,498) (5,748)
Financing lease payments (291) (176) (67)
Dividend to noncontrolling interest — (208) —
Acquisition of noncontrolling interest — (842) —
Other financing activities, net
— (4) 188
Net cash used in financing activities
(2,614) (4,283) (6,488)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
15 (249) 46
Net change in cash and cash equivalents 3,497 (1,055) (1,019)
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR 10,203 11,258 12,277
CASH AND CASH EQUIVALENTS END OF YEAR
$ 13,700 $ 10,203 $ 11,258
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 125 $ 145 $ 149
Income taxes, net $ 2,234 $ 1,940 $ 1,527
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Cash dividend declared, but not yet paid $ 452 $ — $ —
Capital expenditures included in liabilities $ 170 $ 156 $ 184
The accompanying notes are an integral part of these consolidated financial statements.
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COSTCO WHOLESALE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in millions, except share, per share, and warehouse count data)
Note 1—Summary of Significant Accounting Policies
Description of Business
Costco Wholesale Corporation (Costco or the Company), a Washington corporation, and its subsidiaries operate membership warehouses
based on the concept that offering members low prices on a limited selection of nationally-branded and private-label products in a wide range of
merchandise categories will produce high sales volumes and rapid inventory turnover. At September 3, 2023, Costco operated 861 warehouses
worldwide: 591 in the United States (U.S.) located in 46 states, Washington, D.C., and Puerto Rico, 107 in Canada, 40 in Mexico, 33 in Japan,
29 in the United Kingdom (U.K.), 18 in Korea, 15 in Australia, 14 in Taiwan, five in China, four in Spain, two in France, and one each in Iceland,
New Zealand, and Sweden. The Company operates e-commerce websites in the U.S., Canada, the U.K., Mexico, Korea, Taiwan, Japan, and
Australia.
Basis of Presentation
The consolidated financial statements include the accounts of Costco and its subsidiaries. The Company reports noncontrolling interests in
consolidated entities as a component of equity separate from the Company’s equity. All material inter-company transactions between and among
the Company and its consolidated subsidiaries have been eliminated in consolidation. Unless otherwise noted, references to net income relate to
net income attributable to Costco.
Fiscal Year End
The Company operates on a 52/53-week fiscal year basis with the year ending on the Sunday closest to August 31. References to 2023 relate to
the 53-week fiscal year ended September 3, 2023. References to 2022 and 2021 relate to the 52-week fiscal years ended August 28, 2022, and
August 29, 2021.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. These estimates and assumptions take into account historical and
forward-looking factors that the Company believes are reasonable. Actual results could differ from those estimates and assumptions.
Reclassification
Reclassifications were made to the 2022 and 2021 consolidated statements of cash flows to conform with current year presentation.
Cash and Cash Equivalents
The Company considers as cash and cash equivalents all cash on deposit, highly liquid investments with a maturity of three months or less at
the date of purchase, and proceeds due from credit and debit card transactions with settlement terms of up to four days. Credit and debit card
receivables were $2,282 and $2,010 at the end of 2023 and 2022.
Short-Term Investments
Short-term investments generally consist of debt securities (U.S. Government and Agency Notes), with maturities at the date of purchase of
three months to five years. Investments with maturities beyond five
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years may be classified, based on the Company’s determination, as short-term based on their highly liquid nature and because they represent
the investment of cash that is available for current operations. Short-term investments classified as available-for-sale are recorded at fair value
using the specific identification method with the unrealized gains and losses reflected in accumulated other comprehensive income (loss) until
realized. Realized gains and losses from the sale of available-for-sale securities, if any, are determined on a specific identification basis and are
recorded in interest income and other, net in the consolidated statements of income. These available-for-sale investments have a low level of
inherent credit risk given they are issued by the U.S. Government and Agencies. Changes in their fair value are primarily attributable to changes
in interest rates and market liquidity. Short-term investments classified as held-to-maturity are financial instruments that the Company has the
intent and ability to hold to maturity and are reported net of any related amortization and are not remeasured to fair value on a recurring basis.
The Company periodically evaluates unrealized losses in its investment securities for credit impairment, using both qualitative and quantitative
criteria. In the event a security is deemed to be impaired as the result of a credit loss, the Company recognizes the loss in interest income and
other, net in the consolidated statements of income.
Fair Value of Financial Instruments
The Company accounts for certain assets and liabilities at fair value. The carrying value of the Company’s financial instruments, including cash
and cash equivalents, receivables and accounts payable, approximate fair value due to their short-term nature or variable interest rates. See
Notes 2, 3, and 4 for the carrying value and fair value of the Company’s investments, derivative instruments, and fixed-rate debt.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Fair value is estimated by applying a fair value hierarchy, which requires maximizing the use of
observable inputs when measuring fair value. The three levels of inputs are:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market
data.
Level 3: Significant unobservable inputs that are not corroborated by market data.
The Company’s valuation techniques used to measure the fair value of money market mutual funds are based on quoted market prices, such as
quoted net asset values published by the fund as supported in an active market. Valuation methodologies used to measure the fair value of all
other non-derivative financial instruments are based on independent external valuation information. The pricing process uses data from a variety
of independent external valuation information providers, including trades, bid price or spread, two-sided markets, quotes, benchmark curves
including but not limited to treasury benchmarks, Secured Overnight Financing Rate and swap curves, discount rates, and market data feeds. All
are observable in the market or can be derived principally from or corroborated by observable market data. The Company reports transfers in
and out of Levels 1, 2, and 3, as applicable, using the fair value of the individual securities as of the beginning of the reporting period in which
the transfer(s) occurred.
Current financial liabilities have fair values that approximate their carrying values. Long-term financial liabilities include the Company's long-term
debt, which are recorded on the balance sheet at issuance price and adjusted for unamortized discounts or premiums and debt issuance costs.
Discounts, premiums and debt issuance costs are amortized to interest expense over the term of the loan. The estimated fair
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value of the Company's long-term debt is based primarily on reported market values, recently completed market transactions, and estimates
based upon interest rates, maturities, and credit.
Receivables, Net
Receivables consist primarily of vendor, reinsurance, credit card incentive, third-party pharmacy and other receivables. Vendor receivables
include discounts and volume rebates. Balances are generally presented on a gross basis, separate from any related payable due. In certain
circumstances, these receivables may be settled against the related payable to that vendor, in which case the receivables are presented on a
net basis. Reinsurance receivables are held by the Company’s wholly-owned captive insurance subsidiary and primarily represent amounts
ceded through reinsurance arrangements gross of the amounts assumed under reinsurance, which are presented within other current liabilities
in the consolidated balance sheets. Credit card incentive receivables primarily represent amounts earned under co-branded credit card
arrangements. Third-party pharmacy receivables generally relate to amounts due from members’ insurers. Other receivables primarily consist of
amounts due from governmental entities, mostly tax-related items.
The valuation allowance related to receivables was not material to our consolidated financial statements at the end of 2023 and 2022.
Merchandise Inventories
Merchandise inventories consist of the following:
2023 2022
United States $ 12,153 $ 13,160
Canada 1,579 1,966
Other International 2,919 2,781
Merchandise inventories
$ 16,651 $ 17,907
Merchandise inventories are stated at the lower of cost or market. U.S. merchandise inventories are valued by the cost method of accounting,
using the last-in, first-out (LIFO) basis. The Company believes the LIFO method more fairly presents the results of operations by more closely
matching current costs with current revenues. The Company records an adjustment each quarter, if necessary, for the projected annual effect of
inflation or deflation, and these estimates are adjusted to actual results determined at year-end, after actual inflation or deflation rates and
inventory levels have been determined. An immaterial LIFO charge was recorded in 2023. Due to inflation in 2022, a $438 charge was recorded
to merchandise costs to increase the cumulative LIFO valuation on merchandise inventories at August 28, 2022. Canadian and Other
International merchandise inventories are predominantly valued using the cost and retail inventory methods, respectively, using the first-in, first-
out (FIFO) basis.
The Company provides for estimated inventory losses between physical inventory counts using estimates based on experience. The provision is
adjusted periodically to reflect physical inventory counts, which generally occur in the second and fourth fiscal quarters. Inventory cost, where
appropriate, is reduced by estimates of vendor rebates when earned or as the Company progresses towards earning those rebates, provided
that they are probable and reasonably estimable.
Property and Equipment, Net
Property and equipment are stated at cost. Depreciation and amortization expense is computed primarily using the straight-line method over
estimated useful lives. Leasehold improvements made after the beginning of the initial lease term are depreciated over the shorter of the
estimated useful life of the asset or the remaining term of the initial lease plus any renewals that are reasonably certain at the date the leasehold
improvements are made.
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The Company capitalizes certain computer software and costs incurred in developing or obtaining software for internal use. During development,
these costs are included in construction in progress. To the extent that the assets become ready for their intended use, these costs are included
in equipment and fixtures and amortized on a straight-line basis over their estimated useful lives.
Repair and maintenance costs are expensed when incurred. Expenditures for remodels, refurbishments and improvements that add to or
change asset function or useful life are capitalized. Assets removed during the remodel, refurbishment or improvement are retired. Assets
classified as held-for-sale at the end of 2023 and 2022 were immaterial.
The following table summarizes the Company's property and equipment balances at the end of 2023 and 2022:
Estimated Useful Lives 2023 2022
Land N/A $ 8,590 $ 7,955
Buildings and improvements 5-50 years 22,001 20,120
Equipment and fixtures 3-20 years 11,512 10,275
Construction in progress N/A
1,266 1,582
43,369 39,932
Accumulated depreciation and amortization
(16,685) (15,286)
Property and equipment, net
$ 26,684 $ 24,646
The Company evaluates long-lived assets for impairment on an annual basis, when relocating or closing a facility, or when events or changes in
circumstances may indicate the carrying amount of the asset group, generally an individual warehouse, may not be fully recoverable. For asset
groups held and used, including warehouses to be relocated, the carrying value of the asset group is considered recoverable when the
estimated future undiscounted cash flows generated from the use and eventual disposition of the asset group exceed the respective carrying
value. In the event that the carrying value is not considered recoverable, an impairment loss is recognized for the asset group to be held and
used equal to the excess of the carrying value above the estimated fair value of the asset group. For asset groups classified as held-for-sale
(disposal group), the carrying value is compared to the disposal group’s fair value less costs to sell. The Company estimates fair value by
obtaining market appraisals from third party brokers or using other valuation techniques. Impairment charges recognized in 2023 were
immaterial. In 2022 and 2021, the Company recognized write-offs of $118 and $84 for information technology assets which are reflected in
SG&A.
