CONSOLIDATED STATEMENTS OF INCOME FOR THE PERIODS ENDED: OPERATING EXPENSES Merchandise costs Selling, general and administrative \begin{tabular}{|r|r|r|} \hline 170,684 & 144,939 & 132,886 \\ \hline 18,461 & 16,332 & 14,994 \\ \hline 76 & 55 & 86 \\ \hline 6,708 & 5,435 & 4,737 \\ \hline \end{tabular} OTHER INCOME (EXPENSE) Interest expense Interest income and other, net INCOME BEFORE INCOME TAXES \begin{tabular}{|r|r|r|} \hline(171) & (160) & (150) \\ \hline 143 & 92 & 178 \\ \hline 6,680 & 5,367 & 4,765 \\ \hline \end{tabular} Provision for income taxes Net income including noncontrolling interests \begin{tabular}{|c|c|c|} \hline(1,601) & (1,308) & (1,061) \\ \hline 5,079 & 4,059 & 3,704 \\ \hline \end{tabular} Net income attributable to noncontrolling interests NET INCOME ATTRIBUTABLE TO COSTCO \begin{tabular}{|rrr|} \hline(72) & (57) & (45) \\ \hline 5,007 & 4,002 & 3,659 \\ \hline \end{tabular} NET INCOME PER COMMON SHARE ATTRIBUTABLE TO COSTCO: Basic Diluted \begin{tabular}{ll|ll|ll} $ & 11.30 & $ & 9.05 & $ & 8.32 \\ \hline$ & 11.27 & $ & 9.02 & $ & 8.26 \\ \hline \end{tabular} Shares used in calculation (000's) Basic Diluted \begin{tabular}{|l|l|l|} \hline 443,089 & 442,297 & 439,755 \\ \hline 444,346 & 443,901 & 442,923 \\ \hline \end{tabular} \# QUESTIONS (PROVIDE ANSWERS IN THE GRAY CELLS) In general terms, what is Revenue? 2 How does Profit differ from Revenue (let's use Net Profit Before Tax)? WITH REFERENCE TO COSTCO'S ACCOUNTS; 3 What is the \% change in Total Revenue year on year: Discuss the trend 4 What is the \% change in Operating Income year on year: Discuss the trend 5 What expense category is the main driver of this trend in 2020? \# QUESTIONS (PROVIDE ANSWERS IN THE GRAY CELLS) What is the \% of PreTax Profit to Revenue in each year? Discuss the trend 7 Calculate \$ Gross Margin (Net Sales - Merchandise Costs) for: 2021 2020 2019 CONSOLDATED BALANCE SHEETS AS AT (amounts in millions, except par value and share data) 29-Aug-21 30-Aug-20 ASSETS CURRENT ASSETS Cash and cash equivalents Short-term investments Receivables, net Merchandise inventories Other current assets TOTAL CURRENT ASSETS \begin{tabular}{|r|r|} \hline 11,258 & 12,277 \\ \hline 917 & 1,028 \\ \hline 1,803 & 1,550 \\ \hline 14,215 & 12,242 \\ \hline 1,312 & 1,023 \\ \hline 29,505 & 28,120 \\ \hline \end{tabular} OTHER ASSETS Property and equipment, net Operating lease right-of-use assets Other long-term assets TOTAL ASSETS \begin{tabular}{|r|r|} \hline 23,492 & 21,807 \\ \hline 2,890 & 2,788 \\ \hline 3,381 & 2,841 \\ \hline 59,268 & 55,556 \\ \hline \hline \end{tabular} LIABIUTIES AND EQUITY CURRENT LIABILITIES Accounts payable Accrued salaries and benefits Accrued member rewards Deferred membership fees Current portion of long-term debt Other current liabilities \begin{tabular}{r|r|r} \hline & 4,561 & 3,728 \\ \cline { 2 - 3 } TOTAL CURRENT LIABIUTIES & 29,441 & 24,844 \\ \hline \end{tabular} OTHER LIAB|LITIES Long-term debt, excluding current portion Long-term operating lease liabilities Other long-term liabilities TOTAL LIABILITIES \begin{tabular}{|r|r|} \hline 6,692 & 7,514 \\ \hline 2,642 & 2,558 \\ \hline 2,415 & 1,935 \\ \hline 41,190 & 36,851 \\ \hline \hline \end{tabular} EQUITY Preferred stock $0.01 par value; 100,000,000 shares authorized; no shares issued and outstanding Common stock $0.01 par value; 900,000,000 shares authorized; 441,255,000 and 439,625,000 shares issued and outstanding Additional paid-in capital Accumulated other comprehensive loss Retained earnings Total Costco stockholders' equity Noncontrolling interests \# QUESTIONS (PROVIDE ANSWERS IN THE GRAY CELLS) 29-Aug-21 30-Aug-20 12 CURRENT RATIO What is an acceptable ratio? 13 QUICK RATIO What is an acceptable ratio? 14 What are the benfits of using the Current Ratio; and 15 What are the benefits of using the Quick Ratio? 