Lowe's 2007 Annual Report Download - page 27

LOWE’S 2007 ANNUAL REPORT |25
CONTRACTUAL OBLIGATIONS AND
COMMERCIAL COMMITMENTS
The following table summarizes our significant contractual obligations and
commercial commitments:
Payments Due by Period
Contractual Obligations Less than 1-3 4-5 After 5
(In millions) Total 1 year years years years
Long-term debt (principal
and interest amounts,
excluding discount) $10,170 $ 305 $1,078 $1,058 $ 7,729
Capital lease obligations1586 62 122 121 281
Operating leases15,925 363 718 713 4,131
Purchase obligations21,846 1,016 813 6 11
Total contractual
obligations $18,527 $1,746 $2,731 $1,898 $12,152
Amount of Commitment Expiration by Period
Commercial Commitments Less than 1-3 4-5 After 5
(In millions) Total 1 year years years years
Letters of credit 3$ 299 $ 292 $ 7 $ – $ –
1Amounts do not include taxes, common area maintenance, insurance or contingent rent because
these amounts have historically been insignificant.
2Represents contracts for purchases of merchandise inventory, property and construction of buildings,
as well as commitments related to certain marketing and information technology programs.
3Letters of credit are issued for the purchase of import merchandise inventories, real estate
and construction contracts, and insurance programs.
We adopted FIN 48,“Accounting for Uncertainty in IncomeTaxes,”effective
February 3, 2007.At February 1, 2008, approximately $9 million of the reserve
for uncertain tax positions (including penalties and interest) was classified as
a current liability. At this time, we are unable to make a reasonably reliable
estimate of the timing of payments in individual years beyond 12 months,
due to uncertainties in the timing of the effective settlement of tax positions.
COMPANY OUTLOOK
As of February 25, 2008, the date of our fourth quarter 2007 earnings release,
we expected to open approximately 120 stores during 2008, resulting in total
square footage growth of approximately 8%.We expected total sales to increase
approximately 3% and comparable store sales to decline 5% to 6%. EBIT margin,
defined as earnings before interest and taxes,was expected to decline approxi-
mately 180 basis points. In addition,store opening costs were expected to be
approximately $109 million.Diluted earnings per share of $1.50 to $1.58 were
expected for the fiscal year ending January 30, 2009.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Interest Rate Risk
Our primary market risk exposure is the potential loss arising from the impact
of changing interest rates on long-term debt.Our policy is to monitor the interest
rate risks associated with this debt, and we believe any significant risks could
be offset by accessing variable-rate instruments available through our lines of
credit.The following tables summarize our market risks associated with long-
term debt,excluding capital leases and other.The tables present principal cash
outflows and related interest rates by year of maturity, excluding unamortized
original issue discounts as of February 1,2008,and February 2,2007.Variable
interest rates are based on the weighted-average rates of the portfolio at the
end of the year presented.The fair values included below were determined using
quoted market rates or interest rates that are currently available to us on debt
with similar terms and remaining maturities.
Long-Term Debt Maturities by Fiscal Year
February 1, 2008
Average
Fixed Interest
(Dollars in millions) Rate Rate
2008 $ 10 7.14%
2009 10 5.36
2010 501 8.25
2011 1 7.61
2012 552 5.61
Thereafter 4,296 5.28%
Total $5,370
Fair value $5,406
Long-Term Debt Maturities by Fiscal Year
February 2, 2007
Average Average
Fixed Interest Variable Interest
(Dollars in millions) Rate Rate Rate Rate
2007 $ 59 7.24% $2 6.57%
2008 7 7.84 – –
2009 1 5.96 – –
2010 501 8.25 – –
2011 1 7.50 – –
Thereafter 3,570 5.02% – –
Total $4,139 $2
Fair value $4,299 $2
Commodity Price Risk
We purchase certain commodity products that are subject to price volatility
caused by factors beyond our control.Our most significant commodity products
are lumber and building materials. Selling prices of these commodity products
are influenced, in part, by the market price we pay, which is determined by
industry supply and demand. During 2007 and 2006, lumber price and
building materials price inflation did not have a material effect on our results
of operations.
Additionally, our transportation costs are affected by the price volatility of
fuel.While we have experienced price movement in 2006 and 2007, it did not
have a material effect on our results of operations.
Foreign Currency Exchange Rate Risk
Although we have international operating entities, our exposure to foreign
currency exchange rate fluctuations is not significant to our financial condition
and results of operations.
Credit Risk
Sales generated through our proprietary credit cards are not reflected in our
receivables. General Electric Company and its subsidiaries (GE) own the total
portfolio and perform all program-related services.The agreements provide
that we receive funds from or make payments to GE based upon the expected
future profits or losses from our proprietary credit cards after taking into account
the cost of capital, certain costs of the proprietary credit card program and,
subject to contractual limits, the program’s actual loss experience.Actual
losses and operating costs in excess of contractual limits are absorbed by
GE. During 2007 and 2006, costs associated with our proprietary credit card
program did not have a material effect on our results of operations.