Item 8. Financial Statements and Supplementary Data

113K characters. Original on sec.gov · Markdown

Item 8. Financial Statements and Supplementary Data

COSTCO WHOLESALE CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


			Page

Reports of Independent Registered Public Accounting Firm			34
Consolidated Statements of Income			37
Consolidated Statements of Comprehensive Income			38
Consolidated Balance Sheets			39
Consolidated Statements of Equity			40
Consolidated Statements of Cash Flows			41
Notes to Consolidated Financial Statements			42

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors

Costco Wholesale Corporation:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Costco Wholesale Corporation and subsidiaries (the Company) as of August 30, 2026 and August 31, 2025, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the fiscal years in the three-year period ended August 30, 2026, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of August 30, 2026 and August 31, 2025, and the results of its operations and its cash flows for each of the fiscal years in the three-year period ended August 30, 2026, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of August 30, 2026, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated October 6, 2026 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Sufficiency of audit evidence over United States and Canada revenue

As discussed in Note 11 to the consolidated financial statements, the Company generated $219,823 million and $40,561 million of total revenue in the United States (U.S.) and Canada, respectively, for the year ended August 30, 2026, which included revenue from membership fees, merchandise sales, and gasoline sales (U.S. and Canada revenue). The processing and recording of U.S. and Canada revenue is dependent upon the use of multiple information technology (IT) systems.

We identified the evaluation of the sufficiency of audit evidence over U.S. and Canada revenue as a critical audit matter. Evaluating the sufficiency of audit evidence required subjective auditor judgment due to the highly automated nature of certain processes to record U.S. and Canada revenue, which involves interfacing significant volumes of data across multiple IT systems. The complexity of the IT environment required the involvement of IT professionals with specialized skills and knowledge.

The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgment to determine the nature and extent of procedures to be performed over the processing and recording of U.S. and Canada revenue, including the IT systems tested. We involved IT professionals with specialized skills and knowledge, who assisted in evaluating the design and testing the operating effectiveness of certain internal controls over the Company's revenue process, including general IT and application controls related to the IT systems used for the processing and recording of U.S. and Canada revenue. We performed a software-assisted data analysis to test the relationships among certain revenue journal entries. We evaluated the sufficiency of audit evidence obtained over U.S. and Canada revenue by assessing the results of procedures performed, including the appropriateness of nature and extent of such evidence.

/s/ KPMG LLP

We have served as the Company’s auditor since 2002.

Seattle, Washington

October 6, 2026

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors

Costco Wholesale Corporation:

Opinion on Internal Control Over Financial Reporting

We have audited Costco Wholesale Corporation and subsidiaries*’* (the Company) internal control over financial reporting as of August 30, 2026, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 30, 2026, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of August 30, 2026 and August 31, 2025, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the fiscal years in the three-year period ended August 30, 2026, and the related notes (collectively, the consolidated financial statements), and our report dated October 6, 2026 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Seattle, Washington

October 6, 2026

COSTCO WHOLESALE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(amounts in millions, except per share data)


	52 Weeks Ended
	August 30, 2026		August 31, 2025		September 1, 2024
REVENUE
Net sales	$	297,247	$	269,912	$	249,625
Membership fees	5,907		5,323		4,828
Total revenue	303,154		275,235		254,453
OPERATING EXPENSES
Merchandise costs	264,279		239,886		222,358
Selling, general and administrative	27,190		24,966		22,810
Operating income	11,685		10,383		9,285
OTHER INCOME (EXPENSE)
Interest expense	(145)		(154)		(169)
Interest income and other, net	711		589		624
INCOME BEFORE INCOME TAXES	12,251		10,818		9,740
Provision for income taxes	3,025		2,719		2,373


NET INCOME	$	9,226	$	8,099	$	7,367
NET INCOME PER COMMON SHARE:
Basic	$	20.78	$	18.24	$	16.59
Diluted	$	20.76	$	18.21	$	16.56
Shares used in calculation (000’s)
Basic	443,953		443,985		443,914
Diluted	444,427		444,803		444,759

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

COSTCO WHOLESALE CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(amounts in millions)


	52 Weeks Ended
	August 30, 2026		August 31, 2025		September 1, 2024
NET INCOME	$	9,226	$	8,099	$	7,367
Foreign-currency translation adjustment and other, net	150		58		(23)


COMPREHENSIVE INCOME	$	9,376	$	8,157	$	7,344

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

COSTCO WHOLESALE CORPORATION

CONSOLIDATED BALANCE SHEETS

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


	August 30, 2026		August 31, 2025
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	20,207	$	14,161
Short-term investments	1,094		1,123
Receivables, net	3,959		3,203
Merchandise inventories	19,324		18,116
Other current assets	1,998		1,777
Total current assets	46,582		38,380
OTHER ASSETS
Property and equipment, net	35,633		31,909
Operating lease right-of-use assets	2,697		2,725
Other long-term assets	4,133		4,085
TOTAL ASSETS	$	89,045	$	77,099
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable	$	22,591	$	19,783
Accrued salaries and benefits	5,641		5,205
Accrued member rewards	3,037		2,677
Deferred membership fees	3,006		2,854
Current portion of long-term debt	2,248		75
Other current liabilities	7,429		6,514
Total current liabilities	43,952		37,108
OTHER LIABILITIES
Long-term debt, excluding current portion	3,914		5,713
Long-term operating lease liabilities	2,414		2,460
Other long-term liabilities	2,962		2,654
TOTAL LIABILITIES	53,242		47,935
COMMITMENTS AND CONTINGENCIES
EQUITY
Preferred stock $0.005 par value; 100,000,000 shares authorized; no shares issued and outstanding	—		—
Common stock $0.005 par value; 900,000,000 shares authorized; 443,266,000 and 443,237,000 shares issued and outstanding	2		2
Additional paid-in capital	8,830		8,282
Accumulated other comprehensive loss	(1,620)		(1,770)
Retained earnings	28,591		22,650


TOTAL EQUITY	35,803		29,164
TOTAL LIABILITIES AND EQUITY	$	89,045	$	77,099

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

COSTCO WHOLESALE CORPORATION

CONSOLIDATED STATEMENTS OF EQUITY

(amounts in millions)


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Equity
	Shares (000’s)	Amount
BALANCE AT SEPTEMBER 3, 2023	442,793	$	2	$	7,340	$	(1,805)	$	19,521	$	25,058
Net income	—	—		—		—		7,367		7,367
Foreign-currency translation adjustment and other, net	—	—		—		(23)		—		(23)
Stock-based compensation	—	—		822		—		—		822
Release of vested restricted stock units (RSUs), including tax effects	1,337	—		(315)		—		—		(315)
Repurchases of common stock	(1,004)	—		(18)		—		(680)		(698)
Cash dividends declared	—	—		—		—		(8,589)		(8,589)
BALANCE AT SEPTEMBER 1, 2024	443,126	2		7,829		(1,828)		17,619		23,622
Net income	—	—		—		—		8,099		8,099
Foreign-currency translation adjustment and other, net	—	—		—		58		—		58
Stock-based compensation	—	—		864		—		—		864
Release of vested RSUs, including tax effects	1,054	—		(393)		—		—		(393)
Repurchases of common stock	(943)	—		(18)		—		(885)		(903)
Cash dividend declared	—	—		—		—		(2,183)		(2,183)
BALANCE AT AUGUST 31, 2025	443,237	2		8,282		(1,770)		22,650		29,164
Net income	—	—		—		—		9,226		9,226
Foreign-currency translation adjustment and other, net	—	—		—		150		—		150
Stock-based compensation	—	—		929		—		—		929
Release of vested RSUs, including tax effects	920	—		(361)		—		—		(361)
Repurchases of common stock	(891)	—		(20)		—		(827)		(847)
Cash dividend declared	—	—		—		—		(2,458)		(2,458)
BALANCE AT AUGUST 30, 2026	443,266	$	2	$	8,830	$	(1,620)	$	28,591	$	35,803

