What changed in this filing

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Item 1. Business

2022-10-05 compared with 2021-10-06 · 60 added, 44 removed, 128 unchanged (45% of the section changed)

1 unchanged sentence

Costco Wholesale Corporation and its subsidiaries (Costco or the Company) began operations in 1983, in Seattle, Washington.

We are principally engaged in the operation of membership warehouses in the United States (U.S.) and Puerto Rico, Canada, United Kingdom (U.K.), Mexico, Japan, Korea, Australia, Spain, France, Iceland, China, and through a majority-owned subsidiary in Taiwan.

Costco operated 815, 795, and 782 warehouses worldwide at August 29, 2021, August 30, 2020, and September 1, 2019, respectively.

We are principally engaged in the operation of membership warehouses in the United States (U.S.) and Puerto Rico, Canada, Mexico, Japan, United Kingdom (U.K.), Korea, Taiwan, Australia, Spain, France, China, and Iceland.

Costco operated 838, 815, and 795 warehouses worldwide at August 28, 2022, August 29, 2021, and August 30, 2020, respectively.

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

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The material seasonal impact in our operations is increased net sales and earnings during the winter holiday season.

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.

References to 2022, 2021, and 2020 relate to the 52-week fiscal years ended August 28, 2022, August 29, 2021, and August 30, 2020, respectively.

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

We buy most of our merchandise directly from manufacturers and route it to cross-docking consolidation points (depots) or directly to our warehouses.

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This process creates freight volume and handling efficiencies, lowering costs associated with traditional multiple-step distribution channels.

commerce operations we ship merchandise through our depots, our logistics operations for big and bulky items, as well as through drop-ship and other delivery arrangements with our suppliers.

For our e-commerce operations we ship merchandise through our depots, our logistics operations for big and bulky items, as well as through drop-ship and other delivery arrangements with our suppliers.

Our average warehouse space is approximately 146,000 square feet, with newer units being slightly larger.

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Gasoline operations generally have extended hours.

Because the hours of operation are shorter than other retailers, and due to other efficiencies inherent in a warehouse-type operation, labor costs are lower relative to the volume of sales.

Because the hours of operation are shorter than many other retailers, and due to other efficiencies inherent in a warehouse-type operation, labor costs are lower relative to the volume of sales.

Merchandise is generally stored on racks above the sales floor and displayed on pallets containing large quantities, reducing labor required.

In general, with variations by country, our warehouses accept certain credit cards, including Costco co-branded cards, debit cards, cash and checks, co-brand cardholder rebates, Executive member 2% reward certificates and our proprietary stored-value card (shop card).

In general, with variations by country, our warehouses accept certain credit cards, including Costco co-branded cards, debit cards, cash and checks, Executive member 2% reward certificates, co-brand cardholder rebates, and our proprietary stored-value card (shop card).

Our strategy is to provide our members with a broad range of high-quality merchandise at prices we believe are consistently lower than elsewhere.

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• Foods and Sundries (including sundries, dry grocery, candy, cooler, freezer, deli, liquor, and tobacco)

• Non-Foods (previously Hardlines and Softlines;

including major appliances, electronics, health and beauty aids, hardware, garden and patio, sporting goods, tires, toys and seasonal, office supplies, automotive care, postage, tickets, apparel, small appliances, furniture, domestics, housewares, special order kiosk, and jewelry)

• Non-Foods (including major appliances, electronics, health and beauty aids, hardware, garden and patio, sporting goods, tires, toys and seasonal, office supplies, automotive care, postage, tickets, apparel, small appliances, furniture, domestics, housewares, special order kiosk, and jewelry)

• Fresh Foods (including meat, produce, service deli, and bakery)

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We operated 668 gas stations at the end of 2022.

Net sales for our gasoline business represented approximately 9% of total net sales in 2021.

Net sales for our gasoline business increased to approximately 14% of total net sales in 2022.

Our other businesses sell products and services that complement our warehouse operations (core and warehouse ancillary businesses).

1 unchanged sentence

Net sales for e-commerce represented approximately 7% of total net sales in 2022.

This figure does not consider other services we offer online in certain countries such as business delivery, travel, same-day grocery, and various other services.

This figure does not include other services we offer online in certain countries such as business delivery, travel, same-day grocery, and various other services.

Our business centers carry items tailored specifically for food services, convenience stores and offices, and offer walk-in shopping and deliveries.

Business centers are included in our total warehouse count.

Costco Travel offers vacation

packages, hotels, cruises, and other travel products exclusively for Costco members (offered in the U.S., Canada, and the U.K.).

Costco Travel offers vacation packages, hotels, cruises, and other travel products exclusively for Costco members (offered in the U.S., Canada, and the U.K.).

We have direct buying relationships with many producers of brand-name merchandise.

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The COVID-19 pandemic created unprecedented supply constraints, including disruptions and delays that have impacted and could continue to impact the flow and availability of certain products.

