Lowe's 2015 Annual Report Download

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Your Project is Our Priority.
2015 ANNUAL REPORT

Table of contents

  • Page 1
    Your Project is Our Priority. 2015 ANNUAL REPORT

  • Page 2
    ... company serving more than 16 million customers a week in the United States, Canada and Mexico through its stores and online at Lowes.com, Lowes.ca and Lowes.com.mx. With fiscal year 2015 sales of $59.1 billion, Lowe's has more than 1,855 home improvement and hardware stores and 270,000 employees...

  • Page 3
    2015 ANNUAL REPORT YOUR PROJECT IS OUR PRIORITY My husband and I have longed for a new kitchen for years. After visiting other home improvement stores where we were on our own to make our way around the store, we went to Lowe's in Ft. Wayne, IN and that's where our search ended. We were introduced...

  • Page 4
    ... our stores, our website, our contact centers, at job sites and even right in people's homes. But over the past few years, we've taken time to evaluate why we do these things. Why do we sell home improvement goods and services? Why are we transforming to an omni-channel home improvement company...

  • Page 5
    ... ANNUAL REPORT OMNI-CHANNEL RETAILING ONLINE IN-STORE • More than 1,855 convenient retail store locations • Provides access to knowledgeable associates and immediate fulfillment of purchases • 24/7 shopping experience through websites and mobile applications • Offers product information...

  • Page 6
    ... sales)2 Adjusted diluted earnings per common share2 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...

  • Page 7
    2012 Form 10-K.

  • Page 8
    ..., 2015, the last business day of the Company's most recent second quarter, the aggregate market value of the registrant's common stock held by non affiliates of the registrant was $64.3 billion based on the closing sale price as reported on the New York Stock Exchange. Indicate the number of shares...

  • Page 9
    ... Other Information 14 15 16 30 31 61 61 61 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 9A. Controls and Procedures Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related...

  • Page 10
    ... maintenance, repair & operations. Our Market We are among the many businesses, including home centers, paint stores, hardware stores, lumber yards and garden centers, whose revenues are included in the Building Material and Garden Equipment and Supplies Dealers Subsector (444) of the Retail Trade...

  • Page 11
    ... products in the following categories: Lumber & Building Materials; Tools & Hardware; Appliances; Fashion Fixtures; Rough Plumbing & Electrical; Lawn & Garden; Seasonal Living; Paint; Flooring; Millwork; Kitchens; Outdoor Power Equipment, and Home Fashions. A typical Lowe's home improvement store...

  • Page 12
    ... 8% of total sales in fiscal 2015. Extended Protection Plans and Repair Services We offer extended protection plans in Kitchens, Appliances, Tools & Hardware, Outdoor Power Equipment, Seasonal Living, and Rough Plumbing. Lowe's protection plans provide customers with product protection that enhances...

  • Page 13
    ...feet of outdoor garden center selling space. In addition, we operate 80 Orchard hardware stores located throughout California and Oregon that also serve home improvement customers and average approximately 37,000 square feet of retail selling space. Our home improvement stores offer similar products...

  • Page 14
    ..., 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 energy efficient windows. For more information on Lowe's environmental efforts, please visit...

  • Page 15
    ... subsequently filed reports to the Securities and Exchange Commission, as well as in our press releases and other public communications, are qualified by the risks described below. You should read these Risk Factors in conjunction with "Management's Discussion and Analysis of Financial Condition and...

  • Page 16
    ...threat and improved data protection methods. As with many other retailers, we receive and store certain personal information about our customers, employees and vendors. Additionally, we use third-party service providers for services, such as authentication, content delivery, back -office support and...

  • Page 17
    ... of Lowe's as a reliable online vendor and source of information about home improvement products and services. If we fail to hire, train, manage and retain qualified sales associates and specialists with expanded skill sets or corporate support staff with the capabilities of delivering on strategic...

  • Page 18
    ...-channel retailers who have a similar product or service offering. Customers are increasingly able to quickly comparison shop and determine real-time product availability or price using digital tools. Our failure to respond effectively to competitive pressures and changes in the markets for home...

  • Page 19
    ...impact our business, financial condition and results of operations. We use third party installers to provide installation services to our customers, and, as the general contractor, we are subject to regulatory requirements and risks, applicable to general contractors, including the management of the...

  • Page 20
    ... part of our efforts to provide an omni -channel experience for our customers, we must invest in, maintain and make ongoing improvements of our existing management information systems that support operations such as sales, inventory replenishment, merchandise ordering, project design and execution...

  • Page 21
    Item 4 - Mine Safety Disclosures Not applicable. 12

  • Page 22
    ..., North and Latin America, The Husqvarna Group, 2009 - 2013. Chief Development Officer and President of International since 2015; Chief Development Officer, 2014 - 2015; Business Development Executive, 2012 - 2014; Senior Vice President, Strategy, 2011 - 2012; Vice President, Strategic Planning 2010...

  • Page 23
    ...is traded on the New York Stock Exchange (NYSE). The ticker symbol for Lowe's is "LOW". As of March 24, 2016, there were 24,337 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 of the common stock as reported...

  • Page 24
    ...table sets forth information with respect to purchases of the Company's common stock made during the fourth quarter of 2015: Dollar Value of Total Number of Shares that May Shares Purchased Yet Be as Part of Publicly Purchased Total Number of Average Price Announced Plans Under the Plans or Programs...

  • Page 25
    ... States of America. This discussion and analysis is presented in seven sections Executive Overview Operations Lowe's Business Outlook Financial Condition, Liquidity and Capital Resources Off-Balance Sheet Arrangements Contractual Obligations and Commercial Commitments Critical Accounting Policies...

  • Page 26
    ... Canadian retailer and distributor of hardware, building materials, and home renovation products. This transaction is expected to accelerate Lowe's growth strategy by significantly expanding our presence in the Canadian market through the addition of RONA's attractive business and store locations...

  • Page 27
    ... set forth the percentage relationship to net sales of each line item of the consolidated statements of earnings, as well as the percentage change in dollar amounts from the prior year. This table should be read in conjunction with the following discussion and analysis and the consolidated financial...

  • Page 28
    ... sales divided by the total number of customer transactions. Average store size selling square feet is defined 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...

  • Page 29
    ...is defined as average debt, including current maturities and short-term borrowings, plus total equity for the last five quarters. Fiscal years 2014 and 2013 have been adjusted as a result of the Company's retrospective adoption of ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. The...

  • Page 30
    ...brand offering, providing customers with a full suite of top brands they can trust for their next paint project. Gross margin - Gross margin of 34.82% for 2015 represented a three basis point increase from 2014 and was primarily driven by cost reductions associated with value improvement and product...

  • Page 31
    ... for the year. During 2014, we experienced comparable sales above the company average in the following product categories: Appliances, Millwork, Tools & Hardware, Fashion Fixtures, and Outdoor Power Equipment. Targeted promotions coupled with the expansion of our Project Specialist programs drove...

  • Page 32
    ...of 34.79% for 2014 represented a 20 basis point increase from 2013 and was primarily driven by cost reductions associated with our Value Improvement initiative, which consisted of improved line review and product reset processes to better position us to meet customers' product needs and drive better...

  • Page 33
    ... in net cash provided by operating activities for 2015 versus 2014 was primarily driven by changes in working capital. The increase in net cash provided by operating activities for 2014 versus 2013 was primarily driven by increased net earnings, as well as changes in working capital. The increase in...

  • Page 34
    ... the consolidated financial statements included herein for additional information regarding long -term debt, including fiscal year 2015 financing activities. We have an ongoing share repurchase program, authorized by the Company's Board of Directors, that is executed through purchases made from time...

  • Page 35
    ... terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Our purchase obligations include firm commitments related to certain marketing and information technology programs, as well as purchases...

  • Page 36
    ... Home Improvement stores and Home Timber and Hardware Group's retail stores and wholesale distribution in Australia. As a result of our decision to exit, Woolworths will be required to purchase Lowe's one -third share in the joint venture at an agreed upon fair value as of January 18, 2016, the date...

  • Page 37
    ... 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 expense, as well as asset residual values or lease rates...

  • Page 38
    ...-branded program for which the Company is ultimately self-insured. The Company recognizes revenues from extended protection plan sales on a straight -line basis over the respective contract term. Extended protection plan contract terms primarily range from one to four years from the date of purchase...

  • Page 39
    ...of operations because our long-term debt is carried at amortized cost and consists primarily of fixed -rate instruments. Therefore, providing quantitative information about interest rate risk is not meaningful for our financial instruments. Commodity Price Risk We purchase certain commodity products...

  • Page 40
    ... to provide reasonable assurance to our management and the Board of Directors regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations, including...

  • Page 41
    ...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 29, 2016 and January 30, 2015, and the related consolidated statements of earnings...

  • Page 42
    ... with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the fiscal year ended January 29, 2016 of the Company and our report dated March 28, 2016 expressed an unqualified opinion on...

  • Page 43
    Lowe's Companies, Inc. Consolidated Statements of Earnings (In millions, except per share and percentage data) Fiscal years ended on Net sales Cost of sales Gross margin Expenses: Selling, general and administrative Depreciation Interest - net Total expenses Pre-tax earnings Income tax provision Net...

  • Page 44
    ... Common stock - $.50 par value; Shares issued and outstanding January 29, 2016 January 30, 2015 Capital in excess of par value Retained earnings Accumulated other comprehensive loss Total shareholders' equity Total liabilities and shareholders' equity See accompanying notes to consolidated financial...

  • Page 45
    ... of common stock under share-based payment plans Balance January 29, 2016 (54) 4 910 $ (27) 2 455 $ (75) 5 960 $ (37) 2 480 $ (88) 8 1,030 $ (44) 4 515 $ Amount 555 $ 1,110 $ Capital in Excess of Par Value Accumulated Total Other Retained Comprehensive Shareholders' Earnings Equity Income/(Loss...

  • Page 46
    ... 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 increase/(decrease...

  • Page 47
    ...term investments with original maturities of three months or less when purchased. Cash and cash equivalents are carried at amortized cost on the consolidated balance sheets. The majority of payments due from financial institutions for the settlement of credit card and debit card transactions process...

  • Page 48
    ... 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. The Company has an agreement with Synchrony Bank (Synchrony...

  • Page 49
    ... the consolidated balance sheets and totaled $131 million and $152 million at January 29, 2016 and January 30, 2015, respectively. When locations under operating leases are closed, a liability is recognized for the fair value of future contractual obligations, including future minimum lease payments...

  • Page 50
    ... 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, or vendor funding...

  • Page 51
    ...value card use. The amount of revenue recognized from unredeemed stored -value cards for which redemption was deemed remote was not significant for 2015, 2014, and 2013. Extended Protection Plans - The Company sells separately-priced extended protection plan contracts under a Lowe's -branded program...

  • Page 52
    ... balance sheets and was not material in any of the years presented. Expenses for claims are recognized when incurred and totaled $127 million, $123 million, and $114 million for 2015, 2014, and 2013, respectively. Cost of Sales and Selling, General and Administrative Expenses - The following lists...

  • Page 53
    ...balance sheet as of January 30, 2015. The adoption of this guidance did not have any impact on the Company's consolidated statements of earnings, comprehensive income, shareholders' equity, or cash flows. In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs...

  • Page 54
    ... guidance, on its consolidated financial statements. NOTE 2: Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative guidance...

  • Page 55
    ... -for-use and held-for-sale, which consisted of retail outparcels and property associated with relocated or closed locations, the fair values were determined using a market approach based on estimated selling prices. The Company determined the estimated selling prices by obtaining information from...

  • Page 56
    ... 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, accounts payable, accrued liabilities, and long -term debt and are reflected in the financial statements at cost...

  • Page 57
    ... activities for 2015, 2014, and 2013 are summarized as follows: (In millions) Accrual for exit activities, balance at beginning of year Additions to the accrual - net Cash payments Accrual for exit activities, balance at end of year NOTE 5: Short-Term Borrowings and Lines of Credit The Company has...

  • Page 58
    ...of ASU 2015-03, these unamortized debt issuance costs were included in other assets on the Company's consolidated balance sheets. 2 3 Debt maturities, exclusive of unamortized original issue discounts, unamortized debt issuance costs, and capitalized lease obligations, for the next five years and...

  • Page 59
    ... by the Board of Directors at the time of issuance. Authorized shares of common stock were 5.6 billion ($.50 par value) at January 29, 2016, and January 30, 2015. 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 60
    ... of Share-Based Payment Plans The Company has a number of active and inactive equity incentive plans (the Incentive Plans) under which the Company has been authorized to grant share-based awards to key employees and non-employee directors. The Company also has an employee stock purchase plan (the...

  • Page 61
    ... market price on the date of exercise, was approximately $68 million, $62 million and $48 million in 2015, 2014 and 2013, respectively. Transactions related to stock options for the year ended January 29, 2016 are summarized as follows: WeightedWeightedAverage Average Exercise Price Remaining Term...

  • Page 62
    ... 2015, 2014 and 2013, 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 63
    ... 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 stock at the end of each reporting period less the present value of...

  • Page 64
    ... value at each reporting date, and the share -based payment expense is recognized over the six-month offering period. During 2015, the Company issued 1.3 million shares of common stock and recognized $14 million of share-based payment expense pursuant to the plan. NOTE 9: Employee Retirement Plans...

  • Page 65
    ... consolidated balance sheets. Given the uncertainty regarding the realization of the foreign net deferred tax assets, the Company recorded cumulative valuation allowances of $177 million and $170 million as of January 29, 2016, and January 30, 2015, respectively. The Company has not provided...

  • Page 66
    ... allocated to each class of common stock and participating security as if all of the net earnings for the period had been distributed. The Company's participating securities consist of share -based payment awards that contain a nonforfeitable right to receive dividends and, therefore, are considered...

  • Page 67
    ...-average number of common shares as of the balance sheet date, as adjusted for the potential dilutive effect of non-participating share-based awards. The following table reconciles earnings per common share for 2015, 2014 and 2013: (In millions, except per share data) Basic earnings per common share...

  • Page 68
    ... were not material to the Company's consolidated financial statements. As of January 29, 2016, the Company had non-cancelable commitments of $1,046 million related to certain marketing and information technology programs, and purchases of merchandise inventory. Payments under these commitments are...

  • Page 69
    ... not paid Sales by product category: 2015 (Dollars in millions) Lumber & Building Materials Tools & Hardware Appliances Fashion Fixtures Rough Plumbing & Electrical Lawn & Garden Seasonal Living Paint Flooring Millwork Kitchens Outdoor Power Equipment Home Fashions Other Totals 1 $ $ $ $ 2015 535...

  • Page 70
    ...the Securities and Exchange Commission (the SEC) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (2) is accumulated and communicated to the Company's management, including its principal executive and principal financial officers...

  • Page 71
    ... the SEC within 120 days after the fiscal year ended January 29, 2016 (the Proxy Statement). The information required by this item with respect to our executive officers appears in Part I of this Annual Report on Form 10 -K under the caption, "Executive Officers and Certain Significant Employees of...

  • Page 72
    ... 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 29, 2016...

  • Page 73
    2. Financial Statement Schedule SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Balance at beginning of period Charges to costs and expenses Balance at end of period (In Millions) January 29, 2016: Reserve for loss on obsolete inventory Reserve for inventory shrinkage Reserve for sales...

  • Page 74
    ... 2, 2016, among Lowe's Companies, Inc., Lowe's Companies Canada, ULC and RONA Inc.(1)‡ Restated Charter of Lowe's Companies, Inc. Bylaws of Lowe's Companies, Inc., as amended and restated March 18, 2016. Indenture, dated as of April 15, 1992, between Lowe's Companies, Inc. and The Bank of New York...

  • Page 75
    ... and Restated Indenture, dated as of December 1, 1995, between Lowe's Companies, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee, including as exhibits thereto a form of Lowe's Companies, Inc.'s 2.125% Notes maturing in April 2016 and a form of Lowe's Companies, Inc.'s 3.750...

  • Page 76
    ...Amendment No. 1 to the Lowe's Companies, Inc. Directors' Deferred Compensation Plan, effective January 31, 2009.* Form 8-K File No. 001-07898 Exhibit 4.1 Filing Date September 11, 2013 4.14 8-K 001-07898 4.1 September 10, 2014 4.15 8-K 001-07898 4.1 September 16, 2015 4.16 8-K 001-07898...

  • Page 77
    ....* Amendment No. 6 to the Lowe's Companies Benefit Restoration Plan.* Form of Lowe's Companies, Inc. Management Continuity Agreement for Tier I Senior Officers used for agreements entered into prior to June 1, 2012.* Form DEF 14A File No. 001-07898 Exhibit Appendix B Filing Date April 13, 2012 10...

  • Page 78
    ... 21, 2014.* Form of Lowe's Companies, Inc. 2006 Long Term Incentive Plan Non-Qualified Stock Option Agreement.* Statement re Computation of Ratio of Earnings to Fixed Charges.‡ List of Subsidiaries.‡ Consent of Deloitte & Touche LLP.‡ Certification of Principal Executive Officer Pursuant to...

  • Page 79
    ... of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.†Amendment No. 3 to the Lowe's 401(k) Plan, effective as of January 1, 2015 (filed to include this amendment as an exhibit to the Registration Statement on Form...

  • Page 80
    ...signed on its behalf by the undersigned, thereunto duly authorized. LOWE'S COMPANIES, INC. (Registrant) March 28, 2016 Date By: /s/ Robert A. Niblock Robert A. Niblock Chairman of the Board, President and Chief Executive Officer By: /s/ Robert F. Hull, Jr. Robert F. Hull, Jr. Chief Financial Officer...

  • Page 81
    ... below, and to file with the Securities and Exchange Commission any and all amendments to this report on Form 10 -K, making such changes in this report on Form 10 -K as appropriate, and generally to do all such things in their behalf in their capacities as directors and/or officers to enable the...

  • Page 82
    ... Charges Capitalized Interest 1 February 1, 2013 3,137 $ 605 6 3,748 $ January 31, 2014 3,673 $ 623 8 4,304 $ January 30, 2015 4,276 $ 677 9 4,962 $ January 29, 2016 4 4,419 720 9 5,148 $ 2,906 $ 524 - Adjusted Earnings Fixed Charges: Interest Expense 2 Rental Expense 3 Total Fixed Charges...

  • Page 83
    ... 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 28, 2016 Date /s/ Robert A. Niblock Robert A. Niblock Chairman of the Board, President and Chief Executive Officer

  • Page 84
    ...'s ability to record, process, summarize 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 28, 2016 Date /s/ Robert F. Hull, Jr...

  • Page 85
    ... 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 28, 2016

  • Page 86
    ... 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 28, 2016

  • Page 87
    ... Officer, V.F. Corporation, Greensboro, NC Laurie Z. Douglas1, 4 Senior Vice President, Chief Information Officer and Chief Security Officer, Publix Super Markets, Inc., Lakeland, FL Committee Membership 1-Audit Committee 2-Compensation Committee 3-Executive Committee 4-Governance Committee *2015...

  • Page 88
    ... on our website (www.Lowes.com/investor) includes our Corporate Governance Guidelines, Board of Directors Committee Charters, Code of Business Conduct and Ethics, and Social Responsibility Report, as well as other financial information. Corporate Offices 1000 Lowe's Boulevard Mooresville, NC 28117...

  • Page 89
    LOWE'S COMPANIES, INC. 1000 Lowe's Boulevard Mooresville, NC 28117 www.Lowes.com