Lowe's 2003 Annual Report Download

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ANNUAL REPORT 2003
“I am Lowe’s most important customer.”

Table of contents

  • Page 1
    "I am Lowe's most important customer." ANNUAL REPORT 2003

  • Page 2
    "So am I."

  • Page 3
    ... With exciting new products and improved installation and special order capabilities, our customers are finding more than just home improvement products in our stores. They are finding well-trained, knowledgeable employees, backed by state-of-the-art technology and an experienced management team who...

  • Page 4
    ...$ 1.83 $ 0.02 $ 1.85 $ 0.085 26.5% 26.5% 29.4% * Amounts herein have been adjusted to reflect the 26 Contractor Yard locations sold in 2003 as a discontinued operation. ** Basis points Sales Growth in billions of dollars Earnings Growth in millions of dollars 30 1,800 1,600 25 1,400 20 1,200...

  • Page 5
    ... many smaller markets across America, making Lowe's more and more convenient for home improvement consumers around the country. A key component of our success in America's smaller markets is our new 94,000-square-foot prototype store. Designed to efficiently serve single-store markets across the...

  • Page 6
    ... This generation is coming of age and is actively influencing many purchasing decisions today. With over 40,000 products in stock, and hundreds of thousands more available by special order, these customers can find the products they're looking for at Lowe's. The second force driving home improvement...

  • Page 7
    ... timely fulfillment of orders. Additionally, the new system informs the customer about related products needed to complete or complement the project. As with our installed sales model, the best way to measure the success of this new model is with customer satisfaction. We've seen sales return rates...

  • Page 8
    "This is my home." 06 LOWE'S COMPANIES, INC.

  • Page 9
    ..., Lowe's conducts extensive research into the home improvement needs of each market and continues to work with our customers, vendors and employees to fine-tune our product offering, ensuring that all our customers find just what they need. As an increasingly diverse customer base takes part in...

  • Page 10
    "This is just the right color." 08 LOWE'S COMPANIES, INC.

  • Page 11
    ... product categories. As these enhancements to our installed sales model and special order program improve the experience for our customers, we're confident we will capture a more significant portion of the installation and special order markets, adding value for our shareholders. 2003 ANNUAL REPORT...

  • Page 12
    "This is the brand I trust." 10 LOWE'S COMPANIES, INC.

  • Page 13
    ... envy." D E B B I E T E M P L E | Merchandising Director Investing in what customers want. For retail and commercial customers alike, availability of brand-name products at everyday low prices is a big part of the shopping decision. At Lowe's, we know our success and the success of the products we...

  • Page 14
    "This is who I come to for advice and support." 12 LOWE'S COMPANIES, INC.

  • Page 15
    ...match as a reward for helping Lowe's reach its earnings goals. Lowe's encourages employees to grow with the company and supports this growth with financial assistance to attend colleges and universities, executive development opportunities and management training programs. Our store manager training...

  • Page 16
    ... live." Distribution Centers Existing Stores New Stores in 2003 Lowe's Stores : Includes projected store openings in Fiscal '04 AK: 2 AL: 29 AR: 13 AZ: 16 CA: 65 CO: 14 CT: 6 DE: 5 FL: 71 GA: 49 HI: 3 IA: 9 ID: 4 IL: 24 IN: 36 KS: 9 KY: LA: MA: MD: 28 20 14 21 MI: 36 MN: 1 MO: 24 MS: 14 MT: NC: ND...

  • Page 17
    ... store, regardless of the location. Efficient distribution is the key to profitably serving small markets and vital to flowing product to high-volume, large markets to maximize sales. And we are more than a home improvement store to the markets we serve. We are a good neighbor. During the year, Lowe...

  • Page 18
    ... to express their unique tastes throughout their homes. "How you want it." Customers return to our stores knowing that whether they need an accurate cut, a precise color match, professional installation or a quick delivery, they can get it at Lowe's at low prices, every day, guaranteed. "The way...

  • Page 19
    ... for Lowe's. Our expansion continues with 140 stores planned for 2004 and 150 planned for 2005. And we will continue to work toward growth within our existing product categories to gain market share in the highly fragmented home improvement marketplace. Our technology continues to evolve to meet the...

  • Page 20
    ... the products that customers want depends on our vendors providing a reliable supply of inventory at competitive prices and our ability to effectively manage our inventory. * Our commitment to increase market share and keep prices low requires us to make substantial investment in new technology and...

  • Page 21
    ... store sales growth. The market research performed during product line reviews has also led the Company to concentrate on differentiating itself from competitors through valued national brands. Lowe's branding strategy is designed to build the Lowe's brand quickly, efficiently, and effectively...

  • Page 22
    ... from opening price points to premium products. For items not stocked in a 94K store, special order options are available to meet customer needs. Expanding into these smaller markets is made possible by Lowe's logistics and distribution capabilities that allow the Company to quickly and efficiently...

  • Page 23
    ... its strongest sales increases in lumber, building materials, outdoor power equipment, paint, flooring and home organization. Major appliances continue to perform well and also exceeded the Company average comparable store sales increase. In addition, millwork, hardware, walls & windows, nursery and...

  • Page 24
    ... liquidity and capital resources. The Company's effective income tax rates were 37.9%, 37.6% and 37.0% in 2003, 2002 and 2001, respectively. The higher rates were primarily related to expansion into states with higher state income tax rates. Financial condition, liquidity and capital resources. The...

  • Page 25
    ... per share by 20% to $0.03, which will increase cash paid for dividends in 2004 as compared to 2003. The Company's 2004 capital budget is $3.4 billion, inclusive of approximately $321 million of leases. Approximately 76% of this planned commitment is for store expansion and new distribution centers...

  • Page 26
    ... through the Company's lines of credit. The following tables summarize the Company's market risks associated with long-term debt, excluding capital leases. The tables present principal cash outflows and related interest rates by year of maturity, excluding unamortized original issue discounts as of...

  • Page 27
    ... States of America. As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for stock-based compensation effective February 1, 2003. Charlotte, North Carolina March 19, 2004 (April 2, 2004, as to the third paragraph in Note 10) 2003 ANNUAL...

  • Page 28
    ... Share Data) Years Ended on January 30, 2004 % Sales January 31, 2003 % Sales February 1, 2002 % Sales Net Sales Cost of Sales Gross Margin Expenses: Selling, General and Administrative (Note 5) Store Opening Costs Depreciation Interest (Note 15) Total Expenses Pre-Tax Earnings Income Tax Provision...

  • Page 29
    ...Companies, Inc. Consolidated Balance Sheets (In Millions, Except Par Value Data) January 30, 2004 % Total January 31, 2003 % Total Assets Current Assets: Cash and Cash Equivalents Short-Term Investments (Note 3) Accounts Receivable - Net (Note 1) Merchandise Inventory (Note 1) Deferred Income Taxes...

  • Page 30
    Lowe's Companies, Inc. Consolidated Statements of Shareholders' Equity Common Stock Shares Amount Capital in Excess of Par Value Retained Earnings Unearned CompensationRestricted Stock Awards Accumulated Other Comprehensive Income Total Shareholders' Equity (In Millions) Balance February 2, 2001 ...

  • Page 31
    ... Income Taxes Loss on Disposition/Writedown of Fixed and Other Assets Stock-Based Compensation Expense Tax Effect of Stock Options Exercised Changes in Operating Assets and Liabilities: Accounts Receivable - Net Merchandise Inventory Other Operating Assets Accounts Payable Employee Retirement Plans...

  • Page 32
    ... income in shareholders' equity. Derivative Financial Instruments The Company does not use derivative financial instruments for trading purposes. Accounts Receivable The majority of accounts receivable arise from sales to commercial business customers. The allowance for doubtful accounts...

  • Page 33
    ... financial statements since substantially all of the cooperative advertising allowance and in-store service fund agreements for 2003 were entered into prior to December 31, 2002, the effective date of the related provision of EITF 02-16. Stock-Based Compensation Prior to 2003, the Company accounted...

  • Page 34
    ...to all outstanding and unvested awards in each period: (In Millions, Except Per Share Data) 2003 2002 2001 Net Earnings as Reported $ Deduct: Total Unrecognized Stock-Based Employee Compensation Expense Determined Under the Fair-Value-Based Method for All Awards Net of Related Tax Effects Pro Forma...

  • Page 35
    ... 2003 Accrual for Store Closing Costs Lease Payments, Net of Sublease Income Balance at January 30, 2004 Municipal Obligations Money Market Preferred Stock Classified as Short-Term Municipal Obligations Corporate Notes Agency Bonds Asset-Backed Obligations Mutual Funds Classified as Long-Term Total...

  • Page 36
    ... sale price of the Company's common stock reaches specified thresholds, the credit rating of the notes is below a specified 34 LOWE'S COMPANIES, INC. January 31, 2003 (In Millions) Carrying Amount Fair Value Carrying Amount Fair Value Liabilities: Long-Term Debt (Excluding Capital Leases...

  • Page 37
    ... may be designated by the Board of Directors at the time of issuance. As of January 30, 2004, the Company had a shareholder rights plan, which provided for a distribution of 0.5 preferred share purchase rights on each outstanding share of common stock. Purchase rights would become distributable and...

  • Page 38
    ... in 2003. No compensation expense was recorded in 2002 or 2001 related to the Employee Stock Purchase Plan, as the Plan qualified as non-compensatory under the intrinsic value method of accounting. The Company reports comprehensive income in its consolidated statement of shareholders' equity...

  • Page 39
    ... days of continuous service. The Company's contributions to the 401(k) Plan vest immediately in the participant accounts. Participants are allowed to choose from a group of mutual funds in order to designate how both employer and employee contributions are to be invested. The Company's common stock...

  • Page 40
    ...) Common Stock Issued to Executives and Directors, net of Unearned Compensation Notes Received in Exchange for Sale of Real Estate $ 179 $ 926 $ 186 $ 695 $ 178 $ 532 Excess Property and Store Closing Costs Self-Insurance Depreciation Vacation Accrual Allowance for Sales Returns Other, Net Total...

  • Page 41
    ... Review of Performance (Unaudited) Earnings Statements (In Millions, Except Per Share Data) Quarter Ended 1/30/04 10/31/03 8/1/03 Fiscal 2003 5/2/03 1/31/03 11/1/02 8/2/02 Fiscal 2002 5/3/02 Net Sales Gross Margin Expenses: SG&A Store Opening Costs Depreciation Interest Total Expenses Pre-Tax...

  • Page 42
    ...0.018 0.020 0.020 $ 0.020 120 240 480 * Adjusted for 2-for-1 stock split to shareholders of record on June 8, 2001, as applicable. Monthly Stock Price and Trading Volume Fiscal 2003 Shares Traded Fiscal 2002 Shares Traded High Low High Low February March April May June July August September...

  • Page 43
    ... in Millions) Product Category Total Sales % Total Sales % Total Sales % (Dollars in Millions) Product Category Total Sales % Total Sales % Total Sales % Appliances Lumber Paint Millwork Outdoor Fashion Flooring Nursery Fashion Electrical Fashion Plumbing Hardware Tools $ 3,508 2,642...

  • Page 44
    ...: Assets/Equity Shareholders, Shares and Book Value 41 Shareholders of Record, Year-End 42 Shares Outstanding, Year-End (In Millions) 43 Weighted Average Shares, Assuming Dilution (In Millions) 44 Book Value Per Share Stock Price During Calendar Year6 (Adjusted for Stock Splits) 45 46 47 High Low...

  • Page 45
    ... Assets. on Shareholders' Equity: Net Earnings divided by Beginning Equity. Price Source: The Wall Street Journal 5 Return 6 Stock * Fiscal year ended February 2, 2001 contained 53 weeks. All other years contained 52 weeks. NM = not meaningful CGR = compound growth rate $ 2003 ANNUAL REPORT...

  • Page 46
    ... and Chief Executive Officer, Financial & Management Consulting, Inc., McLean, VA 1,4 President, Lowe's Companies, Inc., Mooresville, NC Vice Chairman and Chief Financial Officer, United Technologies Corporation, Hartford, CT 1,4 Chairman and Chief Executive Officer, General Parts, Inc., Raleigh...

  • Page 47
    ... clicking on Shareholder Services, Account Access. Investors can join Lowe's Stock Advantage Direct Stock Purchase Plan by visiting www.Lowes.com/investor and clicking on Shareholder Services, Buy Stock Direct. Dividends Lowe's has paid a cash dividend each quarter since becoming a public company in...

  • Page 48
    Lowe's Companies, Inc. // 1000 Lowe's Boulevard Mooresville, NC 28117 www.Lowes.com LOWES-AR-03