Lowe's 2007 Annual Report Download

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OPPORTUNITY
Behind Every Door
2007 Annual Report

Table of contents

  • Page 1
    OPPORTUNITY Behind Every Door 2007 Annual Report

  • Page 2
    ... billion retailer, offering a complete line of home improvement products and services. The Company, through its subsidiaries, serves approximately 14 million do-it-yourself, do-itfor-me and Commercial Business Customers each week through 1,534 stores in the United States and Canada. Founded in 1946...

  • Page 3
    ... A. Niblock Chairman of the Board and Chief Executive Officer SHAREHOLDERS would like to begin by acknowledging what is obvious to those who followed the company's results over the past year: 2007 presented a very difficult sales environment for Lowe's and the home improvement industry. With more...

  • Page 4
    ... stores. Our stores feature great displays and easy-to-understand signage that provide customers the information needed to complete routine maintenance and inspire them to tackle new projects. We're working closely with our product vendors to offer customers what we've termed "Innovation at a value...

  • Page 5
    ... and 2,500 Lowe's stores in North America. SUCCESS WILL BE DEFINED BY OUR ABILITY TO CAPTURE PROFITABLE MARKET SHARE AND APPROPRIATELY MANAGE EXPENSES AND CAPITAL SPENDING WHILE DELIVERING THE BEST CUSTOMER SERVICE IN THE INDUSTRY. In summary, 2007 was a difficult year, and 2008 will likely remain...

  • Page 6
    4 | LOWE'S 2007 ANNUAL REPORT

  • Page 7
    ... bulbs Wallpaper the foyer Paint the kids' rooms Repair leaky bathroom faucet Organize the garage Install hardwood ï¬,oors Add a gas grill to the patio Behind These Doors Are Thousands Of CUSTOMER Home Improvement Projects Clean and seal the backyard deck Choose a new lighting fixture for the...

  • Page 8
    > The Opportunity To Better Serve Every CUSTOMER 6 | LOWE'S 2007 ANNUAL REPORT

  • Page 9
    ... Order, Commercial Business Customer sales and e-Commerce represent a significant portion of our existing business as well as future growth opportunities. Many customers look to Lowe's to help with their increasingly complex home improvement projects. Lowe's installation services addresses the needs...

  • Page 10
    8 | LOWE'S 2007 ANNUAL REPORT

  • Page 11
    ... IN EXISTING STORES Our continued investment ensures our stores remain easy-to-shop and feature informative signage and great displays. $3.3 BILLION INVESTED IN NEW STORES We opened 153 new stores, making Lowe's even more convenient to home improvement customers. ...LOWE'S 2007 ANNUAL REPORT | 9

  • Page 12
    ...The Opportunity For New EXPERIENCES In More Places In 2007, Lowe's opened its doors in the Greater Toronto Area. 10 | LOWE'S 2007 ANNUAL REPORT

  • Page 13
    ... plans for 2008, it was that focus on driving returns, combined with the reality of the current home improvement market that led to our reduced plan of 120 stores. Longer-term we continue to see the opportunity for 2,400 to 2,500 Lowe's stores in North America. That opportunity provides many years...

  • Page 14
    Behind These Doors You 12 | LOWE'S 2007 ANNUAL REPORT

  • Page 15
    ...stores to our employee training programs. We have a strong commitment to identify ways in which we can leverage our information technology systems to enhance customer service levels. Finally, we are working to identify ways to reduce operating expenses while continuing to provide a superior customer...

  • Page 16
    ... of our approach to disciplined expense management that helps us drive efficiency. Net Earnings In Millions of Dollars 03 04 05 06 07 Over the past five years, net earnings have grown from $1.8 billion to $2.8 billion, a 14% compound annual growth rate. 14 | LOWE'S 2007 ANNUAL REPORT

  • Page 17
    ... meet customers' home improvement needs. TRAINING An energetic, well-trained and engaged workforce can help drive profitability by closing more sales. At Lowe's we are committed to building a tenured and talented workforce at all levels. Our ongoing training provides opportunities for employees to...

  • Page 18
    ... contributed time and $4 million to Habitat projects in 2007. In addition to helping our communities, we provide home improvement customers with energy-saving information and solutions. During the year, our efforts in championing energy-efficient products and consumer education earned Lowe's the...

  • Page 19
    ... of Earnings Consolidated Balance Sheets Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Selected Financial Data Stock Performance Quarterly Review of Performance 10-Year Financial History LOWE'S 2007 ANNUAL REPORT...

  • Page 20
    ...Special Order Sales and Commercial Business Customer sales, internally referred to as the "Big 3." In addition, our effort to utilize e-Commerce to drive sales and conveniently provide product information to customers is managed by our Specialty Sales group. In fiscal 2007, both the Installed Sales...

  • Page 21
    ... to add the hours needed to continue to provide great service if sales ramp up more quickly than we expect. Capital Management New Store Expansion We have looked critically at our capital plan for 2008 and have made the decision to reduce the number of new store openings in 2008 to 120 stores. Most...

  • Page 22
    ...million of income from unredeemed stored value cards in 2007. We sell separately-priced extended warranty contracts under a Lowe'sbranded program for which we are ultimately self-insured.We recognize revenues from extended warranty sales on a straight-line basis over the respective contract term due...

  • Page 23
    ... 6 Return on average shareholders' equity is defined as net earnings divided by average shareholders' equity for the last five quarters. 2007 Net sales Gross margin Expenses: Selling, general and administrative Store opening costs Depreciation Interest - net Total expenses Pre-tax earnings Income...

  • Page 24
    ... impact on our Installed Sales and Special Order Sales in the second half of 2006. Installed Sales increased 9% over 2005. Special Order Sales increased 5% over 2005. In contrast, sales growth for Commercial Business Customers was nearly double the company average. 22 | LOWE'S 2007 ANNUAL REPORT

  • Page 25
    ... 38.5% in 2005. The decrease in the effective tax rate was the result of increased federal tax credits associated with Welfare to Work and Work Opportunity Tax Credit programs and increased state tax credits related to our investments in employees and property. LOWE'S 2007 ANNUAL REPORT | 23

  • Page 26
    ... operating leases, we do not have any off-balance sheet financing that has, or is reasonably likely to have, a material, current or future effect on our financial condition, cash ï¬,ows, results of operations, liquidity, capital expenditures or capital resources. 24 | LOWE'S 2007 ANNUAL REPORT

  • Page 27
    ...Electric Company and its subsidiaries (GE) own the total portfolio and perform all program-related services. The agreements provide that we receive funds from or make payments to GE based upon the expected future profits or losses from our proprietary credit cards after taking into account the cost...

  • Page 28
    ... or publicly release any revisions to forward-looking statements to reï¬,ect events, circumstances or changes in expectations after the date of this report. MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management of Lowe's Companies, Inc. and its subsidiaries is responsible...

  • Page 29
    ... Carolina April 1, 2008 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 the internal control over financial reporting of Lowe's Companies, Inc. and subsidiaries (the "Company...

  • Page 30
    Lowe's Companies, Inc. CONSOLIDATED STATEMENTS OF EARNINGS (In millions, except per share and percentage data) Fiscal years ended on February 1, 2008 % Sales February 2, 2007 % Sales February 3, 2006 % Sales Net sales (Note 1) Cost of sales (Notes 1 and 14) Gross margin Expenses: Selling, ...

  • Page 31
    ...par value, none issued Common stock - $.50 par value; Shares issued and outstanding February 1, 2008 1,458 February 2, 2007 1,525 Capital in excess of par value Retained earnings Accumulated other comprehensive income (Note 1) Total shareholders' equity Total liabilities and shareholders' equity See...

  • Page 32
    Lowe's Companies, Inc. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Common Stock Shares Amount Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Income Total Shareholders' Equity (In millions) Balance January 28, 2005 Comprehensive income (Note 1): Net earnings ...

  • Page 33
    ...issuance 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...

  • Page 34
    ... to Consolidated Financial Statements Years ended February 1, 2008, February 2, 2007 and February 3, 2006 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Lowe's Companies, Inc. and subsidiaries (the Company) is the world's secondlargest home improvement retailer and operated 1,534 stores in...

  • Page 35
    ...current) in the consolidated balance sheets and totaled $91 million and $113 million at February 1, 2008 and February 2, 2007, respectively. When operating leased locations are closed, a liability is recognized for the fair value of future contractual obligations, including property taxes, utilities...

  • Page 36
    ... inventories from vendors to retail stores; - Costs associated with operating the Company's distribution network, including payroll and benefit costs and occupancy costs; • Costs of installation services provided; • Costs associated with delivery of products directly from vendors to customers...

  • Page 37
    ... to income tax benefits of dividends on equity-classified share-based payment awards that are declared in fiscal years beginning after December 15, 2007. The Company does not expect the adoption of EITF 06-11 to have a material impact on its consolidated financial statements. In December 2007...

  • Page 38
    ... amortized over the respective terms of the senior notes. The net proceeds of approximately $1.3 billion were used for general corporate purposes, including capital expenditures and working capital needs, and for repurchases of shares of the Company's common stock. 36 | LOWE'S 2007 ANNUAL REPORT

  • Page 39
    ... available-for-sale securities, which include restricted balances, are reï¬,ected in the financial statements at fair value. Estimated fair values for long-term debt have been determined using available market information. For debt issues that are not quoted on an exchange, interest rates that are...

  • Page 40
    ...all outstanding and unvested awards. (In millions, except per share data) 2005 $2,765 57 (In millions) Liabilities: Long-term debt (excluding capital leases and other) $5,245 $5,406 $4,013 $4,301 NOTE 7 SHAREHOLDERS' EQUITY Authorized shares of common stock were 5.6 billion ($.50 par value...

  • Page 41
    ...2008 1,887,582 1,968,880 (527,368) (220,707) 3,108,387 Deferred Stock Units Deferred stock units are valued at the market price of a share of the Company's common stock on the date of grant. For key employees, these awards generally vest over three to five years and are expensed on a straight-line...

  • Page 42
    ...of the closing price on the date of purchase. The ESPP is considered a liability award and is measured at fair value at each reporting date, and the share-based payment expense is recognized over the six-month offering period. The Company issued 3,366,031 shares of common stock pursuant to this plan...

  • Page 43
    ... balance sheet date. The following table reconciles EPS for 2007, 2006 and 2005: (In millions, except per share data) Fiscal Year 2008 2009 2010 2011 2012 Later years Total minimum lease payments $5,924 $1 Total minimum capital lease payments Less amount representing interest Operating Leases Real...

  • Page 44
    ... Category Appliances Lumber Flooring Paint Millwork Fashion plumbing Building materials Lighting Tools Lawn & landscape products Hardware Seasonal living Cabinets & countertops Home style & organization Rough plumbing Outdoor power equipment Nursery Rough electrical Home environment Other Totals...

  • Page 45
    ... operations Basic earnings per share - discontinued operations Basic earnings per share Diluted earnings per share - continuing operations Diluted earnings per share - discontinued operations Diluted earnings per share Dividends per share Selected Balance Sheet Data Total assets Long-term debt...

  • Page 46
    Lowe's Companies, Inc. STOCK PERFORMANCE (Unaudited) Quarterly Stock Price Range and Cash Dividend Payment High Fiscal 2007 Low Dividend High Fiscal 2006 Low Dividend High Fiscal 2005 Low Dividend 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter $35.74 $29.87 33.19 27.38 32.53 25.71 $26.87 $19.94...

  • Page 47
    Lowe's Companies, Inc. QUARTERLY REVIEW OF PERFORMANCE (Unaudited) Earnings Statements (In millions, except per share data) Quarter Ended Fourth Fiscal 2007 Third Second First Fourth Fiscal 2006 Third Second First Net sales Gross margin Expenses: SG&A Store opening costs Depreciation ...

  • Page 48
    ... 41 Shares outstanding, year-end (in millions) 42 Weighted average shares, assuming dilution (in millions) 43 Book value per share Stock price during calendar year 6 44 High 45 Low 46 Closing price December 31 Price/earnings ratio 47 High 48 Low 5-year CGR% 13.1 13.0 12.3 9.4 February 1, 2008 1,534...

  • Page 49
    ... by Sales 4 Return on average assets: Net Earnings divided by the average of Beginning and Ending Assets 5 Return on Average Shareholders' Equity: Net Earnings divided by the average of Beginning and Ending Equity 6 Stock price source: The Wall Street Journal * Fiscal year contained 53 weeks. All...

  • Page 50
    ... Companies, Inc. BOARD OF DIRECTORS Robert A. Niblock Chairman and Chief Executive Officer, Lowe's Companies, Inc., Mooresville, NC 3* Dawn E. Hudson President and Chief Executive Officer, Pepsi-Cola North America, from June 2002 to November 2007, Purchase, NY 2,4 Richard K. Lochridge President...

  • Page 51
    ... billion retailer, offering a complete line of home improvement products and services. The Company, through its subsidiaries, serves approximately 14 million do-ityourself, do-it-for-me and Commercial Business Customers each week through 1,534 stores in the United States and Canada. Founded in 1946...

  • Page 52
    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