UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~November 21, 2021~~February 13, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-20355

Costco Wholesale Corporation

(Exact name of registrant as specified in its charter)


Washington						91-1223280
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

999 Lake Drive, Issaquah, WA 98027

(Address of principal executive offices) (Zip Code)

(Registrant’s telephone number, including area code): (425) 313-8100

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $.01 Par Value

COST

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the issuer's common stock as of ~~December 14, 2021~~March 2, 2022 was ~~443,432,486.~~443,224,290.

Table of Contents

COSTCO WHOLESALE CORPORATION

INDEX TO FORM 10-Q

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1—Financial Statements

COSTCO WHOLESALE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(amounts in millions, except per share data) (unaudited)


		12 Weeks Ended				12 Weeks Ended				24 Weeks Ended
		November 21, 2021		November 22, 2020				February 13, 2022		February 14, 2021		February 13, 2022		February 14, 2021
REVENUE	REVENUE						REVENUE
Net sales	Net sales	$	49,417	$	42,347		Net sales	$	50,937	$	43,888	$	100,354	$	86,235
Membership fees	Membership fees	946		861			Membership fees	967		881		1,913		1,742
Total revenue	Total revenue	50,363		43,208			Total revenue	51,904		44,769		102,267		87,977
OPERATING EXPENSES	OPERATING EXPENSES						OPERATING EXPENSES
Merchandise costs	Merchandise costs	43,952		37,458			Merchandise costs	45,517		39,078		89,469		76,536
Selling, general and administrative	Selling, general and administrative	4,718		4,320			Selling, general and administrative	4,575		4,351		9,293		8,671

Operating income	Operating income	1,693		1,430			Operating income	1,812		1,340		3,505		2,770
OTHER INCOME (EXPENSE)	OTHER INCOME (EXPENSE)						OTHER INCOME (EXPENSE)
Interest expense	Interest expense	(39)		(39)			Interest expense	(36)		(40)		(75)		(79)
Interest income and other, net	Interest income and other, net	42		29			Interest income and other, net	25		19		67		48
INCOME BEFORE INCOME TAXES	INCOME BEFORE INCOME TAXES	1,696		1,420			INCOME BEFORE INCOME TAXES	1,801		1,319		3,497		2,739
Provision for income taxes	Provision for income taxes	351		239			Provision for income taxes	481		348		832		587
Net income including noncontrolling interests	Net income including noncontrolling interests	1,345		1,181			Net income including noncontrolling interests	1,320		971		2,665		2,152
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	(21)		(15)			Net income attributable to noncontrolling interests	(21)		(20)		(42)		(35)
NET INCOME ATTRIBUTABLE TO COSTCO	NET INCOME ATTRIBUTABLE TO COSTCO	$	1,324	$	1,166		NET INCOME ATTRIBUTABLE TO COSTCO	$	1,299	$	951	$	2,623	$	2,117
NET INCOME PER COMMON SHARE ATTRIBUTABLE TO COSTCO:	NET INCOME PER COMMON SHARE ATTRIBUTABLE TO COSTCO:						NET INCOME PER COMMON SHARE ATTRIBUTABLE TO COSTCO:
Basic	Basic	$	2.99	$	2.63		Basic	$	2.93	$	2.15	$	5.91	$	4.78
Diluted	Diluted	$	2.98	$	2.62		Diluted	$	2.92	$	2.14	$	5.90	$	4.76
Shares used in calculation (000s):	Shares used in calculation (000s):						Shares used in calculation (000s):
Basic	Basic	443,377		442,952			Basic	443,623		443,134		443,500		443,043
Diluted	Diluted	444,604		444,386			Diluted	444,916		444,494		444,760		444,440

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

COSTCO WHOLESALE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(amounts in millions) (unaudited)


		12 Weeks Ended				12 Weeks Ended				24 Weeks Ended
		November 21, 2021		November 22, 2020				February 13, 2022		February 14, 2021		February 13, 2022		February 14, 2021
NET INCOME INCLUDING NONCONTROLLING INTERESTS	NET INCOME INCLUDING NONCONTROLLING INTERESTS	$	1,345	$	1,181		NET INCOME INCLUDING NONCONTROLLING INTERESTS	$	1,320	$	971	$	2,665	$	2,152
Foreign-currency translation adjustment and other, net	Foreign-currency translation adjustment and other, net	(72)		209			Foreign-currency translation adjustment and other, net	(35)		148		(107)		357
Comprehensive income	Comprehensive income	1,273		1,390			Comprehensive income	1,285		1,119		2,558		2,509
Less: Comprehensive income attributable to noncontrolling interests	Less: Comprehensive income attributable to noncontrolling interests	23		28			Less: Comprehensive income attributable to noncontrolling interests	21		28		44		56
COMPREHENSIVE INCOME ATTRIBUTABLE TO COSTCO	COMPREHENSIVE INCOME ATTRIBUTABLE TO COSTCO	$	1,250	$	1,362		COMPREHENSIVE INCOME ATTRIBUTABLE TO COSTCO	$	1,264	$	1,091	$	2,514	$	2,453

The accompanying notes are an integral part of these condensed consolidated financial statements.

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COSTCO WHOLESALE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in millions, except par value and share data) (unaudited)


		November 21, 2021		August 29, 2021			February 13, 2022		August 29, 2021
ASSETS	ASSETS					ASSETS
CURRENT ASSETS	CURRENT ASSETS					CURRENT ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	12,751	$	11,258	Cash and cash equivalents	$	11,819	$	11,258
Short-term investments	Short-term investments	725		917		Short-term investments	477		917
Receivables, net	Receivables, net	1,932		1,803		Receivables, net	2,232		1,803
Merchandise inventories	Merchandise inventories	16,942		14,215		Merchandise inventories	16,485		14,215
Other current assets	Other current assets	1,500		1,312		Other current assets	1,552		1,312
Total current assets	Total current assets	33,850		29,505		Total current assets	32,565		29,505
OTHER ASSETS	OTHER ASSETS					OTHER ASSETS
Property and equipment, net	Property and equipment, net	23,887		23,492		Property and equipment, net	24,052		23,492
Operating lease right-of-use assets	Operating lease right-of-use assets	2,903		2,890		Operating lease right-of-use assets	2,840		2,890
Other long-term assets	Other long-term assets	3,509		3,381		Other long-term assets	3,621		3,381
TOTAL ASSETS	TOTAL ASSETS	$	64,149	$	59,268	TOTAL ASSETS	$	63,078	$	59,268
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
CURRENT LIABILITIES	CURRENT LIABILITIES					CURRENT LIABILITIES
Accounts payable	Accounts payable	$	19,561	$	16,278	Accounts payable	$	17,089	$	16,278
Accrued salaries and benefits	Accrued salaries and benefits	3,985		4,090		Accrued salaries and benefits	4,347		4,090
Accrued member rewards	Accrued member rewards	1,726		1,671		Accrued member rewards	1,798		1,671
Deferred membership fees	Deferred membership fees	2,192		2,042		Deferred membership fees	2,244		2,042
Current portion of long-term debt	Current portion of long-term debt	799		799		Current portion of long-term debt	—		799
Other current liabilities	Other current liabilities	5,079		4,561		Other current liabilities	6,067		4,561
Total current liabilities	Total current liabilities	33,342		29,441		Total current liabilities	31,545		29,441
OTHER LIABILITIES	OTHER LIABILITIES					OTHER LIABILITIES
Long-term debt, excluding current portion	Long-term debt, excluding current portion	6,667		6,692		Long-term debt, excluding current portion	6,658		6,692
Long-term operating lease liabilities	Long-term operating lease liabilities	2,649		2,642		Long-term operating lease liabilities	2,588		2,642
Other long-term liabilities	Other long-term liabilities	2,491		2,415		Other long-term liabilities	2,311		2,415
TOTAL LIABILITIES	TOTAL LIABILITIES	45,149		41,190		TOTAL LIABILITIES	43,102		41,190
COMMITMENTS AND CONTINGENCIES	COMMITMENTS AND CONTINGENCIES					COMMITMENTS AND CONTINGENCIES
EQUITY	EQUITY					EQUITY
Preferred stock $0.01 par value; 100,000,000 shares authorized; no shares issued and outstanding	Preferred stock $0.01 par value; 100,000,000 shares authorized; no shares issued and outstanding	—		—		Preferred stock $0.01 par value; 100,000,000 shares authorized; no shares issued and outstanding	—		—
Common stock $0.01 par value; 900,000,000 shares authorized; 443,434,000 and 441,825,000 shares issued and outstanding		4		4
Common stock $0.01 par value; 900,000,000 shares authorized; 443,279,000 and 441,825,000 shares issued and outstanding						Common stock $0.01 par value; 900,000,000 shares authorized; 443,279,000 and 441,825,000 shares issued and outstanding	4		4
Additional paid-in capital	Additional paid-in capital	7,064		7,031		Additional paid-in capital	7,186		7,031
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(1,211)		(1,137)		Accumulated other comprehensive loss	(1,246)		(1,137)
Retained earnings	Retained earnings	12,606		11,666		Retained earnings	13,474		11,666
Total Costco stockholders’ equity	Total Costco stockholders’ equity	18,463		17,564		Total Costco stockholders’ equity	19,418		17,564
Noncontrolling interests	Noncontrolling interests	537		514		Noncontrolling interests	558		514
TOTAL EQUITY	TOTAL EQUITY	19,000		18,078		TOTAL EQUITY	19,976		18,078
TOTAL LIABILITIES AND EQUITY	TOTAL LIABILITIES AND EQUITY	$	64,149	$	59,268	TOTAL LIABILITIES AND EQUITY	$	63,078	$	59,268

The accompanying notes are an integral part of these condensed consolidated financial statements.

