Costco 2003 Annual Report Download - page 22

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 August 31, 2003, 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 $137,761. The Company’s debt also includes $300,000
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⁄ 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, 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 August 31, 2003 was 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. The information required by this item is
incorporated herein by reference to Costco’s Form 8-K filed on May 17, 2002 and the related Form 8-K/A filed
on May 30, 2002.
Controls and Procedures
We carried out an evaluation as of August 31, 2003, under the supervision and with the participation of the
Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14 and
15d-14. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that
our disclosure controls and procedures are effective to timely alert them to any material information relating to
the Company (including its consolidated subsidiaries) that must be included in our periodic Securities and Ex-
change Commission filings. There have been no significant changes in the Company’s internal controls or in
other factors that could significantly affect internal controls subsequent to their evaluation.
The Company intends to review and evaluate the design and effectiveness of its disclosure controls and pro-
cedures on an ongoing basis and to improve its controls and procedures over time and to correct any deficiencies
that may be discovered in the future in order to ensure that senior management has timely access to all material
financial and non-financial information concerning the Company’s business. While management believes that the
present design of the Company’s disclosure controls and procedures is effective to achieve these results, future
events affecting the Company’s business may cause management to modify its disclosure controls and proce-
dures.
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