COSTCO WHOLESALE CORP /NEW

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:

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:

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:

Note 8—Taxes

Income Taxes

Income before income taxes is comprised of the following:

The provisions for income taxes are as follows:

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

(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:

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:

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

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:

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):

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 Salisburyin 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 Stockovand 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:

(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:

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: