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Item 7. Management’s Discussion and Analysis

2021-10-06 compared with 2020-10-07 · 94 added, 142 removed, 163 unchanged (59% of the section changed)

Item 7—Management's Discussion and Analysis of Financial Conditions and Results of Operations (amounts in millions, except per share, share, membership fee, and warehouse count data)

The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to promote understanding of the results of operations and financial condition.

MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying Notes to Financial Statements (Part II, Item 8 of this Form 10-K).

This section generally discusses the results of operations for 2021 compared to 2020.

For discussion related to the results of operations and changes in financial condition for 2020 compared to 2019 refer to Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our fiscal year 2020 Form 10-K, which was filed with the United States Securities and Exchange Commission (SEC) on October 7, 2020.

In 2021, we combined the hardlines and softlines merchandise categories into non-foods.

This change did not have a material impact on the discussion of our results of operations.

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 (food and sundries, hardlines, softlines, and fresh foods), warehouse ancillary and other businesses.

Net sales includes our core merchandise categories (foods and sundries, non-foods, and fresh foods), warehouse ancillary (includes gasoline, pharmacy, optical, food court, hearing aids, and tire installation) and other businesses (includes e-commerce, business centers, travel and other).

We define comparable sales as net sales from warehouses open for more than one year, including remodels, relocations and expansions, and sales-related to e-commerce websites operating for more than one year.

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fluctuations in currency exchange rates (with respect to the consolidation of the results of our international operations);

and changes in the cost of gasoline and associated competitive conditions (primarily impacting our U.S.

and Canadian operations).

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.

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A decline in gasoline prices has the inverse effect.

Additionally, actions in various countries, particularly China and the United States, have created uncertainty with respect to how tariffs will affect the costs of some of our merchandise.

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.

The impact to our net sales and gross margin will be influenced in part by our merchandising and pricing strategies in response to cost increases.

Certain merchandise categories were impacted by inflation higher than what we have experienced in recent years.

The impact to our net sales and gross margin is influenced in part by our merchandising and pricing strategies in response to cost increases.

While these potential impacts are uncertain, they could have an adverse impact on our results.

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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

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 business.

Our rate of operating floor space square footage growth is generally higher in foreign markets, due to the smaller base in those markets, and we expect that to continue.

Our e-commerce business growth, domestically and internationally, has also increased our sales but it generally has a lower gross margin percentage relative to our warehouse operations.

The membership format is an integral part of our business and has a significant effect on our profitability.

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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., Canada, and Other International operating segments (see Note 12 to the consolidated financial statements included in Item 8 of this Report).

Certain countries in the Other International segment have relatively higher rates of square footage growth, lower wage and benefit costs as a percentage of country sales, less or no direct membership warehouse competition, and may lack an e-commerce business.

Our operating model is generally the same across our U.S., Canadian, and Other International operating segments (see Note 12 to the consolidated financial statements included in Item 8 of this Report).

Certain operations in the Other International segment have relatively higher rates of square footage growth, lower wage and benefit costs as a percentage of sales, less or no direct membership warehouse competition, or lack an e-commerce business.

In discussions of our consolidated operating results, we refer to the impact of changes in foreign currencies relative to the U.S.

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Our fiscal year ends on the Sunday closest to August 31.

References to 2020, 2019, and 2018 relate to the 52-week fiscal years ended August 30, 2020, September 1, 2019, and September 2, 2018, respectively.

References to 2021, 2020, and 2019 relate to the 52-week fiscal years ended August 29, 2021, August 30, 2020, and September 1, 2019, respectively.

Certain percentages presented are calculated using actual results prior to rounding.

Unless otherwise noted, references to net income relate to net income attributable to Costco.

For discussion related to the results of operations and changes in financial condition for 2019 compared to 2018 refer to Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our fiscal year 2019 Form 10-K, which was filed with the United States Securities and Exchange Commission on October 11, 2019.

