Costco 2012 Annual Report Download - page 63

Long-Term Debt
The carrying value and estimated fair value of the Company’s long-term debt at the end of 2012 and
2011 consisted of the following:
2012 2011
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
5.5% Senior Notes due March 2017 ....... $1,097 $1,325 $1,097 $1,314
5.3% Senior Notes due March 2012 ....... 0 0 900 924
Other long-term debt .................... 285 338 156 197
Total long-term debt .................... 1,382 1,663 2,153 2,435
Less current portion .................... 1 1 900 924
Long-term debt, excluding current portion . . . $1,381 $1,662 $1,253 $1,511
The estimated fair value of the Company’s debt was based primarily on reported market values,
recently completed market transactions and estimates based upon interest rates, maturities, and credit
risk.
In February 2007, the Company issued $900 of 5.3% Senior Notes that were due March 15, 2012
(2012 Notes) at a discount of $2 and $1,100 of 5.5% Senior Notes due March 15, 2017 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 until their respective maturity date. The discount and
issuance costs associated with the Senior Notes have been amortized to interest expense over the
terms of those notes. The Company, at its option, may redeem the remaining 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 remaining 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 remaining 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. On March 15,
2012, the Company paid the outstanding principal balance and associated interest on the 2012 Notes
with its existing sources of cash and cash equivalents and short-term investments. These notes are
classified as a Level 2 measurement in the fair value hierarchy.
In October and December 2011, the Company’s Japanese subsidiary issued two series of 1.18%
Yen-denominated promissory notes through a private placement. For both series, interest is payable
semi-annually, and principal is due in October 2018. These notes are included in other long-term debt
in the table above and are classified as a Level 3 measurement in the fair value hierarchy.
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 (0.78% and 0.79% at the end of 2012
and 2011, respectively) on the outstanding balance. Interest is payable semi-annually and principal is
due in June 2018. This debt is included in other long-term debt in the table above and is classified as a
Level 3 measurement in the fair value hierarchy.
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. These notes are included in other long-term debt in the table above and are classified
as a Level 3 measurement in the fair value hierarchy.
61