Lowe's 2006 Annual Report Download - page 45

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Lowe’s 2006 Annual Report
(In millions, except per share data) 2006 2005 2004
Basic earnings per share:
Net earnings $3,105 $2,765 $2,167
Weighted-average shares outstanding 1,535 1,555 1,554
Basic earnings per share $ 2.02 $ 1.78 $ 1.39
Diluted earnings per share:
Net earnings $ 3,105 $ 2,765 $ 2,167
Net earnings adjustment for interest
on convertible debt, net of tax 4 11 14
Net earnings, as adjusted $3,109 $2,776 $2,181
Weighted-average shares outstanding 1,535 1,555 1,554
Dilutive eect of share-based awards 9 10 10
Dilutive eect of convertible debt 22 42 53
Weighted-average shares, as adjusted 1,566 1,607 1,617
Diluted earnings per share $ 1.99 $ 1.73 $ 1.35
Stock options to purchase 6.8 million, 5.6 million and 1.2 million shares
of common stock for 2006, 2005 and 2004, respectively, were excluded from
the computation of diluted earnings per share because their eect would
have been antidilutive.
Note 13 LEASES
e Company leases store facilities and land for certain store facilities under
agreements with original terms generally of 20 years. For lease agreements
that provide for escalating rent payments or free-rent occupancy periods,
the Company recognizes rent expense on a straight-line basis over the non-
cancelable lease term and any option renewal period where failure to exercise
such option would result in an economic penalty in such amount that renewal
appears, at the inception of the lease, to be reasonably assured. e lease term
commences on the date when all conditions precedent to the Company’s
obligation to pay rent are satised. e leases generally contain provisions
for four to six renewal options of ve years each.
Some agreements also provide for contingent rentals based on sales
performance in excess of specied minimums. In 2006, 2005 and 2004,
contingent rentals were insignicant.
Certain equipment is also leased by the Company under agreements
ranging from two to ve years. ese 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.
e future minimum rental payments required under capital and
operating leases having initial or remaining non-cancelable lease terms
in excess of one year are summarized as follows:
Operating Leases Capital Leases
(In millions) Real Real
Fiscal Year Estate Equipment Estate Equipment Total
2007 $ 321 $2 $ 61 $1 $ 385
2008 322 1 62 – 385
2009 322 – 62 – 384
2010 321 – 62 – 383
2011 321 – 61 – 382
Later years 3,917 – 335 – 4,252
Total minimum
lease payments $5,524 $3 $643 $1 $6,171
Total minimum capital lease payments $ 644
Less amount representing interest 251
Present value of minimum lease payments 393
Less current maturities 27
Present value of minimum lease payments,
less current maturities $ 366
Rental expenses under operating leases for real estate and equipment
were $318 million, $301 million and $250 million in 2006, 2005 and
2004, respectively.
Note 14 COMMITMENTS AND CONTINGENCIES
e Company is a defendant in legal proceedings considered to be in the
normal course of business, none of which, individually or collectively, are
believed to have a risk of having a material impact on the Company’s nancial
statements. In evaluating liabilities associated with its various legal proceed-
ings, the Company has accrued for probable liabilities associated with
these matters. e amounts accrued were not material to the Company’s
consolidated nancial statements in any of the years presented.
As of February 2, 2007, the Company had non-cancelable commitments
related to purchases of merchandise inventory, property and construction
of buildings, as well as commitments related to certain marketing and
information technology programs of $2.3 billion. Payments under these
commitments are scheduled to be made as follows: 2007, $1.1 billion;
2008, $485 million; 2009, $349 million; 2010, $379 million; 2011, $3 million;
thereaer, $12 million.
Note 15 RELATED PARTIES
A brother-in-law of the Company’s Executive Vice President of Business
Development is a senior ocer of a vendor that provides millwork and
other building products to the Company. In 2006, 2005 and 2004, the
Company purchased products in the amounts of $101 million, $84 mil-
lion and $80 million, respectively, from this vendor. Amounts payable to
this vendor were insignicant at February 2, 2007 and February 3, 2006.
Note 16 OTHER INFORMATION
Net interest expense is comprised of the following:
(In millions) 2006 2005 2004
Long-term debt $ 183 $ 171 $ 159
Capitalized leases 34 39 38
Interest income (52) (45) (16)
Interest capitalized (32) (28) (28)
Other 21 21 23
Net interest expense $154 $158 $176
Supplemental disclosures of cash ow information:
(In millions) 2006 2005 2004
Cash paid for interest, net of amount
capitalized $ 179 $ 173 $ 174
Cash paid for income taxes $2,031 $1,593 $1,192
Noncash investing and nancing activities:
Noncash xed asset acquisitions,
including assets acquired under
capital lease $ 159 $ 175 $ 133
Conversions of long-term debt to equity $ 82 $ 565 $ 6