Lowe's 2001 Annual Report Download - page 22

Lo we’s Co mpanies, Inc. 20
This discussio n summarizes the significant facto rs affecting the
Co mpany’s co nso lidated o perating results, liquidity and capital
reso urces during the three-year perio d ended February 1, 2002
( i.e., fisc al years 2001, 2000, and 1999) . Fiscal years 2001 and
1999 co ntain 52 weeks of sales and expenses co mpared to Fiscal
2000, whic h co ntains 53 weeks. This disc ussio n sho uld be read in
co njunctio n with the financial statements and financial statement
fo o tno tes included in this annual repo rt.
On May 25, 2001, the Co mpany’s Bo ard o f Directo rs approved a
two - fo r-o ne split of the Co mpany’s co mmo n sto ck. As a result,
shareho lders rec eived o ne additio nal share o n June 29, 2001 fo r
each share held as of the reco rd date o n June 8, 2001. The par
value o f the Co mpany’s co mmo n sto ck remained $0.50. All related
financial info rmatio n presented, including per share data, reflects
the effec ts of the sto ck split.
ACCOUNTI NG POLI CI ES AND ESTI MATES
The fo llo wing discussio n and analysis o f the results of o peratio ns
and financial co nditio n are based o n the Co mpany’s financial state-
ments that have been prepared in acco rdance with acco unting
principles generally accepted in the United States o f America. The
preparatio n of these financial statements requires management to
make estimates that affect the repo rted amo unts o f assets, liabil-
ities, revenues and expenses and related disclo sures o f c o ntingent
assets and liabilities. The Co mpany bases these estimates o n his-
to rical results and vario us o ther assumptio ns believed to be rea-
so nable, the results of which fo rm the basis fo r making estimates
co ncerning the carrying values of assets and liabilities that are no t
readily available fro m o ther so urces. Actual results may differ fro m
these estimates.
The Co mpany’s significant acco unting po lices are described in
No te 1 to the co nso lidated financial statements. Management
believes that the fo llo wing acco unting po licies affect the mo re
significant estimates used in preparing the co nso lidated financial
statements.
The Co mpany reco rds an invento ry reserve fo r the lo ss asso ciat-
ed with selling disco ntinued invento ries at belo w co st. This reserve
is based o n management’s current kno wledge with respect to
invento ry levels, sales trends and histo rical experience relating to
the liquidatio n of disco ntinued invento ries. Management do es no t
believe the Co mpany’s merchandise invento ries are subject to sig-
nificant risk o f o bso lescence in the near-term, and management
has the ability to adjust purchasing practices based o n anticipat-
ed sales trends and general eco no mic co nditio ns. Ho wever,
changes in co nsumer purchasing patterns c o uld result in the need
fo r additio nal reserves. The Co mpany also reco rds an invento ry
reserve fo r the estimated shrinkage between physical invento ries.
This reserve is based primarily o n actual shrink results fro m previ-
o us physical invento ries. Changes in actual shrink results fro m
co mpleted physical invento ries co uld result in revisions to previ-
o usly reco rded shrink expense. Management believes it has suffi-
cient c urrent and histo rical kno wledge to reco rd reaso nable esti-
mates fo r bo th o f these invento ry reserves.
The Co mpany is self- insured fo r certain lo sses relating to wo rk-
er’s c o mpensatio n, auto mo bile, general and pro duct liability
claims. Self-insurance c laims filed and claims incurred but no t
repo rted are acc rued based upo n management’s estimates o f the
aggregate liability fo r uninsured claims incurred using actuarial
assumptio ns fo llo wed in the insurance industry and histo rical
experience. Altho ugh management believes it has the ability to
adequately reco rd estimated lo sses related to claims, it is po ssible
that actual results co uld sig nificantly differ fro m reco rded self-
insurance liabilities.
OPERATI ONS
Net earnings fo r 2001 increased 26% to $1.02 billio n o r 4.6% o f
sales c o mpared to $809.9 millio n o r 4.3% o f sales fo r 2000. Net
earnings fo r 2000 increased 20% to $809.9 millio n o r 4.3% of sales
co mpared to $672.8 millio n o r 4.2% of sales fo r 1999. Diluted
earnings per share were $1.30 fo r 2001 co mpared to $1.05 fo r
2000 and $0.88 fo r 1999. Return o n beginning assets was 9.0% fo r
bo th 2001 and 2000, and return o n beg inning shareho lders’ equi-
ty was 18.6% fo r 2001 co mpared to 17.2% fo r 2000.
The Co mpany reco rded sales o f $22.1 billio n in 2001, an 18%
increase o ver 2000 sales o f $18.8 billio n. Sales fo r 2000 were 18%
higher than 1999 levels. Co mparable sto re sales inc reased 2.4% in
2001. The increases in sales are attributable to the Co mpany’s o ngo -
ing sto re expansio n and relo cation pro gram. Stabilizatio n in lumber
and building material prices, as well as impro ved sales in mo st mer-
chandising c atego ries, brought abo ut the c o mparable sto re sales
increase. During the year, the Co mpany experienced its stro ngest
sales increases in building materials, paint, appliances and flo o ring .
The fo llo wing table presents sales and sto re info rmatio n:
Manage ment’s Discussio n and Analysis of
Financial Co nditio n and Results of Operatio ns