Leases
The Company leases land, buildings, and/or equipment at warehouses and certain other office and distribution facilities. Leases generally
contain one or more of the following options, which the Company can exercise at the end of the initial term: (a) renew the lease for a defined
number of years at the then-fair market rental rate or rate stipulated in the lease agreement; (b) purchase the property at the then-fair market
value or purchase price stated in the agreement; or (c) a right of first refusal in the event of a third-party offer.
Some leases include free-rent periods and step-rent provisions, which are recognized on a straight-line basis over the original term of the lease
and any extension options that the Company is reasonably certain to exercise from the date the Company has control of the property. Certain
leases provide for periodic rent increases based on price indices or the greater of minimum guaranteed amounts or sales volume, which are
recognized as variable lease payments. Our leases do not contain any material residual value guarantees or material restrictive covenants.
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The Company determines at inception whether a contract is or contains a lease. Non-lease components and the lease components to which
they relate are accounted for together as a single lease component for all asset classes. The Company initially records right-of-use (ROU)
assets and lease obligations for its finance and operating leases based on the discounted future minimum lease payments over the term. The
lease term is defined as the noncancelable period of the lease plus any options to extend when it is reasonably certain that the Company will
exercise the option. As the rate implicit in the Company's leases is not easily determinable, the present value of the sum of the lease payments
is calculated using the Company's incremental borrowing rate. The rate is determined using a portfolio approach based on the rate of interest the
Company would pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. The Company uses quoted
interest rates from financial institutions to derive the incremental borrowing rate. Impairment of ROU assets is evaluated in a similar manner as
described in Property and Equipment, Net above. During 2023, the Company recognized charges totaling $391, primarily related to the
impairment of certain leased assets associated with charter shipping activities. This charge is included in merchandise costs.
The Company's asset retirement obligations (ARO) primarily relate to leasehold improvements that must be removed at the end of a lease.
These obligations are generally recorded as a discounted liability, with an offsetting asset at the inception of the lease term, based upon the
estimated fair value of the costs to remove the improvements. These liabilities are accreted over time to the projected future value of the
obligation. The ARO assets are depreciated using the same depreciation method as the leasehold improvement assets and are included with
buildings and improvements. Estimated ARO liabilities associated with these leases are included in other liabilities in the accompanying
consolidated balance sheet.
Goodwill and Acquired Intangible Assets
Goodwill represents the excess of acquisition cost over the fair value of the net assets acquired and is not subject to amortization. The Company
reviews goodwill annually in the fourth quarter for impairment or when circumstances indicate carrying value may exceed the fair value. This
evaluation is performed at the reporting unit level. If a qualitative assessment indicates that it is more likely than not that the fair value is less
than carrying value, a quantitative analysis is completed using either the income or market approach, or a combination of both. The income
approach estimates fair value based on expected discounted future cash flows, while the market approach uses comparable public companies
and transactions to develop metrics to be applied to historical and expected future operating results.
Goodwill is included in other long-term assets in the consolidated balance sheets. The following table summarizes goodwill by reportable
segment:
United States Canada Other International Total
Balance at August 29, 2021 $ 953 $ 28 $ 15 $ 996
Changes in currency translation
— (1) (2) (3)
Balance at August 28, 2022 $ 953 $ 27 $ 13 $ 993
Changes in currency translation
— (1) 2 1
Balance at September 3, 2023
$ 953 $ 26 $ 15 $ 994
Definite-lived intangible assets, which are not material, are included in other long-term assets on the consolidated balance sheets and are
amortized on a straight-line basis over their estimated lives, which approximates the pattern of expected economic benefit.
Insurance/Self-insurance Liabilities
Claims for employee health-care benefits, workers’ compensation, general liability, property damage, directors’ and officers’ liability, vehicle
liability, inventory loss, and other exposures are funded
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predominantly through self-insurance. Insurance coverage is maintained for certain risks to limit exposures arising from very large losses. The
Company uses various risk management mechanisms, including a wholly-owned captive insurance subsidiary (the captive) and participates in a
reinsurance program. Liabilities associated with the risks that are retained by the Company are not discounted and are estimated using historical
claims experience, demographic factors, severity factors, and other actuarial assumptions. The estimated accruals for these liabilities could be
significantly affected if future occurrences, claims, or expenses differ from these assumptions and historical trends. At the end of 2023 and 2022,
these insurance liabilities were $1,513 and $1,364 in the aggregate, and were included in accrued salaries and benefits and other current
liabilities in the consolidated balance sheets, classified based on their nature.
The captive receives direct premiums, which are netted against the Company’s premium costs in SG&A expenses in the consolidated
statements of income. The captive participates in a reinsurance program that includes third-party participants. The participant agreements and
practices of the reinsurance program are designed to limit a participating members’ individual risk. Income statement adjustments related to the
reinsurance program and related impacts to the consolidated balance sheets are recognized as information becomes known. In the event the
Company leaves the reinsurance program, the Company retains its primary obligation to the policyholders for prior activity.
Derivatives
The Company is exposed to foreign-currency exchange-rate fluctuations in the normal course of business. It manages these fluctuations, in part,
through the use of forward foreign-exchange contracts, seeking to economically hedge the impact of fluctuations of foreign exchange on known
future expenditures denominated in a non-functional foreign-currency. The contracts relate primarily to U.S. dollar merchandise inventory
expenditures made by the Company’s international subsidiaries with functional currencies other than the U.S. dollar. Currently, these contracts
do not qualify for derivative hedge accounting. The Company seeks to mitigate risk with the use of these contracts and does not intend to
engage in speculative transactions. Some of these contracts contain credit-risk-related contingent features that require settlement of outstanding
contracts upon certain triggering events. The aggregate fair value amounts of derivative instruments in a net liability position and the amount
needed to settle the instruments immediately if the credit-risk-related contingent features were triggered were immaterial at the end of 2023 and
2022. The aggregate notional amounts of open, unsettled forward foreign-exchange contracts were $1,068 and $1,242 at the end of 2023 and
2022. See Note 3 for information on the fair value of unsettled forward foreign-exchange contracts at the end of 2023 and 2022.
The unrealized gains or losses recognized in interest income and other, net in the accompanying consolidated statements of income relating to
the net changes in the fair value of unsettled forward foreign-exchange contracts were immaterial in 2023, 2022 and 2021.
The Company is exposed to fluctuations in prices for energy, particularly electricity and natural gas, and other commodity products used in retail
and manufacturing operations, which it seeks to partially mitigate through the use of fixed-price contracts for certain of its warehouses and other
facilities, primarily in the U.S. and Canada. The Company also enters into variable-priced contracts for some purchases of natural gas, in
addition to fuel for its gas stations, on an index basis. These contracts meet the characteristics of derivative instruments, but generally qualify for
the “normal purchases and normal sales” exception under authoritative guidance and require no mark-to-market adjustment.
Foreign Currency
The functional currencies of the Company’s international subsidiaries are their local currencies. Assets and liabilities recorded in foreign
currencies are translated at the exchange rate on the balance sheet date. Translation adjustments are recorded in accumulated other
comprehensive loss. Revenues and expenses of the Company’s consolidated foreign operations are translated at average exchange rates
prevailing during the year.
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The Company recognizes foreign-currency transaction gains and losses related to revaluing or settling monetary assets and liabilities
denominated in currencies other than the functional currency in interest income and other, net in the consolidated statements of income.
Generally, these include the U.S. dollar cash and cash equivalents and the U.S. dollar payables of consolidated subsidiaries revalued to their
functional currency. Also included are realized foreign-currency gains or losses from settlements of forward foreign-exchange contracts. These
items were $46 and $84 in 2023 and 2022 and immaterial in 2021.
Revenue Recognition
The Company recognizes sales for the amount of consideration collected from the member, which includes gross shipping fees where
applicable, and is net of sales taxes collected and remitted to government agencies and member returns. The Company reserves for estimated
returns based on historical trends in merchandise returns and reduces sales and merchandise costs accordingly. The Company records, on a
gross basis, a refund liability and an asset for recovery, which are included in other current liabilities and other current assets, respectively, in the
consolidated balance sheets.
The Company offers merchandise in the following core merchandise categories: foods and sundries, non-foods, and fresh foods. The Company
also provides expanded products and services through warehouse ancillary and other businesses. The majority of revenue from merchandise
sales is recognized at the point of sale. Revenue generated through e-commerce or special orders is generally recognized upon shipment to the
member. For merchandise shipped directly to the member, shipping and handling costs are expensed as incurred as fulfillment costs and
included in merchandise costs in the consolidated statements of income. In certain ancillary businesses, revenue is deferred until the member
picks up merchandise at the warehouse. Deferred sales are included in other current liabilities in the consolidated balance sheets.
The Company is the principal for the majority of its transactions and recognizes revenue on a gross basis. The Company is the principal when it
has control of the merchandise or service before it is transferred to the member, which generally is established when Costco is primarily
responsible for merchandising decisions, pricing discretion, and maintains the relationship with the member, including assurance of member
service and satisfaction.
The Company accounts for membership fee revenue, net of refunds, on a deferred basis, ratably over the one-year membership period.
Deferred membership fees at the end of 2023 and 2022 were $2,337 and $2,174.
In most countries, the Company's Executive members qualify for a 2% reward on qualified purchases, subject to an annual maximum value,
which does not expire and is redeemable at Costco warehouses. The Company accounts for this reward as a reduction in sales, net of the
estimated impact of non-redemptions (breakage), with the corresponding liability classified as accrued member rewards in the consolidated
balance sheets. Estimated breakage is computed based on redemption data. For 2023, 2022, and 2021, the net reduction in sales
was $2,576, $2,307, and $2,047.
The Company sells and otherwise provides proprietary shop cards that do not expire and are redeemable at the warehouse or online for
merchandise or membership. Revenue from shop cards is recognized upon redemption, and estimated breakage is recognized based on
redemption data. The Company accounts for outstanding shop card balances as a shop card liability, net of estimated breakage. Shop card
liabilities are included in other current liabilities in the consolidated balance sheets.
