Costco 2009 Annual Report Download - page 73

lease payments at an imputed interest rate of 5.4%. This lease expires and becomes subject to a
renewal clause in 2040. As of August 30, 2009, $71 is included in long-term debt and $1 in the current
portion of long-term debt on the consolidated balance sheets. The Company has other minor capital
lease obligations that amounted to $5 at the end of 2009 and 2008.
In June 2008, the Company’s wholly-owned Japanese subsidiary entered into a ten-year term loan in
the amount of $32, with a variable rate of interest of Yen TIBOR (6-month) plus a 0.35% margin
(0.95% and 1.24% at August 30, 2009 and August 31, 2008, respectively) on the outstanding balance.
The net proceeds were used to repay the 1.187% Promissory Notes due in July 2008 and for general
corporate purposes. Interest is payable semi-annually in December and June and principal is due in
June 2018.
In October 2007, the Company’s wholly-owned Japanese subsidiary issued promissory notes through
a private placement in the amount of $69, 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 of 5.3% Senior Notes due March 15, 2012 (2012 Notes)
at a discount of $2 and $1,100 of 5.5% Senior Notes due March 15, 2017 (2017 Notes) at a discount of
$6 (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 discount and $2 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 $43, 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 $32, 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 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 $450. The current Zero
Coupon Notes outstanding are convertible into a maximum of 961,000 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 30, 2009, $858 in principal amount of the Zero Coupon Notes had been converted by
note holders to shares of Costco Common Stock, of which $25, $1, and $61 in principal were
converted in 2009, 2008, and 2007, respectively, or $19 and $42 in 2009 and 2007, respectively, after
factoring in the related debt discount. In 2008, the conversion of principle for Zero Coupon Notes after
factoring the related debt discount was not significant.
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