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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LOWE'S COMPANIES, INC. AND SUBSIDIARY COMPANIES
FISCAL YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
NOTE 1 Summary of Significant Accounting Policies:
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The Company is one of America's largest retailers serving the do-it-yourself home
improvement, home decor, and home construction markets. Below are those accounting
policies considered to be significant.
Subsidiaries and Principles of Consolidation The consolidated financial statements
include the accounts of the Company and its subsidiaries, all of which are wholly owned.
All material intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents Cash and cash equivalents include cash on hand, demand
deposits, and short-term investments that are readily convertible to cash within three
months of purchase.
Investments The Company has a cash management program which provides for the
investment of excess cash balances in financial instruments which have maturities of up
to three years. Investments that are readily convertible to cash within three months of
purchase are classified as cash equivalents. Investments with a maturity of between three
months and one year are classified as short-term investments and are stated at amortized
cost. Investments with maturities greater than one year are classified as long-term and are
stated at the lower of amortized cost or market value. Investments consist primarily of tax
exempt notes and bonds, auction rate tax exempt securities, and municipal preferred tax
exempt stock.
Effective February 1, 1994, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", which stipulates that debt securities not classified as held-to-maturity
securities and all equity securities will be carried at fair value. Unrealized gains and
losses on such securities will be included in earnings if the securities are classified as
trading securities and will be excluded from earnings and reported as a separate
component of shareholders' equity until realized if classified as available-for-sale. Debt
securities classified as held-to-maturity securities will be carried at amortized cost.
Management does not believe that adoption of SFAS No. 115 will have a material effect
on the Company's financial statements. Future financial statement effects of applying this
new standard will depend on classification and market values of the securities.
Accounts Receivable The majority of the accounts receivable arise from sales to
professional building contractors principally in the South Atlantic and South Central
regions of the United States. The allowance for doubtful accounts is based on historical
experience and a review of existing receivables. Sales generated through the Company's
private label credit card and consumer installment sales are not reflected in receivables.
These receivables are sold, without recourse, to an outside finance company.
Merchandise Inventory Inventory is stated at the lower of cost or market. In an effort
to more closely match inventory costs and related sales, cost is determined using the last-
in, first-out (LIFO) method. Included in inventory cost are administrative, warehousing
and other costs directly associated with buying, distributing and maintaining inventory in
a condition for resale.
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Property and Depreciation Property is recorded at cost. Costs associated with major
additions are capitalized and depreciated. Upon disposal, the cost of properties and
related accumulated depreciation is removed from the accounts with gains and losses
reflected in earnings.
Depreciation is provided over the estimated useful lives of the depreciable assets. Assets
are generally depreciated on the straight-line method. Leasehold improvements are
depreciated over the shorter of their estimated useful lives or term of the related lease.
Other Assets Real property representing closed stores are included in other assets at
their estimated net realizable value.
Leases Assets under capital leases are amortized in accordance with the Company's
normal depreciation policy for owned assets or over the lease term if shorter. The charge
to earnings resulting from amortization of these assets is included in depreciation expense
in the consolidated financial statements.
Income Taxes Income taxes are provided for temporary differences between the tax and
financial accounting bases of assets and liabilities using the liability method under SFAS
No. 109. The tax effects of such differences are reflected in the balance sheet at the tax
rates expected to be in effect when the differences reverse.
Store Pre opening Costs Costs of opening new retail stores are charged to operations
as incurred.
Employee Retirement Plans Since 1957 the Company has maintained benefit plans for
its employees as described in Note 9. The plans are funded annually.
Earnings Per Share Earnings per share are calculated on the weighted average shares
of common stock and dilutive common stock equivalents outstanding each year. Earnings
per share have been retroactively adjusted to reflect the two-for-one stock split described
in Note 10. The Company's 3% Convertible Subordinated Notes due July 22, 2003, are
potentially dilutive securities for purposes of calculating earnings per share; however,
their effect is not material and fully diluted earnings per share is not presented.