16 Quantify the Capital Structure i.e. Total Debt + Equity? What is the \% of Total Debt to Total Debt + Equity? CALCULATE THE FOLLOWING RATIOS 17 Calculate Inventory Turn Time (\# days) Formula is: (Inventory/Merchandise Costs)* 365 18 Calculate Accounts Payable days to pay Formula = (Accounts Payable/Merchandise Costs) 365 Briefly discuss this Trend 19 Referring to the "Statements of Cashflows", in 2020 what operating activity was the major contributor to Cash? 20 How can Accounts Payable be a "Source" of Funds? CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in millions) For your understanding; - a positive number is a source of Cashflow \begin{tabular}{l|r|r|} 52. Weeks & 52 Weeks & 52 Weeks \\ \hline Ended & Ended & Ended \\ 30-Aur-20 & 01-Sep-19 & 02-Sep-18 \end{tabular} - a negative number (i.e. in brackets), is a use of funds CASH FLOWS FROM OPERATING ACTIVITTES Net income including noncontrolling interests \begin{tabular}{|l|l|l|l} 5,079 & 4,059 & 3,704 & see Income Statement \end{tabular} Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities: Depreciation and amortization Non-cash lease expense Stock-based compensation Other non-cash operating activities, net Deferred income taxes Changes in operating assets and liabilities: Merchandise inventories Accounts payable Other operating assets and liabilities, net Net cash provided by operating activities \begin{tabular}{|r|r|r|} \hline(1,892) & (791) & (536) \\ \hline 1,838 & 2,261 & 322 \\ \hline 1,057 & 728 & 623 \\ \hline 8,958 & 8,861 & 6,356 \\ \hline \end{tabular} CASH FLOWS FROM INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Change in bank payments outstanding Proceeds from short term borrowings Proceeds from issuance of long-term debt Repayments of long-term debt Tax withholdings on stock-based awards Repurchases of common stock Cash dividend payments Other financing activities, net Net cash used in financing activities EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS \begin{tabular}{r|r|r|r|} 1,781 & 1,645 & 1,492 & Included in "Selling, general and administrative" on Income Statement \end{tabular} Net change in cash and cash equivalents \begin{tabular}{|l|l|l|} \hline(1,019) & 3,893 & 2,329 \\ \hline \end{tabular} CASH AND CASH EQUIVALENTS BEGINNING OF YEAR CASH AND CASH EQUIVALENTS END OF YEAR \begin{tabular}{|r|r|r|} \hline 12,277 & 8,384 & 6,055 \\ \hline 11,258 & 12,277 & 8,384 \\ \hline \hline \end{tabular} SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest Income taxes, net SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Cash dividend declared, but not yet paid CONSOLIDATED STATEMENTS OF INCOME FOR THE PERIODS ENDED: OPERATING EXPENSES Merchandise costs Selling, general and administrative \begin{tabular}{|r|r|r|} \hline 170,684 & 144,939 & 132,886 \\ \hline 18,461 & 16,332 & 14,994 \\ \hline 76 & 55 & 86 \\ \hline 6,708 & 5,435 & 4,737 \\ \hline \end{tabular} OTHER INCOME (EXPENSE) Interest expense Interest income and other, net INCOME BEFORE INCOME TAXES \begin{tabular}{|r|r|r|} \hline(171) & (160) & (150) \\ \hline 143 & 92 & 178 \\ \hline 6,680 & 5,367 & 4,765 \\ \hline \end{tabular} Provision for income taxes Net income including noncontrolling interests \begin{tabular}{|c|c|c|} \hline(1,601) & (1,308) & (1,061) \\ \hline 5,079 & 4,059 & 3,704 \\ \hline \end{tabular} Net income attributable to noncontrolling interests NET INCOME ATTRIBUTABLE TO COSTCO \begin{tabular}{|rrr|} \hline(72) & (57) & (45) \\ \hline 5,007 & 4,002 & 3,659 \\ \hline \end{tabular} NET INCOME PER COMMON SHARE ATTRIBUTABLE TO COSTCO: Basic Diluted \begin{tabular}{ll|ll|ll} $ & 11.30 & $ & 9.05 & $ & 8.32 \\ \hline$ & 11.27 & $ & 9.02 & $ & 8.26 \\ \hline \end{tabular} Shares used in calculation (000's) Basic Diluted \begin{tabular}{|l|l|l|} \hline 443,089 & 442,297 & 439,755 \\ \hline 444,346 & 443,901 & 442,923 \\ \hline \end{tabular} \# QUESTIONS (PROVIDE ANSWERS IN THE GRAY CELLS) In general terms, what is Revenue? 2 How does Profit differ from Revenue (let's use Net Profit Before Tax)? WITH REFERENCE TO COSTCO'S ACCOUNTS; 3 What is the \% change in Total Revenue year on year: Discuss the trend 4 What is the \% change in Operating Income year on year: Discuss the trend 5 What expense category is the main driver of this trend in 2020? \# QUESTIONS (PROVIDE ANSWERS IN THE GRAY CELLS) What is the \% of PreTax Profit to Revenue in each year? Discuss the trend 7 Calculate \$ Gross Margin (Net Sales - Merchandise Costs) for: 2021 2020 2019 CONSOLDATED BALANCE SHEETS AS AT (amounts in millions, except par value and share data) 29-Aug-21 30-Aug-20 ASSETS CURRENT ASSETS Cash and cash equivalents Short-term investments Receivables, net Merchandise inventories Other current assets TOTAL CURRENT ASSETS \begin{tabular}{|r|r|} \hline 11,258 & 12,277 \\ \hline 917 & 1,028 \\ \hline 1,803 & 1,550 \\ \hline 14,215 & 12,242 \\ \hline 1,312 & 1,023 \\ \hline 29,505 & 28,120 \\ \hline \end{tabular} OTHER ASSETS Property and equipment, net Operating lease right-of-use assets Other long-term assets TOTAL ASSETS \begin{tabular}{|r|r|} \hline 23,492 & 21,807 \\ \hline 2,890 & 2,788 \\ \hline 3,381 & 2,841 \\ \hline 59,268 & 55,556 \\ \hline \hline \end{tabular} LIABIUTIES AND EQUITY CURRENT LIABILITIES Accounts payable Accrued salaries and benefits Accrued member rewards Deferred membership fees Current portion of long-term debt Other current liabilities \begin{tabular}{r|r|r} \hline & 4,561 & 3,728 \\ \cline { 2 - 3 } TOTAL CURRENT LIABIUTIES & 29,441 & 24,844 \\ \hline \end{tabular} OTHER LIAB|LITIES Long-term debt, excluding current portion Long-term operating lease liabilities Other long-term liabilities TOTAL LIABILITIES \begin{tabular}{|r|r|} \hline 6,692 & 7,514 \\ \hline 2,642 & 2,558 \\ \hline 2,415 & 1,935 \\ \hline 41,190 & 36,851 \\ \hline \hline \end{tabular} EQUITY Preferred stock $0.01 par value; 100,000,000 shares authorized; no shares issued and outstanding Common stock $0.01 par value; 900,000,000 shares authorized; 441,255,000 and 439,625,000 shares issued and outstanding Additional paid-in capital Accumulated other comprehensive loss Retained earnings Total Costco stockholders' equity Noncontrolling interests \# QUESTIONS (PROVIDE ANSWERS IN THE GRAY CELLS) 29-Aug-21 30-Aug-20 12 CURRENT RATIO What is an acceptable ratio? 13 QUICK RATIO What is an acceptable ratio? 14 What are the benfits of using the Current Ratio; and 15 What are the benefits of using the Quick Ratio? 16 Quantify the Capital Structure i.e. Total Debt + Equity? What is the \% of Total Debt to Total Debt + Equity? CALCULATE THE FOLLOWING RATIOS 17 Calculate Inventory Turn Time (\# days) Formula is: (Inventory/Merchandise Costs)* 365 18 Calculate Accounts Payable days to pay Formula = (Accounts Payable/Merchandise Costs) 365 Briefly discuss this Trend 19 Referring to the "Statements of Cashflows", in 2020 what operating activity was the major contributor to Cash? 20 How can Accounts Payable be a "Source" of Funds? CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in millions) For your understanding; - a positive number is a source of Cashflow \begin{tabular}{l|r|r|} 52. Weeks & 52 Weeks & 52 Weeks \\ \hline Ended & Ended & Ended \\ 30-Aur-20 & 01-Sep-19 & 02-Sep-18 \end{tabular} - a negative number (i.e. in brackets), is a use of funds CASH FLOWS FROM OPERATING ACTIVITTES Net income including noncontrolling interests \begin{tabular}{|l|l|l|l} 5,079 & 4,059 & 3,704 & see Income Statement \end{tabular} Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities: Depreciation and amortization Non-cash lease expense Stock-based compensation Other non-cash operating activities, net Deferred income taxes Changes in operating assets and liabilities: Merchandise inventories Accounts payable Other operating assets and liabilities, net Net cash provided by operating activities \begin{tabular}{|r|r|r|} \hline(1,892) & (791) & (536) \\ \hline 1,838 & 2,261 & 322 \\ \hline 1,057 & 728 & 623 \\ \hline 8,958 & 8,861 & 6,356 \\ \hline \end{tabular} CASH FLOWS FROM INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Change in bank payments outstanding Proceeds from short term borrowings Proceeds from issuance of long-term debt Repayments of long-term debt Tax withholdings on stock-based awards Repurchases of common stock Cash dividend payments Other financing activities, net Net cash used in financing activities EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS \begin{tabular}{r|r|r|r|} 1,781 & 1,645 & 1,492 & Included in "Selling, general and administrative" on Income Statement \end{tabular} Net change in cash and cash equivalents \begin{tabular}{|l|l|l|} \hline(1,019) & 3,893 & 2,329 \\ \hline \end{tabular} CASH AND CASH EQUIVALENTS BEGINNING OF YEAR CASH AND CASH EQUIVALENTS END OF YEAR \begin{tabular}{|r|r|r|} \hline 12,277 & 8,384 & 6,055 \\ \hline 11,258 & 12,277 & 8,384 \\ \hline \hline \end{tabular} SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest Income taxes, net SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Cash dividend declared, but not yet paid