What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-12-22 compared with 2021-06-03 · 110 added, 138 removed, 139 unchanged (64% of the section changed)

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Such forward-looking statements involve risks and uncertainties that may cause actual events, results, or performance to differ materially from those indicated by such statements.

These risks and uncertainties include, but are not limited to, domestic and international economic conditions, including exchange rates, the effects of competition and regulation, uncertainties in the financial markets, consumer and small-business spending patterns and debt levels, breaches of security or privacy of member or business information, conditions affecting the acquisition, development, ownership or use of real estate, capital spending, actions of vendors, rising costs associated with employees (generally including health-care costs), energy and certain commodities, geopolitical conditions (including tariffs), the ability to maintain effective internal control over financial reporting, COVID-19 related factors and challenges, including among others, the duration of the pandemic, the unknown long-term economic impacts, reduced member shopping due to illness, travel restrictions or financial hardship, shifts in demand away from discretionary or higher-priced products, reduced workforce due to illness, quarantine, or government mandates, temporary store closures due to reduced workforces or government mandates, supply-chain disruptions, or capacity constraints of third-party logistics suppliers and other risks identified from time to time in the Company's public statements and reports filed with the Securities and Exchange Commission (SEC).

These risks and uncertainties include, but are not limited to, domestic and international economic conditions, including exchange rates, inflation or deflation, the effects of competition and regulation, uncertainties in the financial markets, consumer and small-business spending patterns and debt levels, breaches of security or privacy of member or business information, conditions affecting the acquisition, development, ownership or use of real estate, capital spending, actions of vendors, rising costs associated with employees (generally including health-care costs), energy and certain commodities, geopolitical conditions (including tariffs), the ability to maintain effective internal control over financial reporting, regulatory and other impacts related to climate change, and COVID-19 related factors and challenges, including (among others) the duration of the pandemic, the unknown long-term economic impact, reduced member shopping due to illness, travel restrictions or financial hardship, shifts in demand for products, reduced workforces due to illness, quarantine, or government mandates, temporary store closures or operational limitations due to government mandates, or supply-chain disruptions, capacity constraints of third-party logistics suppliers, and other risks identified from time to time in the Company's public statements and reports filed with the Securities and Exchange Commission (SEC).

Forward-looking statements speak only as of the date they are made, and the Company does not undertake to update these statements, except as required by law.

This management discussion should be read in conjunction with the management discussion included in our fiscal 2020 Annual Report on Form 10-K, previously filed with the SEC.

We operate membership warehouses and e-commerce websites based on the concept that offering our members low prices on a limited selection of nationally branded and private-label products in a wide range of merchandise categories will produce high sales volumes and rapid inventory turnover.

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

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

We operate membership warehouses and e-commerce websites based on the concept that offering our members low prices on a limited selection of nationally-branded and private-label products in a wide range of categories will produce high sales volumes and rapid inventory turnover.

When combined with the operating efficiencies achieved by volume purchasing, efficient distribution and reduced handling of merchandise in no-frills, self-service warehouse facilities, these volumes and turnover enable us to operate profitably at significantly lower gross margins (net sales less merchandise costs) than most other retailers.

We generally sell inventory before we are required to pay for it, even while taking advantage of early payment discounts.

We believe that the most important driver of our profitability is increasing net sales, particularly comparable sales growth.

Net sales includes our core merchandise categories (foods and sundries, 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.

Comparable sales growth is achieved through increasing shopping frequency from new and existing members and the amount they spend on each visit (average ticket).

Sales comparisons can also be particularly influenced

by certain factors that are beyond our control:

Sales comparisons can also be particularly influenced by certain factors that are beyond our control:

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

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The degree of our exposure is dependent on (among other things) the type of goods, rates imposed, and timing of the tariffs.

Merchandise costs 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.

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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 business.

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 11 to the condensed consolidated financial statements included in Part I, Item 1, of this Report).

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

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

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

References to the third quarter of 2021 and 2020 relate to the 12-week fiscal quarters ended May 9, 2021, and May 10, 2020.

References to the first thirty-six weeks of 2021 and 2020 relate to the 36 weeks ended May 9, 2021, and May 10, 2020.

References to the first quarter of 2022 and 2021 relate to the 12-week fiscal quarters ended November 21, 2021, and November 22, 2020.

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

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

Highlights for the third quarter of 2021 as compared to the third quarter of 2020 include:

• Net sales increased 22% to $44,376, driven by an increase in comparable sales of 21% and sales at 22 net new warehouses opened since the end of the third quarter of 2020;

• Membership fee revenue increased 11% to $901, driven by signups at warehouses and online and upgrades to Executive Membership;

• Gross margin percentage decreased 35 basis points, driven primarily by a shift in sales from our core merchandise categories to our ancillary and other businesses, partially offset by decreased incremental wages related to COVID-19, which ended on February 28, 2021;

• SG&A expenses as a percentage of net sales decreased 107 basis points, primarily due to leveraging increased sales and decreased incremental wages related to COVID-19;

• On April 14, 2021, our Board declared a quarterly cash dividend of $0.79 per share, which was paid on May 14, 2021;

• Net income was $1,220, or $2.75 per diluted share, compared to $838, or $1.89 per diluted share in 2020.

During the third quarter of 2021, our sales mix began returning to pre-pandemic levels.

This included strong sales in hardlines and softlines, gasoline, and in many of our warehouse ancillary and other businesses, certain of which experienced closures or restrictions in the third quarter of 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 $57 and $515 in incremental wages during the third quarter and first thirty-six weeks of 2021, respectively, 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.

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

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

• Net sales increased 17% to $49,417, driven by an increase in comparable sales of 15% and sales at 20 net new warehouses opened since the end of the first quarter of 2021;

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

• Gross margin percentage decreased 49 basis points, driven primarily by our core merchandise categories;

• SG&A expenses as a percentage of net sales decreased 65 basis points, primarily due to leveraging increased sales and ceasing of incremental wages related to COVID-19;

• The provision for income taxes in the first quarter of 2022 was positively impacted by a benefit related to stock compensation of $91, $0.21 per diluted share, compared to $75, $0.17 per diluted share, in the first quarter of 2021.

The first quarter of 2021 was also positively impacted by a benefit of $70, $0.16 per diluted share, in connection with the portion of the special dividend paid to 401(k) participants;

• Net income was $1,324, $2.98 per diluted share, compared to $1,166, $2.62 per diluted share in 2021;

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

The COVID-19 pandemic continues.

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

During the first quarter of fiscal 2021, we paid $212 incremental wages related to COVID-19, which ceased in February 2021.

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

RESULTS OF OPERATIONS

12 Weeks Ended 36 Weeks Ended

12 Weeks Ended

2021 November 22,

$ 49,417 $ 42,347

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Total Company 10 % 17 %

Net sales increased $7,925 or 22%, and $19,668 or 18% during the third quarter and first thirty-six weeks of 2021, compared to the third quarter and first thirty-six weeks of 2020.

This improvement was attributable to an increase in comparable sales of 21% and 16% in the third quarter and first thirty-six weeks of 2021, and sales at the 22 net new warehouses opened since the end of the third quarter of 2020.

While sales in all core merchandise categories increased, sales increases were particularly stronger in hardlines and softlines, and in many of our warehouse ancillary and other businesses, predominantly our gasoline business.

Changes in foreign currencies relative to the U.S.

dollar positively impacted net sales by approximately $1,032, or 283 basis points, compared to the third quarter of 2020, attributable to our Canadian and Other International operations.

Changes in gasoline prices positively impacted net sales in the third quarter by $984, or 270 basis points, compared to 2020, due to a 32% increase in the average price per gallon.

The volume of gasoline sold in the third quarter increased approximately 33%, positively impacting net sales by $820, or 225 basis points.

Net sales increased $7,070 or 17% during the first quarter of 2022.

This improvement was attributable to an increase in comparable sales of 15% and sales at the 20 net new warehouses opened since the end of the first quarter of 2021.

While sales in all core merchandise categories increased, increases were strongest in non-foods, gasoline, and travel.

Merchandise costs continued to be impacted by inflation, slightly higher than what we experienced in the fourth quarter of fiscal 2021.

Higher gasoline prices positively impacted net sales by $1,843, or 435 basis points, compared to 2021, with a 49% increase in the average price per gallon.

The volume of gasoline sold increased approximately 26%, positively impacting net sales by $809, or 191 basis points.

Changes in foreign currencies relative to the U.S.

dollar positively impacted net sales by approximately $1,551, or 140 basis points, compared to the first thirty-six weeks of 2020, attributable to our Canadian and Other International operations.

