Lowe's 2007 Annual Report Download - page 39

LOWE’S 2007 ANNUAL REPORT |37
In October 2006, the Company issued $1.0 billion of unsecured senior
notes, comprised of two tranches: $550 million of 5.40% senior notes
maturing in October 2016 and $450 million of 5.80% senior notes maturing in
October 2036.The 5.40% senior notes and the 5.80% senior notes were
each issued at a discount of approximately $4.4 million. Interest on the senior
notes is payable semiannually in arrears inApril and October of each year until
maturity, beginning in April 2007. The discount associated with the issuance
is included in long-term debt and is being amortized over the respective terms
of the senior notes.The net proceeds of approximately $991 million were used
for general corporate purposes, including capital expenditures and working
capital needs, and for repurchases of common stock.
In October 2005, the Company issued $1.0 billion of unsecured senior
notes, comprised of two $500 million tranches maturing in October 2015
and October 2035,respectively.The first $500 million tranche of 5.0% senior
notes was sold at a discount of $4 million. The second $500 million tranche
of 5.5% senior notes was sold at a discount of $8 million. Interest on the senior
notes is payable semiannually in arrears in April and October of each year until
maturity, beginning in April 2006. The discount associated with the issuance
is included in long-term debt and is being amortized over the respective terms
of the senior notes. The net proceeds of approximately $988 million were
used for the repayment of $600 million in outstanding notes due December
2005, for general corporate purposes, including capital expenditures and
working capital needs, and for repurchases of common stock.
The senior notes issued in 2007, 2006 and 2005 may be redeemed by
the Company at any time,in whole or in part,at a redemption price plus accrued
interest to the date of redemption.The redemption price is equal to the greater
of (1) 100% of the principal amount of the senior notes to be redeemed, or
(2) the sum of the present values of the remaining scheduled payments of
principal and interest thereon, discounted to the date of redemption on a
semiannual basis at a specified rate. The indenture under which the 2007
senior notes were issued also contains a provision that allows the holders of
the notes to require the Company to repurchase all or any part of their notes
if a change in control triggering event occurs. If elected under the change in
control provisions, the repurchase of the notes will occur at a purchase price
of 101% of the principal amount, plus accrued and unpaid interest, if any,
on such notes to the date of purchase. The indenture governing the senior
notes does not limit the aggregate principal amount of debt securities that
the Company may issue, nor is the Company required to maintain financial
ratios or specified levels of net worth or liquidity.However,the indenture contains
various restrictive covenants,none of which is expected to impact the Company’s
liquidity or capital resources.
Upon the issuance of each of the series of senior notes previously
described, the Company evaluated the optionality features embedded in the
notes and concluded that these features do not require bifurcation from the
host contracts and separate accounting as derivative instruments.
Convertible Notes
The Company has $578.7 million aggregate principal,$497.1 million aggregate
carrying amount, of senior convertible notes issued in October 2001 at an issue
price of $861.03 per note. Cash interest payments on the notes ceased in
October 2006. In October 2021 when the notes mature, a holder will receive
$1,000 per note, representing a yield to maturity of approximately 1%. Holders
of the notes had the right to require the Company to purchase all or a portion
of their notes in October 2003 and October 2006, at a price of $861.03 per
note plus accrued cash interest,if any, and will have the right in October 2011
to require the Company to purchase all or a portion of their notes at a price
of $905.06 per note. The Company may choose to pay the purchase price of
the notes in cash or common stock or a combination of cash and common stock.
Holders of an insignificant number of notes exercised their right to require the
Company to repurchase their notes during 2003 and 2006, all of which were
purchased in cash. The Company may redeem for cash all or a portion of the
notes at any time, at a price equal to the sum of the issue price plus accrued
original issue discount on the redemption date.
Holders of the senior convertible notes may convert their notes into
34.424 shares of the Company’s common stock only if: the sale price of the
Company’s common stock reaches specified thresholds, or the credit rating
of the notes is below a specified level, or the notes are called for redemption,
or specified corporate transactions representing a change in control have
occurred. The conversion ratio of 34.424 shares per note is only adjusted
based on normal antidilution provisions designed to protect the value of the
conversion option.
The Company’s closing share prices reached the specified threshold
such that the senior convertible notes became convertible at the option of
each holder into shares of common stock during specified quarters of 2006
and 2007. Holders of an insignificant number of senior convertible notes
exercised their right to convert their notes into shares of the Company’s
common stock during 2007 and 2006. The senior convertible notes will not
be convertible in the first quarter of 2008 because the Company’s closing
share prices did not reach the specified threshold during the fourth quarter
of 2007.
The Company has $19.7 million aggregate principal, $13.8 million
aggregate carrying amount, of convertible notes issued in February 2001
at an issue price of $608.41 per note. Interest will not be paid on the notes
prior to maturity in February 2021, at which time the holders will receive
$1,000 per note, representing a yield to maturity of 2.5%. Holders of the
notes had the right to require the Company to purchase all or a portion of
their notes in February 2004, at a price of $655.49 per note, and will have
the right in February 2011 to require the Company to purchase all or a
portion of their notes at a price of $780.01 per note. The Company may
choose to pay the purchase price of the notes in cash or common stock,
or a combination of cash and common stock. Holders of an insignificant
number of notes exercised their right to require the Company to purchase
their notes during 2004, all of which were purchased in cash.
Holders of the convertible notes issued in February 2001 may convert
their notes at any time on or before the maturity date, unless the notes have
been previously purchased or redeemed, into 32.896 shares of the Company’s
common stock per note. The conversion ratio of 32.896 shares per note is
only adjusted based on normal antidilution provisions designed to protect the
value of the conversion option. During 2007, holders of $18 million principal
amount, $13 million carrying amount, of the Company’s convertible notes issued
in February 2001 exercised their right to convert their notes into 0.6 million
shares of the Company’s common stock at the rate of 32.896 shares per note.
During 2006, holders of $118 million principal amount, $80 million carrying
amount, of the Company’s convertible notes issued in February 2001 exercised
their right to convert their notes into 3.9 million shares of the Company’s
common stock.
Upon the issuance of each of the series of convertible notes previously
described, the Company evaluated the optionality features embedded in the
notes and concluded that these features do not require bifurcation from the
host contracts and separate accounting as derivative instruments.
NOTE 6 FINANCIAL INSTRUMENTS
Cash and cash equivalents, accounts receivable, short-term borrowings,
accounts payable and accrued liabilities are reflected in the financial state-
ments at cost, which approximates fair value due to their short-term nature.
Short- and long-term investments classified as available-for-sale securities,
which include restricted balances, are reflected in the financial statements
at fair value. Estimated fair values for long-term debt have been determined
using available market information. For debt issues that are not quoted on
an exchange, interest rates that are currently available to the Company for
issuance of debt with similar terms and remaining maturities are used to
estimate fair value. However, considerable judgment is required in interpreting
market data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the
Company could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material