COSTCO WHOLESALE: NEW Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

(amounts in millions, except per share, share, and warehouse count data)
FORWARD-LOOKING STATEMENTS
Certain statements contained in this document constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. For these purposes, forward-looking statements are statements that address
activities, events, conditions or developments that the Company expects or
anticipates may occur in the future and may relate to such matters as net sales
growth, changes in comparable sales, cannibalization of existing locations by
new openings, price or fee changes, earnings performance, earnings per share,
stock-based compensation expense, warehouse openings and closures, capital
spending, the effect of adopting certain accounting standards, future financial
reporting, financing, margins, return on invested capital, strategic direction,
expense controls, membership renewal rates, shopping frequency, litigation, and
the demand for our products and services. In some cases, forward-looking
statements can be identified because they contain words such as "anticipate,"
"believe," "continue," "could," "estimate," "expect," "intend," "likely," "may,"
"might," "plan," "potential," "predict," "project," "seek," "should," "target,"
"will," "would," or similar expressions and the negatives of those terms. Such
forward-looking statements involve risks and uncertainties that may cause actual
events, results, or performance to differ materially from those indicated by
such statements. These risks and uncertainties include, but are not limited to,
domestic and international economic conditions, including exchange rates, the
effects of competition and regulation, uncertainties in the financial markets,
consumer and small-business spending patterns and debt levels, breaches of
security or privacy of member or business information, conditions affecting the
acquisition, development, ownership or use of real estate, capital spending,
actions of vendors, rising costs associated with employees (generally including
health-care costs), energy and certain commodities, geopolitical conditions
(including tariffs), the ability to maintain effective internal control over
financial reporting, COVID-19 related factors and challenges, including among
others, the duration of the pandemic, the unknown long-term economic impacts,
reduced member shopping due to illness, travel restrictions or financial
hardship, shifts in demand away from discretionary or higher-priced products,
reduced workforce due to illness, quarantine, or government mandates, temporary
store closures due to reduced workforces or government mandates, supply-chain
disruptions, or capacity constraints of third-party logistics suppliers and
other risks identified from time to time in the Company's public statements and
reports filed with the Securities and Exchange Commission (SEC). Forward-looking
statements speak only as of the date they are made, and the Company does not
undertake to update these statements, except as required by law.
This management discussion should be read in conjunction with the management
discussion included in our fiscal 2020 Annual Report on Form 10-K, previously
filed with the SEC.
OVERVIEW
We operate membership warehouses and e-commerce websites based on the concept
that offering our 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. When combined with
the operating efficiencies achieved by volume purchasing, efficient distribution
and reduced handling of merchandise in no-frills, self-service warehouse
facilities, these volumes and turnover enable us to operate profitably at
significantly lower gross margins (net sales less merchandise costs) than most
other retailers.
We believe that the most important driver of our profitability is increasing net
sales, particularly comparable sales growth. Net sales includes our core
merchandise categories (foods and sundries, hardlines, softlines, and fresh
foods), warehouse ancillary and other businesses. We define comparable sales as
net sales from warehouses open for more than one year, including remodels,
relocations and expansions, and sales-related to e-commerce websites operating
for more than one year. Comparable sales growth is achieved through increasing
shopping frequency from new and existing members and the amount they spend on
each visit (average ticket). Sales comparisons can also be particularly
influenced
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by certain factors that are beyond our control: fluctuations in currency
exchange rates (with respect to the consolidation of the results of our
international operations); and changes in the cost of gasoline and associated
competitive conditions. The higher our comparable sales exclusive of these
items, the more we can leverage certain of our selling, general and
administrative (SG&A) expenses, reducing them as a percentage of sales and
enhancing profitability. Generating comparable sales growth is foremost a
question of making available to our members the right merchandise at the right
prices, a skill that we believe we have repeatedly demonstrated over the
long-term. Another substantial factor in net sales growth is the health of the
economies in which we do business, including the effects of inflation or
deflation, especially the United States. Net sales growth and gross margins are
also impacted by our competition, which is vigorous and widespread, across a
wide range of global, national and regional wholesalers and retailers, including
those with e-commerce operations. While we cannot control or reliably predict
general economic health or changes in competition, we believe that we have been
successful historically in adapting our business to these changes, such as
through adjustments to our pricing and merchandise mix, including increasing the
penetration of our private-label items and through online offerings.
Our philosophy is to provide our members with quality goods and services at
competitive prices. We do not focus in the short-term on maximizing prices
charged, but instead seek to maintain what we believe is a perception among our
members of our "pricing authority" on quality goods - consistently providing the
most competitive values. Our investments in merchandise pricing may include
reducing prices on merchandise to drive sales or meet competition and holding
prices steady despite cost increases instead of passing the increases on to our
members, all negatively impacting gross margin as a percentage of net sales
