What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-10-05 compared with 2021-10-06 · 92 added, 99 removed, 158 unchanged (55% of the section changed)

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For discussion related to the results of operations and changes in financial condition for 2021 compared to 2020 refer to Part II, Item 7, 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.

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

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

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

Net sales includes our core merchandise categories (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 believe that the most important driver of our profitability is increasing net sales, particularly comparable sales.

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

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

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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);

and changes in the cost of gasoline and associated competitive conditions.

The higher our comparable sales exclusive of these items, the more we can leverage certain of our selling, general and administrative (SG&A) expenses, reducing them as a percentage of sales and enhancing profitability.

fluctuations in currency exchange rates (with respect to our international operations);

inflation and changes in the cost of gasoline and associated competitive conditions.

The higher our comparable sales exclusive of these items, the more we can leverage our SG&A expenses, reducing them as a percentage of sales and enhancing profitability.

Generating comparable sales growth is foremost a question of making available to our members the right merchandise at the right prices, a skill that we believe we have repeatedly demonstrated over the long-term.

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Our philosophy is to provide our members with quality goods and services at competitive prices.

We do not focus in the short-term on maximizing prices charged, but instead seek to maintain what we believe is a perception among our members of our “pricing authority” on quality goods – consistently providing the most competitive values.

Our investments in merchandise pricing may include reducing prices on merchandise to drive sales or meet competition and holding prices steady despite cost increases instead of passing the increases on to our members, all negatively impacting gross margin as a percentage of net sales (gross margin percentage).

We believe our gasoline business draws members, but it generally has a lower gross margin percentage relative to our non-gasoline business.

We do not focus in the short-term on maximizing prices charged, but instead seek to maintain what we believe is a perception among our members of our “pricing authority” – consistently providing the most competitive values.

Merchandise costs in 2022 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.

Those strategies can include, but are not limited to, working with our suppliers to share in absorbing cost increases, earlier-than-usual purchasing and in greater volumes, offering seasonal merchandise outside its season, as well as passing cost increases on to our members.

Our investments in merchandise pricing may include reducing prices on merchandise to drive sales or meet competition and holding prices steady despite cost increases instead of passing the increases on to our members, all negatively impacting gross margin and gross margin as a percentage of net sales (gross margin percentage).

We believe our gasoline business enhances traffic in our warehouses, but it generally has a lower gross margin percentage relative to our non-gasoline business.

It also has lower SG&A expenses as a percent of net sales compared to our non-gasoline business.

A higher penetration of gasoline sales will generally lower our gross margin percentage.

Rapidly changing gasoline prices may significantly impact our near-term net sales growth.

Rapidly changing gasoline prices may significantly impact our near-

term net sales growth.

Generally, rising gasoline prices benefit net sales growth which, given the higher sales base, negatively impacts our gross margin percentage but decreases our SG&A expenses as a percentage of net sales.

A decline in gasoline prices has the inverse effect.

Additionally, actions in various countries, particularly China, the United States and the United Kingdom, have created

uncertainty with respect to how tariffs will affect the costs of some of our merchandise.

Additionally, actions in various countries, particularly China and the United States, have affected the costs of some of our merchandise.

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

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

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

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

Higher tariffs could adversely impact our results.

We also achieve net sales growth by opening new warehouses.

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The negative aspects of such growth, however, including lower initial operating profitability relative to existing warehouses and cannibalization of sales at existing warehouses when openings occur in existing markets, are continuing to decline in significance as they relate to the results of our total operations.

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

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

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

E-commerce sales growth slowed in 2022 compared to 2021 and 2020.

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

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This may cause us, for example, to absorb costs that other employers might seek to pass through to their workforces.

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.

Because our business operates on very low margins, modest changes in various items in the consolidated statements of income, particularly merchandise costs and SG&A expenses, can have substantial impacts on net income.

Our operating model is generally the same across our U.S., Canadian, and Other International operating segments (see Note 11 to the consolidated financial statements included in Item 8 of this Report).

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

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

dollar, which are references to the differences between the foreign-exchange rates we use to convert the financial results of our international operations from local currencies into U.S.

dollars for financial reporting purposes.

dollar, which are the differences between the foreign-exchange rates we use to convert the financial results of our international operations from local currencies into U.S.

This impact of foreign-exchange rate changes is calculated based on the difference between the current period's currency exchange rates and that of the comparable prior period.

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

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.

