What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-10-11 compared with 2022-10-05 · 93 added, 95 removed, 155 unchanged (55% of the section changed)

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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.

Comparable sales is defined 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.

The measure is intended as supplemental information and is not a substitute for net sales presented in accordance with U.S.

generally accepted accounting principles (U.S.

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

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

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

inflation or deflation 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.

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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.

Merchandise costs in 2023 continued to be impacted by inflation, however at a lower rate than what we experienced in 2022.

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.

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, 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.

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

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 and the United States, have affected the costs of some of our merchandise.

Government actions in various countries relating to tariffs, 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.

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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.

Our e-commerce business, domestically and internationally, generally has a lower gross margin percentage than 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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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 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.

The impact of changes in gasoline prices on net sales is calculated based on the difference between the current period's average price per gallon sold and that of the comparable prior period.

dollar, which are 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 and prior period's currency exchange rates.

The impact of changes in gasoline prices on net sales is calculated based on the difference between the current and prior period's average price per gallon sold.

Results expressed excluding the impacts of foreign exchange and gasoline prices should be reviewed in conjunction with results reported in accordance with U.S.

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

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.

References to 2023 relate to the 53-week fiscal year ended September 3, 2023.

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

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

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Highlights for 2023 versus 2022 include:

• We opened 26 new warehouses, including 3 relocations:

14 net new in the U.S., 2 net new in our Canadian segment, and 7 new in our Other International segment, compared to 22 new warehouses, including 2 relocations in 2021;

• 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 $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;

• We opened 26 new warehouses, including three relocations:

13 net new in the U.S.

and 10 new in our Other International segment.

We opened the same number of new warehouses, including relocations, in 2022;

• Net sales increased 7% to $237,710, driven by a 3% increase in comparable sales, sales at new warehouses opened in 2022 and 2023, and the benefit of one additional week of sales in 2023;

• Membership fee revenue increased 8% to $4,580, driven by new member sign-ups, upgrades to Executive membership, and one additional week of membership fees in 2023;

• Gross margin percentage increased nine basis points, driven primarily by a smaller LIFO charge in 2023 compared to 2022 and our core merchandise categories.

This was partially offset by charges of $391, predominantly related to the discontinuation of our charter shipping activities;

• SG&A expenses as a percentage of net sales increased 20 basis points, due to increased costs in warehouse operations and other businesses, primarily wage increases effective in March and July 2022, and March 2023, as well as lower sales growth;

• The effective tax rate in 2023 was 25.9%, compared to 24.6% in 2022;

• Net income increased 8% to $6,292, or $14.16 per diluted share compared to $5,844, or $13.14 per diluted share in 2022;

• 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.

• In January 2023, the Board of Directors authorized a new share repurchase program in the amount of $4,000;

• In April 2023, the Board of Directors approved a 13% increase in the quarterly cash dividend.

RESULTS OF OPERATIONS

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$ 237,710 $ 222,730 $ 192,052

Increases in net sales:

Changes in net sales:

7 % 17 % 16 %

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Total Company 7 % 16 % 18 %

Increases in comparable sales:

Changes in comparable sales:

3 % 16 % 15 %

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Total Company 3 % 14 % 16 %

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

E-commerce (6) % 10 % 44 %

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

4 % 10 % 14 %

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Total Company 5 % 11 % 13 %

E-commerce (5) % 10 % 43 %

Net sales increased $14,980 or 7% during 2023.

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

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

The improvement was attributable to an increase in comparable sales of 3%, sales at new warehouses opened in 2022 and 2023, and one additional week of sales in 2023.

Sales increased $12,761, or 7% in core merchandise categories, led by foods and sundries and fresh foods;

while non-foods decreased.

Sales increased $2,219, or 5% in warehouse ancillary and other businesses, led by pharmacy, food court, and travel.

During 2023, changes in foreign currencies relative to the U.S.

dollar negatively impacted net sales by approximately $3,484, 156 basis points, compared to 2022, attributable to our Canadian and Other International operations.

