Costco 2003 Annual Report Download - page 18

Letters of Credit
The Company has letter of credit facilities (for commercial and standby letters of credit), totaling approx-
imately $369,000. The outstanding commitments under these facilities at August 31, 2003 totaled approximately
$125,000, including approximately $44,000 in standby letters of credit.
Contractual Obligations
The Company’s commitment to make future payments under long-term contractual obligations was as fol-
lows, as of August 31, 2003.
Payments Due by Period
Contractual obligations Total
Less than
1 year
1to3
years
4to5
years
After
5 years
Long-term debt(1) ........................ $1,702,618(2) $ 44,368 $361,542 $379,528 $ 917,180(2)
Capital lease obligations ................... 12,116 6,427 2,250 1,115 2,324
Operating leases ......................... 1,405,262(3) 85,862 173,996 162,101 983,303
Total .............................. $3,119,996 $136,657 $537,788 $542,744 $1,902,807
(1) Amounts include contractual interest payments.
(2) The amount includes interest accreted to maturity for the Company’s Zero Coupon 3
1
⁄ 2 %Convertible Sub-
ordinated Notes due August 2017, totaling $851,860. The consolidated balance sheet as of August 31, 2003
reflects the current balance outstanding of $524,735.
(3) Operating lease obligations have been reduced by $142,975 to reflect sub-lease income.
Financing Activities
In April 2003, the Company’s wholly-owned Japanese subsidiary issued promissory notes bearing interest at
0.92% in the aggregate amount of approximately $34,376, through a private placement. Interest is payable semi-
annually and principal is due on April 26, 2010.
In November 2002, the Company’s wholly-owned Japanese subsidiary issued promissory notes bearing
interest at 0.88% in the aggregate amount of approximately $25,782, through a private placement. Interest is
payable semi-annually and principal is due on November 7, 2009.
In March 2002, the Company issued $300,000 of 5
1
⁄ 2 % Senior Notes due March 15, 2007. Interest is pay-
able semi-annually. Simultaneous with the issuance of the Senior Notes, the Company entered into interest rate
swap agreements converting the interest from fixed to floating.
In February 1996, the Company filed with the Securities and Exchange Commission a shelf registration
statement for $500,000 of senior debt securities. On October 23, 2001, additional debt securities of $100,000
were registered, bringing the total amount of debt registered under the shelf registration to $600,000. The
$300,000 of 5
1
⁄ 2 % Senior Notes issued in March 2002 reduced the amount of registered securities available for
future issuance to $300,000.
Derivatives
The Company has limited involvement with derivative financial instruments and uses them only to manage
well-defined interest rate and foreign exchange risks. Forward foreign exchange contracts are used to hedge the
impact of fluctuations of foreign exchange on inventory purchases and typically have very short terms. The ag-
gregate amount of foreign exchange contracts outstanding at August 31, 2003 was not material. The only sig-
nificant derivative instruments the Company holds are interest rate swaps, which the Company uses to manage
the interest rate risk associated with its borrowings and to manage the Company’s mix of fixed and variable-rate
debt. As of August 31, 2003, the Company had “fixed-to-floating” interest rate swaps with an aggregate notional
amount of $600,000 and an aggregate fair value of $34,204, which is recorded in other assets. These swaps were
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