Citibank, N.A. is the exclusive issuer of co-branded credit cards to U.S. members. The Company receives various forms of consideration from
Citibank, including a royalty on purchases made on the card outside of Costco. A portion of the royalty is used to fund the rebate that cardholders
receive, after taking into consideration breakage, which is calculated based on rebate redemption data. The rebates are issued in February and
expire on December 31. The Company also maintains co-branded credit card arrangements in Canada and certain other International
subsidiaries.
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Merchandise Costs
Merchandise costs consist of the purchase price or manufacturing costs of inventory sold, inbound and outbound shipping charges and all costs
related to the Company’s depot, fulfillment and manufacturing operations, and are reduced by vendor consideration. Merchandise costs also
include salaries, benefits, depreciation, and utilities in fresh foods departments and certain ancillary businesses.
Vendor Consideration
The Company receives funds from vendors for discounts and a variety of other programs. These programs are evidenced by agreements that
are reflected in the carrying value of the inventory when earned or as the Company progresses towards earning the rebate or discount, and as a
component of merchandise costs as the merchandise is sold. Other vendor consideration is generally recorded as a reduction of merchandise
costs upon completion of contractual milestones, terms of the related agreement, or by another systematic approach.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries, benefits and workers’ compensation costs for warehouse employees
(other than fresh foods departments and certain ancillary businesses which are reflected in merchandise costs) as well as all regional and home
office employees, including buying personnel. Selling, general and administrative expenses also include substantially all building and equipment
depreciation, stock compensation expense, credit and debit card processing fees, utilities, preopening, as well as other operating costs incurred
to support warehouse and e-commerce website operations.
Retirement Plans
The Company's 401(k) retirement plan is available to all U.S. employees over the age of 18 who have completed 90 days of employment. The
plan allows participants to make wage deferral contributions, a portion of which the Company matches. In addition, the Company provides each
eligible participant an annual discretionary contribution. The Company also has a defined contribution plan for employees in Canada and
contributes a percentage of each employee's wages. Certain subsidiaries in the Company's Other International operations have defined benefit
and defined contribution plans, which are not material. Amounts expensed under all plans were $914, $824, and $748 for 2023, 2022, and 2021,
and are predominantly included in SG&A expenses in the consolidated statements of income.
Stock-Based Compensation
The Company grants stock-based compensation, primarily to employees and non-employee directors. Grants to executive officers are generally
performance-based. Through a series of shareholder approvals, there have been amended and restated plans and new provisions implemented
by the Company. Restricted Stock Units (RSUs) granted to employees and to non-employee directors generally vest over five years and three
years and are subject to quarterly vesting in the event of retirement or voluntary termination. Employees who attain at least 25 years of service
with the Company receive shares under accelerated vesting provisions on the annual vesting date. Forfeitures are recognized as they occur.
Compensation expense for awards is predominantly recognized using the straight-line method over the requisite service period for the entire
award. The terms of the RSUs, including performance-based awards, provide for accelerated vesting for employees and non-employee directors
who have attained 25 or more and five or more years of service with the Company, respectively. Recipients are not entitled to vote or receive
dividends on unvested and undelivered shares. Compensation expense for the accelerated shares is recognized upon achievement of the long-
service term. The cumulative amount of compensation cost recognized at any point in time equals at least the portion of the grant-date fair value
of the award that is vested at that date. The fair value of RSUs is calculated as the market value of the
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common stock on the measurement date less the present value of the expected dividends forgone during the vesting period.
Stock-based compensation expense is predominantly included in SG&A expenses in the consolidated statements of income. Certain stock-
based compensation costs are capitalized or included in the cost of merchandise. See Note 7 for additional information on the Company’s stock-
based compensation plans.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases,
credits and loss carry-forwards. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years
in which those temporary differences and carry-forwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established when
necessary to reduce deferred tax assets to amounts that are more likely than not expected to be realized.
The timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions requires significant judgment.
The benefits of uncertain tax positions are recorded in the Company’s consolidated financial statements only after determining a more-likely-
than-not probability that the uncertain tax positions will withstand challenge from tax authorities. When facts and circumstances change, the
Company reassesses these probabilities and records changes as appropriate.
Net Income per Common Share Attributable to Costco
The computation of basic net income per share uses the weighted average number of shares that were outstanding during the period. The
computation of diluted net income per share uses the weighted average number of shares in the basic net income per share calculation plus the
number of common shares that would be issued assuming vesting of all potentially dilutive common shares outstanding using the treasury stock
method for shares subject to RSUs.
Stock Repurchase Programs
Repurchased shares of common stock are retired, in accordance with the Washington Business Corporation Act. The par value of repurchased
shares is deducted from common stock and the excess repurchase price over par value is deducted by allocation to additional paid-in capital
and retained earnings. The amount allocated to additional paid-in capital is the current value of additional paid-in capital per share outstanding
and is applied to the number of shares repurchased. Any remaining amount is allocated to retained earnings. See Note 6 for additional
information.
Note 2—Investments
The Company’s investments were as follows:
2023:
Cost
Basis
Unrealized
Losses, Net
Recorded
Basis
Available-for-sale:
Government and agency securities $ 650 $ (17) $ 633
Held-to-maturity:
Certificates of deposit 901 — 901
Total short-term investments
$ 1,551 $ (17) $ 1,534
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2022:
Cost
Basis
Unrealized
Losses, Net
Recorded
Basis
Available-for-sale:
Government and agency securities $ 534 $ (5) $ 529
Held-to-maturity:
Certificates of deposit 317 — 317
Total short-term investments
$ 851 $ (5) $ 846
Gross unrecognized holding gains and losses on available-for-sale securities were not material for the years ended September 3, 2023, and
August 28, 2022. At those dates, there were no available-for-sale securities in a material continuous unrealized-loss position. There were no
sales of available-for-sale securities during 2023 or 2022.
The maturities of available-for-sale and held-to-maturity securities at the end of 2023 are as follows:
Available-For-Sale
Held-To-Maturity
Cost Basis Fair Value
Due in one year or less
$ 111 $ 110 $ 901
Due after one year through five years 337 330 —
Due after five years 202 193 —
Total
$ 650 $ 633 $ 901
Note 3—Fair Value Measurement
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The table below presents information regarding the Company’s financial assets and financial liabilities that are measured at fair value on a
recurring basis and indicate the level within the hierarchy reflecting the valuation techniques utilized to determine such fair value.
Level 2
2023 2022
Investment in government and agency securities $ 633 $ 529
Forward foreign-exchange contracts, in asset position 18 34
Forward foreign-exchange contracts, in (liability) position
(7) (2)
Total
$ 644 $ 561
____________
(1) The asset and the liability values are included in other current assets and other current liabilities, respectively, in the consolidated balance sheets.
At September 3, 2023, and August 28, 2022, the Company did not hold any Level 1 or 3 financial assets or liabilities that were measured at fair
value on a recurring basis. There were no transfers between levels during 2023 or 2022.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Assets and liabilities recognized and disclosed at fair value on a nonrecurring basis include items such as financial assets measured at
amortized cost and long-lived nonfinancial assets. These assets are measured at fair value if determined to be impaired. Please see Note 1 for
additional information.
(1)
(1)
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Note 4—Debt
Short-Term Borrowings
The Company maintains various short-term bank credit facilities, with a borrowing capacity of $1,234 and $1,257, in 2023 and 2022. Short-term
borrowings outstanding were immaterial at the end of 2023 and 2022.
Long-Term Debt
The Company's long-term debt consists primarily of Senior Notes, described below. The Company at its option may redeem the Senior Notes at
any time, in whole or in part, at a redemption price plus accrued interest. The redemption price is equal to the greater of 100% of the principal
amount or the sum of the present value of the remaining scheduled payments of principal and interest to maturity. Additionally, upon certain
events, a holder has the right to require a repurchase at a price of 101% of the principal amount plus accrued and unpaid interest. Interest on all
outstanding long-term debt is payable semi-annually. The estimated fair value of Senior Notes is valued using Level 2 inputs.
Other long-term debt consists of Guaranteed Senior Notes issued by the Company's Japanese subsidiary, valued using Level 3 inputs. In May
2023, the Japanese subsidiary repaid $75 of its Guaranteed Senior Notes.
At the end of 2023 and 2022, the fair value of the Company's long-term debt, including the current portion, was approximately $5,738 and
$6,033. The carrying value of long-term debt consisted of the following:
2023 2022
2.750% Senior Notes due May 2024
$ 1,000 $ 1,000
3.000% Senior Notes due May 2027 1,000 1,000
1.375% Senior Notes due June 2027 1,250 1,250
1.600% Senior Notes due April 2030 1,750 1,750
1.750% Senior Notes due April 2032 1,000 1,000
Other long-term debt 484 590
Total long-term debt
6,484 6,590
Less unamortized debt discounts and issuance costs 26 33
Less current portion 1,081 73
Long-term debt, excluding current portion $ 5,377 $ 6,484
_______________
(1) Net of unamortized debt discounts and issuance costs.
Maturities of long-term debt during the next five fiscal years and thereafter are as follows:
2024 $ 1,081
2025 103
2026 76
2027 2,250
2028 —
Thereafter 2,974
Total
$ 6,484
(1)
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Note 5—Leases
The tables below present information regarding the Company's lease assets and liabilities.
2023 2022
Assets
Operating lease right-of-use assets $ 2,713 $ 2,774
Finance lease assets
1,325 1,620
Total lease assets
$ 4,038 $ 4,394
Liabilities
Current
Operating lease liabilities $ 220 $ 239
Finance lease liabilities 129 245
Long-term
Operating lease liabilities 2,426 2,482
Finance lease liabilities
1,303 1,383
Total lease liabilities
$ 4,078 $ 4,349
_______________
(1) Included in other long-term assets in the consolidated balance sheets.
(2) Included in other current liabilities in the consolidated balance sheets.
(3) Included in other long-term liabilities in the consolidated balance sheets.