(gross margin percentage). We believe our gasoline business draws members, but
it generally has a lower gross margin percentage relative to our non-gasoline
business. It also has lower SG&A expenses as a percent of net sales compared to
our non-gasoline business. A higher penetration of gasoline sales will generally
lower our gross margin percentage. Rapidly changing gasoline prices may
significantly impact our near-term net sales growth. Generally, rising gasoline
prices benefit net sales growth which, given the higher sales base, negatively
impacts our gross margin percentage but decreases our SG&A expenses as a
percentage of net sales. A decline in gasoline prices has the inverse effect.
Additionally, actions in various countries, particularly China, the United
States and the United Kingdom, have created uncertainty with respect to how
tariffs will affect the costs of some of our merchandise. The degree of our
exposure is dependent on (among other things) the type of goods, rates imposed,
and timing of the tariffs. The impact to our net sales and gross margin will be
influenced in part by our merchandising and pricing strategies in response to
cost increases. While these potential impacts are uncertain, they could have an
adverse impact on our results.
We also achieve net sales growth by opening new warehouses. As our warehouse
base grows, available and desirable sites become more difficult to secure, and
square footage growth becomes a comparatively less substantial component of
growth. The negative aspects of such growth, however, including lower initial
operating profitability relative to existing warehouses and cannibalization of
sales at existing warehouses when openings occur in existing markets, are
continuing to decline in significance as they relate to the results of our total
operations. Our rate of operating floor space square footage growth is generally
higher in foreign markets, due to the smaller base in those markets, and we
expect that to continue. Our e-commerce business growth, domestically and
internationally, has also increased our sales but it generally has a lower gross
margin percentage relative to our warehouse business.
The membership format is an integral part of our business and has a significant
effect on our profitability. This format is designed to reinforce member loyalty
and provide continuing fee revenue. The extent to which we achieve growth in our
membership base, increase the penetration of our Executive members, and sustain
high renewal rates materially influences our profitability. Our paid membership
growth rate may be adversely impacted when warehouse openings occur in existing
markets as compared to new markets.
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Our financial performance depends heavily on controlling costs. While we believe
that we have achieved successes in this area, some significant costs are
partially outside our control, particularly health care and utility expenses.
With respect to the compensation of our employees, our philosophy is not to seek
to minimize their wages and benefits. Rather, we believe that achieving our
longer-term objectives of reducing employee turnover and enhancing employee
satisfaction requires maintaining compensation levels that are better than the
industry average for much of our workforce. This may cause us, for example, to
absorb costs that other employers might seek to pass through to their
workforces. Because our business operates on very low margins, modest changes in
various items in the consolidated statements of income, particularly merchandise
costs and selling, general and administrative expenses, can have substantial
impacts on net income.
Our operating model is generally the same across our U.S., Canada, and Other
International operating segments (see   Note 11   to the condensed consolidated
financial statements included in Part I, Item 1, of this Report). Certain
countries in the Other International segment have relatively higher rates of
square footage growth, lower wage and benefit costs as a percentage of country
sales, less or no direct membership warehouse competition, or lack an e-commerce
business.
In discussions of our consolidated operating results, we refer to the impact of
changes in foreign currencies relative to the U.S. dollar, which are references
to the differences between the foreign-exchange rates we use to convert the
financial results of our international operations from local currencies into
U.S. dollars for financial reporting purposes. This impact of foreign-exchange
rate changes is calculated based on the difference between the current period's
currency exchange rates and that of the comparable prior period. The impact of
changes in gasoline prices on net sales is calculated based on the difference
between the current period's average price per gallon sold and that of the
comparable prior period.
Our fiscal year ends on the Sunday closest to August 31. References to the
second quarter of 2021 and 2020 relate to the 12-week fiscal quarters ended
February 14, 2021, and February 16, 2020, respectively. References to the first
half of 2021 and 2020 relate to the 24 weeks ended February 14, 2021, and
February 16, 2020, respectively. Certain percentages presented are calculated
using actual results prior to rounding. Unless otherwise noted, references to
net income relate to net income attributable to Costco.
Highlights for the second quarter of 2021 as compared to the second quarter of
2020 include:
•Net sales increased 15% to $43,888, driven by an increase in comparable sales
of 13% and sales at 18 net new warehouses opened since the end of the second
quarter of 2020;
•Membership fee revenue increased 8% to $881, driven by signups at warehouses
and online and by upgrades to Executive Membership;
•Gross margin percentage decreased two basis points, driven by certain ancillary
and other businesses and incremental wages due to COVID-19, partially offset by
increases in our core merchandise categories;
•SG&A expenses as a percentage of net sales increased 11 basis points, primarily
due to incremental wages as a result of COVID-19, partially offset by leveraging
increased sales;
•On January 21, 2021, our Board declared a quarterly cash dividend of $0.70 per
share, which was paid on February 19, 2021. The special cash dividend of $10.00
per share declared on November 16, 2020, was paid on December 11, 2020; and
•Net income was $951, or $2.14 per diluted share, compared to $931, or $2.10 per
diluted share in 2020.


