Costco 2010 Annual Report Download - page 68

In October 2007, the Company’s Japanese subsidiary issued promissory notes through a private
placement, bearing interest at 2.695%. Interest is payable semi-annually, and principal is due in
October 2017. The Company guarantees all of the promissory notes issued by its Japanese subsidiary.
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. The discount and 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 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 remaining
Zero Coupon Notes outstanding are convertible into a maximum of 943,000 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 29, 2010, $859 in principal amount of Zero Coupon Notes had been converted by note
holders to shares of Costco Common Stock, of which the principal converted during 2010, 2009 and
2008 is detailed in the table below:
2010 2009 2008
Principal converted during period .......................... $ 1 $ 25 $ 1
Principal converted, including the related debt discount ........ $ 1 $ 19 $ 0
Shares issued upon conversion (000’s) ..................... 18 562 13
The carrying value and estimated fair value of long-term debt, based on quoted market prices,
consisted of the following at the end of 2010 and 2009:
2010 2009
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
2017 Notes ......................... $1,096 $1,295 $1,096 $1,213
2012 Notes ......................... 899 961 899 973
Zero Coupon Notes ................... 32 51 32 44
Other long-term debt .................. 114 122 183 185
Total ........................... $2,141 $2,429 $2,210 $2,415
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