Costco 2005 Annual Report Download - page 26

August 28, 2005, $39,750 was outstanding under the revolving credit facility with an applicable interest rate of
5.30% and no amounts were outstanding under the bank overdraft facility. At August 29, 2004, $21,595 was out-
standing under the revolving credit facility with an applicable interest rate of 5.285% and no amounts were out-
standing under the bank overdraft facility.
Letters of Credit
The Company has letter of credit facilities (for commercial and standby letters of credit), totaling approx-
imately $401,933. The outstanding commitments under these facilities at August 28, 2005 and August 29, 2004
totaled approximately $131,169 and $166,800, respectively, including approximately $64,532 and $52,900, re-
spectively, in standby letters of credit.
Financing Activities
The Company’s 7
1
⁄ 8 % Senior Notes, carried at $304,350 at August 29, 2004, matured and were repaid on
June 15, 2005 from its cash and cash equivalents.
In April 2003, the Company’s wholly-owned Japanese subsidiary issued promissory notes bearing interest at
0.92% in the aggregate amount of $36,516, through a private placement. Interest is payable semi-annually and
principal is due on April 26, 2010.
In March 2002, the Company issued $300,000 of 5
1
⁄ 2 % Senior Notes carried at $307,688 due March 15,
2007. Interest is payable semi-annually. Simultaneous with the issuance of the Senior Notes, the Company en-
tered 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. 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.
During fiscal 2005, $280,811 in principal amount of the Company’s 3
1
⁄ 2 % Zero Coupon Convertible Sub-
ordinated Notes were converted by note holders into 9,910,011 shares of common stock.
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 28, 2005 and August 29, 2004, was $42,466
and $30,495, respectively. The majority of the forward foreign exchange contracts were entered into by the
Company’s wholly-owned United Kingdom subsidiary, primarily to hedge U.S. dollar merchandise inventory
purchases. The Company monitors its foreign currency exchange exposures to ensure the overall effectiveness of
its foreign currency hedge positions. The only other 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-rate and variable-rate debt. As of August 28, 2005, the Company had “fixed-to-floating”
interest rate swaps with an aggregate notional amount of $300,000 and an aggregate fair value of $7,688, which
is recorded in other assets on the Company’s consolidated balance sheet. These swaps were entered into effective
March 25, 2002, and are designated and qualify as fair value hedges of the Company’s $300,000 5
1
⁄ 2 % Senior
Notes. As the terms of the swaps match those of the underlying hedged debt, the changes in the fair value of
these swaps are offset by corresponding changes in the carrying amount of the hedged debt and result in no net
earnings impact. As of August 29, 2004, the Company had “fixed-to-floating” interest rate swaps with an ag-
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