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COVID-19[female[feminine

As the COVID-19 pandemic persists we continue to operate as an essential
business. We remain focused on our strategy while prioritizing the health and
safety of our members and employees. We have taken a variety of measures, as
described in Item 1A Risk Factors of our fiscal 2020 Annual Report on Form 10-K,
which have impacted us across all reportable segments to varying degrees. We
have recorded strong sales and profitability in our fresh foods, foods and
sundries, and our e-commerce business. Conversely, we have experienced decreases
in sales and profitability in certain of our ancillary and other businesses,
primarily in our gasoline and travel businesses. COVID-related supply
constraints have adversely affected some merchandise categories and are expected
to do so for the foreseeable future.
We paid $246 and $458 in incremental wages during the second quarter and first
half of 2021, respectively, related to COVID-19. The incremental wage and
benefit costs associated with COVID-19, which began on March 1, 2020 and ended
on February 28, 2021, totaled approximately $825.
Effective March 1, 2021, we implemented permanent wage increases for hourly and
most salaried warehouse employees. The estimated annualized pre-tax cost of
these permanent wage increases is approximately $400. Additionally, in certain
areas where we do business in the United States, governments have mandated, or
are considering mandating extra pay for classes of employees that include our
employees, which will result in higher costs.
RESULTS OF OPERATIONS
Net Sales
                                                         12 Weeks Ended                              24 Weeks Ended
                                               February 14,          February 16,          February 14,          February 16,
                                                   2021                  2020                  2021                  2020
Net Sales                                     $     43,888          $     38,256          $     86,235          $     74,492
Increases in net sales:
U.S                                                     13  %                 10  %                 14  %                  8  %
Canada                                                  15  %                  9  %                 16  %                  6  %
Other International                                     25  %                 12  %                 24  %                  9  %
Total Company                                           15  %                 10  %                 16  %                  8  %
Increases in comparable sales:
U.S                                                     11  %                  9  %                 13  %                  7  %
Canada                                                  13  %                  9  %                 15  %                  6  %
Other International                                     22  %                  8  %                 20  %                  6  %
Total Company                                           13  %                  9  %                 14  %                  7  %
Increases in comparable sales excluding the
impact of changes in foreign currency and
gasoline prices:
U.S                                                     13  %                  8  %                 15  %                  7  %
Canada                                                  11  %                  7  %                 14  %                  6  %
Other International                                     18  %                  7  %                 18  %                  6  %
Total Company                                           13  %                  8  %                 15  %                  6  %


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Net Sales
Net sales increased $5,632 or 15%, and $11,743 or 16% during the second quarter
and first half of 2021, respectively, compared to the second quarter and first
half of 2020. This improvement was attributable to an increase in comparable
sales of 13% and 14% in the second quarter and first half of 2021, respectively,
and sales at the 18 net new warehouses opened since the end of the second
quarter of 2020. During the second quarter and first half of 2021, we
experienced increased sales in our core merchandise categories, both in our
warehouses and online due in part to COVID-19. Sales in certain ancillary and
other businesses weakened compared to the second quarter and first half of 2020,
largely driven by our gasoline and travel businesses.
During the second quarter of 2021, changes in gasoline prices negatively
impacted net sales by $367, or 96 basis points, compared to 2020, due to a 10%
decrease in the average price per gallon. The volume of gasoline sold decreased
approximately 9%, negatively impacting net sales by $341, or 89 basis points.
Changes in foreign currencies relative to the U.S. dollar positively impacted
net sales by approximately $423, or 110 basis points, compared to the second
quarter of 2020, attributable to our Canadian and Other International
operations.
During the first half of 2021, changes in gasoline prices negatively impacted
net sales by $1,094, or 147 basis points, compared to 2020, due to a 15%
decrease in the average price per gallon. The volume of gasoline sold decreased
approximately 9%, negatively impacting net sales by $740, or 99 basis points.
Changes in foreign currencies relative to the U.S. dollar positively impacted
net sales by approximately $527, or 71 basis points, compared to the first half
of 2020, attributable to our Canadian and Other International operations.
Comparable Sales
Comparable sales increased 13% and 14% in the second quarter and first half of
2021, respectively, and were positively impacted by increases in average ticket
and shopping frequency. There was an increase of 76% and 80% in e-commerce
comparable sales in the second quarter and first half of 2021, respectively.
Membership Fees
                                                        12 Weeks Ended                            24 Weeks Ended
                                               February 14,         February 16,         February 14,         February 16,
                                                   2021                 2020                 2021                 2020
Membership fees                               $       881          $      816           $     1,742          $     1,620
Membership fees as a percentage of net sales         2.01  %             2.13   %              2.02  %              2.17  %
Total paid members (000s)                          59,700              55,300                     -                    -
Total cardholders (000s)                          108,300             100,900                     -                    -


Membership fees increased 8% in both the second quarter and first half of 2021,
driven by signups at warehouses and online and by upgrades to Executive
Membership. At the end of the second quarter of 2021, our member renewal rates
were 91% in the U.S. and Canada and 88% worldwide. Our renewal rate is a
trailing calculation that captures renewals during the period seven to eighteen
months prior to the reporting date.
We account for membership fee revenue on a deferred basis, recognized ratably
over the one-year membership period. Our membership counts include active
memberships as well as memberships that have not renewed within the 12 months
prior to the reporting date. In the fourth quarter of 2020, we standardized our
membership count methodology globally to be consistent with the U.S. and Canada.
If this standardization would have been done at the end of the second quarter of
2020, it would have resulted in an addition to the count of approximately 2.2
million total cardholders, of which 1.4 million were paid members. Membership
fee income and the renewal rate calculations were not affected.
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Gross Margin
                                     12 Weeks Ended                        24 Weeks Ended
                            February 14,       February 16,       February 14,       February 16,
                                2021               2020               2021               2020
Net sales                  $     43,888       $     38,256       $     86,235       $     74,492
Less merchandise costs           39,078             34,056             76,536             66,289
Gross margin               $      4,810       $      4,200       $      9,699       $      8,203
Gross margin percentage           10.96  %           10.98  %           11.25  %           11.01  %


Quarterly Results
The gross margin of core merchandise categories, when expressed as a percentage
of core merchandise sales (rather than total net sales), increased 71 basis
points. This increase was across all categories, most significantly in fresh
foods, primarily as a result of efficiencies from increased sales. This measure
eliminates the impact of changes in sales penetration and gross margins from our
warehouse ancillary and other businesses.
Total gross margin percentage decreased two basis points compared to the second
quarter of 2020. Excluding the impact of gasoline price deflation on net sales,
gross margin percentage was 10.87%, a decrease of 11 basis points. This was
primarily due to a 55 basis point decrease in warehouse ancillary and other
businesses, certain of which were negatively impacted by lower sales due to
COVID-19, predominantly in our gasoline and travel businesses. The decreases in
warehouse ancillary and other business were partially offset by e-commerce.
Gross margin was also negatively impacted by incremental wages related to
COVID-19 of 14 basis points and increased spending by members under the
Executive Membership 2% reward program of five basis points. These decreases
were partially offset by an increase of 63 basis points in our core merchandise
categories, predominantly fresh foods.
Gross margin on a segment basis, when expressed as a percentage of the segment's
own sales and excluding the impact of changes in gasoline prices on net sales
(segment gross margin percentage), performed similarly to the consolidated
results above for our U.S. segment. The segment gross margin percentage
increased in our Canadian and Other International segments, primarily due to
increases in fresh foods and foods and sundries partially offset by incremental
wages related to COVID-19 and increased spending by members under the Executive
Membership 2% reward program.
Year-to-date Results
The gross margin of core merchandise categories, when expressed as a percentage
of core merchandise sales, increased 72 basis points. This increase was across
all categories, most significantly in fresh foods where gross margins increased
primarily as a result of efficiencies from increased sales.
Total gross margin percentage increased 24 basis points compared to the first
half of 2020. Excluding the impact of gasoline price deflation on net sales,
gross margin percentage was 11.11%, an increase of ten basis points. This was
primarily due to an increase of 68 basis points in our core merchandise
categories, predominantly fresh foods and foods and sundries. These increases
were partially offset by a 41 basis point decrease in warehouse ancillary and
other businesses, certain of which were negatively impacted by lower sales due
to COVID-19, predominantly our gasoline and travel businesses. The decreases in
warehouse ancillary and other businesses were partially offset by e-commerce.
Gross margin was also negatively impacted by incremental wages related to
COVID-19 of 13 basis points and increased spending by members under the
Executive Membership 2% reward program of four basis points.
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The segment gross margin percentage decreased in our U.S. segment primarily due
to warehouse ancillary and other businesses and incremental wages related to
COVID-19, partially offset by increases in our core merchandise categories. Our
Canada and Other International segments increased primarily due to certain of
our core merchandise categories and warehouse ancillary and other businesses.
These increases were partially offset by the incremental wages and increased
spending by executive members discussed above.
Selling, General and Administrative Expenses
                                                       12 Weeks Ended                            24 Weeks Ended
                                              February 14,         February 16,         February 14,         February 16,
                                                  2021                 2020                 2021                 2020
SG&A expenses                                $     4,342          $     3,743          $     8,640          $     7,475
SG&A expenses as a percentage of net sales          9.89  %              9.78  %             10.02  %             10.03  %


Quarterly Results
SG&A expenses as a percentage of net sales increased 11 basis points compared to
the second quarter of 2020. SG&A expenses as a percentage of net sales excluding
the impact of gasoline price deflation was 9.81%, an increase of three basis
points compared to the prior year. SG&A expenses were negatively impacted by 42
basis points due to incremental wages as a result of COVID-19. Central operating
costs were also higher by two basis points, largely in our U.S. segment. These
increases were partially offset by a decrease of 38 basis points due to
warehouse operations and other businesses, largely attributable to payroll and
benefits, primarily due to leveraging increased sales. Stock compensation
expense was lower by three basis points.
Year-to-date Results
SG&A expenses as a percentage of net sales decreased one basis point compared to
the first half of 2020. SG&A expenses as a percentage of net sales excluding the
impact of gasoline price deflation was 9.89%, a decrease of 14 basis points
compared to the prior year. Warehouse operations and other businesses were lower
by 50 basis points, largely attributable to payroll and benefits, primarily due
to leveraging increased sales. Stock compensation expense was also lower by
three basis points. SG&A expenses were negatively impacted by 39 basis points
due to incremental wages as a result of COVID-19.
Preopening Expense
                                                         12 Weeks Ended                              24 Weeks Ended
                                               February 14,         February 16,           February 14,           February 16,
                                                   2021                 2020                   2021                   2020
Preopening expenses                            $        9          $          7          $      31               $         21
Warehouse openings, including relocations
United States                                           0                     0                  7                          3
Canada                                                  0                     0                  2                          1
Other International                                     0                     0                  1                          0
Total warehouse openings, including
relocations                                             0                     0                 10                          4


Preopening expenses include startup costs related to new warehouses and
relocations, developments in new international markets, new manufacturing and
distribution facilities, and expansions at existing warehouses. Preopening
expenses vary due to the number of warehouse openings, the timing of the
openings relative to our quarter-end, whether the warehouse is owned or leased,
and whether the opening is in an existing, new or international market. For the
remainder of fiscal 2021, we expect to open 13 warehouses.
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Interest Expense
                                    12 Weeks Ended                        24 Weeks Ended
                            February 14,       February 16,       February 14,       February 16,
                                2021               2020               2021               2020
     Interest expense     $     40            $         34      $     79            $         72


Interest expense is primarily related to Senior Notes. Interest expense
increased in the second quarter and first half of 2021 due to higher long-term
debt balances.
Interest Income and Other, Net
                                                              12 Weeks Ended                                24 Weeks Ended
                                                    February 14,           February 16,           February 14,           February 16,
                                                        2021                   2020                   2021                   2020
Interest income                                   $      11               $         30          $      21               $         62
Foreign-currency transaction gains (losses), net         (1)                         8                  7                          4
Other, net                                                9                          7                 20                         14
Interest income and other, net                    $      19               $         45          $      48               $         80


Interest income decreased in the second quarter and first half of 2021 due to
lower interest rates, partially offset by higher average cash and investment
balances. Foreign-currency transaction gains (losses), net include the
revaluation or settlement of monetary assets and liabilities by our Canadian and
Other International operations and mark-to-market adjustments for forward
foreign-exchange contracts. See Derivatives and Foreign Currency sections in
Item 8, Note 1 of our Annual Report on Form 10-K, for the fiscal year ended
August 30, 2020.
Provision for Income Taxes
                                         12 Weeks Ended                     

24 weeks completed

                                 February 14,      February 16,      

February 14th, February 16,

                                     2021              2020              2021              2020
   Provision for income taxes   $       348       $      330        $       587       $      532
   Effective tax rate                  26.4  %          25.9   %           21.5  %          22.8   %


The effective tax rate for the first half of 2021 was favorably impacted by net
discrete tax benefits of $136, which primarily related to the first quarter.
This included $75 of excess tax benefits related to stock compensation and $70
related to the portion of the special cash dividend payable through our 401(k)
plan. The effective tax rate for the first half of 2020 was favorably impacted
by net discrete tax benefits of $79, primarily related to excess tax benefits
from stock compensation. Excluding the discrete net tax benefits, the tax rate
was 26.4% and 26.2% for the first half of 2021 and 2020, respectively.

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LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes our significant sources and uses of cash and cash
equivalents:
                                                       24 Weeks Ended
                                              February 14,       February 16,
                                                  2021               2020

Net cash flow generated by operating activities $2,685 $2,721
Net cash used in investing activities

               (1,037)            

(1,100)

Net cash used in financing activities               (5,350)            

(2,228)


Our primary sources of liquidity are cash flows generated from our operations,
cash and cash equivalents, and short-term investments. Cash and cash equivalents
and short-term investments were $9,254 and $13,305 at February 14, 2021, and
August 30, 2020, respectively. Of these balances, unsettled credit and debit
card receivables represented approximately $1,659 and $1,636 at February 14,
2021, and August 30, 2020, respectively. These receivables generally settle
within four days. Management believes that our cash position and operating cash
flows will be sufficient to meet our liquidity and capital requirements for the
foreseeable future.
Cash Flows from Operating Activities
Net cash provided by operating activities totaled $2,685 in the first half
of 2021, compared to $2,721 in the first half of 2020. Our cash flow provided by
operations is primarily derived from net sales and membership fees. Cash flow
used in operations generally consists of payments to merchandise suppliers,
warehouse operating costs, including payroll and employee benefits, utilities,
and credit and debit card processing fees. Cash used in operations also includes
payments for income taxes. Changes in our net investment in merchandise
inventories (the difference between merchandise inventories and accounts
payable) is impacted by several factors, including how fast inventory is sold,
the strategic forward deployment of inventory to accelerate delivery times to
our members, payment terms with our suppliers, and the amount of payables paid
early to obtain discounts from our suppliers.
Cash Flows from Investing Activities
Net cash used in investing activities totaled $1,037 in the first half
of 2021, compared to $1,100 in the first half of 2020, and is primarily related
to capital expenditures. Net cash from investing activities also includes
purchases and maturities of short-term investments.
Capital Expenditure Plans
Our primary requirements for capital are acquiring land, buildings, and
equipment for new and remodeled warehouses. Capital is also required for
information systems, manufacturing and distribution facilities, initial
warehouse operations, and working capital. In the first half of 2021, we spent
$1,466 on capital expenditures. While COVID-19 has delayed certain construction
projects, it is our current intention to spend between $3,000 and $3,200 during
fiscal 2021. We opened 10 new warehouses, including two relocations, in the
first half of 2021 and plan to open 13 additional new warehouses in the
remainder of fiscal 2021. There can be no assurance that current expectations
will be realized; plans are subject to change upon further review of our capital
expenditure needs.
Cash Flows from Financing Activities
Net cash used in financing activities totaled $5,350 in the first half of 2021,
compared to $2,228 in the first half of 2020. Cash flow used in financing
activities was primarily related to the payment of dividends, withholding taxes
on stock-based awards, and repurchases of common stock.
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Dividends

On January 21, 2021, our Board declared a quarterly cash dividend of $0.70 per
share payable to shareholders of record on February 5, 2021, which was paid on
February 19, 2021. On December 11, 2020, an aggregate payment of approximately
$4,430 was made in connection with the special cash dividend of $10.00 per
share, declared on November 16, 2020.
Stock Repurchase Program
During the first half of 2021 and 2020, we repurchased 521,000 and 262,000
shares of common stock, at an average price per share of $361.52 and $299.40,
respectively, totaling approximately $189 and $79, respectively. These amounts
may differ from the stock repurchase balances in the accompanying condensed
consolidated statements of cash flows due to changes in unsettled stock
repurchases at the end of a quarter. Purchases are made from time to time, as
conditions warrant, in the open market or in block purchases, pursuant to plans
under SEC Rule 10b5-1. Repurchased shares are retired, in accordance with the
Washington Business Corporation Act.
Bank Credit Facilities and Commercial Paper Programs
We maintain bank credit facilities for working capital and general corporate
purposes. At February 14, 2021, we had borrowing capacity under these facilities
of $1,051. Our international operations maintain $575 of the borrowing capacity
under bank credit facilities, of which $207 is guaranteed by the Company. There
were no short-term borrowings outstanding under the bank credit facilities at
the end of the second quarter of 2021 or at the end of 2020.
The Company has letter of credit facilities, for commercial and standby letters
of credit, totaling $215. The outstanding commitments under these facilities at
the end of the second quarter of 2021 totaled $181, most of which were standby
letters of credit which do not expire or have expiration dates within one year.
The bank credit facilities have various expiration dates, most of which are
within one year, and we generally intend to renew these facilities. The amount
of borrowings available at any time under our bank credit facilities is reduced
by the amount of standby and commercial letters of credit outstanding.
Contractual Obligations
As of the date of this Report, there were no material changes to our contractual
obligations outside the ordinary course of business since the end of our last
fiscal year.
Critical Accounting Estimates
The preparation of our consolidated financial statements in accordance with U.S.
GAAP requires that we make estimates and judgments. We base these on historical
experience and on assumptions that we believe to be reasonable. Our critical
accounting policies are discussed in Part II, Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" section of our
Annual Report on Form 10-K, for the fiscal year ended August 30, 2020. There
have been no material changes to the critical accounting policies previously
disclosed in that Report.
Recent Accounting Pronouncements
There have been no material changes in recently issued or adopted accounting
standards from those disclosed in our Annual Report on Form 10-K, for the fiscal
year ended August 30, 2020.
Item 3-Quantitative and Qualitative Disclosures about Market Risk
Our direct exposure to financial market risk results from fluctuations in
foreign-currency exchange rates and interest rates. There have been no material
changes to our market risks as disclosed in our Annual Report on Form 10-K, for
the fiscal year ended August 30, 2020.
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Aurora J. William