10-Q

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 May 8, 2022

or

☐ 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, WA 98027

(Address of principal executive offices) (Zip Code)

(Registrant’s telephone number, including area code): (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 May 25, 2022 was 442,962,949.

1

COSTCO WHOLESALE CORPORATION

INDEX TO FORM 10-Q

		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	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	28
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	30
	Signatures	31

2

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				36 Weeks Ended
	May 8, 2022		May 9, 2021		May 8, 2022		May 9, 2021
REVENUE
Net sales	$	51,612	$	44,376	$	151,966	$	130,611
Membership fees	984		901		2,897		2,643
Total revenue	52,596		45,277		154,863		133,254
OPERATING EXPENSES
Merchandise costs	46,355		39,415		135,824		115,951
Selling, general and administrative	4,450		4,199		13,743		12,870
Operating income	1,791		1,663		5,296		4,433
OTHER INCOME (EXPENSE)
Interest expense	(35)		(40)		(110)		(119)
Interest income and other, net	71		27		138		75
INCOME BEFORE INCOME TAXES	1,827		1,650		5,324		4,389
Provision for income taxes	455		417		1,287		1,004
Net income including noncontrolling interests	1,372		1,233		4,037		3,385
Net income attributable to noncontrolling interests	(19)		(13)		(61)		(48)
NET INCOME ATTRIBUTABLE TO COSTCO	$	1,353	$	1,220	$	3,976	$	3,337
NET INCOME PER COMMON SHARE ATTRIBUTABLE TO COSTCO:
Basic	$	3.05	$	2.75	$	8.96	$	7.53
Diluted	$	3.04	$	2.75	$	8.94	$	7.51
Shares used in calculation (000s):
Basic	443,700		443,043		443,567		443,043
Diluted	444,886		444,127		444,802		444,336

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

3

COSTCO WHOLESALE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(amounts in millions) (unaudited)

 

	12 Weeks Ended				36 Weeks Ended
	May 8, 2022		May 9, 2021		May 8, 2022		May 9, 2021
NET INCOME INCLUDING NONCONTROLLING INTERESTS	$	1,372	$	1,233	$	4,037	$	3,385
Foreign-currency translation adjustment and other, net	(388)		54		(495)		411
Comprehensive income	984		1,287		3,542		3,796
Less: Comprehensive income (loss) attributable to noncontrolling interests	(13)		15		31		71
COMPREHENSIVE INCOME ATTRIBUTABLE TO COSTCO	$	997	$	1,272	$	3,511	$	3,725

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

4

COSTCO WHOLESALE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

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

	May 8, 2022		August 29, 2021
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	11,193	$	11,258
Short-term investments	638		917
Receivables, net	1,991		1,803
Merchandise inventories	17,623		14,215
Other current assets	1,563		1,312
Total current assets	33,008		29,505
OTHER ASSETS
Property and equipment, net	24,143		23,492
Operating lease right-of-use assets	2,731		2,890
Other long-term assets	3,970		3,381
TOTAL ASSETS	$	63,852	$	59,268
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable	$	17,651	$	16,278
Accrued salaries and benefits	4,090		4,090
Accrued member rewards	1,828		1,671
Deferred membership fees	2,251		2,042
Current portion of long-term debt	77		799
Other current liabilities	5,948		4,561
Total current liabilities	31,845		29,441
OTHER LIABILITIES
Long-term debt, excluding current portion	6,507		6,692
Long-term operating lease liabilities	2,452		2,642
Other long-term liabilities	2,535		2,415
TOTAL LIABILITIES	43,339		41,190
COMMITMENTS AND CONTINGENCIES
EQUITY
Preferred stock $0.01 par value; 100,000,000 shares authorized; no shares issued and outstanding	—		—
Common stock $0.01 par value; 900,000,000 shares authorized; 443,029,000 and 441,825,000 shares issued and outstanding	4		4
Additional paid-in capital	7,272		7,031
Accumulated other comprehensive loss	(1,602)		(1,137)
Retained earnings	14,294		11,666
Total Costco stockholders’ equity	19,968		17,564
Noncontrolling interests	545		514
TOTAL EQUITY	20,513		18,078
TOTAL LIABILITIES AND EQUITY	$	63,852	$	59,268

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

5

COSTCO WHOLESALE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(amounts in millions) (unaudited)

	12 Weeks Ended May 8, 2022
	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 13, 2022	443,279	$	4	$	7,186	$	(1,246)	$	13,474	$	19,418	$	558	$	19,976
Net income	—	—		—		—		1,353		1,353		19		1,372
Foreign-currency translation adjustment and other, net	—	—		—		(356)		—		(356)		(32)		(388)
Stock-based compensation	—	—		91		—		—		91		—		91
Release of vested restricted stock units (RSUs), including tax effects	4	—		(1)		—		—		(1)		—		(1)
Repurchases of common stock	(254)	—		(4)		—		(135)		(139)		—		(139)
Cash dividend declared	—	—		—		—		(398)		(398)		—		(398)
BALANCE AT MAY 8, 2022	443,029	$	4	$	7,272	$	(1,602)	$	14,294	$	19,968	$	545	$	20,513
	12 Weeks Ended May 9, 2021
	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 14, 2021	442,654	$	4	$	6,843	$	(961)	$	9,766	$	15,652	$	477	$	16,129
Net income	—	—		—		—		1,220		1,220		13		1,233
Foreign-currency translation adjustment and other, net	—	—		—		52		—		52		2		54
Stock-based compensation	—	—		87		—		—		87		—		87
Release of vested RSUs, including tax effects	6	—		(1)		—		—		(1)		—		(1)
Repurchases of common stock	(519)	—		(8)		—		(171)		(179)		—		(179)
Cash dividend declared	—	—		—		—		(349)		(349)		—		(349)
BALANCE AT MAY 9, 2021	442,141	$	4	$	6,921	$	(909)	$	10,466	$	16,482	$	492	$	16,974

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

6

COSTCO WHOLESALE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(amounts in millions) (unaudited)

	36 Weeks Ended May 8, 2022
	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 AUGUST 29, 2021	441,825	$	4	$	7,031	$	(1,137)	$	11,666	$	17,564	$	514	$	18,078
Net income	—	—		—		—		3,976		3,976		61		4,037
Foreign-currency translation adjustment and other, net	—	—		—		(465)		—		(465)		(30)		(495)
Stock-based compensation	—	—		609		—		—		609		—		609
Release of vested restricted stock units (RSUs), including tax effects	1,694	—		(360)		—		—		(360)		—		(360)
Repurchases of common stock	(490)	—		(8)		—		(249)		(257)		—		(257)
Cash dividends declared	—	—		—		—		(1,099)		(1,099)		—		(1,099)
BALANCE AT MAY 8, 2022	443,029	$	4	$	7,272	$	(1,602)	$	14,294	$	19,968	$	545	$	20,513
	36 Weeks Ended May 9, 2021
	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 AUGUST 30, 2020	441,255	$	4	$	6,698	$	(1,297)	$	12,879	$	18,284	$	421	$	18,705
Net income	—	—		—		—		3,337		3,337		48		3,385
Foreign-currency translation adjustment and other, net	—	—		—		388		—		388		23		411
Stock-based compensation	—	—		552		—		—		552		—		552
Release of vested RSUs, including tax effects	1,926	—		(312)		—		—		(312)		—		(312)
Repurchases of common stock	(1,040)	—		(17)		—		(351)		(368)		—		(368)
Cash dividends declared	—	—		—		—		(5,399)		(5,399)		—		(5,399)
BALANCE AT MAY 9, 2021	442,141	$	4	$	6,921	$	(909)	$	10,466	$	16,482	$	492	$	16,974

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

7

COSTCO WHOLESALE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in millions) (unaudited)

	36 Weeks Ended
	May 8, 2022		May 9, 2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income including noncontrolling interests	$	4,037	$	3,385
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:
Depreciation and amortization	1,306		1,222
Non-cash lease expense	240		189
Stock-based compensation	606		550
Other non-cash operating activities, net	49		19
Deferred income taxes	(2)		(16)
Changes in operating assets and liabilities:
Merchandise inventories	(3,633)		(1,531)
Accounts payable	1,766		1,256
Other operating assets and liabilities, net	517		944
Net cash provided by operating activities	4,886		6,018
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments	(588)		(802)
Maturities of short-term investments	840		955
Additions to property and equipment	(2,632)		(2,494)
Other investing activities, net	(48)		(39)
Net cash used in investing activities	(2,428)		(2,380)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in bank payments outstanding	(99)		1
Repayments of long-term borrowings	(800)		—
Tax withholdings on stock-based awards	(360)		(312)
Repurchases of common stock	(254)		(367)
Cash dividend payments	(701)		(5,050)
Other financing activities, net	(129)		(41)
Net cash used in financing activities	(2,343)		(5,769)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(180)		80
Net change in cash and cash equivalents	(65)		(2,051)
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR	11,258		12,277
CASH AND CASH EQUIVALENTS END OF PERIOD	$	11,193	$	10,226
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the first thirty-six weeks of the year for:
Interest	$	102	$	98
Income taxes, net	$	1,121	$	867
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Cash dividend declared, but not yet paid	$	398	$	349
Financing lease assets obtained in exchange for new or modified leases	$	631	$	265
Operating lease assets obtained in exchange for new or modified leases	$	67	$	208

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

8

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 May 8, 2022, Costco operated 829 warehouses worldwide: 573 in the United States (U.S.) located in 46 states, Washington, D.C., and Puerto Rico, 105 in Canada, 40 in Mexico, 30 in Japan, 29 in the United Kingdom (U.K.), 16 in Korea, 14 in Taiwan, 13 in Australia, four in Spain, two each in France and China, and one in Iceland. 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 inter-company transactions among the Company and its consolidated subsidiaries have been eliminated in consolidation. 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 on Form 10-K for the fiscal year ended August 29, 2021.

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 2022 is a 52-week year ending on August 28, 2022. References to the third quarter of 2022 and 2021 relate to the 12-week fiscal quarters ended May 8, 2022 and May 9, 2021, respectively. References to the first thirty-six weeks of 2022 and 2021 relate to the 36 weeks ended May 8, 2022 and May 9, 2021, 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. Actual results could differ from those estimates and assumptions.

9

Property and Equipment, Net

The Company capitalizes certain computer software and costs incurred in developing or obtaining software. The Company recognized a $118 write-off of certain information technology assets, which was recorded in the first quarter of 2022, in selling, general and administrative expenses.

Reclassification

Reclassifications were made to our third quarter and first thirty-six weeks of 2021 condensed consolidated statements of income to conform with current period presentation.

Note 2—Investments

The Company's investments were as follows:

May 8, 2022:	Cost Basis		Unrealized Losses, Net		Recorded Basis
Available-for-sale:
Government and agency securities	$	390	$	(1)	$	389
Held-to-maturity:
Certificates of deposit	249		—		249
Total short-term investments	$	639	$	(1)	$	638

August 29, 2021:	Cost Basis		Unrealized Gains, Net		Recorded Basis
Available-for-sale:
Government and agency securities	$	375	$	6	$	381
Held-to-maturity:
Certificates of deposit	536		—		536
Total short-term investments	$	911	$	6	$	917

Gross unrecognized holding gains and losses on available-for-sale securities were not material for the periods ended May 8, 2022, and August 29, 2021. At those dates, there were no available-for-sale securities in a material continuous unrealized-loss position. There were no sales of available-for-sale securities during the first thirty-six weeks of 2022 or 2021.

The maturities of available-for-sale and held-to-maturity securities at May 8, 2022 are as follows:

	Available-For-Sale				Held-To-Maturity
	Cost Basis		Fair Value
Due in one year or less	$	296	$	295	$	249
Due after one year through five years	94		94		—
Total	$	390	$	389	$	249

10

Note 3—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 indicates the level within the fair value hierarchy reflecting the valuation techniques utilized.

	Level 2
	May 8, 2022		August 29, 2021
Investment in government and agency securities(1)	$	389	$	393
Forward foreign-exchange contracts, in asset position(2)	54		17
Forward foreign-exchange contracts, in (liability) position(2)	(1)		(2)
Total	$	442	$	408

 _______________

(1)At August 29, 2021, $12 cash and cash equivalents and $381 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 May 8, 2022, and August 29, 2021, 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 thirty-six weeks of 2022 or 2021.

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 thirty-six weeks of 2022 or 2021.

Note 4—Debt

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

	May 8, 2022		August 29, 2021
2.300% Senior Notes due May 2022	$	—	$	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		1,250
1.600% Senior Notes due April 2030	1,750		1,750
1.750% Senior Notes due April 2032	1,000		1,000
Other long-term debt	618		731
Total long-term debt	6,618		7,531
Less unamortized debt discounts and issuance costs	34		40
Less current portion(1)	77		799
Long-term debt, excluding current portion	$	6,507	$	6,692

 _______________

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

11

The fair value of the Senior Notes is estimated using Level 2 inputs. Other long-term debt consists of Guaranteed Senior Notes issued by the Company's Japan subsidiary, valued using Level 3 inputs. The fair value of the Company's long-term debt, including the current portion, was approximately $6,000 and $7,692 at May 8, 2022, and August 29, 2021, respectively.

On December 1, 2021, the Company repaid, prior to maturity, the 2.300% Senior Notes at a redemption price plus accrued interest as specified in the Notes' agreement.

Note 5—Equity

Dividends

The Company’s current quarterly dividend is $0.90 per share, compared to $0.79 in the third quarter of 2021. On April 13, 2022, the Board of Directors declared a quarterly cash dividend in the amount of $0.90 per share, which was paid on May 13, 2022.

Share Repurchase Program

The Company's share repurchase program is conducted under a $4,000 authorization by the Board of Directors, which expires in April 2023. The remaining amount available under the program was $2,993 at May 8, 2022. Share repurchase activity is summarized below:

	Shares Repurchased (000s)	Average Price per Share		Total Cost
Third quarter of 2022	254	$	547.38	$	139
First thirty-six weeks of 2022	490	$	523.61	$	257
Third quarter of 2021	519	$	346.19	$	179
First thirty-six weeks of 2021	1,040	$	353.87	$	368

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

12

Note 6—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 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 May 8, 2022, 10,411,000 shares were available to be granted as RSUs, and the following awards were outstanding:

•3,375,000 time-based RSUs, which vest upon continued employment over specified periods and accelerate upon achievement of the long-service term;

•39,000 performance-based RSUs, granted to executive officers of the Company, for which the performance targets have been met. The awards vest upon continued employment over specified periods of time and upon achievement of the long-service term; and

•82,000 performance-based RSUs, granted to executive officers of the Company, subject to achievement of performance targets for fiscal 2022, 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. The Company recognized compensation expense for these awards in the third quarter of 2022, as it is currently deemed probable that the targets will be achieved.

The following table summarizes RSU transactions during the first thirty-six weeks of 2022:

	Number of Units (in 000s)	Weighted-Average Grant Date Fair Value
Outstanding at August 29, 2021	4,349	$	257.88
Granted	1,679	476.06
Vested and delivered	(2,443)	290.20
Forfeited	(89)	324.80
Outstanding at May 8, 2022	3,496	$	338.37

The remaining unrecognized compensation cost related to RSUs unvested at May 8, 2022, was $890, 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 8, 2022		May 9, 2021		May 8, 2022		May 9, 2021
Stock-based compensation expense	$	90	$	87	$	606	$	550
Less recognized income tax benefits	20		18		128		115
Stock-based compensation expense, net	$	70	$	69	$	478	$	435

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Note 7—Net Income per Common and Common Equivalent Share

The following table shows the amounts used in computing net income per share and the weighted average number of shares of basic and potentially dilutive common shares outstanding (shares in 000s):

	12 Weeks Ended				36 Weeks Ended
	May 8, 2022		May 9, 2021		May 8, 2022		May 9, 2021
Net income attributable to Costco	$	1,353	$	1,220	$	3,976	$	3,337
Weighted average basic shares	443,700		443,043		443,567		443,043
RSUs	1,186		1,084		1,235		1,293
Weighted average diluted shares	444,886		444,127		444,802		444,336
Anti-dilutive RSUs	—		1,046		—		—

Anti-dilutive shares are excluded from the calculation of diluted shares and earnings per diluted share because their impact would increase earnings per diluted share.

Note 8—Commitments and Contingencies

Legal Proceedings

The Company is involved in a number of claims, proceedings and litigations arising from its business and property ownership. In accordance with applicable accounting guidance, the Company establishes an accrual for legal proceedings if and when those matters present loss contingencies that are both probable and reasonably estimable. There may be exposure to loss in excess of amounts accrued. The Company monitors those matters for developments that would affect the likelihood of a loss (taking into account where applicable indemnification arrangements concerning suppliers and insurers) and the accrued amount, if any, thereof, and adjusts the amount as appropriate. The Company has recorded immaterial accruals with 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.

The Company is a defendant in an action commenced in July 2013 under the California Labor Code Private Attorneys General Act (PAGA) alleging violation of California Wage Order 7-2001 for failing to provide seating to employees who work at entrance and exit doors in California warehouses. Canela v. Costco Wholesale Corp. (Case No. 2013-1-CV-248813; Santa Clara Superior Court). 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.

In December 2018, a depot employee raised similar claims, alleging that depot employees in California did not receive suitable seating or reasonably comfortable workplace temperature conditions. Lane v. Costco Wholesale Corp. (Case No. CIVDS 1908816; San Bernardino Superior Court). The Company filed an answer denying the material allegations of the complaint. In October 2019, the parties settled for an immaterial amount the seating claims on a representative basis, which received court approval in February 2020. The parties settled the temperature claims for an immaterial amount in April 2022, and court approval was received in May 2022.

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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; C.D. Cal.). 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. Settlement for an immaterial amount was agreed upon in February 2021. Final court approval of the settlement was granted on May 3, 2022.

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; E.D. Cal.). Relief is sought under the California Labor Code, including civil penalties and attorneys' fees. In September 2021, the court granted Costco’s motion for partial summary judgment and denied class certification. In August 2019, the plaintiff filed a companion case in state court seeking penalties under PAGA. Rough v. Costco Wholesale Corp. (Case No. FCS053454; Sonoma County Superior Court). 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 April 2020, an employee, alleging underpayment of sick pay, filed a class and representative action against the Company, alleging claims under California law for failure to pay all wages at termination and for Labor Code penalties under PAGA. Kristy v. Costco Wholesale Corp. (Case No. 5:20-cv-04119; N.D. Cal.). The case was stayed due to the plaintiff's bankruptcy, and his individual claim was settled for an immaterial amount. The class and representative action claims were thereafter dismissed.

In December 2020, a former employee filed suit against the Company asserting collective and class claims on behalf of non-exempt employees under the Fair Labor Standards Act and New York Labor Law for failure to pay for all hours worked, failure to pay certain non-exempt employees on a weekly basis, and failure to provide proper wage statements and notices. The plaintiff also asserted individual retaliation claims. Cappadora v. Costco Wholesale Corp. (Case No. 1:20-cv-06067; E.D.N.Y.). An amended complaint was filed, and the Company denied the material allegations of the amended complaint. Based on an agreement in principle concerning settlement of the matter, involving a proposed payment by the Company of an immaterial amount, the federal action has been dismissed. In April 2022, Cappadora and a second plaintiff filed an action against the Company in New York state court asserting the same class claims asserted in the federal action under the New York Labor Law and seeking preliminary approval of the class settlement. Cappadora and Sancho v. Costco Wholesale Corp. (Index No. 604757/2022; Nassau County Supreme Court).

In August 2021, a former employee filed a similar suit, asserting class claims on behalf of certain non-exempt employees under New York Labor Law for failure to pay on a weekly basis. Umadat v. Costco Wholesale Corp. (Case No. 2:21-cv-4814; E.D.N.Y.). The Company answered the complaint on October 21, 2021, denying the material allegations. In April 2022, a former employee filed a similar suit, asserting class claims on behalf of certain non-exempt employees under New York Labor Law, as well as under the Fair Labor Standards Act, for failure to pay on a weekly basis and failure to pay overtime. Burian v. Costco Wholesale Corp. (Case No. 2:22-cv-02108; E.D.N.Y.).

In February 2021, a former employee filed a class action against the Company alleging violations of California Labor Code regarding payment of wages, meal and rest periods, wage statements, reimbursement of expenses, payment of final wages to terminated employees, and for unfair business practices. Edwards v. Costco Wholesale Corp. (Case No. 5:21-cv-00716: C.D. Cal.). In May 2021, the Company filed a motion to dismiss the complaint, which was granted with leave to amend. In June 2021, the plaintiff filed an amended complaint, which the Company moved to dismiss later that month. The court granted the motion in part in July 2021 with leave to amend. In August 2021, the plaintiff filed a second amended complaint and filed a separate representative action under PAGA asserting the same Labor

15

Code claims and seeking civil penalties and attorneys' fees. The Company filed an answer to the second amended class action complaint, denying the material allegations.