NOTE 2 Accounts Receivable
During 1992, the Company entered into an agreement to sell, with limited recourse, an
undivided fractional interest in a designated pool of receivables. As collections reduce
previously sold interests in receivables, an interest in new receivables may be sold under
the agreement. At January 31, 1994 and 1993, the interest in receivables sold totaled
$121.9 and $107.3 million, respectively. At January 31, 1994 and 1993, the Company had
received $90 and $80 million, respectively, in cash and a receivable for $31.9 and $27.3
million, respectively. The $31.9 and $27.3 million receivable are included in Accounts
Receivable - Net in the balance sheet.
The Company maintains an allowance for doubtful accounts because it has retained
substantially the same risk of credit loss as if the receivables had not been sold. The
allowance for doubtful accounts was $4.7, $4.7, and $4.1 million at January 31, 1994,
1993, and 1992, respectively.
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NOTE 3 Merchandise Inventory:
If the FIFO method had been used, inventories would have been $64.5, $49.0 and $39.5
million higher at January 31, 1994, 1993 and 1992, respectively.
NOTE 4 Property and Accumulated Depreciation:
Net property includes $59.0, $33.7 and $13.9 million in assets from capital leases for
Fiscal 1993, 1992 and 1991, respectively.
Property is summarized below by major class:
Janurary 31
1994 1993 1992
(Dollars in Thousands)
Cost:
Land $, 224,551 $188,562 $116,382
Buildings 478,373 421,620 400,877
Store and Office Equipment 500,811 371,002 302,708
Leasehold Improvements 113,287 86,756 49,823
Total Cost 1,317,022 1,067,940 869,790
Accumulated Depreciation and Amortization (296,788) (280,743) (256,835)
Net Property (Note 12) $1,020,234 $787,197 $612,955
NOTE 5 Short-Term Borrowings and Lines of Credit:
The Company has agreements with a group of banks at January 31, 1994, which provide
for short-term unsecured borrowings of up to $140 million with interest at the lower of
prime or bank transaction rate. The agreements expire on May 1, 1994. In addition the
agreements have a commitment fee of .125% annually. The Company expects to renew
these agreements at similar terms. These agreements may also be used to support the
issuance of commercial paper. The agreements may be withdrawn if there is a material
change in the financial condition of the Company. At January 31, 1994, there were no
amounts outstanding under these agreements.
Several banks have extended lines of credit aggregating $140 million for the purpose of
issuing documentary letters of credit and standby letters of credit. These lines do not have
termination dates but are reviewed periodically. Commitment fees of .125% per annum
are paid on the amounts used. At January 31, 1994, unused lines of credit totaled $101.9
million.
In addition $200 million is available for the purpose of short-term borrowings on a bid
basis from various banks. These lines are uncommitted and are reviewed periodically by
both the banks and the Company. At January 31, 1994, there were no amounts
outstanding under these lines.
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The following relates to aggregate short-term borrowings from banks and commercial
paper transactions in Fiscal 1993, 1992 and 1991:
Maximum Average Weighted
Category of WeightedAmount Amount Average
Aggregate Balance Average OutstandinOutstandingInterest Rate
Short-Termat End oInterestAt Any During the During the
BorrowingsYear Rate Month End Year (a) Year (b)
(Dollars in thousands)
Fiscal 1993
Commercial Paper $65,000 $15,408 3.30%
Bank Borrowings 49,000 21,468 3.3
Fiscal 1992
Commercial Paper 150,000 97,892 3.9
Bank Borrowings 127,900 66,946 4
Fiscal 1991
Commercial Pape$97,000 4.3 97,000 54,097 5.4
Bank Borrowings$43,500 4.10% $118,200 $42,792 5.50%
(a) Average of daily ending balances.
(b) Total interest expense on short-term borrowings for the year divided by average
amount outstanding during the year.