The volume of gasoline sold increased approximately 7%, positively impacting net sales by $2,148, or 96 basis points.

Lower gasoline prices negatively impacted net sales by $1,592, or 71 basis points, compared to 2022, with a 6% decrease in the average price per gallon.

Comparable Sales

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.

Comparable sales increased 3% during 2023 and were positively impacted by increases in shopping frequency, partially offset by a decrease in average ticket.

Membership Fees

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Membership fees increase 8 % 9 % 9 %

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

Membership fee revenue increased 8% in 2023, driven by new member sign-ups, upgrades to Executive membership, and the benefit of an additional week.

Changes in foreign currencies relative to the U.S.

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and Canada and 90.4% worldwide.

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

More members auto renewing and higher penetration of Executive members benefit renewal rates.

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.

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Gross margin percentage 10.57 % 10.48 % 11.13 %

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.

Gross margin percentage increased nine basis points compared to 2022.

Excluding the impact of gasoline price deflation on net sales, gross margin was 10.50%, an increase of two basis points.

This two basis point increase was positively impacted by:

18 basis points due to a smaller LIFO charge in 2023 compared to 2022, and seven basis points due to core merchandise categories, predominantly foods and sundries.

These were offset by:

16 basis points due to the downsizing and then discontinuation of our charter shipping activities;

four basis points due to increased 2% rewards;

and three basis points due to warehouse ancillary and other businesses, predominantly e-commerce, partially offset by gasoline and business centers.

Changes in foreign currencies relative to the U.S.

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.

dollar negatively impacted gross margin by approximately $349, compared to 2022, attributable to our Canadian and Other International Operations.

The gross margin in core merchandise categories, when expressed as a percentage of core merchandise sales (rather than total net sales), increased two basis points, driven by foods and sundries and non-foods, partially offset by fresh foods.

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

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 across all segments.

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.

segment, due to a smaller LIFO charge and increases in core merchandise categories, primarily foods and sundries, partially offset by the charges related to the discontinuation of our charter shipping activities discussed above and warehouse ancillary and other businesses.

Gross margin percentage increased in our Canada segment, attributable to increases in core merchandise categories and warehouse ancillary and other businesses.

Our Other International gross margin percentage decreased, largely due to decreases in core merchandise categories, partially offset by warehouse ancillary and other businesses.

All segments were negatively impacted by increased 2% rewards.

Selling, General and Administrative Expenses

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SG&A expenses as a percentage of net sales 9.08 % 8.88 % 9.65 %

SG&A expenses as a percentage of net sales decreased 77 basis points compared to 2021.

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 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.

SG&A expenses as a percentage of net sales increased 20 basis points compared to 2022.

SG&A expenses as a percentage of net sales excluding the impact of gasoline price deflation was 9.02%, an increase of 14 basis points.

The comparison to last year was negatively impacted by 16 basis points in warehouse operations and other businesses, largely driven by wage increases effective in March and July 2022, and March 2023, as well as lower sales growth.

Central operating costs were also higher by six basis points.

SG&A was positively impacted by eight basis points due to the prior year's write-off of information technology assets and a charge related to granting our employees additional vacation.

Changes in foreign currencies relative to the U.S.

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

dollar decreased SG&A expenses by approximately $281 compared to 2022, attributable to our Canadian and Other International Operations.

Interest Expense

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Interest expense $ 160 $ 158 $ 171

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.

Interest expense is primarily related to Senior Notes and financing leases.

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 $ 533 $ 205 $ 143

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

The increase in interest income in 2023 was due to higher global interest rates and higher average cash and investment balances.

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.

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Effective tax rate 25.9 % 24.6 % 24.0 %

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.

The effective tax rate for 2023 was impacted by net discrete tax benefits of $62, primarily due to excess tax benefits related to stock compensation.

Excluding discrete net tax benefits, the tax rate was 26.6%.

The effective tax rate for 2022 was impacted by net discrete tax benefits of $130, primarily due to excess tax benefits related to stock compensation.

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

LIQUIDITY AND CAPITAL RESOURCES

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Net cash used in financing activities (2,614) (4,283) (6,488)

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 $11,049 and $12,175 at the end of 2022 and 2021, respectively.

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

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

Cash and cash equivalents and short-term investments were $15,234 and $11,049 at September 3, 2023, and August 28, 2022.

Of these balances, unsettled credit and debit card receivables represented $2,282 and $2,010.

These receivables generally settle within four days.

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.

Changes in foreign exchange rates impacted cash and cash equivalents positively by $15 and $46 in 2023 and 2021, and negatively by $249 in 2022.

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.

See Notes 4 and 5 to the consolidated financial statements included in Item 8 of this Report for amounts outstanding on August 28, 2022, related to debt and leases.

See Notes 4 and 5 to the consolidated financial statements included in Item 8 of this Report for amounts outstanding on September 3, 2023, related to debt and leases.

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.

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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 inventory levels and turnover, the forward deployment of inventory to accelerate delivery times, payment terms with suppliers, and early payments to obtain discounts.

Cash Flows from Investing Activities

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

In 2022, we spent $3,891 on capital expenditures, and it is our current intention to spend approximat ely $3,800 to $4,000 d uring fiscal 2023.

In 2023, we spent $4,323 on capital expenditures, and it is our current intention to spend approxima tely $4,400 to $4,600 du ring fiscal 2024.

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

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.

We opened 26 new warehous es, including three relocations, in 2023, and plan to open up to 28 additional new warehouses, including one relocation, in 2024.

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 and the economic environment.

Cash Flows from Financing Activities

Net cash used in financing activities totaled $2,614 in 2023, compared to $4,283 in 2022.

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.

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 2022, cash flow used in financing activities included

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, and repayments of our 2.300% Senior Notes.

Stock Repurchase Programs

During 2022 and 2021, we repurchased 863,000 and 1,358,000 shares of common stock, at average prices of $511.46 and $364.39, respectively, totaling approximately $442 and $495, respectively.

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

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.

On January 19, 2023, the Board of Directors authorized a new share repurchase program in the amount of $4,000, which expires in January 2027.

During 2023 and 2022, we repurchased 1,341,000 and 863,000 shares of common stock, at average prices of $504.68 and $511.46, totaling approximately $677 and $442.

These amounts may differ from the accompanying consolidated statements of cash flows due to changes in unsettled repurchases at the end of each fiscal year.

Purchases are made from time to time, as conditions warrant, in the open market or in block purchases, pursuant to plans under SEC Rule 10b5-1.

Repurchased shares are retired, in accordance with the Washington Business Corporation Act.

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Cash dividends declared in 2023 totaled $3.84 per share, as compared to $3.38 per share in 2022.

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

In April 2023, the Board of Directors increased our quarterly cash dividend from $0.90 to $1.02 per share.

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

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

At September 3, 2023, we had borrowing capacity under these facilities of $1,234.

Our international operations maintain $756 of this capacity under bank credit facilities, of which $167 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.

Short-term borrowings outstanding under the bank credit facilities, which are included in other current liabilities on the consolidated balance sheets, were immaterial at the end of 2023 and 2022.

The Company has letter of credit facilities, for commercial and standby letters of credit, totaling $217.

The outstanding commitments under these facilities at the end of 2023 totaled $182, 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 bank credit facilities have various expiration dates, most 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.

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The preparation of our consolidated financial statements in accordance with U.S.

generally accepted accounting principles (U.S.

GAAP requires that we 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.

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

We use different risk management mechanisms, including a wholly-owned captive insurance subsidiary, and participate in a reinsurance program.

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.

We use various risk management mechanisms, including a

wholly-owned captive insurance subsidiary, and participate in a reinsurance program.

Liabilities associated with the risks that we retain are not discounted and are estimated 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.

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.

While we believe our estimates are reasonable, actual claims and costs could differ significantly from recorded liabilities.

Historically, adjustments to our estimates have not been material.

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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