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S OF DECEMBER 31, 2016
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AGUASCALIENTES (1)
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Milford
7.4
7,2
7.0
0
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
Fiscal Year
At Fiscal Year End
Average Sales Per Warehouse*
(Sales In Millions)
Year
Opened
# of
Whses
2016
36.800
7.6
1,500
1,700
-4%
4%
Millions
33
31
29
29
27 -26.700
25
25
29
Membership
28.900
31.600
34.000
$ Millions
Net Income
2,100
2,039
2,058
1,900
1,709
Gold Star Members
$87
2015
23
151
Totals
715
$130 $137 $131 $139 $146 $155 $160 $164 $162 $159
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fiscal Year
*First year sales annualized.
2011-2016 results include Mexico.
1
Percent of Net Sales
Millions
6.8
139 139
148
2,377
0
2012
2013
2014 2015
2016
Fiscal Year
Business Members
6.600
6.6
6.400
2,350
-2%
$94 106 122 135 144
$100 107 130 146 155 157 158 155
$86 83 99 116 128 136 144 146 147
140 135 144 151 160 168 175 175 174
2007 & Before 512
$83
85
2014
30
$108 109 115
2013
26
$99 109 113
116
2012
$130
15
130
2011
21
$103 120 130 136
2010
13
2009
20
2008
26
$105 115 124 128
6.4
0%
4%
Notes to Consolidated Financial Statements.
Directors and Officers of the Company.
Additional Information
21
33
34
35
37
42
67
2 № 3 3 3 2 6 6
65
Percent Increase
Number of Warehouses
725
700
Warehouses in Operation
675
663
650
625
Consolidated Financial Statements......
Reports of Independent Registered Public Accounting Firm...
Management's Reports .......
Executive Officers and Corporate Governance...
WHOLESALE
FISCAL YEAR ENDED AUGUST 28, 2016
2016
THE COMPANY
Costco Wholesale Corporation and its subsidiaries (Costco or the Company) began operations in 1983 in
Seattle, Washington. In October 1993, Costco merged with The Price Company, which had pioneered the
membership warehouse concept in 1976, to form Price/Costco, Inc., a Delaware corporation. In January
1997, after the spin-off of most of its non-warehouse assets to Price Enterprises, Inc., the Company changed
its name to Costco Companies, Inc. On August 30, 1999, the Company reincorporated from Delaware to
Washington and changes its name to Costco Wholesale Corporation, which trades on the NASDAQ Global
Select Market under the symbol "COST."
As of December 2016, the company operated a chain of 723 warehouse in 44 states, Washington, D.C., and
Puerto Rico (506 locations), nine Canadian provinces (94 locations), Mexico (36 locations), the United
Kingdom (28 locations), Japan (25 Locations), Korea (12 locations), Taiwan (12 locations, through a 55%-
owned subsidiary), Australia (eight locations) and Spain (two locations). The Company's online business
operates websites in the U.S, Canada, U.K., Mexico, Korea and Taiwan.
CONTENTS
Financial Highlights
Letter to Shareholders
Map of Warehouse Locations
608
Business Overview.......
Properties: Warehouses, Administration and Merchandise Distribution Properties..........
2
4
6
9
17
Market for Costco Common Stock, Dividend Policy and Stock Repurchase Program...
Five Year Operating and Financial Highlights.
18
20
Management's Discussion and Analysis of Financial Condition and Results of Operations
Risk Factors.
600
634
686
2012
2013
2014
2015
2016
At Fiscal Year End
Fiscal Year
Comparable Sales Growth
39
10%
2016
W/O FX & Gas
Price Changes
Price Changes
37
8%
7%
7%
6%
6%
35
6%
W/FX & Gas
2%
2015
2013
FINANCIAL HIGHLIGHTS
(723 at 12/31/16)
125
715
$ Billions
120
Net Sales
2,500
2,300
116.073
2014
115
110.212
110
105
102.870
100 97.062
95
90
0
0
2012
113.666
6.2
6.0
6.900
S.W. Denver
Douglas County
Gypsum
S.E. Gilbert
Glendale
Mesa
Paradise Valley
Phoenix
Phoenix Bus. Ctr.
N. Phoenix
Prescott
Parker
Scottsdale
Sheridan
Tempe
Northridge
Thomas Road
Superior
Norwalk
Thornton
Tucson
Novato
Bus. Ctr.
Denver
East Colorado Springs
Colorado Springs
Visalia
Iwilei
Vista
Kailua-Kona
Westlake Village
Kapolei
Westminster - Bus. Ctr.
Kauai
Woodland
Maui
Timnath
Woodland Hills
Yorba Linda
IDAHO (5)
COLORADO (14)
Boise
Arvada
Coeur d'Alene
Aurora
Nampa
Pocatello
Twin Falls
Waipio
N.W. Tucson
Oxnard
Westminster
Poway
Rancho Cordova
Rancho Cucamonga
Rancho del Rey
Redding
Redwood City
Richmond
Rohnert Park
Roseville
Sacramento
Salinas
San Bernardino
Moreno Valley
Mountain View
San Diego Bus. Ctr.
San Dimas
San Francisco
S. San Francisco
San Jose
N.E. San Jose
San Juan Capistrano
San Leandro
San Luis Obispo
San Marcos
Sand City
CONNECTICUT (6)
Brookfield
Enfield
S.E. San Diego
Hawaii Kai
El Camino
Corona
Culver City
S.W. Tucson
Pacoima
Palm Desert
CALIFORNIA (122)
Alhambra
Almaden
Antioch
Azusa
Bakersfield
S.W. Bakersfield
Cypress
Danville
Burbank
Carlsbad
Carmel Mountain
Chico
Chino Hills
Chula Vista
Citrus Heights
City of Industry
Clovis
Commerce Bus. Ctr.
Concord
Cal Expo
HAWAII (7)
Town Center
Perimeter
Forty years ago the membership warehouse club was born in a converted aircraft building in San Diego,
California under the Price Club name. That same building produced annual sales in fiscal 2016 of nearly
$250 million part of Costco's record sales of $116.1 billion - generated by 715 warehouses, each
averaging $159 million in annual sales, and operating globally in several countries throughout the world.
These results were achieved in a year of retail volatility, along with weaker foreign currencies and falling
prices in our gasoline operations - factors that together negatively impacted both sales and net income
by over 4%. Total sales in 2016 still increased two percent; and comparable sales, while flat year-over-
year on a reported basis, increased four percent excluding the impacts of gasoline prices and foreign
currencies. Net income remained strong in 2016, coming in at $2.35 billion or $5.33 per share.
A record $2.65 billion was invested in our business in 2016. Thirty-three warehouses including four
relocations were opened; our depot (distribution) and transportation systems were expanded; numerous
remodels and facilities upgrades were completed; and the upgrading of our IT infrastructure continued. In
addition, over $1.2 billion was returned to shareholders in the form of dividends ($746 million) and stock
buy-backs ($486 million).
Costco's growth and evolution to the forefront of retailing has been accomplished with the same mission
and set of core values that we have adhered to since the opening of our first warehouse: to continually
provide quality goods and services to our members at the lowest possible prices. The execution of this
mission has become increasingly demanding as we expand globally, encounter aggressive and new
forms of competition – both domestically and abroad and comply with the varied rules and regulations
of each country in which we operate; all while taking care of our members and our employees, and
establishing and growing relationships with our many suppliers throughout the world.
-
-
Of the twenty-nine new locations opened in 2016, twenty-one of these were in the U.S., including four
Costco Business Centers. Two new locations were opened in both Canada and Japan; and one new
warehouse was opened in the U.K., Taiwan, Australia, and Spain. Last April, we opened in Tulsa,
Oklahoma, which had record new member sign-ups for a U.S. opening. We are now operating in 44
states and Puerto Rico, as well as in Canada, Mexico, the U.K., Spain, Korea, Japan, Taiwan, and
Australia. Additionally, we now operate ecommerce websites in the U.S., Canada, the U.K., Mexico,
Korea and Taiwan.
Now three months into the new fiscal year, our 2017 plans call for 31 new openings, and extending our
global footprint into two more countries: France and Iceland; bringing us to nearly 750 warehouses
operating worldwide by fiscal year end. All told, in fiscal 2017 we plan to open 16 new warehouses in the
U.S., eight in Canada, and one each in Taiwan, Korea, Japan, Australia, and Mexico; as well as France
(near Paris) and Iceland (near Reykjavik) openings.
This past June, we successfully completed the transition to our new co-branded Citi/Visa Anywhere Card,
and began accepting all Visa cards in the U.S. and Puerto Rico. We are very excited about this new
program; and are pleased with the results to date. It significantly increases the cash rewards earned by
Costco members using the new card for purchases at Costco and elsewhere; and it lowers our effective
costs of card acceptance.
In 2016, our membership base grew by 7% to nearly 48 million member households, representing more
than 87 million Costco cardholders worldwide. Importantly, member loyalty remained strong in 2016. Our
U.S. and Canada members, representing over 85% of total Company sales, renewed at a 90% annual
rate; and members worldwide at an 88% annual rate. Total membership revenue in 2016 amounted to
$2.6 billion; and our Executive Member program continues to grow. It is now offered in the U.S., Canada,
Mexico, and the U.K., and represents nearly one-third of our member base and two-thirds of total
Company sales.
On the merchandising front, we continue to expand our Kirkland Signature product offerings, as well as
offerings of brand-named items. This past year, new Kirkland Signature items included the launch of our
-
2
Costco's e-commerce business grew 15% in 2016 to nearly $4 billion in sales. We began the fiscal year
operating online sites in the U.S., Canada, the U.K. and Mexico; and launched our Korea and Taiwan
sites during this fiscal year. During the year and into fiscal 2017 we continue to focus on three primary
areas of our e-commerce business. First has been improving merchandising. We have added more
exciting, higher-end branded merchandise on an everyday basis; and we have improved our in-stock
availability on high velocity items, with more planned into the upcoming calendar year. Second, we are
continuing to improve the member experience and functionality of our site, including better search
capability, a streamlined checkout process, a simpler and more automated returns process and easier
member tracking of orders. Third, we have improved our distribution logistics, increasing the number of
distribution points from where we fulfill online orders, for closer and faster delivery times.
Our ancillary businesses, encompassing gas station operations, pharmacies, optical and hearing aid
centers, food courts, one-hour photo labs, car washes and travel are all key components of our
warehouses. These operations produced strong sales and profits performance in 2016; and helped drive
incremental sales throughout the warehouse. We include many of these ancillary offerings in new
warehouse openings, whenever possible; as well as add these operations to existing locations, as part of
planned remodels and relocations.
We continue to seek to build and operate our business in a responsible and sustainable manner. In this
regard, we are committed to enhancing the sustainability of our business, which involves many
dimensions, including our workforce, a continuing supply of merchandise, a supply chain that protects the
environment as well as the workers and animals in the supply chain, and the efficient use and reuse of
resources associated with our operations. Our members, employees, shareholders, and others are
increasingly focused on sustainability; as are we. An updated and expanded review of our current efforts
and activities, entitled "Sustainability Commitment", is available on our Costco.com website.
Earlier this year, Jill Ruckelshaus retired from our Board of Directors after twenty years of dedicated
service. We want to thank Jill for the significant contributions she made during her two decades on our
Board.
Preserving and enhancing our Costco culture and core values developed over the past forty years was a
pervasive theme throughout 2016, and remains a primary emphasis as Costco moves into its fifth decade
of operations. We seek to exceed the expectations of all our stakeholders. This is our challenge for 2017
and beyond; and we are confident that the entrepreneurial and innovative spirit at every level and in every
region of our global company will sustain our growth and allow us to continue to perform at the same high
levels achieved historically.
We appreciate the trust you, our shareholders, have placed in our management team; and on behalf of
our 225,000 employees around the world, we thank you for your continued support.
As always, we extend our best wishes to you and your families for a joyous holiday season and a happy,
healthy and prosperous New Year!
Best Regards,
Янва
Jeff Brotman
Chairman of the Board
سلسلول
Kirkland Signature golf ball, and several apparel items including girls activewear and expanded womens
activewear. A number of new Kirkland Signature food items were also introduced, with a strong emphasis
on organics, including: nut bars, protein bars, quinoa, raw honey, Greek yogurt, and hummus, as well as
a couple of organic pet supplies. New branded items now offered at Costco include apparel items under
the Spyder brand name and kitchen and bath products under the Kohler name.
Cray Jelek
Ску
December 15, 2016
2014 2015 2016
Fiscal Year
7.300
7.100
2012
2013
2014
2015
2016
At Fiscal Year End
Selling, General and
Administrative Expenses
10.6%
Dear Costco Shareholders,
10.4%
10.07%
10.0%
9.89%
9.81% 9.82%
9.8%
9.6%
9.4%
10.40%
0
2012 2013
10.2%
New Britain
Craig Jelinek
3
La Habra
Lakewood
La Mesa
Laguna Marketplace
Laguna Niguel
Lake Elsinore
Lancaster
La Quinta
Livermore
Lodi
Los Feliz
Inglewood
Irvine
Manteca
Mission Valley
Modesto
Montclair
Montebello
Morena
Tustin Ranch
Vacaville
Vallejo
Van Nuys
Victorville
Fort Oglethorpe
Gwinnett
Mall of Georgia
Morrow Bus. Ctr.
Merced
President and Chief Executive Officer
Huntington Beach
Hawthorne Bus. Ctr.
Hayward
COSTCO
WHOLESALE
SOUTH
KOREA
TAIWAN
JAPAN
AUSTRALIA
ALASKA
HAWAII
723 LOCATIONS A
2
Hayward Bus. Ctr.
U.S.A. (506)
Hoover
Huntsville
Mobile
Montgomery
ALASKA (3)
Anchorage
N. Anchorage
Juneau
ARIZONA (18)
Avondale
Cave Creek Road
Chandler
Gilbert
ALABAMA (4)
COSTCO
QUEENSLAND (1)
North Lakes
We have direct buying relationships with many producers of national brand-name merchandise. We do not
obtain a significant portion of merchandise from any one supplier. We generally have not experienced
difficulty in obtaining sufficient quantities of merchandise, and believe that if one or more of our current
sources of supply became unavailable, we would be able to obtain alternative sources without substantial
disruption of our business. We also purchase private label merchandise, as long as quality and member
demand are comparable and the value to our members is greater as compared to brand-name items.
Our online businesses, which include e-commerce, business delivery, and travel, operate websites in all
countries except Japan, Australia, and Spain. They provide our members additional products and services,
typically not found in our warehouses. Net sales for our online business were approximately 4% of our net
sales in 2016 and 3% in 2015 and 2014, respectively.
Ancillary businesses within or next to our warehouses provide expanded products and services and
encourage members to shop more frequently. We sell gasoline in all countries except Mexico, Korea, and
Taiwan and operated 508, 472, and 445 gas stations at the end of 2016, 2015, and 2014, respectively.
Ancillary businesses also include optical dispensing centers, food courts, and hearing-aid centers.
Other (including gas stations and pharmacy)
•
•
Fresh Foods (including meat, produce, deli, and bakery)
•
Softlines (including apparel and small appliances)
Sundries (including snack foods, candy, alcoholic and nonalcoholic beverages, and cleaning supplies)
Hardlines (including major appliances, electronics, health and beauty aids, hardware, and garden and
patio)
•
•
Foods (including dry foods, packaged foods, and groceries)
•
We offer merchandise 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 specific items in each product line to fast-selling
models, sizes, and colors. We carry an average of approximately 3,700 active stock keeping units (SKUs) per
warehouse in our core warehouse business, significantly less than other broadline retailers. Many
consumable products are offered for sale in case, carton, or multiple-pack quantities only.
Xalapa
BUSINESS OVERVIEW
Forward-Looking Statements
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, modernization of information systems, and the demand for our
products and services. Forward-looking statements may also be identified by the words "believe," "project,"
"expect," "anticipate,” “estimate,” “intend,” “strategy,” “future," "opportunity,” “plan,” “may,” “should," "will,"
"would," "will be," "will continue," "will likely result,” and similar expressions. 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 "Risk
Factors", and other factors noted in the section titled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and in the consolidated financial statements and related notes in this
Report. Forward-looking statements speak only as of the date they are made, and we do not undertake to
update them, except as required by law.
General
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, Australia, Spain, and through
majority-owned subsidiaries in Taiwan and Korea. Costco operated 715, 686, and 663 warehouses worldwide
at August 28, 2016, August 30, 2015, and August 31, 2014, respectively. Our common stock trades on the
NASDAQ Global Select Market, under the symbol "COST."
7
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 an increased level of net sales and earnings during the winter holiday season. References
to 2016, 2015, and 2014 relate to the 52-week fiscal years ended August 28, 2016, August 30, 2015, and
August 31, 2014, respectively.
We buy most of our merchandise directly from manufacturers and route it to a cross-docking consolidation
point (depot) or directly to our warehouses. Our depots receive large shipments from manufacturers and
quickly ship these goods to our individual warehouses. This process maximizes freight volume and handling
efficiencies, eliminating many of the costs associated with traditional multiple-step distribution channels.
Our average warehouse space is approximately 144,000 square feet, with newer units 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 the
6
availability of low prices, our warehouses are not elaborate. By strictly controlling the entrances and exits of
our warehouses and using a membership format, we have limited inventory losses (shrinkage) to amounts
well below those of typical discount retail operations.
Marketing activities for new locations generally include community outreach to local businesses in new and
existing markets and direct mail to prospective new members. Ongoing promotional programs primarily relate
to coupon mailers, The Costco Connection (a magazine we publish for our members), and promotional e-
mails to members.
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, thereby
reducing labor required. In general, with variations by country, our warehouses accept certain debit and credit
cards, co-branded Costco credit cards, cash, or checks.
We operate membership warehouses 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 merchandise 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 when available. To the
extent that sales increase and inventory turnover becomes more rapid, more inventory is financed through
payment terms provided by suppliers rather than by our working capital.
VERACRUZ (2)
Veracruz
Certain financial information for our segments and geographic areas is included in Note 11 to the consolidated
financial statements included in this Report.
Our members may utilize their memberships at any of our warehouses worldwide. Gold Star memberships are
available to individuals; Business memberships are limited to businesses, including individuals with a
business license, retail sales license or other evidence of business existence. Business members have the
ability to add additional cardholders (add-ons). Add-ons are not available for Gold Star members. Our annual
fee for these memberships is $55 in our U.S. and Canadian operations and varies by country in our Other
International operations. All paid memberships include a free household card.
Birmingham
8
Our industry is highly competitive, based on factors such as price, merchandise quality and selection,
location, and customer service. We compete on a worldwide basis with global, national, and regional
Competition
Approximately 15,000 employees, in a minority of our locations, are represented by the International
Brotherhood of Teamsters. We consider our employee relations to be very good.
126,000 117,000 112,000
92,000 88,000 83,000
218,000 205,000 195,000
2014
2015
2016
Total employees..
Part-time employees
Full-time employees.
Our employee count was as follows:
Labor
Paid cardholders are eligible to upgrade to an Executive membership in the U.S. and Canada, for an
additional annual fee of $55, and in Mexico and the U.K., for which the additional annual fee varies. Executive
members earn a 2% reward on qualified purchases (up to a maximum reward of $750 per year in our U.S.
and Canadian operations and varies in our Other International operations), which can be redeemed only at
Costco warehouses. This program also offers (except in Mexico) additional savings and benefits on various
business and consumer services, such as auto and home insurance, the Costco auto purchase program and
check printing services. The services are generally provided by third-parties and vary by state and country.
Executive members represented 39% of paid cardholders at the end of 2016, 2015, and 2014. Executive
members generally spend more than other members, and where executive memberships are offered the
percentage of our net sales attributable to these members continues to increase.
76,400
34,400
Our member renewal rate was 90% in the U.S. and Canada, and 88% on a worldwide basis in 2016. The
majority of members renew within six months following their renewal date. Therefore, our renewal rate is a
trailing calculation that captures renewals during the period seven to eighteen months prior to the reporting
date.
Our membership was made up of the following (in thousands):
Gold Star
Business, including add-ons.
Total paid members.
Household cards.
Membership
Total cardholders......
2015
2014
36,800
10,800
34,000 31,600
86,700
10,600 10,400
47,600 44,600 42,000
39,100 36,700
81,300
2016
W. Bayamón
Annual
Report
2016
Mérida
Liverpool
Manchester
Farnborough
Gifu Hashima
Chiba New Town
Chubu
Gloucester
Barrhaven
Barrie
Brampton
Burlington
Downsview
Etobicoke
Amagasaki
Leicester
Leeds
Hayes
JAPAN (25)
Haydock
Ancaster
Gateshead
Ringwood
QUERÉTARO (1)
Moorabbin
Bristol
E. Bayamón
Chester
SOUTH AUSTRALIA (1)
Chingford
Monterrey III
Milton Keynes
Coventry
VICTORIA (3)
Croydon
Puebla
Melbourne
Derby
ONTARIO (31)
Ajax
PUEBLA (1)
Oldham
Adelaide
Querétaro
Kitchener
Imizu
Sunbury
London
Iruma
Thurrock
Sheffield
Southampton
Caguas
Carolina
Izumi
Watford
Markham
Kaminoyama
Wembly
Reading
North London
Hitachinaka
YUCATÁN (1)
PUERTO RICO (4)
Kingston
SAN LUIS POTOSÍ (1)
San Luis Potosí
Culiacan
SONORA (1)
Hermosillo
Pewaukee
SINALOA (1)
Sun Prairie
Hisayama
Pleasant Prairie
Kanata
Hiroshima
QUINTANA ROO (1)
Cancún
Guelph
WASHINGTON, D.C. (1)
Washington, D.C.
MARKET FOR COSTCO COMMON STOCK
8
723
5
506
94
123
723
(1) Net of closings and relocations.
At the end of 2016, our warehouses contained approximately 103.2 million square feet of operating floor
space: 73.3 million in the U.S.; 12.6 million in Canada; and 17.3 million in Other International locations.
Additionally, we operate regional depots for the consolidation and distribution of most merchandise shipments
to the warehouses, and various processing, packaging, and other facilities to support ancillary and other
businesses, which includes our online business. We operate 24 depots consisting of approximately 10.1
million square feet. Our executive offices are located in Issaquah, Washington, and we operate 18 regional
offices in the U.S., Canada and Other International locations.
17
3
Total
First Quarter
Our common stock is traded on the NASDAQ Global Select Market under the symbol "COST." On October 4,
2016, we had 8,572 stockholders of record. The following table shows the quarterly high and low closing
prices as reported by NASDAQ for each quarter during the last two fiscal years and the quarterly cash
dividend declared per share of our common stock.
2016:
Fourth Quarter.
Third Quarter
Second Quarter..
2015:
Fourth Quarter..
Third Quarter.
Second Quarter....
First Quarter
2017 (expected through 12/31/2016)...
(1) Includes a special cash dividend of $5.00 per share.
Market Information and Dividend Policy
715
2014.
6
Price Range
High
Total Warehouses
in Operation
2012 and prior.
439
82
87 608
608
2013.
12
3
11
26
634
17
3
9
29
663
2015.
12
1
10
23
686
2016.
21
2
29
Low
Total Number
of Shares
Purchased
..$ 169.04 $ 141.29 $
Total
416,000
Average
Price Paid
per Share
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Program
416,000
Maximum Dollar
Value of Shares
that May Yet be
Purchased
under the
Program
$3,292
1111
234,000
$146.08
154.81
234,000
66,000
$3,256
Total fourth quarter..
66,000
$3,245
140,000
167.34
140,000
$3,222
856,000
$153.34
856,000
(1) Our repurchase program is conducted under a $4,000 authorization approved by our Board of Directors in April 2015, which
expires in April 2019.
Equity Compensation Plans
Information related to our Equity Compensation Plans is incorporated herein by reference to Costco's
Proxy Statement filed with the Securities and Exchange Commission.
18
164.12
August 1-August 28, 2016.
July 4-July 31, 2016.
June 6-July 3, 2016
0.450
158.25
146.44
0.450
168.87
143.28
0.400
163.10
138.30
0.400
146.89
132.71
0.400
143.05
0.400
155.92
137.31
5.355
(1)
140.01
121.35
0.355
Payment of future dividends is subject to declaration by the Board of Directors. Factors considered in
determining dividends include our profitability and expected capital needs. Subject to these qualifications, we
presently expect to continue to pay dividends on a quarterly basis.
Issuer Purchases of Equity Securities
The following table sets forth information on our common stock repurchase program activity for the fourth
quarter of fiscal 2016 (dollars in millions, except per share data):
Period
May 9-June 5, 2016
Cash
Dividends
Declared
Other
International
153.14
United States
If our merchandise offerings, 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 standards or our members' expectations regarding safety, we could experience lost sales, increased
costs, and legal and reputational losses. The sale of these items involves the risk of health-related 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 vendors 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 all safety 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 a
health-related illness or injury in the future 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, related 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 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 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 timely identify or effectively respond to changing consumer tastes, preferences
(including those relating to sustainability of product sources and animal welfare) 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
Imay have excess inventory, which could result in additional markdowns and reduce our operating
performance. This could have an adverse effect on net sales, gross margin and operating income.
12
If we do not successfully develop and maintain a relevant multichannel experience for our members,
our results of operations could be adversely impacted.
Multichannel retailing is rapidly evolving and we must keep pace with changing member expectations and
new developments by our competitors. Our members, especially younger members, are increasingly using
computers, tablets, mobile phones, and other devices to shop and to interact with us through social media. As
part of our multichannel strategy, we are making technology investments in our websites and mobile
applications. If we are unable to make, improve, or develop relevant member-facing technology in a timely
manner, our ability to compete and our results of operations could be adversely affected.
Inability to attract, train and retain highly qualified employees could adversely impact our business,
financial condition and results of operations.
Our success depends on the continued contributions of members of our senior management and other key
operations, merchandising and administrative personnel, and the loss of these contributions could have a
material adverse effect on 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 external factors, including 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.
