UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~February 16,~~May 10, 2020



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-20355

Costco Wholesale Corporation

(Exact name of registrant as specified in its charter)



Washington						91-1223280
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

999 Lake Drive,, Issaquah,, WA98027

(Address of principal executive offices) (Zip Code)

(Registrant’s telephone number, including area code): (~~425~~) (425) 313-8100

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $.01 Par Value

COST

The NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the issuer's common stock as of ~~March 4,~~May 27, 2020 was ~~441,579,952.~~441,523,711.

Table of Contents

COSTCO WHOLESALE CORPORATION

INDEX TO FORM 10-Q

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1—Financial Statements

COSTCO WHOLESALE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(amounts in millions, except per share data) (unaudited)


	12 Weeks Ended						24 Weeks Ended							12 Weeks Ended						36 Weeks Ended
	February 16, 2020			February 17, 2019			February 16, 2020			February 17, 2019				May 10, 2020		May 12, 2019		May 10, 2020		May 12, 2019
REVENUE													REVENUE
Net sales	$	38,256		$	34,628		$	74,492		$	68,939		Net sales	$	36,451	$	33,964	$	110,943	$	102,903
Membership fees	816			768			1,620			1,526			Membership fees	815		776		2,435		2,302
Total revenue	39,072			35,396			76,112			70,465			Total revenue	37,266		34,740		113,378		105,205
OPERATING EXPENSES													OPERATING EXPENSES
Merchandise costs	34,056			30,720			66,289			61,343			Merchandise costs	32,249		30,233		98,538		91,576
Selling, general and administrative	3,743			3,464			7,475			6,939			Selling, general and administrative	3,830		3,371		11,305		10,310
Preopening expenses	7			9			21			31			Preopening expenses	8		14		29		45
Operating income	1,266			1,203			2,327			2,152			Operating income	1,179		1,122		3,506		3,274
OTHER INCOME (EXPENSE)													OTHER INCOME (EXPENSE)
Interest expense	(34		)	(34		)	(72		)	(70		)	Interest expense	(37)		(35)		(109)		(105)
Interest income and other, net	45			46			80			68			Interest income and other, net	21		36		101		104
INCOME BEFORE INCOME TAXES	1,277			1,215			2,335			2,150			INCOME BEFORE INCOME TAXES	1,163		1,123		3,498		3,273
Provision for income taxes	330			314			532			472			Provision for income taxes	311		207		843		679
Net income including noncontrolling interests	947			901			1,803			1,678			Net income including noncontrolling interests	852		916		2,655		2,594
Net income attributable to noncontrolling interests	(16		)	(12		)	(28		)	(22		)	Net income attributable to noncontrolling interests	(14)		(10)		(42)		(32)
NET INCOME ATTRIBUTABLE TO COSTCO	$	931		$	889		$	1,775		$	1,656		NET INCOME ATTRIBUTABLE TO COSTCO	$	838	$	906	$	2,613	$	2,562
NET INCOME PER COMMON SHARE ATTRIBUTABLE TO COSTCO:													NET INCOME PER COMMON SHARE ATTRIBUTABLE TO COSTCO:
Basic	$	2.10		$	2.02		$	4.02		$	3.77		Basic	$	1.90	$	2.06	$	5.91	$	5.83
Diluted	$	2.10		$	2.01		$	4.00		$	3.74		Diluted	$	1.89	$	2.05	$	5.89	$	5.79
Shares used in calculation (000s):													Shares used in calculation (000s):
Basic	442,021			440,284			441,920			439,721			Basic	442,322		439,859		442,054		439,767
Diluted	443,727			442,337			443,704			442,535			Diluted	443,855		442,642		443,754		442,565

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

COSTCO WHOLESALE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(amounts in millions) (unaudited)


	12 Weeks Ended				24 Weeks Ended						12 Weeks Ended						36 Weeks Ended
	February 16, 2020		February 17, 2019		February 16, 2020		February 17, 2019				May 10, 2020		May 12, 2019		May 10, 2020		May 12, 2019
NET INCOME INCLUDING NONCONTROLLING INTERESTS	$	947	$	901	$	1,803	$	1,678		NET INCOME INCLUDING NONCONTROLLING INTERESTS	$	852	$	916	$	2,655	$	2,594
Foreign-currency translation adjustment and other, net	47		52		172		(82		)	Foreign-currency translation adjustment and other, net	(396)		(42)		(224)		(124)
Comprehensive income	994		953		1,975		1,596			Comprehensive income	456		874		2,431		2,470
Less: Comprehensive income attributable to noncontrolling interests	22		13		44		21			Less: Comprehensive income attributable to noncontrolling interests	16		9		60		30
COMPREHENSIVE INCOME ATTRIBUTABLE TO COSTCO	$	972	$	940	$	1,931	$	1,575		COMPREHENSIVE INCOME ATTRIBUTABLE TO COSTCO	$	440	$	865	$	2,371	$	2,440

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

COSTCO WHOLESALE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in millions, except par value and share data) (unaudited)


	May 10, 2020		September 1, 2019
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	10,826	$	8,384
Short-term investments	948		1,060
Receivables, net	1,507		1,535
Merchandise inventories	11,010		11,395
Other current assets	963		1,111
Total current assets	25,254		23,485
PROPERTY AND EQUIPMENT
Land	6,684		6,417
Buildings and improvements	17,800		17,136
Equipment and fixtures	8,549		7,801
Construction in progress	1,073		1,272
Accumulated depreciation and amortization	(12,579)		(11,736)
Net property and equipment	21,527		20,890
OTHER ASSETS
Operating lease right-of-use assets	2,749		0
Other long-term assets	2,202		1,025
TOTAL ASSETS	$	51,732	$	45,400
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable	$	10,813	$	11,679
Accrued salaries and benefits	3,246		3,176
Accrued member rewards	1,331		1,180
Deferred membership fees	1,832		1,711
Current portion of long-term debt	1,497		1,699
Other current liabilities	4,060		3,792
Total current liabilities	22,779		23,237
OTHER LIABILITIES
Long-term debt, excluding current portion	7,598		5,124
Long-term operating lease liabilities	2,535		0
Other long-term liabilities	1,617		1,455
TOTAL LIABILITIES	34,529		29,816
COMMITMENTS AND CONTINGENCIES
EQUITY
Preferred stock $0.01 par value; 100,000,000 shares authorized; no shares issued and outstanding	0		0
Common stock $0.01 par value; 900,000,000 shares authorized; 441,523,000 and 439,625,000 shares issued and outstanding	4		4
Additional paid-in capital	6,593		6,417
Accumulated other comprehensive loss	(1,678)		(1,436)
Retained earnings	11,883		10,258
Total Costco stockholders’ equity	16,802		15,243
Noncontrolling interests	401		341
TOTAL EQUITY	17,203		15,584
TOTAL LIABILITIES AND EQUITY	$	51,732	$	45,400

February 16,
2020 September 1,
2019
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,786
$ 8,384
Short-term investments 929
1,060
Receivables, net 1,988
1,535
Merchandise inventories 11,850
11,395
Other current assets 1,150
1,111
Total current assets 23,703
23,485
PROPERTY AND EQUIPMENT
Land 6,696
6,417
Buildings and improvements 17,853
17,136
Equipment and fixtures 8,406
7,801
Construction in progress 906
1,272
Accumulated depreciation and amortization (12,380 ) (11,736 )
Net property and equipment 21,481
20,890
OTHER ASSETS
Operating lease right-of-use assets 2,596
0
Other long-term assets 1,002
1,025
TOTAL ASSETS $ 48,782
$ 45,400
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable $ 11,072
$ 11,679
Accrued salaries and benefits 3,415
3,176
Accrued member rewards 1,243
1,180
Deferred membership fees 1,865
1,711
Current portion of long-term debt 500
1,699
Other current liabilities 4,600
3,792
Total current liabilities 22,695
23,237
OTHER LIABILITIES
Long-term debt, excluding current portion 5,099
5,124
Long-term operating lease liabilities 2,446
0
Other long-term liabilities 1,543
1,455
TOTAL LIABILITIES 31,783
29,816
COMMITMENTS AND CONTINGENCIES
EQUITY
Preferred stock $0.01 par value; 100,000,000 shares authorized; no shares issued and outstanding 0
0
Common stock $0.01 par value; 900,000,000 shares authorized; 441,622,000 and 439,625,000 shares issued and outstanding 4
4
Additional paid-in capital 6,506
6,417
Accumulated other comprehensive loss (1,280 ) (1,436 )
Retained earnings 11,384
10,258
Total Costco stockholders’ equity 16,614
15,243
Noncontrolling interests 385
341
TOTAL EQUITY 16,999
15,584
TOTAL LIABILITIES AND EQUITY $ 48,782
$ 45,400

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

COSTCO WHOLESALE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(amounts in millions) (unaudited)


	12 Weeks Ended May 10, 2020
	Common Stock					Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Costco Stockholders’ Equity		Noncontrolling Interests		Total Equity
	Shares (000s)	Amount
BALANCE AT FEBRUARY 16, 2020	441,622	$	4	$	6,506	$	(1,280)	$	11,384	$	16,614	$	385	$	16,999
Net income	—	—		—		—		838		838		14		852
Foreign-currency translation adjustment and other, net	—	—		—		(398)		—		(398)		2		(396)
Stock-based compensation	—	—		90		—		—		90		—		90
Release of vested restricted stock units (RSUs), including tax effects	7	—		(1)		—		—		(1)		—		(1)
Repurchases of common stock	(106)	—		(2)		—		(29)		(31)		—		(31)
Cash dividend declared	—	—		—		—		(310)		(310)		—		(310)
BALANCE AT MAY 10, 2020	441,523	$	4	$	6,593	$	(1,678)	$	11,883	$	16,802	$	401	$	17,203

	12 Weeks Ended May 12, 2019
	Common Stock					Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Costco Stockholders’ Equity		Noncontrolling Interests		Total Equity
	Shares (000s)	Amount
BALANCE AT FEBRUARY 17, 2019	439,989	$	4	$	6,218	$	(1,280)	$	8,916	$	13,858	$	325	$	14,183
Net income	—	—		—		—		906		906		10		916
Foreign-currency translation adjustment and other, net	—	—		—		(41)		—		(41)		(1)		(42)
Stock-based compensation	—	—		93		—		—		93		—		93
Release of vested RSUs, including tax effects	14	—		(1)		—		—		(1)		—		(1)
Repurchases of common stock	(192)	—		(3)		—		(41)		(44)		—		(44)
Cash dividend declared and other	—	—		—		—		(285)		(285)		—		(285)
BALANCE AT MAY 12, 2019	439,811	$	4	$	6,307	$	(1,321)	$	9,496	$	14,486	$	334	$	14,820

12 Weeks Ended February 16, 2020
Common Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total Costco
Stockholders’
Equity
Noncontrolling
Interests
Total
Equity
Shares (000s)
Amount
BALANCE AT NOVEMBER 24, 2019 441,778

$ 4

$ 6,391

$ (1,321 )
$ 10,787

$ 15,861

$ 363

$ 16,224
Net income —

—

—

—

931

931

16

947
Foreign-currency translation adjustment and other, net —

—

—

41

—

41

6

47
Stock-based compensation —

—

118

—

—

118

—

118
Release of vested restricted stock units (RSUs), including tax effects 6

—

(1 )
—

—

(1 )
—

(1 )
Repurchases of common stock (162 )
—

(2 )
—

(47 )
(49 )
—

(49 )
Cash dividend declared —

—

—

—

(287 )
(287 )
—

(287 )
BALANCE AT FEBRUARY 16, 2020 441,622

$ 4

$ 6,506

$ (1,280 )
$ 11,384

$ 16,614

$ 385

$ 16,999
BALANCE AT

BALANCE AT 12 Weeks Ended February 17, 2019
Common Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total Costco
Stockholders’
Equity
Noncontrolling
Interests
Total
Equity
Shares (000s)
Amount
BALANCE AT NOVEMBER 25, 2018 440,546

$ 4

$ 6,107

$ (1,331 )
$ 8,387

$ 13,167

$ 312

$ 13,479
Net income —

—

—

—

889

889

12

901
Foreign-currency translation adjustment and other, net —

—

—

51

—

51

1

52
Stock-based compensation —

—

119

—

—

119

—

119
Release of vested RSUs, including tax effects 4

—

—

—

—

—

—

—
Repurchases of common stock (561 )
—

(8 )
—

(109 )
(117 )
—

(117 )
Cash dividend declared and other —

—

—

—

(251 )
(251 )
—

(251 )
BALANCE AT FEBRUARY 17, 2019 439,989

$ 4

$ 6,218

$ (1,280 )
$ 8,916

$ 13,858

$ 325

$ 14,183

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

COSTCO WHOLESALE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(amounts in millions) (unaudited)


	36 Weeks Ended May 10, 2020
	Common Stock					Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Costco Stockholders’ Equity		Noncontrolling Interests		Total Equity
	Shares (000s)	Amount
BALANCE AT SEPTEMBER 1, 2019	439,625	$	4	$	6,417	$	(1,436)	$	10,258	$	15,243	$	341	$	15,584
Net income	—	—		—		—		2,613		2,613		42		2,655
Foreign-currency translation adjustment and other, net	—	—		—		(242)		—		(242)		18		(224)
Stock-based compensation	—	—		510		—		—		510		—		510
Release of vested restricted stock units (RSUs), including tax effects	2,266	—		(328)		—		—		(328)		—		(328)
Repurchases of common stock	(368)	—		(6)		—		(104)		(110)		—		(110)
Cash dividend declared	—	—		—		—		(884)		(884)		—		(884)
BALANCE AT MAY 10, 2020	441,523	$	4	$	6,593	$	(1,678)	$	11,883	$	16,802	$	401	$	17,203

	36 Weeks Ended May 12, 2019
	Common Stock					Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Costco Stockholders’ Equity		Noncontrolling Interests		Total Equity
	Shares (000s)	Amount
BALANCE AT SEPTEMBER 2, 2018	438,189	$	4	$	6,107	$	(1,199)	$	7,887	$	12,799	$	304	$	13,103
Net income	—	—		—		—		2,562		2,562		32		2,594
Foreign-currency translation adjustment and other, net	—	—		—		(122)		—		(122)		(2)		(124)
Stock-based compensation	—	—		484		—		—		484		—		484
Release of vested RSUs, including tax effects	2,525	—		(271)		—		—		(271)		—		(271)
Repurchases of common stock	(903)	—		(13)		—		(182)		(195)		—		(195)
Cash dividend declared and other	—	—		—		—		(771)		(771)		—		(771)
BALANCE AT MAY 12, 2019	439,811	$	4	$	6,307	$	(1,321)	$	9,496	$	14,486	$	334	$	14,820

24 Weeks Ended February 16, 2020
Common Stock Additional
Paid-in
Capital Accumulated
Other
Comprehensive
Income (Loss) Retained
Earnings Total Costco
Stockholders’
Equity Noncontrolling
Interests Total
Equity
Shares (000s) Amount
BALANCE AT SEPTEMBER 1, 2019 439,625
$ 4
$ 6,417
$ (1,436 ) $ 10,258
$ 15,243
$ 341
$ 15,584
Net income —
—
—
—
1,775
1,775
28
1,803
Foreign-currency translation adjustment and other, net —
—
—
156
—
156
16
172
Stock-based compensation —
—
420
—
—
420
—
420
Release of vested restricted stock units (RSUs), including tax effects 2,259
—
(327 ) —
—
(327 ) —
(327 )
Repurchases of common stock (262 ) —
(4 ) —
(75 ) (79 ) —
(79 )
Cash dividend declared —
—
—
—
(574 ) (574 ) —
(574 )
BALANCE AT FEBRUARY 16, 2020 441,622
$ 4
$ 6,506
$ (1,280 ) $ 11,384
$ 16,614
$ 385
$ 16,999

24 Weeks Ended February 17, 2019
Common Stock Additional
Paid-in
Capital Accumulated
Other
Comprehensive
Income (Loss) Retained
Earnings Total Costco
Stockholders’
Equity Noncontrolling
Interests Total
Equity
Shares (000s) Amount
BALANCE AT SEPTEMBER 2, 2018 438,189
$ 4
$ 6,107
$ (1,199 ) $ 7,887
$ 12,799
$ 304
$ 13,103
Net income —
—
—
—
1,656
1,656
22
1,678
Foreign-currency translation adjustment and other, net —
—
—
(81 ) —
(81 ) (1 ) (82 )
Stock-based compensation —
—
391
—
—
391
—
391
Release of vested RSUs, including tax effects 2,511
—
(270 ) —
—
(270 ) —
(270 )
Repurchases of common stock (711 ) —
(10 ) —
(141 ) (151 ) —
(151 )
Cash dividend declared and other —
—
—
—
(486 ) (486 ) —
(486 )
BALANCE AT FEBRUARY 17, 2019 439,989
$ 4
$ 6,218
$ (1,280 ) $ 8,916
$ 13,858
$ 325
$ 14,183

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

COSTCO WHOLESALE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in millions) (unaudited)


	24 Weeks Ended							36 Weeks Ended
	February 16, 2020			February 17, 2019				May 10, 2020		May 12, 2019
CASH FLOWS FROM OPERATING ACTIVITIES							CASH FLOWS FROM OPERATING ACTIVITIES
Net income including noncontrolling interests	$	1,803		$	1,678		Net income including noncontrolling interests	$	2,655	$	2,594
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:							Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:
Depreciation and amortization	758			683			Depreciation and amortization	1,140		1,019
Non-cash lease expense	77			0			Non-cash lease expense	116		0
Stock-based compensation	419			389			Stock-based compensation	508		482
Other non-cash operating activities, net	14			6			Other non-cash operating activities, net	(23)		10
Deferred income taxes	1			(27		)	Deferred income taxes	(5)		(33)
Changes in operating assets and liabilities:							Changes in operating assets and liabilities:
Merchandise inventories	(394		)	(449		)	Merchandise inventories	265		(409)
Accounts payable	(537		)	(684		)	Accounts payable	(571)		0
Other operating assets and liabilities, net	580			362			Other operating assets and liabilities, net	534		400
Net cash provided by operating activities	2,721			1,958			Net cash provided by operating activities	4,619		4,063
CASH FLOWS FROM INVESTING ACTIVITIES							CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments	(636		)	(457		)	Purchases of short-term investments	(1,034)		(753)
Maturities and sales of short-term investments	777			621			Maturities and sales of short-term investments	1,149		800
Additions to property and equipment	(1,260		)	(1,317		)	Additions to property and equipment	(1,958)		(1,989)
Acquisitions							Acquisitions	(1,133)		—
Other investing activities, net	19			(18		)	Other investing activities, net	26		(3)
Net cash used in investing activities	(1,100		)	(1,171		)	Net cash used in investing activities	(2,950)		(1,945)
CASH FLOWS FROM FINANCING ACTIVITIES							CASH FLOWS FROM FINANCING ACTIVITIES
Change in bank payments outstanding	(17		)	262			Change in bank payments outstanding	(145)		166
Proceeds from issuance of long-term debt							Proceeds from issuance of long-term debt	3,992		—
Repayments of long-term debt	(1,200		)	(89		)	Repayments of long-term debt	(1,700)		(89)
Tax withholdings on stock-based awards	(327		)	(270		)	Tax withholdings on stock-based awards	(328)		(271)
Repurchases of common stock	(77		)	(149		)	Repurchases of common stock	(111)		(195)
Cash dividend payments	(573		)	(501		)	Cash dividend payments	(860)		(752)
Other financing activities, net	(34		)	(2		)	Other financing activities, net	(77)		(5)
Net cash used in financing activities	(2,228		)	(749		)
Net cash provided by (used in) financing activities							Net cash provided by (used in) financing activities	771		(1,146)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	9			(13		)	EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	2		(14)
Net change in cash and cash equivalents	(598		)	25			Net change in cash and cash equivalents	2,442		958
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR	8,384			6,055			CASH AND CASH EQUIVALENTS BEGINNING OF YEAR	8,384		6,055
CASH AND CASH EQUIVALENTS END OF PERIOD	$	7,786		$	6,080		CASH AND CASH EQUIVALENTS END OF PERIOD	$	10,826	$	7,013

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:							SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the first half of the year for:
Cash paid during the first thirty-six weeks of the year for:							Cash paid during the first thirty-six weeks of the year for:
Interest	$	60		$	68		Interest	$	71	$	72
Income taxes, net	$	380		$	677		Income taxes, net	$	458	$	780
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:							SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Cash dividend declared, but not yet paid	$	287		$	251		Cash dividend declared, but not yet paid	$	310	$	285

The accompanying notes are an integral part of these condensed consolidated financial statements.

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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. For the period ended ~~February 16,~~May 10, 2020, Costco operated ~~785~~787 warehouses worldwide: ~~546~~547 in the United States (U.S.) located in 4445 states, Washington, D.C., and Puerto Rico, 100 in Canada, 39 in Mexico, 29 in the United Kingdom (U.K.), 26 in Japan, 16 in Korea, 13 in Taiwan, 1112 in Australia, 2 in Spain, and 1 each in Iceland, France and China. The Company operates e-commerce websites in the U.S., Canada, Mexico, U.K., Korea, Taiwan, Japan, and Australia.

Basis of Presentation

The condensed consolidated financial statements include the accounts of Costco, its wholly owned subsidiaries, and subsidiaries in which it has a controlling interest. The Company reports noncontrolling interests in consolidated entities as a component of equity separate from the Company’s equity. All material intercompany transactions between and among the Company and its consolidated subsidiaries have been eliminated in consolidation. In February 2020, the Company acquired a 35% interest in Navitus Health Solutions (Navitus), a pharmacy benefit manager, and is accounted for as an equity-method investment and included in the Company's earnings. The Company’s net income excludes income attributable to the noncontrolling interest in Taiwan. Unless otherwise noted, references to net income relate to net income attributable to Costco.

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 filed on Form 10-K for the fiscal year ended September 1, 2019.

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 2020 is a 52-week year ending on August 30, 2020. References to the ~~second~~third quarter of 2020 and 2019 relate to the 12-week fiscal quarters ended ~~February 16,~~May 10, 2020, and ~~February 17,~~May 12, 2019, respectively. References to the first ~~half~~thirty-six weeks of 2020 and 2019 relate to the 2436 weeks ended ~~February 16,~~May 10, 2020, and ~~February 17,~~May 12, 2019, respectively.

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, including but not limited

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to the potential impacts arising from the novel coronavirus (COVID-19) and public and private sector policies and initiatives aimed at reducing its transmission. As the extent and duration of these impacts remain unclear, the Company's estimates and assumptions may evolve as conditions change. Actual results could differ from those estimates and assumptions.

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Leases

The Company leases land and/or buildings at warehouses and certain other office and distribution facilities. Leases generally contain one or more of the following options, which the Company can exercise at the end of the initial term: (a) renew the lease for a defined number of years at the then-fair market rental rate or rate stipulated in the lease agreement; (b) purchase the property at the then-fair market value; or (c) a right of first refusal in the event of a third-party offer.

Some leases include free-rent periods and step-rent provisions, which are recognized on a straight-line basis over the original term of the lease and any extension options that the Company is reasonably certain to exercise from the date the Company has control of the property. Certain leases provide for periodic rent increases based on price indices or the greater of minimum guaranteed amounts or sales volume. Our leases do not contain any material residual value guarantees or material restrictive covenants.

The Company determines at inception whether a contract is or contains a lease. The Company initially records right-of-use (ROU) assets and lease obligations for its finance and operating leases based on the discounted future minimum lease payments over the term. As the rate implicit in the Company’s leases is not easily determinable, the present value of the sum of the lease payments is calculated by using the Company’s incremental borrowing rate. The rate is determined using a portfolio approach based on the rate of interest the Company would pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. The Company uses quoted interest rates from financial institutions to derive the incremental borrowing rate. The lease term is defined as the noncancelable period of the lease plus any options to extend when it is reasonably certain that the Company will exercise the option.

Goodwill and Acquired Intangible Assets

Goodwill represents the excess of acquisition cost over the fair value of the net assets acquired and is not subject to amortization. The Company reviews goodwill annually in the fourth quarter for impairment or if circumstances indicate its carrying value may exceed the fair value. This evaluation is performed at the reporting unit level. If a qualitative assessment indicates that it is more likely than not that the fair value is less than its carrying value, a quantitative analysis is completed using either the income or market approach. The income approach estimates fair value based on expected discounted future cash flows, while the market approach uses comparable public companies and transactions to develop metrics to be applied to historical and expected future operating results.

Goodwill is included in other long-term assets in the condensed consolidated balance sheets. The following table summarizes goodwill by reportable segment during the first thirty-six weeks of 2020:


	United States Operations		Canadian Operations		Other International Operations		Total
Balance as of September 1, 2019	$	13	$	27	$	13	$	53
Changes in currency translation	—		(1)		—		(1)
Acquisition	935		—		—		935
Balance as of May 10, 2020	$	948	$	26	$	13	$	987

Definite-lived intangible assets are included in other long-term assets on the consolidated balance sheets and are amortized on a straight-line basis over their estimated lives, which approximates the pattern of expected economic benefit.

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Recent Accounting Pronouncements Adopted

In February 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02 - Leases (ASC 842), which required recognition on the balance sheet for the rights and obligations created by leases with terms greater than 12 months. The Company adopted ASC 842 using the modified retrospective transition method and elected to use the effective date of September 2, 2019, as the date of initial application. Consequently, the comparative periods presented continue to be in accordance with ASC 840, Leases, previously in effect.

The Company elected the package of practical expedients permitted under the transition guidance, allowing the Company to carry forward conclusions related to: (a) whether expired or existing contracts contain leases; (b) lease classification; and (c) initial direct costs for existing leases. The Company has elected not to record operating lease right-of-use assets or lease liabilities associated with leases with durations of 12 months or less. Lastly, the Company elected the practical expedient allowing aggregation of non-lease components with related lease components when evaluating the accounting treatment for all classes of underlying assets.

Adoption of the new standard resulted in an initial increase to assets and liabilities of $2,632 related to recognition of operating lease right-of-use assets and operating lease obligations as of September 2, 2019. Other line item impacts in the Company's condensed consolidated balance sheet were not material. The standard did not materially impact the condensed consolidated statements of income and cash flows. For more information on the Company's lease arrangements refer to Note 56.

Note 2—Acquisition of Innovel

On March 17, 2020, the Company acquired Innovel Solutions for $998 using existing cash and cash equivalents. Cash paid during the third quarter excludes a portion of the purchase price that will be paid upon the final settlement of certain holdbacks and provisional amounts, discussed below. Innovel provides final mile delivery, complete installation and white-glove capabilities for big and bulky products across the United States and Puerto Rico. Its financial results have been included in the Company's consolidated financial statements from the date of acquisition. Innovel's results of operations were not material to the Company's consolidated results during the current quarter.

At May 10, 2020, the initial accounting for the acquisition was incomplete pending determination of: the final purchase price, working capital adjustments, the fair value of intangible assets, property and equipment, operating lease right-of-use assets, operating lease liabilities, and other assumed obligations. The net purchase price of $998 was initially allocated to the tangible and intangible assets of $255 and liabilities assumed of $192, based on their preliminary fair values on the acquisition date. The remaining unallocated net purchase price of $935 was recorded as goodwill. Goodwill represents the acquisition's benefits to the Company, which include the ability to serve more members and improve delivery times, enabling growth in certain segments of our U.S. e-commerce operations. The Company assigned this goodwill, which is deductible for tax purposes, to reporting units within the U.S. segment. As additional information becomes available, the provisional fair value estimates will be refined.

