COSTCO WHOLESALE CORP /NEW 10-Q

Item 1—Financial Statements COSTCO WHOLESALE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (amounts in millions, except per share data) (unaudited) 12 Weeks Ended November 26, 2023 November 20, 2022 REVENUE Net sales $ 56,717 $ 53,437 Membership fees 1,082 1,000 Total revenue 57,799 54,437 OPERATING EXPENSES Merchandise costs 50,457 47,769 Selling, general and administrative 5,358 4,917 Operating income 1,984 1,751 OTHER INCOME (EXPENSE) Interest expense ( 38 ) ( 34 ) Interest income and other, net 160 53 INCOME BEFORE INCOME TAXES 2,106 1,770 Provision for income taxes 517 406 NET INCOME $ 1,589 $ 1,364 NET INCOME PER COMMON SHARE: Basic $ 3.58 $ 3.07 Diluted $ 3.58 $ 3.07 Shares used in calculation (000s): Basic 443,827 443,837 Diluted 444,403 444,531 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents COSTCO WHOLESALE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (amounts in millions) (unaudited) 12 Weeks Ended November 26, 2023 November 20, 2022 NET INCOME $ 1,589 $ 1,364 Foreign-currency translation adjustment and other, net ( 38 ) ( 96 ) COMPREHENSIVE INCOME $ 1,551 $ 1,268 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents COSTCO WHOLESALE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (amounts in millions, except par value and share data) (unaudited) November 26, 2023 September 3, 2023 ASSETS CURRENT ASSETS Cash and cash equivalents $ 17,011 $ 13,700 Short-term investments 853 1,534 Receivables, net 2,542 2,285 Merchandise inventories 18,001 16,651 Other current assets 1,673 1,709 Total current assets 40,080 35,879 OTHER ASSETS Property and equipment, net 27,168 26,684 Operating lease right-of-use assets 2,672 2,713 Other long-term assets 3,803 3,718 TOTAL ASSETS $ 73,723 $ 68,994 LIABILITIES AND EQUITY CURRENT LIABILITIES Accounts payable $ 20,357 $ 17,483 Accrued salaries and benefits 4,474 4,278 Accrued member rewards 2,207 2,150 Deferred membership fees 2,462 2,337 Current portion of long-term debt 1,080 1,081 Other current liabilities 6,188 6,254 Total current liabilities 36,768 33,583 OTHER LIABILITIES Long-term debt, excluding current portion 5,866 5,377 Long-term operating lease liabilities 2,401 2,426 Other long-term liabilities 2,541 2,550 TOTAL LIABILITIES 47,576 43,936 COMMITMENTS AND CONTINGENCIES EQUITY Preferred stock $ 0.005 par value; 100,000,000 shares authorized; no shares issued and outstanding — — Common stock $ 0.005 par value; 900,000,000 shares authorized; 443,787,000 and 442,793,000 shares issued and outstanding 2 2 Additional paid-in capital 7,489 7,340 Accumulated other comprehensive loss ( 1,843 ) ( 1,805 ) Retained earnings 20,499 19,521 TOTAL EQUITY 26,147 25,058 TOTAL LIABILITIES AND EQUITY $ 73,723 $ 68,994 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents COSTCO WHOLESALE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (amounts in millions) (unaudited) 12 Weeks Ended November 26, 2023 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Retained Earnings Total Costco Stockholders’ Equity Noncontrolling Interests Total Equity Shares (000s) Amount BALANCE AT SEPTEMBER 3, 2023 442,793 $ 2 $ 7,340 $ ( 1,805 ) $ 19,521 $ 25,058 $ — $ 25,058 Net income — — — — 1,589 1,589 — 1,589 Foreign-currency translation adjustment and other, net — — — ( 38 ) — ( 38 ) — ( 38 ) Stock-based compensation — — 446 — — 446 — 446 Release of vested restricted stock units (RSUs), including tax effects 1,282 — ( 292 ) — — ( 292 ) — ( 292 ) Repurchases of common stock ( 288 ) — ( 5 ) — ( 157 ) ( 162 ) — ( 162 ) Cash dividend declared and other — — — — ( 454 ) ( 454 ) — ( 454 ) BALANCE AT NOVEMBER 26, 2023 443,787 $ 2 $ 7,489 $ ( 1,843 ) $ 20,499 $ 26,147 $ — $ 26,147 12 Weeks Ended November 20, 2022 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Retained Earnings Total Costco Stockholders’ Equity Noncontrolling Interests Total Equity Shares (000s) Amount BALANCE AT AUGUST 28, 2022 442,664 $ 2 $ 6,884 $ ( 1,829 ) $ 15,585 $ 20,642 $ 5 $ 20,647 Net income — — — — 1,364 1,364 — 1,364 Foreign-currency translation adjustment and other, net — — — ( 96 ) — ( 96 ) — ( 96 ) Stock-based compensation — — 403 — — 403 — 403 Release of vested RSUs, including tax effects 1,462 — ( 301 ) — — ( 301 ) — ( 301 ) Repurchases of common stock ( 285 ) — ( 4 ) — ( 137 ) ( 141 ) — ( 141 ) Cash dividend declared — — — — ( 400 ) ( 400 ) — ( 400 ) BALANCE AT NOVEMBER 20, 2022 443,841 $ 2 $ 6,982 $ ( 1,925 ) $ 16,412 $ 21,471 $ 5 $ 21,476 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents COSTCO WHOLESALE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in millions) (unaudited) 12 Weeks Ended November 26, 2023 November 20, 2022 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 1,589 $ 1,364 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 501 447 Non-cash lease expense 74 111 Stock-based compensation 444 402 Impairment of assets and other non-cash operating activities, net 43 121 Changes in operating assets and liabilities: Merchandise inventories ( 1,384 ) ( 737 ) Accounts payable 2,854 487 Other operating assets and liabilities, net 530 415 Net cash provided by operating activities 4,651 2,610 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of short-term investments ( 200 ) ( 253 ) Maturities of short-term investments 878 274 Additions to property and equipment ( 1,040 ) ( 1,057 ) Other investing activities, net ( 4 ) ( 21 ) Net cash used in investing activities ( 366 ) ( 1,057 ) CASH FLOWS FROM FINANCING ACTIVITIES Repayments of short-term borrowings ( 173 ) ( 77 ) Proceeds from short-term borrowings 144 29 Proceeds from issuance of long-term debt 498 — Tax withholdings on stock-based awards ( 292 ) ( 301 ) Repurchases of common stock ( 162 ) ( 141 ) Cash dividend payments ( 905 ) ( 400 ) Financing lease payments ( 82 ) ( 60 ) Other financing activities, net ( 2 ) 87 Net cash used in financing activities ( 974 ) ( 863 ) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS — ( 37 ) Net increase in cash and cash equivalents 3,311 653 CASH AND CASH EQUIVALENTS BEGINNING OF YEAR 13,700 10,203 CASH AND CASH EQUIVALENTS END OF PERIOD $ 17,011 $ 10,856 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the first 12 weeks of the year for: Interest $ 52 $ 52 Income taxes, net $ 210 $ 214 SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES: Financing lease assets obtained in exchange for new or modified leases $ 29 $ 49 Operating lease assets obtained in exchange for new or modified leases $ 18 $ 68 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents COSTCO WHOLESALE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (amounts in millions, except share, per share, and warehouse count data) (unaudited) Note 1—Summary of Significant Accounting Policies Description of Business Costco Wholesale Corporation (Costco or the Company), a Washington corporation, and its subsidiaries operate membership warehouses based on the concept that offering members low prices on a limited selection of nationally-branded and private-label products in a wide range of merchandise categories will produce high sales volumes and rapid inventory turnover. At November 26, 2023, Costco operated 870 warehouses worldwide: 599 in the United States (U.S.) located in 47 states, Washington, D.C., and Puerto Rico, 108 in Canada, 40 in Mexico, 33 in Japan, 29 in the United Kingdom (U.K.), 18 in Korea, 15 in Australia, 14 in Taiwan, five in China, four in Spain, two in France, and one each in Iceland, New Zealand, and Sweden. The Company operates e-commerce websites in the U.S., Canada, the U.K., Mexico, Korea, Taiwan, Japan, and Australia. Basis of Presentation The condensed consolidated financial statements include the accounts of Costco and its wholly-owned subsidiaries. All material inter-company transactions among the Company and its consolidated subsidiaries have been eliminated in consolidation. These unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q for interim financial reporting pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). While these statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (U.S. GAAP) for complete financial statements. Therefore, the interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the fiscal year ended September 3, 2023. Fiscal Year End The Company operates on a 52/53 week fiscal year basis, with the fiscal year ending on the Sunday closest to August 31. Fiscal 2024 is a 52-week year ending on September 1, 2024. References to the first quarter of 2024 and 2023 relate to the 12-week fiscal quarters ended November 26, 2023, and November 20, 2022. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions take into account historical and forward-looking factors that the Company believes are reasonable. Actual results could differ from those estimates and assumptions. Reclassification Reclassifications were made to the condensed consolidated statement of cash flows for the first twelve weeks of fiscal 2023 to conform with current year presentation. 8 Table of Contents Recent Accounting Pronouncements Not Yet Adopted In November 2023, the FASB issued ASU 2023-07, which is intended to improve reportable segment disclosure requirements, primarily through additional disclosures about significant segment expenses. The standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company is evaluating the disclosure requirements related to the new standard. Note 2—Investments The Company's investments were as follows: November 26, 2023: Cost Basis Unrealized Losses, Net Recorded Basis Available-for-sale: Government and agency securities $ 665 $ ( 20 ) $ 645 Held-to-maturity: Certificates of deposit 208 — 208 Total short-term investments $ 873 $ ( 20 ) $ 853 September 3, 2023: Cost Basis Unrealized Losses, Net Recorded Basis Available-for-sale: Government and agency securities $ 650 $ ( 17 ) $ 633 Held-to-maturity: Certificates of deposit 901 — 901 Total short-term investments $ 1,551 $ ( 17 ) $ 1,534 Gross unrecognized holding gains and losses on available-for-sale securities were not material for the periods ended November 26, 2023, and September 3, 2023 . At those dates, there were no available-for-sale securities in a material continuous unrealized-loss position. There were no sales of available-for-sale securities during the first quarter of 2024 or 2023. The maturities of available-for-sale and held-to-maturity securities at November 26, 2023, are as follows: Available-For-Sale Held-To-Maturity Cost Basis Fair Value Due in one year or less $ 120 $ 118 $ 208 Due after one year through five years 362 354 — Due after five years 183 173 — Total $ 665 $ 645 $ 208 Note 3—Fair Value Measurement Assets and Liabilities Measured at Fair Value on a Recurring Basis The table below presents information regarding the Company’s financial assets and financial liabilities that are measured at fair value on a recurring basis and indicate the level within the hierarchy reflecting the valuation techniques utilized. 9 Table of Contents Level 2 November 26, 2023 September 3, 2023 Investment in government and agency securities $ 645 $ 633 Forward foreign-exchange contracts, in asset position (1) 7 18 Forward foreign-exchange contracts, in (liability) position (1) ( 16 ) ( 7 ) Total $ 636 $ 644 _______________ (1) The asset and liability values are included in other current assets and other current liabilities, respectively, in the accompanying condensed consolidated balance sheets. At November 26, 2023, and September 3, 2023, the Company did not hold any Level 1 or 3 financial assets or liabilities that were measured at fair value on a recurring basis. There were no transfers between levels during the first quarter of 2024 or 2023. Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Assets and liabilities recognized and disclosed at fair value on a nonrecurring basis include items such as financial assets measured at amortized cost and long-lived nonfinancial assets. These assets are measured at fair value if determined to be impaired. There were no material fair value adjustments to these items during the first quarter of 2024. During the first quarter of 2023, the Company recognized in merchandise costs a charge of $93, primarily related to the impairment of certain leased assets associated with charter shipping activities. Note 4—Debt The carrying value of the Company’s long-term debt consisted of the following: November 26, 2023 September 3, 2023 2.750 % Senior Notes due May 2024 $ 1,000 $ 1,000 3.000 % Senior Notes due May 2027 1,000 1,000 1.375 % Senior Notes due June 2027 1,250 1,250 1.600 % Senior Notes due April 2030 1,750 1,750 1.750 % Senior Notes due April 2032 1,000 1,000 Other long-term debt 972 484 Total long-term debt 6,972 6,484 Less unamortized debt discounts and issuance costs 26 26 Less current portion (1) 1,080 1,081 Long-term debt, excluding current portion $ 5,866 $ 5,377 _______________ (1) Net of unamortized debt discounts and issuance costs . The fair value of the Senior Notes is estimated using Level 2 inputs. Other long-term debt consists of Guaranteed Senior Notes issued by the Company's Japan subsidiary, valued using Level 3 inputs. In November 2023, our Japan subsidiary issued four Guaranteed Senior Notes, totaling approximately $ 500 , at fixed interest rates ranging from 1.400 % to 2.120 %. Interest is payable semi-annually, and maturity dates range from November 7, 2033, to November 7, 2043. The fair value of the Company's long-term debt, including the current portion, was approximately $ 6,234 and $ 5,738 at November 26, 2023, and September 3, 2023. 10 Table of Contents Note 5—Equity Dividends A quarterly cash dividend of $ 1.02 per share was declared on October 18, 2023, and paid on November 17, 2023. The dividend was $ 0.90 per share in the first quarter of 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. Stock Repurchase Programs The Company's stock repurchase program is conducted under a $ 4,000 authorization by the Board of Directors, which expires in January 2027. At November 26, 2023, the remaining amount available under the program was $ 3,401 . The following table summarizes the repurchase activity: Shares Repurchased (000s) Average Price per Share Total Cost First quarter of 2024 288 $ 564.06 $ 162 First quarter of 2023 285 $ 495.94 $ 141 These amounts may differ from the accompanying condensed consolidated statements of cash flows due to changes in unsettled stock repurchases at the end of each quarter. 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. Note 6—Stock-Based Compensation The 2019 Incentive Plan authorized the issuance of up to a maximum of 15,885,000 RSUs. The Company issues new shares of common stock upon vesting of RSUs. Shares for vested RSUs are generally delivered to participants annually, net of shares withheld for taxes. Summary of Restricted Stock Unit Activity At November 26, 2023, 7,097,000 shares were available to be granted as RSUs, and the following awards were outstanding: • 2,726,000 time-based RSUs, which vest upon continued employment over specified periods and accelerate upon achievement of a long-service term; • 69,000 performance-based RSUs granted to executive officers of the Company, for which the performance targets have been met. The awards vest upon continued employment over specified periods of time and upon achievement of a long-service term; and • 90,000 performance-based RSUs granted to executive officers of the Company, subject to achievement of performance targets for fiscal 2024, as determined by the Compensation Committee of the Board of Directors after the end of the fiscal year. These awards are not included in the table below or in the amount of unrecognized compensation cost. 11 Table of Contents The following table summarizes RSU transactions during the first quarter of 2024: Number of Units (in 000s) Weighted-Average Grant Date Fair Value Outstanding at September 3, 2023 3,045 $ 405.63 Granted 1,573 544.28 Vested and delivered ( 1,810 ) 430.49 Forfeited ( 13 ) 446.28 Outstanding at November 26, 2023 2,795 $ 467.39 The remaining unrecognized compensation cost related to RSUs unvested at November 26, 2023, was $ 1,193 , and the weighted-average period over which this cost will be recognized is 1.8 years. Summary of Stock-Based Compensation The following table summarizes stock-based compensation expense and the related tax benefits: 12 Weeks Ended November 26, 2023 November 20, 2022 Stock-based compensation expense $ 444 $ 402 Less recognized income tax benefits 95 89 Stock-based compensation expense, net $ 349 $ 313 Note 7—Net Income per Common and Common Equivalent Share The following table shows the amounts used in computing net income per share and the weighted average number of shares of basic and of potentially dilutive common shares outstanding (shares in 000s): 12 Weeks Ended November 26, 2023 November 20, 2022 Net income $ 1,589 $ 1,364 Weighted average basic shares 443,827 443,837 RSUs 576 694 Weighted average diluted shares 444,403 444,531 Basic earnings per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is calculated based on the dilutive effect of RSUs using the treasury stock method. Note 8—Commitments and Contingencies Legal Proceedings The Company is involved in many claims, proceedings and litigations arising from its business and property ownership. In accordance with applicable accounting guidance, the Company establishes an accrual for legal proceedings if and when those matters present loss contingencies that are both probable and reasonably estimable. There may be losses in excess of amounts accrued. The Company monitors those matters for developments that would affect the likelihood of a loss (taking into account where applicable indemnification arrangements concerning suppliers and insurers) and the accrued amount, if any, thereof, and adjusts the amount as appropriate. The Company has recorded immaterial accruals with 12 Table of Contents respect to certain matters described below, in addition to other immaterial accruals for matters not described below. If the loss contingency at issue is not both probable and reasonably estimable, the Company does not establish an accrual, but monitors for developments that make the contingency both probable and reasonably estimable. In each case, there is a reasonable possibility that a loss may be incurred, including a loss in excess of the applicable accrual. For matters where no accrual has been recorded, the possible loss or range of loss (including any loss in excess of the accrual) cannot, in the Company's view, be reasonably estimated because, among other things: the remedies or penalties sought are indeterminate or unspecified; the legal and/or factual theories are not well developed; and/or the matters involve complex or novel legal theories or a large number of parties. In September 2023, a former employee filed a class action against the Company alleging claims under California law for failure to pay minimum wage, to pay overtime, to provide meal and rest periods, to provide accurate wage statements, to timely pay final wages, to reimburse employee expenses, and for unfair business practices. Jordan Clower v. Costco Wholesale Corporation (Case No. 1:23-cv-01621). The Company has filed a motion to dismiss. In November 2023, a former employee filed a class action against the Company alleging claims under California law for failure to pay minimum wage, failure to pay overtime, failure to provide meal and rest breaks, failure to provide accurate wage statements, failure to reimburse expenses, failure to pay wages when due, and failure to pay sick pay. Martin Reyes v. Costco Wholesale Corporation , Sacramento County Superior Court. (Case No. 23cv011351). The Company has not yet responded to the complaint. In August 2023, a former employee of a third-party staffing company filed a letter with the California Labor and Workforce Development Agency threatening claims under the California Private Attorneys General Act for alleged Labor Code violations consisting of minimum wage and overtime violations, meal and rest period violations, wage statement violations and failure to pay all wages at termination. Yesenia Murillo v. Real Time Staffing Services, LLC and Costco Wholesale Corporation. The Company is named as an alleged joint employer. A complaint has not yet been filed. In October 2023, current and former employees filed suit against the Company asserting collective and class claims on behalf of all “Junior Managers” under the Fair Labor Standards Act and New York Labor Law for failure to pay overtime compensation and for inaccurate wage notices and statements under New York law. Lock et al. v. Costco Wholesale Corp. (Case No. 2:23-cv-07904; E.D.N.Y.). The Company has not yet responded to the complaint. In October 2023, a current employee filed suit against the Company asserting collective and class claims on behalf of all “supervisors” employed in New Jersey under the Fair Labor Standards Act and New Jersey Wage and Hour Law for failure to pay all hours worked. Shah v. Costco Wholesale Corp. (Case No. 2:23-cv-21286; D.N.J.) The Company has not yet responded to the complaint. In February 2021, a former employee filed a class action against the Company alleging violations of California Labor Code regarding payment of wages, meal and rest periods, wage statements, reimbursement of expenses, payment of final wages to terminated employees, and for unfair business practices. Edwards v. Costco Wholesale Corp. (Case No. 5:21-cv-00716: C.D. Cal.). On September 27, 2022, the parties reached a settlement for an immaterial amount. The settlement was granted final court approval on October 20, 2023. In July 2021, a former temporary staffing employee filed a class action against the Company and a staffing company, alleging violations of the California Labor Code regarding payment of wages, meal and rest periods, wage statements, the timeliness of wages and final wages, and for unfair business practices. Dimas v. Costco Wholesale Corp. (Case No. STK-CV-UOE-2021-0006024; San Joaquin Superior Court). The Company has moved to compel arbitration of the plaintiff's individual claims and to dismiss the class action complaint. On September 7, 2021, the same plaintiff filed a separate representative action under the California Private Attorneys General Act, asserting the same Labor Code violations and seeking civil 13 Table of Contents penalties and attorneys' fees. The case has been stayed pending arbitration of the plaintiff's individual claims. In September 2021, an employee filed a class action against the Company alleging violations of the California Labor Code regarding failure to provide sick pay, failure to timely pay wages due at separation from employment, and for violations of California's unfair competition law. De Benning v. Costco Wholesale Corp. (Case No. 34-2021-00309030-CU-OE-GDS; Sacramento Superior Court). In April 2022, a settlement for an immaterial amount was agreed upon, subject to court approval. Final approval of the settlement was granted on February 10, 2023. A compliance hearing is scheduled for February 9, 2024. In May 2022, an employee filed a PAGA action against the Company, alleging claims under the California Labor Code regarding the payment of wages, meal and rest periods, the timeliness of wages and final wages, wage statements, accurate records and business expenses. Gonzalez v. Costco Wholesale Corp. (Case No. 22AHCV00255; Los Angeles Superior Court). The Company filed an answer denying the allegations. On October 31, 2023, a settlement was reached for an immaterial amount. The settlement requires court approval. Beginning in December 2017, the United States Judicial Panel on Multidistrict Litigation consolidated numerous cases concerning the impacts of opioid abuses filed against various defendants by counties, cities, hospitals, Native American tribes, third-party payors, and others. In re National Prescription Opiate Litigation (MDL No. 2804) (N.D. Ohio). Included are cases filed against the Company by counties and cities in Michigan, New Jersey, Oregon, Virginia and South Carolina, a third-party payor in Ohio, and a hospital in Texas, class actions filed on behalf of infants born with opioid-related medical conditions in 40 states, and class actions and individual actions filed on behalf of individuals seeking to recover alleged increased insurance costs associated with opioid abuse in 43 states and American Samoa. Claims against the Company filed in federal court outside the MDL have been asserted by certain counties and cities in Florida and Georgia; claims filed by certain cities and counties in New York are pending in state court. Claims against the Company in state courts in New Jersey, Oklahoma, Utah, and Arizona have been dismissed. The Company is defending all of the pending matters. Members of the Board of Directors, six corporate officers and the Company were defendants in a shareholder derivative action filed in June 2022 related to chicken welfare and alleged breaches of fiduciary duties. Smith, et ano. v. Vachris, et al., Superior Court of the State of Washington, County of King, No, 22-2-08937-7SEA. The complaint sought from the individual defendants' damages, injunctive relief, costs, and attorneys' fees. On March 28, 2023, the court granted the defendants' motion to dismiss the action. The plaintiffs subsequently made a demand that the Board of Directors take various actions, including among other things, pursuing claims against directors and officers of the type asserted in the litigation. A demand review committee of the Board has been appointed to make a recommendation to the Board as to the demand. In February 2023, Go Green Norcal, LLC filed an arbitration demand against the Company. The demand alleged a breach of a supply agreement and sought unspecified damages and cancellation of a loan from the Company. In March 2023, the Company filed its answer, denying any breach by the Company, along with counterclaims against Go Green and an affiliate for breach of contract, negligent misrepresentation, and an accounting. In August 2023 the plaintiff asserted that its damages exceed $ 70 million. Between September 25, 2023, and October 21, 2023, five class action suits were filed against the Company alleging various privacy law violations stemming from pixel trackers on Costco.com. Birdwell v. Costco , Case No. T23-1405, Contra Costa County Superior Court; Castillo v. Costco , Case No. 2:34-cv-01548 (W.D. Wash.); Groves et ano. v. Costco , Case No. 2:23-cv-01662 (W.D. Wash.); R.S. v, Costco , Case No. 2:23-cv-01628; Stock v. Costco , Case No. 2:23-cv-08808 (C.D. Cal.). The complaints seek damages, equitable relief and attorneys’ fees under various statutes, including the Washington Consumer Protection Act, Washington Privacy Act, Electronic Communications Privacy Act, California Invasion of Privacy Act, and California Confidentiality of Medical Information Act. They also allege breach of implied 14 Table of Contents contract, breach of fiduciary duty of confidentiality, unjust enrichment, negligence, and invasion of privacy. The Company has not yet responded to the complaints. In October 2021 the Company received a notice that the Quebec Health Insurance Board had commenced an inquiry to determine whether the Company had given or received improper payments for drugs that are covered by the province's prescription drug program from drug wholesalers, generic drug manufacturers or the independent pharmacist who owns and operates the pharmacies located in the Company's Quebec locations. The inquiry covers a period beginning January 1, 2017. In January 2023 the Company received a Civil Investigative Demand from the U.S. Attorney's Office, Western District of Washington, requesting documents. The government is conducting a False Claims Act investigation concerning whether the Company presented or caused to be presented to the federal government for payment false claims relating to prescription medications. The Company does not believe that any pending claim, proceeding or litigation, either alone or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or cash flows; it is possible that an unfavorable outcome of some or all of the matters, however unlikely, could result in a charge that might be material to the results of an individual fiscal quarter or year. 15 Table of Contents Note 9—Segment Reporting The Company is principally engaged in the operation of membership warehouses through wholly owned subsidiaries in the U.S., Canada, Mexico, Japan, the U.K., Korea, Australia, Taiwan, China, Spain, France, Iceland, New Zealand, and Sweden. Reportable segments are largely based on management’s organization of the operating segments for operational decisions and assessments of financial performance, which considers geographic locations. The material accounting policies of the segments are as described in the notes to the consolidated financial statements included in the Company's Annual Report filed on Form 10-K for the fiscal year ended September 3, 2023, and Note 1 above. Inter-segment net sales and expenses have been eliminated in computing total revenue and operating income. The following table provides information for the Company's reportable segments: United States Canada Other International Total 12 Weeks Ended November 26, 2023 Total revenue $ 41,833 $ 7,901 $ 8,065 $ 57,799 Operating income 1,358 325 301 1,984 12 Weeks Ended November 20, 2022 Total revenue $ 40,145 $ 7,356 $ 6,936 $ 54,437 Operating income 1,236 288 227 1,751 53 Weeks Ended September 3, 2023 Total revenue $ 176,630 $ 33,056 $ 32,604 $ 242,290 Operating income 5,392 1,448 1,274 8,114 Disaggregated Revenue The following table summarizes net sales by merchandise category; sales from e-commerce websites and business centers have been allocated to the applicable merchandise categories: 12 Weeks Ended November 26, 2023 November 20, 2022 Foods and Sundries $ 23,024 $ 21,448 Non-Foods 14,766 14,032 Fresh Foods 7,328 6,717 Warehouse Ancillary and Other Businesses 11,599 11,240 Total net sales $ 56,717 $ 53,437 16 Table of Contents