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 2021 included:

Highlights for 2022 versus 2021 include:

• We opened 26 new warehouses, including 3 relocations:

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• Net sales increased 16% to $222,730 driven by a 14% increase in comparable sales and sales at new warehouses opened in 2021 and 2022;

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

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

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

• Membership fee revenue increased 9% to $4,224, driven by new member sign-ups, upgrades to Executive membership, and an increase in our renewal rate;

• Gross margin percentage decreased 65 basis points, driven primarily by our core merchandise categories and a LIFO charge for higher merchandise costs;

• SG&A expenses as a percentage of net sales decreased 77 basis points, primarily due to leveraging increased sales and ceasing of incremental wages related to COVID-19, despite additional wage and benefits increases;

• We incurred a one-time $77 pretax charge, primarily related to granting our employees one additional day of paid time off in March 2022;

• The effective tax rate in 2022 was 24.6% compared to 24.0% in 2021;

• Net income increased 17% to $5,844, or $13.14 per diluted share compared to $5,007, or $11.27 per diluted share in 2021;

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

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

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

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

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

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

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

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

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

• In June 2022, the Company paid a cash dividend of $208 and purchased the remaining equity interest of its Taiwan operations from its former joint-venture partner for $842, totaling $1,050 in the aggregate;

• In April 2022, the Board of Directors approved an increase in the quarterly cash dividend from $0.79 to $0.90 per share.

The COVID-19 pandemic continued to impact our business during 2022, albeit to a lesser extent.

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 2021, we paid $515 in incremental wages related to COVID-19, which ceased in February 2021.

RESULTS OF OPERATIONS

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Increases in net sales:

17 % 16 % 9 %

Canada 16 % 22 % 5 %

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Increases in comparable sales:

16 % 15 % 8 %

Canada 15 % 20 % 5 %

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Increases in comparable sales excluding the impact of changes in foreign currency and gasoline prices:

10 % 14 % 9 %

Canada 12 % 12 % 7 %

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Total Company 11 % 13 % 9 %

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

Net sales increased $30,678 or 16% during 2022.

The improvement was attributable to an increase in comparable sales of 14%, and sales at new warehouses opened in 2021 and 2022.

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

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

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

Sales increased $15,830 in core merchandise categories and $14,848 in warehouse ancillary and other businesses.

The rate of increase was strongest in our gasoline, business centers, and travel businesses.

Sales continued to be impacted by inflation, higher than what we experienced in previous fiscal years.

During 2022, higher gasoline prices positively impacted net sales by $9,230, 481 basis points, compared to 2021, with a 42% increase in the average price per gallon.

The volume of gasoline sold increased approximately 22%, positively impacting net sales by $3,847, 200 basis points.

Changes in foreign currencies relative to the U.S.

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

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

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

dollar negatively impacted net sales by approximately $1,762, 92 basis points, compared to 2021, attributable primarily to our Other International operations.

Comparable Sales

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

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

Comparable sales increased 14% during 2022 and were positively impacted by increases in shopping frequency and average ticket, which includes the effects of inflation and changes in foreign currency.

E-commerce comparable sales increased 10% during 2022, including inflation.

Membership Fees

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Membership fees increase 9 % 9 % 6 %

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

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

dollar, membership fees increased 8%.

Membership fee revenue increased 9% in 2022, driven by new member sign-ups and upgrades to Executive membership.

Changes in foreign currencies relative to the U.S.

dollar negatively impacted membership fees by $42, compared to 2021.

At the end of 2022, our member renewal rates were 93% in the U.S.

and Canada and 90% 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 and 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.

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Gross margin percentage 10.48 % 11.13 % 11.20 %

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

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

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

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

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

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

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

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

Total gross margin percentage decreased 65 basis points compared to 2021.

Excluding the impact of gasoline price inflation on net sales, gross margin was 10.94%, a decrease of 19 basis points.

This was primarily due to a 33 basis-point decrease in core merchandise categories, predominantly driven by decreases in fresh foods and foods and sundries, and 19 basis points due to a LIFO charge for higher merchandise costs.

Gross margin was also negatively impacted by one basis point due to increased 2% rewards.

Warehouse ancillary and other businesses positively impacted gross margin by 29 basis points, predominantly gasoline, partially offset by e-commerce.

Gross margin was positively impacted by five basis points due to the net impact of ceasing incremental wages related to COVID-19 and the negative impact of a one-time charge related to granting our employees one additional day of paid time off.

Changes in foreign currencies relative to the U.S.

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

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), decreased in our U.S.

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

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

These increases were partially offset by increased 2% rewards.

dollar negatively impacted gross margin by approximately $176, compared to 2021, primarily attributable to our Other International Operations.

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

The decrease was across all categories, most significantly in fresh foods.

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

All segments were negatively impacted due to decreases in core merchandise categories, partially offset by increases in warehouse ancillary and other businesses.

Gross margin in our U.S.

segment was also negatively impacted by the LIFO charge.

Our Other International segment was negatively impacted by increased 2% rewards.

All segments benefited from the ceasing of incremental wages related to COVID-19.

Selling, General and Administrative Expenses

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SG&A expenses as a percentage of net sales excluding the impact of gasoline price inflation was 9.26%, a decrease of 39 basis points.

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

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

Central operating costs were lower by five basis points.

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

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

Warehouse operations and other businesses were lower by 17 basis points, largely attributable to leveraging increased sales.

This includes the impact of the starting wage increase we instituted in October 2021, as well the increased wages and benefits that were effective on March 14, 2022, and July 4, 2022.

SG&A expenses was benefited by a net of 16 basis points due to the positive impact of ceasing incremental wages related to COVID-19, partially offset by higher write-offs of certain information technology assets, and expenses related to granting our employees one additional day of paid time off.