2023 2022
Weighted-average remaining lease term (years)
Operating leases 20 20
Finance leases 24 17
Weighted-average discount rate
Operating leases 2.47 % 2.26 %
Finance leases 4.47 % 3.97 %
The components of lease expense, excluding short-term lease costs and sublease income (which were not material), were as follows:
2023 2022 2021
Operating lease costs $ 309 $ 297 $ 296
Finance lease costs:
Amortization of lease assets 169 128 50
Interest on lease liabilities 54 45 37
Variable lease costs
160 157 151
Total lease costs
$ 692 $ 627 $ 534
_______________
(1) Included in selling, general and administrative expenses and merchandise costs in the consolidated statements of income.
(2) Included in interest expense and merchandise costs in the consolidated statements of income.
(1)
(2)
(2)
(3)
(1)
(1)
(2)
(1)
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Supplemental cash flow information related to leases was as follows:
2023 2022 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows — operating leases $ 287 $ 277 $ 282
Operating cash flows — finance leases 54 45 37
Financing cash flows — finance leases 291 176 67
Operating lease assets obtained in exchange for new or modified leases 202 231 350
Financing lease assets obtained in exchange for new or modified leases 100 794 399
As of September 3, 2023, future minimum payments during the next five fiscal years and thereafter are as follows:
Operating Leases Finance Leases
2024 $ 277 $ 180
2025 230 175
2026 226 100
2027 206 91
2028 191 92
Thereafter 2,271 1,579
Total 3,401 2,217
Less amount representing interest 755 785
Present value of lease liabilities
$ 2,646 $ 1,432
_______________
(1) Operating lease payments have not been reduced by future sublease income of $83.
(2) Excludes $843 of lease payments for leases that have been signed but not commenced.
Note 6—Equity
Dividends
Cash dividends declared in 2023 totaled $3.84 per share, as compared to $3.38 in 2022. The Company's current quarterly dividend rate is $1.02
per share.
Stock Repurchase Programs
The Company's stock repurchase program is conducted under a $4,000 authorization by the Board of Directors, which expires in January 2027.
As of the end of 2023, the remaining amount available under the authorization was $3,563. The following table summarizes the Company’s stock
repurchase activity:
Shares
Repurchased
(000’s)
Average
Price per
Share Total Cost
2023 1,341 $ 504.68 $ 677
2022 863 511.46 442
2021 1,358 364.39 495
These amounts may differ from repurchases of common stock in the consolidated statements of cash flows due to changes in unsettled stock
repurchases at the end of each fiscal year. Purchases are made
(1)
(2)
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from time to time, as conditions warrant, in the open market or in block purchases and pursuant to plans under SEC Rule 10b5-1.
Note 7—Stock-Based Compensation
The 2019 Incentive Plan authorized the issuance of 17,500,000 shares (10,000,000 RSUs) of common stock for future grants, plus the
remaining shares that were available for grant and the future forfeited shares from grants under the previous plan, up to a maximum aggregate
of 27,800,000 shares (15,885,000 RSUs). The Company issues new shares of common stock upon vesting of RSUs. Shares for vested RSUs
are generally delivered to participants annually, net of shares withheld for taxes.
Summary of Restricted Stock Unit Activity
At the end of 2023, 8,747,000 shares were available to be granted as RSUs, and the following awards were outstanding:
• 2,869,000 time-based RSUs, which vest upon continued employment or service over specified periods of time; and
• 176,000 performance-based RSUs, of which 135,000 were granted to executive officers subject to the determination of the attainment of
performance targets for 2023. This determination occurred in September 2023, at which time at least 33% of the units vested, as a result
of the long service of all executive officers, with the exception of one executive officer who has less than 25 years of service. The
remaining awards vest upon continued employment over specified periods of time. Please refer to Note 1 for accelerated vesting
requirements.
The following table summarizes RSU transactions during 2023:
Number of
Units
(in 000’s)
Weighted-Average
Grant Date Fair
Value
Outstanding at the end of 2022 3,449 $ 338.41
Granted 1,814 471.47
Vested and delivered (2,102) 352.53
Forfeited (116) 398.31
Outstanding at the end of 2023 3,045 $ 405.63
The weighted-average grant date fair value of RSUs granted was $471.47, $476.06, and $369.15 in 2023, 2022, and 2021. The remaining
unrecognized compensation cost related to non-vested RSUs at the end of 2023 was $790 and the weighted-average period of time over which
this cost will be recognized is 1.6 years. Included in the outstanding balance at the end of 2023 were approximately 1,050,000 RSUs vested but
not yet delivered.
Summary of Stock-Based Compensation
The following table summarizes stock-based compensation expense and the related tax benefits:
2023 2022 2021
Stock-based compensation expense $ 774 $ 724 $ 665
Less recognized income tax benefit 163 154 140
Stock-based compensation expense, net $ 611 $ 570 $ 525
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Note 8— Taxes
Income Taxes
Income before income taxes is comprised of the following:
2023 2022 2021
Domestic
$ 6,264 $ 5,759 $ 4,931
Foreign 2,223 2,081 1,749
Total
$ 8,487 $ 7,840 $ 6,680
The provisions for income taxes are as follows:
2023 2022 2021
Federal:
Current $ 1,056 $ 798 $ 718
Deferred 33 (35) 84
Total federal
1,089 763 802
State:
Current 374 333 265
Deferred 10 (5) 11
Total state 384 328 276
Foreign:
Current 732 851 557
Deferred (10) (17) (34)
Total foreign
722 834 523
Total provision for income taxes $ 2,195 $ 1,925 $ 1,601
The reconciliation between the statutory tax rate and the effective rate for 2023, 2022, and 2021 is as follows:
2023 2022 2021
Federal taxes at statutory rate $ 1,782 21.0 % $ 1,646 21.0 % $ 1,403 21.0 %
State taxes, net 302 3.6 267 3.4 243 3.6
Foreign taxes, net 160 1.9 231 3.0 92 1.4
Employee stock ownership plan (ESOP) (25) (0.3) (23) (0.3) (91) (1.3)
Other (24) (0.3) (196) (2.5) (46) (0.7)
Total $ 2,195 25.9 % $ 1,925 24.6 % $ 1,601 24.0 %
The Company recognized total net tax benefits of $62, $130 and $163 in 2023, 2022 and 2021. These include benefits of $54, $94 and $75,
related to stock-based compensation. During 2021, there was a net tax benefit of $70 related to the portion of the special dividend paid through
the Company's 401(k) plan.
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The components of the deferred tax assets (liabilities) are as follows:
2023 2022
Deferred tax assets:
Equity compensation $ 89 $ 84
Deferred income/membership fees 309 302
Foreign tax credit carry forward 250 201
Operating lease liabilities 678 727
Accrued liabilities and reserves 761 694
Other 20 5
Total deferred tax assets 2,107 2,013
Valuation allowance (422) (313)
Total net deferred tax assets 1,685 1,700
Deferred tax liabilities:
Property and equipment (867) (962)
Merchandise inventories (380) (231)
Operating lease right-of-use assets (655) (701)
Foreign branch deferreds (87) (85)
Total deferred tax liabilities
(1,989) (1,979)
Net deferred tax liabilities $ (304) $ (279)
The deferred tax accounts at the end of 2023 and 2022 include deferred income tax assets of $491 and $445, included in other long-term
assets; and deferred income tax liabilities of $795 and $724, included in other long-term liabilities.
In 2023 and 2022, the Company had valuation allowances of $422 and $313, primarily related to foreign tax credits that the Company believes
will not be realized due to carry forward limitations. The foreign tax credit carry forwards are set to expire beginning in fiscal 2030.
The Company generally no longer considers fiscal year earnings of non-U.S. consolidated subsidiaries after 2017 to be indefinitely reinvested
(other than China and Taiwan) and has recorded the estimated incremental foreign withholding taxes (net of available foreign tax credits) and
state income taxes payable assuming a hypothetical repatriation to the U.S. The Company considers undistributed earnings of certain non-U.S.
consolidated subsidiaries, which totaled $3,225, to be indefinitely reinvested and has not provided for withholding or state taxes.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for 2023 and 2022 is as follows:
2023 2022
Gross unrecognized tax benefit at beginning of year $ 16 $ 33
Gross increases—current year tax positions 1 1
Gross increases—tax positions in prior years 11 12
Gross decreases—tax positions in prior years (11) (12)
Gross decreases—settlements — (12)
Lapse of statute of limitations (1) (6)
Gross unrecognized tax benefit at end of year
$ 16 $ 16
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The gross unrecognized tax benefit includes tax positions for which the ultimate deductibility is highly certain but there is uncertainty about the
timing of such deductibility. At the end of 2023 and 2022, these amounts were immaterial. Because of the impact of deferred tax accounting,
other than interest and penalties, the disallowance of these tax positions would not affect the annual effective tax rate but would accelerate the
payment of cash to the taxing authority. The total amount of such unrecognized tax benefits that if recognized would favorably affect the effective
income tax rate in future periods is $14 and $15 at the end of 2023 and 2022.
Accrued interest and penalties related to income tax matters are classified as a component of income tax expense. Accrued interest and
penalties recognized during 2023 and 2022, and accrued at the end of each respective period were not material.
The Company is currently under audit by several jurisdictions in the United States and abroad. Some audits may conclude in the next 12
months, and the unrecognized tax benefits recorded in relation to the audits may differ from actual settlement amounts. It is not practical to
estimate the effect, if any, of any amount of such change during the next 12 months to previously recorded uncertain tax positions in connection
with the audits. The Company does not anticipate that there will be a material increase or decrease in the total amount of unrecognized tax
benefits in the next 12 months.
The Company files income tax returns in the United States, various state and local jurisdictions, in Canada, and in several other foreign
jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state or local examination for years before fiscal 2018. The
Company is currently subject to examination in California for fiscal years 2013 to present.
Other Taxes
The Company is subject to multiple examinations for value added, sales-based, payroll, product, import or other non-income taxes in various
jurisdictions. In certain cases, the Company has received assessments from the authorities. Possible losses or range of possible losses
associated with these matters are either immaterial or an estimate of the possible loss or range of loss cannot be made at this time. If certain
matters or a group of matters were to be decided adversely to the Company, it could result in a charge that might be material to the results of an
individual fiscal quarter or year.
