What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-10-06 compared with 2020-10-07 · 152 added, 235 removed, 832 unchanged (32% of the section changed)

4 unchanged sentences

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Costco Wholesale Corporation and subsidiaries (the Company) as of August 30, 2020 and September 1, 2019, the related consolidated statements of income, comprehensive income, equity, and cash flows for the 52-week periods ended August 30, 2020, September 1, 2019 and September 2, 2018, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of August 30, 2020 and September 1, 2019, and the results of its operations and its cash flows for the 52-week periods ended August 30, 2020, September 1, 2019 and September 2, 2018, in conformity with U.S.

We have audited the accompanying consolidated balance sheets of Costco Wholesale Corporation and subsidiaries (the Company) as of August 29, 2021 and August 30, 2020, the related consolidated statements of income, comprehensive income, equity, and cash flows for the 52-week periods ended August 29, 2021, August 30, 2020 and September 1, 2019, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of August 29, 2021 and August 30, 2020, and the results of its operations and its cash flows for the 52-week periods ended August 29, 2021, August 30, 2020 and September 1, 2019, in conformity with U.S.

generally accepted accounting principles.

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Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of September 2, 2019 due to the adoption of Accounting Standards Update 2016-02 – Leases (ASC 842).

The Company changed its method of accounting for leases as of September 2, 2019, due to the adoption of Accounting Standards Update 2016-02 – Leases (ASC 842).

Basis for Opinion

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The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of self-insurance liabilities

Evaluation of workers' compensation self-insurance liabilities

As discussed in Note 1 to the consolidated financial statements, the Company estimates its self-insurance liabilities by considering historical claims experience, demographic factors, severity factors, and other actuarial assumptions.

The estimated insurance/self-insurance liabilities as of August 30, 2020 were $1,188 million, a portion of which related to workers’ compensation and general liability self-insurance liabilities for the United States and Canadian operations.

We identified the evaluation of the Company’s workers’ compensation and general liability self-insurance liabilities for the United States and Canadian operations as a critical audit matter because of the extent of specialized skill and knowledge needed to evaluate the Company’s actuarial models and the judgments required to assess the underlying assumptions made by the Company.

Specifically, subjective auditor judgment was required to evaluate certain assumptions underlying the Company’s actuarial estimates, including reporting and payment patterns used in the projections of the ultimate loss;

loss and exposure trends;

the selected loss rates and initial expected losses used in the Paid and Incurred Bornhuetter-Ferguson methods;

and the selection of the ultimate loss derived from the various methods.

The estimated self-insurance liabilities as of August 29, 2021 were $1,257 million, a portion of which related to workers’ compensation self-insurance liabilities for the United States operations.

We identified the evaluation of the Company’s workers’ compensation self-insurance liabilities for the United States operations as a critical audit matter because of the extent of specialized skill and knowledge needed to evaluate the underlying assumptions and judgments made by the Company in the actuarial models.

Specifically, subjective auditor judgment was required to evaluate the Company's selected loss rates and initial expected losses used in the actuarial models.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested operating effectiveness of certain internal controls over the Company’s self-insurance process.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s self-insurance workers' compensation process.

This included controls related to the development and selection of the assumptions listed above used in the actuarial calculation and review of the actuarial report.

We involved actuarial professionals with specialized skills and knowledge who assisted in:

• Assessing the actuarial models used by the Company for consistency with generally

accepted actuarial standards

• Evaluating the Company’s ability to estimate self-insurance liabilities by comparing its

historical estimate with actual incurred losses and paid losses

• Evaluating the above listed assumptions underlying the Company’s actuarial estimates by

developing an independent expectation of the self-insurance liabilities and comparing them to the amounts recorded by the Company

• Assessing the actuarial models used by the Company for consistency with generally accepted actuarial standards

• Evaluating the Company’s ability to estimate self-insurance workers' compensation liabilities by comparing its historical estimates with actual incurred losses and paid losses

• Evaluating the above listed assumptions underlying the Company’s actuarial estimates by developing an independent expectation of the self-insurance workers' compensation liabilities and comparing them to the amounts recorded by the Company

We have served as the Company’s auditor since 2002.

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 29, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of August 30, 2020 and September 1, 2019, the related consolidated statements of income, comprehensive income, equity, and cash flows for the 52-week periods ended August 30, 2020, September 1, 2019 and September 2, 2018, and the related notes (collectively, the consolidated financial statements), and our report dated October 6, 2020 expressed an unqualified opinion on those consolidated financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of August 29, 2021 and August 30, 2020, the related consolidated statements of income, comprehensive income, equity, and cash flows for the 52-week periods ended August 29, 2021, August 30, 2020 and September 1, 2019 , and the related notes (collectively, the consolidated financial statements), and our report dated October 5, 2021 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

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52 Weeks Ended 52 Weeks Ended 52 Weeks Ended

2020 September 1,

2021 August 30,

2020 September 1,

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52 Weeks Ended 52 Weeks Ended 52 Weeks Ended

2020 September 1,

2021 August 30,

2020 September 1,

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

2020 September 1,

2021 August 30,

CURRENT ASSETS

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( 643 ) — ( 10 ) — ( 188 ) ( 198 ) — ( 198 )

Cash dividends declared and other

— — — — ( 1,057 ) ( 1,057 ) — ( 1,057 )

BALANCE AT SEPTEMBER 1, 2019 439,625 4 6,417 ( 1,436 ) 10,258 15,243 341 15,584

Cash dividends declared — — — — ( 1,193 ) ( 1,193 ) — ( 1,193 )

BALANCE AT AUGUST 30, 2020 441,255 4 6,698 ( 1,297 ) 12,879 18,284 421 18,705

— — — — 5,007 5,007 72 5,079

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52 Weeks Ended 52 Weeks Ended 52 Weeks Ended

2020 September 1,

2021 August 30,

2020 September 1,

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Deferred income taxes

104 147 ( 49 )

Changes in operating assets and liabilities:

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Change in bank payments outstanding 188 137 210

Proceeds from short-term borrowings 41 — —

Proceeds from issuance of long-term debt — 3,992 298

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EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

70 ( 15 ) ( 37 )

Net change in cash and cash equivalents ( 1,019 ) 3,893 2,329

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At August 29, 2021, Costco operated 815 warehouses worldwide:

552 in the United States (U.S.) located in 45 states, Washington, D.C., and Puerto Rico, 101 in Canada, 39 in Mexico, 29 in the United Kingdom (U.K.), 27 in Japan, 16 in Korea, 13 in Taiwan, 12 in Australia, three in Spain, and one each in Iceland, France and China.

The Company operates e-commerce websites in the U.S., Canada, Mexico, U.K., Korea, Taiwan, Japan, and Australia.

564 in the United States (U.S.) located in 46 states, Washington, D.C., and Puerto Rico, 105 in Canada, 39 in Mexico, 30 in Japan, 29 in the United Kingdom (U.K.), 16 in Korea, 14 in Taiwan, 12 in Australia, three in Spain, and one each in Iceland, France and China.

The Company operates e-commerce websites in the U.S., Canada, U.K., Mexico, Korea, Taiwan, Japan, and Australia.

Basis of Presentation

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All material inter-company transactions between and among the Company and its consolidated subsidiaries have been eliminated in consolidation.

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

This investment is included in other long-term assets and is accounted for using the equity-method with earnings/losses recorded in other income in the consolidated statement of income.

The Company’s net income excludes income attributable to the noncontrolling interest in Taiwan.

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The Company operates on a 52/53-week fiscal year basis with the year ending 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.

Use of Estimates

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Realized gains and losses from the sale of available-for-sale securities, if any, are determined on a specific identification basis and are recorded in interest income and other, net in the consolidated statements of income.

These available-for-sale investments have a low level of inherent credit risk given they are issued by the U.S.

Government and Agencies.

Changes in their fair value are primarily attributable to changes in interest rates and market liquidity.

Short-term investments classified as held-to-maturity are financial instruments that the Company has the intent and ability to hold to maturity and are reported net of any related amortization and are not remeasured to fair value on a recurring basis.

The Company periodically evaluates unrealized losses in its investment securities for other-than-temporary impairment, using both qualitative and quantitative criteria.

In the event a security is deemed to be other-than-temporarily impaired, the Company recognizes the loss in interest income and other, net in the consolidated statements of income.

The Company periodically evaluates unrealized losses in its investment securities for credit impairment, using both qualitative and quantitative criteria.

In the event a security is deemed to be impaired as the result of a credit loss, the Company recognizes the loss in interest income and other, net in the consolidated statements of income.

Fair Value of Financial Instruments

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Valuation methodologies used to measure the fair value of all other non-derivative financial instruments are based on independent external valuation information.

The pricing process uses data from a variety of independent external valuation information providers, including trades, bid price or spread, two-sided markets, quotes, benchmark curves including but not limited to treasury benchmarks and Libor and swap curves, discount rates, and market data feeds.

The pricing process uses data from a variety of independent external valuation information providers, including trades, bid price or spread, two-sided markets, quotes, benchmark curves including but not limited to treasury benchmarks and LIBOR or Secured Overnight Financing Rate and swap curves, discount rates, and market data feeds.

All are observable in the market or can be derived principally from or corroborated by observable market data.

The Company reports transfers in and out of Levels 1, 2, and 3, as applicable, using the fair value of the individual securities as of the beginning of the reporting period in which the transfer(s) occurred.

The Company reports transfers in and out of Levels 1, 2, and 3, as applicable, using the fair

value of the individual securities as of the beginning of the reporting period in which the transfer(s) occurred.

Current financial liabilities have fair values that approximate their carrying values.

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Other receivables primarily consist of amounts due from governmental entities, mostly tax-related items.

Receivables are recorded net of an allowance for doubtful accounts.

The allowance is based on historical experience and application of the specific identification method.

Receivables are recorded net of an allowance for credit losses which considers creditworthiness of vendors and third parties, historical experience and current economic trends.

Write-offs of receivables were immaterial in 2021, 2020, and 2019.

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The Company records an adjustment each quarter, if necessary, for the projected annual effect of inflation or deflation, and these estimates are adjusted to actual results determined at year-end, after actual inflation or deflation rates and inventory levels have been determined.

As of August 30, 2020, and September 1, 2019, U.S.

An immaterial charge was recorded to merchandise costs to increase the cumulative LIFO valuation on merchandise inventories at August 29, 2021.

As of August 30, 2020, U.S.

merchandise inventories valued at LIFO approximated first-in, first-out (FIFO) after considering the lower of cost or market principle.

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During development, these costs are included in construction in progress.

When the assets are ready for their intended use, these costs are included in equipment and fixtures and amortized on a straight-line basis over their estimated useful lives.

To the extent that the assets become ready for their intended use, these costs are included in equipment and fixtures and amortized on a straight-line basis over their estimated useful lives.

In the fourth quarter of 2021, the Company recognized an $ 84 write-off of certain information technology assets, which was recorded in selling, general and administrative expenses, in the consolidated statements of income.

Repair and maintenance costs are expensed when incurred.

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The Company estimates fair value by obtaining market appraisals from third party brokers or using other valuation techniques.

Impairment charges recognized in 2021 were immaterial.

There were no impairment charges recognized in 2020 or 2019.

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The Company initially records right-of-use (ROU) assets and lease obligations for its finance and operating leases based on the discounted future minimum lease payments over the term.

The lease term is defined as the noncancelable period of the lease plus any options to extend when it is reasonably certain that the Company will exercise the option.

As the rate implicit in the Company's leases is not easily determinable, the present value of the sum of the lease payments is calculated using the Company's incremental borrowing rate.

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The Company uses quoted interest rates from financial institutions to derive the incremental borrowing rate.

The lease term is defined as the noncancelable period of the lease plus any options to extend when it is reasonably certain that the Company will exercise the option.

Impairment of ROU assets is evaluated in a similar manner as described in Property and Equipment, net above.

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Balance at August 30, 2020 $ 947 $ 27 $ 14 $ 988

Changes in currency translation and other (1)

Balance at August 29, 2021 $ 953 $ 28 $ 15 $ 996

(1) Other consists of changes to the purchase price allocation.

Definite-lived intangible assets, which are not material, are included in other long-term assets on the consolidated balance sheets and are amortized on a straight-line basis over their estimated lives, which approximates the pattern of expected economic benefit.

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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 limit exposures arising from very large losses.

It uses different risk management mechanisms, including a wholly-owned captive insurance subsidiary (the captive) and participates in a reinsurance program.

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

The Company uses different risk management mechanisms, including a wholly-owned captive insurance subsidiary (the captive) and participates in a reinsurance program.

Liabilities associated with the risks that are retained by the Company are not discounted and are estimated, in part, by considering historical claims experience, demographic factors, severity factors, and other actuarial assumptions.

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Some of these contracts contain credit-risk-related contingent features that require settlement of outstanding contracts upon certain triggering events.

The aggregate fair value amounts of derivative instruments in a net liability position and the amount needed to settle the instruments immediately if the credit-risk-related contingent features were triggered were immaterial at the end of 2020 and 2019.

There were no derivative instruments in a net liability position at the end of 2021 and for those in a net liability position at the end of 2020, the amount needed to settle the instruments immediately if the credit-risk-related contingent features were triggered was immaterial.

The aggregate notional amounts of open, unsettled forward foreign-exchange contracts were $ 1,331 and $ 1,036 at the end of 2021 and 2020, respectively.

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The Company also enters into variable-priced contracts for some purchases of natural gas, in addition to fuel for its gas stations, on an index basis.

These contracts meet the characteristics of derivative instruments, but generally qualify for the “normal purchases and normal sales” exception under authoritative guidance and require no mark-to-market adjustment.

These contracts meet the characteristics of

derivative instruments, but generally qualify for the “normal purchases and normal sales” exception under authoritative guidance and require no mark-to-market adjustment.

Foreign Currency

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The Company offers merchandise in the following core merchandise categories:

food and sundries, hardlines, softlines, and fresh foods.

foods and sundries, non-foods (previously hardlines and softlines), and fresh foods.

The Company also provides expanded products and services through warehouse ancillary and other businesses.

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Deferred membership fees at the end of 2021 and 2020 were $ 2,042 and $ 1,851 , respectively.

In most countries, the Company's Executive members qualify for a 2% reward on qualified purchases (up to a maximum of approximately $1,000 per year), which does not expire and can be redeemed only at Costco warehouses.

In most countries, the Company's Executive members qualify for a 2% reward on qualified purchases, subject to an annual maximum value, which does not expire and can be redeemed only at Costco warehouses.

The Company accounts for this reward as a reduction in sales, net of the estimated impact of non-redemptions (breakage), with the corresponding liability classified as accrued member rewards in the consolidated balance sheets.

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The Company accounts for outstanding shop card balances as a shop card liability, net of estimated breakage.

Shop card liabilities are included in other current liabilities in the consolidated balance sheets.

Citibank, N.A.

(“Citi”) became the exclusive issuer of co-branded credit cards to U.S.

became the exclusive issuer of co-branded credit cards to U.S.

members in June 2016.

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The Company also has a defined contribution plan for Canadian employees and contributes a percentage of each employee's wages.

Certain subsidiaries in the Company's Other International operations have defined benefit and defined contribution plans that are not material.

Certain subsidiaries in the Company's Other International operations have defined benefit and defined contribution plans, which are not material.

Amounts expensed under all plans were $ 748 , $ 676 , and $ 614 for 2021, 2020, and 2019, respectively, and are predominantly included in selling, general and administrative expenses in the consolidated statements of income.

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Preopening Expenses

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 and are expensed as incurred.

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

The Company accounts for income taxes using the asset and liability method.

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See Note 7 for additional information.

Recent Accounting Pronouncements Adopted

In February 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02 - Leases (ASC 842), which required recognition on the balance sheet for the rights and obligations created by leases with terms greater than 12 months.

The Company adopted ASC 842, using the modified retrospective transition method and used September 2, 2019, as the date of initial application.

Consequently, the comparative periods presented continue to be in accordance with ASC 840, Leases, previously in effect.

The Company elected the package of practical expedients permitted under the transition guidance, allowing the Company to carry forward conclusions related to:

(a) whether expired or existing contracts contain leases;

(b) lease classification;

and (c) initial direct costs for existing leases.

The Company has elected not to record operating lease right-of-use assets or lease liabilities associated with leases with durations of 12 months or less.

The Company elected the practical expedient allowing aggregation of non-lease components with related lease components when evaluating the accounting treatment for all classes of underlying assets.

Adoption of the new standard resulted in an initial increase to assets and liabilities of $ 2,632 , related to recognition of operating lease right-of-use assets and operating lease obligations as of September 2, 2019.

Other impacts in the Company's consolidated balance sheet were not material.

The standard did not materially impact the consolidated statements of income and cash flows.

For more information on the Company's lease arrangements refer to Note 6 .

Note 2—Acquisition of Innovel

On March 17, 2020, the Company acquired Innovel Solutions for $ 999 , using existing cash and cash equivalents.

Cash paid excludes the final settlement of certain holdbacks and provisional amounts, discussed below.

As part of the acquisition, in the fourth quarter of 2020, a payment of $ 25 was made relating to certain holdbacks.

Innovel provides final-mile delivery, installation and white-glove capabilities for big and bulky products across the United States and Puerto Rico.

Innovel (now known as Costco Wholesale Logistics or CWL) provides final-mile delivery, installation and white-glove capabilities for big and bulky products in the United States and Puerto Rico.

Its financial results have been included in the Company's consolidated financial statements from the date of acquisition.

Innovel's results of operations were not material to the Company's consolidated results during 2020.

Pro forma results are thus not considered meaningful.

As of August 30, 2020, the initial accounting for the acquisition was incomplete, pending determination of the final purchase price, working capital adjustments, the fair value of operating lease right-of-use assets, operating lease liabilities, and other assumed obligations.

The net purchase price of $ 998 was allocated to tangible and intangible assets of $ 283 and liabilities assumed of $ 219 , based on their preliminary fair values on the acquisition date.

The net purchase price of $ 999 has been allocated to the tangible and intangible assets of $ 294 and liabilities assumed of $ 235 , based on fair values on the acquisition date.

The remaining unallocated net purchase price of $ 940 was recorded as goodwill.

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The Company assigned this goodwill, which is deductible for tax purposes, to reporting units within the U.S.

The changes to the purchase price allocation originally recorded in the third quarter of 2020 were not material.

As additional information becomes available, the provisional fair value estimates will be refined.

Changes to the purchase price allocation originally recorded in 2020 were not material.

Note 3—Investments

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Total short-term investments $ 1,016 $ 12 $ 1,028

Gross unrecognized holding gains and losses on available-for-sale securities were not material for the years ended August 30, 2020, and September 1, 2019.

At the end of 2020, there were no available-for-sale securities in a continuous unrealized-loss position.

At the end of 2019, available-for-sale securities that were in a continuous unrealized-loss position were not material.

Gross unrecognized holding gains and losses on available-for-sale securities were not material for the years ended August 29, 2021, and August 30, 2020.

At the end of 2021 and 2020, there were no available-for-sale securities in a continuous unrealized-loss position.

There were no sales of available-for-sale securities during 2021 or 2020.

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

At September 1, 2019, $ 44 cash and cash equivalents and $ 722 short-term investments are included in the consolidated balance sheets.

At August 30, 2020, $ 60 cash and cash equivalents and $ 448 short-term investments are included in the consolidated balance sheets.

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

At August 30, 2020, and September 1, 2019, the Company did not hold any Level 1 or 3 financial assets or liabilities that were measured at fair value on a recurring basis.

At August 29, 2021, and August 30, 2020, the Company did not hold any Level 1 or 3 financial assets or liabilities that were measured at fair value on a recurring basis.

There were no transfers between levels during 2021 or 2020.

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These assets are measured at fair value if determined to be impaired.

There were no fair value adjustments to these items during 2020 or 2019.

Fair value adjustments to nonfinancial assets during 2021 were immaterial and there were no fair value adjustments to these items during 2020.

Short-Term Borrowings

The Company maintains various short-term bank credit facilities, with a borrowing capacity of $ 1,050 and $ 967 , in 2021 and 2020, respectively.

Borrowings on these short-term facilities were immaterial during 2020 and 2019, and there were no outstanding borrowings at the end of 2020 and 2019.

Borrowings on these short-term facilities were immaterial during 2021 and 2020.

Short-term borrowings outstanding were $ 41 at the end of 2021.

There were no outstanding balances at the end of 2020.

Long-Term Debt

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The estimated fair value of Senior Notes is valued using Level 2 inputs.

Other long-term debt consists of Guaranteed Senior Notes issued by the Company's Japanese subsidiary, valued using Level 3 inputs.

In June 2021, the Japanese subsidiary repaid approximately $ 94 of its Guaranteed Senior Notes.

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

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The early redemption resulted in a $ 36 charge which was recorded in interest income and other, net in 2020.

The remaining funds are intended for general corporate purposes.

In December 2019, the Company paid the outstanding $ 1,200 principal balance and interest on the 1.700 % Senior Notes, with existing sources of cash and cash equivalents and short-term investments.

In February 2020, the Company paid the outstanding $ 500 principal balance and interest on the 1.750 % Senior Notes, with existing sources of cash and cash equivalents and short-term investments.

Other long-term debt consists of Guaranteed Senior Notes issued by the Company's Japanese subsidiary, valued using Level 3 inputs.

In August 2019, the Company's Japanese subsidiary issued approximately $ 200 and $ 100 of Guaranteed Senior Notes at fixed interest rates of 0.28 % and 0.42 %, respectively.

Interest is payable semi-annually, and principal is due in August 2029 and August 2034, respectively.

At the end of 2021 and 2020, the fair value of the Company's long-term debt, including the current portion, was approximately $ 7,692 and $ 7,987 , respectively.

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

1.700% Senior Notes due December 2019 $ — $ 1,200

1.750% Senior Notes due February 2020 — 500

2.300% Senior Notes due May 2022 $ 800 $ 800

2.250% Senior Notes due February 2022 — 500

2.750% Senior Notes due May 2024 1,000 1,000

3.000% Senior Notes due May 2027 1,000 1,000

1.375% Senior Notes due June 2027 1,250 1,250

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Operating leases

2.16 % 2.23 %

Finance leases

4.91 % 6.34 %

The components of lease expense, excluding short-term lease costs and sublease income (which were not material), were as follows:

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(3) Included in selling, general and administrative expenses and merchandise costs in the consolidated statements of income.

Amount excludes property taxes, which were immaterial.

Supplemental cash flow information related to leases was as follows:

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(2) Excludes $ 665 of lease payments for leases that have been signed but not commenced.

As of September 1, 2019, future minimum payments, net of sub-lease income of $ 105 , under noncancelable operating leases with terms of at least one year and capital leases reported under ASC 840 were as follows:

Operating Leases Capital Leases

2020 $ 239 $ 51

Thereafter 2,206 544

Total $ 3,250 764

Less amount representing interest 343

Net present value of minimum lease payments $ 421

Note 7—Stockholders’ Equity

Note 7—Equity

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

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

The Company's current quarterly dividend rate is $ 0.79 per share.

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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.

Note 8—Stock-Based Compensation Plans

Note 8—Stock-Based Compensation

The Company grants stock-based compensation, primarily to employees and non-employee directors.

Grants to all executive officers are performance-based.

Grants to all executive officers are generally performance-based.

Through a series of shareholder approvals, there have been amended and restated plans and new provisions implemented by the Company.

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Shares for vested RSUs are generally delivered to participants annually, net of shares withheld for taxes.

In conjunction with a special cash dividend paid in the second quarter of 2021, and in accordance with the plans, the number of shares subject to outstanding RSUs was increased on the dividend record date to preserve their value.

They were adjusted by multiplying the number of outstanding shares by a factor of 1.019 (rounded up to a whole share), representing the ratio of the Nasdaq closing price of $ 391.77 on November 30, 2020, which was the last trading day immediately prior to the ex-dividend date, to the Nasdaq opening price of $ 384.50 on the ex-dividend date, December 1, 2020.

The outstanding RSUs increased by approximately 94,000 .

The adjustment did not result in additional stock-based compensation expense, as the fair value of the awards did not change.

As further required by the plans, the maximum number of shares issuable was proportionally adjusted, which resulted in an additional 220,000 RSU shares available to be granted.

Summary of Restricted Stock Unit Activity

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The following awards were outstanding at the end of 2021:

• 5,021,000 time-based RSUs that vest upon continued employment over specified periods of time;

• 4,218,000 time-based RSUs, which vest upon continued employment or service over specified periods of time;

• 131,000 performance-based RSUs, of which 104,000 were granted to executive officers subject to the determination of the attainment of performance targets for 2021.

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Forfeited ( 137 ) 253.53

Special cash dividend 94 N/A

Outstanding at the end of 2021 4,349 $ 257.88

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Summary of Stock-Based Compensation

The following table summarizes stock-based compensation expense and the related tax benefits under the Company’s plans:

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

2021 2020 2019

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Total provision for income taxes $ 1,601 $ 1,308 $ 1,061

Except for certain provisions, the Tax Cuts and Jobs Act (2017 Tax Act) is effective for tax years beginning on or after January 1, 2018.

The Company is a fiscal-year taxpayer, so most provisions became effective for fiscal 2019, including limitations on the Company’s ability to claim foreign tax credits, repeal of the domestic manufacturing deduction, and limitations on certain business deductions.

Provisions with significant impacts that were effective starting in the second quarter of fiscal 2018 and throughout fiscal 2019 included:

a decrease in the U.S.

Except for certain provisions, the Tax Cuts and Jobs Act (2017 Tax Act) was effective for tax years beginning on or after January 1, 2018.

Most provisions became effective for the Company for 2019, including limitations on the ability to claim foreign tax credits, repeal of the domestic manufacturing deduction, and limitations on certain business deductions.

Provisions with significant impacts that were effective starting in the second quarter of 2018 and throughout 2019 included:

federal income tax rate, remeasurement of certain net deferred tax liabilities, and a transition tax on deemed repatriation of certain foreign earnings.

The decrease in the U.S.

federal statutory income tax rate to 21.0 % was effective for all of 2020 and 2019 and resulted in a blended rate for the Company of 25.6 % for 2018.

The lower U.S.

tax rate of 21.0 % was effective for all of 2021, 2020, and 2019.

The reconciliation between the statutory tax rate and the effective rate for 2021, 2020, and 2019 is as follows:

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During 2019, the Company recognized net tax benefits of $ 123 related to the 2017 Tax Act.

This benefit primarily included $ 105 related to U.S.

This benefit included $ 105 related to U.S.

taxation of deemed foreign dividends, partially offset by losses of current year foreign tax credits.

During 2018, the Company recognized a net tax expense of $ 19 related to the 2017 Tax Act.

This expense included $ 142 for the estimated tax on deemed repatriation of foreign earnings, and $ 43 for the reduction in foreign tax credits and other immaterial items, largely offset by a tax benefit of $ 166 for the remeasurement of certain deferred tax liabilities.

The Company recognized total net tax benefits of $ 163 , $ 81 and $ 221 in 2021, 2020 and 2019, respectively.

These amounts include a benefit of $ 77 , $ 59 and $ 33 , respectively, related to the stock-based compensation accounting standard adopted in 2018 in addition to the impacts of the 2017 Tax Act noted above.

These include benefits of $ 75 , $ 77 and $ 59 , respectively, related to the stock-based compensation accounting standard adopted in 2018, in addition to the impacts of the 2017 Tax Act noted above.

During 2021, there was a net tax benefit of $ 70 related to the portion of the special dividend paid through our 401(k) plan.

The components of the deferred tax assets (liabilities) are as follows:

18 unchanged sentences

and deferred income tax liabilities of $ 754 and $ 665 , respectively, included in other long-term liabilities.

In 2020 and 2019, the Company recorded valuation allowances of $ 105 and $ 76 , respectively, primarily related to foreign tax credits that the Company believes will not be realized due to limitations on the ability to claim the credits during the carry forward period.

In 2021 and 2020, the Company had valuation allowances of $ 214 and $ 105 , respectively, primarily related to foreign tax credits that the Company believes will not be realized due to carry forward limitations.

The foreign tax credit carry forwards are set to expire beginning in fiscal 2030.

The Company no longer considers fiscal year earnings of non-U.S.

consolidated subsidiaries after 2017 to be indefinitely reinvested and has recorded the estimated incremental foreign withholding (net of available foreign tax credits) on fiscal year earnings and state income taxes payable assuming a hypothetical repatriation to the U.S.

consolidated subsidiaries after 2017 to be indefinitely reinvested (other than China) and has recorded the estimated incremental foreign withholding taxes (net of available foreign tax credits) and state income taxes payable assuming a hypothetical repatriation to the U.S.

The Company continues to consider undistributed earnings of certain non-U.S.

consolidated subsidiaries prior to 2018, which totaled $ 2,955 , to be indefinitely reinvested and has not provided for withholding or state taxes.

consolidated subsidiaries, which totaled $ 3,070 , to be indefinitely reinvested and has not provided for withholding or state taxes.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for 2021 and 2020 is as follows:

3 unchanged sentences

Gross decreases—tax positions in prior years — ( 3 )

Settlements — ( 4 )

Lapse of statute of limitations ( 1 ) ( 3 )

6 unchanged sentences

Accrued interest and penalties recognized during 2021 and 2020, and accrued at the end of each respective period were not material.

The Company is currently under audit by several jurisdictions in the United States and in several foreign countries.

The Company is currently under audit by several jurisdictions in the United States and abroad.

Some audits may conclude in the next 12 months, and the unrecognized tax benefits recorded in relation to the audits may differ from actual settlement amounts.

7 unchanged sentences

In certain cases, the Company has received assessments from the authorities.

Subsequent to the end of 2019, the Company received an assessment related to a product tax audit covering multiple years.

The Company recorded a charge of $ 123 in 2019.

In the fourth quarter of 2020, the Company reached an agreement with the tax authority on this matter, resulting in a benefit of $84.

Other possible losses or range of possible losses associated with these matters are either immaterial or an estimate of the possible loss or range of loss cannot be made at this time.

In the fourth quarter of 2020, the Company reached an agreement on a product tax audit resulting in a benefit of $ 84 .

The Company recorded a charge of $ 123 in 2019 regarding this matter.

Other possible losses or range of possible losses associated with these examinations are either immaterial or an estimate of the possible loss or range of loss cannot be made at this time.

If certain matters or a group of matters were to be decided adversely to the Company, it could result in a charge that might be material to the results of an individual fiscal quarter or year.

11 unchanged sentences

Legal Proceedings

The Company is involved in a number of claims, proceedings and litigation arising from its business and property ownership.

In accordance with applicable accounting guidance, the Company establishes an accrual for legal proceedings if and when those matters reach a stage where they present loss contingencies that are both probable and reasonably estimable.

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.

7 unchanged sentences

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 under the California Labor Code Private Attorneys General Act (PAGA) alleging violation of California Wage Order 7-2001 for failing to provide seating to member service assistants who act as greeters in the Company’s California warehouses.

The Company is a defendant in an action commenced in August 2013 under the California Labor Code Private Attorneys General Act (PAGA) alleging violation of California Wage Order 7-2001 for failing to provide seating to employees who work at entrance and exit doors in California warehouses.

Costco Wholesale Corp., et al.

2013-1-CV-248813;

filed July 1, 2013).

Santa Clara Superior Court).

The complaint seeks relief under the California Labor Code, including civil penalties and attorneys’ fees.

The Company filed an answer denying the material allegations of the complaint.

The action has been remanded to state court.

In January 2019, an employee brought similar claims for relief concerning Costco employees engaged at member services counters in California.

Costco Wholesale Corp.

Alameda Superior Court).

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 appropriate workplace temperature conditions.

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.

Costco Wholesale Corp.

6, 2018 Notice to California Labor and Workforce Development Agency).

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 the seating claims on a representative basis, which received court approval in February 2020.

In October 2019, the parties reached an agreement to settle for an immaterial amount the seating claims on a representative basis, which received court approval in February 2020.

The workplace temperature claims continue in litigation.

In January 2019, a former seasonal employee filed a class action, alleging failure to provide California seasonal employees meal and rest breaks, proper wage statements, and appropriate wages.

3 unchanged sentences

The complaint seeks relief under the California Labor Code, including civil penalties and attorneys’ fees.

In October 2019, the parties reached an agreement on a class settlement, which received preliminary court approval in July 2020.

In October 2019, the parties reached an agreement on a class settlement for an immaterial amount, which received court approval in January 2021.

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.

5 unchanged sentences

In January 2020, the plaintiffs dismissed their Labor Code claims without prejudice, and the court remanded the action to state court.

The remand is being appealed.

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 preliminary approval hearing of the settlement is scheduled for October 2021.

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.

2 unchanged sentences

Relief is sought under the California Labor Code, including civil penalties and attorneys' fees.

In August 2019, Rough filed a companion case in state court seeking penalties under PAGA.

The Company has moved for partial summary judgement, and the parties have filed competing motions regarding class certification.

In August 2019, the plaintiff filed a companion case in state court seeking penalties under PAGA.

Costco Wholesale Corp.

4 unchanged sentences

Costco Wholesale Corp .

3:19-cv-05624;

3:19-cv-05624-EMC;

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.

Costco Wholesale Corp.

Santa Clara County Superior Court).

A motion to dismiss was filed as to plaintiff's amended complaint, the case has been stayed due to the plaintiff's bankruptcy.

5:20-cv-04119;

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.

2 unchanged sentences

San Diego County Superior Court).

In August 2020, the Company filed a motion to strike portions of the complaint.

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 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 on a weekly basis and failure to provide proper wage statements and notices.

The plaintiff also asserts individual retaliation claims.

Costco Wholesale Corp.

1:20-cv-06067;

An amended complaint was filed, and the Company has denied the material allegations of the amended complaint.

In August 2021, a former employee filed a similar suit, asserting collective and class claims on behalf of non-exempt employees under the FLSA and New York law.

Costco Wholesale Corp.

2:21-cv-4814;

The Company has not yet responded to the complaint.

In February 2021, a former employee filed a class action against the Company alleging violations of California Labor Code regarding payment of wages, meal and rest periods, wage statements, reimbursement of expenses, payment of final wages to terminated employees, and for unfair business practices.

Costco Wholesale Corp.

5:21-cv-00716:

In May 2021, the Company filed a motion to dismiss the complaint, which was granted with leave to amend.

In June 2021, the plaintiff filed an amended complaint, which the Company moved to dismiss later that month.

The court granted the motion in part in July 2021 with leave to amend.

In August 2021, the plaintiff filed a second amended complaint and filed a separate representative action under PAGA asserting the same Labor Code claims and seeking civil penalties and attorneys' fees.

The Company has filed an answer to the second amended class action complaint denying the material allegations.

In July 2021, a former temporary staffing employee filed a class action against the Company and a staffing company alleging violations of the California Labor Code regarding payment of wages, meal and rest periods, wage statements, the timeliness of wages and final wages, and for unfair business practices.

Costco Wholesale Corp.

STK-CV-UOE-2021-0006024;

San Joaquin Superior Court).

The Company has not yet responded to the complaint.

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

In re National Prescription Opiate Litigation (MDL No.

Included are federal 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 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.

In 2019, similar actions were commenced against the Company in state court in Utah.

Claims against the Company in state courts in New Jersey, Oklahoma, and Arizona have been dismissed.

The Company is defending all of these matters.

The Company and its CEO and CFO are defendants in putative class actions brought on behalf of shareholders who acquired Company stock between June 6 and October 25, 2018.

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 and its CEO and CFO were defendants in putative class actions brought on behalf of shareholders who acquired Company stock between June 6 and October 25, 2018.

Costco Wholesale Corp., et al.

The complaints allege violations of the federal securities laws stemming from the Company’s disclosures concerning internal control over financial reporting.

They seek unspecified damages, equitable relief, interest, and costs and attorneys’ fees.

On January 30, 2019, an order was entered consolidating the actions, and a consolidated amended complaint was filed on April 16, 2019.

The complaints alleged violations of the federal securities laws stemming from the Company’s disclosures concerning internal control over financial reporting.

A consolidated amended complaint was filed on April 16, 2019.

On November 26, 2019, the court entered an order dismissing the consolidated amended complaint and granting the plaintiffs leave to file a further amended complaint.

A further amended complaint was filed on March 9, which the court dismissed with prejudice on August 19, 2020.

Plaintiffs filed a notice of appeal in September 2020.

Members of the Board of Directors, one other individual, and the Company are defendants in a shareholder derivative action related to the internal controls and related disclosures identified in the putative class actions, alleging that the individual defendants breached their fiduciary duties.

On July 20, 2021, the Ninth Circuit affirmed the dismissal.

Members of the Board of Directors, one other individual, and the Company were defendants in a shareholder derivative action related to the internal controls and related disclosures identified in the putative class actions, alleging that the individual defendants breached their fiduciary duties.

Hamilton James, Susan Decker, Kenneth Denman, Richard Galanti, Craig Jelinek, Richard Libenson, John Meisenbach, Charles Munger, Jeffrey Raikes, John Stanton, Mary Agnes Wilderotter, and Costco Wholesale Corp.

The complaint seeks unspecified damages, disgorgement of compensation, corporate governance changes, and costs and attorneys' fees.

Because the complaint is derivative in nature, it does not seek monetary damages from the Company, which is a nominal defendant.

By agreement among the parties the action has been stayed pending further proceedings in the class action.

Similar actions were filed in King County Superior Court on February 20, 2019, Elliott v.

5 unchanged sentences

19-2-15514-1).

These actions have also been stayed.

In light of the dismissal in Johnson noted above, the plaintiffs in the derivative actions agreed voluntarily to dismiss their complaints.

On June 23, 2020, a putative class action was filed against the Company, the “Board of Directors,” the “Costco Benefits Committee” and others under the Employee Retirement Income Security Act, in the United States District Court for the Eastern District of Wisconsin.

2 unchanged sentences

The complaint seeks injunctive relief, damages, interest, costs, and attorneys' fees.

On September 11, the defendants filed a motion to dismiss the complaint, and on September 21 the plaintiffs filed an amended complaint.

On September 11, 2020, the defendants filed a motion to dismiss the complaint, and on September 21 the plaintiffs filed an amended complaint, which the defendants have also moved to dismiss.

The Company does not believe that any pending claim, proceeding or litigation, either alone or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or cash flows;

1 unchanged sentence

Note 12—Segment Reporting

The Company and its subsidiaries are principally engaged in the operation of membership warehouses in the U.S., Canada, Mexico, U.K., Japan, Korea, Australia, Spain, Iceland, France, and China and through a majority-owned subsidiary in Taiwan.

The Company is principally engaged in the operation of membership warehouses through wholly owned subsidiaries in the U.S., Canada, Mexico, Japan, U.K., Korea, Australia, Spain, Iceland, France, and China and through a majority-owned subsidiary in Taiwan.

Reportable segments are largely based on management’s organization of the operating segments for operational decisions and assessments of financial performance, which considers geographic locations.

29 unchanged sentences

The following table summarizes net sales by merchandise category;

sales from business centers and e-commerce websites have been allocated to their respective categories:

2020 2019 2018

Food and sundries

sales from e-commerce websites and business centers have been allocated to their respective merchandise categories:

2021 2020 2019

Foods and Sundries

$ 77,277 $ 68,659 $ 59,672

1 unchanged sentence

27,183 23,204 19,948

Ancillary and other

Warehouse Ancillary and Other Businesses

31,626 26,550 28,571

1 unchanged sentence

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

Note 13—Quarterly Financial Data (Unaudited)

The two tables that follow reflect the unaudited quarterly results of operations for 2020 and 2019.

52 Weeks Ended August 30, 2020

(12 Weeks) Second

(12 Weeks) Third

(12 Weeks) Fourth

(16 Weeks) Total

Net sales $ 36,236 $ 38,256 $ 36,451 $ 52,277 $ 163,220

Membership fees 804 816 815 1,106 3,541

Total revenue 37,040 39,072 37,266 53,383 166,761

OPERATING EXPENSES

Merchandise costs (1)

32,233 34,056 32,249 46,401 144,939

Selling, general and administrative (2)

3,732 3,743 3,830 5,027 (3) 16,332

Preopening expenses 14 7 8 26 55

Operating income 1,061 1,266 1,179 1,929 5,435

OTHER INCOME (EXPENSE)

Interest expense ( 38 ) ( 34 ) ( 37 ) ( 51 ) ( 160 )

Interest income and other, net 35 45 21 ( 9 ) 92

INCOME BEFORE INCOME TAXES

1,058 1,277 1,163 1,869 5,367

Provision for income taxes 202 330 311 465 1,308

Net income including noncontrolling interests

856 947 852 1,404 4,059

Net income attributable to noncontrolling interests

( 12 ) ( 16 ) ( 14 ) ( 15 ) ( 57 )

NET INCOME ATTRIBUTABLE TO COSTCO

$ 844 $ 931 $ 838 $ 1,389 $ 4,002

NET INCOME PER COMMON SHARE ATTRIBUTABLE TO COSTCO:

Basic $ 1.91 $ 2.10 $ 1.90 $ 3.14 $ 9.05

Diluted $ 1.90 $ 2.10 $ 1.89 $ 3.13 $ 9.02

Shares used in calculation (000’s)

Basic 441,818 442,021 442,322 442,843 442,297

Diluted 443,680 443,727 443,855 444,231 443,901

_______________

(1) Includes $ 108 of incremental wage and sanitation costs as a result of COVID-19 of which $ 44 and $ 64 were recorded in the third and fourth quarters, respectively.

(2) Includes $ 456 of incremental wage and sanitation costs as a result of COVID-19 of which $ 239 and $ 217 were recorded in the third and fourth quarters, respectively.

(3) Includes a $ 84 benefit due to a partial reversal of an accrual for a product tax assessment in 2019.

52 Weeks Ended September 1, 2019

(12 Weeks) Second

(12 Weeks) Third

(12 Weeks) Fourth

(16 Weeks) Total

Net sales $ 34,311 $ 34,628 $ 33,964 $ 46,448 $ 149,351

Membership fees 758 768 776 1,050 3,352

Total revenue 35,069 35,396 34,740 47,498 152,703

OPERATING EXPENSES

Merchandise costs 30,623 30,720 30,233 41,310 132,886

Selling, general and administrative

3,475 3,464 3,371 4,684 (1) 14,994

Preopening expenses 22 9 14 41 86

Operating income 949 1,203 1,122 1,463 4,737

OTHER INCOME (EXPENSE)

Interest expense ( 36 ) ( 34 ) ( 35 ) ( 45 ) ( 150 )

Interest income and other, net 22 46 36 74 178

INCOME BEFORE INCOME TAXES

935 1,215 1,123 1,492 4,765

Provision for income taxes 158 314 207 382 1,061

Net income including noncontrolling interests

777 901 916 1,110 3,704

Net income attributable to noncontrolling interests

( 10 ) ( 12 ) ( 10 ) ( 13 ) ( 45 )

NET INCOME ATTRIBUTABLE TO COSTCO

$ 767 $ 889 $ 906 $ 1,097 $ 3,659

NET INCOME PER COMMON SHARE ATTRIBUTABLE TO COSTCO:

Basic $ 1.75 $ 2.02 $ 2.06 $ 2.49 $ 8.32

Diluted $ 1.73 $ 2.01 $ 2.05 $ 2.47 $ 8.26

Shares used in calculation (000’s)

Basic 439,157 440,284 439,859 439,727 439,755

Diluted 442,749 442,337 442,642 443,400 442,923

_______________

(1) Includes a $ 123 charge for a product tax assessment.

Item 9—Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data