NOTE 6 Long-Term Debt:
Fiscal Year
Debt of Final Janurary 31
Category Interest Rates Maturity 1994 1993 1992
(Dollars in Thousands)
Secured Debt1:
Insurance Company Notes6.75% to 9% 1998 $534 $1,323 $2,721
Bank Notes 7.0% * 1994 17 50 83
Industrial Revenue Bond4.2% * 1997 833 1,133 1,721
Other Notes 8% to 10% 2005 663 770 892
Unsecured Debt:
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Insurance Company Notes 8.25% 1992 600
Industrial Revenue Bond4.55% to 6.50% * 2020 10,230 11,703 13,086
Industrial Revenue Bond2.25% * 2005 9,600 10,300 11,000
Unsecured Notes 11.50% 1992 27,813
Medium Term Notes 6.50% to 8.20% 2022 249,966 217,959
Convertible Subordinate 3.00% 2003 251,524
Bank Notes 4 2.63% to 2.76% * 1996 57,955 57,955 57,955
Capital Leases (Note 125.99% to 12.00% 2033 60,558 34,090 15,479
Total Long-Term Debt 641,880 335,283 131,350
Less Current Maturities 49,547 21,721 17,700
Long-Term Debt, Excluding
Current Maturities $592,333 $313,562 $113,650
* Interest rate varies as a percentage of prime rate or other interest index.
Interest rates shown are as of January 31, 1994, or year of maturity if earlier.
Prime rate was 6.0% at January 31, 1994.
In April 1992, the Company filed a shelf-registration with the Securities and Exchange
Commission registering up to $250 million of Medium Term Notes to be issued in the
future. The Company issued $218 million of these notes in Fiscal 1992. The remaining
$32 million of these notes were issued in February 1993. The notes bear interest rates that
range from 6.50% to 8.20% and are scheduled to mature from 1997 to 2022.
At January 31, 1994, the Company had outstanding 25 interest rate swap agreements with
financial institutions, having a total notional principal amount of $250 million. Under the
agreements with notional amounts of $10 million each, the Company will receive interest
payments at an average fixed rate of 5.71% and will pay interest on the same notional
amounts at a floating rate based on an interest rate index, currently estimated at 3.38%.
These swaps are scheduled to terminate in Fiscal 1995. The Company is exposed to credit
loss in the event of nonperformance by the banks and financial institutions. However,
management does not anticipate such nonperformance.
Debt maturities, exclusive of capital leases (see Note 12), for the next five fiscal years are
as follows (in millions): 1994, $47.8; 1995, $13.6; 1996, $4.6; 1997, $13.6 ; 1998, $1.8.
Notes:
1 Real properties pledged as collateral for secured debt had net book values (in
millions) at January 31, 1994, as follows: insurance company notes $6.1; bank
notes $.5; industrial revenue bonds $1.9; and other notes $3.8.
2 The Company issued notes to secure $11.7 million floating rate monthly demand
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industrial revenue bonds in Fiscal 1985. The interest rates are tied to an interest
index based on comparable securities traded at par and other pertinent financial
market rates. With certain restrictions, the bonds can be converted to a fixed
interest rate based on a fixed interest index at the Company's option.
3 On July 22, 1993, the Company sold $287.5 million aggregate principal of its 3%
Convertible Subordinated Notes due July 22, 2003. The notes are convertible into
Lowe's Common Stock at the conversion rate of 38.32 shares of common stock per
each $1,000 principal amount. The notes were issued at an original price of
$880.27 per $1,000 principal amount, which represented an original issue discount
of 11.973% payable at maturity. Annual interest on the notes at 3% and accretion
of the original issue discount represents an annual yield to maturity of 4.5%. The
notes are callable (subject to certain adjustments) at any time on or after July 22,
1996
4 The unsecured bank notes were obtained for the purpose of acquiring the
Company's common stock to fund the ESOP. These notes require that certain
financial conditions be maintained, restrict other borrowings, and limit the payment
of dividends to $40 million during any one year.
NOTE 7 Disclosures about Fair Values of Financial Instruments
The following disclosure of the estimated fair value of financial instruments is made in
accordance with the requirements of SFAS No. 107, ("Disclosures about Fair Value of
Financial Instruments"). The estimated fair value amounts have been determined, using
available market information and appropriate valuation methodologies. However,
considerable judgement is necessarily 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 effect on the estimated fair value amounts.
(Dollars in Thousands) Janurary 31, 1994 Janurary 31, 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
Assets:
Cash, Cash Equivalents and
Short-Term Investments $108,468 $108,493 $54,849 $54,849
Net Receivables 53,301 53,301 53,288 53,288
Long-Term Investments 40,408 40,801 23,270 23,664
Liabilities:
Accounts Payable 467,278 467,278 330,584 330,584
Short-Term Debt 2,281 2,281 3,193 3,193
Long-Term Debt 641,880 772,466 335,283 340,578
Off-Balance Sheet Financial Instruments-
Unrealized Gains
Interest Rate Swap Agreements 4,421 2,434
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Cash, cash equivalents and short-term investments, receivables, accounts payable, and
short-term debt The carrying amounts of these items are a reasonable estimate of their
fair value.