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Note 2—3—Investments

The Company's investments were as follows:


May 10, 2020:	Cost Basis		Unrealized Gains, Net		Recorded Basis
Available-for-sale:
Government and agency securities	$	464	$	14	$	478



Held-to-maturity:
Certificates of deposit	470				470


Total short-term investments	$	934	$	14	$	948

February 16, 2020: Cost
Basis Unrealized
Gains, Net Recorded
Basis
Available-for-sale:
Government and agency securities $ 523
$ 6
$ 529
Held-to-maturity:
Certificates of deposit 400
400
Total short-term investments $ 923
$ 6
$ 929

September 1, 2019: Cost
Basis Unrealized
Gains, Net Recorded
Basis
Available-for-sale:
Government and agency securities $ 716
$ 6
$ 722
Held-to-maturity:
Certificates of deposit 338
338
Total short-term investments $ 1,054
$ 6
$ 1,060


September 1, 2019:	Cost Basis		Unrealized Gains, Net		Recorded Basis
Available-for-sale:
Government and agency securities	$	716	$	6	$	722
Held-to-maturity:
Certificates of deposit	338				338
Total short-term investments	$	1,054	$	6	$	1,060

Gross unrecognized holding gains and losses on available-for-sale securities were not material for the periods ended ~~February 16,~~May 10, 2020, and September 1, 2019. At ~~February 16,~~May 10, 2020, ~~and~~there were no available-for-sale securities in a continuous unrealized-loss position. At September 1, 2019, available-for-sale securities that were in a continuous unrealized-loss position were not material. There were no sales of available-for-sale securities during the first ~~half~~thirty-six weeks of 2020 or 2019.

The maturities of available-for-sale and held-to-maturity securities at ~~February 16,~~May 10, 2020, are as follows:


	Available-For-Sale						Held-To-Maturity
	Cost Basis		Fair Value
Due in one year or less	$	169	$	170	$	470
Due after one year through five years	295		308		0

Total	$	464	$	478	$	470

Available-For-Sale Held-To-Maturity
Cost Basis Fair Value
Due in one year or less $ 196
$ 197
$ 400
Due after one year through five years 327
332
0
Total $ 523
$ 529
$ 400

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Note 3—4—Fair Value Measurement

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The table below presents information regarding financial assets and liabilities that are measured at fair value on a recurring basis and indicate the level within the fair value hierarchy reflecting the valuation techniques utilized to determine fair value.


	Level 2
	May 10, 2020		September 1, 2019

Investment in government and agency securities⁽¹⁾	$	478	$	766



Forward foreign-exchange contracts, in asset position⁽²⁾	9		15
Forward foreign-exchange contracts, in (liability) position⁽²⁾	(8)		(4)
Total	$	479	$	777

Level 2
February 16,
2020 September 1,
2019
Investment in government and agency securities⁽¹⁾
$ 666
$ 766
Forward foreign-exchange contracts, in asset position⁽²⁾
6
15
Forward foreign-exchange contracts, in (liability) position⁽²⁾
(6 ) (4 )
Total $ 666
$ 777

_______________


~~(1)~~	At February 16, 2020, $137 cash and cash equivalents and $529 short-term investments are included in the accompanying condensed consolidated balance sheets. At September 1, 2019, $44 cash and cash equivalents and $722 short-term investments are included in the accompanying condensed consolidated balance sheets.


~~(2)~~	~~The asset and liability values are included in other current assets and other current liabilities, respectively, in the accompanying condensed consolidated balance sheets.~~

(1)At May 10, 2020, $478 short-term investments are included in the accompanying condensed consolidated balance sheets. At September 1, 2019, $44 cash and cash equivalents and $722 short-term investments are included in the accompanying condensed consolidated balance sheets.

(2)The asset and liability values are included in other current assets and other current liabilities, respectively, in the accompanying condensed consolidated balance sheets.

At ~~February 16,~~May 10, 2020, and September 1, 2019, 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 ~~half~~thirty-six weeks of 2020 or 2019.

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 fair value adjustments to these items during the first ~~half~~thirty-six weeks of 2020 or 2019.

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Note 4—5—Debt

The carrying value of the Company’s long-term debt consisted of the following:


	May 10, 2020		September 1, 2019
1.700% Senior Notes due December 2019	$	0	$	1,200
1.750% Senior Notes due February 2020	0		500
2.150% Senior Notes due May 2021	1,000		1,000
2.250% Senior Notes due February 2022	500		500
2.300% Senior Notes due May 2022	800		800
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		0
1.600% Senior Notes due April 2030	1,750		0
1.750% Senior Notes due April 2032	1,000		0
Other long-term debt	849		852
Total long-term debt	9,149		6,852
Less unamortized debt discounts and issuance costs	54		29
Less current portion⁽¹⁾	1,497		1,699
Long-term debt, excluding current portion	$	7,598	$	5,124

February 16,
2020 September 1,
2019
1.70% Senior Notes due December 2019 $ 0
$ 1,200
1.75% Senior Notes due February 2020 500
500
2.15% Senior Notes due May 2021 1,000
1,000
2.25% Senior Notes due February 2022 500
500
2.30% Senior Notes due May 2022 800
800
2.75% Senior Notes due May 2024 1,000
1,000
3.00% Senior Notes due May 2027 1,000
1,000
Other long-term debt 824
852
Total long-term debt 5,624
6,852
Less unamortized debt discounts and issuance costs 25
29
Less current portion⁽¹⁾
500
1,699
Long-term debt, excluding current portion $ 5,099
$ 5,124
_______________

(1)Net of unamortized debt discounts and issuance costs. As of May 10, 2020, includes the 2.150% and 2.250% Senior Notes which were repaid, prior to maturity, subsequent to the end of the quarter.

~~_______________~~


~~(1)~~	~~Net of unamortized debt discounts and issuance costs.~~

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The ~~estimated~~ fair value of Senior Notes is ~~valued~~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. The fair value of the Company's long-term debt, including the current portion, was approximately ~~$5,772~~$9,320 and $6,997 at ~~February 16,~~May 10, 2020, and September 1, 2019, respectively.

~~In December 2019,~~During the ~~Company paid the outstanding principal balance and interest on the 1.70% Senior Notes. Subsequent to the end~~first thirty-six weeks of ~~the quarter, on February 18,~~ 2020, the Company paid the outstanding principal ~~balance~~balances and interest on the ~~1.75%~~1.700% and 1.750% Senior Notes. ~~Existing cash~~In April 2020, the Company issued $4,000 in aggregate principal amount of Senior Notes as follows: $1,250 of 1.375% due June 2027; $1,750 of 1.600% due April 2030; and ~~cash equivalents and short-term investments~~$1,000 of 1.750% due April 2032. A portion of the proceeds were used to ~~satisfy these obligations.~~repay, prior to maturity, the 2.150% and 2.250% Senior Notes subsequent to the end of the quarter, at a redemption price plus accrued interest as specified in the Notes' agreements. The remaining funds will be used for general corporate purposes.

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Note 5—6—Leases

The tables below present information regarding the Company's lease assets and ~~liabilities:~~liabilities.

February 16,
2020
Assets
Operating lease right-of-use assets $ 2,596
Finance lease assets⁽¹⁾
523
Total lease assets $ 3,119
Liabilities
Current
Operating⁽²⁾
$ 168
Finance⁽²⁾
18
Long-term
Operating 2,446
Finance⁽³⁾
544
Total lease liabilities $ 3,176

~~_______________~~


~~(1)~~	~~Included in net property and equipment in the accompanying condensed consolidated balance sheets.~~


~~(2)~~	~~Included in other current liabilities in the accompanying condensed consolidated balance sheets.~~


~~(3)~~	~~Included in other long-term liabilities in the accompanying condensed consolidated balance sheets.~~



	~~February 16,~~May 10, 2020
Assets⁽¹⁾
Operating lease right-of-use assets	$	2,749
Finance lease assets⁽²⁾	638
Total lease assets	$	3,387
Liabilities⁽¹⁾
Current
Operating⁽³⁾	$	223
Finance⁽³⁾	29
Long-term
Operating	2,535
Finance⁽⁴⁾	629
Total lease liabilities	$	3,416

_______________

(1)Includes provisional amounts related to the Innovel acquisition. See Note 2.

(2)Included in net property and equipment in the accompanying condensed consolidated balance sheets.

(3)Included in other current liabilities in the accompanying condensed consolidated balance sheets.

(4)Included in other long-term liabilities in the accompanying condensed consolidated balance sheets.


	May 10, 2020
Weighted-average remaining lease term (years)
Operating leases	22		21
Finance leases	19
Weighted-average discount rate
Operating leases	~~2.24~~2.25	%
Finance leases	~~7.24~~6.47	%

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The components of lease expense, excluding short-term lease costs and sublease income ~~which~~(which were not ~~material,~~material), were as follows:


	12 Weeks Ended		24 Weeks Ended			12 Weeks Ended		36 Weeks Ended
	February 16, 2020		February 16, 2020			May 10, 2020		May 10, 2020
Operating lease costs⁽¹⁾	$	51	$	102	Operating lease costs⁽¹⁾	$	54	$	156
Finance lease costs:					Finance lease costs:
Amortization of lease assets⁽¹⁾	4		8		Amortization of lease assets⁽¹⁾	7		15
Interest on lease liabilities⁽²⁾	8		15		Interest on lease liabilities⁽²⁾	6		21
Variable lease costs⁽³⁾	22		36		Variable lease costs⁽³⁾	19		55
Total lease costs	$	85	$	161	Total lease costs	$	86	$	247

_______________


~~(1)~~	~~Generally included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income.~~


~~(2)~~	~~Included in interest expense in the accompanying condensed consolidated statements of income.~~


~~(3)~~	~~Included in selling, general and administrative expenses and merchandise costs in the accompanying condensed consolidated statements of income. Amount excludes property taxes, which were immaterial.~~

(1)Generally included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income.

(2)Included in interest expense in the accompanying condensed consolidated statements of income.

(3)Included in selling, general and administrative expenses and merchandise costs in the accompanying condensed consolidated statements of income. Amount excludes property taxes, which were immaterial.

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Supplemental cash flow information related to leases was as follows:

24 Weeks Ended
February 16,
2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows — operating leases $ 93
Operating cash flows — finance leases 15
Financing cash flows — finance leases 34
Leased assets obtained in exchange for operating lease liabilities 47
Leased assets obtained in exchange for finance lease liabilities 167


	36 Weeks Ended
	May 10, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows — operating leases	$	149
Operating cash flows — finance leases	21
Financing cash flows — finance leases	40
Leased assets obtained in exchange for operating lease liabilities	235
Leased assets obtained in exchange for finance lease liabilities	272

As of ~~February 16,~~May 10, 2020, future minimum payments during the next five fiscal years and thereafter are as follows:


	Operating Leases⁽¹⁾		Finance Leases			Operating Leases⁽¹⁾		Finance Leases
2020	$	120	$	23	2020	$	73	$	16
2021	220		47		2021	267		60
2022	212		47		2022	242		60
2023	219		51		2023	236		64
2024	194		47		2024	203		60
Thereafter	2,462		723		Thereafter	2,500		817
Total⁽²⁾	3,427		938		Total⁽²⁾	3,521		1,077
Less amount representing interest	813		376		Less amount representing interest	763		419
Present value of lease liabilities	$	2,614	$	562	Present value of lease liabilities	$	2,758	$	658

_______________


~~(1)~~	~~Operating lease payments have not been reduced by future sublease income of $101.~~


~~(2)~~	~~Excludes $185 of lease payments for leases that have been signed but not commenced.~~

(1)Operating lease payments have not been reduced by future sublease income of $99.

~~Table~~(2)Excludes $144 of ~~Contents~~lease payments for leases that have been signed but not commenced.

As of September 1, 2019, future minimum payments, net of sub-lease income of $105, under noncancelable operating leases with terms of at least one year and capital leases reported under ASC 840 were as follows:


	Operating Leases		Capital Leases
2020	$	239	$	51
2021	229		53
2022	202		38
2023	193		39
2024	181		39
Thereafter	2,206		544
Total	$	3,250	764
Less amount representing interest			343
Net present value of minimum lease payments			$	421

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Note 6—7—Equity

Dividends

The Company’s current quarterly dividend is ~~$0.65~~$0.70 per share, compared to ~~$0.57~~$0.65 in the ~~second~~third quarter of 2019. On ~~January 23,~~April 15, 2020, the Board of Directors declared a quarterly dividend in the amount of ~~$0.65~~$0.70 per share, which was paid on ~~February 21,~~May 15, 2020.

Stock Repurchase Programs

Stock repurchase activity during the ~~second~~third quarter and first ~~half~~thirty-six weeks of 2020 and 2019 is summarized below:

Shares Repurchased (000s) Average Price per Share Total Cost
Second quarter of 2020 162
$ 301.50
$ 49
First half of 2020 262
$ 299.40
$ 79

Second quarter of 2019 561
$ 208.72
$ 117
First half of 2019 711
$ 213.08
$ 151


	Shares Repurchased (000s)	Average Price per Share		Total Cost
Third quarter of 2020	106	$	296.38	$	31
First thirty-six weeks of 2020	368	$	298.53	$	110

Third quarter of 2019	192	$	226.57	$	44
First thirty-six weeks of 2019	903	$	215.94	$	195

These amounts may differ from the stock repurchase balances in the accompanying condensed consolidated statements of cash flows due to changes in unsettled stock repurchases at the end of a quarter. The remaining amount available for stock repurchases under the approved plan was ~~$3,864~~$3,833 at ~~February 16,~~May 10, 2020. 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.

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Note 7—8—Stock-Based Compensation

The 2019 Incentive Plan authorized the issuance of 17,500,000 shares (10,000,000 RSUs) of common stock for future grants, plus the remaining shares that were available for grant and the future forfeited shares from grants under the previous plan, up to a maximum aggregate of 27,800,000 shares (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 ~~February 16,~~May 10, 2020, ~~13,535,000~~13,576,000 shares were available to be granted as RSUs, and the following awards were outstanding:

~~5,133,000~~•5,081,000 time-based RSUs, ~~that~~which vest upon continued employment over specified periods of time;

•30,000 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

•123,000 performance-based RSUs, granted to executive officers of the Company, subject to achievement of performance targets for fiscal 2020, as determined by the Compensation Committee of the Board of Directors after the end of the fiscal year. These awards are included in the table below and the Company recognized compensation expense for these awards as it is currently deemed probable that the targets will be achieved.

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The following table summarizes RSU transactions during the first ~~half~~thirty-six weeks of 2020:

Number of
Units
(in 000s)

Weighted-Average
Grant Date Fair
Value
Outstanding at September 1, 2019 6,496
$ 167.55
Granted 2,252
294.08
Vested and delivered (3,351 ) 188.91
Forfeited (111 ) 193.02
Outstanding at February 16, 2020 5,286
$ 207.40


	Number of Units (in 000s)	Weighted-Average Grant Date Fair Value
Outstanding at September 1, 2019	6,496	$	167.55
Granted	2,252	294.08
Vested and delivered	(3,362)	188.91
Forfeited	(152)	196.52

Outstanding at May 10, 2020	5,234	$	207.45

The remaining unrecognized compensation cost related to nonvested RSUs at ~~February 16,~~May 10, 2020, was ~~$913,~~$817, and the weighted-average period over which this cost will be recognized is 1.7 years.

Summary of Stock-Based Compensation

The following table summarizes stock-based compensation expense and the related tax benefits:


	12 Weeks Ended						36 Weeks Ended
	May 10, 2020		May 12, 2019		May 10, 2020		May 12, 2019
Stock-based compensation expense	$	88	$	93	$	508	$	482
Less recognized income tax benefit	18		20		105		104
Stock-based compensation expense, net	$	70	$	73	$	403	$	378

12 Weeks Ended 24 Weeks Ended
February 16,
2020 February 17,
2019 February 16,
2020 February 17,
2019
Stock-based compensation expense $ 118
$ 119
$ 419
$ 389
Less recognized income tax benefit 21
23
87
84
Stock-based compensation expense, net $ 97
$ 96
$ 332
$ 305

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Note 8—9—Taxes

In March 2020, the Coronavirus Aid, Relief and Economic Security Act was signed into law. While the Company is still assessing the impact of the legislation, it is not expected to have a material impact to the consolidated financial statements.

Other Taxes

The Company is undergoing multiple examinations for value-added, sales-based, payroll, product, import or other non-income taxes in various jurisdictions. In certain cases, the Company has received assessments from the authorities. In September 2019, the Company received an assessment related to a product tax audit covering multiple years. The Company recorded the charge in fiscal 2019 and is protesting the assessment. No adjustments have been made to this estimate in ~~the first half of~~ 2020. Other possible losses or range of possible losses associated with these matters are either immaterial or an estimate of the possible loss or range of loss cannot be made at this time. If certain matters or a group of matters were to be decided adversely to the Company, it could result in a charge that might be material to the results of an individual fiscal quarter or year.

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Note 9—10—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 potentially dilutive common shares outstanding (shares in 000s):


	12 Weeks Ended						36 Weeks Ended
	May 10, 2020		May 12, 2019		May 10, 2020		May 12, 2019
Net income attributable to Costco	$	838	$	906	$	2,613	$	2,562
Weighted average basic shares	442,322		439,859		442,054		439,767
RSUs	1,533		2,783		1,700		2,798

Weighted average diluted shares	443,855		442,642		443,754		442,565

12 Weeks Ended 24 Weeks Ended
February 16,
2020 February 17,
2019 February 16,
2020 February 17,
2019
Net income attributable to Costco $ 931
$ 889
$ 1,775
$ 1,656
Weighted average basic shares 442,021
440,284
441,920
439,721
RSUs 1,706
2,053
1,784
2,814
Weighted average diluted shares 443,727
442,337
443,704
442,535

Anti-dilutive RSUs —
1,667
—
—

Note ~~10—~~11—Commitments and Contingencies

Legal Proceedings

The Company is involved in a number of claims, proceedings and litigation 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 reach a stage where they present loss contingencies that are both probable and reasonably estimable. There may be exposure to loss in excess of any 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. As of the date of this Report, the Company has recorded immaterial accruals with 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 will continue to monitor the matter for developments that will make the loss 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: (i) the remedies or penalties sought are indeterminate or unspecified; (ii) the legal and/or factual theories are not well developed; and/or (iii) the matters involve complex or novel legal theories or a large number of parties.

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The Company is a defendant in a class action alleging violation of California Wage Order 7-2001 for failing to provide seating to member service assistants who act as greeters in the Company’s California warehouses. Canela v. Costco Wholesale Corp., et al. (Case No. 5:~~13-CV-03598,~~13-CV-03598; N.D. Cal.; filed July 1, 2013). The complaint seeks relief under the California Labor Code, including civil penalties and attorneys’ fees. The Company filed an answer denying the material allegations of the complaint. The action has been stayed pending review by the Ninth ~~Circuit of the order certifying a class.~~ Circuit.

In January 2019, an employee brought similar claims for relief concerning Costco employees engaged at member services counters in California. Rodriguez v. Costco Wholesale Corp. (Case No. ~~RG19001310,~~RG19001310; Alameda Superior ~~Court~~Court; filed Jan. 4, 2019). The Company filed an answer denying the material allegations of the complaint. In December 2018, a depot employee raised similar claims, alleging that depot employees in California did not receive suitable seating or appropriate workplace temperature conditions. Lane v. Costco Wholesale Corp. (Dec. 6, 2018 Notice to California Labor and Workforce Development Agency). The Company filed an answer denying the material allegations of the complaint. In October 2019, the parties reached an agreement to settle the seating claims on a ~~class~~representative basis, which received court approval in February 2020.

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In January 2019, a former seasonal employee filed a class action, alleging failure to provide California seasonal employees meal and rest breaks, proper wage statements, and appropriate wages. Jadan v. Costco Wholesale Corp. (Case No. ~~19-CV-340438~~19-CV-340438; Santa Clara Superior ~~Court~~Court; filed Jan. 3, 2019). The complaint seeks relief under the California Labor Code, including civil penalties and attorneys’ fees. In October 2019, the parties reached an agreement on a class settlement, which is subject to court approval.

In March 2019, employees filed a class action against the Company alleging claims under California law for failure to pay overtime, to provide meal and rest periods and itemized wage statements, to timely pay wages due to terminating employees, to pay minimum wages, and for unfair business practices. Relief is sought under the California Labor Code, including civil penalties and attorneys' fees. Nevarez v. Costco Wholesale Corp. (Case No. 2:~~19-cv-03454~~19-cv-03454; C.D. Cal.; filed Mar. 25, 2019). The Company filed an answer denying the material allegations of the complaint. In December 2019, the court issued an order denying class certification. In January 2020, the Plaintiffs dismissed their Labor Code claims without prejudice and the court remanded the action to state court. The remand is being appealed.

In May 2019, an employee filed a class action against the Company alleging claims under California law for failure to pay overtime, to provide itemized wage statements, to timely pay wages due to terminating employees, to pay minimum wages, and for unfair business practices. Rough v. Costco Wholesale Corp. (Case No. 2:~~19-cv-01340~~19-cv-01340; E.D. Cal.; filed May 28, 2019). Relief is sought under the California Labor Code, including civil penalties and attorneys' fees. In August 2019, Rough filed a companion case in state court seeking penalties under the California Labor Code Private Attorneys General Act. Rough v. Costco Wholesale Corp. (Case No. FCS053454, Sonoma County Superior Court, filed August 23, 2019). Relief is sought under the California Labor Code, including civil penalties and attorneys' fees. The state court action has been stayed pending resolution of the federal action.

In June 2019, an employee filed a class action against the Company alleging claims under California law for failure to pay overtime, to provide meal and rest periods, itemized wage statements, to timely pay wages due to terminating employees, to pay minimum wages, and for unfair business practices. Martinez v. Costco Wholesale Corp. (Case No. 3:~~19-cv-05624~~19-cv-05624; N.D. Cal.; filed June 11, 2019). The Company filed an answer denying the material allegations of the complaint.

In ~~August 2019, Rough~~April 2020, an employee, alleging underpayment of sick pay, filed a ~~companion case in state court seeking penalties under the California Labor Code Private Attorneys General Act.~~ ~~Rough v. Costco Wholesale Corp.~~ ~~(Case No. FCS053454, Sonoma County Superior Court, filed August 23, 2019). Relief is sought under the California Labor Code, including civil penalties~~class and ~~attorneys' fees. In September 2019, an employee re-filed a class~~representative action against the Company alleging claims under California law for failure to pay all wages ~~to provide meal and rest periods and itemized wage statements, to timely pay wages due to terminating employees, to pay minimum wages,~~at termination and for ~~unfair business practices.~~Labor Code penalties under the California Private Attorneys General Act. ~~Mosley~~Kristy v. Costco Wholesale Corp. (Case No. ~~2:19-cv-07935, C.D. Cal. filed Sept. 12, 2019)~~20CV366341; Santa Clara County Superior Court). ~~Relief is sought under the California Labor Code, including civil penalties and attorneys' fees.~~

In December 2017, the United States Judicial Panel on Multidistrict Litigation consolidated numerous cases filed against various defendants by counties, cities, hospitals, Native American tribes, third-party payors, and others concerning the impacts of opioid abuse. In re National Prescription Opiate Litigation (MDL No. 2804) (N.D. Ohio). Included are federal cases that name the Company, including actions filed by counties and cities in Michigan, New Jersey, Oregon, Virginia and South Carolina, a third-party payor in Ohio, and class actions filed ~~in thirty-eight states~~ on behalf of infants born with opioid-related medical ~~conditions.~~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. In 2019, similar actions were commenced against the Company in state ~~courts~~court in ~~Utah and Arizona.~~Utah. Claims against the Company in state courts in New Jersey, Oklahoma, and ~~Oklahoma~~Arizona have been dismissed. The Company is defending all of these matters.

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The Company and its CEO and CFO are defendants in putative class actions brought on behalf of shareholders who acquired Company stock between June 6 and October 25, 2018. Johnson v. Costco Wholesale Corp., et al. (W.D. Wash. filed Nov. 5, 2018); Chen v. Costco Wholesale Corp., et al. (W.D. Wash. filed Dec. 11, 2018). The complaints allege violations of the federal securities laws stemming from the Company’s disclosures concerning internal control over financial reporting. They seek unspecified damages, equitable relief, interest, and costs and attorneys’ fees. On January 30, 2019, an order was entered consolidating the actions, and a consolidated amended complaint was filed on April ~~16.~~16, 2019. On November 26, 2019, the court entered an order dismissing the consolidated amended complaint and granting the plaintiffs leave to file a further amended complaint. A further amended complaint ~~within 90 days.~~was filed on March 9, which the Company moved to dismiss on April 23.

Members of the Board of Directors, one other individual, and the Company are defendants in a shareholder derivative action related to the internal controls and related disclosures identified in the putative class actions, alleging that the individual defendants breached their fiduciary duties. Wedekind v. Hamilton James, Susan Decker, Kenneth Denman, Richard Galanti, Craig Jelinek, Richard Libenson, John Meisenbach, Charles Munger, Jeffrey Raikes, John Stanton, Mary Agnes Wilderotter, and Costco Wholesale Corp. (W.D. Wash. filed Dec. 11, 2018). The complaint seeks unspecified damages, disgorgement of compensation, corporate governance changes, and costs and attorneys' fees. Because the complaint is derivative in nature, it does not seek monetary damages from the Company, which is a nominal defendant. By agreement among the parties the action has been stayed pending further proceedings in the class actions. Similar actions were filed in King County Superior Court on February 20, 2019, Elliott v. Hamilton James, Susan Decker, Kenneth Denman, Richard Galanti, Craig Jelinek, Richard Libenson, John Meisenbach, Charles Munger, Jeffrey Raikes, John Stanton, Mary Agnes Wilderotter, and Costco Wholesale Corp. (Case No. 19-2-04824-7), April 16, 2019, Brad Shuman, et ano. v. Hamilton James, Susan Decker, Kenneth Denman, Richard Galanti, Craig Jelinek, John Meisenbach, Charles Munger, Jeffrey Raikes, John Stanton, Mary Agnes Wilderotter, and Costco Wholesale Corp. (Case No. 19-2-10460-1), and June 12, 2019, Rahul Modi v. Hamilton James, Susan Decker, Kenneth Denman, Richard Galanti, Craig Jelinek, John Meisenbach, Charles Munger, Jeffrey Raikes, John Stanton, Mary Agnes Wilderotter, and Costco Wholesale Corp. (Case No. 19-2-15514-1). These actions have also been stayed.

In November 2016 and September 2017, the Company received notices of violation from the Connecticut Department of Energy and Environmental Protection regarding hazardous waste practices at its Connecticut warehouses, primarily concerning unsalable pharmaceuticals. The relief to be sought is not known at this time. The Company is seeking to cooperate concerning the resolution of these notices.

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; however, 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.

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Note ~~11—~~12—Segment Reporting

The Company and its subsidiaries are principally engaged in the operation of membership warehouses in the U.S., Canada, Mexico, U.K., Japan, Korea, Australia, Spain, Iceland, France and China and through a majority-owned subsidiary in Taiwan. Reportable segments are largely based on management’s organization of the operating segments for operational decisions and assessments of financial performance, which consider 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 1, 2019, and Note 1 above. Intersegment net sales and expenses have been eliminated in computing total revenue and operating income. Certain operating expenses, predominantly stock-based compensation, are incurred on behalf of the Company's Canadian and Other International operations, but are included in the U.S. operations because those costs generally come under the responsibility of the Company's U.S. management team.

The following table provides information for the Company's reportable segments:

United States
Operations Canadian
Operations Other
International
Operations Total
12 Weeks Ended February 16, 2020
Total revenue $ 28,523
$ 5,231
$ 5,318
$ 39,072
Operating income 821
202
243
1,266
12 Weeks Ended February 17, 2019
Total revenue $ 25,872
$ 4,792
$ 4,732
$ 35,396
Operating income 812
198
193
1,203
24 Weeks Ended February 16, 2020
Total revenue $ 55,588
$ 10,358
$ 10,166
$ 76,112
Operating income 1,456
430
441
2,327
Total assets 33,575
4,470
10,737
48,782
24 Weeks Ended February 17, 2019
Total revenue $ 51,422
$ 9,769
$ 9,274
$ 70,465
Operating income 1,372
412
368
2,152
Total assets 30,033
4,250
8,516
42,799
52 Weeks Ended September 1, 2019
Total revenue $ 111,751
$ 21,366
$ 19,586
$ 152,703
Operating income 3,063
924
750
4,737
Total assets 32,162
4,369
8,869
45,400


	United States Operations		Canadian Operations		Other International Operations		Total
12 Weeks Ended May 10, 2020
Total revenue	$	27,626	$	4,722	$	4,918	$	37,266
Operating income	853		129		197		1,179
12 Weeks Ended May 12, 2019
Total revenue	$	25,536	$	4,792	$	4,412	$	34,740
Operating income	736		213		173		1,122
36 Weeks Ended May 10, 2020
Total revenue	$	83,214	$	15,080	$	15,084	$	113,378
Operating income	2,309		559		638		3,506
Total assets	36,618		4,432		10,682		51,732
36 Weeks Ended May 12, 2019
Total revenue	$	76,958	$	14,561	$	13,686	$	105,205
Operating income	2,108		625		541		3,274
Total assets	30,416		4,637		8,699		43,752
52 Weeks Ended September 1, 2019
Total revenue	$	111,751	$	21,366	$	19,586	$	152,703
Operating income	3,063		924		750		4,737
Total assets	32,162		4,369		8,869		45,400

Disaggregated Revenue

The following table summarizes net sales by merchandise category:


	12 Weeks Ended						36 Weeks Ended
	May 10, 2020		May 12, 2019		May 10, 2020		May 12, 2019
Food and Sundries	$	16,897	$	13,524	$	46,413	$	41,131
Hardlines	5,891		5,666		18,508		17,276
Fresh Foods	5,587		4,568		15,242		13,551
Softlines	2,806		3,413		11,607		11,760
Ancillary	5,270		6,793		19,173		19,185
Total Net Sales	$	36,451	$	33,964	$	110,943	$	102,903

12 Weeks Ended 24 Weeks Ended
February 16,
2020 February 17,
2019 February 16,
2020 February 17,
2019
Foods and Sundries $ 14,984
$ 13,966
$ 29,516
$ 27,607
Hardlines 6,774
5,770
12,617
11,610
Fresh Foods 5,079
4,690
9,655
8,983
Softlines 4,504
4,224
8,801
8,347
Ancillary 6,915
5,978
13,903
12,392
Total Net Sales $ 38,256
$ 34,628
$ 74,492
$ 68,939

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Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations

(amounts in millions, except per share, share, and warehouse count data)

FORWARD-LOOKING STATEMENTS

Certain statements contained in this ~~Report~~document constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of ~~1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. They include~~1995. For these purposes, forward-looking statements are statements that address activities, events, conditions or developments that ~~we expect~~the Company expects or ~~anticipate~~anticipates may occur in the future and may relate to such matters as net sales growth, changes in comparable sales, cannibalization of existing locations by new openings, price or fee changes, earnings performance, earnings per share, stock-based compensation expense, warehouse openings and closures, capital spending, the effect of adopting certain accounting standards, future financial reporting, financing, margins, return on invested capital, strategic direction, expense controls, membership renewal rates, shopping frequency, litigation, and the demand for our products and services. ~~Forward-looking~~In some cases, forward-looking statements ~~may also~~can be identified ~~by the~~because they contain words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” "likely," “may,” “might,~~” “likely,~~” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms. Such forward-looking statements involve risks and uncertainties that may cause actual events, results, or performance to differ materially from those indicated by such statements. These risks and uncertainties include, but are not limited to, domestic and international economic conditions, including exchange rates, the effects of competition and regulation, uncertainties in the financial markets, consumer and small-business spending patterns and debt levels, breaches of security or privacy of member or business information, conditions affecting the acquisition, development, ownership or use of real estate, capital spending, actions of vendors, rising costs associated with employees (generally including ~~health care~~health-care costs), energy and certain commodities, geopolitical conditions (including tariffs), the ability to maintain effective internal control over financial reporting, ~~global disease threats,~~COVID-19 related factors and challenges, including among others, the duration of the pandemic, the unknown long-term economic impacts, reduced member shopping due to illness, travel restrictions or financial hardship, shifts in demand away from discretionary or higher-priced products, reduced workforce due to illness, quarantine, or government mandates, temporary store closures due to reduced workforces or government mandates, or supply-chain disruptions, and other risks identified from time to time in ~~our~~the Company's public statements and reports filed with the ~~SEC.~~Securities and Exchange Commission. Forward-looking statements speak only as of the date they are made, and ~~we do~~the Company does not undertake to update these statements, except as required by law.

This management discussion should be read in conjunction with the management discussion included in our fiscal 2019 Annual Report on Form 10-K, previously filed with the SEC.

OVERVIEW

We operate membership warehouses and e-commerce websites based on the concept that offering 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. When combined with the operating efficiencies achieved by volume purchasing, efficient distribution and reduced handling of merchandise in no-frills, self-service warehouse facilities, these volumes and turnover enable us to operate profitably at significantly lower gross margins (net sales less merchandise costs) than most other retailers.

We believe that the most important driver of our profitability is increasing net sales, particularly comparable sales growth. Net sales includes our core merchandise categories (food and sundries, hardlines, softlines, and fresh foods), warehouse ancillary and other businesses. We define comparable sales as net sales from warehouses open for more than one year, including remodels, relocations and expansions, and sales related to e-commerce websites operating for more than one year. Comparable sales 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

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by certain factors that are beyond our control: fluctuations in currency exchange rates (with respect to the consolidation of the results of our international operations); and changes in the cost of gasoline and associated competitive conditions (primarily impacting our U.S. and Canadian operations). The higher our comparable sales exclusive of these items, the more we can leverage certain of our selling, general and administrative (SG&A) expenses, reducing them as a percentage of sales and enhancing profitability. 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. 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. Net sales growth and

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gross margins are also impacted by our competition, which is vigorous and widespread, across a wide range of global, national and regional wholesalers and retailers, including those with e-commerce operations. While we cannot control or reliably predict general economic health or changes in competition, we believe that we have been successful historically in adapting our business to these changes, such as through adjustments to our pricing and merchandise mix, including increasing the penetration of our private-label items and through online offerings.

Our philosophy is to provide our members with quality goods and services at competitive prices. We do not focus in the short term on maximizing prices charged, but instead seek to maintain what we believe is a perception among our members of our “pricing authority” on quality goods– consistently providing the most competitive values. Our investments in merchandise pricing may include reducing prices on merchandise to drive sales or meet competition and holding prices steady despite cost increases instead of passing the increases on to our members, all negatively impacting gross margin as a percentage of net sales (gross margin percentage). We believe our gasoline business draws members, but it generally has a lower gross margin percentage relative to our non-gasoline business. It also has lower SG&A expenses as a percent of net sales compared to our non-gasoline business. A higher penetration of gasoline sales will generally lower our gross margin percentage. Rapidly changing gasoline prices may significantly impact our near-term net sales growth. Generally, rising gasoline prices benefit net sales growth which, given the higher sales base, negatively impacts our gross margin percentage but decreases our SG&A expenses as a percentage of net sales. A decline in gasoline prices has the inverse effect. Additionally, actions in various countries, particularly China and the United States, have created uncertainty with respect to how tariffs will affect 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. The impact to our net sales and gross margin will be influenced in part by our merchandising and pricing strategies in response to cost increases. While these potential impacts are uncertain, they could have an adverse impact on our results.

We also achieve net sales growth by opening new warehouses. 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. Our rate of operating floor space square footage growth is generally higher in foreign markets, due to the smaller base in those markets, and we expect that to continue. Our e-commerce business growth, domestically and internationally, has also increased our sales but it generally has a lower gross margin percentage relative to our warehouse business.

The membership format is an integral part of our business and has a significant effect on our 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. Our paid membership growth rate may be adversely impacted when warehouse openings occur in existing markets as compared to new markets.

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Our financial performance depends heavily on controlling costs. While we believe that we have achieved successes in this area, some significant costs are partially outside our control, particularly health care and utility expenses. 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. This may cause us, for example, to absorb costs that other employers might seek to pass through to their workforces. Because our business operates on very low margins, modest changes in various items in the consolidated statements of income, particularly merchandise costs and selling, general and administrative expenses, can have substantial impacts on net income.

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Our operating model is generally the same across our U.S., Canada, and Other International operating segments (see Note 1112 to the condensed consolidated financial statements included in Part I, Item 1, of this Report). Certain countries in the Other International segment have relatively higher rates of square footage growth, lower ~~wages~~wage and ~~benefits~~benefit costs as a percentage of country sales, ~~and~~ less or no direct membership warehouse ~~competition.~~competition, and may lack an e-commerce business.

In discussions of our consolidated operating results, we refer to the impact of changes in foreign currencies relative to the U.S. dollar, which are references to the differences between the foreign-exchange rates we use to convert the financial results of our international operations from local currencies into U.S. dollars for financial reporting purposes. This impact of foreign-exchange rate changes is calculated based on the difference between the current period's currency exchange rates and that of the comparable prior period. The impact of changes in gasoline prices on net sales is calculated based on the difference between the current period's average price per gallon sold and that of the comparable prior period.

Our fiscal year ends on the Sunday closest to August 31. References to the ~~second quarters~~third quarter of 2020 and 2019 relate to the 12-week fiscal quarters ended ~~February 16,~~May 10, 2020, and ~~February 17,~~May 12, 2019, respectively. References to the first ~~half~~thirty-six weeks of 2020 and 2019 relate to the 2436 weeks ended ~~February 16,~~May 10, 2020, and ~~February 17,~~May 12, 2019, respectively. Certain percentages presented are calculated using actual results prior to rounding. Unless otherwise noted, references to net income relate to net income attributable to Costco.

Highlights for the ~~second~~third quarter of 2020 as compared to the ~~second~~third quarter of 2019 include:

•Net sales increased ~~10%~~7% to ~~$38,256,~~$36,451, driven by an increase in comparable sales of 9%5% and sales at 1615 net new warehouses opened since the end of the ~~second~~third quarter of 2019;

•Membership fee revenue increased 6%5% to ~~$816,~~$815, primarily due to sign-ups at existing and new warehouses;

•Gross margin percentage ~~decreased 31~~increased 54 basis points, ~~primarily in our~~driven by certain core merchandise categories ~~driven by a shift in sales penetration to certain lower-margin~~and our warehouse ancillary and other ~~businesses;~~businesses, primarily gasoline;

•SG&A expenses as a percentage of net sales ~~decreased 22~~increased 59 basis points primarily due to ~~leveraging increased sales~~incremental wage and ~~a shift in sales penetration to certain warehouse ancillary and other businesses with lower SG&A~~sanitation costs as a ~~percentage~~result of ~~net sales;~~COVID-19;

•Net income ~~increased 5% to $931,~~was $838, or ~~$2.10~~$1.89 per diluted share, compared to ~~$889,~~$906, or ~~$2.01~~$2.05 per diluted share in ~~2019;~~2019. Net income was negatively impacted by $283 pretax, or $0.47 per diluted share, from incremental wage and sanitation costs related to COVID-19 while 2019 included the benefit of a non-recurring tax item of $73, or $0.16 per share;

•In March 2020, we acquired Innovel Solutions, a company that provides final mile delivery, complete installation and white-glove capabilities for big and bulky products across the United States and Puerto Rico;

•In April 2020, we issued $4,000 in aggregate principal amount of Senior Notes; and

•On ~~January 23,~~April 15, 2020, our Board of Directors declared a quarterly cash dividend of ~~$0.65~~$0.70 per share, an increase of 8%, which was paid on ~~February 21,~~May 15, 2020.

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COVID-19

On March 11, 2020, the World Health Organization announced that COVID-19 infections had become a pandemic, and shortly afterward the U.S. declared a National Emergency. The outbreak has led to widespread and continuing impacts on the global economy and is adversely affecting many aspects of our business and the operations of others with which we do business. We temporarily reduced warehouse operating hours, increased compensation levels for certain employees, and required some employees to work remotely. We have taken other steps in warehouses to protect the health of our members and employees, including limiting the member density in warehouses and ceasing sales of certain merchandise or services. Generally, these measures and their implications on our results of operations have impacted us across all our reportable segments to varying degrees. There is uncertainty regarding the expected extent and duration of counter-measures that impact our business, such as travel bans and restrictions, quarantines, shelter-in-place orders, and business and government shutdowns. Therefore, the ultimate impacts to our results of operations, financial position, and liquidity, cannot now be reasonably estimated.

RESULTS OF OPERATIONS

Net Sales


	12 Weeks Ended						24 Weeks Ended							12 Weeks Ended									36 Weeks Ended
	February 16, 2020			February 17, 2019			February 16, 2020			February 17, 2019				May 10, 2020			May 12, 2019			May 10, 2020			May 12, 2019
Net Sales	$	38,256		$	34,628		$	74,492		$	68,939		Net Sales	$	36,451		$	33,964		$	110,943		$	102,903
Changes in net sales:													Changes in net sales:
U.S	10		%	9		%	8		%	11		%	U.S	8		%	9		%	8		%	10		%
Canada	9		%	1		%	6		%	3		%	Canada	(1)		%	3		%	4		%	3		%
Other International	12		%	4		%	9		%	6		%	Other International	11		%	4		%	10		%	5		%
Total Company	10		%	7		%	8		%	9		%	Total Company	7		%	7		%	8		%	8		%
Changes in comparable sales:													Changes in comparable sales:
U.S	9		%	7		%	7		%	9		%	U.S	6		%	7		%	7		%	9		%
Canada	9		%	0		%	6		%	1		%	Canada	(3)		%	1		%	3		%	1		%
Other International	8		%	1		%	6		%	2		%	Other International	6		%	2		%	6		%	2		%
Total Company	9		%	5		%	7		%	7		%	Total Company	5		%	6		%	6		%	7		%
Changes in comparable sales excluding the impact of changes in foreign currency and gasoline prices⁽¹⁾:													Changes in comparable sales excluding the impact of changes in foreign currency and gasoline prices⁽¹⁾:
U.S	8		%	7		%	7		%	8		%	U.S	8		%	6		%	7		%	7		%
Canada	7		%	6		%	6		%	6		%	Canada	3		%	5		%	5		%	6		%
Other International	7		%	5		%	6		%	5		%	Other International	12		%	7		%	8		%	6		%
Total Company	8		%	7		%	6		%	7		%	Total Company	8		%	6		%	7		%	7		%

_______________


~~(1)~~	~~Excludes the impact of the revenue recognition standard for the periods ended February 17, 2019.~~

(1)Excludes the impact of the revenue recognition standard for the periods ended May 12, 2019.

Net Sales

Net sales increased ~~$3,628~~$2,487 or ~~10%~~7%, and ~~$5,553~~$8,040 or 8% during the ~~second~~third quarter and first ~~half~~thirty-six weeks of 2020, respectively, compared to the ~~second~~third quarter and first ~~half~~thirty-six weeks of 2019. These increases were attributable to an increase in comparable sales of 9%5% and 7%6% in the ~~second~~third quarter and first ~~half~~thirty-six weeks of 2020, respectively, and sales at the 1615 net new warehouses opened since the end of the ~~second~~third quarter

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of 2019. During the third quarter of ~~2019.~~2020, due to COVID-19, we experienced a significant sales shift from our ancillary and other businesses to certain of our core merchandise categories, primarily food and sundries and fresh foods. This was largely driven by lower volume and price deflation in our gasoline business; closures of most of our optical, hearing aid and photo departments; and limited service in our travel business and food courts. In addition, we experienced a decrease in sales in our softlines category, primarily in apparel.

During the ~~second~~third quarter of 2020, changes in gasoline prices ~~positively~~negatively impacted net sales by ~~$320,~~$671, or 92197 basis points, due to a ~~9% increase~~21% decrease in the average ~~sales~~ price per gallon. ~~Foreign~~The volume of gasoline sold decreased approximately 20% as a result of less driving due to COVID-19. Changes in foreign currencies relative to the U.S. dollar ~~also positively~~negatively impacted net sales by approximately ~~$85,~~$407, or 25120 basis points, compared to the ~~second~~third quarter of 2019, attributable to our Canadian and Other International operations.

During the first ~~half~~thirty-six weeks of 2020, changes in gasoline prices ~~positively~~negatively impacted net sales by ~~approximately $198,~~$473, or 2946 basis points, due to a ~~3% increase~~4% decrease in the average price per gallon. Changes in foreign currencies relative to the U.S. dollar negatively impacted net sales by approximately ~~19,~~$425, or ~~three~~41 basis points, compared to the first ~~half~~thirty-six weeks of 2019, attributable to our Canadian and Other International operations.

Comparable Sales

Comparable sales increased 9%5% and 7%6% in the ~~second~~third quarter and first ~~half~~thirty-six weeks of 2020, ~~respectively,~~respectively. During the third quarter and first thirty-six weeks of 2020, comparable sales were positively impacted by increases in ~~shopping frequency~~average ticket, which were partially offset in the third quarter by decreases in traffic due to capacity restrictions and ~~average ticket. Comparable sales were~~stay-at-home orders related to COVID-19. The decrease in traffic was also ~~positively~~ impacted by a shift to shopping online, resulting in an increase of 65% in e-commerce comparable sales in the ~~shift in timing of the Thanksgiving holiday to the second~~third quarter of 2020.

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~~Comparable sales for the secondquarter and first half of 2020 were negatively impacted by cannibalization (established warehouses losing sales to our newly opened locations).~~

Membership Fees


	12 Weeks Ended						24 Weeks Ended							12 Weeks Ended									36 Weeks Ended
	February 16, 2020			February 17, 2019			February 16, 2020			February 17, 2019				May 10, 2020			May 12, 2019			May 10, 2020			May 12, 2019
Membership fees	$	816		$	768		$	1,620		$	1,526		Membership fees	$	815		$	776		$	2,435		$	2,302
Membership fees as a percentage of net sales	2.13		%	2.22		%	2.17		%	2.21		%	Membership fees as a percentage of net sales	2.24		%	2.29		%	2.20		%	2.24		%
Total paid members (000s)	55,300			52,700			—			—			Total paid members (000s)	55,800			53,100			—			—
Total cardholders (000s)	100,900			96,300			—			—			Total cardholders (000s)	101,800			97,200			—			—

Membership fees increased 5% and 6% in ~~both~~ the ~~second~~third quarter and first ~~half~~thirty-six weeks of 2020. This was primarily due to signups at existing and new warehouses. At the end of the ~~second~~third quarter of 2020, our member renewal rates were 91% in the U.S. and Canada and 88% worldwide.

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Gross Margin


	12 Weeks Ended						24 Weeks Ended							12 Weeks Ended									36 Weeks Ended
	February 16, 2020			February 17, 2019			February 16, 2020			February 17, 2019				May 10, 2020			May 12, 2019			May 10, 2020			May 12, 2019
Net sales	$	38,256		$	34,628		$	74,492		$	68,939		Net sales	$	36,451		$	33,964		$	110,943		$	102,903
Less merchandise costs	34,056			30,720			66,289			61,343			Less merchandise costs	32,249			30,233			98,538			91,576
Gross margin	$	4,200		$	3,908		$	8,203		$	7,596		Gross margin	$	4,202		$	3,731		$	12,405		$	11,327
Gross margin percentage	10.98		%	11.29		%	11.01		%	11.02		%	Gross margin percentage	11.53		%	10.99		%	11.18		%	11.01		%

Quarterly Results

The gross margin of ~~our~~ core merchandise categories, ~~(food and sundries, hardlines, softlines, and fresh foods),~~ when expressed as a percentage of core merchandise sales (rather than total net sales), decreased 1517 basis points primarily in fresh foods and hardlines. The decrease in fresh foods was driven primarily by initial operating losses from our new poultry processing plant while hardlines decreased primarily due to timing of the Thanksgiving holiday, which shifted lower-margin activity into the current quarter as compared to the prior year second quarter. These decreases were partially offset by an increase in softlines.points. This measure eliminates the impact of changes in sales penetration and gross margins from our warehouse ancillary and other businesses. These decreases were across all categories, except fresh foods, which benefited from operational efficiencies from increased sales, partially offset by operating losses from our poultry processing plant. The decreases in all other merchandise categories were largely due to changes in sales mix, both between and within merchandise categories.

Total gross margin percentage ~~decreased 31~~increased 54 basis points compared to the ~~second~~third quarter of 2019. Excluding the impact of gasoline price ~~inflation~~deflation on net sales, gross margin as a percentage of adjusted net sales was ~~11.07%~~11.32%, ~~a decrease~~an increase of 2233 basis points. This was primarily due to a ~~shift~~33 basis-point increase in ~~sales penetration~~our core merchandise categories, predominantly food and sundries and fresh foods, partially offset by softlines and hardlines. Warehouse ancillary and other businesses increased 21 basis points, primarily due to our gasoline business, partially offset by certain ~~lower-margin warehouse~~ ancillary businesses, which were negatively impacted by COVID-19 related closures or restrictions. These increases were partially offset by the incremental wage and ~~losses from our poultry processing plant discussed above.~~sanitation costs related to COVID-19 of $44 or 12 basis points, $20 or five basis points related to a reserve for certain inventory, and a four basis-point decrease due to increased spending by members under the Executive Membership 2% reward program.

Gross margin on a segment basis, when expressed as a percentage of the segment's own sales and excluding the impact of changes in gasoline prices on net sales (segment gross margin percentage), ~~decreased~~was impacted by increases in ~~our U.S.~~food and ~~Canadian operations, primarily due to~~sundries and fresh foods and decreases in softlines and hardlines in each of our ~~core merchandise categories.~~U.S., Canadian, and Other International segments. Each of our segments was also negatively impacted by the incremental wage and sanitation costs as a result of COVID-19. The segment gross margin percentage in our U.S. and Other International operations increased, primarily ~~in our~~due to core merchandise ~~categories.~~

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categories, as discussed above, and were also positively impacted by warehouse ancillary and other businesses, predominantly our gasoline business. Our Canadian segment gross margin percentage decreased due to softlines, hardlines and warehouse ancillary and other businesses, partially offset by increases in fresh foods and food and sundries.

Year-to-date Results

The gross margin of core merchandise categories, when expressed as a percentage of core merchandise sales, decreased ~~six~~nine basis points. This was attributable to ~~a decrease~~decreases in hardlines and food and sundries, partially offset by increases in fresh foods ~~which was driven primarily by initial~~and softlines. Fresh foods gross margin increased as a result of operational efficiencies from increased sales in the third quarter despite operating losses from our ~~new~~ poultry processing ~~plant, partially offset by an increase in softlines.~~plant.

Total gross margin percentage ~~decreased one basis-point~~increased 17 basis points compared to the first ~~half~~thirty-six weeks of 2019. Excluding the impacts of gasoline price ~~inflation~~deflation on net sales, gross margin as a percentage of adjusted net sales was ~~11.04%~~11.13%, an increase of ~~two~~12 basis points from the first ~~half~~thirty-six weeks of 2019. This was primarily due to a ~~nine basis-point~~13 basis point increase in our warehouse ancillary and other businesses, ~~as well as a six basis-point increase~~predominantly our gasoline business, partially offset by certain ancillary businesses which were negatively impacted by

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COVID-19 related ~~to an~~closures or restrictions. An adjustment in the first quarter of 2019 to our estimate of breakage on rewards earned under our co-branded credit card ~~program. These~~program positively impacted gross margin by four basis points, which was offset by four basis points for incremental wage and sanitation costs and two basis points related to a reserve for certain inventory, both discussed above. Core merchandise categories increased by one basis point which was driven by increases ~~were~~in food and sundries and fresh foods, partially offset by decreases in softlines and hardlines.

Gross margin on a ~~14 basis-point decrease~~segment basis was impacted by increases in food and sundries and fresh foods and decreases in softlines and hardlines in each of our ~~core merchandise categories, primarily due to losses from~~U.S., Canadian, and Other International segments. Each of our ~~poultry processing plant discussed above.~~

segments was also negatively impacted by the incremental wage and sanitation costs as a result of COVID-19. The segment gross margin percentage ~~decreased~~increased in our U.S. operations, primarily due to ~~core merchandise categories, partially offset by~~ our warehouse ancillary and other businesses, predominantly our gasoline business, as well as the prior year breakage adjustment ~~noted~~discussed above. The segment gross margin percentage increased in our ~~Canadian~~Other International operations ~~increased~~primarily due to ~~increases in our~~core merchandise categories, as discussed above. Our Canadian segment gross margin percentage decreased due to hardlines, softlines and warehouse ancillary and other businesses, partially offset by ~~decreases~~increases in ~~certain of our core merchandise categories. The segment gross margin percentage in our Other International operations increased, primarily in our core merchandise categories.~~fresh foods and food and sundries.

Selling, General and Administrative Expenses


	12 Weeks Ended						24 Weeks Ended							12 Weeks Ended									36 Weeks Ended
	February 16, 2020			February 17, 2019			February 16, 2020			February 17, 2019				May 10, 2020			May 12, 2019			May 10, 2020			May 12, 2019
SG&A expenses	$	3,743		$	3,464		$	7,475		$	6,939		SG&A expenses	$	3,830		$	3,371		$	11,305		$	10,310
SG&A expenses as a percentage of net sales	9.78		%	10.00		%	10.03		%	10.06		%	SG&A expenses as a percentage of net sales	10.51		%	9.92		%	10.19		%	10.02		%

Quarterly Results

SG&A expenses as a percentage of net sales ~~decreased 22~~increased 59 basis points compared to the ~~second~~third quarter of 2019. Excluding the impact of gasoline price ~~inflation~~deflation on net sales, SG&A expenses as a percentage of adjusted net sales was ~~9.87%~~10.32%, an increase of 40 basis points compared to the prior year. SG&A expenses were negatively impacted by approximately $239 or 64 basis points due to incremental wage and sanitation costs as a result of COVID-19. Excluding this impact, costs related to warehouse operations and other businesses, which include e-commerce and travel, were lower by 24 basis points compared to the prior year. This decrease was largely due to leveraging increased sales in certain of our core merchandise categories. Stock compensation expense was lower by three basis points and central operating costs were lower by two basis points. SG&A expenses were negatively impacted by approximately $19 or five basis points due to costs associated with the acquisition of Innovel (see Note 2 in the condensed consolidated financial statements).