Market and Other External Risks
We face strong competition from other retailers and warehouse club operators, which could adversely
affect our business, financial condition and results of operations.
The retail business is highly competitive. We compete for members, employees, sites, products and services
and in other important respects with a wide range of local, regional and national wholesalers and retailers,
both in the United States and in foreign countries, including other warehouse club operators, supermarkets,
supercenters, department and specialty stores, gasoline stations, and internet retailers. Such retailers and
warehouse club operators compete in a variety of ways, including merchandise 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 with digital devices, which has enhanced competition. Some competitors may
have greater financial resources, better access to merchandise and greater market penetration than we do.
Our inability to respond effectively to competitive pressures, changes in the retail markets and member
expectations could result in lost market share and negatively affect our financial results.
General economic factors, domestically and internationally, may adversely affect our business,
financial condition, and results of operations.
Higher energy and gasoline costs, inflation, levels of unemployment, healthcare costs, consumer debt levels,
foreign-currency exchange rates, unsettled financial markets, weaknesses in housing and real estate markets,
reduced consumer confidence, changes related to government fiscal and tax policies, sovereign debt crises,
and other economic factors could adversely affect demand for our products and services or require a change
in the mix of products we sell. Prices of certain commodity products, including gasoline and other food
products, are historically volatile and are subject to fluctuations arising from changes in domestic and
international supply and demand, labor costs, competition, market speculation, government regulations, taxes
and periodic delays in delivery. Rapid and significant changes in commodity prices 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
13
economic conditions can also be affected by the outbreak of war, acts of terrorism, or other significant national
or international events.
Vendors may be unable to supply us with quality merchandise at the right prices in a timely manner 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 merchandise in sufficient quantities at competitive prices. As
these quantities continue to grow, we have no assurances of continued supply, pricing or access to new
products, and any vendor could at any time change the terms upon which it sells to us or discontinue selling
to us. Member demands may lead to out-of-stock positions of our merchandise leading to loss of sales and
profits.
We purchase our merchandise from numerous domestic and foreign manufacturers and importers and have
thousands of vendor relationships. Our inability to acquire suitable merchandise on acceptable terms or the
loss of key vendors could negatively affect us. We may not be able to develop relationships with new vendors,
and products from alternative sources, if any, may be of a lesser quality or more expensive than those from
existing vendors. Because of our efforts to adhere to high quality standards for which available supply may be
limited, particularly for certain food items, the large volume we demand may not be consistently available.
Our suppliers (and those they depend upon for materials and services) are subject to risks, including labor
disputes, union organizing activities, financial liquidity, inclement weather, natural disasters, supply
constraints, and general economic and political conditions that could limit their ability to timely provide us with
acceptable merchandise. For these or other reasons, one or more of our suppliers might not adhere to our
quality control, 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 our costs, and otherwise adversely impact our business.
Fluctuations in foreign exchange rates may adversely affect our results of operations.
During 2016, our international operations, including Canada, generated 27% and 39% of our net sales and
operating income, respectively. Our international operations have accounted for an increasingly larger portion
of our warehouses and we plan to continue expanding them. Our operations in countries other than the U.S.
are conducted primarily in the local currencies of those countries. Our consolidated financial statements are
denominated in U.S. dollars, and to prepare those financial statements we must translate the financial
statements of our international operations from local currencies into U.S. dollars using exchange rates for the
current period. Future fluctuations in currency exchange rates over time that are unfavorable to us may
adversely affect the financial performance of our Canadian and Other International operating segments 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.
We may pay for products we purchase for sale in our warehouses around the world with a currency other than
the local currency of the country in which the goods will be sold. Currency fluctuations may increase our cost
of goods and may not be passed on to members. Consequently, fluctuations in currency exchange rates may
adversely affect our results of operations.
Natural disasters or other catastrophic events could negatively affect our business, financial
condition, and results of operations.
Natural disasters, such as hurricanes, typhoons or earthquakes, 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 one or more of our
properties, the temporary closure of one or more warehouses or depots, the temporary lack of an adequate
work force in a market, the temporary or long-term disruption in the supply of products from some local or
14
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 within the countries in which we operate, 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 receive products from suppliers. 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.
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.
Increased U.S. and foreign government and agency regulations to limit carbon dioxide and other greenhouse
gas emissions may result in increased compliance costs and legislation or regulation affecting energy inputs
that could materially affect our profitability. In addition, climate change could affect our ability to procure
needed 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 also could
face increased regulation. Climate change may be associated with extreme weather conditions, such as more
intense hurricanes, thunderstorms, tornadoes, and snow or ice storms, as well as rising sea levels. Extreme
weather conditions increase our costs and resulting damage to our properties may not be fully insured.
Failure to meet market expectations for our financial performance could adversely affect the market
price and volatility of our stock.
We believe that the price of our stock generally reflects high market expectations for our future operating
results. Any failure to meet or delay in meeting these expectations, including our comparable sales growth
rates, membership renewal rates, gross margin, earnings, earnings per share, new warehouse openings, or
dividend or stock repurchase policies could cause the market price of our stock to decline.
We might sell unsafe products, resulting in illness or injury to our members, harm to our reputation,
and litigation.
Legal and Regulatory Risks
subject to additional rules, regulations, compliance requirements, and higher fraud losses. For certain
payment methods, we pay interchange and other related card acceptance fees, along with additional
transaction processing fees. We rely on third parties to provide payment transaction processing services,
including the processing of credit and debit cards, and our proprietary cash card, and it could disrupt our
business if these companies become unwilling or unable to provide these services to us. We are also subject
to payment card association rules and network operating rules, including data security rules, certification
requirements and rules governing electronic funds transfers, which could change over time. For example, we
are subject to Payment Card Industry Data Security Standards ("PCI DSS"), which contain compliance
guidelines and standards with regard to our security surrounding the physical and electronic storage,
processing and transmission of individual cardholder data. As of October 1, 2015, the payment card industry
shifted the liability of certain credit card transactions to retailers who are not able to process Europay,
MasterCard, Visa ("EMV”) chip-enabled card transactions. As a result, before our implementation of the EMV
technology is complete, we may be liable for costs incurred by payment card issuing banks or other third
parties for fraudulent transactions initiated through EMV chip-enabled cards before our implementation of
EMV chip technology. Implementation of the EMV chip technology and receipt of final certification is subject to
hardware installation, software modification, and certification with our third-party transaction service providers.
If we fail to comply with these rules or transaction processing requirements, we may not be able to accept
certain payment methods. In addition, 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 credit
and/or debit card payments from our members, and our business and operating results could be adversely
affected.
We accept payments using a variety of methods, including cash and checks, a select variety of credit and
debit cards, and our proprietary cash card. As we offer new payment options to our members, we may be
wholesalers and retailers, including supermarkets, supercenters, department and specialty stores, gasoline
stations, internet retailers, and operators selling a single category or narrow range of merchandise.
Competitors such as Wal-Mart, Target, Kroger, and Amazon.com are among our significant general
merchandise retail competitors. We also compete with warehouse club operations (primarily Wal-Mart's Sam's
Club and BJ's Wholesale Club), and nearly every major U.S. metropolitan area has multiple club operations.
Canada
Intellectual Property
We believe that, to varying degrees, our trademarks, trade names, copyrights, proprietary processes, trade
secrets, patents, 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Ⓡ series of trademarks and our private label
brand, Kirkland Signature®. We believe that Kirkland Signature products are premium products, offered to our
members at prices that are generally lower than those for similar national brand products and that they help
lower costs, differentiate our merchandise offerings from other retailers, 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 rights. 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 their registrations are properly maintained.
RISK FACTORS
The risks described below could materially and adversely affect our business, financial condition and results
of operations. These risks are not the only risks that we face. We could also be affected by additional factors
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
and our consolidated financial statements and related notes in this Report.
Business and Operating Risks
We may be unsuccessful implementing our growth strategy, including expanding our business, both
in existing markets and in new markets, which could have an adverse impact on our business,
financial condition and results of operations.
9
Our growth is dependent, in part, on our ability to acquire property and build or lease new warehouses and
regional 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 our 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, within their
jurisdictions. Failure to effectively manage these and other similar factors may affect our ability to timely build
or lease and operate new warehouses and depots, which could have a material adverse effect on our future
growth and profitability.
We seek to expand in existing markets to attain a greater overall market share. A new warehouse may draw
members away from our existing warehouses and adversely affect comparable sales performance and
member traffic at those existing warehouses.
We also 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 lack of familiarity with local member preferences, and seasonal differences in the market. In addition,
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 our new warehouses and new websites will be
profitably deployed and, as a result, our future profitability could be delayed or otherwise materially adversely
affected.
Our failure to maintain membership loyalty and brand recognition could adversely affect our
results of operations.
Membership loyalty and growth are essential to our business model. 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. Damage to our brands or reputation may negatively impact comparable
sales, diminish member trust, and reduce member renewal rates and, accordingly, net sales and membership
fee revenue, negatively impacting our results of operations.
In addition, we sell many products under our private label Kirkland Signature brand. Maintaining consistent
product quality, competitive pricing, and availability of our Kirkland Signature products for our members is
essential to developing and maintaining member loyalty. These products also generally carry higher margins
than national brand products carried in our warehouses 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 our depot operations could adversely affect sales and member satisfaction.
We depend on the orderly operation of the merchandise receiving and distribution process, primarily through
our depots. Although we believe that our receiving and distribution process is efficient, unforeseen disruptions
in operations due to fires, tornadoes and hurricanes, earthquakes or other catastrophic events, labor issues or
other shipping problems may result in delays in the delivery of merchandise to our warehouses, which could
adversely affect sales and the satisfaction of our members.
We rely extensively on computer systems to process transactions, compile results, and manage our
business. Failure or disruption of our primary and back-up systems could adversely affect our
business. A failure to adequately update our existing systems and implement new systems could
harm our business and adversely affect our results of operations.
10
Given the very high volume of transactions we process each year it is important that we maintain
uninterrupted operation of our business-critical computer systems. Our computer systems, including our back-
up systems, are subject to damage or interruption from power outages, computer and telecommunications
failures, computer viruses, internal or external security breaches, catastrophic events such as fires,
earthquakes, tornadoes and hurricanes, and errors by our employees. If our systems are damaged or cease
to function properly, we may have to make significant investments to fix or replace them, and we may suffer
interruptions in our operations in the interim. Any material interruption in our computer systems could have a
material adverse effect on our business and results of operations.
We are currently making, and will continue to make, significant technology investments to improve or replace
critical information systems and processing. Failure to monitor and choose the right investments and
implement them at the right pace would be harmful. The risk of system disruption is increased when
significant system changes are undertaken, although we believe that our change management process will
mitigate this risk. Excessive technological change could impact the effectiveness of adoption, and could make
it more difficult for us to realize benefits from the technology. Targeting the wrong opportunities, failing to make
the best investments, or making an investment commitment significantly above or below our needs could
result in the loss of our competitive position and adversely impact our financial condition and results of
operations. Additionally, the potential problems and interruptions associated with implementing technology
initiatives could disrupt or reduce the efficiency of our operations in the short term. These initiatives might not
provide the anticipated benefits or may provide them on a delayed schedule or at a higher cost.
If we do not maintain the privacy and security of member-related and other business information, we
could damage our reputation with members, incur substantial additional costs, and become subject to
litigation.
We receive, retain, and transmit personal information about our members and entrust that information to third-
party business associates, including cloud service providers that perform activities for us. Our warehouse and
online businesses depend upon the secure transmission of encrypted confidential information over public
networks, including information permitting cashless payments. A compromise of our security systems or those
of our business associates, that results in our members' information being obtained by unauthorized persons,
could adversely affect our reputation with our members and others, as well as our operations, results of
operations, financial condition and liquidity, and could result in litigation against us or the imposition of
penalties. In addition, a breach could require that we expend significant additional resources related to the
security of information systems and could disrupt our operations.
The use of data by our business and our business associates is regulated at the national and state or local
level in all of our operating countries. Privacy and information security laws and regulations change, and
compliance with them may result in cost increases due to necessary systems changes and the development
of new processes. If we or those with whom we share information fail to comply with these laws and
regulations, our reputation could be damaged, possibly resulting in lost future business, and we could be
subjected to additional legal risk as a result of non-compliance.
Our security measures may be undermined due to the actions of outside parties, employee error, internal or
external malfeasance, or otherwise, and, as a result an unauthorized party may obtain access to our data
systems and misappropriate business and personal information. Because the techniques used to obtain
unauthorized access, disable or degrade service, or sabotage systems change frequently and may not
immediately produce signs of intrusion, we may be unable to anticipate these techniques, timely discover or
counter them, or implement adequate preventative measures. Any such breach or unauthorized access could
result in significant legal and financial exposure, damage to our reputation, and potentially have an adverse
effect on our business.
We are subject to payment-related risks.
11
Our international operations subject us 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.
We are highly dependent on the financial performance of our U.S. and Canadian operations.
Our financial and operational performance is highly dependent on our U.S. and Canadian operations, which
comprised 87% and 84% of net sales and operating income in 2016, respectively. Within the U.S., we are
highly dependent on our California operations, which comprised 31% of U.S. net sales in 2016. 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 products and innovative new products to retain
our existing member base and attract new members.
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.
11
Lease Land
and/or
Building
(1)
Total
94 501
11
-
91
111
5
61723
36
22
28
25
12
12
8
2
2
568
715
-
During 2016, we operated 214 warehouses in eight countries 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 conditions, economic conditions, regulatory constraints, currency regulations, 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, 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 located in countries 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 greater difficulty in enforcing intellectual property
rights.
5
Openings by Fiscal Year(1)
The following schedule shows warehouse openings for the past five fiscal years and expected warehouse
openings through December 31, 2016:
14
36
147
407
self-insurance liabilities, and income taxes are highly complex and involve many subjective assumptions,
estimates and judgments by our management. Changes in these rules or their interpretation or changes in
underlying assumptions, estimates or judgments by our management could significantly change our reported
or expected financial performance.
80
15
We compute our income tax provision based on enacted tax rates in the countries in which we operate. As the
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, adverse outcomes in tax audits, including transfer pricing disputes, or any change in the
pronouncements relating to accounting for income taxes could have a material adverse effect on 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, but not limited to, revenue recognition,
merchandise inventories, vendor rebates and other vendor consideration, impairment of long-lived assets,
Significant changes in, or failure to comply with, 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 could adversely impact our
business, financial condition and results of operations.
We are subject to a wide variety 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 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.
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 (see discussion of Legal Proceedings in Note 10 to the consolidated financial
statements included in this Report). We cannot predict with certainty the outcomes of these legal proceedings
and other contingencies, including environmental remediation and other proceedings commenced by
governmental authorities. The outcome of some of these legal 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.
16
Warehouse Properties
PROPERTIES
At August 28, 2016 we operated 715 membership warehouses:
We could be subject to additional income tax liabilities.
Provisions for losses related to self-insured risks are generally based upon independent actuarially
determined estimates. The assumptions underlying the ultimate costs of existing claim losses can be highly
unpredictable, which can affect the liability recorded for such claims. For example, variability in health care
cost inflation rates inherent in these claims can affect the amounts recognized. Similarly, changes in legal
trends and interpretations, as well as changes in the nature and method of how claims are settled can impact
ultimate costs. Although our estimates of liabilities incurred do not anticipate significant changes in historical
trends for these variables, any changes could have a considerable effect upon future claim costs and
currently recorded liabilities and could materially impact our consolidated financial statements.
Own Land
and Building
NUMBER OF WAREHOUSES
(1) 98 of the 147 leases are land-only leases, where Costco owns the building.
Total
Spain..
United States and Puerto Rico.
Australia
Korea
Japan
United Kingdom..........
Mexico
Canada.
Taiwan
Gross Margin
Net sales.
Less merchandise costs
2015
Gross margin percentage..
2016 vs. 2015
2016
2014
Gross margin.....
Membership fees increased 4% in 2015. This increase was primarily due to membership sign-ups at existing
and new warehouses and increased number of upgrades to our higher-fee Executive Membership program.
These increases were partially offset by changes in foreign currencies relative to the U.S. dollar, which
negatively impacted membership fees by approximately $76 in 2015.
2016
The increase in membership fees was primarily due to membership sign-ups at existing and new warehouses
and increased number of upgrades to our higher-fee Executive Membership program. These increases were
partially offset by changes in foreign currencies relative to the U.S. dollar, which negatively impacted
membership fees by approximately $52 in 2016. At the end of 2016, our member renewal rates were 90% in
the U.S. and Canada and 88% worldwide.
2.20%
6%
2014
2.23%
4%
2,533
2015
4%
2.28%
116,073 $
2,646
2015 vs. 2014
2,428
11.09%
110,212
2016 vs. 2015
SG&A expenses as a percentage of net sales.
2016 vs. 2015
SG&A expenses.
Selling, General and Administrative Expenses
Segment gross margin percentage increased in our U.S. operations, primarily due to our gasoline business
and the LIFO benefit discussed above. The segment gross margin percentage in our Canadian operations
decreased across our core merchandise categories. The segment gross margin percentage in our Other
International operations decreased, primarily in food and sundries.
Our gross margin percentage increased 43 basis points compared to 2014 and most of the improvement was
derived from the impact of gasoline price deflation on net sales. Excluding this impact, gross margin as a
percentage of adjusted net sales was 10.81%, an increase of 15 basis points from the prior year. This
increase was predominantly due to: an increase in our warehouse ancillary and other business gross margin
of 23 basis points, due primarily to our gasoline business; partially offset by a negative contribution from core
merchandise categories of 12 basis points, as a result of a decrease in their sales penetration. A LIFO benefit
in 2015 compared to a charge in 2014 positively contributed five basis points. The LIFO benefit resulted
largely from lower costs of gasoline. Changes in foreign currencies relative to the U.S. dollar negatively
impacted gross margin by approximately $359 in 2015.
The gross margin of our core merchandise categories (food and sundries, hardlines, softlines and fresh
foods), when expressed as a percentage of core merchandise sales, increased five basis points, primarily due
to increases in softlines and food and sundries, partially offset by a decrease in fresh foods.
2015 vs. 2014
Gross margin on a segment basis, when expressed as a percentage of the segment's own sales and
excluding the impact of gasoline price deflation on net sales (segment gross margin percentage), increased
in our U.S. operations, predominately due to a positive contribution from our core merchandise categories,
primarily hardlines and softlines, and the LIFO benefit discussed above. The segment gross margin
percentage in our Canadian operations decreased, primarily due to a decrease in all core merchandise
categories, except hardlines, partially offset by increases in warehouse ancillary and other businesses,
primarily pharmacy and e-commerce businesses. The segment gross margin percentage in Other
International operations decreased in all merchandise categories, except fresh foods, which was higher.
ancillary and other business gross margin positively contributed one basis point, primarily due to hearing aids
and e-commerce businesses, partially offset by our gasoline business. Changes in foreign currencies relative
to the U.S. dollar negatively impacted gross margin by approximately $286 in 2016.
24
24
Total gross margin percentage increased 26 basis points compared to 2015. Excluding the impact of gasoline
price deflation on net sales, gross margin as a percentage of adjusted net sales was 11.14%, an increase of
five basis points. A larger LIFO benefit in 2016 compared to 2015 positively contributed three basis points.
The LIFO benefit resulted largely from lower costs for merchandise inventories, primarily in food and sundries
and gasoline. Our core merchandise categories positively contributed one basis point, primarily due to an
increase in hardlines, partially offset by food and sundries due to a decrease in sales penetration. Warehouse
The gross margin of our core merchandise categories (food and sundries, hardlines, softlines and fresh
foods), when expressed as a percentage of core merchandise sales (rather than total net sales), increased 13
basis points, primarily due to increases in these categories other than fresh foods. This measure eliminates
the impact of changes in sales penetration and gross margins from our warehouse ancillary and other
businesses.
10.66%
11.35%
11,754
$
12,601
$
13,172
98,458
101,065
102,901
113,666
Membership fees as a percentage of net sales
0 %
Membership fees
2%
(5)%
(3)%
5%
3 %
1 %
Net Sales
2016 vs. 2015
Total Company.
Other International......
Canada.
(3)%
U.S..
Total Company.
Other International.
Canada.
U.S..
Changes in comparable sales:
7%
3 %
2 %
Total Company
2016
14%
Increases in comparable sales excluding the impact
of changes in foreign currency and gasoline prices:
Membership fees increase
(3)%
1 %
Membership Fees
Comparable sales increased 1% during 2015 and were positively impacted by an increase in shopping
frequency partially offset by a decrease in the average ticket. The average ticket and comparable sales results
were negatively impacted by changes in foreign currencies relative to the U.S. dollar and a decrease in
gasoline prices. Changes in comparable sales also includes the negative impact of cannibalization.
Comparable Sales
$2,027, Mexico of $385, and Japan of $368. Changes in gasoline prices negatively impacted net sales by
approximately $2,902, or 263 basis points, due to a 22% decrease in the average sales price per gallon.
23
Net sales increased $3,454 or 3% during 2015. This was attributable to sales at new warehouses opened in
2014 and 2015 and a 1% increase in comparable sales. Changes in foreign currencies relative to the U.S.
dollar negatively impacted net sales by approximately $3,344, or 303 basis points, compared to 2014. The
negative impact was attributable to all foreign countries in which we operate, predominantly Canada of
Net Sales
2015 vs. 2014
Comparable sales were flat during 2016 and were positively impacted by an increase in shopping frequency
offset by a decrease in the average ticket. The average ticket and comparable sales results were negatively
impacted by changes in foreign currencies relative to the U.S. dollar and a decrease in gasoline prices.
Changes in comparable sales also includes the negative impact of cannibalization (established warehouses
losing sales to our newly opened locations).
Comparable Sales
Net sales increased $2,407 or 2% during 2016. This was attributable to sales at new warehouses opened in
2015 and 2016. Comparable sales were flat. Changes in foreign currencies relative to the U.S. dollar
negatively impacted net sales by approximately $2,690, or 237 basis points, compared to 2015. The negative
impact was attributable to most foreign countries in which we operate, predominantly Canada of $1,646,
Mexico of $550, and UK of $224. Changes in gasoline prices negatively impacted net sales by approximately
$2,194, or 193 basis points, due to a 19% decrease in the average sales price per gallon.
3%
6%
4 %
4%
6 %
4 %
9%
8 %
8 %
5%
6 %
3 %
4%
7 %
2015
7
12,068
10.40%
34.7%
1,109
1,195 $
33.2%
2014
2015
34.3%
1,243
2016
Effective tax rate
Provision for income taxes
Provision for Income Taxes
The increase in net foreign-currency transaction gains was primarily attributable to favorable mark-to-market
adjustments for forward foreign exchange contracts compared to the prior year. The increase was also
attributable to net gains on the revaluation or settlement of monetary assets and liabilities during the year.
2015 vs. 2014
of monetary assets and liabilities by our Canadian and Other International operations. See Derivatives and
Foreign Currency sections in Note 1 of this Report.
26
26
The decrease in interest income in 2016 is attributable to lower average cash and investment balances, due
in part to the payment of the outstanding principal balance and interest on the 0.65% Senior Notes in the
second quarter of 2016 (see discussion in Note 4 of this Report). Foreign-currency transaction gains, net
include mark-to-market adjustments for forward foreign-exchange contracts and the revaluation or settlement
90
104 $
80 $
.$
12
11
In 2015, our provision was favorably impacted by net tax benefits of $68, primarily due to a tax benefit
recorded in connection with a special cash dividend paid to employees through our 401(K) Retirement Plan.
Dividends paid on these shares are deductible for U.S. income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
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.
2 %
Dividends
During 2016 and 2015, we repurchased 3,184,000 and 3,456,000 shares of common stock, at an average
price of $149.90 and $142.87, totaling approximately $477 and $494, respectively. The remaining amount
available to be purchased under our approved plan was $3,222 at the end of 2016. 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.
Stock Repurchase Programs
In March 2016, our Japanese subsidiary issued approximately $103 of 0.63% Guaranteed Senior Notes
through a private placement. Additionally, in June 2016, our Japanese subsidiary issued approximately $93 of
zero percent Guaranteed Senior Notes through a private placement. Interest on both issuances are payable
semi-annually, and principal is due in March 2026 and June 2021, respectively.
Net cash used in financing activities totaled $2,419 in 2016 compared to $2,324 in 2015. The primary uses of
cash in 2016 were related to the $1,200 repayment of our 0.65% Senior Notes in December 2015, dividend
payments of $746, repurchases of common stock, and payment of withholding taxes on stock-based awards.
Net cash used in financing activities in 2015 included a $5.00 per share special cash dividend, totaling
approximately $2,201, partially offset by the issuance of $1,000 in Senior Notes.
Cash Flows from Financing Activities
We opened 29 new warehouses and relocated four warehouses in 2016 and plan to open up to 31 new
warehouses and relocate up to three warehouses in 2017. Our primary requirement for capital is acquiring
land, buildings, and equipment for new and remodeled warehouses. To a lesser extent, capital is required for
initial warehouse operations, the modernization of our information systems, and working capital. In 2016 we
spent $2,649 on capital expenditures, and it is our current intention to spend approximately $2,600 to $2,800
during fiscal 2017. These expenditures are expected to be financed with cash from operations, existing cash
and cash equivalents, and short-term investments. 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.
Capital Expenditure Plans
Net cash used in investing activities totaled $2,345 in 2016 compared to $2,480 in 2015. Cash flow used in
investing activities is primarily related to funding warehouse expansion and remodeling activities. Net cash
flows from investing activities also included purchases and maturities of short-term investments.
Cash Flows from Investing Activities
26
Net cash provided by operating activities totaled $3,292 in 2016, compared to $4,285 in 2015. Our cash flow
provided by operations is primarily derived from net sales and membership fees. Cash flow used in operations
generally consists of payments to our merchandise vendors, warehouse operating costs including payroll and
employee benefits, credit and debit card processing fees, and utilities. Cash used in operations also includes
payments for income taxes. The decrease in net cash provided by operating activities for 2016 when
compared to 2015 was primarily due to accelerated vendor payments of approximately $1,700 made in the
last week of fiscal 2016, in advance of implementing our modernized accounting system at the beginning of
fiscal 2017.