Long-term investments The fair value is estimated from quoted market prices for these
or similar investments.
Long-term debt 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 for debt
issues that are not quoted on an exchange.
Interest rate swap agreements The fair value of interest rate swaps is the amount at
which they could be settled, based on estimates obtained from dealers.
NOTE 8 Income Taxes:
(Dollars in Thousands)
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Fiscal Years End on January 31 Fiscal 1993 Fiscal 1992 Fiscal 1991
of Following Year Amount % Amount % Amount %
Statutory Rate Reconciliation
Pre-Tax Earnings $198,324 100.00% $125,892 100.00% $4,951 100.00%
Federal Income Tax at Statutory
Rate 69,413 35 42,803 34 1,683 34
State Income Taxes-Net of Federal
Tax Benefit 2,340 1.2 1,443 1.1 131 2.6
Other (5,215) -2.6 (3,074) -2.4 (3,350) -67.6
Total Income Tax Provision $66,538 33.60% $41,172 32.70% ($1,536) -31.00%
Components of Income Tax Provision
Current
Federal $58,088 87.30% $31,289 76.00% $23,524 -1531.50%
State 2,590 3.9 1,651 4 198 -12.9
Total Current 60,678 91.2 32,940 80 23,722 *********
Deferred
Federal 4,850 7.3 7,697 18.7 (25,258)1,644.40
State 1,010 1.5 535 1.3 0 0
Total Deferred 5,860 8.8 8,232 20 (25,258)1,644.40
Total Income Tax Provision $66,538 100.00% $41,172 100.00% ($1,536) 100.00%
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Deferred income taxes arise principally from the temporary differences between financial
reporting and income tax reporting of depreciation and certain other accrued expenses.
During Fiscal Year 1991, the tax effect of the restructuring charge resulted in a deferred
tax benefit representing future tax deductible expenditures which substantially offset
existing deferred tax liabilities.
The tax effect of cumulative temporary differences and carryforwards that gave rise to the
deferred tax assets and liabilities and the related valuation allowance at January 31, 1994,
are as follows (in thousands):
Janurary 31, 1994 Janurary 31, 1993
Assets Liabilities Total Assets Liabilitie Total
Accrued Store Restructuring Cos $22,381 $22,381 $19,152 $19,152
Excess Tax Over Book Depreciation ($46,787) (46,787) ($34,930) (34,930)
Excess Book Over Tax Property T 4,944 (1,038) 3,906 3,445 (1,921) 1,524
Other, Net 18,355 (7,994) 10,361 16,479 (6,924) 9,555
Less Valuation Allowance (3,726) (3,726) (3,306) (3,306)
Total $41,954 ($55,819) ($13,865) $35,770 ($43,775) ($8,005)
The valuation allowance increased $420,000 and $559,000 during the years ended
January 31, 1994 and 1993, respectively.
NOTE 9 Employee Retirement Plans:
The Company's contribution to its Employee Stock Ownership Plan (ESOP) is
determined annually by the Board of Directors. The ESOP covers all employees after
completion of one year of employment and 1000 hours of service during that year.
Contributions are allocated to participants based on their eligible compensation relative to
total eligible compensation. The Board authorized contributions totaling 13% of eligible
compensation for each of the Fiscal Years 1993, 1992 and 1991. Contributions may be
made in cash or shares of Lowe's Companies, Inc. common stock and are generally made
in the following fiscal year.
On January 29, 1993, the Board of Directors authorized the funding of the Fiscal 1992
ESOP contribution primarily with a new issue of the Company's common stock. During
Fiscal 1993, the Company issued 1,696,034 shares with a cost of $30.6 million, or a
weighted average cost per share of $18.02. The remaining Fiscal 1992 contribution was
funded with $1.0 million in cash. On January 31, 1994, the Board of Directors authorized
the funding of the Fiscal 1993 ESOP contribution primarily with the issuance of new
shares of the Company's common stock. As of January 31, 1994, the Employee Stock
Ownership Trust held approximately 21.6% of the outstanding common stock of the
Company and was its largest shareholder.
