Lowe's 2010 Annual Report Download - page 45

LOWE’S 2010 ANNUAL REPORT 41
The indenture governing the notes issued in 2010 contains a
provision that allows the Company to redeem the notes at any time, in
whole or in part, at specified redemption prices plus accrued interest
to the date of redemption. The indenture also contains a provision that
allows the holders of the notes to require the Company to repurchase
all or any part of their notes if a change of control triggering event occurs.
If elected under the change of control provisions, the repurchase of the
notes will occur at a purchase price of 101% of the principal amount,
plus accrued and unpaid interest, if any, on such notes to the date of
purchase. The indenture governing the notes does not limit the aggre-
gate principal amount of debt securities that the Company may issue,
nor is the Company required to maintain financial ratios or specified
levels of net worth or liquidity. However, the indenture contains various
restrictive฀covenants,฀none฀of฀which฀is฀expected฀to฀impact฀the฀Company’s฀
liquidity or capital resources.
NOTE 7 SHAREHOLDERS’ EQUITY
Authorized฀shares฀of฀preferred฀stock฀were฀5.0฀million฀($5฀par฀value)฀
at January 28, 2011 and January 29, 2010, none of which have been
issued. The Board of Directors may issue the preferred stock (without
action by shareholders) in one or more series, having such voting
rights, dividend and liquidation preferences, and such conversion
and other rights as may be designated by the Board of Directors at
the time of issuance.
฀ Authorized฀shares฀of฀common฀stock฀were฀5.6฀billion฀($.50฀par฀value)฀
at January 28, 2011 and January 29, 2010.
฀ The฀Company฀has฀a฀share฀repurchase฀program฀that฀is฀executed฀
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.฀The฀Company’s฀Board฀of฀Directors฀authorized฀up฀to฀$5.0฀billion฀
of฀share฀repurchases฀on฀January฀29,฀2010฀with฀no฀expiration,฀after฀the฀
prior฀authorization฀expired฀on฀that฀date.฀As฀of฀January฀28,฀2011฀the฀
Company฀had฀$2.4฀billion฀of฀authorization฀remaining฀under฀the฀share฀
repurchase program.
The Company repurchased 111.7 million shares and 21.9 million
shares฀under฀the฀share฀repurchase฀program฀at฀a฀total฀cost฀of฀$2.6฀billion฀
and฀$500฀million฀for฀the฀years฀ended฀January฀28,฀2011฀and฀January฀29,฀
2010,฀respectively.฀A฀reduction฀of฀$2.4฀billion฀and฀$3฀million฀was฀
recorded฀to฀retained฀earnings,฀after฀capital฀in฀excess฀of฀par฀value฀was฀
depleted, for the years ended January 28, 2011 and January 29, 2010,
respectively. The Company also repurchased 0.7 million and 0.2 million
shares฀from฀employees฀at฀a฀total฀cost฀of฀$18฀million฀and฀$4฀million,฀for฀
the years ended January 28, 2011 and January 29, 2010, respectively,
to฀satisfy฀either฀the฀exercise฀price฀of฀stock฀options฀exercised฀or฀the฀
statutory฀withholding฀tax฀liability฀resulting฀from฀the฀vesting฀of฀restricted฀
stock awards.
NOTE 8 ACCOUNTING FOR
SHARE-BASED PAYMENT
Overview of Share-Based Payment Plans
The Company has equity incentive plans (the Incentive Plans) under
which the Company may grant share-based awards to key employees
and non-employee directors. The Company also has an employee
stock purchase plan (the ESPP) that allows employees to purchase
Company shares at a discount through payroll deductions. These plans
contain a nondiscretionary anti-dilution provision that is designed to
equalize the value of an award as a result of an equity restructuring.
Share-based awards were authorized under the Incentive Plans
for grant to key employees and non-employee directors for up to
169.0 million shares of common stock. In addition, up to 45.0 million
shares were authorized under the ESPP.
At January 28, 2011, there were 24.0 million shares remaining
available for grant under the Incentive Plans and 10.7 million shares
available under the ESPP.
฀ The฀Company฀recognized฀share-based฀payment฀expense฀in฀
SG&A฀expense฀on฀the฀consolidated฀statements฀of฀earnings฀totaling฀
$115฀million,฀$102฀million฀and฀$95฀million฀in฀2010,฀2009฀and฀2008,฀
respectively.฀The฀total฀associated฀income฀tax฀benet฀recognized฀
was฀$38฀million,฀$27฀million฀and฀$31฀million฀in฀2010,฀2009฀and฀
2008, respectively.
฀ Total฀unrecognized฀share-based฀payment฀expense฀for฀all฀
share-based฀payment฀plans฀was฀$106฀million฀at฀January฀28,฀2011,฀
of฀which฀$69฀million฀will฀be฀recognized฀in฀2011,฀$34฀million฀in฀2012฀
and฀$3฀million฀thereafter.฀This฀results฀in฀these฀amounts฀being฀
recognized over a weighted-average period of 1.6 years.
฀ For฀all฀share-based฀payment฀awards,฀the฀expense฀recognized฀
has been adjusted for estimated forfeitures where the requisite
service฀is฀not฀expected฀to฀be฀provided.฀Estimated฀forfeiture฀rates฀
are developed based on the Company’s analysis of historical
forfeiture data for homogeneous employee groups.
General terms and methods of valuation for the Company’s
share-based awards are as follows:
Stock Options
Stock options generally have terms of seven years, with one-third
of each grant vesting each year for three years, and are assigned
an฀exercise฀price฀equal฀to฀the฀closing฀market฀price฀of฀a฀share฀of฀the฀
Company’s common stock on the date of grant. These options are
expensed฀on฀a฀straight-line฀basis฀over฀the฀grant฀vesting฀period,฀
which is considered to be the requisite service period.