Lowe's 2003 Annual Report Download - page 37

2003 ANNUAL REPORT 35
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.
Note 9
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Earnings per share.
Basic earnings per share (EPS) excludes dilution and is computed
by dividing the applicable net earnings by the weighted-average
number of common shares outstanding for the period. Diluted
earnings per share is calculated based on the weighted-average
shares of common stock as adjusted for the potential dilutive effect
of stock options and applicable convertible notes as of the balance
sheet date. The effect of the assumed conversion of the $580.7 mil-
lion Senior Convertible Notes, issued in October 2001, has been
excluded from diluted earnings per share for the years ended
January 30, 2004, January 31, 2003 and February 1, 2002, because
none of the conditions that would permit conversion had been sat-
isfied during the period (see Note 7). Following is the reconcilia-
tion of EPS for 2003, 2002 and 2001.
(In Millions, Except Per Share Data) 2003 2002 2001
Basic Earnings per Share:
Earnings from Continuing
Operations $ 1,862 $ 1,459 $ 1,010
Earnings from Discontinued
Operations, Net of Tax 15 12 13
Net Earnings $ 1,877 $ 1,471 $ 1,023
Weighted Average Shares
Outstanding 785 779 772
Basic Earnings per Share:
Continuing Operations $ 2.37 $ 1.87 $ 1.31
Basic Earnings per Share:
Discontinued Operations 0.02 0.02 0.02
Basic Earnings per Share $ 2.39 $ 1.89 $ 1.33
Diluted Earnings per Share:
Net Earnings $ 1,877 $ 1,471 $ 1,023
Net Earnings Adjustment for
Interest on Convertible Debt
Net of Tax 10 11 10
Net Earnings, as Adjusted $ 1,887 $ 1,482 $ 1,033
Weighted Average Shares
Outstanding 785 779 772
Dilutive Effect of Stock Options 4 4 7
Dilutive Effect of Convertible Debt 17 17 16
Weighted Average Shares,
as Adjusted 806 800 795
Diluted Earnings per Share:
Continuing Operations $ 2.32 $ 1.83 $ 1.28
Diluted Earnings per Share:
Discontinued Operations 0.02 0.02 0.02
Diluted Earnings per Share $ 2.34 $ 1.85 $ 1.30
Note 10
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Shareholders’ equity.
Authorized shares of common stock were 2.8 billion at January 30,
2004 and January 31, 2003.
The Company has five million authorized shares of preferred
stock ($5 par), none of which have been issued. The Board of
Directors may issue the preferred stock without action by share-
holders 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.
As of January 30, 2004, the Company had a shareholder rights
plan, which provided for a distribution of 0.5 preferred share pur-
chase rights on each outstanding share of common stock. Purchase
rights would become distributable and exercisable only if a person
or group acquired or commenced a tender offer for 15% or more
of the Company’s common stock. Once exercisable, each 0.5 pur-
chase right would entitle shareholders (other than the acquiring
person or group) to buy one unit of a series of preferred stock for
$76.25; the price of the unit to the acquiring person or group in
such event would be $152.50. Each unit was intended to be the
economic equivalent of one share of common stock, and the plan
was adopted to act as a deterrent to unsolicited offers to acquire
control of the Company. The rights would expire in 2008, unless
the Company redeemed or exchanged them earlier. In April 2004,
the Board of Directors authorized the termination of its share-
holder rights plan and the related redemption of all purchase rights
under this plan. These rights will be redeemed for one-twentieth of
a cent ($0.0005) per share, or approximately $400 thousand.
In December 2003, the Board of Directors approved a share
repurchase program of up to $1 billion through 2005. This pro-
gram is intended to be implemented through purchases made
from time to time either in the open market or through private
transactions. Shares purchased under the share repurchase pro-
gram will be retired and returned to unissued status. As no shares
had been repurchased as of January 30, 2004, the share repurchase
program had a remaining authorized balance of $1 billion for
future common stock repurchases.
The Company granted restricted stock awards of 550,000 shares
with a per share weighted-average fair value of $39.30 in 2003. No
restricted stock awards were granted in 2002 or 2001. Restricted
stock awards of 20,000 and 1,741,400 shares, with per share
weighted-average fair values of $17.57, and $12.40, were granted to
certain executives in 1998 and 1997, respectively. Related expenses
(charged to compensation expense) for 2003, 2002 and 2001 were
$5 million, $0 million, and $2 million, respectively.
The Company has three stock incentive plans, referred to as the
“2001”, “1997” and “1994” Incentive Plans, under which incentive
and non-qualified stock options may be granted to key employees.
No awards may be granted after 2011 under the 2001 plan, after
2007 under the 1997 plan and after 2004 under the 1994 plan.
Stock options generally have terms of seven years, normally vest
evenly over three years, and are assigned an exercise price of not
less than the fair market value on the date of grant. At January 30,
2004, there were 18,170,634, 2,246,803 and 154,755 shares avail-
able for grants under the 2001, 1997 and 1994 plans, respectively.