Lowe's 2004 Annual Report Download - page 40

Page 38 Lowe’s 2004 Annual Report
redemption date. The conditions that permit conversion were not
satisfied at January 28, 2005.
The Company has $994.7 million aggregate principal of convertible
notes 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 hold-
ers will receive $1,000 per note, representing a yield to maturity of
2.5%. Holders may convert their notes at any time on or before the
maturity date, unless the notes have been previously purchased or
redeemed, into 16.448 shares of the Company’s common stock per
note. Holders of the notes may require the Company to purchase all or
a portion of their notes in February 2011 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 fiscal 2004, all of
which were purchased in cash.
NOTE 10 Financial instruments
Cash and cash equivalents, accounts receivable, short-term borrow-
ings, trade accounts payable and accrued liabilities are reflected in the
financial statements at cost which approximates fair value. Short and
long-term investments, classified as available-for-sale securities, are
reflected in the financial statements at fair value. Estimated fair values
for long-term debt have been determined using available market
information and appropriate valuation methodologies. However, con-
siderable 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
effect on the estimated fair value amounts. The fair value of the
Company’s long-term debt excluding capital leases is as follows:
January 28, 2005 January 30, 2004
––––––––––––––––––––––––––––––––––––––––––––––––––––––––– ––––––––––––––––––––––––––––––––––––––––––––––––––––
Carrying Fair Carrying Fair
(In Millions) Amount Value Amount Value
Liabilities:
Long-Term Debt
(Excluding Capital Leases) $ 3,267 $ 3,974 $ 3,310 $ 3,985
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 11 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. In the fourth
quarter offiscal 2004, the Company implemented EITF 04-8. Based on
the EITF’s conclusion, the dilutive effect of contingently convertible
debt instruments should be included in the calculation of diluted earn-
ings per share regardless of whether the contingency has been met.
As a result of this implementation, the Company has retroactively
adjusted diluted earnings per share calculations for all periods pre-
sented to include the dilutive effect of the assumed conversion of the
Company’s $580.7 million Senior Convertible Notes issued in October
2001. The implementation of EITF 04-8 reduced diluted earnings per
share by $0.03 for the year ended January 28, 2005, and $0.02 for the
each of the years ended January 30, 2004, and January 31, 2003. The
following table reconciles EPS for 2004, 2003 and 2002.
(In Millions, Except Per Share Data) 2004 2003 2002
Basic Earnings Per Share:
Earnings from Continuing
Operations $ 2,176 $ 1,829 $ 1,479
Earnings from Discontinued
Operations, Net of Tax – 15 12
Net Earnings $ 2,176 $ 1,844 $ 1,491
Weighted Average Shares
Outstanding 777 785 779
Basic Earnings Per Share:
Continuing Operations $ 2.80 $ 2.33 $ 1.89
Basic Earnings Per Share:
Discontinued Operations – 0.02 0.02
Basic Earnings Per Share $ 2.80 $ 2.35 $ 1.91
Diluted Earnings Per Share:
Net Earnings $ 2,176 $ 1,844 $ 1,491
Net Earnings Adjustment for
Interest on Convertible Debt
Net of Tax 14 14 14
Net Earnings, as Adjusted $ 2,190 $ 1,858 $ 1,505
Weighted Average Shares
Outstanding 777 785 779
Dilutive Effect of Stock Options 5 4 4
Dilutive Effect of Convertible Debt 26 27 27
Weighted Average Shares,
as Adjusted 808 816 810
Diluted Earnings Per Share:
Continuing Operations $ 2.71 $ 2.26 $ 1.84
Diluted Earnings Per Share:
Discontinued Operations – 0.02 0.02
Diluted Earnings Per Share $ 2.71 $ 2.28 $ 1.86
NOTE 12 Shareholders’ equity
Authorized shares of common stock were 2.8 billion at January 28,
2005, and January 30, 2004.
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 shareholders) in one or
more series, having such voting rights, dividend and liquidation pref-
erences and such conversion and other rights as may be designated by
the Board of Directors at the time of issuance.
In April 2004, the Board of Directors authorized the termination of
its shareholder rights plan and the related redemption of all purchase
rights under this plan. These rights were redeemed for one-twentieth
of a cent ($0.0005) per share, or approximately $400,000.
In January 2005, the Board of Directors authorized $1 billion in
share repurchases through 2006. This program 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 program are retired and returned to authorized
and unissued status. As of January 28, 2005, the share repurchase