COSTCO WHOLESALE CORP /NEW 10-Q

Item 1—Financial Statements COSTCO WHOLESALE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (amounts in millions, except per share data) (unaudited) 12 Weeks Ended November 21, 2021 November 22, 2020 REVENUE Net sales $ 49,417 $ 42,347 Membership fees 946 861 Total revenue 50,363 43,208 OPERATING EXPENSES Merchandise costs 43,952 37,458 Selling, general and administrative 4,718 4,320 Operating income 1,693 1,430 OTHER INCOME (EXPENSE) Interest expense ( 39 ) ( 39 ) Interest income and other, net 42 29 INCOME BEFORE INCOME TAXES 1,696 1,420 Provision for income taxes 351 239 Net income including noncontrolling interests 1,345 1,181 Net income attributable to noncontrolling interests ( 21 ) ( 15 ) NET INCOME ATTRIBUTABLE TO COSTCO $ 1,324 $ 1,166 NET INCOME PER COMMON SHARE ATTRIBUTABLE TO COSTCO: Basic $ 2.99 $ 2.63 Diluted $ 2.98 $ 2.62 Shares used in calculation (000s): Basic 443,377 442,952 Diluted 444,604 444,386 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents COSTCO WHOLESALE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (amounts in millions) (unaudited) 12 Weeks Ended November 21, 2021 November 22, 2020 NET INCOME INCLUDING NONCONTROLLING INTERESTS $ 1,345 $ 1,181 Foreign-currency translation adjustment and other, net ( 72 ) 209 Comprehensive income 1,273 1,390 Less: Comprehensive income attributable to noncontrolling interests 23 28 COMPREHENSIVE INCOME ATTRIBUTABLE TO COSTCO $ 1,250 $ 1,362 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents COSTCO WHOLESALE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (amounts in millions, except par value and share data) (unaudited) November 21, 2021 August 29, 2021 ASSETS CURRENT ASSETS Cash and cash equivalents $ 12,751 $ 11,258 Short-term investments 725 917 Receivables, net 1,932 1,803 Merchandise inventories 16,942 14,215 Other current assets 1,500 1,312 Total current assets 33,850 29,505 OTHER ASSETS Property and equipment, net 23,887 23,492 Operating lease right-of-use assets 2,903 2,890 Other long-term assets 3,509 3,381 TOTAL ASSETS $ 64,149 $ 59,268 LIABILITIES AND EQUITY CURRENT LIABILITIES Accounts payable $ 19,561 $ 16,278 Accrued salaries and benefits 3,985 4,090 Accrued member rewards 1,726 1,671 Deferred membership fees 2,192 2,042 Current portion of long-term debt 799 799 Other current liabilities 5,079 4,561 Total current liabilities 33,342 29,441 OTHER LIABILITIES Long-term debt, excluding current portion 6,667 6,692 Long-term operating lease liabilities 2,649 2,642 Other long-term liabilities 2,491 2,415 TOTAL LIABILITIES 45,149 41,190 COMMITMENTS AND CONTINGENCIES EQUITY Preferred stock $ 0.01 par value; 100,000,000 shares authorized; no shares issued and outstanding — — Common stock $ 0.01 par value; 900,000,000 shares authorized; 443,434,000 and 441,825,000 shares issued and outstanding 4 4 Additional paid-in capital 7,064 7,031 Accumulated other comprehensive loss ( 1,211 ) ( 1,137 ) Retained earnings 12,606 11,666 Total Costco stockholders’ equity 18,463 17,564 Noncontrolling interests 537 514 TOTAL EQUITY 19,000 18,078 TOTAL LIABILITIES AND EQUITY $ 64,149 $ 59,268 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents COSTCO WHOLESALE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (amounts in millions) (unaudited) 12 Weeks Ended November 21, 2021 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Costco Stockholders’ Equity Noncontrolling Interests Total Equity Shares (000s) Amount BALANCE AT AUGUST 29, 2021 441,825 $ 4 $ 7,031 $ ( 1,137 ) $ 11,666 $ 17,564 $ 514 $ 18,078 Net income — — — — 1,324 1,324 21 1,345 Foreign-currency translation adjustment and other, net — — — ( 74 ) — ( 74 ) 2 ( 72 ) Stock-based compensation — — 389 — — 389 — 389 Release of vested restricted stock units (RSUs), including tax effects 1,686 — ( 355 ) — — ( 355 ) — ( 355 ) Repurchases of common stock ( 77 ) — ( 1 ) — ( 34 ) ( 35 ) — ( 35 ) Cash dividend declared — — — — ( 350 ) ( 350 ) — ( 350 ) BALANCE AT NOVEMBER 21, 2021 443,434 $ 4 $ 7,064 $ ( 1,211 ) $ 12,606 $ 18,463 $ 537 $ 19,000 12 Weeks Ended November 22, 2020 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Costco Stockholders’ Equity Noncontrolling Interests Total Equity Shares (000s) Amount BALANCE AT AUGUST 30, 2020 441,255 $ 4 $ 6,698 $ ( 1,297 ) $ 12,879 $ 18,284 $ 421 $ 18,705 Net income — — — — 1,166 1,166 15 1,181 Foreign-currency translation adjustment and other, net — — — 196 — 196 13 209 Stock-based compensation — — 342 — — 342 — 342 Release of vested RSUs, including tax effects 1,913 — ( 311 ) — — ( 311 ) — ( 311 ) Repurchases of common stock ( 213 ) — ( 4 ) — ( 73 ) ( 77 ) — ( 77 ) Cash dividends declared — — — — ( 4,740 ) ( 4,740 ) — ( 4,740 ) BALANCE AT NOVEMBER 22, 2020 442,955 $ 4 $ 6,725 $ ( 1,101 ) $ 9,232 $ 14,860 $ 449 $ 15,309 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents COSTCO WHOLESALE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in millions) (unaudited) 12 Weeks Ended November 21, 2021 November 22, 2020 CASH FLOWS FROM OPERATING ACTIVITIES Net income including noncontrolling interests $ 1,345 $ 1,181 Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities: Depreciation and amortization 432 404 Non-cash lease expense 72 63 Stock-based compensation 388 341 Other non-cash operating activities, net 111 ( 2 ) Deferred income taxes ( 2 ) ( 9 ) Changes in operating assets and liabilities: Merchandise inventories ( 2,760 ) ( 2,580 ) Accounts payable 3,389 2,785 Other operating assets and liabilities, net 283 464 Net cash provided by operating activities 3,258 2,647 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of short-term investments ( 258 ) ( 273 ) Maturities of short-term investments 444 484 Additions to property and equipment ( 1,055 ) ( 893 ) Other investing activities, net ( 43 ) — Net cash used in investing activities ( 912 ) ( 682 ) CASH FLOWS FROM FINANCING ACTIVITIES Change in bank payments outstanding ( 46 ) 40 Repayments of short-term borrowings ( 40 ) — Tax withholdings on stock-based awards ( 355 ) ( 311 ) Repurchases of common stock ( 37 ) ( 80 ) Cash dividend payments ( 350 ) ( 310 ) Other financing activities, net ( 11 ) ( 39 ) Net cash used in financing activities ( 839 ) ( 700 ) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS ( 14 ) 48 Net change in cash and cash equivalents 1,493 1,313 CASH AND CASH EQUIVALENTS BEGINNING OF YEAR 11,258 12,277 CASH AND CASH EQUIVALENTS END OF PERIOD $ 12,751 $ 13,590 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the first 12 weeks of the year for: Interest $ 64 $ 64 Income taxes, net $ 206 $ 123 SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES: Cash dividend declared, but not yet paid $ — $ 4,430 Leased assets obtained in exchange for finance lease liabilities $ 118 $ 51 Leased assets obtained in exchange for operating lease liabilities $ 61 $ 44 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents COSTCO WHOLESALE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (amounts in millions, except share, per share, and warehouse count data) (unaudited) Note 1—Summary of Significant Accounting Policies Description of Business Costco Wholesale Corporation (Costco or the Company), a Washington corporation, and its subsidiaries operate membership warehouses based on the concept that offering members low prices on a limited selection of nationally-branded and private-label products in a wide range of merchandise categories will produce high sales volumes and rapid inventory turnover. For the period ended November 21, 2021, Costco operated 823 warehouses worldwide: 571 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, 13 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. Basis of Presentation The condensed consolidated financial statements include the accounts of Costco, its wholly-owned subsidiaries, and subsidiaries in which it has a controlling interest. The Company reports noncontrolling interests in consolidated entities as a component of equity separate from the Company’s equity. All material inter-company transactions between and among the Company and its consolidated subsidiaries have been eliminated in consolidation. The Company’s net income excludes income attributable to the noncontrolling interest in Taiwan. Unless otherwise noted, references to net income relate to net income attributable to Costco. These unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q for interim financial reporting pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). While these statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (U.S. GAAP) for complete financial statements. Therefore, the interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report filed on Form 10-K for the fiscal year ended August 29, 2021. Fiscal Year End The Company operates on a 52/53 week fiscal year basis, with the fiscal year ending on the Sunday closest to August 31. Fiscal 2022 is a 52-week year ending on August 28, 2022. References to the first quarter of 2022 and 2021 relate to the 12-week fiscal quarters ended November 21, 2021, and November 22, 2020. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions take into account historical and forward-looking factors that the Company believes are reasonable, including but not limited to the potential impacts arising from the novel coronavirus (COVID-19) and related public and private sector policies and initiatives. Actual results could differ from those estimates and assumptions. 8 Table of Contents Property and Equipment, Net The Company capitalizes certain computer software and costs incurred in developing or obtaining software for internal use. In the first quarter of 2022, the Company recognized a $ 118 write-off of certain information technology assets, which was recorded in selling, general and administrative expenses, in the condensed consolidated statements of income. Reclassification Reclassifications were made to our first quarter 2021 condensed consolidated statements of income to conform with current period presentation. Note 2—Investments The Company's investments were as follows: November 21, 2021: Cost Basis Unrealized Gains, Net Recorded Basis Available-for-sale: Government and agency securities $ 354 $ 5 $ 359 Held-to-maturity: Certificates of deposit 366 — 366 Total short-term investments $ 720 $ 5 $ 725 August 29, 2021: Cost Basis Unrealized Gains, Net Recorded Basis Available-for-sale: Government and agency securities $ 375 $ 6 $ 381 Held-to-maturity: Certificates of deposit 536 — 536 Total short-term investments $ 911 $ 6 $ 917 Gross unrecognized holding gains and losses on available-for-sale securities were not material for the periods ended November 21, 2021, and August 29, 2021 . At those dates, there were no available-for-sale securities in a continuous unrealized-loss position. There were no sales of available-for-sale securities during the first quarter of 2022 or 2021. The maturities of available-for-sale and held-to-maturity securities at November 21, 2021, are as follows: Available-For-Sale Held-To-Maturity Cost Basis Fair Value Due in one year or less $ 198 $ 199 $ 366 Due after one year through five years 156 160 — Total $ 354 $ 359 $ 366 9 Table of Contents Note 3—Fair Value Measurement Assets and Liabilities Measured at Fair Value on a Recurring Basis The table below presents information regarding financial assets and liabilities that are measured at fair value on a recurring basis and indicates the level within the fair value hierarchy reflecting the valuation techniques utilized. Level 2 November 21, 2021 August 29, 2021 Investment in government and agency securities (1) $ 359 $ 393 Forward foreign-exchange contracts, in asset position (2) 24 17 Forward foreign-exchange contracts, in (liability) position (2) ( 2 ) ( 2 ) Total $ 381 $ 408 _______________ (1) At August 29, 2021, $ 12 cash and cash equivalents and $ 381 short-term investments are included in the accompanying condensed consolidated balance sheets. (2) The asset and liability values are included in other current assets and other current liabilities, respectively, in the accompanying condensed consolidated balance sheets. At November 21, 2021, and August 29, 2021, the Company did not hold any Level 1 or 3 financial assets or liabilities that were measured at fair value on a recurring basis. There were no transfers between levels during the first quarter of 2022 or 2021. Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Assets and liabilities recognized and disclosed at fair value on a nonrecurring basis include items such as financial assets measured at amortized cost and long-lived nonfinancial assets. These assets are measured at fair value if determined to be impaired. There were no fair value adjustments to these items during the first quarter of 2022 or 2021. Note 4—Debt The carrying value of the Company’s long-term debt consisted of the following: November 21, 2021 August 29, 2021 2.300% Senior Notes due May 2022 $ 800 $ 800 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 1.600% Senior Notes due April 2030 1,750 1,750 1.750% Senior Notes due April 2032 1,000 1,000 Other long-term debt 704 731 Total long-term debt 7,504 7,531 Less unamortized debt discounts and issuance costs 38 40 Less current portion (1) 799 799 Long-term debt, excluding current portion $ 6,667 $ 6,692 _______________ (1) Net of unamortized debt discounts and issuance costs. 10 Table of Contents The fair value of Senior Notes is estimated using Level 2 inputs. Other long-term debt consists of Guaranteed Senior Notes issued by the Company's Japan subsidiary, valued using Level 3 inputs. The fair value of the Company's long-term debt, including the current portion, was approximately $ 7,541 and $ 7,692 at November 21, 2021, and August 29, 2021. Subsequent to the end of the quarter, on December 1, 2021, the Company repaid, prior to maturity, the 2.300 % Senior Notes at a redemption price plus accrued interest as specified in the Notes' agreement. Note 5—Equity Dividends The Company’s current quarterly dividend is $ 0.79 per share, compared to $ 0.70 in the first quarter of 2021. On October 13, 2021, the Board of Directors declared a quarterly cash dividend in the amount of $ 0.79 per share, which was paid on November 12, 2021. On December 11, 2020, an aggregate payment of approximately $ 4,430 was made in connection with the special cash dividend of $ 10.00 per share, declared on November 16, 2020. Stock Repurchase Programs The Company's stock repurchase program is conducted under a $ 4,000 authorization by the Board of Directors, which expires in April 2023. The remaining amount available for stock repurchases under the approved plan was $ 3,215 at November 21, 2021. Stock repurchase activity during the first quarter of 2022 and 2021 is summarized below: Shares Repurchased (000s) Average Price per Share Total Cost First quarter of 2022 77 $ 455.08 $ 35 First quarter of 2021 213 $ 359.45 $ 77 These amounts may differ from the stock repurchase balances in the accompanying condensed consolidated statements of cash flows due to changes in unsettled stock repurchases at quarter end. Purchases are made from time to time, as conditions warrant, in the open market or in block purchases and pursuant to plans under SEC Rule 10b5-1. 11 Table of Contents Note 6—Stock-Based Compensation The 2019 Incentive Plan authorized the issuance of 17,500,000 shares ( 10,000,000 RSUs) of common stock for future grants, plus the remaining shares that were available for grant and the future forfeited shares from grants under the previous plan, up to a maximum of 27,800,000 shares ( 15,885,000 RSUs). The Company issues new shares of common stock upon vesting of RSUs. Shares for vested RSUs are generally delivered to participants annually, net of shares withheld for taxes. Summary of Restricted Stock Unit Activity At November 21, 2021, 10,334,000 shares were available to be granted as RSUs, and the following awards were outstanding: • 3,463,000 time-based RSUs, which vest upon continued employment over specified periods and accelerates upon achievement of the long-service term; • 39,000 performance-based RSUs, granted to executive officers of the Company, for which the performance targets have been met. The awards vest upon continued employment over specified periods of time; and • 82,000 performance-based RSUs, granted to executive officers of the Company, subject to achievement of performance targets for fiscal 2022, as determined by the Compensation Committee of the Board of Directors after the end of the fiscal year. These awards are not included in the table below or in the amount of unrecognized compensation cost. The following table summarizes RSU transactions during the first quarter of 2022: Number of Units (in 000s) Weighted-Average Grant Date Fair Value Outstanding at August 29, 2021 4,349 $ 257.88 Granted 1,597 474.74 Vested and delivered ( 2,432 ) 290.20 Forfeited ( 12 ) 298.67 Outstanding at November 21, 2021 3,502 $ 334.16 The remaining unrecognized compensation cost related to unvested RSUs at November 21, 2021, was $ 1,089 , and the weighted-average period over which this cost will be recognized is 1.8 years. Summary of Stock-Based Compensation The following table summarizes stock-based compensation expense and the related tax benefits: 12 Weeks Ended November 21, 2021 November 22, 2020 Stock-based compensation expense $ 388 $ 341 Less recognized income tax benefit 85 75 Stock-based compensation expense, net $ 303 $ 266 12 Table of Contents Note 7—Net Income per Common and Common Equivalent Share The following table shows the amounts used in computing net income per share and the weighted average number of shares of basic and potentially dilutive common shares outstanding (shares in 000s): 12 Weeks Ended November 21, 2021 November 22, 2020 Net income attributable to Costco $ 1,324 $ 1,166 Weighted average basic shares 443,377 442,952 RSUs 1,227 1,434 Weighted average diluted shares 444,604 444,386 Anti-dilutive RSUs — 432 Anti-dilutive shares are excluded from the calculation of diluted shares and earnings per diluted share because their impact would increase earnings per diluted share. Note 8—Commitments and Contingencies Legal Proceedings The Company is involved in a number of claims, proceedings and litigations arising from its business and property ownership. In accordance with applicable accounting guidance, the Company establishes an accrual for legal proceedings if and when those matters present loss contingencies that are both probable and reasonably estimable. There may be exposure to loss in excess of any amounts accrued. The Company monitors those matters for developments that would affect the likelihood of a loss (taking into account where applicable indemnification arrangements concerning suppliers and insurers) and the accrued amount, if any, thereof, and adjusts the amount as appropriate. As of the date of this Report, the Company has recorded immaterial accruals with respect to certain matters described below, in addition to other immaterial accruals for matters not described below. If the loss contingency at issue is not both probable and reasonably estimable, the Company does not establish an accrual, but will continue to monitor the matter for developments that will make the loss contingency both probable and reasonably estimable. In each case, there is a reasonable possibility that a loss may be incurred, including a loss in excess of the applicable accrual. For matters where no accrual has been recorded, the possible loss or range of loss (including any loss in excess of the accrual) cannot, in the Company's view, be reasonably estimated because, among other things: (i) the remedies or penalties sought are indeterminate or unspecified; (ii) the legal and/or factual theories are not well developed; and/or (iii) the matters involve complex or novel legal theories or a large number of parties. The Company is a defendant in an action commenced in August 2013 under the California Labor Code Private Attorneys General Act (PAGA) alleging violation of California Wage Order 7-2001 for failing to provide seating to employees who work at entrance and exit doors in California warehouses. Canela v. Costco Wholesale Corp., et al. ( Case No. 2013-1-CV-248813; Santa Clara Superior Court). The complaint seeks relief under the California Labor Code, including civil penalties and attorneys’ fees. The Company filed an answer denying the material allegations of the complaint. In December 2018, a depot employee raised similar claims, alleging that depot employees in California did not receive suitable seating or reasonably comfortable workplace temperature conditions. Lane v. Costco Wholesale Corp. (Case No. CIVDS 1908816; San Bernardino Superior Court). The Company filed an answer denying the material allegations of the complaint. In October 2019, the parties reached an agreement to settle for an immaterial amount the seating claims on a representative basis, which received court approval in February 2020. The workplace temperature claims continue in litigation. 13 Table of Contents In March 2019, employees filed a class action against the Company alleging claims under California law for failure to pay overtime, to provide meal and rest periods and itemized wage statements, to timely pay wages due to terminating employees, to pay minimum wages, and for unfair business practices. Relief is sought under the California Labor Code, including civil penalties and attorneys' fees. Nevarez v. Costco Wholesale Corp. (Case No. 2:19-cv-03454; C.D. Cal.). The Company filed an answer denying the material allegations of the complaint. In December 2019, the court issued an order denying class certification. In January 2020, the plaintiffs dismissed their Labor Code claims without prejudice, and the court remanded the action to state court. The remand was appealed; the appeal is in abeyance due to a pending settlement for an immaterial amount that was agreed upon in February 2021. The Court preliminarily approved the settlement in October 2021, and the Court's final review is scheduled for May 2022. In May 2019, an employee filed a class action against the Company alleging claims under California law for failure to pay overtime, to provide itemized wage statements, to timely pay wages due to terminating employees, to pay minimum wages, and for unfair business practices. Rough v. Costco