When sources of supply become unavailable, we seek alternative sources.

When sources of supply become unavailable, we seek alternatives.

We also purchase and manufacture private-label merchandise, as long as quality and member demand are high and the value to our members is significant.

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Affiliates are not available for Gold Star members.

Our annual fee for these memberships is $60 in our U.S.

and Canadian operations and varies in other countries.

Our annual fee for these memberships is $60 in the U.S.

and varies in other countries.

All paid memberships include a free household card.

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The majority of members renew within six months following their renewal date.

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

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.

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

1 unchanged sentence

and Canada, which resulted in the addition to the count of approximately 2.0 million total cardholders for 2020, of which 1.3 million were paid members.

The change did not impact 2019.

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

6 unchanged sentences

Total cardholders 118,900 111,600 105,500

Paid cardholders (except affiliates) are eligible to upgrade to an Executive membership in the U.S.

and Canada, for an additional annual fee of $60.

Executive memberships are also available in Mexico, the U.K., Japan, Korea, and Taiwan, for which the additional annual fee varies.

Executive members earn a 2% reward on qualified purchases (generally up to a maximum reward of $1,000 per year), which can be redeemed only at Costco warehouses.

Paid cardholders (except affiliates) are eligible to upgrade to an Executive membership in the U.S., for an additional annual fee of $60.

Executive memberships are also available in Canada, Mexico, the U.K., Japan, Korea, and Taiwan, for which the additional fee varies.

Executive members earn a 2% reward on qualified purchases (generally up to a maximum reward of $1,000 per year), redeemable at Costco warehouses.

This program also offers (except in Mexico and Korea) access to additional savings and benefits on various business and consumer services, such as auto and home insurance, the Costco auto purchase program, and check printing.

1 unchanged sentence

Executive members totaled 29.1 million and represented 57% of paid members (excluding affiliates) in the U.S.

and Canada and 17% of paid members (excluding affiliates) in our Other International operations at the end of 2021.

They generally shop more frequently and spend more than other members.

and Canada, and 22% of paid members (excluding affiliates) in our Other International operations.

The sales penetration of Executive members represented approximately 71% of worldwide net sales in 2022.

Human Capital

1 unchanged sentence

Compensation and benefits for employees is our largest expense after the cost of merchandise and is carefully monitored.

Employee Base

At the end of 2022, we employed 304,000 employees worldwide.

The large majority (approximately 95%) is employed in our membership warehouses and distribution channels and approximately 17,000 employees are represented by unions.

The large majority (approximately 95%) is employed in our membership warehouses and distribution channels, and less than 10% are represented by unions.

We also utilize seasonal employees during peak periods.

6 unchanged sentences

Total employees 304,000 288,000 273,000

Growth and Engagement

We believe that our warehouses are among the most productive in the retail industry, owing in substantial part to the commitment and efficiency of our employees.

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In 2022, in the U.S.

that rate was above 90% for employees who have been with us for at least one year.

that rate was approximately 90% for employees who have been with us for at least one year.

Diversity, Equity and Inclusion

The commitment to “Take Care of Our Employees” is also the foundation of our approach to diversity, equity and inclusion and creating an inclusive and respectful workplace.

In 2021, we added training and communication for managers on topics of race, bias and equity, and greater visibility of our employee demographics.

In 2022, we appointed a new Chief Diversity and Inclusion Officer.

Embracing differences is important to the growth of our Company.

It leads to more opportunities, innovation, and employee satisfaction and connects us to the communities where we do business.

In October 2021, we provided an increase of a minimum of $0.50 per hour for U.S.

and Canada wage scales.

In March 2022, we provided certain compensation increases, including a $0.75 per hour increase to the top of the U.S.

wage scales, increased the starting wage to $17.50, and granted our employees one additional day of paid time off.

In July 2022, we provided an additional increase to the top of the U.S.

wage scales of $0.50 per hour.

Costco is firmly committed to helping protect the health and safety of our members and employees and to serving our communities.

In response to the COVID-19 pandemic and its associated challenges, we began providing premium pay to the majority of our hourly employees in March 2020 and continued for a full year through February 2021, at which time a portion of the premium was built permanently into our hourly wage scales in the U.S.

In fall 2020, we also began offering employees additional paid time off to attend to child care and schooling needs through the 2021 school year.

As the global effect of coronavirus (COVID-19) continues to evolve, we are closely monitoring the changing situation and complying with public health guidance.

As the global effect of COVID-19 continues to evolve, we are closely monitoring the changing situation and complying with public health guidance.

For more detailed information regarding our programs and initiatives, see “Employees” within our Sustainability Commitment (located on our website).

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Walmart, Target, Kroger, and Amazon are among our significant general merchandise retail competitors in the U.S.

We also compete with other warehouse clubs including Walmart’s Sam’s Club and BJ’s Wholesale Club, and many of the major metropolitan areas in the U.S.

and certain of our Other International locations have multiple clubs.