Year-to-date Results

SG&A expenses as a percentage of net sales increased 17 basis points compared to the first thirty-six weeks of 2019. Excluding the impact of gasoline price deflation on net sales, SG&A expenses as a percentage of adjusted net sales was 10.15%, an increase of 13 basis points compared to the prior year. ~~Costs~~SG&A expenses were negatively impacted by approximately $239 or 21 basis points due to incremental wage and sanitation costs as discussed above as a result of COVID-19. Excluding this impact, costs related to warehouse operations and other businesses, which include e-commerce and travel, decreased 10 basis points ~~primarily~~ due to leveraging increased sales ~~and a shift~~ in ~~sales penetration to~~ certain ~~warehouse ancillary and other businesses with lower SG&A as a percentage~~ of net sales. This decrease was partially offset by the wage increases and bonding leave benefits for U.S. and Canadian hourly employees effective in March 2019. Stock compensation expense was lower by three basis points.

~~Year-to-date Results~~

our core merchandise categories. SG&A expenses as a percentage of net sales decreased three basis points compared to the first half of 2019. Excluding the impact of gasoline price inflation on net sales, SG&A expenses as a percentage of adjusted net sales was flat despite the wage increases and bonding leave benefits for U.S. and Canadian hourly employees discussed above. Costs related to warehouse operations and other businesses, which include e-commerce and travel, were ~~lower~~negatively impacted by approximately $19 or two basis points ~~predominantly in our U.S. operations,~~ due to ~~leveraging increased sales. This decrease was offset by higher central operating~~ costs associated with the acquisition of ~~two basis points related to maintaining, upgrading and expanding our technology capabilities.~~

Innovel.

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Preopening Expense

12 Weeks Ended 24 Weeks Ended
February 16,
2020 February 17,
2019 February 16,
2020 February 17,
2019
Preopening expenses $ 7
$ 9
$ 21
$ 31
Warehouse openings, including relocations
United States 0
2
3
8
Canada 0
0
1
2
Other International 0
0
0
0
Total warehouse openings, including relocations 0
2
4
10


	12 Weeks Ended						36 Weeks Ended
	May 10, 2020		May 12, 2019		May 10, 2020		May 12, 2019
Preopening expenses	$	8	$	14	$	29	$	45
Warehouse openings, including relocations
United States	1		1		4		9
Canada	0		0		1		2
Other International	1		2		1		2
Total warehouse openings, including relocations	2		3		6		13

Preopening expenses include startup costs related to new warehouses and relocations, developments in new international markets, new manufacturing and distribution facilities, and expansions at existing warehouses. Preopening expenses vary due to the number of warehouse openings, the timing of the openings relative to our quarter-end, whether the warehouse is owned or leased, and whether the opening is in an existing, new or international market. For the remainder of fiscal 2020, we expect to open 1510 warehouses, including two relocations.

Interest Expense


	12 Weeks Ended						36 Weeks Ended
	May 10, 2020		May 12, 2019		May 10, 2020		May 12, 2019
Interest expense	$	37	$	35	$	109	$	105

12 Weeks Ended 24 Weeks Ended
February 16,
2020 February 17,
2019 February 16,
2020 February 17,
2019
Interest expense $ 34
$ 34
$ 72
$ 70

Interest expense is primarily related to Senior ~~Notes.~~Notes and finance leases. In April 2020, we issued $4,000 in aggregate principal amount of Senior Notes (see Note 5 in the condensed consolidated financial statements). A portion of the proceeds from this issuance was used to repay, prior to maturity, the 2.150% and 2.250% Senior Notes subsequent to the end of the quarter. The early redemption resulted in a $36 charge, which will be recorded in Interest Income and Other in the fourth quarter of 2020.

Interest Income and Other, Net


	12 Weeks Ended				24 Weeks Ended					12 Weeks Ended						36 Weeks Ended
	February 16, 2020		February 17, 2019		February 16, 2020		February 17, 2019			May 10, 2020		May 12, 2019		May 10, 2020		May 12, 2019
Interest income	$	30	$	33	$	62	$	54	Interest income	$	10	$	27	$	72	$	81
Foreign-currency transaction gains, net	8		8		4		3		Foreign-currency transaction gains, net	5		3		9		6
Other, net	7		5		14		11		Other, net	6		6		20		17
Interest income and other, net	$	45	$	46	$	80	$	68	Interest income and other, net	$	21	$	36	$	101	$	104

Interest income decreased for the ~~second~~third quarter and first thirty-six weeks of 2020 due to lower interest rates, ~~and increased for the first half of 2020 due to~~partially offset by higher average cash and investment balances. Foreign-currency transaction gains, net, include the 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 1, 2019.

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Provision for Income Taxes


	12 Weeks Ended						24 Weeks Ended							12 Weeks Ended									36 Weeks Ended
	February 16, 2020			February 17, 2019			February 16, 2020			February 17, 2019				May 10, 2020			May 12, 2019			May 10, 2020			May 12, 2019
Provision for income taxes	$	330		$	314		$	532		$	472		Provision for income taxes	$	311		$	207		$	843		$	679
Effective tax rate	25.9		%	25.8		%	22.8		%	21.9		%	Effective tax rate	26.7		%	18.5		%	24.1		%	20.7		%

The effective tax rate for the first ~~half~~thirty-six weeks of 2020 ~~and~~included discrete net tax benefits of $68. Excluding these benefits, the tax rate was 26.1% for the first thirty-six weeks of 2020.

The effective tax rate for the first thirty-six weeks of 2019 included discrete net tax benefits of ~~$79 and $90, respectively. Excluding~~$165. During the ~~discrete~~third quarter of 2019, we recognized a net ~~tax benefits, which largely~~benefit of $73 related to ~~excess~~U.S. taxation of deemed foreign dividends, net of losses of current year foreign tax ~~benefits from stock compensation,~~credits, which impacted the effective tax rate. The tax rate ~~was 26.2% and 26.1%~~ for the first ~~half~~thirty-six weeks of ~~2020 and~~ 2019 ~~respectively.~~was 26.8%, excluding the discrete benefits, but including the impact of the lost foreign tax credits.

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes our significant sources and uses of cash and cash equivalents:


	24 Weeks Ended							36 Weeks Ended
	February 16, 2020			February 17, 2019				May 10, 2020		May 12, 2019
Net cash provided by operating activities	$	2,721		$	1,958		Net cash provided by operating activities	$	4,619	$	4,063
Net cash used in investing activities	(1,100		)	(1,171		)	Net cash used in investing activities	(2,950)		(1,945)
Net cash used in financing activities	(2,228		)	(749		)
Net cash provided by (used in) financing activities							Net cash provided by (used in) financing activities	771		(1,146)

Our primary sources of liquidity are cash flows generated from warehouse operations, cash and cash equivalents, and short-term investments. Cash and cash equivalents and short-term investments were ~~$8,715~~$11,774 and $9,444 at ~~February 16,~~May 10, 2020, and September 1, 2019, respectively. Of these balances, unsettled credit and debit card receivables represented approximately ~~$1,385~~$1,471 and $1,434 at ~~February 16,~~May 10, 2020, and September 1, 2019, respectively. These receivables generally settle within four days. ~~Cash and cash equivalents were positively impacted by foreign-exchange rate changes of $9 and negatively impacted by $13 in the first half of 2020 and 2019, respectively.~~

Management believes that our cash position and operating cash flows will be sufficient to meet our liquidity and capital requirements for the foreseeable future. We believe that our U.S. current and projected asset position is sufficient to meet our U.S. liquidity requirements. We no longer consider earnings after 2017 of our non-U.S. consolidated subsidiaries to be indefinitely reinvested.

Cash Flows from Operating Activities

Net cash provided by operating activities totaled ~~$2,721~~$4,619 in the first ~~half~~thirty-six weeks of 2020, compared to ~~$1,958~~$4,063 in the first ~~half~~thirty-six weeks of 2019. Cash provided by operations is primarily derived from net sales and membership fees. Cash 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 used in operations also includes payments for income taxes. Changes in our net investment in merchandise inventories (the difference between merchandise inventories and accounts payable) is impacted by several factors, including how fast inventory is sold, payment terms with our suppliers, and the amount of early payments to obtain discounts from suppliers.

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Cash Flows from Investing Activities

Net cash used in investing activities totaled ~~$1,100~~$2,950 in the first ~~half~~thirty-six weeks of 2020, compared to ~~$1,171~~$1,945 in the first ~~half~~thirty-six weeks of 2019, and is primarily related to capital expenditures. In the third quarter of 2020, we acquired Innovel and a minority interest in Navitus. For more information see Notes 1 and 2 in the condensed consolidated financial statements. Net cash from investing activities also includes purchases and maturities of short-term investments.

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Capital Expenditure Plans

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 the first ~~half~~thirty-six weeks of 2020, we spent ~~$1,260~~$1,958 on capital ~~expenditures, and~~expenditures. While the impacts of COVID-19 have delayed certain of our construction projects, it is our current intention to spend ~~approximately $3,000~~between $2,700 and $2,900 during fiscal 2020. We opened ~~four~~six new warehouses, including one relocation, in the first ~~half~~thirty-six weeks of 2020 and plan to open 1510 additional new warehouses, including two relocations, in the remainder of fiscal 2020. There can be no assurance that current expectations will be realized; plans are subject to change upon further review of our capital expenditure needs.

Cash Flows from Financing Activities

Net cash ~~used in~~provided by financing activities totaled ~~$2,228~~$771 in the first ~~half~~thirty-six weeks of 2020, compared to ~~$749~~cash used of $1,146 in the first ~~half~~thirty-six weeks of 2019. ~~Cash flow~~In April 2020, we issued $4,000 in aggregate principal amount of Senior Notes as follows: $1,250 of 1.375% due June 2027; $1,750 of 1.600% due April 2030; and $1,000 of 1.750% due April 2032. A portion of the proceeds were used ~~in financing activities was primarily related~~to repay, prior to maturity, the 2.150% and 2.250% Senior Notes subsequent to the end of the quarter, at a redemption price plus accrued interest as specified in the Notes' agreements. The remaining funds will be used for general corporate purposes.

Financing activities also included $1,200 and $500 repayment of our ~~1.70%~~1.700% and 1.750% Senior Notes, respectively, payment of dividends, and withholding taxes on stock-based awards. Dividends totaling $573 were paid during the first half of 2020, of which $286 related to the dividend declared in August 2019. Subsequent to the end of the quarter, on February 18, 2020, the Company paid the outstanding principal balance of $500 and associated interest on the 1.75% Senior Notes using cash and cash equivalents and short-term investments.

Stock Repurchase Programs

During the first ~~half~~thirty-six weeks of 2020 and 2019, we repurchased ~~262,000~~368,000 and ~~711,000~~903,000 shares of common stock, at an average price per share of ~~$299.40~~$298.53 and ~~$213.08,~~$215.94, respectively, totaling approximately ~~$79~~$110 and ~~$151,~~$195, respectively. These amounts may differ from the stock repurchase balances in the accompanying condensed consolidated statements of cash flows due to changes in unsettled stock repurchases at the end of a quarter. Purchases are made from time to time, as conditions warrant, in the open market or in block purchases, pursuant to plans under SEC Rule 10b5-1. Repurchased shares are retired, in accordance with the Washington Business Corporation Act.

Dividends

Dividends totaling $860 were paid during the first thirty-six weeks of 2020, of which $286 related to the dividend declared in August 2019. On ~~January 23,~~April 15, 2020, our Board of Directors declared a quarterly dividend of ~~$0.65~~$0.70 per share payable to shareholders of record on ~~February 7,~~May 1, 2020. The dividend was paid subsequent to the end of the quarter on ~~February 21,~~May 15, 2020.

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Bank Credit Facilities and Commercial Paper Programs

We maintain bank credit facilities for working capital and general corporate purposes. At ~~February 16,~~May 10, 2020, we had borrowing capacity under these facilities of ~~$875,~~$940, including a $400 revolving line of credit, which expires in June 2020. Our international operations maintain ~~$362~~$427 of the borrowing capacity under bank credit facilities, of which ~~$146~~$148 is guaranteed by the Company. ~~There were no~~Short-term borrowings outstanding ~~short-term borrowings~~ under the bank credit facilities at the end of the ~~second~~third quarter of 2020 orwere immaterial and there were none outstanding at the end of 2019.

The Company has letter of credit facilities, for commercial and standby letters of credit, totaling ~~$225.~~$224. The outstanding commitments under these facilities at the end of the ~~second~~third quarter of 2020 totaled $150, most of which were standby letters of credit with expiration dates within one year. The bank credit facilities have various expiration dates, most of which are within one year, and we generally intend to renew these facilities. The amount of borrowings available at any time under our bank credit facilities is reduced by the amount of standby and commercial letters of credit outstanding.

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Contractual Obligations

AsOther than the issuance of Senior Notes described above, as of the date of this Report, there were no material changes to our contractual obligations outside the ordinary course of business since the end of our last fiscal year.

Critical Accounting Estimates

The preparation of our consolidated financial statements in accordance with U.S. GAAP requires that we make estimates and judgments. 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 September 1, 2019. There have been no material changes to the critical accounting policies previously disclosed in that Report.

Recent Accounting Pronouncements

See discussion of Recent Accounting Pronouncements in Note 1 to the condensed consolidated financial statements included in Part I, 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 September 1, 2019.

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Item 4—Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and to ensure that information required to be disclosed is accumulated and communicated to management, including our principal executive and financial officers, to allow timely decisions regarding disclosure. The Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), with assistance from other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of ~~February 16,~~May 10, 2020, and based on their evaluation have concluded the disclosure controls and procedures were effective as of that date.

Changes in Internal Control over Financial Reporting

Although most of our corporate and regional office employees are working remotely due to COVID-19, we have not experienced a material impact to our internal control over financial reporting. We continue to monitor the pandemic and its effects on the design and operating effectiveness of our internal controls. There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the ~~second~~third quarter of fiscal 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1—Legal Proceedings

See discussion of Legal Proceedings in Note 1011 to the condensed consolidated financial statements included in Part I, Item 1 of this Report.