Changes in gasoline prices negatively impacted net sales in the first thirty-six weeks of 2021 by $309, or 28 basis points, compared to 2020, due to a 2% decrease in the average price per gallon.

The volume of gasoline sold in the first thirty-six weeks of 2021 increased approximately 2%, positively impacting net sales by $266, or 24 basis points.

dollar positively impacted net sales by approximately $380, or 90 basis points, compared to the first quarter of 2021, primarily attributable to our Canadian operations.

Comparable Sales

Comparable sales increased 21% and 16% in the third quarter and first thirty-six weeks of 2021, and were positively impacted by increases in shopping frequency and average ticket.

There was an increase of 41% and 65% in e-commerce comparable sales in the third quarter and first thirty-six weeks of 2021.

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

Comparable sales increased 15% in the first quarter of 2022, and were positively impacted by increases in the average ticket and shopping frequency.

There was an increase of 14% in e-commerce comparable sales in the first quarter of 2022.

Membership Fees

12 Weeks Ended 36 Weeks Ended

12 Weeks Ended

2021 November 22,

Membership fees $ 946 $ 861

Membership fees as a percentage of net sales

2.03 % 2.24 % 2.02 % 2.20 %

Membership fees increase 10 % 7 %

Total paid members (000s) 62,500 59,100

Total cardholders (000s) 113,100 107,100

Membership fees increased 11% and 9% in the third quarter and first thirty-six weeks of 2021.

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

dollar, membership fees increased 8% and 7% for the third quarter and first thirty-six weeks of 2021, driven by signups at warehouses and online and upgrades to Executive Membership.

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

Membership fee revenues increased 10%, driven by sign-ups and upgrades to Executive Membership.

At the end of the first quarter of 2022, our member renewal rates were 92% in the U.S.

and Canada and 89% worldwide.

Our renewal rate is a trailing calculation that captures renewals during the period seven to eighteen months prior to the reporting date.

Renewal rates continue to benefit from more members auto renewing, as well as increased penetration of executive members, who on average renew at a higher rate.

Our renewal rate, which excludes affiliates of Business members, is a trailing calculation that captures renewals during the period seven to eighteen months prior to the reporting date.

We account for membership fee revenue on a deferred basis, recognized ratably over the one-year membership period.

Our membership counts include active memberships as well as memberships that have not renewed within the 12 months prior to the reporting date.

In the fourth quarter of 2020, we standardized our membership count methodology globally to be consistent with the U.S.

If this standardization would have been done at the end of the third quarter of 2020, it would have resulted in an addition to the count of approximately 2.3 million total cardholders, of which 1.5 million were paid members.

Membership fee income and the renewal rate calculations were not affected.

12 Weeks Ended 36 Weeks Ended

12 Weeks Ended

2021 November 22,

Net sales $ 49,417 $ 42,347

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11.06 % 11.55 %

Quarterly Results

The gross margin of core merchandise categories, when expressed as a percentage of core merchandise sales (rather than total net sales), increased 27 basis points.

This increase was predominantly in hardlines and softlines, partially offset by fresh foods.

The gross margin of core merchandise categories, when expressed as a percentage of core merchandise sales (rather than total net sales), decreased 18 basis points.

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

Total gross margin percentage decreased 35 basis points compared to the third quarter of 2020.

Excluding the impact of gasoline price inflation on net sales, gross margin percentage was 11.43%, a decrease of 10 basis points.

This was primarily due to a 29 basis point decrease in our core merchandise categories, driven by changes in sales mix.

Gross margin was also negatively impacted by two basis points due to increased spending by our members under the Executive Membership 2% reward program.

Gross margin percentage was positively impacted by nine basis points due to decreased incremental wages related to COVID-19, which ended on February 28, 2021, and five basis points related to a reserve for certain inventory in 2020.

Warehouse ancillary and other businesses increased seven basis points, primarily due to improvement in certain ancillary businesses, which had been negatively impacted by COVID-19 related closures or restrictions in 2020, and e-commerce, partially offset by gasoline.

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), performed similarly to the consolidated results above for our U.S.

segment, except warehouse ancillary and other businesses decreased primarily due to our gasoline business.

Gross margin percentage increased in our Canadian and Other International segments, primarily due to increases in our warehouse ancillary and other businesses, core merchandise categories and decreased incremental wages related to COVID-19, partially offset by increased spending by members under the Executive Membership 2% reward program.

Year-to-date Results

The gross margin of core merchandise categories, when expressed as a percentage of core merchandise sales, increased 52 basis points.

This increase was across all categories, most significantly in fresh foods where gross margins increased primarily as a result of efficiencies from increased sales.

Total gross margin percentage increased four basis points compared to the first thirty-six weeks of 2020.

Excluding the impact of gasoline price deflation on net sales, gross margin percentage was 11.20%, an increase of two basis points.

This was primarily due to an increase of 31 basis points in our core merchandise categories, predominantly fresh foods and hardlines, and two basis points due to a reserve for certain inventory in 2020.

These increases were partially offset by a 22 basis point decrease in warehouse ancillary and other businesses, certain of which were negatively impacted by lower sales due to COVID-19, predominantly our gasoline and travel businesses.

The decreases in warehouse ancillary and other businesses were partially offset by e-commerce.

Gross margin was also negatively impacted by incremental wages related to COVID-19 of six basis points and increased spending by members under the Executive Membership 2% reward program of three basis points.

Gross margin percentage decreased in our U.S.

segment primarily due to warehouse ancillary and other businesses and incremental wages related to COVID-19, partially offset by increases in our core merchandise categories.

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

These increases were partially offset by the incremental wages and increased spending by executive members discussed above.

The decrease was primarily due to fresh foods and foods and sundries, partially offset by non-foods.

Total gross margin percentage decreased 49 basis points compared to the first quarter of 2021.

Excluding the impact of gasoline price inflation on net sales, gross margin percentage was 11.49%, a decrease of six basis points.

This was primarily due to a 26 basis-point decrease in core merchandise categories, predominantly foods and sundries and fresh foods.

Gross margin was also negatively impacted by three basis points due to a LIFO charge for higher merchandise costs and one basis-point due to increased 2% rewards.

Gross margin percentage was positively impacted by 12 basis points due to decreased incremental wages related to COVID-19, which ended on February 28, 2021.

Warehouse ancillary and other businesses increased 12 basis points, primarily due to our gasoline business and certain other ancillary businesses.

segment, due to warehouse ancillary and other businesses, partially offset by core

merchandise categories and the LIFO charge.

Gross margin percentage decreased in our Canadian segment, primarily due to decreases in core merchandise categories and warehouse ancillary and other businesses.

Gross margin percentage decreased in our Other International segment due to decreases in core merchandise categories and increased 2% rewards.

Selling, General and Administrative Expenses

12 Weeks Ended 36 Weeks Ended

12 Weeks Ended

2021 November 22,

SG&A expenses $ 4,718 $ 4,320

SG&A expenses as a percentage of net sales 9.55 % 10.20 %

Quarterly Results

SG&A expenses as a percentage of net sales decreased 107 basis points compared to the third quarter of 2020.

SG&A expenses as a percentage of net sales excluding the impact of gasoline price inflation was 9.65%, a decrease of 86 basis points compared to the prior year.

SG&A expenses were positively impacted by 56 basis points due to decreased incremental wages related to COVID-19, which ended on February 28, 2021, and sanitation costs.

SG&A expenses were also positively impacted by 20 basis points in our warehouse operations and other businesses, largely attributable to payroll, primarily due to leveraging increased sales.

SG&A expenses benefited five basis points from costs associated with the acquisition of Innovel in the third quarter of 2020, four basis points related to stock compensation expense, and one basis point related to central operating costs.

Effective March 1, 2021, we implemented permanent wage increases for hourly and most salaried warehouse employees.

This increase was effective for 10 of the 12 weeks within the third quarter of 2021.

The estimated annualized pre-tax cost of these permanent wage increases is approximately $400.

Year-to-date Results

SG&A expenses as a percentage of net sales decreased 37 basis points compared to the first thirty-six weeks of 2020.

SG&A expenses as a percentage of net sales excluding the impact of gasoline price deflation was 9.80%, a decrease of 39 basis points compared to the prior year.

Warehouse operations and other businesses were lower by 38 basis points, largely attributable to payroll, primarily due to leveraging increased sales.

Stock compensation expense was lower by four basis points and central operating costs were lower by three basis points.

SG&A expenses also benefited two basis points from the Innovel acquisition costs discussed above.

These decreases were partially offset by an increase of eight basis points due to incremental wages related to COVID-19.

Preopening Expense

12 Weeks Ended 36 Weeks Ended

Preopening expenses $ 10 $ 8 $ 41 $ 29

Warehouse openings, including relocations

United States 1 1 8 4

Canada 3 — 5 1

Other International 2 1 3 1

Total warehouse openings, including relocations 6 2 16 6

Preopening expenses include startup costs 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 openings, the timing of the openings relative to our quarter-end, whether the warehouse is owned or leased, and whether the opening is in an existing, new or international market.

For the remainder of fiscal 2021, we expect to open seven warehouses.

SG&A expenses as a percentage of net sales decreased 65 basis points.

SG&A expenses as a percentage of net sales excluding the impact of gasoline price inflation was 9.92%, a decrease of 28 basis points.

Warehouse operations and other businesses were lower by 11 basis points, largely attributable to payroll leveraging increased sales.

Central operating costs were lower by six basis points.

SG&A expenses were also lower by a net 13 basis points resulting from ceasing incremental COVID-19 wages, partially offset by a write-off of certain information technology assets.

Stock compensation and pre-opening expenses were each higher by one basis-point.

Changes in foreign currencies relative to the U.S.

dollar positively impacted SG&A expenses by approximately $25, compared to the first quarter of 2021, primarily attributable to our Canadian operations.

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

Interest Expense

12 Weeks Ended 36 Weeks Ended

12 Weeks Ended

2021 November 22,

Interest expense $ 39 $ 39

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Interest Income and Other, Net

12 Weeks Ended 36 Weeks Ended

12 Weeks Ended

2021 November 22,

Interest income $ 8 $ 10

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Interest income and other, net $ 42 $ 29

Interest income decreased in the third quarter and first thirty-six weeks of 2021, due to lower interest rates, partially offset by higher average cash and investment balances.

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

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Provision for Income Taxes

12 Weeks Ended 36 Weeks Ended

12 Weeks Ended

2021 November 22,

Provision for income taxes $ 351 $ 239

Effective tax rate 20.7 % 16.8 %

The effective tax rate for the first thirty-six weeks of 2021 was favorably impacted by net discrete tax benefits of $157, which primarily related to the first quarter.

This included $75 of excess tax benefits related to stock compensation, $70 related to the portion of the special cash dividend payable through our 401(k) plan and $19 primarily related to a reduction in the valuation allowance against certain deferred tax assets.

The effective tax rate for the first thirty-six weeks of 2020 was favorably impacted by net discrete tax benefits of $68, primarily related to excess tax benefits from stock compensation.

Excluding the discrete net tax benefits, the tax rate was 26.4% and 26.1% for the first thirty-six weeks of 2021 and 2020.

The effective tax rate was favorably impacted by net discrete tax benefits of $97.

This was primarily attributable to $91 of excess tax benefits related to stock compensation.

Excluding discrete net tax benefits, the tax rate was 26.4%.

The effective tax rate for the first quarter of 2021 was favorably impacted by net discrete tax benefits of $135.

This was primarily attributable to $75 of excess tax benefits related to stock compensation and $70 related to the special cash dividend paid through the 401(k) plan.

Excluding net discrete tax benefits, the tax rate was 26.3% for the first quarter of 2021.

LIQUIDITY AND CAPITAL RESOURCES

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12 Weeks Ended

2021 November 22,

Net cash provided by operating activities $ 3,258 $ 2,647

Net cash used in investing activities (912) (682)

Net cash (used in) provided by financing activities (5,769) 771

Net cash used in financing activities (839) (700)

Our primary sources of liquidity are cash flows generated from our operations, cash and cash equivalents, and short-term investments.

Cash and cash equivalents and short-term investments were $11,126 and $13,305 at May 9, 2021, and August 30, 2020.

Of these balances, unsettled credit and debit card receivables represented approximately $1,896 and $1,636 at May 9, 2021, and August 30, 2020.

Cash and cash equivalents and short-term investments were $13,476 and $12,175 at November 21, 2021, and August 29, 2021.

Of these balances, unsettled credit and debit card receivables represented approximately $2,245 and $1,816 at November 21, 2021, and August 29, 2021.

These receivables generally settle within four days.

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

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.

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

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

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

Management also believes that our U.S.

current and projected asset position is sufficient to meet U.S.

liquidity and capital requirements.

Cash Flows from Operating Activities

Net cash provided by operating activities totaled $6,018 in the first thirty-six weeks of 2021, compared to $4,619 in the first thirty-six weeks of 2020.

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

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

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Cash used in operations also includes payments for income taxes.

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

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 strategic forward deployment of inventory to accelerate delivery times to our members, payment terms with our suppliers, and the amount of payables paid early to obtain discounts from our suppliers.

Cash Flows from Investing Activities

Net cash used in investing activities totaled $2,380 in the first thirty-six weeks of 2021, compared to $2,950 in the first thirty-six weeks of 2020, and is primarily related to capital expenditures.

In the third quarter of 2021, we acquired a distribution facility for $345 to support our logistics and delivery activities.

In the third quarter of 2020, we acquired Innovel (Costco Wholesale Logistics).

See N ote 2 in the condensed consolidated financial statements.

Net cash used in investing activities totaled $912 in the first quarter of 2022, compared to $682 in the first quarter of 2021, and is primarily related to capital expenditures.

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

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Capital is also required for information systems, manufacturing and distribution facilities, initial warehouse operations, and working capital.

In the first thirty-six weeks of 2021, we spent $2,494 on capital expenditures.

While COVID-19 has delayed certain construction projects, it is our current intention to spend between $3,300 and $3,500 during fiscal 2021.

This increased from the second quarter of 2021 as a result of the distribution facility acquisition discussed above.

We opened 16 new warehouses, including two relocations, in the first thirty-six weeks of 2021 and plan to open seven additional new warehouses in the remainder of fiscal 2021.

There can be no assurance that current expectations will be realized;

plans are subject to change upon further review of our capital expenditure needs.

In the first quarter of 2022, we spent $1,055 on capital expenditures, and it is our current intention to spend approximately $4,000 during fiscal year 2022.

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

We opened nine new warehouses, including one relocation, in the first quarter of 2022 and plan to open 20 to 23 additional new warehouses, including up to four relocations, in the remainder of fiscal 2022.

There can be no assurance that current expectations will be realized and plans are subject to change upon changes in capital expenditure needs or the economic environment.

Cash Flows from Financing Activities

Net cash used in financing activities totaled $5,769 in the first thirty-six weeks of 2021, compared to net cash provided of $771 in the first thirty-six weeks of 2020.

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

During the first thirty-six weeks of 2020, we issued $4,000 in aggregate principal amount of Senior Notes and we also repaid $1,700 of Senior Notes.

On April 14, 2021, our Board declared a quarterly cash dividend of $0.79 per share payable to shareholders of record on April 30, 2021, which was paid on May 14, 2021.

Net cash used in financing activities totaled $839 in the first quarter of 2022, compared to $700 in the first quarter of 2021.

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

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

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

Stock Repurchase Program

During the first thirty-six weeks of 2021 and 2020, we repurchased 1,040,000 and 368,000 shares of common stock, at an average price per share of $353.87 and $298.53, totaling approximately $368 and $110.

During the first quarter of 2022 and 2021, we repurchased 77,000 and 213,000 shares of common stock, at an average price per share of $455.08 and $359.45, totaling approximately $35 and $77.

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

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We maintain bank credit facilities for working capital and general corporate purposes.

At May 9, 2021, we had borrowing capacity under these facilities of $1,059.

Our international operations maintain $583 of the borrowing capacity under bank credit facilities, of which $206 is guaranteed by the Company.

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

At November 21, 2021, we had borrowing capacity under these facilities of $1,046.

Our international operations maintain $561 of the total borrowing capacity under bank credit facilities, of which $198 is guaranteed by the Company.

There were no outstanding short-term borrowings under the bank credit facilities at the end of the first quarter of 2022, and short-term borrowings were immaterial at the end of 2021.

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

The outstanding commitments under these facilities at the end of the third quarter of 2021 totaled $181, most of which were standby letters of credit which do not expire or have expiration dates within one year.

The bank credit facilities have various expiration dates, most of which are within one year, and we generally intend to renew these facilities.

The outstanding commitments under these facilities at the end of the first quarter of 2022 totaled $200, most of which were standby letters of credit which do not expire or have expiration dates within one year.

The bank credit facilities have various expiration dates, most of which are within one year, and we generally

intend to renew these facilities.

The amount of borrowings available at any time under our bank credit facilities is reduced by the amount of standby and commercial letters of credit outstanding.

Contractual Obligations

As of the date of this Report, there were no material changes to our contractual obligations outside the ordinary course of business since the end of our last fiscal year.

Critical Accounting Estimates

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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-Q

Item 2. Management’s Discussion and Analysis