Short-Term Borrowings
The Company enters into various short-term bank credit facilities, totaling $700 and $438 in 2013 and 2012, respectively. At the end of 2013, $36 was outstanding under these credit facilities, with interest rates ranging from 0.10% to 4.31%, and is included within other current liabilities in the accompanying consolidated balance sheets. There were no outstanding borrowings at the end of 2012.
The weighted average borrowings, maximum borrowings, and weighted average interest rate under all short-term borrowing arrangements, were as follows for 2013 and 2012:
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| | | | | | | | | | | |
Category of Aggregate Short-term Borrowings | | Maximum Amount Outstanding During the Fiscal Year | | Average Amount Outstanding During the Fiscal Year | | Weighted Average Interest Rate During the Fiscal Year |
2013: | | | | | | |
Bank borrowings: | | | | | | |
Japan | | $ | 157 |
| | $ | 56 |
| | 0.56 | % |
Bank overdraft facility: | | | | | | |
United Kingdom | | 14 |
| | 4 |
| | 1.50 |
|
2012: | | | | | | |
Bank borrowings: | | | | | | |
Japan | | $ | 83 |
| | $ | 57 |
| | 0.58 | % |
Bank overdraft facility: | | | | | | |
United Kingdom | | 3 |
| | 0 |
| | 1.50 |
|
Long-Term Debt
In July 2013, the Company’s Japanese subsidiary entered into an approximately $102 three-year term loan (with a possible two year extension), bearing interest at 0.67%. Interest is payable semi-annually and principal is due on June 30, 2016. This debt is included in other long-term debt in the table below and is classified as a Level 2 measurement in the fair value hierarchy.
In May 2013, the Company's Japanese subsidiary issued approximately $102 of 1.05% promissory notes through a private placement. Interest is payable semi-annually, and principal is due in May 2023. These notes are included in other long-term debt in the table below and are classified as a Level 3 measurement in the fair value hierarchy.
In December 2012, the Company issued $3,500 in aggregate principle amount of Senior Notes (December 2012 Notes collectively) as follows: $1,200 of 0.65% Senior Notes due December 7, 2015 (0.65% Notes); $1,100 of 1.125% Senior Notes due December 15, 2017 (1.125% Notes); and $1,200 of 1.7% Senior Notes due December 15, 2019 (1.7% Notes). Interest is payable on the 0.65% Notes semi-annually on June 7 and December 7 of each year until its maturity date. On the 1.125% and 1.7% Notes, interest is due semi-annually on June 15 and December 15 of each year until its maturity date. The Company, at its option, may redeem the December 2012 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 December 2012 Notes to be redeemed or the sum of the present value of the remaining scheduled payments of principal and interest to maturity. Additionally, the Company will be required to make an offer to purchase the December 2012 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 December 2012 Notes. The discount and issuance costs associated with the December 2012 Notes are being amortized to interest expense over the terms of the notes. The December 2012 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 below 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 (0.68% and 0.78% at the end of 2013 and 2012, 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 below 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 below and are classified as a Level 3 measurement in the fair value hierarchy.
In February 2007, the Company issued $1,100 of 5.5% Senior Notes due March 15, 2017 at a discount of $6 (the 2007 Senior Note). Interest is payable semi-annually on March 15 and September 15 of each year until its maturity date. The discount and issuance costs associated with the Senior Note is being amortized to interest expense over the term of the note. The Company, at its option, may redeem the 2007 Senior Note 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 Note to be redeemed or the sum of the present value 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 Note 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 Note. This note is classified as a Level 2 measurement in the fair value hierarchy.
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 30,000 shares of Costco Common Stock shares at an initial conversion price of $22.71. The Company, at its option, may redeem the Zero Coupon Notes (at the discounted issue price plus accrued interest to date of redemption). At the end of 2013, $899 in principal amount of Zero Coupon Notes had been converted by note holders into shares of Costco Common Stock. These notes are included in other long-term debt in the table below and are classified as a Level 2 measurement in the fair value hierarchy.
The carrying value and estimated fair value of the Company’s long-term debt at the end of 2013 and 2012 consisted of the following:
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| | | | | | | | | | | | | | | |
| 2013 | | 2012 |
| Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
5.5% Senior Notes due March 2017 | $ | 1,098 |
| | $ | 1,248 |
| | $ | 1,097 |
| | $ | 1,325 |
|
0.65% Senior Notes due December 2015 | 1,199 |
| | 1,200 |
| | 0 |
| | 0 |
|
1.125% Senior Notes due December 2017 | 1,100 |
| | 1,065 |
| | 0 |
| | 0 |
|
1.7% Senior Notes due December 2019 | 1,198 |
| | 1,157 |
| | 0 |
| | 0 |
|
Other long-term debt | 403 |
| | 412 |
| | 285 |
| | 338 |
|
Total long-term debt | 4,998 |
| | 5,082 |
| | 1,382 |
| | 1,663 |
|
Less current portion | 0 |
| | 0 |
| | 1 |
| | 1 |
|
Long-term debt, excluding current portion | $ | 4,998 |
| | $ | 5,082 |
| | $ | 1,381 |
| | $ | 1,662 |
|
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. Substantially all of the Company's long-term debt is classified as Level 2.
Maturities of long-term debt during the next five fiscal years and thereafter are as follows:
|
| | | |
2014 | $ | 0 |
|
2015 | 0 |
|
2016 | 1,301 |
|
2017 | 1,099 |
|
2018 | 1,196 |
|
Thereafter | 1,402 |
|
Total | $ | 4,998 |
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