~~Table of Contents~~

Item 1A—Risk Factors

In addition to the other information set forth in the Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K, for the fiscal year ended September 1, 2019. ~~There~~Other than the risk factor set forth below, there have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K.

Market and Other External Risks

The COVID-19 outbreak is adversely affecting our business, financial condition and results of operations.

The continuing impacts of the COVID-19 pandemic are highly unpredictable, volatile, and uncertain and could adversely affect our business operations, demand for our products and services, costs of doing business, availability of labor, access to inventory, supply chain operations, our ability to predict future performance, exposure to litigation, and our financial performance, among other things.

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The COVID-19 outbreak has resulted in widespread and continuing impacts on the global economy and on our employees, members, suppliers, and other people and entities with which we do business. There is considerable uncertainty regarding the extent to which COVID-19 will continue to spread, and the extent and duration of measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place orders, and business and government shutdowns. Many government subdivisions have imposed restrictions on the operation of our membership warehouses, including limiting the number of members who may enter and preventing the sales of certain categories of merchandise. We are taking precautionary measures intended to help minimize the risk of the virus to our employees, including temporarily requiring some employees to work remotely. To reward our employees for exemplary service in difficult times we have temporarily increased compensation levels and otherwise incurred increased spending for wages and benefits, including overtime pay. The outbreak and any preventative or protective actions that governments or we may take in respect of this virus are likely to result in a period of business disruption, reduced member traffic and reduced sales in certain merchandise categories, and increased operating expenses.

The pandemic has significantly impacted the global supply chain, with restrictions and limitations on business activities causing disruption and delay. These disruptions and delays have strained domestic and international supply chains, which has affected and could continue to negatively affect the flow or availability of certain products. Member demand for certain products has also fluctuated as the pandemic has progressed, and member behaviors have changed, which has challenged our ability to anticipate and/or adjust inventory levels to meet that demand. These factors have resulted in higher out-of-stock positions in certain products, as well as delays in delivering those products. Even if we are able to find alternate sources for certain products, they may cost more or require us to incur higher transportation costs, adversely impacting our profitability and financial condition. Similarly, increased demand for online purchases of products has impacted our fulfillment operations, resulting in delays in delivering products to members.

If we do not respond appropriately to the pandemic, or if our members do not participate in social distancing and other safety measures, the well-being of our employees and members could be at risk, and a failure to appropriately respond, or the perception of an inadequate response, could cause reputational harm to our brand and subject us to claims from employees, members, suppliers, regulators or other parties. Additionally, a future outbreak of confirmed cases of COVID-19 in our facilities could result in temporary or sustained workforce shortages or facility closures, which would negatively impact our business and results of operations. Some jurisdictions have taken measures intended to expand the availability of workers compensation or to change the presumptions applicable to workers compensation measures. These actions may increase our exposure to claims and increase our costs.

In an effort to strengthen our liquidity position, during the quarter we issued $4 billion of long-term debt, a portion of which was used to repay, prior to maturity, $1.5 billion of Senior Notes subsequent to the end of the quarter. Financial and credit markets have experienced and may continue to experience significant volatility and turmoil. Our continued access to external sources of liquidity depends on multiple factors, including the condition of debt capital markets, our operating performance, and maintaining strong credit ratings. If the impacts of the pandemic continue to disrupt the financial markets, or if rating agencies lower our credit ratings, it could adversely affect our ability to access the debt markets, our cost of funds, and other terms for new debt or other sources of external liquidity, if needed.

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Other factors and uncertainties include, but are not limited to:

•The severity and duration of the pandemic, including whether there is a “second wave” caused by additional periods of increases or spikes in the number of COVID-19 cases, future mutations or related strains of the virus in areas in which we operate;

•Evolving macroeconomic factors, including general economic uncertainty, unemployment rates, and recessionary pressures;

•Unknown consequences on our business performance and initiatives stemming from the substantial investment of time and other resources to the pandemic response;

•The pace of recovery when the pandemic subsides; and

•The long-term impact of the pandemic on our business.

To the extent that COVID-19 continues to adversely affect the U.S. and global economy, our business, results of operations, cash flows, or financial condition, it may also heighten other risks described in the “Risk Factors” section in our 2019 Form 10-K, including but not limited to those related to consumer behavior and expectations, competition, brand reputation, implementation of strategic initiatives, cybersecurity threats, technology systems disruption, supply chain disruptions, labor availability and cost, litigation, and regulatory requirements.

The extent to which COVID-19 impacts our results and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain and treat its impacts, among others.

Item 2—Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth information on our common stock repurchase program activity for the ~~second~~third quarter of 2020 (amounts in millions, except share and per share data):

Period Total Number of Shares Purchased Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Programs⁽¹⁾

Maximum Dollar Value of Shares that May Yet be Purchased Under the Programs⁽¹⁾
November 25, 2019 — December 22, 2019 40,000
$ 295.58
40,000
$ 3,901
December 23, 2019 — January 19, 2020 61,000
296.01
61,000
3,883
January 20, 2020 — February 16, 2020 61,000
310.88
61,000
3,864
Total second quarter 162,000
$ 301.50
162,000


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs⁽¹⁾	Maximum Dollar Value of Shares that May Yet be Purchased Under the Programs⁽¹⁾
February 17, 2020 — March 15, 2020	45,000	$	308.42	45,000	$	3,850
March 16, 2020 — April 12, 2020	61,000	287.40		61,000	3,833
April 13, 2020 — May 10, 2020	0	0		0	3,833

Total third quarter	106,000	$	296.38	106,000

_______________


~~(1)~~	~~Our stock repurchase program is conducted under a $4,000 authorization approved by our Board of Directors in April 2019, which expires in April 2023.~~

(1)Our stock repurchase program is conducted under a $4,000 authorization approved by our Board of Directors in April 2019, which expires in April 2023.

Item 3—Defaults Upon Senior Securities

None.

Item 4—Mine Safety Disclosures

Not applicable.

Item 5—Other Information

None.

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Item 6—Exhibits

The following exhibits are filed as part of this Quarterly Report on Form 10-Q or are incorporated herein by reference.

Incorporated by Reference

Exhibit
Number

Exhibit Description

Filed
Herewith

Form

Period
Ending

Filing Date

3.1

Articles of Incorporation as amended of Costco Wholesale Corporation

10-Q

3/12/2020

3.2

Bylaws as amended of Costco Wholesale Corporation

8-K

1/29/2020

4.1

First Supplemental Indenture between Costco Wholesale Corporation and U.S. Bank National Association, as Trustee, dated as of March 20, 2002 (incorporated by reference to Exhibits 4.1 and 4.2 to the Company's Current Report on the Form 8-K filed on March 25, 2002).

8-K

3/25/2002

4.2

Form of 1.375% Senior Notes due June 20,2027

8-K

4/17/2020

4.3

Form of 1.600% Senior Notes due April 20, 2030

8-K

4/17/2020

4.4

Form of 1.750% Senior Notes due April 20, 2032

8-K

4/17/2020

31.1

Rule 13(a) – 14(a) Certifications

~~Incorporated by Reference~~

~~Exhibit~~

~~Number~~32.1

~~Exhibit Description~~

~~Filed~~

~~Herewith~~

~~Form~~

~~Period~~

~~Ending~~

~~Filing Date~~

~~3.1~~

~~Articles of Incorporation as amended of Costco Wholesale Corporation~~

~~3.2~~

~~Bylaws as amended of Costco Wholesale Corporation~~

~~8-K~~

~~1/29/2020~~

~~31.1~~

~~Rule 13(a) – 14(a) Certifications~~

~~32.1~~

Section 1350 Certifications

101.INS

Inline XBRL Instance Document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

COSTCO WHOLESALE CORPORATION

(Registrant)

~~March 11,~~

June 3, 2020

/s/ W. CRAIG JELINEK

Date

W. Craig Jelinek

President, Chief Executive Officer and Director

~~March 11,~~June 3, 2020

/s/ RICHARD A. GALANTI

Date

Richard A. Galanti

Executive Vice President, Chief Financial Officer and Director



		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Statements of Income	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Equity	6
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2123
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3033
Item 4.	Controls and Procedures	3034

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	3034
Item 1A.	Risk Factors	3134
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3136
Item 3.	Defaults Upon Senior Securities	3136
Item 4.	Mine Safety Disclosures	3136
Item 5.	Other Information	3136
Item 6.	Exhibits	3237
	Signatures	3238



	12 Weeks Ended February 16, 2020
	Common Stock				Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Costco Stockholders’ Equity			Noncontrolling Interests		Total Equity
	Shares (000s)		Amount		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Costco Stockholders’ Equity			Noncontrolling Interests		Total Equity
BALANCE AT NOVEMBER 24, 2019	441,778		$	4	$	6,391		$	(1,321	)	$	10,787		$	15,861		$	363	$	16,224
Net income	—		—		—			—			931			931			16		947
Foreign-currency translation adjustment and other, net	—		—		—			41			—			41			6		47
Stock-based compensation	—		—		118			—			—			118			—		118
Release of vested restricted stock units (RSUs), including tax effects	6		—		(1		)	—			—			(1		)	—		(1		)
Repurchases of common stock	(162	)	—		(2		)	—			(47		)	(49		)	—		(49		)
Cash dividend declared	—		—		—			—			(287		)	(287		)	—		(287		)
BALANCE AT FEBRUARY 16, 2020	441,622		$	4	$	6,506		$	(1,280	)	$	11,384		$	16,614		$	385	$	16,999
BALANCE AT
BALANCE AT	12 Weeks Ended February 17, 2019
	Common Stock				Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Costco Stockholders’ Equity			Noncontrolling Interests		Total Equity
	Shares (000s)		Amount		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Costco Stockholders’ Equity			Noncontrolling Interests		Total Equity
BALANCE AT NOVEMBER 25, 2018	440,546		$	4	$	6,107		$	(1,331	)	$	8,387		$	13,167		$	312	$	13,479
Net income	—		—		—			—			889			889			12		901
Foreign-currency translation adjustment and other, net	—		—		—			51			—			51			1		52
Stock-based compensation	—		—		119			—			—			119			—		119
Release of vested RSUs, including tax effects	4		—		—			—			—			—			—		—
Repurchases of common stock	(561	)	—		(8		)	—			(109		)	(117		)	—		(117		)
Cash dividend declared and other	—		—		—			—			(251		)	(251		)	—		(251		)
BALANCE AT FEBRUARY 17, 2019	439,989		$	4	$	6,218		$	(1,280	)	$	8,916		$	13,858		$	325	$	14,183



	24 Weeks Ended February 16, 2020
	Common Stock				Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Costco Stockholders’ Equity			Noncontrolling Interests			Total Equity
	Shares (000s)		Amount		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Costco Stockholders’ Equity			Noncontrolling Interests			Total Equity
BALANCE AT SEPTEMBER 1, 2019	439,625		$	4	$	6,417		$	(1,436	)	$	10,258		$	15,243		$	341		$	15,584
Net income	—		—		—			—			1,775			1,775			28			1,803
Foreign-currency translation adjustment and other, net	—		—		—			156			—			156			16			172
Stock-based compensation	—		—		420			—			—			420			—			420
Release of vested restricted stock units (RSUs), including tax effects	2,259		—		(327		)	—			—			(327		)	—			(327		)
Repurchases of common stock	(262	)	—		(4		)	—			(75		)	(79		)	—			(79		)
Cash dividend declared	—		—		—			—			(574		)	(574		)	—			(574		)
BALANCE AT FEBRUARY 16, 2020	441,622		$	4	$	6,506		$	(1,280	)	$	11,384		$	16,614		$	385		$	16,999

	24 Weeks Ended February 17, 2019
	Common Stock				Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Costco Stockholders’ Equity			Noncontrolling Interests			Total Equity
	Shares (000s)		Amount		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Costco Stockholders’ Equity			Noncontrolling Interests			Total Equity
BALANCE AT SEPTEMBER 2, 2018	438,189		$	4	$	6,107		$	(1,199	)	$	7,887		$	12,799		$	304		$	13,103
Net income	—		—		—			—			1,656			1,656			22			1,678
Foreign-currency translation adjustment and other, net	—		—		—			(81		)	—			(81		)	(1		)	(82		)
Stock-based compensation	—		—		391			—			—			391			—			391
Release of vested RSUs, including tax effects	2,511		—		(270		)	—			—			(270		)	—			(270		)
Repurchases of common stock	(711	)	—		(10		)	—			(141		)	(151		)	—			(151		)
Cash dividend declared and other	—		—		—			—			(486		)	(486		)	—			(486		)
BALANCE AT FEBRUARY 17, 2019	439,989		$	4	$	6,218		$	(1,280	)	$	8,916		$	13,858		$	325		$	14,183



February 16, 2020:	Cost Basis		Unrealized Gains, Net		Recorded Basis
Available-for-sale:
Government and agency securities	$	523	$	6	$	529
Held-to-maturity:
Certificates of deposit	400				400
Total short-term investments	$	923	$	6	$	929



	February 16, 2020		September 1, 2019
1.70% Senior Notes due December 2019	$	0	$	1,200
1.75% Senior Notes due February 2020	500		500
2.15% Senior Notes due May 2021	1,000		1,000
2.25% Senior Notes due February 2022	500		500
2.30% Senior Notes due May 2022	800		800
2.75% Senior Notes due May 2024	1,000		1,000
3.00% Senior Notes due May 2027	1,000		1,000
Other long-term debt	824		852
Total long-term debt	5,624		6,852
Less unamortized debt discounts and issuance costs	25		29
Less current portion⁽¹⁾	500		1,699
Long-term debt, excluding current portion	$	5,099	$	5,124