Lowe's 2001 Annual Report Download - page 25

Lo we’s Co mpanies, Inc.
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2002. Fifteen banking institutio ns are participating in the $800
millio n senio r c redit facility and, as o f February 1, 2002, there were
no o utstanding lo ans under the facility. This facility replaces a
$300 millio n revo lving credit agreement. At February 2, 2001, the
Co mpany had $149.8 millio n of co mmercial paper o utstanding
suppo rted by the $300 millio n facility.
The Co mpany has several lines of c redit available which can pro -
vide additio nal liquidity. In December 2001, the Co mpany co m-
pleted a $100 millio n revo lving credit and security agreement,
expiring in December 2002 and renewable annually with a finan-
cial institution. The Co mpany intends to renew this facility in
December 2002. Interest rates under this agreement are deter-
mined at the time o f bo rrowing based o n market co nditio ns in
acco rdance with the terms of the ag reement. The Co mpany had
$100 millio n o utstanding at February 1, 2002 under this ag ree-
ment, and $134.7 millio n in acco unts receivable pledged as co l-
lateral. This agreement replaced a $100 millio n revo lving credit
agreement which expired in No vember 2001.
In addition, $25 millio n was available as o f February 1, 2002,
and $100 millio n was available o n February 2, 2001, o n an unse-
cured basis, fo r the purpo se o f sho rt- term bo rrowing s o n a bid
basis fro m vario us banks. These lines are unc o mmitted and are
reviewed perio dically by bo th the banks and the Co mpany. There
were no bo rro wings o utstanding under these lines o f credit as o f
February 1, 2002 o r February 2, 2001.
Seven banks have extended lines o f credit aggregating $276.5
millio n fo r the purpo se of issuing do cumentary letters of c redit and
standby letters of credit. These lines do no t have terminatio n dates
but are reviewed perio dically. Co mmitment fees ranging fro m .25%
to .50% per annum are paid o n the amo unts o f standby letters o f
credit issued. Outstanding letters of credit to taled $162.2 millio n
as of February 1, 2002 and $133.2 millio n as of February 2, 2001.
The Co mpany has three o perating lease agreements whereby
lesso rs have co mmitted to purchase land, fund c o nstructio n co sts,
and lease pro perties to the Co mpany. The initial lease terms are
five years with two five-year renewal o ptio ns. One initial term
expires in 2005 and the two remaining initial lease terms expire in
2006. The agreements c o ntain guaranteed residual values up to a
po rtio n o f the pro perties’ o riginal co st and purchase o ptions at
o riginal co st fo r all properties under the agreements. The agree-
ments co ntain certain restrictive co venants which include mainte-
nance o f specific financial ratio s, amo ng o thers. The Co mpany has
financed fo ur regio nal distributio n centers, two of which are under
co nstructio n, and 14 retail sto res thro ugh these lease agreements.
To tal co mmitments under these o perating lease agreements as o f
February 1, 2002 and February 2, 2001, were $329.4 and $236.1
millio n, respectively. Outstanding advances under tho se co mmit-
ments were $201.1 and $167.7 millio n as of February 1, 2002 and
February 2, 2001. Payments related to these lease agreements have
been included in the significant co ntractual o bligatio ns and co m-
mercial co mmitments table presented previo usly.
The Co mpany’s 2002 capital budget is currently at $2.8 billio n,
inclusive o f approximately $307 millio n of o perating o r capital
leases. Appro ximately 96% of this planned co mmitment is fo r sto re
expansio n and new distributio n centers. Expansio n plans fo r 2002
co nsist o f approximately 123 sto res, inc luding appro ximately eight
relo cations of o lder sto res. This planned expansio n is expected to
increase sales flo o r square fo o tage by approximately 18% .
Appro ximately 4% of the 2002 pro jects will be leased and 96% will
be o wned. At February 1, 2002, the Company o perated seven
regio nal distributio n c enters. During 2001, the Co mpany beg an
co nstructio n o n two additio nal regio nal distributio n centers. The
first is lo cated in Cheyenne, Wyo ming, and is expected to be o per-
atio nal in the third quarter o f 2002 and the sec o nd is lo cated in
No rthampto n, North Caro lina, whic h is expected to be o peratio nal
in late 2002.
The Co mpany believes that funds fro m o peratio ns, funds fro m
debt issuances, leases and existing sho rt- term lines of credit will be
adequate to financ e the 2002 expansio n plan and o ther o perating
requirements. Ho wever, general eco no mic do wnturns, fluctuatio ns
in the prices o f pro ducts, unanticipated impact arising fro m co m-
petitio n and adverse weather co nditio ns co uld have an effect o n
funds generated fro m o peratio ns and o ur expansio n plans. In addi-
tio n, the availability of funds thro ugh the issuance of co mmercial
paper and new debt co uld be adversely affec ted due to a debt rat-
ing do wngrade o r a deterio ratio n o f certain financial ratio s. The
$100 millio n revo lving credit and security agreement requires a
minimum investment grade rating in o rder to receive funding. There
are no pro visio ns in any agreements that wo uld require early cash
settlement of existing debt o r leases as a result of a do wngrade in
the Co mpany’s debt rating o r a decrease in the Co mpany’s sto ck
price. Ho lders o f the Co mpany’s $580.7 million Senio r Co nvertible
no tes may co nvert their no tes into the Co mpany’s co mmo n sto ck if
the minimum investment grade rating is no t maintained.