Welcome to the conference. I would now like to introduce Mr. Richard Galanti, Chief Financial Officer of Costco Wholesale Corporation. Please go ahead, sir.
Thanks, Amy, good afternoon to everyone. This should be a brief call. We just wanted to reiterate what we announced today in two different press releases. This morning, we had a press release that announced not only our November sales results, but also the special dividend that the board of directors declared. It's a $7 cash dividend payable on December 18th to shareholders of record at the close of business on December 10th. In total, based on shares outstanding, it'll be right at $3 billion. This, of course, is in addition to our normal quarterly dividend, which will be paid on November 30th to shareholders of record November 16th. That was $0.275 for the quarter.
As I mentioned and commented in the press release, this, of course, is being done before calendar year-end in a continued effort to both return capital while maintaining what we think is a continued strong financial position to allow us to continue to grow our company, which we will continue to do. As many of you know, we have ramped up our expansion this year. We'll continue to grow our company. The press release this afternoon, which just was released about 10, 15 minutes ago, announced the completion of a debt offering today as well. A total of $3.5 billion, three tranches, three, five, and seven years. The first tranche is $1.2 billion with a 0.650% coupon, 65 basis points, due in December of 2015. A $1.1 billion tranche of five-year, which is at one and an eighth, 1.125% senior notes due in December of 2017.
The last tranche is a seven-year tranche, $1.2 billion at 1.70% senior notes due in December 2019. Again, that's a total of $3.5 billion. That is about $450 million-$500 million more than the cost of the dividend. That'll be used for general corporate purposes. That really concludes my remarks. Wanted to just make sure that everybody had a chance to get that and answer any brief questions. As you know, by the way, we'll be reporting our fiscal first quarter earnings for the fiscal 12-week period that ended this past Sunday on Wednesday morning at 7:00 A.M. Pacific Time, December 12th. With that, Amy, I'll turn it over for any questions.
At this time, if you would like to ask a question, please press star one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Chuck Grom.
Hey, Richard. Just a quick question here on buybacks. Just wondering if today's announcement changes your appetite at all for share repurchases.
Nothing changes as it relates to our current operations, including things like dividends and buybacks.
Okay. My follow-up would be, looks like year-end, the pro forma adjusted that EBITDA would be about 1.6, 1.7 times. Is that a rate you feel comfortable with going forward? If it is, would you look to add on debt in the years out as you continue to grow operating income?
as you know, we've always run a relatively conservative balance sheet shop here. We view this as opportunistic, certainly well within our strong financial condition. As you know also, we've announced this year that we've ramped up CapEx. Even with all the things we've got going on, we feel we're able to do this. One of the decisions to look at three, five, and seven-year tranches is while the whole debt market is certainly very attractive, we chose to go to those levels based on our anticipated free cash flow, even with everything we've got going on. We don't expect at this point, things could change, but we don't expect to be adding any debt.
Okay. All right. Thanks a lot.
Your next question comes from the line of John Heinbockel. John?
Richard, I know you addressed the issue of buyback. What about a further step up in CapEx beyond this year and possible land banking? You still have an awful lot of cash on the balance sheet. Are those possible uses of that cash?
Well, in terms of land banking, we're not very good at land banking. Once we get it, we want to build on it.
Okay.
Certainly, the pipeline, as I've shared with all of you over the last several fiscal quarters, we're finally actually seeing the pipeline of real estate activity is coming to fruition in the form of more locations opened. Just in the first four months of this fiscal year, September through mid-December next month, we'll have opened, I think, 14 units compared to 16 all of last fiscal year and 20 the prior year. Again, our best guess average for this current fiscal year through next August end is somewhere in the certainly above 25 and maybe as many as 30, but probably in the middle of that range is the best guess. That would bode similar in future years.
I think we've talked about the fact that we feel certainly comfortable getting up towards that 30 number a year in the next few years. My guess is we have the ability to do that given the fact that we've increased our real estate activities over the last few years, again, we're seeing that come to fruition.
Then you continue to be generally uninterested in acquisitions, right? Particularly when you think about outside the U.S., things that might exist. It's not been your way, and I take it that's still the case.
I can only tell you that historically our MO is we never have.
Yeah.
Certainly, we have plenty of organic growth to do as evidenced by the ramp-up and expansion. I don't see that in the near future, no.
Okay, thanks.
Your next question comes from line of Rupesh Parikh, Oppenheimer.
Thank you for taking the call. Just one question around the tenures which you issued today. You chose to focus on the shorter dated maturities, threes, fives, and sevens. Can you speak to the strategy around that and why you didn't think about extending out further along the curve?
Well, again, all maturities are certainly attractive these days in the market. We really look at our anticipated cash flows of earnings and depreciation and the current regular dividend that we've shown that has increased historically each year, occasional buybacks, you name it, and ramped up CapEx. Even with that, the math shows us that we have the likelihood of generating excess cash over the upcoming years. We basically put this out based on how long we think we're going to need it out. There's not a whole lot more to that that I can say.
Okay. That's helpful. Thank you.
Again, to ask a question, please press star one. Your next question comes from the line of Karen Short.
Yes. Thank you. Can you tell me how much cash you have on your balance sheet and why you used debt instead of cash for this special dividend?
Well, at fiscal year-end, I think the total of cash equivalents and short-term investments was about $4.8 billion. Recognize that, as I've discussed in the past on quarterly calls sometimes, we close our fiscal periods on a Sunday night, and so essentially from when the banks close on Friday afternoon to Monday, all the weekend debit and credit card receivables would be in that number. Although, as I've said around here, that's not money you can take and go to the movies on Saturday night. That's generally in the billion-dollar range. There's other cash pools that are essentially, in some cases, whether it's captive insurance balances, voluntary employee benefit trusts and the like. There's anywhere from $600 million-$700 million of that right now, and I'm talking purposely wide numbers because they can vary.
Also just the net of cash and checks that we receive from customers over the weekend and then deposit over the weekend for Monday use, if you will, offset by any float we have when we write checks ourselves to merchandise vendors and expense vendors. There's always some free float there. The net of those two tend to be a little bit of working capital. All in, if you'd look at the $4.8 billion, certainly there's $2+ that is cash and equivalents, but it's really working capital related. The rest of it is both in the U.S. and other countries. Again, with our expansion, we like to feel comfortable that we've got plenty to do what we want to do and have always erred on the fiscally conservative side and fiscally strong side of a balance sheet.
As an example, we're raising $ three and a half when about just under $3.05, I believe, based on the shares outstanding, is what we'll send.
What is the free cash? What figure can I use for the free cash flow, free cash on your balance sheet?
I think, again, very simply put, if you look at the $4.8 billion, again, it'll fluctuate day to day and weekend to weekend. Certainly the roughly two or slightly more than $2 billion I talked about between weekend debit and credit card receivables, money and checks in transit, offset by a little bit of float on checks written but not cashed that we've written. Other things like balances in captive insurance accounts or what have you. All in, that's a little more than $2 billion of that $4.8 billion. The rest of it, some would consider the rest of it free cash, some would consider a little of it buffer, but a lot of it's free.
Why are you using debt instead of cash to fund the dividend?
I think that's the question that even before we did this for the last several years, why do we have a balance sheet that shows a lot of extra cash? We like to be in a financially strong position. Certainly, rates at these levels are very attractive. We can extend that out and give us perhaps more flexibility than some would like to see, but we like it.
Thank you.
Again, for questions, please press star one. Your next question comes from Patrick Callan.
Hi. Thank you for taking the question. I just had a quick question with regard to how the dividend will be treated. Will it be a return of capital or is it ordinary income for tax purposes?
I believe it's a qualified dividend, and I'm sure if somebody was here knowledgeable, they'd say check with your own accountant. It is, I believe, a qualified dividend.
Excellent. Thank you very much for taking the question.
Your next question comes from the line of Karen Short.
Hi. Just on CapEx and unit growth in years beyond fiscal 2013, is it fair to say that your unit growth guidance for this year is probably about your maximum kind of in outer years, and therefore your CapEx, assuming no acquisitions or no other extraordinary, will probably end up being kind of in the same range as it will be this year?
I think as we've talked, Karen, in the past about the past fiscal year ended September 2nd, we had CapEx of $1.48 billion. If you look at the four or five years prior to that, it probably averaged somewhere north of $1.3 billion and maybe $1.4 billion average. This year it is $2 billion. That's probably a decent single point estimate for the next several years. The $2 billion this year includes some expansion of our depot operations, both in first depot operations in certain existing countries where we're getting up to the critical mass to have a depot, like some of the Asian countries, as well as expanding depots for refrigerated and frozen of those which we hadn't.
Also what we call remodel activities, which is everything from adding eight additional gas pumps across the street, so it's 20, not 12, and putting in hearing aid centers, expanding refrigerated and frozen in retail facilities. There's other things in there as well, but certainly, probably a best guess, and this is an estimate, that $2 billion number looking over the next few years is a decent number.
Okay, thanks.
Again, for questions, please press star one.
Okay. Thank you very much, everyone, and we'll talk to you early on the morning of, for us, 7:00 A.M. Pacific Time on the morning of December 12th. Thank you.