Costco 1999 Annual Report Download - page 30

COSTCO COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except per share data)
Note 2—Debt (Continued)
In April 1996, the Company borrowed $140,000 from a group of banks under a five-year unsecured
term loan. Interest only is payable quarterly at rates based on LIBOR. Proceeds of the loan were used to
retire $40,000 outstanding under the Canadian commercial paper program and $100,000 outstanding
under the U.S. commercial paper program.
On August 19, 1997, the Company completed the sale of $900,000 principal amount at maturity of
Zero Coupon Subordinated Notes (the ‘‘Notes’’) due August 19, 2017. The Notes were priced with a yield
to maturity of 31⁄2%, resulting in gross proceeds to the Company of $449,640. The Notes are convertible
into a maximum of 10,219,090 shares of Costco Common Stock at an initial conversion price of $44.00.
Holders of the Notes may require the Company to purchase the Notes (at the discounted issue price plus
accrued interest to date of purchase) on August 19, 2002, 2007, or 2012. The Company, at its option, may
redeem the Notes (at the discounted issue price plus accrued interest to date of redemption) any time on
or after August 19, 2002. On March 29, 1999, $48,000 principal amount of the Zero Coupon Notes were
converted by note holders to 545,016 shares of Costco Common Stock.
In February, 1996, the Company filed with the Securities and Exchange Commission a shelf registra-
tion statement for $500,000 of senior debt securities. Although the registration statement was declared
effective, no securities have been issued under this filing.
At August 29, 1999, the fair value of the 71⁄8% Senior Notes, based on market quotes, was approxi-
mately $300,900. The Senior Notes are not redeemable prior to maturity. The fair value of the 31⁄2% Zero
Coupon Subordinated Notes at August 29, 1999, based on market quotes, was approximately $781,369. The
fair value of other long-term debt approximates carrying value.
Maturities of long-term debt during the next five fiscal years and thereafter are as follows:
2000 ................................................... $ 11,831
2001 ................................................... 146,330
2002 ................................................... 3,067
2003 ................................................... 1,133
2004 ................................................... 1,249
Thereafter ............................................... 767,109
Total ............................................... $930,719
Note 3—Leases
The Company leases land and/or warehouse buildings at 64 of the 292 warehouses open at August 29,
1999, and certain other office and distribution facilities under operating leases with remaining terms
ranging from 2 to 30 years. These leases generally contain one or more of the following options which the
Company can exercise at the end of the initial lease term: (a) renewal of the lease for a defined number of
years at the then fair market rental rate; (b) purchase of the property at the then fair market value; or
(c) right of first refusal in the event of a third party purchase offer. Certain leases provide for periodic
rental increases based on the price indices and some of the leases provide for rents based on the greater of
minimum guaranteed amounts or sales volume. Contingent rents have not been material. Additionally, the
Company leases certain equipment and fixtures under short-term operating leases that permit the
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