Costco 2001 Annual Report Download - page 18

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No. 121, ‘‘Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of’’ and other related accounting guidance. The Company is in the process of evaluating the financial
statement impact of the adoption of SFAS No. 144.
Quantitative and Qualitative Disclosure of Market Risk
The Company is exposed to financial market risk resulting from changes in interest and currency
rates. As a policy, the Company does not engage in speculative or leveraged transactions, nor hold or issue
financial instruments for trading purposes.
The nature and amount of the Company’s long and short-term debt can be expected to vary as a result
of future business requirements, market conditions and other factors. As of September 2, 2001, all of the
Company’s debt is fixed rate. The Company’s long-term debt includes its $851,877 principal amount at
maturity Zero Coupon Subordinated Notes, Senior Notes with a principal amount of $300,000 and
additional notes and capital lease obligations totaling $86,411. While fluctuations in interest rates may
affect the fair value of this debt, interest expense will not be affected due to the fixed interest rate of the
notes and capital lease obligations.
The Company’s short-term investments as of September 2, 2001 include corporate notes and bonds
with maturities of less than sixty days. These investments are classified as available for sale. If interest rates
were to increase or decrease immediately, it could have a material impact on the fair value of these
investments. However, changes in interest rates would not likely have a material impact on interest income.
Most foreign currency transactions have been conducted in local currencies, limiting the Company’s
exposure to changes in currency rates. The Company periodically enters into forward foreign exchange
contracts to hedge the impact of fluctuations in foreign currency rates on inventory purchases. The foreign
exchange contracts outstanding at September 2, 2001 were not material to the Company’s results of
operations or its financial position.
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