Costco 2011 Annual Report Download - page 68

In June 2008, the Company’s Japanese subsidiary entered into a ten-year term loan with a variable
rate of interest of Yen TIBOR (6-month) plus a 0.35% margin (0.79% and 0.84% at the end of 2011
and 2010, respectively) on the outstanding balance. Interest is payable semi-annually in December
and June and principal is due in June 2018.
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 financing instruments 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 March 2011, the Company reclassified its 2012 Notes, to a current liability within the
current portion of long-term debt of the consolidated balance sheets to reflect its remaining maturity of
less than one year.
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 878,000 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 28, 2011, $862 in principal amount of Zero Coupon Notes had been converted by note
holders into shares of Costco Common Stock, of which the principal converted during 2011, 2010 and
2009 is detailed in the table below:
2011 2010 2009
Principal converted during period ....................... $ 3 $ 1 $ 25
Principal converted, including the related debt discount ..... $ 2 $ 1 $ 19
Shares issued upon conversion (000’s) .................. 65 18 562
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