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Item 2. Management’s Discussion and Analysis

2023-12-20 compared with 2023-06-01 · 92 added, 125 removed, 150 unchanged (59% 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).

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 the third quarter of 2023 continued to be impacted by inflation.

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, 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 businesses.

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

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.

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A decline in gasoline prices has the inverse effect.

Additionally, government actions in various countries relating to tariffs, 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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With respect to the compensation of our employees, our philosophy is not to seek to minimize their wages and benefits.

Rather, we believe that achieving our longer-term objectives of reducing employee turnover and enhancing employee satisfaction require maintaining compensation levels that are better than the industry average for much of our workforce.

Rather, we believe that achieving our longer-term objectives of reducing employee turnover and enhancing employee satisfaction requires maintaining compensation levels that are better than the industry average for much of our workforce.

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

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

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

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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.

This impact of foreign-exchange rate changes is calculated based on the difference between the current and prior period's 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 are intended as supplemental information and are not a substitute for net sales presented in accordance with U.S.

GAAP and 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 the third quarter of 2023 and 2022 relate to the 12-week fiscal quarters ended May 7, 2023, and May 8, 2022.

References to the first thirty-six weeks of 2023 and 2022 relate to the 36 weeks ended May 7, 2023, and May 8, 2022.

References to the first quarter of 2024 and 2023 relate to the 12-week fiscal quarters ended November 26, 2023, and November 20, 2022.

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

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

Highlights for the third quarter of 2023 versus 2022 include:

• Net sales increased 2% to $52,604, driven by sales at 23 net new warehouses opened since the end of the third quarter of 2022;

Highlights for the first quarter of 2024 versus 2023 include:

• Net sales increased 6% to $56,717, driven by a 4% increase in comparable sales and sales at 25 net new warehouses opened since the end of the first quarter of 2023;

• Membership fee revenue increased 8% to $1,082, driven by new member sign-ups, upgrades to Executive Membership, and a higher renewal rate;

• Gross margin percentage increased 13 basis points, driven primarily by our core merchandise categories and the absence of a LIFO charge as was recorded in the third quarter of 2022.

This was partially offset by a charge of $298, $0.50 per diluted share, predominantly related to the discontinuation of our charter shipping activities;

• SG&A expenses as a percentage of net sales increased 49 basis points, due to increased costs in warehouse operations and other businesses, primarily wages and benefits, driven by various wage increases effective in March and July 2022, and March 2023, as well as slower sales growth;

• In the third quarter of 2022 we incurred a one-time $77 pretax charge, $0.13 per diluted share, related to granting our employees additional vacation;

• Gross margin percentage increased 43 basis points, driven primarily by our warehouse operations and other businesses and the absence of a charge of $93, $0.15 per diluted share, predominantly related to the discontinuation of our charter shipping activities, which was recorded in the first quarter of 2023;

• SG&A expenses as a percentage of net sales increased 25 basis points, primarily due to increased costs in warehouse operations and other businesses, including the impact of wage increases in March and September 2023;

• The provision for income taxes in the first quarter of 2024 was positively impacted by a benefit related to stock compensation of $44, $0.10 per diluted share, compared to $53, $0.12 per diluted share, in the first quarter of 2023;

• Net income was $1,589, $3.58 per diluted share, compared to $1,364, $3.07 per diluted share in 2023;

• A quarterly cash dividend of $1.02 per share was declared on April 19, 2023 and paid on May 19, 2023.

• A quarterly cash dividend of $1.02 per share was declared on October 18, 2023, and paid on November 17, 2023;

• Subsequent to the end of the quarter, on December 13, 2023, the Board of Directors declared a special cash dividend of $15.00 per share, payable January 12, 2024.

RESULTS OF OPERATIONS

12 Weeks Ended 36 Weeks Ended

12 Weeks Ended

2023 November 20,

$ 56,717 $ 53,437

Changes in net sales:

1 % 18 % 6 % 17 %

Canada 7 % 3 %

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Changes in comparable sales:

— % 17 % 5 % 16 %

Canada 6 % 2 %

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

2 % 11 % 5 % 11 %

Canada 8 % 8 %

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E-commerce 6 % (2) %

Net sales increased $992 or 2%, and $8,314 or 5% during the third quarter and first thirty-six weeks of 2023.

The improvement in the third quarter of 2023 was attributable to sales at the 23 net new warehouses opened since the end of the third quarter of 2022.

The increase in net sales for the first thirty-six weeks of 2023 was driven primarily by a 4% increase in comparable sales.

Sales increased $1,362, or 3% and $5,885, or 5% in core merchandise categories during the third quarter and first thirty-six weeks of 2023, led by foods and sundries and fresh foods;

while non-foods decreased.

Sales in warehouse ancillary and other businesses decreased $370, or 3% during the third quarter of 2023, due to lower gasoline prices, partially offset by increases in pharmacy, travel, food court and optical.

Sales increased $2,429, or 8% in warehouse ancillary and other businesses during the first thirty-six weeks of 2023, led by gasoline, pharmacy and travel.

During the third quarter of 2023, l ower gasoline prices negatively impacted net sales by $862, 167 basis points, compared to 2022, with a 12% decrease in the average price per gallon.

T he volume of gasoline sold increased approximately 1%, positively impacting net sales by $86, 17 basis points.

Net sales increased $3,280 or 6%, during the first quarter of 2024.

The improvement was attributable to an increase in comparable sales of 4%, and sales at the 25 net new warehouses opened since the end of the first quarter of 2023.

Sales increased $2,921, or 7% in core merchandise categories, led by fresh foods and foods and sundries.

Sales in warehouse ancillary and other businesses increased $359, or 3%, led by pharmacy.

During the first quarter of 2024, l ower gasoline prices negatively impacted net sales by $341, 64 basis points, compared to 2023, with a 4% decrease in the average price per gallon.

C hanges in foreign currencies relative to the U.S.

dollar negatively impacted net sales by approximately $782, 152 basis points, compared to the third quarter of 2022, attributable to our Canadian and Other International operations.

During the first thirty-six weeks of 2023, higher gasoline prices positively impacted net sales by $392, 26 basis points, compared to 2022, with a slight increase in the average price per gallon.

The volume of gasoline sold increased approximately 7%, positively impacting net sales by $1,301, 86 basis points.

Changes in foreign currencies relative to the U.S.

dollar negatively impacted net sales by approximately $3,253, 214 basis points, compared to the first thirty-six weeks of 2022, attributable to our Canadian and Other International operations.

dollar positively impacted net sales by approximately $195, 36 basis points, compared to the first quarter of 2023, attributable to our Other International operations, partially offset by our Canadian operations.

Comparable Sales

Comparable sales were positively impacted by an increase in shopping frequency, largely offset by a decrease in average ticket in the third quarter of 2023.

Comparable sales increased 4% in the first thirty-six weeks of 2023, driven by an increase in shopping frequency.

Comparable sales increased 4% in the first quarter of 2024 and were positively impacted by increases in shopping frequency, partially offset by a slight decrease in average ticket.

Membership Fees

12 Weeks Ended 36 Weeks Ended

12 Weeks Ended

2023 November 20,

Membership fees $ 1,082 $ 1,000

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Total cardholders (000s) 129,500 120,900

Membership fee revenue increased 6% in both the third quarter and first thirty-six weeks of 2023, driven by new member sign-ups, upgrades to Executive Membership, and a higher renewal rate.

Changes in foreign currencies relative to the U.S.

dollar negatively impacted membership fees by $17 and $70 in the third quarter and first thirty-six weeks of 2023.

At the end of the third quarter of 2023, our renewal rates were 92.6% in the U.S.

Membership fee revenue increased 8%, driven by new member sign-ups, upgrades to Executive Membership, and a higher renewal rate.

At the end of the first quarter of 2024, our renewal rates were 92.8% in the U.S.

and Canada and 90.5% 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.

Renewal rates benefited from higher penetration of Executive members.

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

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

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

12 Weeks Ended 36 Weeks Ended

12 Weeks Ended

2023 November 20,

Net sales $ 56,717 $ 53,437

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11.04 % 10.61 %

Quarterly Results

Total gross margin percentage increased 13 basis points compared to the third quarter of 2022.

Excluding the impact of gasoline price deflation on net sales, gross margin percentage was 10.16%, a decrease of three basis points.

This was driven by a net 52 basis-point decrease due to a charge, primarily for the discontinuation of our charter shipping activities and the benefit from the absence of a charge related to granting employees additional vacation as was recorded in the third quarter of 2022.

Increased 2% rewards negatively impacted gross margin by nine basis points.