Central operating costs were lower by five basis points, and stock compensation expense was lower by one basis point.

Changes in foreign currencies relative to the U.S.

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

2021 2020 2019

Preopening expenses $ 76 $ 55 $ 86

Warehouse openings, including relocations

United States

Other International 4 3 4

Total warehouse openings, including relocations 22 16 25

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

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

dollar decreased SG&A expenses by approximately $148, compared to 2021, primarily attributable to our Other International operations.

Interest Expense

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Interest expense $ 158 $ 171 $ 160

Interest expense primarily relates to Senior Notes.

Interest expense primarily relates to Senior Notes and financing leases.

Interest expense decreased in 2022 due to repayment of the 2.300% Senior Notes on December 1, 2021.

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

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Interest income and other, net $ 205 $ 143 $ 92

The decrease in interest income in 2021 was primarily due to lower interest rates in the U.S.

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

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

The increase in interest income in 2022 was primarily due to higher global interest rates.

Foreign-currency transaction gains, net, include 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.

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

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

Provision for Income Taxes

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Effective tax rate 24.6 % 24.0 % 24.4 %

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

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

The effective tax rate for 2022 was impacted by net discrete tax benefits of $130.

This included $94 of excess tax benefits related to stock compensation.

Excluding discrete net tax benefits, the tax rate was 26.2% for 2022.

The effective tax rate for 2021 was impacted by net discrete tax benefits of $163.

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

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

LIQUIDITY AND CAPITAL RESOURCES

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Cash and cash equivalents and short-term investments were $11,049 and $12,175 at the end of 2022 and 2021, respectively.

Of these balances, unsettled credit and debit card receivables represented approximately $1,816 and $1,636 at the end of 2021 and 2020, respectively.

Of these balances, unsettled credit and debit card receivables represented approximately $2,010 and $1,816 at the end of 2022 and 2021.

These receivables generally settle within four days.

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

Changes in foreign exchange rates impacted cash and cash equivalents negatively by $249 in 2022, and positively by $46 and $70 in 2021 and 2020.

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.

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

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

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

We believe that our U.S.

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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 forward deployment of inventory to accelerate delivery times, payment terms with our suppliers, and early payments to obtain discounts from suppliers.

Changes in our net investment in merchandise inventories (the difference between merchandise inventories and accounts payable) is impacted by

several factors, including how fast inventory is sold, the forward deployment of inventory to accelerate delivery times, payment terms with our suppliers, and early payments to obtain discounts from suppliers.

Cash Flows from Investing Activities

Net cash used in investing activities totaled $3,915 in 2022, compared to $3,535 in 2021, and is primarily related to capital expenditures.

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

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

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

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

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

There can be no assurance that current expectations will be realized and plans are subject to change upon further review of our capital expenditure needs or based on the current economic environment.

We opened 26 new warehous es, including three relocations, in 2022, and plan to open approximately up to 29 additional new warehouses, including four relocations, in 2023.

There can be no assurance that current expectations will be realized, and plans are subject to change upon further review of our capital expenditure needs or based on the economic environment.

Cash Flows from Financing Activities

Net cash used in financing activities totaled $4,283 in 2022, compared to $6,488 in 2021.

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

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

Cash flows used in financing activities primarily related to the payment of dividends, payments to our former joint-venture partner for a dividend and the purchase of their equity interest in Taiwan, totaling $1,050 in the aggregate, repayments of our 2.300% Senior Notes, repurchases of common stock, and withholding taxes on stock awards.

Stock Repurchase Programs

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Cash dividends declared in 2022 totaled $3.38 per share, as compared to $12.98 per share in 2021.

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

Dividends in 2021 included a special dividend of $10.00 per share, aggregating approximately $4,430.

In April 2022, the Board of Directors increased our quarterly cash dividend from $0.79 to $0.90 per share.

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At August 28, 2022, we had borrowing capacity under these facilities of $1,257.

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

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

Our international operations maintain $773 of this capacity under bank credit facilities, of which $176 is guaranteed by the Company.

Short-term borrowings outstanding under the bank credit facilities were $88 and $41 at the end of 2022 and 2021.

The Company has letter of credit facilities, for commercial and standby letters of credit, totaling $224.

The outstanding commitments under these facilities at the end of 2021 totaled $197, 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 2022 totaled $184, most of which were standby letters of credit that do not expire or have expiration dates within one year.

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

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.

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Liabilities associated with the risks that we retain are not discounted and are estimated by using historical claims experience, demographic factors, severity factors, and other actuarial assumptions.

The costs of claims are highly unpredictable and can fluctuate as a result of inflation rates, regulatory or legal changes, and unforeseen developments in claims over time.

The costs of claims are highly unpredictable and can fluctuate as a result of inflation rates, regulatory or legal changes, and unforeseen developments in claims.

While we believe our estimates are reasonable and provide for a certain degree of coverage to account for these variables, actual claims and costs could differ significantly from recorded liabilities.

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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-K

Item 7. Management’s Discussion and Analysis