Wholesale Corp . (Case No. 2:19-cv-01340; E.D. Cal.). Relief is sought under the California Labor Code, including civil penalties and attorneys' fees. The Company has moved for partial summary judgement, and the parties have filed competing motions regarding class certification. In August 2019, the plaintiff filed a companion case in state court seeking penalties under PAGA. Rough v. Costco Wholesale Corp. (Case No. FCS053454; Sonoma County Superior Court). Relief is sought under the California Labor Code, including civil penalties and attorneys' fees. The state court action has been stayed pending resolution of the federal action. In June 2019, an employee filed a class action against the Company alleging claims under California law for failure to pay overtime, to provide meal and rest periods, itemized wage statements, to timely pay wages due to terminating employees, to pay minimum wages, and for unfair business practices. Martinez v. Costco Wholesale Corp . (Case No. 3:19-cv-05624-EMC; N.D. Cal.). The Company filed an answer denying the material allegations of the complaint. In June 2021, the plaintiff agreed to dismiss his claims for failure to provide meal and rest breaks and to pay minimum wages. In July 2021, the parties reached an agreement settling for an immaterial amount the remaining claim and related derivative claims. In April 2020, an employee, alleging underpayment of sick pay, filed a class and representative action against the Company, alleging claims under California law for failure to pay all wages at termination and for Labor Code penalties under PAGA. Kristy v. Costco Wholesale Corp. (Case No. 5:20-cv-04119; N.D. Cal.). The case was stayed due to the plaintiff's bankruptcy, and his individual claim was settled for an immaterial amount. A request for dismissal of the class and representative action is pending. In July 2020, an employee filed an action under PAGA on behalf of all California non-exempt employees alleging violations of California Labor Code provisions regarding meal and rest periods, minimum wage, overtime, wage statements, reimbursement of expenses, and payment of wages at termination. Schwab v. Costco Wholesale Corporation (Case No. 37-2020-00023551-CU-OE-CTL; San Diego County Superior Court). In August 2020, the Company filed a motion to strike portions of the complaint, which was denied, and an answer has been filed denying the material allegations of the complaint. In December 2020, a former employee filed suit against the Company asserting collective and class claims on behalf of non-exempt employees under the Fair Labor Standards Act and New York Labor Law for failure to pay for all hours worked on a weekly basis and failure to provide proper wage statements and notices. The plaintiff also asserts individual retaliation claims. Cappadora v. Costco Wholesale Corp. (Case No. 1:20-cv-06067; E.D.N.Y.). An amended complaint was filed, and the Company has denied the material allegations of the amended complaint. In August 2021, a former employee filed a similar suit, asserting collective and class claims on behalf of non-exempt employees under the FLSA and New York law. Umadat v. Costco Wholesale Corp. (Case No. 2:21-cv-4814; E.D.N.Y.). The Company answered the complaint on October 21, 2021, denying the material allegations. 14 Table of Contents In February 2021, a former employee filed a class action against the Company alleging violations of California Labor Code regarding payment of wages, meal and rest periods, wage statements, reimbursement of expenses, payment of final wages to terminated employees, and for unfair business practices. Edwards v. Costco Wholesale Corp. (Case No. 5:21-cv-00716: C.D. Cal.). In May 2021, the Company filed a motion to dismiss the complaint, which was granted with leave to amend. In June 2021, the plaintiff filed an amended complaint, which the Company moved to dismiss later that month. The court granted the motion in part in July 2021 with leave to amend. In August 2021, the plaintiff filed a second amended complaint and filed a separate representative action under PAGA asserting the same Labor Code claims and seeking civil penalties and attorneys' fees. The Company filed an answer to the second amended class action complaint, denying the material allegations. In July 2021, a former temporary staffing employee filed a class action against the Company and a staffing company alleging violations of the California Labor Code regarding payment of wages, meal