Lowe's 2005 Annual Report Download - page 37
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methodhadbeenappliedtoallawardssincetheoriginaleffectivedateofSFAS
No.123.TheCompanyrecognizedstockcompensationexpensein2005,2004
and2003totaling$76million,$70millionand$51million,respectively,for
stockoptionsandawardsgrantedormodifiedduringtheyear.
Thefollowingtableillustratestheeffectonnetearningsandearningsper
shareifthefair-value-basedmethodhadbeenappliedtoalloutstandingand
unvestedawardsineachperiod:
(Inmillions,exceptpersharedata)
2005 2004 2003
Netearningsasreported $2,771 $2,176 $1,844
Add:stock-basedcompensation
expenseincludedinnetearnings,
netofrelatedtaxeffects 47 43 32
Deduct:totalstock-basedcompensation
expensedeterminedunderthe
fair-value-basedmethodforall
awards,netofrelatedtaxeffects (49) (85) (93)
Proformanetearnings $2,769 $2,134 $1,783
Earningspershare:
Basic–asreported $ 3.56 $ 2.80 $ 2.35
Basic–proforma $ 3.56 $ 2.75 $ 2.26
Diluted–asreported $ 3.46 $ 2.71 $ 2.28
Diluted–proforma $ 3.46 $ 2.66 $ 2.20
Thefairvalueofeachoptiongrantisestimatedonthedateofgrant
usingtheBlack-Scholesoption-pricingmodelwiththeassumptionslistedin
thefollowingtable:
2005 2004 2003
Weightedaveragefairvalueperoption
$15.62 $16.56 $17.64
Assumptionsused:
Weightedaverageexpectedvolatility 31.4% 38.3% 44.0%
Weightedaverageexpecteddividendyield 0.24% 0.22% 0.26%
Weightedaveragerisk-freeinterestrate 3.81% 2.39% 2.89%
Weightedaverageexpectedlife,inyears 3.2 3.3 5.5
ShippingandHandlingCosts–TheCompanyincludesshippingand
handlingcostsrelatingtotheshipmentofproductstocustomersbythirdpar-
tiesincostofsales.Shippingandhandlingcosts,whichincludesalariesand
vehicleoperationsexpensesrelatingtothedeliveryofproductstocustomers
bytheCompany,areclassifiedasSG&Aexpenses.Shippingandhandling
costsincludedinSG&Aexpenseswere$312million,$255million,and$216
millionduring2005,2004and2003,respectively.
RecentAccountingPronouncements–InDecember2004,theFinancial
AccountingStandardsBoard(FASB)issuedSFASNo.123(revised),“Share-
BasedPayment.”Thisstatementeliminatesthealternativetoaccountforshare-
basedcompensationtransactionsusingAccountingPrinciplesBoard(APB)
OpinionNo.25andwillrequirethatcompensationexpensebemeasuredbased
onthegrant-datefairvalueoftheawardandrecognizedovertherequisite
serviceperiodforawardsthatvest.SFASNo.123(revised)willalsorequire
achangeintheclassificationofthebenefitsoftaxdeductionsinexcessof
recognizedcompensationcosttoareductioninoperatingcashflowsandan
increaseinfinancingcashflowsinperiodsafteradoption.TheCompanywill
adoptSFASNo.123(revised)atthebeginningof2006.TheadoptionofSFAS
No.123(revised)isnotexpectedtohaveamaterialimpactontheCompany’s
consolidatedfinancialstatements.
InMarch2005,theFASBissuedInterpretationNo.47,“Accountingfor
ConditionalAssetRetirementObligations.”Thisinterpretationclarifiesthat
theterm“conditionalassetretirementobligation,”asusedinSFASNo.143,
“AccountingforAssetRetirementObligations,”referstoalegalobligationto
performanassetretirementactivityinwhichthetimingand(or)methodof
settlementareconditionalonafutureeventthatmayormaynotbewithinthe
controloftheCompany.Theinterpretationwaseffectivenolaterthantheendof
fiscalyearsendingafterDecember15,2005.Theadoptionofthisinterpretation
didnothaveanimpactontheCompany’sconsolidatedfinancialstatements.
InMay2005,theFASBissuedSFASNo.154,“AccountingChangesand
ErrorCorrections,aReplacementofAPBOpinionNo.20andFASBStatement
No.3.”Thisstatementchangestherequirementsfortheaccountingforand
reportingofachangeinaccountingprinciple.Ratherthanrecognizinginnet
incomeacumulativeeffectadjustment,thisstatementgenerallyrequires
retrospectiveapplicationofachangeinaccountingprincipletopriorperiods’
financialstatements.Thisstatementiseffectiveforaccountingchangesand
correctionsoferrorsmadeinfiscalyearsbeginningafterDecember15,2005.
SegmentInformation–TheCompany’soperatingsegments,represent-
ingtheCompany’shomeimprovementretailstores,areaggregatedwithinone
reportablesegmentbasedonthewaytheCompanymanagesitsbusiness.This
isduetothefactthattheCompany’shomeimprovementretailstoressellsim-
ilarproductsandservicesthatexhibitsimilareconomiccharacteristics,use
similarprocessesinsellingproductsandservices,andselltheirproductsand
servicestosimilarclassesofcustomers.
Reclassifications–Certainpriorperiodamountshavebeenreclassified
toconformtocurrentclassifications.Selfinsuranceliabilitiesanddeferred
revenuesareseparatelypresentedontheconsolidatedbalancesheetsand
werereclassifiedfromothercurrentliabilities.TheCompanyalsoreclassified
depreciationexpenseassociatedwithitsdistributionnetworkfromdeprecia-
tionexpensetocostofsalesontheconsolidatedstatementsofearningsfor
allperiodspresented.
Note2DISCONTINUEDOPERATIONS
Duringthefourthquarterof2003,theCompanysold26commodity-focused
locationsoperatingunderTheContractorYardname(the“ContractorYards”).
ThissalewaseffectedtoallowtheCompanytocontinuetofocusonitsretail
andcommercialbusiness.TheCompanyhasreportedtheresultsofoperations
oftheContractorYardsasdiscontinuedoperationsfor2003.Thoseresults
wereasfollows:
YearEndedOn
(Inmillions)
January30,2004
Netsalesfromdiscontinuedoperations $425
Pre-taxearningsfromdiscontinuedoperations 20
GainonsaleofContractorYards 5
Incometaxprovision 10
Earningsfromdiscontinuedoperations,netoftax $ 15
TheCompanyhasrevisedthefiscal2003presentationofthestatementcash
flowstoincludetheoperatingandinvestingportionsofthecashflows
attributabletothediscontinuedoperationsintheirrespectivecaptions,
totaling$85millionand$23million,respectively.Theseamounts,totaling
$112million,werepreviouslyreportedonacombinedbasisonthestate-
mentofcashflows,separatefromcontinuingoperations.