27
Management believes that our cash position and operating cash flows 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 and have no current plans to repatriate for use in
the U.S. cash and cash equivalents and short-term investments held by these non-U.S. consolidated
subsidiaries whose earnings are considered indefinitely reinvested. Cash and cash equivalents and short-
term investments held at these subsidiaries with earnings considered to be indefinitely reinvested totaled
$1,535 at August 28, 2016.
Our primary sources of liquidity are cash flows generated from warehouse operations, cash and cash
equivalents and short-term investments. Cash and cash equivalents and short-term investments were $4,729
and $6,419 at the end of 2016 and 2015, respectively. Of these balances, approximately $1,071 and $1,243
at the end of 2016 and 2015, respectively, represented unsettled credit and debit card receivables. These
receivables generally settle within one week. Cash and cash equivalents were positively impacted by changes
in exchange rates by $50 in 2016 and negatively impacted by $418 and $11 in 2015 and 2014, respectively.
We have not provided for U.S. deferred taxes on cumulative undistributed earnings of certain non-U.S.
consolidated subsidiaries, including the remaining undistributed earnings of our Canadian operations,
because our subsidiaries have invested or will invest the undistributed earnings indefinitely, or the earnings, if
repatriated would not result in an adverse tax consequence. Although we have historically asserted that
certain non-U.S. undistributed earnings will be permanently reinvested, we may repatriate such earnings to
the extent we can do so without an adverse tax consequence. If we determine that such earnings are no
longer indefinitely reinvested, deferred taxes, to the extent required and applicable, are recorded at that time.
During 2016, we repatriated the earnings in our Canadian operations that in 2015 were no longer considered
indefinitely reinvested. Subsequent to the end of the fiscal year, we determined that a portion of the
undistributed earnings in our Canadian operations could be repatriated without adverse tax consequences.
Accordingly, we no longer consider that portion to be indefinitely reinvested.
(786)
(2,324)
3,984
(2,093)
4,285 $
(2,480)
3,292 $
(2,345)
(2,419)
2014
2015
2016
Cash Flows from Operating Activities
52
50 $
47
41 $
28
2
17
14
25
$ 78 $ 65 $ 63
2014
2015
2016
Other International..
Canada.
Warehouse openings, including relocations
United States
1
Preopening expenses
SG&A expenses as a percentage of net sales increased 18 basis points, mostly due to the negative impact of
gasoline price deflation on net sales. Excluding this impact, SG&A expenses as a percentage of adjusted net
sales were 9.82%, an improvement of seven basis points. This was due to lower warehouse operating costs
of 16 basis points, primarily from improvements in payroll expenses in our core business as a result of
leveraging increased sales. This improvement was partially offset by higher central operating costs of five
basis points, predominantly due to increased depreciation and service contract costs associated with our
information systems modernization projects that were placed into service during the year, primarily incurred by
our U.S. operations. Higher stock compensation expense also negatively impacted our SG&A expenses by
four basis points, due to an appreciation in the trading price of our stock at the time of grant. Changes in
foreign currencies relative to the U.S. dollar decreased our SG&A expenses by approximately $282 in 2015.
2015 vs. 2014
25
25
SG&A expenses as a percentage of net sales increased 33 basis points compared to 2015. Excluding the
negative impact of gasoline price deflation on net sales, SG&A expenses as a percentage of adjusted net
sales were 10.20%, an increase of 13 basis points. This was largely due to: higher central operating costs of
six basis points, predominantly due to costs associated with our information systems modernization, including
increased depreciation for projects placed in service, incurred by our U.S. operations; and higher stock
compensation expense of four basis points, due to appreciation in the trading price of our stock at the time of
grant. Our investment in modernizing our information systems is ongoing and expected to continue to
negatively impact SG&A expenses. Charges for non-recurring legal and regulatory matters during 2016
negatively impacted SG&A expenses by two basis points. Our warehouse operating costs were higher by one
basis point due to higher payroll and employee benefit costs, primarily health care, in our U.S. operations.
This increase was partially offset by lower payroll expense as a percentage of net sales in our Canadian
operations. Changes in foreign currencies relative to the U.S. dollar decreased our SG&A expenses by
approximately $211 in 2016.
9.89%
10.07%
10,899
$
11,445
$
Preopening Expenses
2014
3
11
2014
2015
2016
2016 vs. 2015
Interest income and other, net..
Other, net.
Foreign-currency transaction gains, net....
Interest income...
Interest Income and Other, Net
Interest expense in 2016 primarily relates to Senior Notes issued by the Company (described in further detail
under the heading "Cash Flows from Financing Activities" and in Note 4 to the consolidated financial
statements included in this Report). The increase in interest expense is primarily due to the Senior Notes
issued in February 2015.
113
6
124 $
2014
2015
2016
Interest expense
Interest Expense
Preopening expenses include costs for startup operations related to new warehouses, including relocations,
development in new international markets, and expansions at existing warehouses. Preopening expenses
vary due to the number of warehouse 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.
Total warehouse openings, including relocations..........
30
26
33
10
133 $
4 %
2,058
5%
8.17
1.33
6.51
1.70
share.
Cash dividends declared per common
3.89
4.63
4.65
5.37
5.33
Net income per diluted common share
attributable to Costco
1,709
2,039
2,377
2,350
Net income attributable to Costco (2)
3,220 $ 3,053 $ 2,759
$
3,624
$
3,672
Operating income
1.03
Changes in comparable sales (3)
United States
Canada.
excluding the impact of changes in foreign
currency and gasoline prices..
Increase in Total Company comparable sales
Total Company..
7%
6%
4%
1 %
0 %
3%
1%
3%
9.81%
(3)%
8%
9%
2%
(5)%
(3)%
7%
6%
5%
3 %
1 %
Other International..
(3)%
9.82%
9.89%
10.07 %
19
Our U.S. internet 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. In addition, the public may read and copy any materials we file with the SEC at
the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
also maintains an internet 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.
Available Information
The graph assumes the investment of $100 in Costco common stock, the S&P 500 Index and the Peer
Group Index on August 28, 2011 and reinvestment of all dividends.
--Peer Group Index ----S&P 500
Costco Wholesale Corporation
8/28/16
8/30/15
8/31/14
9/1/13
9/2/12
FIVE YEAR OPERATING AND FINANCIAL HIGHLIGHTS
8/28/11
50
100
150
200
250
300
Dollars
S&P 500 INDEX AND PEER GROUP INDEX
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG COSTCO WHOLESALE CORPORATION,
The following graph compares the cumulative total shareholder return (stock price appreciation plus
dividends) on our common stock for the last five years with the cumulative total return of the S&P 500 Index
and the following group of peer companies (based on weighted market capitalization) selected by the
Company: Amazon.com, Inc.; The Home Depot, Inc.; Lowe's Companies; Best Buy Co., Inc.; Staples Inc.;
Target Corporation; Kroger Company; and Wal-Mart Stores, Inc. The information provided is from August 28,
2011 through August 28, 2016.
Performance Graph
0
BALANCE SHEET DATA
The following table sets forth information concerning our consolidated financial condition, operating results,
and key operating metrics. This information should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations, included in this Report, and our consolidated
financial statements and notes thereto, included in this Report.
Aug. 28,
2016
10.40 %
Selling, general and administrative
expenses as a percentage of net sales.....
10.55%
10.62%
10.66%
11.09 %
11.35 %
Gross margin (1) as a percentage of net sales
2,075
$ 97,062
$ 102,870
2,286
SELECTED FINANCIAL DATA
(dollars in millions, except per share data)
$ 110,212
2,428
2,646
Membership fees.
116,073
Net sales.
RESULTS OF OPERATIONS
Sept. 2,
2012
(53 weeks)
Sept. 1,
2013
(52 weeks)
Aug. 31,
2014
(52 weeks)
(52 weeks)
As of and for the year ended
Cash dividends paid in 2016 totaled $1.70 per share, as compared to $6.51 per share in 2015, which included
a special cash dividend of $5.00 per share. In April 2016, our Board of Directors increased our quarterly cash
dividend from $0.40 to $0.45 per share.
$ 113,666
2,533
Net property and equipment
Total assets.
4 %
•
•
•
•
•
•
•
•
•
Highlights for fiscal year 2016 included:
Our fiscal year ends on the Sunday closest to August 31. Fiscal years 2016, 2015 and 2014 were 52-week
fiscal years ending on August 28, 2016, August 30, 2015 and August 31, 2014, 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.
We opened 29 net new warehouses in 2016, 21 in the U.S., two in Canada, and six in our Other
International segment, compared to 23 net new warehouses in 2015;
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.
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 is operated on very low margins, modest changes in various items in the
income statement, particularly merchandise costs and selling, general and administrative expenses, can have
substantial impacts on net income.
24
21
Our financial performance depends heavily on our ability to control costs. While we believe that we have
achieved successes in this area historically, some significant costs are partially outside our control, most
particularly health care and utility expenses. With respect to expenses relating 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
Our membership format is an integral part of our business model 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 penetration of our Executive members,
and sustain high renewal rates, materially influences our profitability.
We also achieve sales growth by opening new warehouses. As our warehouse base grows, available and
desirable potential 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 increasingly less significant relative to the results of
our total operations. Our rate of square footage growth is generally higher in foreign markets, due to the
smaller base in those markets, and we expect that to continue. Our online business growth both domestically
and internationally has also increased our sales.
Our philosophy is to provide our members with quality goods and services at the most competitive prices. We
do not focus in the short term on maximizing prices charged, but instead seek to maintain what we believe is
a perception among our members of our "pricing authority" - consistently providing the most competitive
values. Our investments in merchandise pricing can, from time to time, 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 near-term gross margin as a percentage of
net sales (gross margin percentage). We believe that our gasoline business draws members but it generally
has a significantly lower gross margin percentage relative 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
selling, general and administrative expenses as a percentage of net sales. A decline in gasoline prices has
the inverse effect.
We believe that the most important driver of our profitability is sales growth, particularly comparable sales
growth. We define comparable sales as sales from warehouses open for more than one year, including
remodels, relocations and expansions, as well as online sales related to 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 (primarily impacting our U.S. and Canadian operations). The
higher our comparable sales exclusive of these items, the more we can leverage certain of our selling,
general and administrative 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 sales growth is the health of the economies in which we do business, especially
the United States. 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. 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 to our merchandise mix, including increasing the penetration of our private label items.
OVERVIEW
(amounts in millions, except per share, membership fee, and warehouse count data)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our operating model is generally the same across our U.S., Canada, and Other International operating
segments (see Note 11 to the consolidated financial statements included in this Report). Certain countries in
the Other International segment have relatively higher rates of square footage growth, lower wages and
benefit costs as a percentage of country sales, and/or less or no direct membership warehouse competition.
Additionally, we operate our lower-margin gasoline business in all countries except Mexico, Korea, and
Taiwan.
20
Net sales increased 2% to $116,073, driven by sales at new warehouses opened in 2015 and 2016,
while comparable sales were flat. Net and comparable sales results were negatively impacted by
changes in most foreign currencies relative to the U.S. dollar and decreases in the price of gasoline;
Membership fee revenue increased 4% to $2,646, primarily due to membership sign-ups at existing and
new warehouses and executive membership upgrades, partially offset by the negative impact of
changes in most foreign currencies relative to the U.S. dollar;
Selling, general and administrative (SG&A) expenses as a percentage of net sales increased 33 basis
points, largely driven by the impact of gasoline price deflation on net sales;
(3)%
(2)%
7%
5 %
3 %
110,212
$
$ 113,666
.$ 116,073
Canada..
U.S..
Gross margin percentage increased 26 basis points, primarily from the impact of gasoline price deflation
on net sales;
Changes in net sales:
2014
2015
2016
Net Sales
RESULTS OF OPERATIONS
22
22
In June 2016, we transitioned to our new Citibank-Visa exclusive co-branded credit card in the U.S.
(described in further detail in this Report).
In December 2015, we paid the outstanding principal balance and associated interest on the 0.65%
Senior Notes of approximately $1,204, from our cash and cash equivalents and short-term investments;
The Board of Directors approved an increase in the quarterly cash dividend from $0.40 to $0.45 per
share in April 2016; and
Changes in foreign currencies relative to the U.S. dollar adversely impacted diluted earnings per share
by $0.24, largely driven by changes in the Canadian dollar and Mexican peso;
Net income decreased 1% to $2,350, or $5.33 per diluted share compared to $2,377, or $5.37 per
diluted share in 2015. The 2015 results were positively impacted by a $57 tax benefit, or $0.13 per
diluted share, in connection with the special cash dividend paid to the Company's 401(k) Plan
participants;
Net Sales..
Other International..
20
(2) Includes 50% of the results of Costco Mexico's operations in fiscal 2012 prior to the July acquisition of our former joint venture
partner's 50% equity interest. The remainder of fiscal 2012 and thereafter include 100% of Costco Mexico's results of operations.
(3) Includes net sales from warehouses and websites operating for more than one year. For fiscal 2013 and 2012, the prior year
includes the comparable 52 and 53 weeks, respectively.
End of year
Closed (4)
Opened(4)
Beginning of year.
Warehouses in Operation
WAREHOUSE INFORMATION
Costco stockholders' equity
Long-term debt, excluding current portion .....
1,380
$ 12,361
$ 12,303 $ 10,833
$ 10,617
MEMBERSHIP INFORMATION
12,079
29,936
4,986
32,662
5,084
$ 14,830 $ 13,881 $ 12,961
$ 15,401
33,017
4,852
4,061
33,163
.$ 17,043
6%
6%
6%
7%
26,827
(4) Includes warehouse relocations and closures.
Total paid members (000's).....
686
36,900
39,000
42,000
44,600
47,600
608
634
663
686
715
(1)
(1) Net sales less merchandise costs.
0
(3)
(4)
17
26
30
26
33
592
608
634
663
(1)
Aug. 30,
2015
(52 weeks)
28
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
59
Paul G. Moulton...
James P. Murphy.
Joseph P. Portera
Timothy L. Rose.
Ron M. Vachris...
Dennis R. Zook
Executive Vice President, Chief Information Officer. Mr. Moulton
was Executive Vice President, Real Estate Development from 2001
until March 2010.
Executive Vice President, Chief Operating Officer, International. Mr.
Murphy was Senior Vice President, International, from 2004 to
October 2010.
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, Food and Sundries and Private Label from 1995 to
December 2012.
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 Vice President, Chief Operating Officer, Southwest
Division and Mexico.
2001
99
65
2011
63
1994
64
2013
64
59
2016
2010
John D. McKay..
Other Information
In February 2015, we entered into a Co-Branded Credit Card Program Agreement (the "Program Agreement")
with Citibank, N.A. ("Citi”). Under the terms of the Program Agreement, Citi became the exclusive issuer of
our co-branded credit cards to our members. Additionally, Visa U.S.A. Inc. became the credit card network for
Costco in the United States and Puerto Rico. Citi purchased the current co-branded credit card portfolio from
American Express in June 2016. On June 20, 2016, we began accepting all Visa cards, including the Citi co-
branded credit cards, replacing American Express. We receive various forms of consideration under the
Program Agreement. The initial term of the Program Agreement is ten years.
Under the Program Agreement, Costco earns a royalty on purchases made with the co-branded card other
than from Costco ("external spend"). The royalty varies based on the amount of external spend in relation to
total spend. In addition, Costco will fund a portion of the loyalty reward cardholders earn under the program
on external spend. Loyalty rewards under the program are as follows: 4% on eligible gasoline purchases, 3%
on restaurant and eligible travel purchases, 2% on all purchases from Costco and Costco.com, and 1% on all
other purchases. These rewards may be adjusted over the term of the program. The loyalty rewards earned
by co-branded cardholders will be in the form of certificates redeemable at Costco, for cash or merchandise.
Costco also receives a bounty on approved new credit card accounts acquired through Costco channels.
Additionally, the base discount Costco pays related to Visa acceptance is lower than previously paid for
American Express acceptance.
32
2
EXECUTIVE OFFICERS AND CORPORATE GOVERANCE
The executive officers of Costco, their position, and ages are listed below. All executive officers have 25
or more years of service with the Company.
Name
W. Craig Jelinek.
Position
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.
Jeffrey H. Brotman......... Chairman of the Board. Mr. Brotman is a co-founder of Costco and
has been a director since its inception.
Richard A. Galanti Executive Vice President and Chief Financial Officer. Mr. Galanti
has been a director since January 1995.
Franz E. Lazarus Executive Vice President, Administration. Mr. Lazarus was Senior
Vice President, Administration-Global Operations from 2006 to
September 2012.
Executive
Officer
Since
1995
Age
64
1983 74
1993
660
2012 69
Executive Vice President, Chief Operating Officer, Northern
Division. Mr. McKay was Senior Vice President, General Manager,
Northwest Region from 2000 to March 2010.
We are exposed to fluctuations in prices for energy that we consume, particularly electricity and natural gas,
which we seek to partially mitigate through fixed-price contracts for certain of our warehouses and other
facilities, predominately in the U.S. and Canada. We also enter into variable-priced contracts for some
purchases of electricity and natural gas, in addition to fuel for our gas stations, on an index basis. These
contracts meet the characteristics of derivative instruments, but generally qualify for the "normal purchases or
normal sales" exception under authoritative guidance and require no mark-to-market adjustment.
51
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, from this code 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.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of Costco Wholesale Corporation and subsidiaries as of August 28, 2016 and August 30,
2015, and the results of their operations and their cash flows for the 52-week periods ended August 28, 2016,
August 30, 2015 and August 31, 2014, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Costco Wholesale Corporation's internal control over financial reporting as of August 28,
2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
October 11, 2016 expressed an unqualified opinion on the effectiveness of the Company's internal control
over financial reporting.
Seattle, Washington
October 11, 2016
35
55
KPMG LLP
The Board of Directors and Stockholders
Costco Wholesale Corporation:
We have audited Costco Wholesale Corporation's internal control over financial reporting as of August 28,
2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). 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 included in Item 9A. Our responsibility is to express an
opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). 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 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.
A company's internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles. A company's internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of August 28, 2016, based on criteria established in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of the Company as of August 28, 2016 and August 30,
2015, and the related consolidated statements of income, comprehensive income, equity, and cash flows for
each of the 52-week periods ended August 28, 2016, August 30, 2015 and August 31, 2014, and our report
dated October 11, 2016 expressed an unqualified opinion on those consolidated financial statements.
Seattle, Washington
October 11, 2016
36
KPMG LLP
COSTCO WHOLESALE CORPORATION
CONSOLIDATED BALANCE SHEETS
(amounts in millions, except par value and share data)
We have audited the accompanying consolidated balance sheets of Costco Wholesale Corporation and
subsidiaries as of August 28, 2016 and August 30, 2015, and the related consolidated statements of income,
comprehensive income, equity, and cash flows for the 52-week periods ended August 28, 2016, August 30,
2015 and August 31, 2014. 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.
1993 67
Costco Wholesale Corporation:
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Executive Compensation
Information related to our Executive Compensation and Director Compensation is incorporated herein by
reference to Costco's Proxy Statement filed with the Securities and Exchange Commission.
33
33
MANAGEMENT'S REPORTS
Management's Report on the Consolidated Financial Statements
Costco's management is responsible for the preparation, integrity and objectivity of the accompanying
consolidated financial statements and the related financial information. The consolidated financial statements
have been prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP) and
necessarily include certain amounts that are based on estimates and informed judgments. The Company's
management is also responsible for the preparation of the related financial information included in this Annual
Report on Form 10-K and its accuracy and consistency with the consolidated financial statements.
The consolidated financial statements have been audited by KPMG LLP, an independent registered public
accounting firm, who conducted their audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). The independent registered public accounting firm's
responsibility is to express an opinion as to the fairness with which such consolidated financial statements
present our financial position, results of operations and cash flows in accordance with U.S. GAAP.
Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-K, we performed an evaluation under
the supervision and with the participation of management, including our Chief Executive Officer and Chief
Financial Officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under
the Securities and Exchange Act of 1934 (the Exchange Act)). Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this
Annual Report, our disclosure controls and procedures are effective.
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) or
15d-15(f) of the Exchange Act) during our fiscal quarter ended August 28, 2016, that has materially affected or
is reasonably likely to materially affect our internal control over financial reporting.
Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with U.S. GAAP and includes those policies and
procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect
our transactions and the dispositions of our assets; (2) provide reasonable assurance that our transactions
are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles and that our receipts and expenditures are being made only in accordance
with appropriate authorizations; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Therefore, even those systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and presentation.
Under the supervision and with the participation of our management, we assessed the effectiveness of our
internal control over financial reporting as of August 28, 2016, using the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) 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 28, 2016. 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 this Report.
Cray Jelek
W. Craig Jelinek
President, Chief Executive Officer and Director
Rudd 24Q
Richard A. Galanti
Executive Vice President, Chief Financial
Officer and Director
34
34
The Board of Directors and Stockholders
Commodity Price Risk
Our foreign subsidiaries conduct certain transactions in their 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. Currently, these contracts do not qualify
for derivative hedge accounting. We seek to mitigate risk with the use of these contracts and do not intend to
engage in speculative transactions. These contracts do not contain any credit-risk-related contingent features.
We seek to manage counterparty risk associated with these contracts by limiting transactions to
counterparties with which we have established banking relationships. There can be no assurance that this
practice is effective. These contracts are limited to less than one year. See Note 1 and Note 3 to the
consolidated financial statements included in this Report for additional information on the fair value of
unsettled forward foreign-exchange contracts at the end of 2016 and 2015. A hypothetical 10% strengthening
of the functional currency compared to the non-functional currency exchange rates at August 28, 2016 would
have decreased the fair value of the contracts by $56 and resulted in an unrealized loss in the consolidated
statements of income for the same amount.
Foreign Currency-Exchange Risk
200
379
337
2,204
3,120
obligations.
Capital lease obligations (4).
700
31
159 160
57
|
757
63
593
748
Purchase obligations
(equipment services
and other)
Other (6)
Total
5,456
458
998
6,831
Bank Credit Facilities and Commercial Paper Programs
We maintain bank credit facilities for working capital and general corporate purposes. At August 28, 2016, we
had borrowing capacity within these facilities of $429, of which $358 was maintained by our international
operations. Of the $358, $177 is guaranteed by the Company. There were no outstanding short-term
borrowings under the bank credit facilities at the end of 2016 and 2015.
The Company has letter of credit facilities, for commercial and standby letters of credit, totaling $153. The
outstanding commitments under these facilities at the end of 2016 totaled $96, including $94 in standby letters
of credit with expiration dates within one year. The bank credit facilities have various expiration dates, all
within one year, and we generally intend to renew these facilities prior to their expiration. 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 then outstanding.
Contractual Obligations
As of August 28, 2016, our commitments to make future payments under contractual obligations were as
follows:
Payments Due by Fiscal Year
Contractual obligations
2017
2018 to 2019
2020 to 2021
2022 and
thereafter
Total
Purchase obligations
(merchandise)
Long-term debt (2).
Operating leases (3)
Construction and land
6,828 $
1,221
3 $
1,392
-
$
1,845
98
61
618
We account for membership fee revenue, net of refunds, on a deferred basis, whereby revenue is recognized
ratably over one year. Our Executive members qualify for a 2% reward on qualified purchases (up to a
maximum reward of approximately $750 per year in the U.S. and Canada and varies in our Other
International operations), which can be redeemed only at Costco warehouses. We account for this reward as
a reduction in sales. The sales reduction and corresponding liability are computed after giving effect to the
estimated impact of non-redemptions based on historical data.
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or market, as determined primarily by the retail
inventory method, and are stated using the last-in, first-out (LIFO) method for substantially all U.S.
merchandise inventories. Merchandise inventories for all foreign operations are primarily valued by the retail
inventory method and are stated using the first-in, first-out (FIFO) method. We record an adjustment each
quarter, if necessary, for the estimated effect of inflation or deflation, and these estimates are adjusted to
actual results determined at year-end. We believe the LIFO method more fairly presents the results of
operations by more closely matching current costs with current revenues.
We provide for estimated inventory losses (shrink) between physical inventory counts as a percentage of net
sales. The provision is adjusted to reflect results of the actual physical inventory counts, which generally occur
in the second and fourth quarters of the year.
Inventory cost, where appropriate, is reduced by estimates of vendor rebates when earned or as we progress
toward earning those rebates, provided they are probable and reasonably estimable. Other consideration
received from vendors is generally recorded as a reduction of merchandise costs upon completion of
contractual milestones, terms of agreement, or other systematic approaches.
Impairment of Long-Lived Assets
We evaluate our long-lived assets for impairment on an annual basis, when relocating or closing a facility, or
when events or changes in circumstances occur that may indicate the carrying amount of the asset group,
generally an individual warehouse, may not be fully recoverable. Our judgments are based on existing market
30
50
and operational conditions. Future events could cause us to conclude that impairment factors exist, requiring
a downward adjustment of these assets to their then-current fair value.
Insurance/Self-Insurance Liabilities
We use a combination of insurance and self-insurance mechanisms, including for certain risks, a wholly-
owned captive insurance subsidiary and participation in a reinsurance program, to provide for potential
liabilities for workers' compensation, general liability, property damage, directors' and officers' liability, vehicle
liability, and employee health care benefits. Liabilities associated with the risks that we retain 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.
Income Taxes
The determination of our provision for income taxes requires significant judgment, the use of estimates, and
the interpretation and application of complex tax laws. Significant judgment is required in assessing the timing
and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions. The
benefits associated with uncertain tax positions are recorded in our consolidated financial statements only
after determining a more-likely-than-not probability that the positions will withstand challenge from tax
authorities. When facts and circumstances change, we reassess these positions and record any changes in
the consolidated financial statements as appropriate. Additionally, our cumulative foreign undistributed
earnings were considered indefinitely reinvested as of August 28, 2016. These earnings would be subject to
U.S. income tax if we changed our position and could result in a U.S. deferred tax liability. Although we have
historically asserted that certain non-U.S. undistributed earnings will be permanently reinvested, we may
repatriate such earnings to the extent we can do so without an adverse tax consequence.