Note 9—Net Income per Common and Common Equivalent Share
The following table shows the amounts used in computing net income per share and the weighted average number of shares of basic and of
potentially dilutive common shares outstanding (shares in 000’s):
2023 2022 2021
Net income attributable to Costco
$ 6,292 $ 5,844 $ 5,007
Weighted average basic shares 443,854 443,651 443,089
RSUs 598 1,106 1,257
Weighted average diluted shares
444,452 444,757 444,346
Note 10—Commitments and Contingencies
Legal Proceedings
The Company is involved in many claims, proceedings and litigations arising from its business and property ownership. In accordance with
applicable accounting guidance, the Company establishes an accrual for legal proceedings if and when those matters present loss contingencies
that are both probable and reasonably estimable. There may be losses in excess of amounts accrued. The Company monitors those matters for
developments that would affect the likelihood of a loss (taking into account where applicable indemnification arrangements concerning suppliers
and insurers) and the accrued amount, if any, thereof, and adjusts the amount as appropriate. The Company has recorded immaterial accruals
with
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respect to certain matters described below, in addition to other immaterial accruals for matters not described below. If the loss contingency at
issue is not both probable and reasonably estimable, the Company does not establish an accrual, but monitors for developments that make the
contingency both probable and reasonably estimable. In each case, there is a reasonable possibility that a loss may be incurred, including a loss
in excess of the applicable accrual. For matters where no accrual has been recorded, the possible loss or range of loss (including any loss in
excess of the accrual) cannot, in the Company's view, be reasonably estimated because, among other things: the remedies or penalties sought
are indeterminate or unspecified; the legal and/or factual theories are not well developed; and/or the matters involve complex or novel legal
theories or a large number of parties.
The Company is a defendant in an action commenced in July 2013 under the California Labor Code Private Attorneys General Act (PAGA)
alleging violation of California Wage Order 7-2001 for failing to provide seating to employees who work at entrance and exit doors in California
warehouses. Canela v. Costco Wholesale Corp. (Case No. 2013-1-CV-248813; Santa Clara Superior Court). The complaint sought relief under
the California Labor Code, including civil penalties and attorneys’ fees. On April 26, 2023, the court entered a final judgment in favor of the
Company. The plaintiff appealed the judgment in June 2023.
In June 2022, a business center employee raised similar claims, alleging failure to provide seating to employees who work at membership refund
desks in California warehouses and business centers. Rodriguez v. Costco Wholesale Corp. (Case No. 22CV012847; Alameda Superior Court).
The complaint seeks relief under the California Labor Code, including civil penalties and attorneys' fees. The Company filed an answer denying
the material allegations of the complaint.
In March 2019, employees filed a class action against the Company alleging claims under California law for failure to pay overtime, to provide
meal and rest periods and itemized wage statements, to timely pay wages due to terminating employees, to pay minimum wages, and for unfair
business practices. Relief was sought under the California Labor Code, including civil penalties and attorneys' fees. Nevarez v. Costco
Wholesale Corp. (Case No. 2:19-cv-03454; C.D. Cal.). The Company filed an answer denying the material allegations of the complaint. In
December 2019, the court issued an order denying class certification. In January 2020, the plaintiffs dismissed their Labor Code claims without
prejudice, and the court remanded the action to state court. Settlement for an immaterial amount was agreed upon in February 2021. Final court
approval of the settlement was granted on May 3, 2022. A proposed intervenor appealed the denial of her motion to intervene, and the appeal
was dismissed on February 15, 2023.
In May 2019, an employee filed a class action against the Company alleging claims under California law for failure to pay overtime, to provide
itemized wage statements, to timely pay wages due to terminating employees, to pay minimum wages, and for unfair business practices. Rough
v. Costco Wholesale Corp. (Case No. 2:19-cv-01340; E.D. Cal.). Relief is sought under the California Labor Code, including civil penalties and
attorneys' fees. In September 2021, the court granted the Company's motion for partial summary judgment and denied class certification. In
August 2019, the plaintiff filed a companion case in state court seeking penalties under PAGA. Rough v. Costco Wholesale Corp. (Case No.
FCS053454; Sonoma County Superior Court). Relief is sought under the California Labor Code, including civil penalties and attorneys' fees. The
state court action has been stayed pending resolution of the federal action. In September 2023 the parties reached an agreement in principle on
a settlement for an immaterial amount.
In December 2020, a former employee filed suit against the Company asserting collective and class claims on behalf of non-exempt employees
under the Fair Labor Standards Act and New York Labor Law for failure to pay for all hours worked, failure to pay certain non-exempt employees
on a weekly basis, and failure to provide proper wage statements and notices. The plaintiff also asserted individual retaliation claims. Cappadora
v. Costco Wholesale Corp. (Case No. 1:20-cv-06067; E.D.N.Y.). Based on an agreement in principle concerning settlement of the matter,
involving a proposed payment by the Company of an immaterial amount, the federal action has been dismissed. In April 2022, Cappadora and a
second plaintiff filed an action against the Company in New York state court, asserting the same class
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claims asserted in the federal action under the New York Labor Law and seeking preliminary approval of the class settlement. Cappadora and
Sancho v. Costco Wholesale Corp. (Index No. 604757/2022; Nassau County Supreme Court). Following final approval of the settlement, the
case was dismissed on April 14, 2023.
In August 2021, a former employee filed a similar suit, asserting class claims on behalf of certain non-exempt employees under New York Labor
Law for failure to pay on a weekly basis. Umadat v. Costco Wholesale Corp. (Case No. 2:21-cv-4814; E.D.N.Y.). The Company filed an answer,
denying the material allegations of the complaint. In August 2023, the parties reached an agreement in principle on a settlement for an
immaterial amount. In April 2022, a former employee filed a similar suit, asserting class claims on behalf of certain non-exempt employees under
New York Labor Law, as well as under the Fair Labor Standards Act, for failure to pay on a weekly basis and failure to pay overtime. Burian v.
Costco Wholesale Corp. (Case No. 2:22-cv-02108; E.D.N.Y.). The case was settled for an immaterial amount and was dismissed with prejudice
in May 2023.
In February 2021, a former employee filed a class action against the Company alleging violations of California Labor Code regarding payment of
wages, meal and rest periods, wage statements, reimbursement of expenses, payment of final wages to terminated employees, and for unfair
business practices. Edwards v. Costco Wholesale Corp. (Case No. 5:21-cv-00716: C.D. Cal.). On September 27, 2022, the parties reached a
settlement for an immaterial amount, which is subject to court approval.
In July 2021, a former temporary staffing employee filed a class action against the Company and a staffing company alleging violations of the
California Labor Code regarding payment of wages, meal and rest periods, wage statements, the timeliness of wages and final wages, and for
unfair business practices. Dimas v. Costco Wholesale Corp. (Case No. STK-CV-UOE-2021-0006024; San Joaquin Superior Court). The
Company has moved to compel arbitration of the plaintiff's individual claims and to dismiss the class action complaint. On September 7, 2021,
the same plaintiff filed a separate representative action under PAGA, asserting the same Labor Code violations and seeking civil penalties and
attorneys' fees. The case has been stayed pending arbitration of the plaintiff's individual claims.
In September 2021, an employee filed a class action against the Company alleging violations of the California Labor Code regarding failure to
provide sick pay, failure to timely pay wages due at separation from employment, and for violations of California's unfair competition law. De
Benning v. Costco Wholesale Corp. (Case No. 34-2021-00309030-CU-OE-GDS; Sacramento Superior Court). In April 2022, a settlement for an
immaterial amount was agreed upon, subject to court approval. Final approval of the settlement was granted on February 10, 2023.
In March 2022, an employee filed a class action against the Company alleging violations of the California Labor Code regarding the failure to:
pay wages, provide meal and rest periods, provide accurate wage statements, timely pay final wages, and reimburse business expenses. Diaz v.
Costco Wholesale Corp. (Case No. 22STCV09513; Los Angeles Superior Court). In December 2022, the case was settled for an immaterial
amount, and the case was dismissed.
In May 2022, an employee filed a PAGA action against the Company alleging claims under the California Labor Code regarding the payment of
wages, meal and rest periods, the timeliness of wages and final wages, wage statements, accurate records and business expenses. Gonzalez v.
Costco Wholesale Corp. (Case No. 22AHCV00255; Los Angeles Superior Court). The Company filed an answer denying the allegations.
Beginning in December 2017, the United States Judicial Panel on Multidistrict Litigation consolidated numerous cases concerning the impacts of
opioid abuses filed against various defendants by counties, cities, hospitals, Native American tribes, third-party payors, and others. In re National
Prescription Opiate Litigation (MDL No. 2804) (N.D. Ohio). Included are cases filed against the Company by counties and cities in Michigan,
New Jersey, Oregon, Virginia and South Carolina, a third-party payor in Ohio, and a hospital in Texas, class actions filed on behalf of infants born
with opioid-related medical conditions in 40 states, and class actions and individual actions filed on behalf of individuals seeking to recover
alleged
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increased insurance costs associated with opioid abuse in 43 states and American Samoa. Claims against the Company filed in federal court
outside the MDL have been asserted by certain counties and cities in Florida and Georgia; claims filed by certain cities and counties in New York
are pending in state court. Claims against the Company in state courts in New Jersey, Oklahoma, Utah, and Arizona have been dismissed. The
Company is defending all of the pending matters.
Members of the Board of Directors, six corporate officers and the Company were defendants in a shareholder derivative action filed in June 2022
related to chicken welfare and alleged breaches of fiduciary duties. Smith, et ano. v. Vachris, et al., Superior Court of the State of Washington,
County of King, No, 22-2-08937-7SEA. The complaint sought from the individual defendants' damages, injunctive relief, costs, and attorneys'
fees. On March 28, 2023, the court granted the defendants' motion to dismiss the action. The plaintiffs subsequently made a demand that the
Board of Directors take various actions, including among other things, pursuing claims against directors and officers of the type asserted in the
litigation. A demand review committee of the Board has been appointed to make a recommendation to the Board as to the demand.
In February 2023, Go Green Norcal, LLC filed an arbitration demand against the Company. The demand alleged a breach of a supply agreement
and sought unspecified damages and cancellation of a loan from the Company. In March 2023, the Company filed its answer, denying any
breach by the Company, along with counterclaims against Go Green and an affiliate for breach of contract, negligent misrepresentation, and an
accounting. In August 2023 the plaintiff asserted that its damages exceed $70 million.