In July 2021, a former temporary staffing employee filed a class action against the Company and a staffing company alleging violations of the California Labor Code regarding payment of wages, meal and rest periods, wage statements, the timeliness of wages and final wages, and for unfair business practices. Dimas v. Costco Wholesale Corp. (Case No. STK-CV-UOE-2021-0006024; San Joaquin Superior Court). The Company has moved to compel arbitration of the plaintiff's individual claims and to dismiss the class action complaint. On September 7, 2021, the same former employee filed a separate representative action under PAGA asserting the same Labor Code violations and seeking civil penalties and attorneys' fees. The case has been stayed pending the motion to compel in the related case.

In September 2021, an employee filed a class action against the Company alleging violations of the California Labor Code regarding the alleged failure to provide sick pay, failure to timely pay wages due at separation from employment, and for violations of California's unfair competition law. De Benning v. Costco Wholesale Corp. (Case No. 34-2021-00309030-CU-OE-GDS; Sacramento Superior Court). The Company answered the complaint in January 2022, denying its material allegations. In April 2022, a settlement for an immaterial amount was agreed upon, subject to court approval.

In March 2022, an employee filed a class action against the Company alleging violations of the California Labor Code regarding the failure to: pay wages, provide meal and rest periods, provide accurate wage statements, timely pay final wages, and reimburse business expenses. Diaz v. Costco Wholesale Corp. (Case No. 22STCV09513; Los Angeles Superior Court). The Court stayed the case, including the Company's filing of a responsive pleading, pending the initial status conference.

In May 2022, an employee filed a PAGA-only representative action against the Company alleging claims under the California Labor Code regarding the payment of wages, meal and rest periods, the timeliness of wages and final wages, wage statements, accurate records and business expenses. Gonzalez v. Costco Wholesale Corp. (Case No. 22AHCV00255; Los Angeles Superior Court).

Beginning in December 2017, the United States Judicial Panel on Multidistrict Litigation consolidated numerous cases concerning the impacts of opioid abuses filed against various defendants by counties, cities, hospitals, Native American tribes, third-party payors, and others. In re National Prescription Opiate Litigation (MDL No. 2804) (N.D. Ohio). Included are cases 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 a hospital in Texas, class actions filed on behalf of infants born with opioid-related medical conditions in 40 states, and class actions and individual actions filed on behalf of individuals seeking to recover alleged increased insurance costs associated with opioid abuse in 43 states and American Samoa. Claims against the Company in state courts in New Jersey, Oklahoma, Utah, and Arizona have been dismissed. The Company is defending all of the pending matters.

The Company does not believe that any pending claim, proceeding or litigation, either alone or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or cash flows; it is possible that an unfavorable outcome of some or all of the matters, however unlikely, could result in a charge that might be material to the results of an individual fiscal quarter or year.

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Note 9—Segment Reporting

The Company and its subsidiaries are principally engaged in the operation of membership warehouses in the U.S., Canada, Mexico, Japan, U.K., 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 August 29, 2021, and Note 1 above. Inter-segment net sales and expenses have been eliminated in computing total revenue and operating income. Effective for fiscal 2022, stock-based compensation was allocated to the segments in this reporting. This change reflected a decision to evaluate the financial performance of the segments inclusive of this expense. Operating income was restated in each of the segments for all prior periods to reflect this change.

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

	United States Operations		Canadian Operations		Other International Operations		Total
12 Weeks Ended May 8, 2022
Total revenue	$	38,534	$	7,268	$	6,794	$	52,596
Operating income	1,205		324		262		1,791
12 Weeks Ended May 9, 2021
Total revenue	$	32,759	$	6,299	$	6,219	$	45,277
Operating income	1,135		260		268		1,663
36 Weeks Ended May 8, 2022
Total revenue	$	112,418	$	21,406	$	21,039	$	154,863
Operating income	3,502		918		876		5,296
36 Weeks Ended May 9, 2021
Total revenue	$	96,178	$	18,311	$	18,765	$	133,254
Operating income	2,898		733		802		4,433
52 Weeks Ended August 29, 2021
Total revenue	$	141,398	$	27,298	$	27,233	$	195,929
Operating income	4,470		1,093		1,145		6,708

Disaggregated Revenue

The following table summarizes net sales by merchandise category; sales from e-commerce websites and business centers have been allocated to the applicable merchandise categories:

	12 Weeks Ended				36 Weeks Ended
	May 8, 2022		May 9, 2021		May 8, 2022		May 9, 2021
Foods and Sundries	$	19,594	$	17,551	$	58,646	$	53,194
Non-Foods	13,810		12,899		43,077		39,006
Fresh Foods	6,813		6,296		20,211		18,413
Ancillary and Other Businesses	11,395		7,630		30,032		19,998
Total net sales	$	51,612	$	44,376	$	151,966	$	130,611

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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 document constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For these purposes, forward-looking statements are statements that address activities, events, conditions or developments that the Company expects or 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. In some cases, forward-looking statements can be identified because they contain words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “might,” “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, inflation or deflation, 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 costs), energy and certain commodities, geopolitical conditions (including tariffs and the Ukraine conflict), the ability to maintain effective internal control over financial reporting, regulatory and other impacts related to climate change, and COVID-19 related factors and challenges, including (among others) the duration of the pandemic, the unknown long-term economic impact, reduced shopping due to illness, travel restrictions or financial hardship, shifts in demand for products, reduced workforces due to illness, quarantine, or government mandates, temporary store closures or operational limitations due to government mandates, or supply-chain disruptions, capacity constraints of third-party logistics suppliers, and other risks identified from time to time in the Company's public statements and reports filed with the Securities and Exchange Commission (SEC). Forward-looking statements speak only as of the date they are made, and the Company does not undertake to update these statements, except as required by law.

OVERVIEW

The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to promote understanding of the results of operations and financial condition. MD&A is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and the accompanying Notes to Financial Statements (Part I, Item 1 of this Form 10-Q), as well as our consolidated financial statements, the accompanying Notes to Financial Statements, and the related Management's Discussion and Analysis of Financial Condition and Results of Operations in our fiscal year 2021 Form 10-K, which was filed with the United States Securities and Exchange Commission (SEC) on October 6, 2021.

We operate membership warehouses and e-commerce websites based on the concept that offering our members low prices on a limited selection of nationally-branded and private-label products in a wide range of 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 generally sell inventory before we are required to pay for it, even while taking advantage of early payment discounts.

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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 (foods and sundries, non-foods, and fresh foods), warehouse ancillary (includes gasoline, pharmacy, optical, food court, hearing aids, and tire installation) and other businesses (e-commerce, business centers, travel and other). We define comparable sales as net sales from warehouses open for more than one year, including remodels, relocations and expansions, and sales related to e-commerce websites operating for more than one year. Comparable sales growth is achieved through increasing shopping frequency from new and existing members and the amount they spend on each visit (average ticket). Sales comparisons can also be particularly influenced by certain factors that are beyond our control: fluctuations in currency exchange rates (with respect to our international operations); and changes in the cost of gasoline and associated competitive conditions. The higher our comparable sales exclusive of these items, the more we can leverage 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 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. Merchandise costs in the third quarter and first thirty-six weeks of 2022 were impacted by inflation higher than what we have experienced in recent years. The impact to our net sales and gross margin is influenced in part by our merchandising and pricing strategies in response to cost increases. Those strategies can include, but are not limited to, working with our suppliers to share in absorbing cost increases, earlier-than-usual purchasing and in greater volumes, offering seasonal merchandise outside its season, the chartering of container vessels and leasing of containers as well as passing cost increases on to our members. Our investments in merchandise pricing may include reducing prices on merchandise to drive sales or meet competition and holding prices steady despite cost increases instead of passing the increases on to our members, all negatively impacting gross margin and gross margin as a percentage of net sales (gross margin percentage). We believe our gasoline business 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, the United States and the United Kingdom, 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. 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

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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 operations.

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.

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 our longer-term objectives of reducing employee turnover and enhancing employee satisfaction require maintaining compensation levels that are better than the industry average for much of our workforce. This may cause us, for example, to absorb costs that other employers might seek to pass through to their workforces. Because our business operates on very low margins, modest changes in various items in the consolidated statements of income, particularly merchandise costs and SG&A expenses, can have substantial impacts on net income.

Our operating model is generally the same across our U.S., Canadian, and Other International operating segments (see Note 9 to the condensed consolidated financial statements included in Part I, Item 1, of this Report). Certain operations in the Other International segment have relatively higher rates of square footage growth, lower wage and benefit costs as a percentage of sales, less or no direct membership warehouse competition, or lack e-commerce or business delivery.

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 third quarter of 2022 and 2021 relate to the 12-week fiscal quarters ended May 8, 2022, and May 9, 2021. References to the first thirty-six weeks of 2022 and 2021 relate to the 36 weeks ended May 8, 2022, and May 9, 2021. Certain percentages presented are calculated using actual results prior to rounding. Unless otherwise noted, references to net income relate to net income attributable to Costco.

Highlights for the third quarter of 2022 versus 2021 include:

•Net sales increased 16% to $51,612, driven by an increase in comparable sales of 15% and sales at 20 net new warehouses opened since the end of the third quarter of 2021;

•Membership fee revenue increased 9% to $984, driven by new member sign-ups, upgrades to Executive Membership, and an increase in our renewal rate;

•Gross margin percentage decreased 99 basis points, driven primarily by our core merchandise categories and a LIFO charge for higher merchandise costs;

•SG&A expenses as a percentage of net sales decreased 84 basis points, primarily due to leveraging increased sales;

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•We incurred a one-time $77 pretax charge, primarily related to granting our employees one additional day of vacation under the new employee agreement that was effective March 14, 2022;

•Net income was $1,353, $3.04 per diluted share, compared to $1,220, $2.75 per diluted share in 2021; and

•On April 13, 2022, our board declared a quarterly cash dividend of $0.90 per share, which was paid on May 13, 2022.

COVID-19

The COVID-19 pandemic continued to impact our business in the third quarter of 2022, albeit to a lesser extent. COVID-related and other supply and logistics constraints have continued to adversely affect some merchandise categories and are expected to do so for the foreseeable future. During the third quarter and first thirty-six weeks of fiscal 2021, we paid $57 and $515 in incremental wages related to COVID-19, which ceased in February 2021.

RESULTS OF OPERATIONS

Net Sales

	12 Weeks Ended						36 Weeks Ended
	May 8, 2022			May 9, 2021			May 8, 2022			May 9, 2021
Net Sales	$	51,612		$	44,376		$	151,966		$	130,611
Changes in net sales:
U.S	18		%	19		%	17		%	16		%
Canada	16		%	34		%	17		%	22		%
Other International	9		%	27		%	12		%	25		%
Total Company	16		%	22		%	16		%	18		%
Changes in comparable sales:
U.S	17		%	18		%	16		%	15		%
Canada	15		%	32		%	16		%	20		%
Other International	6		%	23		%	8		%	21		%
Total Company	15		%	21		%	15		%	16		%
Changes in comparable sales excluding the impact of changes in foreign-currency and gasoline prices:
U.S	11		%	15		%	11		%	15		%
Canada	13		%	17		%	11		%	15		%
Other International	9		%	13		%	10		%	16		%
Total Company	11		%	15		%	11		%	15		%

Net Sales

Net sales increased $7,236 or 16%, and $21,355 or 16% during the third quarter and first thirty-six weeks of 2022. This improvement was attributable to an increase in comparable sales of 15% in both the third quarter and first thirty-six weeks of 2022, and sales at the 20 net new warehouses opened since the end of the third quarter of 2021. While sales increased in all core merchandise categories and warehouse ancillary and other businesses, the rate of increase was strongest in our gasoline, business centers, and travel businesses. Sales continued to be impacted by inflation, higher than what we experienced in the comparable periods of 2021 and earlier this fiscal year.

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During the third quarter of 2022, higher gasoline prices positively impacted net sales by $2,270, 511 basis points, compared to 2021, with a 42% increase in the average price per gallon. The volume of gasoline sold increased approximately 24%, positively impacting net sales by $1,082, 244 basis points. Changes in foreign currencies relative to the U.S. dollar negatively impacted net sales by approximately $476, 107 basis points, compared to the third quarter of 2021, primarily attributable to our Other International operations.

During the first thirty-six weeks of 2022, higher gasoline prices positively impacted net sales by $5,829, 446 basis points, compared to 2021, with a 44% increase in the average price per gallon. The volume of gasoline sold increased approximately 25%, positively impacting net sales by $2,701, 207 basis points. Changes in foreign currencies relative to the U.S. dollar negatively impacted net sales by approximately $379, 29 basis points, compared to the first thirty-six weeks of 2021, primarily attributable to our Other International operations, partially offset by our Canadian operations.

Comparable Sales

Comparable sales increased 15% in both the third quarter and first thirty-six weeks of 2022, and were positively impacted by increases in the average ticket and shopping frequency, which includes the effects of inflation and changes in foreign currency. E-commerce comparable sales increased 7% and 11% in the third quarter and first thirty-six weeks of 2022.

Membership Fees

	12 Weeks Ended						36 Weeks Ended
	May 8, 2022			May 9, 2021			May 8, 2022			May 9, 2021
Membership fees	$	984		$	901		$	2,897		$	2,643
Membership fees increase	9		%	11		%	10		%	9		%
Total paid members (000s)	64,400			60,600			—			—
Total cardholders (000s)	116,600			109,800			—			—

Membership fee revenues increased 9% and 10% in the third quarter and first thirty-six weeks of 2022, driven by sign-ups and upgrades to Executive Membership. At the end of the third quarter of 2022, our member renewal rates were 92% in the U.S. and Canada and 90% worldwide. Renewal rates continue to benefit from more members auto renewing and increased penetration of executive members, who on average renew at a higher rate. Our renewal rate, which excludes affiliates of Business members, is a trailing calculation that captures renewals during the period seven to eighteen months prior to the reporting date.

We account for membership fee revenue on a deferred basis, recognized ratably over the one-year membership period. Our membership counts include active memberships as well as memberships that have not renewed within the 12 months prior to the reporting date.

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Gross Margin

	12 Weeks Ended						36 Weeks Ended
	May 8, 2022			May 9, 2021			May 8, 2022			May 9, 2021
Net sales	$	51,612		$	44,376		$	151,966		$	130,611
Less merchandise costs	46,355			39,415			135,824			115,951
Gross margin	$	5,257		$	4,961		$	16,142		$	14,660
Gross margin percentage	10.19		%	11.18		%	10.62		%	11.22		%

Quarterly Results

Total gross margin percentage decreased 99 basis points compared to the third quarter of 2021. Excluding the impact of gasoline price inflation on net sales, gross margin percentage was 10.65%, a decrease of 53 basis points. This was primarily due to a 46 basis-point decrease in core merchandise categories, due to decreases in fresh foods and non-foods and 27 basis points due to a LIFO charge for higher merchandise costs. Gross margin was positively impacted by 18 basis points related to our warehouse ancillary and other businesses, predominantly gasoline, and three basis points due to 2% rewards. Gross margin was negatively impacted by one basis point due to the net impact of a one-time charge related to granting our employees one additional day of vacation under the new employee agreement and the ceasing of incremental wages related to COVID-19. We expect the LIFO charge in our fourth quarter of fiscal 2022 to be substantially higher than the fourth quarter of fiscal 2021. Changes in foreign currencies relative to the U.S. dollar negatively impacted gross margin by approximately $51, compared to the third quarter of 2021.

The gross margin of core merchandise categories, when expressed as a percentage of core merchandise sales (rather than total net sales), decreased 39 basis points. The decrease was across all categories, most significantly in fresh foods. This measure eliminates the impact of changes in sales penetration and gross margins from our warehouse ancillary and other businesses.

Gross margin on a segment basis, when expressed as a percentage of the segment's own sales and excluding the impact of changes in gasoline prices on net sales (segment gross margin percentage), decreased across all segments. Our U.S. segment performed similarly to the results above. Gross margin percentage in our Canadian segment was negatively impacted due to decreases in core merchandise categories and warehouse ancillary and other businesses. Gross margin percentage in our Other International segment was negatively impacted due to decreases in core merchandise categories, partially offset by warehouse ancillary and other businesses. Our Other International segment was also negatively impacted due to increased 2% rewards. All our segments benefited from the ceasing of incremental wages related to COVID-19.

Year-to-date Results

Total gross margin percentage decreased 60 basis points compared to the first thirty-six weeks of 2021. Excluding the impact of gasoline price inflation on net sales, gross margin was 11.05%, a decrease of 17 basis points. This was primarily due to a 38 basis-point decrease in core merchandise categories, predominantly driven by decreases in fresh foods and foods and sundries, and 15 basis points due to a LIFO charge for higher merchandise costs. Warehouse ancillary and other businesses positively impacted gross margin by 27 basis points, predominantly gasoline. Gross margin was positively impacted by nine basis points due to the net impact of ceasing incremental wages related to COVID-19 and the negative impact of a one-time charge related to granting our employees one additional day of vacation under the new employee agreement. Changes in foreign currencies relative to the U.S. dollar negatively impacted gross margin by approximately $43, compared to the first thirty-six weeks of 2021, attributable to our Other International operations, partially offset by our Canadian operations.

23

The gross margin of core merchandise categories, when expressed as a percentage of core merchandise sales (rather than total net sales), decreased 28 basis points. The decrease was across all categories, most significantly in fresh foods.

The segment gross margin percentage decreased in our U.S. and Canadian segment. Gross margin decreased in core merchandise categories, partially offset by warehouse ancillary and other businesses. Our U.S. segment was also negatively impacted due to the LIFO charge. The gross margin percentage decreased in our Other International segment due to decreases in core merchandise categories and increased 2% rewards, partially offset by increases in warehouse ancillary and other businesses. All our segments benefited from the ceasing of incremental wages related to COVID-19.

Selling, General and Administrative Expenses

	12 Weeks Ended						36 Weeks Ended
	May 8, 2022			May 9, 2021			May 8, 2022			May 9, 2021
SG&A expenses	$	4,450		$	4,199		$	13,743		$	12,870
SG&A expenses as a percentage of net sales	8.62		%	9.46		%	9.04		%	9.85		%

Quarterly Results

SG&A expenses as a percentage of net sales decreased 84 basis points. Excluding the impact of gasoline price inflation the decrease was 44 basis points. Warehouse operations and other businesses were lower by 35 basis points, largely attributable to leveraging increased sales. This includes the impact of the starting wage increase we instituted in October 2021, as well as eight weeks of the increased wages and benefits that were effective on March 14, 2022. Central operating costs were lower by 10 basis points, and stock compensation expense was lower by one basis point. SG&A was negatively impacted by two basis points due to the net impact of a one-time charge related to granting our employees one additional day of vacation under the new employee agreement and the ceasing of incremental wages related to COVID-19. Changes in foreign currencies relative to the U.S. dollar positively impacted SG&A expenses by approximately $39, compared to the third quarter of 2021.

Year-to-date Results

SG&A expenses as a percentage of net sales decreased 81 basis points compared to the first thirty-six weeks of 2021. Excluding the impact of gasoline price inflation the decrease was 45 basis points. Warehouse operations and other businesses were lower by 18 basis points, largely attributable to leveraging increased sales. This includes the impact of the starting wage increase we instituted in October 2021 as well as eight weeks of the increased wages and benefits that were effective on March 14, 2022. SG&A was positively impacted by a net 18 basis points due to ceasing incremental wages related to COVID-19, a write-off of certain information technology assets and a one-time charge related to granting our employees one additional day of vacation under the new employee agreement. Central operating costs were lower by eight basis points, and stock compensation expense was lower by one basis point. Changes in foreign currencies relative to the U.S. dollar positively impacted SG&A expenses by approximately $37, compared to the third quarter of 2021, primarily attributable to our Other International operations.

Interest Expense

	12 Weeks Ended				36 Weeks Ended
	May 8, 2022		May 9, 2021		May 8, 2022		May 9, 2021
Interest expense	$	35	$	40	$	110	$	119

Interest expense is primarily related to Senior Notes. Interest expense decreased in the third quarter and first thirty-six weeks of 2022 due to early repayment of the 2.300% Senior Notes on December 1, 2021.

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Interest Income and Other, Net

	12 Weeks Ended				36 Weeks Ended
	May 8, 2022		May 9, 2021		May 8, 2022		May 9, 2021
Interest income	$	6	$	8	$	21	$	29
Foreign-currency transaction gains, net	56		6		94		13
Other, net	9		13		23		33
Interest income and other, net	$	71	$	27	$	138	$	75

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 August 29, 2021.