Recent Accounting Pronouncements
See Note 1 to the consolidated financial statements included in this Report for a detailed description of recent
accounting pronouncements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (amounts in millions)
Our exposure to financial market risk results from fluctuations in interest rates and foreign currency exchange
rates. We do not engage in speculative or leveraged transactions or hold or issue financial instruments for
trading purposes.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our investment holdings that are
diversified among various instruments considered to be cash equivalents as defined in Note 1 to the
consolidated financial statements included in this Report, as well as short-term investments in government
and agency securities, and asset and mortgage-backed securities with effective maturities of generally three
months to five years at the date of purchase. The primary objective of our investment activities is to preserve
principal and secondarily to generate yields. The majority of our short-term investments are in fixed interest
rate securities. These securities are subject to changes in fair value due to interest rate fluctuations.
Our policy limits investments in the U.S. to direct U.S. government and government agency obligations,
repurchase agreements collateralized by U.S. government and government agency obligations, and U.S.
government and government agency money market funds. Our wholly-owned captive insurance subsidiary
invests in U.S. government and government agency obligations, corporate notes and bonds, and asset and
mortgage-backed securities with a minimum overall portfolio average credit rating of AA+. 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.
31
A 100 basis-point change in interest rates as of the end of 2016 would have an incremental change in fair
market value of $22. 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.
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 2016, the majority of our long-term debt is fixed rate Senior
Notes, carried at $4,390. Fluctuations in interest rates may affect the fair value of the fixed-rate debt. See
Note 4 to the consolidated financial statements included in this Report for more information on our long-term
debt.
We evaluate whether it is appropriate to record the gross amount of merchandise sales and related costs or a
net amount. Generally, when we are the primary obligor, subject to inventory risk, have latitude in establishing
prices and selecting suppliers, influence product or service specifications, or have several but not all of these
indicators, revenue is recorded on a gross basis. If we are not the primary obligor and do not possess other
indicators of gross reporting as noted above, we record a net amount, which is reflected in net sales. We
record related shipping fees on a gross basis.
We generally recognize sales, which include shipping fees where applicable, net of returns, at the time the
member takes possession of merchandise or receives services. When we collect payment from members
prior to the transfer of ownership of merchandise or the performance of services, the amount is generally
recorded as deferred sales in the consolidated balance sheets until the sale or service is completed. We
provide for estimated sales returns based on historical trends and reduce sales and merchandise costs
accordingly. Our sales returns reserve is based on an estimate of the net realizable value of merchandise
inventories to be returned. Amounts collected from members for sales and value added taxes are recorded on
a net basis.
Revenue Recognition
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 judgments, including those related to
revenue recognition, merchandise inventory valuation, impairment of long-lived assets, insurance/self-
insurance liabilities, and income taxes. We base our estimates on historical experience and on assumptions
that we believe to be reasonable, and we continue to review and evaluate these statements. For further
information on significant accounting policies, see discussion in Note 1 to the consolidated financial
statements included in this Report.
18
26
11
71
126
..$
9,456 $
2,016 $
2,317 $
3,867 $
ASSETS
17,656
Includes contractual interest payments and excludes deferred issuance costs.
(3) Operating lease obligations exclude amounts for common area maintenance, taxes, and insurance and have been reduced by
$129 to reflect sub-lease income.
(4) Includes build-to-suit lease obligations and contractual interest payments.
(5) The amounts exclude certain services negotiated at the individual warehouse or regional level that are not significant and
generally contain clauses allowing for cancellation without significant penalty.
(6) Includes $64 in asset retirement obligations, and $62 in deferred compensation obligations. The total amount excludes $51 of
non-current unrecognized tax contingencies and $29 of other obligations due to uncertainty regarding the timing of future cash
payments.
Off-Balance Sheet Arrangements
In the opinion of management, we have no off-balance sheet arrangements, that have had, or are reasonably
likely to have, a material current or future effect on our financial condition or financial statements other than
the operating leases included in the table above and discussed in Note 1 and Note 5 to the consolidated
financial statements included in this Report.
29
29
Critical Accounting Estimates
(1) Includes only open merchandise purchase orders.
August 28,
2016
88
2015
2,428
118,719
116,199
112,640
Merchandise costs.
102,901
101,065
98,458
Selling, general and administrative.
12,068
11,445
10,899
Preopening expenses
78
65
63
Operating income
3,672
3,624
3,220
OTHER INCOME (EXPENSE)
2,533
Interest expense.....
2,646
$113,666
10,617
253
226
12,332
10,843
$33,163
$33,017
The accompanying notes are an integral part of these consolidated financial statements.
37
REVENUE
Net sales...
Membership fees
Total revenue
OPERATING EXPENSES
COSTCO WHOLESALE CORPORATION
August 30,
52 Weeks Ended 52 Weeks Ended
August 28,
2016
August 30,
2015
52 Weeks Ended
August 31,
2014
$116,073
$110,212
(133)
(124)
(113)
Diluted
Shares used in calculation (000's)
$5.36
$5.41
$4.69
$5.33
$5.37
$4.65
Basic.
Diluted
438,585
439,455
438,693
441,263
442,716
442,485
CASH DIVIDENDS DECLARED PER COMMON
SHARE..
$1.70
$6.51
$1.33
The accompanying notes are an integral part of these consolidated financial statements.
38
Basic....
NET INCOME PER COMMON SHARE
ATTRIBUTABLE TO COSTCO:
$2,058
$2,377
Interest income and other, net
80
104
90
INCOME BEFORE INCOME TAXES.
3,619
3,604
3,197
Provision for income taxes.
1,243
12,079
1,195
Net income including noncontrolling interests.....
2,376
2,409
2,088
Net income attributable to noncontrolling
interests...
(26)
(32)
(30)
NET INCOME ATTRIBUTABLE TO COSTCO
$2,350
1,109
6,518
CONSOLIDATED STATEMENTS OF INCOME
(amounts in millions, except per share data)
(1,121)
12,618
Equipment and fixtures
6,077
5,274
Construction in progress.....
7,686
811
26,167
23,664
Less accumulated depreciation and amortization.
(9,124)
(8,263)
Net property and equipment.
17,043
15,401
OTHER ASSETS.
902
837
TOTAL ASSETS.
$33,163
$33,017
13,994
LIABILITIES AND EQUITY
4,961
16,779
CURRENT ASSETS
Cash and cash equivalents.
Short-term investments..
Receivables, net.
Merchandise inventories.
Other current assets
Total current assets..
PROPERTY AND EQUIPMENT
Land...
Buildings and improvements.
$3,379
$4,801
1,350
1,618
1,252
1,224
8,969
8,908
268
228
15,218
5,395
CURRENT LIABILITIES
701
$7,612
1,195
783
20,831
22,174
Preferred stock $.005 par value; 100,000,000 shares authorized; no
shares issued and outstanding.....
Common stock $.005 par value; 900,000,000 shares authorized;
437,524,000 and 437,952,000 shares issued and outstanding.
Additional paid-in capital..
Accumulated other comprehensive loss
Retained earnings.....
Total Costco stockholders' equity.
Noncontrolling interests
Total equity
TOTAL LIABILITIES AND EQUITY.
Accounts payable....
0
2
2
5,490
5,218
(1,099)
EQUITY
COMMITMENTS AND CONTINGENCIES
0
OTHER LIABILITIES
Total liabilities
$9,011
Current portion of long-term debt...
1,100
Accrued salaries and benefits.
2,629
2,468
Accrued member rewards..
869
813
Deferred membership fees
1,283
Total current liabilities
Other current liabilities
4,061
16,539
1,695
15,575
1,269
1,362
LONG-TERM DEBT, excluding current portion...
2,003
4,852
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.
Foreign Currency
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. These contracts do not contain any credit-risk-related contingent features. The aggregate
notional amounts of open, unsettled forward foreign-exchange contracts were $572 and $889 at the end of
2016 and 2015, respectively. The Company seeks to manage counterparty risk associated with these
contracts by limiting transactions to counterparties with which the Company has an established banking
relationship. There can be no assurance that this practice is effective. The contracts are limited to less than
one year in duration. See Note 3 for information on the fair value of unsettled forward foreign-exchange
contracts at the end of 2016 and 2015.
46
46
The Company is exposed to fluctuations in prices for the energy it consumes, particularly electricity and
natural gas, which it seeks to partially mitigate through the use of fixed-price contracts for certain of its
warehouses and other facilities, primarily in the U.S. and Canada. The Company also enters into variable-
priced contracts for some purchases of natural gas, in addition to fuel for its gas stations, on an index basis.
These contracts meet the characteristics of derivative instruments, but generally qualify for the “normal
purchases or normal sales" exception under authoritative guidance and require no mark-to-market
adjustment.
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 2016 and 2014, respectively, and a net gain of $12 in 2015.
137
185
314
124
201
254
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 accompanying 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 resulted in net gains of $38, $35, and $25 for 2016, 2015, and 2014,
respectively.
299
.$ 2,003 $ 1,695
Revenue Recognition
The Company's 401(k) Retirement Plan is available to all U.S. employees who have completed 90 days of
employment. The plan allows pre-tax deferrals, 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 salary.
Certain subsidiaries in the Company's Other International operations have defined benefit and defined
contribution plans that are not material. Amounts expensed under all plans were $489, $454, and $436 for
2016, 2015, and 2014, respectively, and are included in selling, general and administrative expenses and
merchandise costs in the accompanying consolidated statements of income.
The Company evaluates whether it is appropriate to record the gross amount of merchandise sales and
related costs or the net amount earned. Generally, when Costco is the primary obligor, is subject to inventory
risk, has latitude in establishing prices and selecting suppliers, can influence product or service specifications,
or has several but not all of these indicators, revenue is recorded on a gross basis. If the Company is not the
primary obligor and does not possess other indicators of gross reporting as noted above, it records the net
amounts earned, which is reflected in net sales. The Company records related shipping fees on a gross basis.
The Company accounts for membership fee revenue, net of refunds, on a deferred basis, ratably over the
one-year membership period. The Company's Executive members qualify for a 2% reward on qualified
purchases (up to a maximum reward of approximately $750 per year), which can be redeemed only at Costco
warehouses. The Company accounts for this reward as a reduction in sales. The sales reduction and
corresponding liability (classified as accrued member rewards in the consolidated balance sheets) are
computed after giving effect to the estimated impact of non-redemptions based on historical data. The net
reduction in sales was $1,172, $1,128, and $1,051 in 2016, 2015, and 2014, respectively.
365
48
The Company leases land and/or buildings at warehouses and certain other office and distribution facilities,
primarily under operating leases. Operating leases expire at various dates through 2064, with the exception of
one lease in the Company's U.K. subsidiary, which expires in 2151. These leases generally contain one or
more of the following options, which the Company can exercise at the end of the initial lease term: (a) renewal
of the lease for a defined number of years at the then-fair market rental rate or rate stipulated in the lease
agreement; (b) purchase of the property at the then-fair market value; or (c) right of first refusal in the event of
a third-party purchase offer.
Leases
Stock-based compensation expense is predominantly included in selling, general and administrative
expenses in the consolidated statements of income. See Note 7 for additional information on the Company's
stock-based compensation plans.
Restricted stock units (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. The Company does not reduce stock-based
compensation for an estimate of forfeitures, which are inconsequential in light of historical experience and
considering the awards vest on a quarterly basis. Actual forfeitures are recognized as they occur.
Compensation expense for all stock-based awards granted is predominantly recognized using the straight-line
method over the requisite service period for the entire award. The terms of the Company's stock-based
awards for employees and non-employee directors provide for accelerated vesting of a portion of outstanding
shares based on reaching certain 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.
Stock-Based Compensation
The Company generally recognizes sales, which include shipping fees where applicable, net of returns, at the
time the member takes possession of merchandise or receives services. When the Company collects
payments from members prior to the transfer of ownership of merchandise or the performance of services, the
amounts received are generally recorded as deferred sales, included in other current liabilities in the
consolidated balance sheets, until the sale or service is completed. The Company reserves for estimated
sales returns based on historical trends in merchandise returns and reduces sales and merchandise costs
accordingly. The sales returns reserve is based on an estimate of the net realizable value of merchandise
inventories to be returned. Amounts collected from members for sales or value added taxes are recorded on a
net basis.
Retirement Plans
Selling, General and Administrative Expenses
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.
47
The Company has agreements with vendors to receive funds for volume rebates and a variety of other
programs. Volume rebates or other purchase discounts 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
Vendor Consideration
Merchandise costs consist of the purchase price of inventory sold, inbound and outbound shipping charges
and all costs related to the Company's depot 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.
Merchandise Costs
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, 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, credit and debit card processing
fees, utilities, and stock-based compensation expense as well as other operating costs incurred to support
warehouse operations.
CASH FLOWS FROM FINANCING ACTIVITIES
396
532 $ 490
$2,376
52 Weeks Ended
August 31,
2014
52 Weeks Ended
August 30,
2015
2016
52 Weeks Ended
August 28,
COMPREHENSIVE INCOME ATTRIBUTABLE TO
COSTCO
Less: Comprehensive income attributable to
noncontrolling interests
Comprehensive income
Foreign-currency translation adjustment and
other, net.
NET INCOME INCLUDING NONCONTROLLING
INTERESTS
(amounts in millions)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
COSTCO WHOLESALE CORPORATION
(2,865)
(2,865)
437,952
2
5,218
(1,121)
6,518
10,617
226
10,843
$2,409
---
$2,088
(1,063)
Amount
(000's)
Comprehensive
Paid-in
Shares
Other
Additional
Accumulated
Common Stock
CONSOLIDATED STATEMENTS OF EQUITY
(amounts in millions)
COSTCO WHOLESALE CORPORATION
39
The accompanying notes are an integral part of these consolidated financial statements.
$2,104
$1,332
$2,372
33
14
30
2,137
1,346
2,402
49
26
2,350
2,350
26
$253
$12,332
Release of vested RSUs,
including tax effects
2,749
Conversion of convertible
notes
Repurchases of common
stock
(3,184)
Cash dividends declared and
other..
BALANCE AT AUGUST 28,
2016
The accompanying notes are an integral part of these consolidated financial statements.
40
40
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
to net cash provided by operating activities:
Depreciation and amortization
$12,079
$(1,099) $7,686
$5,490
$2
2,376
22
22
4
26
459
459
459
|
4
(146)
Capital
(146)
3 -----
--
(41)
45
(436)
(477)
(477)
(746)
(3)
(749)
437,524
(146)
Income (Loss)
Retained
Earnings
Total Costco
Stockholders'
(76)
4,919
2
437,683
(584)
(584)
(584)
including tax effects
Stock options exercised,
Stock-based compensation ...
Foreign-currency translation
adjustment and other, net..
Net income
Cash dividends declared
BALANCE AT AUGUST 30,
2015
Repurchases of common
stock
Release of vested RSUs,
including tax effects
Stock options exercised,
including tax effects
Foreign-currency translation
adjustment and other, net..
Net income
BALANCE AT AUGUST 31,
2014
Cash dividends declared....
Stock-based compensation
(334)
(334)
7,458
12,303
212
12,515
(452)
(2,865)
(42)
(3,456)
(122)
(122)
(122)
2,736 - (
69
69
69
69
(299)
989
394
394
394
(1,063)
(18)
(1,045)
(1,045)
2,409
32
2,377
2,377
...
Stock-based compensation
(35)
Repurchases of common
stock
2,088
30
2,058
2,058
-
-
-
-
Net income
$11,012
$179
$10,833
$6,283
$(122)
$4,670
$2
436,839
2013
BALANCE AT SEPTEMBER 1,
Equity
Total
Noncontrolling
Interests
Equity
Foreign-currency translation
adjustment and other, net..
46
46
3
1
1
1
18 -
notes
--
(102)
(102)
(102)
2,770
Conversion of convertible
(2,915)
stock units (RSUs),
including tax effects
58
58
--
58
971 -
Stock options exercised,
including tax effects ....
327
327
327
Stock-based compensation ...
49
Release of vested restricted
401
52 Weeks
Ended
52 Weeks
Ended
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 28, 2016, Costco operated 715
warehouses worldwide: 501 United States (U.S.) locations (in 44 U.S. states, Washington, D.C., and Puerto
Rico), 91 Canada locations, 36 Mexico locations, 28 United Kingdom (U.K.) locations, 25 Japan locations, 12
Korea locations, 12 Taiwan locations, eight Australia locations, and two Spain locations. The Company's
online business operates websites in all countries except Japan, Australia, and Spain.
Basis of Presentation
The consolidated financial statements include the accounts of Costco Wholesale Corporation, 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
noncontrolling interests in its operations in Taiwan and Korea. 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 fiscal year ending on the Sunday closest to
August 31. References to 2016, 2015, and 2014 relate to the 52-week fiscal years ended August 28, 2016,
August 30, 2015, and August 31, 2014, 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. Actual results could differ from
those estimates and assumptions.
Reclassifications
Certain reclassifications have been made to prior fiscal year amounts or balances to conform to the
presentation in the current fiscal year. These reclassifications did not have a material impact on the
Company's previously reported consolidated financial statements.
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 one week. Credit and debit card receivables were $1,071 and
$1,243 at the end of 2016 and 2015, respectively.
42
Short-Term Investments
In general, short-term investments have a maturity 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. Short-term investments classified as held-to-maturity
are financial instruments that the Company has the intent and ability to hold to maturity and are reported net
of any related amortization and are not remeasured to fair value on a recurring basis.
The Company periodically evaluates unrealized losses in its investment securities for other-than-temporary
impairment, using both qualitative and quantitative criteria. In the event a security is deemed to be other-than-
temporarily impaired, the Company recognizes the credit loss component in interest income and other, net in
the consolidated statements of income.
Fair Value of Financial Instruments
The Company accounts for certain assets and liabilities at fair value. The carrying value of the Company's
financial instruments, including cash and cash equivalents, receivables and accounts payable, approximate
fair value due to their short-term nature or variable interest rates. See Notes 2, 3, and 4 for the carrying value
and fair value of the Company's investments, derivative instruments, and fixed-rate debt, respectively.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. Fair value is estimated by applying
a fair value hierarchy, which requires maximizing the use of observable inputs when measuring fair value. The
three levels of inputs are:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market
data.
Level 3: Significant unobservable inputs that are not corroborated by market data.
The Company's valuation techniques used to measure the fair value of money market mutual funds are based
on quoted market prices, such as quoted net asset values published by the fund as supported in an active
market. Valuation methodologies used to measure the fair value of all other non-derivative financial
instruments are based on independent external valuation information. The pricing process uses data from a
variety of independent external valuation information providers, including trades, bid price or spread, two-
sided markets, quotes, benchmark curves including but not limited to treasury benchmarks and Libor and
swap curves, discount rates, and market data feeds. All are observable in the market or can be derived
principally from or corroborated by observable market data. The Company reports transfers in and out of
Levels 1, 2, and 3, as applicable, using the fair value of the individual securities as of the beginning of the
reporting period in which the transfer(s) occurred.
Note 1-Summary of Significant Accounting Policies
Current financial liabilities have fair values that approximate their carrying values. Long-term financial
liabilities consist of long-term debt, which is recorded on the balance sheet at issuance price and adjusted for
any applicable unamortized discounts or premiums and debt issuance costs.
(amounts in millions, except share, per share, and warehouse count data)
COSTCO WHOLESALE CORPORATION
5,738
4,644
CASH AND CASH EQUIVALENTS END OF YEAR....
$3,379
$4,801
$5,738
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (reduced by $19, $14, and $11, interest capitalized in 2016,
2015, and 2014, respectively)
$123
Income taxes, net.....
$953
$117
$1,186
$109
$869
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Property acquired under build-to-suit and capital leases..
$15
$109
60
$0
The accompanying notes are an integral part of these consolidated financial statements.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
43
Receivables, Net
Receivables consist of the following at the end of 2016 and 2015:
Property and Equipment
Property and equipment are stated at cost. In general, new building additions are classified into components,
each with its own estimated useful life, generally five to fifty years for buildings and improvements and three to
twenty years for equipment and fixtures. Depreciation and amortization expense is computed using the
straight-line method over estimated useful lives or the lease term, if shorter. 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 assured at the date the
leasehold improvements are made.
The Company capitalizes certain computer software and software development costs incurred in developing
or obtaining computer software for internal use. These costs are included in equipment and fixtures and
amortized on a straight-line basis over the estimated useful lives of the software, generally three to seven
years.
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 that were removed during the remodel, refurbishment or improvement are retired. Assets classified as
held-for-sale at the end of 2016 and 2015 were immaterial.
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 would be 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. There were no impairment charges recognized in 2016, and charges were immaterial and
included in selling, general and administrative expenses in the consolidated statements of income in 2015 and
2014.
Accounts Payable
The Company's banking system provides for the daily replenishment of major bank accounts as checks are
presented. Included in accounts payable at the end of 2016 and 2015 are $619 and $538, respectively,
representing the excess of outstanding checks over cash on deposit at the banks on which the checks were
drawn. The Company accelerated vendor payments of approximately $1,700 in the last week of fiscal 2016 in
advance of implementing its modernized accounting system at the beginning of fiscal 2017.
Insurance/Self-Insurance Liabilities
The Company uses a combination of insurance and self-insurance mechanisms, including for certain risks a
wholly-owned captive insurance subsidiary and participation in a reinsurance program, to provide for potential
liabilities for workers' compensation, general liability, property damage, directors' and officers' liability, vehicle
liability, and employee health care benefits. 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 2016 and 2015, these insurance liabilities were $1,021 and $993 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.
45
The Company's wholly-owned captive insurance subsidiary (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 any 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 is not relieved of its primary obligation to the policyholders for activity prior to the
termination of the annual agreement.
Other Current Liabilities
Other current liabilities consist of the following at the end of 2016 and 2015:
Accrued sales, income, and other taxes
Insurance-related liabilities...
Deferred sales.
Cash card liability..
Returns reserve
Other..........
Other current liabilities.
Derivatives
2016
2015
44
Due to net deflationary trends, a benefit of $64 and $27 was recorded to merchandise costs in 2016 and
2015, respectively. Due to net inflationary trends in 2014, a charge of $28 was recorded to merchandise costs
to increase the cumulative LIFO valuation on merchandise inventories. At the end of 2016 and 2015, the
cumulative impact of the LIFO valuation on merchandise inventories was immaterial and $82, respectively.
The Company provides for estimated inventory losses between physical inventory counts as a percentage of
net sales, using estimates based on the Company's experience. The provision is adjusted periodically to
reflect actual physical inventory counts, which generally occur in the second and fourth fiscal quarters.
Inventory cost, where appropriate, is reduced by estimates of vendor rebates when earned or as the
Company progresses towards earning those rebates, provided that they are probable and reasonably
estimable.
Merchandise inventories are valued at the lower of cost or market, as determined primarily by the retail
inventory method, and are stated using the last-in, first-out (LIFO) method for substantially all U.S.
merchandise inventories. Merchandise inventories for all foreign operations are primarily valued by the retail
inventory method and are stated using the first-in, first-out (FIFO) method. The Company believes the LIFO
method more fairly presents the results of operations by more closely matching current costs with current
revenues. The Company records an adjustment each quarter, if necessary, for the projected annual effect of
inflation or deflation, and these estimates are adjusted to actual results determined at year-end, after actual
inflation rates and inventory levels for the year have been determined.
.$ 6,422 $ 6,427
2,547 2,481
.$ 8,969 $ 8,908
Vendor receivables.
Reinsurance receivables.
Third-party pharmacy receivables....
Other receivables, net..
Receivables, net..
2016
2015
.$
755 $ 729
270
273
4,801
99
128
119
.$ 1,252 $ 1,224
Vendor receivables include volume rebates or other purchase discounts. 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. Reinsurance receivables are held by the Company's wholly-
owned captive insurance subsidiary. The balance primarily represents amounts ceded through reinsurance
arrangements gross of the amounts assumed under reinsurance, which are presented within other current
liabilities in the consolidated balance sheets. Third-party pharmacy receivables generally relate to amounts
due from members' insurance companies. Other receivables primarily consist of amounts due from
governmental entities, mostly tax-related items.
Receivables are recorded net of an allowance for doubtful accounts. The allowance is based on historical
experience and application of the specific identification method. Write-offs of receivables were immaterial for
fiscal years 2016, 2015, and 2014.
Merchandise Inventories
Merchandise inventories consist of the following at the end of 2016 and 2015:
2016
2015
United States.
Foreign
Merchandise inventories
103
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR
1,094
(937)
(563)
Accounts payable..
(1,532)
880
529
Other operating assets and liabilities, net
547
557
699
Net cash provided by operating activities.
3,292
4,285
3,984
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments...
(1,432)
(1,501)
(2,503)
Maturities and sales of short-term investments.....
Additions to property and equipment ....
1,709
(2,649)
1,434
(2,393)
2,406
Other investing activities, net
(890)
(25)
Merchandise inventories
(63)
August 28,
2016
August 30,
2015
August 31,
2014
$2,376
$2,409
$2,088
1,255
1,127
1,029
459
394
27
327
Other non-cash operating activities, net
Deferred income taxes...
Changes in operating assets and liabilities:
(74)
(86)
(84)
17
(5)
22
269
(101)
Excess tax benefits on stock-based awards.
52 Weeks
Ended
(20)
(2,345)
84
Repurchases of common stock.
(486)
(481)
(334)
Cash dividend payments.
(746)
(2,865)
(584)
Other financing activities, net...
(19)
35
34
Net cash used in financing activities
(2,419)
(2,324)
(786)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS.
50
(418)
(11)
Net change in cash and cash equivalents....
(1,422)
86
74
Excess tax benefits on stock-based awards.