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

COSTCO WHOLESALE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in millions)


	52 Weeks Ended
	August 30, 2026		August 31, 2025		September 1, 2024
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	9,226	$	8,099	$	7,367
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,674		2,426		2,237
Non-cash lease expense	318		303		315
Stock-based compensation	924		860		818
Deferred income taxes	306		(108)		(60)
Other non-cash operating activities, net	49		(9)		51
Changes in operating assets and liabilities:
Merchandise inventories	(1,153)		559		(2,068)
Accounts payable	2,755		404		1,938
Other operating assets and liabilities, net	718		801		741
Net cash provided by operating activities	15,817		13,335		11,339
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment	(6,435)		(5,498)		(4,710)
Purchases of short-term investments	(788)		(1,028)		(1,470)
Maturities of short-term investments	811		1,141		1,790
Other investing activities, net	34		74		(19)
Net cash used in investing activities	(6,378)		(5,311)		(4,409)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of short-term borrowings	(577)		(862)		(920)
Proceeds from short-term borrowings	553		816		928
Repayments of long-term debt	(69)		(103)		(1,077)
Proceeds from issuance of long-term debt	496		—		498
Tax withholdings on stock-based awards	(361)		(393)		(315)
Repurchases of common stock	(848)		(903)		(700)
Cash dividend payments	(2,458)		(2,183)		(9,041)
Financing lease payments and other financing activities, net	(91)		(147)		(137)
Net cash used in financing activities	(3,355)		(3,775)		(10,764)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(38)		6		40
Net change in cash and cash equivalents	6,046		4,255		(3,794)
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR	14,161		9,906		13,700
CASH AND CASH EQUIVALENTS END OF YEAR	$	20,207	$	14,161	$	9,906

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest	$	103	$	106	$	129
Income taxes, net	$	2,839	$	2,917	$	2,319
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:

Capital expenditures included in liabilities	$	220	$	193	$	203

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

COSTCO WHOLESALE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 and e-commerce sites based on the concept that offering members low prices on a limited selection of nationally-branded and private-label products in a wide range of merchandise categories will produce high sales volumes and rapid inventory turnover. At August 30, 2026, Costco operated 939 warehouses worldwide: 647 in the United States (U.S.) located in 47 states, Washington, D.C., and Puerto Rico, 115 in Canada, 43 in Mexico, 37 in Japan, 29 in the U.K., 20 in Korea, 15 in Australia, 14 in Taiwan, seven in China, five in Spain, three in France, two in Sweden, and one each in Iceland and New Zealand. The Company operates e-commerce sites in the U.S., Canada, the U.K., Mexico, Korea, Taiwan, Japan, Australia, and China.

Basis of Presentation

The consolidated financial statements include the accounts of Costco and its wholly-owned subsidiaries. All material inter-company transactions among the Company and its consolidated subsidiaries have been eliminated in consolidation.

Fiscal Year End

The Company operates on a 52/53-week fiscal year basis with the year ending on the Sunday closest to August 31. References to 2026, 2025, and 2024 relate to the 52-week fiscal years ended August 30, 2026, August 31, 2025, and September 1, 2024.

Use of Estimates

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

Reclassification

Reclassifications were made to the 2025 consolidated balance sheet and the 2025 and 2024 consolidated statements of cash flows to conform with current year presentation.

Cash and Cash Equivalents

The Company considers as cash and cash equivalents all cash on deposit, highly liquid investments with a maturity of three months or less at the date of purchase, and proceeds due from credit and debit card transactions with settlement terms of up to four days. Credit and debit card receivables were $2,842 and $2,670 at the end of 2026 and 2025.

Short-Term Investments

Short-term investments generally consist of debt securities (U.S. government and agency securities), with maturities at the date of purchase of three months to ten years. Investments with maturities beyond five years may be classified, based on the Company’s determination, as short-term based on their highly liquid nature and because they represent the investment of cash that is available for current operations.

Short-term investments classified as available-for-sale are recorded at fair value using the specific identification method with the unrealized gains and losses reflected in accumulated other comprehensive income (loss) until realized. Realized gains and losses from the sale of available-for-sale securities, if any, are determined on a specific identification basis and are recorded in interest income and other, net in the consolidated statements of income. These available-for-sale investments have a low level of inherent credit risk given they are issued by the U.S. government and agencies. Changes in their fair value are primarily attributable to changes in interest rates and market liquidity. Short-term investments classified as held-to-maturity are financial instruments that the Company has the intent and ability to hold to maturity and are reported net of any related amortization and are not remeasured to fair value on a recurring basis.

The Company periodically evaluates unrealized losses in its investment securities for credit impairment, using both qualitative and quantitative criteria. In the event a security is deemed to be impaired as the result of a credit loss, the Company recognizes the loss in interest income and other, net in the consolidated statements of income.

Fair Value of Financial Instruments

The Company accounts for certain assets and liabilities at fair value. The carrying value of the Company’s financial instruments, including cash and cash equivalents, receivables, and accounts payable, approximate fair value due to their short-term nature or variable interest rates. See Notes 2, 3, and 4 for the carrying value and fair value of the Company’s investments, derivative instruments, and fixed-rate debt.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying a fair value hierarchy, which requires maximizing the use of observable inputs when measuring fair value. The three levels of inputs are:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market

data.

Level 3: Significant unobservable inputs that are not corroborated by market data.

The Company’s valuation techniques used to measure the fair value of money market mutual funds, which are included in cash and cash equivalents, are based on quoted market prices, such as quoted net asset values published by the fund as supported in an active market. Valuation methodologies used to measure the fair value of all other non-derivative financial instruments are based on independent external valuation information. The pricing process uses data from a variety of independent external valuation information providers, including trades, bid price or spread, two-sided markets, quotes, benchmark curves including but not limited to treasury benchmarks, Secured Overnight Financing Rate and swap curves, discount rates, and market data feeds. All are observable in the market or can be derived principally from or corroborated by observable market data. The Company reports transfers in and out of Levels 1, 2, and 3, as applicable, using the fair value of the individual securities as of the beginning of the reporting period in which the transfer(s) occurred.

Current financial liabilities have fair values that approximate their carrying values. Long-term financial liabilities include the Company's long-term debt, which are recorded on the balance sheet at issuance price and adjusted for unamortized discounts or premiums and debt issuance costs. Discounts, premiums, and debt issuance costs are amortized to interest expense over the term of the loan. The estimated fair value of the Company's long-term debt is based primarily on reported market values, recently completed market transactions, and estimates based upon interest rates, maturities, and credit.

Receivables, Net

Receivables consist primarily of vendor, third-party pharmacy, credit card incentive, reinsurance, and other receivables. Vendor receivables include discounts, volume rebates, and a variety of other programs. Balances are generally presented on a gross basis, separate from any related payable due. In certain circumstances, these receivables may be settled against the related payable to that vendor, in which case the receivables are presented on a net basis. Third-party pharmacy receivables generally relate to amounts due from insurance providers. Credit card incentive receivables primarily represent amounts earned under co-branded credit card arrangements. Reinsurance receivables are held by the Company’s wholly-owned captive insurance subsidiary and primarily represent amounts ceded through reinsurance arrangements gross of the amounts assumed under reinsurance, which are presented within other current liabilities in the consolidated balance sheets. Other receivables primarily consist of amounts due from governmental entities, mostly tax-related items.

The valuation allowance related to receivables was immaterial to the Company's consolidated financial statements at the end of 2026 and 2025.

Merchandise Inventories

Merchandise inventories consist of the following:


	2026		2025
United States	$	13,707	$	12,868
Canada	2,188		1,907
Other International	3,429		3,341
Merchandise inventories	$	19,324	$	18,116

Merchandise inventories are stated at the lower of cost or market. U.S. merchandise inventories are valued by the cost method of accounting, using the last-in, first-out (LIFO) basis. The Company believes the LIFO method more fairly presents the results of operations by more closely matching current costs with current revenues. The Company records an adjustment each quarter, if necessary, for the projected annual effect of inflation or deflation, and these estimates are adjusted to actual results determined at year-end, after actual inflation or deflation rates and inventory levels have been determined. Due to higher merchandise costs in 2026, a $206 charge was recorded to merchandise costs to increase the cumulative LIFO valuation on merchandise inventories at August 30, 2026. A charge of $142 was recorded in 2025 and an immaterial LIFO benefit was recorded in 2024. Canadian and Other International merchandise inventories are predominantly valued using the cost and retail inventory methods, respectively, using the first-in, first-out (FIFO) basis.

The Company initially provides for estimated inventory losses between physical inventory counts using estimates based on experience. The provision is adjusted to reflect physical inventory counts, which generally occur in the second and fourth fiscal quarters. Inventory cost where appropriate is reduced by estimates of vendor rebates when earned or as the Company progresses towards earning those rebates, provided that they are probable and reasonably estimable.

Property and Equipment, Net

Property and equipment are stated at cost. Depreciation and amortization expense is computed primarily using the straight-line method over estimated useful lives. Leasehold improvements made after the beginning of the initial lease term are depreciated over the shorter of the estimated useful life of the asset or the remaining term of the initial lease plus any renewals that are reasonably certain at the date of the leasehold improvements.

The Company capitalizes certain computer software and costs incurred in developing or obtaining software for internal use. During development, these costs are included in construction in progress. To the

extent that the assets become ready for their intended use, these costs are included in equipment and fixtures and amortized on a straight-line basis over estimated useful lives.

Repair and maintenance costs are expensed when incurred. Expenditures for remodels, refurbishments, and improvements that add to or change asset function or useful life are capitalized. Assets removed during the remodel, refurbishment, or improvement are retired. Assets classified as held-for-sale at the end of 2026 and 2025 were immaterial.

The following table summarizes the Company's property and equipment balances at the end of 2026 and 2025:


	Estimated Useful Lives	2026		2025
Land	N/A	$	11,265	$	10,323
Buildings and improvements	5-50 years	27,775		25,508
Equipment and fixtures	3-20 years	14,850		13,127
Construction in progress	N/A	2,722		1,882
		56,612		50,840
Accumulated depreciation and amortization		(20,979)		(18,931)
Property and equipment, net		$	35,633	$	31,909

The Company evaluates long-lived assets for impairment on an annual basis, when relocating or closing a facility, or when events or changes in circumstances may indicate that the carrying amount of the asset group, generally an individual warehouse, may not be fully recoverable. For asset groups held and used, including warehouses to be relocated, the carrying value of the asset group is considered recoverable when the estimated future undiscounted cash flows generated from the use and eventual disposition of the asset group exceed the respective carrying value. In the event that the carrying value is not considered recoverable, an impairment loss is recognized for the asset group to be held and used equal to the excess of the carrying value above the estimated fair value of the asset group. For asset groups classified as held-for-sale (disposal group), the carrying value is compared to the disposal group’s fair value less costs to sell. The Company estimates fair value by obtaining market appraisals from third party brokers or using other valuation techniques. There were no impairment charges recognized in 2026, and impairment charges in 2025 and 2024 were immaterial.

Leases

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

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

The Company determines at inception whether a contract is or contains a lease. Non-lease components and the lease components to which they relate are accounted for together as a single lease component for all asset classes. The Company initially records right-of-use (ROU) assets and lease obligations for its finance and operating leases based on the discounted future minimum lease payments over the term.

The lease term is defined as the noncancelable period of the lease plus any options to extend when it is reasonably certain that the Company will exercise the option. As the rate implicit in the Company's leases is not easily determinable, the present value of the sum of the lease payments is calculated using the Company's incremental borrowing rate. The rate is determined using a portfolio approach based on the rate of interest the Company would pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. The Company uses quoted interest rates from financial institutions to derive the incremental borrowing rate. Impairment of ROU assets is evaluated in a similar manner as described in Property and Equipment, Net above.

The Company's asset retirement obligations (ARO) primarily relate to leasehold improvements that must be removed at the end of a lease. These obligations are recorded as a discounted liability, with an offsetting asset, based upon the estimated fair value of the costs to remove the improvements. These liabilities are accreted over time to the projected future value of the obligation. The ARO assets are depreciated using the same depreciation method as the leasehold improvement assets and are included in buildings and improvements. Estimated ARO liabilities associated with these leases are included in other long-term liabilities in the consolidated balance sheet.

Goodwill and Acquired Intangible Assets

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

Goodwill is included in other long-term assets in the consolidated balance sheets. At the end of 2026, 2025, and 2024 goodwill balances in the Company's U.S., Canadian, and Other International operations were $953, $26, and $15, respectively. No impairment charges were recorded in 2026, 2025, or 2024.

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

Insurance/Self-insurance Liabilities

Claims for employee health-care benefits, workers’ compensation, general liability, property damage, directors’ and officers’ liability, vehicle liability, inventory loss, and other exposures are funded predominantly through self-insurance. Insurance coverage is maintained for certain risks to limit exposures to very large losses. The Company uses various risk management mechanisms, including a wholly-owned captive insurance subsidiary and participates in a reinsurance program. Liabilities associated with the risks that are retained by the Company are not discounted and are estimated using historical claims experience, demographic factors, severity factors, and other actuarial assumptions. The estimated accruals for these liabilities could be significantly affected if future occurrences, claims, or expenses differ from these assumptions and historical trends. At the end of 2026 and 2025, these insurance liabilities were $2,157 and $1,878 in the aggregate, and were included in accrued salaries and benefits and other current liabilities in the consolidated balance sheets, classified based on their nature.

The captive receives direct premiums, which are netted against the Company’s premium costs in SG&A expenses in the consolidated statements of income. The captive participates in a reinsurance program that includes third-party participants. The participant agreements and practices of the reinsurance program are designed to limit participating members’ individual risk. Income statement adjustments related to the reinsurance program and related impacts to the consolidated balance sheets are

recognized as information becomes known. In the event the Company leaves the reinsurance program, the Company retains its primary obligation to the participants for prior activity.

Derivatives

The Company is exposed to foreign-currency exchange-rate fluctuations in the normal course of business. It manages these fluctuations, in part, through the use of forward foreign-exchange contracts, seeking to economically hedge the impact of fluctuations of foreign-exchange on known future expenditures denominated in a non-functional foreign-currency. The contracts relate primarily to U.S. dollar merchandise inventory expenditures made by the Company’s international subsidiaries with functional currencies other than the U.S. dollar. These contracts either do not qualify for or the Company has not elected derivative hedge accounting. The Company seeks to mitigate risk with the use of these contracts and does not intend to engage in speculative transactions. Some of these contracts contain credit-risk-related contingent features that require settlement of outstanding contracts upon certain triggering events. The aggregate fair value amounts of derivative instruments in a net liability position and the amount needed to settle the instruments immediately if the credit-risk-related contingent features were triggered were immaterial at the end of 2026 and 2025. The aggregate notional amounts of open, unsettled forward foreign-exchange contracts were $541 and $1,184 at the end of 2026 and 2025. See Note 3 for information on the fair value of unsettled forward foreign-exchange contracts at the end of 2026 and 2025.

The unrealized gains or losses recognized in interest income and other, net in the consolidated statements of income relating to the net changes in the fair value of unsettled forward foreign-exchange contracts were immaterial in 2026, 2025, and 2024.

The Company is exposed to fluctuations in prices for energy, particularly electricity and natural gas, and other commodities used in retail and manufacturing operations, which it seeks to partially mitigate through the use of fixed-price contracts for certain of its warehouses and other facilities, primarily in the U.S. and Canada. The Company also enters into variable-priced contracts for some purchases of natural gas, in addition to fuel for its gas stations, on an index basis. These contracts meet the characteristics of derivative instruments, but generally qualify for the “normal purchases and normal sales” exception under authoritative guidance and require no mark-to-market adjustment.

Foreign-Currency

The functional currencies of the Company’s international subsidiaries are their local currencies. Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Translation adjustments are recorded in accumulated other comprehensive loss. Revenues and expenses of the Company’s consolidated foreign operations are translated at average exchange rates prevailing during the year.

The Company recognizes foreign-currency transaction gains and losses related to revaluing or settling monetary assets and liabilities denominated in currencies other than the functional currency in interest income and other, net in the consolidated statements of income. Generally, these include the U.S. dollar cash and cash equivalents and the U.S. dollar payables of consolidated subsidiaries revalued to their functional currency. Also included are realized foreign-currency gains or losses from settlements of forward foreign-exchange contracts. These items were immaterial in 2026, 2025, and 2024.

Revenue Recognition

The Company recognizes sales for the amount of consideration collected from the member, which includes gross shipping fees where applicable, and is net of sales taxes collected and remitted to government agencies and member returns. The Company reserves for estimated returns based on historical trends and reduces sales and merchandise costs accordingly. The Company records on a gross basis a refund liability and an asset for recovery, which are included in other current liabilities and other current assets, respectively, in the consolidated balance sheets.

The Company offers merchandise in the following core merchandise categories: foods and sundries, non-foods, and fresh foods. The Company also provides expanded products and services through warehouse ancillary and other businesses. The Company is the principal for the majority of its transactions and recognizes revenue on a gross basis. The Company is the principal when it has control of the merchandise or service before it is transferred to the member. The majority of revenue from merchandise sales is recognized at the point of sale. Revenue generated through e-commerce or special orders is generally recognized upon shipment to the member. For merchandise shipped directly to the member, shipping and handling costs are expensed as incurred as fulfillment costs and included in merchandise costs in the consolidated statements of income. In certain ancillary businesses, revenue is deferred until the member picks up merchandise at the warehouse. Deferred sales are included in other current liabilities in the consolidated balance sheets.

The Company accounts for membership fee revenue, net of refunds, on a deferred basis, ratably over the one-year membership period. Deferred membership fees at the end of 2026 and 2025 were $3,006 and $2,854.

In most countries, the Company's Executive members qualify for an Executive reward, generally 2% on qualified purchases, subject to an annual maximum value, which does not expire and is redeemable at Costco warehouses. The Company accounts for this reward as a reduction in sales, net of the estimated impact of non-redemptions (breakage), with the corresponding liability classified as accrued member rewards in the consolidated balance sheets. Estimated breakage is computed based on redemption data. For 2026, 2025, and 2024, the net reduction in sales was $3,383, $3,007, and $2,804.

The Company sells and otherwise provides proprietary shop cards that do not expire and are redeemable at the warehouse or online for merchandise or membership. Revenue from shop cards is recognized upon redemption, and estimated breakage is recognized based on redemption data. The Company accounts for outstanding shop card balances as a liability, net of estimated breakage. Shop card liabilities are included in other current liabilities in the consolidated balance sheets.

Citibank, N.A. is the exclusive issuer of co-branded credit cards to U.S. members. The Company receives various forms of consideration from Citibank, including a royalty on purchases made on the card outside of Costco. A portion of the royalty is used to fund the rebate that cardholders receive, after taking into consideration breakage, which is calculated based on rebate redemption data. The rebates are issued in February and expire on December 31. The Company also maintains varying co-branded credit card arrangements in Canada and certain Other International subsidiaries.

Merchandise Costs

Merchandise costs consist of the purchase price or manufacturing costs of inventory sold, inbound and outbound shipping charges, and all costs related to the Company’s depot, fulfillment, and manufacturing operations, and are reduced by vendor consideration. Merchandise costs also include salaries, benefits, depreciation, and utilities in fresh foods departments and certain ancillary businesses.

Vendor Consideration

The Company receives funds from vendors for discounts and a variety of other programs. These programs are evidenced by agreements that are reflected in the carrying value of the inventory when earned or as the Company progresses towards earning the rebate or discount, and as a component of merchandise costs as the merchandise is sold. Other vendor consideration is generally recorded as a reduction of merchandise costs upon completion of contractual milestones, agreement terms, or other systematic approaches.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of salaries, benefits and workers’ compensation costs for warehouse employees (other than fresh foods departments and certain ancillary

businesses, which are reflected in merchandise costs), as well as all regional and home office employees, including buying personnel. Selling, general and administrative expenses also include substantially all building and equipment depreciation, stock compensation expense, credit and debit card processing fees, utilities, preopening, as well as other operating costs incurred to support warehouse and e-commerce operations.

Retirement Plans

The Company's 401(k) retirement plan is available to all U.S. employees over the age of 18 who have completed 90 days of employment. The plan allows participants to make wage deferral contributions, a portion of which the Company matches. In addition, the Company provides each eligible participant an annual discretionary contribution. The Company also has a defined contribution plan for employees in Canada and contributes a percentage of each employee's wages. Certain subsidiaries in the Company's Other International operations have defined benefit and defined contribution plans, which are immaterial. Amounts expensed under all plans were $1,174, $1,061, and $963 for 2026, 2025, and 2024, and are predominantly included in SG&A expenses in the consolidated statements of income.

Stock-Based Compensation

The Company grants stock-based compensation, primarily to employees and non-employee directors. Grants to executive officers are generally performance-based. Through a series of shareholder approvals, there have been amended and restated plans and new provisions implemented by the Company. Restricted Stock Units (RSUs) are subject to quarterly vesting in the event of retirement or voluntary termination. Recipients are not entitled to vote or receive dividends on unvested and undelivered shares.

For grants issued prior to October 2025, RSUs generally vest over five years, with accelerated vesting provisions for participants reaching specified long-service milestones (25 years of service for employees; five years for non-employee directors). For grants issued in October 2025 and thereafter, RSUs vest over either a three-year schedule with no accelerated vesting or a five-year schedule with long-service acceleration, based on a one-time election made by eligible participants in 2025. RSUs granted to new participants vest over a three-year term with no such acceleration.