In January 2023 the Company received a Civil Investigative Demand from the U.S. Attorney's Office, Western District of Washington, requesting
documents. The government is conducting a False Claims Act investigation concerning whether the Company presented or caused to be
presented to the federal government for payment false claims relating to prescription medications.
The Company does not believe that any pending claim, proceeding or litigation, either alone or in the aggregate, will have a material adverse
effect on the Company’s financial position, results of operations or cash flows; it is possible that an unfavorable outcome of some or all of the
matters, however unlikely, could result in a charge that might be material to the results of an individual fiscal quarter or year.
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Note 11—Segment Reporting
The Company is principally engaged in the operation of membership warehouses through wholly owned subsidiaries in the U.S., Canada,
Mexico, Japan, the U.K., Korea, Australia, Taiwan, China, Spain, France, Iceland, New Zealand, and Sweden. Reportable segments are largely
based on management’s organization of the operating segments for operational decisions and assessments of financial performance, which
considers geographic locations. The material accounting policies of the segments are as described in Note 1. Inter-segment net sales and
expenses have been eliminated in computing total revenue and operating income.
The following table provides information for the Company's reportable segments:
United States Canada
Other
International Total
2023
Total revenue $ 176,630 $ 33,056 $ 32,604 $ 242,290
Operating income 5,392 1,448 1,274 8,114
Depreciation and amortization 1,599 183 295 2,077
Additions to property and equipment 3,288 281 754 4,323
Property and equipment, net 18,760 2,443 5,481 26,684
Total assets 49,189 6,420 13,385 68,994
2022
Total revenue $ 165,294 $ 31,675 $ 29,985 $ 226,954
Operating income 5,268 1,346 1,179 7,793
Depreciation and amortization 1,436 180 284 1,900
Additions to property and equipment 2,795 388 708 3,891
Property and equipment, net 17,205 2,459 4,982 24,646
Total assets 44,904 6,558 12,704 64,166
2021
Total revenue $ 141,398 $ 27,298 $ 27,233 $ 195,929
Operating income 4,470 1,093 1,145 6,708
Depreciation and amortization 1,339 177 265 1,781
Additions to property and equipment 2,612 272 704 3,588
Property and equipment, net 15,993 2,317 5,182 23,492
Total assets 39,589 5,962 13,717 59,268
Disaggregated Revenue
The following table summarizes net sales by merchandise category; sales from e-commerce websites and business centers have been allocated
to the applicable merchandise categories:
2023 2022 2021
Foods and Sundries $ 96,175 $ 85,629 $ 77,277
Non-Foods 60,865 61,100 55,966
Fresh Foods 31,977 29,527 27,183
Warehouse Ancillary and Other Businesses
48,693 46,474 31,626
Total net sales
$ 237,710 $ 222,730 $ 192,052
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Item 9—Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A—Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended)
are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and to ensure that information required
to be disclosed is accumulated and communicated to management, including our principal executive and financial officers, to allow timely
decisions regarding disclosure. The Chief Executive Officer and the Chief Financial Officer, with assistance from other members of management,
have reviewed the effectiveness of our disclosure controls and procedures as of September 3, 2023, and, based on their evaluation, have
concluded that the disclosure controls and procedures were effective as of such date.
Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f)
under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies
and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and the
dispositions of our assets; (2) provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles and that our receipts and expenditures are being made only in
accordance with appropriate authorizations; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any
evaluation of effectiveness for future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision of and with the participation of our management, we assessed the effectiveness of our internal control over financial
reporting as of September 3, 2023, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control—Integrated Framework (2013).
Based on its assessment, management has concluded that our internal control over financial reporting was effective as of September 3, 2023.
The attestation of KPMG LLP, our independent registered public accounting firm, on the effectiveness of our internal control over financial
reporting is included with the consolidated financial statements in Item 8 of this Report.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that
occurred during the fourth quarter of 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
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Item 9B—Other Information (amounts in whole dollars)
Disclosure pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 and Section 13(r) of the Securities
Exchange Act of 1934, as amended.
During 2023 we had three individual cardholders under a business membership in the name of the Embassy of the Islamic Republic of Iran at
our subsidiary in Mexico. Gross revenue during 2023 attributable to the membership was approximately $1,276, and our estimated profit on
these transactions was approximately $100. The membership was canceled during the second quarter of 2023. The Company does not intend to
continue these activities.
During the fiscal quarter ended September 3, 2023, no director or officer of the Company adopted or terminated a Rule 10b5-1 trading
arrangement or non-Rule 10b5-1 trading arrangement, as each term is defined in Item 408(a) of Regulation S-K.
Item 9C—Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not Applicable.
PART III
Item 10—Directors, Executive Officers and Corporate Governance
Information relating to the availability of our code of ethics for senior financial officers and a list of our executive officers appear in Part I, Item 1
of this Report. The information required by this Item concerning our directors and nominees for director is incorporated herein by reference to the
sections entitled “Proposal 1: Election of Directors,” “Directors” and “Committees of the Board” in Costco’s Proxy Statement for its 2024 annual
meeting of shareholders, which will be filed with the SEC within 120 days of the end of our fiscal year (“Proxy Statement”).
Item 11—Executive Compensation
The information required by this Item is incorporated herein by reference to the sections entitled “Compensation of Directors,” “Executive
Compensation,” and “Compensation Discussion and Analysis” in Costco’s Proxy Statement.
Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated herein by reference to the section entitled “Principal Shareholders” and “Equity
Compensation Plan Information” in Costco’s Proxy Statement.
Item 13—Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated herein by reference to the sections entitled “Proposal 1: Election of Directors,” “Directors,”
“Committees of the Board,” “Shareholder Communications to the Board,” “Meeting Attendance,” “Report of the Compensation Committee of the
Board of Directors,” “Certain Relationships and Transactions” and “Report of the Audit Committee” in Costco’s Proxy Statement.
Item 14—Principal Accounting Fees and Services
Our independent registered public accounting firm is KPMG LLP, Seattle, WA, Auditor Firm ID: 185.
The information required by this Item is incorporated herein by reference to the sections entitled “Independent Public Accountants” in Costco’s
Proxy Statement.
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PART IV
Item 15—Exhibits, Financial Statement Schedules
(a) Documents filed as part of this report are as follows:
1. Financial Statements:
See the listing of Financial Statements included as a part of this Form 10-K in Item 8 of Part II.
2. Financial Statement Schedules:
All schedules have been omitted because the required information is not present or is not present in amounts sufficient to
require submission of the schedule, or because the information required is included in the consolidated financial statements,
including the notes thereto.
(b) Exhibits: The required exhibits are filed as part of this Annual Report on Form 10-K or are incorporated herein by reference.
Incorporated by Reference
Exhibit
Number Exhibit Description
Filed
Herewith Form Period Ended Filing Date
3.1 Articles of Incorporation as amended of Costco
Wholesale Corporation
10-K 8/28/2022 10/5/2022
3.2 Bylaws as amended of Costco Wholesale
Corporation
8-K 8/10/2023
4.1 First Supplemental Indenture between Costco
Wholesale Corporation and U.S. Bank National
Association, as Trustee, dated as of March 20,
2002 (incorporated by reference to Exhibits 4.1
and 4.2 to the Company's Current Report on
the Form 8-K filed on March 25, 2002)
8-K 3/25/2002
4.2 Form of 1.375% Senior Notes due June 20,
2027
8-K 4/17/2020
4.3 Form of 1.600% Senior Notes due April 20,
2030
8-K 4/17/2020
4.4 Form of 1.750% Senior Notes due April 20,
2032
8-K 4/17/2020
4.5 Form of 2.300% Senior Notes due May 18,
2022
8-K 5/16/2017
4.6 Form of 2.750% Senior Notes due May 18,
2024
8-K 5/16/2017
4.7 Form of 3.000% Senior Notes due May 18,
2027
8-K 5/16/2017
4.8 Description of Common Stock 10-K 8/28/2022 10/5/2022
10.1* Costco Wholesale Executive Health Plan 10-K 9/2/2012 10/19/2012
10.2* 2019 Incentive Plan DEF 14 12/17/2019
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Incorporated by Reference
Exhibit
Number Exhibit Description
Filed
Herewith Form Period Ended Filing Date
10.3* Seventh Restated 2002 Stock Incentive Plan DEF 14A 12/19/2014
10.3.1* 2019 Stock Incentive Plan Restricted Stock
Unit Award Agreement-Employee
10-Q 11/24/2019 12/23/2019
10.3.2* 2019 Stock Incentive Plan Restricted Stock
Unit Award Agreement - Non-U.S. Employee
10-Q 11/24/2019 12/23/2019
10.3.3* 2019 Stock Incentive Plan Restricted Stock
Unit Award Agreement-Non-Executive Director
10-Q 11/24/2019 12/23/2019
10.3.4* 2019 Stock Incentive Plan Letter Agreement for
2020 Performance-Based Restricted Stock
Units-Executive
10-Q 11/24/2019 12/23/2019
10.4* Fiscal 2023 Executive Bonus Plan 8-K 11/9/2022
10.5* Executive Employment Agreement, effective
January 1, 2017, between W. Craig Jelinek and
Costco Wholesale Corporation
10-Q 11/20/2016 12/16/2016
10.5.1* Extension of the Term of the Executive
Employment Agreement, effective January 1,
2019, between W. Craig Jelinek and Costco
Wholesale Corporation
10-Q 11/25/2018 12/20/2018
10.5.2* Extension of the Term of the Executive
Employment Agreement, effective January 1,
2020, between W. Craig Jelinek and Costco
Wholesale Corporation
10-Q 11/24/2019 12/23/2019
10.5.3* Extension of the Term of the Executive
Employment Agreement, effective January 1,
2021, between W. Craig Jelinek and Costco
Wholesale Corporation
10-Q 11/22/2020 12/16/2020
10.5.4* Extension of the Term of the Executive
Employment Agreement, effective January 1,
2022, between W. Craig Jelinek and Costco
Wholesale Corporation
10-Q 11/21/2021 12/22/2021
10.5.5* Extension of the Term of the Executive
Employment Agreement, effective January 1,
2023, between W. Craig Jelinek and Costco
Wholesale Corporation
10-Q 11/20/2022 12/29/2022
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Incorporated by Reference
Exhibit
Number Exhibit Description
Filed
Herewith Form Period Ended Filing Date
10.6 Form of Indemnification Agreement 14A 12/13/1999
10.7* Deferred Compensation Plan 10-K 9/1/2013 10/16/2013
10.8** Citibank, N.A. Co-Branded Credit Card
Agreement
10-Q/A 5/10/2015 8/31/2015
10.8.1** First Amendment to Citi, N.A. Co-Branded
Credit Card Agreement
10-Q 11/22/2015 12/17/2015
10.8.2** Second Amendment to Citi, N.A. Co-Branded
Credit Card Agreement
10-Q 2/14/2016 3/9/2016
10.8.3** Third Amendment to Citi, N.A. Co-Branded
Credit Card Agreement
10-K 8/28/2016 10/12/2016
10.8.4** Fourth Amendment to Citi, N.A. Co-Branded
Credit Card Agreement
10-Q 2/18/2018 3/15/2018
10.8.5** Fifth Amendment to Citi, N.A. Co-Branded
Credit Card Agreement
10-Q 2/17/2019 3/13/2019
10.8.6 Sixth Amendment to Citi, N.A. Co-Branded
Credit Card Agreement
10-K 9/1/2019 10/11/2019
10.8.7 Seventh Amendment to Citi, N.A. Co-Branded
Credit Card Agreement
10-Q 2/14/2021 3/10/2021
10.8.8 Eighth Amendment to Citi, N.A. Co-Branded
Credit Card Agreement
10-Q 2/13/2022 3/10/2022
10.8.9 Ninth Amendment to Citi, N.A. Co-Branded
Credit Card Agreement
10-Q 11/20/2022 12/29/2022
10.8.10 Tenth Amendment to Citi, N.A. Co-Branded
Credit Card Agreement
10-Q 11/20/2022 12/29/2022
10.8.11 Eleventh Amendment to Citi, N.A. Co-Branded
Credit Card Agreement
10-Q 2/12/2023 3/9/2023
10.8.12 Twelfth Amendment to Citi, N.A. Co-Branded
Credit Card Agreement
x
21.1 Subsidiaries of the Company x
23.1 Consent of Independent Registered Public
Accounting Firm
x
31.1 Rule 13a – 14(a) Certifications x
32.1 Section 1350 Certifications x
101.INS Inline XBRL Instance Document x
101.SCH Inline XBRL Taxonomy Extension Schema
Document
x
#
#
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Table of Contents
Incorporated by Reference
Exhibit
Number Exhibit Description
Filed
Herewith Form Period Ended Filing Date
101.CAL Inline XBRL Taxonomy Extension Calculation
Linkbase Document
x
101.DEF Inline XBRL Taxonomy Extension Definition
Linkbase Document
x
101.LAB Inline XBRL Taxonomy Extension Label
Linkbase Document
x
101.PRE Inline XBRL Taxonomy Extension Presentation
Linkbase Document
x
104 Cover Page Interactive Data File (formatted as
inline XBRL and contained in Exhibit 101)
x
_____________________
* Management contract, compensatory plan or arrangement.
