Costco 2008 Annual Report Download - page 70

the 1.187% Promissory Notes due in July 2008 and for general corporate purposes. Interest is payable
semi-annually in December and June, with the first payment due in December 2008 and principal is
due in June 2018.
On October 17, 2007, the Company’s wholly-owned Japanese subsidiary issued promissory notes
through a private placement in the amount of $59,776, bearing interest at 2.695%. Interest is payable
semi-annually, and principal is due in October 2017. The proceeds were used to repay the 2.07%
Promissory Notes in October 2007 and for general corporate purposes.
In February 2007, the Company issued $900,000 of 5.3% Senior Notes due March 15, 2012 (2012
Notes) at a discount of $2,493 and $1,100,000 of 5.5% Senior Notes due March 15, 2017 (2017 Notes)
at a discount of $5,940 (together the 2007 Senior Notes). Interest on the 2007 Senior Notes is payable
semi-annually on March 15 and September 15 of each year and the net proceeds were used, in part, to
repay the 5.5% 2002 Senior Notes due in March 2007. The $8,433 discount and $1,963 issuance costs
associated with the Senior Notes are being amortized to interest expense over the terms of those
notes. The Company, at its option, may redeem the 2007 Senior Notes at any time, in whole or in part,
at a redemption price plus accrued interest. The redemption price is equal to the greater of 100% of the
principal amount of the 2007 Senior Notes to be redeemed, or the sum of the present values of the
remaining scheduled payments of principal and interest to maturity. Additionally, the Company will be
required to make an offer to purchase the 2007 Senior Notes at a price of 101% of the principal
amount plus accrued and unpaid interest to the date of repurchase, upon certain events as defined by
the terms of the 2007 Senior Notes.
In April 2003, the Company’s wholly-owned Japanese subsidiary issued promissory notes bearing
interest at 0.92% in the amount of $36,785, through a private placement. Interest is payable semi-
annually and principal is due in April 2010. In November 2002, the Company’s wholly-owned Japanese
subsidiary issued promissory notes bearing interest at 0.88% in the aggregate amount of $27,589,
through a private placement. Interest is payable semi-annually and principal is due in November 2009.
The Company guarantees all of the promissory notes issued by its wholly-owned Japanese subsidiary.
In August 1997, the Company sold $900,000 principal amount at maturity 3.5% Zero Coupon
Convertible Subordinated Notes (Zero Coupon Notes) due in August 2017. The Zero Coupon Notes
were priced with a yield to maturity of 3.5%, resulting in gross proceeds to the Company of $449,640.
The current Zero Coupon Notes outstanding are convertible into a maximum of 1,523,298 shares of
Costco Common Stock shares at an initial conversion price of $22.71. Holders of the Zero Coupon
Notes may require the Company to purchase the Zero Coupon Notes (at the discounted issue price
plus accrued interest to date of purchase) in August 2012. The Company, at its option, may redeem
the Zero Coupon Notes (at the discounted issue price plus accrued interest to date of redemption) any
time after August 2002. As of August 31, 2008, $832,939 in principal amount of the Zero Coupon
Notes had been converted by note holders to shares of Costco Common Stock, of which $556 and
$61,173 in principal were converted in 2008 and 2007, respectively, or $397 and $42,330 in 2008 and
2007, respectively, after factoring in the related debt discount.
At August 31, 2008, the fair value of the Zero Coupon Notes, based on market quotes, was
approximately $75,364, the fair value of the 2012 Notes and 2017 Notes was $931,084 and
$1,140,373, respectively, and the fair value of other long-term debt approximated its carrying value.
68