Lowe's 2006 Annual Report Download

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WHAT’S CHANGED?
Everything And Nothing
19462006
2006 ANNUAL REPORT

Table of contents

  • Page 1
    1946-2006 What's Changed? Everything And Nothing 2006 annUaL RePORt

  • Page 2
    ... areas, but sales in comp stores pullback in housing-related demand. were down from the prior year. In addiThat evidence led us to estimate housing tion to providing high-quality products for repair and improveturnover would decline in 2006 as these once-hot markets ment of homes, as one example...

  • Page 3
    ... we provide customers with great products and great management team. The depth at the executive level was evident in 2006, as Larry stone was promoted to President and Chief Operatservice. as part of that investment for the future, our store expansion ing Officer. at the same time, nick Canter moved...

  • Page 4
    ... used the tool to begin the design of their dream kitchen. and, we remain committed to providing the best customer service in the business. Our training programs ensure our employees have the product knowledge they need to help customers, which drives lower turnover and better retention rates of our...

  • Page 5
    What's Changed? Our Number of Customer Transactions What's the saMe? Our Customer Focus

  • Page 6
    We Focus On 13 Million • MONd Ay 2006 • y s u N dA • Ay TuEsd • sd WEdNE Ay • Thurs dAy 2

  • Page 7
    ...our stores, and we use this information to communicate directly with customers about products and projects that interest them most. an integral part of our long-term growth strategy is specialty sales, including Installed sales, special Order sales, e-Commerce sales and Commercial Business Customers...

  • Page 8
    ... to continuously improve the customer experience by managing the installation at the store level with a dedicated Installed sales team positions us to capitalize on this opportunity. Our in-home selling model also positions us to benefit from the growing dIFM segment. Currently, we are testing this...

  • Page 9
    What's Changed? Our Merchandise What's the saMe? innovative Merchandising

  • Page 10
    We stock innovation aPPLIanCes LUMBeR FLOORIng MILLWORK PaInt BUILdIng MateRIaLs FashIOn PLUMBIng LIghtIng tOOLs LaWn & LandsCaPe PROdUCts haRdWaRe seasOnaL LIVIng CaBInets & COUnteRtOPs OUtdOOR POWeR eqUIPMent ROUgh PLUMBIng ROUgh eLeCtRICaL nURseRY hOMe enVIROnMent WaLLs/WIndOWs hOMe ORganIzatIOn...

  • Page 11
    ... product lines offer value at all points along the price continuum and feature premium brands such as John deere mowers, power tools by deWaLt®, fashion plumbing by Kohler® and millwork from Therma-tru® to name just a few. We added new products and merchandise sets during 2006, offering customers...

  • Page 12
    ... shopping experience in our stores. Therefore, each of our stores receives routine maintenance, enhancing the customer experience. Our departments are updated with new merchandise sets, creating more powerful product presentations, while providing customers clear, concise information to make the...

  • Page 13
    What's Changed? Our reach What's the saMe? Always Extending Our reach Regional distribution Centers existing stores new stores in 2006

  • Page 14
    ... metro area. This store demonstrates our commitment to continue to expand in the top 25 U.S. markets. n IO, t X In 2006, we opened our eighth store in th e vibrant San Anton with a talented tea io market. This store m that is focused on is staffed creating WOW custo mer service every da y. san...

  • Page 15
    ...working re to fulfill o Customer Focused program, ur custom er service expectatio ns. BaY at year-end, 28% of our stores were in the nation's top 25 markets and approximately 55% were located in the top 100 markets. With each new store we open, we raise the awareness of the Lowe's brand and gain new...

  • Page 16
    ... FOR hOMe IMPROVeMent Lowe's long-term growth strategy includes serving customers in vibrant home improvement markets. In addition to our U.s. store openings, we will expand into Canada in 2007, opening five or six stores in the greater toronto market, our first stores outside of the U.s. Over time...

  • Page 17
    What's Changed? Tools For improvement What's the saMe? The drive To improve

  • Page 18
    We're Leaders in The Bus LOgIstICs & dIstRIBUtIOn t e C stORe PROdUCtIVItY 14

  • Page 19
    ... complete their transaction. Interactive tools on Lowes.com make planning projects more convenient for customers. Our online buying guides provide valuable product information, and customers can use our design tools to plan their perfect space. Project calculators are available for cost estimates...

  • Page 20
    ... a two-year initiative with First Families in every state to help increase the awareness of the need for affordable housing. Continuing with our commitment to the community, in 2006, the Lowe's Charitable and educational Foundation distributed more than $15 million in grants to support diverse...

  • Page 21
    ...Management's Report on Internal Control Over Financial Reporting $1.73 26 Reports of Independent Registered Public accounting Firm Consolidated statements of earnings 27 28 29 30 31 32 42 $1.35 Consolidated Balance sheets $0.11 $1.13 Consolidated statements of shareholders' equity Consolidated...

  • Page 22
    ...sales growth for Commercial Business Customers was nearly double the Company average. We also continue to refine our offerings, including an ongoing test of an in-home selling model for certain Installed Sales categories, new Special Order electronic selling tools, and many enhancements to Lowes.com...

  • Page 23
    ... organization is focused on improving service to our stores, increasing efficiency and improving inventory productivity. On average in 2006, nearly 70% of the stock merchandise we purchased was shipped through our distribution network, while the remaining portion was shipped directly to stores from...

  • Page 24
    ... outstanding stored value cards increased $74 million to $367 million as of February 2, 2007. We sell separately-priced extended warranty contracts under a Lowe's-branded program for which the Company is ultimately self-insured. We recognize revenues from extended warranty sales on a straight-line...

  • Page 25
    ... continued focus on executing the fundamentals and providing customer-valued solutions together with our store expansion program drove sales of $46.9 billion in 2006. We opened 155 stores in 2006, including four relocations, and ended the year with 1,385 stores in 49 states. The additional week in...

  • Page 26
    ... sales for 2005 by approximately 50 basis points, driven by gypsum, roofing and cement products. We also continued to gain market share in key product categories previously dominated by other channels, including appliances, outdoor power equipment and cabinets & countertops. 22 Lowe's 2006 Annual...

  • Page 27
    ... balance from 2005 to 2006 was the result of new or non-comparable stores. Both comparable stores and distribution center inventories were down slightly versus the prior year. In addition, we are focused on improving working capital through increased days payable outstanding. 23 Lowe's 2006 Annual...

  • Page 28
    ...of older stores. This planned expansion is expected to increase sales floor square footage by approximately 11%. All of the 2007 projects will be owned, which includes approximately 32% that will be ground-leased properties. On February 2, 2007, we owned and operated 11 regional distribution centers...

  • Page 29
    ... available through our lines of credit. The following tables summarize our market risks associated with long-term debt, excluding capital leases and other. The tables present principal cash outflows and related interest rates by year of maturity, excluding unamortized original issue discounts...

  • Page 30
    ... effective. Deloitte & Touche, LLP, the independent registered public accounting firm that audited the financial statements contained in this report, has issued an attestation report on our management's assessment of our Internal Control. This report appears on page 27. 26 Lowe's 2006 Annual Report

  • Page 31
    ... of the Company's internal control over financial reporting. Charlotte, North Carolina April 3, 2007 Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Lowe's Companies, Inc. Mooresville, North Carolina We have audited management's assessment...

  • Page 32
    Lowe's Companies, Inc. Consolidated statements of earnings (In millions, except per share and percentage data) Fiscal years ended on Net sales (Note 1) Cost of sales (notes 1 and 15) Gross margin expenses: selling, general and administrative (notes 1, 4 and 9) store opening costs (note 1) ...

  • Page 33
    ... and outstanding February 2, 2007 1,525 February 3, 2006 1,568 Capital in excess of par value Retained earnings accumulated other comprehensive income (note 1) Total shareholders' equity Total liabilities and shareholders' equity See accompanying notes to the consolidated financial statements. 364...

  • Page 34
    ... Cash dividends Share-based payment expense (Note 9) Repurchase of common stock (Note 8) Conversion of debt to common stock (Note 6) Employee stock options exercised and other (Note 9) Employee stock purchase plan (Note 9) Balance February 3, 2006 Comprehensive income (Note 1): Net earnings Foreign...

  • Page 35
    ... of long-term debt Repayment of long-term debt Proceeds from issuance of common stock under employee stock purchase plan Proceeds from issuance of common stock from stock options exercised Cash dividend payments Repurchase of common stock Excess tax benefits of share-based payments Net cash used...

  • Page 36
    ... Company's consolidated financial statements in any of the years presented. The Company does not use derivative financial instruments for trading purposes. Accounts receivable - The majority of the Company's accounts receivable arises from sales of goods and services to Commercial Business Customers...

  • Page 37
    ... cards, based on the date of last stored value card use. Extended Warranties - Lowe's sells separately-priced extended warranty contracts under a Lowe's-branded program for which the Company is ultimately self-insured. The Company recognizes revenue from extended warranty sales on a straight-line...

  • Page 38
    ... new or relocated retail stores, which include payroll and supply costs incurred prior to store opening and grand opening advertising costs, are charged to operations as incurred. Comprehensive income - The Company reports comprehensive income in its consolidated statements of shareholders' equity...

  • Page 39
    ... have on its consolidated financial statements. segment information - The Company's operating segments, representing the Company's home improvement retail stores, are aggregated within one reportable segment, based on the way the Company manages its business. The Company's home improvement retail...

  • Page 40
    .... Debt maturities, exclusive of unamortized original issue discounts, capital leases and other, for the next five years and thereafter are as follows: 2007, $61 million; 2008, $7 million; 2009, $1 million; 2010, $501 million; 2011, $1 million; thereafter, $3.6 billion. 36 Lowe's 2006 Annual Report

  • Page 41
    ... $ 3,578 Interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities are used to estimate fair value for debt issues that are not quoted on an exchange. Note 8 shArEhOLdErs' EquiTy Authorized shares of common stock were 5.6 billion...

  • Page 42
    ... quarter of each fiscal year. Since the amendment to the Directors' Plan in 2005, each non-employee Director is awarded a number of deferred stock units determined by dividing the annual award amount by the fair market value of a share of the Company's common stock on the award date and rounding up...

  • Page 43
    ... at fair value at each reporting date and the share-based payment expense is recognized over the six-month offering period. Twenty million shares were authorized for this plan with 1,268,979 remaining available at February 2, 2007. The Company issued 2,916,259 shares of common stock pursuant to...

  • Page 44
    .... Diluted earnings per share is calculated based on the weighted-average shares of common stock as adjusted for the potential dilutive effect of stock options and convertible notes as of the balance sheet date. The following table reconciles EPS for 2006, 2005 and 2004: 40 Lowe's 2006 Annual Report

  • Page 45
    ... diluted earnings per share because their effect would have been antidilutive. Note 15 rELATEd PArTiEs A brother-in-law of the Company's Executive Vice President of Business Development is a senior officer of a vendor that provides millwork and other building products to the Company. In 2006, 2005...

  • Page 46
    ... Lumber Flooring Millwork Paint Building materials Fashion plumbing Lighting tools Lawn & landscape products hardware seasonal living Cabinets & countertops Outdoor power equipment Rough plumbing Rough electrical nursery home environment Walls/windows home organization Other totals Lowe's stores...

  • Page 47
    ..., except per share data) 2005 Net sales Gross margin Net earnings Basic earnings per share Diluted earnings per share * The fourth quarter of fiscal 2005 contained an additional week. Therefore, fiscal 2005 contained 53 weeks, while all other years contained 52 weeks. 43 Lowe's 2006 Annual Report

  • Page 48
    ... high $29.99 33.51 34.48 $34.85 high $29.33 28.08 28.88 $30.27 As of March 23, 2007 there were 31,770 registered holders of Lowe's common stock. Monthly stock Price and Trading Volume Fiscal 2006 high ... 76 81 83 92 94 98 01 06 Source: Bloomberg Financial Services 44 Lowe's 2006 Annual Report

  • Page 49
    Lowe's Companies, Inc. quarterly Review of Performance (Unaudited) Earnings statements (In millions, except per share data) Fiscal 2006 Fiscal 2005 quarter ended Net sales Gross margin expenses: sg&a store opening costs depreciation Interest - net Total expenses Pre-tax earnings Income tax ...

  • Page 50
    Lowe's Companies, Inc. Financial history (Unaudited) 10-YEAR FINANCIAL INFORMATION 1 Fiscal Years Ended On Stores and people 1 Number of stores 2 Square footage (in millions) 3 Number of employees 4 Customer transactions (in millions) 5 Average purchase Comparative income statements (in millions) 6...

  • Page 51
    ... 3 Return on Sales: Net Earnings divided by Sales 4 Return on Assets: Net Earnings divided by Beginning Assets 5 Return on Shareholders' Equity: Net Earnings divided by Beginning Equity 6 Stock Price Source: The Wall Street Journal * Fiscal year contained 53 weeks. All other years contained 52 weeks...

  • Page 52
    ... Officer Michael K. Brown Executive Vice President - Store Operations Matthew V. Hollifield Senior Vice President and Chief Accounting Officer Carolyn D. Saint Vice President - Internal Audit Charles W. (Nick) Canter, Jr. Executive Vice President - Merchandising 48 Lowe's 2006 Annual Report

  • Page 53
    ..., Board of Directors Committee Charters, Code of Business Conduct and Ethics, and Social Responsibility Report, as well as other financial information. Written copies are available to shareholders on request. Corporate Offices Dividends Shareholder Services 1000 Lowe's Boulevard Mooresville, nC...

  • Page 54
    ...-record levels of almost 70%. source: U.s. Census Bureau LOWe's VIsIOn We will provide customer-valued solutions with the best prices, products and services to make Lowe's the first choice for home improvement. Lowe's Companies, Inc. 1000 Lowe's Boulevard Mooresville, nC 28117 www.Lowes.com 002Cs...