Provision for Income Taxes

	12 Weeks Ended						36 Weeks Ended
	May 8, 2022			May 9, 2021			May 8, 2022			May 9, 2021
Provision for income taxes	$	455		$	417		$	1,287		$	1,004
Effective tax rate	24.9		%	25.2		%	24.2		%	22.9		%

The effective tax rate for the first thirty-six weeks of 2022 was impacted by net discrete tax benefits of $114, which were primarily related to the first quarter. This included $91 of excess tax benefits related to stock compensation. Excluding discrete net tax benefits, the tax rate was 26.3% for the first thirty-six weeks of 2022.

The effective tax rate for the first thirty-six weeks of 2021 was impacted by net discrete tax benefits of $157, which was primarily related to the first quarter. This included $75 of excess tax benefits related to stock compensation, $70 related to the special cash dividend paid through the 401(k) plan, and $19 primarily related to a reduction in the valuation allowance against certain deferred tax assets. Excluding net discrete tax benefits, the tax rate was 26.4% for the first thirty-six weeks of 2021.

LIQUIDITY AND CAPITAL RESOURCES

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

	36 Weeks Ended
	May 8, 2022		May 9, 2021
Net cash provided by operating activities	$	4,886	$	6,018
Net cash used in investing activities	(2,428)		(2,380)
Net cash used in financing activities	(2,343)		(5,769)

Our primary sources of liquidity are cash flows generated from our operations, cash and cash equivalents, and short-term investments. Cash and cash equivalents and short-term investments were $11,831 and $12,175 at May 8, 2022, and August 29, 2021. Of these balances, unsettled credit and debit card receivables represented approximately $2,152 and $1,816 at May 8, 2022, and August 29, 2021. These receivables generally settle within four days.

Material contractual obligations arising in the normal course of business primarily consist of purchase obligations, long-term debt and related interest payments, leases, and construction and land purchase obligations.

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

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

Cash Flows from Operating Activities

Net cash provided by operating activities totaled $4,886 in the first thirty-six weeks of 2022, compared to $6,018 in the first thirty-six weeks of 2021. Our cash flow provided by operations is primarily derived from net sales and membership fees. Cash flow used in operations generally consists of payments to merchandise suppliers, warehouse operating costs, including payroll and employee benefits, utilities, and credit and debit card processing fees. Cash used in operations also includes payments for income taxes. Changes in our net investment in merchandise inventories (the difference between merchandise inventories and accounts payable) is impacted by several factors, including how fast inventory is sold, the forward deployment of inventory to accelerate delivery times to our members, earlier than usual purchasing in anticipation of cost increases, payment terms with our suppliers, and the amount paid early to obtain discounts from our suppliers.

Cash Flows from Investing Activities

Net cash used in investing activities totaled $2,428 in the first thirty-six weeks of 2022, compared to $2,380 in the first thirty-six weeks of 2021, and is primarily related to capital expenditures. Net cash from investing activities also includes purchases and maturities of short-term investments.

Capital Expenditure Plans

Our primary requirements for capital are acquiring land, buildings, and equipment for new and remodeled warehouses. Capital is also required for information systems, manufacturing and distribution facilities, initial warehouse operations, and working capital. In the first thirty-six weeks of 2022, we spent $2,632 on capital expenditures, and it is our current intention to spend approximately $4,000 during fiscal year 2022. These expenditures are expected to be financed with cash from operations, existing cash and cash equivalents, and short-term investments. We opened 17 new warehouses, including three relocations, in the first thirty-six weeks of 2022 and plan to open 10 additional new warehouses in the remainder of fiscal 2022. There can be no assurance that current expectations will be realized, and plans are subject to change upon changes in capital expenditure needs or the economic environment.

Cash Flows from Financing Activities

Net cash used in financing activities totaled $2,343 in the first thirty-six weeks of 2022, compared to $5,769 in the first thirty-six weeks of 2021. Cash flow used in financing activities was primarily related to repayments of our 2.300% Senior Notes, the payment of dividends, withholding taxes on stock-based awards, and repurchases of common stock. In the first thirty-six weeks of 2021, cash flow used in financing was primarily due to the payment of a special dividend.

Dividends

On April 13, 2022, our Board declared a quarterly cash dividend of $0.90 per share payable to shareholders of record on April 29, 2022, which was paid on May 13, 2022.

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Share Repurchase Program

During the first thirty-six weeks of 2022 and 2021, we repurchased 490,000 and 1,040,000 shares of common stock, at an average price per share of $523.61 and $353.87, totaling approximately $257 and $368. These amounts may differ from the repurchase balances in the accompanying condensed consolidated statements of cash flows due to changes in unsettled 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.

Bank Credit Facilities and Commercial Paper Programs

We maintain bank credit facilities for working capital and general corporate purposes. At May 8, 2022, we had borrowing capacity under these facilities of $1,006. Our international operations maintain $522 of this capacity under bank credit facilities, of which $182 is guaranteed by the Company. Short-term borrowings outstanding under the bank credit facilities were immaterial at the end of the third quarter of 2022 and at the end of 2021.

The Company has letter of credit facilities, for commercial and standby letters of credit, totaling $225. The outstanding commitments under these facilities at the end of the third quarter of 2022 totaled $198, most of which were standby letters of credit that do not expire or have expiration dates within one year. The bank credit facilities have various expiration dates, most within one year, and we generally intend to renew these facilities. 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.

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 August 29, 2021. There have been no material changes to the critical accounting policies previously disclosed in that Report.

Recent Accounting Pronouncements

There have been no material changes in recently issued or adopted accounting standards from those disclosed in our Annual Report on Form 10-K, for the fiscal year ended August 29, 2021.

Item 3—Quantitative and Qualitative Disclosures about Market Risk

Our direct exposure to financial market risk results from fluctuations in foreign-currency exchange rates and interest rates. There have been no material changes to our market risks as disclosed in our Annual Report on Form 10-K, for the fiscal year ended August 29, 2021.

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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 and the Chief Financial Officer, with assistance from other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of May 8, 2022 and, based on their evaluation, have concluded the disclosure controls and procedures were effective as of such date.

Changes in Internal Control over Financial Reporting

During the third quarter of 2022, we implemented a new financial planning, consolidation and reporting application, which required changes to certain business processes and controls in the internal control over financial reporting.

There have been no other 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 third quarter of fiscal 2022 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 8 to the condensed consolidated financial statements included in Part I, Item 1 of this Report.

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 August 29, 2021. There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K.

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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 third quarter of 2022 (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)
February 14, 2022 — March 13, 2022	88,000	$	517.63	88,000	$	3,086
March 14, 2022 — April 10, 2022	85,000	563.93		85,000	3,038
April 11, 2022 — May 8, 2022	81,000	562.33		81,000	2,993
Total third quarter	254,000	$	547.38	254,000

 _______________

(1)Our share 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	2/16/2020	3/12/2020
3.2	Bylaws as amended of Costco Wholesale Corporation	x
31.1	Rule 13(a) – 14(a) Certifications	x
32.1	Section 1350 Certifications	x
101.INS	Inline XBRL Instance Document	x
101.SCH	Inline XBRL Taxonomy Extension Schema Document	x
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document	x
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document	x
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document	x
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document	x
104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)	x

30

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)
June 1, 2022	By	/s/ W. CRAIG JELINEK
Date		W. Craig Jelinek Chief Executive Officer and Director
June 1, 2022	By	/s/ RICHARD A. GALANTI
Date		Richard A. Galanti Executive Vice President, Chief Financial Officer and Director

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EX-3.2

Exhibit 3.2

BYLAWS OF

COSTCO WHOLESALE CORPORATION

Article 1	Offices	1
1.1	Principal Office	1
1.2	Registered Office and Registered Agent	1
1.3	Other Offices	1
Article 2	Shareholders	1
2.1	Annual Meeting	1
2.2	Special Meetings	4
2.3	Notice of Meetings	5
	(a)    Notice of Special Meeting	6
	(b)    Proposed Articles of Amendment or Dissolution	6
	(c)    Proposed Merger, Consolidation, Exchange, Sale, Lease or Disposition	6
	(d)    Declaration of Mailing	6
	(e)    Waiver of Notice	7
2.4	Quorum	7
2.5	Voting of Shares	7
2.6	Adjourned Meetings	7
2.7	Record Date	7
2.8	Record of Shareholders Entitled to Vote	7
2.9	Action by Shareholders Without a Meeting	8
2.10	Proxies 10	8
2.11	Organization	8
2.12	Shareholder Nominations Included in the Corporation’s Proxy Materials	8
	(a)    Inclusion of Shareholder Nominees in Proxy Statement	8
	(b)    Maximum Number of Shareholder Nominees	9
	(c)    Eligibility of Nominating Shareholder	10
	(d)    Nominations Notice	11
	(e)    Exceptions	14
2.13	Submission of Questionnaire, Representation and Agreement	15
Article 3	Board of Directors	16
3.1	Management Responsibility	16
3.2	Number of Directors, Qualification	16
3.3	Election20	16
3.4	Vacancies	17
3.5	Removal	17
3.6	Resignation	17
	3.6.1 Resignation and Director Elections	17
3.7	Annual Meeting	18
3.8	Regular Meetings	18
3.9	Special Meeting	18
3.10	Notice of Meeting	18
3.11	Quorum of Directors	18

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3.12	Presumption of Assent	19
3.13	Action by Directors Without a Meeting	19
3.14	Telephonic Meetings	19
3.15	Compensation	19
3.16	Committees	19
3.17	Chairman	20
Article 4	Officers	20
4.1	Appointment	20
4.2	Qualification	20
4.3	Officers Designated	20
	(a)    Chief Executive Officer	20
	(b)    President	21
	(c)    Executive Vice President	21
	(d)    Secretary	21
	(e)    Chief Financial Officer	21
	(e)    Treasurer	22
4.4	Delegation	22
4.5	Resignation	22
4.6	Removal	22
4.7	Vacancies	22
4.8	Compensation	22
Article 5	Execution of Instruments and Voting of Securities Owned by the Corporation	22
5.1	Execution of Corporate Instruments	22
5.2	Voting of Securities Owned by the Corporation	23
Article 6	Stock	23
6.1	Form and Execution of Certificates	23
6.2	Lost Certificates	23
6.3	Transfers	23
6.4	Registered Shareholders	24
6.5	Execution of Other Securities	24
Article 7	Books and Records	24
7.1	Books of accounts, Minutes and Share Register	24
7.2	Copies of Resolutions	24
Article 8	Fiscal Year	25
Article 9	Corporate Seal	25
Article 10	Indemnification	25
10.1	Right to Indemnification	25

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10.2	Nonexclusivity of Rights	25
10.3	Insurance, Contracts and Funding	25
10.4	Indemnification of Officers, Employees and Agents of the Corporation	25
10.5	Persons Serving Other Entities	25
Article 11	Amendment of Bylaws	26

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BYLAWS OF

COSTCO WHOLESALE CORPORATION

These Bylaws are promulgated pursuant to the Washington Business Corporation Act, as set forth in Title 23B of the Revised Code of Washington (“RCW”).

ARTICLE 1

OFFICES

1.1PRINCIPAL OFFICE. The principal office of the corporation shall be located at 999 Lake Drive, Issaquah, Washington 98027.

1.2REGISTERED OFFICE AND REGISTERED AGENT. The registered office of the corporation shall be located in the State of Washington at such place as may be fixed from time to time by the Board of Directors upon filing of such notices as may be required by law, and the registered agent shall have a business office identical with such registered office. Any change in the registered agent or registered office shall be effective upon filing such change with the office of the Secretary of State of the State of Washington.

1.3OTHER OFFICES. The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Washington, as the Board of Directors may from time to time determine or the business of the corporation may require.

ARTICLE 2

SHAREHOLDERS

2.1ANNUAL MEETING.

(a)The annual meeting of shareholders shall be held each year at such date, time and place as may be designated by resolution of the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting may be held solely by means of remote communication, as permitted by Section 23B.07.080 of the RCW. At the meeting, directors shall be elected and any other proper business may be transacted.

(b)Nominations of persons for election to the Board of Directors and the proposal of business to be considered by the shareholders may be made at an annual meeting of shareholders only (i) pursuant to the corporation’s notice with respect to such meeting (or any supplement thereto), (ii) by or at the direction of the Board of Directors, (iii) by any shareholder of the corporation who was a shareholder of record at the time of giving of the notice provided for in this Section 2.1, who is entitled to vote for the election of directors or such other business at the meeting and who has complied with the notice procedures set forth in this Section 2.1, or (iv) by any Nominating Shareholder (as defined below) who meets the requirements of and complies with the procedures set forth in Section 2.12.

(c)For nominations or other business to be properly brought before an annual meeting by a shareholder pursuant to Section 2.1(b)(iii):

(i)the shareholder must have given timely notice thereof in writing to the Secretary of the corporation, as provided in this Section 2.1; and

(ii)such business must be a proper matter for shareholder action under the RCW.

(d)To be timely, a shareholder’s notice pursuant to Section 2.1(b)(iii) shall be delivered to the Secretary at the principal executive offices of the corporation not less than 90 or more

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than 120 days before the first anniversary of the date of the preceding year’s annual meeting of shareholders; provided, however, that if the date of the annual meeting is advanced more than 30 days before or delayed by more than 30 days after the anniversary of the preceding year’s annual meeting, or if the corporation did not hold an annual meeting in the preceding year, notice by the shareholder to be timely must be so delivered not earlier than the 120th day and not later than the close of business on the later of the 90th day before such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. In no event shall the public announcement of an adjournment of the annual meeting commence a new time period (or extend any time period) for the giving of a shareholder’s notice as described above. Such shareholder’s notice under Section 2.1(b)(iii) shall set forth:

(i)as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made:

(A)the name and address of such shareholder, as they appear on the corporation’s books, and of such beneficial owner (such shareholder or beneficial owner, a “Holder”) and, if such Holder is an entity, any control person;

(B)the class and number of shares of the corporation that are owned beneficially and of record by the Holder and by each control person;

(C)a description of any agreement, arrangement or understanding (including without limitation any derivative or short positions, profit interests, options, hedging transactions, and borrowed or loaned shares) that has been entered into as of the date of the notice by, or on behalf of, the Holder or control person, the effect or intent of which is to mitigate loss, manage risk or benefit from changes in the share price of any class or series of the corporation’s stock, or maintain, increase or decrease the voting power of the Holder or control person with respect to shares of the corporation (any such agreement, arrangement or understanding, a “Derivative Instrument”);

(D)a description of any agreement, arrangement or understanding with respect to the nomination or other business between or among such Holder or control person, on the one hand, and any other person acting in concert with any of them, on the other hand, including without limitation any agreements that would be required to be disclosed pursuant to Item 5 or Item 6 of Schedule 13D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (regardless of whether the requirement to file a Schedule 13D is applicable);

(E)a description of the terms of and number of shares subject to any short interest in any security of the corporation in which the Holder or any control person has an interest (for purposes of these Bylaws a person shall have a short interest in a security if the Holder or control person directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has the opportunity to profit or share in any profit derived from any decrease in the value of the subject security);

(F)a description of any proportionate interest in shares of the corporation or any Derivative Instrument held, directly or indirectly, by a general or limited partnership or limited liability company or similar entity in which the Holder or control person is a general partner or, directly or indirectly, beneficially owns an interest in a general partner, is the manager, managing member or directly or indirectly beneficially owns an interest in the manager or managing member of a limited liability company or similar entity;

(G)a description of the terms of and number of shares subject to any performance-related fees (other than an asset-based fee) that the Holder or control person is entitled to based on any increase or decrease in the value of shares of the corporation or Derivative Instruments, if any;

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(H)a description of the terms of and number of shares subject to any arrangements, rights, or other interests described in Sections 2.1(d)(i)(C)-(G) held by members of such Holder’s or control person’s immediate family sharing the same household;

(I)any other information relating to the Holder or control person or any person who would be considered a participant in a solicitation with such Holder or control person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations thereunder;

(J)a representation that the shareholder is a holder of record of the stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to present such business or nomination and to vote or cause to be voted its stock at the meeting; and

(K)any other information as reasonably requested by the corporation.

The information required by this subsection (i) shall be provided as of the date of the notice and shall be provided as of the record date for the meeting through a supplemental statement by the Holder delivered to the corporation not later than 10 days after the record date for the meeting, and shall be updated through the date of the annual meeting to reflect any material changes in such information.

(ii)as to each person whom the Holder proposes to nominate for election or reelection as a director (a “nominee”):

(A)all information relating to the nominee as would be required to be disclosed in a proxy statement or other filings required to be made in connection within solicitations of proxies for the election of directors in a contested election pursuant to Section 14 of the Exchange Act, including the nominee’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected;

(B)a description of all direct and indirect compensation and other material monetary agreements, arrangements, and understandings during the past three years, and any other material relationships, between or among the Holder and any control person or other person acting in concert, on the one hand, and each proposed nominee, and each proposed nominee’s respective affiliates or persons acting in concert, on the other hand, including, without limitation, all information that would be required to be disclosed pursuant to Item 404 of Regulation S-K if the Holder making the nomination and any affiliate or person acting in concert with either, were the “registrant” for purposes of Item 404 and the nominee were a director or executive officer of such registrant;

(C)a description of the material terms of all agreements and arrangements between any nominee and any person or entity other than the corporation relating to compensation or other payment in connection with such nominee’s candidacy or, if elected, service as a director;

(D)a completed and signed questionnaire, representation and agreement required by Section 2.13; and

(E)such other information as the corporation may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the corporation and whether the nominee would be deemed “independent” under applicable law and rules.

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(iii)as to any other business that the Holder proposes to bring before the meeting, a brief description of such business, the text of the proposal or business (including the text of any resolutions proposed for consideration and, in the event such business includes a proposal to amend the Articles of Incorporation or Bylaws of the corporation, the text of such amended Articles or Bylaws), the reasons for conducting such business at the meeting and any material interest in such business of such Holder.

(e)Notwithstanding anything in this Section 2.1 to the contrary, in the event that the number of directors to be elected to the Board of Directors is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the corporation at least 55 days before the first anniversary of the date of the preceding year’s annual meeting of shareholders, a shareholder’s notice required by this Bylaw shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the corporation.

(f)Section 2.1(b)(iii) and Section 2.12 shall be the exclusive means for a shareholder to make director nominations at an annual meeting of shareholders and Section 2.1(b)(iii) shall be the exclusive means for a shareholder to submit other business at an annual meeting of shareholders (other than proposals that are brought under Rule 14a-8 of the Exchange Act (or any successor rule) and included in the corporation’s notice of meeting. The chairman of the meeting shall have the power and the duty to determine whether a nomination or any business proposed to be brought before the meeting has been made in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defectively proposed business or nomination shall not be presented for shareholder action at the meeting and shall be disregarded.

(g)For purposes of these Bylaws, (i) “control person” means, with respect to a Holder, each director (in the case of a corporation), general partner (in the case of a limited or general partnership), manager or managing member (in the case of a limited liability company), executive officer, or other person performing similar functions of such Holder or such Holder’s general partner, manager or managing member (each, a “control person”), and (ii) “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission (the “SEC”) pursuant to Section 13, 14 or 15(d) of the Exchange Act.

(h)Nothing in this Section 2.1 shall be deemed to affect any rights of shareholders to request inclusion of proposals in the corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act. Notice of shareholder proposals that are, or that the shareholder intends to be, governed by Rule 14a-8 under the Exchange Act are not governed by this Section 2.1.

2.2SPECIAL MEETINGS.

(a)Special meetings of the shareholders, other than those required by statute, may be called at any time by the Board of Directors acting pursuant to a resolution adopted by a majority of the Whole Board, or by any shareholders of record owning in the aggregate at least 10% of all votes entitled to be cast on any issue proposed to be considered at the proposed special meeting. For purposes of this Section 2.2, the term “Whole Board” shall mean the total number of authorized directors whether or not there exist any vacancies in previously authorized directorships. The Board of Directors may postpone or reschedule any previously scheduled special meeting.

(b)Only such business shall be conducted at a special meeting of the shareholders as shall have been brought before the meeting pursuant to the corporation’s notice of the meeting. In the case of a special meeting called by one or more shareholders, the business transacted shall be limited to

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the purpose(s) stated in the request; provided that the Board of Directors may submit its own proposal or proposals for consideration at such special meeting.

(c)Nominations of persons for election to the Board of Directors and the proposal of business to be considered by the shareholders may be made at a special meeting of shareholders only (i) by or at the direction of the Board of Directors or (ii) by any shareholder of record at the time of giving of notice provided for in this paragraph, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 2.2. Nominations by shareholders of persons for election to the Board of Directors and the proposal of business by shareholders may be made at such a special meeting of shareholders if the substance of the shareholder’s notice complies with Section 2.1, and the shareholder’s notice has been delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the later of the 90th day before such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting.

(d)Section 2.2(c)(ii) shall be the exclusive means for a shareholder to make director nominations or submit other business at a special meeting of shareholders (other than proposals that are brought under Rule 14a-8 of the Exchange Act and included in the corporation’s notice of meeting). The chairman of the meeting shall have the power and the duty to determine whether a nomination or any business proposed to be brought before the meeting has been made in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defectively proposed business or nomination shall not be presented for shareholder action at the meeting and shall be disregarded.

(e)Nothing in this Section 2.2 shall be deemed to affect any rights of shareholders to request inclusion of proposals in the corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act. Notice of shareholder proposals that are, or that the shareholder intends to be, governed by Rule 14a-8 under the Exchange Act are not governed by this Section 2.2.

2.3NOTICE OF MEETINGS. Except as set forth in subsections (b) and (c) below, all notices of meetings of shareholders shall be sent not less than 10 nor more than 60 days before the date of the meeting. The notice shall specify the place, date, and hour of the meeting and (a) in the case of a special meeting, the general nature of the business to be transacted (no business other than that specified in the notice may be transacted) or (b) in the case of the annual meeting, those matters which the Board of Directors, at the time of giving the notice, intends to present for action by the shareholders (but, subject to the provisions of the next paragraph of this Section 2.3 and the advance notice provisions of Section 2.1(b) and 2.12, any proper matter may be presented at the meeting for such action). The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees who, at the time of the notice, are intended by the Board of Directors to be presented for election.

Written notice of any meeting of shareholders shall be given either (a) personally, (b) by first-class mail, (c) by other written means of communication, or (d) by electronic transmission (as defined below) either by the corporation (if the meeting is called by the Board of Directors) or to the corporation (if the meeting is called by a shareholder pursuant to Section 2.2).

“Electronic transmission by the corporation” includes facsimile transmissions, electronic mail, posting on an electronic message board or network which the corporation has designated for such purpose (together with a separate notice to the shareholder of the posting), or other means of electronic communication, provided such electronic transmission (i) creates a record that is capable of retention, retrieval and review and may otherwise be rendered into clearly legible tangible form and (ii) complies, to the extent applicable, with the Electronic Signatures in Global and National Commerce Act (15 U.S.C. Sec. 7001(c)(1)). The corporation may not send notices by electronic transmission to a shareholder unless such shareholder has affirmatively consented to receiving notices by electronic transmission; such shareholder may revoke such consent at any time. Notwithstanding the foregoing, notice shall not be given by electronic transmission to a

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shareholder if the corporation is unable to deliver two consecutive notices to such shareholder by that means, or the inability to deliver notices electronically to such shareholder becomes known to the Secretary, assistant secretary or transfer agent of the corporation, or to any other person responsible for the giving of the notice.

“Electronic transmission to the corporation” includes facsimile or electronic mail directed to the facsimile number or electronic mail address specified by the corporation for such purpose, posting on an electronic message board or network which the corporation has designated for such purpose, or other means of electronic communication, provided that the corporation has put into effect reasonable measures to verify that the sender is the shareholder purporting to send the message, and provided further that such electronic transmission creates a record capable of retention, retrieval and review, and may thereafter be rendered into clearly legible tangible form.

Notices sent by the corporation by mail, facsimile or electronic mail shall be sent charges prepaid and shall be addressed to the shareholder at the mailing, facsimile or electronic mail address of that shareholder, as applicable, appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no address appears on the corporation’s books or is given, notice shall be deemed to have been given if sent to that shareholder by mail or other written communication to the corporation’s principal executive office, or if published at least once in a newspaper of general circulation in the county where that office is located.

Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication or electronic transmission. If notice is sent via posting on an electronic message board together with a separate notice to the shareholder of the posting, notice shall be deemed to have been validly delivered upon the later of the posting or the delivery of the separate notice.

(a)NOTICE OF SPECIAL MEETING. In the case of a special meeting, the written notice shall also state with reasonable clarity the purpose or purposes for which the meeting is called and the actions sought to be approved at the meeting. No business other than that specified in the notice may be transacted at a special meeting.

(b)PROPOSED ARTICLES OF AMENDMENT OR DISSOLUTION. If the business to be conducted at any meeting includes any proposed amendment to the Articles of Incorporation or the proposed voluntary dissolution of the corporation, then the written notice shall be given not less than 20 nor more than 60 days before the meeting date and shall state that the purpose or one of the purposes is to consider the advisability thereof, and, in the case of a proposed amendment, shall be accompanied by a copy of the amendment.

(c)PROPOSED MERGER, CONSOLIDATION, EXCHANGE, SALE, LEASE OR DISPOSITION. If the business to be conducted at any meeting includes any proposed plan of merger or share exchange, or any sale, lease, exchange, or other disposition of all or substantially all of the corporation’s property otherwise than in the usual or regular course of its business, then the written notice shall state that the purpose or one of the purposes is to consider the proposed plan of merger or share exchange, sale, lease, or disposition, as the case may be, shall describe the proposed action with reasonable clarity, and, if required by law, shall be accompanied by a copy or a detailed summary thereof; and written notice shall be given to each shareholder of record, whether or not entitled to vote at such meeting, not less than 20 nor more than 60 days before such meeting, in the manner provided in this Section 2.3 above.

(d)DECLARATION OF MAILING. A declaration of the mailing or other means of giving any notice of any shareholders’ meeting, executed by the Secretary, Assistant Secretary, or any transfer agent of the corporation giving the notice, shall be prima facie evidence of the giving of such notice.

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(e)WAIVER OF NOTICE. Notice of any shareholders’ meeting may be waived in writing by any shareholder at any time, either before or after the meeting. Except as provided below, the waiver must be signed by the shareholder entitled to the notice, and be delivered to the corporation for inclusion in the minutes or filing with the corporate records. A shareholder’s attendance at a meeting waives objection to lack of notice, or defective notice, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting.

2.4QUORUM. A quorum shall exist at any meeting of shareholders if a majority of the shares entitled to vote is represented in person or by proxy. Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. The shareholders present at a duly organized meeting may continue to transact business at such meeting and at any adjournment of such meeting (unless a new record date is or must be set for the adjourned meeting), notwithstanding the withdrawal of enough shareholders from either meeting to leave less than a quorum. Once a share is represented for any purpose at a meeting other than solely to object to holding the meeting or transacting business at the meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for the adjourned meeting.

2.5VOTING OF SHARES. Except as otherwise provided in the Articles of Incorporation or these Bylaws, and except as required by law, every shareholder of record shall have the right at every shareholders’ meeting to one vote for every share standing in his or her name on the books of the corporation. If a quorum exists, action on a matter, other than the election of directors, is approved by a voting group if the votes cast within the voting group favoring the action exceed the votes cast within the voting group opposing the action, unless a greater number is required by the Articles of Incorporation or the Washington Business Corporation Act.

2.6ADJOURNED MEETINGS. Whether or not a quorum exists, the chairman of the meeting (as provided in Section 2.11) or a majority of the shares represented at a meeting may adjourn the meeting from time to time without further notice. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. However, if a new record date for the adjourned meeting is or must be fixed in accordance with the Washington Business Corporation Act, notice of the adjourned meeting must be given to persons who are shareholders as of the new record date. At any adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting.

2.7RECORD DATE. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or any adjournment thereof, or entitled to receive payment of any dividend, the Board of Directors may fix in advance a record date for any such determination of shareholders, such date to be not more than 70 days and, in the case of a meeting of shareholders, not less than 10 days prior to the meeting or action requiring such determination of shareholders. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the day before the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section 2.7, such determination shall apply to any adjournment thereof, unless the Board of Directors fixes a new record date, which it must do if the meeting is adjourned more than 120 days after the date is fixed for the original meeting.

2.8RECORD OF SHAREHOLDERS ENTITLED TO VOTE. After fixing a record date for a shareholders’ meeting, the corporation shall prepare an alphabetical list of the names of all shareholders on the record date who are entitled to notice of the shareholders’ meeting. The list shall be arranged by voting group, and within each voting group by class or series of shares, and show the address of, and number of shares held by, each shareholder. A shareholder, shareholder’s agent, or a shareholder’s

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attorney may inspect the shareholders list, beginning 10 days prior to the shareholders’ meeting and continuing through the meeting, at the corporation’s principal office or at a place identified in the meeting notice in the city where the meeting will be held during regular business hours and at the shareholder’s expense. The shareholders list shall be kept open for inspection during such meeting or any adjournment. Failure to comply with the requirements of this Section 2.8 shall not affect the validity of any action taken at such meeting.

2.9ACTION BY SHAREHOLDERS WITHOUT A MEETING. Unless otherwise provided in the Articles of Incorporation, any action required or permitted to be taken at a meeting of shareholders may be taken without a meeting and without prior notice if a consent in writing setting forth the action to be taken shall be signed by all shareholders entitled to vote on the action.

2.10PROXIES. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his or her duly authorized attorney in fact. Such proxy shall be filed with the Secretary of the corporation before or at the time of the meeting. No proxy shall be valid after three years from the date of its execution, unless otherwise provided in the proxy or by applicable law.

2.11ORGANIZATION.

(a)At every meeting of shareholders, the Chairman of the Board of Directors (the “Chairman”), or, if a Chairman has not been appointed or is absent, the Chief Executive Officer, or, if the Chief Executive Officer is absent, the President, or, if the President is absent, a chairman of the meeting chosen by a majority of the Board of Directors, shall act as chairman. The Secretary, or, in his or her absence, an Assistant Secretary directed to do so by the Chief Executive Officer, the President or the chairman, shall act as secretary of the meeting.

(b)The Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of shareholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to shareholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of shareholders shall not be required to be held in accordance with rules of parliamentary procedure.

2.12SHAREHOLDER NOMINATIONS INCLUDED IN THE CORPORATION’S PROXY MATERIALS.

(a)INCLUSION OF SHAREHOLDER NOMINEES IN PROXY STATEMENT. Subject to the provisions of this Section 2.12, if expressly requested in the relevant Nomination Notice (as defined below), the corporation shall include in its proxy statement for any annual meeting of shareholders:

(i)the names of any person or persons nominated for election to the Board of Directors (each, a “Shareholder Nominee”), which shall also be included on the corporation’s form of proxy and ballot, by any Eligible Holder (as defined below) or group of up to 20 Eligible Holders that has (individually and collectively, in the case of a group) satisfied, as determined by the Board of Directors, all applicable conditions and complied with all applicable procedures set forth in this Section 2.12 (such Eligible Holder or group of Eligible Holders being a “Nominating Shareholder”);

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(ii)disclosure about each Shareholder Nominee and the Nominating Shareholder required under the rules of the SEC or other applicable law to be included in the proxy statement;

(iii)any statement included by the Nominating Shareholder in the Nomination Notice for inclusion in the proxy statement in support of each Shareholder Nominee’s election to the Board of Directors (subject, without limitation, to Section 2.12(e)(ii)), if such statement does not exceed 500 words and fully complies with Section 14 of the Exchange Act and the rules and regulations thereunder, including Rule 14a-9 (or any successor rule) (the “Supporting Statement”); and

(iv)any other information that the corporation or the Board of Directors determines, in their discretion, to include in the proxy statement relating to the nomination of each Shareholder Nominee, including, without limitation, any statement in opposition to the nomination, any information provided pursuant to this Section 2.12 and any solicitation materials or related information with respect to a Shareholder Nominee.

For purposes of this Section 2.12, any determination to be made by the Board of Directors may be made by the Board of Directors, a committee of the Board of Directors or any officer of the corporation designated by the Board of Directors or a committee of the Board of Directors, and any such determination shall be final and binding on the corporation, any Eligible Holder, any Nominating Shareholder, any Shareholder Nominee and any other person (without any further recourse). The chairman of any annual meeting of shareholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall have the power and duty to determine whether a Shareholder Nominee has been nominated in accordance with the requirements of this Section 2.12 and, if not so nominated, shall direct and declare at the meeting that such Shareholder Nominee shall not be considered.

(b)MAXIMUM NUMBER OF SHAREHOLDER NOMINEES.

(i)The corporation shall not be required to include in the proxy statement for an annual meeting of shareholders more Shareholder Nominees than that number of directors constituting the greater of (A) two and (B) 20% of the total number of directors of the corporation on the last day on which a Nomination Notice may be submitted pursuant to this Section 2.12 (rounded down to the nearest whole number) (the “Maximum Number”).

(ii)The Maximum Number for a particular annual meeting shall be reduced by (A) Shareholder Nominees whom the Board of Directors itself decides to nominate for election at such annual meeting; (B) Shareholder Nominees who cease to satisfy, or Shareholder Nominees of Nominating Shareholders that cease to satisfy, the eligibility requirements in this Section 2.12, as determined by the Board of Directors; (C) Shareholder Nominees whose nomination is withdrawn by the Nominating Shareholder or who become unwilling or unable to serve on the Board of Directors; and (D) the number of incumbent directors who had been Shareholder Nominees with respect to any of the preceding three annual meetings of shareholders and whose reelection at the upcoming annual meeting is being recommended by the Board of Directors.

(iii)In the event that one or more vacancies for any reason occurs on the Board of Directors after the deadline for submitting a Nomination Notice as set forth in Section 2.12(d) but before the date of the annual meeting, and the Board of Directors resolves to reduce the size of the board, the Maximum Number shall be calculated based on the number of directors in office as so reduced.

(iv)If the number of Shareholder Nominees pursuant to this Section 2.12 for any annual meeting of shareholders pursuant to this Section 2.12 exceeds the Maximum Number because there is more than one Nominating Shareholder, then, promptly upon notice from the

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corporation, each Nominating Shareholder will select one Shareholder Nominee for inclusion in the proxy statement until the Maximum Number is reached, going in order of the amount (largest to smallest) of the ownership position as disclosed in each Nominating Shareholder’s Nomination Notice (as amended, as applicable), with the process repeated if the Maximum Number is not reached after each Nominating Shareholder has selected one Shareholder Nominee. If, after the deadline for submitting a Nomination Notice as set forth in Section 2.12(d), a Nominating Shareholder or a Shareholder Nominee ceases to satisfy the eligibility requirements in this Section 2.12, as determined by the Board of Directors, a Nominating Shareholder withdraws its nomination or a Shareholder Nominee becomes unwilling or unable to serve on the Board of Directors, whether before or after the mailing or other distribution of the definitive proxy statement, then the nomination shall be disregarded, and the corporation (A) shall not be required to include in its proxy statement or on any ballot or form of proxy the disregarded Shareholder Nominee or any successor or replacement nominee proposed by the Nominating Shareholder or by any other Nominating Shareholder and (B) may otherwise communicate to its shareholders, including without limitation by amending or supplementing its proxy statement or ballot or form of proxy, that a Shareholder Nominee will not be included as a nominee in the proxy statement or on any ballot or form of proxy and will not be voted on at the annual meeting.

(c)ELIGIBILITY OF NOMINATING SHAREHOLDER.

(i)An “Eligible Holder” is a person who has either (A) been a record holder of the shares of common stock used to satisfy the eligibility requirements in this Section 2.12(c) continuously for the three-year period specified in subsection (ii) below or (B) provides to the Secretary of the corporation, within the time period referred to in Section 2.12(d), evidence of continuous ownership of such shares for such three-year period from one or more securities intermediaries in a form that the Board of Directors determines would be deemed acceptable for purposes of a shareholder proposal under Rule 14a-8(b)(2) under the Exchange Act (or any successor rule).

(ii)An Eligible Holder or group of up to 20 Eligible Holders may submit a nomination in accordance with this Section 2.12 only if the person or group (in the aggregate) has continuously owned at least the Minimum Number (as defined below) of shares of the corporation’s common stock throughout the three-year period preceding and including the date of submission of the Nomination Notice, and continues to own at least the Minimum Number through the date of the annual meeting. Two or more funds that are (A) under common management and investment control, (B) under common management and funded primarily by a single employer, or (C) a “group of investment companies,” as such term is defined in Section 12(d)(1)(G)(ii) of the Investment Company Act of 1940, as amended, shall be treated as one Eligible Holder if such Eligible Holder shall provide together with the Nomination Notice documentation reasonably satisfactory to the corporation that demonstrates that the funds meet the criteria set forth in (A), (B) or (C) of this Section 2.12(c)(ii). In the event of a nomination by a group of Eligible Holders, any and all requirements and obligations for an individual Eligible Holder that are set forth in this Section 2.12, including the minimum holding period, shall apply to each member of such group; provided, however, that the Minimum Number shall apply to the ownership of the group in the aggregate. Should any shareholder cease to satisfy the eligibility requirements in this Section 2.12, as determined by the Board of Directors, or withdraw from a group of Eligible Holders at any time prior to the annual meeting of shareholders, the group of Eligible Holders shall only be deemed to own the shares held by the remaining members of the group.

(iii)The “Minimum Number” of shares of the corporation’s common stock means 3% of the number of outstanding shares of common stock as of the most recent date for which such amount is given in any filing by the corporation with the SEC prior to the submission of the Nomination Notice.

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(iv)For purposes of this Section 2.12, an Eligible Holder “owns” only those outstanding shares of the corporation as to which the Eligible Holder possesses both:

(A)the full voting and investment rights pertaining to the shares; and

(B)the full economic interest in (including the opportunity for profit and risk of loss on) such shares;

provided that the number of shares calculated in accordance with clauses (A) and (B) shall not include any shares (1) purchased or sold by such Eligible Holder or any of its affiliates in any transaction that has not been settled or closed, (2) sold short by such Eligible Holder, (3) borrowed by such Eligible Holder or any of its affiliates for any purpose or purchased by such Eligible Holder or any of its affiliates pursuant to an agreement to resell or subject to any other obligation to resell to another person, or (4) subject to any option, warrant, forward contract, swap, contract of sale, other derivative or similar agreement entered into by such Eligible Holder or any of its affiliates, whether any such instrument or agreement is to be settled with shares or with cash based on the notional amount or value of outstanding shares of the corporation, in any such case which instrument or agreement has, or is intended to have, the purpose or effect of (x) reducing in any manner, to any extent or at any time in the future, such Eligible Holder’s or any of its affiliates’ full right to vote or direct the voting of any such shares, and/or (y) hedging, offsetting, or altering to any degree, gain or loss arising from the full economic ownership of such shares by such Eligible Holder or any of its affiliates.

An Eligible Holder “owns” shares held in the name of a nominee or other intermediary so long as the Eligible Holder retains the right to instruct how the shares are voted with respect to the election of directors and possesses the full economic interest in the shares. An Eligible Holder’s ownership of shares shall be deemed to continue during any period in which the Eligible Holder has delegated any voting power by means of a proxy, power of attorney, or other similar instrument or arrangement that is revocable at any time by the Eligible Holder. An Eligible Holder’s ownership of shares shall be deemed to continue during any period in which the Eligible Holder has loaned such shares, provided that the Eligible Holder has the power to recall such loaned shares on five business days’ notice and continues to hold such shares through the date of the annual meeting. The terms “owned,” “owning” and other variations of the word “own” shall have correlative meanings. Whether outstanding shares of the corporation are “owned” for these purposes shall be determined by the Board of Directors.

(v)No Eligible Holder shall be permitted to be in more than one group constituting a Nominating Shareholder, and if any Eligible Holder appears as a member of more than one group, it shall be deemed to be a member of the group that has the largest ownership position as reflected in the Nomination Notice.

(d)NOMINATION NOTICE. To nominate a Shareholder Nominee, the Nominating Shareholder must deliver to the Secretary at the principal executive offices of the corporation not less than 120 or more than 150 days before the first anniversary of the date that the corporation first sent its proxy statement for the prior year’s annual meeting of shareholders, all of the following information and documents (collectively, the “Nomination Notice”); provided, however, that if the date of the annual meeting is advanced more than 30 days before or delayed by more than 30 days after such anniversary date, or if the corporation did not hold an annual meeting in the preceding year, the Nomination Notice shall be given in the manner provided herein not earlier than the 150th day and not later than the close of business on the later of the 120th day before such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made:

(i)A Schedule 14N (or any successor form) relating to each Shareholder Nominee, completed and filed with the SEC by the Nominating Shareholder as applicable, in accordance with SEC rules;

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(ii)A written notice, in a form deemed satisfactory by the Board of Directors, of the nomination of each Shareholder Nominee that includes the following additional information, agreements, representations and warranties by the Nominating Shareholder (including each group member):

(A)the information required with respect to the nomination of directors pursuant to Section 2.1(d)(i);

(B)the details of any relationship that existed within the past three years and that would have been described pursuant to Item 6(e) of Schedule 14N (or any successor item) if it existed on the date of submission of the Schedule 14N;

(C)a representation and warranty that the Nominating Shareholder acquired the securities of the corporation in the ordinary course of business and did not acquire, and is not holding, any securities of the corporation for the purpose or with the effect of influencing control or changing control of the corporation;

(D)a representation and warranty that each Shareholder Nominee’s candidacy or, if elected, Board of Directors membership would not violate applicable state or federal law or the rules of any stock exchange on which the corporation’s securities are traded;

(E)a representation and warranty that such Shareholder Nominee:

(1)does not have any direct or indirect relationship with the corporation that would cause the Shareholder Nominee to be considered not independent pursuant to the corporation’s Corporate Governance Guidelines as most recently published on its website and otherwise qualifies as independent under the rules of the primary stock exchange on which the corporation’s shares of common stock are traded;

(2)is not and has not been subject to any event specified in Rule 506(d)(1) of Regulation D (or any successor rule) under the Securities Act of 1933 or Item 401(f) of Regulation S-K (or any successor rule) under the Exchange Act, without reference to whether the event is material to an evaluation of the ability or integrity of such Shareholder Nominee; and

(3)is not a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses) and has not been convicted in a criminal proceeding within the past 10 years;

(F)a representation and warranty that the Nominating Shareholder satisfies the eligibility requirements set forth in Section 2.12(c) and has provided evidence of ownership to the extent required by Section 2.12(c)(i);

(G)a representation and warranty that the Nominating Shareholder intends to continue to satisfy the eligibility requirements described in Section 2.12(c) through the date of the annual meeting and a statement regarding the Nominating Shareholder’s intent or lack thereof with respect to continued ownership of the Minimum Number of shares for at least one year following the annual meeting;

(H)details of any position of a Shareholder Nominee related to any competitor (that is, any entity that produces products or provides services that compete with or are alternatives to the products produced or services provided by the corporation or its affiliates) of the corporation, within the three years preceding the submission of the Nomination Notice;

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(I)a representation and warranty that the Nominating Shareholder will not engage in or aid or abet a “solicitation” within the meaning of Rule 14a-1(l) of the Exchange Act (without reference to the exception in Section 14a-1(l)(2)(iv) of the Exchange Act) (or any successor rules) with respect to the annual meeting, other than with respect to a Shareholder Nominee or any nominee of the Board of Directors;

(J)a representation and warranty that the Nominating Shareholder will not use any proxy card other than the corporation’s proxy card in soliciting shareholders in connection with the election of a Shareholder Nominee at the annual meeting;

(K)if desired, a Supporting Statement; and

(L)in the case of a nomination by a group, the designation by all group members of one group member that is authorized to act on behalf of all group members with respect to matters relating to the nomination, including withdrawal of the nomination;

(iii)An executed agreement, in a form deemed satisfactory by the Board of Directors, pursuant to which the Nominating Shareholder (including each group member) agrees:

(A)to comply with all applicable laws, rules and regulations in connection with the nomination, solicitation and election;

(B)to file with the SEC any written solicitation or other communication with the corporation’s shareholders relating to one or more of the corporation’s directors or director nominees or any Shareholder Nominee, regardless of whether any such filing is required under rule or regulation or whether any exemption from filing is available for such materials under any rule or regulation;

(C)to assume all liability (which shall be joint and several with respect to other group members if any) stemming from an action, suit or proceeding concerning any actual or alleged legal or regulatory violation arising out of any communication by the Nominating Shareholder or any of its Shareholder Nominees (or those in active concert or participation with either) with the corporation, its shareholders or any other person in connection with the nomination or election of directors, including, without limitation, the Nomination Notice;

(D)to indemnify and hold harmless (which shall be joint and several with respect to other group members if any) the corporation and each of its current and former directors, officers and employees individually against any liability, loss, damages, expenses or other costs (including attorneys’ fees) incurred in connection with any threatened or pending action, suit or proceeding, whether legal, administrative or investigative, against the corporation or any of its current and former directors, officers or employees arising out of or relating to a failure or alleged failure of the Nominating Shareholder or any of its Shareholder Nominees to comply with, or any breach or alleged breach of, its or their obligations, agreements or representations under this Section 2.12; and

(E)in the event that any information included in the Nomination Notice or any other communication by the Nominating Shareholder (including with respect to any group member) with the corporation, its shareholders or any other person in connection with the nomination or election ceases to be true and accurate in all material respects (or omits a material fact necessary to make the statements made not misleading), or that the Nominating Shareholder (including any group member) has failed to continue to satisfy the eligibility requirements described in Section 2.12(c), to promptly (and in any event within 48 hours of discovering such misstatement, omission or failure) notify the corporation and any other recipient of such communication of (1) the misstatement or

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omission in such previously provided information and of the information that is required to correct the misstatement or omission or (2) such failure; and

(iv)An executed agreement, in a form deemed satisfactory by the Board of Directors, by each Shareholder Nominee:

(A)to provide to the corporation the information required with respect to the nomination of directors pursuant to Section 2.1(d)(ii), including but not limited to a completed and signed questionnaire, representation and agreement required by Section 2.13;

(B)to provide to the corporation such other information and certifications, including completion of the corporation’s director questionnaire, as the corporation may reasonably request; and

(C)at the reasonable request of the Nominating and Governance Committee, to meet with the Nominating and Governance Committee to discuss matters relating to the nomination of such Shareholder Nominee to the Board of Directors, including the information provided by such Shareholder Nominee to the corporation in connection with his or her nomination and such Shareholder Nominee’s eligibility to serve as a member of the Board of Directors.

The information and documents required by this Section 2.12(d) to be provided by the Nominating Shareholder shall be (i) provided with respect to and executed by each group member, in the case of information applicable to group members; and (ii) provided with respect to the persons specified in Instruction 1 to Items 6(c) and (d) of Schedule 14N (or any successor item) in the case of a Nominating Shareholder or group member that is an entity. The Nomination Notice shall be deemed submitted on the date on which all the information and documents referred to in this Section 2.12(d) (other than such information and documents contemplated to be provided after the date the Nomination Notice is provided) have been delivered to or, if sent by mail, received by the Secretary of the corporation.

(e)EXCEPTIONS.

(i)Notwithstanding anything to the contrary contained in this Section 2.12, the corporation may omit from its proxy statement any Shareholder Nominee and any information concerning such Shareholder Nominee (including a Nominating Shareholder’s Supporting Statement) and no vote on such Shareholder Nominee will occur (notwithstanding that proxies in respect of such vote may have been received by the corporation), and the Nominating Shareholder may not, after the last day on which a Nomination Notice would be timely, cure in any way any defect preventing the nomination of such Shareholder Nominee, if:

(A)the corporation receives a notice pursuant to Section 2.1(b)(iii) that a shareholder intends to nominate a candidate for director at the annual meeting, whether or not such notice is subsequently withdrawn or made the subject of a settlement with the corporation;

(B)the Nominating Shareholder or the designated lead group member, as applicable, or any qualified representative thereof, does not appear at the meeting of shareholder s to present the nomination submitted pursuant to this Section 2.12, the Nominating Shareholder withdraws its nomination or the chairman of the annual meeting declares that such nomination was not made in accordance with the procedures prescribed by this Section 2.12 and shall therefore be disregarded;

(C)the Board of Directors determines that such Shareholder Nominee’s nomination or election to the Board of Directors would result in the corporation violating

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or failing to be in compliance with the Articles of Incorporation or Bylaws of the corporation or any applicable law, rule or regulation to which the corporation is subject, including any rules or regulations of the primary stock exchange on which the corporation’s common stock is traded;

(D)such Shareholder Nominee was nominated for election to the Board of Directors pursuant to this Section 2.12 at one of the corporation’s three preceding annual meetings of shareholders and either withdrew or became ineligible or received a vote of less than 25% of the shares of common stock entitled to vote for such Shareholder Nominee;

(E)such Shareholder Nominee has been, within the past three years, an officer or director of a competitor, as defined for purposes of Section 8 of the Clayton Antitrust Act of 1914, as amended; and

(F)the corporation is notified, or the Board of Directors determines, that the Nominating Shareholder or the Shareholder Nominee has failed to continue to satisfy the eligibility requirements described in Section 2.12(c), any of the representations and warranties made in the Nomination Notice ceases to be true and accurate in all material respects (or omits a material fact necessary to make the statements made not misleading), such Shareholder Nominee becomes unwilling or unable to serve on the Board of Directors or any material violation or breach occurs of the obligations, agreements, representations or warranties of the Nominating Shareholder or such Shareholder Nominee under this Section 2.12.

(ii)Notwithstanding anything to the contrary contained in this Section 2.12, the corporation may omit from its proxy statement, or may supplement or correct, any information, including all or any portion of the Supporting Statement or any other statement in support of a Shareholder Nominee included in the Nomination Notice, if the Board of Directors determines that:

(A)such information is not true in all material respects or omits a material statement necessary to make the statements made not misleading;

(B)such information directly or indirectly impugns the character, integrity or personal reputation of, or directly or indirectly makes charges concerning improper, illegal or immoral conduct or associations, without factual foundation, with respect to, any person; or

(C)the inclusion of such information in the proxy statement would otherwise violate the SEC proxy rules or any other applicable law, rule, regulation, or listing standard.

The corporation may solicit against, and include in the proxy statement its own statement relating to, any Shareholder Nominee.

2.13SUBMISSION OF QUESTIONNAIRE, REPRESENTATION AND AGREEMENT. To be eligible to be a nominee for election or reelection as a director of the corporation by a shareholder under Section 2.1 or an Eligible Shareholder under Section 2.12, a person must complete and deliver (in accordance with the time periods prescribed for delivery of notice under Section 2.1 or 2.12, whichever is applicable) to the Secretary at the principal executive offices of thecorporation a written questionnaire providing the information requested about the background and qualifications of such person and the background of any other person or entity on whose behalf the nomination is being made and a written representation and agreement (the questionnaire, representation, and agreement to be in the form provided by the Secretary upon written request) that such person:

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(a)is not and will not become a party to (i) any compensatory, payment or other financial agreement, arrangement or understanding with any person or entity in connection with his or her nomination, service or action as a director of the corporation that has not been disclosed to the corporation, (ii) any agreement, arrangement or understanding with any person or entity as to how such person would vote or act on any issue or question as a director (a “Voting Commitment”) that has not been disclosed to the corporation, or (iii) any Voting Commitment that could limit or interfere with the person’s ability to comply, if elected as a director of the corporation, with the person’s fiduciary duties under applicable law;

(b)in the person’s individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in compliance, if elected as a director of the corporation, and will comply with the corporation’s Bylaws, Corporate Governance Guidelines, Code of Ethics and any other corporation policies and guidelines applicable to directors.

(c)currently intends to serve as a director for the term for which he or she is standing for election and until his or her successor is duly elected and qualified.

ARTICLE 3

BOARD OF DIRECTORS

3.1MANAGEMENT RESPONSIBILITY. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, the Board of Directors, except as may be otherwise provided in the Articles of Incorporation or the Washington Business Corporation Act.

3.2NUMBER OF DIRECTORS, QUALIFICATION. The authorized number of directors of the corporation shall be as specified and set by resolution from time to time by the Board of Directors. Directors need not be shareholders. No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.

3.3ELECTION. Except as provided in Section 3.4, directors shall be elected at each annual meeting of shareholders, and each director so elected shall hold office until the annual meeting which takes place in the year in which his or her term expires and, except as otherwise provided in this Section 3.3, until his or her successor is duly elected and qualified, or until his or her earlier resignation or removal.

In a non-contested election, a nominee for director shall be elected by the vote of a majority of the votes cast. A majority of votes cast means that the number of votes cast “for” a nominee’s election exceeds the number of votes cast “against” that nominee’s election. The following shall not be votes cast: (a) a share as to which the ballot is marked as withheld with respect to the nominee; and (b) a share otherwise present at the meeting but for which there is an abstention or as to which the holder gives no authority or direction with respect to the election of the nominee.

In a contested election, directors shall be elected by the vote of a plurality of the votes cast. A contested election is one in which (a) on last day for delivery of a notice under Section 2.1(d), a Holder has complied with the requirements of Section 2.1 with respect to one or more nominees or, as applicable, on the last day for delivery of a notice under Section 2.12(d), a Nominating Shareholder has complied with the requirements of Section 2.12 with respect to one or more nominees; and (b) prior to the date that notice of the meeting is given, the Board of Directors has not made a determination that none of the candidacies of the Holder or the Nominating Shareholder creates a bona fide election contest. For purposes of these Bylaws, it is assumed that on the last day for delivery of a notice under Section 2.1(d) or, as applicable, Section 2.12(d), there is a candidate nominated by the Board of Directors for each of the director positions to be voted on at the meeting.

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The following procedures apply in a non-contested election. A nominee who does not receive a majority of the votes cast shall not be elected. An incumbent director who is not elected because he or she does not receive a majority of the votes cast shall continue to serve as a holdover director until the earliest of (a) 90 days after the date on which an inspector determines the voting results as to that director pursuant to Section 23B.07.035 of the RCW; (b) the date on which the Board of Directors appoints any qualified individual to fill the office held by such director, which appointment shall constitute the filling of a vacancy by the Board of Directors pursuant to Section 3.4; or (c) the date of the director’s resignation. Any vacancy resulting from the non-election of a director under this Section 3.3 may be filled by the Board of Directors as provided in Section 3.4. Except as provided in the next sentence, (a) the Nominating and Governance Committee will consider promptly whether to fill the office of a nominee who fails to receive a majority of the votes cast and make a recommendation to the Board of Directors about filling the office; (b) the Board of Directors will act on the Nominating and Governance Committee’s recommendation and within 90 days after the certification of the shareholder vote will disclose publicly its decision; and (c) no director who failed to receive a majority of the votes cast in such director’s election will participate in the Nominating and Governance Committee recommendation or Board of Directors’ decision about filling his or her office. If no director receives a majority of the votes cast in an uncontested election, then the incumbent directors (a) will nominate a slate of directors comprised of any qualified individuals and hold a special meeting for the purpose of electing those nominees as soon as practicable; and (b) may in the interim fill one or more offices with the same nominees (or any other qualified individuals), who will continue in office until their successors are elected.

3.4VACANCIES. In the case of any vacancy occurring on the Board of Directors (whether caused by resignation, death, an increase in the number of directors, non-election of a director pursuant to Section 3.3, or otherwise), the vacancy may be filled with any qualified individual by affirmative vote of a majority of the Board of Directors. If the directors in office constitute fewer than a quorum of the Board of Directors, they may fill the vacancy by the affirmative vote of a majority of all the directors in office, or by a sole remaining director. A director elected to fill any vacancy shall be identified by the class (Class I, II or III as set forth in Article V of the Articles of Incorporation) to which he or she is named, so long as and to the extent the corporation maintains a classified board, and shall hold office until the next shareholders’ meeting at which directors are elected and until his or her successor has been duly elected and qualified, or until his or her earlier resignation, removal, or non-election pursuant to Section 3.3.

3.5REMOVAL. One or more members of the Board of Directors (including the full Board of Directors) may be removed, with or without cause, at a meeting of shareholders called expressly for that purpose. A director may be removed if the number of votes cast to remove the director exceeds the number of votes cast not to remove the director.

3.6RESIGNATION. Any director may resign at any time by delivering a written resignation to the Chairman or the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Chairman or Secretary, at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office for the unexpired portion of the term of the director whose place shall be vacated and until his or her successor shall have been duly elected and qualified.

3.6.1    RESIGNATIONS AND DIRECTOR ELECTIONS. Any nominee for director in an uncontested election (i.e., an election where the number of persons properly nominated for election as directors at a meeting of shareholders does not exceed the number of directors to be elected at such meeting) who receives a greater number of votes “withheld” from his or her election than votes “for” such election shall, promptly following certification of the shareholder vote, offer a resignation to the Board of Directors for consideration in accordance with the following procedures. Such offer shall become effective only if, as set forth below, the committee of Qualified Independent Directors accepts such resignation.

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In the event that any director has offered to resign pursuant to this Section 3.6.1, the Board of Directors shall establish a committee comprised solely of Qualified Independent Directors and shall delegate to that committee the authority to determine the action to be taken with respect to such offered resignation, which can include (a) accepting the offer of resignation; (b) maintaining the director but addressing what the Qualified Independent Directors believe to be the underlying cause of the withhold votes; (c) resolving that the director will not be re-nominated in the future for election; or (d) rejecting the offer of resignation. In reaching its decision, the committee shall consider all factors it deems relevant, including (but not limited to): (i) any stated reasons why shareholders withheld votes from such director; (ii) any alternatives for curing the underlying cause of the withheld votes; (iii) the director’s tenure; (iv) the director’s qualifications; (v) the director’s past and expected future contributions to the corporation; and (vi) the overall composition of the Board of Directors, including whether accepting the resignation would cause the corporation to fail to meet any applicable legal, regulatory, stock exchange, or contractual requirements. The term “Qualified Independent Directors” means all directors who are (A) independent directors (as defined in accordance with NASDAQ Listing Rules); and (B) not required to offer their resignation in accordance with this Section 3.6.1. Prior to voting, the committee shall afford the affected director an opportunity to provide any information or statement that the director deems relevant.

3.7ANNUAL MEETING. The first meeting of each newly elected Board of Directors shall be known as the annual meeting thereof.

3.8REGULAR MEETINGS. Regular meetings of the Board of Directors or of any committee designated by the Board of Directors may be held at such place and such day and hour as shall from time to time be fixed by the Board of Directors or committee, without other notice than the delivery of a notice as provided in Section 3.10.

3.9SPECIAL MEETINGS. Special meetings of the Board of Directors or any committee designated by the Board of Directors may be called by the Chairman, the Chief Executive Officer, the President or any director or committee member, to be held at such place and such day and hour as specified by the person or persons calling the meeting.

3.10NOTICE OF MEETING. Notice of the date, time, and place of all special meetings of the Board of Directors or any committee designated by the Board of Directors shall be given by the Secretary, Assistant Secretary, or by the person calling the meeting, by mail, private carrier, telegram, facsimile transmission, or personal communication over the telephone or otherwise, provided such notice is received at least two days prior to the day upon which the meeting is to be held.

Notice of any meeting of the Board of Directors or any committee designated by the Board of Directors need not be given to any director or committee member if it is waived in a writing signed by the director entitled to the notice, whether before or after such meeting is held.

A director’s attendance at or participation in a meeting waives any required notice to the director of the meeting unless the director at the beginning of the meeting, or promptly upon the director’s arrival, objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors or any committee designated by the Board of Directors need be specified in the notice or waiver of notice of such meeting unless required by the Articles of Incorporation or these Bylaws.

Any meeting of the Board of Directors or any committee designated by the Board of Directors shall be a legal meeting without any notice thereof having been given if all of the directors or committee members have received valid notice thereof, are present without objecting, or waive notice thereof in a writing signed by the director and delivered to the corporation for inclusion in the minutes or filing with the corporate records, or any combination thereof.

3.11QUORUM OF DIRECTORS. A majority of the number of directors fixed by or in the manner provided by these Bylaws shall constitute a quorum for the transaction of business. If a quorum is

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present when a vote is taken, the affirmative vote of a majority of directors present is the act of the Board of Directors unless the Articles of Incorporation or these Bylaws require the vote of a greater number of directors.

A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place. If the meeting is adjourned for more than 48 hours, then notice of the time and place of the adjourned meeting shall be given before the adjourned meeting takes place, in the manner specified in Section 3.10, to the directors who were not present at the time of the adjournment.

3.12PRESUMPTION OF ASSENT. Any director who is present at any meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless (a) the director objects at the beginning of the meeting, or promptly upon the director’s arrival, to holding the meeting or transacting business at the meeting; (b) the director’s dissent or abstention from the action taken is entered in the minutes of the meeting; or (c) the director delivers written notice of dissent or abstention to the presiding officer of the meeting before the adjournment thereof or to the corporation within a reasonable time after adjournment of the meeting. Such right to dissent or abstain shall not be available to any director who voted in favor of such action.

3.13ACTION BY DIRECTORS WITHOUT A MEETING. Any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken without a meeting, provided that all members of the Board of Directors or committee individually or collectively evidence such action by one or more consents executed by each director either before or after the action taken, and delivered to the corporation. Each such consent shall be set forth in an executed record or in an executed electronic transmission to the corporation, as such term is defined in Section 2.3. Such action by consent shall have the same force and effect as a unanimous vote of the Board of Directors or the committee. Such consent and any counterparts thereof shall be filed with the minutes of the proceedings of the Board of Directors.

3.14TELEPHONIC MEETINGS. Members of the Board of Directors or any committee designated by the Board of Directors may participate in a meeting of the Board of Directors or committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other during the meeting.

3.15COMPENSATION. The directors and committee members may be paid their expenses, if any, or a fixed sum or a stated salary as a director or committee member for attendance at each meeting of the Board of Directors or of such committee as the case may be. No such payment shall preclude any director or committee member from serving the corporation in any other capacity and receiving compensation therefor.

3.16COMMITTEES. The Board of Directors, by resolution adopted by a majority of the full Board of Directors, may from time to time designate from among its members one or more committees, each of which must have two or more members and, to the extent provided in such resolution, shall have and may exercise all the authority of the Board of Directors, except that no such committee shall have the authority to:

(a)authorize or approve a distribution except according to a general formula or method prescribed by the Board of Directors;

(b)approve or propose to shareholders action that the Washington Business Corporation Act requires to be approved by shareholders;

(c)fill vacancies on the Board of Directors or on any of its committees;

(d)adopt any amendment to the Articles of Incorporation;

(e)adopt, amend or repeal these Bylaws;

(f)approve a plan of merger; or

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(g)authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the Board of Directors may authorize a committee, or a senior executive officer of the corporation, to do so within limits specifically prescribed by the Board of Directors.

Meetings of such committees shall be governed by the same procedures as govern the meetings of the Board of Directors. All committees so appointed shall keep regular minutes of their meetings and shall cause them to be recorded in books kept for that purpose at the office of the corporation.

3.17     CHAIRMAN. The Board of Directors shall appoint one of its members to be Chairman of the Board. The Chairman may be appointed or removed at any time only by action of a majority of the full Board of Directors. The Chairman shall, when present, preside at all meetings of the Board of Directors and the shareholders. The Chairman shall also perform such other duties and may exercise such other powers as from time to time may be assigned to the Chairman by these Bylaws or by the Board of Directors.

ARTICLE 4

OFFICERS

4.1APPOINTMENT. The officers of the corporation shall be appointed from time to time by the Board of Directors or by any other officer empowered to do so. The Board of Directors shall have sole power and authority to appoint any Senior Officer and shall have the authority to appoint any other officers and to prescribe the terms of office, authority and duties of the Senior Officers or other officers.  The term “Senior Officer” shall mean the Chief Executive Officer, President, Chief Financial Officer, any Executive Vice President and any Senior Vice President.  The Board may delegate to any Senior Officer the power to appoint any subordinate officers and to prescribe their respective terms of office, authority and duties.  Except in the case of death, resignation or removal, each officer shall hold office until his or her successor is appointed and qualified.

4.2QUALIFICATION. None of the officers of the corporation need be a director. Any two or more of the corporate offices may be held by the same person.

4.3OFFICERS DESIGNATED. The officers of the corporation shall include a Chief Executive Officer, a President and a Chief Financial Officer. Such other officers and assistant officers, including but not limited to, one or more Executive Vice Presidents, a Secretary, a Treasurer, and one or more Vice Presidents (including any Senior Vice Presidents), Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers as may be deemed necessary may be appointed in accordance with Section 4.1.

(a)CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be the chief executive officer of the corporation and, subject to the direction and control of the Board of Directors, shall supervise and control all of the assets, business, and affairs of the corporation. The Chief Executive Officer is authorized to vote the shares owned by the corporation in other corporations, domestic or foreign, unless otherwise prescribed by the Board of Directors, and to execute all bonds, mortgages, contracts and other instruments of the corporation requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the corporation may sign and execute documents when so authorized by these Bylaws, the Board of Directors, the Chief Executive Officer or the President. In general, the Chief Executive Officer shall perform all duties incident to the office of Chief Executive Officer and such other duties as may be prescribed by the Board of Directors from time to time. The Chief Executive Officer shall, unless a Chairman has been appointed and is present, preside at all meetings of the shareholders and the Board of Directors if he or she serves as a director. The Chief Executive Officer may only be appointed or removed by a majority of the full Board of Directors.

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(b)PRESIDENT. At the request of the Chief Executive Officer or in the event of the Chief Executive Officer’s death or absence or inability to act, the President shall perform the duties of the Chief Executive Officer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer. The President is authorized to vote the shares owned by the corporation in other corporations, domestic or foreign, unless otherwise prescribed by the Board of Directors, and to execute all bonds, mortgages, contracts and other instruments of the corporation requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the corporation may sign and execute documents when so authorized by these Bylaws, the Board of Directors, the Chief Executive Officer, or the President. In general, the President shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. The President may only be appointed or removed by a majority of the full Board of Directors.

(c)EXECUTIVE VICE PRESIDENTS. At the request of the President or in the event of the President’s death or absence or inability to act, an Executive Vice President designated by a majority of the Board of Directors shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Executive Vice President (including any Senior Executive Vice Presidents) shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. If there be no Executive Vice President, the Board of Directors shall designate the officer of the corporation who, in the absence of the President or in the event of the President’s death or absence or inability to act, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President.

(d)SECRETARY. The Secretary shall:

(i)keep the minutes of meetings of the shareholders and the Board of Directors in one or more books provided for that purpose;

(ii)see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law;

(iii)be custodian of the corporate records and seal of the corporation, if one be adopted;

(iv)keep a register of the post office address of each shareholder and director;

(v)sign with the Chief Executive Officer or President, or the Chairman, certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the Board of Directors;

(vi)have general charge of the stock transfer books of the corporation; and

(vii)in general, perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned by the Chief Executive Officer, the President or the Board of Directors.

In the absence of the Secretary, an Assistant Secretary may perform the duties of the Secretary.

(e)CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors, the Chief Executive Officer or the President. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer shall perform other duties commonly incident to his or her office and shall also perform

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such other duties and have such other powers as the Board of Directors, the Chief Executive Officer or the President shall designate from time to time. The Chief Executive Officer or the President may direct the Treasurer or any Assistant Treasurer, or the Controller or any Assistant Controller, or other officer of the corporation, to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant Controller shall perform other duties commonly incident to his or her office and shall also perform such other duties and have such other powers as the Board of Directors, the Chief Executive Officer or the President shall designate from time to time.

(f)TREASURER. Subject to the direction and control of the Board of Directors, the Treasurer shall have charge and custody of and be responsible for all funds and securities of the corporation; and, at the expiration of his or her term of office, the Treasurer shall turn over to his or her successor all property of the corporation in his or her possession.

In the absence of the Treasurer, an Assistant Treasurer may perform the duties of the Treasurer.

4.4DELEGATION. In case of the absence or inability to act of any officer of the corporation and of any person herein authorized to act in his or her place, the Board of Directors, or any Senior Officer empowered to appoint such officer, may from time to time delegate the powers or duties of such officer to any other officer or director or other person whom it may select.

4.5RESIGNATION. Any officer may resign at any time by delivering written notice to the corporation. Any such resignation shall take effect when the notice is delivered unless the notice specifies a later date. Unless otherwise specified in the notice, acceptance of such resignation by the corporation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.

4.6REMOVAL. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors or any Senior Officer empowered to appoint the officer to be removed, at any time with or without cause. Election or appointment of an officer or agent shall not of itself create contract rights.

4.7VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification, creation of a new office, or any other cause may be filled by the Board of Directors or by a duly appointed Senior Officer.

4.8COMPENSATION. Compensation, if any, for officers and other agents and employees of the corporation shall be determined by the Board of Directors, or by any officer to whom the Board of Directors has delegated authority to set compensation of officers and other agents and employees. No officer shall be prevented from receiving compensation in such capacity by reason of the fact that he or she is also a director of the corporation.

ARTICLE 5

EXECUTION OF INSTRUMENTS AND VOTING OF SECURITIES
OWNED BY THE CORPORATION

5.1EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation.

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All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do.

Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

5.2VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman, the Chief Executive Officer, the President or any Executive Vice President.

ARTICLE 6

STOCK

6.1FORM AND EXECUTION OF CERTIFICATES. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Articles of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman, the Chief Executive Officer or the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Each certificate shall state upon the face or back thereof, in full or in summary, all of the powers, designations, preferences, and rights, and the limitations or restrictions of the shares authorized to be issued or shall, except as otherwise required by law, set forth on the face or back a statement that the corporation will furnish without charge to each shareholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expressly provided by law, the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical.

6.2LOST CERTIFICATES. The corporation may issue a new certificate or certificates in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or his or her legal representative, to agree to indemnify the corporation in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed.

6.3TRANSFERS.

(a)Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a properly endorsed certificate or certificates for a like number of shares.

(b)The corporation shall have power to enter into and perform any agreement with any number of shareholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such shareholders in any manner not prohibited by the RCW.

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6.4REGISTERED SHAREHOLDERS. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Washington.

6.5EXECUTION OF OTHER SECURITIES. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 6.1), may be signed by the Chairman, the Chief Executive Officer, the President, any Executive Vice President or Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation.

ARTICLE 7

BOOKS AND RECORDS

7.1BOOKS OF ACCOUNTS, MINUTES AND SHARE REGISTER. The corporation shall keep as permanent records minutes of all meetings of its shareholders and Board of Directors, a record of all actions taken by the shareholders or Board of Directors without a meeting, and a record of all actions taken by a committee of the Board of Directors exercising the authority of the Board of Directors on behalf of the corporation. The corporation shall maintain appropriate accounting records. The corporation or its agent shall maintain a record of its shareholders, in a form that permits preparation of a list of the names and addresses of all shareholders, in alphabetical order by class of shares showing the number and class of shares held by each. The corporation shall keep a copy of the following records at its principal office: the Articles of Incorporation and all amendments to them currently in effect; the Bylaws and all amendments to them currently in effect; the minutes of all shareholders’ meetings, and records of all actions taken by shareholders without a meeting, for the past three years; its financial statements for the past three years, including balance sheets showing in reasonable detail the financial condition of the corporation as of the close of each fiscal year, and an income statement showing the results of its operations during each fiscal year prepared on the basis of generally accepted accounting principles or, if not, prepared on a basis explained therein; a list of the names and business addresses of its current directors and officers; and its most recent annual report delivered to the Secretary of State of Washington.

7.2COPIES OF RESOLUTIONS. Any person dealing with the corporation may rely upon a copy of any of the records of the proceedings, resolutions, or votes of the Board of Directors or shareholders, when certified by the Chief Executive Officer, President, Secretary or Assistant Secretary.

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ARTICLE 8

FISCAL YEAR

The fiscal year of the corporation shall be set by the Board of Directors.

ARTICLE 9

CORPORATE SEAL

The Board of Directors may adopt a corporate seal for the corporation which shall have inscribed thereon the name of the corporation, the year and state of incorporation and the words “corporate seal.”

ARTICLE 10

INDEMNIFICATION

10.1RIGHT TO INDEMNIFICATION. The power, right and obligation of the corporation to indemnify any director of the corporation shall be as set forth in Article VII of the Articles of Incorporation.

10.2NONEXCLUSIVITY OF RIGHTS. The right to indemnification and the advancement of expenses conferred in Article VII of the Articles of Incorporation shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Articles of Incorporation or Bylaws of the corporation, general or specific action of the Board of Directors, contract or otherwise.

10.3INSURANCE, CONTRACTS AND FUNDING. The corporation may maintain insurance, at its expense, to protect itself and any individual who is or was a director, officer, employee or agent of the corporation or who, while a director, officer, employee or agent of the corporation, is or was serving at the request of the corporation as an agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any expense, liability or loss asserted against or incurred by the individual in that capacity or arising from the individual’s status as a director, officer, employee or agent, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the Washington Business Corporation Act. The corporation may enter into contracts with any director, officer, employee or agent of the corporation in furtherance of the provisions of Article VII of the Articles of Incorporation and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in Article VII of the Articles of Incorporation.

10.4INDEMNIFICATION OF OFFICERS, EMPLOYEES AND AGENTS OF THE CORPORATION. The corporation may, by action of the Board of Directors, grant rights to indemnification and advancement of expenses to officers, employees and agents of the corporation with the same scope and effect as the provisions of Article VII of the Articles of Incorporation with respect to the indemnification and advancement of expenses of directors of the corporation or pursuant to rights granted pursuant to, or provided by, the Washington Business Corporation Act or otherwise.

10.5PERSONS SERVING OTHER ENTITIES. Any individual who is or was a director, officer or employee of the corporation who, while a director, officer or employee of the corporation, is or was serving (a) as a director or officer of another foreign or domestic corporation of which a majority of the shares entitled to vote in the election of its directors is held by the corporation, (b) as a trustee of an employee benefit plan and the duties of the director or officer to the corporation also impose duties on, or otherwise involve services by, the director or officer to the plan or to participants in or beneficiaries of the plan, or (c) in an executive or management capacity in a foreign or domestic partnership, joint venture, trust or other enterprise of which the corporation or a wholly owned subsidiary of the corporation is a general partner or has a majority ownership or interest shall be deemed to be so serving at the request of

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the corporation and entitled to indemnification and advancement of expenses under Article VII of the Articles of Incorporation.

ARTICLE 11

AMENDMENT OF BYLAWS

11.1These Bylaws may be altered, amended or repealed and new Bylaws may be adopted by the Board of Directors, except that the Board of Directors may not repeal or amend any Bylaw that the shareholders have expressly provided, in amending or repealing such Bylaw, may not be amended or repealed by the Board of Directors. The shareholders may also alter, amend and repeal these Bylaws or adopt new Bylaws. All Bylaws made by the Board of Directors may be amended, repealed, altered or modified by the shareholders.

June 1, 2022 (incorporating amendments approved on September 11, 2020)

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EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, W. Craig Jelinek, certify that:

1)I have reviewed this Quarterly Report on Form 10-Q of Costco Wholesale Corporation (“the registrant”);

2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4)The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5)The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

June 1, 2022

/s/    W. CRAIG JELINEK

W. Craig Jelinek

Chief Executive Officer and Director

CERTIFICATIONS

I, Richard A. Galanti, certify that:

1)I have reviewed this Quarterly Report on Form 10-Q of Costco Wholesale Corporation (“the registrant”);

2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4)The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5)The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

June 1, 2022

/s/    RICHARD A. GALANTI

Richard A. Galanti

Executive Vice President, Chief Financial Officer and Director

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Costco Wholesale Corporation (the Company) on Form 10-Q for the quarter ended May 8, 2022, as filed with the Securities and Exchange Commission (the Report), I, W. Craig Jelinek, Chief Executive Officer and Director of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ W. CRAIG JELINEK	Date: June 1, 2022
W. Craig Jelinek
Chief Executive Officer and Director

A signed original of this written statement has been provided to and will be retained by Costco Wholesale Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Costco Wholesale Corporation (the Company) on Form 10-Q for the quarter ended May 8, 2022, as filed with the Securities and Exchange Commission (the Report), I, Richard A. Galanti, Executive Vice President, Chief Financial Officer and Director of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ RICHARD A. GALANTI	Date: June 1, 2022
Richard A. Galanti
Executive Vice President, Chief Financial Officer and Director

A signed original of this written statement has been provided to and will be retained by Costco Wholesale Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Cover - shares	8 Months Ended
	May 08, 2022	May 25, 2022
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	May 08, 2022
Document Fiscal Year Focus	2022
Document Transition Report	false
Entity File Number	0-20355
Entity Registrant Name	COSTCO WHOLESALE CORP /NEW
Entity Incorporation, State or Country Code	WA
Entity Tax Identification Number	91-1223280
Entity Address, Address Line One	999 Lake Drive
Entity Address, City or Town	Issaquah
Entity Address, State or Province	WA
Entity Address, Postal Zip Code	98027
City Area Code	425
Local Phone Number	313-8100
Title of 12(b) Security	Common Stock, $.01 Par Value
Trading Symbol	COST
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		442,962,949
Amendment Flag	false
Document Fiscal Period Focus	Q3
Entity Central Index Key	0000909832
Current Fiscal Year End Date	--08-28

XML

Condensed Consolidated Statements Of Income - USD ($) shares in Thousands, $ in Millions	3 Months Ended		8 Months Ended
	May 08, 2022	May 09, 2021	May 08, 2022	May 09, 2021
REVENUE
Total Revenue	$ 52,596	$ 45,277	$ 154,863	$ 133,254
OPERATING EXPENSES
Merchandise costs	46,355	39,415	135,824	115,951
Selling, general and administrative	4,450	4,199	13,743	12,870
Operating income	1,791	1,663	5,296	4,433
OTHER INCOME (EXPENSE)
Interest expense	(35)	(40)	(110)	(119)
Interest income and other, net	71	27	138	75
INCOME BEFORE INCOME TAXES	1,827	1,650	5,324	4,389
Provision for income taxes	455	417	1,287	1,004
Net income including noncontrolling interests	1,372	1,233	4,037	3,385
Net income attributable to noncontrolling interests	(19)	(13)	(61)	(48)
NET INCOME ATTRIBUTABLE TO COSTCO	$ 1,353	$ 1,220	$ 3,976	$ 3,337
NET INCOME PER COMMON SHARE ATTRIBUTABLE TO COSTCO:
Basic (in dollars per share)	$ 3.05	$ 2.75	$ 8.96	$ 7.53
Diluted (in dollars per share)	$ 3.04	$ 2.75	$ 8.94	$ 7.51
Shares used in calculation (000's)
Basic (shares)	443,700	443,043	443,567	443,043
Diluted (shares)	444,886	444,127	444,802	444,336
Net Sales
REVENUE
Total Revenue	$ 51,612	$ 44,376	$ 151,966	$ 130,611
Membership fees
REVENUE
Total Revenue	$ 984	$ 901	$ 2,897	$ 2,643

XML

Condensed Consolidated Statements Of Comprehensive Income - USD ($) $ in Millions	3 Months Ended		8 Months Ended
	May 08, 2022	May 09, 2021	May 08, 2022	May 09, 2021
Statement of Comprehensive Income [Abstract]
NET INCOME INCLUDING NONCONTROLLING INTERESTS	$ 1,372	$ 1,233	$ 4,037	$ 3,385
Foreign-currency translation adjustment and other, net	(388)	54	(495)	411
Comprehensive income	984	1,287	3,542	3,796
Less: Comprehensive income attributable to noncontrolling interests	(13)	15	31	71
COMPREHENSIVE INCOME ATTRIBUTABLE TO COSTCO	$ 997	$ 1,272	$ 3,511	$ 3,725

XML

Condensed Consolidated Balance Sheets - USD ($)	May 08, 2022	Aug. 29, 2021
CURRENT ASSETS
Cash and Cash Equivalents	$ 11,193,000,000	$ 11,258,000,000
Short-term investments	638,000,000	917,000,000
Receivables, net	1,991,000,000	1,803,000,000
Merchandise inventories	17,623,000,000	14,215,000,000
Other current assets	1,563,000,000	1,312,000,000
Total current assets	33,008,000,000	29,505,000,000
OTHER ASSETS
Property and equipment, net	24,143,000,000	23,492,000,000
Operating lease, right-of-use assets	2,731,000,000	2,890,000,000
Other long-term assets	3,970,000,000	3,381,000,000
TOTAL ASSETS	63,852,000,000	59,268,000,000
CURRENT LIABILITIES
Accounts payable	17,651,000,000	16,278,000,000
Accrued salaries and benefits	4,090,000,000	4,090,000,000
Accrued member rewards	1,828,000,000	1,671,000,000
Deferred membership fees	2,251,000,000	2,042,000,000
Current portion of long-term debt	77,000,000	799,000,000
Other current liabilities	5,948,000,000	4,561,000,000
Total current liabilities	31,845,000,000	29,441,000,000
OTHER LIABILITIES
Long-term debt, excluding current portion	6,507,000,000	6,692,000,000
Long-term operating lease liabilities	2,452,000,000	2,642,000,000
Other long-term liabilities	2,535,000,000	2,415,000,000
TOTAL LIABILITIES	43,339,000,000	41,190,000,000
EQUITY
Preferred stock $.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; 443,029,000 and 441,825,000 shares issued and outstanding	4,000,000	4,000,000
Additional paid-in capital	7,272,000,000	7,031,000,000
Accumulated other comprehensive loss	(1,602,000,000)	(1,137,000,000)
Retained earnings	14,294,000,000	11,666,000,000
Total Costco stockholders' equity	19,968,000,000	17,564,000,000
Noncontrolling interests	545,000,000	514,000,000
TOTAL EQUITY	20,513,000,000	18,078,000,000
TOTAL LIABILITIES AND EQUITY	$ 63,852,000,000	$ 59,268,000,000

XML

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	May 08, 2022	Aug. 29, 2021
Statement of Financial Position [Abstract]
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	100,000,000	100,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	900,000,000	900,000,000
Common Stock, Shares, Issued	443,029,000	441,825,000
Common Stock, Shares, Outstanding	443,029,000	441,825,000

XML

Consolidated Statement of Stockholders' Equity Statement - USD ($) shares in Thousands, $ in Millions	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	AOCI Attributable to Parent [Member]	Retained Earnings [Member]	Parent [Member]	Noncontrolling Interest [Member]
Common Stock at beginning of period (shares) at Aug. 30, 2020		441,255
Equity at beginning of period at Aug. 30, 2020	$ 18,705	$ 4	$ 6,698	$ (1,297)	$ 12,879	$ 18,284	$ 421
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest	3,385				3,337	3,337	48
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Adjustment, Net of Tax	411			388		388	23
APIC, Share-based Payment Arrangement, Increase for Cost Recognition	552		552			552
Stock Issued During Period, Shares, Restricted Stock Award, Gross		1,926
Stock Issued During Period, Value, Stock Options Exercised	$ (312)		(312)			(312)
Stock Repurchased and Retired During Period, Shares	(1,040)	(1,040)
Stock Repurchased and Retired During Period, Value	$ (368)		(17)		(351)	(368)
Cash dividends declared	(5,399)				(5,399)	(5,399)
Common Stock at end of period (shares) at May. 09, 2021		442,141
Equity at end of period at May. 09, 2021	16,974	$ 4	6,921	(909)	10,466	16,482	492
Common Stock at beginning of period (shares) at Feb. 14, 2021		442,654
Equity at beginning of period at Feb. 14, 2021	16,129	$ 4	6,843	(961)	9,766	15,652	477
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest	1,233				1,220	1,220	13
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Adjustment, Net of Tax	54			52		52	2
APIC, Share-based Payment Arrangement, Increase for Cost Recognition	87		87			87
Stock Issued During Period, Shares, Restricted Stock Award, Gross		6
Stock Issued During Period, Value, Stock Options Exercised	$ (1)		(1)			(1)
Stock Repurchased and Retired During Period, Shares	(519)	(519)
Stock Repurchased and Retired During Period, Value	$ (179)		(8)		(171)	(179)
Cash dividends declared	(349)				(349)	(349)
Common Stock at end of period (shares) at May. 09, 2021		442,141
Equity at end of period at May. 09, 2021	$ 16,974	$ 4	6,921	(909)	10,466	16,482	492
Common Stock at beginning of period (shares) at Aug. 29, 2021	441,825	441,825
Equity at beginning of period at Aug. 29, 2021	$ 18,078	$ 4	7,031	(1,137)	11,666	17,564	514
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest	4,037				3,976	3,976	61
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Adjustment, Net of Tax	(495)			(465)		(465)	(30)
APIC, Share-based Payment Arrangement, Increase for Cost Recognition	609		609			609
Stock Issued During Period, Shares, Restricted Stock Award, Gross		1,694
Stock Issued During Period, Value, Stock Options Exercised	$ (360)		(360)			(360)
Stock Repurchased and Retired During Period, Shares	(490)	(490)
Stock Repurchased and Retired During Period, Value	$ (257)		(8)		(249)	(257)
Cash dividends declared	$ (1,099)				(1,099)	(1,099)
Common Stock at end of period (shares) at May. 08, 2022	443,029	443,029
Equity at end of period at May. 08, 2022	$ 20,513	$ 4	7,272	(1,602)	14,294	19,968	545
Common Stock at beginning of period (shares) at Feb. 13, 2022		443,279
Equity at beginning of period at Feb. 13, 2022	19,976	$ 4	7,186	(1,246)	13,474	19,418	558
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest	1,372				1,353	1,353	19
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Adjustment, Net of Tax	(388)			(356)		(356)	(32)
APIC, Share-based Payment Arrangement, Increase for Cost Recognition	91		91			91
Stock Issued During Period, Shares, Restricted Stock Award, Gross		4
Stock Issued During Period, Value, Stock Options Exercised	$ (1)		(1)			(1)
Stock Repurchased and Retired During Period, Shares	(254)	(254)
Stock Repurchased and Retired During Period, Value	$ (139)		(4)		(135)	(139)
Cash dividends declared	$ (398)				(398)	(398)
Common Stock at end of period (shares) at May. 08, 2022	443,029	443,029
Equity at end of period at May. 08, 2022	$ 20,513	$ 4	$ 7,272	$ (1,602)	$ 14,294	$ 19,968	$ 545

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Condensed Consolidated Statements Of Cash Flows - USD ($) $ in Millions	8 Months Ended
	May 08, 2022	May 09, 2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income including noncontrolling interests	$ 4,037	$ 3,385
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:
Depreciation and amortization	1,306	1,222
Non-cash lease expense	240	189
Stock-based compensation	606	550
Other non-cash operating activities, net	49	19
Deferred income taxes	(2)	(16)
Changes in operating assets and liabilities:
Merchandise inventories	(3,633)	(1,531)
Accounts payable	1,766	1,256
Other operating assets and liabilities, net	517	944
Net cash provided by operating activities	4,886	6,018
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments	(588)	(802)
Maturities of short-term investments	840	955
Additions to property and equipment	(2,632)	(2,494)
Other investing activities, net	(48)	(39)
Net cash used in investing activities	(2,428)	(2,380)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in bank checks outstanding	(99)	1
Repayments of long-term debt	(800)	0
Tax withholdings on stock-based awards	(360)	(312)
Repurchases of common stock	(254)	(367)
Cash dividend payments	(701)	(5,050)
Other financing activities, net	(129)	(41)
Net cash used in financing activities	(2,343)	(5,769)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(180)	80
Net change in cash and cash equivalents	(65)	(2,051)
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR	11,258	12,277
CASH AND CASH EQUIVALENTS END OF PERIOD	11,193	10,226
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest	102	98
Income taxes, net	1,121	867
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Cash dividend declared, but not yet paid	398	349
Right-of-Use Asset Obtained in Exchange for Finance Lease Liability	631	265
Right-of-Use Asset Obtained in Exchange for Operating Lease Liability	$ 67	$ 208

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Summary of Significant Accounting Policies

8 Months Ended

May 08, 2022

Accounting Policies [Abstract]

Summary of Significant Policies

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 May 8, 2022, Costco operated 829 warehouses worldwide: 573 in the United States (U.S.) located in 46 states, Washington, D.C., and Puerto Rico, 105 in Canada, 40 in Mexico, 30 in Japan, 29 in the United Kingdom (U.K.), 16 in Korea, 14 in Taiwan, 13 in Australia, four in Spain, two each in France and China, and one in Iceland. 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 inter-company transactions among the Company and its consolidated subsidiaries have been eliminated in consolidation. 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 on Form 10-K for the fiscal year ended August 29, 2021.

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 2022 is a 52-week year ending on August 28, 2022. References to the third quarter of 2022 and 2021 relate to the 12-week fiscal quarters ended May 8, 2022 and May 9, 2021, respectively. References to the first thirty-six weeks of 2022 and 2021 relate to the 36 weeks ended May 8, 2022 and May 9, 2021, 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. Actual results could differ from those estimates and assumptions.

Property and Equipment, Net

The Company capitalizes certain computer software and costs incurred in developing or obtaining software. The Company recognized a $118 write-off of certain information technology assets, which was recorded in the first quarter of 2022, in selling, general and administrative expenses.

Reclassification

Reclassifications were made to our third quarter and first thirty-six weeks of 2021 condensed consolidated statements of income to conform with current period presentation.

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Investments

8 Months Ended

May 08, 2022

Investments, Debt and Equity Securities [Abstract]

Investments

Note 2—Investments

The Company's investments were as follows:

May 8, 2022:	Cost Basis		Unrealized Losses, Net		Recorded Basis
Available-for-sale:
Government and agency securities	$	390	$	(1)	$	389
Held-to-maturity:
Certificates of deposit	249		—		249
Total short-term investments	$	639	$	(1)	$	638

August 29, 2021:	Cost Basis		Unrealized Gains, Net		Recorded Basis
Available-for-sale:
Government and agency securities	$	375	$	6	$	381
Held-to-maturity:
Certificates of deposit	536		—		536
Total short-term investments	$	911	$	6	$	917

Gross unrecognized holding gains and losses on available-for-sale securities were not material for the periods ended May 8, 2022, and August 29, 2021. At those dates, there were no available-for-sale securities in a material continuous unrealized-loss position. There were no sales of available-for-sale securities during the first thirty-six weeks of 2022 or 2021.

The maturities of available-for-sale and held-to-maturity securities at May 8, 2022 are as follows:

	Available-For-Sale				Held-To-Maturity
	Cost Basis		Fair Value
Due in one year or less	$	296	$	295	$	249
Due after one year through five years	94		94		—
Total	$	390	$	389	$	249

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Fair Value Measurement

8 Months Ended

May 08, 2022

Fair Value Disclosures [Abstract]

Fair Value Measurement

Note 3—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 indicates the level within the fair value hierarchy reflecting the valuation techniques utilized.

	Level 2
	May 8, 2022		August 29, 2021
Investment in government and agency securities(1)	$	389	$	393
Forward foreign-exchange contracts, in asset position(2)	54		17
Forward foreign-exchange contracts, in (liability) position(2)	(1)		(2)
Total	$	442	$	408

 _______________

(1)At August 29, 2021, $12 cash and cash equivalents and $381 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 May 8, 2022, and August 29, 2021, 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 thirty-six weeks of 2022 or 2021.

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 thirty-six weeks of 2022 or 2021.

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Debt

8 Months Ended

May 08, 2022

Debt Disclosure [Abstract]

Debt

Note 4—Debt

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

	May 8, 2022		August 29, 2021
2.300% Senior Notes due May 2022	$	—	$	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		1,250
1.600% Senior Notes due April 2030	1,750		1,750
1.750% Senior Notes due April 2032	1,000		1,000
Other long-term debt	618		731
Total long-term debt	6,618		7,531
Less unamortized debt discounts and issuance costs	34		40
Less current portion(1)	77		799
Long-term debt, excluding current portion	$	6,507	$	6,692

 _______________

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

The fair value of the Senior Notes is estimated using Level 2 inputs. Other long-term debt consists of Guaranteed Senior Notes issued by the Company's Japan subsidiary, valued using Level 3 inputs. The fair value of the Company's long-term debt, including the current portion, was approximately $6,000 and $7,692 at May 8, 2022, and August 29, 2021, respectively.

On December 1, 2021, the Company repaid, prior to maturity, the 2.300% Senior Notes at a redemption price plus accrued interest as specified in the Notes' agreement.

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Equity

3 Months Ended

May 08, 2022

Equity [Abstract]

Stockholders' equity

Note 5—Equity

Dividends

The Company’s current quarterly dividend is $0.90 per share, compared to $0.79 in the third quarter of 2021. On April 13, 2022, the Board of Directors declared a quarterly cash dividend in the amount of $0.90 per share, which was paid on May 13, 2022.

Share Repurchase Program

The Company's share repurchase program is conducted under a $4,000 authorization by the Board of Directors, which expires in April 2023. The remaining amount available under the program was $2,993 at May 8, 2022. Share repurchase activity is summarized below:

	Shares Repurchased (000s)	Average Price per Share		Total Cost
Third quarter of 2022	254	$	547.38	$	139
First thirty-six weeks of 2022	490	$	523.61	$	257
Third quarter of 2021	519	$	346.19	$	179
First thirty-six weeks of 2021	1,040	$	353.87	$	368

These amounts may differ from the repurchase balances in the accompanying condensed consolidated statements of cash flows due to changes in unsettled repurchases at quarter end. 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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Stock-Based Compensation Plans

8 Months Ended

May 08, 2022

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation Plans

Note 6—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 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 May 8, 2022, 10,411,000 shares were available to be granted as RSUs, and the following awards were outstanding:

•3,375,000 time-based RSUs, which vest upon continued employment over specified periods and accelerate upon achievement of the long-service term;

•39,000 performance-based RSUs, granted to executive officers of the Company, for which the performance targets have been met. The awards vest upon continued employment over specified periods of time and upon achievement of the long-service term; and

•82,000 performance-based RSUs, granted to executive officers of the Company, subject to achievement of performance targets for fiscal 2022, 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. The Company recognized compensation expense for these awards in the third quarter of 2022, as it is currently deemed probable that the targets will be achieved.

The following table summarizes RSU transactions during the first thirty-six weeks of 2022:

	Number of Units (in 000s)	Weighted-Average Grant Date Fair Value
Outstanding at August 29, 2021	4,349	$	257.88
Granted	1,679	476.06
Vested and delivered	(2,443)	290.20
Forfeited	(89)	324.80
Outstanding at May 8, 2022	3,496	$	338.37

The remaining unrecognized compensation cost related to RSUs unvested at May 8, 2022, was $890, 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 8, 2022		May 9, 2021		May 8, 2022		May 9, 2021
Stock-based compensation expense	$	90	$	87	$	606	$	550
Less recognized income tax benefits	20		18		128		115
Stock-based compensation expense, net	$	70	$	69	$	478	$	435

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Net Income per Common and Common Equivalent Share

8 Months Ended

May 08, 2022

Earnings Per Share [Abstract]

Net Income Per Common and Common Equivalent Share

Note 7—Net Income per Common and Common Equivalent Share

The following table shows the amounts used in computing net income per share and the weighted average number of shares of basic and potentially dilutive common shares outstanding (shares in 000s):

	12 Weeks Ended				36 Weeks Ended
	May 8, 2022		May 9, 2021		May 8, 2022		May 9, 2021
Net income attributable to Costco	$	1,353	$	1,220	$	3,976	$	3,337
Weighted average basic shares	443,700		443,043		443,567		443,043
RSUs	1,186		1,084		1,235		1,293
Weighted average diluted shares	444,886		444,127		444,802		444,336
Anti-dilutive RSUs	—		1,046		—		—

Anti-dilutive shares are excluded from the calculation of diluted shares and earnings per diluted share because their impact would increase earnings per diluted share.

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Commitments and Contingencies

8 Months Ended

May 08, 2022

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 8—Commitments and Contingencies

Legal Proceedings

The Company is involved in a number of claims, proceedings and litigations arising from its business and property ownership. In accordance with applicable accounting guidance, the Company establishes an accrual for legal proceedings if and when those matters present loss contingencies that are both probable and reasonably estimable. There may be exposure to loss in excess of amounts accrued. The Company monitors those matters for developments that would affect the likelihood of a loss (taking into account where applicable indemnification arrangements concerning suppliers and insurers) and the accrued amount, if any, thereof, and adjusts the amount as appropriate. The Company has recorded immaterial accruals with 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.

The Company is a defendant in an action commenced in July 2013 under the California Labor Code Private Attorneys General Act (PAGA) alleging violation of California Wage Order 7-2001 for failing to provide seating to employees who work at entrance and exit doors in California warehouses. Canela v. Costco Wholesale Corp. (Case No. 2013-1-CV-248813; Santa Clara Superior Court). 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.

In December 2018, a depot employee raised similar claims, alleging that depot employees in California did not receive suitable seating or reasonably comfortable workplace temperature conditions. Lane v. Costco Wholesale Corp. (Case No. CIVDS 1908816; San Bernardino Superior Court). The Company filed an answer denying the material allegations of the complaint. In October 2019, the parties settled for an immaterial amount the seating claims on a representative basis, which received court approval in February 2020. The parties settled the temperature claims for an immaterial amount in April 2022, and court approval was received in May 2022.

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; C.D. Cal.). 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. Settlement for an immaterial amount was agreed upon in February 2021. Final court approval of the settlement was granted on May 3, 2022.

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; E.D. Cal.). Relief is sought under the California Labor Code, including civil penalties and attorneys' fees. In September 2021, the court granted Costco’s motion for partial summary judgment and denied class certification. In August 2019, the plaintiff filed a companion case in state court seeking penalties under PAGA. Rough v. Costco Wholesale Corp. (Case No. FCS053454; Sonoma County Superior Court). 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 April 2020, an employee, alleging underpayment of sick pay, filed a class and representative action against the Company, alleging claims under California law for failure to pay all wages at termination and for Labor Code penalties under PAGA. Kristy v. Costco Wholesale Corp. (Case No. 5:20-cv-04119; N.D. Cal.). The case was stayed due to the plaintiff's bankruptcy, and his individual claim was settled for an immaterial amount. The class and representative action claims were thereafter dismissed.

In December 2020, a former employee filed suit against the Company asserting collective and class claims on behalf of non-exempt employees under the Fair Labor Standards Act and New York Labor Law for failure to pay for all hours worked, failure to pay certain non-exempt employees on a weekly basis, and failure to provide proper wage statements and notices. The plaintiff also asserted individual retaliation claims. Cappadora v. Costco Wholesale Corp. (Case No. 1:20-cv-06067; E.D.N.Y.). An amended complaint was filed, and the Company denied the material allegations of the amended complaint. Based on an agreement in principle concerning settlement of the matter, involving a proposed payment by the Company of an immaterial amount, the federal action has been dismissed. In April 2022, Cappadora and a second plaintiff filed an action against the Company in New York state court asserting the same class claims asserted in the federal action under the New York Labor Law and seeking preliminary approval of the class settlement. Cappadora and Sancho v. Costco Wholesale Corp. (Index No. 604757/2022; Nassau County Supreme Court).

In August 2021, a former employee filed a similar suit, asserting class claims on behalf of certain non-exempt employees under New York Labor Law for failure to pay on a weekly basis. Umadat v. Costco Wholesale Corp. (Case No. 2:21-cv-4814; E.D.N.Y.). The Company answered the complaint on October 21, 2021, denying the material allegations. In April 2022, a former employee filed a similar suit, asserting class claims on behalf of certain non-exempt employees under New York Labor Law, as well as under the Fair Labor Standards Act, for failure to pay on a weekly basis and failure to pay overtime. Burian v. Costco Wholesale Corp. (Case No. 2:22-cv-02108; E.D.N.Y.).

In February 2021, a former employee filed a class action against the Company alleging violations of California Labor Code regarding payment of wages, meal and rest periods, wage statements, reimbursement of expenses, payment of final wages to terminated employees, and for unfair business practices. Edwards v. Costco Wholesale Corp. (Case No. 5:21-cv-00716: C.D. Cal.). In May 2021, the Company filed a motion to dismiss the complaint, which was granted with leave to amend. In June 2021, the plaintiff filed an amended complaint, which the Company moved to dismiss later that month. The court granted the motion in part in July 2021 with leave to amend. In August 2021, the plaintiff filed a second amended complaint and filed a separate representative action under PAGA asserting the same Labor

Code claims and seeking civil penalties and attorneys' fees. The Company filed an answer to the second amended class action complaint, denying the material allegations.

In July 2021, a former temporary staffing employee filed a class action against the Company and a staffing company alleging violations of the California Labor Code regarding payment of wages, meal and rest periods, wage statements, the timeliness of wages and final wages, and for unfair business practices. Dimas v. Costco Wholesale Corp. (Case No. STK-CV-UOE-2021-0006024; San Joaquin Superior Court). The Company has moved to compel arbitration of the plaintiff's individual claims and to dismiss the class action complaint. On September 7, 2021, the same former employee filed a separate representative action under PAGA asserting the same Labor Code violations and seeking civil penalties and attorneys' fees. The case has been stayed pending the motion to compel in the related case.

In September 2021, an employee filed a class action against the Company alleging violations of the California Labor Code regarding the alleged failure to provide sick pay, failure to timely pay wages due at separation from employment, and for violations of California's unfair competition law. De Benning v. Costco Wholesale Corp. (Case No. 34-2021-00309030-CU-OE-GDS; Sacramento Superior Court). The Company answered the complaint in January 2022, denying its material allegations. In April 2022, a settlement for an immaterial amount was agreed upon, subject to court approval.

In March 2022, an employee filed a class action against the Company alleging violations of the California Labor Code regarding the failure to: pay wages, provide meal and rest periods, provide accurate wage statements, timely pay final wages, and reimburse business expenses. Diaz v. Costco Wholesale Corp. (Case No. 22STCV09513; Los Angeles Superior Court). The Court stayed the case, including the Company's filing of a responsive pleading, pending the initial status conference.

In May 2022, an employee filed a PAGA-only representative action against the Company alleging claims under the California Labor Code regarding the payment of wages, meal and rest periods, the timeliness of wages and final wages, wage statements, accurate records and business expenses. Gonzalez v. Costco Wholesale Corp. (Case No. 22AHCV00255; Los Angeles Superior Court).

Beginning in December 2017, the United States Judicial Panel on Multidistrict Litigation consolidated numerous cases concerning the impacts of opioid abuses filed against various defendants by counties, cities, hospitals, Native American tribes, third-party payors, and others. In re National Prescription Opiate Litigation (MDL No. 2804) (N.D. Ohio). Included are cases 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 a hospital in Texas, class actions filed on behalf of infants born with opioid-related medical conditions in 40 states, and class actions and individual actions filed on behalf of individuals seeking to recover alleged increased insurance costs associated with opioid abuse in 43 states and American Samoa. Claims against the Company in state courts in New Jersey, Oklahoma, Utah, and Arizona have been dismissed. The Company is defending all of the pending matters.

The Company does not believe that any pending claim, proceeding or litigation, either alone or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or cash flows; it is possible that an unfavorable outcome of some or all of the matters, however unlikely, could result in a charge that might be material to the results of an individual fiscal quarter or year.

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Segment Reporting

8 Months Ended

May 08, 2022

Segment Reporting [Abstract]

Segment Reporting

Note 9—Segment Reporting

The Company and its subsidiaries are principally engaged in the operation of membership warehouses in the U.S., Canada, Mexico, Japan, U.K., 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 August 29, 2021, and Note 1 above. Inter-segment net sales and expenses have been eliminated in computing total revenue and operating income. Effective for fiscal 2022, stock-based compensation was allocated to the segments in this reporting. This change reflected a decision to evaluate the financial performance of the segments inclusive of this expense. Operating income was restated in each of the segments for all prior periods to reflect this change.

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

	United States Operations		Canadian Operations		Other International Operations		Total
12 Weeks Ended May 8, 2022
Total revenue	$	38,534	$	7,268	$	6,794	$	52,596
Operating income	1,205		324		262		1,791
12 Weeks Ended May 9, 2021
Total revenue	$	32,759	$	6,299	$	6,219	$	45,277
Operating income	1,135		260		268		1,663
36 Weeks Ended May 8, 2022
Total revenue	$	112,418	$	21,406	$	21,039	$	154,863
Operating income	3,502		918		876		5,296
36 Weeks Ended May 9, 2021
Total revenue	$	96,178	$	18,311	$	18,765	$	133,254
Operating income	2,898		733		802		4,433
52 Weeks Ended August 29, 2021
Total revenue	$	141,398	$	27,298	$	27,233	$	195,929
Operating income	4,470		1,093		1,145		6,708

Disaggregated Revenue

The following table summarizes net sales by merchandise category; sales from e-commerce websites and business centers have been allocated to the applicable merchandise categories:

	12 Weeks Ended				36 Weeks Ended
	May 8, 2022		May 9, 2021		May 8, 2022		May 9, 2021
Foods and Sundries	$	19,594	$	17,551	$	58,646	$	53,194
Non-Foods	13,810		12,899		43,077		39,006
Fresh Foods	6,813		6,296		20,211		18,413
Ancillary and Other Businesses	11,395		7,630		30,032		19,998
Total net sales	$	51,612	$	44,376	$	151,966	$	130,611

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Summary of Significant Accounting Policies (Policies)

8 Months Ended

May 08, 2022

Accounting Policies [Abstract]

Basis of Accounting, Policy

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 inter-company transactions among the Company and its consolidated subsidiaries have been eliminated in consolidation. 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 on Form 10-K for the fiscal year ended August 29, 2021.

Fiscal Period, Policy

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 2022 is a 52-week year ending on August 28, 2022. References to the third quarter of 2022 and 2021 relate to the 12-week fiscal quarters ended May 8, 2022 and May 9, 2021, respectively. References to the first thirty-six weeks of 2022 and 2021 relate to the 36 weeks ended May 8, 2022 and May 9, 2021, respectively.

Use of Estimates, Policy

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions take into account historical and forward-looking factors that the Company believes are reasonable. Actual results could differ from those estimates and assumptions.

Property and Equipment, Policy

Property and Equipment, Net

The Company capitalizes certain computer software and costs incurred in developing or obtaining software. The Company recognized a $118 write-off of certain information technology assets, which was recorded in the first quarter of 2022, in selling, general and administrative expenses.

Reclassification, Comparability Adjustment

Reclassification

Reclassifications were made to our third quarter and first thirty-six weeks of 2021 condensed consolidated statements of income to conform with current period presentation.

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Investments (Tables)

8 Months Ended

May 08, 2022

Investments, Debt and Equity Securities [Abstract]

Available-for-sale and Held-to-maturity Investments

The Company's investments were as follows:

May 8, 2022:	Cost Basis		Unrealized Losses, Net		Recorded Basis
Available-for-sale:
Government and agency securities	$	390	$	(1)	$	389
Held-to-maturity:
Certificates of deposit	249		—		249
Total short-term investments	$	639	$	(1)	$	638

August 29, 2021:	Cost Basis		Unrealized Gains, Net		Recorded Basis
Available-for-sale:
Government and agency securities	$	375	$	6	$	381
Held-to-maturity:
Certificates of deposit	536		—		536
Total short-term investments	$	911	$	6	$	917

Maturities of Available-for-sale and Held-to-maturity Securities

The maturities of available-for-sale and held-to-maturity securities at May 8, 2022 are as follows:

	Available-For-Sale				Held-To-Maturity
	Cost Basis		Fair Value
Due in one year or less	$	296	$	295	$	249
Due after one year through five years	94		94		—
Total	$	390	$	389	$	249

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Fair Value Measurement (Tables)

8 Months Ended

May 08, 2022

Fair Value Disclosures [Abstract]

Fair Value of Financial Assets and Liabilities Measured on Recurring Basis

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

	Level 2
	May 8, 2022		August 29, 2021
Investment in government and agency securities(1)	$	389	$	393
Forward foreign-exchange contracts, in asset position(2)	54		17
Forward foreign-exchange contracts, in (liability) position(2)	(1)		(2)
Total	$	442	$	408

 _______________

(1)At August 29, 2021, $12 cash and cash equivalents and $381 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.

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Debt (Tables)

8 Months Ended

May 08, 2022

Debt Disclosure [Abstract]

Carrying Value and Estimated Fair Value of Company's Long-term Debt

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

	May 8, 2022		August 29, 2021
2.300% Senior Notes due May 2022	$	—	$	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		1,250
1.600% Senior Notes due April 2030	1,750		1,750
1.750% Senior Notes due April 2032	1,000		1,000
Other long-term debt	618		731
Total long-term debt	6,618		7,531
Less unamortized debt discounts and issuance costs	34		40
Less current portion(1)	77		799
Long-term debt, excluding current portion	$	6,507	$	6,692

 _______________

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

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Equity (Tables)

8 Months Ended

May 08, 2022

Equity [Abstract]

Stock Repurchased During Period

Share repurchase activity is summarized below:

	Shares Repurchased (000s)	Average Price per Share		Total Cost
Third quarter of 2022	254	$	547.38	$	139
First thirty-six weeks of 2022	490	$	523.61	$	257
Third quarter of 2021	519	$	346.19	$	179
First thirty-six weeks of 2021	1,040	$	353.87	$	368

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Stock-Based Compensation Plans (Tables)

8 Months Ended

May 08, 2022

Share-based Payment Arrangement [Abstract]

Summary of RSU Transactions

The following table summarizes RSU transactions during the first thirty-six weeks of 2022:

	Number of Units (in 000s)	Weighted-Average Grant Date Fair Value
Outstanding at August 29, 2021	4,349	$	257.88
Granted	1,679	476.06
Vested and delivered	(2,443)	290.20
Forfeited	(89)	324.80
Outstanding at May 8, 2022	3,496	$	338.37

Summary of Stock-Based Compensation Expense and Related Tax Benefits

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

	12 Weeks Ended				36 Weeks Ended
	May 8, 2022		May 9, 2021		May 8, 2022		May 9, 2021
Stock-based compensation expense	$	90	$	87	$	606	$	550
Less recognized income tax benefits	20		18		128		115
Stock-based compensation expense, net	$	70	$	69	$	478	$	435

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Net Income per Common and Common Equivalent Share (Tables)

8 Months Ended

May 08, 2022

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted

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 8, 2022		May 9, 2021		May 8, 2022		May 9, 2021
Net income attributable to Costco	$	1,353	$	1,220	$	3,976	$	3,337
Weighted average basic shares	443,700		443,043		443,567		443,043
RSUs	1,186		1,084		1,235		1,293
Weighted average diluted shares	444,886		444,127		444,802		444,336
Anti-dilutive RSUs	—		1,046		—		—

Anti-dilutive shares are excluded from the calculation of diluted shares and earnings per diluted share because their impact would increase earnings per diluted share.

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Segment Reporting (Tables)

8 Months Ended

May 08, 2022

Segment Reporting [Abstract]

Segment Reporting Information, by Segment

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

	United States Operations		Canadian Operations		Other International Operations		Total
12 Weeks Ended May 8, 2022
Total revenue	$	38,534	$	7,268	$	6,794	$	52,596
Operating income	1,205		324		262		1,791
12 Weeks Ended May 9, 2021
Total revenue	$	32,759	$	6,299	$	6,219	$	45,277
Operating income	1,135		260		268		1,663
36 Weeks Ended May 8, 2022
Total revenue	$	112,418	$	21,406	$	21,039	$	154,863
Operating income	3,502		918		876		5,296
36 Weeks Ended May 9, 2021
Total revenue	$	96,178	$	18,311	$	18,765	$	133,254
Operating income	2,898		733		802		4,433
52 Weeks Ended August 29, 2021
Total revenue	$	141,398	$	27,298	$	27,233	$	195,929
Operating income	4,470		1,093		1,145		6,708

Disaggregation of Revenue [Table Text Block]

Disaggregated Revenue

The following table summarizes net sales by merchandise category; sales from e-commerce websites and business centers have been allocated to the applicable merchandise categories:

	12 Weeks Ended				36 Weeks Ended
	May 8, 2022		May 9, 2021		May 8, 2022		May 9, 2021
Foods and Sundries	$	19,594	$	17,551	$	58,646	$	53,194
Non-Foods	13,810		12,899		43,077		39,006
Fresh Foods	6,813		6,296		20,211		18,413
Ancillary and Other Businesses	11,395		7,630		30,032		19,998
Total net sales	$	51,612	$	44,376	$	151,966	$	130,611

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Summary of Significant Accounting Policies - Additional Information (Detail) $ in Millions	8 Months Ended
	May 08, 2022 USD ($) warehouse states
Summary Of Significant Accounting Policies [Line Items]
Number of warehouses operated	829
Impairment of Intangible Assets (Excluding Goodwill) | $	$ 118
UNITED STATES
Summary Of Significant Accounting Policies [Line Items]
Number of warehouses operated	573
Number of states in country | states	46
CANADA
Summary Of Significant Accounting Policies [Line Items]
Number of warehouses operated	105
MEXICO
Summary Of Significant Accounting Policies [Line Items]
Number of warehouses operated	40
UNITED KINGDOM
Summary Of Significant Accounting Policies [Line Items]
Number of warehouses operated	29
JAPAN
Summary Of Significant Accounting Policies [Line Items]
Number of warehouses operated	30
KOREA
Summary Of Significant Accounting Policies [Line Items]
Number of warehouses operated	16
TAIWAN
Summary Of Significant Accounting Policies [Line Items]
Number of warehouses operated	14
AUSTRALIA
Summary Of Significant Accounting Policies [Line Items]
Number of warehouses operated	13
SPAIN
Summary Of Significant Accounting Policies [Line Items]
Number of warehouses operated	4
ICELAND
Summary Of Significant Accounting Policies [Line Items]
Number of warehouses operated	1
CHINA
Summary Of Significant Accounting Policies [Line Items]
Number of warehouses operated	2
FRANCE
Summary Of Significant Accounting Policies [Line Items]
Number of warehouses operated	2

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Investments - Available-for-sale and Held-to-maturity Investments (Detail) - USD ($) $ in Millions	May 08, 2022	Aug. 29, 2021
Available-for-sale and Held-to-maturity [Line Items]
Available-for-sale, cost basis, total	$ 390
Available-for-sale, recorded basis, total	389
Held-to-maturity, cost basis	249
Short-term investments	638	$ 917
Short-term Investments
Available-for-sale and Held-to-maturity [Line Items]
Total investments, cost basis, total	639	911
Short-term investments	638	917
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Gain, before Tax		6
Available-for-sale Securities, Accumulated Gross Unrealized Loss, before Tax	(1)
Short-term Investments | Government and Agency Securities
Available-for-sale and Held-to-maturity [Line Items]
Available-for-sale, cost basis, total	390	375
Available-for-sale, recorded basis, total	389	381
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Gain, before Tax		6
Available-for-sale Securities, Accumulated Gross Unrealized Loss, before Tax	(1)
Short-term Investments | Certificates of deposit
Available-for-sale and Held-to-maturity [Line Items]
Held-to-maturity, cost basis	249	536
Held-to-maturity, recorded basis, total	$ 249	$ 536

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Investments - Maturities of Available-for-sale and Held-to-maturity Securities (Details) $ in Millions	May 08, 2022 USD ($)
Available-for-sale, Cost Basis
Due in one year or less	$ 296
Due after one year through five years	94
Available-for-sale, cost basis, total	390
Available-for-sale, Fair Value
Due in one year or less	295
Due after one year through five years	94
Available-for-sale, recorded basis, total	389
Held-to-maturity
Due in one year or less	249
Due after one year through five years	0
Held-to-maturity, cost basis, total	$ 249

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Fair Value Measurement - Fair Value of Financial Assets and Financial Liabilities Measured on Recurring Basis (Details) - USD ($) $ in Millions	May 08, 2022	Aug. 29, 2021
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and Cash Equivalents, at Carrying Value	$ 11,193	$ 11,258
Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of assets measured on recurring basis	442	408
Government and Agency Securities | Cash and Cash Equivalents [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and Cash Equivalents, at Carrying Value		12
Government and Agency Securities | Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of assets measured on recurring basis	389	393
Forward Foreign-exchange Contracts | Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of assets measured on recurring basis	54	17
Fair value of liabilities measured on recurring basis	$ (1)	$ (2)

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Debt (Carrying Value and Estimated Fair Value of Company's Long-term Debt) (Details) - USD ($) $ in Millions	May 08, 2022	Aug. 29, 2021
Debt Instrument [Line Items]
Total long-term debt, Face value	$ 6,618	$ 7,531
Less unamortized debt discounts and issuance costs, Net	34	40
Current portion of long-term debt	77	799
Long-term debt, excluding current portion	6,507	6,692
Total long-term debt, fair value	6,000	7,692
2.30% Senior Notes Due May 2022
Debt Instrument [Line Items]
Total long-term debt, Face value	$ 0	800
Debt instrument, interest rate, stated percentage	2.30%
2.75% Senior Notes Due May 2024
Debt Instrument [Line Items]
Total long-term debt, Face value	$ 1,000	1,000
Debt instrument, interest rate, stated percentage	2.75%
3.00% Senior Notes Due May 2027
Debt Instrument [Line Items]
Total long-term debt, Face value	$ 1,000	1,000
Debt instrument, interest rate, stated percentage	3.00%
1.375% Senior Notes Due June 2027
Debt Instrument [Line Items]
Total long-term debt, Face value	$ 1,250	1,250
Debt instrument, interest rate, stated percentage	1.375%
1.60% Senior Notes Due April 2030
Debt Instrument [Line Items]
Total long-term debt, Face value	$ 1,750	1,750
Debt instrument, interest rate, stated percentage	1.60%
1.750% Senior Notes Due April 2032
Debt Instrument [Line Items]
Total long-term debt, Face value	$ 1,000	1,000
Debt instrument, interest rate, stated percentage	1.75%
Other Long-term Debt
Debt Instrument [Line Items]
Total long-term debt, Face value	$ 618	$ 731

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Equity - Additional Information - Dividends (Detail) - $ / shares	3 Months Ended
	May 08, 2022	May 09, 2021
Dividends Payable [Line Items]
Dividends declared	$ 0.90	$ 0.79
Dividend Rate
Dividends Payable [Line Items]
Dividends declared	$ 0.90

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Equity (Stock Repurchased During Period) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Millions	3 Months Ended		8 Months Ended
	May 08, 2022	May 09, 2021	May 08, 2022	May 09, 2021
Equity [Abstract]
Stock Repurchased and Retired During Period, Shares	254	519	490	1,040
Average price per share	$ 547.38	$ 346.19	$ 523.61	$ 353.87
Total Cost	$ (139)	$ (179)	$ (257)	$ (368)

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Equity - Additional Information - Stock Repurchase Programs (Details) - USD ($) $ in Millions	May 08, 2022	Apr. 26, 2019
Equity [Abstract]
Stock repurchase program, remaining authorized repurchase amount	$ 2,993
Stock Repurchase Program, Authorized Amount		$ 4,000

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Stock-Based Compensation Plans - Additional Information (Detail) - USD ($) $ in Millions	8 Months Ended
	May 08, 2022	Aug. 29, 2021
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested, Number of Shares	3,496,000	4,349,000
2019 Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Additional number of shares authorized	17,500,000
Restricted Stock Units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Additional number of shares authorized	10,000,000
Number of shares available to be granted	10,411,000
Time-based RSUs awards outstanding	3,375,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested, Number of Shares	39,000
Unrecognized compensation cost	$ 890
Weighted-average recognition period	1 year 8 months 12 days
Performance Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding performance-based RSUs awards granted, subject to achievement of performance targets	82,000
Maximum [Member] | 2019 Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares available to be granted	27,800,000
Maximum [Member] | Restricted Stock Units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares available to be granted	15,885,000

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Stock-Based Compensation Plans - Summary of RSU Transactions (Details) shares in Thousands	8 Months Ended
	May 08, 2022 $ / shares shares
Number of units
Outstanding at August 29, 2021 | shares	4,349
Granted | shares	1,679
Vested and delivered | shares	(2,443)
Forfeited | shares	(89)
Outstanding at May 8, 2022 | shares	3,496
Weighted average grant date fair value
Outstanding at August 29, 2021 | $ / shares	$ 257.88
Granted | $ / shares	476.06
Vested and delivered | $ / shares	290.20
Forfeited | $ / shares	324.80
Outstanding at May 8, 2022 | $ / shares	$ 338.37

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Stock-Based Compensation Plans - Summary of Stock-Based Compensation Expense (Details) - USD ($) $ in Millions	3 Months Ended		8 Months Ended
	May 08, 2022	May 09, 2021	May 08, 2022	May 09, 2021
Stock-based compensation expense before income taxes	$ 90	$ 87	$ 606	$ 550
Less recognized income tax benefit	20	18	128	115
Stock-based compensation expense, net of income taxes	$ 70	$ 69	$ 478	$ 435

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Net Income per Common and Common Equivalent Share - Schedule of Earnings per Share Effect on Net Income and Weighted Average Number of Dilutive Potential Common Stock (Details) - USD ($) shares in Thousands, $ in Millions	3 Months Ended		8 Months Ended
	May 08, 2022	May 09, 2021	May 08, 2022	May 09, 2021
Earnings Per Share [Abstract]
Net Income (Loss) Attributable to Parent	$ 1,353	$ 1,220	$ 3,976	$ 3,337
Weighted average number of common shares used in basic net income per common share	443,700	443,043	443,567	443,043
RSUs	1,186	1,084	1,235	1,293
Weighted average number of common shares and dilutive potential of common stock used in diluted net income per share	444,886	444,127	444,802	444,336
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	0	1,046	0	0

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Segment Reporting Information by Segment (Detail) - USD ($) $ in Millions	3 Months Ended		8 Months Ended		12 Months Ended
	May 08, 2022	May 09, 2021	May 08, 2022	May 09, 2021	Aug. 29, 2021
Segment Reporting Information [Line Items]
Total Revenue	$ 52,596	$ 45,277	$ 154,863	$ 133,254	$ 195,929
Operating Income	1,791	1,663	5,296	4,433	6,708
Operating Segments [Member] | United States Operations
Segment Reporting Information [Line Items]
Total Revenue	38,534	32,759	112,418	96,178	141,398
Operating Income	1,205	1,135	3,502	2,898	4,470
Operating Segments [Member] | Canada Operations
Segment Reporting Information [Line Items]
Total Revenue	7,268	6,299	21,406	18,311	27,298
Operating Income	324	260	918	733	1,093
Operating Segments [Member] | Other International Operations
Segment Reporting Information [Line Items]
Total Revenue	6,794	6,219	21,039	18,765	27,233
Operating Income	$ 262	$ 268	$ 876	$ 802	$ 1,145

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Segment Reporting Segment Reporting Information by Item Category (Details) - USD ($) $ in Millions	3 Months Ended		8 Months Ended
	May 08, 2022	May 09, 2021	May 08, 2022	May 09, 2021
Disaggregation of Revenue [Line Items]
Total Revenue	$ 52,596	$ 45,277	$ 154,863	$ 133,254
Foods and Sundries [Member]
Disaggregation of Revenue [Line Items]
Total Revenue	19,594	17,551	58,646	53,194
Non-Foods [Member]
Disaggregation of Revenue [Line Items]
Total Revenue	13,810	12,899	43,077	39,006
Fresh Foods [Member]
Disaggregation of Revenue [Line Items]
Total Revenue	6,813	6,296	20,211	18,413
Ancillary and Other Businesses
Disaggregation of Revenue [Line Items]
Total Revenue	11,395	7,630	30,032	19,998
Net Sales
Disaggregation of Revenue [Line Items]
Total Revenue	$ 51,612	$ 44,376	$ 151,966	$ 130,611