Compensation expense for awards is predominantly recognized using the straight-line method over the requisite service period for the entire award and forfeitures are recognized as they occur. Under accelerated vesting provisions, compensation expense is recognized upon achievement of the long-service term. The cumulative amount of compensation cost recognized at any point in time equals at least the portion of the grant-date fair value of the award that is vested at that date. The fair value of RSUs is calculated as the market value of the common stock on the measurement date less the present value of the expected dividends forgone during the vesting period.

Stock-based compensation expense is predominantly included in SG&A expenses in the consolidated statements of income. Certain stock-based compensation costs are capitalized or included in the cost of merchandise. See Note 7 for additional information.

Income Taxes

The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases, credits and loss carry-forwards. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences and carry-forwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established when necessary to reduce deferred tax assets to amounts that are more likely than not expected to be realized.

The timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions requires significant judgment. The benefits of uncertain tax positions are recorded in the Company’s consolidated financial statements only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge from tax authorities. When facts and circumstances change, the Company reassesses these probabilities and records changes as appropriate.

Net Income per Common Share

The computation of basic net income per share uses the weighted average number of shares that were outstanding during the period. The computation of diluted net income per share uses the weighted average number of shares in the basic net income per share calculation plus the number of common shares that would be issued assuming vesting of all potentially dilutive common shares outstanding using the treasury stock method for shares subject to RSUs.

Stock Repurchase Programs

Repurchased shares of common stock are retired, in accordance with the Washington Business Corporation Act. The par value of repurchased shares is deducted from common stock and the excess repurchase price over par value is deducted by allocation to additional paid-in capital and retained earnings. The amount allocated to additional paid-in capital is the current value of additional paid-in capital per share outstanding and is applied to the number of shares repurchased. Any remaining amount is allocated to retained earnings. See Note 6 for additional information.

Recent Accounting Pronouncements Adopted

In December 2023, the FASB issued ASU 2023-09, which requires public business entities on an annual basis to disclose specific categories in the income-tax rate reconciliation, provide information for reconciling items that meet a quantitative threshold, and disclose certain information about income taxes paid. The standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company adopted the ASU for the fiscal year ended August 30, 2026, on a prospective basis. See Note 8 for additional information.

Recent Accounting Pronouncements Not Yet Adopted

In November 2024, the FASB issued 2024-03, which requires disaggregated disclosures of certain costs and expenses on the income statement on an annual and interim basis. The standard is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The amendments should be applied on a prospective basis. Retrospective application is permitted. The Company is evaluating the standard.

Note 2—Investments

The Company’s investments were as follows:


2026:	Cost Basis		Unrealized Losses, Net		Recorded Basis
Available-for-sale:
Government and agency securities	$	810	$	(14)	$	796



Held-to-maturity:
Certificates of deposit	298		—		298


Total short-term investments	$	1,108	$	(14)	$	1,094


2025:	Cost Basis		Unrealized Gains, Net		Recorded Basis
Available-for-sale:
Government and agency securities	$	783	$	3	$	786



Held-to-maturity:
Certificates of deposit	337		—		337


Total short-term investments	$	1,120	$	3	$	1,123

Gross unrecognized holding gains and losses on available-for-sale securities were not material for the years ended August 30, 2026, and August 31, 2025. 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 2026 or 2025.

The maturities of available-for-sale and held-to-maturity securities at the end of 2026 are as follows:


	Available-For-Sale				Held-To-Maturity
	Cost Basis		Fair Value
Due in one year or less	$	126	$	126	$	298
Due after one year through five years	411		405		—
Due after five years	273		265		—
Total	$	810	$	796	$	298

Note 3—Fair Value Measurement

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents information regarding the Company’s financial assets and liabilities that are measured at fair value on a recurring basis and indicates the level within the hierarchy reflecting the valuation techniques utilized to determine such fair value:


	Level 2
	2026		2025

Investment in government and agency securities	$	796	$	786



Forward foreign-exchange contracts, in asset position(1)	1		6
Forward foreign-exchange contracts, in (liability) position(1)	(3)		(14)
Total	$	794	$	778

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

At August 30, 2026, and August 31, 2025, 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 2026 or 2025.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets and liabilities recognized and disclosed at fair value on a nonrecurring basis include items such as financial assets measured at amortized cost and long-lived nonfinancial assets. These assets are measured at fair value if determined to be impaired. There were no material fair value adjustments to these items during 2026 and 2025. Please see Note 1 for additional information.

Note 4—Debt

Short-Term Borrowings

The Company maintains various short-term bank credit facilities, with a borrowing capacity of $2,118 and $1,220, in 2026 and 2025. This increase was primarily driven by the renewal and expansion of the Company's U.S. revolving credit facility in August 2026, which increased total borrowing capacity from $400 to $1,000 and extended the maturity date to August 2027, as well as credit facility expansions in the Japan and Mexico subsidiaries. There were no short-term borrowings outstanding at the end of 2026, and short-term borrowings were immaterial at the end of 2025.

Long-Term Debt

The Company's long-term debt consists primarily of Senior Notes, described below. The Company at its option may redeem the Senior Notes at any time, in whole or in part, at a redemption price plus accrued interest. The redemption price is equal to the greater of 100% of the principal amount or the sum of the present value of the remaining scheduled payments of principal and interest to maturity. Additionally, upon certain events, a holder has the right to require a repurchase at a price of 101% of the principal amount plus accrued and unpaid interest. Interest on all outstanding long-term debt is payable semi-annually. The estimated fair value of Senior Notes is valued using Level 2 inputs.

Other long-term debt consists of Guaranteed Senior Notes issued by the Company's Japanese subsidiary, valued using Level 3 inputs. In 2026, the Company’s Japan subsidiary issued three series of Guaranteed Senior Notes, totaling approximately $500, at fixed interest rates ranging from 2.620% to 3.680%. Interest is payable semi-annually, and maturity dates range from June 2031 to June 2041. In 2026, 2025, and 2024 the Japanese subsidiary repaid $69, $103, and $77 of its Guaranteed Senior Notes.

In 2024, the Company repaid the $1,000 outstanding principal balance on its 2.750% Senior Notes.

At the end of 2026 and 2025, the fair value of the Company's long-term debt, including the current portion, was $5,689 and $5,370. The carrying value of long-term debt consisted of the following:


	2026		2025
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	1,175		805
Total long-term debt	6,175		5,805
Less unamortized debt discounts and issuance costs	13		17
Less current portion(1)	2,248		75
Long-term debt, excluding current portion	$	3,914	$	5,713

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

Maturities of long-term debt during the next five fiscal years and thereafter are as follows:


2027	$	2,250
2028	—
2029	136
2030	1,750
2031	161
Thereafter	1,878
Total	$	6,175

Note 5—Leases

Information regarding the Company's lease assets and liabilities were as follows:


	2026		2025
Assets
Operating lease right-of-use assets	$	2,697	$	2,725
Finance lease assets(1)	1,413		1,488
Total lease assets	$	4,110	$	4,213
Liabilities
Current
Operating lease liabilities(2)	$	192	$	208
Finance lease liabilities(2)	94		78
Long-term
Operating lease liabilities	2,414		2,460
Finance lease liabilities(3)	1,319		1,401
Total lease liabilities	$	4,019	$	4,147

(1)Included in other long-term assets in the consolidated balance sheets.