Highlights for 2021 included:

• We opened 22 new warehouses, including 2 relocations:

9 new in the U.S., 3 new in our Other International segment, and 1 net new location in our Canadian segment, compared to 25 new warehouses, including 5 relocations in 2019;

12 net new in the U.S., 4 net new in our Canadian segment, and 4 new in our Other International segment, compared to 16 new warehouses, including 3 relocations in 2020;

• Net sales increased 18% to $192,052 driven by a 16% increase in comparable sales and sales at new warehouses opened in 2020 and 2021;

• Membership fee revenue increased 6% to $3,541, primarily due to membership sign-ups at existing and new warehouses;

• Gross margin percentage increased 18 basis points, driven primarily by certain core merchandise categories, partially offset by certain ancillary and other businesses, which were negatively impacted by COVID-19 related closures or restrictions;

• SG&A expenses as a percentage of net sales decreased three basis points primarily due to leveraging increased sales and partial reversal of a previous year tax assessment.

These benefits were partially offset by incremental wage and sanitation costs as a result of COVID-19;

• Membership fee revenue increased 9% to $3,877, driven by sign-ups and upgrades to Executive membership;

• Gross margin percentage decreased seven basis points, driven primarily by a shift in sales penetration from our core merchandise categories to our warehouse ancillary and other businesses;

• SG&A expenses as a percentage of net sales decreased 40 basis points, primarily due to leveraging increased sales and decreased incremental wages related to COVID-19;

• The effective tax rate in 2021 was 24.0% compared to 24.4% in 2020;

• Net income increased 25% to $5,007, or $11.27 per diluted share compared to $4,002, or $9.02 per diluted share in 2020;

• In February 2020, we acquired a 35% interest in Navitus Health Solutions, a pharmacy benefit manager.

In March 2020, we acquired Innovel Solutions, a company that provides final-mile delivery, installation and white-glove capabilities for big and bulky products across the United States and Puerto Rico;

• In April 2020, we issued $4,000 in aggregate principal amount of Senior Notes, some proceeds of which were used to repay $1,500 of Senior Notes;

• In April 2020, the Board of Directors approved an increase in the quarterly cash dividend from $0.65 to $0.70 per share.

On March 11, 2020, the World Health Organization announced that COVID-19 infections had become a pandemic, and shortly afterward the U.S.

declared a National Emergency.

The outbreak has led to widespread and continuing impacts on the global economy and is affecting many aspects of our business and the operations of others with which we do business.

In our response to the pandemic and in an effort to protect our members and employees, we have taken several measures, as described in Item 1A Risk Factors, and their implications on our results of operations have impacted us across all our reportable segments to varying degrees.

Throughout the pandemic our warehouses have largely remained open as a result of being deemed an “essential business” in most markets and resulted in strong sales increases in our food and sundries and fresh foods merchandise categories compared to pre-pandemic time periods.

This growth in certain of our core business categories has led to improved gross margin and SG&A percentages as we leveraged these sales to achieve greater efficiency.

Our e-commerce business has also benefited, as more members have shopped online during the pandemic.

Conversely, we have experienced decreases in both the sales and profitability of many of our ancillary and other businesses due to temporary closures or limited demand.

Additionally, we paid $564 in incremental wage and sanitation costs during 2020 related to COVID-19.

• We paid a special cash dividend of $10.00 per share in December 2020 and in April 2021, increased the quarterly cash dividend from $0.70 to $0.79 per share totaling $5,748.

During 2021, our sales mix began returning to pre-pandemic levels.

This included sales increases in non-foods and in many of our warehouse ancillary and other businesses, certain of which experienced closures or restrictions in 2020.

COVID-related supply and logistics constraints have adversely affected some merchandise categories and are expected to do so for the foreseeable future.

We paid $515 in incremental wages during 2021 related to COVID-19.

The incremental wage and benefit costs associated with COVID-19, which began on March 1, 2020 and ended on February 28, 2021, totaled approximately $825.

Effective March 1, 2021, we permanently increased wages for hourly and most salaried warehouse employees.

The estimated annualized pre-tax cost is approximately $400.

Additionally, in certain areas in the United States governments have mandated or are considering mandating extra pay for classes of employees that include our employees, which has and will result in higher costs.

RESULTS OF OPERATIONS

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$ 192,052 $ 163,220 $ 149,351

Changes in net sales:

Increases in net sales:

Canada 22 % 5 % 3 %

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Total Company 18 % 9 % 8 %

Changes in comparable sales:

Increases in comparable sales:

Canada 20 % 5 % 2 %

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(1) Excluding the impact of the revenue recognition standard for the year ended September 1, 2019.

Net sales increased $13,869 or 9% during 2020, primarily due to an 8% increase in comparable sales and sales at new warehouses opened in 2019 and 2020.

During the second half of 2020, we experienced a significant sales shift from certain of our ancillary and other businesses to our core merchandise categories, primarily food and sundries and fresh foods, as a result of COVID-19.

This shift was largely driven by price deflation and lower volume in our gasoline business;

temporary closures of most of our optical, hearing aid and photo departments;

limited service in our food courts;

and minimal demand in our travel business.

Changes in gasoline prices negatively impacted net sales by $1,504, or 101 basis points, compared to 2019, due to a 10% decrease in the average price per gallon.

The volume of gasoline sold decreased approximately 4%, negatively impacting net sales by $699, or 47 basis points.

Net sales increased $28,832 or 18% during 2021.

The improvement was attributable to an increase in comparable sales of 16%, and sales at new warehouses opened in 2020 and 2021.

While sales in all core merchandise categories increased, sales were particularly strong in non-foods.

Sales increases were also strong in our warehouse ancillary and other businesses, predominantly e-commerce and gasoline.

Certain merchandise categories were impacted by inflation higher than what we have experienced in recent years.

Changes in foreign currencies relative to the U.S.

dollar negatively impacted net sales by approximately $663, or 44 basis points, compared to 2019, attributable to our Canadian and Other International Operations.

dollar positively impacted net sales by approximately $2,759, or 169 basis points, compared to 2020, attributable to our Canadian and Other International operations.

Changes in gasoline prices positively impacted net sales by $1,636, or 100 basis points, compared to 2020, due to a 12% increase in the average price per gallon.

The volume of gasoline sold increased approximately 10%, positively impacting net sales by $1,469, or 90 basis points.

Comparable Sales

Comparable sales increased 8% during 2020 and were positively impacted by increases in average ticket.

While traffic increased slightly in 2020, it decreased in the second half of the year due to capacity restrictions and regulations related to COVID-19.

There was an increase of 50% in e-commerce comparable sales in 2020, with an increase of 80% in the second half of the year.

Comparable sales increased 16% during 2021 and were positively impacted by increases in shopping frequency and average ticket.

There was an increase of 44% in e-commerce comparable sales in 2021, driven by an increase of 80% in the first half of the year.

Membership Fees

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Membership fees increase 9 % 6 % 7 %

Membership fees as a percentage of net sales 2.17 % 2.24 % 2.27 %

The increase in membership fees was primarily due to membership sign-ups at existing and new warehouses.

Membership fees increased 9% in 2021, driven by sign-ups and upgrades to Executive membership.

Excluding the positive impact of changes in foreign currencies relative to the U.S.

dollar, membership fees increased 8%.

At the end of 2021, our member renewal rates were 91% in the U.S.

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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.

2021 2020 2019

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Gross margin percentage 11.13 % 11.20 % 11.02 %

The gross margin of our core merchandise categories (food and sundries, hardlines, softlines and fresh foods), when expressed as a percentage of core merchandise sales (rather than total net sales), increased 16 basis points, primarily due to increases in fresh foods and softlines, partially offset by a decrease in hardlines.

The gross margin of our core merchandise categories (foods and sundries, non-foods and fresh foods), when expressed as a percentage of core merchandise sales (rather than total net sales), increased 23 basis points.

This measure eliminates the impact of changes in sales penetration and gross margins from our warehouse ancillary and other businesses.

Fresh foods gross margin increased as a result of efficiencies from increased sales, partially offset by operating losses from our poultry complex.

Total gross margin percentage increased 18 basis points compared to 2019.

Excluding the impact of gasoline price deflation on net sales, gross margin percentage was 11.10%, an increase of eight basis points.

This increase was primarily due to a 32 basis point increase in our core merchandise categories, predominantly fresh foods and food and sundries, partially offset by a decrease in softlines and hardlines.

This increase was also positively impacted by our co-branded credit card program, which included an adjustment in 2019 to our estimate of breakage on rewards earned.

These increases were partially offset by a decrease of 14 basis points in our warehouse ancillary and other businesses, predominantly certain ancillary businesses that were negatively impacted by COVID-19 related closures or restrictions.

However, certain of our ancillary and other businesses, such as tire shop, gasoline and e-commerce businesses, did improve.

Gross margin was also negatively impacted by incremental wage and sanitation costs related to COVID-19 of six basis points, a reserve for certain inventory of three basis points, and increased spending by members under the Executive Membership 2% reward program of one basis point.

The increase was across all categories, most significantly in non-foods.

Total gross margin percentage decreased seven basis points compared to 2020.

Excluding the impact of gasoline price inflation on net sales in 2021, gross margin percentage was 11.22%, an increase of two basis points.

This increase was due to a two basis point improvement in our core merchandise categories, predominantly non-foods, and in our warehouse ancillary and other businesses, largely e-commerce.

The comparison was also positively impacted by a three basis point reserve on inventory recorded in 2020 with no such reserve this year.

Gross margin percentage was negatively impacted three basis points due to increased 2% rewards and two basis points due to a LIFO charge for higher merchandise costs.

Changes in foreign currencies relative to the U.S.

dollar negatively impacted gross margin by approximately $68 in 2020.

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), was impacted by increases in fresh foods and food and sundries and decreases in softlines and hardlines in each of our U.S., Canadian, and Other International segments.

Each of our segments were also negatively impacted by the incremental wage and sanitation costs as a result of COVID-19.

The segment gross margin percentage increased in our U.S.

operations, predominantly in our core merchandise categories which includes the impact from our co-branded credit card program, as discussed above,

partially offset by certain ancillary businesses that were negatively impacted by COVID-19 related closures or restrictions.

Our Canadian segment gross margin percentage decreased primarily due to certain of our warehouse ancillary and other businesses that were negatively impacted by COVID-19 related closures or restrictions.

The segment gross margin percentage increased in our Other International operations primarily due to core merchandise categories, as discussed above, and was also positively impacted by certain warehouse ancillary and other businesses, predominantly e-commerce.

These increases were partially offset by increased spending by members under the Executive Membership 2% reward program.

dollar positively impacted gross margin by approximately $301 in 2021.

segment, due to our warehouse ancillary and other businesses, our core merchandise categories, and the LIFO charge, partially offset by the reserve for certain inventory in 2020.

Our Canadian and Other International segments increased, primarily due to our warehouse ancillary and other businesses and certain of our core merchandise categories.

These increases were partially offset by increased 2% rewards.

Selling, General and Administrative Expenses

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SG&A expenses as a percentage of net sales 9.61 % 10.01 % 10.04 %

SG&A expenses as a percentage of net sales decreased three basis points compared to 2019.

SG&A expenses as a percentage of net sales, excluding the impact of gasoline price deflation, was 9.91%, a decrease of 13 basis points.

SG&A expenses were negatively impacted by approximately $456, or 28 basis points, due to incremental wage and sanitation costs as a result of COVID-19, and approximately $24 or one basis point due to costs associated with the acquisition of Innovel (see Note 2 to the consolidated financial statements).

Operating costs related to warehouse operations and other businesses, which include e-commerce and travel, were lower by 26 basis points, primarily due to leveraging increased sales.

SG&A expenses were also benefited by 13 basis points related to a product tax assessment charge in 2019 which was partially reversed in 2020.

Stock compensation was lower by two basis points, and central operating costs were lower by one basis point.

Our Canadian segment SG&A percentage was higher compared to 2019 due primarily to the incremental wage and sanitation costs related to COVID as outlined above.

SG&A expenses as a percentage of net sales decreased 40 basis points compared to 2020.

SG&A expenses as a percentage of net sales excluding the impact of gasoline price inflation was 9.69%, a decrease of 32 basis points.

Warehouse operations and other businesses were lower by 24 basis points, largely attributable to payroll leveraging increased sales.

Incremental wages as a result of COVID-19, which ended on February 28, 2021, were lower by eight basis points.

Central operating costs were lower by five basis points.

Stock compensation expense was lower by three basis points, and costs associated with the acquisition of Innovel were lower by one basis point.

These decreases were offset by an increase of five basis points related to a partial reversal of a product tax assessment in 2020, as well as an increase of four basis points related to a write-off of certain information technology assets in the fourth quarter of 2021 that are no longer expected to be utilized as part of the modernization of our information systems.

Changes in foreign currencies relative to the U.S.

dollar positively impacted SG&A expenses by approximately $58.

dollar increased our SG&A expenses by approximately $228 in 2021.

2021 2020 2019

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Total warehouse openings, including relocations 22 16 25

Preopening expenses include costs for startup operations related to new warehouses and relocations, developments in new international markets, new manufacturing and distribution facilities, and expansions at existing warehouses.

Preopening expenses vary due to the number of warehouse and facility openings, the timing of the opening relative to our year-end, whether a warehouse is owned or leased, and whether openings are in an existing, new, or international market.

In 2020, operations commenced at our new poultry processing plant, and in 2019, we opened our first warehouse in China.

Preopening expenses include startup costs for new warehouses and relocations, developments in new international markets, new manufacturing and distribution facilities, and expansions at existing warehouses and corporate facilities.

Preopening expenses vary due to the number of warehouse and facility openings, the timing of the opening relative to our year-end, whether the warehouse is owned or leased, and whether the opening is in an existing, new or international market.

Interest Expense

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Interest expense primarily relates to Senior Notes.

In December 2019 and February 2020, we repaid $1,200 and $500 in total outstanding principal of the 1.700% and 1.750% Senior Notes, respectively.

April 2020, we issued $4,000 in aggregate principal amount of long-term debt consisting of $ 1,250 of 1.375 % Senior Notes due June 2027;

$ 1,750 of 1.600 % Senior Notes due April 2030;

and $ 1,000 of 1.750 % Senior Notes due April 2032.

A portion of the proceeds was used to repay, prior to maturity, $1,000 and $500 of the 2.150% and 2.250% Senior Notes.

For more information on our debt arrangements refer to Note 5 to the consolidated financial statements.

For more information on our debt arrangements, refer to the consolidated financial statements included in Item 8 of this Report.

Interest Income and Other, Net

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and Canada, partially offset by higher average cash and investment balances.

Foreign-currency transaction gains, net include the revaluation and settlement of monetary assets and liabilities and mark-to-market adjustments for forward foreign-exchange contracts by our Canadian and Other International operations.

See Derivatives and Foreign Currency sections in Note 1 to the consolidated financial statements.

Other, net was impacted by a $36 charge related to the repayment of certain Senior Notes, as discussed above and in Note 5 .

Foreign-currency transaction gains, net include mark-to-market adjustments for forward foreign-exchange contracts and revaluation or settlement of monetary assets and liabilities by our Canadian and Other International operations.

See Derivatives and Foreign Currency sections in Note 1 to the consolidated financial statements included in Item 8 of this Report.

During 2020, other, net was impacted by a $36 charge related to the repayment of certain Senior Notes.

Provision for Income Taxes

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Effective tax rate 24.0 % 24.4 % 22.3 %

The effective tax rate for 2020 included discrete net tax benefits of $81, including a benefit of $77 due to excess tax benefits from stock compensation.

Excluding these benefits, the tax rate was 25.9% for 2020.

The effective tax rate for 2019 included discrete net tax benefits of $221, including a benefit of $59 due to excess tax benefits from stock compensation.

This also included a tax benefit of $105 related to U.S.

taxation of deemed foreign dividends, offset by losses of foreign tax credits, which impacted the effective tax rate.

The effective tax rate for 2021 included discrete net tax benefits of $163, including a benefit of $75 due to excess benefits from stock compensation, $70 related to the special dividend payable through our 401(k) plan, and $19 related to a reduction in the valuation allowance against certain deferred tax assets.

Excluding these benefits, the tax rate was 26.4% for 2021.

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These receivables generally settle within four days.

Cash and cash equivalents were positively impacted by a change in exchange rates of $70 in 2020, and negatively impacted by $15 and $37 in 2019 and 2018, respectively.