Shares allocated to ESOP participants accounts are voted by the Trustee according to the
participants' voting instructions. Unallocated shares and shares for which no voting
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instructions are received are voted by the Trustee as directed by a management
committee. At January 31, 1994, there were no unallocated shares.
The Board of Directors determines contributions to the Company's Employee Savings
and Investment Plan (ESIP) each year based upon a matching formula applied to
employee contributions. All employees are eligible to participate in the ESIP on the first
day of the month following completion of one year of employment. Company
contributions to this plan for Fiscal 1993, 1992 and 1991 were $3.9, $3.4 and $2.9
million, respectively. The Company's common stock is an investment option for
participants in the ESIP. As of January 31, 1994, the ESIP held approximately .7% of the
outstanding common stock of the Company. Shares held in the ESIP are voted by the
trustee as directed by an administrative committee of the ESIP.
The Company does not believe that it has any material liability for postemployment or
post-retirement benefits.
NOTE 10 Shareholders' Equity:
On March 7, 1994, the Board of Directors announced a two-for-one stock split effective
March 31, 1994 to shareholders of record on March 16, 1994. Accordingly, in the
financial statements, an amount equal to the par value of the additional shares issued has
been transferred from Retained Earnings to Common stock retroactive to January 31,
1991. Shares and per share amounts in the financial statements and footnotes have been
adjusted to give retroactive effect to the split.
In conjunction with the stock split, the Board of Directors increased the authorized
number of shares to 240 million effective March 16, 1994. Authorized shares of common
stock were 120 million at January 31, 1994, 1993 and 1992.
Transactions affecting the shareholders' equity section of the consolidated balance sheets
are summarized as follows:
(In Thousands) Shares (In Thousands) Shareholders' Equity
Capital in
Common Excess of Retained Total
OutstandingStock Par Value Earnings Equity
Balance January 31, 1991 145,840 $72,920 $169,177 $440,575 $682,672
Net Earnings 6,487 6,487
Tax Effect of Incentive
Stock Options Exercised (Note 11) 61 61
Cash Dividends (20,020) (20,020)
Stock Options Exercised(Note 11) 232 116 1,269 (87) 1,298
Stock Received for Exercise
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of Stock Options (12) (6) (13) (56) (75)
Shares Purchased and Retired (300) (150) (346) (1,373) (1,869)
Balance January 31, 1992 145,760 72,880 170,148 425,526 668,554
Net Earnings 84,720 84,720
Tax Effect of Incentive
Stock Options Exercised (Note 11) 80 80
Cash Dividends (21,153) (21,153)
Stock Options Exercised (Note 11) 186 93 986 (60) 1,019
Balance January 31, 1993 145,946 72,973 171,214 489,033 733,220
Net Earnings 131,786 131,786
Tax Effect of Incentive
Stock Options Exercised (Note 11) 172 172
Cash Dividends (23,571) (23,571)
Stock Options Exercised(Note 11) 245 122 1,442 (60) 1,504
Stock Issued to ESOP (Note 9) 1,696 848 30,134 (424) 30,558
Balance January 31, 1994 147,887 $73,943 $202,962 $596,764 $873,669
<FN>
On January 10, 1994, the Company filed with the Securities and Exchange Commission a
shelf registration statement covering $500 million of "unallocated" debt or equity
securities. The shelf registration enables the Company to issue common stock, preferred
stock, senior unsecured debt securities or subordinated unsecured debt securities from
time to time. The shelf registration was approved by the Securities and Exchange
Commission effective February 8, 1994.
The Company has 5 million authorized shares of preferred stock ($5 par), none of which
have been issued. The preferred stock may be issued by the Board of Directors (without
action by shareholders) in one or more series, having such voting rights, dividend and
liquidation preferences and such conversion and other rights as may be designated by the
Board of Directors at the time of issuance of the preferred shares.
The Company has a shareholder rights plan which provides for a dividend distribution of
one preferred share purchase right on each outstanding share of common stock. Each
purchase right will entitle shareholders to buy one unit of a newly authorized series of
preferred stock. A shareholder's interest is not diluted by the effects of a stock dividend
or stock split. Each unit is intended to be the equivalent of one share of common stock.
The purchase rights will be exercisable only if a person or group acquires or announces a
tender offer for 20% or more of Lowe's common stock. The purchase rights do not apply
to the person or group acquiring the stock. The purchase rights will expire on September
19, 1998.
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NOTE 11 Stock Options:
The Company has a stock option plan under which incentive and non-qualified stock
options may be granted to key employees. Four million common shares were reserved for
option purposes. Options granted are exercisable from the date of grant through
expiration dates which range from 1994 through 1997. At January 31, 1994, there were
1,423,640 shares available for options that could be granted.
Option information is summarized as follows:
Key Employee Stock Option Plan
Option Price
Per Share
Outstanding January 31, 1991 764 $4.063, $5.344, $6.375
Canceled or Expired -6 $5.84
Exercised -228 $4.063, $5.344, $6.375
Outstanding January 31, 1992 530 $4.063, $6.375
Granted 30 $10.188
Canceled or Expired -3 $4.063, $6.375
Exercised -186 $4.063, $6.375
Outstanding January 31, 1993 371 $4.063, $6.375, $10.188
Exercised -217 $4.063, $6.375
Outstanding January 31, 1994 154 $6.375, $10.188
<FN>
Prior to Fiscal 1989, all options granted were incentive options whereby the option prices
were at least equal to the fair market values of the stock at the grant dates. Since Fiscal
1989, all options granted have been adjustable non-qualified options exercisable at a
maximum price of $10.188 per share. Upon exercise of a non-qualified option, the
optionee makes a payment to the Company equal to the shares' fair market value on the
date the option was granted. In accordance with a formula set forth in each option
agreement, the Company uses part of the option price to make a federal income tax
deposit on behalf of the optionee.
During Fiscal 1989, shareholders approved a Non-Employee Directors' Stock Option
Plan. This Plan provided that adjustable non-qualified options representing 4,000 shares
of Lowe's common stock would be granted to each outside Director following the Annual
Meeting in 1989, 1990, 1991, 1992 and 1993. Two hundred thousand shares of common
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stock were reserved to fulfill the requirements of this Plan. Options representing 28,000
shares were granted under this Plan in each of Fiscal 1989, Fiscal 1990, Fiscal 1991,
Fiscal 1992 and Fiscal 1993, of which options representing 32,000 shares have been
exercised. The option price per share was $6.375 for Fiscal 1989, $10.906 for Fiscal
1990, $8.625 for Fiscal 1991, $10.969 for Fiscal 1992 and $18.875 for Fiscal 1993. The
non-qualified options granted to Directors include the same tax deposit feature described
above with respect to the Key Employee Stock Option Plan.
At January 31, 1994, options for 154,220 shares were exercisable under the Key
Employee Stock Option Plan and options for 108,000 shares were exercisable under the
Non-Employee Directors' Stock Option Plan.
Incentive stock option shares which are sold by the optionee within two years of grant or
one year of exercise result in a tax deduction for the Company equivalent to the taxable
gain recognized by the optionee. For financial reporting purposes, the tax effect of this
deduction is accounted for as a credit to capital in excess of par value rather than as a
reduction of income tax expense. Such optionee sales resulted in a tax benefit to the
Company of approximately $172 thousand, $80 thousand and $61 thousand during Fiscal
Years 1993, 1992 and 1991, respectively.
NOTE 12 Leases:
The future minimum rental payments required under capital and operating leases having
initial or remaining noncancelable lease terms in excess of one year are summarized as
follows:
Operating Leases Capital Leases
Fiscal Year Real EstatEquipment Real EstatEquipment Total
(Dollars in Thousands)
1994 $39,624 $1,217 $6,312 $565 $47,718
1995 49,072 482 6,202 355 56,111
1996 48,208 136 6,226 123 54,693
1997 47,323 10 6,246 4 53,583
1998 44,368 10 5,845 50,223
Later Years 638,694 9 101,115 739,818
Total Minimum Lease
Payments $867,289* $1,864 $131,946 $1,047 $1,002,146
Total Minimum Capital
Lease Payments $132,993
Less Amount Representing
Interest 72,435
Present Value of Minimum
Lease Payments 60,558
Less Current Maturities 1,790
Present Value of Minimum
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Lease Payments,
Less Current Maturities $58,768
<FN>
* Total minimum payments have not been reduced by minimum sublease rentals of
$1.8 million to be received in the future under noncancelable subleases.
Rental expenses under operating leases for real estate and equipment were $27.2 million,
$20.4 million and $15.1 million in Fiscal 1993, 1992 and 1991, respectively.
The Company leases certain store facilities under agreements with original terms
generally of twenty years. Agreements generally provide for contingent rental based on
sales performance in excess of specified minimums. To date, contingent rentals have been
very nominal. The leases typically contain provisions for four renewal options of five
years each. Certain equipment is also leased by the Company under agreements ranging
from two to five years. These agreements typically contain renewal options providing for
a renegotiation of the lease, at the Company's option, based on the fair market value at
that time.
The Company entered into a lease agreement in January 1993 for ten store properties with
a total cost of approximately $70.6 million. The lease terms will be finalized as the stores
open. The rental amounts will be based on the cost of the property plus the borrowing
cost of the lessor. The agreement also called for the Company to advance part of the
acquisition cost of the properties to be reimbursed by the Lessor. At January 31, 1994, the
Company had a receivable from the Lessor of $44.0 million classified on the balance
sheet under Other Current Assets. The minimum lease payments under this agreement
will be dependent on the final cost and financing of the lessor and are not included in the
table above. The Company expects these leases will be classified as operating leases.
The Company entered into a lease agreement in August 1990 for nine store properties.
The initial terms of these leases are five years with renewal terms for up to an additional
thirty-five years. The rental amounts are based on the cost of the property plus the
borrowing cost of the lessor. Under the agreement, the Company advanced part of the
acquisition cost of the properties and at January 31, 1993 had a receivable from the lessor
of $17.4 million classified on the balance sheet under Other Current Assets.
NOTE 13 Commitments, Contingencies and Litigation:
The Company had purchase commitments at January 31, 1994, of approximately $24.4
million for land, buildings and construction of facilities, and $16.6 million for equipment.
See Note 12 concerning commitments related to lease agreements.
The Company is a defendant in legal proceedings considered to be in the normal course
of business and none of which, singularly or collectively, are considered material to the
Company as a whole. Potential liability in excess of the Company's self-insured retention
under these proceedings is covered by insurance.
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NOTE 14 Store Restructuring:
In Fiscal 1991, the Company recorded a pre-tax fourth quarter charge of $71.3 million for
the expected costs and expenses required to accelerate the Company's conversion from a
chain of small stores to a chain of large stores. The restructuring charge is composed
primarily of write-downs of long-lived assets to their net realizable value, principally real
estate for owned locations, certain leasehold improvements, fixtures and equipment. It
also includes certain relocation costs and expenses. The charge included stores relocated
under the restructuring plan in the fourth quarter of Fiscal 1991 and those scheduled for
closing and relocation through Fiscal 1995.
NOTE 15 Other Information:
(Dollars in Thousands)
Net interest expense is composed of the following:
Years Ended January 31, 1994 1993 1992
Long-Term Debt $25,146 $12,634 $14,467
Short-Term Debt 1,217 6,529 5,317
Amortization of Loan Costs 272 274 125
Cost of Early Debt Retirement 1,149
Short-Term Interest Income (4,765) (1,989) (3,006)
Interest Capitalized (3,592) (1,849) (1,114)
Net Interest Expense 18,278 15,599 16,938
Supplemental Disclosures of Cash Flow Information:
Years Ended January 31, 1,994 1,993 1,992
Cash Paid for Interest
(Net of Amount Capitalized) 25,677 17,857 22,162
Cash Paid for Income Taxes 58,761 40,042 21,028
Noncash Investing and Financing Activities:
Fixed Assets Acquired under
Capital Leases 29,343 24,566 2,595
Common Stock Issued to ESOP (Note 9) 30,558
Common Stock Received for
Exercise of Stock Options 75
Notes Received in Exchange
for Property 886 1,536 2,478
<FN>
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Supplemental Disclosure of Operating Expenses:
Advertising expenses were $59.3, $65.0 and $61.8 million for Fiscal 1993, 1992 and
1991, respectively.