0
(164)
(2,480)
(1,993)
(3)
(2,093)
Change in bank checks outstanding
81
(45)
96
Repayments of short-term borrowings
(106)
(51)
(103)
Proceeds from short-term borrowings.
Net cash used in investing activities
106
68
Proceeds from issuance of long-term debt
185
1,125
117
Repayments of long-term debt...
(1,288)
(1)
Minimum tax withholdings on stock-based awards..
(220)
(178)
51
(494)
(494)
2015
54
Gross assets recorded under capital and build-to-suit leases were $392 and $300 at the end of 2016 and
2015, respectively. These assets are recorded net of accumulated amortization of $63 and $42 at the end of
2016 and 2015, respectively.
Capital and Build-to-Suit Leases
The aggregate rental expense for 2016, 2015, and 2014 was $250, $252, and $230, respectively. Sub-lease
income and contingent rent was not material in 2016, 2015, and 2014, respectively.
Operating Leases
Note 5-Leases
Total.
Thereafter
$ 5,171
978
100
1,698
100
..$ 1,100
1,195
2021
2020.
2019.
54
2018.
At the end of 2016, future minimum payments, net of sub-lease income of $129 for all years combined, under
non-cancelable operating leases with terms of at least one year and capital leases were as follows:
2018
200 $
Leases (1)
Capital
Operating
Leases
Dividends
Note 6-Stockholders' Equity
(2) Included in other current liabilities in the accompanying consolidated balance sheets.
(1) Includes build-to-suit lease obligations.
Long-term capital lease obligations less current installments (3).
Less current installments (2).
Net present value of minimum lease payments
Less amount representing interest.....
Total.
Thereafter
2021
2020.
2019
2017.
31
2017.
..$ 4,061 $ 4,144 $ 4,852 $ 4,904
508
498
1.75% Senior Notes due February 2020.
1,186
1,195
1,219
1,196
1,097
1,098
1,103
1,099
1,099 1,171
1,100 1,129
1,200 $ 1,201
0 $ 0 $
0.65% Senior Notes due December 2015
5.5% Senior Notes due March 2017.
1.125% Senior Notes due December 2017.
1.7% Senior Notes due December 2019
Value
497
Maturities of long-term debt during the next five fiscal years and thereafter, excluding deferred issuance costs,
are as follows:
494
497
Long-term debt, excluding current portion.........
1,283 1,284
1,100 1,130
Less current portion.
6,188
6,135
5,274
5,161
Total long-term debt.
555
550
803
771
Other long-term debt.
484
496
512
2.25% Senior Notes due February 2022.
Fair
195
184
120.56
115.69
102.43
153.46
99.72
(281)
8,326 $
(4,147)
3,521
Weighted-Average
Grant Date Fair
Value
9,233 $
(in 000's)
Number of
Units
Outstanding at the end of 2016
Forfeited.
Vested and delivered..
Granted.
Outstanding at the end of 2015
The weighted-average grant date fair value of RSUs granted was $153.46, $125.68, and $113.64 in 2016,
2015, and 2014, respectively. The remaining unrecognized compensation cost related to non-vested RSUs at
the end of 2016 was $690 and the weighted-average period of time over which this cost will be recognized is
1.6 years. Included in the outstanding balance at the end of 2016 were approximately 2,602,000 RSUs vested
but not yet delivered.
The following table summarizes RSU transactions during 2016:
56
The following table summarizes stock-based compensation expense and the related tax benefits under the
Company's plans:
..$ 3,619 $ 3,604 $ 3,197
..$ 2,622 $ 2,574 $ 2,145
997 1,030 1,052
The provisions for income taxes for 2016, 2015, and 2014 are as follows:
Total.
Foreign.
Domestic (including Puerto Rico).
2014
2015
2016
..$ 309 $ 263 $ 218
2014
2015
2016
..$ 459 $ 394 $ 327
(150) (131) (109)
Income before income taxes comprised of the following:
Note 8 Income Taxes
Stock-based compensation expense, net of income taxes
Stock-based compensation expense before income taxes
Less recognized income tax benefit...
Summary of Stock-Based Compensation
31
7,878,000 time-based RSUs that vest upon continued employment over specified periods of time;
448,000 performance-based RSUs, of which 236,000 were granted to executive officers subject to the
certification of the attainment of specified performance targets for 2016. This certification occurred in
September 2016, at which time a portion vested as a result of the long service of all executive officers.
The remaining awards vest upon continued employment over specified periods of time.
RSUS granted to employees and to non-employee directors generally vest over five years 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 years and five
or more years of service with the Company, respectively, and provide for vesting upon certain terminations of
employment or service. Recipients are not entitled to vote or receive dividends on non-vested and undelivered
shares. At the end of 2016, 15,068,000 shares were available to be granted as RSUs under the Seventh Plan.
The following awards were outstanding at the end of 2016:
The Company's stock repurchase program is conducted under a $4,000 authorization by the Board of
Directors approved on April 17, 2015, which expires April 17, 2019. This authorization revoked previously
authorized but unused amounts, totaling $2,528. As of the end of 2016, the remaining amount available for
stock repurchases under the approved plan was $3,222. The following table summarizes the Company's
stock repurchase activity:
Stock Repurchase Programs
The Company's current quarterly dividend rate is $0.45 per share. In February 2015, the Company paid a
special cash dividend of $5.00 per share, totaling approximately $2,201.
364
(10)
374
(374)
748
3,120
$
593
2,204
32
166
31
171
30
2016.
2015.
•
2014
(000's)
3,184 $
Summary of Restricted Stock Unit Activity
terminations of employment or service. Employees who attain certain years of service with the Company
receive shares under accelerated vesting provisions on the annual vesting date rather than upon retirement.
The Seventh Restated 2002 Stock Incentive Plan (Seventh Plan), amended in the second quarter of fiscal
2015, is the Company's only stock-based compensation plan with shares available for grant at the end of
2016. Each share issued in respect of stock awards is counted as 1.75 shares toward the limit of shares
made available under the Seventh Plan. The Seventh Plan authorized the issuance of 23,500,000 shares
(13,429,000 RSUs) of common stock for future grants in addition to the shares authorized under the previous
plan. 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 equal to the minimum statutory withholding taxes.
As required by the Company's Seventh Plan, in conjunction with the special cash dividend discussed in Note
6, adjustments were made to awards outstanding on the dividend record date to preserve their value following
the dividend, as follows: (i) the number of shares subject to outstanding RSUs was increased; and (ii) the
exercise prices of outstanding stock options were reduced and the number of shares subject to such options
was increased. Approximately 410,000 stock options were adjusted, and approximately 8,956,000 RSUs were
adjusted. These adjustments did not result in additional stock-based compensation expense, as the fair value
of the outstanding awards did not change. As further required by the Seventh Plan, the maximum number of
shares issuable under the Seventh Plan was proportionally adjusted, which resulted in an additional 750,000
RSU shares available to be granted.
55
55
The Company grants stock-based compensation to employees and non-employee directors. Beginning in
2009, RSU grants to all executive officers have been performance-based. Through a series of shareholder
approvals, there have been amended and restated plans and new provisions implemented by the Company.
RSUS held by employees and non-employee directors are subject to quarterly vesting upon certain
Note 7-Stock-Based Compensation Plans
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.
334
114.45
2,915
494
142.87
3,456
477
149.90 $
Total Cost
Average
Price per
Share
Shares
Repurchased
Federal:
Carrying
Value
Carrying
Value
Available-for-sale:
2015:
1,350
6 $
..$ 1,344 $
Total short-term investments..
315
315
9
9
306
306
1,035
6
1,029
1
0
Government and agency securities.
1
Asset and mortgage-backed securities.
Held-to-maturity:
4 $
215
215
..$ 1,614 $
1,403
4
1,399
5
0
5
1,398
4 $
..$ 1,394 $
Recorded
Basis
Unrealized
Gains, Net
Cost
Basis
Total short-term investments..
Certificates of deposit
Total available-for-sale....
1,618
1,034
..$ 1,028 $
In April 2015, the FASB issued guidance to simplify the presentation of debt issuance costs by recording
deferred debt issuance costs as a direct deduction from the carrying amount of the related debt liability. The
guidance is effective for fiscal years beginning after December 15, 2015, and interim periods within those
fiscal years, with early adoption permitted. The Company elected to early adopt the guidance at the beginning
of its first quarter of fiscal year 2016 on a retrospective basis. The Company reclassified deferred issuance
costs from other assets to the respective debt liability. Adoption of this guidance and prior fiscal year
reclassifications had an immaterial impact on previously reported consolidated financial statements and an
immaterial impact on the total assets by segment as disclosed in Note 11.
In November 2015, the Financial Accounting Standards Board (FASB) issued guidance on the presentation
of deferred tax assets and liabilities by jurisdiction, along with any related valuation allowance. The guidance
requires companies to classify all deferred tax assets and liabilities as non-current on the balance sheet on
either a prospective or retrospective basis. The guidance is effective for fiscal years and interim periods within
those years beginning after December 15, 2016, with early adoption permitted. The Company elected to early
adopt the guidance at the beginning of the second quarter of fiscal year 2016 on a retrospective basis and
reclassified deferred tax assets and liabilities from current to non-current. The reclassifications reduced other
current assets and other liabilities by $520 and $410, respectively, increased other assets by $109, and had
an immaterial impact on other current liabilities in the accompanying consolidated balance sheet for the fiscal
year ended August 30, 2015. Adoption of this guidance also had an immaterial impact on the total assets by
segment as disclosed in Note 11.
Recently Adopted Accounting Pronouncements
Repurchased shares of common stock are retired, in accordance with the Washington Business Corporation
Act. The par value of repurchased shares is deducted from common stock and the excess repurchase price
over par value is deducted by allocation to additional paid-in capital and retained earnings. The amount
allocated to additional paid-in capital is the current value of additional paid-in capital per share outstanding
and is applied to the number of shares repurchased. Any remaining amount is allocated to retained earnings.
See Note 6 for additional information.
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 and the "if converted" method for the convertible note securities.
Stock Repurchase Programs
Net Income per Common Share Attributable to Costco
indefinitely reinvested as of August 28, 2016. These earnings would be subject to U.S. income tax if we
changed our position and could result in a U.S. tax liability. Although the Company has historically asserted
that certain non-U.S. undistributed earnings will be permanently reinvested, it may repatriate such earnings to
the extent it can do so without an adverse tax consequence. See Note 8 for additional information.
49
49
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 determination of the Company's provision for income taxes requires significant judgment, the use of
estimates, and the interpretation and application of complex tax laws. Significant judgment is required in
assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain
tax positions. 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, if any, from tax authorities. When facts and circumstances change, the Company
reassesses these probabilities and records any changes in the consolidated financial statements as
appropriate. Additionally, certain of the Company's cumulative foreign undistributed earnings were considered
Income Taxes
Preopening expenses related to new warehouses, new regional offices and other startup operations are
expensed as incurred.
Preopening Expenses
The Company's asset retirement obligations (ARO) are primarily related to leasehold improvements that at
the end of a lease must be removed in order to comply with the lease agreement. These obligations are
recorded as a liability with an offsetting asset at the inception of the lease term based upon the estimated fair
value of the costs to remove the leasehold improvements. These liabilities are accreted over time to the
projected future value of the obligation using the Company's incremental borrowing rate. The ARO assets are
depreciated using the same depreciation method as the respective leasehold improvement assets and are
included with buildings and improvements. Estimated ARO liabilities associated with these leases amounted
to $64 and $54 at the end of 2016 and 2015, respectively, and are included in other liabilities in the
accompanying consolidated balance sheets.
The Company records an asset and related financing obligation for the estimated construction costs under
build-to-suit lease arrangements where it is considered the owner for accounting purposes, to the extent the
Company is involved in the construction of the building or structural improvements or has construction risk
prior to commencement of a lease. Upon occupancy, the Company assesses whether these arrangements
qualify for sales recognition under the sale-leaseback accounting guidance. If the Company continues to be
the deemed owner, it accounts for the arrangement as a financing lease.
The Company has capital leases for certain warehouse locations, expiring at various dates through 2054.
Capital lease assets are included in land and buildings and improvements in the accompanying consolidated
balance sheets. Amortization expense on capital lease assets is recorded as depreciation expense and is
predominately included in selling, general and administrative expenses. Capital lease liabilities are recorded
at the lesser of the estimated fair market value of the leased property or the net present value of the
aggregate future minimum lease payments and are included in other current liabilities and other liabilities in
the accompanying consolidated balance sheets. Interest on these obligations is included in interest expense
in the consolidated statements of income.
The Company accounts for its lease expense with free rent periods and step-rent provisions on a straight-line
basis over the original term of the lease and any extension options that the Company more likely than not
expects to exercise, from the date the Company has control of the property. Certain leases provide for
periodic rental increases based on price indices, or the greater of minimum guaranteed amounts or sales
volume.
In April 2014, the FASB issued guidance that changed the criteria for reporting discontinued operations, as
well as requiring new disclosures regarding discontinued operations and disposals that do not qualify for
discontinued operations reporting. This guidance became effective for fiscal years beginning after
December 15, 2014. The Company adopted this guidance at the beginning of fiscal year 2016. Adoption did
not have an impact on the Company's consolidated financial statements or disclosures.
6 $
Recent Accounting Pronouncements Not Yet Adopted
50
Recorded
Basis
Unrealized
Gains, Net
Cost
Basis
Total held-to-maturity
Bankers' acceptances..
Certificates of deposit
Held-to-maturity:
Asset and mortgage-backed securities.
Total available-for-sale.
Government and agency securities
Available-for-sale:
2016:
The Company's investments at the end of 2016 and 2015 were as follows:
Note 2-Investments
The Company is evaluating the impact of these standards on its consolidated financial statements and
disclosures.
In March 2016, the FASB issued new guidance on stock compensation, which is intended to simplify
accounting for share-based payment transactions. The guidance will change several aspects of the
accounting for share-based payment award transactions, including accounting for income taxes, forfeitures,
and minimum statutory tax withholding requirements. The new standard is effective for fiscal years and interim
periods within those years beginning after December 15, 2016, with early adoption permitted. The Company
plans to adopt this guidance at the beginning of its first quarter of fiscal year 2018.
In February 2016, the FASB issued new guidance on leases, which will require lessees to recognize assets
and liabilities on the balance sheet for the rights and obligations created by all leases with terms greater than
twelve months. The standard is effective for fiscal years and interim periods within those years beginning after
December 15, 2018, with early adoption permitted. The Company plans to adopt this guidance at the
beginning of its first quarter of fiscal year 2020.
Companies can transition to the standard either retrospectively or as a cumulative effect adjustment as of the
date of adoption. The new standard is effective for fiscal years and interim periods within those years
beginning after December 15, 2017. The Company plans to adopt this guidance at the beginning of its first
quarter of fiscal year 2019.
In May 2014, the FASB issued new guidance on the recognition of revenue from contracts with customers.
The guidance converges the requirements for reporting revenue and requires disclosures sufficient to
describe the nature, amount, timing, and uncertainty of revenue and cash flows arising from these contracts.
Fair
Value
Gross unrealized gains and losses on available-for-sale securities were not material in 2016, 2015, and 2014.
At the end of 2016, the Company had no available-for-sale securities in a continuous unrealized-loss position,
and in 2015 and 2014, they were not material. There were no gross unrealized gains and losses on cash
equivalents at the end of 2016, 2015, or 2014.
555
(4)
0
16
5
1,398
0
306 $
0
.$
Level 2
Level 1
$ 222 $1,033
(13)
0
11
0
1
1,034
.$
0
306 $ 1,415
During and at the end of both 2016 and 2015, the Company did not hold any Level 3 financial assets and
liabilities that were measured at fair value on a recurring basis. There were no transfers in or out of Level 1 or
2 during 2016 and 2015.
2015
2016
The estimated fair value of the Company's debt was based primarily on reported market values, recently
completed market transactions, and estimates based upon interest rates, maturities, and credit. The carrying
value and estimated fair value at the end of 2016 and 2015 consisted of the following:
the Company's Japanese subsidiary issued approximately $103 of 0.63% Guaranteed Senior Notes through a
private placement. Interest is payable semi-annually, and principal is due in March 2026. Additionally in June
2016, the Company's Japanese subsidiary issued approximately $93 of zero percent Guaranteed Senior
Notes through a private placement. Interest is payable semi-annually, and principal is due in June 2021. Both
notes are included in other long-term debt in the table below.
53
Other long-term debt consisted primarily of promissory notes and term loans issued by the Company's
Japanese subsidiary. These notes and term loans are valued primarily using Level 3 inputs. In March 2016,
In February 2007, the Company issued $1,100 of 5.5% Senior Notes due March 15, 2017 (2007 Senior Note).
Interest is payable semi-annually. The Company, at its option, may redeem the 2007 Senior Note 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 of the 2007 Senior Note to be redeemed or the sum of the present value of the
remaining scheduled payments of principal and interest to maturity. Additionally, the Company will be required
to make an offer to purchase the 2007 Senior Note at a price of 101% of the principal amount plus accrued
and unpaid interest to the date of repurchase, upon certain events as defined by the terms of the 2007 Senior
Note. The discount and issuance costs associated with the 2007 Senior Note are being amortized to interest
expense over the term of the note. This note is valued using Level 2 inputs.
On February 17, 2015, the Company issued $1,000 in aggregate principal amount of Senior Notes (February
2015 Notes), as follows: $500 of 1.75% Senior Notes due February 15, 2020; and $500 of 2.25% Senior
Notes due February 15, 2022. Interest is due semi-annually on February 15 and August 15; the first payment
was made on August 15, 2015. The Company, at its option, may redeem the February 2015 Notes at any
time, in whole or in part, at the redemption price plus accrued and unpaid interest to the date of redemption.
The redemption price is equal to the greater of 100% of the principal amount of the notes to be redeemed or
the sum of the present value of the remaining scheduled payments of principal and interest to maturity. The
Company will be required to offer to purchase the February 2015 Notes, at a price of 101% of the principal
amount plus accrued and unpaid interest to the date of repurchase, upon certain events as defined by the
terms of the February 2015 Notes. The discount and issuance costs associated with the February 2015 Notes
are being amortized to interest expense over the term of the notes, which are valued using Level 2 inputs.
In December 2012, the Company issued $3,500 in aggregate principal amount of Senior Notes (December
2012 Notes) as follows: $1,200 of 0.65% Senior Notes due December 7, 2015; $1,100 of 1.125% Senior
Notes due December 15, 2017; and $1,200 of 1.7% Senior Notes due December 15, 2019. Interest is payable
semi-annually. The Company, at its option, may redeem the December 2012 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 of the December 2012 Notes to be redeemed or the sum of the present value of the
remaining scheduled payments of principal and interest to maturity. Additionally, the Company will be required
to make an offer to purchase the December 2012 Notes at a price of 101% of the principal amount plus
accrued and unpaid interest to the date of repurchase, upon certain events as defined by the terms of the
December 2012 Notes. The discount and issuance costs associated with the December 2012 Notes are being
amortized to interest expense over the terms of the notes. In December 2015, the Company paid the
outstanding principal balance and interest on the 0.65% Senior Notes with existing sources of cash and cash
equivalents and short term investments. The remaining December 2012 Notes are valued using Level 2
inputs.
In 2016, the average and maximum short term borrowings in Japan were $99 and $110, respectively, and had
a weighted average interest rate of 0.52% during the year. All other short term borrowings during the year
were immaterial. In 2015, the average and maximum short term borrowings were immaterial.
Long-Term Debt
The Company enters into various short-term bank credit facilities, totaling $429 and $407 in 2016 and 2015,
respectively. At the end of 2016 and 2015, there were no outstanding borrowings under these credit facilities.
Short-Term Borrowings
Note 4-Debt
Nonfinancial assets measured at fair value on a nonrecurring basis include items such as long-lived assets
that are measured at fair value resulting from an impairment, if deemed necessary. There were no fair value
adjustments to nonfinancial assets during 2016 and these adjustments were immaterial during 2015.
59
52
Financial assets measured at fair value on a nonrecurring basis include held-to-maturity investments that are
carried at amortized cost and are not remeasured to fair value on a recurring basis. There were no fair value
adjustments to these financial assets during 2016 and 2015. See Note 4 for discussion on the fair value of
long-term debt.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
(1) Included in cash and cash equivalents in the accompanying consolidated balance sheets.
(2) The asset and the liability values are included in other current assets and other current liabilities, respectively, in the
accompanying consolidated balance sheets. See Note 1 for additional information on derivative instruments.
51
0
.$
746
315
231 $
$
231
Held-To-Maturity
Fair Value
Cost Basis
Available-For-Sale
Note 3-Fair Value Measurement
Total.
years
Due after five
Due after one year through five years.
Due in one year or less.
The maturities of available-for-sale and held-to-maturity securities at the end of 2016, were as follows:
The proceeds from sales of available-for-sale securities were $291, $246, and $116 during 2016, 2015, and
2014, respectively. Gross realized gains or losses from sales of available-for-sale securities were not material
in 2016, 2015, and 2014.
751
222 $
0
53
Level 2
Level 1
(2)
Total.
Investment in government and agency securities
Investment in asset and mortgage-backed securities.
Forward foreign-exchange contracts, in asset position (2)
Forward foreign-exchange contracts, in (liability) position
Money market mutual funds (1)
Investment in government and agency securities
Investment in asset and mortgage-backed securities.
Forward foreign-exchange contracts, in asset position (2)
Forward foreign-exchange contracts, in (liability) position
Total...
Money market mutual funds (1)
2015:
2016:
The tables below present information at the end of 2016 and 2015, respectively, 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 fair value hierarchy reflecting the valuation techniques utilized to determine such fair value.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
315
1,035 $
1,029 $
..$
0
52
2016
(3) Included in other liabilities in the accompanying consolidated balance sheets.
2014
Equity compensation...
The components of the deferred tax assets (liabilities) are as follows:
The Company's provision for income taxes for 2015 was favorably impacted by a $57 tax benefit in
connection with the special cash dividend of $5.00 per share paid by the Company to employees, through
shares owned in the Company's 401(k) Retirement Plan. Dividends paid on these shares are deductible for
U.S. income tax purposes. There was no similar special cash dividend in 2016 and 2014.
57
34.7%
33.2% $ 1,109
34.3% $ 1,195
..$ 1,243
Total
0.6
20
1.2
39
(2.1)
(77)
(0.3)
(11)
(1.8)
(66)
(0.5)
(17)
(2.7)
(85)
(3.5)
(0.6) (125)
Deferred income/membership fees....
(21)
Accrued liabilities and reserves.
Property and equipment.
59
58
The Company believes that its U.S. current and projected asset position is sufficient to meet its U.S. liquidity
requirements and has no current plans to repatriate for use in the U.S. the cash and cash equivalents and
short-term investments held by these non-U.S. subsidiaries whose earnings are considered indefinitely
reinvested.
The Company has not provided for U.S. deferred taxes on cumulative undistributed earnings of $3,280 and
$2,845 at the end of 2016 and 2015, respectively, of certain non-U.S. consolidated subsidiaries because the
subsidiaries have invested or will invest the undistributed earnings indefinitely, or the earnings, if repatriated
would not result in an adverse tax consequence. Because of the availability of U.S. foreign tax credits and
complexity of the computation, it is not practicable to determine the U.S. federal income tax liability that would
be associated with such earnings if such earnings were not deemed to be indefinitely reinvested.
During 2015, the Company repatriated a portion of the earnings in the Canadian operations that, in 2014, the
Company determined were no longer considered indefinitely reinvested. In the fourth quarter of 2015, the
Company changed its position regarding an additional portion of the undistributed earnings of the Canadian
operations, which are no longer considered indefinitely reinvested. These earnings were distributed in 2016.
Current exchange rates compared to historical rates when these earnings were generated resulted in an
immaterial U.S. benefit, which was recorded at the end of 2015. Subsequent to the end of fiscal 2016, the
Company determined that a portion of the undistributed earnings of its Canadian operations could be
repatriated without adverse tax consequences. Accordingly, the Company no longer considers that portion to
be indefinitely reinvested.
The Company has not provided for U.S. deferred taxes on cumulative undistributed earnings of certain non-
U.S. consolidated subsidiaries as such earnings are deemed by the Company to be indefinitely reinvested
because its subsidiaries have invested or will invest the undistributed earnings indefinitely, or the earnings if
repatriated would not result in an adverse tax consequence. Deferred taxes are recorded for earnings of
foreign operations when it is determined that such earnings are no longer indefinitely reinvested.
(1) Includes foreign tax credits of $78 and $33 for 2016 and 2015, respectively, which will expire beginning in 2025.
The deferred tax accounts at the end of 2016 and 2015 include non-current deferred income tax assets of
$202 and $219, respectively, included in other assets; and non-current deferred income tax liabilities of $297
and $51, respectively, included in other liabilities.
168
.$
(200)
(256)
(560)
(779)
107
63
641
601
90
177
90
99 $
2015
2016
Net deferred tax (liabilities)/assets...
Merchandise inventories..
Other (1)
Other...
(95) $
Foreign taxes, net..
21
107
131
108
591
754
701
(105)
(12)
233
696
468 $ 766 $
$
Total provision for income taxes
Total foreign...
Deferred
Current
Total state
Foreign:
Current
Total federal.
State:
Deferred
Current
Employee stock ownership plan (ESOP).
(3)
129
Deferred
104
132
66
2.3
35.0%
2.1
35.0% $ 1,262
2.5
85
91
State taxes, net.
$ 1,267
Federal taxes at statutory rate.
2014
2015
2016
35.0% $ 1,119
Tax benefits associated with the exercise of employee stock programs were allocated to equity attributable to
Costco in the amount of $74, $86, and $84, in 2016, 2015, and 2014, respectively.
The reconciliation between the statutory tax rate and the effective rate for 2016, 2015, and 2014 is as follows:
399
369
15
(90)
398
413
309
414
..$ 1,243 $ 1,195 $ 1,109
45
Senior Vice President, General Manager - Northeast Region
Jeffrey R. Long
Paul G. Moulton
Senior Vice President, Merchandising - Fresh Foods
John D. McKay
Executive Vice President, COO - Northern Division
David Messner
Senior Vice President, Real Estate Development
Russ D. Miller
Senior Vice President, General Manager - Western
Canada Region
Ali Moayeri
Senior Vice President, Construction
Jeffrey B. Lyons
David S. Petterson
Executive Vice President, COO - International Division
Mario Omoss
Senior Vice President, General Manager - Northwest Region
Stephen M. Pappas
Senior Vice President, General Manager - Europe
Senior Vice President, Accounting
Joseph P. Portera
Executive Vice President, COO - Eastern & Canadian
Divisions and Chief Diversity Officer
Pierre Riel
Executive Vice President, Ancillary Businesses,
Senior Vice President, General Manager - Eastern
Canada Region
Timothy L. Rose
Executive Vice President, Chief Information Officer
James P. Murphy
Executive Vice President, Administration
Jaime Gonzalez
Franz E. Lazarus
Senior Vice President, Costco Wholesale Industries &
Business Development
Manufacturing & Business Centers
Victor A. Curtis
Senior Vice President, Pharmacy
Richard Delie
Senior Vice President, Merchandising - Non-Foods &
Ecommerce
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, Chief Financial Officer
Senior Vice President, General Manager - Mexico
William Hanson
Senior Vice President, Merchandising - Foods & Sundries
Daniel M. Hines
Senior Vice President, Corporate Controller
W. Craig Jelinek
President and Chief Executive Officer
James Klauer
Senior Vice President, Merchandising - Non-Foods &
Ecommerce
Paul W. Latham
Senior Vice President, Membership, Marketing,
Services & Publishing
Yoram B. Rubanenko
-
James W. Rutherford
Operations - Northwest Region
Timothy Bowersock
Information Systems
Kimberly F. Brown
FSC® C132107
responsible sources
Paper from
MIX
www.fsc.org
FSC
WHOLESALE
COSTCO
67
Stock Symbol: COST
The NASDAQ Global Select Market
Stock Exchange Listing
Website: https://www.computershare.com/investor
Outside U.S.: (201) 680-6578
TDD for Hearing Impaired: (800) 490-1493
Richard C. Chavez
Telephone: (800) 249-8982
Operations San Diego Region
Christopher Bolves
Financial Accounting Controller
Bryan Blank
Tiffany Barbre
Canadian Division
Senior Vice President, Information Systems
John Sullivan
Senior Vice President, General Counsel &
Chief Compliance Officer
John D. Thelan
Senior Vice President, Depots & Traffic
Ron M. Vachris
Executive Vice President, COO - Merchandising
Richard L. Webb
Senior Vice President, General Manager - Texas Region
Senior Vice President, General Manager - Southeast Region
Richard Wilcox
Executive Vice President, COO - Southwest
Division & Mexico
65
VICE PRESIDENTS
Claudine Adamo
GMM - Corporate Non-Foods
James J. Andruski
GMM - Foods & Sundries - Western
Canada Region
Marc-André Bally
GMM - Business Centers -
Senior Vice President, General Manager - San Diego Region
Dennis R. Zook
Senior Vice President, General Manager - Asia
0.40
Risk Management
1.35 $
1.17
$
1.73 $
5.37
Shares used in calculation (000's)
Basic.
438,760
Diluted
442,210
440,384
442,896
440,070
443,132
438,835
442,404
439,455
442,716
CASH DIVIDENDS DECLARED
PER COMMON SHARE
0.355
5.355 (2) $
College Station, TX 77842-3170
$
0.40
$
1.12 $
$
Diluted
5.41
NET INCOME ATTRIBUTABLE
TO COSTCO.
496
$
598
$
516
SA
$
767 $
6.51
2,377
SHARE ATTRIBUTABLE TO
COSTCO:
Basic...........
.$
1.13 $
EA
1.36 $
1.17
$
1.75 $
NET INCOME PER COMMON
Richard Chang
(1) Includes a $57 tax benefit recorded in the second quarter in connection with the special cash dividend paid to employees through
the Company's 401(k) Retirement Plan.
49
Founder and CEO of the Raikes Foundation; Former
CEO of the Bill and Melinda Gates Foundation
James D. Sinegal
Co-Founder, former President and CEO, Costco
John W. Stanton (b)*
Chairman of Trilogy International Partners, Inc.;
Chairman of Trilogy Equity Partners
Maggie A. Wilderotter (c)
Former Executive Chairman of Frontier Communications
Board Committees
(a) Audit Committee
(b) Compensation Committee
(c) Nominating and Governance Committee
* 2016 Committee Chair
EXECUTIVE AND SENIOR OFFICERS
Senior Vice President, General Manager -
Bay Area Region
Andree T. Brien
Senior Vice President, National Merchandising -
Canadian Division
Jeffrey H. Brotman
Chairman of the Board
Donald E. Burdick
Senior Vice President, Ecommerce and Travel
Patrick J. Callans
Senior Vice President, Human Resources and
(c)*
Vice Chairman of the Board of Berkshire Hathaway Inc.;
Chairman of the Board of Daily Journal Corporation
Jeffrey S. Raikes
President of MCM, A Meisenbach Company
Charles T. Munger (a)*(b)
John W. Meisenbach
64
Jeffrey H. Brotman
Co-Founder, Chairman of the Board, Costco
Susan L. Decker(a)
Principal of Deck3 Ventures LLC;
Former President of Yahoo! Inc.
Daniel J. Evans (a)(c)
DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
Chairman, Daniel J. Evans Associates; Former U.S.
Senator and Governor of the State of Washington
(2) Includes the special cash dividend of $5.00 per share paid in February 2015.
Richard A. Galanti
Officer, Costco
Hamilton E. James
President and Chief Operating Officer,
The Blackstone Group
W. Craig Jelinek
President and Chief Executive Officer, Costco
Richard M. Libenson
A Founder, former Director and Executive Officer of
The Price Company
Jeffrey Abadir
Executive Vice President and Chief Financial
P. O. Box 30170
A copy of Costco's annual report to the Securities and Exchange Commission on Form 10-K and quarterly
reports on Form 10-Q will be provided to any shareholder upon written request directed 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
Online web site, at http://www.costco.com. E-mail users may direct their investor relations questions to
investor@costco.com. All of the Company's filings with the SEC may be obtained at the SEC's Public
Reference Room at Room 1580, 100 F Street NE, Washington, DC 20549. For information regarding the
operation of the SEC's Public Reference Room, please contact the SEC at 1-800-SEC-0330. Additionally,
the SEC maintains an internet site that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC at www.sec.gov.
Computershare
Operations - Midwest Region
Robert Leuck
William Koza
GMM Global Sourcing
Gary Kotzen
Administration & Community Giving
Real Estate - Eastern Division
Arthur D. Jackson, Jr.
Jeff Ishida
Human Resources, Finance & IS -
Canadian Division
Ross A. Hunt
GMM - Imports
Mitzi Hu
Internal Audit
Scott Howe
GMM-Ecommerce - Canadian Division
Graham E. Hillier
-
Operations Northwest Region
James Hayes
Information Systems
Timothy Haser
Operations Northwest Region
Operations - Northeast Region
Steve Mantanona
GMM - Merchandising – Mexico
Mark Maushund
Operations - Los Angeles Region
Susan McConnaha
Operations Bakery & Food Court
Daniel McMurray
Chris Rylance
Operations - Southeast Region
GMM - Non-Foods - Canadian Division
Aldyn J. Royes
Giro Rizzuti
Operations - Northeast Region
Operations - Southeast Region
Paul Pulver
GMM- Corporate Non-Foods
Steven D. Powers
Operations - Los Angeles Region
Michael Parrott
Shawn Parks
Operations - Eastern Canada Region
Jim Harrison
Transportation
David Harruff
Daniel Parent
Country Manager - Australia
Frank Padilla
-
GMM Foods & Sundries, Quality
Assurance, Food Safety & Business
Delivery Canadian Division
Patrick J. Noone
Pietro Nenci
Investor Relations
Treasury, Financial Planning &
Robert E. Nelson
Foods - Texas Region
GMM-Foods - Bay Area Region
Robert Murvin
GMM
Operations - Midwest Region
Tim Murphy
GMM-Corporate Produce &
Fresh Meat
Information Systems
Warehouse Operations & Facilities
Doris Harley
International Ecommerce
Liz Elsner
GMM - Softlines - Canadian Division
Operations - Western Canada Region
Debbie Ells
Operations - Eastern Canada Region
Heather Downie
Gino Dorico
GMM - Foods & Sundries -
Northwest Region
Russ Decaire
Operations Midwest Region
Wendy Davis
Operations - Southeast Region
Julie L. Cruz
Gasoline, Car Wash & Mini-labs
Jeffrey M. Cole
Country Manager - Korea
Mike Cho
Operations Texas Region
Michael G. Casebier
GMM Foods - San Diego Region
Deborah Calhoun
(32)
Frank Farcone
-
Operations Los Angeles Region
Timothy K. Farmer
GMM-Corporate Non-Foods
Christopher E. Fleming
Costco Travel
Peter Gruening
GMM- Non-Foods - Canadian Division
Martin Groleau
GMM - Corporate Foods
Nancy Griese
Operations Bay Area Region
Darby Greek
Merchandise Accounting Controller
Joseph Grachek III
GMM - Foods - Southeast Region
Eric Harris
―
Lorelle S. Gilpin
Real Estate Development - West
Jack S. Frank
GMM-Bakery & Food Court
Thomas J. Fox
Operations - Northeast Region
Anthony Fontana
GMM-Hardlines - Canadian Division
Murray T. Fleming
Operations - Western Canada Region
Marketing Canadian Division
Costco Shareholder Relations
Drew Sakuma
Debbie Sarter
Japan Region
INTERNATIONAL DIVISION
United Kingdom Region
213 Hartspring Lane
Watford, England
WD25 8JS
4500 Still Creek Drive, Unit A
Burnaby, BC V5C 0E5, Canada
Western Region
415 West Hunt Club Road
Ottawa, ON K2E 1C5, Canada
Eastern Region
CANADIAN DIVISION
3980 Venture Drive NW, #W100
Duluth, GA 30096
Southeast Region
45940 Horseshoe Drive, Suite 150
Sterling, VA 20166
EASTERN DIVISION
Northeast Region
Division and Region Offices
(425) 313-8100
999 Lake Drive
Issaquah, WA 98027
Corporate Office
1701 Dallas Parkway, Suite 201
Plano, TX 75093
Texas Region
San Diego, CA 92117
4649 Morena Blvd.
San Diego Region
11000 Garden Grove Blvd., #201
Garden Grove, CA 92843
3-1-4 Ikegami-Shincho
Kawasaki-ku Kawasaki-shi
Kanagawa, 210-0832 Japan
Korea Region
40, Iljik-ro
Gwangmyeong-si
Gyeonggi-do, 14347, Korea
Transfer Agent
1918 Eighth Avenue, Suite 2900
Seattle, WA 98101
Independent Public Accountants
KPMG LLP
Bellevue, Washington 98004
11100 NE 6th Street
Thursday, January 26, 2017 at 4:00 PM
Meydenbauer Center
Annual Meeting
La Herradura 52760
Huixquilucan, Mexico
Col. San Fernando
Boulevard Magnocentro #4
Los Angeles Region
Mexico Region
Calle Agustín de Betancourt, 17
Spain Region
91190 Saint-Aubin, France
Parc des Algorithmes
Route de l'Orme des Merisiers
Immeuble le Thalés
France Region
17-21 Parramatta Rd.
Lidcombe, NSW, 2141, Australia
Australia Region
255 Min Shan Street
Neihu, Taipei 114, Taiwan
Taiwan Region
Polígono Empresarial Los Gavilanes
28906 Getafe, Madrid, Spain
Operations Bay Area Region
SOUTHWEST DIVISION
Midwest Region
-
Country Manager - Japan
Brian Thomas
Chief Financial Officer - Mexico
Ken J. Theriault
Country Manager - France
Mauricio Talayero
Operations Ecommerce
Gary Swindells
GMM - International
Steve Supkoff
Kimberley L. Suchomel
Operations Pharmacy
GMM - Foods - Northeast Region
Richard Stephens
Corporate Tax and Customs Compliance
James Stafford
Operations - Eastern Canada Region
Monica Smith
David L. Skinner
Manager Taiwan
Louie Silveira
GMM Corporate Non-Foods
Geoff Shavey
GMM-Fresh Foods - Canadian Division
Janet Shanks
Operations Northeast Region
Adam Self
Operations - Los Angeles Region
Operations Midwest Region
Yves Thomas
GMM-Optical, Optical Labs, Mini-labs
& Gasoline - Canadian Division
Keith H. Thompson
Construction
Todd Thull
Construction
2820 Independence Drive
Livermore, CA 94551
Bay Area Region
NORTHERN DIVISION
Northwest Region
1045 Lake Drive
Issaquah, WA 98027
Operations - Texas Region
ADDITIONAL INFORMATION
66
GMM - Fresh Foods - Asia/Australia
Earl Wiramanaden
Operations Fresh Meat, Produce &
Service Deli
-
1901 West 22nd Street, 2nd Floor
Oak Brook, IL 60523
Food Safety & Quality Assurance
Charlie A. Winters
Shannon West
GMM Corporate Non-Foods
Jack Weisbly
GMM - Food & Sundries - Los Angeles
Region
Sr. GMM-Non-Foods - Canadian Division
Sarah Wehling
Azmina K. Virani
Country Manager - Spain
Diane Tucci
Operations Mexico
Adrian Thummler
GMM Corporate Non-Foods
Craig Wilson
(11)
10
(9)
$
Total
Other
International
Operations
Canadian
Operations
United States
Operations
Total assets.....
Net property and equipment..
Additions to property and equipment..
Depreciation and amortization.
Operating income
Total revenue...
2014
Total assets..
Net property and equipment.
Additions to property and equipment....
Depreciation and amortization..
Operating income
Total revenue.
2015
Total assets......
Net property and equipment..
86,579 $ 17,028 $ 15,112 $
118,719
2,326
778
14,507 $
17,341 $
84,351 $
$
33,163
7,172
3,480
22,511
17,043
3,670
Additions to property and equipment..
1,628
2,649
527
299
1,823
1,255
200
109
946
3,672
568
11,745
116,199
Depreciation and amortization..
Total revenue.
Conversion of convertible notes
RSUs
Weighted average number of common shares used in basic net
income per common share
Net income available to common stockholders after assumed
conversions of dilutive securities
2014
2015
2016
The following table shows the amounts used in computing net income per share and the effect on net income
and the weighted average number of shares of potentially dilutive common shares outstanding (shares in
000's):
Note 9-Net Income per Common and Common Equivalent Share
59
59
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 2013. The Company is currently subject to
examination in Canada for fiscal years 2012 to present and in California for fiscal years 2007 to present. No
other examinations are believed to be material.
The Company is currently under audit by several taxing jurisdictions in the United States and in several
foreign countries. Some audits may conclude in the next 12 months and the unrecognized tax benefits we
have 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.
Accrued interest and penalties related to income tax matters are classified as a component of income tax
expense. Interest and penalties recognized by the Company were not material in 2016 and 2015. Accrued
interest and penalties were not material at the end of 2016 and 2015.
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 2016 and 2015, these amounts
were immaterial and $50, respectively. 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 to an earlier period. At the end of 2015, the Company
recorded an offsetting long-term asset of $48. There was no offsetting long-term asset at the end of 2016.
The total amount of such unrecognized tax benefits that, if recognized, would favorably affect the effective
income tax rate in future periods is $46 and $98 at the end of 2016 and 2015, respectively.
158
52 $
.$
(2)
(37)
(3)
Weighted average number of common shares and dilutive potential
of common stock used in diluted net income per share.
Note 10 Commitments and Contingencies
Legal Proceedings
.$ 2,350 $ 2,377 $ 2,058
2016
The Company and its subsidiaries are principally engaged in the operation of membership warehouses in
the U.S., Canada, Mexico, U.K., Japan, Australia, and Spain and through majority-owned subsidiaries in
Taiwan and Korea. The Company's 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 the same as
described in Note 1. All material inter-segment net sales and expenses have been eliminated in computing
total revenue and operating income. Certain operating expenses, predominantly stock-based compensation,
are incurred on behalf of the Company's Canadian and Other International operations, but are included in
the U.S. operations because those costs are not allocated internally and generally come under the
responsibility of the Company's U.S. management team.
Note 11-Segment Reporting
61
119
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; 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.
The Company has received from the Drug Enforcement Administration subpoenas and administrative
inspection warrants concerning the Company's fulfillment of prescriptions related to controlled substances and
related practices. Offices of the United States Attorney in various districts have communicated to the
Company their belief that the Company has committed civil regulatory violations concerning these subjects.
The Company is seeking to cooperate with these processes and is holding discussions concerning a potential
resolution.
The Company received notices from most states stating that they have appointed an agent to conduct an
examination of the books and records of the Company to determine whether it has complied with state
unclaimed property laws. In addition to seeking the turnover of unclaimed property subject to escheat laws,
the states may seek interest, penalties, costs of examinations, and other relief. Certain states have separately
also made requests for payment by the Company concerning a specific type of property, some of which have
been paid in immaterial amounts.
(N.D. Cal.); J.C. Wash, et al., v. Chevron USA, Inc., et al.; Case No. 4:07cv37 (E.D. Mo.); Jonathan Charles
Conlin, et al., v. Chevron USA, Inc., et al.; Case No. 07 0317 (M.D. Tenn.); William Barker, et al. v. Chevron
USA, Inc., et al.; Case No. 07-cv-00293 (D.N.M.); Melissa J. Couch, et al. v. BP Products North America, Inc.,
et al., Case No. 07cv291 (E.D. Tex.); S. Garrett Cook, Jr., et al., v. Hess Corporation, et al., Case No. 07cv750
(M.D. Ala.); Jeff Jenkins, et al. v. Amoco Oil Company, et al., Case No. 07-cv-00661 (D. Utah); and Mark
Wyatt, et al., v. B. P. America Corp., et al., Case No. 07-1754 (S.D. Cal.). On June 18, 2007, the Judicial
Panel on Multidistrict Litigation assigned the action, entitled In re Motor Fuel Temperature Sales Practices
Litigation, MDL Docket No 1840, to Judge Kathryn Vratil in the United States District Court for the District of
Kansas. On April 12, 2009, the Company agreed to settle the actions in which it is named as a defendant.
Under the settlement, which was subject to final approval by the court, the Company agreed, to the extent
allowed by law and subject to other terms and conditions in the agreement, to install over five years from the
effective date of the settlement temperature-correcting dispensers in the States of Alabama, Arizona,
California, Florida, Georgia, Kentucky, Nevada, New Mexico, North Carolina, South Carolina, Tennessee,
Texas, Utah, and Virginia. Other than payments to class representatives, the settlement does not provide for
cash payments to class members. On September 22, 2011, the court preliminarily approved a revised
settlement, which did not materially alter the terms. On April 24, 2012, the court granted final approval of the
revised settlement. A class member who objected has filed a notice of appeal from the order approving the
settlement. Plaintiffs have moved for an award of $10 in attorneys' fees, as well as an award of costs and
payments to class representatives. A report and recommendation has been issued in favor of a fee award of
$3.8, to which the Company is objecting. On August 24, 2016, the district court affirmed the report and
recommendation. On March 20, 2014, the Company filed a notice invoking a "most favored nation" provision
under the settlement, under which it seeks to adopt provisions in later settlements with certain other
defendants. The motion was denied on January 23, 2015. Final judgment was entered on September 22,
2015, and the Company has filed a notice of appeal.
60
Operating income
60
The Company is a defendant in the following matters, among others:
The Company is involved in a number of claims, proceedings and litigation 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 reach a stage where they 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 an immaterial accrual with respect to two matters 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 our 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.
441,263 442,716 442,485
3,771
21
12
10
3,249
438,693
439,455
438,585
2,668
Numerous putative class actions have been brought around the United States against motor fuel retailers,
including the Company, alleging that they have been overcharging consumers by selling gasoline or diesel
that is warmer than 60 degrees without adjusting the volume sold to compensate for heat-related expansion
or disclosing the effect of such expansion on the energy equivalent received by the consumer. The Company
is named in the following actions: Raphael Sagalyn, et al., v. Chevron USA, Inc., et al., Case No. 07-430 (D.
Md.); Phyllis Lerner, et al., v. Costco Wholesale Corporation, et al., Case No. 07-1216 (C.D. Cal.); Linda A.
Williams, et al., v. BP Corporation North America, Inc., et al., Case No. 07-179 (M.D. Ala.); James Graham, et
al. v. Chevron USA, Inc., et al., Civil Action No. 07-193 (E.D. Va.); Betty A. Delgado, et al., v. Allsups,
Convenience Stores, Inc., et al., Case No. 07-202 (D.N.M.); Gary Kohut, et al. v. Chevron USA, Inc., et al.,
Case No. 07-285 (D. Nev.); Mark Rushing, et al., v. Alon USA, Inc., et al., Case No. 06-7621 (N.D. Cal.);
James Vanderbilt, et al., v. BP Corporation North America, Inc., et al., Case No. 06-1052 (W.D. Mo.); Zachary
Wilson, et al., v. Ampride, Inc., et al., Case No. 06-2582 (D. Kan.); Diane Foster, et al., v. BP North America
Petroleum, Inc., et al., Case No. 07-02059 (W.D. Tenn.); Mara Redstone, et al., v. Chevron USA, Inc., et al.,
Case No. 07-20751 (S.D. Fla.); Fred Aguirre, et al. v. BP West Coast Products LLC, et al., Case No. 07-1534
(25)
2,308
545
593
Membership fees.
$ 116,073
$ 35,728
$ 26,151
$ 26,627 $ 27,567
Net sales.
REVENUE
Total
(52 Weeks)
Fourth
Quarter
(16 Weeks)
Third
Quarter
(12 Weeks)
Second
Quarter
(12 Weeks)
First
Quarter
(12 Weeks)
52 Weeks Ended August 28, 2016
The two tables that follow reflect the unaudited quarterly results of operations for 2016 and 2015.
Note 12-Quarterly Financial Data (Unaudited)
16% 17%
12% 11% 11%
15%
14% 14% 13%
16% 16% 16%
21% 21% 21%
603
618
832
2,646
26
Preopening expenses..
12,068
3,696
2,731
2,835
2,806
administrative
Selling, general and
102,901
2016 2015 2014
22% 22% 22%
31,649
24,469
23,621
Merchandise costs
OPERATING EXPENSES
118,719
36,560
26,769
28,170
27,220
Total revenue.
23,162
771
62
Softlines..
Other
14,220 $
17,943 $
80,477 $
$
33,017
6,421
3,608
22,988
15,401
3,205
1,381
10,815
2,393
671
148
1,574
1,127
160
119
848
3,624
112,640
1,880
796
544
Fresh Foods.
Hardlines.
Sundries.
Foods
The following table summarizes the percentage of net sales by merchandise category:
32,662
6,187
4,889
21,586
(3)
62
3,036
10,132
1,993
544
204
1,245
1,029
150
124
755
3,220
1,662
(1)
14,830
63
584
785
2,533
Total revenue.
26,866
27,454
26,101
35,778
116,199
OPERATING EXPENSES
Merchandise costs
23,385
23,897
22,687
31,096
101,065
Selling, general and
administrative
2,696
2,671
2,579
582
582
Membership fees.
$ 113,666
CASH DIVIDENDS DECLARED
PER COMMON SHARE
$
0.40 $
0.40
$
0.45 $ 0.45 $
1.70
63
83
3,499
Note 12-Quarterly Financial Data (Unaudited) (Continued)
First
Quarter
(12 Weeks)
Second
Quarter
(12 Weeks)
Third
Quarter
(12 Weeks)
18
Total
(52 Weeks)
REVENUE
Net sales....
$ 26,284 $ 26,872
$ 25,517
$ 34,993
52 Weeks Ended August 30, 2015
438,585
441,263
11,445
15
870
799
1,156
3,604
Provision for income taxes.
274
(1)
263
280
378
1,195
Net income including
noncontrolling interests.
505
607
519
778
2,409
Net income attributable to
noncontrolling interests.
(9)
(47)
779
TAXES
INCOME BEFORE INCOME
104
9
14
27
65
Operating income.
770
877
821
1,156
3,624
Preopening expenses..
OTHER INCOME (EXPENSE)
(26)
(27)
(31)
(40)
(124)
Interest income and other, net..
35
20
9
40
Interest expense.
437,809
440,868
Fourth
Quarter
(16 Weeks)
439,648
441,559
(31)
(30)
(39)
(133)
Interest income and other, net..
28
16
7
29
80
INCOME BEFORE INCOME
TAXES
762
841
835
1,181
3,619
Provision for income taxes.
275
286
286
(33)
Interest expense.
OTHER INCOME (EXPENSE)
3,672
438,815
441,066
1
26
2
75
158 $
2015
2016
Gross unrecognized tax benefit at end of year.
Lapse of statute of limitations
396
Settlements.........
Gross increases-tax positions in prior years..
Gross increases-current year tax positions....
Gross unrecognized tax benefit at beginning of year.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for 2016 and 2015 is
as follows:
78
Operating income.
767
856
858
1,191
Gross decreases-tax positions in prior years
1,243
24
noncontrolling interests.
$
1.10
Diluted
$
1.09
SA | SA
$
1.24
$
69 | 69
Basic............
$ 1.24
$ 1.78 $
5.36
$ 1.77 $
5.33
Shares used in calculation (000's)
Basic...
438,342
Net income including
441,386
Diluted
1.24 $ 1.24
COSTCO:
SA SA
NET INCOME PER COMMON
555
549
SHARE ATTRIBUTABLE TO
487
785
2,376
Net income attributable to
(7)
(9)
(4)
(6)
noncontrolling interests.
NET INCOME ATTRIBUTABLE
2,350
779 $
545 $
(26)
546
$
$
480
TO COSTCO..