We also compete with other warehouse clubs, including Walmart’s Sam’s Club and BJ’s Wholesale Club.

Many of the major metropolitan areas in the U.S.

and certain of our Other International locations have multiple competing clubs.

Intellectual Property

11 unchanged sentences

The SEC maintains a site that contains reports, proxy and information statements, and other information regarding issuers, such as the Company, that file electronically with the SEC at www.sec.gov.

We have adopted a code of ethics for senior financial officers, pursuant to Section 406 of the Sarbanes-Oxley Act.

We have a code of ethics for senior financial officers, pursuant to Section 406 of the Sarbanes-Oxley Act.

Copies of the code are available free of charge by writing to Secretary, Costco Wholesale Corporation, 999 Lake Drive, Issaquah, WA 98027.

If the Company makes any amendments to this code (other than technical, administrative, or non-substantive amendments) or grants any waivers, including implicit waivers, to the CEO, chief financial officer or principal accounting officer and controller, we will disclose (on our website or in a Form 8-K report filed with the SEC) the nature of the amendment or waiver, its effective date, and to whom it applies.

If the Company makes any amendments to this code (other than technical, administrative, or non-substantive amendments) or grants any waivers, including implicit waivers, to the Chief Executive Officer, Chief Financial Officer or principal accounting officer and controller, we will disclose (on our website or in a Form 8-K report filed with the SEC) the nature of the amendment or waiver, its effective date, and to whom it applies.

Information about our Executive Officers

The executive officers of Costco, their position, and ages are listed below.

All have over 25 years of service with the Company.

All have over 25 years of service with the Company, with the exception of Mr.

Sullivan who has 21 years of service.

Name Position Executive

Craig Jelinek President and Chief Executive Officer.

Jelinek has been President and Chief Executive Officer since January 2012 and a director since February 2010.

Craig Jelinek Chief Executive Officer.

Jelinek has been a director since February 2010.

Jelinek previously was President and CEO from January 2012 to February 2022.

He was President and Chief Operating Officer from February 2010 to December 2011.

Prior to that he was Executive Vice President, Chief Operating Officer, Merchandising since 2004.

Vachris President and Chief Operating Officer.

Vachris has been a director since February 2022.

Vachris previously served as Executive Vice President of Merchandising from June 2016 to January 2022, as Senior Vice President, Real Estate Development, from August 2015 to June 2016, and Senior Vice President, General Manager, Northwest Region, from 2010 to July 2015.

Galanti Executive Vice President and Chief Financial Officer.

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Callans was Senior Vice President, Human Resources and Risk Management, from 2013 to December 2018.

Miller Executive Vice President, Chief Operating Officer, Southern Division and Mexico.

Miller Senior Executive Vice President, U.S.

Miller was Executive Vice President, Chief Operating Officer, Southern Division and Mexico, from January 2018 to May 2022.

Miller was Senior Vice President, Western Canada Region, from 2001 to January 2018.

Murphy Executive Vice President, Chief Operating Officer, International.

Murphy Executive Vice President, Chief Operating Officer, International Division.

Murphy was Senior Vice President, International, from 2004 to October 2010.

Portera Executive Vice President, Chief Operating Officer, Eastern and Canadian Divisions.

Portera has held these positions since 1994 and has been the Chief Diversity Officer since 2010.

Murphy is retiring from the Company at the end of calendar year 2022.

Rose Executive Vice President, Ancillary Businesses, Manufacturing, and Business Centers.

Rose was Senior Vice President, Merchandising, Foods and Sundries and Private Label, from 1995 to December 2012.

Yoram Rubanenko Executive Vice President, Northeast and Southeast Regions.

Rose is retiring from the Company effective November, 2022.

Rubanenko Executive Vice President, Chief Operating Officer, Eastern Division.

Rubanenko was Senior Vice President and General Manager, Southeast Region, from 2013 to September 2021, and Vice President, Regional Operations Manager for the Northeast Region, from 1998 to 2013.

Vachris Executive Vice President, Chief Operating Officer, Merchandising.

Vachris was Senior Vice President, Real Estate Development, from August 2015 to June 2016, and Senior Vice President, General Manager, Northwest Region, from 2010 to July 2015.

John Sullivan Executive Vice President, General Counsel & Corporate Secretary.

Sullivan has been General Counsel since 2016 and Corporate Secretary since 2010.

Adamo Executive Vice President, Merchandising.

Adamo was Senior Vice President, Non Foods, from 2018 to February 2022, and Vice President, Non Foods, from 2013 to 2018.

Caton Frates Executive Vice President, Chief Operating Officer, Southwest Division.

Frates was Senior Vice President, Los Angeles Division, from 2015 to May 2022.

Pierre Riel Executive Vice President, Chief Operating Officer, International Division.

Riel was Senior Vice President, Country Manager, Canada, from 2019 to March 2022, and Senior Vice President, Eastern Canada Region, from 2001 to 2019.

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 1. Business