Lowe's 2009 Annual Report Download

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2009 ANNUAL REPORT
ere’s
No Place
Like Home…
Still

Table of contents

  • Page 1
    There's No Place Like Home... Still 2 0 0 9 A N N UA L R E P O R T

  • Page 2
    LOWE'S VALUES Customer Focused O wnership Respect Teamwork Passion for Execution Integrity FINANCIAL HIGHLIGHTS I N M I LLI ONS, EXC EP T P ER SHARE DATA CHANGE OVER 2008 FISCAL 2009 FISCAL 2008 Net Sales Gross Margin Pre-Tax Earnings Basic Earnings Per Share Diluted Earnings Per Share Cash ...

  • Page 3
    ...keen focus on finding the right balance between closely managing expenses and investing in our business to ensure we continue to deliver the excellent service consumers expect from Lowe's. I think a good measure of our success in striking that balance is our market share gains over the past several...

  • Page 4
    ... launch of our new Lowe's Business Rewards card with American Express. Additionally, while in place for many years, we expanded our Quote Support Program. This program drives sales and improves service to commercial customers by quickly providing them competitive quotes for large purchases. In the...

  • Page 5
    ... during this economic cycle? NIBLOCK: Although home prices have declined in recent years, the home remains most consumers' largest asset. The to-do list still exists. What has changed is many consumers have become more deliberate in prioritizing their purchases, but we are confident consumers still...

  • Page 6
    ...400 in North America over time. Included in our 2010 new store openings are our first two stores in Mexico in February In 2009, Lowe's entered into a joint venture ( JV) with Australian retailer Woolworths. In light of that announcement, what is your international expansion strategy? NIBLOCK: Our...

  • Page 7
    ...range of products that meets the needs of both the DIY customer and the Commercial Business Customer (CBC). Using unsolicited customer letters, the following three case studies describe how Lowe's offers products, solutions and expert advice on how to successfully complete home improvement projects...

  • Page 8
    ... Merchandise Choice Consumers want the best for their homes, the latest styles and innovative products all at a great value. We offer everyday low prices on approximately 40,000 in-stock items from appliances to paint. Our product lines feature national brands that consumers know and trust, like...

  • Page 9
    ..., Debra purchased not only the washer, but also the pedestal and four-year protection plan. "I was even able to get my washer delivered the next day." This is just one of many examples of how Lowe's is providing customer-valued solutions with the best prices, products and services. The "To-Do" List...

  • Page 10
    WHY LOWE'S? Project Management Consumers look for professional and knowledgeable partners to help them successfully complete large, complex projects. From roofing to ï¬,ooring, we can manage customers' installation needs. 8

  • Page 11
    ... and expertly managed installation services for more than 40 categories, including ï¬,ooring, millwork, cabinets and countertops. Many installations, like DiAnn and Lew's kitchen, require complex project coordination that includes delivery, contractor scheduling and customer communication. Our...

  • Page 12
    ... 15 million customers who shop our stores weekly for their home improvement needs. Our knowledgeable and engaged employees are a competitive advantage, and the great service they provide is a key differentiator from the competition. Our service scores, measured by customer surveys, continue to...

  • Page 13
    ...purchase my building materials from Lowe's." Many commercial customers, like Matthew, shop our stores several times a week for supplies. They shop all product categories, not just lumber and building materials. We streamlined our Quote Support Program so that when Matthew or any other customer needs...

  • Page 14
    ... come to expect from Lowe's. To keep our store employees engaged and motivated, they receive ongoing training to enhance their customer service skills, selling skills and product knowledge. Additionally, our Customer Focused program measures how well we are taking care of customers and gives each...

  • Page 15
    ...term customer franchise to avoid cutting indiscriminately to drive near-term results. Balance is the key, and we feel confident that if we've provided a customer great service for their maintenance needs during the downturn, they'll look to Lowe's as they begin taking on more discretionary projects...

  • Page 16
    ... become involved through volunteerism. In 2009, Lowe's and the Foundation supported more than 2,300 community and education projects in the United States and Canada through grants totaling more than $30 million. LCEF's primary focus centers on three areas: K-12 public education, safe and affordable...

  • Page 17
    ... in existing stores, as well as strategic initiatives such as international expansion, additional CBC capabilities, appliance repair services and the Lowes.com platform to name a few. During the soft sales environment, some have asked if Lowe's could have cut expenses deeper to drive better bottom...

  • Page 18
    ...support our growth while effectively and efficiently driving shareholder returns. When we think about capital structure, we begin with our target debt rating. Thanks to prudent management, our balance sheet leverage remains low. We ended 2009 with $5 billion in total debt and a debt-to-equity ratio...

  • Page 19
    LOwE'S 2009 FINANCIAL REvIEw 18 M anagement 's Discussion and Analysis of Financial Condition and Results of Operations M anagement 's Report on Internal Control O ver Financial Reporting Reports of Independent Registered Public Accounting Firm Consolidated Statements of Earnings ...

  • Page 20
    ...on how to successfully complete their home-improvement projects. Accordingly, we have added informational project boards in key departments in our stores, as well as how-to videos on Lowes.com, to provide customers information and tips needed to successfully complete these projects. In 2009, we...

  • Page 21
    ... of our stores to capture a larger share of products like roofing, siding, fencing and windows, whose characteristics lend themselves to in-home selling. To continue to grow our Commercial Business Customer (CBC) sales, we also added a District Commercial Account Specialist program and launched...

  • Page 22
    ... store average ticket declined 5.7% compared to 2008. Customers continued to focus on routine maintenance and repairs instead of larger discretionary projects during 2009. we experienced solid sales performance in paint and nursery as a result of the continued willingness of homeowners to take...

  • Page 23
    ... interest associated with favorable tax settlements during the year. Income tax provision Our effective income tax rate was 36.9% in 2009 versus 37.4% in 2008. The decrease in the effective tax rate was primarily due to favorable state tax settlements. 2008 Compared to 2007 Net sales Reflective...

  • Page 24
    ... in 2007. The decrease in the effective tax rate was due to an increase in federal and state tax credits as a percentage of taxable income in 2008 versus the prior year. LOWE'S BUSINESS OUTLOOK As of February 22, 2010, the date of our fourth quarter 2009 earnings release, we expected to open 40...

  • Page 25
    ... market conditions at the time of funding in accordance with the terms of the credit facility. As of January 29, 2010, there were no borrowings outstanding under this credit facility. Our debt ratings at January 29, 2010, were as follows: Current Debt Ratings S&P Moody's Fitch During 2009...

  • Page 26
    ... taxes, common area maintenance, insurance or contingent rent because these amounts have historically been insignificant. 2 Represents commitments related to certain marketing and information technology programs, purchases of merchandise inventory and construction of buildings. 3 Letters of credit...

  • Page 27
    ... the stream of projected future cash flows associated with an individual operating store, management makes assumptions, incorporating local market conditions, about key store variables including sales growth rates, gross margin and controllable expenses, such as store payroll and occupancy...

  • Page 28
    ... 29, 2010. we defer revenue and cost of sales associated with transactions for which customers have not yet taken possession of merchandise or for which installation has not yet been completed. Revenue is deferred based on the actual amounts received. we use historical gross margin rates to...

  • Page 29
    ... any obligation to update or publicly release any revisions to forward-looking statements to reflect 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...

  • Page 30
    ... of Lowe's Companies, Inc. Mooresville, North Carolina we have audited the accompanying consolidated balance sheets of Lowe's Companies, Inc. and subsidiaries (the "Company") as of January 29, 2010 and January 30, 2009, and the related consolidated statements of earnings, shareholders' equity...

  • Page 31
    ... 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") as of January 29, 2010, based...

  • Page 32
    ...and administrative Store opening costs Depreciation Interest - net Total expenses Pre-tax earnings Income tax provision Net earnings Basic earnings per common share Diluted earnings per common share Cash dividends per share See accompanying notes to consolidated financial statements. $ 47,220...

  • Page 33
    ...Long-term debt, excluding current maturities Deferred income taxes - net Other liabilities Total liabilities Commitments and contingencies Shareholders' equity: Preferred stock - $5 par value, none issued Common stock - $.50 par value; Shares issued and outstanding January...

  • Page 34
    Lowe's Companies, Inc. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY In millions Common Stock Shares Amount Capital in Excess of Par value Accumulated Other Retained Comprehensive Earnings Income (Loss) Total Shareholders' Equity Balance February 2, 2007 Cumulative effect ...

  • Page 35
    ... 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 Repurchases of common stock Excess tax benefits of share-based payments Net cash used in financing...

  • Page 36
    ... TO CONSOLIDATED FINANCIAL STATEMENTS Years ended January 29, 2010, January 30, 2009 and February 1, 2008 NOTE 1 SUMMARY OF SIgNIFICANT ACCOUNTINg POLICIES Lowe's Companies, Inc. and subsidiaries (the Company) is the world's second-largest home improvement retailer and operated 1,710 stores in...

  • Page 37
    ...'s consolidated financial statements in any of the years presented. The Company does not use derivative financial instruments for trading purposes. Credit Programs - The majority of the Company's accounts receivable arises from sales of goods and services to Commercial Business Customers...

  • Page 38
    ... as part of net interest on the consolidated financial statements. The Company records any applicable penalties related to tax issues within the income tax provision. Revenue Recognition - The Company recognizes revenues, net of sales tax, when sales transactions occur and customers take...

  • Page 39
    ... prior to store opening and grand opening advertising costs, are charged to expense as incurred. Comprehensive Income - The Company reports comprehensive income on its consolidated statements of shareholders' equity. Comprehensive income represents changes in shareholders' equity from non...

  • Page 40
    ...for operating stores, the Company used an income approach to determine the fair value of individual operating stores, which required discounting projected future cash flows. when determining the stream of projected future cash flows associated with an individual operating store, management made...

  • Page 41
    ... determined using available market information, including reported trades, benchmark yields and brokerdealer quotes. Carrying amounts and the related estimated fair value of the Company's long-term debt, excluding capital leases and other, are as follows: (In millions) January 29, 2010...

  • Page 42
    ... corporate purposes, including capital expenditures and working capital needs, and for repurchases of shares of the Company's common stock. The senior notes issued in 2007 may be redeemed by the Company at any time, in whole or in part, at a redemption price plus accrued interest to the date...

  • Page 43
    ... the 2006 Plan and 14.5 million shares available under the ESPP. The Company recognized share-based payment expense in Sg&A expense on the consolidated statements of earnings totaling $102 million, $95 million and $99 million in 2009, 2008 and 2007, respectively. The total income tax benefit...

  • Page 44
    ...2009 2008 2007 Performance Accelerated Restricted Stock Awards PARS are valued at the market price of a share of the Company's common stock on the date of grant. In general, these awards vest at the end of a five-year service period from the date of grant, unless performance acceleration goals...

  • Page 45
    ... each reporting date, and the share-based payment expense is recognized over the six-month offering period. The Company issued 4,328,305 shares of common stock pursuant to this plan during the year ended January 29, 2010. Deferred Stock Units Deferred stock units are valued at the market price...

  • Page 46
    ... tax rate: 2009 2008 2007 A reconciliation of the beginning and ending balances of unrecognized tax benefits is as follows: (In millions) 2009 2008 2007 Statutory federal income tax rate State income taxes, net of federal tax benefit Other, net Effective tax rate...

  • Page 47
    ...'s consolidated financial statements in any of the years presented. As of January 29, 2010, the Company had non-cancelable commitments of $673 million related to certain marketing and information technology programs, purchases of merchandise inventory and construction of buildings. Payments...

  • Page 48
    ... 30, 2009. NOTE 15 OTHER INFORMATION Net interest expense is comprised of the following: (In millions) 2009 2008 2007 Long-term debt Short-term borrowings Capitalized lease obligations Interest income Interest capitalized Interest on tax uncertainties Other Interest - net $293...

  • Page 49
    ..., except per share data) 2009 2008 2007 2006 2005 1 Net sales gross margin Net earnings Basic earnings per common share Diluted earnings per common share Dividends per share Selected Balance Sheet Data Total assets Long-term debt, excluding current maturities Selected Quarterly...

  • Page 50
    ...080 As of March 26, 2010, there were 31,041 registered shareholders of Lowe's common stock. Monthly Stock Price and Trading Volume High Fiscal 2009 Shares Low Traded High Fiscal 2008 Shares Low Traded High Fiscal 2007 Shares Low Traded February March April May...

  • Page 51
    ... Fiscal 2008 Third Second First Net sales Gross margin Expenses: Sg&A Store opening costs Depreciation Interest - net Total expenses Pre-tax earnings Income tax provision Net earnings Basic earnings per common share Diluted earnings per common share Earnings Statement Percentages...

  • Page 52
    ...' equity Financial ratios 21 Asset turnover 2 22 Return on sales 3 23 Return on average assets 4 24 Return on average shareholders' equity 5 Comparative balance sheets (in millions) 25 Total current assets 6 26 Cash and short-term investments 27 Merchandise inventory - net...

  • Page 53
    ...Average Shareholders' Equity: Net Earnings divided by the average of Beginning and Ending Equity 6 Certain prior period amounts have been reclassified to conform with current classifications. See Note 1 to the Consolidated Financial Statements for additional information. 7 Stock price...

  • Page 54
    ... and Chief Financial Officer, United Technologies Corporation, Hartford, CT Dawn E. Hudson 2, 4 vice-Chair, The Parthenon group, Boston, MA O. Temple Sloan, Jr. 1, 3,4* Chairman, general Parts International, Inc., Raleigh, NC; Lead Director, Lowe's Companies, Inc., Mooresville, NC; Chairman...

  • Page 55
    ... Stock Transfer Agent & Registrar, Dividend Disbursing Agent and Dividend Reinvesting Agent Computershare Trust Company N.A. P.O. Box 43078 Providence, RI 02940 www.corporatereport.com Annual Meeting Date May 28, 2010 at 10:00 a.m. Ballantyne Hotel Charlotte, North Carolina Public Relations Media...

  • Page 56
    To-Do List Lowe's Companies, Inc. 1000 Lowe's Boulevard Mooresville, NC 28117