** Portions of this exhibit have been omitted under a confidential treatment order issued by the Securities and Exchange Commission.
# Certain information in this exhibit has been omitted because it is both (i) not material and (ii) customarily and actually treated by the registrant as private or confidential.
(c) Financial Statement Schedules—None.
Item 16—Form 10-K Summary
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.
October 10, 2023
COSTCO WHOLESALE CORPORATION
(Registrant)
By /s/ RICHARD A. GALANTI
Richard A. Galanti
Executive Vice President, Chief Financial Officer and Director
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.
October 10, 2023
By /s/ W. CRAIG JELINEK
By /s/ HAMILTON E. JAMES
W. Craig Jelinek
Chief Executive Officer and Director
Hamilton E. James
Chairman of the Board
By
/s/ RICHARD A. GALANTI By
/s/ DANIEL M. HINES
Richard A. Galanti
Executive Vice President, Chief Financial Officer and
Director
(Principal Financial Officer)
Daniel M. Hines
Senior Vice President and Corporate Controller
(Principal Accounting Officer)
By /s/ RON M. VACHRIS By /s/ SUSAN L. DECKER
Ron M. Vachris
President, Chief Operating Officer and Director
Susan L. Decker
Director
By /s/ KENNETH D. DENMAN By /s/ SALLY JEWELL
Kenneth D. Denman
Director
Sally Jewell
Director
By /s/ CHARLES T. MUNGER By /s/ JEFFREY S. RAIKES
Charles T. Munger
Director
Jeffrey S. Raikes
Director
By /s/ JOHN W. STANTON By /s/ MARY (MAGGIE) A. WILDEROTTER
John W. Stanton
Director
Mary (Maggie) A. Wilderotter
Director
66
Exhibit 10.8.12
Certain confidential information contained in this document, indicated by the mark “[*]”, has been omitted because it is both (i) not
material and (ii) customarily and actually treated as private or confidential
TWELFTH AMENDMENT TO THE
CO-BRANDED CREDIT CARD PROGRAM AGREEMENT
This Twelfth Amendment ("Amendment") is between Citibank, N.A. ("Bank") and Costco Wholesale Corporation ("Costco"), is effective as of
August 18, 2023, and amends that certain Co-Branded Credit Card Program Agreement, by and between Bank and Costco, dated February 27,
2015 (the "Agreement").
Pursuant to Section 16.10 of the Agreement, Bank and Costco agree as follows:
1. Defined Terms. All capitalized terms used but not defined in this Amendment will have the meanings ascribed to such terms in the
Agreement.
2. Amendments.
a. Section 4.03 Bank’s Program Team. Section 4.03(b)(vii) is deleted in its entirety and replaced with the following:
“(vii) as more particularly described in Article 7 (and as necessary to fulfill Bank’s obligations thereunder) and subject to Section 9.07(d), a
sufficient number of full-time equivalent Operations Center Employees who are dedicated exclusively to the Program to ensure that,
other than in circumstances beyond Bank’s control from time to time (e.g., a third-party security breach), at least [*] of all incoming calls
from Co-Branded Cardholders and Applicants are fielded by [*].”
b. Section 4.06 Loyalty Program. Section 4.06(b) is deleted in its entirety and replaced with the following:
“(b) As provided in Schedule 4.06(a), as of the date hereof, Costco Members are eligible to receive rewards pursuant to the Loyalty
Program (“Rewards”). Subject to Applicable Law, the Rewards will be issued by the Bank in the form of one annual Costco Rewards
coupon. If Bank is required by Applicable Law to issue Rewards in a different manner, Costco will cooperate with Bank in the
implementation of the required changes at no cost to Costco. Notwithstanding the foregoing, for deceased Co-Branded Card Accounts
and small business Co-Branded Card Account closures, Bank may issue Rewards in the form of a check or statement credit, which shall
be captured as a redemption. From time to time, and subject to Applicable Laws, Costco may require a change to the method of funding
Rewards to a gift card, statement credit, check, electronic credit or other electronic transfer, other FTD, or otherwise and shall provide
Bank with at least [*] notice prior to the effectiveness of such change. Bank shall cooperate to implement the new Rewards payment
method in such a way that it is compatible with the Costco point of sale equipment and consistent with Costco’s protocols and security
requirements and that otherwise achieves Systems interoperability between Bank’s Systems and Costco’s Systems, and Bank shall
otherwise cooperate with Costco in implementing such change, subject to Applicable Laws. Regardless of the method or form of the
Rewards, Bank (and not Costco) shall be considered the issuer of such Rewards pursuant to the Loyalty Program, and, except with
respect to the Executive Membership program and except as set forth in Schedule 9.01(4) with respect to duplicate electronic transfers
requested by Costco where Bank establishes the original electronic transfer was made to the account provided by the Co-branded
Cardholder, Bank shall be solely liable to Costco Members with respect to such Rewards. Other than its duty to redeem the Rewards in
accordance with the
Loyalty Program terms and conditions, Costco shall not have any obligation to Costco Members regarding such Rewards.”
c. Section 4.08 Dual Functionality of Co-Branded Cards. Section 4.08(c) is deleted in its entirety.
d. Section 4.11 Citi® Flex Pay. A new Section 4.11 is added to the Agreement as follows:
“4.11 Citi Flex Pay. Bank and Costco agree to provide Costco Co-Branded Cardholders (excluding Co-Branded Cardholders with
corporate guarantee small business cards) (“Eligible Co-Branded Cardholders”) with the option to finance eligible purchases made on
their Co-Branded Card using the Citi Flex Pay feature, as such feature is described in the Co-Branded Cardholder Agreement, and which
may be updated from time to time (“Citi Flex Pay Offers”). Eligibility will be consistent with how Bank determines cardholders and
transactions are eligible across other portfolios (e.g., Eligible Co-Branded Cardholders must be in good standing and under their credit
limit and have appropriate terms in their Co-Branded Cardholder Agreement). After the initial [*] in market, either Party may seek to
discontinue offering Citi Flex Pay Offers or modify the Citi Flex Pay Offers if they reasonably determine that the program is having a
material negative impact on the Program’s profitability or Co-Branded Cardholder satisfaction. The Parties will work in good faith to
remediate any Co-Branded Cardholder satisfaction concerns. The initial pricing, terms and conditions of all Citi Flex Pay Offers shall be
the pricing, terms and conditions set forth on Schedule 4.11, which may be amended from time to time upon mutual agreement.”
e. Schedule 4.11 Citi Flex Pay Offers. The attached Schedule 4.11 is added to the Agreement.
f. Section 5.02 Annual Card Marketing Plan
(i) Section 5.02(e). Section 5.02(e) of the Agreement is deleted in its entirety and replaced with the following:
“(e) Any Marketing Plan may be modified or supplemented by the Parties from time to time upon mutual agreement, provided
such modifications or supplements, as the case may be, are approved by Costco upon the recommendation of the Program
Managers. No later than thirty (30) days after the end of the first, second, and third calendar quarters of each Program Year,
Bank shall provide an update of expected Net Purchase Charges for the Program Year. If expected Net Purchase Charges will
fall above or below the budgeted funding, the Program Managers will present to Costco a revised plan to scale back or expand
the plan based on the revised expectation.”
(ii) Section 5.02(f). A new Section 5.02(f) is added to the Agreement as follows:
“(f) Any Marketing Plan shall include funding of up to [*] in rewards and network fees for High Line Accounts. The funding shall
be calculated as Net Purchase Charges attributable to High Line Accounts multiplied by one hundred and thirty basis points
(1.30%), plus associated network fees calculated as [*].”
g. Section 5.03 Annual Membership Marketing Plan. Section 5.03 is deleted in its entirety.
h. Section 5.07 Bank Marketing Obligations. Sections 5.07(f) and 5.07(i) are deleted in their entirety.
i. Section 5.08 Other Bank Products.
(i) Section 5.08(a). Section 5.08(a)(i) is deleted in its entirety and replaced with the following:
“(i) [*]”
(ii) Section 5.08(a)(ii). Section 5.08(a)(ii) is deleted in its entirety and replaced with the following:
[*]. In no event may any Bank branded proprietary card or any offer or promotion related thereto designate Costco or
warehouse clubs as a category for any adverse treatment for value proposition or rewards purposes offered in respect
of any Bank branded proprietary cards at any time during the Term.
(iii) Section 5.08(b) and Section 5.08(c). Sections 5.08(b) and 5.08(c) are deleted in their entirety.
(iv) Section 5.08(d). Section 5.08(d) is deleted in its entirety and replaced with the following:
“(d) For the purposes of this Article 5, “target” shall mean advertising, marketing or promotional activities, as applicable,
addressed or directed to a Person by means of name, address, e-mail address or telephone number and the use of the
Cardholder List to conduct such activities.”
j. Section 7.02 Operations Centers.
(i) Section 7.02(b). Section 7.02(b) is deleted in its entirety and replaced with the following:
“(b) Initially, the Operations Centers for the Program shall be established, and subject to the agreements of the Parties
set out in Schedule 7.02(a), staffed by Bank employees or Existing Subcontractors or Future Bank Subcontractors
(collectively, “Operations Center Employees”) who are managed by Bank employees and overseen and directed by
the Bank Program Team, other than as set forth on Schedule 7.02.”
(ii) Section 7.02(c). Section 7.02(c) is deleted in its entirety and replaced with the following:
“Operations Center Employees will be available during the period commencing as of one hour before Costco
Warehouses are open for business and ending one hour after Costco Warehouses are closed for business. Bank shall
not in the future transfer to any other third party or outsource any Operations Center function regarding the Program,
except for late-stage collections, recoveries, and Citi Identity Theft Solutions, without the prior written consent of Costco,
other than as set forth on Schedule 7.02.”
(iii) Section 7.02(d). Section 7.02(d) is deleted in its entirety and replaced with the following:
“[*]”
(iv) Section 7.02(e). A new Section 7.02(e) is added to the Agreement as follows:
“Notwithstanding Section 7.02(d), Bank may utilize Operations Center Employees outside of the United States for fraud
calls when [*]. Bank will use Operations Center Employees located in the United States for fraud calls at all other times,
with the exception of [*].”
k. Schedule 7.02 Operations Centers. Schedule 7.02 is deleted in its entirety and replaced with the attached Schedule 7.02
Operations Centers.
l. Schedule 7.03 Service Level Agreements (SLAs).
1. “Payment Processing” in Schedule 7.03 is amended as follows:
[*]
m. Schedule 9.01 Program Economics. Schedule 9.01 is amended by deleting “(8) Promotional Rate Offer” in its entirety.
n. Exhibit A Definitional Supplement.
(i) Exhibit A is amended to delete “Approved Transition Card” and its corresponding definition in its entirety.
(ii) Exhibit A is amended to add the following definition:
“”High Line Account” means small business Co-Branded Card Account with joint and several liability that has a credit
limit of [*] or higher, or small business Co-Branded Card Account with corporate guarantee.”
(iii) Exhibit A is amended to delete “[*]” and its corresponding definition in its entirety.
(iv) Exhibit A is amended to delete “Transitioned Card Account” and its corresponding definition in its entirety.
3. Full Force and Effect. The Agreement, as modified hereby, will remain in full force and effect and this Amendment will not be
deemed to be an amendment or a waiver of any other provision of the Agreement except as expressly stated herein. All such other
provisions of the Agreement will also be deemed to apply to this Amendment.
4. No Modification or Waiver; Incorporation. No modification, amendment or waiver of this Amendment will be effective or binding
unless made in writing and signed by the Parties. The Parties agree that, except for those modifications expressly set forth in this
Amendment, all terms and provisions of the Agreement will remain unchanged and in full force and effect. This Amendment and the
Agreement will hereafter be read and construed together as a single document, and all references to the Agreement will hereafter
refer to the Agreement as amended by this Amendment.
5. Counterparts. This Amendment may be executed in counterparts and if so executed will be enforceable and effective upon the
exchange of executed counterparts, including by facsimile or electronic transmissions of executed counterparts.
[Signature page follows]
Duly authorized representatives of the Parties have executed this Amendment.
COSTCO WHOLESALE CORPORATION CITIBANK, N.A.
By:
/s/ Sandy Torrey
By:
/s/ Jennifer Longino
Name:
Sandy Torrey
Name:
Jennifer Longino
Title: SVP, Corporate Marketing Title: Vice President
Schedule 4.11
Citi Flex Pay Offers
(a) Eligible Co-Branded Cardholders must make a purchase of $75 or more for the transaction to be eligible for Citi Flex Pay;
(b) Eligible Co-Branded Cardholders will be offered three (3) months with a $0 fee and no interest on any purchase with a “COSTCO”
transaction tag sent to Bank, which includes purchases made in Costco warehouses, on Costco.com and on Special Order Kiosks
(“Costco Purchases”);
(c) Purchases made through Costco Travel are eligible for Citi Flex Pay, however, they will generally not be eligible for the Flex Pay Offer
stated above in (b) since the majority of those purchases are not sent to Bank with a “COSTCO” transaction tag;
(d) Flex Pay Offers will not exceed [*] months in duration unless mutually agreed upon by the Parties; and
(e) The fee for Flex Pay Offers other than the one described in (b) above will be determined by Bank, but in no event will the fee exceed the
equivalent APR that the Co-Branded Cardholder would be charged for non-Flex Pay purchases (i.e., either the Standard Purchase Rate
or the Penalty APR, whichever is applicable).
Schedule 7.02
Operations Centers
Subject to Section 7.02(d), Bank may employ Operations Center Employees in any physical site, or utilize online, remote or hybrid work models.
Notwithstanding any provision in the Agreement to the contrary, the Parties agree that the following Subcontractors (and their successors) of
Bank may perform the following customer service functions at the following locations (which may be Operations Center locations):
Subcontractor Function Location
[*] [*] [*]
[*] [*] [*]
[*] [*] [*]
[*] [*] [*]
[*] [*] [*]
Exhibit 21.1
SUBSIDIARIES OF THE COMPANY
The following is a list of subsidiaries of the Company as of September 3, 2023, omitting subsidiaries which, considered in the aggregate, would
not constitute a significant subsidiary.
Subsidiaries
State or Other Jurisdiction of
Incorporation or Organization
Name under Which Subsidiary Does Business
Costco Wholesale Membership, Inc. California Costco Wholesale Membership, Inc.
Costco Wholesale Canada Ltd. Canadian Federal Costco Wholesale Canada, Ltd.
NW Re Limited Arizona NW Re Limited
Costco Insurance Agency, Inc. Washington Costco Insurance Agency, Inc.
Price Costco International, Inc. Nevada Price Costco International, Inc.
Costco Wholesale Korea, Ltd. Korea Costco Wholesale Korea, Ltd.
Costco Wholesale Japan, Ltd. Japan Costco Wholesale Japan, Ltd.
Costco de Mexico, S.A. de C.V. Mexico Costco de Mexico, S.A. de C.V.
Costco Wholesale UK Limited United Kingdom Costco Wholesale UK Limited
Costco Wholesale Taiwan, Inc. Taiwan Costco Wholesale Taiwan, Inc.
Costco Wholesale Australia, Pty. Ltd. Australia Costco Wholesale Australia, Pty. Ltd.
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the registration statements (No. 333-82782, 333-120523, 333-129172, 333-135052, 333-
150014, 333-151748, 333-165550, 333-180163, 333-187418, 333-202673, 333-204739, 333-218397, 333-230253, and 333-251396) on Form S-
8 and the registration statement (No. 333-272316) on Form S-3 of our reports dated October 10, 2023, with respect to the consolidated financial
statements of Costco Wholesale Corporation and the effectiveness of internal control over financial reporting.
/s/ KPMG LLP
Seattle, Washington
October 10, 2023
Exhibit 31.1
CERTIFICATIONS
I, W. Craig Jelinek, certify that:
1) I have reviewed this Annual Report on Form 10-K of Costco Wholesale Corporation (“the registrant”);
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
October 10, 2023
/s/ W. CRAIG JELINEK
W. Craig Jelinek
Chief Executive Officer and Director
CERTIFICATIONS
I, Richard A. Galanti, certify that:
1) I have reviewed this Annual Report on Form 10-K of Costco Wholesale Corporation (“the registrant”);
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
October 10, 2023
/s/ RICHARD A. GALANTI
Richard A. Galanti
Executive Vice President, Chief Financial Officer and Director
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Costco Wholesale Corporation (the Company) on Form 10-K for the year ended September 3, 2023, as
filed with the Securities and Exchange Commission (the Report), I, W. Craig Jelinek, Chief Executive Officer and Director of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
/s/ W. CRAIG JELINEK Date: October 10, 2023
W. Craig Jelinek
Chief Executive Officer and Director
A signed original of this written statement has been provided to and will be retained by Costco Wholesale Corporation and furnished to the
Securities and Exchange Commission or its staff upon request.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Costco Wholesale Corporation (the Company) on Form 10-K for the year ended September 3, 2023, as
filed with the Securities and Exchange Commission (the Report), I, Richard A. Galanti, Executive Vice President, Chief Financial Officer and
Director of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
/s/ RICHARD A. GALANTI Date: October 10, 2023
Richard A. Galanti
Executive Vice President, Chief Financial Officer and Director
A signed original of this written statement has been provided to and will be retained by Costco Wholesale Corporation and furnished to the
Securities and Exchange Commission or its staff upon request.