Gross margin was positively impacted by 25 basis points due to the absence of a LIFO charge as was recorded in the third quarter of 2022.

Core merchandise categories positively impacted gross margin by 24 basis points, due to foods and sundries,

partially offset by non-foods.

Warehouse ancillary and other businesses positively impacted gross margin by nine basis points.

Changes in foreign currencies relative to the U.S.

dollar negatively impacted gross margin by approximately $81, compared to the third quarter of 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 17 basis points.

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

Gross margin percentage increased 43 basis points.

Excluding the impact of gasoline price deflation on net sales, gross margin percentage was 10.97%, an increase of 36 basis points.

The 36 basis-point increase was positively impacted by:

22 basis points related to our warehouse ancillary and other businesses, primarily gasoline and e-commerce;

17 basis points due to the absence of a charge related to the discontinuation of our charter shipping activities that was recorded in the first quarter of 2023;

and three basis points due to a LIFO benefit.

These were partially offset by:

three basis points due to core merchandise categories, predominantly fresh foods;

and three basis points due to increased 2% rewards.

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

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

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

Gross margin percentage increased in our Canadian and Other International segment due to increases in core merchandise categories and warehouse ancillary and other businesses.

All segments were negatively impacted by increased 2% rewards.

Year-to-date Results

Total gross margin percentage decreased seven basis points compared to the first thirty-six weeks of 2022.

Excluding the impact of gasoline price inflation on net sales, gross margin percentage was 10.58%, a decrease of four basis points.

This was driven by charges in the first and third quarters of 2023 related to the downsizing and then discontinuation of our charter shipping activities, totaling 24 basis points.

Gross margin was also negatively impacted by five basis points due to increased 2% rewards and three basis points due to decreases in core merchandise categories, predominantly in non-foods and fresh foods, partially offset by foods and sundries.

Warehouse ancillary and other businesses, positively impacted gross margin by 14 basis points, predominantly gasoline, partially offset by e-commerce.

A smaller LIFO charge in the first thirty-six weeks of 2023 compared to the first thirty-six weeks of 2022 also positively impacted gross margin by 14 basis points.

Changes in foreign currencies relative to the U.S.

dollar negatively impacted gross margin by approximately $325, compared to the first thirty-six weeks of 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), decreased 14 basis points.

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

Gross margin percentage was flat in our U.S.

segment due to the charge related to the discontinuation of our charter shipping activities discussed above, offset by a smaller LIFO charge and increases in warehouse ancillary and other businesses, primarily gasoline.

Gross margin percentage decreased in our Canadian and Other International segment due to decreases in core merchandise categories, partially offset by warehouse ancillary and other businesses.

segment performed similarly to the results above.

The increases in our Canadian and Other International segments were primarily due to increases in warehouse ancillary and other businesses and core merchandise categories.

All segments were negatively impacted by increased 2% rewards.

Selling, General and Administrative Expenses

12 Weeks Ended 36 Weeks Ended

12 Weeks Ended

2023 November 20,

SG&A expenses $ 5,358 $ 4,917

SG&A expenses as a percentage of net sales 9.45 % 9.20 %

Quarterly Results

SG&A expenses as a percentage of net sales increased 25 basis points.

SG&A expenses as a percentage of net sales excluding the impact of gasoline price deflation was 9.39%, an increase of 19 basis points.

The comparison to last year was negatively impacted by 35 basis points in warehouse operations and other businesses, largely attributable to the increased wages and benefits that were effective in March and July 2022, and March 2023 and slower sales growth.

Central operating costs were also higher by nine basis points, and preopening costs were higher by one basis point.

SG&A was positively impacted by 11 basis points due to the absence of a charge related to granting our employees additional vacation as was recorded in the prior year.

Changes in foreign currencies relative to the U.S.

dollar decreased SG&A expenses by approximately $65 compared to the third quarter of 2022.

Year-to-date Results

SG&A expenses as a percentage of net sales increased 10 basis points.

SG&A expenses as a percentage of net sales excluding the impact of gasoline price inflation was 9.16%, an increase of 12 basis points.

The comparison to last year was negatively impacted by 16 basis points in warehouse operations and other businesses, largely attributable to the increased wages and benefits that were effective in March and July 2022, and March 2023 and slower sales growth.

Central operating costs were also higher by seven basis points.

SG&A was positively impacted by 11 basis points due to the absence of a write-off of certain information technology assets and a charge related to granting our employees additional vacation as were recorded in the prior year.