and rest periods, wage statements, the timeliness of wages and final wages, and for unfair business practices. Dimas v. Costco Wholesale Corp. (Case No. STK-CV-UOE-2021-0006024; San Joaquin Superior Court). The Company will move to compel arbitration of the plaintiff's individual claims and to dismiss the class action complaint. On September 7, 2021, the same former employee filed a separate representative action under PAGA asserting the same Labor Code violations and seeking civil penalties and attorneys' fees. The complaint has not yet been served. In September 2021, an employee filed a class action against the Company alleging violations of the California Labor Code regarding the alleged failure to provide sick pay, failure to timely pay wages due at separation from employment, and for violations of California's unfair competition law. De Benning v. Costco Wholesale Corp. (Case No. 34-2021-00309030-CU-OE-GDS; Sacramento Superior Court). The Company has not yet responded to the complaint. Beginning in December 2017, the United States Judicial Panel on Multidistrict Litigation consolidated numerous cases concerning the impacts of opioid abuses filed against various defendants by counties, cities, hospitals, Native American tribes, third-party payors, and others. In re National Prescription Opiate Litigation (MDL No. 2804) (N.D. Ohio). Included are cases that name the Company, including actions filed by counties and cities in Michigan, New Jersey, Oregon, Virginia and South Carolina, a third-party payor in Ohio, and a hospital in Texas, class actions filed on behalf of infants born with opioid-related medical conditions in 40 states, and class actions and individual actions filed on behalf of individuals seeking to recover alleged increased insurance costs associated with opioid abuse in 43 states and American Samoa. Claims against the Company in state courts in New Jersey, Oklahoma, Utah, and Arizona have been dismissed. The Company is defending all of the pending matters. The Company does not believe that any pending claim, proceeding or litigation, either alone or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or cash flows; however, it is possible that an unfavorable outcome of some or all of the matters, however unlikely, could result in a charge that might be material to the results of an individual fiscal quarter or year. 15 Table of Contents Note 9—Segment Reporting The Company and its subsidiaries are principally engaged in the operation of membership warehouses in the U.S., Canada, Mexico, Japan, U.K., Korea, Australia, Spain, Iceland, France and China and through a majority-owned subsidiary in Taiwan. Reportable segments are largely based on management’s organization of the operating segments for operational decisions and assessments of financial performance, which consider geographic locations. The material accounting policies of the segments are as described in the notes to the consolidated financial statements included in the Company's Annual Report filed on Form 10-K for the fiscal year ended August 29, 2021, and Note 1 above. Inter-segment net sales and expenses have been eliminated in computing total revenue and operating income. Effective for the 12 weeks ending November 21, 2021, stock-based compensation was allocated to the segments. This change reflected a decision to evaluate the financial performance of the Company's segments inclusive of this expense. Operating income was restated in each of the segments for all prior periods to reflect this change. The following table provides information for the Company's reportable segments: United States Operations Canadian Operations Other International Operations Total 12 Weeks Ended November 21, 2021 Total revenue $ 36,317 $ 7,121 $ 6,925 $ 50,363 Operating income 1,118 293 282 1,693 12 Weeks Ended November 22, 2020 Total revenue $ 31,292 $ 6,011 $ 5,905 $ 43,208 Operating income 937 247 246 1,430 52 Weeks Ended August 29, 2021 Total revenue $ 141,398 $ 27,298 $ 27,233 $ 195,929 Operating income 4,470 1,093 1,145 6,708 Disaggregated Revenue The following table summarizes net sales by merchandise category; sales from e-commerce websites and business centers have been allocated to their respective merchandise categories: 12 Weeks Ended November 21, 2021 November 22, 2020 Foods and Sundries $ 19,563 $ 18,019 Non-Foods 14,162 12,384 Fresh Foods 6,439 5,863 Ancillary and Other Businesses 9,253 6,081 Total net sales $ 49,417 $ 42,347 16 Table of Contents