What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-10-09 compared with 2023-10-11 · 94 added, 100 removed, 148 unchanged (57% of the section changed)

Item 7—Management's Discussion and Analysis of Financial Conditions and Results of Operations (amounts in millions, except per share, share, membership fee, and warehouse count data)

The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to promote understanding of the results of operations and financial condition.

Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to promote understanding of the results of operations and financial condition.

MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying Notes to Financial Statements (Part II, Item 8 of this Form 10-K).

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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 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.

E-commerce and business center sales are allocated to the appropriate merchandise categories in the Net Sales discussion.

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 sites 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.

GAAP) and should be reviewed in conjunction with results reported in accordance with 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).

Sales comparisons can also be particularly influenced by certain factors that are beyond our control:

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

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

fluctuations in currency exchange rates (with respect to our international operations) and inflation or deflation in the cost of gasoline and associated competitive conditions.

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

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

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

Another substantial factor in net sales growth is the health of the economies in which we do business, including the effects of inflation or deflation, especially the United States.

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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 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.

Our net sales and gross margin are 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 and lower SG&A expense, relative to our non-gasoline businesses.

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, negatively impacting gross margin and gross margin as a percentage of net sales (gross margin percentage) in the near term.

We believe our gasoline business enhances traffic in our warehouses;

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.

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.

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As our warehouse base grows, available and desirable sites become more difficult to secure, and square footage growth becomes a comparatively less substantial component of growth.

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

Negative aspects of such growth include lower initial operating profitability relative to existing warehouses and cannibalization of sales at existing warehouses when openings occur in existing markets.

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, 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.

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

The membership format is an integral part of our business and profitability.

This format is designed to reinforce member loyalty and provide continuing fee revenue.

The extent to which we achieve growth in our membership base, increase the penetration of our Executive members, and sustain high renewal rates materially influences our profitability.

The extent to which we achieve growth in our membership base, increase the penetration of Executive memberships, and sustain high renewal rates materially influences our profitability.

Our paid-membership growth rate may be adversely impacted when warehouse openings occur in existing markets as compared to new markets.

Our worldwide renewal rate may be adversely impacted by lower renewal rates in newer markets.

Our financial performance depends heavily on controlling costs.

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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 requires 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, increasing productivity 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.

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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 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 should be reviewed in conjunction with results reported in accordance with U.S.

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 2024 and 2022 relate to the 52-week fiscal years ended September 1, 2024 and August 28, 2022.

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.

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

Highlights for 2023 versus 2022 include:

• 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;

Highlights for 2024 include:

• We opened 30 new warehouses, including one relocation:

23 net new in the U.S., one new in our Canadian segment, and five new in our Other International segment, compared to 26 new warehouses, including three relocations, in 2023;

• Net sales increased 5% to $249,625, driven by an increase in comparable sales and sales at new warehouses opened in 2023 and 2024, partially offset by one less week of sales in 2024;

• Membership fee revenue increased 5% to $4,828, driven by new member sign-ups and upgrades to Executive membership, partially offset by one less week of membership fee income in 2024;

• Gross margin percentage increased 35 basis points, driven primarily by warehouse ancillary and other businesses, largely e-commerce and gasoline, and the absence of charges related to the discontinuation of our charter shipping activities recorded in 2023;

• SG&A expenses as a percentage of net sales increased six basis points, primarily due to warehouse operations and other businesses, which included the impact of wage increases in March and September 2023 and July 2024, partially offset by sales leverage and improved productivity;

• The effective tax rate in 2024 was 24.4%, compared to 25.9% in 2023;

• Net income increased 17% to $7,367, or $16.56 per diluted share compared to $6,292, or $14.16 per diluted share in 2023;

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

• We paid a special cash dividend of $15 per share in January 2024;

• In April, the Board of Directors approved a 14% increase in the quarterly cash dividend.

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Changes in net sales:

7 % 17 % 16 %

Canada 6 % 4 % 16 %

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Changes in comparable sales (1) :

3 % 16 % 15 %

Canada 7 % 2 % 15 %

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Changes in comparable sales excluding the impact of changes in foreign-currency and gasoline prices (1) :

4 % 10 % 14 %

Canada 8 % 8 % 12 %

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E-commerce 16 % (5) % 10 %

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(1) Comparable sales for 2024 were calculated using comparable retail weeks.

Net sales increased $11,915 or 5% during 2024.

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.

The improvement was attributable to an increase in comparable sales and sales at new warehouses opened in 2023 and 2024, partially offset by the impact of one less week of sales in 2024.

Sales increased $10,639, or 6% in core merchandise categories, increasing in all categories.

Sales increased $1,276, or 3% in warehouse ancillary and other businesses, led by pharmacy, partially offset by a decrease in gasoline.

During 2024, the volume of gasoline sold increased approximately 1%, positively impacting net sales by $400, or 17 basis points, which includes the impact of one less week of sales in 2024.

Lower gasoline prices negatively impacted net sales by $917, or 39 basis points, compared to 2023, with a 3% decrease in the average price per gallon.

Changes in foreign currencies relative to the U.S.

dollar negatively impacted net sales by approximately $474, 20 basis points, compared to 2023, attributable to our Canadian and Other International operations.

Comparable Sales

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

Comparable sales increased 5% during 2024 and were positively impacted by an increase in shopping frequency, partially offset by a slight decrease in average ticket.

Membership Fees

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Membership fees increase 5 % 8 % 9 %

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.

dollar negatively impacted membership fees by $76 compared to 2022.

Membership fee revenue increased 5% in 2024, driven by new member sign-ups and upgrades to Executive Membership.

These increases were partially offset by one less week of membership fee income in 2024.

At the end of 2024, our member renewal rates were 92.9% in the U.S.

and Canada and 90.5% worldwide.

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

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.

Effective September 1, 2024, we increased our membership fees in the U.S.

and Canada for Gold Star (individual), Business, and Business affiliates to $65 per year.

The Executive membership fee increased from $120 to $130 (membership fee of $65, plus Executive upgrade of $65), and the maximum annual 2% reward associated with the Executive Membership increased from $1,000 to $1,250.

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

We expect these fee changes to increase revenues approximately $370 over the next two years, $190 of which will benefit fiscal 2025, primarily in the latter half of the year.

2024 2023 2022

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Gross margin percentage 10.92 % 10.57 % 10.48 %

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 $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.

Gross margin percentage increased 35 basis points.

Excluding the impact of gasoline price deflation on net sales, gross margin percentage was 10.88%, an increase of 31 basis points.

This increase was positively impacted by:

19 basis points due to warehouse ancillary and other businesses, primarily e-commerce and gasoline;

16 basis points due to the absence of charges related to the discontinuation of our charter shipping activities that were recorded in the first and third quarters of 2023;

and three basis points due to a LIFO benefit.

This increase was partially offset by four basis points in our core merchandise categories 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 11 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), increased in our U.S.

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.

and Canadian segments.

segment performed similarly to the consolidated results above.

Our Canadian segment gross margin percentage increased, primarily due to increases in core merchandise categories and warehouse ancillary and other businesses, partially offset by increased 2% rewards.

Gross margin percentage decreased in our Other International segment, primarily due to increased 2% rewards and a decrease in core merchandise categories.

Selling, General and Administrative Expenses

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SG&A expenses as a percentage of net sales 9.14 % 9.08 % 8.88 %

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 $281 compared to 2022, attributable to our Canadian and Other International Operations.

SG&A expenses as a percentage of net sales increased six basis points compared to 2023.

SG&A expenses as a percentage of net sales excluding the impact of gasoline price deflation was 9.10%, an increase of two basis points.

The comparison to last year was negatively impacted by two basis points in warehouse operations and other businesses, driven by our U.S.

operations, which included the impact of wage increases in March and September 2023, and July 2024, partially offset by sales leverage and improved productivity.

SG&A expenses as percentage of net sales were lower in our Canadian and Other International operations.

Interest Expense

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Interest income and other, net $ 624 $ 533 $ 205

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

The increase in interest income in 2024 was due to higher global interest rates.

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

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Effective tax rate 24.4 % 25.9 % 24.6 %

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%.

The effective tax rate for 2024 was favorably impacted by discrete tax benefits of $94 related to the portion of the special dividend payable through our 401(k) plan, a net non-recurring tax benefit of $63 related to a transfer pricing settlement and certain true-ups of tax reserves, and $45 of excess tax benefits related to stock compensation.

The effective tax rate for 2023 was favorably impacted by discrete tax benefits of $54 due to excess tax benefits related to stock compensation.

The Organization of Economic Cooperation and Development (OECD) has introduced a framework to implement a global minimum corporate tax of 15% (referred to as Pillar 2) which is effective for fiscal 2025.

We will continue to evaluate the impacts of Pillar 2, but do not currently expect a material impact on our consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

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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 $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.

Cash and cash equivalents and short-term investments were $11,144 and $15,234 at September 1, 2024, and September 3, 2023.

Of these balances, unsettled credit and debit card receivables represented approximately $2,519 and $2,282.

These receivables generally settle within four days.

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

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

We believe that our U.S.

We believe that our cash and investment position and operating cash flow, with capacity under existing and available credit agreements, will be sufficient to meet our liquidity and capital requirements for the foreseeable future and our U.S.

current and projected asset position is sufficient to meet our U.S.

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

Cash flow used in operations generally consists of payments to merchandise suppliers, warehouse operating costs, including payroll and employee benefits, utilities, and credit and debit card processing fees.

Cash flow used in operations generally consists of payments to merchandise suppliers, warehouse operating costs, including wages and employee benefits, utilities, credit and debit card processing fees, and operating leases.

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 levels and 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, payment terms with suppliers, and early payments to obtain discounts.

Cash Flows from Investing Activities

Net cash used in investing activities totaled $4,409 in 2024, compared to $4,972 in 2023, and is primarily related to capital expenditures.

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

Capital Expenditures

Our primary requirements for capital are acquiring land, buildings, and equipment for new and remodeled warehouses.

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

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 2023, and plan to open up to 28 additional new warehouses, including one relocation, in 2024.

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

Capital Expenditure Plans

Our primary requirements for capital are acquiring land, buildings, and equipment for new and remodeled warehouses, information systems and manufacturing and distribution facilities.

In 2024, we spent $4,710 on capital expenditures, and it is our current intention to spend a similar amount du ring fiscal 2025 .

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

We opened 30 new warehous es, including one relocation, in 2024, and plan to

open up to 29 additional new warehouses, including three relocations, in 2025.

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.

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Net cash used in financing activities totaled $10,764 in 2024, compared to $2,614 in 2023.

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

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.

Cash flow used in financing activities primarily related to the payment of dividends, repayments of long-term debt and short-term borrowings, repurchases of common stock, and withholding taxes on stock-based awards.

On May 18, 2024, we paid the $1,000 outstanding principal balance on the 2.750% Senior Notes, using cash and cash equivalents and short-term investments.

Cash flow provided by financing activities included proceeds from short-term borrowings and four Guaranteed Senior Notes totaling approximately $500, at fixed interest rates ranging from 1.400% to 2.120%, issued by our Japan subsidiary.

Cash dividends declared in 2024 totaled $8,589 or $19.36 per share, as compared to $1,703 or $3.84 per share in 2023.

Dividends in 2024 included a special dividend of $15 per share, resulting in a payment of approximately $6,655.

In April 2024, the Board of Directors increased our quarterly cash dividend from $1.02 to $1.16 per share.

Share Repurchase Program

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 2024 and 2023, we repurchased 1,004,000 and 1,341,000 shares of common stock, at an average price per share of $695.29 and $504.68, totaling approximately $698 and $677.

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.

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The remaining amount available to be purchased under our approved plan was $2,865 at the end of 2024.

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

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

Bank Credit Facilities and Commercial Paper Programs

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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 2024 and 2023.

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

We have letter of credit facilities, for commercial and standby letters of credit, totaling $214.

The outstanding commitments under these facilities at the end of 2024 totaled $193, most of which were standby letters of credit that do not expire or have expiration dates within one year.

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Claims for employee health-care benefits, workers’ compensation, general liability, property damage, directors’ and officers’ liability, vehicle liability, inventory loss, and other exposures are funded predominantly through self-insurance.

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

We use various risk management mechanisms, including a

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

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

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.

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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.

Historically, adjustments to our estimates have been immaterial.

Recent Accounting Pronouncements

We do not expect that any recently issued accounting pronouncements will have a material effect on our financial statements.

See discussion of Recent Accounting Pronouncements in Note 1 to the consolidated financial statements included in Item 8 of this Report.

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