Lowe's 2013 Annual Report Download

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2013 ANNUAL REPORT

Table of contents

  • Page 1
    2013 ANNUAL REPORT

  • Page 2
    ... customers a week in the United States, Canada and Mexico. With fiscal year 2013 sales of $53.4 billion, Lowe's has more than 1,830 home improvement and hardware stores and 260,000 employees. Founded in 1946 and based in Mooresville, N.C., Lowe's is the second-largest home improvement retailer...

  • Page 3
    ... micro-seasons by market, and we will improve our product and service offering for the professional customer. We will also focus on driving more of our revenue growth to the bottom line through expense control and disciplined execution of our plans. LOWE'S COMPANIES, INC. 2013 ANNUAL REPORT 1

  • Page 4
    ... of orders placed, and pending deliveries and installations. To do this, we are developing new project management tools and expanded fulfillment capabilities. Project management tools will enhance our associates' ability to provide tailored service to customers across any of our selling channels...

  • Page 5
    ... operational management, will help deliver strong operating profit growth and higher returns on invested capital. We are still in the early stages of the housing recovery, so we expect to continue to improve these measures as we offer even better customer experiences within an extended cycle of home...

  • Page 6
    ...sales) Diluted earnings per common share Cash dividends per share Total assets Shareholders' equity Net cash provided by operating activities Capital expenditures Comparable sales increase3 Total customer transactions (in millions) Average ticket4 Selling square feet (in millions) Return on invested...

  • Page 7
    ... last business day of the Company's most recent second quarter, the aggregate market value of the registrant's common stock held by nonaffiliates of the registrant was $47.8 billion based on the closing sale price as reported on the New York Stock Exchange. Indicate the number of shares outstanding...

  • Page 8
    ...Item 1A. Risk Factors Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Statements and Supplementary Data Changes in and...

  • Page 9
    ..., 2014, the Company operated 72 Orchard stores located in the U.S. Lowe's was incorporated in North Carolina in 1952 and has been publicly held since 1961. The Company's common stock is listed on the New York Stock Exchange - ticker symbol "LOW". See Item 6, "Selected Financial Data", of this Annual...

  • Page 10
    ... customers' varying home improvement needs, we offer a complete line of products for maintenance, repair, remodeling, and decorating. We offer home improvement products in the following categories: Kitchens & Appliances; Lumber & Building Materials; Tools & Hardware; Fashion Fixtures; Rough Plumbing...

  • Page 11
    ... was shipped directly to our stores from vendors. Our Services Installed Sales We offer installation services through independent contractors in many of our product categories, with Flooring, Millwork and Kitchens & Appliances accounting for the majority of installed sales. Our Installed Sales model...

  • Page 12
    ...Lumber & Building Materials, Tools & Hardware, Rough Plumbing & Electrical, Paint, and Outdoor Power Equipment, that are critical to the success of their business. Extended Protection Plans and Repair Services We offer extended protection plans in Kitchens & Appliances, Tools & Hardware, and Outdoor...

  • Page 13
    ... undertake home improvement projects. Providing mobile technology and applications to customers and to our associates is an important step towards seamless and simple experiences, and allows us to participate in the evolution to mobile technology. In 2013, sales through our online selling channels...

  • Page 14
    ... responsible and energy-efficient products for the home, including ENERGY STAR ® appliances, WaterSense® labeled toilets, paint with no volatile organic compounds (VOC), and indoor and outdoor LED lighting. Through our in -home sales specialists, we offer customers installation of insulation and...

  • Page 15
    ...growth of our total sales and comparable sales. Sales of many of our product categories and services are driven by the activity level of home improvement projects. Although the housing market has been strengthened by favorable interest rates and lower home prices, the large number of households that...

  • Page 16
    ... have invested in the protection of our information technology and maintain what we believe are adequate security procedures and controls over the Company's records and intellectual property, in addition to financial and other individually identifiable customer, employee and vendor data provided to...

  • Page 17
    ... strategic initiatives designed to increase our sales and capture a greater percentage of our customers' expenditures on home improvement projects is dependent in varying degrees on the timely delivery and the functionality of information technology systems to support them. Extended delays or cost...

  • Page 18
    ... benefits they provide to our home improvement business and negatively affect our customers' perceptions of Lowe's as a reliable online vendor and source of information about home improvement products and services. We are subject to payments-related risks that could increase our operating costs...

  • Page 19
    ...stores on leased land, with the remainder being leased from third parties. We also operate regional distribution centers and other facilities to support distribution and fulfillment, as well as data centers and various support offices. Our executive offices are located in Mooresville, North Carolina...

  • Page 20
    ...of Global Infrastructure and Operations, Hess Corporation, 2005 - 2010 Head of International Operations and Development since 2012; Senior Vice President, International Operations and Customer Support Services, 2011 - 2012; Vice President, Store Operations and Special Projects, 2008 - 2010. Matthew...

  • Page 21
    ... Securities Lowe's common stock is traded on the New York Stock Exchange (NYSE). The ticker symbol for Lowe's is "LOW". As of March 28, 2014, there were 25,932 holders of record of Lowe's common stock. The following table sets forth, for the periods indicated, the high and low sales prices per share...

  • Page 22
    ... Securities The following table sets forth information with respect to purchases of the Company's common stock made during the fourth quarter of 2013: Total Number of Dollar Value of Shares Purchased Shares that May as Part of Publicly Yet Be Purchased Average Price Announced Plans Under the Plans...

  • Page 23
    ... home improvement stores in the first half of 2014. In addition, as part of our Sales & Operations Planning process, we will continue to look for ways to manage this space in its most productive way. During 2013, we had also identified an opportunity to better serve customers and close more sales...

  • Page 24
    ... new capabilities are projected to be in market in 2015. Even as we focus on optimizing our business model, driving profitability, and capitalizing on market opportunities within an improving economy, we are investing in customer experience and omni-channel capabilities to drive future sales growth...

  • Page 25
    ... with the following discussion and analysis and the consolidated financial statements, including the related notes to the consolidated financial statements. Basis Point Increase / (Decrease) in Percentage of Net Sales from Prior Year 1 2013 Net sales Gross margin Expenses: Selling, general and...

  • Page 26
    ...as sales floor square feet divided by the number of stores open at the end of the period. The average Lowe's home improvement store has approximately 112,000 square feet of retail selling space, while the average Orchard store has approximately 36,000 square feet of retail selling space. 8 Return on...

  • Page 27
    ...benefited from growth in the home improvement industry where gains in housing turnover and job growth created increased demand. Through our Sales & Operations Planning process, we were able to better capitalize on market demand and drive sales in big ticket categories such as Outdoor Power Equipment...

  • Page 28
    ... in our Pro Services business, which outperformed the company average. We experienced comparable sales above the company average in the following product categories during 2012: Outdoor Power Equipment, Paint, Seasonal Living, Tools & Hardware, Rough Plumbing & Electrical, and Home Fashions, Storage...

  • Page 29
    ... basis points associated with incentive compensation, due to higher attainment levels compared to targets for store-based employees relative to last year. In addition, we experienced nine basis points of deleverage in contract labor associated with information technology projects to improve customer...

  • Page 30
    ... equipment, resets and remerchandising. Approximately 30% of the planned net cash outflow is for investments in corporate infrastructure, including enhancements in information technology. Our expansion plans for 2014 consist of approximately 15 new home improvement stores and five new Orchard stores...

  • Page 31
    ... program that is executed through purchases made from time to time either in the open market or through private off-market transactions. Shares purchased under the repurchase program are retired and returned to authorized and unissued status. On February 1, 2013, the Company's Board of Directors...

  • Page 32
    ... During 2013, the inventory shrinkage reserve increased approximately $16 million to $158 million as of January 31, 2014. In addition, we receive funds from vendors in the normal course of business, principally as a result of purchase volumes, sales, early payments or promotions of vendors' products...

  • Page 33
    ... the stream of projected future cash flows associated with an individual operating location, 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 34
    .... A 10% change in the store closing lease liability would have affected net earnings by approximately $3 million for 2013. Self-Insurance Description We are self-insured for certain losses relating to workers' compensation; automobile; general and product liability; extended protection plan; and...

  • Page 35
    ... of future events that cannot be determined with certainty. We sell separately-priced extended protection plan contracts under a Lowe's -branded program for which the Company is ultimately self-insured. The Company recognizes revenues from extended protection plan sales on a straight -line basis...

  • Page 36
    ... products are influenced, in part, by the market price we pay, which is determined by industry supply and demand. Foreign Currency Exchange Rate Risk Although we have international operating entities, our exposure to foreign currency exchange rate fluctuations is not material to our financial...

  • Page 37
    .... Management's assessment of the effectiveness of the Company's internal control over financial reporting excluded Orchard Supply Company, LLC, a wholly owned subsidiary of Lowe's Companies Inc. that consists of the net assets purchased from Orchard Supply Hardware Stores Corporation in August 2013...

  • Page 38
    ...PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders 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 31, 2014 and February 1, 2013, and the related...

  • Page 39
    ... 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") as of January 31, 2014, based on...

  • Page 40
    Lowe's Companies, Inc. Consolidated Statements of Earnings (In millions, except per share and percentage data) Fiscal years ended on January 31, 2014 % Sales February 1, 2013 % Sales February 3, 2012 % Sales Net sales Cost of sales Gross margin Expenses: Selling, general and administrative ...

  • Page 41
    ... - net Deferred revenue - extended protection plans 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 31, 2014 February 1, 2013 Capital in excess of...

  • Page 42
    ... stock Issuance of common stock under share-based payment plans Balance January 31, 2014 (88) 8 1,030 $ (44) 4 515 $ (147) 16 1,110 $ (74) 8 555 $ (120) 7 1,241 $ (60) 4 621 $ 1,354 $ Amount 677 $ Capital in Excess of Par Value Accumulated Other Comprehensive Income/(Loss) 53 $ Total Shareholders...

  • Page 43
    ... Net proceeds from issuance of long-term debt Repayment of long-term debt Proceeds from issuance of common stock under share -based payment plans Cash dividend payments Repurchase of common stock Other - net Net cash used in financing activities Effect of exchange rate changes on cash Net (decrease...

  • Page 44
    ... TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JANUARY 31, 2014, FEBRUARY 1, 2013 AND FEBRUARY 3, 2012 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 1,832 stores in the...

  • Page 45
    ...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. The Company has an agreement with GE Capital Retail (GECR) under which GECR purchases at face value...

  • Page 46
    ...-sale. Impairment losses are included in SG&A expense in the consolidated statements of earnings. Fair value measurements associated with long-lived asset impairments are further described in Note 2 to the consolidated financial statements. During 2011, the Company closed 27 underperforming stores...

  • Page 47
    ... offers to finance one or more payment obligations of the Company prior to their scheduled due dates at a discounted price to participating financial institutions. The Company's goal in entering into this arrangement is to capture overall supply chain savings, in the form of pricing, payment terms...

  • Page 48
    ...based on the date of last stored-value card use. Extended Protection Plans - The Company sells separately-priced extended protection plan contracts under a Lowe's -branded program for which the Company is ultimately self -insured. The Company recognizes revenue from extended protection plan sales on...

  • Page 49
    ... Information - The Company's home improvement retail operations represent a single reportable segment. Key operating decisions are made at the Company level in order to maintain a consistent retail store presentation. The Company's home improvement retail stores sell similar products and services...

  • Page 50
    ... tables present the Company's financial assets measured at fair value on a recurring basis as of January 31, 2014 and February 1, 2013, classified by fair value hierarchy: Fair Value Measurements at Reporting Date Using (In millions) Available-for-sale securities: Money market funds Certificates of...

  • Page 51
    ... projected future cash flows associated with an individual operating location, management made assumptions, incorporating local market conditions and inputs from store operations, about key variables including the following unobservable inputs: sales growth rates, gross margin, controllable expenses...

  • Page 52
    ..., 2014 (In millions) Assets-held-for-use: Operating locations Excess properties Assets-held-for-sale: Excess properties Total Fair Value of Financial Instruments The Company's financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, accounts receivable...

  • Page 53
    ... in conjunction with certain employee benefit plans. These investments were reported as trading securities, which were included in short-term investments. The Company had no purchases or sales of these investments in 2013, and none outstanding at January 31, 2014. In 2012, the Company sold its full...

  • Page 54
    ... and historical financial information has not been provided as the acquisition was not material to the consolidated financial statements. NOTE 6: Exit Activities When locations under operating leases are closed, the Company recognizes a liability for the fair value of future contractual obligations...

  • Page 55
    ... - net Cash payments Accrual for exit activities, balance at end of year NOTE 7: Short-Term Borrowings and Lines of Credit The Company has a $1.75 billion senior credit facility that expires in October 2016. The senior credit facility supports the Company's commercial paper program and has a $500...

  • Page 56
    ... by the Board of Directors at the time of issuance. Authorized shares of common stock were 5.6 billion ($.50 par value) at January 31, 2014 and February 1, 2013. The Company has a share repurchase program that is executed through purchases made from time to time either in the open market or through...

  • Page 57
    ...Plans and 27.2 million shares remaining available for purchases under the ESPP. The Company recognized share-based payment expense in SG&A expense in the consolidated statements of earnings totaling $100 million in both 2013 and 2012, and $107 million in 2011. The total associated income tax benefit...

  • Page 58
    ... service period. The Company uses historical data to estimate the timing and amount of forfeitures. The weighted-average grant-date fair value per share of restricted stock awards granted was $41.78, $28.25 and $25.29 in 2013, 2012, and 2011, respectively. The total fair value of restricted stock...

  • Page 59
    ... 2013, 2012 and 2011, each non-employee Director was 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 to the next 100 units. The annual award amount used to...

  • Page 60
    ... targeted Company improvement in brand differentiation, which is not considered a market, performance, or service related condition, are classified as liability awards and are measured at fair value at each reporting date. The awards are valued at the market price of a share of the Company's common...

  • Page 61
    ... value at each reporting date, and the share-based payment expense is recognized over the six-month offering period. During 2013, the Company issued 2.0 million shares of common stock and recognized $13 million of share-based payment expense pursuant to the plan. NOTE 11: Employee Retirement Plans...

  • Page 62
    ...Self-insurance Share-based payment expense Deferred rent Net operating ...years Reductions for tax positions of prior years Additions based on tax positions related to the current year Settlements Unrecognized tax benefits, end of year $ $ 2013 63 $ - - - (1) 62 $ 2012 146 $ 20 (3) - (100) 63 $ 2011...

  • Page 63
    ...earnings per common share for 2013, 2012 and 2011: (In millions, except per share data) Basic earnings per common share: Net earnings Less: Net earnings allocable to participating securities Net earnings allocable to common shares Weighted-average common shares outstanding Basic earnings per common...

  • Page 64
    ... insignificant at January 31, 2014 and February 1, 2013. A member appointed to the Company's Board of Directors during fiscal year 2013, also serves on the Board of Directors of a vendor that provides branded consumer packaged goods to the Company. The Company purchased products from this vendor in...

  • Page 65
    ... but not paid Sales by product category: 2013 (Dollars in millions) Kitchens & Appliances Lumber & Building Materials Tools & Hardware Fashion Fixtures Rough Plumbing & Electrical Lawn & Garden Seasonal Living Paint Home Fashions, Storage & Cleaning Flooring Millwork Outdoor Power Equipment Other...

  • Page 66
    ... (2) is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management's report on internal control over financial reporting (as such term is defined in...

  • Page 67
    ... of interest, fair dealing among customers and suppliers, corporate opportunity, confidential information, insider trading, employee relations and accounting complaints. A full text of the Code can be found at www.Lowes.com, under the "About Lowe's," "Investors" and "Governance - Code of Ethics...

  • Page 68
    ... a) 1. Financial Statements See the following items and page numbers appearing in Item 8 of this Annual Report on Form 10 -K: Page No. Reports of Independent Registered Public Accounting Firm Consolidated Statements of Earnings for each of the three fiscal years in the period ended January 31, 2014...

  • Page 69
    ...merchandise returns. Represents an increase in the required reserve based on the Company's evaluation of deferred tax assets. Represents claim payments for self-insured claims. Represents lease payments and adjustments, net of sublease income, and payments for one -time employee termination benefits...

  • Page 70
    ... thereto a form of the Company's 5.4% Notes maturing in October 2016 and a form of the Company's 5.8% Notes maturing in October 2036. Form 10-Q 8-K S-3 Incorporated by Reference File No. 001-07898 001-07898 033-47269 Exhibit 3.1 3.1 4.1 Filing Date September 1, 2009 August 27, 2012 April 16, 1992...

  • Page 71
    ... and The Bank of New York Mellon Trust Company, N.A., as trustee, including as exhibits thereto a form of the Company's 2.125% Notes maturing in April 2016 and a form of the Company's 3.75% Notes maturing in April 2021. Eighth Supplemental Indenture, dated as of November 23, 2011, to the Amended and...

  • Page 72
    ...Credit Agreement, dated as of October 25, 2011. Lowe's Companies, Inc. Directors' Deferred Compensation Plan, effective July 1, 1994. * Amendment No. 1 to the Lowe's Companies, Inc. Directors' Deferred Compensation Plan, effective July 1, 1994. * Lowe's Companies Employee Stock Purchase Plan - Stock...

  • Page 73
    ...Agreement for Directors.* Form of Lowe's Companies, Inc. Restricted Stock Award Agreement.* Form of Lowe's Companies, Inc. Performance Share Unit Award Agreement.* Lowe's Companies, Inc. 2011 Annual Incentive Plan.* Lowe's Companies, Inc. 2006 Long Term Incentive Plan.* Form of Lowe's Companies, Inc...

  • Page 74
    ... Linkbase Document.‡ Form Incorporated by Reference File No. Exhibit Filing Date 32.2 99.1 101.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE * ‡ †Management contract or compensatory plan or arrangement required to be filed as an exhibit to this form. Filed herewith. Furnished herewith. 66

  • Page 75
    ...Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LOWE'S COMPANIES, INC. (Registrant) March 31, 2014 Date By: /s/ Robert A. Niblock Robert A. Niblock Chairman of the Board, President and Chief Executive Officer By: /s/ Robert F. Hull, Jr...

  • Page 76
    Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10 -K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Each of the directors of the registrant whose signature appears below hereby ...

  • Page 77
    Exhibit 12.1 Lowe's Companies, Inc. Statement Re Computation of Ratio of Earnings to Fixed Charges In Millions, Except Ratio Data Fiscal Years Ended On January 28, February 3, February 1, 2011 2012 2013 3,228 $ 486 (4) 3,710 $ 2,906 $ 524 - 3,430 $ 3,137 $ 605 6 3,748 $ Earnings: Earnings Before ...

  • Page 78
    ... and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. March 31, 2014 Date /s/ Robert A. Niblock Robert A. Niblock Chairman of the Board, President and Chief Executive Officer

  • Page 79
    ...and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. March 31, 2014 Date /s/ Robert F. Hull, Jr. Robert F. Hull, Jr. Chief Financial Officer

  • Page 80
    ... Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Robert A. Niblock Robert A. Niblock Chairman of the Board, President and Chief Executive Officer March 31, 2014

  • Page 81
    ... Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Robert F. Hull, Jr. Robert F. Hull, Jr. Chief Financial Officer March 31, 2014

  • Page 82
    ... Browning1,4 Managing Director, Peter Browning Partners, Charlotte, NC Richard W. Dreiling 1,4 Chairman and Chief Executive Officer, Dollar General Corporation, Goodlettsville, TN LOWE'S COMPANIES, INC. EXECUTIVE OFFICERS AND CERTAIN SIGNIFICANT EMPLOYEES Robert A. Niblock Chairman of the Board...

  • Page 83
    ... Browning1,4 Managing Director, Peter Browning Partners, Charlotte, NC Richard W. Dreiling 1,4 Chairman and Chief Executive Officer, Dollar General Corporation, Goodlettsville, TN LOWE'S COMPANIES, INC. EXECUTIVE OFFICERS AND CERTAIN SIGNIFICANT EMPLOYEES Robert A. Niblock Chairman of the Board...

  • Page 84
    .... Dividend payment dates are usually the first week of fiscal May, August, November and February. Annual Meeting Date May 30, 2014 at 10:00 a.m. Ballantyne Hotel Charlotte, NC Stock Trading Information Lowe's common stock (LOW) is listed on the New York Stock Exchange Annual Report Design by...

  • Page 85
    Lowe's Companies, Inc. 1000 Lowe's Boulevard Mooresville, NC 28117 www.Lowes.com