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

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


	2026		2025
Weighted-average remaining lease term (years)
Operating leases	19		20
Finance leases	23		25
Weighted-average discount rate
Operating leases	3.20	%	3.05	%
Finance leases	4.72	%	4.63	%

The components of lease expense, excluding short-term lease costs and sublease income (which were immaterial), were as follows:



	2026		2025		2024
Operating lease costs(1)	$	282	$	271	$	284
Finance lease costs:
Amortization of lease assets(1)	106		102		97
Interest on lease liabilities(2)	64		63		58
Variable lease costs(1)	195		182		163
Total lease costs	$	647	$	618	$	602

(1)Included in selling, general and administrative expenses and merchandise costs in the consolidated statements of income.

(2)Included in interest expense and merchandise costs in the consolidated statements of income.

Supplemental cash flow information related to leases were as follows:



	2026		2025		2024
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows — operating leases	$	312	$	255	$	274
Operating cash flows — finance leases	62		58		58
Financing cash flows — finance leases	89		147		136
Operating lease assets obtained in exchange for new or modified leases	238		294		125
Finance lease assets obtained in exchange for new or modified leases	122		131		200

As of August 30, 2026, future minimum payments during the next five fiscal years and thereafter are as follows:


	Operating Leases(1)		Finance Leases
2027	$	252	$	146
2028	258		142
2029	226		130
2030	204		118
2031	186		97
Thereafter	2,399		1,657
Total(2)	3,525		2,290
Less amount representing interest	919		877
Present value of lease liabilities	$	2,606	$	1,413

(1)Operating lease payments have not been reduced by expected future sublease income of $90.

(2)Excludes $1,667 of lease payments for leases that have been signed but not commenced.

Note 6—Equity

Dividends

Cash dividends declared in 2026 totaled $2,458 or $5.54 per share, as compared to $2,183 or $4.92 per share in 2025. Dividends in 2024 included a special dividend of $15 per share, resulting in a payment of $6,655. The Company's current quarterly dividend rate is $1.47 per share.

Stock Repurchase Programs

The Company's stock repurchase program is conducted under a $4,000 authorization by the Board of Directors, which expires in January 2027. As of the end of 2026, the remaining amount available under the authorization was $1,115. The following table summarizes the Company’s stock repurchase activity:


	Shares Repurchased (000’s)	Average Price per Share		Total Cost
2026	891	$	950.90	$	847
2025	943	957.66		903
2024	1,004	695.29		698

These amounts may differ from repurchases of common stock in the consolidated statements of cash flows due to changes in unsettled stock repurchases at the end of each fiscal year. Purchases are made from time to time, as conditions warrant, in the open market or in block purchases and pursuant to plans under SEC Rule 10b5-1.

Note 7—Stock-Based Compensation

The 2019 Incentive Plan authorizes the issuance of up to 15,885,000 RSUs. The number of RSUs that may be granted under this Plan is subject to adjustments for changes in capital structure. The Company issues new shares of common stock upon vesting and settlement 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 the end of 2026, 5,280,000 shares were available to be granted as RSUs, and the following awards were outstanding:

1,877,000 time-based RSUs, which vest upon continued employment or service over specified periods of time; and
123,000 performance-based RSUs, of which 67,000 were granted to executive officers subject to the determination of the attainment of performance targets for 2026, which occurred in September 2026. At that time, a portion vested as a result of executive officers who met accelerated vesting provisions. The remaining awards vest upon continued employment over specified periods of time. Please refer to Note 1 for accelerated vesting requirements.

The following table summarizes RSU transactions during 2026:


	Number of Units (in 000’s)	Weighted-Average Grant Date Fair Value
Outstanding at the end of 2025	2,308	$	597.00
Granted	1,088	933.56
Vested and delivered	(1,303)	669.59
Forfeited	(93)	696.05

Outstanding at the end of 2026	2,000	$	728.17

The weighted-average grant date fair value of RSUs granted was $933.56, $883.46, and $547.26 in 2026, 2025, and 2024. The remaining unrecognized compensation cost related to non-vested RSUs at the end of 2026 was $922 and the weighted-average period of time over which this cost will be recognized is 1.5 years. Included in the outstanding balance at the end of 2026 were approximately 704,000 RSUs vested but not yet delivered.

Summary of Stock-Based Compensation

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


	2026		2025		2024
Stock-based compensation expense	$	924	$	860	$	818
Less recognized income tax benefit	212		183		173
Stock-based compensation expense, net	$	712	$	677	$	645

Note 8—Taxes

Income Taxes

Income before income taxes is comprised of the following:


	2026		2025		2024
Domestic	$	9,070	$	8,324	$	7,255
Foreign	3,181		2,494		2,485
Total	$	12,251	$	10,818	$	9,740

The provisions for income taxes are as follows:


	2026		2025		2024
Federal:
Current	$	1,206	$	1,395	$	1,245
Deferred	328		(42)		48
Total federal	1,534		1,353		1,293
State:
Current	472		449		431
Deferred	21		(18)		(77)
Total state	493		431		354
Foreign:
Current	1,041		955		798
Deferred	(43)		(20)		(72)
Total foreign	998		935		726
Total provision for income taxes	$	3,025	$	2,719	$	2,373

The reconciliation between the statutory tax rate and the effective rate for 2026 is as follows:


	2026
Federal taxes at statutory rate	$	2,573	21.0	%
State and local income taxes, net of federal income tax effect(1)	402		3.3
Foreign tax effects:
Canada - subnational taxes	185		1.5
Canada - other	(12)		(0.1)
Other foreign jurisdictions	117		1.0
Effect of cross-border tax laws	(46)		(0.4)
Tax credits:
Research and development	(134)		(1.1)
Other tax credits	(99)		(0.8)
Changes in valuation allowance	62		0.5
Nontaxable or nondeductible items	(75)		(0.6)
Changes in unrecognized tax benefits	50		0.4
Other adjustments	2		—
Total	$	3,025	24.7	%

(1)State taxes in California, New York, New Jersey, and Oregon make up the majority (greater than 50%) of the tax effect in this category.

The reconciliation between the statutory tax rate and the effective rate for 2025 and 2024 is as follows:


	2025				2024
Federal taxes at statutory rate	$	2,272	21.0	%	$	2,045	21.0	%
State taxes, net	338		3.1		288		3.0
Foreign taxes, net	222		2.1		109		1.1
Employee stock ownership plan (ESOP)	(28)		(0.3)		(120)		(1.2)
Other	(85)		(0.8)		51		0.5
Total	$	2,719	25.1	%	$	2,373	24.4	%

The Company's effective tax rate in 2026, 2025, and 2024 included tax benefits of $72, $100, and $45, related to stock compensation. In 2024, tax benefits also included $94 related to the portion of the special dividend payable through the Company's 401(k) plan and a net non-recurring tax benefit of $63 related to a transfer pricing settlement and certain true-ups of tax reserves.

The following is a supplemental schedule of cash paid for income taxes, net of refunds:


	2026
U.S. federal	$	1,377
U.S. state and local:
California	209
Other	322
Foreign:
Canada	430
Mexico	185
Other	316
Total	$	2,839

The components of the deferred tax assets (liabilities) are as follows:


	2026		2025
Deferred tax assets:
Equity compensation	$	122	$	100
Deferred income/membership fees	398		369
Foreign tax credit carry forward	470		390
Operating lease liabilities	710		699
Accrued liabilities and reserves	1,041		917

Total deferred tax assets	2,741		2,475
Valuation allowance	(641)		(554)
Total net deferred tax assets	2,100		1,921
Deferred tax liabilities:
Property and equipment	(1,372)		(944)
Merchandise inventories	(344)		(305)
Operating lease right-of-use assets	(675)		(670)
Foreign branch deferreds	(107)		(103)
Other	(33)		(31)
Total deferred tax liabilities	(2,531)		(2,053)
Net deferred tax liabilities	$	(431)	$	(132)

The deferred tax accounts at the end of 2026 and 2025 include deferred income tax assets of $635 and $592, included in other long-term assets; and deferred income tax liabilities of $1,066 and $724, included in other long-term liabilities.

In 2026 and 2025, the Company had valuation allowances of $641 and $554, primarily related to foreign tax credits that the Company believes will not be realized due to carry forward limitations. The foreign tax credit carry forwards are set to expire beginning in fiscal 2030.

The Company generally no longer considers fiscal year earnings of non-U.S. consolidated subsidiaries (other than China) indefinitely reinvested after 2023, in the case of Taiwan, and after 2017, in the case of all other subsidiaries, and has recorded the estimated incremental foreign withholding taxes (net of available foreign tax credits) and state income taxes payable assuming a hypothetical repatriation to the U.S. The Company considers undistributed earnings of certain non-U.S. consolidated subsidiaries, which totaled $3,230, to be indefinitely reinvested and has not provided for withholding or state taxes.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for 2026 and 2025 is as follows:


	2026		2025
Gross unrecognized tax benefit at beginning of year	$	65	$	81
Gross increases—current year tax positions	18		9
Gross increases—tax positions in prior years	25		14
Gross decreases—tax positions in prior years	(6)		(38)
Gross decreases—settlements	(8)		(1)

Gross unrecognized tax benefit at end of year	$	94	$	65

At the end of 2026 and 2025, there were $94 and $65 of unrecognized tax benefits that if recognized would affect the annual effective tax rate.

Accrued interest and penalties related to income tax matters are classified as a component of income tax expense. Accrued interest and penalties recognized during 2026 and 2025, and accrued at the end of each respective period were immaterial.

The Company files income tax returns in the U.S., various state and local jurisdictions, and in several foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state or local examination for years before fiscal 2018.

Other Taxes

The Company is subject to multiple examinations for value added, sales-based, payroll, product, import, or other non-income taxes in various jurisdictions. In certain cases, the Company has received assessments from the authorities. Possible losses or range of possible losses associated with these matters are either immaterial or an estimate of the possible loss or range of loss cannot be made at this time. If certain matters or a group of matters were to be decided adversely to the Company, it could result in a charge that might be material to the results of an individual fiscal quarter or year.

Note 9—Net Income per Common and Common Equivalent Share

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


	2026		2025		2024
Net income	$	9,226	$	8,099	$	7,367
Weighted average basic shares	443,953		443,985		443,914
RSUs	474		818		845
Weighted average diluted shares	444,427		444,803		444,759

Basic earnings per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is calculated based on the dilutive effect of RSUs using the treasury stock method.

Note 10—Commitments and Contingencies

Legal Proceedings

The Company is involved in many claims, proceedings, and litigations arising from its business and property ownership. In accordance with 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 actual losses in excess of amounts accrued. The Company monitors those matters for developments that would affect the likelihood of a loss (considering 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 an immaterial accrual with respect to some matters described below, in addition to other immaterial accruals for matters not described below. If the loss contingency at issue is not both probable and reasonably estimable, the Company does not establish an accrual, but monitors for developments that make the contingency both probable and reasonably estimable. In each case, there is a reasonable possibility that a loss may be incurred, including a loss in excess of the applicable accrual. For matters where no accrual has been recorded, the possible loss or range of loss (including any loss in excess of the accrual) cannot, in the Company's view, be reasonably estimated because, among other things: the remedies or penalties sought are indeterminate or unspecified; the legal and/or factual theories are not well developed; and/or the matters involve complex or novel legal theories or a large number of parties.

In November 2023, a former employee filed a class action against the Company alleging claims under California law for failure to pay minimum wage, failure to pay overtime, failure to provide meal and rest

breaks, failure to provide accurate wage statements, failure to reimburse expenses, failure to pay wages when due, and failure to pay sick pay. Martin Reyes v. Costco Wholesale Corp. (No. 23cv011351; Sacramento County Superior Court), removed to federal court (No. 2:24-cv-00300; E.D. Cal.). A second amended complaint was filed, which the Company has moved to dismiss. In January 2024, the same plaintiff filed a related Private Attorneys General Act (PAGA) representative action, seeking civil penalties and asserting the same alleged underlying Labor Code violations and an additional suitable seating claim. In May 2024, the plaintiff filed an amended PAGA complaint; the Company has denied the material allegations of the complaint and filed a motion to stay the action. The motion was granted on December 18, 2024.

In August 2024, an employee filed an action under PAGA against the Company, alleging claims for penalties for various alleged violations of the California Labor Code. Nader v. Costco (No. CV-24-006198; Stanislaus County Superior Court). An amended complaint was filed in November 2024. In February 2025 the court granted the Company’s motion to strike portions of the complaint. The plaintiff filed a further amended complaint; the Company's motion to strike a portion of this complaint was granted on May 13, 2025. The Company's motion to stay the action was granted on November 13, 2025.

In January 2026, a class action on behalf of Washington employees was filed against the Company alleging failure to provide meal periods and rest breaks and to compensate for violations, wage theft, and failure to furnish accurate wage statements. The complaint seeks compensatory and exemplary damages, interest, and attorneys' fees. Madera v. Costco Wholesale Corp. (No. 26-2-02879-6; King County Superior Court). A similar class action was filed in March 2026. Howell v. Costco Wholesale Corp. (No. 26-2-09459-5; King County Superior Court). Howell was subsequently dismissed. The Company has reached an agreement to resolve Madera for an immaterial amount, subject to court approval.

Beginning in December 2017, the United States Judicial Panel on Multidistrict Litigation consolidated numerous cases concerning the impacts of opioid abuses filed against various defendants by counties, cities, hospitals, Native American tribes, third-party payors, and others. In re National Prescription Opiate Litigation (MDL No. 2804) (N.D. Ohio). Cases filed against the Company by counties and cities in Michigan, New Jersey, Oregon, Virginia, and South Carolina, a hospital in Texas, 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 have been resolved or dismissed. A claim by a third-party payor in Ohio and actions filed on behalf of infants born with opioid-related medical conditions in 40 states remain in the MDL. A claim against the Company filed in federal court outside the MDL by one county in Georgia is pending, and claims filed by certain cities and counties in New York are pending in state court, as are claims by certain county district attorneys in Pennsylvania. Claims against the Company in state courts in New Jersey, Oklahoma, Utah, and Arizona have been dismissed. Claims against the Company in federal court in Georgia and Florida have been dismissed. The Company is defending all of the pending matters remaining.

In June 2025, a former employee filed a class action alleging that the Company restricted workers earning less than twice the minimum wage from having a second job in violation of the Washington law. Gray, et al., v. Costco Wholesale Corp. (No. 25-2-17717-3; King County Superior Court). In October 2025 the court denied the Company’s motion to dismiss. The court certified a class on December 12, 2025. Trial is set for March 1, 2027.

Between September 25 and October 31, 2023, five class action suits were filed against the Company alleging privacy law violations stemming from pixel trackers on Costco.com: Birdwell v. Costco Wholesale Corp., No. C23-02416, Contra Costa County Superior Court; and Scott v. Costco Wholesale Corp., No. 2:23-cv-08808 (C.D. Cal.), now consolidated with R.S. v. Costco Wholesale Corp., No. 2:23-cv-01628 (W.D. Wash.); Groves, et ano., v. Costco Wholesale Corp., No. 2:23-cv-01662 (W.D. Wash.), and Castillo v. Costco Wholesale Corp., under No. 2:34-cv-01548 (W.D. Wash.). The Castillo plaintiffs filed a consolidated complaint on January 26, 2024, which seeks damages, equitable relief, and attorneys’ fees under various statutes, including the Washington Consumer Protection Act, Washington Privacy Act, Washington Uniform Health Care Information Act, Electronic Communications Privacy Act, California

Invasion of Privacy Act, and California Confidentiality of Medical Information Act. The consolidated complaint also alleges breach of implied contract, invasion of privacy, conversion, and unjust enrichment. The Company filed a motion to dismiss the Castillo complaint on March 11, 2024. In November 2024 the court denied the motion to dismiss in substantial part. On May 16, 2024, the parties stipulated to stay Birdwell pending resolution of Castillo. On January 2, and August 22, 2024, the Company received related civil investigative demands from the Washington Attorney General's Office. On January 3, 2024, the Company received a related pre-litigation letter from the Los Angeles Office of the County Counsel. The Company is in the process of responding to both agencies. The Birdwell case was dismissed with prejudice in March 2026.

In October and November 2025, two class actions were filed against the Company alleging violations of consumer protection and other laws arising from the Company's sale of Kirkland Signature tequila products in the United States: Glazer v. Costco Wholesale Corp., Case No. 1:25-cv-25057 (S.D. Fla.); and Salisbury, et al. v. Costco Wholesale Corp., Case No. 2:25-cv-02277 (W.D. Wash.). Plaintiffs allege that the Company's Kirkland Signature tequilas are labeled “100% de Agave” but contain alcohol derived from non-agave sugars. They seek damages, statutory penalties, punitive and treble damages, and disgorgement. The Glazer action was subsequently dismissed without prejudice. An amended complaint was filed in the Salisbury case on March 9, 2026, adding Glazer as an additional named plaintiff. The Company filed a motion to dismiss Salisbury in April 2026.

In March 2026, four class actions were filed against the Company seeking a refund of tariffs paid by the Company under IEEPA that were passed on to members through higher prices. The complaints allege violations of state consumer protection laws and equitable doctrines: *Stockov, et al., v. Costco Wholesale Corp. (*Case No. 26-cv-02734; N.D. Ill.); *Gower, et al., v. Costco Wholesale Corp. (*Case No. 26-2-08898-5SEA; King County Superior Court); *Ortiz, et al., v. Costco Wholesale Corp. (*Case No. 3:26-cv-01164-CVR; D.P.R.); and *Briggs, et al., v. Costco Wholesale Corp. (*Case No. 2:26-cv-01064; W.D. Wash.). The Company has filed motions to dismiss in Stockov and Gower. The Gower court denied the motion to dismiss on July 17, 2026. A motion seeking discretionary appellate review of that decision is pending.

In June of 2025, a class action was filed related to promotional emails. Zydel v. Costco Wholesale Corp. (Case No. 25-1-16392-0; King County Superior Court). The complaint alleges the emails include “misleading subject lines that encourage recipients to open e-mails on misleading pretenses” and that the subject lines advertised promotional sales with specific time limitations that were misleading, in violation of the Washington Commercial Electronic Mail Act. The Company filed a motion to dismiss the case in August 2025, which was granted in part and denied in part in October 2025. The Company subsequently agreed to a class-wide settlement for an immaterial amount, which is currently in the process of administration. In July 2026, a class action complaint was filed by plaintiff Tracy Jay, alleging deceptive email marketing practices. Jay v. Costco Wholesale Corp. (Case No. 26-2-22333-5SEA; King County Superior Court). Specifically, that Costco sent commercial emails to consumers utilizing false or misleading “limited-time” subject lines, in violation of the Washington Commercial Electronic Mail Act, as well as Indiana’s Deceptive Commercial Electronic Mail Act and Maryland’s Commercial Electronic Mail Act.

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.

Note 11—Segment Reporting

The Company is principally engaged in the operation of membership warehouses through wholly owned subsidiaries in the U.S., Canada, Mexico, Japan, the U.K., Korea, Australia, Taiwan, China, Spain, France, Sweden, Iceland, and New Zealand. Reportable segments are largely based on management’s organization of the operating segments for operational decisions and assessments of financial performance, which considers geographic locations. The material accounting policies of the segments are as described in Note 1. Inter-segment net sales and expenses, including royalties, have been eliminated in computing total revenue and operating income.

The chief operating decision maker (CODM) is the Company's Chief Executive Officer, President, and Director. The CODM uses the metrics outlined in the table below, along with internal management reports, to evaluate performance, monitor actual results versus budget and prior year results, and make strategic and operational resource allocation decisions.

The following table provides the revenue, significant expenses, and operating income for the Company's reportable segments:


	2026		2025		2024
United States
Total revenue	$	219,823	$	200,046	$	184,143
Merchandise costs	191,440		174,021		160,573
Selling, general and administrative expenses	20,736		19,147		17,353
Operating income	$	7,647	$	6,878	$	6,217
Canada
Total revenue	$	40,561	$	36,923	$	34,874
Merchandise costs	35,287		32,204		30,543
Selling, general and administrative expenses	3,167		2,870		2,683
Operating income	$	2,107	$	1,849	$	1,648
Other International
Total revenue	$	42,770	$	38,266	$	35,436
Merchandise costs	37,552		33,661		31,242
Selling, general and administrative expenses	3,287		2,949		2,774
Operating income	$	1,931	$	1,656	$	1,420
Total
Total revenue	$	303,154	$	275,235	$	254,453
Merchandise costs	264,279		239,886		222,358
Selling, general and administrative expenses	27,190		24,966		22,810
Operating income	11,685		10,383		9,285
Other income(1)	566		435		455
Income before income taxes	$	12,251	$	10,818	$	9,740

(1)Other income consists of interest expense and interest income and other, net.

The following table provides depreciation and amortization and other asset related information for the Company's reportable segments:


	2026		2025		2024
United States
Depreciation and amortization	$	2,082	$	1,895	$	1,730
Additions to property and equipment	5,122		4,215		3,725
Property and equipment, net	25,714		22,790		20,638
Total assets	65,090		54,862		48,816
Canada
Depreciation and amortization	$	219	$	196	$	192
Additions to property and equipment	673		580		351
Property and equipment, net	3,395		2,930		2,602
Total assets	8,026		7,304		6,915
Other International
Depreciation and amortization	$	373	$	335	$	315
Additions to property and equipment	640		703		634
Property and equipment, net	6,524		6,189		5,792
Total assets	15,929		14,933		14,100
Total
Depreciation and amortization	$	2,674	$	2,426	$	2,237
Additions to property and equipment	6,435		5,498		4,710
Property and equipment, net	35,633		31,909		29,032
Total assets	89,045		77,099		69,831

Disaggregated Revenue

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


	2026		2025		2024
Foods and Sundries	$	116,788	$	109,564	$	101,463
Non-Foods	77,375		71,190		63,973
Fresh Foods	41,715		37,988		34,220
Warehouse Ancillary and Other Businesses	61,369		51,170		49,969
Total net sales	$	297,247	$	269,912	$	249,625

Previous: Item 7A. Quantitative and Qualitative Disclosures About Market Risk (amounts in millions) · Next: Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure