USA/20.Costco_$388.66 B_Consumer Stapler/2021/results.txt

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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. ☑
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 14, 2021 was
$155,810,963,274.
The number of shares outstanding of the registrant's common stock as of September 28, 2021, was 441,823,811.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on January 20, 2022,
are incorporated by reference into Part III of this Form 10-K.
COSTCO WHOLESALE CORPORATION
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED AUGUST 29, 2021
TABLE OF CONTENTS
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Item 2.
Unresolved Staff Comments
Properties
Item 3.
Reserved
Item 6.
Item 7.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
PART II
Item 5.
19
19
Smaller reporting company
Emerging growth company
18
9
3
Page
Mine Safety Disclosures
Item 4.
Legal Proceedings
18
Accelerated filer
Non-accelerated filer
Large accelerated filer
Costco Wholesale Corporation
Commission file number 0-20355
Washington
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
or
For the fiscal year ended August 29, 2021
(Exact name of registrant as specified in its charter)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
SECURITIES AND EXCHANGE COMMISSION
UNITED STATES
☑
COR000296_0521
WESTERN AUSTRALIA -1
SOUTH AUSTRALIA - 1
VICTORIA-4
Washington, D.C. 20549
FORM 10-K
220
(State or other jurisdiction of
91-1223280
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.
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 if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes No ☑
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 ☐
The NASDAQ Global Select Market
Name of each exchange on
which registered
incorporation or organization)
COST
Common Stock, $.01 Par Value
Title of each class
Registrant's telephone number, including area code: (425) 313-8100
Securities registered pursuant to Section 12(b) of the Act:
(Address of principal executive offices) (Zip Code)
999 Lake Drive, Issaquah, WA 98027
(I.R.S. Employer Identification No.)
Trading Symbol
19
20
Management's Discussion and Analysis of Financial Condition and Results of
Operations
We buy most of our merchandise directly from manufacturers and route it to cross-docking consolidation
points (depots) or directly to our warehouses. Our depots receive large shipments from manufacturers
and quickly ship these goods to warehouses. This process creates freight volume and handling
efficiencies, lowering costs associated with traditional multiple-step distribution channels. For our e-
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 generally sell inventory before we are required to pay for it, even while taking advantage of
early payment discounts.
General
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 2021, 2020, and 2019 relate to the 52-week fiscal years ended August 29, 2021,
August 30, 2020, and September 1, 2019, respectively.
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, United Kingdom (U.K.), Mexico, Japan, Korea, Australia,
Spain, France, Iceland, China, and through a majority-owned subsidiary in Taiwan. Costco operated 815,
795, and 782 warehouses worldwide at August 29, 2021, August 30, 2020, and September 1, 2019,
respectively. The Company operates e-commerce websites in the U.S., Canada, Mexico, U.K., Korea,
Taiwan, Japan, and Australia. Our common stock trades on the NASDAQ Global Select Market, under the
symbol "COST."
Item 1-Business
3
PART I
INFORMATION RELATING TO FORWARD LOOKING STATEMENTS
2680
68
67
64
2
Certain statements contained in this Report constitute forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. They include statements that address activities,
events, conditions or developments that we expect or anticipate may occur in the future and may relate to
such matters as 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. Forward-looking statements may also be identified by the words "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.
Signatures
commerce operations we ship merchandise through our depots, our logistics operations for big and bulky
items, as well as through drop-ship and other delivery arrangements with our suppliers.
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 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, co-brand cardholder
rebates, Executive member 2% reward certificates and our proprietary stored-value card (shop card).
4
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 7% of total net
sales in 2021. This figure does not consider 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
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
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 or China. We operated 636 gas stations at the end of
2021. Net sales for our gasoline business represented approximately 9% of total net sales in 2021.
Warehouse Ancillary (includes gasoline, pharmacy, optical, food court, hearing aids, and tire installation)
and Other Businesses (includes e-commerce, business centers, travel, and other)
Fresh Foods (including meat, produce, service deli, and bakery)
Non-Foods (previously Hardlines and Softlines; 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)
Our average warehouse space is approximately 146,000 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.
Foods and Sundries (including sundries, dry grocery, candy, cooler, freezer, deli, liquor, and
tobacco)
•
•
Core Merchandise Categories (or core business):
We offer merchandise and services in the following categories:
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.
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.
•
NEW SOUTH WALES - 4
QUEENSLAND - 2
Form 10-K Summary
Exhibits, Financial Statement Schedules
Other Information
Item 9B.
63
Controls and Procedures
Item 9A.
63
64
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
31
Item 8.
30
Quantitative and Qualitative Disclosures About Market Risk
Item 7A.
21
Item 9.
Item 16.
PART III
Directors, Executive Officers and Corporate Governance
Item 15.
PART IV
64
64
64
ठ ठ ठ
Item 10.
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 12.
64
Executive Compensation
Item 11.
64
Item 13.
Item 14.
AUSTRALIAN CAPITAL
TERRITORY-1
Financial Statements and Supplementary Data
AUSTRALIA
Canada
105
United States and
Puerto Rico 572
ALABAMA - 4
ALASKA - 4
ARIZONA-18
ARKANSAS-1
CALIFORNIA - 131
COLORADO-14
CONNECTICUT - 8
DELAWARE-1
FLORIDA-29
GEORGIA - 15
HAWAII - 7
IDAHO - 7
ILLINOIS-23
INDIANA - 8
IOWA - 3
KANSAS - 3
KENTUCKY-4
LOUISIANA -3
MARYLAND - 11
MASSACHUSETTS - 6
MISSOURI - 7
MONTANA -5
NEBRASKA-3
NEVADA - 8
NEW HAMPSHIRE - 1
NEW JERSEY - 21
NEW MEXICO - 3
NEW YORK-19
NORTH CAROLINA - 10
NORTH DAKOTA - 2
OHIO - 12
OKLAHOMA - 3
OREGON - 13
PENNSYLVANIA - 11
SOUTH CAROLINA - 6
SOUTH DAKOTA - 1
TENNESSEE - 6
JALISCO - 3
MÉXICO - 5
COSTCO.COM.MX
AGUASCALIENTES - 1
BAJA CALIFORNIA - 4
BAJA CALIFORNIA SUR-1
CHIHUAHUA -2
CIUDAD DE MÉXICO - 5
COAHUILA -1
GUANAJUATO - 3
MEXICO
SASKATCHEWAN - 3
COSTCO.CA
ALBERTA -19
BRITISH COLUMBIA - 14
MANITOBA - 3
NEW BRUNSWICK - 3
NEWFOUNDLAND AND
LABRADOR-1
NOVA SCOTIA -2
ONTARIO - 38
QUÉBEC - 22
CANADA
40
PUERTO RICO - 4
WISCONSIN - 9
WASHINGTON - 32
VIRGINIA - 17
VERMONT -1
UTAH - 12
TEXAS-35
WASHINGTON, D.C. -1
Mexico
MICHIGAN - 16
MINNESOTA - 13
MISSISSIPPI - 1
COSTCO.COM
Dear Costco Shareholders:
December 9, 2021
Costco
Costco
WAL
FISCAL YEAR ENDED AUGUST 29, 2021
In another year of uncertainty, Costco was steadfast in providing goods and services, remaining nimble, and adapting our
business as needed to best serve our members and protect our employees.
ANNUAL REPORT
COSTCO 2021
Coarce
SHANNON
COSTCO
COSTCO
NICOLE
Bey
COSTCO.COM.AU
WHOLESALE
MICHOACÁN -1
Despite ongoing pandemic challenges, we had another strong year in fiscal 2021. Net sales for the 52-week fiscal year totaled
$192 billion, an increase of 18%, with a comparable sales increase of 16%. Net income for the 52-week fiscal year was $5
billion, or $11.27 per diluted share, an increase of 25%. Revenue from membership fees increased 9% to $3.9 billion. In
December 2020, we paid a special cash dividend of $10 per share or $4.4 billion. The special dividend was the fourth in eight
years, which was in addition to a 13% increase in the regular dividend approved in April 2021.
In fiscal 2021, we opened warehouses and business centers domestically and internationally, including 12 net new in the U.S.,
four net new in Canada, three in Japan, and one in Taiwan. The pandemic created challenges in opening buildings, and we
expect the pace to increase in fiscal 2022. In fact as of today we have already opened 13 net new buildings in the new fiscal
year.
WHOLESALE
COSTCO 828 locations as of December 31, 2021
President and Chief Executive Officer
Craig Jelinek
Cray Jelek
Sincerely,
Fiscal 2021 presented global challenges in the supply of key commodities, transportation capacity, and labor shortages.
Inflationary factors, such as higher labor and freight costs, greater transportation and container demand, and scarcity of certain
products put pressure on pricing. We worked with our suppliers to explore methods to control costs and avoid or minimize
price increases when possible.
From the Costco family to yours, I wish you a healthy and happy New Year.
Costco is committed to efforts around social and environmental issues. Regarding diversity and inclusion, we have increased
our efforts to expand the recruitment candidate pool and developed a library of resources and training for all levels of
employees in order to foster an environment that supports and encourages open dialogue and communication. Regarding the
environment, Costco's continuing work on initiatives aligned with the Global Climate Action Plan, the Global Forest
Conservation Commitment and UN Sustainable Development Goals, which can be found on our website. We recognize that
continuing to address Costco's social and environmental impact is both a business imperative and the right thing to do, and we
remain committed to these efforts.
We continued to recognize and reward the exceptional performance of hourly employees in operations, extending the $2 per
hour premium pay through February 2021. Such action marked an entire year of providing premium pay for those employees
who demonstrated outstanding service during an extraordinarily difficult and uncertain time. In March 2021, we permanently
increased wages by $1 for hourly warehouse employees.
The Kirkland Signature ™ brand, which is synonymous with higher quality and exceptional value, saw strong global growth with
sales exceeding $59 billion, compared to $52 billion in the prior year. We focused on driving down costs, improving quality,
expanding in-country sourcing options, reducing the environmental impact of transportation, and introducing new and exciting
products.
TM
We operate eight e-commerce websites worldwide, where comparable sales grew by 44% over the previous year. We continue
to focus on complementing our core warehouse business with online offerings. Our acquisition of what we now call Costco
Logistics has helped improve our delivery times and often lower delivery prices of big and bulky items. As a result, categories
such as appliances, exercise equipment, furniture, mattresses and patio products contributed to sales growth this year, despite
supply challenges. Other important advancements were achieved in our online business including reduced costs associated
with picking items, the addition of frozen grocery 2-day deliveries, and technology enhancements including a streamlined
COVID-19 vaccine scheduler.
In a move much anticipated by members, warehouses began a phased return to full sampling using increased safety
protocols. Costco food courts were able to resume seating at most locations, with more physical separation and reduced
seating capacity.
As 2021 comes to a close, I extend my thanks and appreciation to our more than 300,000 Costco employees across the globe
who consistently impress me with their work ethic, dedication to member service, and their loyalty to our business. Finally, I
thank Costco members around the world for their continued support and trust in our business. Together, we've made it through
an unimaginable time in our lives, and we're moving forward toward a brighter future.
MORELOS - 1
NUEVO LEÓN - 3
PUEBLA - 1
QUERÉTARO-1
QUINTANA ROO - 1
SAN LUIS POTOSÍ - 1
SINALOA - 1
UNITED
STATES
TABASCO - 1
TOYAMA-1
OSAKA - 1
SAITAMA - 2
SHIZUOKA-1
TOKYO-1
IBARAKI – 2
HIROSHIMA-1
HOKKAIDO-2
HYOGO - 2
GUNMA – 1
GIFU-1
KOREA
MIYAGI -1
CHIBA - 3
AICHI - 2
KYOTO-1
KUMAMOTO-1
ISHIKAWA-1
KANAGAWA - 3
COSTCO.CO.JP
FUKUOKA -2
JAPAN
COSTCO.CO.KR
CHUNGCHEONGNAM-DO-1
TAOYUAN CITY -2
SONORA - 1
TAIPEI CITY-2
TAINAN CITY-1
NEW TAIPEI CITY - 3
TAICHUNG CITY - 2
KAOHSIUNG CITY - 2
BUSAN - 1
CHIAYI CITY-1
HSINCHU CITY-1
TAIWAN
SEJONG-1
SEOUL - 3
ULSAN – 1
INCHEON - 1
GYEONGGI-DO-5
DAEJEON-1
DAEGU - 2
COSTCO.COM.TW
SHANGHAI -1
YAMAGATA-1
ENGLAND -25
SCOTLAND - 3
France
29 Kingdom
United
1
2
China
14
Taiwan
30
Japan
16
Korea
WALES-1
YUCATÁN - 1
VERACRUZ-2
2
Australia
Iceland
13
COSTCO.CO.UK
MADRID - 2
BISCAY-1
ANDALUCÍA - 1
SPAIN
KAUPTÚN -1
JIANGSU - 1
UNITED
KINGDOM
ICELAND
ÎLE-DE-FRANCE - 2
FRANCE
4
CHINA
Spain
68
1994
69
2013
69
2021
57
2016
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.
Item 1A-Risk Factors
Business and Operating Risks
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 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 86% and 81% of net sales and operating income in 2021, respectively. Within the U.S.,
we are highly dependent on our California operations, which comprised 28% of U.S. net sales in 2021.
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 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 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.
56
2011
Executive Vice President, Chief Operating Officer,
International. Mr. Murphy was Senior Vice President,
International, from 2004 to October 2010.
2018
Executive Vice President and Chief Financial Officer.
Mr. Galanti has been a director since January 1995.
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.
9
President and Chief Executive Officer. Mr. Jelinek has
been President and Chief Executive Officer since
January 2012 and a director since February 2010. 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.
Executive Vice President, Administration. Mr. Callans
was Senior Vice President, Human Resources and
Risk Management, from 2013 to December 2018.
Executive Vice President, Chief Operating Officer,
Southern Division and Mexico. Mr. Miller was Senior
Vice President, Western Canada Region, from 2001 to
January 2018.
Executive Vice President, Chief Operating Officer,
Eastern and Canadian Divisions. Mr. Portera has held
these positions since 1994 and has been the Chief
Diversity Officer since 2010.
Executive Vice President, Ancillary Businesses,
Manufacturing, and Business Centers. Mr. Rose was
Senior Vice President, Merchandising, Foods and
Sundries and Private Label, from 1995 to December
2012.
Executive Vice President, Northeast and Southeast
Regions. 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.
64
Executive Vice President, Chief Operating Officer,
Merchandising. Mr. Vachris was 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.
Executive
Officer
Since Age
1995 69
1993
65
2018
59
2019 59
8
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.
and tax policies including changes in 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, actions in various countries, particularly China, the United States and the United
Kingdom, have raised the cost of many items and created uncertainty with respect to tariff impacts on 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.
While these potential impacts are uncertain, they could have an adverse impact on our results.
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.
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
numerous internal and external factors, including the continuing impacts of the pandemic, regulatory
changes, prevailing wage rates, 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.
12
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, internet 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 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.
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
13
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 war or acts of terrorism.
Inflationary factors such as increases in merchandise costs may adversely affect our business, financial
condition and results of operations. If inflation on merchandise increases beyond our ability to control we
may not be able to adjust prices to sufficiently offset the effect of the various cost increases without
negatively impacting consumer demand. Certain merchandise categories were impacted by inflation
higher than what we have experienced in recent years due to, among other things, the continuing impacts
of the pandemic and uncertain economic environment.
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.
Position
We buy from numerous domestic and foreign manufacturers 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.
General economic factors, domestically and internationally, may adversely affect our business,
financial condition, and results of operations.
Our failure to maintain membership growth, loyalty and brand recognition could adversely affect
our results of operations.
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, particularly in the
wake of COVID-19. 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.
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.
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 business depends heavily on third-
party and in-house logistics providers and that business 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
If we do not successfully develop and maintain a relevant omnichannel experience for our
members, our results of operations could be adversely impacted.
10
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
third parties, in connection with virtually all of our business activities. Additionally, we collect, store and
process sensitive information relating to our business, members, suppliers and employees. 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 due to the COVID-19 pandemic has also
increased the possible attack surfaces. Threats designed to gain unauthorized access to systems,
networks and data, both ours and third parties with whom we work, are increasing in frequency and
sophistication. 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. It is possible that our IT systems and networks, or
those managed by third parties such as cloud providers or suppliers that otherwise host confidential
information, could have vulnerabilities, which could go unnoticed for a period of time. 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 material cybersecurity attack include reputational damage, litigation,
government enforcement actions, penalties, disruption to systems, 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 emerging
privacy and cybersecurity laws across the various states and around the globe, which may carry
significant potential penalties for noncompliance.
11
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
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 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.
We might sell products that cause illness or injury to our members, harm to our reputation, and
expose us to litigation.
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,
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.
Ron M. Vachris
Total cardholders
Timothy L. Rose
53,900
49,900
47,400
44,600
111,600
105,500
98,500
58,100
Paid cardholders (except affiliates) are eligible to upgrade to an Executive membership in the U.S. and
Canada, for an additional annual fee of $60. Executive memberships are also available in Mexico, the
U.K., Japan, Korea, and Taiwan, for which the additional annual fee varies. Executive members earn a
2% reward on qualified purchases (generally up to a maximum reward of $1,000 per year), which can be
redeemed only at Costco warehouses. This program also offers (except in Mexico and Korea), 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. These services are generally provided
by third parties and vary by state and country. Executive members totaled 25.6 million and represented
55% of paid members (excluding affiliates) in the U.S. and Canada and 17% of paid members (excluding
affiliates) in our Other International operations at the end of 2021. They generally shop more frequently
and spend more than other members.
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.
At the end of 2021, we employed 288,000 employees worldwide. The large majority (approximately 95%)
is employed in our membership warehouses and distribution channels and approximately 17,000
employees are represented by unions. We also utilize seasonal employees during peak periods. The total
number of employees by segment is:
United States
Canada
Other International
Total employees
50
Number of Employees
61,700
11,300
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
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.
Certain financial information for our segments and geographic areas is included in Note 12 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 our U.S. and Canadian operations
and varies in other countries. All paid memberships include a free household card.
Our member renewal rate was 91% in the U.S. and Canada and 89% worldwide at the end of 2021. The
majority of members renew within six months following their renewal date. Our renewal rate 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. At the end of 2020, we standardized our membership
count methodology globally to be consistent with the U.S. and Canada, which resulted in the addition to
the count of approximately 2.0 million total cardholders for 2020, of which 1.3 million were paid members.
The change did not impact 2019. Membership fee income and the renewal rate calculations were not
affected. Our membership was made up of the following (in thousands):
Gold Star
Business, including affiliates
11,000
Total paid members
2021
2020
2019
50,200
46,800
42,900
11,500
Household cards
Yoram Rubanenko
2021
2019
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 adopted 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 CEO, 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.
7
Information about our Executive Officers
Intellectual Property
The executive officers of Costco, their position, and ages are listed below. All have over 25 years of
service with the Company.
W. Craig Jelinek
Richard A. Galanti
Jim C. Klauer
Patrick J. Callans
Russ D. Miller
James P. Murphy
Joseph P. Portera
Name
2020
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, internet
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, and many of the major metropolitan
areas in the U.S. and certain of our Other International locations have multiple clubs.
6
192,000
181,000
167,000
47,000
46,000
42,000
49,000
Competition
46,000
288,000
273,000
254,000
We believe that our warehouses are among the most productive in the retail industry, owing in substantial
part 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 maintaining a 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 2021, in the U.S. that rate was above 90% for employees who
have been with us for at least one year.
The commitment to "Take Care of Our Employees" is also the foundation of our approach to diversity,
equity and inclusion and creating an inclusive and respectful workplace. In 2021, we added training and
communication for managers on topics of race, bias and equity, and greater visibility of our employee
demographics. Embracing differences is important to the growth of our Company. It leads to more
opportunities, innovation, and employee satisfaction and connects us to the communities where we do
business.
Costco is firmly committed to helping protect the health and safety of our members and employees and to
serving our communities. In response to the COVID-19 pandemic and its associated challenges, we
began providing premium pay to the majority of our hourly employees in March 2020 and continued for a
full year through February 2021, at which time a portion of the premium was built permanently into our
hourly wage scales in the U.S. In fall 2020, we also began offering employees additional paid time off to
attend to child care and schooling needs through the 2021 school year. As the global effect of coronavirus
(COVID-19) continues to evolve, we are closely monitoring the changing situation and complying with
public health guidance.
For more detailed information regarding our programs and initiatives, see “Employees" within our
Sustainability Commitment (located on our website). This report and other information on our website are
not incorporated by reference into and do not form any part of this Annual Report.
45,000
14
packages, hotels, cruises, 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. The COVID-19 pandemic created
unprecedented supply constraints, including disruptions and delays that have impacted and could
continue to impact the flow and availability of certain products. When sources of supply become
unavailable, we seek alternative sources. 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.
109
2018
2017
2016
2014
2013
2012
217
2019
192
176
163
159
162
164
160
155
815
182
2020
2021
Fiscal Year
22
22
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 references to the differences between the foreign-
exchange rates we use to convert the financial results of our international operations from local currencies
into U.S. dollars for financial reporting purposes. This impact of foreign-exchange rate changes is
calculated based on the difference between the current period's currency exchange rates and that of the
comparable prior period. The impact of changes in gasoline prices on net sales is calculated based on the
difference between the current period's average price per gallon sold and that of the comparable prior
period.
Our operating model is generally the same across our U.S., Canadian, and Other International operating
segments (see Note 12 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 an e-commerce business.
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 selling, general and administrative expenses,
can have substantial impacts on net income.
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.
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 operating floor space 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 growth, domestically and internationally, has also increased our
sales but it generally has a lower gross margin percentage relative to our warehouse operations.
uncertainty with respect to how tariffs will affect 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.
Certain merchandise categories were impacted by inflation higher than what we have experienced in
recent years. The impact to our net sales and gross margin is influenced in part by our merchandising and
pricing strategies in response to cost increases. While these potential impacts are uncertain, they could
have an adverse impact on our results.
24
21
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" on quality goods - consistently providing the
most competitive values. 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 as a percentage of net
sales (gross margin percentage). We believe our gasoline business draws members, but it generally has
a lower gross margin percentage relative to our non-gasoline business. It also has lower SG&A expenses
as a percent of net sales compared to our non-gasoline business. 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. Additionally,
actions in various countries, particularly China, the United States and the United Kingdom, have created
We believe that the most important driver of our profitability is increasing net sales, particularly
comparable sales growth. Net sales includes our core merchandise categories (foods and sundries, non-
foods, and fresh foods), warehouse ancillary (includes gasoline, pharmacy, optical, food court, hearing
aids, and tire installation) and other businesses (includes e-commerce, business centers, travel and
other). We define comparable sales 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. 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 the consolidation of the results of our international operations); 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 certain of our selling, general and administrative (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.
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 2021 compared to 2020. For discussion related
to the results of operations and changes in financial condition for 2020 compared to 2019 refer to Part II,
Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our
fiscal year 2020 Form 10-K, which was filed with the United States Securities and Exchange Commission
(SEC) on October 7, 2020. In 2021, we combined the hardlines and softlines merchandise categories into
non-foods. This change did not have a material impact on the discussion of our results of operations.
Overview
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)
20
20
Item 6-Reserved
2017 was a 53-week fiscal year
*First year sales annualized.
232
Our fiscal year ends on the Sunday closest to August 31. References to 2021, 2020, and 2019 relate to
the 52-week fiscal years ended August 29, 2021, August 30, 2020, and September 1, 2019, respectively.
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.
205
188
24
Fluctuations in foreign exchange rates may adversely affect our results of operations.
During 2021, our international operations, including Canada, generated 28% and 36% of our net sales
and operating income, respectively. 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. Consequently, fluctuations in currency exchange rates may adversely affect our
results of operations.
Natural disasters, extreme weather conditions, public health emergencies or other catastrophic
events could negatively affect our business, financial condition, and results of operations.
Natural disasters and extreme weather conditions, such as hurricanes, typhoons, floods, earthquakes,
wildfires, droughts; acts of terrorism or violence, including active shooter situations; energy shortages;
public health issues, including pandemics and quarantines, 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. Public health issues, whether occurring in the U.S. or abroad,
could disrupt our operations, disrupt the operations of suppliers or members, or have an adverse impact
on consumer spending and confidence levels. 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.
The COVID-19 pandemic continues to affect our business, financial condition and results of
operations in many respects.
The continuing impacts of the COVID-19 pandemic are highly unpredictable and volatile and are affecting
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.
125
The pandemic has resulted in widespread and continuing impacts on the global economy and on our
employees, members, suppliers and other people and entities with which we do business. There is
considerable uncertainty regarding the extent to which COVID-19 will continue to spread and the extent
and duration of measures to try to contain the virus, such as travel bans and restrictions, quarantines,
shelter-in-place orders, and business and government shutdowns. The pandemic and any preventative or
protective actions that governments or we may take may result in business disruption, reduced member
traffic and reduced sales in certain merchandise categories, and increased operating expenses.
15
behaviors change, which may challenge our ability to anticipate and/or adjust inventory levels to meet that
demand. Similarly, increased demand for online purchases of products has impacted our fulfillment
operations, resulting in delays in deliveries and lost sales from being out of stock for certain SKUs.
Failure to appropriately respond, or the perception of an inadequate response to evolving events around
the pandemic, could cause reputational harm to our brand and subject us to lost sales, as well as claims
from employees, members, suppliers, regulators or other parties. Additionally, a future outbreak of
confirmed cases of COVID-19 in our facilities could result in temporary or sustained workforce shortages
or facility closures, which would negatively impact our business and results of operations. Some
jurisdictions have taken measures intended to expand the availability of workers compensation or to
change the presumptions applicable to workers compensation measures. These actions may increase our
exposure to claims and increase our costs.
Other factors and uncertainties include, but are not limited to:
•
•
•
•
The pandemic is continuing to impact the global supply chain, with restrictions and limitations on business
activities causing disruption and delay, which have strained certain domestic and international supply
chains, and could continue to negatively affect the flow or availability of certain products. Member
demand for certain products has and may continue to fluctuate as the pandemic progresses and member
140
144
155
175
169
170
169
163
607 $ 155
186
158
144
137
124
116
113
109
99
EA
$
26
182
195
•
Highlights for 2021 included:
•
Increases in comparable sales excluding the impact
6%
8%
16 %
Total Company
2 %
9%
19%
of changes in foreign currency and gasoline
Other International
5 %
20%
Canada
8%
8%
15%
8%
9%
2%
prices (1)
U.S.
Canada
Comparable sales increased 16% during 2021 and were positively impacted by increases in shopping
frequency and average ticket. There was an increase of 44% in e-commerce comparable sales in 2021,
driven by an increase of 80% in the first half of the year.
Comparable Sales
Changes in foreign currencies relative to the U.S. dollar positively impacted net sales by approximately
$2,759, or 169 basis points, compared to 2020, attributable to our Canadian and Other International
operations. Changes in gasoline prices positively impacted net sales by $1,636, or 100 basis points,
compared to 2020, due to a 12% increase in the average price per gallon. The volume of gasoline sold
increased approximately 10%, positively impacting net sales by $1,469, or 90 basis points.
Net sales increased $28,832 or 18% during 2021. The improvement was attributable to an increase in
comparable sales of 16%, and sales at new warehouses opened in 2020 and 2021. While sales in all core
merchandise categories increased, sales were particularly strong in non-foods. Sales increases were also
strong in our warehouse ancillary and other businesses, predominantly e-commerce and gasoline.
Certain merchandise categories were impacted by inflation higher than what we have experienced in
recent years.
(1) Excluding the impact of the revenue recognition standard for the year ended September 1, 2019.
Net Sales
6%
9%
13 %
6%
11 %
13 %
5 %
7%
12 %
6%
9%
14 %
Total Company
Other International
18 %
•
U.S.
Total Company
RESULTS OF OPERATIONS
23
23
Effective March 1, 2021, we permanently increased wages for hourly and most salaried warehouse
employees. The estimated annualized pre-tax cost is approximately $400. Additionally, in certain areas in
the United States governments have mandated or are considering mandating extra pay for classes of
employees that include our employees, which has and will result in higher costs.
We paid $515 in incremental wages during 2021 related to COVID-19. The incremental wage and benefit
costs associated with COVID-19, which began on March 1, 2020 and ended on February 28, 2021,
totaled approximately $825.
During 2021, our sales mix began returning to pre-pandemic levels. This included sales increases in non-
foods and in many of our warehouse ancillary and other businesses, certain of which experienced
closures or restrictions in 2020. COVID-related supply and logistics constraints have adversely affected
some merchandise categories and are expected to do so for the foreseeable future.
COVID-19
We paid a special cash dividend of $10.00 per share in December 2020 and in April 2021, increased
the quarterly cash dividend from $0.70 to $0.79 per share totaling $5,748.
Net Sales
Net income increased 25% to $5,007, or $11.27 per diluted share compared to $4,002, or $9.02 per
diluted share in 2020;
Gross margin percentage decreased seven basis points, driven primarily by a shift in sales
penetration from our core merchandise categories to our warehouse ancillary and other businesses;
SG&A expenses as a percentage of net sales decreased 40 basis points, primarily due to leveraging
increased sales and decreased incremental wages related to COVID-19;
Membership fee revenue increased 9% to $3,877, driven by sign-ups and upgrades to Executive
membership;
Net sales increased 18% to $192,052 driven by a 16% increase in comparable sales and sales at
new warehouses opened in 2020 and 2021;
We opened 22 new warehouses, including 2 relocations: 12 net new in the U.S., 4 net new in our
Canadian segment, and 4 new in our Other International segment, compared to 16 new
warehouses, including 3 relocations in 2020;
•
•
•
•
The effective tax rate in 2021 was 24.0% compared to 24.4% in 2020;
2021
2020
2019
5 %
13 %
23 %
3%
5 %
22 %
9%
9%
16 %
149,351
163,220 $
$
192,052
$
Other International
Canada
U.S.
Increases in net sales:
Net Sales
Increases in comparable sales:
115
The severity and duration of the pandemic, including future mutations or related variants of the
virus in areas in which we operate;
Changes in labor markets affecting us and our suppliers;
9/1/19
8/30/20
8/29/21
Costco
S&P 500
S&P 500 Retail
The following graph provides information concerning average sales per warehouse over a 10 year period.
Average Sales Per Warehouse*
9/2/18
(Sales In Millions)
2014
2013
2012 & Before
Totals
Year Opened
# of Whses
2021
2020
2015
9/3/17
8/28/16
0
398.76
318,000
Period
May 10-June 6, 2021
June 7-July 4, 2021
July 5-August 1, 2021
August 2-August 29, 2021
of Shares
Purchased
Total fourth quarter
(1) The repurchase program is conducted under a $4,000 authorization approved by our Board of Directors in April 2019, which
expires in April 2023.
19
Performance Graph
The following graph compares the cumulative total shareholder return (stock price appreciation and the
reinvestment of dividends) on an investment of $100 in Costco common stock, S&P 500 Index, and the
S&P 500 Retail Index over the five years from August 28, 2016, through August 29, 2021.
Comparison of 5-Year Cumulative Total Returns
Dollars
400
300
200
100
2019
318,000 $
2018
2016
$
87
97
118
131
145
173
$
206
83
94
112
122
136
163
30
$
108
85
176
158
142
22222223211
20
26
EA
$
140
$
132
152
$ 129
138
172
$
116
119
141
172
$
121
2017
Evolving macroeconomic factors, including general economic uncertainty, unemployment rates,
and recessionary pressures;
3,250
446.15
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 August 29, 2021, we operated 815 membership warehouses:
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.
United States and Puerto Rico
Other International
Total
(1) 121 of the 171 leases are land-only leases, where Costco owns the building.
18
Own Land
and Building
Lease Land
and/or
Building
(1)
Total
Canada
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.
Significant 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 could adversely impact our business, financial condition and results of
operations.
17
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 recovery when the pandemic subsides.
The long-term impact of the pandemic on our business, including consumer behaviors; and
Disruption and volatility within the financial and credit markets.
To the extent that COVID-19 continues to adversely affect the U.S. and global economy, our business,
results of operations, cash flows, or financial condition, it may also heighten other risks described in this
section, including but not limited to those related to consumer behavior and expectations, competition,
brand reputation, implementation of strategic initiatives, cybersecurity threats, payment-related risks,
technology systems disruption, supply chain disruptions, labor availability and cost, litigation, operational
risk as a result of remote work arrangements and regulatory requirements.
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 may increase
compliance and merchandise costs, and other regulation affecting energy inputs could materially affect
our profitability. 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 which face increased regulation.
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.
16
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 2021, we operated 251 warehouses outside of the U.S., 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 such as the withdrawal of the U.K. from the European Union, 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.
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.
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.
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
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.
454
45,000
110
89
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Maximum Dollar
Value of Shares
that May Yet be
Purchased under
the Program
102,000 $
381.50
102,000
$
Program(1)
3,338
387.32
108,000
3,296
63,000
412.73
63,000
3,270
45,000
108,000
Average Price
Paid per
Share
Total Number
The following table sets forth information on our common stock repurchase activity for the fourth quarter
of 2021 (dollars in millions, except per share data):
16
105
101
45
146
644
171
815
At the end of 2021, our warehouses contained approximately 118.9 million square feet of operating floor
space: 83.2 million in the U.S.; 14.9 million in Canada; and 20.8 million in Other International. Total
square feet associated with distribution and logistics facilities were approximately 31.4 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 11 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
September 28, 2021, we had 9,958 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
564
2015
24
25
25
16
4
4
22
4
18
83
35
13
Total warehouse openings, including relocations
$ 76 $ 55 $ 86
2020
2021
Other International
Canada
Warehouse openings, including relocations
United States
Preopening expenses
Preopening
SG&A expenses as a percentage of net sales decreased 40 basis points compared to 2020. SG&A
expenses as a percentage of net sales excluding the impact of gasoline price inflation was 9.69%, a
decrease of 32 basis points. Warehouse operations and other businesses were lower by 24 basis points,
largely attributable to payroll leveraging increased sales. Incremental wages as a result of COVID-19,
which ended on February 28, 2021, were lower by eight basis points. Central operating costs were lower
by five basis points. Stock compensation expense was lower by three basis points, and costs associated
with the acquisition of Innovel were lower by one basis point. These decreases were offset by an increase
of five basis points related to a partial reversal of a product tax assessment in 2020, as well as an
increase of four basis points related to a write-off of certain information technology assets in the fourth
quarter of 2021 that are no longer expected to be utilized as part of the modernization of our information
systems. Changes in foreign currencies relative to the U.S. dollar increased our SG&A expenses by
approximately $228 in 2021.
10.04 %
2019
10.01 %
Preopening expenses include startup costs for new warehouses and relocations, developments in new
international markets, new manufacturing and distribution facilities, and expansions at existing
warehouses and corporate facilities. Preopening expenses vary due to the number of warehouse and
facility openings, the timing of the opening relative to our year-end, whether the warehouse is owned or
leased, and whether the opening is in an existing, new or international market.
Interest expense
126
89 $
41 $
2019
2020
2021
Interest income and other, net
Other, net
Foreign-currency transaction gains, net
Interest Expense
Interest income
26
Interest expense primarily relates to Senior Notes. For more information on our debt arrangements, refer
to the consolidated financial statements included in Item 8 of this Report.
150
160 $
171 $
$
2019
2020
2021
Interest Income and Other, Net
56
SG&A expenses as a percentage of net sales
2019
2019
2020
2021
Gross margin percentage
Gross margin
Less merchandise costs
Net sales
Gross Margin
Membership fees increased 9% in 2021, driven by sign-ups and upgrades to Executive membership.
Excluding the positive impact of changes in foreign currencies relative to the U.S. dollar, membership fees
increased 8%. At the end of 2021, our member renewal rates were 91% in the U.S. and Canada and 89%
worldwide. Our renewal rate 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.
$
7 %
3,352
3,541 $
3,877 $
9%
2019
2020
2021
Membership fees increase
Membership fees
Membership Fees
6%
14,994
192,052 $
170,684
149,351
16,332
18,461 $
9.61%
2020
2021
SG&A expenses
Selling, General and Administrative Expenses
25
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),
decreased in our U.S. segment, due to our warehouse ancillary and other businesses, our core
merchandise categories, and the LIFO charge, partially offset by the reserve for certain inventory in 2020.
Our Canadian and Other International segments increased, primarily due to our warehouse ancillary and
other businesses and certain of our core merchandise categories. These increases were partially offset by
increased 2% rewards.
Total gross margin percentage decreased seven basis points compared to 2020. Excluding the impact of
gasoline price inflation on net sales in 2021, gross margin percentage was 11.22%, an increase of two
basis points. This increase was due to a two basis point improvement in our core merchandise
categories, predominantly non-foods, and in our warehouse ancillary and other businesses, largely e-
commerce. The comparison was also positively impacted by a three basis point reserve on inventory
recorded in 2020 with no such reserve this year. Gross margin percentage was negatively impacted three
basis points due to increased 2% rewards and two basis points due to a LIFO charge for higher
merchandise costs. Changes in foreign currencies relative to the U.S. dollar positively impacted gross
margin by approximately $301 in 2021.
163,220 $
144,939
The gross margin of our core merchandise categories (foods and sundries, non-foods and fresh foods),
when expressed as a percentage of core merchandise sales (rather than total net sales), increased 23
basis points. This measure eliminates the impact of changes in sales penetration and gross margins from
our warehouse ancillary and other businesses. The increase was across all categories, most significantly
in non-foods.
11.20 %
11.13 %
16,465
$
18,281
$
21,368
$
132,886
11.02 %
27
46
(4)
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.
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.
Interest Rate Risk
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.
Item 7A-Quantitative and Qualitative Disclosures About Market Risk (amounts in millions)
29
29
We do not expect that any recently issued accounting pronouncements will have a material effect on our
financial statements.
Recent Accounting Pronouncements
A 100 basis point change in interest rates as of the end of 2021 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.
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 different risk management mechanisms, including a
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 by 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 over time. While we believe our estimates are reasonable and
provide for a certain degree of coverage to account for these variables, actual claims and costs could
differ significantly from recorded liabilities. Historically, adjustments to our estimates have not been
material.
The preparation of our consolidated financial statements in accordance with U.S. generally accepted
accounting principles (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.
Critical Accounting Estimates
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.
Off-Balance Sheet Arrangements
The Company has letter of credit facilities, for commercial and standby letters of credit, totaling $235. The
outstanding commitments under these facilities at the end of 2021 totaled $197, most of which were
standby letters of credit which do not expire or have expiration dates within one year. The bank credit
facilities have various expiration dates, most of which are 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.
We maintain bank credit facilities for working capital and general corporate purposes. At August 29, 2021,
we had borrowing capacity under these facilities of $1,050. Our international operations maintain $574 of
the total borrowing capacity under bank credit facilities, of which $201 is guaranteed by the
Company. Short-term borrowings outstanding under the bank credit facilities at the end of 2021 were
immaterial, and there were none outstanding at the end of 2020.
Bank Credit Facilities and Commercial Paper Programs
Cash dividends declared in 2021 totaled $12.98 per share, as compared to $2.70 per share in 2020.
Dividends in 2021 included a special dividend of $10.00 per share, resulting in an aggregate payment of
approximately $4,430. In April 2021, the Board of Directors increased our quarterly cash dividend from
$0.70 to $0.79 per share.
Dividends
Insurance/Self-insurance Liabilities
28
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 2021, long-term debt with fixed interest rates was $7,531.
Fluctuations in interest rates may affect the fair value of the fixed-rate debt. See Note 5 to the
consolidated financial statements included in Item 8 of this Report for more information on our long-term
debt.
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
international subsidiaries whose functional currency is other than the U.S. dollar. 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 4 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 August 29, 2021,
I would have decreased the fair value of the contracts by $149 and resulted in an unrealized loss in the
consolidated statements of income for the same amount.
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 August 29,
2021 were $1,257 million, a portion of which related to workers' compensation self-insurance
liabilities for the United States operations.
Evaluation of workers' compensation self-insurance liabilities
31
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.
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
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.
Basis for Opinion
The Company changed its method of accounting for leases as of September 2, 2019, due to the adoption
of Accounting Standards Update 2016-02 - Leases (ASC 842).
Change in Accounting Principle
Foreign Currency Risk
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 August 29,
2021, 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 5,
2021 expressed an unqualified opinion on the effectiveness of the Company's internal control over
financial reporting.
We have audited the accompanying consolidated balance sheets of Costco Wholesale Corporation and
subsidiaries (the Company) as of August 29, 2021 and August 30, 2020, the related consolidated
statements of income, comprehensive income, equity, and cash flows for the 52-week periods ended
August 29, 2021, August 30, 2020 and September 1, 2019, 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 August 29, 2021 and August 30, 2020,
and the results of its operations and its cash flows for the 52-week periods ended August 29, 2021,
August 30, 2020 and September 1, 2019, in conformity with U.S. generally accepted accounting
principles.
Opinion on the Consolidated Financial Statements
Costco Wholesale Corporation:
To the Stockholders and Board of Directors
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Item 8-Financial Statements and Supplementary Data
30
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.
Commodity Price Risk
-
During 2021 and 2020, we repurchased 1,358,000 and 643,000 shares of common stock, at average
prices of $364.39 and $308.45, respectively, totaling approximately $495 and $198, respectively. These
amounts may differ from the stock repurchase balances in the accompanying consolidated statements of
cash flows due to changes in unsettled stock 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 and 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
$3,250 at the end of 2021.
Stock Repurchase Programs
In 2020, we issued $4,000 in aggregate principal amount of Senior Notes and repaid $3,200 of Senior
Notes.
The effective tax rate for 2021 included discrete net tax benefits of $163, including a benefit of $75 due to
excess benefits from stock compensation, $70 related to the special dividend payable through our 401(k)
plan, and $19 related to a reduction in the valuation allowance against certain deferred tax assets.
Excluding these benefits, the tax rate was 26.4% for 2021.
22.3 %
1,061
2019
24.4 %
1,308
$
1,601
24.0 %
$
LIQUIDITY AND CAPITAL RESOURCES
2020
Effective tax rate
Provision for income taxes
Provision for Income Taxes
The decrease in interest income in 2021 was primarily due to lower interest rates in the U.S. and Canada,
partially offset by higher average cash and investment balances. Foreign-currency transaction gains, net
include mark-to-market adjustments for forward foreign-exchange contracts and revaluation or settlement
of monetary assets and liabilities by our Canadian and Other International operations. See Derivatives
and Foreign Currency sections in Note 1 to the consolidated financial statements included in Item 8 of this
Report. During 2020, other, net was impacted by a $36 charge related to the repayment of certain Senior
Notes.
178
92 $
143 $
$
/s/ KPMG LLP
2021
The following table summarizes our significant sources and uses of cash and cash equivalents:
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
2021
Net cash used in financing activities totaled $6,488 in 2021, compared to $1,147 in 2020. Cash flows
used in financing activities primarily related to the payment of dividends, repurchases of common stock,
and withholding taxes on stock-based awards.
Cash Flows from Financing Activities
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 2021, we spent $3,588 on capital expenditures, and
it is our current intention to spend approximately $3,800 to $4,200 during fiscal 2022. These expenditures
are expected to be financed with cash from operations, existing cash and cash equivalents, and short-
term investments. We opened 22 new warehouses, including two relocations, in 2021, and plan to open
approximately up to 35 additional new warehouses, including five relocations, in 2022. We have
experienced delays in real estate and construction activities due to COVID-19. 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 or based on the current economic environment.
Capital Expenditures
Net cash used in investing activities totaled $3,535 in 2021, compared to $3,891 in 2020, and is primarily
related to capital expenditures. In 2020, we acquired Innovel (Costco Wholesale Logistics) and a minority
interest in Navitus. Net cash flows from investing activities also includes purchases and maturities of
short-term investments.
Net cash provided by operating activities totaled $8,958 in 2021, compared to $8,861 in 2020. 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 how fast inventory is sold, the forward deployment of inventory to accelerate
delivery times, payment terms with our suppliers, and early payments to obtain discounts from suppliers.
Cash Flows from Investing Activities
Cash Flows from Operating Activities
Management believes that our cash and investment position and operating cash flows as well as 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.
27
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.
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 5 and 6 to the consolidated financial statements included in Item 8 of this Report
for amounts outstanding on August 29, 2021, related to debt and leases.
Our primary sources of liquidity are cash flows generated from our operations, cash and cash equivalents,
and short-term investments. Cash and cash equivalents and short-term investments were $12,175 and
$13,305 at the end of 2021 and 2020, respectively. Of these balances, unsettled credit and debit card
receivables represented approximately $1,816 and $1,636 at the end of 2021 and 2020, respectively.
These receivables generally settle within four days. Cash and cash equivalents were positively impacted
by a change in exchange rates of $46 and $70 in 2021 and 2020, respectively, and negatively impacted
by $15 in 2019.
(1,147)
(1,147)
(2,865)
6,356
8,861 $
(3,891)
8,958 $
(3,535)
(6,488)
$
2019
2020
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
We have served as the Company's auditor since 2002.
Seattle, Washington
(57)
(72)
Net income attributable to noncontrolling
interests
3,704
4,059
5,079
Net income including noncontrolling interests
1,061
1,308
1,601
4,765
(45)
5,367
Provision for income taxes
INCOME BEFORE INCOME TAXES
178
92
143
(150)
(160)
(171)
4,737
5,435
6,708
6,680
NET INCOME ATTRIBUTABLE TO COSTCO
$
5,007
34
The accompanying notes are an integral part of these consolidated financial statements.
439,755
442,923
443,901
444,346
442,297
443,089
Diluted
Basic
Shares used in calculation (000's)
8.26
$
9.02
11.27 $
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.
Diluted
8.32
9.05 $
11.30 $
$
Basic
NET INCOME PER COMMON SHARE
ATTRIBUTABLE TO COSTCO:
3,659
4,002 $
$
86
55
$
14,994
Membership fees
Net sales
REVENUE
COSTCO WHOLESALE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(amounts in millions, except per share data)
33
33
October 5, 2021
Seattle, Washington
/s/ KPMG LLP
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.
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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
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.
Basis for Opinion
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 August 29, 2021 and
August 30, 2020, the related consolidated statements of income, comprehensive income, equity, and cash
flows for the 52-week periods ended August 29, 2021, August 30, 2020 and September 1, 2019, and the
related notes (collectively, the consolidated financial statements), and our report dated October 5, 2021
expressed an unqualified opinion on those consolidated financial statements.
We have audited Costco Wholesale Corporation and subsidiaries' (the Company) internal control over financial
reporting as of August 29, 2021, 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 August 29,
2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
Opinion on Internal Control Over Financial Reporting
To the Stockholders and Board of Directors
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Costco Wholesale Corporation:
32
32
October 5, 2021
76
Total revenue
OPERATING EXPENSES
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:
Selling, general and administrative
132,886
Merchandise costs
16,332
18,461
170,684
152,703
166,761
195,929
3,352
3,541
3,877
149,351
144,939
192,052 $
163,220 $
Preopening expenses
OTHER INCOME (EXPENSE)
Operating income
Interest income and other, net
Interest expense
August 29,
2021
August 30,
2020
52 Weeks Ended
September 1,
2019
$
52 Weeks Ended 52 Weeks Ended
Common stock $0.01 par value; 900,000,000 shares authorized;
441,825,000 and 441,255,000 shares issued and outstanding
4
Additional paid-in capital
7,031
6,698
Accumulated other comprehensive loss
(1,137)
11,666
Retained earnings
Total Costco stockholders' equity
Noncontrolling interests
12,879
17,564
18,284
TOTAL EQUITY
Preferred stock $0.01 par value; 100,000,000 shares authorized;
no shares issued and outstanding
(1,297)
EQUITY
6,692
36,851
799
95
4,561
29,441
3,728
24,844
OTHER LIABILITIES
Long-term debt, excluding current portion
TOTAL LIABILITIES AND EQUITY
7,514
Long-term operating lease liabilities
Other long-term liabilities
TOTAL LIABILITIES
2,642
2,558
2,415
1,935
41,190
COMMITMENTS AND CONTINGENCIES
514
18,078
Paid-in
18,705
438,189 $
Comprehensive
Income (Loss)
Retained
Earnings
Noncontrolling
Interests
Total
Equity
(1,199) $ 7,887 $
(000's) Amount Capital
12,799 $
$ 13,103
3,659
45
3,704
(237)
598
(8)
(245)
304
Repurchases of common stock
Release of vested restricted
stock units (RSUs),
including tax effects
Stock-based compensation
59,268 $
55,556
The accompanying notes are an integral part of these consolidated financial statements.
36
COSTCO WHOLESALE CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(amounts in millions)
Common Stock
Additional
Shares
Accumulated
Other
BALANCE AT
SEPTEMBER 2, 2018
Net income
Foreign-currency translation
adjustment and other, net
421
Total Costco
Stockholders'
Equity
$
598
$
3,704
to net cash provided by operating activities:
Depreciation and amortization
Non-cash lease expense
Stock-based compensation
Other non-cash operating activities, net
Deferred income taxes
1,781
4,059
1,645
286
194
665
619
595
85
42
9
59
1,492
5,079 $
$
September 1,
2019
(5,748)
(5,748)
$
4
$
7,031 $
(1,137) $
11,666 $
17,564 $
514
$ 18,078
The accompanying notes are an integral part of these consolidated financial statements.
37
COSTCO WHOLESALE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income including noncontrolling interests
Adjustments to reconcile net income including noncontrolling interests
52 Weeks
Ended
August 29,
2021
52 Weeks
Ended
August 30,
2020
52 Weeks
Ended
104
(495)
147
Merchandise inventories
(2,810)
(2,998)
Acquisitions
(1,163)
Other investing activities, net
(62)
30
Net cash used in investing activities
(3,535)
(3,588)
(3,891)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in bank payments outstanding
188
137
210
Proceeds from short-term borrowings
41
Proceeds from issuance of long-term debt
13
(4)
(2,865)
Additions to property and equipment
1,231
1,678
(1,892)
(791)
(536)
Accounts payable
1,838
2,261
322
Other operating assets and liabilities, net
1,057
728
623
Net cash provided by operating activities
8,958
8,861
6,356
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments
(1,331)
(1,626)
(1,094)
Maturities and sales of short-term investments
1,446
Changes in operating assets and liabilities:
(495)
(472)
(5,748)
(312)
15,584
4,002
4,002
5
57
4,059
Foreign-currency translation
adjustment and other, net
139
139
341
including tax effects
621
Release of vested RSUs,
2,273
(330)
Repurchases of common stock
(643)
(10)
Cash dividends declared
BALANCE AT
Stock-based compensation
15,243
10,258
(1,436)
4 $ 6,107 $
----3,659
:== 598 (237) =
2,533
(1,097)
(272) - -
(16)
(272)
(272)
(231)
(247)
(247)
3,992
Cash dividends declared and
other
_ _____ _ _ (1,057) _
(1,057)
(1,057)
BALANCE AT
SEPTEMBER 1, 2019
Net income
439,625
4
6,417
AUGUST 30, 2020
Net income
|8
621
Foreign-currency translation
adjustment and other, net
441,825
160
Stock-based compensation
668
Release of vested RSUs,
including tax effects
Repurchases of common stock
1,928
(1,358)
(312)
(23)
Cash dividends declared
BALANCE AT
AUGUST 29, 2021
160
21
181
668
668
(312)
5,079
1,851
72
རྒྱས
21
23
162
621
(330)
(330)
(188)
(198)
(198)
(1,193)
(1,193)
(1,193)
441,255
4
6,698
(1,297)
12,879
18,284
421
5,007
5,007
18,705
2,042
2,788
Other current liabilities
Canada
Other International
Merchandise inventories
$
2021
2020
10,248 $
8,871
1,456
1,310
2,511
14,215 $
2,061
12,242
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 charge was recorded to merchandise costs to increase the cumulative LIFO valuation on
merchandise inventories at August 29, 2021. As of August 30, 2020, U.S. merchandise inventories valued
at LIFO approximated first-in, first-out (FIFO) after considering the lower of cost or market principle.
Canadian and Other International merchandise inventories are predominantly valued using the cost and
retail inventory methods, respectively, using the FIFO basis.
United States
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.
11
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.
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. In the fourth quarter of
2021, the Company recognized an $84 write-off of certain information technology assets, which was
recorded in selling, general and administrative expenses, in the consolidated statements of income.
Repair and maintenance costs are expensed when incurred. Expenditures for remodels, refurbishments
and improvements that add to or change the way an asset functions or that extend the useful life are
capitalized. Assets removed during the remodel, refurbishment or improvement are retired. Assets
classified as held-for-sale at the end of 2021 and 2020 were immaterial. The following table summarizes
the Company's property and equipment balances at the end of 2021 and 2020:
Land
Buildings and improvements
Equipment and fixtures
Construction in progress
Estimated Useful
Lives
2021
2020
N/A
7,507 $
6,696
41
Merchandise inventories consist of the following:
Merchandise Inventories
Receivables are recorded net of an allowance for credit losses which considers creditworthiness of
vendors and third parties, historical experience and current economic trends. Write-offs of receivables
were immaterial in 2021, 2020, and 2019.
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 August 29, 2021, Costco operated 815
warehouses worldwide: 564 in the United States (U.S.) located in 46 states, Washington, D.C., and
Puerto Rico, 105 in Canada, 39 in Mexico, 30 in Japan, 29 in the United Kingdom (U.K.), 16 in Korea, 14
in Taiwan, 12 in Australia, three in Spain, and one each in Iceland, France and China. The Company
operates e-commerce websites in the U.S., Canada, U.K., Mexico, Korea, Taiwan, Japan, and Australia.
Basis of Presentation
The consolidated financial statements include the accounts of Costco, its wholly-owned subsidiaries, and
subsidiaries in which it has a controlling interest. 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. The Company's net income excludes income attributable to the noncontrolling
interest in Taiwan. 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 2021, 2020, and 2019 relate to the 52-week fiscal years ended August 29,
2021, August 30, 2020, and September 1, 2019, respectively.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles
(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, including but not limited to the potential impacts arising from the novel
coronavirus (COVID-19) and related public and private sector policies and initiatives. Actual results could
differ from those estimates and assumptions.
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 $1,816 and
$1,636 at the end of 2021 and 2020, respectively.
39
The Company provides for the daily replenishment of major bank accounts as payments are presented.
Included in accounts payable at the end of 2021 and 2020, are $999 and $810, respectively, representing
the excess of outstanding payments over cash on deposit at the banks on which the payments were
drawn.
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
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.
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
the co-branded credit card arrangement in the U.S. 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.
Receivables, Net
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, and are being
amortized to interest expense over the term of the loan. The estimated fair 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.
value of the individual securities as of the beginning of the reporting period in which the transfer(s)
occurred.
40
40
5-50 years
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
and LIBOR or 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
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market
data.
Level 1: Quoted market prices in active markets for identical assets or liabilities.
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:
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 3, 4, and 5 for
the carrying value and fair value of the Company's investments, derivative instruments, and fixed-rate
debt, respectively.
Fair Value of Financial Instruments
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.
Level 3: Significant unobservable inputs that are not corroborated by market data.
19,139
17,982
3-20 years
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. There
were no derivative instruments in a net liability position at the end of 2021 and for those in a net liability
position at the end of 2020, the amount needed to settle the instruments immediately if the credit-risk-
related contingent features were triggered was immaterial. The aggregate notional amounts of open,
unsettled forward foreign-exchange contracts were $1,331 and $1,036 at the end of 2021 and 2020,
respectively. See Note 4 for information on the fair value of unsettled forward foreign-exchange contracts
at the end of 2021 and 2020.
Derivatives
The captive receives direct premiums, which are netted against the Company's premium costs in selling,
general and administrative expenses, in the consolidated statements of income. The captive participates
in a reinsurance program that includes other third-party participants. The reinsurance agreement is one
year in duration, and new agreements are entered into by each participant at their discretion at the
commencement of the next calendar year. The participant agreements and practices of the reinsurance
program 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.
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 Company uses different 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, in part, by considering historical claims experience, demographic factors, severity factors, and
other actuarial assumptions. The estimated accruals for these liabilities could be significantly affected if
future occurrences and claims differ from these assumptions and historical trends. At the end of 2021 and
2020, these insurance liabilities were $1,257 and $1,188 in the aggregate, respectively, and were
included in accrued salaries and benefits and other current liabilities in the consolidated balance sheets,
classified based on their nature.
Insurance/Self-insurance Liabilities
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.
43
(1) Other consists of changes to the purchase price allocation. See Note 2.
996
15 $
28 $
953 $
$
Balance at August 29, 2021
1
988
14 $
27
$
13 $
53
Total current liabilities
1
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 2021, 2020 and 2019.
1
934
934
Balance at August 30, 2020
Changes in currency translation and other (1)
947 $
6
27 $
Acquisition
38
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
$
9,505
8,749
N/A
1,507
1,276
37,658
34,703
(14,166)
(12,896)
$
23,492 $
Accumulated depreciation and amortization
Property and equipment, net
21,807
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 2021 were immaterial.
There were no impairment charges recognized in 2020 or 2019.
Leases
The Company leases land and/or buildings 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 (c) a right of first refusal in the event of a third-party offer.
Balance at September 1, 2019
Total
Operations
Other
International
Canadian
Operations
Operations
44
United
States
Goodwill and Acquired Intangible Assets
The Company's asset retirement obligations (ARO) primarily relate to leasehold improvements that at the
end of a lease must be removed. 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.
The Company determines at inception whether a contract is or contains a lease. 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.
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. Our leases do not contain any material residual value guarantees or material restrictive
covenants.
42
42
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:
The accompanying notes are an integral part of these consolidated financial statements.
Changes in currency translation
- $ - $
TOTAL ASSETS
Other long-term assets
Operating lease right-of-use assets
Property and equipment, net
OTHER ASSETS
Total current assets
Other current assets
Merchandise inventories
Receivables, net
Short-term investments
ASSETS
Cash and cash equivalents
CURRENT ASSETS
(amounts in millions, except par value and share data)
August 29,
2021
CONSOLIDATED BALANCE SHEETS
35
The accompanying notes are an integral part of these consolidated financial statements.
3,422
4,141
5,167
COMPREHENSIVE INCOME ATTRIBUTABLE
TO COSTCO
$
37
80
93
3,459
(245)
3,704
Less: Comprehensive income attributable to
noncontrolling interests
COSTCO WHOLESALE CORPORATION
August 30,
2020
11,258 $
12,277
286
Current portion of long-term debt
Deferred membership fees
1,671
Accrued member rewards
3,605
4,090
Accrued salaries and benefits
14,172
16,278 $
$
Accounts payable
CURRENT LIABILITIES
LIABILITIES AND EQUITY
55,556
59,268 $
2,841
917
1,028
1,803
1,550
14,215
12,242
4,221
1,312
29,505
28,120
23,492
21,807
2,890
3,381
1,023
5,260
1,393
162
(1,147)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS
46
70
(15)
Net change in cash and cash equivalents
(1,019)
3,893
2,329
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR
12,277
8,384
6,055
CASH AND CASH EQUIVALENTS END OF YEAR
$
11,258 $
12,277
Cash dividend declared, but not yet paid
Comprehensive income
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
141
1,187
124 $
1,052 $
149 $
1,527 $
(1,147)
$
$
Interest
Cash paid during the year for:
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
8,384
$
Income taxes, net
(6,488)
$
(9
(94)
Repayments of long-term debt
298
COSTCO WHOLESALE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(amounts in millions)
(3,200)
NET INCOME INCLUDING NONCONTROLLING
INTERESTS
52 Weeks Ended
August 29,
2021
5,079
52 Weeks Ended
August 30,
2020
4,059
181
Net cash used in financing activities
Foreign-currency translation adjustment and
other, net
(89)
52 Weeks Ended
September 1,
2019
(312)
(71)
Tax withholdings on stock-based awards
(1,038)
(1,479)
(5,748)
Cash dividend payments
Other financing activities, net
(196)
(330)
(247)
(67)
Repurchases of common stock
(496)
(272)
592
Weighted-average remaining lease term (years)
2,788
2,890 $
1,000
2020
EA
$
Operating leases
Weighted-average discount rate
Finance leases
Operating leases
3,890 $
2021
Finance lease liabilities (2)
Total lease liabilities
Finance lease liabilities (3)
Operating lease liabilities
Long-term
Operating lease liabilities (2)
Current
Liabilities
Total lease assets
Operating lease right-of-use assets
Finance lease assets (1)
Assets
The tables below present information regarding the Company's lease assets and liabilities.
Note 6-Leases
7,531
$
(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.
3,380
22
222 $
252
5,295
2020
2021
Total lease costs
Variable lease costs (3)
Interest on lease liabilities (2)
Amortization of lease assets (1)
Finance lease costs:
Operating lease costs (1)
The components of lease expense, excluding short-term lease costs and sublease income (which were
not material), were as follows:
6.34 %
2.23 %
4.91 %
2021
2.16%
20
21
2020
22
21
3,477
3,916 $
657
980
2,558
2,642
31
72
231
Finance leases
296 $
1,000
136
1,250
1,250
1,000
1,000
1,000
1,000
800
800 $
2020
2021
2.300% Senior Notes due May 2022
2.750% Senior Notes due May 2024
3.000% Senior Notes due May 2027
1.375% Senior Notes due June 2027
1.600% Senior Notes due April 2030
At the end of 2021 and 2020, the fair value of the Company's long-term debt, including the current portion,
was approximately $7,692 and $7,987, respectively. The carrying value of long-term debt consisted of the
following:
In April 2020, the Company issued $4,000 in aggregate principal amount of Senior Notes as follows:
$1,250 of 1.375% due June 2027; $1,750 of 1.600% due April 2030; and $1,000 of 1.750% due April
2032. In May 2020, a portion of the proceeds from the issuance were used to repay, prior to maturity, the
outstanding $1,000 and $500 principal balances and interest on the 2.150% and 2.250% Senior Notes,
respectively. The early redemption resulted in a $36 charge which was recorded in interest income and
other, net in 2020.
Other long-term debt consists of Guaranteed Senior Notes issued by the Company's Japanese
subsidiary, valued using Level 3 inputs. In June 2021, the Japanese subsidiary repaid approximately $94
of its Guaranteed Senior Notes.
1,750
49
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, the holder has the right to require the Company to purchase this security at a price of
101% of the principal amount plus accrued and unpaid interest to the date of the event. Interest on all
outstanding long-term debt is payable semi-annually. The estimated fair value of Senior Notes is valued
using Level 2 inputs.
Long-Term Debt
The Company maintains various short-term bank credit facilities, with a borrowing capacity of $1,050 and
$967, in 2021 and 2020, respectively. Borrowings on these short-term facilities were immaterial during
2021 and 2020. Short-term borrowings outstanding were $41 at the end of 2021. There were no
outstanding balances at the end of 2020.
Short-Term Borrowings
Note 5-Debt
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. Fair value adjustments to nonfinancial assets during
2021 were immaterial and there were no fair value adjustments to these items during 2020.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
At August 29, 2021, and August 30, 2020, 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 2021 or 2020.
(2) The asset and the liability values are included in other current assets and other current liabilities, respectively, in the
consolidated balance sheets.
(1) At August 29, 2021, $12 cash and cash equivalents and $381 short-term investments are included in the accompanying
consolidated balance sheets. At August 30, 2020, $60 cash and cash equivalents and $448 short-term investments are
included in the consolidated balance sheets.
488
408 $
50
(21)
449
100
1,750
1,000
1,109
91
800
$
50
50
Total
Thereafter
2026
2025
2024
2023
2022
Maturities of long-term debt during the next five fiscal years and thereafter are as follows:
1.750% Senior Notes due April 2032
(1) Net of unamortized debt discounts and issuance costs.
6,692 $
Long-term debt, excluding current portion
95
799
Less current portion (1)
48
40
Less unamortized debt discounts and issuance costs
7,657
7,531
Total long-term debt
857
731
Other long-term debt
7,514
31
Cash dividends declared in 2021 totaled $12.98 per share, as compared to $2.70 per share in 2020.
Dividends in 2021 included a special dividend of $10.00 per share, resulting in an aggregate payment of
approximately $4,430. The Company's current quarterly dividend rate is $0.79 per share.
33
Special cash dividend
Forfeited
Vested and delivered
Granted
Outstanding at the end of 2020
The following table summarizes RSU transactions during 2021:
131,000 performance-based RSUs, of which 104,000 were granted to executive officers subject to
the determination of the attainment of performance targets for 2021. This determination occurred
in September 2021, at which time at least 33% of the units vested, as a result of the long service
of all executive officers. The remaining awards vest upon continued employment over specified
periods of time.
4,218,000 time-based RSUs, which vest upon continued employment or service over specified
periods of time; and
•
•
The following awards were outstanding at the end of 2021:
RSUS granted to employees and to non-employee directors generally vest over five and three years,
respectively. Additionally, 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. At the end of 2021, 12,001,000 shares were available to
be granted as RSUs under the 2019 Incentive Plan.
Summary of Restricted Stock Unit Activity
53
Outstanding at the end of 2021
In conjunction with a special cash dividend paid in the second quarter of 2021, and in accordance with the
plans, the number of shares subject to outstanding RSUs was increased on the dividend record date to
preserve their value. They were adjusted by multiplying the number of outstanding shares by a factor of
1.019 (rounded up to a whole share), representing the ratio of the Nasdaq closing price of $391.77 on
November 30, 2020, which was the last trading day immediately prior to the ex-dividend date, to the
Nasdaq opening price of $384.50 on the ex-dividend date, December 1, 2020. The outstanding RSUs
increased by approximately 94,000. The adjustment did not result in additional stock-based compensation
expense, as the fair value of the awards did not change. As further required by the plans, the maximum
number of shares issuable was proportionally adjusted, which resulted in an additional 220,000 RSU
shares available to be granted.
Note 8-Stock-Based Compensation
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
from time to time, as conditions warrant, in the open market or in block purchases and pursuant to plans
under SEC Rule 10b5-1.
225.16
1,097
247
198
495
364.39 $
308.45
1,358 $
643
Total Cost
Share
(000's)
Average
Price per
Shares
Repurchased
The Company grants stock-based compensation, primarily to employees and non-employee directors.
Grants to all 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. RSUs are subject to quarterly vesting upon 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. 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.
2021
2020
2019
Number of
Units
(in 000's)
5,174 $
(2)
54
54
467
491 $
525 $
$
Stock-based compensation expense, net
128
128
595
619 $
665 $
140
Stock-based compensation expense
Less recognized income tax benefit
Weighted-Average
Grant Date Fair
Value
2019
2021
The following table summarizes stock-based compensation expense and the related tax benefits:
Summary of Stock-Based Compensation
The weighted-average grant date fair value of RSUs granted was $369.15, $294.08, and $224.00 in 2021,
2020, and 2019, respectively. The remaining unrecognized compensation cost related to non-vested
RSUs at the end of 2021 was $728 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 2021 were approximately
1,516,000 RSUs vested but not yet delivered.
257.88
N/A
253.53
235.64
369.15
207.55
94
4,349 $
(137)
(2,764)
1,982
2020
37
The Company's stock repurchase program is conducted under a $4,000 authorization by the Board of
Directors, which expires in April 2023. As of the end of 2021, the remaining amount available under the
approved plan was $3,250. The following table summarizes the Company's stock repurchase activity:
Dividends
As of August 29, 2021, future minimum payments during the next five fiscal years and thereafter are as
follows:
317
399
Leased assets obtained in exchange for finance lease liabilities
354
350
Leased assets obtained in exchange for operating lease
liabilities
49
67
-
Financing cash flows - finance leases
33
37
258
Operating Leases (1)
282 $
Operating cash flows - finance leases
Operating cash flows — operating leases
Cash paid for amounts included in the measurement of lease
liabilities:
2020
2021
Supplemental cash flow information related to leases was as follows:
51
(3) Included in selling, general and administrative expenses and merchandise costs in the consolidated statements of income.
(1) Included in selling, general and administrative expenses and merchandise costs in the consolidated statements of income.
(2) Included in interest expense in the consolidated statements of income.
403
534 $
$
87
151
$
Stock Repurchase Programs
Finance Leases
2023
Note 7-Equity
52
529
(1) Operating lease payments have not been reduced by future sublease income of $99.
(2) Excludes $665 of lease payments for leases that have been signed but not commenced.
1,052
2,864 $
$
537
791
1,589
3,655
1,070
2,507
Less amount representing interest
Present value of lease liabilities
2022
Total (2)
74
192
159
191
87
232
92
273
107
$
260
2026
2025
2024
Thereafter
1
$
393 $
17
Preopening Expenses
Preopening expenses include startup costs for new warehouses and relocations, developments in new
international markets, new manufacturing and distribution facilities, and expansions at existing
warehouses and corporate facilities and are expensed as incurred.
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 respective tax bases and tax credits
and loss carry-forwards. Deferred tax assets and liabilities are measured using enacted 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 any 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 7 for additional information.
47
Note 2-Acquisition of Innovel
Stock-based compensation expense is predominantly included in selling, general and administrative
expenses in the consolidated statements of income. Certain stock-based compensation costs are
capitalized or included in the cost of merchandise. See Note 8 for additional information on the
Company's stock-based compensation plans.
On March 17, 2020, the Company acquired Innovel Solutions for $999, using existing cash and cash
equivalents. Innovel (now known as Costco Wholesale Logistics or CWL) provides final-mile delivery,
installation and white-glove capabilities for big and bulky products in the United States and Puerto Rico.
Its financial results have been included in the Company's consolidated financial statements from the date
of acquisition.
Note 3-Investments
The Company's investments were as follows:
2021:
Cost
Basis
Unrealized
Recorded
Gains, Net
Basis
Available-for-sale:
Government and agency securities
The net purchase price of $999 has been allocated to the tangible and intangible assets of $294 and
liabilities assumed of $235, based on fair values on the acquisition date. The remaining unallocated net
purchase price of $940 was recorded as goodwill. Goodwill represents the acquisition's benefits to the
Company, which include the ability to serve more members and improve delivery times, enabling growth
in certain segments of our U.S. e-commerce operations. The Company assigned this goodwill, which is
deductible for tax purposes, to reporting units within the U.S. segment. Changes to the purchase price
allocation originally recorded in 2020 were not material.
$
Compensation expense for stock-based awards is predominantly recognized using the straight-line
method over the requisite service period for the entire award. Awards for employees and non-employee
directors provide for accelerated vesting based on cumulative years of service with the Company.
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 common stock on the measurement date less the present value of
the expected dividends forgone during the vesting period.
46
508
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 the local currency of the country
in which the subsidiary is located. 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.
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 immaterial in 2021, 2020, and 2019.
Revenue Recognition
The Company adopted Accounting Standards Update (ASU) 2014-09 in 2019, which provided for
changes in the recognition of revenue from contracts with customers. 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 (previously hardlines and softlines), 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, maintains the relationship with the member, including assurance of member service and
satisfaction, and has pricing discretion.
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 2021 and 2020 were $2,042 and
$1,851, respectively.
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 can be redeemed only 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 2021,
2020, and 2019, the net reduction in sales was $2,047, $1,707, and $1,537 respectively.
46
5
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. became the exclusive issuer of co-branded credit cards to U.S. members in June
2016. The Company receives various forms of consideration, including a royalty on purchases made on
the card outside of Costco, a portion of which, after giving rise to estimated breakage, is used to fund the
rebate that cardholders receive. The rebates are issued in February and expire on December 31.
Breakage is estimated based on redemption data.
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, including freight from depots to selling warehouses, and are reduced by vendor consideration.
Merchandise costs also include salaries, benefits, depreciation, and utilities in fresh foods and certain
ancillary departments.
Vendor Consideration
The Company has agreements to receive funds from vendors for discounts and a variety of other
programs. These programs are evidenced by signed 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, as well as other operating costs incurred to support warehouse and e-commerce website
operations.
Retirement Plans
Stock-Based Compensation
RSUS granted to employees generally vest over five years and allow for quarterly vesting of the pro-rata
number of stock-based awards that would vest on the next anniversary of the grant date in the event of
retirement or voluntary termination. Actual forfeitures are recognized as they occur.
45
375 $
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 Canadian
employees 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 $748, $676, and $614 for 2021, 2020, and 2019,
respectively, and are predominantly included in selling, general and administrative expenses in the
consolidated statements of income.
381
Fair Value
Held-To-Maturity
Due in one year or less
$
190 $
Due after one year through five years
185
191 $
190
536
Total
$
Cost Basis
375 $
48
Note 4-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.
Investment in government and agency securities (1)
Forward foreign-exchange contracts, in asset position (2)
Forward foreign-exchange contracts, in (liability) position (2)
Total
$
Level 2
2021
6 $
2020
536
Available-For-Sale
381 $
Gross unrecognized holding gains and losses on available-for-sale securities were not material for the
years ended August 29, 2021, and August 30, 2020. At the end of 2021 and 2020, there were no
available-for-sale securities in a continuous unrealized-loss position. There were no sales of available-for-
sale securities during 2021 or 2020.
Held-to-maturity:
Certificates of deposit
The maturities of available-for-sale and held-to-maturity securities at the end of 2021 are as follows:
536
536
Total short-term investments
911 $
6
2020:
Available-for-sale:
Government and agency securities
Held-to-maturity:
Certificates of deposit
917
$
580
Total short-term investments
580
1,016 $
448
12 $
12 $
436 $
Recorded
Basis
Unrealized
Gains, Net
Cost
Basis
1,028
1,604
5,007 $
443,089
4,002 $
442,297
3,659
439,755
1,257
444,346
58
The Company is involved in a number of 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 exposure to loss in excess of any 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. As of the date of this Report, the
Company has recorded immaterial accruals with 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 will continue to
monitor the matter for developments that will make the loss 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: (i) the remedies or penalties sought are indeterminate or
unspecified; (ii) the legal and/or factual theories are not well developed; and/or (iii) the matters involve
complex or novel legal theories or a large number of parties.
443,901
442,923
The Company is a defendant in an action commenced in August 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., et al. (Case No. 2013-1-CV-248813; Santa Clara 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 December 2018, a depot employee raised similar claims, alleging that depot employees in California
did not receive suitable seating or reasonably comfortable workplace temperature conditions. Lane v.
Costco Wholesale Corp. (Case No. CIVDS 1908816; San Bernardino Superior Court). The Company filed
an answer denying the material allegations of the complaint. In October 2019, the parties reached an
agreement to settle for an immaterial amount the seating claims on a representative basis, which received
court approval in February 2020. The workplace temperature claims continue in litigation.
In January 2019, a former seasonal employee filed a class action, alleging failure to provide California
seasonal employees meal and rest breaks, proper wage statements, and appropriate wages. Jadan v.
Costco Wholesale Corp. (Case No. 19-CV-340438; Santa Clara Superior Court). The complaint seeks
relief under the California Labor Code, including civil penalties and attorneys' fees. In October 2019, the
parties reached an agreement on a class settlement for an immaterial amount, which received court
approval in January 2021.
$
3,168
2019
57
2021
Legal Proceedings
Note 11-Commitments and Contingencies
Weighted average diluted shares
RSUs
Weighted average basic shares
Net income attributable to Costco
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):
Note 10-Net Income per Common and Common Equivalent Share
44
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. In the fourth quarter of 2020, the Company reached an agreement on a product tax
audit resulting in a benefit of $84. The Company recorded a charge of $123 in 2019 regarding this matter.
Other possible losses or range of possible losses associated with these examinations 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, could result in a charge
that might be material to the results of an individual fiscal quarter or year.
Other Taxes
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 is
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. The remand was appealed; the appeal in abeyance due to a
pending settlement for an immaterial amount that was agreed upon in February 2021. The preliminary
approval hearing of the settlement is scheduled for October 2021.
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 2017. The Company is currently subject
to examination in California for fiscal years 2013 to present.
2020
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. The Company has moved for partial summary judgement, and the parties
have filed competing motions regarding 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.
Depreciation and amortization
In April 2020, an employee, alleging underpayment of sick pay, filed a class and representative action
against the Company, alleging claims under California law for failure to pay all wages at termination and
for Labor Code penalties under PAGA. Kristy v. Costco Wholesale Corp. (Case No. 5:20-cv-04119; N.D.
Cal.). The case was stayed due to the plaintiff's bankruptcy, and his individual claim was settled for an
immaterial amount. A request for dismissal of the class and representative action is pending.
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.
Operating income
Total revenue
2019
Total assets
Property and equipment, net
Additions to property and equipment
Operating income
Total revenue
2020
Total assets
Additions to property and equipment
Property and equipment, net
Depreciation and amortization
Total revenue
2021
The following table provides information for the Company's reportable segments:
The Company is principally engaged in the operation of membership warehouses through wholly owned
subsidiaries in the U.S., Canada, Mexico, Japan, U.K., Korea, Australia, Spain, Iceland, France, and
China and through a majority-owned subsidiary in Taiwan. 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. Certain operating expenses, predominantly stock-based
compensation, incurred on behalf of the Company's Canadian and Other International operations, are
included in the U.S. operations because those costs generally come under the responsibility of U.S.
management.
In July 2020, an employee filed an action under PAGA on behalf of all California non-exempt employees
alleging violations of California Labor Code provisions regarding meal and rest periods, minimum wage,
overtime, wage statements, reimbursement of expenses, and payment of wages at termination. Schwab
v. Costco Wholesale Corporation (Case No. 37-2020-00023551-CU-OE-CTL; San Diego County Superior
Court). In August 2020, the Company filed a motion to strike portions of the complaint, which was denied,
and an answer has been filed denying the material allegations of the complaint.
59
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 on a weekly basis and failure to provide proper wage statements
and notices. The plaintiff also asserts individual retaliation claims. Cappadora v. Costco Wholesale Corp.
(Case No. 1:20-cv-06067; E.D.N.Y.). An amended complaint was filed, and the Company has denied the
material allegations of the amended complaint. In August 2021, a former employee filed a similar suit,
asserting collective and class claims on behalf of non-exempt employees under the FLSA and New York
law. Umadat v. Costco Wholesale Corp. (Case No. 2:21-cv-4814; E.D.N.Y.). The Company has not yet
responded to the complaint.
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.). In May 2021, the
Company filed a motion to dismiss the complaint, which was granted with leave to amend. In June 2021,
the plaintiff filed an amended complaint, which the Company moved to dismiss later that month. The court
granted the motion in part in July 2021 with leave to amend. In August 2021, the plaintiff filed a second
amended complaint and filed a separate representative action under PAGA asserting the same Labor
Code claims and seeking civil penalties and attorneys' fees. The Company has filed an answer to the
second amended class action complaint denying the material allegations.
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 not yet responded to the complaint.
Beginning in December 2017, the United States Judicial Panel on Multidistrict Litigation has 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 that name the Company, including actions filed
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 increased insurance costs associated with opioid abuse in 43 states and American
Samoa. 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.
In June 2019, an employee filed a class action against the Company alleging claims under California law
for failure to pay overtime, to provide meal and rest periods, itemized wage statements, to timely pay
wages due to terminating employees, to pay minimum wages, and for unfair business practices. Martinez
v. Costco Wholesale Corp. (Case No. 3:19-cv-05624-EMC; N.D. Cal.). The Company filed an answer
denying the material allegations of the complaint. In June 2021, the plaintiff agreed to dismiss his claims
for failure to provide meal and rest breaks and to pay minimum wages. In July 2021, the parties reached
an agreement settling for an immaterial amount the remaining claim and related derivative claims.
The Company and its CEO and CFO were defendants in putative class actions brought on behalf of
shareholders who acquired Company stock between June 6 and October 25, 2018. Johnson v. Costco
Wholesale Corp., et al. (W.D. Wash.; filed Nov. 5, 2018); Chen v. Costco Wholesale Corp., et al. (W.D.
Wash.; filed Dec. 11, 2018). The complaints alleged violations of the federal securities laws stemming
from the Company's disclosures concerning internal control over financial reporting. A consolidated
amended complaint was filed on April 16, 2019. On November 26, 2019, the court entered an order
dismissing the consolidated amended complaint and granting the plaintiffs leave to file a further amended
complaint. A further amended complaint was filed on March 9, which the court dismissed with prejudice on
August 19, 2020. On July 20, 2021, the Ninth Circuit affirmed the dismissal.
60
Members of the Board of Directors, one other individual, and the Company were defendants in a
shareholder derivative action related to the internal controls and related disclosures identified in the
putative class actions, alleging that the individual defendants breached their fiduciary duties. Wedekind v.
Hamilton James, Susan Decker, Kenneth Denman, Richard Galanti, Craig Jelinek, Richard Libenson,
John Meisenbach, Charles Munger, Jeffrey Raikes, John Stanton, Mary Agnes Wilderotter, and Costco
Wholesale Corp. (W.D. Wash.; filed Dec. 11, 2018). Similar actions were filed in King County Superior
Court on February 20, 2019, Elliott v. Hamilton James, Susan Decker, Kenneth Denman, Richard Galanti,
Craig Jelinek, Richard Libenson, John Meisenbach, Charles Munger, Jeffrey Raikes, John Stanton, Mary
Agnes Wilderotter, and Costco Wholesale Corp. (Case No. 19-2-04824-7), April 16, 2019, Brad Shuman,
et ano. v. Hamilton James, Susan Decker, Kenneth Denman, Richard Galanti, Craig Jelinek, John
Meisenbach, Charles Munger, Jeffrey Raikes, John Stanton, Mary Agnes Wilderotter, and Costco
Wholesale Corp. (Case No. 19-2-10460-1), and June 12, 2019, Rahul Modi v. Hamilton James, Susan
Decker, Kenneth Denman, Richard Galanti, Craig Jelinek, John Meisenbach, Charles Munger, Jeffrey
Raikes, John Stanton, Mary Agnes Wilderotter, and Costco Wholesale Corp. (Case No. 19-2-15514-1). In
light of the dismissal in Johnson noted above, the plaintiffs in the derivative actions agreed voluntarily to
dismiss their complaints.
On June 23, 2020, a putative class action was filed against the Company, the “Board of Directors," the
"Costco Benefits Committee” and others under the Employee Retirement Income Security Act, in the
United States District Court for the Eastern District of Wisconsin. Dustin S. Soulek v. Costco Wholesale,
et al., Case No. 1:20-cv-937. The class is alleged to be beneficiaries of the Costco 401(k) plan from June
23, 2014, and the claims are that the defendants breached their fiduciary duties in the operation and
oversight of the plan. The complaint seeks injunctive relief, damages, interest, costs, and attorneys' fees.
On September 11, 2020, the defendants filed a motion to dismiss the complaint, and on September 21 the
plaintiffs filed an amended complaint, which the defendants have also moved to dismiss.
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; however, 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.
61
Note 12-Segment Reporting
60
Accrued interest and penalties related to income tax matters are classified as a component of income tax
expense. Accrued interest and penalties recognized during 2021 and 2020, and accrued at the end of
each respective period were not material.
80
30
(800)
(935)
1,691
1,677
(105)
(214)
1,796
1,891
62
639
681
832
769
101
146
144
161
Valuation allowance
Total net deferred tax assets
Deferred tax liabilities:
Property and equipment
Merchandise inventories
Operating lease right-of-use assets
(216)
Foreign branch deferreds
Total deferred tax liabilities
Net deferred tax liabilities
2021
2020
72 $
Depreciation and amortization
Other
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 2021 and 2020, 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 $30 and
$28 at the end of 2021 and 2020, respectively.
(228)
(801)
(3)
33 $
(1)
(3)
8
2
1
2
27
30 $
2020
2021
$
Gross unrecognized tax benefit at end of year
Gross decreases-tax positions in prior years
Lapse of statute of limitations
Gross increases-tax positions in prior years
Gross increases-current year tax positions
(92)
(81)
(40)
(1,987)
(1,950)
(310) $
(744)
(259)
In 2021 and 2020, the Company had valuation allowances of $214 and $105, respectively, 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 no longer considers fiscal year earnings of non-U.S. consolidated subsidiaries after 2017
to be indefinitely reinvested (other than China) 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 continues to consider undistributed earnings of certain
non-U.S. consolidated subsidiaries, which totaled $3,070, to be indefinitely reinvested and has not
provided for withholding or state taxes.
56
56
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for 2021 and
2020 is as follows:
Gross unrecognized tax benefit at beginning of year
The deferred tax accounts at the end of 2021 and 2020 include deferred income tax assets of $444 and
$406, respectively, included in other long-term assets; and deferred income tax liabilities of $754 and
$665, respectively, included in other long-term liabilities.
Additions to property and equipment
19,586 $ 152,703
Total assets
Item 9-Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
62
62
149,351
163,220 $
192,052 $
$
Total net sales
28,571
26,550
31,626
Warehouse Ancillary and Other Businesses
19,948
23,204
27,183
Fresh Foods
41,160
8,869
45,400
The following table summarizes net sales by merchandise category; sales from e-commerce websites
and business centers have been allocated to their respective merchandise categories:
2021
2020
2019
Item 9A-Controls and Procedures
Foods and Sundries
77,277 $
68,659 $
59,672
Non-Foods
55,966
44,807
$
4,369
Evaluation of Disclosure Controls and Procedures
Management's Annual Report on Internal Control Over Financial Reporting
64
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.
Financial Statement Schedules:
2.
See the listing of Financial Statements included as a part of this Form 10-K in Item 8 of
Part II.
Financial Statements:
1.
Documents filed as part of this report are as follows:
(a)
Item 15-Exhibits, Financial Statement Schedules
PART IV
The information required by this Item is incorporated herein by reference to the sections entitled
"Independent Public Accountants" in Costco's Proxy Statement.
Item 14-Principal Accounting Fees and Services
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 13-Certain Relationships and Related Transactions, and Director Independence
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 12-Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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
I 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 August 29, 2021, 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 August 29, 2021. 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 2021 that have materially
affected, or are reasonably likely to materially affect, the Company's internal control over financial
reporting.
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 August 29, 2021 and, based
on their evaluation, have concluded that the disclosure controls and procedures were effective as of such
date.
63
None.
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 2022 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 9B-Other Information
32,162
20,890
4,479
3,633
$166,761
22,185
22,434 $
$ 122,142 $
59,268
13,717
5,962
39,589
23,492
5,182
2,317
15,993
3,588
704
272
2,612
Disaggregated Revenue
United States
Operations
Canadian
Operations
Other
International
Operations
Total
$ 141,398 $ 27,298 $ 27,233 $ 195,929
860
4,262
1,270
6,708
1,339
177
265
1,781
1,176
942
5,435
1,248
3,063
924
750
4,737
1,126
143
Total deferred tax assets
223
2,186
303
509
2,998
14,367
2,044
1,492
Property and equipment, net
21,366 $
55,556
155
242
1,645
2,060
258
492
$ 111,751 $
2,810
2,172
4,719
21,807
38,366
5,270
11,920
14,916
Other
Operating income
Operating lease liabilities
5,367 $
4,765
2021
2020
2019
718 $
616 $
328
84
77
222
802
693
550
265
230
178
11
8
26
276
238
204
557
372
405
(34)
6,680 $
(98)
1,174
1,749
Accrued liabilities and reserves
Note 9- Taxes
Income Taxes
Income before income taxes is comprised of the following:
Domestic
Foreign
Total
The provisions for income taxes are as follows:
Federal:
Current
Deferred
Total federal
State:
Current
Deferred
Total state
Foreign:
Current
Deferred
Total foreign
Total provision for income taxes
2021
2020
2019
4,931 $
4,204 $
3,591
1,163
523
$
307
(24)
(0.5)
(18)
(0.4)
2017 Tax Act
(123)
(2.6)
Other
(46)
(0.7)
(77)
31
0.7
Total
$1,601
24.0 % $ 1,308
24.4 % $ 1,061
22.3 %
55
During 2019, the Company recognized net tax benefits of $123 related to the 2017 Tax Act. This benefit
included $105 related to U.S. taxation of deemed foreign dividends, partially offset by losses of current
year foreign tax credits.
The Company recognized total net tax benefits of $163, $81 and $221 in 2021, 2020 and 2019,
respectively. These include benefits of $75, $77 and $59, respectively, related to the stock-based
compensation accounting standard adopted in 2018, in addition to the impacts of the 2017 Tax Act noted
above. During 2021, there was a net tax benefit of $70 related to the portion of the special dividend paid
through our 401(k) plan.
The components of the deferred tax assets (liabilities) are as follows:
Deferred tax assets:
Equity compensation
Deferred income/membership fees
377
Foreign tax credit carry forward
(1.3)
(91)
(1.4)
2019
$
1,601 $
Employee stock ownership plan (ESOP)
1,308 $
1,061
Except for certain provisions, the Tax Cuts and Jobs Act (2017 Tax Act) was effective for tax years
beginning on or after January 1, 2018. Most provisions became effective for the Company for 2019,
including limitations on the ability to claim foreign tax credits, repeal of the domestic manufacturing
deduction, and limitations on certain business deductions. Provisions with significant impacts that were
effective starting in the second quarter of 2018 and throughout 2019 included: a lower U.S. federal
income tax rate, remeasurement of certain net deferred tax liabilities, and a transition tax on deemed
repatriation of certain foreign earnings. The lower U.S. tax rate of 21.0% was effective for all of 2021,
2020, and 2019.
The reconciliation between the statutory tax rate and the effective rate for 2021, 2020, and 2019 is as
follows:
2021
2020
Federal taxes at statutory rate
$ 1,403
21.0 % $ 1,127
21.0 %
State taxes, net
21.0 % $ 1,001
92
3.6
190
3.6
-
171
3.6
Foreign taxes, net
243
1.4
92
1.7
(1)
Second Amendment to Citi, N.A.
3/9/2016
2/14/2016
10.8.2**
10-Q
11/22/2015 12/17/2015
10-Q
First Amendment to Citi, N.A. Co-
Branded Credit Card Agreement
10.8.1**
Card Agreement
Co-Branded Credit Card
10/16/2013
8/31/2015
10-Q
10.8.3**
Fifth Amendment to Citi, N.A. Co-
10-K
8/28/2016 10/12/2016
Branded Credit Card Agreement
10.8.4**
Fourth Amendment to Citi, N.A.
10-Q
2/18/2018
3/15/2018
Co-Branded Credit Card
Agreement
10.8.5**
9/1/2013
5/10/2015
Third Amendment to Citi, N.A. Co-
10-Q/A
and Costco Wholesale
10.8**
2/17/2019
2019, between W. Craig Jelinek
Corporation
10.5.2*
Extension of the Term of the
10-Q
11/24/2019 12/23/2019
Executive Employment
Agreement, effective January 1,
2020, between W. Craig Jelinek
and Costco Wholesale
Corporation
10.5.3*
Extension of the Term of the
10-Q
11/22/2020 12/16/2020
Executive Employment
Agreement, effective January 1,
2021, between W. Craig Jelinek
and Costco Wholesale
Corporation
10.6
Form of Indemnification
14A
12/13/1999
Agreement
10.7*
Deferred Compensation Plan
10-K
Citibank, N.A. Co-Branded Credit
3/13/2019
October 5, 2021
60
101.CAL
Inline XBRL Taxonomy Extension
Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension
Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension
Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension
Presentation Linkbase Document
104
Cover Page Interactive Data File
(formatted as inline XBRL and
contained in Exhibit 101)
* Management contract, compensatory plan or arrangement.
**
X
X
Portions of this exhibit have been omitted under a confidential treatment order issued by the Securities and Exchange
Commission.
(c) Financial Statement Schedules―None.
101.SCH Inline XBRL Taxonomy Extension
Schema Document
Item 16-Form 10-K Summary
67
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 5, 2021
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.
Agreement, effective January 1,
By
By
None.
Branded Credit Card Agreement
Inline XBRL Instance Document
Section 1350 Certifications
66
Exhibit
Number
Filed
Exhibit Description
Herewith
Form
Period Ended
10.8.6**
Sixth Amendment to Citi, N.A. Co-
Branded Credit Card Agreement
10-K
9/1/2019
Incorporated by Reference
Filing Date
10/11/2019
101.INS
10.8.7**
10-Q
2/14/2021
3/10/2021
Co-Branded Credit Card
Agreement
21.1
Subsidiaries of the Company
23.1
Consent of Independent
Registered Public Accounting Firm
31.1
Rule 13a14(a) Certifications
X
32.1
Seventh Amendment to Citi, N.A.
Executive Employment
9/2/2012 10/19/2012
10-Q
8-K
4/17/2020
4.3
Form of 1.600% Senior Notes due
8-K
4/17/2020
April 20, 2030
4.4
Form of 1.750% Senior Notes due
8-K
4/17/2020
April 20, 2032
4.5
Form of 1.375% Senior Notes due
June 20, 2027
Form of 2.300% Senior Notes due
5/16/2017
May 18, 2022
4.6
Form of 2.750% Senior Notes due
8-K
5/16/2017
May 18, 2024
4.7
Form of 3.000% Senior Notes due
May 18, 2027
8-K
5/16/2017
4.8
Description of Common Stock
8-K
4.2
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)
National Association, as Trustee,
(b) Exhibits: The required exhibits are filed as part of this Annual Report on Form 10-K or are
incorporated herein by reference.
Exhibit
Number
3.1
Exhibit Description
Articles of Incorporation as
Incorporated by Reference
Filed
Herewith
Form
10-Q
Period Ended
2/16/2020
Filing Date
3/12/2020
amended of Costco Wholesale
Corporation
3.2
Bylaws as amended of Costco
8-K
Wholesale Corporation
3.2.1
Amendments to Sections 3.3, 3.4,
8-K
and 3.6 of the Bylaws of Costco
Wholesale Corporation (to be
effective and first apply with
respect to the Company's 2022
1/29/2020
9/16/2020
Annual Meeting of Shareholders)
4.1
First Supplemental Indenture
between Costco Wholesale
Corporation and U.S. Bank
8-K
3/25/2002
10-K
11/25/2018 12/20/2018
8/30/2020
10.1*
Herewith
Form
Period Ended
Filing Date
10-Q
11/24/2019
12/23/2019
Agreement-Non-Executive
Director
10.3.4*
2019 Stock Incentive Plan Letter
Agreement for 2020 Performance-
Based Restricted Stock Units-
Executive
10-Q
11/24/2019
Filed
12/23/2019
Fiscal 2021 Executive Bonus Plan
8-K
10.5*
Executive Employment
10-Q
11/20/2016
10/15/2020
12/16/2016
Agreement, effective January 1,
2017, between W. Craig Jelinek
and Costco Wholesale
Corporation
10.5.1*
Extension of the Term of the
10.4*
Incorporated by Reference
Restricted Stock Unit Award
2019 Stock Incentive Plan
Costco Wholesale Executive
Health Plan
10-K
By
10.2*
2019 Incentive Plan
DEF 14
12/17/2019
10.3*
Seventh Restated 2002 Stock
Incentive Plan
DEF 14A
12/19/2014
10.3.1*
2019 Stock Incentive Plan
10-Q
11/24/2019 12/23/2019
Restricted Stock Unit Award
Agreement-Employee
10.3.2*
2019 Stock Incentive Plan
10-Q
11/24/2019 12/23/2019
Restricted Stock Unit Award
Agreement - Non-U.S. Employee
65
99
Exhibit
Exhibit Description
Number
10.3.3*
10/7/2020
/s/ W. CRAIG JELINEK
W. Craig Jelinek
Jeffrey S. Raikes(c)*
Director
Joe Moore - Corporate Tax
Leah Monica - Member Service Centers
Erin Medved-Burnham - GMM, Corp. Foods & Sundries
Daniel McMurray - Operations, Midwest
Tracy Mauldin-Avery - GMM, Foods & Sundries, San Diego
Susan McConnaha - Community Relations, Journeys,
Diversity & Inclusion
Mark Mattis - Information Systems
Randy Martel - Operations, E. Canada
Steve Mantanona - GMM, Merchandising, Mexico
Ken Kimble - GMM, Corporate Foods & Sundries
Ryan Knisley - Information Systems
William Koza - Operations, Midwest
Robert Leiss - Operations, Australia
Robert Leuck - Operations, Northeast
Torsten Lubach - Information Systems
Jim Kenyon - GMM, Foods & Sundries, Midwest
Peter Kelly - Country Manager, U.K. & Iceland
Anna Johnston - Information Systems
Teresa Jones - Depot Operations
Steven Jewer - GMM, Foods & Sundries, E. Canada
Robert Murvin - GMM, Foods & Sundries, Texas
Jeff Ishida - Real Estate, Eastern Division
Scott Howe - Assistant Accounting Controller
Ross Hunt - Administration, Canada
Doug Holbrook - Deli, Meat & Produce Operations
John Hickey - GMM, Foods & Sundries, Southeast Region
Timothy Haser - Information Systems
VICE PRESIDENTS
David Harruff - Operations, Northwest
Jim Harrison - Transportation
Doris Harley - GMM, Foods & Sundries, Southeast
Eric Harris - Warehouse Operations & Facilities
Brad Hanna - Pharmacy
Peter Gruening - Costco Travel
Kevin Green - Operations, Midwest
Martin Groleau - GMM, Ecommerce Marketing,
Operations & Contact Center, Canada
Christopher Fleming - Operations, W. Canada
Sheri Flies - Global Sustainability & Compliance
Anthony Fontana - Operations, Northeast
Jack Frank - Real Estate, Western Division
Joseph Grachek III - Internal Audit
Liz Elsner - Ecommerce
Bob Huskey - GMM, Meat
Debbie Ells - GMM, Non-Foods, Canada
Keith Neal - GMM, Produce
Pietro Nenci - GMM, Foods & Sundries and Ecommerce
Foods & Sundries, Canada
Janet Wiebke - GMM, Corporate Non-Foods
Craig Wilson - Food Safety & Quality Assurance
Earl Wiramanaden - GMM, Fresh Foods, International
Jason Zapp - GMM, Non-Foods, Canada
Karim Zeffouini - Operations, Northeast
Jill Whittaker - Operations, San Diego
Randy White - Construction
Jack Weisbly - GMM, Corporate Non-Foods
Mick Wendell - Construction
Brenda Weber - Human Resources
Adrian Thummler - Operations, Mexico
Chris Tingman - GMM, International
Tony Tran - GMM, Fresh Foods, Canada
Kevin Trejo - Operations, Bay Area
Diane Tucci - Country Manager, Spain
Howard Tulk - Operations, Japan
Tony Unan - Legal, International
Todd Thull - Construction
Michael Thompson - Operations, W. Canada
H. Keith Thompson - Construction
Cathy Tabor - Information Systems
Mauricio Talayero - CFO, Mexico
Ken Theriault - Country Manager, Japan
Brian Thomas - Operations, Los Angeles
Gary Swindells - Country Manager, France
Steve Supkoff - Costco Logistics
Joseph Stanovcak - Operations, San Diego
Jim Nelson - GMM, Corporate Non-Foods
James Stafford - GMM, Foods & Sundries, Northeast
Geoff Shavey - GMM, Corporate Non-Foods
Stuart Shamis - Legal, Canada
Scott Schruber - Operations, U.K.
Art Salas - U.S. Optical
Drew Sakuma - Operations, Bay Area
Moises Saenz - Country Manager, Mexico
Chris Rylance - Information Systems
Jason Rothman - Assistant Accounting Controller
Giro Rizzuti - GMM, Non-Foods, Canada
Jeanne Rosolino - Operations, San Diego
Scott Riekers - Operations, Northeast
Frank Padilla - GMM, Bakery, Service Deli & Food Court
Thomas Padilla - Operations, Northwest
Daniel Parent - Operations, E. Canada
Robert Parker - Operations, Business Centers
Fred Paulsell - Corporate Purchasing
Larry Pifer - Operations, E. Canada
Nevin Pottinger - Operations, W. Canada
Paul Pulver - Operations, Northeast
Harish Rao - Information Systems
Eric Orren - Construction, International
Patrick Noone - Country Manager, Australia
Scott O'Brien - GMM, Corporate Foods & Sundries
Cheryl Smeby - GMM, Corporate Non-Foods
Dick Snyder - Operations, Midwest
Guy Delmonte - Operations, Southeast
Jeff Elliott - Treasury
Russ Decaire - GMM, Foods & Sundries, Northwest
Dennis Davenport - Operations, Los Angeles
Senior Vice President, General Manager - Northeast Region
Adam Self
Executive Vice President, COO - Eastern Division
Yoram B. Rubanenko
Executive Vice President, Ancillary Businesses, Manufacturing &
Business Centers
Timothy L. Rose
Senior Vice President, Country Manager - Canada
Pierre Riel
Executive Vice President, COO - Eastern & Canadian Divisions and
Chief Diversity Officer
Joseph P. Portera
Senior Vice President, Ecommerce
Mike Parrott
Senior Vice President, General Manager - Northwest Region
Walt Shafer
Mario Omoss
Executive Vice President, COO - International Division
Robert E. Nelson III
Senior Vice President, Construction & Purchasing
James P. Murphy
Ali Moayeri
Executive Vice President, COO - Southwest Division & Mexico
Russ Miller
Senior Vice President, Real Estate Development
David Messner
Executive Vice President, COO - Northern Division
Senior Vice President, Merchandising - Non-Foods & Ecommerce
James Klauer
Yoon Kim
President and Chief Executive Officer
W. Craig Jelinek
Senior Vice President, Corporate Controller
Senior Vice President, Treasury, Financial Planning &
Investor Relations
Senior Vice President, General Manager - Lincoln Premium Poultry
Louie Silveira
Senior Vice President, General Manager - Europe
David Skinner
Ben Culver - Fuel, Car Wash & Ecommerce Photo
Anthony Dattilo - Costco Logistics
Julie Cruz - Operations, Southeast
Michael Cotton - Operations, Northwest
Don Coleman - Information Systems
Frank Chislette - Operations, E. Canada
Mike Cho - Country Manager, Korea
Greg Carter - GMM, Foods & Sundries, Los Angeles
Michael Casebier - Operations, Texas
Walter Chao - Regional Manager, Taiwan
Angela Chaparro - Operations, Los Angeles
Jon Bubitz - GMM, Corporate Non-Foods
Elaina Budge - GMM, Foods & Sundries, Bay Area
Paul Cano - Operations, Bay Area
Timothy Bowersock - Information Systems
Kimberly Brown - Operations, Texas
Marc-André Bally - Ancillary & Business Centers, Canada
Tiffany Barbre - Assistant Accounting Controller
Patty Bauer - Information Systems
Christopher Bolves - Operations, Northwest
Kathleen Ardourel - Global Ecommerce
James Andruski - GMM, Foods & Sundries, W. Canada
Michael Anderson - Information Systems
Kim Alexander - GMM, Corporate Non-Foods
Senior Vice President, CIO - Information Systems
Senior Vice President, General Manager - San Diego Region
Terry Williams
W. Richard Wilcox
Senior Vice President, Merchandising - Non Foods, Ecommerce,
Membership & Marketing - Canadian Division
Azmina Virani
Executive Vice President, COO - Merchandising
Ron M. Vachris
& Publishing
Senior Vice President, Membership, Marketing, Services
Sandy Torrey
Senior Vice President, Depots & Traffic
John D. Thelan
Senior Vice President, General Counsel & Corporate Secretary
John Sullivan
Senior Vice President, Pharmacy
Senior Vice President, General Manager - Western Canadian Region
Richard Stephens
[THIS PAGE INTENTIONALLY LEFT BLANK]
[THIS PAGE INTENTIONALLY LEFT BLANK]
ADDITIONAL INFORMATION
Shareholder Information
/s/ CHARLES T. MUNGER
Charles T. Munger
Director
/s/ JOHN W. STANTON
John W. Stanton
Director
Susan L. Decker(a)
CEO and Founder, Raftr;
Former President, Yahoo! Inc.
Kenneth D. Denman(a)(c)
General Partner, Sway Ventures; Former President
and Chief Executive Officer, Emotient, Inc.
Richard A. Galanti
Executive Vice President and
Chief Financial Officer, Costco Wholesale
Kenneth D. Denman
Director
Hamilton E. James
Executive Vice Chairman, The Blackstone Group
W. Craig Jelinek
DIRECTORS AND OFFICERS
President and Chief Executive Officer, Costco Wholesale
Sally Jewell(a)(b)
BOARD OF DIRECTORS
Former Interim CEO, The Nature Conservancy; Former Secretary of
the Interior; Former CEO and Director, Recreational Equipment Inc.
Richard M. Libenson
Director Emeritus
Charles T. Munger(a)*
Vice Chairman of the Board, Berkshire Hathaway Inc.;
Chairman of the Board, Daily Journal Corporation
Co-Founder, The Raikes Foundation;
Former CEO, Bill and Melinda Gates Foundation
John W. Stanton(b)*
Chairman of the Board, Costco Wholesale;
/s/ KENNETH D. DENMAN
(Principal Accounting Officer)
Controller
/s/ RICHARD A. GALANTI
Richard A. Galanti
Executive Vice President, Chief Financial
Officer and Director
(Principal Financial Officer)
/s/ SUSAN L. DECKER
Susan L. Decker
Director
By
/s/ HAMILTON E. JAMES
By
By
By
By
/s/ SALLY JEWELL
Sally Jewell
Director
By
/s/ JEFFREY S. RAIKES
By
Jeffrey S. Raikes
Director
By
/s/ MARY (MAGGIE) A. WILDEROTTER
Mary (Maggie) A. Wilderotter
Director
68
80
Hamilton E. James
Chairman of the Board
/s/ DANIEL M. HINES
Daniel M. Hines
Senior Vice President and Corporate
Chairman, First Avenue Entertainment LLLP;
President, Chief Executive Officer and
Trilogy International Partners, Inc. and Trilogy Equity Partners
CEO and Chairman, Grand Reserve Inn;
COR000075 0421
Quality and value in 828 locations and on Costco.com
WHOLESALE
COSTCO
FSC® C132107
Paper from
responsible sources
MIX
www.fsc.org
FSC
Website: https://www.computershare.com/investor
TDD for Hearing Impaired: (800) 490-1493
Outside U.S.: (201) 680-6578
Telephone: (800) 249-8982
Louisville, KY 40202
Senior Vice President, Merchandising - Foods & Sundries
Daniel M. Hines
Overnight correspondence should be sent to:
462 South 4th Street, Suite 1600
P.O. Box 505000
Correspondence should be mailed to:
Costco Shareholder Relations
Computershare
Transfer Agent
The Nasdaq Global Select Market
Stock Symbol: COST
Stock Exchange Listing
1918 Eighth Avenue, Suite 2900
Seattle, WA 98101
KPMG LLP
Independent Public Accountants
Thursday, January 20, 2022 at 2:00 PM Pacific
www.virtualshareholdermeeting.com/COST2022
Annual Meeting
Copies of Costco's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q will be provided to any
shareholder upon written request to Investor Relations, Costco Wholesale Corporation, 999 Lake Drive, Issaquah,
Washington 98027. Internet users can access recent sales and earnings releases, the annual report and SEC filings,
as well as our Costco website, at http://www.costco.com. E-mail users can direct their investor relations questions to
[email protected]. 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.
Louisville, KY 40233
Senior Vice President, General Manager - Texas Region
Nancy Griese
Darby Greek
Senior Vice President, Country Manager - Mexico
Former Executive Chairman, Frontier Communications
Board Committees
(a) Audit Committee
(b) Compensation Committee
(c) Nominating and Governance Committee
*2021 Committee Chair
Jeffrey Abadir
EXECUTIVE AND SENIOR OFFICERS
Senior Vice President, General Manager - Bay Area Region
Claudine Adamo
Senior Vice President, Merchandising - Non-Foods & Ecommerce
Patrick J. Callans
Executive Vice President, Administration
Richard Chang
Senior Vice President, General Manager - Asia
Richard C. Chavez
Senior Vice President, Costco Wholesale Industries &
Business Development
Jeff Cole
Senior Vice President, Costco Wholesale Industries &
Business Development
Victor A. Curtis
Senior Vice President, Pharmacy
Wendy Davis
Senior Vice President, General Manager - Southeast Region
Gino Dorico
Senior Vice President, General Manager - Eastern Canadian Region
Caton Frates
Senior Vice President, General Manager - Los Angeles Region
John B. Gaherty
Senior Vice President, General Manager - Midwest Region
Richard A. Galanti
Executive Vice President and Chief Financial Officer
Sarah George
Senior Vice President, Merchandising - Fresh Foods
Jaime Gonzalez
Maggie A. Wilderotter(b)(c)
Agreement