Changes in foreign currencies relative to the U.S.

dollar decreased SG&A expenses by approximately $261 compared to the first thirty-six weeks of 2022.

The comparison to last year was negatively impacted by 14 basis points in warehouse operations and other businesses which included the impact of wage increases in March and September 2023.

Stock compensation and preopening costs were each higher by two basis points, and central operating costs were higher by one basis point.

Interest Expense

12 Weeks Ended 36 Weeks Ended

12 Weeks Ended

2023 November 20,

Interest expense $ 38 $ 34

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

The decrease in interest expense for the first thirty-six weeks of 2023 was due to repayment of the 2.300% Senior Notes on December 1, 2021.

Interest Income and Other, Net

12 Weeks Ended 36 Weeks Ended

12 Weeks Ended

2023 November 20,

Interest income $ 154 $ 54

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Interest income and other, net $ 160 $ 53

The increase in interest income in the third quarter and first thirty-six weeks of 2023 was due to higher global interest rates.

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

See Derivatives and Foreign Currency sections in Item 8, Note 1 of our Annual Report on Form 10-K, for the fiscal year ended August 28, 2022.

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

Foreign-currency transaction gains (losses), 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 Item 8, Note 1 of our Annual Report on Form 10-K, for the fiscal year ended September 3, 2023.

Provision for Income Taxes

12 Weeks Ended 36 Weeks Ended

12 Weeks Ended

2023 November 20,

Provision for income taxes $ 517 $ 406

Effective tax rate 24.5 % 23.0 %

The effective tax rate for the first thirty-six weeks of 2023 was impacted by net discrete tax benefits of $57, primarily due to excess tax benefits related to stock compensation.

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

The effective tax rate for the first thirty-six weeks of 2022 was impacted by net discrete tax benefits of $114, primarily due to excess tax benefits related to stock compensation.

Excluding discrete net tax benefits, the tax rate was 26.3%.

The effective tax rate for the first quarter of 2024 was impacted by net discrete tax benefits of $40, primarily due to excess tax benefits related to stock compensation.

Excluding discrete net tax benefits, the tax rate was 26.4% for the first quarter of 2024.

The effective tax rate for the first quarter of 2023 was impacted by net discrete tax benefits of $56, primarily due to excess tax benefits related to stock compensation.

Excluding discrete net tax benefits, the tax rate was 26.1% for the first quarter of 2023.

LIQUIDITY AND CAPITAL RESOURCES

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12 Weeks Ended

2023 November 20,

Net cash provided by operating activities $ 4,651 $ 2,610

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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 $13,708 and $11,049 at May 7, 2023, and August 28, 2022.

Of these balances, unsettled credit and debit card receivables represented approximately $2,236 and $2,010 at May 7, 2023, and August 28, 2022.

Cash and cash equivalents and short-term investments were $17,864 and $15,234 at November 26, 2023, and September 3, 2023.

Of these balances, unsettled credit and debit card receivables represented approximately $2,603 and $2,282 at November 26, 2023, and September 3, 2023.

These receivables generally settle within four days.

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Cash Flows from Operating Activities

Net cash provided by operating activities totaled $7,343 in the first thirty-six weeks of 2023, compared to $4,886 in the first thirty-six weeks of 2022.

Net cash provided by operating activities totaled $4,651 in the first quarter of 2024, compared to $2,610 in the first quarter of 2023.

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

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Cash used in operations also includes payments for income taxes.

Changes in our net investment in merchandise inventories (the difference between merchandise inventories and accounts payable) is impacted by several factors, including inventory turnover, the forward deployment of inventory to accelerate delivery times, payment terms with suppliers, and early payments to obtain discounts.

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

Net cash used in investing activities totaled $3,147 in the first thirty-six weeks of 2023, compared to $2,428 in the first thirty-six weeks of 2022, and is primarily related to capital expenditures.

Net cash used in investing activities totaled $366 in the first quarter of 2024, compared to $1,057 in the first quarter of 2023, and is primarily related to capital expenditures.

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

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

In the first thirty-six weeks of 2023, we spent $2,767 on capital expenditures, and it is our current intention to spend approximately $3,800 to $4,200 during fiscal 2023.

In the first quarter of 2024, we spent $1,040 on capital expenditures, and it is our current intention to spend approximately $4,400 to $4,600 during fiscal 2024.

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

We opened 17 new warehouses, including three relocations, in the first thirty-six weeks of 2023 and plan to open nine additional new warehouses in the remainder of fiscal 2023.

We opened 10 new warehouses, including one relocation, in the

first quarter of 2024 and plan to open 23 additional new warehouses, including one relocation, in the remainder of fiscal 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 $1,950 in the first thirty-six weeks of 2023, compared to $2,343 in the first thirty-six weeks of 2022.

Cash flow used in financing activities during the first thirty-six weeks of 2023 was primarily related to the payment of dividends, repurchases of common stock, and withholding taxes on stock-based awards.

In the first thirty-six weeks of 2022, cash flow used in financing activities included the repayment of our 2.300% Senior Notes and the payment of dividends.

A quarterly cash dividend of $1.02 per share was declared on April 19, 2023, payable to shareholders of record on May 5, 2023, which was paid on May 19, 2023.

Net cash used in financing activities totaled $974 in the first quarter of 2024, compared to $863 in the first quarter of 2023.

Cash flow used in financing activities during the first quarter of 2024 was primarily related to the payment of dividends, withholding taxes on stock-based awards, and repurchases of common stock.

In November 2023, our Japanese subsidiary issued four Guaranteed Senior Notes totaling approximately $500 at fixed interest rates ranging from 1.400% to 2.120%.

A quarterly cash dividend of $1.02 per share was declared on October 18, 2023, payable to shareholders of record on November 3, 2023, which was paid on November 17, 2023.

Subsequent to the end of the quarter, on December 13, 2023, the Board of Directors declared a special cash dividend of $15.00 per share, payable January 12, 2024, to shareholders of record as of the close of business on December 28, 2023.

The aggregate amount of payments will be approximately $6.7 billion.

Share Repurchase Program

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 the first thirty-six weeks of 2023 and 2022, we repurchased 908,000 and 490,000 shares of common stock, at an average price per share of $492.30 and $523.61, totaling approximately $447 and $257.

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

During the first quarter of 2024 and 2023, we repurchased 288,000 and 285,000 shares of common stock, at an average price per share of $564.06 and $495.94, totaling approximately $162 and $141.

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

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

The remaining amount available to be purchased under our approved plan was $3,793 at the end of the third quarter.

The remaining amount available to be purchased under our approved plan was $3,401 at the end of the first quarter.

Bank Credit Facilities and Commercial Paper Programs

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

At May 7, 2023, we had borrowing capacity under these facilities of $1,312.

At November 26, 2023, we had borrowing capacity under these facilities of $1,245.

Our international operations maintain $757 of this capacity under bank credit facilities, of which $163 is guaranteed by the Company.

Short-term borrowings outstanding under the bank credit facilities, which are included in other current liabilities on the consolidated balance sheets, were $54 and $88 at the end of the third quarter of 2023 and at the end of fiscal 2022.

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 the first quarter of 2024 and at the end of fiscal 2023.

The Company has letter of credit facilities, for commercial and standby letters of credit, totaling $223.

The outstanding commitments under these facilities at the end of the third quarter of 2023 totaled $189, most of which were standby letters of credit that do not expire or have expiration dates within one year.

The outstanding commitments under these facilities at the end of the first quarter of 2024 totaled $188, 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 facilities.

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We base these on historical experience and on assumptions that we believe to be reasonable.

Our critical accounting policies are discussed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K, for the fiscal year ended August 28, 2022.

Our critical accounting policies are discussed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report

on Form 10-K, for the fiscal year ended September 3, 2023.

There have been no material changes to the critical accounting estimates previously disclosed in that Report.

Recent Accounting Pronouncements

There have been no material changes in recently issued or adopted accounting standards from those disclosed in our Annual Report on Form 10-K, for the fiscal year ended August 28, 2022.

See discussion of Recent Accounting Pronouncements in Note 1 to the condensed consolidated financial statements included in Part 1, Item 1 of this Report.

Item 3—Quantitative and Qualitative Disclosures about Market Risk

Our direct exposure to financial market risk results from fluctuations in foreign-currency exchange rates and interest rates.

There have been no material changes to our market risks as disclosed in our Annual Report on Form 10-K, for the fiscal year ended August 28, 2022.

There have been no material changes to our market risks as disclosed in our Annual Report on Form 10-K, for the fiscal year ended September 3, 2023.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis