Lowe's 1998 Annual Report Download - page 30

restricted stock grants and stock appreciation rights. Had compensation for 1998, 1997 and 1996 stock options granted
been determined consistent with Statement of Financial Accounting Standards No. 123 (SFAS 123), “Accounting for Stock-
Based Compensation,” the Company’s net earnings and earnings per share (EPS) amounts for 1998, 1997 and 1996 would
approximate the following pro forma amounts (in thousands, except per share data):
1998 1997 1996
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
Net Earnings $482,422 $474,533 $357,484 $352,217 $292,150 $291,411
Basic EPS $ 1.37 $ 1.35 $ 1.03 $ 1.01 $ .87 $ .87
Diluted EPS $ 1.36 $ 1.34 $ 1.03 $ 1.01 $ .86 $ .85
The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the
assumptions listed below. 1998 1997 1996
Weighted average fair value per option $18.38 $9.30 $8.50
Assumptions used:
Weighted average expected volatility 31.6 % 34.8 % 38.3 %
Weighted average expected dividend yield 0.35% 0.60% 0.66%
Weighted average risk-free interest rate 4.71% 6.04% 6.01%
Weighted average expected life, in years 6.9 5.0 5.0
During 1998, the Company adopted Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive
Income (SFAS 130).” The Company reports comprehensive income in its consolidated statement of shareholders’ equity.
SFAS 130 requires the reporting of comprehensive income in addition to net earnings from operations. Comprehensive income
is a more inclusive financial reporting methodology that includes disclosure of certain financial information that has not been
historically recognized in the calculation of net earnings.
For the three years ended January 29, 1999, unrealized holding gains (losses) on available-for-sale securities is the only
other comprehensive income component for the Company. As required by SFAS 130 in the year of adoption and forward, the
following disclosures of unrealized net holding gains are made for 1998.
(In Thousands) Pre-Tax Tax Expense After Tax
Unrealized net holding gains
arising during the year $417 $177 $240
Less: Reclassification adjustment for
gains included in net earnings 17 6 11
Unrealized net gains on available-for-sale
securities, net of reclassification adjustment $400 $171 $229
Note 9, Leases:
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 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.
In August 1998, the Company entered into a $100 million operating lease agreement for a distribution facility and store
facilities. The initial lease term is three years with two 1-year renewal options. The agreement contains significant guaranteed
residual values and purchase options at original cost for all properties under the agreement.
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