$
Spain
4
MADRID - 2
FRANCE
ÎLE-DE-FRANCE - 2
ICELAND
CHINA
JIANGSU - 1
KAUPTÚN -1
SPAIN
ANDALUCÍA - 1
BISCAY-1
UNITED
KINGDOM
13
14
2
YUCATÁN - 1
COSTCO.CO.UK
Korea
16
Japan
30
Australia
Taiwan
Iceland
2
1
United
29 Kingdom
France
China
ENGLAND -25
SCOTLAND - 3
DAEJEON-1
SHANGHAI -1
BUSAN - 1
CHUNGCHEONGNAM-DO-1
DAEGU - 2
GYEONGGI-DO-5
INCHEON - 1
SEJONG-1
SEOUL - 3
ULSAN – 1
COSTCO.CO.KR
TAIWAN
CHIAYI CITY-1
HSINCHU CITY-1
KAOHSIUNG CITY - 2
NEW TAIPEI CITY - 3
TAICHUNG CITY - 2
TAINAN CITY-1
TAIPEI CITY-2
VERACRUZ-2
COSTCO.COM.TW
WALES-1
KOREA
TOYAMA-1
JAPAN
COSTCO.CO.JP
ISHIKAWA-1
KANAGAWA - 3
KUMAMOTO-1
KYOTO-1
AICHI - 2
YAMAGATA-1
CHIBA - 3
MIYAGI -1
GIFU-1
GUNMA – 1
HIROSHIMA-1
HOKKAIDO-2
HYOGO - 2
IBARAKI – 2
OSAKA - 1
SAITAMA - 2
SHIZUOKA-1
TOKYO-1
FUKUOKA -2
TABASCO - 1
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.
MORELOS - 1
NUEVO LEÓN - 3
PUEBLA - 1
QUERÉTARO-1
QUINTANA ROO - 1
SAN LUIS POTOSÍ - 1
SINALOA - 1
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.
TM
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.
TAOYUAN CITY -2
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.
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.
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.
From the Costco family to yours, I wish you a healthy and happy New Year.
Cray Jelek
Craig Jelinek
President and Chief Executive Officer
COSTCO 828 locations as of December 31, 2021
WHOLESALE
UNITED
STATES
Sincerely,
COSTCO.COM
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.
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.
Bey
COSTCO
NICOLE
COSTCO
Coarce
SHANNON
COSTCO 2021
WHOLESALE
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.
ANNUAL REPORT
WAL
Costco
Costco
December 9, 2021
Dear Costco Shareholders:
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.
FISCAL YEAR ENDED AUGUST 29, 2021
SONORA - 1
MICHIGAN - 16
MINNESOTA - 13
MISSISSIPPI - 1
40
UTAH - 12
VERMONT -1
VIRGINIA - 17
WASHINGTON - 32
WISCONSIN - 9
WASHINGTON, D.C. -1
TEXAS-35
PUERTO RICO - 4
COSTCO.CA
ALBERTA -19
BRITISH COLUMBIA - 14
MANITOBA - 3
NEW BRUNSWICK - 3
NEWFOUNDLAND AND
LABRADOR-1
NOVA SCOTIA -2
ONTARIO - 38
QUÉBEC - 22
SASKATCHEWAN - 3
MEXICO
COSTCO.COM.MX
AGUASCALIENTES - 1
BAJA CALIFORNIA - 4
BAJA CALIFORNIA SUR-1
CHIHUAHUA -2
CIUDAD DE MÉXICO - 5
COAHUILA -1
GUANAJUATO - 3
JALISCO - 3
MÉXICO - 5
MICHOACÁN -1
CANADA
Mexico
PENNSYLVANIA - 11
SOUTH CAROLINA - 6
SOUTH DAKOTA - 1
TENNESSEE - 6
OKLAHOMA - 3
Canada
105
United States and
Puerto Rico 572
ALABAMA - 4
ALASKA - 4
ARIZONA-18
ARKANSAS-1
CALIFORNIA - 131
COLORADO-14
CONNECTICUT - 8
OREGON - 13
DELAWARE-1
FLORIDA-29
GEORGIA - 15
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
HAWAII - 7
IDAHO - 7
ILLINOIS-23
INDIANA - 8
IOWA - 3
KANSAS - 3
KENTUCKY-4
LOUISIANA -3
MARYLAND - 11
AUSTRALIA
Risk Factors
AUSTRALIAN CAPITAL
TERRITORY-1
Item 15.
PART IV
64
64
64
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Item 13.
Item 14.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 12.
64
Executive Compensation
Item 11.
64
Directors, Executive Officers and Corporate Governance
Item 10.
PART III
64
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
30
Item 8.
Financial Statements and Supplementary Data
31
Exhibits, Financial Statement Schedules
Item 9.
63
Item 9A.
Controls and Procedures
63
Item 9B.
Other Information
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Item 16.
Form 10-K Summary
Signatures
Our strategy is to provide our members with a broad range of high-quality merchandise at prices we
believe are consistently lower than elsewhere. We seek to limit most items to fast-selling models, sizes,
and colors. We carry less than 4,000 active stock keeping units (SKUs) per warehouse in our core
warehouse business, significantly less than other broadline retailers. We average anywhere from 9,000 to
11,000 SKUs online, some of which are also available in our warehouses. Many consumable products are
offered for sale in case, carton, or multiple-pack quantities only.
In keeping with our policy of member satisfaction, we generally accept returns of merchandise. On certain
electronic items, we typically have a 90-day return policy and provide, free of charge, technical support
services, as well as an extended warranty. Additional third-party warranty coverage is sold on certain
electronic items.
We offer merchandise and services in the following categories:
Core Merchandise Categories (or core business):
•
•
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).
•
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)
Fresh Foods (including meat, produce, service deli, and bakery)
Warehouse Ancillary (includes gasoline, pharmacy, optical, food court, hearing aids, and tire installation)
and Other Businesses (includes e-commerce, business centers, travel, and other)
Warehouse ancillary businesses operate primarily within or next to our warehouses, encouraging
members to shop more frequently. The number of warehouses with gas stations varies significantly by
country, and we have no gasoline business in Korea 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.
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
4
Foods and Sundries (including sundries, dry grocery, candy, cooler, freezer, deli, liquor, and
tobacco)
21
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.
3
2
64
67
68
2680
INFORMATION RELATING TO FORWARD LOOKING STATEMENTS
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.
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.
Item 1-Business
Costco Wholesale Corporation and its subsidiaries (Costco or the Company) began operations in 1983, in
Seattle, Washington. We are principally engaged in the operation of membership warehouses in the
United States (U.S.) and Puerto Rico, Canada, 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."
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.
General
We operate membership warehouses and e-commerce websites based on the concept that offering our
members low prices on a limited selection of nationally-branded and private-label products in a wide
range of categories will produce high sales volumes and rapid inventory turnover. When combined with
the operating efficiencies achieved by volume purchasing, efficient distribution and reduced handling of
merchandise in no-frills, self-service warehouse facilities, these volumes and turnover enable us to
operate profitably at significantly lower gross margins (net sales less merchandise costs) than most other
retailers. We generally sell inventory before we are required to pay for it, even while taking advantage of
early payment discounts.
We buy most of our merchandise directly from 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-
PART I
Management's Discussion and Analysis of Financial Condition and Results of
Operations
20
19
91-1223280
(I.R.S. Employer Identification No.)
999 Lake Drive, Issaquah, WA 98027
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (425) 313-8100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
incorporation or organization)
Common Stock, $.01 Par Value
COST
Name of each exchange on
which registered
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No □
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Trading Symbol
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.
(State or other jurisdiction of
Costco Wholesale Corporation
NEW SOUTH WALES - 4
QUEENSLAND - 2
SOUTH AUSTRALIA - 1
VICTORIA-4
WESTERN AUSTRALIA -1
COR000296_0521
☑
UNITED STATES
(Exact name of registrant as specified in its charter)
SECURITIES AND EXCHANGE COMMISSION
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended August 29, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Washington
Commission file number 0-20355
Washington, D.C. 20549
FORM 10-K
COSTCO.COM.AU
Large accelerated filer
Accelerated filer
Item 4.
Mine Safety Disclosures
Page
3
9
18
Legal Proceedings
18
19
PART II
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Item 6.
Item 7.
Reserved
220
19
Non-accelerated filer
Item 3.
Unresolved Staff Comments
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. □
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment
of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15
U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
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
Properties
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED AUGUST 29, 2021
PART I
Item 1.
Business
Item 1A.
Item 1B.
Item 2.
TABLE OF CONTENTS
ठ ठ ठ
Lune
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.
61,700
58,100
53,900
49,900
47,400
44,600
111,600
105,500
98,500
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.
50
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:
11,000
United States
Other International
Total employees
Number of Employees
2021
2020
2019
192,000
181,000
167,000
47,000
46,000
42,000
49,000
46,000
Canada
45,000
11,300
42,900
11
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.
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.
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.
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.
10
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
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 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.
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.
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.
Disruptions in merchandise distribution or processing, packaging, manufacturing, and other
facilities could adversely affect sales and member satisfaction.
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.
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.
11,500
packages, hotels, cruises, and other travel products exclusively for Costco members (offered in the U.S.,
Canada, and the U.K.).
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
Total paid members
Household cards
Total cardholders
2021
2020
2019
50,200
46,800
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.
We are subject to payment-related risks.
288,000
254,000
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.
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.
8
Executive
Officer
Since Age
1995 69
1993
65
2018
59
2019 59
2018
64
2011
68
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.
1994
2013
69
2021
57
2016
56
Item 1A-Risk Factors
The risks described below could materially and adversely affect our business, financial condition and
results of operations. We could also be affected by additional risks that apply to all companies operating
in the U.S. and globally, as well as other risks that are not presently known to us or that we currently
consider to be immaterial. These Risk Factors should be carefully reviewed in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 and
our consolidated financial statements and related notes in Item 8 of this Report.
Business and Operating Risks
We are highly dependent on the financial performance of our U.S. and Canadian operations.
Our financial and operational performance is highly dependent on our U.S. and Canadian operations,
which comprised 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 may be unsuccessful implementing our growth strategy, including expanding our business in
existing markets and new markets, and integrating acquisitions, which could have an adverse
impact on our business, financial condition and results of operations.
Our growth is dependent, in part, on our ability to acquire property and build or lease new warehouses
and depots. We compete with other retailers and businesses for suitable locations. Local land use and
other regulations restricting the construction and operation of our warehouses and depots, as well as local
community actions opposed to the location of our warehouses or depots at specific sites and the adoption
of local laws restricting our operations and environmental regulations, may impact our ability to find
suitable locations and increase the cost of sites and of constructing, leasing and operating warehouses
and depots. We also may have difficulty negotiating leases or purchase agreements on acceptable terms.
In addition, certain jurisdictions have enacted or proposed laws and regulations that would prevent or
restrict the operation or expansion plans of certain large retailers and warehouse clubs, including us.
Failure to effectively manage these and other similar factors may affect our ability to timely build or lease
and operate new warehouses and depots, which could have a material adverse effect on our future
growth and profitability.
We seek to expand in existing markets to attain a greater overall market share. A new warehouse may
draw members away from our existing warehouses and adversely affect their comparable sales
performance, member traffic, and profitability.
We intend to continue to open warehouses in new markets. Associated risks include difficulties in
attracting members due to a lack of familiarity with us, attracting members of other wholesale club
operators, our lesser familiarity with local member preferences, and seasonal differences in the market.
Entry into new markets may bring us into competition with new competitors or with existing competitors
with a large, established market presence. We cannot ensure that new warehouses and new e-commerce
websites will be profitable and future profitability could be delayed or otherwise materially adversely
affected.
69
273,000
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, 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.
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.
6
Competition
Our failure to maintain membership growth, loyalty and brand recognition could adversely affect
our results of operations.
Intellectual Property
We believe that, to varying degrees, our trademarks, trade names, copyrights, proprietary processes,
trade secrets, trade dress, domain names and similar intellectual property add significant value to our
business and are important to our success. We have invested significantly in the development and
protection of our well-recognized brands, including the Costco Wholesale trademarks and our private-
label brand, Kirkland Signature. We believe that Kirkland Signature products are high quality, offered at
prices that are generally lower than national brands, and help lower costs, differentiate our merchandise
offerings, and generally earn higher margins. We expect to continue to increase the sales penetration of
our private-label items.
We rely on trademark and copyright laws, trade-secret protection, and confidentiality, license and other
agreements with our suppliers, employees and others to protect our intellectual property. The availability
and duration of trademark registrations vary by country; however, trademarks are generally valid and may
be renewed indefinitely as long as they are in use and registrations are maintained.
Available Information
Our U.S. website is www.costco.com. We make available through the Investor Relations section of that
site, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K, Proxy Statements and Forms 3, 4 and 5, and any amendments to those reports, as soon as
reasonably practicable after filing such materials with or furnishing such documents to the Securities and
Exchange Commission (SEC). The information found on our website is not part of this or any other report
filed with or furnished to the SEC. The SEC maintains a site that contains reports, proxy and information
statements, and other information regarding issuers, such as the Company, that file electronically with the
SEC at www.sec.gov.
We have 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
Executive Vice President, Chief Operating Officer,
International. Mr. Murphy was Senior Vice President,
International, from 2004 to October 2010.
Information about our Executive Officers
Name
W. Craig Jelinek
Richard A. Galanti
Jim C. Klauer
Patrick J. Callans
Russ D. Miller
James P. Murphy
Joseph P. Portera
Timothy L. Rose
Yoram Rubanenko
Ron M. Vachris
Position
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 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.
The executive officers of Costco, their position, and ages are listed below. All have over 25 years of
service with the Company.
9
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.
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 might sell products that cause illness or injury to our members, harm to our reputation, and
expose us to litigation.
14
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.
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.
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.
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.
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.
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.
13
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
General economic factors, domestically and internationally, may adversely affect our business,
financial condition, and results of operations.
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.
We face strong competition from other retailers and warehouse club operators, which could
adversely affect our business, financial condition and results of operations.
The retail business is highly competitive. We compete for members, employees, sites, products and
services and in other important respects with a wide range of local, regional and national wholesalers and
retailers, both in the United States and in foreign countries, including other warehouse-club operators,
supermarkets, supercenters, 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.
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.
12
Inability to attract, train and retain highly qualified employees could adversely impact our
business, financial condition and results of operations.
If we do not successfully develop and maintain a relevant omnichannel experience for our
members, our results of operations could be adversely impacted.
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
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.
Comparison of 5-Year Cumulative Total Returns
Dollars
400
300
200
100
0
8/28/16
9/3/17
9/2/18
9/1/19
Costco
8/29/21
S&P 500
S&P 500 Retail
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.
The following graph provides information concerning average sales per warehouse over a 10 year period.
Average Sales Per Warehouse*
(Sales In Millions)
2015
2014
2013
2012 & Before
8/30/20
Performance Graph
of Shares
Purchased
(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.
102,000
$
3,338
108,000
387.32
108,000
3,296
63,000
412.73
63,000
3,270
45,000
446.15
45,000
3,250
318,000 $
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
Totals
Total fourth quarter
19
Year Opened
2017
2021
118
131
145
173
$
83
85
94
112
122
136
97
163
$
108
109
115
125
140
144
155
182
26
$
30
87
$
206
2020
2019
2018
2016
22222223211
20
26
EA
140
$
132
152
$ 129
138
172
$
116
119
141
172
$
121
142
158
176
# of Whses
24
162
EA
9%
9%
22 %
5 %
3%
23 %
13 %
5 %
Total Company
Increases in comparable sales:
U.S.
18 %
9%
8%
15%
16 %
8%
149,351
$
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.
23
23
RESULTS OF OPERATIONS
Net Sales
2021
2020
2019
Net Sales
Increases in net sales:
U.S.
Canada
Other International
$
192,052
163,220 $
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.
8%
20%
6%
12 %
7%
5 %
13 %
11 %
6%
13 %
9%
6%
(1) Excluding the impact of the revenue recognition standard for the year ended September 1, 2019.
Net Sales
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.
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.
Comparable Sales
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.
9%
Canada
14 %
Other International
5 %
2%
Other International
19%
9%
2 %
Total Company
16 %
8%
6%
Increases in comparable sales excluding the impact
of changes in foreign currency and gasoline
prices (1)
U.S.
Canada
Total Company
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.
815
155
160
164
159
163
176
182
192
217
2012
2013
2014
2015
2016
232
2017
205
188
99
109
113
116
124
137
144
158
186
607 $ 155
163
169
170
169
175
195
2018
2019
2020
22
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.
Highlights for 2021 included:
•
•
•
•
•
•
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;
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;
Membership fee revenue increased 9% to $3,877, driven by sign-ups and upgrades to Executive
membership;
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;
The effective tax rate in 2021 was 24.0% compared to 24.4% in 2020;
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;
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.
2021
Fiscal Year
*First year sales annualized.
2017 was a 53-week fiscal year
Item 6-Reserved
20
20
381.50
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)
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.
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
21
24
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.
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.
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.
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
102,000 $
$
Announced
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.
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.
17
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.
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.
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.
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.
Unknown consequences on our business performance and initiatives stemming from the
substantial investment of time and other resources to the pandemic response;
Evolving macroeconomic factors, including general economic uncertainty, unemployment rates,
and recessionary pressures;
Maximum Dollar
Value of Shares
that May Yet be
Purchased under
the Program
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.
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.
Changes in labor markets affecting us and our suppliers;
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
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 severity and duration of the pandemic, including future mutations or related variants of the
virus in areas in which we operate;
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.
24
resources.
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
146
Item 5-Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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
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):
Total Number
Average Price
Paid per
Share
Total Number of
Shares
Purchased as
Part of Publicly
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
Market Information and Dividend Policy
45
Program(1)
105
None.
101
Item 1B—Unresolved Staff Comments
Warehouse Properties
At August 29, 2021, we operated 815 membership warehouses:
United States and Puerto Rico
Canada
Other International
Total
(1) 121 of the 171 leases are land-only leases, where Costco owns the building.
Item 2-Properties
Own Land
and Building
Lease Land
and/or
Building
(1)
Total
454
110
18
89
564
16
/s/ KPMG LLP
Assessing the actuarial models used by the Company for consistency with generally
accepted actuarial standards
We have served as the Company's auditor since 2002.
Seattle, Washington
October 5, 2021
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
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:
31
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
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
32
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).
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.
32
Definition and Limitations of Internal Control Over Financial Reporting
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Change in Accounting Principle
Net sales
REVENUE
COSTCO WHOLESALE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(amounts in millions, except per share data)
33
33
October 5, 2021
Seattle, Washington
Costco Wholesale Corporation:
/s/ KPMG LLP
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.
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
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.
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.
Recent Accounting Pronouncements
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.
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
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
28
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.
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.
Insurance/Self-insurance Liabilities
Claims for employee health-care benefits, workers' compensation, general liability, property damage,
directors' and officers' liability, vehicle liability, inventory loss, and other exposures are funded
predominantly through self-insurance. Insurance coverage is maintained for certain risks to seek to limit
exposures arising from very large losses. We use 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.
Membership fees
We do not expect that any recently issued accounting pronouncements will have a material effect on our
financial statements.
Opinion on the Consolidated Financial Statements
Costco Wholesale Corporation:
To the Stockholders and Board of Directors
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
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.
-
Foreign Currency Risk
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.
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
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.
Total revenue
166,761
Merchandise costs
3,659
4,002 $
$
5,007
$
NET INCOME ATTRIBUTABLE TO COSTCO
(45)
(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
NET INCOME PER COMMON SHARE
ATTRIBUTABLE TO COSTCO:
Basic
$
11.30 $
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
4,765
Basic
8.26
$
9.02
11.27 $
$
Diluted
8.32
9.05 $
Shares used in calculation (000's)
5,367
6,680
Provision for income taxes
3,352
3,541
3,877
149,351
163,220 $
192,052 $
$
September 1,
2019
195,929
52 Weeks Ended
August 29,
2021
52 Weeks Ended 52 Weeks Ended
Interest income and other, net
Interest expense
OTHER INCOME (EXPENSE)
Operating income
Preopening expenses
Selling, general and administrative
August 30,
2020
OPERATING EXPENSES
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
170,684
INCOME BEFORE INCOME TAXES
178
92
143
(150)
(160)
(171)
4,737
152,703
5,435
86
55
76
14,994
132,886
16,332
18,461
144,939
6,708
Cash Flows from Operating Activities
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
27
11.02 %
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.
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.
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.
25
Selling, General and Administrative Expenses
SG&A expenses
2021
2020
18,461 $
9.61%
16,332
2019
14,994
SG&A expenses as a percentage of net sales
11.20 %
10.01 %
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.
Preopening
Preopening expenses
Warehouse openings, including relocations
United States
Canada
Other International
2021
2020
2019
$ 76 $ 55 $ 86
13
35
83
18
10.04 %
4
11.13 %
$
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 %
6%
3,352
3,541 $
3,877 $
9%
2019
2020
2021
Membership fees increase
Membership fees
Membership Fees
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.
Gross Margin
16,465
Net sales
Gross margin
Gross margin percentage
2021
2020
2019
$
192,052 $
170,684
163,220 $
144,939
149,351
132,886
$
21,368
$
18,281
Less merchandise costs
4
22
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.
16
Provision for Income Taxes
Provision for income taxes
Effective tax rate
2021
2020
$
1,601
24.0 %
$
1,308
24.4 %
2019
1,061
22.3 %
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.
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.
LIQUIDITY AND CAPITAL RESOURCES
2021
2020
2019
$
8,958 $
(3,535)
(6,488)
8,861 $
(3,891)
6,356
(2,865)
(1,147)
(1,147)
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.
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.
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.
4
The following table summarizes our significant sources and uses of cash and cash equivalents:
178
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
143 $
2020
2021
Interest expense
Interest Expense
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.
Total warehouse openings, including relocations
92 $
171 $
25
160 $
150
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.
2019
Interest income
Interest Income and Other, Net
Other, net
$
25
(4)
46
27
56
126
89 $
41 $
2019
2020
2021
Interest income and other, net
Foreign-currency transaction gains, net
$
917
1,028
TOTAL ASSETS
11,258 $
August 30,
2020
August 29,
2021
Other long-term assets
Operating lease right-of-use assets
Property and equipment, net
12,277
1,803
21,807
14,215
OTHER ASSETS
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
3,381
2,788
2,890
23,492
28,120
29,505
1,023
1,312
12,242
1,550
Total current assets
93
Merchandise inventories
Less: Comprehensive income attributable to
noncontrolling interests
4,221
5,260
Comprehensive income
162
181
4,059
3,704
52 Weeks Ended
September 1,
2019
5,079
52 Weeks Ended
August 29,
2021
Foreign-currency translation adjustment and
other, net
NET INCOME INCLUDING NONCONTROLLING
INTERESTS
(amounts in millions)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
COSTCO WHOLESALE CORPORATION
52 Weeks Ended
August 30,
2020
(245)
3,459
1,671
Receivables, net
Short-term investments
ASSETS
Cash and cash equivalents
CURRENT ASSETS
(amounts in millions, except par value and share data)
CONSOLIDATED BALANCE SHEETS
COSTCO WHOLESALE CORPORATION
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
Other current assets
1,393
Accumulated other comprehensive loss
Current portion of long-term debt
Net income
Foreign-currency translation
adjustment and other, net
Stock-based compensation
Release of vested restricted
stock units (RSUs),
including tax effects
Repurchases of common stock
438,189 $
SEPTEMBER 2, 2018
Comprehensive
Income (Loss)
Total Costco
Stockholders'
Equity
Noncontrolling
Interests
Total
Equity
(1,199) $ 7,887 $
12,799 $
304
Retained
Earnings
$ 13,103
BALANCE AT
Accumulated
TOTAL LIABILITIES AND EQUITY
514
18,078
421
18,705
Interest
59,268 $
55,556
Other
The accompanying notes are an integral part of these consolidated financial statements.
COSTCO WHOLESALE CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(amounts in millions)
Common Stock
Additional
Shares
Paid-in
36
TOTAL EQUITY
18,284
17,564
TOTAL LIABILITIES
Other long-term liabilities
Long-term operating lease liabilities
7,514
6,692
Long-term debt, excluding current portion
OTHER LIABILITIES
2,642
3,728
24,844
4,561
95
799
1,851
2,042
Total current liabilities
Other current liabilities
29,441
2,558
2,415
1,935
12,879
11,666
Noncontrolling interests
Total Costco stockholders' equity
Retained earnings
(1,297)
(1,137)
6,698
7,031
Additional paid-in capital
4
Common stock $0.01 par value; 900,000,000 shares authorized;
441,825,000 and 441,255,000 shares issued and outstanding
Preferred stock $0.01 par value; 100,000,000 shares authorized;
no shares issued and outstanding
EQUITY
COMMITMENTS AND CONTINGENCIES
36,851
41,190
Deferred membership fees
(000's) Amount Capital
$
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.
139
139
including tax effects
Stock-based compensation
621
Release of vested RSUs,
Foreign-currency translation
adjustment and other, net
2,273
Repurchases of common stock
(643)
(10)
Cash dividends declared
BALANCE AT
AUGUST 30, 2020
(330)
Net income
4,059
5
(1,057)
BALANCE AT
SEPTEMBER 1, 2019
Net income
439,625
4
57
6,417
10,258
15,243
341
15,584
4,002
4,002
(1,436)
|8
621
21
5,007
རྒྱས
18,705
72
5,079
Foreign-currency translation
5,007
adjustment and other, net
160
Stock-based compensation
668
Release of vested RSUs,
including tax effects
Repurchases of common stock
441,825
421
18,284
12,879
23
162
621
(330)
(330)
(188)
(198)
(198)
(1,193)
(1,193)
(1,193)
441,255
4
6,698
(1,297)
(1,057)
1,928
(1,358)
_ _____ _ _ (1,057) _
Cash dividends declared and
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.
The Company periodically evaluates unrealized losses in its investment securities for credit impairment,
using both qualitative and quantitative criteria. In the event a security is deemed to be impaired as the
result of a credit loss, the Company recognizes the loss in interest income and other, net in the
consolidated statements of income.
Fair Value of Financial Instruments
The Company accounts for certain assets and liabilities at fair value. The carrying value of the Company's
financial instruments, including cash and cash equivalents, receivables and accounts payable,
approximate fair value due to their short-term nature or variable interest rates. See Notes 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 is defined as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. Fair value is estimated by
applying a fair value hierarchy, which requires maximizing the use of observable inputs when measuring
fair value. The three levels of inputs are:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Short-Term Investments
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market
data.
The Company's valuation techniques used to measure the fair value of money market mutual funds are
based on quoted market prices, such as quoted net asset values published by the fund as supported in
an active market. Valuation methodologies used to measure the fair value of all other non-derivative
financial instruments are based on independent external valuation information. The pricing process uses
data from a variety of independent external valuation information providers, including trades, bid price or
spread, two-sided markets, quotes, benchmark curves including but not limited to treasury benchmarks
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
40
40
value of the individual securities as of the beginning of the reporting period in which the transfer(s)
occurred.
Current financial liabilities have fair values that approximate their carrying values. Long-term financial
liabilities include the Company's long-term debt, which are recorded on the balance sheet at issuance
price and adjusted for unamortized discounts or premiums and debt issuance costs, 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.
Receivables, Net
Level 3: Significant unobservable inputs that are not corroborated by market data.
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.
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.
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.
The accompanying notes are an integral part of these consolidated financial statements.
38
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
39
Description of Business
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
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
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.
Merchandise Inventories
Merchandise inventories consist of the following:
3,704
(237)
598
(8)
(245)
598
4 $ 6,107 $
----3,659
45
:== 598 (237) =
(272) - -
(16)
(272)
(272)
(231)
(247)
(247)
2,533
(1,097)
3,659
41
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.
United States
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.
other
(312)
Cash dividends declared
BALANCE AT
Net cash used in investing activities
(3,535)
(3,891)
(4)
(2,865)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in bank payments outstanding
30
188
210
Proceeds from short-term borrowings
41
Proceeds from issuance of long-term debt
3,992
298
137
Repayments of long-term debt
(62)
(1,163)
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
Other investing activities, net
1,446
1,231
Additions to property and equipment
(3,588)
(2,810)
(2,998)
Acquisitions
1,678
(94)
(3,200)
(89)
(1,147)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS
46
70
(15)
Net change in cash and cash equivalents
(1,147)
(1,019)
2,329
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR
12,277
8,384
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:
11
3,893
(6,488)
Net cash used in financing activities
(9
Tax withholdings on stock-based awards
(312)
(330)
(272)
Repurchases of common stock
(496)
(196)
(247)
Cash dividend payments
(5,748)
(1,479)
(1,038)
Other financing activities, net
(67)
(71)
8,861
8,958
Net cash provided by operating activities
623
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
11,666 $
(amounts in millions)
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
September 1,
2019
CASH FLOWS FROM OPERATING ACTIVITIES
(1,137) $
7,031 $
$
AUGUST 29, 2021
160
21
181
668
668
(312)
(312)
(472)
(5,748)
(495)
(495)
(5,748)
(5,748)
$
4
$
286
5,079 $
$
104
147
Changes in operating assets and liabilities:
Merchandise inventories
(1,892)
(791)
59
(536)
1,838
2,261
322
Other operating assets and liabilities, net
1,057
728
Accounts payable
9
42
85
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
1,645
1,492
286
194
665
619
595
4,059
- $ - $
(23)
Cash dividend declared, but not yet paid
15 $
28 $
953 $
$
Balance at August 29, 2021
1
988
14 $
27 $
947 $
6
Changes in currency translation and other (1)
Balance at August 30, 2020
934
Property and Equipment, Net
934
Acquisition
1
1
Changes in currency translation
996
53
(1) Other consists of changes to the purchase price allocation. See Note 2.
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.
$
Equipment and fixtures
6,055
CASH AND CASH EQUIVALENTS END OF YEAR
$
11,258 $
12,277
$
8,384
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
44
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
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.
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
43
13 $
$
27
$
(12,896)
(14,166)
34,703
37,658
1,276
1,507
N/A
8,749
9,505
3-20 years
17,982
19,139
5-50 years
6,696
7,507 $
N/A
2020
2021
23,492 $
Accumulated depreciation and amortization
Property and equipment, net
21,807
$
13
$
Balance at September 1, 2019
Total
Operations
Other
International
Canadian
Operations
Operations
Estimated Useful
Lives
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
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.
Leases
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.
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:
Buildings and improvements
Construction in progress
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
141
1,187
124 $
1,052 $
149 $
1,527 $
$
Income taxes, net
Land
192
1,358 $
643
Total Cost
Share
2021
2020
2019
Average
Price per
Shares
Repurchased
364.39 $
308.45
(000's)
495
225.16
247
1,097
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:
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.
Note 8-Stock-Based Compensation
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.
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.
53
198
Stock Repurchase Programs
52
Dividends
(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.
Total lease liabilities
Less amount representing interest
Present value of lease liabilities
Operating lease liabilities
Long-term
Finance lease liabilities (2)
2,507
1,070
3,655
1,589
791
537
$
2,864 $
1,052
(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.
529
Summary of Restricted Stock Unit Activity
Note 7-Equity
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.
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.
4,218,000 time-based RSUs, which vest upon continued employment or service over specified
periods of time; and
•
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.
Summary of Stock-Based Compensation
The following table summarizes stock-based compensation expense and the related tax benefits:
2021
2020
2019
Stock-based compensation expense
Less recognized income tax benefit
665 $
140
619 $
595
128
128
Stock-based compensation expense, net
$
525 $
491 $
467
54
54
257.88
The following awards were outstanding at the end of 2021:
N/A
235.64
•
Weighted-average remaining lease term (years)
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.
The following table summarizes RSU transactions during 2021:
Outstanding at the end of 2020
Granted
Vested and delivered
Forfeited
Special cash dividend
Outstanding at the end of 2021
Number of
Units
(in 000's)
Weighted-Average
Grant Date Fair
Value
5,174 $
1,982
(2,764)
(137)
94
4,349 $
207.55
369.15
253.53
74
Operating leases
Weighted-average discount rate
67
-
Financing cash flows - finance leases
33
37
258
282 $
$
Operating cash flows - finance leases
49
Operating cash flows — operating leases
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 $
$
Cash paid for amounts included in the measurement of lease
liabilities:
Leased assets obtained in exchange for operating lease
liabilities
350
354
159
191
87
232
92
273
107
$
260
2026
2025
2024
2023
2022
Finance Leases
Operating Leases (1)
Thereafter
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
87
Finance leases
151
37
3,916 $
657
980
2,558
2,642
31
72
231
222 $
3,477
2021
3,890 $
592
2,788
2,890 $
1,000
2020
2021
EA
$
Operating leases
3,380
21
22
2020
Total (2)
50
252
296 $
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 %
2.16%
Finance leases
20
21
22
33
31
Finance lease liabilities (3)
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.
Basis
Available-for-sale:
Government and agency securities
$
375 $
6 $
381
Held-to-maturity:
Certificates of deposit
Gains, Net
536
Total short-term investments
$
911 $
6
917
2020:
Available-for-sale:
Government and agency securities
Held-to-maturity:
536
Certificates of deposit
Recorded
Basis
46
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.
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.
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
Unrealized
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.
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
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.
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.
Note 3-Investments
The Company's investments were as follows:
2021:
Cost
Stock Repurchase Programs
Total short-term investments
Cost
Basis
Unrealized
Gains, Net
381 $
536
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
$
375 $
Level 2
2020
393 $
17
508
1
(2)
(21)
408 $
488
(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.
2021
$
Total
536
Recorded
Basis
(2) The asset and the liability values are included in other current assets and other current liabilities, respectively, in the
consolidated balance sheets.
12 $
448
$
580
1,016 $
580
12 $
1,028
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.
The maturities of available-for-sale and held-to-maturity securities at the end of 2021 are as follows:
Available-For-Sale
Cost Basis
Fair Value
Held-To-Maturity
Due in one year or less
$
190 $
Due after one year through five years
185
191 $
190
46
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.
436 $
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.
1,750
1.750% Senior Notes due April 2032
1,000
1,000
Other long-term debt
731
857
Total long-term debt
7,531
1,750
7,657
40
48
Less current portion (1)
799
95
Long-term debt, excluding current portion
6,692 $
7,514
(1) Net of unamortized debt discounts and issuance costs.
Less unamortized debt discounts and issuance costs
Maturities of long-term debt during the next five fiscal years and thereafter are as follows:
1,250
1,000
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Stock-Based Compensation
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.
Note 5-Debt
Short-Term Borrowings
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.
Long-Term Debt
The Company's long-term debt consists primarily of Senior Notes, described below. The Company at its
option may redeem the Senior Notes at any time, in whole or in part, at a redemption price plus accrued
interest. The redemption price is equal to the greater of 100% of the principal amount or the sum of the
present value of the remaining scheduled payments of principal and interest to maturity. Additionally, upon
certain events, 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.
449
1,000
49
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.
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:
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
2021
2020
800 $
800
1,000
1,000
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.
2022
1,250
2024
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.
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.
5
derivative instruments, but generally qualify for the “normal purchases and normal sales" exception under
authoritative guidance and require no mark-to-market adjustment.
45
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
2023
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
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.
Operating lease liabilities (2)
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.
$
Current
2026
Total
50
50
800
91
1,109
Thereafter
100
136
5,295
$
7,531
Note 6-Leases
The tables below present information regarding the Company's lease assets and liabilities.
Assets
Operating lease right-of-use assets
Finance lease assets (1)
Total lease assets
Liabilities
2025
2020
2019
Federal taxes at statutory rate
2021
372
21.0 % $ 1,127
21.0 % $ 1,001
The reconciliation between the statutory tax rate and the effective rate for 2021, 2020, and 2019 is as
follows:
21.0 %
$ 1,403
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.
(34)
1,308 $
1,601 $
$
307
377
523
(98)
405
557
State taxes, net
1,061
243
(123)
190
(0.7)
204
(46)
Other
(2.6)
2017 Tax Act
(0.4)
(18)
(0.5)
(24)
(1.3)
(91)
Employee stock ownership plan (ESOP)
-
(1)
1.7
92
1.4
92
Foreign taxes, net
3.6
171
3.6
3.6
238
The provisions for income taxes are as follows:
26
2019
2020
2021
Total provision for income taxes
Total foreign
Deferred
Current
Foreign:
Total state
Deferred
Current
State:
Total federal
Deferred
Current
Federal:
Total
Foreign
Domestic
Income before income taxes is comprised of the following:
Income Taxes
Note 9- Taxes
(77)
4,931 $
276
4,204 $
1,749
8
11
178
230
265
550
693
802
222
77
84
328
616 $
718 $
2019
2020
2021
4,765
5,367 $
6,680 $
$
1,174
1,163
3,591
(1.4)
161
0.7
14,916
2,810
492
258
2,060
1,645
2,172
242
1,248
5,435
942
860
3,633
$166,761
155
4,719
21,807
38,366
303
2,186
1,492
223
143
1,126
4,737
750
924
3,063
19,586 $ 152,703
21,366 $
$ 111,751 $
11,920
5,270
22,185
509
22,434 $
59,268
$ 141,398 $ 27,298 $ 27,233 $ 195,929
Total
Other
International
Operations
Canadian
Operations
United States
Operations
Disaggregated Revenue
4,262
Total assets
Additions to property and equipment
Depreciation and amortization
Operating income
Total revenue
2019
Total assets
Property and equipment, net
1,176
1,270
6,708
13,717
5,962
39,589
23,492
5,182
2,317
15,993
3,588
704
272
2,612
1,781
265
177
1,339
$ 122,142 $
Property and equipment, net
2,998
2,044
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 10-Directors, Executive Officers and Corporate Governance
PART III
None.
Item 9B-Other Information
63
Item 11-Executive Compensation
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.
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.
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).
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.
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.
Management's Annual Report on 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.
Changes in Internal Control Over Financial Reporting
The information required by this Item is incorporated herein by reference to the sections entitled
"Compensation of Directors,” “Executive Compensation," and "Compensation Discussion and Analysis" in
Costco's Proxy Statement.
Item 12-Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The information required by this Item is incorporated herein by reference to the section entitled "Principal
Shareholders" and "Equity Compensation Plan Information” in Costco's Proxy Statement.
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
Evaluation of Disclosure Controls and Procedures
14,367
Item 9A-Controls and Procedures
62
68,659 $
77,277 $
$
Foods and Sundries
2019
2020
59,672
2021
45,400
8,869
4,369
32,162
20,890
4,479
31
Non-Foods
55,966
44,807
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
Item 9-Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Additions to property and equipment
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:
Operating income
(744)
(228)
(216)
(800)
(935)
1,691
(801)
1,677
(214)
1,796
1,891
62
639
681
(105)
(92)
(81)
(40)
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
Gross unrecognized tax benefit at beginning of year
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for 2021 and
2020 is as follows:
56
56
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.
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 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.
(259)
(310) $
(1,950)
(1,987)
832
$
769
146
Foreign tax credit carry forward
Deferred income/membership fees
Equity compensation
Deferred tax assets:
The components of the deferred tax assets (liabilities) are as follows:
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.
Operating lease liabilities
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.
22.3 %
24.4 % $ 1,061
24.0 % $ 1,308
$1,601
Total
Depreciation and amortization
55
Accrued liabilities and reserves
Other
Total deferred tax assets
144
80
72 $
2020
2021
Net deferred tax liabilities
Total deferred tax liabilities
Other
Foreign branch deferreds
Operating lease right-of-use assets
Merchandise inventories
Property and equipment
Deferred tax liabilities:
Total net deferred tax assets
Valuation allowance
101
2021
55,556
30 $
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.
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 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.
59
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.
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.
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.
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.
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.
58
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.
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.
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.
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.
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.
2020
Total revenue
2020
Total assets
Additions to property and equipment
Property and equipment, net
Depreciation and amortization
Operating income
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.
Note 12-Segment Reporting
61
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.
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.
442,923
443,901
60
1,604
Other Taxes
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.
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.
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.
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.
(3)
33 $
(1)
(3)
8
2
1
3,168
27
2
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.
44
30
57
3,659
439,755
4,002 $
442,297
5,007 $
443,089
$
2019
2021
Legal Proceedings
2020
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
Note 11-Commitments and Contingencies
1,257
444,346
Michael Anderson - Information Systems
Azmina Virani
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
Senior Vice President, Depots & Traffic
Ron M. Vachris
& Publishing
Senior Vice President, Membership, Marketing, Services
Sandy Torrey
John Sullivan
John D. Thelan
Senior Vice President, General Counsel & Corporate Secretary
James Andruski - GMM, Foods & Sundries, W. Canada
Executive Vice President, COO - Merchandising
Kathleen Ardourel - Global Ecommerce
Kevin Green - Operations, Midwest
Martin Groleau - GMM, Ecommerce Marketing,
Operations & Contact Center, Canada
Timothy Bowersock - Information Systems
Kimberly Brown - Operations, Texas
Senior Vice President, Pharmacy
Doris Harley - GMM, Foods & Sundries, Southeast
Eric Harris - Warehouse Operations & Facilities
Brad Hanna - Pharmacy
Peter Gruening - Costco Travel
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
Debbie Ells - GMM, Non-Foods, Canada
Guy Delmonte - Operations, Southeast
Jeff Elliott - Treasury
Russ Decaire - GMM, Foods & Sundries, Northwest
Dennis Davenport - Operations, Los Angeles
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
Marc-André Bally - Ancillary & Business Centers, Canada
Tiffany Barbre - Assistant Accounting Controller
Patty Bauer - Information Systems
Christopher Bolves - Operations, Northwest
Senior Vice President, General Manager - Western Canadian Region
Richard Stephens
Darby Greek
Senior Vice President, General Manager - Europe
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, Merchandising - Foods & Sundries
Daniel M. Hines
Senior Vice President, General Manager - Texas Region
Nancy Griese
Jim Harrison - Transportation
Senior Vice President, Country Manager - Mexico
Jaime Gonzalez
Senior Vice President, Merchandising - Fresh Foods
Sarah George
Executive Vice President and Chief Financial Officer
Executive Vice President, COO - Southwest Division & Mexico
David Skinner
Ali Moayeri
Executive Vice President, COO - International Division
Robert E. Nelson III
Senior Vice President, General Manager - Lincoln Premium Poultry
Louie Silveira
Walt Shafer
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
Mario Omoss
Senior Vice President, Treasury, Financial Planning &
Investor Relations
Senior Vice President, Construction & Purchasing
James P. Murphy
David Harruff - Operations, Northwest
Geoff Shavey - GMM, Corporate Non-Foods
Timothy Haser - Information Systems
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
investor@costco.com. 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.
Shareholder Information
ADDITIONAL INFORMATION
[THIS PAGE INTENTIONALLY LEFT BLANK]
[THIS PAGE INTENTIONALLY LEFT BLANK]
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
Stock Exchange Listing
Michael Thompson - Operations, W. Canada
The Nasdaq Global Select Market
Stock Symbol: COST
Computershare
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
Telephone: (800) 249-8982
Louisville, KY 40202
Overnight correspondence should be sent to:
462 South 4th Street, Suite 1600
Louisville, KY 40233
P.O. Box 505000
Correspondence should be mailed to:
Costco Shareholder Relations
Transfer Agent
VICE PRESIDENTS
H. Keith Thompson - Construction
Gary Swindells - Country Manager, France
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
Jeff Ishida - Real Estate, Eastern Division
Bob Huskey - GMM, Meat
Scott Howe - Assistant Accounting Controller
Ross Hunt - Administration, Canada
Doug Holbrook - Deli, Meat & Produce Operations
John Hickey - GMM, Foods & Sundries, Southeast Region
Joe Moore - Corporate Tax
Cathy Tabor - Information Systems
Mauricio Talayero - CFO, Mexico
Ken Theriault - Country Manager, Japan
Brian Thomas - Operations, Los Angeles
Robert Murvin - GMM, Foods & Sundries, Texas
Jim Nelson - GMM, Corporate Non-Foods
Steve Supkoff - Costco Logistics
Joseph Stanovcak - Operations, San Diego
James Stafford - GMM, Foods & Sundries, Northeast
Cheryl Smeby - GMM, Corporate Non-Foods
Dick Snyder - Operations, Midwest
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
Pietro Nenci - GMM, Foods & Sundries and Ecommerce
Foods & Sundries, Canada
Keith Neal - GMM, Produce
TDD for Hearing Impaired: (800) 490-1493
Outside U.S.: (201) 680-6578
Extension of the Term of the
10.5.1*
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.
Item 16-Form 10-K Summary
None.
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.
October 5, 2021
**
* Management contract, compensatory plan or arrangement.
Cover Page Interactive Data File
(formatted as inline XBRL and
contained in Exhibit 101)
104
21.1
Subsidiaries of the Company
23.1
Consent of Independent
Registered Public Accounting Firm
31.1
Rule 13a14(a) Certifications
X
By
32.1
101.INS
Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension
Schema Document
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
Section 1350 Certifications
By
By
/s/ W. CRAIG JELINEK
W. Craig Jelinek
/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
By
Senior Vice President and Corporate
(Principal Accounting Officer)
/s/ KENNETH D. DENMAN
Kenneth D. Denman
Director
/s/ CHARLES T. MUNGER
Charles T. Munger
Director
/s/ JOHN W. STANTON
John W. Stanton
Director
Susan L. Decker(a)
Controller
Co-Branded Credit Card
Agreement
Jeffrey S. Raikes
Director
/s/ JEFFREY S. RAIKES
President, Chief Executive Officer and
Director
/s/ RICHARD A. GALANTI
Richard A. Galanti
Executive Vice President, Chief Financial
Officer and Director
(Principal Financial Officer)
/s/ SUSAN L. DECKER
By
Susan L. Decker
By
/s/ HAMILTON E. JAMES
By
By
By
By
/s/ SALLY JEWELL
Sally Jewell
Director
By
Director
3/10/2021
2/14/2021
10-Q
2021, between W. Craig Jelinek
and Costco Wholesale
Corporation
10.6
Form of Indemnification
14A
12/13/1999
Agreement
Agreement, effective January 1,
10.7*
10-K
10.8**
Citibank, N.A. Co-Branded Credit
10-Q/A
9/1/2013
5/10/2015
10/16/2013
8/31/2015
Card Agreement
10.8.1**
Deferred Compensation Plan
First Amendment to Citi, N.A. Co-
Branded Credit Card Agreement
Executive Employment
10-Q
10-Q
11/25/2018 12/20/2018
Executive Employment
Agreement, effective January 1,
2019, between W. Craig Jelinek
and Costco Wholesale
Corporation
10.5.2*
11/22/2020 12/16/2020
Extension of the Term of the
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
CEO and Founder, Raftr;
10-Q
10.8.2**
3/13/2019
Branded Credit Card Agreement
60
66
Exhibit
Number
Filed
Exhibit Description
Herewith
2/17/2019
Form
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
10.8.7**
Seventh Amendment to Citi, N.A.
Period Ended
11/22/2015 12/17/2015
10-Q
10.8.5**
Second Amendment to Citi, N.A.
10-Q
2/14/2016
3/9/2016
Co-Branded Credit Card
Agreement
10.8.3**
Third Amendment to Citi, N.A. Co-
Fifth Amendment to Citi, N.A. Co-
10-K
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
8/28/2016 10/12/2016
Senior Vice President, General Manager - Los Angeles Region
John B. Gaherty
Former President, Yahoo! Inc.
General Partner, Sway Ventures; Former President
Description of Common Stock
4.8
5/16/2017
8-K
Form of 3.000% Senior Notes due
May 18, 2027
4.7
May 18, 2024
5/16/2017
8-K
Form of 2.750% Senior Notes due
4.6
May 18, 2022
5/16/2017
8-K
Form of 2.300% Senior Notes due
4.5
April 20, 2032
10-K
8/30/2020
10/7/2020
10.1*
10.3.2*
Agreement-Employee
Restricted Stock Unit Award
11/24/2019 12/23/2019
10-Q
2019 Stock Incentive Plan
10.3.1*
12/19/2014
4/17/2020
DEF 14A
10.3*
12/17/2019
DEF 14
2019 Incentive Plan
10.2*
9/2/2012 10/19/2012
10-K
Costco Wholesale Executive
Health Plan
Seventh Restated 2002 Stock
Incentive Plan
8-K
Form of 1.750% Senior Notes due
4.4
3.2.1
Wholesale Corporation
8-K
Bylaws as amended of Costco
3.2
amended of Costco Wholesale
Corporation
3/12/2020
Filing Date
Amendments to Sections 3.3, 3.4,
Period Ended
2/16/2020
Form
Filed
Herewith
Incorporated by Reference
Articles of Incorporation as
Exhibit Description
3.1
Exhibit
Number
(b) Exhibits: The required exhibits are filed as part of this Annual Report on Form 10-K or are
incorporated herein by reference.
10-Q
2019 Stock Incentive Plan
8-K
Wholesale Corporation (to be
effective and first apply with
respect to the Company's 2022
April 20, 2030
4/17/2020
8-K
Form of 1.600% Senior Notes due
4.3
4/17/2020
8-K
Form of 1.375% Senior Notes due
June 20, 2027
and 3.6 of the Bylaws of Costco
4.2
National Association, as Trustee,
3/25/2002
8-K
First Supplemental Indenture
between Costco Wholesale
Corporation and U.S. Bank
4.1
Annual Meeting of Shareholders)
9/16/2020
1/29/2020
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)
10-Q
11/24/2019 12/23/2019
Restricted Stock Unit Award
Maggie A. Wilderotter(b)(c)
CEO and Chairman, Grand Reserve Inn;
Former Executive Chairman, Frontier Communications
Board Committees
(a) Audit Committee
(b) Compensation Committee
(c) Nominating and Governance Committee
*2021 Committee Chair
Jeffrey Abadir
Trilogy International Partners, Inc. and Trilogy Equity Partners
EXECUTIVE AND SENIOR OFFICERS
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, General Manager - Bay Area Region
Claudine Adamo
Senior Vice President, Costco Wholesale Industries &
Chairman, First Avenue Entertainment LLLP;
Former CEO, Bill and Melinda Gates Foundation
and Chief Executive Officer, Emotient, Inc.
Richard A. Galanti
Executive Vice President and
Chief Financial Officer, Costco Wholesale
Hamilton E. James
Chairman of the Board, Costco Wholesale;
Executive Vice Chairman, The Blackstone Group
W. Craig Jelinek
John W. Stanton(b)*
DIRECTORS AND OFFICERS
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
Jeffrey S. Raikes(c)*
Co-Founder, The Raikes Foundation;
President and Chief Executive Officer, Costco Wholesale
Kenneth D. Denman(a)(c)
Business Development
Senior Vice President, Pharmacy
12/23/2019
11/24/2019
10-Q
Filing Date
Period Ended
Form
Herewith
Filed
Agreement-Non-Executive
Incorporated by Reference
2019 Stock Incentive Plan
10.3.3*
Number
Exhibit Description
Exhibit
99
65
Agreement - Non-U.S. Employee
Restricted Stock Unit Award
Victor A. Curtis
Director
2019 Stock Incentive Plan Letter
Agreement for 2020 Performance-
Based Restricted Stock Units-
Executive
Wendy Davis
Senior Vice President, General Manager - Southeast Region
Gino Dorico
Senior Vice President, General Manager - Eastern Canadian Region
Caton Frates
Corporation
and Costco Wholesale
2017, between W. Craig Jelinek
Agreement, effective January 1,
10/15/2020
12/16/2016
10.3.4*
11/20/2016
Executive Employment
10.5*
8-K
Fiscal 2021 Executive Bonus Plan
10.4*
12/23/2019
11/24/2019
10-Q
10-Q
Senior Vice President, General Manager - Midwest Region
Richard A. Galanti