Costco 2002 Annual Report Download - page 19

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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 instru-
ments 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 1, 2002, the Company’s fixed
rate long-term debt includes its $851,860 principal amount at maturity Zero Coupon Subordinated Notes and
additional notes and capital lease obligations totaling $75,413. The Company’s debt also includes $300,000
7
1
⁄
8
% Senior Notes and $300,000 5
1
⁄
2
% Senior Notes. The Company has entered into “fixed-to-floating” interest
rate swaps on the Senior Notes, effectively converting these fixed interest rate securities to variable rate secu-
rities. Fluctuations in interest rates may affect the fair value of the fixed rate debt and may affect the interest ex-
pense related to the variable rate debt.
The Company holds interest-bearing instruments that are classified as cash and cash equivalents. As these
investments are of a short-term nature and are held until maturity, if interest rates were to increase or decrease
immediately, there is no material risk of a valuation adjustment related to these instruments. In addition, 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 ex-
posure 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 fair value of foreign ex-
change contracts outstanding at September 1, 2002 were not material to the Company’s results of operations or
its financial position.
Change in Accountants
On May 13, 2002, the Audit Committee of Costco Wholesale Corporation’s Board of Directors engaged
KPMG LLP as the Company’s firm of independent auditors for 2002.
18