Management believes that our cash position and operating cash flows will be sufficient to meet our liquidity and capital requirements for the foreseeable future.

Cash and cash equivalents were positively impacted by a change in exchange rates of $46 and $70 in 2021 and 2020, respectively, and negatively impacted by $15 in 2019.

Material contractual obligations arising in the normal course of business primarily consist of purchase obligations, long-term debt and related interest payments, leases, and construction and land purchase obligations.

See Notes 5 and 6 to the consolidated financial statements included in Item 8 of this Report for amounts outstanding on August 29, 2021, related to debt and leases.

Purchase obligations consist of contracts primarily related to merchandise, equipment, and third-party services, the majority of which are due in the next 12 months.

Construction and land purchase obligations consist of contracts primarily related to the development and opening of new and relocated warehouses, the majority of which (other than leases) are due in the next 12 months.

Management believes that our cash and investment position and operating cash flows as well as capacity under existing and available credit agreements will be sufficient to meet our liquidity and capital requirements for the foreseeable future.

We believe that our U.S.

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liquidity requirements.

We no longer consider earnings after 2017 of our non-U.S.

consolidated subsidiaries to be indefinitely reinvested.

Cash Flows from Operating Activities

Net cash provided by operating activities totaled $8,958 in 2021, compared to $8,861 in 2020.

Our cash flow provided by operations is primarily derived from net sales and membership fees.

Cash flow used in operations generally consists of payments to our merchandise suppliers, warehouse operating costs, including payroll and employee benefits, utilities, and credit and debit card processing fees.

Our cash flow provided by operations is primarily from net sales and membership fees.

Cash flow used in operations generally consists of payments to merchandise suppliers, warehouse operating costs, including payroll and employee benefits, utilities, and credit and debit card processing fees.

Cash used in operations also includes payments for income taxes.

Changes in our net investment in merchandise inventories (the difference between merchandise inventories and accounts payable) is impacted by several factors, including how fast inventory is sold, payment terms with our suppliers, and the amount of payables paid early to obtain discounts from our suppliers.

Changes in our net investment in merchandise inventories (the difference between merchandise inventories and accounts payable) is impacted by several factors, including how fast inventory is sold, the forward deployment of inventory to accelerate delivery times, payment terms with our suppliers, and early payments to obtain discounts from suppliers.

Cash Flows from Investing Activities

Net cash used in investing activities totaled $3,891 in 2020, compared to $2,865 in 2019, and primarily related to capital expenditures.

In 2020, we acquired Innovel and a minority interest in Navitus.

For more information see Notes 1 and 2 to the consolidated financial statements.

Net cash flows from investing activities also includes maturities and purchases of short-term investments.

Net cash used in investing activities totaled $3,535 in 2021, compared to $3,891 in 2020, and is primarily related to capital expenditures.

In 2020, we acquired Innovel (Costco Wholesale Logistics) and a minority interest in Navitus.

Net cash flows from investing activities also includes purchases and maturities of short-term investments.

Capital Expenditures

Our primary requirement for capital is acquiring land, buildings, and equipment for new and remodeled warehouses.

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.

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These expenditures are expected to be financed with cash from operations, existing cash and cash equivalents, and short-term investments.

We opened 16 new warehous es, including three relocations, in 2020, and plan to open approximately 23 additional new warehouses, including three relocations, in 2021.

We opened 22 new warehous es, including two relocations, in 2021, and plan to open approximately up to 35 additional new warehouses, including five relocations, in 2022.

We have experienced delays in real estate and construction activities due to COVID-19.

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Cash Flows from Financing Activities

Net cash used in financing activities totaled $1,147 in both 2020 and 2019.

In April 2020, we issued $4,000 in aggregate principal amount of Senior Notes as follows:

$1,250 of 1.375% due June 2027;

$1,750 of 1.600% due April 2030;

and $1,000 of 1.750% due April 2032.

A portion of the proceeds was used to repay, prior to maturity, the outstanding $1,000 and $500 principal balances on the 2.150% and 2.250% Senior Notes, respectively, at a redemption price plus accrued interest as specified in the Notes' agreements.