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COSTCO WHOLESALE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(amounts in millions) (unaudited)
12 Weeks Ended November 21, 2021
Common Stock Additional
Paid-in
Capital Accumulated
Other
Comprehensive
Income (Loss) Retained
Earnings Total Costco
Stockholders’
Equity Noncontrolling
Interests Total
Equity
Shares (000s) Amount
BALANCE AT AUGUST 29, 2021 441,825 $ 4 $ 7,031 $ (1,137) $ 11,666 $ 17,564 $ 514 $ 18,078
Net income — — — — 1,324 1,324 21 1,345
Foreign-currency translation adjustment and other, net — — — (74) — (74) 2 (72)
Stock-based compensation — — 389 — — 389 — 389
Release of vested restricted stock units (RSUs), including tax effects 1,686 — (355) — — (355) — (355)
Repurchases of common stock (77) — (1) — (34) (35) — (35)
Cash dividend declared — — — — (350) (350) — (350)
BALANCE AT NOVEMBER 21, 2021 443,434 $ 4 $ 7,064 $ (1,211) $ 12,606 $ 18,463 $ 537 $ 19,000

12 Weeks Ended November 22, 2020
Common Stock Additional
Paid-in
Capital Accumulated
Other
Comprehensive
Income (Loss) Retained
Earnings Total Costco
Stockholders’
Equity Noncontrolling
Interests Total
Equity
Shares (000s) Amount
BALANCE AT AUGUST 30, 2020 441,255 $ 4 $ 6,698 $ (1,297) $ 12,879 $ 18,284 $ 421 $ 18,705
Net income — — — — 1,166 1,166 15 1,181
Foreign-currency translation adjustment and other, net — — — 196 — 196 13 209
Stock-based compensation — — 342 — — 342 — 342
Release of vested RSUs, including tax effects 1,913 — (311) — — (311) — (311)
Repurchases of common stock (213) — (4) — (73) (77) — (77)
Cash dividends declared — — — — (4,740) (4,740) — (4,740)
BALANCE AT NOVEMBER 22, 2020 442,955 $ 4 $ 6,725 $ (1,101) $ 9,232 $ 14,860 $ 449 $ 15,309


	12 Weeks Ended February 13, 2022
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Costco Stockholders’ Equity		Noncontrolling Interests		Total Equity
	Shares (000s)	Amount
BALANCE AT NOVEMBER 21, 2021	443,434	$	4	$	7,064	$	(1,211)	$	12,606	$	18,463	$	537	$	19,000
Net income	—	—		—		—		1,299		1,299		21		1,320
Foreign-currency translation adjustment and other, net	—	—		—		(35)		—		(35)		—		(35)
Stock-based compensation	—	—		129		—		—		129		—		129
Release of vested restricted stock units (RSUs), including tax effects	4	—		(4)		—		—		(4)		—		(4)
Repurchases of common stock	(159)	—		(3)		—		(80)		(83)		—		(83)
Cash dividend declared	—	—		—		—		(351)		(351)		—		(351)
BALANCE AT FEBRUARY 13, 2022	443,279	$	4	$	7,186	$	(1,246)	$	13,474	$	19,418	$	558	$	19,976

	12 Weeks Ended February 14, 2021
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Costco Stockholders’ Equity		Noncontrolling Interests		Total Equity
	Shares (000s)	Amount
BALANCE AT NOVEMBER 22, 2020	442,955	$	4	$	6,725	$	(1,101)	$	9,232	$	14,860	$	449	$	15,309
Net income	—	—		—		—		951		951		20		971
Foreign-currency translation adjustment and other, net	—	—		—		140		—		140		8		148
Stock-based compensation	—	—		123		—		—		123		—		123
Release of vested RSUs, including tax effects	7	—		—		—		—		—		—		—
Repurchases of common stock	(308)	—		(5)		—		(107)		(112)		—		(112)
Cash dividend declared	—	—		—		—		(310)		(310)		—		(310)
BALANCE AT FEBRUARY 14, 2021	442,654	$	4	$	6,843	$	(961)	$	9,766	$	15,652	$	477	$	16,129

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

COSTCO WHOLESALE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(amounts in millions) (unaudited)


	24 Weeks Ended February 13, 2022
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Costco Stockholders’ Equity		Noncontrolling Interests		Total Equity
	Shares (000s)	Amount
BALANCE AT AUGUST 29, 2021	441,825	$	4	$	7,031	$	(1,137)	$	11,666	$	17,564	$	514	$	18,078
Net income	—	—		—		—		2,623		2,623		42		2,665
Foreign-currency translation adjustment and other, net	—	—		—		(109)		—		(109)		2		(107)
Stock-based compensation	—	—		518		—		—		518		—		518
Release of vested restricted stock units (RSUs), including tax effects	1,690	—		(359)		—		—		(359)		—		(359)
Repurchases of common stock	(236)	—		(4)		—		(114)		(118)		—		(118)
Cash dividends declared	—	—		—		—		(701)		(701)		—		(701)
BALANCE AT FEBRUARY 13, 2022	443,279	$	4	$	7,186	$	(1,246)	$	13,474	$	19,418	$	558	$	19,976

	24 Weeks Ended February 14, 2021
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Costco Stockholders’ Equity		Noncontrolling Interests		Total Equity
	Shares (000s)	Amount
BALANCE AT AUGUST 30, 2020	441,255	$	4	$	6,698	$	(1,297)	$	12,879	$	18,284	$	421	$	18,705
Net income	—	—		—		—		2,117		2,117		35		2,152
Foreign-currency translation adjustment and other, net	—	—		—		336		—		336		21		357
Stock-based compensation	—	—		465		—		—		465		—		465
Release of vested RSUs, including tax effects	1,920	—		(311)		—		—		(311)		—		(311)
Repurchases of common stock	(521)	—		(9)		—		(180)		(189)		—		(189)
Cash dividends declared	—	—		—		—		(5,050)		(5,050)		—		(5,050)
BALANCE AT FEBRUARY 14, 2021	442,654	$	4	$	6,843	$	(961)	$	9,766	$	15,652	$	477	$	16,129

The accompanying notes are an integral part of these condensed consolidated financial statements.

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COSTCO WHOLESALE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in millions) (unaudited)


		12 Weeks Ended					24 Weeks Ended
		November 21, 2021		November 22, 2020			February 13, 2022		February 14, 2021
CASH FLOWS FROM OPERATING ACTIVITIES	CASH FLOWS FROM OPERATING ACTIVITIES					CASH FLOWS FROM OPERATING ACTIVITIES
Net income including noncontrolling interests	Net income including noncontrolling interests	$	1,345	$	1,181	Net income including noncontrolling interests	$	2,665	$	2,152
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:	Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:					Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	432		404		Depreciation and amortization	868		820
Non-cash lease expense	Non-cash lease expense	72		63		Non-cash lease expense	145		124
Stock-based compensation	Stock-based compensation	388		341		Stock-based compensation	516		463
Other non-cash operating activities, net	Other non-cash operating activities, net	111		(2)		Other non-cash operating activities, net	104		(6)
Deferred income taxes	Deferred income taxes	(2)		(9)		Deferred income taxes	(15)		(21)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Merchandise inventories	Merchandise inventories	(2,760)		(2,580)		Merchandise inventories	(2,322)		(1,480)
Accounts payable	Accounts payable	3,389		2,785		Accounts payable	970		191
Other operating assets and liabilities, net	Other operating assets and liabilities, net	283		464		Other operating assets and liabilities, net	728		442
Net cash provided by operating activities	Net cash provided by operating activities	3,258		2,647		Net cash provided by operating activities	3,659		2,685
CASH FLOWS FROM INVESTING ACTIVITIES	CASH FLOWS FROM INVESTING ACTIVITIES					CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments	Purchases of short-term investments	(258)		(273)		Purchases of short-term investments	(325)		(384)
Maturities of short-term investments	Maturities of short-term investments	444		484		Maturities of short-term investments	753		823
Additions to property and equipment	Additions to property and equipment	(1,055)		(893)		Additions to property and equipment	(1,778)		(1,466)
Other investing activities, net	Other investing activities, net	(43)		—		Other investing activities, net	(43)		(10)
Net cash used in investing activities	Net cash used in investing activities	(912)		(682)		Net cash used in investing activities	(1,393)		(1,037)
CASH FLOWS FROM FINANCING ACTIVITIES	CASH FLOWS FROM FINANCING ACTIVITIES					CASH FLOWS FROM FINANCING ACTIVITIES
Change in bank payments outstanding	Change in bank payments outstanding	(46)		40		Change in bank payments outstanding	(10)		(67)
Repayments of short-term borrowings		(40)		—
Repayments of long-term borrowings						Repayments of long-term borrowings	(800)		—
Tax withholdings on stock-based awards	Tax withholdings on stock-based awards	(355)		(311)		Tax withholdings on stock-based awards	(359)		(311)
Repurchases of common stock	Repurchases of common stock	(37)		(80)		Repurchases of common stock	(115)		(186)
Cash dividend payments	Cash dividend payments	(350)		(310)		Cash dividend payments	(350)		(4,740)
Other financing activities, net	Other financing activities, net	(11)		(39)		Other financing activities, net	(33)		(46)
Net cash used in financing activities	Net cash used in financing activities	(839)		(700)		Net cash used in financing activities	(1,667)		(5,350)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(14)		48		EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(38)		62
Net change in cash and cash equivalents	Net change in cash and cash equivalents	1,493		1,313		Net change in cash and cash equivalents	561		(3,640)
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR	CASH AND CASH EQUIVALENTS BEGINNING OF YEAR	11,258		12,277		CASH AND CASH EQUIVALENTS BEGINNING OF YEAR	11,258		12,277
CASH AND CASH EQUIVALENTS END OF PERIOD	CASH AND CASH EQUIVALENTS END OF PERIOD	$	12,751	$	13,590	CASH AND CASH EQUIVALENTS END OF PERIOD	$	11,819	$	8,637

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:	SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:					SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the first 12 weeks of the year for:
Cash paid during the first half of the year for:						Cash paid during the first half of the year for:
Interest	Interest	$	64	$	64	Interest	$	76	$	78
Income taxes, net	Income taxes, net	$	206	$	123	Income taxes, net	$	469	$	755
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:	SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:					SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Cash dividend declared, but not yet paid	Cash dividend declared, but not yet paid	$	—	$	4,430	Cash dividend declared, but not yet paid	$	351	$	310
Leased assets obtained in exchange for finance lease liabilities		$	118	$	51
Leased assets obtained in exchange for operating lease liabilities		$	61	$	44
Financing lease assets obtained in exchange for new or modified leases						Financing lease assets obtained in exchange for new or modified leases	$	172	$	135
Operating lease assets obtained in exchange for new or modified leases						Operating lease assets obtained in exchange for new or modified leases	$	60	$	140

The accompanying notes are an integral part of these condensed consolidated financial statements.

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COSTCO WHOLESALE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in millions, except share, per share, and warehouse count data)

(unaudited)

Note 1—Summary of Significant Accounting Policies

Description of Business

Costco Wholesale Corporation (Costco or the Company), a Washington corporation, and its subsidiaries operate membership warehouses based on the concept that offering members low prices on a limited selection of nationally-branded and private-label products in a wide range of merchandise categories will produce high sales volumes and rapid inventory turnover. For the period ended ~~November 21, 2021,~~February 13, 2022, Costco operated ~~823~~828 warehouses worldwide: ~~571~~572 in the United States (U.S.) located in 46 states, Washington, D.C., and Puerto Rico, 105 in Canada, 3940 in Mexico, 30 in Japan, 29 in the United Kingdom (U.K.), 16 in Korea, 14 in Taiwan, 13 in Australia, 34 in Spain, 2 each in France and China, and 1 ~~each~~ in ~~Iceland, France and China.~~Iceland. The Company operates e-commerce websites in the U.S., Canada, Mexico, U.K., Korea, Taiwan, Japan, and Australia.

Basis of Presentation

The condensed 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.

These unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q for interim financial reporting pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). While these statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (U.S. GAAP) for complete financial statements. Therefore, the interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report ~~filed~~ on Form 10-K for the fiscal year ended August 29, 2021.

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. Fiscal 2022 is a 52-week year ending on August 28, 2022. References to the ~~first~~second quarter of 2022 and 2021 relate to the 12-week fiscal quarters ended ~~November 21,~~February 13, 2022 and February 14, 2021, respectively. References to the first half of 2022 and ~~November 22, 2020.~~2021 relate to the 24 weeks ended February 13, 2022 and February 14, 2021, respectively.

Use of Estimates

The preparation of financial statements in conformity with U.S. ~~generally accepted accounting principles (U.S. GAAP)~~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.~~reasonable. Actual results could differ from those estimates and assumptions.

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Property and Equipment, Net

The Company capitalizes certain computer software and costs incurred in developing or obtaining software for internal use. ~~In the first quarter of 2022, the~~The Company recognized a $118 write-off of certain information technology assets, which was recorded in the first quarter of 2022, in selling, general and administrative expenses, in the condensed consolidated statements of income.

Reclassification

Reclassifications were made to our second quarter and first ~~quarter~~half 2021 condensed consolidated statements of income to conform with current period presentation.

Note 2—Investments

The Company's investments were as follows:


November 21, 2021:		Cost Basis		Unrealized Gains, Net		Recorded Basis
February 13, 2022:								February 13, 2022:	Cost Basis		Unrealized Gains, Net		Recorded Basis
Available-for-sale:	Available-for-sale:							Available-for-sale:
Government and agency securities	Government and agency securities	$	354	$	5	$	359	Government and agency securities	$	364	$	1	$	365

Held-to-maturity:	Held-to-maturity:							Held-to-maturity:
Certificates of deposit	Certificates of deposit	366		—		366		Certificates of deposit	112		—		112

Total short-term investments	Total short-term investments	$	720	$	5	$	725	Total short-term investments	$	476	$	1	$	477


August 29, 2021:	Cost Basis		Unrealized Gains, Net		Recorded Basis
Available-for-sale:
Government and agency securities	$	375	$	6	$	381
Held-to-maturity:
Certificates of deposit	536		—		536
Total short-term investments	$	911	$	6	$	917

Gross unrecognized holding gains and losses on available-for-sale securities were not material for the periods ended ~~November 21, 2021,~~February 13, 2022, and August 29, 2021. At those dates, there were no available-for-sale securities in a material continuous unrealized-loss position. There were no sales of available-for-sale securities during the first ~~quarter~~half of 2022 or 2021.

The maturities of available-for-sale and held-to-maturity securities at ~~November 21, 2021,~~February 13, 2022, are as follows:


		Available-For-Sale				Held-To-Maturity			Available-For-Sale				Held-To-Maturity
		Cost Basis		Fair Value					Cost Basis		Fair Value
Due in one year or less	Due in one year or less	$	198	$	199	$	366	Due in one year or less	$	247	$	247	$	112
Due after one year through five years	Due after one year through five years	156		160		—		Due after one year through five years	117		118		—

Total	Total	$	354	$	359	$	366	Total	$	364	$	365	$	112

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Note 3—Fair Value Measurement

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The table below presents information regarding financial assets and liabilities that are measured at fair value on a recurring basis and indicates the level within the fair value hierarchy reflecting the valuation techniques utilized.


		Level 2					Level 2
		November 21, 2021		August 29, 2021			February 13, 2022		August 29, 2021

Investment in government and agency securities(1)	Investment in government and agency securities(1)	$	359	$	393	Investment in government and agency securities(1)	$	373	$	393

Forward foreign-exchange contracts, in asset position(2)	Forward foreign-exchange contracts, in asset position(2)	24		17		Forward foreign-exchange contracts, in asset position(2)	13		17
Forward foreign-exchange contracts, in (liability) position(2)	Forward foreign-exchange contracts, in (liability) position(2)	(2)		(2)		Forward foreign-exchange contracts, in (liability) position(2)	(1)		(2)
Total	Total	$	381	$	408	Total	$	385	$	408

_______________

(1)At February 13, 2022, $8 cash and cash equivalents and $365 short-term investments are included in the accompanying condensed consolidated balance sheets. At August 29, 2021, $12 cash and cash equivalents and $381 short-term investments are included in the accompanying condensed consolidated balance sheets.

(2)The asset and liability values are included in other current assets and other current liabilities, respectively, in the accompanying condensed consolidated balance sheets.

At ~~November 21, 2021,~~February 13, 2022, and August 29, 2021, 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 the first ~~quarter~~half of 2022 or 2021.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets and liabilities recognized and disclosed at fair value on a nonrecurring basis include items such as financial assets measured at amortized cost and long-lived nonfinancial assets. These assets are measured at fair value if determined to be impaired. There were no fair value adjustments to these items during the first ~~quarter~~half of 2022 or 2021.

Note 4—Debt

The carrying value of the Company’s long-term debt consisted of the following:


		November 21, 2021		August 29, 2021			February 13, 2022		August 29, 2021
2.300% Senior Notes due May 2022	2.300% Senior Notes due May 2022	$	800	$	800	2.300% Senior Notes due May 2022	$	—	$	800
2.750% Senior Notes due May 2024	2.750% Senior Notes due May 2024	1,000		1,000		2.750% Senior Notes due May 2024	1,000		1,000
3.000% Senior Notes due May 2027	3.000% Senior Notes due May 2027	1,000		1,000		3.000% Senior Notes due May 2027	1,000		1,000
1.375% Senior Notes due June 2027	1.375% Senior Notes due June 2027	1,250		1,250		1.375% Senior Notes due June 2027	1,250		1,250
1.600% Senior Notes due April 2030	1.600% Senior Notes due April 2030	1,750		1,750		1.600% Senior Notes due April 2030	1,750		1,750
1.750% Senior Notes due April 2032	1.750% Senior Notes due April 2032	1,000		1,000		1.750% Senior Notes due April 2032	1,000		1,000
Other long-term debt	Other long-term debt	704		731		Other long-term debt	694		731
Total long-term debt	Total long-term debt	7,504		7,531		Total long-term debt	6,694		7,531
Less unamortized debt discounts and issuance costs	Less unamortized debt discounts and issuance costs	38		40		Less unamortized debt discounts and issuance costs	36		40
Less current portion(1)	Less current portion(1)	799		799		Less current portion(1)	—		799
Long-term debt, excluding current portion	Long-term debt, excluding current portion	$	6,667	$	6,692	Long-term debt, excluding current portion	$	6,658	$	6,692

_______________

(1)Net of unamortized debt discounts and issuance costs.

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The fair value of the Senior Notes is estimated using Level 2 inputs. Other long-term debt consists of Guaranteed Senior Notes issued by the Company's Japan subsidiary, valued using Level 3 inputs. The fair value of the Company's long-term debt, including the current portion, was approximately ~~$7,541~~$6,492 and $7,692 at ~~November 21, 2021,~~February 13, 2022, and August 29, 2021.

~~Subsequent to the end of the quarter, on~~On December 1, 2021, the Company repaid, prior to maturity, the 2.300% Senior Notes at a redemption price plus accrued interest as specified in the Notes' agreement.

Note 5—Equity

Dividends

The Company’s current quarterly dividend is $0.79 per share, compared to $0.70 in the ~~first~~second quarter of 2021. On ~~October 13, 2021,~~January 20, 2022, the Board of Directors declared a quarterly cash dividend in the amount of $0.79 per share, which was paid on ~~November 12, 2021. On December 11, 2020, an aggregate payment of approximately $4,430 was made in connection with the special cash dividend of $10.00 per share, declared on November 16, 2020.~~February 18, 2022.

~~Stock~~Share Repurchase ~~Programs~~Program

The Company's ~~stock~~share repurchase program is conducted under a $4,000 authorization by the Board of Directors, which expires in April 2023. The remaining amount available ~~for stock repurchases~~ under the approved plan was ~~$3,215~~$3,132 at ~~November 21, 2021. Stock~~February 13, 2022. Share repurchase activity during the ~~first~~second quarter of 2022 and 2021 is summarized below:

Shares Repurchased (000s) Average Price per Share Total Cost
First quarter of 2022 77 $ 455.08 $ 35
First quarter of 2021 213 $ 359.45 $ 77


	Shares Repurchased (000s)	Average Price per Share		Total Cost
Second quarter of 2022	159	$	518.73	$	83
First half of 2022	236	$	498.00	$	118

Second quarter of 2021	308	$	362.95	$	112
First half of 2021	521	$	361.52	$	189

These amounts may differ from the ~~stock~~ repurchase balances in the accompanying condensed consolidated statements of cash flows due to changes in unsettled ~~stock~~ repurchases at quarter end. 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.

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Note 6—Stock-Based Compensation

The 2019 Incentive Plan authorized the issuance of 17,500,000 shares (10,000,000 RSUs) of common stock for future grants, plus the remaining shares that were available for grant and the future forfeited shares from grants under the previous plan, up to a maximum of 27,800,000 shares (15,885,000 RSUs). The Company issues new shares of common stock upon vesting of RSUs. Shares for vested RSUs are generally delivered to participants annually, net of shares withheld for taxes.

Summary of Restricted Stock Unit Activity

At ~~November 21, 2021, 10,334,000~~February 13, 2022, 10,388,000 shares were available to be granted as RSUs, and the following awards were outstanding:

•~~3,463,000~~3,403,000 time-based RSUs, which vest upon continued employment over specified periods and ~~accelerates~~accelerate upon achievement of the long-service term;

•39,000 performance-based RSUs, granted to executive officers of the Company, for which the performance targets have been met. The awards vest upon continued employment over specified periods of ~~time;~~time and upon achievement of the long-service term; and

•82,000 performance-based RSUs, granted to executive officers of the Company, subject to achievement of performance targets for fiscal 2022, as determined by the Compensation Committee of the Board of Directors after the end of the fiscal year. These awards are ~~not~~ included in the table ~~below or~~below. The Company recognized compensation expense for these awards in the ~~amount~~second quarter of ~~unrecognized compensation cost.~~2022, as it is currently deemed probable that the targets will be achieved.

The following table summarizes RSU transactions during the first ~~quarter~~half of 2022:


		Number of Units (in 000s)	Weighted-Average Grant Date Fair Value			Number of Units (in 000s)	Weighted-Average Grant Date Fair Value
Outstanding at August 29, 2021	Outstanding at August 29, 2021	4,349	$	257.88	Outstanding at August 29, 2021	4,349	$	257.88
Granted	Granted	1,597	474.74		Granted	1,679	476.06
Vested and delivered	Vested and delivered	(2,432)	290.20		Vested and delivered	(2,438)	290.20
Forfeited	Forfeited	(12)	298.67		Forfeited	(66)	320.88
Outstanding at November 21, 2021		3,502	$	334.16
Outstanding at February 13, 2022					Outstanding at February 13, 2022	3,524	$	338.29

The remaining unrecognized compensation cost related to RSUs unvested ~~RSUs~~ at ~~November 21, 2021,~~February 13, 2022, was ~~$1,089,~~$985, and the weighted-average period over which this cost will be recognized is 1.8 years.

Summary of Stock-Based Compensation

The following table summarizes stock-based compensation expense and the related tax benefits:

12 Weeks Ended
November 21,
2021 November 22,
2020
Stock-based compensation expense $ 388 $ 341
Less recognized income tax benefit 85 75
Stock-based compensation expense, net $ 303 $ 266


	12 Weeks Ended				24 Weeks Ended
	February 13, 2022		February 14, 2021		February 13, 2022		February 14, 2021
Stock-based compensation expense	$	128	$	122	$	516	$	463
Less recognized income tax benefits	23		22		108		97
Stock-based compensation expense, net	$	105	$	100	$	408	$	366

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Note 7—Net Income per Common and Common Equivalent Share

The following table shows the amounts used in computing net income per share and the weighted average number of shares of basic and potentially dilutive common shares outstanding (shares in 000s):

12 Weeks Ended
November 21,
2021 November 22,
2020
Net income attributable to Costco $ 1,324 $ 1,166
Weighted average basic shares 443,377 442,952
RSUs 1,227 1,434
Weighted average diluted shares 444,604 444,386
Anti-dilutive RSUs — 432

~~Anti-dilutive shares are excluded from the calculation of diluted shares and earnings per diluted share because their impact would increase earnings per diluted share.~~


	12 Weeks Ended				24 Weeks Ended
	February 13, 2022		February 14, 2021		February 13, 2022		February 14, 2021
Net income attributable to Costco	$	1,299	$	951	$	2,623	$	2,117
Weighted average basic shares	443,623		443,134		443,500		443,043
RSUs	1,293		1,360		1,260		1,397
Weighted average diluted shares	444,916		444,494		444,760		444,440

Note 8—Commitments and Contingencies

Legal Proceedings

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~~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.

The Company is a defendant in an action commenced in ~~August~~July 2013 under the California Labor Code Private Attorneys General Act (PAGA) alleging violation of California Wage Order 7-2001 for failing to provide seating to employees who work at entrance and exit doors in California warehouses. Canela v. Costco Wholesale Corp.~~, et al.~~(Case No. 2013-1-CV-248813; Santa Clara Superior Court). The complaint seeks relief under the California Labor Code, including civil penalties and attorneys’ fees. The Company filed an answer denying the material allegations of the complaint.

In December 2018, a depot employee raised similar claims, alleging that depot employees in California did not receive suitable seating or reasonably comfortable workplace temperature conditions. Lane v. Costco Wholesale Corp. ~~(Case~~(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.

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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

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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 is in abeyance due to a pending settlement for an immaterial amount that was agreed upon in February 2021. The Court preliminarily approved the settlement in October 2021, and the Court's final review is scheduled for May 2022.

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~~In September 2021 the court granted Costco’s motion for partial summary ~~judgement,~~judgment and ~~the parties have filed competing motions regarding~~denied class certification. In August 2019, the plaintiff filed a companion case in state court seeking penalties under PAGA. Rough v. Costco Wholesale Corp. (Case No. FCS053454; Sonoma County Superior Court). Relief is sought under the California Labor Code, including civil penalties and attorneys' fees. The state court action has been stayed pending resolution of the federal action.

In 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 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.

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 December 2020, a former employee filed suit against the Company asserting collective and class claims on behalf of non-exempt employees under the Fair Labor Standards Act and New York Labor Law for failure to pay for all hours worked, failure to pay certain non-exempt employees on a weekly basis, and failure to provide proper wage statements and notices. The plaintiff also ~~asserts~~asserted 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. Based on an agreement in principle concerning settlement of the matter, involving a proposed payment by the Company of an immaterial amount, the federal action has been dismissed. In August 2021, a former employee filed a similar suit, asserting ~~collective and~~ class claims on behalf of certain non-exempt employees under ~~the FLSA and~~ New York ~~law.~~Labor Law for failure to pay on a weekly basis. Umadat v. Costco Wholesale Corp. (Case No. 2:21-cv-4814; E.D.N.Y.). The Company answered the complaint on October 21, 2021, denying the material allegations.

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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 filed an answer to the second amended class action complaint, denying the material allegations.

In July 2021, a former temporary staffing employee filed a class action against the Company and a staffing company alleging violations of the California Labor Code regarding payment of wages, meal and rest periods, wage statements, the timeliness of wages and final wages, and for unfair business practices. Dimas v. Costco Wholesale Corp. (Case No. STK-CV-UOE-2021-0006024; San Joaquin Superior Court). The Company ~~will move~~has moved to compel arbitration of the plaintiff's individual claims and to dismiss the class action complaint. On September 7, 2021, the same former employee filed a separate representative

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action under PAGA asserting the same Labor Code violations and seeking civil penalties and attorneys' fees. The complaint has not yet been served.

In September 2021, an employee filed a class action against the Company alleging violations of the California Labor Code regarding the alleged failure to provide sick pay, failure to timely pay wages due at separation from employment, and for violations of California's unfair competition law. De Benning v. Costco Wholesale Corp. (Case No. 34-2021-00309030-CU-OE-GDS; Sacramento Superior Court). The Company ~~has not yet responded to~~answered the ~~complaint.~~complaint in January 2022, denying its material allegations.

Beginning in December 2017, the United States Judicial Panel on Multidistrict Litigation consolidated numerous cases concerning the impacts of opioid abuses filed against various defendants by counties, cities, hospitals, Native American tribes, third-party payors, and others. In re National Prescription Opiate Litigation ~~(MDL~~(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.

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.

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Note 9—Segment Reporting

The Company and its subsidiaries are principally engaged in the operation of membership warehouses 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 consider geographic locations. The material accounting policies of the segments are as described in the notes to the consolidated financial statements included in the Company's Annual Report filed on Form 10-K for the fiscal year ended August 29, 2021, and Note 1 above. Inter-segment net sales and expenses have been eliminated in computing total revenue and operating income. Effective for ~~the 12 weeks ending November 21, 2021,~~fiscal 2022, stock-based compensation was allocated to the ~~segments.~~segments in this reporting. This change reflected a decision to evaluate the financial performance of the ~~Company's~~ segments inclusive of this expense. Operating income was restated in each of the segments for all prior periods to reflect this change.

The following table provides information for the Company's reportable segments:


		United States Operations		Canadian Operations		Other International Operations		Total			United States Operations		Canadian Operations		Other International Operations		Total
12 Weeks Ended November 21, 2021
12 Weeks Ended February 13, 2022										12 Weeks Ended February 13, 2022
Total revenue	Total revenue	$	36,317	$	7,121	$	6,925	$	50,363	Total revenue	$	37,567	$	7,017	$	7,320	$	51,904
Operating income	Operating income	1,118		293		282		1,693		Operating income	1,179		301		332		1,812
12 Weeks Ended November 22, 2020
12 Weeks Ended February 14, 2021										12 Weeks Ended February 14, 2021
Total revenue										Total revenue	$	32,127	$	6,001	$	6,641	$	44,769
Operating income										Operating income	826		226		288		1,340
24 Weeks Ended February 13, 2022										24 Weeks Ended February 13, 2022
Total revenue	Total revenue	$	31,292	$	6,011	$	5,905	$	43,208	Total revenue	$	73,884	$	14,138	$	14,245	$	102,267
Operating income	Operating income	937		247		246		1,430		Operating income	2,297		594		614		3,505

24 Weeks Ended February 14, 2021										24 Weeks Ended February 14, 2021
Total revenue										Total revenue	$	63,419	$	12,012	$	12,546	$	87,977
Operating income										Operating income	1,763		473		534		2,770

52 Weeks Ended August 29, 2021	52 Weeks Ended August 29, 2021									52 Weeks Ended August 29, 2021
Total revenue	Total revenue	$	141,398	$	27,298	$	27,233	$	195,929	Total revenue	$	141,398	$	27,298	$	27,233	$	195,929
Operating income	Operating income	4,470		1,093		1,145		6,708		Operating income	4,470		1,093		1,145		6,708

Disaggregated Revenue

The following table summarizes net sales by merchandise category; sales from e-commerce websites and business centers have been allocated to ~~their respective~~the applicable merchandise categories:


		12 Weeks Ended				12 Weeks Ended				24 Weeks Ended
		November 21, 2021		November 22, 2020				February 13, 2022		February 14, 2021		February 13, 2022		February 14, 2021
Foods and Sundries	Foods and Sundries	$	19,563	$	18,019		Foods and Sundries	$	19,489	$	17,624	$	39,052	$	35,643
Non-Foods	Non-Foods	14,162		12,384			Non-Foods	15,105		13,723		29,267		26,107
Fresh Foods	Fresh Foods	6,439		5,863			Fresh Foods	6,959		6,254		13,398		12,117
Ancillary and Other Businesses	Ancillary and Other Businesses	9,253		6,081			Ancillary and Other Businesses	9,384		6,287		18,637		12,368
Total net sales	Total net sales	$	49,417	$	42,347		Total net sales	$	50,937	$	43,888	$	100,354	$	86,235

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Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations

(amounts in millions, except per share, share, and warehouse count data)

FORWARD-LOOKING STATEMENTS

Certain statements contained in this document constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For these purposes, forward-looking statements are statements that address activities, events, conditions or developments that the Company expects or anticipates may occur in the future and may relate to such matters as net sales growth, changes in comparable sales, cannibalization of existing locations by new openings, price or fee changes, earnings performance, earnings per share, stock-based compensation expense, warehouse openings and closures, capital spending, the effect of adopting certain accounting standards, future financial reporting, financing, margins, return on invested capital, strategic direction, expense controls, membership renewal rates, shopping frequency, litigation, and the demand for our products and services. In some cases, forward-looking statements can be identified because they contain words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms. Such forward-looking statements involve risks and uncertainties that may cause actual events, results, or performance to differ materially from those indicated by such statements. These risks and uncertainties include, but are not limited to, domestic and international economic conditions, including exchange rates, inflation or deflation, the effects of competition and regulation, uncertainties in the financial markets, consumer and small-business spending patterns and debt levels, breaches of security or privacy of member or business information, conditions affecting the acquisition, development, ownership or use of real estate, capital spending, actions of vendors, rising costs associated with employees (generally including health-care costs), energy and certain commodities, geopolitical conditions (including ~~tariffs)~~tariffs and the Ukraine conflict), the ability to maintain effective internal control over financial reporting, regulatory and other impacts related to climate change, and COVID-19 related factors and challenges, including (among others) the duration of the pandemic, the unknown long-term economic impact, reduced ~~member~~ shopping due to illness, travel restrictions or financial hardship, shifts in demand for products, reduced workforces due to illness, quarantine, or government mandates, temporary store closures or operational limitations due to government mandates, or supply-chain disruptions, capacity constraints of third-party logistics suppliers, and other risks identified from time to time in the Company's public statements and reports filed with the Securities and Exchange Commission (SEC). Forward-looking statements speak only as of the date they are made, and the Company does not undertake to update these statements, except as required by law.

OVERVIEW

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 condensed consolidated financial statements and the accompanying Notes to Financial Statements (Part I, Item 1 of this Form 10-Q), as well as our consolidated financial statements, the accompanying Notes to Financial Statements, and the related Management's Discussion and Analysis of Financial Condition and Results of Operations in our fiscal year 2021 Form 10-K, which was filed with the United States Securities and Exchange Commission (SEC) on October 6, 2021.

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.

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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,~~(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 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. Merchandise costs in the second quarter and first half of 2022 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.

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The membership format is an integral part of our business and has a significant effect on our profitability. This format is designed to reinforce member loyalty and provide continuing fee revenue. The extent to which we achieve growth in our membership base, increase the penetration of our Executive members, and sustain high renewal rates materially influences our profitability. Our paid membership growth rate may be adversely impacted when warehouse openings occur in existing markets as compared to new markets.

Our financial performance depends heavily on controlling costs. While we believe that we have achieved successes in this area, some significant costs are partially outside our control, particularly health care and utility expenses. With respect to the compensation of our employees, our philosophy is not to seek to minimize their wages and benefits. Rather, we believe that ~~achieving~~ our longer-term objectives of reducing employee turnover and enhancing employee satisfaction ~~requires~~require 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.

Our operating model is generally the same across our U.S., Canadian, and Other International operating segments (see Note 9 to the condensed consolidated financial statements included in Part I, Item 1, 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.~~or business delivery.

In discussions of our consolidated operating results, we refer to the impact of changes in foreign currencies relative to the U.S. dollar, which are 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 fiscal year ends on the Sunday closest to August 31. References to the ~~first~~second quarter of 2022 and 2021 relate to the 12-week fiscal quarters ended ~~November 21,~~February 13, 2022, and February 14, 2021. References to the first half of 2022 and 2021 relate to the 24 weeks ended February 13, 2022, and ~~November 22, 2020.~~February 14, 2021. Certain percentages presented are calculated using actual results prior to rounding. Unless otherwise noted, references to net income relate to net income attributable to Costco.

Highlights for the ~~first~~second quarter of 2022 ~~as compared to the first quarter of~~versus 2021 include:

•Net sales increased ~~17%~~16% to ~~$49,417,~~$50,937, driven by an increase in comparable sales of ~~15%~~14% and sales at 2025 net new warehouses opened since the end of the ~~first~~second quarter of 2021;

•Membership fee revenue increased 10% to ~~$946,~~$967, driven by new member sign-ups, upgrades to Executive Membership, and an increase in our renewal ~~rate as more members have transitioned to auto renew;~~rate;

•Gross margin percentage decreased 4932 basis points, driven primarily by our core merchandise ~~categories;~~categories, partially offset by our warehouse ancillary and other businesses, primarily gasoline;

•SG&A expenses as a percentage of net sales decreased 6594 basis points, primarily due to leveraging increased sales and ceasing of incremental wages related to COVID-19;

•~~The provision for~~Net income ~~taxes in the first quarter of 2022~~ was ~~positively impacted by a benefit related to stock compensation of $91, $0.21~~$1,299, $2.92 per diluted share, compared to ~~$75, $0.17~~$951, $2.14 per diluted share in 2021;

•On January 20, 2022 our board declared a quarterly cash dividend of $0.79 per share, which was paid on February 18, 2022; and

•Subsequent to the ~~first~~end of the quarter, ~~of 2021. The first quarter of 2021 was also positively impacted by a benefit of $70, $0.16 per diluted share,~~ in ~~connection~~mid-March we will be increasing various wages and benefits, consistent with the ~~portion of the special dividend paid to 401(k) participants;~~three-year cycle on which this has been done historically. Most

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•~~Net income was $1,324, $2.98~~significant are increases of a minimum of fifty cents per ~~diluted share, compared~~hour for U.S. and Canada wage scales. Certain other bonuses and benefits will be increasing for many employees. The estimated incremental annualized pre-tax costs of these increases, after considering our normal annual increases is approximately $275. Further, an additional $85 will be recorded in the third fiscal quarter related to ~~$1,166, $2.62 per diluted share in 2021;~~a one-time true-up to accrued benefits, related to these wage and

•~~A quarterly cash dividend of $0.79 per share was paid on November 12, 2021.~~ benefit changes.

COVID-19

The COVID-19 pandemic ~~continues.~~continued to impact our business in the second quarter of 2022, albeit to a lesser extent. COVID-related and other supply and logistics constraints have continued to adversely affect some merchandise categories and are expected to do so for the foreseeable future. During the second quarter and first ~~quarter~~half of fiscal 2021, we paid ~~$212~~$246 and $458 in incremental wages related to COVID-19, which ceased in February 2021.

Certain risks and uncertainties related to the pandemic and vaccine mandates are included in Risk Factors (Part II, Item 1A) of this Form 10-Q and in Part 1, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended August 29, 2021.

RESULTS OF OPERATIONS

Net Sales


		12 Weeks Ended						12 Weeks Ended					24 Weeks Ended
		November 21, 2021			November 22, 2020					February 13, 2022			February 14, 2021			February 13, 2022			February 14, 2021
Net Sales	Net Sales	$	49,417		$	42,347			Net Sales	$	50,937		$	43,888		$	100,354		$	86,235
Changes in net sales:	Changes in net sales:								Changes in net sales:
U.S	U.S	16		%	16		%		U.S	17		%	13		%	17		%	14		%
Canada	Canada	19		%	18		%		Canada	17		%	15		%	18		%	16		%
Other International	Other International	17		%	22		%		Other International	10		%	25		%	14		%	24		%
Total Company	Total Company	17		%	17		%		Total Company	16		%	15		%	16		%	16		%
Changes in comparable sales:	Changes in comparable sales:								Changes in comparable sales:
U.S	U.S	15		%	15		%		U.S	16		%	11		%	15		%	13		%
Canada	Canada	17		%	16		%		Canada	16		%	13		%	17		%	15		%
Other International	Other International	13		%	19		%		Other International	6		%	22		%	10		%	20		%
Total Company	Total Company	15		%	15		%		Total Company	14		%	13		%	15		%	14		%
Changes in comparable sales excluding the impact of changes in foreign-currency and gasoline prices:	Changes in comparable sales excluding the impact of changes in foreign-currency and gasoline prices:								Changes in comparable sales excluding the impact of changes in foreign-currency and gasoline prices:
U.S	U.S	10		%	17		%		U.S	11		%	13		%	11		%	15		%
Canada	Canada	8		%	17		%		Canada	12		%	11		%	10		%	14		%
Other International	Other International	11		%	18		%		Other International	9		%	18		%	10		%	18		%
Total Company	Total Company	10		%	17		%		Total Company	11		%	13		%	11		%	15		%

Net Sales

Net sales increased ~~$7,070~~$7,049 or ~~17%~~16%, and $14,119 or 16% during the ~~first~~second quarter and first half of 2022. This improvement was attributable to an increase in comparable sales of 14% and 15% in the second quarter and first half of 2022, and sales at the 2025 net new warehouses opened since the end of the ~~first~~second quarter of 2021. While sales in all core merchandise categories and warehouse ancillary and other businesses increased, ~~increases were~~the rate of increase was strongest in ~~non-foods,~~our gasoline, business centers, and ~~travel. Merchandise costs~~travel businesses. Sales continued to be impacted by inflation, ~~slightly~~ higher than what we experienced in the ~~fourth~~first quarter of fiscal ~~2021.~~2022.

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During the second quarter of 2022, higher gasoline prices positively impacted net sales by ~~$1,843,~~$1,713, or ~~435~~390 basis points, compared to 2021, with a ~~49%~~44% increase in the average price per gallon. The volume of gasoline sold increased approximately 25%, positively impacting net sales by $814, or 185 basis points. Changes in foreign currencies relative to the U.S. dollar negatively impacted net sales by approximately $281, or 64 basis points, compared to the second quarter of 2021, primarily attributable to our Other International operations.

During the first half of 2022, higher gasoline prices positively impacted net sales by $3,559, or 413 basis points, compared to 2021, with a 46% increase in the average price per gallon. The volume of gasoline sold increased approximately 26%, positively impacting net sales by ~~$809,~~$1,620, or ~~191~~188 basis points. Changes in foreign currencies relative to the U.S. dollar positively impacted net sales by approximately ~~$380,~~$101, or 9012 basis points, compared to the first ~~quarter~~half of 2021, primarily attributable to our Canadian operations, partially offset by our Other International operations.

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Comparable Sales

Comparable sales increased 14% and 15% in the second quarter and first ~~quarter~~half of 2022, and were positively impacted by increases in shopping frequency and the average ticket, which includes the effects of inflation and ~~shopping frequency. There was an increase of 14%~~changes in ~~e-commerce~~foreign currency. E-commerce comparable sales increased 13% in the second quarter and first ~~quarter~~half of 2022.

Membership Fees


		12 Weeks Ended						12 Weeks Ended					24 Weeks Ended
		November 21, 2021			November 22, 2020					February 13, 2022			February 14, 2021			February 13, 2022			February 14, 2021
Membership fees	Membership fees	$	946		$	861			Membership fees	$	967		$	881		$	1,913		$	1,742
Membership fees increase	Membership fees increase	10		%	7		%		Membership fees increase	10		%	8		%	10		%	8		%
Total paid members (000s)	Total paid members (000s)	62,500			59,100				Total paid members (000s)	63,400			59,700			—			—
Total cardholders (000s)	Total cardholders (000s)	113,100			107,100				Total cardholders (000s)	114,800			108,300			—			—

Membership fee revenues increased 10%, in both the second quarter and first half of 2022, driven by sign-ups and upgrades to Executive Membership. At the end of the ~~first~~second quarter of 2022, our member renewal rates were 92% in the U.S. and Canada and ~~89%~~90% worldwide. Renewal rates continue to benefit from more members auto renewing, ~~as well as~~and increased penetration of executive members, who on average renew at a higher rate. Our renewal rate, which excludes affiliates of Business members, is a trailing calculation that captures renewals during the period seven to eighteen months prior to the reporting date.

We account for membership fee revenue on a deferred basis, recognized ratably over the one-year membership period. Our membership counts include active memberships as well as memberships that have not renewed within the 12 months prior to the reporting date.

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Gross Margin


		12 Weeks Ended						12 Weeks Ended					24 Weeks Ended
		November 21, 2021			November 22, 2020					February 13, 2022			February 14, 2021			February 13, 2022			February 14, 2021
Net sales	Net sales	$	49,417		$	42,347			Net sales	$	50,937		$	43,888		$	100,354		$	86,235
Less merchandise costs	Less merchandise costs	43,952			37,458				Less merchandise costs	45,517			39,078			89,469			76,536
Gross margin	Gross margin	$	5,465		$	4,889			Gross margin	$	5,420		$	4,810		$	10,885		$	9,699
Gross margin percentage	Gross margin percentage	11.06		%	11.55		%		Gross margin percentage	10.64		%	10.96		%	10.85		%	11.25		%

Quarterly Results

The gross margin of core merchandise categories, when expressed as a percentage of core merchandise sales (rather than total net sales), decreased 1828 basis points. The decrease was across all categories, most significantly in fresh foods. This measure eliminates the impact of changes in sales penetration and gross margins from our warehouse ancillary and other businesses. ~~The decrease was primarily due to fresh foods and foods and sundries, partially offset by non-foods.~~

Total gross margin percentage decreased 4932 basis points compared to the ~~first~~second quarter of 2021. Excluding the impact of gasoline price inflation on net sales, gross margin percentage was ~~11.49%~~11.01%, ~~a decrease~~an increase of ~~six~~five basis points. This was primarily due to a 2649 basis-point increase in warehouse ancillary and other businesses, predominantly gasoline. Gross margin was also positively impacted by 14 basis points due to decreased incremental wages related to COVID-19, which ended February 28, 2021. Gross margin was negatively impacted due to a 43 basis-point decrease in all core merchandise categories, predominantly fresh foods and foods and sundries, ~~and fresh foods. Gross margin was also negatively impacted by three~~14 basis points due to a LIFO charge for higher merchandise costs, and one basis-point due to increased 2% rewards. ~~Gross~~Changes in foreign currencies relative to the U.S. dollar negatively impacted gross margin ~~percentage was positively impacted~~ by ~~12 basis points due~~approximately $31, compared to ~~decreased incremental wages related to COVID-19, which ended on February 28, 2021. Warehouse ancillary and other businesses increased 12 basis points,~~the second quarter of 2021, primarily ~~due~~attributable to our ~~gasoline business and certain other ancillary businesses.~~Other International operations.

Gross margin on a segment basis, when expressed as a percentage of the segment's own sales and excluding the impact of changes in gasoline prices on net sales (segment gross margin percentage), increased in our U.S. and Canadian segment, due to warehouse ancillary and other businesses and ceasing of incremental wages related to COVID-19, partially offset by core

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merchandise ~~categories and~~categories. Our U.S. segment was also negatively impacted due to the LIFO charge. ~~Gross margin percentage decreased in our Canadian segment, primarily due to decreases in core merchandise categories and warehouse ancillary and other businesses.~~ Gross margin percentage decreased in our Other International segment due to decreases in core merchandise categories and increased 2% rewards, partially offset by warehouse ancillary and other businesses and ceasing of incremental wages related to COVID-19.

Year-to-date Results

The gross margin of core merchandise categories, when expressed as a percentage of core merchandise sales (rather than total net sales), decreased 23 basis points. The decrease was primarily due to fresh foods, and foods and sundries, partially offset by non-foods.

Total gross margin percentage decreased 40 basis points compared to the first half of 2021. Excluding the impact of gasoline price inflation on net sales, gross margin percentage was flat as compared to the first half of 2021. Warehouse ancillary and other businesses, predominantly gasoline, increased 31 basis points. Gross margin was also positively impacted by 13 basis points due to ceasing of incremental wages related to COVID-19. Gross margin was negatively impacted due to a 34 basis-point decrease in core merchandise categories, predominantly foods and sundries, and fresh foods. Gross margin was also negatively impacted by nine basis points due to a LIFO charge for higher merchandise costs and one basis-point due to increased 2% rewards.

The segment gross margin percentage increased in our U.S. segment and performed similarly to the quarterly results above. Gross margin percentage decreased in our Canadian segment, primarily due to decreases in core merchandise categories partially offset by warehouse ancillary and other businesses.

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Gross margin percentage decreased in our Other International segment due to decreases in core merchandise categories and increased 2% rewards, partially offset by increases in warehouse ancillary and other businesses. All our segments benefited from the ceasing of incremental wages related to COVID-19.

Selling, General and Administrative Expenses


		12 Weeks Ended						12 Weeks Ended					24 Weeks Ended
		November 21, 2021			November 22, 2020					February 13, 2022			February 14, 2021			February 13, 2022			February 14, 2021
SG&A expenses	SG&A expenses	$	4,718		$	4,320			SG&A expenses	$	4,575		$	4,351		$	9,293		$	8,671
SG&A expenses as a percentage of net sales	SG&A expenses as a percentage of net sales	9.55		%	10.20		%		SG&A expenses as a percentage of net sales	8.98		%	9.92		%	9.26		%	10.06		%

Quarterly Results

SG&A expenses as a percentage of net sales decreased 6594 basis points. ~~SG&A expenses as a percentage of net sales excluding~~Excluding the impact of gasoline price inflation the decrease was ~~9.92%, a decrease of 28~~63 basis points. ~~Warehouse~~Ceasing incremental COVID-19 wages reduced expenses by 42 basis points. Central operating costs were lower by 10 basis points and warehouse operations and other businesses were lower by 11nine basis points, largely attributable to ~~payroll~~ leveraging increased sales. ~~Central operating costs were~~Stock compensation expense was lower by ~~six~~two basis points. SG&A expenses were also lower by a net 13 basis points resulting from ceasing incremental COVID-19 wages, partially offset by a write-off of certain information technology assets. Stock compensation and pre-opening expenses were each higher by one basis-point. Changes in foreign currencies relative to the U.S. dollar positively impacted SG&A expenses by approximately ~~$25,~~$23, compared to the ~~first~~second quarter of 2021, primarily attributable to our ~~Canadian~~Other International operations.

Year-to-date Results

SG&A expenses as a percentage of net sales decreased 80 basis points compared to the first half of 2021. Excluding the impact of gasoline price inflation the decrease was 46 basis points. SG&A expenses were positively impacted by a net 28 basis points due to the ceasing of incremental wages related to COVID-19, partially offset by a write-off of certain information technology assets. Warehouse operations and other businesses were lower by 10 basis points, largely attributable to payroll and benefits, primarily due to leveraging increased sales. Central operating costs were lower by eight basis points. Stock compensation expense was lower by one basis point. Pre-opening expenses were higher by one basis point.

The first ~~quarter~~half of fiscal 2022 includes the permanent $1 increase for hourly employees in our warehouses and distribution channels that began in March 2021, and beginning in October 2021, the additional starting wage increase from $16 and $16.50 to $17 and $18.

Interest Expense
12 Weeks Ended
November 21,
2021 November 22,
2020
Interest expense $ 39 $ 39


	12 Weeks Ended				24 Weeks Ended
	February 13, 2022		February 14, 2021		February 13, 2022		February 14, 2021
Interest expense	$	36	$	40	$	75	$	79

Interest expense is primarily related to Senior Notes. Interest expense decreased in the second quarter and first half of 2022 due to early repayment of the 2.300% Senior Notes on December 1, 2021.

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Interest Income and Other, Net


		12 Weeks Ended				12 Weeks Ended				24 Weeks Ended
		November 21, 2021		November 22, 2020				February 13, 2022		February 14, 2021		February 13, 2022		February 14, 2021
Interest income	Interest income	$	8	$	10		Interest income	$	6	$	11	$	15	$	21
Foreign-currency transaction gains, net		26		8
Foreign-currency transaction gains (losses), net							Foreign-currency transaction gains (losses), net	12		(1)		38		7
Other, net	Other, net	8		11			Other, net	7		9		14		20
Interest income and other, net	Interest income and other, net	$	42	$	29		Interest income and other, net	$	25	$	19	$	67	$	48

Interest income decreased in the second quarter and first half of 2022 due to lower interest rates, partially offset by higher average cash and investment balances. Foreign-currency transaction gains (losses), net include the revaluation or settlement of monetary assets and liabilities by our Canadian and Other International operations and mark-to-market adjustments for forward foreign-exchange contracts. See Derivatives and Foreign Currency sections in Item 8, Note 1 of our Annual Report on Form 10-K, for the fiscal year ended August 29, 2021.

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Provision for Income Taxes


		12 Weeks Ended						12 Weeks Ended					24 Weeks Ended
		November 21, 2021			November 22, 2020					February 13, 2022			February 14, 2021			February 13, 2022			February 14, 2021
Provision for income taxes	Provision for income taxes	$	351		$	239			Provision for income taxes	$	481		$	348		$	832		$	587
Effective tax rate	Effective tax rate	20.7		%	16.8		%		Effective tax rate	26.7		%	26.4		%	23.8		%	21.5		%

The effective tax rate for the first half of 2022 was ~~favorably~~ impacted by net discrete tax benefits of ~~$97.~~$91, which primarily related to the first quarter. This ~~was primarily attributable to~~included $91 of excess tax benefits related to stock compensation. Excluding discrete net tax benefits, the tax rate was 26.4%. for the first half of 2022.

The effective tax rate for the first ~~quarter~~half of 2021 was ~~favorably~~ impacted by net discrete tax benefits of ~~$135. This~~$136, which was primarily ~~attributable~~related to the first quarter. This included $75 of excess tax benefits related to stock compensation and $70 related to the special cash dividend paid through the 401(k) plan. Excluding net discrete tax benefits, the tax rate was ~~26.3%~~26.4% for the first ~~quarter~~half of 2021.

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes our significant sources and uses of cash and cash equivalents:


		12 Weeks Ended					24 Weeks Ended
		November 21, 2021		November 22, 2020			February 13, 2022		February 14, 2021
Net cash provided by operating activities	Net cash provided by operating activities	$	3,258	$	2,647	Net cash provided by operating activities	$	3,659	$	2,685
Net cash used in investing activities	Net cash used in investing activities	(912)		(682)		Net cash used in investing activities	(1,393)		(1,037)
Net cash used in financing activities	Net cash used in financing activities	(839)		(700)		Net cash used in financing activities	(1,667)		(5,350)

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 ~~$13,476~~$12,296 and $12,175 at ~~November 21, 2021,~~February 13, 2022, and August 29, 2021. Of these balances, unsettled credit and debit card receivables represented approximately ~~$2,245~~$1,993 and $1,816 at ~~November 21, 2021,~~February 13, 2022, and August 29, 2021. These receivables generally settle within four days.

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.

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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 primarily relate to the development and opening of new and relocated warehouses, the majority of which (other than leases) are due in the next 12 months.

Management believes that our cash and investment position and operating cash flows ~~as well as~~with capacity under existing and available credit agreements will be sufficient to meet our liquidity and capital requirements for the foreseeable future. Management also believes that our U.S. current and projected asset position is sufficient to meet U.S. liquidity and capital requirements.

Cash Flows from Operating Activities

Net cash provided by operating activities totaled ~~$3,258~~$3,659 in the first ~~quarter~~half of 2022, compared to ~~$2,647~~$2,685 in the first ~~quarter~~half of 2021. 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 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

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payable) is impacted by several factors, including how fast inventory is sold, the ~~strategic~~ forward deployment of inventory to accelerate delivery times to our members, payment terms with our suppliers, and the amount ~~of payables~~ paid early to obtain discounts from our suppliers.

Cash Flows from Investing Activities

Net cash used in investing activities totaled ~~$912~~$1,393 in the first ~~quarter~~half of 2022, compared to ~~$682~~$1,037 in the first ~~quarter~~half of 2021, and is primarily related to capital expenditures. Net cash from investing activities also includes purchases and maturities of short-term investments.

Capital Expenditure Plans

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 the first ~~quarter~~half of 2022, we spent ~~$1,055~~$1,778 on capital expenditures, and it is our current intention to spend approximately $4,000 during fiscal year 2022. These expenditures are expected to be financed with cash from operations, existing cash and cash equivalents, and short-term investments. We opened ~~nine~~14 new warehouses, including one relocation, in the first ~~quarter~~half of 2022 and plan to open 2015 to 2318 additional new warehouses, including up to ~~four~~three relocations, in the remainder of fiscal 2022. There can be no assurance that current expectations will be realized and plans are subject to change upon changes in capital expenditure needs or the economic environment.

Cash Flows from Financing Activities

Net cash used in financing activities totaled ~~$839~~$1,667 in the first ~~quarter~~half of 2022, compared to ~~$700~~$5,350 in the first ~~quarter~~half of 2021. Cash flow used in financing activities was primarily related to repayments of our 2.300% Senior Notes, withholding taxes on stock-based awards, the payment of dividends, and repurchases of common stock. ~~Subsequent~~In the first half of 2021, cash flow used in financing was primarily due to the ~~end~~payment of ~~the quarter, on December 1, 2021, we repaid, prior to maturity, the 2.300% Senior Notes at~~ a ~~redemption price plus accrued interest as specified in the Notes' agreement.~~special dividend.

Dividends

On ~~October 13, 2021,~~January 20, 2022, our Board declared a quarterly cash dividend of $0.79 per share payable to shareholders of record on ~~October 29, 2021,~~February 4, 2022, which was paid on ~~November 12, 2021.~~February 18, 2022.

~~Stock~~Share Repurchase Program

During the first ~~quarter~~half of 2022 and 2021, we repurchased ~~77,000~~236,000 and ~~213,000~~521,000 shares of common stock, at an average price per share of ~~$455.08~~$498.00 and ~~$359.45,~~$361.52, totaling approximately ~~$35~~$118 and ~~$77.~~$189. These

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amounts may differ from the ~~stock~~ repurchase balances in the accompanying condensed consolidated statements of cash flows due to changes in unsettled ~~stock~~ repurchases at the end of a quarter. Purchases are made from time to time, as conditions warrant, in the open market or in block purchases, pursuant to plans under SEC Rule 10b5-1. Repurchased shares are retired, in accordance with the Washington Business Corporation Act.

Bank Credit Facilities and Commercial Paper Programs

We maintain bank credit facilities for working capital and general corporate purposes. At ~~November 21, 2021,~~February 13, 2022, we had borrowing capacity under these facilities of ~~$1,046.~~$1,034. Our international operations maintain ~~$561~~$550 of the total borrowing capacity under bank credit facilities, of which ~~$198~~$195 is guaranteed by the Company. ~~There were no~~Short-term borrowings outstanding ~~short-term borrowings~~ under the bank credit facilities were immaterial at the end of the ~~first~~second quarter of 2022, and ~~short-term borrowings were immaterial~~ at the end of 2021.

The Company has letter of credit facilities, for commercial and standby letters of credit, totaling ~~$235.~~$229. The outstanding commitments under these facilities at the end of the ~~first~~second quarter of 2022 totaled ~~$200,~~$201, 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

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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.

Critical Accounting Estimates

The preparation of our consolidated financial statements in accordance with U.S. GAAP requires that we make estimates and judgments. We base these on historical experience and on assumptions that we believe to be reasonable. Our critical accounting policies are discussed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K, for the fiscal year ended August 29, 2021. There have been no material changes to the critical accounting policies previously disclosed in that Report.

Recent Accounting Pronouncements

There have been no material changes in recently issued or adopted accounting standards from those disclosed in our Annual Report on Form 10-K, for the fiscal year ended August 29, 2021.

Item 3—Quantitative and Qualitative Disclosures about Market Risk

Our direct exposure to financial market risk results from fluctuations in foreign-currency exchange rates and interest rates. There have been no material changes to our market risks as disclosed in our Annual Report on Form 10-K, for the fiscal year ended August 29, 2021.

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Item 4—Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission 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 ~~November 21, 2021~~February 13, 2022 and, based on their evaluation, have concluded the disclosure controls and procedures were effective as of such date.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the ~~first~~second quarter of fiscal 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1—Legal Proceedings

See discussion of Legal Proceedings in Note 8 to the condensed consolidated financial statements included in Part I, Item 1 of this Report.

Item 1A—Risk Factors

In addition to the other information set forth in the Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K, for the fiscal year ended August 29, 2021. There have been no material changes in our risk factors from those disclosed in our Annual Report on Form ~~10-K, except as stated below.~~

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~~Vaccine mandates and other governmental requirements related to the ongoing COVID-19 pandemic could have an adverse impact on our business financial condition and results of operations.~~

Subsequent to our Annual report on Form 10-K, for the fiscal year ended August 29, 2021, the Department of Labor’s Occupational Safety and Health Administration (OSHA) announced a vaccine mandate, originally effective beginning January 4, 2022, which requires COVID-19 vaccinations or at least weekly COVID-19 testing for all United States employers with 100 or more employees. Whether and when the mandate will take effect depends on judicial challenges that are pending. This mandate, and similar mandates in place and potentially forthcoming at the state and local level, could negatively impact our ability to attract and retain employees, increase expenses, and pose operational issues with respect to testing requirements.10-K.

Item 2—Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth information on our common stock repurchase program activity for the ~~first~~second quarter of 2022 (amounts in millions, except share and per share data):

Period Total Number of Shares Purchased Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Programs(1)
Maximum Dollar Value of Shares that May Yet be Purchased Under the Programs(1)
August 30, 2021 — September 26, 2021 41,000 $ 458.88 41,000 $ 3,231
September 27, 2021 — October 24, 2021 36,000 450.65 36,000 3,215
October 25, 2021 — November 21, 2021 0 0 0 3,215
Total first quarter 77,000 $ 455.08 77,000


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs(1)	Maximum Dollar Value of Shares that May Yet be Purchased Under the Programs(1)
November 21, 2021 — December 19, 2021	7,000	$	551.14	7,000	$	3,211
December 20, 2021 — January 16, 2022	61,000	540.43		61,000	3,178
January 17, 2022 — February 13, 2022	91,000	501.58		91,000	3,132
Total second quarter	159,000	$	518.73	159,000

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(1)Our ~~stock~~share repurchase program is conducted under a $4,000 authorization approved by our Board of Directors in April 2019, which expires in April 2023.

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Item 3—Defaults Upon Senior Securities

None.

Item 4—Mine Safety Disclosures

Not applicable.

Item 5—Other Information

None.

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Item 6—Exhibits

The following exhibits are filed as part of this Quarterly Report on Form 10-Q or are incorporated herein by reference.

Incorporated by Reference

Exhibit
Number

Exhibit Description

Filed
Herewith

Form

Period
Ending

Filing Date

3.1

Articles of Incorporation as amended of Costco Wholesale Corporation

10-Q

2/16/2020

3/12/2020

3.2

Bylaws as amended of Costco Wholesale Corporation

8-K

1/29/2020

3.2.1

Amendments to Sections 3.3, 3.4 and 3.6 of the Bylaws of Costco Wholesale Corporation, (to be effective and first apply with respect to the Company’s 2022 Annual Meeting of Shareholders)

8-K

9/16/2020

10.1

~~Fiscal 2022 Executive Bonus Plan~~

~~8-K~~

~~11/10/2021~~

~~10.2~~

~~Extension of the Term of the Executive Employment~~Eighth Amendment to Citi, N.A. Co-Branded Credit Card Agreement ~~effective January 1, 2022, between W. Craig Jelinek and Costco Wholesale Corporation~~

31.1

Rule 13(a) – 14(a) Certifications

32.1

Section 1350 Certifications

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

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

2729

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SIGNATURES

Pursuant to the requirements 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.


		COSTCO WHOLESALE CORPORATION (Registrant)

~~December 21, 2021~~March 9, 2022	By	/s/ W. CRAIG JELINEK
Date		W. Craig Jelinek ~~President,~~ Chief Executive Officer and Director

~~December 21, 2021~~March 9, 2022	By	/s/ RICHARD A. GALANTI
Date		Richard A. Galanti Executive Vice President, Chief Financial Officer and Director

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		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Statements of Income	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Equity	6
	Condensed Consolidated Statements of Cash Flows	78
	Notes to Condensed Consolidated Financial Statements	89
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1718
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2527
Item 4.	Controls and Procedures	2528

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	2528
Item 1A.	Risk Factors	2528
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2628
Item 3.	Defaults Upon Senior Securities	2629
Item 4.	Mine Safety Disclosures	2629
Item 5.	Other Information	2629
Item 6.	Exhibits	2729
	Signatures	2830