The remaining funds are intended for general corporate purposes.

Financing activities also included $1,200 and $500 repayment of our 1.700% and 1.750% Senior Notes, respectively, payment of dividends, withholding taxes on stock-based awards, and repurchases of common stock.

Net cash used in financing activities totaled $6,488 in 2021, compared to $1,147 in 2020.

Cash flows used in financing activities primarily related to the payment of dividends, repurchases of common stock, and withholding taxes on stock-based awards.

In 2020, we issued $4,000 in aggregate principal amount of Senior Notes and repaid $3,200 of Senior Notes.

Stock Repurchase Programs

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Purchases are made from time-to-time, as conditions warrant, in the open market or in block purchases and pursuant to plans under SEC Rule 10b5-1.

Repurchased shares are retired, in accordance with the Washington

Business Corporation Act.

Repurchased shares are retired, in accordance with the Washington Business Corporation Act.

The remaining amount available to be purchased under our approved plan was $3,250 at the end of 2021.

Cash dividends declared in 2021 totaled $12.98 per share, as compared to $2.70 per share in 2020.

Dividends totaling $1,479 were paid during 2020, of which $286 related to the dividend declared in August 2019.

Dividends in 2021 included a special dividend of $10.00 per share, resulting in an aggregate payment of approximately $4,430.

In April 2021, the Board of Directors increased our quarterly cash dividend from $0.70 to $0.79 per share.

In July 2020, the Board of Directors declared a quarterly cash dividend in the amount of $0.70 per share, which was paid on August 14, 2020.

Bank Credit Facilities and Commercial Paper Programs

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Our international operations maintain $574 of the total borrowing capacity under bank credit facilities, of which $201 is guaranteed by the Company.

There were no outstanding short-term borrowings under the bank credit facilities at the end of 2020 and 2019.

Short-term borrowings outstanding under the bank credit facilities at the end of 2021 were immaterial, and there were none outstanding at the end of 2020.

The Company has letter of credit facilities, for commercial and standby letters of credit, totaling $235.

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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.

Contractual Obligations

At August 30, 2020, our commitments to make future payments under contractual obligations were as follows:

Payments Due by Fiscal Year

Contractual obligations 2021 2022 to 2023 2024 to 2025 2026 and thereafter Total

Purchase obligations (1)

$ 12,575 $ 9 $ — $ — $ 12,584

Long-term debt (2)

241 1,163 1,475 5,776 8,655

Operating leases (3) (4)

273 499 388 2,410 3,570

Construction and land obligations 979 35 — — 1,014

Finance lease obligations (4)

61 128 197 742 1,128

Purchase obligations (equipment, services and other) (5)

674 205 72 187 1,138

60 36 28 108 232

Total $ 14,863 $ 2,075 $ 2,160 $ 9,223 $ 28,321

_______________

(1) Includes open purchase orders primarily related to merchandise and supplies.

(2) Includes contractual interest payments and excludes deferred issuance costs.

(3) Operating lease payments have not been reduced by future sublease income of $101.

(4) Includes amounts representing interest.

(5) Excludes certain services negotiated at the individual warehouse or regional level that are not significant and generally contain clauses allowing for cancellation without significant penalty.

(6) Includes asset retirement obligations and deferred compensation obligations.

The amount excludes $25 of non-current unrecognized tax contingencies and $48 of other obligations due to uncertainty regarding the timing of future cash payments.

Off-Balance Sheet Arrangements

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Claims for employee health-care benefits, workers’ compensation, general liability, property damage, directors’ and officers’ liability, vehicle liability, inventory loss, and other exposures are funded predominantly through self-insurance.

Insurance coverage is maintained in certain instances to seek to limit exposures arising from very large losses.

Insurance coverage is maintained for certain risks to seek to limit exposures arising from very large losses.

We use different risk management mechanisms, including a wholly-owned captive insurance subsidiary, and participate in a reinsurance program.

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Recent Accounting Pronouncements

See Note 1 to the consolidated financial statements included in Item 8 of this Report for a detailed description of recent accounting pronouncements.

We do not expect that any recently issued accounting pronouncements will have a material effect on our financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis