Exhibit
10.10
LOWE’S
COMPANIES
EMPLOYEE
STOCK PURCHASE PLAN-
STOCK
OPTIONS FOR EVERYONE
As
Amended and Restated Effective December 1, 2008
TABLE
OF CONTENTS
ARTICLE
I -
DEFINITIONS ........................................................................................................................................................................................................1
1.01 Administrator ........................................................................................................................................................................................................1
1.02 Affiliate
..................................................................................................................................................................................................................1
1.03 Board ......................................................................................................................................................................................................................1
1.04 Change
in
Control ................................................................................................................................................................................................1
1.05 Code ......................................................................................................................................................................................................................
2
1.06 Common
Stock ......................................................................................................................................................................................................2
1.07 Company ................................................................................................................................................................................................................2
1.08 Compensation. ......................................................................................................................................................................................................2
1.09 Control
Change
Date ............................................................................................................................................................................................3
1.10 Date
of
Exercise .....................................................................................................................................................................................................3
1.11 Date
of
Grant ..........................................................................................................................................................................................................3
1.12 Election
Date ..........................................................................................................................................................................................................3
1.13 Eligible
Employee ..................................................................................................................................................................................................3
1.14 Enrollment
Form .....................................................................................................................................................................................................3
1.15 Enrollment
Period ..................................................................................................................................................................................................3
1.16 Exchange
Act .........................................................................................................................................................................................................3
1.17 Fair
Market
Value ...................................................................................................................................................................................................3
1.18 Five
Percent
Shareholder .....................................................................................................................................................................................4
1.19 Offering
Period .......................................................................................................................................................................................................4
1.20 Option ......................................................................................................................................................................................................................4
1.21 Participant ...............................................................................................................................................................................................................4
1.22 Plan ..........................................................................................................................................................................................................................4
ARTICLE
II -
PURPOSES ............................................................................................................................................................................................................4
ARTICLE
III -
ADMINISTRATION ............................................................................................................................................................................................4
ARTICLE
IV -
ELIGIBILITY ........................................................................................................................................................................................................5
ARTICLE
V - COMPENSATION
DEDUCTIONS ....................................................................................................................................................................5
5.01 Enrollment
Form
....................................................................................................................................................................................................5
5.02 Participant’s
Account ..........................................................................................................................................................................................5
ARTICLE
VI - OPTION
GRANTS ..............................................................................................................................................................................................5
6.01 Number
of
Shares .................................................................................................................................................................................................5
6.02 Option
Price ...........................................................................................................................................................................................................6
ARTICLE
VII - EXERCISE OF
OPTION ...................................................................................................................................................................................6
7.01 Automatic
Exercise ...............................................................................................................................................................................................6
7.02 Change
in
Control .................................................................................................................................................................................................6
7.03 Nontransferability .................................................................................................................................................................................................6
7.04 Employee
Status ....................................................................................................................................................................................................7
7.05 Delivery
of
Shares .................................................................................................................................................................................................7
7.06 Vesting ....................................................................................................................................................................................................................7
ARTICLE
VIII - WITHDRAWAL AND TERMINATION OF
EMPLOYMENT .................................................................................................................7
8.01 Generally ...............................................................................................................................................................................................................7
8.02 Subsequent
Participation ...................................................................................................................................................................................7
ARTICLE
IX - STOCK SUBJECT TO
PLAN .........................................................................................................................................................................7
9.01 Aggregate
Limit ...................................................................................................................................................................................................7
9.02 Reallocation
of
Shares ........................................................................................................................................................................................8
ARTICLE
X - ADJUSTMENT UPON CHANGE IN COMMON
STOCK ...........................................................................................................................8
ARTICLE
XI - COMPLIANCE WITH LAW AND APPROVAL OF
REGULATORY BODIES ....................................................................................8
ARTICLE
XII - GENERAL
PROVISIONS ..............................................................................................................................................................................8
12.01 Effect
on Employment and
Service ............................................................................................................................................................8
12.02 Unfunded
Plan ..............................................................................................................................................................................................9
12.03 Rules
of
Construction ..................................................................................................................................................................................9
ARTICLE
XIII -
AMENDMENT ................................................................................................................................................................................................9
ARTICLE
XIV - DURATION OF
PLAN .................................................................................................................................................................................9
ARTICLE
XV - EFFECTIVE DATE OF
PLAN .......................................................................................................................................................................9
ARTICLE
I - DEFINITIONS
1.01
Administrator
.
Administrator
means the Lowe’s Companies, Inc. Administrative Committee.
1.02
Affiliate.
Affiliate
means any “parent corporation” or “subsidiary corporation” (within the meaning
of Section 424 of the Code) of the Company, including a corporation that becomes
an Affiliate after the adoption of this Plan, that the Administrator designates
as a participating employer in the Plan.
1.03
Board
.
Board
means the Board of Directors of the Company or any committee of such Board of
Directors to which, and to the extent, the Board of Directors of the Company has
delegated some or all of its power, authority, duties or responsibilities with
respect to the Plan.
1.04
Change in
Control
.
Change in
Control means the occurrence of any one of the following events:
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(i)
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individuals
who constitute the Board as of December 1, 2008 (the “
Incumbent
Directors
”) cease for any reason to constitute at least a majority
of the Board,
provided
that
any person
becoming a director after the Effective Date and whose election or
nomination for election was approved by a vote of at least a majority of
the Incumbent Directors then on the Board (either by a specific vote or by
approval of the proxy statement of the Company in which such person is
named as a nominee for director, without written objection to such
nomination) shall be an Incumbent Director;
provided
,
however
, that
no individual initially elected or nominated as a director of the Company
as a result of an actual or threatened election contest (as described in
Rule 14a-11 under the Exchange Act) (“
Election
Contest
”) or other actual or threatened solicitation of proxies or
consents by or on behalf of any “person” (as such term is defined in
Section 3(a)(9) of the Exchange Act and as used in Section 13(d)(3) and
14(d)(2) of the Exchange Act) other than the Board (“
Proxy
Contest
”), including by reason of any agreement intended to avoid
or settle any Election Contest or Proxy Contest, shall be deemed an
Incumbent Director;
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(ii)
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any
person becomes a “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company’s
then outstanding securities eligible to vote for the election of the Board
(the “
Company
Voting Securities
”);
provided
,
however
, that
the event described in this paragraph (ii) shall not be deemed to be a
Change in Control of the Company by virtue of any of the following
acquisitions: (A) an acquisition directly by or from the Company or any
Affiliate; (B) an acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any Affiliate, (C) an
acquisition by an underwriter temporarily holding securities pursuant to
an offering of such securities, or (D) an acquisition pursuant to a
Non-Qualifying Transaction (as defined in paragraph (iii));
or
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(iii)
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the
consummation of a reorganization, merger, consolidation, statutory share
exchange or similar form of corporate transaction involving the Company
that requires the approval of the Company’s shareholders, whether for such
transaction or the issuance of securities in the transaction (a
“Reorganization”), or the sale or other disposition of all or
substantially all of the Company’s
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assets to
an entity that is not an affiliate of the Company (a “
Sale
”), unless
immediately following such Reorganization or Sale: (A) more than 60% of the
total voting power of (x) the corporation resulting from such Reorganization or
the corporation which has acquired all or substantially all of the assets of the
Company (in either case, the “
Surviving
Corporation
”), or (y) if applicable, the ultimate parent corporation that
directly or indirectly has beneficial ownership of 100% of the voting securities
eligible to elect directors of the Surviving Corporation (the “
Parent Corporation
”),
is represented by the Company Voting Securities that were outstanding
immediately prior to such Reorganization or Sale (or, if applicable, is
represented by shares into which such Company Voting Securities were converted
pursuant to such Reorganization or Sale), and such voting power among the
holders thereof is in substantially the same proportion as the voting power of
such Company Voting Securities among the holders thereof immediately prior to
the Reorganization or Sale, (B) no person (other than (x) the Company, (y) any
employee benefit plan (or related trust) sponsored or maintained by the
Surviving Corporation or the Parent Corporation, or (z) a person who immediately
prior to the Reorganization or Sale was the beneficial owner of 25% or more of
the outstanding Company Voting Securities) is the beneficial owner, directly or
indirectly, of 25% or more of the total voting power of the outstanding voting
securities eligible to elect directors of the Parent Corporation (or, if there
is no Parent Corporation, the Surviving Corporation), and (C) at least a
majority of the members of the board of directors of the Parent Corporation (or,
if there is no Parent Corporation, the Surviving Corporation) following the
consummation of the Reorganization or Sale were Incumbent Directors at the time
of the Board’s approval of the execution of the initial agreement providing for
such Reorganization or Sale (any Reorganization or Sale which satisfies all of
the criteria specified in (A), (B) and (C) above shall be deemed to be a “
Non-Qualifying
Transaction
”).
1.05
Code
.
Code
means the Internal Revenue Code of 1986, and any amendments
thereto.
1.06
Common
Stock
.
Common
Stock means the common stock of the Company.
1.07
Company
.
Company
means Lowe’s Companies, Inc.
1.08
Compensation
.
Compensation means, as to payroll
periods ending during an Offering Period, (
a
) in the case of an employee who is
classified as a full-time employee under the payroll procedures of the Company
or an Affiliate and who works at least 80 hours in a payroll period, the
employee’s base salary or wages for the biweekly payroll period based on 80
hours of work during the payroll period, (
b
) in the case of an employee who is
classified as a full-time employee under the payroll procedures of the Company
or an Affiliate and who works less than 80 hours in a payroll period, the
employee’s actual base salary or wages for the biweekly payroll period,
(
c
) in the case of an employee who is not
classified as a full-time employee under the payroll procedures of the Company
or an Affiliate and who works at least 40 hours in a payroll period, the
employee’s base salary or wages for the biweekly payroll period based on 40
hours of work during the payroll period and (
d
) in the case of an employee who is not
classified as a full-time employee under the payroll procedures of the Company
or an Affiliate and who works less than 40 hours in a payroll period, the
employee’s actual base salary or wages for the biweekly payroll
period.
1.09
Control
Change Date
.
Control
Change Date means the date on which a Change in Control occurs. If a
Change in Control occurs on account of a series of transactions, the “Control
Change Date” is the date of the last of such transactions.
1.10
Date of
Exercise
.
Date of
Exercise shall be concurrent with the applicable Date of Grant.
1.11
Date of
Grant
.
Date of
Grant means each (a) November 30 next following the June 1 beginning of each
Offering Period, and (b) May 31 next following the December 1 beginning of each
Offering Period.
1.12
Election
Date
.
Election
Date means the last business day of the Enrollment Period.
1.13
Eligible
Employee
.
Eligible
Employee means (a) an employee of the Company or an Affiliate who is classified
as a full-time employee under the payroll procedures of the Company or Affiliate
and (b) an employee of the Company or an Affiliate who is not classified as a
full-time employee under the payroll procedures of the Company or Affiliate and
who has completed at least twelve months of continuous employment with the
Company and its Affiliates. The preceding sentence to the contrary
notwithstanding, an individual who is a Five Percent Shareholder is not an
Eligible Employee.
1.14
Enrollment
Form
.
Enrollment
Form means a form, prescribed by the Administrator, that a Participant uses to
authorize a reduction in his Compensation in accordance with Article
V. The form prescribed by the Administrator may be an electronic,
web-based form.
1.15
Enrollment
Period
.
Enrollment
Period means (a) the month of May in the case of the Offering Period beginning
on June 1 and (b) the month of November in the case of the Offering period
beginning on December 1.
1.16
Exchange
Act
.
Exchange
Act means the Securities Exchange Act of 1934, as amended.
1.17
Fair
Market Value
.
Fair
Market Value means, on any given date, the reported “closing” price of a share
of Common Stock on the primary exchange on which shares of the Common Stock are
listed. If, on any given date, no share of Common Stock is traded on
an established stock exchange, then Fair Market Value shall be determined with
reference to the next preceding day that the Common Stock was so
traded.
1.18
Five
Percent Shareholder
.
Five
Percent Shareholder means any individual who, immediately after the grant of an
Option owns or would be deemed to own more than five percent of the total
combined voting power or value of all classes of stock of the Company or of an
Affiliate. For this purpose, (i) an individual shall be considered to
own any stock owned (directly or indirectly) by or for his brothers, sisters,
spouse, ancestors or lineal descendants and shall be considered to own
proportionately any stock owned (directly or indirectly) by or for a
corporation, partnership, estate or trust of which such individual is a
shareholder, partner or beneficiary, and (ii) stock of the Company or an
Affiliate that an individual may purchase under outstanding options (whether or
not granted under this Plan) shall be treated as stock owned by the
individual.
Offering
Period means each six-month period during the term of the Plan (i) beginning on
June 1 and ending on November 30, and (ii) beginning on December 1 and ending on
May 31.
1.20
Option
.
Option
means a stock option that entitles the holder to purchase from the Company a
stated number of shares of Common Stock in accordance with, and subject to, the
terms and conditions prescribed by the Plan.
1.21
Participant
.
Participant
means an Eligible Employee, including an Eligible Employee who is a member of
the Board, who satisfies the requirements of Article IV and who elects to
receive an Option.
1.22
Plan
.
Plan
means the Lowe’s Companies Employee Stock Purchase Plan - Stock Options for
Everyone.
ARTICLE
II - PURPOSES
The Plan
is intended to assist the Company and its Affiliates in recruiting and retaining
individuals with ability and initiative by enabling such persons to participate
in the future success of the Company and its Affiliates and to associate their
interests with those of the Company and its shareholders. The Plan is
intended to permit the grant of Options qualifying under Section 423 of the
Code. No Option shall be invalid for failure to qualify under Section
423 of the Code. The proceeds received by the Company from the sale
of Common Stock pursuant to this Plan shall be used for general corporate
purposes.
ARTICLE
III - ADMINISTRATION
The Plan
shall be administered by the Administrator. The Administrator shall
have complete authority to interpret all provisions of this Plan; to adopt,
amend, and rescind rules and regulations pertaining to the administration of the
Plan; and to make all other determinations necessary or advisable for the
administration of this Plan. The express grant in the Plan of any
specific power to the Administrator shall not be construed as limiting any power
or authority of the Administrator. Any decision made, or action
taken, by the Administrator in connection with the administration of this Plan
shall be final and conclusive. The Administrator shall not be liable
for any act done in good faith with respect to this Plan or any
Option. All expenses of administering this Plan shall be borne by the
Company.
The
Administrator, in its discretion, may delegate to one or more agents all or part
of the Administrator’s authority and duties. The Administrator may
revoke or amend the terms of a delegation at any time but such action shall not
invalidate any prior actions of the Administrator’s agent that were consistent
with the terms of the Plan.
ARTICLE
IV - ELIGIBILITY
Each
person who is or will be an Eligible Employee as of the first day of each
Offering Period may elect to participate in the Plan by completing an Enrollment
Form in accordance with Section 5.01 and returning it to the Administrator on or
before the Election Date.
ARTICLE
V - COMPENSATION DEDUCTIONS
5.01
Enrollment
Form.
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(a)
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An
Eligible Employee who satisfies the requirements of Article IV becomes a
Participant for an Offering Period by completing an Enrollment Form and
returning it to the Administrator on or before the Election
Date. The Participant’s Enrollment Form shall authorize
deductions from his or her Compensation for purposes of the Plan and shall
specify a percentage or a dollar amount of Compensation to be deducted;
provided
,
however
,
that the percentage shall be in multiples of one percent and shall be at
least one percent but not more than twenty percent and the aggregate
deductions during any Offering Period shall not exceed
$10,625.
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(b)
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A
Participant may not contribute to, or otherwise accumulate funds under,
the Plan except by Compensation deductions in accordance with his or her
Enrollment Form.
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(c)
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A
Participant’s Enrollment Form becomes operative on the Election
Date. An Enrollment Form may be amended or revoked before the
Election Date. Once an Enrollment Form becomes operative it
will continue in effect, and may not be amended, until the earlier of the
Date of Exercise, the Participant’s termination of employment or the
Participant’s withdrawal from the Plan in accordance with Section
8.01.
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5.02
Participant’s
Account
.
A
recordkeeping account shall be established for each Participant. All
amounts deducted from a Participant’s Compensation pursuant to his or her
Enrollment Form shall be credited to his or her account. No interest
will be paid or credited to the account of any Participant.
ARTICLE
VI - OPTION GRANTS
6.01
Number of
Shares
.
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(a)
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Each
Eligible Employee who is a Participant on the Date of Grant shall be
granted an Option as of the Date of Grant. The number of shares
of Common Stock subject to such Option shall be the number of whole shares
determined by dividing the option price into the balance credited to the
Participant’s account as of the Date of
Exercise. Notwithstanding the preceding sentence, no
Participant will be granted an Option as of any Date of Grant for more
than a number of shares of Common Stock determined by dividing $12,500 by
the Fair Market Value on the Date of
Grant.
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(b)
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An
Option covering a fractional share will not be granted under the
Plan. Any amount remaining to the credit of the Participant’s
account after the exercise of an Option shall be returned to the
Participant.
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6.02
Option
Price
.
The price
per share for Common Stock purchased on the exercise of an Option shall be
eighty-five percent (85%) of the Fair Market Value on the Date of
Exercise.
ARTICLE
VII - EXERCISE OF OPTION
7.01
Automatic
Exercise
.
Subject
to the provisions of Articles VIII, IX and XI, each Option shall be exercised
automatically as of the Date of Grant for the number of whole shares of Common
Stock that may be purchased at the option price for that Option with the balance
returned to the Participant.
7.02
Change in
Control
.
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(a)
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Notwithstanding
any other provision of this Plan, in the event of a Change in Control the
Board may prescribe that (i) the Date of Exercise for all outstanding
Options shall be the Control Change Date (in which case the option price
per share shall be the Fair Market Value on the Control Change Date), (ii)
all outstanding Options shall be canceled as of the Control Change Date
and each Participant shall be entitled to a payment per share (in cash or
other property as determined by the Board), equal to the Fair Market Value
of the number of shares of Common Stock that would have been issued to the
Participant if the Option had been exercised under the preceding clause
(i) or (iii) a substitute option shall be granted for each outstanding
Option in accordance with Section 424 of the
Code.
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(b)
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A
Participant shall be entitled to a payment under this Plan if (i) any
benefit, payment, accelerated vesting or other right under this Plan
constitutes a “parachute payment” (as defined in Code section
280G(b)(2)(A), but without regard to Code section 280G(b)(2)(A)(ii)), with
respect to such Participant and (ii) the Participant incurs a liability
under Code section 4999. The amount payable to a Participant
described in the preceding sentence shall be the amount required to
indemnify the Participant and hold him harmless from the application of
Code sections 280G and 4999. To effect this indemnification,
the Company must pay such Participant an amount sufficient to pay the
excise tax imposed on Participant under Code section 4999 with respect to
benefits, payments, accelerated vesting and other rights under this Plan
and any other plan or agreement and any income, employment,
hospitalization, excise or other taxes attributable to the indemnification
payment. The benefit payable under this Section 7.02(b) shall
be paid in a single cash sum not later than twenty days after the date (or
extended filing date) on which the tax return reflecting liability for the
Code section 4999 excise tax is required to be filed with the Internal
Revenue Service.
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7.03
Nontransferability
.
Each
Option granted under this Plan shall be nontransferable. During the
lifetime of the Participant to whom the Option is granted, the Option may be
exercised only by the Participant. No right or interest of a
Participant in any Option shall be liable for, or subject to, any lien,
obligation, or liability of such Participant.
7.04
Employee
Status
.
For
purposes of determining whether an individual is employed by the Company or an
Affiliate, the Administrator may decide to what extent leaves of absence for
governmental or military service, illness, temporary disability, or other
reasons shall not be deemed interruptions of continuous employment.
7.05
Delivery
of Shares
.
Subject
to the provisions of Articles IX and XI, the Company shall deliver, to a broker
designated by the Administrator, the shares of Common Stock acquired by each
Participant during an Offering Period. Such shares acquired by a
Participant shall be delivered to the Participant as promptly as possible
following the Participant’s request to such broker or, upon the Participant’s
direction, the broker shall sell such shares of Common Stock and deliver the net
sales proceeds to the Participant.
7.06
Vesting
.
A
Participant’s interest in the Common Stock purchased upon the exercise of an
Option shall be immediately vested and nonforfeitable.
ARTICLE
VIII - WITHDRAWAL AND TERMINATION OF EMPLOYMENT
8.01
Generally.
A
Participant may revoke his or her Enrollment Form for an Offering Period and
withdraw from Participation in the Plan for that Offering Period by giving
written or electronic notice authorized by the Administrator to that effect to
the Administrator at any time before the Date of Exercise. In that
event, all of the payroll deductions credited to his or her account will be paid
to the Participant promptly after receipt of the notice of withdrawal and no
further payroll deductions will be made from his or her Compensation for that
Offering Period. A Participant shall be deemed to have elected to
withdraw from the Plan in accordance with this Section 8.01 if he or she ceases
to be an employee of the Company and its Affiliates for any reason.
8.02
Subsequent
Participation
.
A
Participant who has withdrawn his participation in the Plan under Section 8.01
may submit a new Enrollment Form to the Administrator and resume participation
in the Plan for any later Offering Period, provided that he or she satisfies the
requirements of Article IV and the Administrator receives his or her Enrollment
Form on or before the Election Date.
ARTICLE
IX - STOCK SUBJECT TO PLAN
9.01
Aggregate
Limit
.
The
maximum aggregate number of shares of Common Stock that may be issued under this
Plan pursuant to the exercise of Options is 45,000,000 shares. The
maximum aggregate number of shares that may be issued under this Plan shall be
subject to adjustment as provided in Article X.
9.02
Reallocation
of Shares
.
If an
Option is terminated, in whole or in part, for any reason other than its
exercise, the number of shares of Common Stock allocated to the Option or
portion thereof shall be reallocated to other Options to be granted under this
Plan.
ARTICLE
X - ADJUSTMENT UPON CHANGE IN COMMON STOCK
The
maximum number of shares as to which Options may be granted under this Plan and
the terms of outstanding Options shall be adjusted as the Board shall determine
to be equitably required in the event that (a) the Company (i) effects one or
more stock dividends, stock split-ups, subdivisions or consolidations of shares
or (ii) engages in a transaction to which Section 424 of the Code applies or (b)
there occurs any other event which, in the judgment of the Board necessitates
such action. Any determination made under this Article X by the Board
shall be final and conclusive.
The
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or property, or for
labor or services, either upon direct sale or upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares or obligations of
the Company convertible into such shares or other securities, shall not affect,
and no adjustment by reason thereof shall be made with respect to, the maximum
number of shares as to which Options may be granted or the terms of outstanding
Options.
ARTICLE
XI - COMPLIANCE WITH LAW AND APPROVAL
OF
REGULATORY BODIES
No Option
shall be exercisable, no Common Stock shall be issued, no certificates for
shares of Common Stock shall be delivered, and no payment shall be made under
this Plan except in compliance with all applicable federal and state laws and
regulations (including, without limitation, withholding tax requirements), any
listing agreement to which the Company is a party, and the rules of all domestic
stock exchanges on which the Company’s shares may be listed. The
Company shall have the right to rely on an opinion of its counsel as to such
compliance. Any share certificate issued to evidence Common Stock for
which an Option is exercised may bear such legends and statements as the
Administrator may deem advisable to assure compliance with federal and state
laws and regulations. No Option shall be exercisable, no Common Stock
shall be issued, no certificate for shares shall be delivered, and no payment
shall be made under this Plan until the Company has obtained such consent or
approval as the Administrator may deem advisable from regulatory bodies having
jurisdiction over such matters.
ARTICLE
XII - GENERAL PROVISIONS
12.01
Effect on
Employment and Service
.
Neither
the adoption of this Plan, its operation, nor any documents describing or
referring to this Plan (or any part thereof) shall confer upon any individual
any right to continue in the employ of the Company or an Affiliate or in any way
affect any right and power of the Company or an Affiliate to terminate the
employment of any individual at any time with or without assigning a reason
therefor.
12.02
Unfunded
Plan
.
The Plan,
insofar as it provides for grants, shall be unfunded, and the Company shall not
be required to segregate any assets that may at any time be represented by
grants under this Plan. Any liability of the Company to any person
with respect to any grant under this Plan shall be based solely upon any
contractual obligations that may be created pursuant to this Plan. No
such obligation of the Company shall be deemed to be secured by any pledge of,
or other encumbrance on, any property of the Company.
12.03
Rules of
Construction
.
Headings
are given to the articles and sections of this Plan solely as a convenience to
facilitate reference. The reference to any statute, regulation, or
other provision of law shall be construed to refer to any amendment to or
successor of such provision of law.
ARTICLE
XIII - AMENDMENT
The Board
may amend or terminate this Plan from time to time;
provided
,
however
, that no
amendment may become effective until shareholder approval is obtained if (i) the
amendment increases the aggregate number of shares of Common Stock that may be
issued under the Plan or (ii) the amendment changes the class of individuals
eligible to become Participants. No amendment shall, without a
Participant’s consent, adversely affect any rights of such Participant under any
Option outstanding at the time such amendment is made.
ARTICLE
XIV - DURATION OF PLAN
No Option
may be granted under this Plan after December 1, 2016. Options
granted before that date shall remain valid in accordance with their
terms.
ARTICLE
XV - EFFECTIVE DATE OF PLAN
This Plan
originally became effective and Options were granted under this Plan following
approval by a majority of the votes entitled to be cast by the Company’s
shareholders, voting either in person or by proxy, at a duly held shareholders’
meeting held on May 26, 2000 which was within twelve months after this Plan was
originally adopted by the Board. This amended and restated Plan shall
be effective for Offering Periods beginning on and after December 1,
2008.
The
following discussion and analysis summarizes the significant factors affecting
our consolidated operating results, financial condition, liquidity and capital
resources during the three-year period ended January 30, 2009 (our fiscal years
2008, 2007 and 2006). Each of the fiscal years presented contains 52
weeks of operating results. Unless otherwise noted, all references herein
for the years 2008, 2007 and 2006 represent the fiscal years ended January 30,
2009, February 1, 2008, and February 2, 2007, respectively. This
discussion should be read in conjunction with the consolidated financial
statements and notes to the consolidated financial statements included in this
annual report that have been prepared in accordance with accounting principles
generally accepted in the United States of America.
EXECUTIVE
OVERVIEW
External
Factors Impacting Our Business
We
entered 2008 knowing a challenging sales environment would pressure our results,
but the effects of declining home prices, rising unemployment and tightening
credit markets were even greater than anticipated. Highlighting the
impact of the current economic environment on our business, comparable store
sales declined 7.2% in 2008, while gross margin declined 43 basis points versus
the prior year. The economic pressures on consumers intensified in
the fourth quarter as unemployment swelled, resulting in a further decline in
consumer confidence and consumer spending. In fact, consumer spending
continued to contract at the fastest rate in over 25 years. For the
fourth quarter of 2008, comparable store sales declined 9.9%, while gross margin
declined 115 basis points versus the fourth quarter of 2007.
During
the fourth quarter 2008 holiday season, as consumer spending contracted
substantially, we knew that competition for sales would be intense in certain
categories where we compete with a broader group of retailers. During
one of the most promotional holiday seasons in memory, we chose to be proactive
and move more quickly and deeply than originally planned with our seasonal
merchandise markdowns. We also accelerated our exit strategy for the
majority of our wallpaper product group. These more aggressive
merchandise markdowns pressured gross margin in the fourth quarter of 2008, but
improved our inventory position heading into 2009. We expect our
first quarter 2009 gross margin to recover and be down only slightly compared to
the first quarter of 2008.
For the
year, we estimate that the discretionary component of our sales declined to
approximately one-third of total sales, down from approximately 45% in 2006, as
the number and size of discretionary projects continued to
decline. This hesitancy to invest in larger discretionary projects
led to a decline of 9% in comparable store sales for tickets above $500 during
the year. However, tickets below $50 experienced only a 2% decline in
comparable store sales in 2008, evidence of the relative strength of
smaller-ticket items.
The sales
environment remains challenging, and the external pressures facing our industry
will continue in 2009. The potential for a recovery in demand during
2009 is primarily dependent on factors beyond our control, with stabilizing
employment statistics being one of the most important in restoring consumer
spending. With the uncertainty in the current environment, we remain
focused on effectively deploying capital, controlling expenses and capturing
profitable market share.
Effectively
Deploying Capital
We have
looked critically at our capital plan for 2009 and have reduced our planned
store openings to 60 to 70 stores, inclusive of approximately five store
openings in Canada and two store openings in Mexico. This is down
from 115 store openings in 2008. The reduction in store openings is
in response to the challenging economic environment in markets across the
U.S. We are also rationalizing other capital spending, including our
store remerchandising efforts, to ensure an appropriate return on our
investment. These changes have reduced our capital plan to $2.5
billion in 2009, a reduction of $1.1 billion compared to our capital spending in
2008.
Additionally,
where appropriate, we have adjusted our store format in large and midsized
markets as part of an overall effort to better leverage our invested
capital. Over the last few years, we have utilized a
103,000-square-foot (103K) store
format,
which is approximately 12% smaller than our 117,000-square-foot format, in a
number of size-constrained metropolitan locations. This decrease in
store size provided an average reduction in spending of $2 million per store and
will provide an ongoing reduction in utility and maintenance
costs. In 2009, we will continue to increase the proportion of new
stores utilizing the 103K store format, and in the future we plan to utilize the
103K store format for the majority of our projects.
Our
centralized distribution network has always been fundamental to our
success. Our network consists of 14 regional distribution centers
(RDCs); 15 flatbed distribution centers (FDCs); four facilities to support our
import business, Special Order Sales, and internet fulfillment; and three
transload facilities. This network allows us to deliver the right
products to the right stores at the right time. We will continue to
upgrade our logistics and distribution processes and systems to better integrate
our planning and execution. This allows us to continue to manage our
inventory investment, drive efficiencies in our distribution network, and evolve
the process that continues to be one of our competitive advantages.
Controlling
Expenses
Our
largest expense is payroll, and we strive to keep payroll hours in our stores
proportionate to sales volumes and, even more specifically, to the sales volumes
of individual departments within our stores. Our goal is to manage
our payroll expense without sacrificing customer service, which is accomplished
with the staffing model we have built over many years. The staffing
model is reviewed regularly to incorporate improvements and efficiencies we have
implemented that have allowed us to move non-selling hours to selling
hours. Examples of such improvements in 2008 include our Freight Flow
initiative that took best practices from our receiving process and implemented
them across the chain. In addition, during 2008, we reduced store
hours in some of our slower sales markets when Daylight Saving Time ended, which
allowed us to reallocate hours in affected stores to the busier times of the
day. As a result of these improvements, we have updated our staffing
model for 2009, reducing the required hours and reducing the base hours
threshold without reducing customer facing hours. We will continue to
monitor our service levels closely throughout 2009 to ensure these changes to
our staffing model do not negatively impact customer service.
We have
also reviewed our physical inventory process to identify process improvements
and cost savings. The majority of our stores has historically had two
physical inventories per year; however, during the past several years our
inventory shrink control initiatives have yielded solid results. As a
result, we began a test of conducting one physical inventory in our
better-performing stores. Over the past four years, we have slowly
increased the number of stores with one physical inventory and have experienced
no noticeable increases in those stores’ shrink results. Therefore,
we are moving additional stores to one inventory per year in 2009, which will
save approximately $10 million.
As we
have further penetrated U.S. markets, our increased store density has allowed us
to leverage our district and regional staff. During the past two
years, we have added 268 stores but only one region and 15 districts, increasing
the average store count per district from eight to nine and the average store
count per region from 66 to 75. Additionally, we have expanded the
coverage of our area operations and area loss prevention managers, increasing
the average number of stores covered by each manager by more than three stores,
rather than adding headcount in these positions. We are confident
that we will continue to have the oversight needed to ensure consistent and
effective application of our policies and procedures, while reducing
expenses.
Over the
past three years, we have managed our corporate staffing, primarily through
attrition, to match the slowing sales environment. By filling only
the most needed positions, we have effectively had a corporate-level hiring
freeze for nearly two years. As a result, we have frozen or left
unfilled almost 400 positions at the corporate office in 2008. As a
measure of our efforts to ensure appropriate management of our corporate
infrastructure, over the past two years our store count and selling square
footage have each grown by over 19% while our corporate staff has grown by less
than 5%.
Lastly,
over the past two years, we have reduced our marketing spend by $84
million. This was the result of significant reductions in mass media
as the Lowe’s brand gained national awareness and market share, and more
targeted advertising, including the USPS New Movers program and various
multicultural programs.
Capturing
Profitable Market Share
Our goal
remains to drive profitable market share gains during these challenging
times. According to third-party estimates, we gained approximately
300 basis points of total store unit market share during the home improvement
industry downturn which began three years ago. This is evidence of
our compelling product offering, commitment to customer service and our ability
to capitalize on the evolving competitive landscape.
We
continue to refine and improve our “Customer Focused” program, which measures
each store’s performance relative to key components of customer satisfaction,
including selling skills, delivery, Installed Sales and checkout
experience. Our customer service scores, measured by our quarterly
Customer Focused process, have never been higher. We know that the
foundation of our success is our people, and this difficult economic environment
has provided us the opportunity to both hire and retain great
people. Over the past two years, we have seen the average tenure of a
Lowe’s store manager increase by almost eight months from an average of slightly
over seven years to an average of almost eight years. Additionally,
the average tenure of the other members of the store management team has
increased nearly nine months over that time period. We are confident
that we will continue to build a solid and experienced foundation to provide
excellent service and drive sales today, and when the economic environment
begins to improve.
OPERATIONS
The
following table sets 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 statements, including the related notes to the consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
Basis
Point Increase / (Decrease) in Percentage of Net Sales from Prior
Year
|
|
|
|
Percentage
Increase / (Decrease) in Dollar Amounts from Prior Year
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2008
vs. 2007
|
|
|
|
2008
vs. 2007
|
|
|
Net
sales
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
N/A
|
|
|
|
(0.1)%
|
|
|
Gross
margin
|
34.21
|
|
|
|
34.64
|
|
|
|
(43)
|
|
|
|
(1.3)
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
22.96
|
|
|
|
21.78
|
|
|
|
118
|
|
|
|
5.3
|
|
|
Store
opening costs
|
0.21
|
|
|
|
0.29
|
|
|
|
(8)
|
|
|
|
(27.5)
|
|
|
Depreciation
|
3.19
|
|
|
|
2.83
|
|
|
|
36
|
|
|
|
12.7
|
|
|
Interest
- net
|
0.58
|
|
|
|
0.40
|
|
|
|
18
|
|
|
|
44.3
|
|
|
Total
expenses
|
26.94
|
|
|
|
25.30
|
|
|
|
164
|
|
|
|
6.4
|
|
|
Pre-tax
earnings
|
7.27
|
|
|
|
9.34
|
|
|
|
(207)
|
|
|
|
(22.3)
|
|
|
Income
tax provision
|
2.72
|
|
|
|
3.52
|
|
|
|
(80)
|
|
|
|
(23.0)
|
|
|
Net
earnings
|
4.55
|
%
|
|
|
5.82
|
%
|
|
|
(127)
|
|
|
|
(21.8)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis
Point Increase / (Decrease) in Percentage of Net Sales from Prior
Year
|
|
|
|
Percentage
Increase / (Decrease) in Dollar Amounts from Prior
Year
|
|
|
|
2007
|
|
|
|
2006
|
|
|
|
2007
vs. 2006
|
|
|
|
2007
vs. 2006
|
|
|
Net
sales
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
N/A
|
|
|
|
2.9%
|
|
|
Gross
margin
|
34.64
|
|
|
|
34.52
|
|
|
|
12
|
|
|
|
3.3
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
21.78
|
|
|
|
20.75
|
|
|
|
103
|
|
|
|
8.0
|
|
|
Store
opening costs
|
0.29
|
|
|
|
0.31
|
|
|
|
(2)
|
|
|
|
(3.9)
|
|
|
Depreciation
|
2.83
|
|
|
|
2.48
|
|
|
|
35
|
|
|
|
17.5
|
|
|
Interest
- net
|
0.40
|
|
|
|
0.33
|
|
|
|
7
|
|
|
|
26.4
|
|
|
Total
expenses
|
25.30
|
|
|
|
23.87
|
|
|
|
143
|
|
|
|
9.1
|
|
|
Pre-tax
earnings
|
9.34
|
|
|
|
10.65
|
|
|
|
(131)
|
|
|
|
(9.7)
|
|
|
Income
tax provision
|
3.52
|
|
|
|
4.03
|
|
|
|
(51)
|
|
|
|
(10.1)
|
|
|
Net
earnings
|
5.82
|
%
|
|
|
6.62
|
%
|
|
|
(80)
|
|
|
|
(9.5)%
|
|
|
Other
Metrics
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2006
|
|
|
Comparable
store sales (decrease)/increase
1
|
|
|
(7.2)%
|
|
|
|
(5.1)%
|
|
|
|
0.0%
|
|
|
Total
customer transactions (in millions)
|
|
|
740
|
|
|
|
720
|
|
|
|
680
|
|
|
Average
ticket
2
|
|
|
$65.15
|
|
|
|
$67.05
|
|
|
|
$68.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
end of year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of stores
|
|
|
1,649
|
|
|
|
1,534
|
|
|
|
1,385
|
|
|
Sales
floor square feet (in millions)
|
|
|
187
|
|
|
|
174
|
|
|
|
157
|
|
|
Average
store size selling square feet (in thousands)
3
|
|
|
113
|
|
|
|
113
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets
4
|
|
|
6.8%
|
|
|
|
9.5%
|
|
|
|
11.7%
|
|
|
Return
on average shareholders' equity
5
|
|
|
12.7%
|
|
|
|
17.7%
|
|
|
|
20.8%
|
|
1
We define a comparable store
as a store that has been open longer than 13 months.
A store that is identified for
relocation is no longer considered comparable one month prior to its
relocation. The relocated store must then
remain
open longer than 13 months to be considered comparable. The comparable store
sales increase for 2006 included in the preceding table was calculated using
sales for a comparable 52-week period, since fiscal year 2005 contained 53
weeks.
2
We define average ticket as net
sales divided by the total number of customer transactions.
3
We define average store size
selling square feet as sales floor square feet divided by the number of stores
open at the end of the period.
4
Return on average
assets is defined as net earnings divided by average total assets for the last
five quarters.
5
Return on average shareholders’
equity is defined as net earnings divided by average shareholders’ equity for
the last five quarters.
Fiscal
2008 Compared to Fiscal 2007
Net sales –
Reflective of the
challenging sales environment, net sales decreased 0.1% to $48.2 billion in
2008. Comparable store sales declined 7.2% in 2008 compared to a
decline of 5.1% in 2007. Total customer transactions increased 2.8%
compared to 2007, driven by our store expansion program. However,
average ticket decreased 2.8% to $65.15, as a result of fewer project
sales. Comparable store customer transactions declined 4.1%, and
comparable store average ticket declined 3.1% compared to 2007.
The sales
weakness we continued to experience was most pronounced in larger discretionary
projects and was the result of dramatic reductions in consumer
spending. Certain of our project categories, including cabinets &
countertops and millwork, had double-digit declines in comparable store sales
for the year. These two project categories together with flooring
were approximately 17% of our total sales in 2008. This is comparable
to 2002 levels, after having peaked at nearly 18.5% in 2006. We also
experienced continued weakness in certain of our style categories, such as
fashion plumbing, lighting and windows & walls. These product
categories are also typically more discretionary in nature and delivered
double-digit declines in comparable store sales for the year.
Due to
consumers’ hesitancy to take on larger discretionary projects, we experienced
mixed results within Specialty Sales during the year. Special Order
Sales delivered a 9.5% decline in comparable store sales, due to continued
weakness in cabinets & countertops, fashion plumbing, lighting and
millwork. Installed Sales performed above our average comparable
store sales change with a decline of 6.0% for 2008. However, we
experienced low-double-digit declines in comparable store sales in the third and
fourth quarters of 2008 as the economic environment
worsened. Commercial Business Customer sales have continued to
deliver above-average comparable store sales throughout this industry downturn
as a result of our targeted efforts to focus on the professional tradesperson,
property maintenance professional and the repair/remodeler.
We
experienced solid sales performance due to increased demand for
hurricane-related products, which helped drive a comparable store sales increase
in building materials and above-average comparable store sales changes in
outdoor power equipment and hardware. Favorable comparisons due to
last year’s drought conditions contributed to above-average
comparable
store sales changes in our lawn & landscape products and nursery
categories. The continued willingness of homeowners to take on
smaller projects to improve their outdoor space and maintain their homes also
contributed to the above-average comparable store sales change in our nursery
category, as well as in paint and home environment. Other categories
that performed above our average comparable store sales change included
appliances and rough plumbing, while flooring and seasonal living performed at
approximately the overall corporate average.
From a
geographic market perspective, we experienced a wide range of comparable store
sales performance during the first three quarters of 2008. Markets in
the Western U.S. and Florida, which include some of the markets most pressured
by the declining housing market, experienced double-digit declines in comparable
store sales during each of the first three quarters of the
year. Contrasting those markets we saw solid sales results in our
markets in Texas, Oklahoma, certain areas of the Northeast and parts of the
upper Midwest and Ohio Valley during the same period. However, in the
fourth quarter of 2008, the economic pressures on consumers intensified as
unemployment swelled, resulting in a further decline in consumer confidence and
consumer spending. This impacted all of our geographic markets, and
resulted in a comparable store sales decline of 9.9% for the fourth quarter,
compared to a decline of 7.2% for the year.
Gross margin -
For 2008,
gross margin of 34.21% represented a 43-basis-point decrease from
2007. This decrease was primarily driven by carpet installation and
other promotions, which negatively impacted gross margin by approximately 21
basis points. We also saw a decline of approximately 14 basis points
due to higher fuel prices during the first half of the year and de-leverage in
distribution fixed costs. Additionally, markdowns associated with our
decision to exit wallpaper reduced gross margin by approximately three basis
points. The de-leverage from these factors was partially offset by a
positive impact of approximately 12 basis points from lower inventory shrink and
approximately four basis points attributable to the mix of products
sold.
For the
fourth quarter of 2008, gross margin of 33.73% represented a 115-basis-point
decrease from the fourth quarter of 2007. This decrease was driven by
a number of factors. We experienced elevated promotional activity in
many product categories as competitors initiated inventory-clearing promotions
in the quarter. To protect our customer franchise and our price
image, we matched various competitor offers during the quarter which negatively
impacted gross margin by approximately 50 basis points. In addition,
our efforts to clear seasonal inventory in our seasonal living and tools
categories impacted gross margin by approximately 30 and 20 basis points,
respectively. Also, markdowns associated with our decision to exit
wallpaper reduced gross margin by approximately 15 basis
points. Higher fuel prices increased cost of goods sold and
negatively impacted gross margin by approximately 10 basis
points. Slightly offsetting these items was a positive impact of 14
basis points from lower inventory shrink.
SG&A -
The increase in
SG&A as a percentage of sales from 2007 to 2008 was primarily driven by
de-leverage of 70 basis points in store payroll. As sales per store declined,
additional stores met the base staffing hours threshold, which increased the
proportion of fixed-to-total payroll. Although this created
short-term pressure on earnings, in the long-term it ensures that we maintain
the high service levels that customers have come to expect from
Lowe’s. The resulting de-leverage in store payroll was partially
offset by leverage of 31 basis points of in-store service expense, due to the
shifting of certain tasks from third-party, in-store service groups to store
employees. The offsetting impact of these two factors resulted in net
de-leverage of 39 basis points. We experienced de-leverage
of approximately 21 basis points in fixed expenses such as property taxes,
utilities and rent during the year as a result of softer
sales. Additionally, we experienced 11 basis points of de-leverage
associated with the write-off of new store projects that we are no longer
pursuing and a long-lived asset impairment charge for open stores. We
also experienced de-leverage of approximately nine basis points in bonus expense
attributable to higher achievement against performance targets this year, and
de-leverage of seven basis points in retirement plan expenses due to changes in
the 401(k) Plan that increased our matching contribution relative to the prior
year.
Store opening costs -
Store
opening costs, which include payroll and supply costs incurred prior to store
opening as well as grand opening advertising costs, totaled $102 million in
2008, compared to $141 million in 2007. These costs are associated
with the opening of 115 new stores in 2008, as compared with the opening of 153
stores in 2007 (149 new and four relocated). Store opening costs for
stores opened during the year averaged approximately $0.8 million and $0.9
million per store in 2008 and 2007, respectively. Because store
opening costs are expensed as incurred, the timing of expense recognition
fluctuates based on the timing of store openings.
Depreciation -
Depreciation
de-leveraged 36 basis points as a percentage of sales in 2008. This
de-leverage was driven by the addition of 115 new stores in 2008 and the
comparable store sales decline. Property, less accumulated
depreciation, increased to $22.7 billion at January 30, 2009, compared to $21.4
billion at February 1, 2008. At January 30, 2009, we owned 88% of our
stores, compared to 87% at February 1, 2008, which includes stores on leased
land.
Interest -
Net interest
expense is comprised of the following:
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
Interest
expense, net of amount capitalized
|
|
$
|
314
|
|
|
|
230
|
|
|
Amortization
of original issue discount and loan costs
|
|
|
6
|
|
|
|
9
|
|
|
Interest
income
|
|
|
(40
|
)
|
|
|
(45
|
)
|
|
Interest
- net
|
|
|
280
|
|
|
$
|
194
|
|
Interest
expense increased primarily as a result of the September 2007 $1.3 billion debt
issuance and lower capitalized interest associated with fewer stores under
construction.
Income tax provision -
Our
effective income tax rate was 37.4% in 2008 versus 37.7% 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.
Fiscal
2007 Compared to Fiscal 2006
Net sales –
Sales increased
2.9% to $48.3 billion in 2007. The increase in sales was driven
primarily by our store expansion program. We opened 153 stores in
2007, including four relocations, and ended the year with 1,534 stores in the
U.S. and Canada. However, a challenging sales environment led to a
decline in comparable store sales of 5.1% in 2007 versus flat comparable store
sales in 2006. Total customer transactions increased 5.9% compared to
2006, while average ticket decreased 2.8% to $67.05, a reflection of fewer
project sales. Comparable store customer transactions declined 1.8%,
and comparable store average ticket declined 3.3% compared to 2006.
Comparable
store sales declined 6.3%, 2.6%, 4.3% and 7.6% in the first, second, third and
fourth quarters of 2007, respectively. Our industry was pressured by
the soft housing market, the tight mortgage market, continued deflationary
pressures from lumber and plywood, and unseasonable weather, including the
exceptional drought in certain areas of the U.S. From a geographic
market perspective, we continued to see dramatic differences in
performance. Our worst-performing markets included those areas that
had been most impacted by the dynamics of the housing market, including
California and Florida. These areas and the Gulf Coast reduced our
comparable store sales by approximately 250 basis points for the
year. Contrasting with those markets, we saw relatively better
comparable store sales performance in our markets in the central U.S., which
have had less impact from the housing market. Two of these markets, which
include areas of Texas and Oklahoma, delivered positive comparable store sales
in 2007 and had a positive impact on our comparable store sales of approximately
100 basis points for the year.
Reflective
of the difficult sales environment, only two of our 19 product categories
experienced comparable store sales increases in 2007. The categories
that performed above our average comparable store sales change included rough
plumbing, lawn & landscape products, hardware, paint, lighting, nursery,
fashion plumbing and appliances. In addition, outdoor power equipment
performed at approximately our average comparable store sales change in
2007. Despite the difficult sales environment, we were able to gain
unit market share of 80 basis points for the total store in calendar year 2007,
according to third-party estimates. Continued strong unit market
share gains indicate that we are providing great service and value to
customers.
Our Big 3
Specialty Sales initiatives had mixed results in 2007. Growth in
Installed Sales was 2.8% and growth in Special Order Sales was 0.5% in 2007,
while comparable store sales declined 5.5% for Installed Sales and 8.1% for
Special Order Sales as a result of the weakness in bigger-ticket and more
complex projects. For the year, Installed Sales was approximately 6%
of our total sales and Special Order Sales was approximately 8%. In
contrast, total sales growth for Commercial Business Customers outpaced the
company average.
Gross margin -
For 2007,
gross margin of 34.64% represented a 12-basis-point increase over
2006. This increase as a percentage of sales was primarily driven by
13 basis points related to positive product mix shifts, 11 basis points related
to increased penetration of imported goods and five basis points of improved
inventory shrink results. This leverage was partially offset by
de-leverage of 13 basis points in transportation costs primarily attributable to
rising fuel costs, and seven basis points as a result of start-up costs for new
distribution facilities.
SG&A -
The increase in
SG&A as a percentage of sales from 2006 to 2007 was primarily driven by
de-leverage of 67 basis points in store payroll as a result of the weak sales
environment. As sales per store declined, stores were meeting our minimum
staffing hours threshold which increased the proportion of fixed-to-total
payroll. In addition, we saw de-leverage of eight basis points in
retirement plan expenses as a result of changes to the 401(k) Plan to replace
the performance match program with an increased baseline match. No
performance match was earned in 2006. We also had de-leverage in
fixed expenses such as rent, utilities and property taxes as a result of softer
sales. These items were partially offset by leverage of 23 basis
points in advertising expense, primarily attributable to reduced spending on tab
production and distribution, and national television advertising.
Store opening costs -
Store
opening costs, which include payroll and supply costs incurred prior to store
opening as well as grand opening advertising costs, totaled $141 million in
2007, compared to $146 million in 2006. These costs are associated
with the opening of 153 stores in 2007 (149 new and four relocated), as compared
with the opening of 155 stores in 2006 (151 new and four
relocated). Store opening costs for stores opened during the year in
the U.S. averaged approximately $0.8 million and $0.9 million per store in 2007
and 2006, respectively. Store opening costs for stores opened during
the year in Canada averaged approximately $2.4 million per store in 2007 as a
result of additional expenses necessary to enter a new
market. Because store opening costs are expensed as incurred, the
timing of expense recognition fluctuates based on the timing of store
openings.
Depreciation -
Depreciation
de-leveraged 35 basis points as a percentage of sales in 2007. This
de-leverage was driven by the opening of 153 stores in 2007 and negative
comparable store sales. Property, less accumulated depreciation,
increased to $21.4 billion at February 1, 2008, compared to $19.0 billion at
February 2, 2007. At February 1, 2008, we owned 87% of our stores,
compared to 86% at February 2, 2007, which includes stores on leased
land.
Interest -
Net interest
expense is comprised of the following:
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
|
Interest
expense, net of amount capitalized
|
|
$
|
230
|
|
|
$
|
200
|
|
|
Amortization
of original issue discount and loan costs
|
|
|
9
|
|
|
|
6
|
|
|
Interest
income
|
|
|
(45
|
)
|
|
|
(52
|
)
|
|
Interest
- net
|
|
$
|
194
|
|
|
$
|
154
|
|
Interest
expense increased primarily as a result of the September 2007 $1.3 billion debt
issuance and the October 2006 $1 billion debt issuance, partially offset by an
increase in capitalized interest.
Income tax provision -
Our
effective income tax rate was 37.7% in 2007 versus 37.9% in 2006. The
decrease in the effective tax rate was due to a continuation of the effect of
increased federal tax credits associated with Welfare to Work and Work
Opportunity Tax Credit programs as well as increased state tax credits related
to our investments in employees and property.
FINANCIAL
CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Inventory
At
January 30, 2009, merchandise inventory was $8.2 billion compared to $7.6
billion at February 1, 2008, an increase of 7.9%. The increase was
primarily due to sales floor square footage growth of 7.2%, the timing
associated with in-transit inventory, and an increase in distribution center
inventory associated with the opening of our fourteenth RDC in Pittston,
Pennsylvania. At January 30, 2009, we also had already stocked or
were in the process of stocking new stores scheduled to open in early
2009. We opened 13 new stores in the first few weeks of 2009 compared
to four in the first few weeks of 2008. Comparable store inventory
was down 2.9% at January 30, 2009 compared to the prior year. We took
aggressive
steps to
sell-through seasonal inventory in the fourth quarter of 2008, improving our
inventory position entering 2009, and we have taken a cautious approach when
building our spring seasonal inventory as we anticipate a continuation of the
challenging sales environment.
Cash
Flows
The
following table summarizes the components of the consolidated statements of cash
flows. This table should be read in conjunction with the following discussion
and analysis and the consolidated financial statements, including the related
notes to the consolidated financial statements:
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net
cash provided by operating activities
|
|
$
|
4,122
|
|
|
$
|
4,347
|
|
|
$
|
4,502
|
|
|
Net
cash used in investing activities
|
|
|
(3,226
|
)
|
|
|
(4,123
|
)
|
|
|
(3,715
|
)
|
|
Net
cash used in financing activities
|
|
|
(939
|
)
|
|
|
(307
|
)
|
|
|
(846
|
)
|
|
Effect
of exchange rate changes on cash
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(36
|
)
|
|
|
(83
|
)
|
|
|
(59
|
)
|
|
Cash
and cash equivalents, beginning of year
|
|
|
281
|
|
|
|
364
|
|
|
|
423
|
|
|
Cash
and cash equivalents, end of year
|
|
$
|
245
|
|
|
$
|
281
|
|
|
$
|
364
|
|
Cash
flows from operating activities continue to provide the primary source of our
liquidity. The change in cash flows from operating activities in 2008
compared to 2007 resulted primarily from decreased net earnings and an increase
in inventory. This change was partially offset by an increase in
accounts payable, which is a result of our continued efforts to improve vendor
payment terms. The change in cash flows from operating activities in
2007 compared to 2006 resulted primarily from decreased net earnings and an
increase in inventory as a result of our store expansion program, partially
offset by an increase in deferred revenue associated with our extended warranty
program.
The
primary component of net cash used in investing activities continues to be
opening new stores, investing in existing stores through resets and
remerchandising, and investing in our distribution center and corporate
infrastructure, including enhancements to our information technology
systems. Cash acquisitions of property were $3.3 billion in 2008,
$4.0 billion in 2007 and $3.9 billion in 2006. The January 30, 2009,
retail selling space of 187 million square feet represented a 7.2% increase over
February 1, 2008. The February 1, 2008, retail selling space of 174
million square feet represented a 10.9% increase over February 2,
2007.
The
change in cash flows from financing activities in 2008 compared to 2007
primarily related to a $2.9 billion decrease in cash flows associated with net
borrowing activities, partially offset by a $2.3 billion decrease in repurchases
under our share repurchase program. The change in cash flows from
financing activities in 2007 compared to 2006 resulted primarily from a $1.3
billion increase in cash flows associated with net borrowing
activities. This was partially offset by a $538 million increase in
share repurchases and an increase in dividends paid from $0.18 per share in 2006
to $0.29 per share in 2007. The ratio of debt to equity plus debt was
25.1% and 29.3% as of January 30, 2009, and February 1, 2008,
respectively.
Sources
of Liquidity
In
addition to our cash flows from operations, additional liquidity is provided by
our short-term borrowing facilities. We have a $1.75 billion senior
credit facility that expires in June 2012. The senior credit facility
supports our commercial paper and revolving credit programs. The
senior credit facility has a $500 million letter of credit
sublimit. Amounts outstanding under letters of credit reduce the
amount available for borrowing under the senior credit
facility. Borrowings made are unsecured and are priced at fixed rates
based upon market conditions at the time of funding in accordance with the terms
of the senior credit facility. The senior credit facility contains certain
restrictive covenants, which include maintenance of a debt leverage ratio, as
defined by the senior credit facility. We were in compliance with
those covenants at January 30, 2009. Nineteen banking institutions
are participating in the senior credit facility. As of January 30,
2009, there was $789 million outstanding under the commercial paper program, all
of which was issued in the fourth quarter.
The
weighted-average interest rate on the outstanding commercial paper was
0.84%. As of January 30, 2009, there were no letters of credit
outstanding under the senior credit facility.
In
addition, we had standby and documentary letters of credit issued through other
banking arrangements which totaled $224 million as of January 30, 2009, and $299
million as of February 1, 2008. Commitment fees ranging from 0.225% to 0.50% per
annum are paid on the letters of credit amounts outstanding.
We had a
Canadian dollar (C$) denominated credit facility in the amount of C$200 million
that expired March 30, 2009. The outstanding borrowings at expiration
were repaid with net cash provided by operating activities. This
credit facility was established for the purpose of funding the construction of
retail stores and for working capital and other general corporate purposes in
Canada. Borrowings made were unsecured and were priced at fixed rates
based upon market conditions at the time of funding in accordance with the terms
of the credit facility. The credit facility contained certain
restrictive covenants, which included maintenance of a debt leverage ratio as
defined by the credit facility. We were in compliance with those
covenants at January 30, 2009. Three banking institutions
participated in the credit facility. As of January 30, 2009, there
was C$199 million, or the equivalent of $162 million, outstanding under the
credit facility. The weighted-average interest rate on the short-term
borrowings was 2.65%.
We also
have a C$ denominated credit facility in the amount of C$50 million that
provides revolving credit support for our Canadian operations. This
uncommitted credit facility provides us with the ability to make unsecured
borrowings which are priced at fixed rates based upon market conditions at the
time of funding in accordance with the terms of the credit
facility. As of January 30, 2009, there was C$44 million, or the
equivalent of $36 million, outstanding under the credit facility. The
weighted-average interest rate on the short-term borrowings was
1.60%.
Our debt
ratings at January 30, 2009, were as follows:
|
Current
Debt Ratings
|
S&P
|
Moody’s
|
Fitch
|
|
Commercial
Paper
|
A1
|
P1
|
F1
|
|
Senior
Debt
|
A+
|
A1
|
A+
|
|
Outlook
|
Stable
|
Stable
|
Negative
|
We
believe that net cash provided by operating and financing activities will be
adequate for our expansion plans and for our other operating requirements over
the next 12 months. The availability of funds through the issuance of
commercial paper or new debt or the borrowing cost of these funds could be
adversely affected due to a debt rating downgrade, which we do not expect, or a
deterioration of certain financial ratios. In addition, continuing
volatility in the global capital markets may affect our ability to access those
markets for additional borrowings or increase costs associated with those
borrowings. There are no provisions in any agreements that would
require early cash settlement of existing debt or leases as a result of a
downgrade in our debt rating or a decrease in our stock price.
Cash
Requirements
Capital
expenditures
Our 2009
capital budget is approximately $2.5 billion, inclusive of approximately $300
million of lease commitments, resulting in a net cash outflow of $2.2 billion in
2009. Approximately 72% of this planned commitment is for store
expansion. Our expansion plans for 2009 consist of 60 to 70 new
stores and are expected to increase sales floor square footage by approximately
4%. Approximately 98% of the 2009 projects will be owned, which includes
approximately 35% ground-leased properties.
At
January 30, 2009, we owned and operated 14 RDCs. We opened a new RDC
in Pittston, Pennsylvania, in 2008. At January 30, 2009, we also
operated 15 FDCs for the handling of lumber, building materials and other
long-length items. We opened a new FDC in Purvis, Mississippi, in
2008. We are confident that our current distribution network has the
capacity to ensure that our stores remain in stock and that customer demand is
met.
Debt
and capital
On June
30, 2008, we redeemed for cash approximately $19 million principal amount, $14
million carrying amount, of our convertible notes issued in February 2001, which
represented all remaining notes outstanding of such issue, at a price equal to
the sum of the issuance price plus accrued original issue discount of such notes
as of the redemption date ($730.71 per note). From their issuance
through the redemption, principal amounts of $986 million, or approximately
98%, of
our February 2001 convertible notes were converted from debt to
equity. During 2008, an insignificant amount was converted from debt
to equity.
On June
25, 2008, we completed a single open-market repurchase of approximately $187
million principal amount, $164 million carrying amount, of our senior
convertible notes issued in October 2001 at a price of $875.73 per
note. We subsequently redeemed for cash on June 30, 2008,
approximately $392 million principal amount, $343 million carrying amount, of
our senior convertible notes issued in October 2001, which represented all
remaining notes outstanding of such issue, at a price equal to the sum of the
issuance price plus accrued original issue discount of such notes as of the
redemption date ($875.73 per note). From their issuance through the
redemption, an insignificant amount of our senior convertible notes had
converted from debt to equity.
Our share
repurchase program is implemented through purchases made from time to time
either in the open market or through private transactions. Shares
purchased under the share repurchase program are retired and returned to
authorized and unissued status. During 2008, there were no share
repurchases under the share repurchase program. As of January 30,
2009, we had remaining authorization through fiscal 2009 under the share
repurchase program of $2.2 billion.
Our
quarterly cash dividend was increased in 2008 to $0.085 per share, a 6% increase
over the prior year.
OFF-BALANCE
SHEET ARRANGEMENTS
Other
than in connection with executing 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 flows,
results of operations, liquidity, capital expenditures or capital
resources.
CONTRACTUAL
OBLIGATIONS AND COMMERCIAL COMMITMENTS
The
following table summarizes our significant contractual obligations and
commercial commitments:
|
|
|
Payments
Due by Period
|
|
|
Contractual
Obligations
|
|
|
|
|
Less
than
|
|
|
|
1-3
|
|
|
|
4-5
|
|
|
After
5
|
|
|
(
In
millions)
|
|
Total
|
|
|
1
year
|
|
|
years
|
|
|
years
|
|
|
years
|
|
|
Long-term
debt (principal and interest
amounts,
excluding discount)
|
|
$
|
9,256
|
|
|
$
|
294
|
|
|
$
|
1,044
|
|
|
$
|
1,025
|
|
|
$
|
6,893
|
|
|
Capital
lease obligations
1
|
|
|
543
|
|
|
|
63
|
|
|
|
122
|
|
|
|
121
|
|
|
|
237
|
|
|
Operating
leases
1
|
|
|
6,185
|
|
|
|
389
|
|
|
|
777
|
|
|
|
763
|
|
|
|
4,256
|
|
|
Purchase
obligations
2
|
|
|
995
|
|
|
|
620
|
|
|
|
345
|
|
|
|
16
|
|
|
|
14
|
|
|
Total
contractual obligations
|
|
$
|
16,979
|
|
|
$
|
1,366
|
|
|
$
|
2,288
|
|
|
$
|
1,925
|
|
|
$
|
11,400
|
|
|
|
|
Amount
of Commitment Expiration by Period
|
|
|
Commercial
Commitments
|
|
|
|
|
Less
than
|
|
|
|
1-3
|
|
|
|
4-5
|
|
|
After
5
|
|
|
(In
millions)
|
|
Total
|
|
|
1
year
|
|
|
years
|
|
|
years
|
|
|
years
|
|
|
Letters
of credit
3
|
|
$
|
224
|
|
|
$
|
220
|
|
|
$
|
4
|
|
|
$
|
-
|
|
|
$
|
-
|
|
1
Amounts do not include taxes, common
area maintenance, insurance or contingent rent because these amounts have
historically been insignificant.
2
Represents contracts for
purchases of merchandise inventory, property and construction of buildings, as
well as commitments related to certain marketing and information technology
programs.
3
Letters of credit are issued
for the purchase of import merchandise inventories, real estate and construction
contracts, and insurance programs.
At
January 30, 2009, approximately $24 million of the reserve for uncertain tax
positions (including penalties and interest) was classified as a current
liability. At this time, we are unable to make a reasonably reliable
estimate of the timing of payments in individual years beyond 12 months, due to
uncertainties in the timing of the effective settlement of tax
positions.
LOWE’S
BUSINESS OUTLOOK
As of
February 20, 2009, the date of our fourth quarter 2008 earnings release, we
expected to open 60 to 70 stores during 2009, resulting in total square footage
growth of approximately 4%. We expected total sales in 2009 to range
from a decline of 2% to an increase of 2% and comparable store sales to decline
4% to 8%. Earnings before interest and taxes as a percentage of sales
(operating margin) was expected to decline approximately 170 basis points. In
addition, store opening costs were expected to be approximately $50 million.
Diluted earnings per share of $1.04 to $1.20 were expected for the fiscal year
ending January 29, 2010. Our outlook for 2009 does not assume any
share repurchases.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The
preparation of the consolidated financial statements and notes to consolidated
financial statements presented in this annual report requires us to make
estimates that affect the reported amounts of assets, liabilities, sales and
expenses, and related disclosures of contingent assets and
liabilities. We base these estimates on historical results and
various other assumptions believed to be reasonable, all of which form the basis
for making estimates concerning the carrying values of assets and liabilities
that are not readily available from other sources. Actual results may
differ from these estimates.
Our
significant accounting policies are described in Note 1 to the consolidated
financial statements. We believe that the following accounting policies affect
the most significant estimates and management judgments used in preparing the
consolidated financial statements.
Merchandise
Inventory
Description
We record
an inventory reserve for the anticipated loss associated with selling
inventories below cost. This reserve is based on our current
knowledge with respect to inventory levels, sales trends and historical
experience. During 2008, our reserve decreased approximately $9
million to $58 million as of January 30, 2009. We also record an
inventory reserve for the estimated shrinkage between physical
inventories. This reserve is based primarily on actual shrinkage
results from previous physical inventories. During 2008, the
inventory shrinkage reserve decreased approximately $8 million to $129 million
as of January 30, 2009.
Judgments
and uncertainties involved in the estimate
We do not
believe that our merchandise inventories are subject to significant risk of
obsolescence in the near term, and we have the ability to adjust purchasing
practices based on anticipated sales trends and general economic conditions.
However, changes in consumer purchasing patterns or a deterioration in product
quality could result in the need for additional reserves. Likewise,
changes in the estimated shrink reserve may be necessary, based on the timing
and results of physical inventories. We also apply judgment in the
determination of levels of non-productive inventory and assumptions about net
realizable value.
Effect
if actual results differ from assumptions
We have
not made any material changes in the methodology used to establish our inventory
valuation or the related reserves during the past three fiscal
years. We believe that we have sufficient current and historical
knowledge to record reasonable estimates for both of these inventory
reserves. However, it is possible that actual results could differ
from recorded reserves. A 10% change in our obsolete inventory
reserve would have affected net earnings by approximately
$4 million for
2008. A 10% change in our estimated shrinkage reserve would have
affected net earnings by approximately $8 million for 2008.
Long-Lived
Asset Impairment
Description
We review
the carrying amounts of long-lived assets whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable.
For
long-lived assets held-for-use, a potential impairment has occurred if projected
future undiscounted cash flows expected to result from the use and eventual
disposition of the assets are less than the carrying value of the
assets. An impairment loss is recognized when the carrying amount of
the long-lived asset is not recoverable and exceeds its fair
value. We estimate fair value based on projected future discounted
cash flows from the use and eventual disposition of the assets.
For
long-lived assets to be abandoned, we consider the asset to be disposed of when
it ceases to be used. Until it ceases to be used, we continue to
classify the assets as held-for-use and test for potential impairment
accordingly.
For
long-lived assets held-for-sale, an impairment charge is recorded if the
carrying amount of the asset exceeds its fair value less cost to
sell. Fair value is based on a market appraisal or a valuation
technique that considers various factors, including local market
conditions.
We
recorded long-lived asset impairment charges of $21 million during 2008,
including $16 million for operating stores and $5 million for relocated stores,
closed stores and other excess properties.
Judgments
and uncertainties involved in the estimate
Our
impairment loss calculations require us to apply judgment in estimating expected
future cash flows, including estimated sales, margin and expense growth rates
and assumptions about market performance. We also apply judgment in
estimating asset fair values, including the selection of a discount rate that
reflects the risk inherent in our current business model.
Effect
if actual results differ from assumptions
We have
not made any material changes in the methodology used to establish the carrying
amounts of long-lived assets during the past three fiscal years. If
actual results are not consistent with the assumptions and judgments used in
estimating future cash flows and asset fair values, actual impairment losses
could vary positively or negatively from estimated impairment
losses. Of our 1,649 operating stores, only 15 stores were at risk
for impairment. We recorded impairment charges on three stores whose
carrying amounts were deemed not recoverable and exceeded the respective fair
values. A 10% decrease in the estimated cash flows associated with
long-lived assets evaluated for impairment would have decreased net earnings by
approximately $7 million for 2008. A 10% increase in the estimated
cash flows associated with long-lived assets evaluated for impairment would have
increased net earnings by approximately $4 million for 2008.
Self-Insurance
Description
We are
self-insured for certain losses relating to workers’ compensation; automobile;
property; general and product liability
;
extended
warranty;
and
certain medical and dental
claims. Self-insurance claims filed
and claims incurred but not reported are accrued based upon our estimates of the
discounted ultimate cost for self-insured claims incurred using actuarial
assumptions followed in the insurance industry and historical
experience. During 2008, our self-insurance liability increased
approximately $80 million to $751 million as of January 30, 2009.
Judgments
and uncertainties involved in the estimate
These
estimates are subject to changes in the regulatory environment; utilized
discount rate; payroll; sales; and vehicle units; as well as the frequency, lag
and severity of claims.
Effect
if actual results differ from assumptions
We have
not made any material changes in the methodology used to establish our
self-insurance liability during the past three fiscal years. Although
we believe that we have the ability to reasonably estimate losses related to
claims, it is possible that actual results could differ from recorded
self-insurance liabilities. A 10% change in our self-insurance
liability would have affected net earnings by approximately $47 million for
2008. A 100 basis point change in our discount rate would have
affected net earnings by approximately $13 million for 2008.
Revenue
Recognition
Description
See Note
1 to the consolidated financial statements for a complete discussion of our
revenue recognition policies. The following accounting estimates
relating to revenue recognition require management to make assumptions and apply
judgment regarding the effects of future events that cannot be determined with
certainty.
Revenues
from stored value cards, which include gift cards and returned merchandise
credits, are deferred and recognized when the cards are redeemed. We
recognize income from unredeemed stored value cards at the point at which
redemption becomes remote. Our stored value cards have no expiration date
or dormancy fees. Therefore, to determine when redemption is remote,
we analyze an aging of the unredeemed cards based on the date of last stored
value card use. The deferred revenue associated with outstanding stored
value cards decreased $39 million to $346 million as of January 30,
2009. We recognized $21 million of income from unredeemed stored
value cards in 2008.
We sell
separately-priced extended warranty contracts under a Lowe’s-branded 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 to a lack of sufficient historical evidence indicating that costs of
performing services under the contracts are incurred on other than a
straight-line basis. Extended warranty contract terms primarily range
from one to four years from the date of purchase or the end of the
manufacturer’s warranty, as applicable. We consistently group and
evaluate extended warranty contracts based on the characteristics of the
underlying products and the coverage provided in order to monitor for expected
losses. A loss would be recognized if the expected costs of
performing services under the contracts exceeded the amount of unamortized
acquisition costs and related deferred revenue associated with the
contracts. Deferred revenues associated with the extended warranty
contracts increased $72 million to $479 million as of January 30,
2009.
We record
a reserve for anticipated merchandise returns through a reduction of sales and
cost of sales in the period that the related sales are recorded. We use
historical return levels to estimate return rates. This, along with
historical margin rates, is applied to sales and cost of sales during the
estimated average return period. During 2008, the merchandise returns reserve
decreased $2 million to $49 million as of January 30, 2009.
Judgments
and uncertainties involved in the estimate
For
stored value cards, there is judgment inherent in our evaluation of when
redemption becomes remote and, therefore, when the related income is
recognized.
For
extended warranties, there is judgment inherent in our evaluation of expected
losses as a result of our methodology for grouping and evaluating extended
warranty contracts and from the actuarial determination of the estimated cost of
the contracts. There is also judgment inherent in our determination
of the recognition pattern of costs of performing services under these
contracts.
For the
reserve for anticipated merchandise returns, there is judgment inherent in our
estimates of historical return levels and margin rates, and in the determination
of the average return period.
Effect
if actual results differ from assumptions
We have
not made any material changes in the methodology used to recognize income
related to unredeemed stored value cards during the past three fiscal
years. We do not believe there is a reasonable likelihood that there
will be a material change in the future estimates or assumptions we use to
recognize income related to unredeemed stored value cards. However,
if actual results are not consistent with our estimates or assumptions, we may
incur additional income or expense. A 10% change in the estimate of
unredeemed stored value cards for which redemption is considered remote would
have affected net earnings by approximately $4 million in 2008.
We have
not made any material changes in the methodology used to recognize revenue on
our extended warranty contracts during the past three fiscal
years. We currently do not anticipate incurring any losses on our
extended warranty contracts. Although we believe that we have the
ability to adequately monitor and estimate expected losses under the extended
warranty contracts, it is possible that actual results could differ from our
estimates. In addition, if future evidence indicates that the costs
of performing services under these contracts are incurred on other than a
straight-line
basis,
the timing of revenue recognition under these contracts could
change. A 10% change in the amount of revenue recognized in 2008
under these contracts would have affected net earnings by approximately $8
million.
We have
not made any material changes in the methodology used to estimate sales returns
during the past three fiscal years. We believe we have sufficient
current and historical knowledge to record reasonable estimates of sales
returns. However, it is possible that actual returns could differ
from our estimates. A 10% change in actual return rates would have
affected net earnings for 2008 by approximately $3 million. A 10%
change in the average return period would have affected net earnings for 2008 by
approximately $2 million.
Vendor
Funds
Description
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.
Vendor
funds are treated as a reduction of inventory cost, unless they represent a
reimbursement of specific, incremental and identifiable costs that we incurred
to sell the vendor’s product. Substantially all of the vendor funds that we
receive do not meet the specific, incremental and identifiable criteria.
Therefore, we treat the majority of these funds as a reduction in the cost of
inventory as the amounts are accrued, and recognize these funds as a reduction
of cost of sales when the inventory is sold.
Judgments
and uncertainties involved in the estimate
Based on
the provisions of the vendor agreements in place, we develop vendor fund accrual
rates by estimating the point at which we will have completed our performance
under the agreement, and the agreed-upon amounts will be earned. Due
to the complexity and diversity of the individual vendor agreements, we perform
analyses and review historical trends throughout the year to ensure the amounts
earned are appropriately recorded. As a part of these analyses, we
validate our accrual rates based on actual purchase trends and apply those rates
to actual purchase volumes to determine the amount of funds accrued and
receivable from the vendor. Amounts accrued throughout the year could
be impacted if actual purchase volumes differ from projected annual purchase
volumes, especially in the case of programs that provide for increased funding
when graduated purchase volumes are met.
Effect
if actual results differ from assumptions
We have
not made any material changes in the methodology used to recognize vendor funds
during the past three fiscal years. If actual results are not
consistent with the assumptions and estimates used, we could be exposed to
additional adjustments that could positively or negatively impact gross margin
and inventory. However, substantially all receivables associated with
these activities are collected within the following fiscal year and therefore do
not require subjective long-term estimates. Adjustments to gross
margin and inventory in the following fiscal year have historically not been
material.
Interest
Rate Risk
Our
primary market risk exposure is the potential loss arising from the impact of
changing interest rates on long-term debt. Our policy is to monitor
the interest rate risks associated with this debt, and we believe any
significant risks could be offset by accessing variable-rate instruments
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 as of January 30, 2009, and February 1, 2008. The variable
interest rate is based on the rate in effect at the end of the year
presented. The fair values included below were determined using
quoted market rates or interest rates that are currently available to us for
debt with similar terms and remaining maturities.
|
Long-Term
Debt Maturities by Fiscal Year
|
|
|
|
|
|
|
|
January
30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Fixed
|
|
|
Interest
|
|
|
|
Variable
|
|
|
Interest
|
|
|
(Dollars
in millions)
|
|
|
Rate
|
|
|
Rate
|
|
|
|
Rate
|
|
|
Rate
|
|
|
2009
|
|
$
|
1
|
|
|
6.15
|
%
|
|
$
|
-
|
|
|
-
|
|
|
2010
|
|
|
501
|
|
|
8.25
|
|
|
|
18
|
|
|
4.40
|
|
|
2011
|
|
|
1
|
|
|
7.63
|
|
|
|
-
|
|
|
-
|
|
|
2012
|
|
|
551
|
|
|
5.60
|
|
|
|
-
|
|
|
-
|
|
|
2013
|
|
|
1
|
|
|
7.64
|
|
|
|
-
|
|
|
-
|
|
|
Thereafter
|
|
|
3,687
|
|
|
5.99
|
|
|
|
-
|
|
|
-
|
|
|
Total
|
|
$
|
4,742
|
|
|
|
|
$
|
18
|
|
|
|
|
Fair
value
|
|
$
|
4,635
|
|
|
|
|
$
|
18
|
|
|
|
|
Long-Term
Debt Maturities by Fiscal Year
|
|
February
1, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Fixed
|
|
|
Interest
|
|
|
(Dollars
in millions)
|
|
|
Rate
|
|
|
Rate
|
|
|
2008
|
|
$
|
10
|
|
|
7.14
|
%
|
|
2009
|
|
|
10
|
|
|
5.36
|
|
|
2010
|
|
|
501
|
|
|
8.25
|
|
|
2011
|
|
|
1
|
|
|
7.61
|
|
|
2012
|
|
|
552
|
|
|
5.61
|
|
|
Thereafter
|
|
|
4,296
|
|
|
5.28
|
%
|
|
Total
|
|
$
|
5,370
|
|
|
|
|
Fair
value
|
|
$
|
5,406
|
|
|
|
Credit
Risk
Sales
generated through our proprietary credit cards are not reflected in our
receivables. General 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 of capital, certain costs of the proprietary credit
card program and, subject to contractual limits, the program’s actual loss
experience. Actual losses and operating costs in excess of
contractual limits are absorbed by GE. During 2008 and 2007, costs
associated with our proprietary credit card program did not have a material
effect on our results of operations. Although we anticipate reaching
our contractual limits for actual losses under
the
program during 2009, we do not expect that these losses will have a material
adverse effect on our results of operations.
Commodity
Price Risk
We
purchase certain commodity products that are subject to price volatility caused
by factors beyond our control. Our most significant commodity
products are lumber and building materials. Selling prices of these
commodity products are influenced, in part, by the market price we pay, which is
determined by industry supply and demand. During 2008 and 2007,
lumber price and building materials price movement did not have a material
effect on our results of operations.
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 condition and
results of operations.
We speak
throughout this Annual Report about our future, particularly in the “Letter to
Shareholders” and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations.” While we believe our estimates and expectations are
reasonable, they are not guarantees of future performance. Our actual
results could differ substantially from our expectations because, for
example:
• Our
sales are dependent upon the health and stability of the general economy, which
remains in a prolonged period of recession that has been made worse by the
severe accompanying financial/credit crisis. Rising unemployment,
reduced access to credit and reduced consumer confidence have combined to lead
to sharply reduced consumer spending, particularly on many of the discretionary,
bigger-ticket products we sell. We monitor key economic indicators
including real disposable personal income, employment, housing turnover and
homeownership levels. In addition, changes in the level of repairs, remodeling
and additions to existing homes, changes in commercial building activity, and
the availability and cost of mortgage financing can impact our
business.
• Major
weather-related events and unseasonable weather may impact sales of seasonal
merchandise. Prolonged and widespread drought conditions could hurt
our sales of lawn and garden and related products.
• Our
expansion strategy has been and will continue to be impacted by economic
conditions, environmental regulations, local zoning issues, availability and
development of land, and more stringent land-use regulations. Furthermore, our
ability to secure a highly qualified workforce is an important element to the
success of our expansion strategy.
• Our
business is highly competitive, and, as we build an increasing percentage of our
new stores in larger markets and utilize new sales channels such as the
internet, we may face new and additional forms of
competition. Promotional pricing and competitor liquidation
activities during recessionary periods such as we are experiencing may increase
competition and adversely affect our business.
• The
ability to continue our everyday low pricing strategy and provide the products
that customers want depends on our vendors providing a reliable supply of
products at competitive prices and our ability to effectively manage our
inventory. As an increasing number of the products we sell are imported, any
restrictions or limitations on importation of such products, political or
financial instability in some of the countries from which we import them, or a
failure to comply with laws and regulations of those countries from which we
import them could interrupt our supply of imported inventory. The
current global recession and credit crisis are adversely affecting the
operations and financial stability of some of our vendors by reducing their
sales and restricting their access to capital. We may have to replace
some of our smaller vendors, and some of our vendors may not be able to fulfill
their financial obligations to us or to do so in a timely manner.
• Our
goal of increasing our market share and our commitment to keeping our prices low
requires us to make substantial investments in new technology and processes
whose benefits could take longer than expected to be realized and which could be
difficult to implement and integrate.
For more
information about these and other risks and uncertainties that we are exposed
to, you should read the “Risk Factors” included in our Annual Report on Form
10-K to the United States Securities and Exchange Commission. All
forward-looking statements in this report speak only as of the date of this
report or, in the case of any document incorporated by reference, the date of
that document. All subsequent written and oral forward-looking statements
attributable to us or any person acting on our behalf are qualified by the
cautionary statements in this section and in the “Risk Factors” included in our
Annual Report on Form 10-K. We do not undertake 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
of Lowe’s Companies, Inc. and its subsidiaries is responsible for establishing
and maintaining adequate internal control over financial reporting (Internal
Control)
as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934, as amended
.
Our
Internal Control was designed 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 the possibility of human error and the circumvention or
overriding of controls. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to
the reliability of financial reporting and
financial statement preparation and presentation. Further,
because of changes in conditions, the effectiveness may
vary
over time.
Our
management, with the participation of the Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of
our
Internal Control as of January 30, 2009. In
evaluating our Internal Control,
we
used the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control—Integrated
Framework
. Based on
our management’s
assessment, we have concluded
that, as of January 30, 2009,
our
Internal Control is effective.
Deloitte & Touche LLP, the
independent
registered public accounting firm
that audited the
financial statements contained in this report,
was engaged to audit
our
Internal Control
. Their report appears on page
27.
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 30, 2009 and February 1, 2008,
and the related consolidated statements of earnings, shareholders' equity, and
cash flows for each of the three fiscal years in the period ended January 30,
2009. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of the Company at January 30, 2009 and February
1, 2008, and the results of its operations and its cash flows for each of the
three fiscal years in the period ended January 30, 2009, in conformity with
accounting principles generally accepted in the United States of
America.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company's internal control over financial
reporting as of January 30, 2009, based on the criteria established in
Internal Control-Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 31, 2009 expressed an unqualified
opinion on the Company's internal control over financial reporting.
/s/
Deloitte & Touche LLP
Charlotte,
North Carolina
March
31, 2009
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") as of January 30, 2009 based on criteria
established in
Internal
Control - Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management's Report on Internal Control
Over Financial Reporting. Our responsibility is to express an opinion on the
Company's internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company's internal control over financial reporting is a process designed by, or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of January 30, 2009, based on the criteria
established in
Internal Control - Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and
for the fiscal year ended January 30, 2009 of the Company and our report dated
March 31, 2009 expressed an unqualified opinion on those financial
statements.
/s/
Deloitte & Touche LLP
Charlotte,
North Carolina
March
31, 2009
|
Lowe's
Companies, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions, except per share and percentage data)
|
January
30,
|
|
|
%
|
|
|
February
1,
|
|
|
%
|
|
|
February
2,
|
|
|
%
|
|
|
Fiscal
years ended on
|
2009
|
|
|
Sales
|
|
|
2008
|
|
|
Sales
|
|
|
2007
|
|
|
Sales
|
|
|
Net
sales (Note 1)
|
$
|
48,230
|
|
|
|
100.00
|
%
|
|
$
|
48,283
|
|
|
|
100.00
|
%
|
|
$
|
46,927
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales (Note 1)
|
|
31,729
|
|
|
|
65.79
|
|
|
|
31,556
|
|
|
|
65.36
|
|
|
|
30,729
|
|
|
|
65.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin
|
|
16,501
|
|
|
|
34.21
|
|
|
|
16,727
|
|
|
|
34.64
|
|
|
|
16,198
|
|
|
|
34.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative (Notes 1, 3, 6, 8, 9 and 12)
|
|
11,074
|
|
|
|
22.96
|
|
|
|
10,515
|
|
|
|
21.78
|
|
|
|
9,738
|
|
|
|
20.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store
opening costs (Note 1)
|
|
102
|
|
|
|
0.21
|
|
|
|
141
|
|
|
|
0.29
|
|
|
|
146
|
|
|
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
(Notes 1 and 4)
|
|
1,539
|
|
|
|
3.19
|
|
|
|
1,366
|
|
|
|
2.83
|
|
|
|
1,162
|
|
|
|
2.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
- net (Notes 10 and 15)
|
|
280
|
|
|
|
0.58
|
|
|
|
194
|
|
|
|
0.40
|
|
|
|
154
|
|
|
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
12,995
|
|
|
|
26.94
|
|
|
|
12,216
|
|
|
|
25.30
|
|
|
|
11,200
|
|
|
|
23.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
earnings
|
|
3,506
|
|
|
|
7.27
|
|
|
|
4,511
|
|
|
|
9.34
|
|
|
|
4,998
|
|
|
|
10.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision (Note 10)
|
|
1,311
|
|
|
|
2.72
|
|
|
|
1,702
|
|
|
|
3.52
|
|
|
|
1,893
|
|
|
|
4.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
2,195
|
|
|
|
4.55
|
%
|
|
$
|
2,809
|
|
|
|
5.82
|
%
|
|
$
|
3,105
|
|
|
|
6.62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share (Note 11)
|
$
|
1.51
|
|
|
|
|
|
|
$
|
1.90
|
|
|
|
|
|
|
$
|
2.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share (Note 11)
|
$
|
1.49
|
|
|
|
|
|
|
$
|
1.86
|
|
|
|
|
|
|
$
|
1.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends per share
|
$
|
0.335
|
|
|
|
|
|
|
$
|
0.290
|
|
|
|
|
|
|
$
|
0.180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
|
Lowe's
Companies, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
30,
|
|
|
%
|
|
|
February
1,
|
|
|
%
|
|
|
(In
millions, except par value and percentage data)
|
|
|
2009
|
|
|
Total
|
|
|
2008
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents (Note 1)
|
|
|
$
|
245
|
|
|
|
0.7
|
%
|
|
$
|
281
|
|
|
|
0.9
|
%
|
|
Short-term
investments (Notes 1, 2 and 3)
|
|
|
|
416
|
|
|
|
1.3
|
|
|
|
249
|
|
|
|
0.8
|
|
|
Merchandise
inventory - net (Note 1)
|
|
|
|
8,209
|
|
|
|
25.1
|
|
|
|
7,611
|
|
|
|
24.6
|
|
|
Deferred
income taxes - net (Notes 1 and 10)
|
|
|
|
166
|
|
|
|
0.5
|
|
|
|
247
|
|
|
|
0.8
|
|
|
Other
current assets (Note 1)
|
|
|
|
215
|
|
|
|
0.7
|
|
|
|
298
|
|
|
|
1.0
|
|
|
Total
current assets
|
|
|
|
9,251
|
|
|
|
28.3
|
|
|
|
8,686
|
|
|
|
28.1
|
|
|
Property,
less accumulated depreciation (Notes 1 and 4)
|
|
|
22,722
|
|
|
|
69.5
|
|
|
|
21,361
|
|
|
|
69.2
|
|
|
Long-term
investments (Notes 1, 2 and 3)
|
|
|
|
253
|
|
|
|
0.8
|
|
|
|
509
|
|
|
|
1.7
|
|
|
Other
assets (Note 1)
|
|
|
|
460
|
|
|
|
1.4
|
|
|
|
313
|
|
|
|
1.0
|
|
|
Total
assets
|
|
|
$
|
32,686
|
|
|
|
100.0
|
%
|
|
$
|
30,869
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and shareholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
borrowings (Note 5)
|
|
|
$
|
987
|
|
|
|
3.0
|
%
|
|
$
|
1,064
|
|
|
|
3.5
|
%
|
|
Current
maturities of long-term debt (Note 6)
|
|
|
|
34
|
|
|
|
0.1
|
|
|
|
40
|
|
|
|
0.1
|
|
|
Accounts
payable (Note 1)
|
|
|
|
4,109
|
|
|
|
12.6
|
|
|
|
3,713
|
|
|
|
12.0
|
|
|
Accrued
compensation and employee benefits
|
|
|
|
434
|
|
|
|
1.3
|
|
|
|
467
|
|
|
|
1.5
|
|
|
Self-insurance
liabilities (Note 1)
|
|
|
|
751
|
|
|
|
2.3
|
|
|
|
671
|
|
|
|
2.2
|
|
|
Deferred
revenue (Note 1)
|
|
|
|
674
|
|
|
|
2.1
|
|
|
|
717
|
|
|
|
2.3
|
|
|
Other
current liabilities (Note 1)
|
|
|
|
1,033
|
|
|
|
3.1
|
|
|
|
1,079
|
|
|
|
3.5
|
|
|
Total
current liabilities
|
|
|
|
8,022
|
|
|
|
24.5
|
|
|
|
7,751
|
|
|
|
25.1
|
|
|
Long-term
debt, excluding current maturities (Notes 3, 6 and 12)
|
|
|
5,039
|
|
|
|
15.4
|
|
|
|
5,576
|
|
|
|
18.1
|
|
|
Deferred
income taxes - net (Notes 1 and 10)
|
|
|
|
660
|
|
|
|
2.0
|
|
|
|
670
|
|
|
|
2.2
|
|
|
Other
liabilities (Note 1)
|
|
|
|
910
|
|
|
|
2.9
|
|
|
|
774
|
|
|
|
2.5
|
|
|
Total
liabilities
|
|
|
|
14,631
|
|
|
|
44.8
|
|
|
|
14,771
|
|
|
|
47.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity
(Note 7)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock - $5 par value, none issued
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Common
stock - $.50 par value;
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued and outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
30, 2009
|
1,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
1, 2008
|
1,458
|
|
|
735
|
|
|
|
2.2
|
|
|
|
729
|
|
|
|
2.3
|
|
|
Capital
in excess of par value
|
|
|
|
277
|
|
|
|
0.8
|
|
|
|
16
|
|
|
|
0.1
|
|
|
Retained
earnings
|
|
|
|
17,049
|
|
|
|
52.2
|
|
|
|
15,345
|
|
|
|
49.7
|
|
|
Accumulated
other comprehensive (loss) income (Note 1)
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
8
|
|
|
|
-
|
|
|
Total
shareholders' equity
|
|
|
|
18,055
|
|
|
|
55.2
|
|
|
|
16,098
|
|
|
|
52.1
|
|
|
Total
liabilities and shareholders' equity
|
|
|
$
|
32,686
|
|
|
|
100.0
|
%
|
|
$
|
30,869
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lowe's
Companies, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
in
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
Common
Stock
|
|
|
Excess
of
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Shareholders'
|
|
|
(In
millions)
|
|
Shares
|
|
|
Amount
|
|
|
Par
Value
|
|
|
Earnings
|
|
|
(Loss)
Income
|
|
|
Equity
|
|
|
Balance
February 3, 2006
|
|
|
1,568
|
|
|
$
|
784
|
|
|
$
|
1,320
|
|
|
$
|
12,191
|
|
|
$
|
1
|
|
|
$
|
14,296
|
|
|
Comprehensive
income (Note 1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,105
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
Net
unrealized investment gains (Note 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,105
|
|
|
Tax
effect of non-qualified stock options exercised
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
Cash
dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(276
|
)
|
|
|
|
|
|
|
(276
|
)
|
|
Share-based
payment expense (Note 8)
|
|
|
|
|
|
|
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
59
|
|
|
Repurchase
of common stock (Note 7)
|
|
|
(57
|
)
|
|
|
(28
|
)
|
|
|
(1,549
|
)
|
|
|
(160
|
)
|
|
|
|
|
|
|
(1,737
|
)
|
|
Conversion
of debt to common stock (Note 6)
|
|
|
4
|
|
|
|
2
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
82
|
|
Employee
stock options exercised and restricted stock issued (Note
8)
|
|
|
7
|
|
|
|
3
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
Employee
stock purchase plan (Note 8)
|
|
|
3
|
|
|
|
1
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
76
|
|
|
Balance
February 2, 2007
|
|
|
1,525
|
|
|
$
|
762
|
|
|
$
|
102
|
|
|
$
|
14,860
|
|
|
$
|
1
|
|
|
$
|
15,725
|
|
|
Cumulative
effect adjustment (Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
(8
|
)
|
|
Comprehensive
income (Note 1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,809
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,816
|
|
|
Tax
effect of non-qualified stock options exercised
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
Cash
dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(428
|
)
|
|
|
|
|
|
|
(428
|
)
|
|
Share-based
payment expense (Note 8)
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
Repurchase
of common stock (Note 7)
|
|
|
(76
|
)
|
|
|
(38
|
)
|
|
|
(349
|
)
|
|
|
(1,888
|
)
|
|
|
|
|
|
|
(2,275
|
)
|
|
Conversion
of debt to common stock (Note 6)
|
|
|
1
|
|
|
|
-
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
Employee
stock options exercised and restricted stock issued (Note
8)
|
|
|
5
|
|
|
|
3
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
Employee
stock purchase plan (Note 8)
|
|
|
3
|
|
|
|
2
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
|
Balance
February 1, 2008
|
|
|
1,458
|
|
|
$
|
729
|
|
|
$
|
16
|
|
|
$
|
15,345
|
|
|
$
|
8
|
|
|
$
|
16,098
|
|
|
Comprehensive
income (Note 1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,195
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
Net
unrealized investment losses (Note 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,181
|
|
|
Tax
effect of non-qualified stock options exercised
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
Cash
dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(491
|
)
|
|
|
|
|
|
|
(491
|
)
|
|
Share-based
payment expense (Note 8)
|
|
|
|
|
|
|
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
95
|
|
|
Repurchase
of common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
Conversion
of debt to common stock (Note 6)
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
Employee
stock options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
stock options exercised and restricted stock issued (Note
8)
|
|
|
8
|
|
|
|
4
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
98
|
|
|
Employee
stock purchase plan (Note 8)
|
|
|
4
|
|
|
|
2
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
76
|
|
|
Balance
January 30, 2009
|
|
|
1,470
|
|
|
$
|
735
|
|
|
$
|
277
|
|
|
$
|
17,049
|
|
|
$
|
(6
|
)
|
|
$
|
18,055
|
|
See
accompanying notes to consolidated financial statements.
|
Lowe's
Companies, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
January
30,
|
|
|
February
1,
|
|
|
February
2,
|
|
|
Fiscal
years ended on
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
$
|
2,195
|
|
|
$
|
2,809
|
|
|
$
|
3,105
|
|
|
Adjustments
to reconcile net earnings to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
1,667
|
|
|
|
1,464
|
|
|
|
1,237
|
|
|
Deferred
income taxes
|
|
69
|
|
|
|
2
|
|
|
|
(6
|
)
|
|
Loss
on property and other assets
|
|
89
|
|
|
|
51
|
|
|
|
23
|
|
|
Loss
on redemption of long-term debt
|
|
8
|
|
|
|
-
|
|
|
|
-
|
|
|
Transaction
loss from exchange rate changes
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
Share-based
payment expense
|
|
95
|
|
|
|
99
|
|
|
|
62
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise
inventory - net
|
|
(611
|
)
|
|
|
(464
|
)
|
|
|
(509
|
)
|
|
Other
operating assets
|
|
31
|
|
|
|
(64
|
)
|
|
|
(135
|
)
|
|
Accounts
payable
|
|
402
|
|
|
|
185
|
|
|
|
692
|
|
|
Other
operating liabilities
|
|
174
|
|
|
|
265
|
|
|
|
33
|
|
|
Net
cash provided by operating activities
|
|
4,122
|
|
|
|
4,347
|
|
|
|
4,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of short-term investments
|
|
(210
|
)
|
|
|
(920
|
)
|
|
|
(284
|
)
|
|
Proceeds
from sale/maturity of short-term investments
|
|
431
|
|
|
|
1,183
|
|
|
|
572
|
|
|
Purchases
of long-term investments
|
|
(1,148
|
)
|
|
|
(1,588
|
)
|
|
|
(558
|
)
|
|
Proceeds
from sale/maturity of long-term investments
|
|
994
|
|
|
|
1,162
|
|
|
|
415
|
|
|
Increase
in other long-term assets
|
|
(56
|
)
|
|
|
(7
|
)
|
|
|
(16
|
)
|
|
Property
acquired
|
|
(3,266
|
)
|
|
|
(4,010
|
)
|
|
|
(3,916
|
)
|
|
Proceeds
from sale of property and other long-term assets
|
|
29
|
|
|
|
57
|
|
|
|
72
|
|
|
Net
cash used in investing activities
|
|
(3,226
|
)
|
|
|
(4,123
|
)
|
|
|
(3,715
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in short-term borrowings
|
|
(57
|
)
|
|
|
1,041
|
|
|
|
23
|
|
|
Proceeds
from issuance of long-term debt
|
|
15
|
|
|
|
1,296
|
|
|
|
989
|
|
|
Repayment
of long-term debt
|
|
(573
|
)
|
|
|
(96
|
)
|
|
|
(33
|
)
|
|
Proceeds
from issuance of common stock under employee stock purchase
plan
|
|
76
|
|
|
|
80
|
|
|
|
76
|
|
|
Proceeds
from issuance of common stock from stock options exercised
|
|
98
|
|
|
|
69
|
|
|
|
100
|
|
|
Cash
dividend payments
|
|
(491
|
)
|
|
|
(428
|
)
|
|
|
(276
|
)
|
|
Repurchase
of common stock
|
|
(8
|
)
|
|
|
(2,275
|
)
|
|
|
(1,737
|
)
|
|
Excess
tax benefits of share-based payments
|
|
1
|
|
|
|
6
|
|
|
|
12
|
|
|
Net
cash used in financing activities
|
|
(939
|
)
|
|
|
(307
|
)
|
|
|
(846
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
(36
|
)
|
|
|
(83
|
)
|
|
|
(59
|
)
|
|
Cash
and cash equivalents, beginning of year
|
|
281
|
|
|
|
364
|
|
|
|
423
|
|
|
Cash
and cash equivalents, end of year
|
$
|
245
|
|
|
$
|
281
|
|
|
$
|
364
|
|
See
accompanying notes to consolidated financial statements.
YEARS
ENDED JANUARY 30, 2009, FEBRUARY 1, 2008 AND FEBRUARY 2, 2007
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 1,649 stores in the United States and
Canada at January 30, 2009. Below are those accounting policies
considered by the Company to be significant.
Fiscal Year -
The Company’s
fiscal year ends on the Friday nearest the end of January. Each of
the fiscal years presented contained 52 weeks. All references herein for the
years 2008, 2007 and 2006 represent the fiscal years ended January 30, 2009,
February 1, 2008 and February 2, 2007, respectively.
Principles of Consolidation
-
The consolidated financial statements include the accounts of the Company and
its wholly-owned or controlled operating subsidiaries. All material intercompany
accounts and transactions have been eliminated.
Foreign Currency
- The
functional currencies of the Company’s international subsidiaries are primarily
the local currencies of the countries in which the subsidiaries are located.
Foreign currency denominated assets and liabilities are translated into U.S.
dollars using the exchange rates in effect at the consolidated balance sheet
date. Results of operations and cash flows are translated using the average
exchange rates throughout the period. The effect of exchange rate fluctuations
on translation of assets and liabilities is included as a component of
shareholders' equity in accumulated other comprehensive (loss) income. Gains and
losses from foreign currency transactions, which are included in selling,
general and administrative (SG&A) expense, have not been
significant.
Use of Estimates
- The
preparation of the Company’s financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates that affect the reported amounts of assets,
liabilities, sales and expenses, and related disclosures of contingent assets
and liabilities. The Company bases these estimates on historical
results and various other assumptions believed to be reasonable, all of which
form the basis for making estimates concerning the carrying values of assets and
liabilities that are not readily available from other sources. Actual
results may differ from these estimates.
Cash and Cash Equivalents
-
Cash and cash equivalents include cash on hand, demand deposits and short-term
investments with original maturities of three months or less when
purchased. The majority of payments due from financial institutions
for the settlement of credit card and debit card transactions process within two
business days and are, therefore, classified as cash and cash
equivalents.
Investments
- The Company has
a cash management program which provides for the investment of cash balances not
expected to be used in current operations in financial instruments that have
maturities of up to 10 years. Variable-rate demand notes, which have stated
maturity dates in excess of 10 years, meet this maturity requirement of the cash
management program because the maturity date of these investments is determined
based on the interest rate reset date or par value put date for the purpose of
applying this criteria.
Investments,
exclusive of cash equivalents, with a stated maturity date of one year or less
from the balance sheet date or that are expected to be used in current
operations, are classified as short-term investments. The Company’s trading
securities are also classified as short-term investments. All other
investments are classified as long-term. As of January 30, 2009, investments
consisted primarily of money market funds, certificates of deposit, municipal
obligations and mutual funds. Restricted balances pledged as
collateral for letters of credit for the Company’s extended warranty program and
for a portion of the Company’s casualty insurance and Installed Sales program
liabilities are also classified as investments.
The
Company maintains investment securities in conjunction with certain employee
benefit plans that are classified as trading securities. These
securities are carried at fair market value with unrealized gains and losses
included in SG&A expense. All other investment securities are
classified as available-for-sale and are carried at fair market value with
unrealized gains and losses included in accumulated other comprehensive (loss)
income in shareholders' equity.
Merchandise Inventory
-
Inventory is stated at the lower of cost or market using the first-in, first-out
method of inventory accounting. The cost of inventory also includes certain
costs associated with the preparation of inventory for resale, including
distribution center costs, and is net of vendor funds.
The
Company records an inventory reserve for the anticipated loss associated with
selling inventories below cost. This reserve is based on management’s
current knowledge with respect to inventory levels, sales trends and historical
experience. Management does not believe the Company’s merchandise inventories
are subject to significant risk of obsolescence in the near term, and management
has the ability to adjust purchasing practices based on anticipated sales trends
and general economic conditions. However, changes in consumer purchasing
patterns could result in the need for additional reserves. The
Company also records an inventory reserve for the estimated shrinkage between
physical inventories. This reserve is based primarily on actual
shrink results from previous physical inventories. Changes in the
estimated shrink reserve may be necessary based on the timing and results of
physical inventories. Management believes it has sufficient current and
historical knowledge to record reasonable estimates for both of these inventory
reserves.
Derivative
Financial Instruments
- The
Company occasionally utilizes derivative financial instruments to manage certain
business risks. However, the amounts were not material to the
Company’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. The Company has an agreement with General
Electric Company and its subsidiaries (GE) under which GE purchases at face
value new commercial business accounts receivable originated by the Company and
services these accounts. This agreement ends in December 2016, unless
terminated sooner by the parties. The Company accounts for these
transfers as sales of accounts receivable. When the Company sells its
commercial business accounts receivable, it retains certain interests in those
receivables, including the funding of a loss reserve and its obligation related
to GE’s ongoing servicing of the receivables sold. Any gain or loss
on the sale is determined based on the previous carrying amounts of the
transferred assets allocated at fair value between the receivables sold and the
interests retained. Fair value is based on the present value of expected future
cash flows, taking into account the key assumptions of anticipated credit
losses, payment rates, late fee rates, GE’s servicing costs and the discount
rate commensurate with the uncertainty involved. Due to the
short-term nature of the receivables sold, changes to the key assumptions would
not materially impact the recorded gain or loss on the sales of receivables or
the fair value of the retained interests in the receivables.
Total
commercial business accounts receivable sold to GE were $1.7 billion in 2008 and
$1.8 billion in both 2007 and 2006. During 2008, 2007 and 2006, the
Company recognized losses of $38 million, $34 million and $35 million,
respectively, on these sales as SG&A expense, which primarily relates to the
fair value of the obligations incurred related to servicing costs that are
remitted to GE monthly. At January 30, 2009 and February 1, 2008, the
fair value of the retained interests was insignificant and was determined based
on the present value of expected future cash flows.
Sales
generated through the Company’s proprietary credit cards are not reflected in
receivables. Under an agreement with GE, credit is extended directly
to customers by GE. All credit-program-related services are performed
and controlled directly by GE. The Company has the option, but no
obligation, to purchase the receivables at the end of the agreement in December
2016. Tender costs, including amounts associated with accepting the
Company’s proprietary credit cards, are recorded in SG&A expense in the
consolidated statements of earnings.
The total
portfolio of receivables held by GE, including both receivables originated by GE
from the Company’s proprietary credit cards and commercial business accounts
receivable originated by the Company and sold to GE, approximated $6.8 billion
at January 30, 2009, and $6.6 billion at February 1, 2008.
Property and Depreciation
-
Property is recorded at cost. Costs associated with major additions are
capitalized and depreciated. Capital assets are expected to yield future
benefits and have useful lives which exceed one year. The total cost
of a capital asset generally includes all applicable sales taxes, delivery
costs, installation costs and other appropriate costs incurred by the Company in
the case of self-constructed assets. Upon disposal, the cost of
properties and related accumulated depreciation are removed from the accounts,
with gains and losses reflected in SG&A expense on the consolidated
statements of earnings.
Depreciation
is provided over the estimated useful lives of the depreciable assets. Assets
are depreciated using the straight-line method. Leasehold improvements are
depreciated over the shorter of their estimated useful lives or the term of the
related lease, which may include one or more option renewal periods where
failure to exercise such options
would
result in an economic penalty in such amount that renewal appears, at the
inception of the lease, to be reasonably assured. During the term of
a lease, if a substantial additional investment is made in a leased location,
the Company reevaluates its definition of lease term to determine whether the
investment, together with any penalties related to non-renewal, would constitute
an economic penalty in such amount that renewal appears, at the time of the
reevaluation, to be reasonably assured.
Long-Lived Asset Impairment/Exit
Activities
-
The carrying amounts of
long-lived assets are reviewed whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.
For
long-lived assets held-for-use, a potential impairment has occurred if projected
future undiscounted cash flows expected to result from the use and eventual
disposition of the assets are less than the carrying value of the
assets. An impairment loss is recognized when the carrying amount of
the long-lived asset is not recoverable and exceeds its fair
value. The Company estimates fair value based on projected future
discounted cash flows from the use and eventual disposition of the
assets.
For
long-lived assets to be abandoned, the Company considers the asset to be
disposed of when it ceases to be used. Until it ceases to be used,
the Company continues to classify the assets as held-for-use and tests for
potential impairment accordingly. If the Company commits to a plan to
abandon a long-lived asset before the end of its previously estimated useful
life, depreciation estimates are revised.
For
long-lived assets held-for-sale, an impairment charge is recorded if the
carrying amount of the asset exceeds its fair value less cost to
sell. Fair value is based on a market appraisal or a valuation
technique that considers various factors, including local market
conditions. A long-lived asset is not depreciated while it is
classified as held-for-sale.
The
charge for impairment is included in SG&A expense. The Company
recorded long-lived asset impairment charges of $21 million during 2008,
including $16 million for operating stores and $5 million for relocated stores,
closed stores and other excess properties. The Company recorded
long-lived asset impairment charges of $28 million and $5 million for relocated
stores, closed stores and other excess properties in 2007 and 2006,
respectively.
The net
carrying value for relocated stores, closed stores and other excess properties
that are expected to be sold within the next 12 months is classified as
held-for-sale and included in other current assets on the consolidated balance
sheets. Assets held-for-sale totaled $6 million at January 30, 2009
and $28 million at February 1, 2008. The net carrying value for
relocated stores, closed stores and other excess properties that do not meet the
held-for-sale criteria is included in other assets (non-current) on the
consolidated balance sheets and totaled $174 million and $91 million at January
30, 2009 and February 1, 2008, respectively.
When
operating leased locations are closed, a liability is recognized for the fair
value of future contractual obligations, including property taxes, utilities and
common area maintenance, net of estimated sublease income. The
liability, which is included in other current liabilities on the consolidated
balance sheets, was $7 million and $11 million at January 30, 2009 and February
1, 2008, respectively.
Leases
- For lease agreements
that provide for escalating rent payments or free-rent occupancy periods, the
Company recognizes rent expense on a straight-line basis over the non-cancelable
lease term and option renewal periods where failure to exercise such options
would result in an economic penalty in such amount that renewal appears, at the
inception of the lease, to be reasonably assured. The lease term
commences on the date that the Company takes possession of or controls the
physical use of the property. Deferred rent is included in other
liabilities (non-current) on the consolidated balance sheets.
Assets
under capital lease are amortized in accordance with the Company's normal
depreciation policy for owned assets or, if shorter, over the non-cancelable
lease term and any option renewal period where failure to exercise such option
would result in an economic penalty in such amount that renewal appears, at the
inception of the lease, to be reasonably
assured. The
amortization of the assets is included in depreciation expense on the
consolidated financial statements. During the term of a lease, if a
substantial additional investment is made in a leased location, the Company
reevaluates its definition of lease term.
Accounts Payable -
In June
2007, the Company entered into a customer-managed services agreement with a
third party to provide an accounts payable tracking system which facilitates
participating suppliers’ ability to finance payment obligations from the Company
with designated third-party financial institutions. Participating
suppliers may, at their sole discretion, make 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 or vendor funding, created by
facilitating suppliers’ ability to finance payment obligations at more favorable
discount rates, while providing them with greater working capital
flexibility.
The
Company’s obligations to its suppliers, including amounts due and scheduled
payment dates, are not impacted by suppliers’ decisions to finance amounts under
this arrangement. However, the Company’s right to offset balances due from
suppliers against payment obligations is restricted by this arrangement for
those payment obligations that have been financed by suppliers. As of
January 30, 2009 and February 1, 2008, $393 million and $77 million,
respectively, of the Company’s outstanding payment obligations had been placed
on the accounts payable tracking system, and participating suppliers had
financed $370 million and $48 million, respectively, of those payment
obligations to participating financial institutions.
Self-Insurance
- The Company
is self-insured for certain losses relating to workers’ compensation,
automobile, property, and general and product liability claims. The
Company has stop-loss coverage to limit the exposure arising from these
claims. The Company is also self-insured for certain losses relating
to extended warranty and medical and dental claims. Self-insurance
claims filed and claims incurred but not reported are accrued based upon
management’s estimates of the discounted ultimate cost for self-insured claims
incurred using actuarial assumptions followed in the insurance industry and
historical experience. Although management believes it has the
ability to reasonably estimate losses related to claims, it is possible that
actual results could differ from recorded self-insurance
liabilities.
Income Taxes
- The Company
establishes deferred income tax assets and liabilities for temporary differences
between the tax and financial accounting bases of assets and
liabilities. The tax effects of such differences are reflected in the
balance sheet at the enacted tax rates expected to be in effect when the
differences reverse. A valuation allowance is recorded to reduce the
carrying amount of deferred tax assets if it is more likely than not that all or
a portion of the asset will not be realized. The tax balances and
income tax expense recognized by the Company are based on management’s
interpretation of the tax statutes of multiple jurisdictions.
The
Company establishes a reserve for tax positions for which there is uncertainty
as to whether or not the position will be ultimately sustained. The
Company includes interest related to tax issues 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 possession of the merchandise. A provision for anticipated
merchandise returns is provided through a reduction of sales and cost of sales
in the period that the related sales are recorded. Revenues from
product installation services are recognized when the installation is
completed. Deferred revenues associated with amounts received for
which customers have not yet taken possession of merchandise or for which
installation has not yet been completed were $328 million and $332 million at
January 30, 2009, and February 1, 2008, respectively.
Revenues
from stored value cards, which include gift cards and returned merchandise
credits, are deferred and recognized when the cards are redeemed. The
liability associated with outstanding stored value cards was $346 million and
$385 million at January 30, 2009, and February 1, 2008, respectively, and these
amounts are included in deferred revenue on the consolidated balance
sheets.
The Company recognizes
income from unredeemed stored value cards at the point at which redemption
becomes remote. The Company’s stored value cards have no expiration date
or dormancy fees. Therefore, to determine when redemption is remote,
the Company analyzes an aging of the unredeemed 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 basis over
the respective contract term. Extended warranty contract terms
primarily range from one to four years from the date of purchase or the end of
the manufacturer’s warranty, as applicable. The Company’s extended
warranty deferred revenue is included in other liabilities (non-current) on the
consolidated balance sheets. Changes in deferred revenue for extended
warranty contracts are summarized as follows:
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
Extended
warranty deferred revenue, beginning of year
|
|
$
|
407
|
|
|
$
|
315
|
|
|
Additions
to deferred revenue
|
|
|
193
|
|
|
|
175
|
|
|
Deferred
revenue recognized
|
|
|
(121
|
)
|
|
|
(83
|
)
|
|
Extended
warranty deferred revenue, end of year
|
|
$
|
479
|
|
|
$
|
407
|
|
Incremental
direct acquisition costs associated with the sale of extended warranties are
also deferred and recognized as expense on a straight-line basis over the
respective contract term. Deferred costs associated with extended warranty
contracts were $121 million and $91 million at January 30, 2009 and February 1,
2008, respectively. The Company’s extended warranty deferred costs
are included in other assets (non-current) on the consolidated balance
sheets. All other costs, such as costs of services performed under
the contract, general and administrative expenses and advertising expenses are
expensed as incurred.
The
liability for extended warranty claims incurred is included in self-insurance
liabilities on the consolidated balance sheets. Changes in the
liability for extended warranty claims are summarized as follows:
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
Liability
for extended warranty claims, beginning of year
|
|
$
|
14
|
|
|
$
|
10
|
|
|
Accrual
for claims incurred
|
|
|
53
|
|
|
|
41
|
|
|
Claim
payments
|
|
|
(50
|
)
|
|
|
(37
|
)
|
|
Liability
for extended warranty claims, end of year
|
|
$
|
17
|
|
|
$
|
14
|
|
Cost of Sales and Selling, General
and Administrative Expenses -
The following lists the primary costs
classified in each major expense category:
|
Cost
of Sales
|
|
Selling,
General and Administrative
|
|
§
Total
cost of products sold, including:
-
Purchase
costs, net of vendor funds;
-
Freight
expenses associated with moving merchandise 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 by
third parties;
§
Costs
associated with inventory shrinkage and obsolescence.
|
|
§
Payroll
and benefit costs for retail and corporate employees;
§
Occupancy
costs of retail and corporate facilities;
§
Advertising;
§
Costs
associated with delivery of products from stores to
customers;
§
Third-party,
in-store service costs;
§
Tender
costs, including bank charges, costs associated with credit card
interchange fees and amounts associated with accepting the Company’s
proprietary credit cards;
§
Costs
associated with self-insured plans, and premium costs for stop-loss
coverage and fully insured plans;
§
Long-lived
asset impairment charges and gains/losses on disposal of
assets;
§
Other
administrative costs, such as supplies, and travel and
entertainment.
|
Vendor Funds
- The Company
receives funds from vendors in the normal course of business principally as a
result of purchase volumes, sales, early payments or promotions of vendors’
products. Based on the provisions of the vendor agreements in place,
management develops accrual rates by estimating the point at which the Company
will have completed its performance under the agreement and the amount agreed
upon will be earned. Due to the complexity and diversity of the
individual vendor agreements, the Company performs analyses and reviews
historical trends throughout the year to ensure the amounts earned are
appropriately recorded. As a part of these analyses, the Company
validates its accrual rates based on actual purchase trends and applies those
rates to actual purchase volumes to determine the amount of funds accrued by the
Company and receivable from the vendor. Amounts accrued throughout the year
could be impacted if actual purchase volumes differ from projected annual
purchase volumes, especially in the case of programs that provide for increased
funding when graduated purchase volumes are met.
Vendor
funds are treated as a reduction of inventory cost, unless they represent a
reimbursement of specific, incremental and identifiable costs incurred by the
Company to sell the vendor’s product. Substantially all of the vendor funds that
the Company receives do not meet the specific, incremental and identifiable
criteria. Therefore, the Company treats the majority of these funds as a
reduction in the cost of inventory as the amounts are accrued, and recognizes
these funds as a reduction of cost of sales when the inventory is
sold.
Advertising
- Costs associated
with advertising are charged to expense as incurred. Advertising
expenses were $789 million, $788 million and $873 million in 2008, 2007 and
2006, respectively.
Shipping and Handling Costs
-
The Company includes shipping and handling costs relating to the delivery of
products directly from vendors to customers by third parties in cost of
sales. Shipping and handling costs, which include salaries and
vehicle operations expenses relating to the delivery of products from stores to
customers, are classified as SG&A expense. Shipping and handling
costs included in SG&A expense were $305 million, $307 million and $310
million in 2008, 2007 and 2006, respectively.
Store Opening Costs
- Costs of
opening 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 on its consolidated statements of
shareholders’ equity. Comprehensive income represents changes in
shareholders' equity from non-owner sources and is comprised primarily of net
earnings plus or minus unrealized gains or losses on available-for-sale
securities, as well as foreign currency translation
adjustments. Unrealized gains, net of tax, on available-for-sale
securities classified in accumulated other comprehensive (loss) income on the
consolidated balance sheets were $2 million at both January 30, 2009 and
February 1, 2008. Foreign currency translation losses, net of tax,
classified in accumulated other comprehensive (loss) income were $8 million at
January 30, 2009, and foreign currency translation gains, net of tax, were $6
million at February 1, 2008. The reclassification adjustments for
gains/losses included in net earnings were not significant for any of the
periods presented.
Recent Accounting Pronouncements
- In June 2008, the Financial Accounting Standards Board (FASB) issued
FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment
Transactions are Participating Securities”. FSP EITF 03-6-1 addresses
whether instruments granted in share-based payment transactions are
participating securities prior to vesting and affects entities that accrue cash
dividends on share-based payment awards during the awards’ service period when
the dividends do not need to be returned if the employees forfeit the
awards. FSP EITF 03-6-1 states that all outstanding unvested
share-based payment awards that contain rights to nonforfeitable dividends
participate in undistributed earnings with common shareholders and, therefore,
need to be included in the earnings allocation in computing earnings per share
under the two-class method. FSP EITF 03-6-1 is effective for fiscal
years beginning after December 15, 2008, and interim periods within those fiscal
years. The Company does not expect the adoption of FSP EITF 03-6-1 to
have a material impact 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
stores exhibit similar long-term economic characteristics, sell similar products
and services, use similar processes to sell those products and services, and
sell their products and services to similar classes
of
customers. The
amounts of long-lived assets and net sales outside the U.S. were not significant
for any of the periods presented.
Reclassifications
- Certain
prior period amounts have been reclassified to conform to current
classifications. The previous accrued salaries and wages caption was replaced
with a new caption, accrued compensation and employee benefits, on the
consolidated balance sheets. As part of this, certain prior period amounts were
reclassified from other current liabilities into accrued compensation and
employee benefits.
NOTE
2: Fair Value Measurements and Financial Instruments -
Statement
of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements,”
provides a single definition of fair value, together with a framework for
measuring it, and requires additional disclosure about the use of fair value to
measure assets and liabilities. FASB Staff Position (FSP) FAS 157-2,
“Effective Date of FASB Statement No. 157” delayed the effective date for one
year for all nonrecurring fair value measurements of nonfinancial assets and
liabilities. As a result, the Company’s adoption of SFAS No. 157,
effective February 2, 2008, is currently limited to financial assets and
liabilities measured at fair value and other nonfinancial assets and liabilities
measured at fair value on a recurring basis. The Company elected a
partial deferral under the provisions of FSP FAS 157-2 related to the
measurement of fair value used when evaluating long-lived assets for impairment
and liabilities for exit or disposal activities.
SFAS No.
157 defines fair value 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. SFAS No. 157 establishes a
three-level hierarchy, which encourages an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring
fair value. The three levels of the hierarchy are defined as
follows:
|
|
•
|
|
Level
1 – inputs to the valuation techniques that are quoted prices in active
markets for identical assets or
liabilities
|
|
|
•
|
|
Level
2 – inputs to the valuation techniques that are other than quoted prices
but are observable for the assets or liabilities, either directly or
indirectly
|
|
|
•
|
|
Level
3 – inputs to the valuation techniques that are unobservable for the
assets or liabilities
|
The
effect of partially adopting this standard did not result in changes to the
valuation techniques the Company had previously used to measure the fair value
of its financial assets and liabilities. Therefore, the primary
impact to the Company upon partial adoption of SFAS No. 157 was expanded fair
value measurement disclosure.
The
following table presents the Company’s financial assets measured at fair value
on a recurring basis as of January 30, 2009, classified by SFAS No. 157
fair value hierarchy:
|
|
|
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
|
Quoted
Prices in Active Markets for Identical Assets
|
|
|
Significant
Other Observable Inputs
|
|
|
Significant
Unobservable Inputs
|
|
|
(In
millions)
|
|
January
30, 2009
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
|
Short-term
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
$
|
385
|
|
|
$
|
81
|
|
|
$
|
304
|
|
|
$
|
-
|
|
|
Trading
securities
|
|
|
31
|
|
|
|
31
|
|
|
|
-
|
|
|
|
-
|
|
|
Long-term
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
|
253
|
|
|
|
-
|
|
|
|
253
|
|
|
|
-
|
|
|
Total
investments
|
|
$
|
669
|
|
|
$
|
112
|
|
|
$
|
557
|
|
|
$
|
-
|
|
When
available, quoted prices are used to determine fair value. When
quoted prices in active markets are available, investments are classified within
Level 1 of the fair value hierarchy. The Company’s Level 1
investments primarily
consist
of investments in money market and mutual funds. When quoted prices
in active markets are not available, fair values are determined using pricing
models and the inputs to those pricing models are based on observable market
inputs in active markets. The inputs to the pricing models are
typically benchmark yields, reported trades, broker-dealer quotes, issuer
spreads and benchmark securities, among others. The Company’s Level 2
investments primarily consist of investments in municipal
obligations.
The
Company’s other financial instruments not measured at fair value on a recurring
basis include cash and cash equivalents, accounts receivable, short-term
borrowings, accounts payable, accrued liabilities, and long-term debt and are
reflected in the financial statements at cost. With the exception of long-term
debt, cost approximates fair value for these items due to their short-term
nature. 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 currently available to the Company for
issuance of debt with similar terms and remaining maturities are used to
estimate fair value.
Carrying
amounts and the related estimated fair value of the Company’s long-term debt,
excluding capital leases and other, is as follows:
|
|
|
January
30, 2009
|
|
|
February
1, 2008
|
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
(In
millions)
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt (excluding capital leases and other)
|
$
|
4,726
|
|
|
$
|
4,653
|
|
|
$
|
5,245
|
|
|
$
|
5,406
|
|
NOTE
3: Investments -
The
amortized costs, gross unrealized holding
gains
and losses,
and fair values of the Company’s investment securities classified as
available-for-sale at January 30, 2009, and February 1, 2008, are as
follows:
|
|
|
January
30, 2009
|
|
|
Type
|
|
Amortized
|
|
|
Gross
Unrealized
|
|
|
Gross
Unrealized
|
|
|
Fair
|
|
|
(In
millions)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Municipal
obligations
|
|
$
|
301
|
|
|
$
|
3
|
|
|
$
|
-
|
|
|
$
|
304
|
|
|
Money
market funds
|
|
|
79
|
|
|
|
-
|
|
|
|
-
|
|
|
|
79
|
|
|
Certificates
of deposit
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
Classified
as short-term
|
|
|
382
|
|
|
|
3
|
|
|
|
-
|
|
|
|
385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
obligations
|
|
|
248
|
|
|
|
5
|
|
|
|
-
|
|
|
|
253
|
|
|
Classified
as long-term
|
|
|
248
|
|
|
|
5
|
|
|
|
-
|
|
|
|
253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
630
|
|
|
$
|
8
|
|
|
$
|
-
|
|
|
$
|
638
|
|
|
|
|
February
1, 2008
|
|
|
Type
|
|
Amortized
|
|
|
Gross
Unrealized
|
|
|
Gross
Unrealized
|
|
|
Fair
|
|
|
(In
millions)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Municipal
obligations
|
|
$
|
117
|
|
|
$
|
1
|
|
|
$
|
-
|
|
|
$
|
118
|
|
|
Money
market funds
|
|
|
128
|
|
|
|
-
|
|
|
|
-
|
|
|
|
128
|
|
|
Certificates
of deposit
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
Classified
as short-term
|
|
|
248
|
|
|
|
1
|
|
|
|
-
|
|
|
|
249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
obligations
|
|
|
462
|
|
|
|
5
|
|
|
|
-
|
|
|
|
467
|
|
|
Mutual
funds
|
|
|
42
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
42
|
|
|
Classified
as long-term
|
|
|
504
|
|
|
|
6
|
|
|
|
(1
|
)
|
|
|
509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
752
|
|
|
$
|
7
|
|
|
$
|
(1
|
)
|
|
$
|
758
|
|
The
proceeds from sales of available-for-sale securities were $1.0 billion, $1.2
billion and $412 million for 2008, 2007 and 2006, respectively. Gross
realized gains and losses on the sale of available-for-sale securities were not
significant for any of the periods presented. The municipal
obligations classified as long-term at January 30, 2009, will mature in one to
32 years, based on stated maturity dates.
The
Company adopted SFAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities, Including an Amendment of FASB Statement No. 115,”
effective February 2, 2008. SFAS No. 159 provides entities with an
option to measure many financial instruments and certain other items at fair
value, including available-for-sale securities previously accounted for under
SFAS No. 115, “Accounting for Certain Investments in Debt and Equity
Securities.” Under SFAS No. 159, unrealized gains and losses on items
for which the fair value option has been elected are reported in earnings at
each reporting period. Upon adoption of SFAS No. 159, the Company
elected the fair value option for certain pre-existing investments, which had a
carrying value of $42 million and were included in long-term investments in the
consolidated balance sheet at February 2, 2008. These investments are
now reported as trading securities under SFAS No. 115. Trading
securities are included in short-term investments and were $31 million at
January 30, 2009. For the year ended January 30, 2009, unrealized
losses on those trading securities totaled $14 million and were included in
SG&A expense. Cash flows from purchases, sales and maturities of
trading securities continue to be included in cash flows from investing
activities in the consolidated statements of cash flows because the nature and
purpose for which the securities were acquired has not changed as a result of
the SFAS No. 159 election. The adoption of SFAS No. 159 did not have
a material impact on the Company’s consolidated financial
statements.
Short-term
and long-term investments include restricted balances pledged as collateral for
letters of credit for the Company’s extended warranty program and for a portion
of the Company’s casualty insurance and Installed Sales program
liabilities. Restricted balances included in short-term investments
were $214 million at January 30, 2009 and $167 million at February 1,
2008. Restricted balances included in long-term investments were $143
million at January 30, 2009 and $172 million at February 1, 2008.
NOTE
4: Property and Accumulated Depreciation -
Property
is summarized by major class in the following table:
|
(In
millions)
|
|
Estimated
Depreciable Lives, In Years
|
|
|
January
30,
2009
|
|
|
February
1,
2008
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
N/A
|
|
|
$
|
6,144
|
|
|
$
|
5,566
|
|
|
Buildings
|
|
|
7-40
|
|
|
|
11,258
|
|
|
|
10,036
|
|
|
Equipment
|
|
|
3-15
|
|
|
|
8,797
|
|
|
|
8,118
|
|
|
Leasehold
improvements
|
|
|
5-40
|
|
|
|
3,576
|
|
|
|
3,063
|
|
|
Construction
in progress
|
|
|
N/A
|
|
|
|
1,702
|
|
|
|
2,053
|
|
|
Total
cost
|
|
|
|
|
|
|
31,477
|
|
|
|
28,836
|
|
|
Accumulated
depreciation
|
|
|
|
|
|
|
(8,755
|
)
|
|
|
(7,475
|
)
|
|
Property,
less accumulated depreciation
|
|
|
|
|
|
$
|
22,722
|
|
|
$
|
21,361
|
|
Included
in net property are assets under capital lease of $521 million, less accumulated
depreciation of $318 million, at January 30, 2009, and $523 million, less
accumulated depreciation of $294 million, at February 1, 2008.
NOTE
5: Short-Term Borrowings and Lines of Credit -
The
Company has a $1.75 billion senior credit facility that expires in June
2012. The senior credit facility supports the Company’s commercial
paper and revolving credit programs. The senior credit facility has a $500
million letter of credit sublimit. Amounts outstanding under letters
of credit reduce the amount available for borrowing under the senior credit
facility. Borrowings made under the senior credit facility are
unsecured and are priced at fixed rates based upon market conditions at the time
of funding in accordance with the terms of the senior credit
facility. The senior credit facility contains certain restrictive
covenants, which include maintenance of a debt leverage ratio as defined by the
senior credit
facility. The
Company was in compliance with those covenants at January 30, 2009.
Nineteen banking institutions are participating in the senior credit
facility. As of January 30, 2009, there was $789 million outstanding
under the commercial paper program, and the weighted-average interest rate on
the outstanding commercial paper was 0.84%. As of February 1, 2008,
there was $1.0 billion outstanding under the commercial paper program and the
weighted-average interest rate on the outstanding commercial paper was
3.92%. As of January 30, 2009, there were no letters of credit
outstanding under the senior credit facility.
In
addition, the Company had standby and documentary letters of credit issued
through other banking arrangements which totaled $224 million as of January 30,
2009, and $299 million as of February 1, 2008. Commitment fees ranging from
0.225% to 0.50% per annum are paid on the letters of credit amounts
outstanding.
The
Company had a Canadian dollar (C$) denominated credit facility in the amount of
C$200 million that expired March 30, 2009. The outstanding borrowings
at expiration were repaid with net cash provided by operating
activities. The credit facility was established for the purpose of
funding the construction of retail stores and for working capital and other
general corporate purposes in Canada. Borrowings made were unsecured
and were priced at fixed rates based upon market conditions at the time of
funding in accordance with the terms of the credit facility. The
credit facility contained certain restrictive covenants, which included
maintenance of a debt leverage ratio as defined by the credit
facility. The Company was in compliance with those covenants at
January 30, 2009. Three banking institutions participated in the
credit facility. As of January 30, 2009, there was C$199 million, or
the equivalent of $162 million, outstanding under the credit facility, and the
weighted-average interest rate on the short-term borrowings was
2.65%. As of February 1, 2008, there was C$60 million, or the
equivalent of $60 million, outstanding under the credit facility, and the
weighted-average interest rate on the short-term borrowings was
5.75%.
The
Company also has a C$ denominated credit facility in the amount of C$50 million
that provides revolving credit support for the Company’s Canadian
operations. This uncommitted credit facility provides the Company
with the ability to make unsecured borrowings, which are priced at fixed rates
based upon market conditions at the time of funding in accordance with the terms
of the credit facility. As of January 30, 2009, there was C$44
million, or the equivalent of $36 million, outstanding under the credit
facility, and the weighted-average interest rate on the short-term borrowings
was 1.60%. As of February 1, 2008, there were no borrowings
outstanding under the credit facility.
NOTE
6: Long-Term Debt -
|
|
|
|
|
Fiscal
Year
|
|
|
|
|
|
|
(In
millions)
|
|
|
|
of
Final
|
|
January
30,
|
|
February
1,
|
|
|
Debt
Category
|
|
Interest
Rates
|
|
Maturity
|
|
2009
|
|
2008
|
|
|
Secured debt:
1
|
|
|
|
|
|
|
|
|
|
|
Mortgage
notes
|
|
7.00
to 8.25%
|
|
2018
|
|
$
|
27
|
|
$
|
33
|
|
|
Unsecured
debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
Debentures
|
|
6.50
to 6.88%
|
|
2029
|
|
|
694
|
|
|
694
|
|
|
Notes
|
|
|
8.25%
|
|
2010
|
|
|
500
|
|
|
499
|
|
|
Medium-term
notes - series A
|
|
8.19
to 8.20%
|
|
2023
|
|
|
15
|
|
|
20
|
|
|
Medium-term
notes - series B
2
|
|
7.11
to 7.61%
|
|
2037
|
|
|
217
|
|
|
217
|
|
|
Senior
notes
|
|
5.00
to 6.65%
|
|
2037
|
|
|
3,273
|
|
|
3,271
|
|
|
Convertible
notes
|
|
|
|
|
|
|
|
-
|
|
|
511
|
|
|
Capital
leases and other
|
|
|
|
|
2030
|
|
|
347
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
long-term debt
|
|
|
|
|
|
|
|
5,073
|
|
|
5,616
|
|
|
Less
current maturities
|
|
|
|
|
|
|
|
34
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, excluding current maturities
|
|
|
|
|
|
|
$
|
5,039
|
|
$
|
5,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Real properties with an aggregate book value of $35 million were pledged
as collateral at January 30, 2009, for secured
debt.
|
|
|
2
Approximately 46% of
these medium-term notes may be put at the option of the holder on the 20th
anniversary of the issue at par value. The medium-term notes
were issued in 1997. None of these notes are currently
putable.
|
Debt
maturities, exclusive of unamortized original issue discounts, capital leases
and other, for the next five years and thereafter are as follows: 2009, $1
million; 2010, $519 million; 2011, $1 million; 2012, $551 million; 2013, $1
million; thereafter, $3.7 billion.
The
Company’s debentures, notes, medium-term notes and senior notes contain certain
restrictive covenants. The Company was in compliance with all
covenants of these agreements at January 30, 2009.
Senior
Notes
In
September 2007, the Company issued $1.3 billion of unsecured senior notes,
comprised of three tranches: $550 million of 5.60% senior notes maturing in
September 2012, $250 million of 6.10% senior notes maturing in September 2017
and $500 million of 6.65% senior notes maturing in September
2037. The 5.60%, 6.10% and 6.65% senior notes were issued at
discounts of approximately $2.7 million, $1.3 million and $6.3 million,
respectively. Interest on the senior notes is payable semiannually in
arrears in March and September of each year until maturity, beginning in March
2008. The discount associated with the issuance is included in
long-term debt and is being 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.
In
October 2006, the Company issued $1.0 billion of unsecured senior notes,
comprised of two tranches: $550 million of 5.40% senior notes maturing in
October 2016 and $450 million of 5.80% senior notes maturing in October
2036. The 5.40% senior notes and the 5.80% senior notes were each
issued at a discount of approximately $4.4 million. Interest on the
senior notes is payable semiannually in arrears in April and October of each
year until maturity, beginning in April 2007. The discount associated
with the issuance is included in long-term debt and is being amortized over the
respective terms of the senior notes. The net proceeds of
approximately $991 million were used for general 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 and 2006 may be redeemed by the Company at any time,
in whole or in part, at a redemption price plus accrued interest to the date of
redemption. The redemption price is equal to the greater of (1) 100% of the
principal amount of the senior notes to be redeemed, or (2) the sum of the
present values of the remaining scheduled payments of principal and interest
thereon, discounted to the date of redemption on a semiannual basis at specified
rates. The indenture under which the 2007 senior notes were issued also contains
a provision that allows the holders of the notes to require the Company to
repurchase all or any part of their notes if a change-in-control triggering
event occurs. If elected under the change-in-control provisions, the
repurchase of the notes will occur at a purchase price of 101% of the principal
amount, plus accrued and unpaid interest, if any, on such notes to the date of
purchase. The indenture governing the senior notes does
not limit the aggregate principal amount of debt securities that the Company may
issue, nor is the Company required to maintain financial ratios or specified
levels of net worth or liquidity. However, the indenture contains various
restrictive covenants, none of which is expected to impact the Company’s
liquidity or capital resources.
Upon the
issuance of each of the series of senior notes previously described, the Company
evaluated the optionality features embedded in the notes and concluded that
these features do not require bifurcation from the host contracts and separate
accounting as derivative instruments.
Convertible
Notes
On June
30, 2008, the Company redeemed for cash approximately $19 million principal
amount, $14 million carrying amount, of its convertible notes issued in February
2001, which represented all remaining notes outstanding of such issue, at a
price equal to the sum of the issuance price plus accrued original issue
discount of such notes as of the redemption date ($730.71 per note).
During 2008 holders of an insignificant number of notes exercised their right to
convert their notes into shares of the Company’s common stock at the rate of
32.896 shares per note. During 2007, holders of $18
million
principal amount, $13 million carrying amount, of notes issued in February 2001
exercised their right to convert the notes into approximately 0.6 million shares
of the Company’s common stock at the rate of 32.896 shares per note.
On June
25, 2008, the Company completed a single open-market repurchase of approximately
$187 million principal amount, $164 million carrying amount, of its senior
convertible notes issued in October 2001 at a price of $875.73 per note.
The Company subsequently redeemed for cash on June 30, 2008, approximately $392
million principal amount, $343 million carrying amount, of its senior
convertible notes issued in October 2001, which represented all remaining notes
outstanding of such issue, at a price equal to the sum of the issuance price
plus accrued original issue discount of such notes as of the redemption date
($875.73 per note). During 2008 and 2007, holders of an insignificant
number of notes exercised their right to convert their notes into shares of the
Company’s common stock at the rate of 34.424 shares per note.
Upon
redemption of these convertible notes, the Company recognized in SG&A
expense a loss of approximately $8 million related to the unamortized debt
issuance costs and underwriting discounts.
NOTE
7: Shareholders' Equity -
Authorized
shares of common stock were 5.6 billion ($.50 par value) at January 30, 2009 and
February 1, 2008.
The
Company has 5.0 million ($5 par value) authorized shares of preferred stock,
none of which have been issued. The Board of Directors may issue the preferred
stock (without action by shareholders) in one or more series, having such voting
rights, dividend and liquidation preferences, and such conversion and other
rights as may be designated by the Board of Directors at the time of
issuance.
The
Company has a share repurchase program that is implemented through purchases
made from time to time either in the open market or through private
transactions. Shares purchased under the share repurchase program are
retired and returned to authorized and unissued status. As of
February 3, 2006, the total remaining authorization under the share repurchase
program was $1.2 billion. In August 2006 and May 2007, the Board of
Directors authorized up to an additional $2 billion and $3 billion in share
repurchases through 2008 and 2009, respectively. The Company repurchased 56.8
million shares at a total cost of $1.7 billion (of which $160 million was
recorded as a reduction in retained earnings, after capital in excess of par
value was depleted) during 2006 and 76.4 million shares at a total cost of $2.3
billion (of which $1.9 billion was recorded as a reduction in retained earnings,
after capital in excess of par value was depleted) during 2007. No
common shares were repurchased under the share repurchase program during 2008.
As of January 30, 2009, the Company had remaining authorization through fiscal
2009 under the share repurchase program of $2.2 billion.
NOTE
8: Accounting for Share-Based Payment -
Effective
February 4, 2006, the Company adopted the fair value recognition provisions of
SFAS No. 123(R), “Share-Based Payment,” using the
modified-prospective-transition method. Prior to this, the Company
was applying the fair value recognition provisions of SFAS No. 123, “Accounting
for Stock-Based Compensation.” For all grants, the amount of
share-based payment expense recognized has been adjusted for estimated
forfeitures of awards for which the requisite service is not expected to be
provided. Estimated forfeiture rates are developed based on the Company’s
analysis of historical forfeiture data for homogeneous employee
groups.
The
Company recognized share-based payment expense in SG&A expense on the
consolidated statements of earnings totaling $95 million, $99 million and $62
million in 2008, 2007 and 2006, respectively. The total income tax
benefit recognized was $31 million, $32 million and $18 million in 2008, 2007
and 2006, respectively.
Total
unrecognized share-based payment expense for all share-based payment plans was
$95 million at January 30, 2009, of which $56 million will be recognized in
2009, $32 million in 2010 and $7 million thereafter. This results in
these amounts being recognized over a weighted-average period of 1.8
years.
Overview of Share-Based
Payment Plans
The
Company has (a) four equity incentive plans, referred to as the “2006,” “2001,”
“1997” and “1994” Incentive Plans, (b) one share-based plan to non-employee
directors, referred to as the Amended and Restated Directors’ Stock Option and
Deferred Stock Unit Plan (Directors’ Plan) and (c) an employee stock purchase
plan (ESPP) that allows employees to purchase Company shares through payroll
deductions. These plans contain a nondiscretionary antidilution
provision that is designed to equalize the value of an award as a result of an
equity restructuring. Share-based awards in the form of incentive and
non-qualified stock options, performance accelerated restricted stock (PARS),
performance-based restricted stock, restricted stock and deferred stock units,
which represent nonvested stock, may be granted to key employees from the 2006
plan. No new awards may be granted from the 2001, 1997, 1994, and the
Directors’ Plans.
Under the
Directors’ Plan, 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 determine the
number of deferred stock units granted to each director was $115,000 in 2008,
2007 and 2006.
Share-based awards were
authorized for grant to key employees and non-employee directors for up to 169.0
million shares of common stock. Stock options were authorized for up
to 129.2 million shares, while P
ARS, performance-based restricted stock,
restricted stock and deferred stock units were authorized for up to 39.8 million
shares of common stock. Up to 45.0 million shares were authorized
under the ESPP.
At
January 30, 2009, there were 38.9 million shares remaining available for grant
under the 2006 Plan and 18.9
million
shares
available under the ESPP.
General
terms and methods of valuation for the Company’s share-based awards are as
follows
:
Stock
Options
Stock
options generally have terms of seven years, with normally one-third of each
grant vesting each year for three years, and are assigned an exercise price
equal to the closing market price of a share of the Company’s common stock on
the date of grant. These options are expensed on a straight-line
basis over the vesting period, which is considered to be the requisite service
period.
The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model. When determining expected
volatility, the Company considers the historical performance of the Company’s
stock, as well as implied volatility. The risk-free interest rate is
based on the U.S. Treasury yield curve in effect at the time of grant, based on
the options’ expected term. The expected term of the options is based
on the Company’s evaluation of option holders’ exercise patterns and represents
the period of time that options are expected to remain
unexercised. The Company uses historical data to estimate the timing
and amount of forfeitures. The assumptions used in the Black-Scholes
option-pricing model for options granted in the three years ended January 30,
2009, February 1, 2008 and February 2, 2007 are as follows:
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2006
|
|
|
Assumptions
used:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
volatility
|
|
|
25.0%-32.2%
|
|
|
|
22.6%-23.7%
|
|
|
|
22.3%-29.4%
|
|
|
Weighted-average
expected volatility
|
|
|
25.1%
|
|
|
|
23.7%
|
|
|
|
26.8%
|
|
|
Expected
dividend yield
|
|
|
0.56%-0.74%
|
|
|
|
0.37%-0.49%
|
|
|
|
0.27%-0.31%
|
|
|
Weighted-average
dividend yield
|
|
|
0.56%
|
|
|
|
0.37%
|
|
|
|
0.28%
|
|
|
Risk-free
interest rate
|
|
|
2.19%-3.09%
|
|
|
|
3.91%-4.57%
|
|
|
|
4.54%-4.97%
|
|
|
Weighted-average
risk-free interest rate
|
|
|
2.19%
|
|
|
|
4.52%
|
|
|
|
4.69%
|
|
|
Expected
term, in years
|
|
|
4
|
|
|
|
4
|
|
|
|
3-4
|
|
|
Weighted-average
expected term, in years
|
|
|
4
|
|
|
|
4
|
|
|
|
3.57
|
|
The
weighted-average grant-date fair value per share of options granted was $5.25,
$8.18 and $8.86 in 2008, 2007 and 2006, respectively. The total
intrinsic value of options exercised, representing the difference between the
exercise price and the market price on the date of exercise, was approximately
$17 million, $42 million and $80 million in 2008, 2007 and 2006,
respectively.
Transactions
related to stock options issued under the 2006, 2001, 1997, 1994 and Directors’
plans for the year ended January 30, 2009 are summarized as
follows:
|
|
|
Shares
(In
thousands)
|
|
|
Weighted-Average
Exercise Price Per Share
|
|
|
Weighted-Average
Remaining Term
(In
years)
|
|
|
Aggregate
Intrinsic Value (In thousands)
1
|
|
|
Outstanding
at February 1, 2008
|
|
|
27,567
|
|
|
$
|
26.65
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,109
|
|
|
|
23.94
|
|
|
|
|
|
|
|
|
Canceled,
forfeited or expired
|
|
|
(849
|
)
|
|
|
28.82
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(4,666
|
)
|
|
|
21.15
|
|
|
|
|
|
|
|
|
Outstanding
at January 30, 2009
|
|
|
25,161
|
|
|
|
27.26
|
|
|
|
2.94
|
|
|
$
|
50
|
|
|
Vested
and expected to vest at
January
30, 2009
2
|
|
|
25,093
|
|
|
|
27.27
|
|
|
|
2.93
|
|
|
|
50
|
|
|
Exercisable
at January 30, 2009
|
|
|
19,136
|
|
|
$
|
26.90
|
|
|
|
2.19
|
|
|
$
|
50
|
|
(1)
Options
for which the exercise price exceeded the closing market price of a share of the
Company’s common stock
at
January 30, 2009 are excluded from the calculation of aggregate intrinsic
value.
(2)
Includes
outstanding vested options as well as outstanding, nonvested options after a
forfeiture rate is applied.
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 are
achieved, in which case, awards vest 50% at the end of three years or 100% at
the end of four years. The performance acceleration goals are based
on targeted Company average return on beginning noncash assets, as defined in
the PARS agreement. PARS are expensed on a straight-line basis over
the shorter of the explicit service period related to the service condition or
the implicit service period related to the performance conditions, based on the
probability of meeting the conditions. The Company uses historical
data to estimate the timing and amount of forfeitures. The
weighted-average grant-date fair value per share of PARS granted was $34.10 in
2006. No PARS were granted in 2008 or 2007. The total fair value of
PARS vested was approximately $6 million in 2008. No PARS vested in
2007 or 2006.
Transactions
related to PARS issued under the 2006 and 2001 plans for the year ended January
30, 2009 are summarized as follows:
|
|
|
Shares
(In
thousands)
|
|
|
Weighted-Average
Grant-Date Fair Value Per Share
|
|
|
Nonvested
at February 1, 2008
|
|
|
1,375
|
|
|
$
|
32.19
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
Vested
|
|
|
(271
|
)
|
|
|
29.26
|
|
|
Canceled
or forfeited
|
|
|
(14
|
)
|
|
|
33.16
|
|
|
Nonvested
at January 30, 2009
|
|
|
1,090
|
|
|
$
|
32.91
|
|
Performance-Based Restricted
Stock Awards
Performance-based
restricted stock awards are valued at the market price of a share of the
Company’s common stock on the date of grant. In general, 25% to 100% of the
awards vest at the end of a three-year service period from the date of grant
based upon the achievement of a threshold and target performance goal specified
in the performance-based restricted stock agreement. The performance
goal is based on targeted Company average return on noncash assets, as defined
in the performance-based restricted stock agreement. These awards are
expensed on a straight-line basis over the requisite
service
period, based on the probability of achieving the performance goal. If the
performance goal is not met, no compensation cost is recognized and any
recognized compensation cost is reversed. The Company uses historical data to
estimate the timing and amount of forfeitures. The weighted-average
grant-date fair value per share of performance-based restricted stock awards
granted was $23.97 and $32.18 in 2008 and 2007, respectively. During
2008, the Company amended all 2007 performance-based restricted stock
agreements, modifying the performance goal to a prorated scale. No
performance-based restricted stock awards were granted in 2006. No
performance-based restricted stock awards vested in 2008, 2007 or
2006.
Transactions
related to performance-based restricted stock awards issued under the 2006 plan
for the year ended January 30, 2009 are summarized as follows:
|
|
|
Shares
(In
thousands)
|
|
|
Weighted-Average
Grant-Date Fair Value Per Share
|
|
|
Nonvested
at February 1, 2008
|
|
|
602
|
|
|
$
|
32.18
|
|
|
Granted
|
|
|
882
|
|
|
|
23.97
|
|
|
Canceled
or forfeited
|
|
|
-
|
|
|
|
-
|
|
|
Nonvested
at January 30, 2009
|
|
|
1,484
|
|
|
$
|
27.30
|
|
Restricted Stock
Awards
Restricted
stock awards 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 three- to five-year period from the date of grant and are expensed on a
straight-line basis over that period, which is considered to be the requisite
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 $23.75, $31.23 and
$27.34 in 2008, 2007 and 2006, respectively. The total fair value of restricted
stock awards vested was approximately $18 million and $17 million in 2008 and
2007, respectively. No restricted stock awards vested in
2006.
Transactions
related to restricted stock awards issued under the 2006 and 2001 plans for the
year ended January 30, 2009 are summarized as follows:
|
|
|
Shares
(In
thousands)
|
|
|
Weighted-Average
Grant-Date Fair Value Per Share
|
|
|
Nonvested
at February 1, 2008
|
|
|
3,108
|
|
|
$
|
31.31
|
|
|
Granted
|
|
|
2,537
|
|
|
|
23.75
|
|
|
Vested
|
|
|
(751
|
)
|
|
|
31.25
|
|
|
Canceled
or forfeited
|
|
|
(297
|
)
|
|
|
27.43
|
|
|
Nonvested
at January 30, 2009
|
|
|
4,597
|
|
|
$
|
27.40
|
|
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 at the end of a three- to five-year period from the date of grant and are
expensed on a straight-line basis over that period, which is considered to be
the requisite service period. The Company uses historical data to
estimate the timing and amount of forfeitures. For non-employee
directors, these awards vest immediately and are expensed on the grant
date. The weighted-average grant-date fair value per share of
deferred stock units granted was $24.00, $32.13 and $31.02 in 2008, 2007 and
2006, respectively. The total fair value of deferred stock units vested was
approximately $10 million, $1 million and $5 million in 2008, 2007 and 2006,
respectively. There were 640,997 deferred stock units outstanding at
January 30, 2009.
Transactions
related to deferred stock units issued under the 2001 and Directors’ plans for
the year ended January 30, 2009 are summarized as follows:
|
|
|
Shares
(In
thousands)
|
|
|
Weighted-Average
Grant-Date Fair Value Per Share
|
|
|
Nonvested
at February 1, 2008
|
|
|
380
|
|
|
$
|
19.65
|
|
|
Granted
|
|
|
48
|
|
|
|
24.00
|
|
|
Vested
|
|
|
(428
|
)
|
|
|
20.14
|
|
|
Nonvested
at January 30, 2009
|
|
|
-
|
|
|
$
|
-
|
|
ESPP
The
purchase price of the shares under the ESPP equals 85% of the closing price on
the date of purchase. The Company’s share-based payment expense is
equal to 15% 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 4,024,859 shares of common stock
pursuant to this plan during the year ended January 30, 2009.
NOTE
9: Employee Retirement Plans -
The
Company maintains a defined contribution retirement plan for its employees (the
401(k) Plan). Employees are eligible to participate in the 401(k)
Plan 180 days after their original date of service. Effective August
2008, employees are automatically enrolled in the Plan when they become eligible
at a 1% contribution, unless the employee elects
otherwise. Participants choose from a variety of options in order to
designate how both employer and employee contributions are to be
invested. If a Plan participant does not designate an investment
option, their employer and employee contributions are deposited into a Target
Date Retirement Fund option which most closely matches the participant’s
expected retirement date. The Company's common stock is also one of
the investment options for contributions to the 401(k) Plan. Company
shares held on the participants’ behalf by the 401(k) Plan
are
voted by the
participants. If the Plan participant does not give voting
instructions, the Company’s fiduciary committee directs the manner in which the
shares are to be voted. The Company makes contributions to the 401(k)
Plan each payroll period, based upon a matching formula applied to employee
contributions (baseline match). In 2006, the Company also offered a
performance match to eligible 401(k) Plan participants, based on growth of
Company earnings before taxes for the fiscal year. Effective May
2007, the Company increased the amount of the baseline match to a maximum of
4.25% (up from 2.25%) but will no longer offer a performance
match. Plan participants are eligible to receive the baseline match
after completing 180 days of service. The Company’s contributions to
the 401(k) Plan vest immediately in the participant accounts. Once
participants reach age 59 ½, they may elect to withdraw their entire 401(k) Plan
balance. This is a one-time, in-service distribution
option. Participants may also withdraw contributions and rollover
contributions for reasons of hardship, while still actively
employed. In addition, participants with 20 or more years of service
who have an Employee Stock Ownership Plan carry forward account balance within
the 401(k) Plan can elect to receive a one-time, in-service distribution of 50%
of this account balance.
The
Company maintains a Benefit Restoration Plan to supplement benefits provided
under the 401(k) Plan to 401(k) Plan participants whose benefits are restricted
as a result of certain provisions of the Internal Revenue Code of
1986. This Plan provides for employer contributions in the form of a
baseline match. In 2006, it also provided for a performance
match.
The
Company maintains a non-qualified deferred compensation program called the
Lowe’s Cash Deferral Plan. This Plan is designed to permit certain employees to
defer receipt of portions of their compensation, thereby delaying taxation on
the deferral amount and on subsequent earnings until the balance is
distributed. This Plan does not provide for employer
contributions.
The
Company recognized SG&A expense associated with employee retirement plans of
$112 million, $91 million and $42 million in 2008, 2007 and 2006,
respectively.
NOTE
10: Income Taxes -
The
following is a reconciliation of the effective tax rate to the federal statutory
tax rate:
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Statutory
federal income tax rate
|
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
|
State
income taxes, net of federal
tax
benefit
|
|
|
2.9
|
|
|
3.0
|
|
|
3.3
|
|
|
Other,
net
|
|
|
(0.5
|
)
|
|
(0.3
|
)
|
|
(0.4
|
)
|
|
Effective
tax rate
|
|
|
37.4
|
%
|
|
37.7
|
%
|
|
37.9
|
%
|
The
components of the income tax provision are as follows:
|
(In
millions)
|
|
2008
|
|
2007
|
|
2006
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
1,070
|
|
$
|
1,495
|
|
$
|
1,657
|
|
|
State
|
|
|
166
|
|
|
207
|
|
|
242
|
|
|
Total
current
|
|
|
1,236
|
|
|
1,702
|
|
|
1,899
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
82
|
|
|
(1
|
)
|
|
(11
|
)
|
|
State
|
|
|
(7
|
)
|
|
1
|
|
|
5
|
|
|
Total
deferred
|
|
|
75
|
|
|
-
|
|
|
(6
|
)
|
|
Total
income tax provision
|
|
$
|
1,311
|
|
$
|
1,702
|
|
$
|
1,893
|
|
The tax
effect of cumulative temporary differences that gave rise to the deferred tax
assets and liabilities is as follows:
|
(In
millions)
|
|
January
30, 2009
|
|
February
1, 2008
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
Self-insurance
|
|
$
|
221
|
|
$
|
189
|
|
|
Share-based
payment expense
|
|
|
95
|
|
|
81
|
|
|
Other,
net
|
|
|
223
|
|
|
205
|
|
|
Total
deferred tax assets
|
|
$
|
539
|
|
$
|
475
|
|
|
Valuation
allowance
|
|
|
(42
|
)
|
|
(22
|
)
|
|
Net
deferred tax assets
|
|
$
|
497
|
|
$
|
453
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
Property
|
|
$
|
(977
|
)
|
$
|
(834
|
)
|
|
Other,
net
|
|
|
(14
|
)
|
|
(42
|
)
|
|
Total
deferred tax liabilities
|
|
$
|
(991
|
)
|
$
|
(876
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax liability
|
|
$
|
(494
|
)
|
$
|
(423
|
)
|
The
Company operates as a branch in various foreign jurisdictions and cumulatively
has incurred net operating losses of $130 million and $63 million as of January
30, 2009 and February 1, 2008, respectively. The net operating losses
are subject to expiration in 2017 through 2028. Deferred tax assets
have been established for these net operating losses in the accompanying
consolidated balance sheets. Given the uncertainty regarding the
realization of the foreign net deferred tax assets, the Company recorded
cumulative valuation allowances of $42 million and $22 million as of January 30,
2009 and February 1, 2008, respectively.
The
Company adopted FASB Interpretation (FIN) No. 48, “Accounting for Uncertainty in
Income Taxes, an Interpretation of FASB Statement No. 109,” effective February
3, 2007. The cumulative effect of applying this Interpretation was
recorded as a decrease of $8 million to retained earnings, a decrease of $158
million to the net deferred tax liability, an increase of $146 million to the
reserve for unrecognized tax benefits, an increase of $13 million to accrued
interest, and an increase of $7 million to accrued penalties.
A
reconciliation of the beginning and ending balances of unrecognized tax benefits
is as follows:
|
(In
millions)
|
|
2008
|
|
2007
|
|
|
Unrecognized
tax benefits, beginning of year
|
|
$
|
138
|
|
$
|
186
|
|
|
Additions
for tax positions of prior years
|
|
|
82
|
|
|
11
|
|
|
Reductions
for tax positions of prior years
|
|
|
(16
|
)
|
|
(81
|
)
|
|
Additions
based on tax positions related to the current year
|
|
|
16
|
|
|
23
|
|
|
Settlements
|
|
|
(19
|
)
|
|
(1
|
)
|
|
Reductions
due to a lapse in applicable statute of limitations
|
|
|
(1
|
)
|
|
-
|
|
|
Unrecognized
tax benefits, end of year
|
|
$
|
200
|
|
$
|
138
|
|
The
amounts of unrecognized tax benefits that, if recognized, would favorably impact
the effective tax rate were $40 million and $46 million as of January 30, 2009
and February 1, 2008, respectively.
The
Company includes interest related to tax issues as part of net interest in the
consolidated financial statements. The Company records any applicable
penalties related to tax issues within the income tax provision. For
the year ended January 30, 2009, the Company recognized $10 million of interest
expense and a $3 million reduction in penalties related to uncertain tax
positions on the consolidated statement of earnings. As of January
30, 2009, the Company had $30 million of accrued interest and $9 million of
accrued penalties. For the year ended February 1, 2008, the Company
recognized $3 million of interest expense and $5 million of penalties related to
uncertain tax positions in the consolidated statement of earnings. As
of February 1, 2008, the Company had $24 million of accrued interest and $12
million of accrued penalties.
The
Company does not expect any changes in unrecognized tax benefits over the next
12 months to have a significant impact on the results of operations, the
financial position or the cash flows of the Company.
The
Company is subject to examination in the U.S. federal tax jurisdiction for
fiscal years 2004 forward. The Company is subject to examination in
major state tax jurisdictions for fiscal years 2002 forward. The Company
believes appropriate provisions for all outstanding issues have been made for
all jurisdictions and all open years.
NOTE
11: Earnings Per Share -
Basic
earnings per share excludes dilution and is computed by dividing the applicable
net earnings by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share is calculated based on the
weighted-average shares of common stock as of the balance sheet date, as
adjusted for the potential dilutive effect of share-based awards and convertible
notes. The following table reconciles earnings per share for 2008,
2007 and 2006:
|
(In
millions, except per share data)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Basic
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
2,195
|
|
|
$
|
2,809
|
|
|
$
|
3,105
|
|
|
Weighted-average
shares outstanding
|
|
|
1,457
|
|
|
|
1,481
|
|
|
|
1,535
|
|
|
Basic
earnings per share
|
|
$
|
1.51
|
|
|
$
|
1.90
|
|
|
$
|
2.02
|
|
|
Diluted
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
2,195
|
|
|
$
|
2,809
|
|
|
$
|
3,105
|
|
|
Net
earnings adjustment for interest on convertible notes, net of
tax
|
|
|
2
|
|
|
|
4
|
|
|
|
4
|
|
|
Net
earnings, as adjusted
|
|
$
|
2,197
|
|
|
$
|
2,813
|
|
|
$
|
3,109
|
|
|
Weighted-average
shares outstanding
|
|
|
1,457
|
|
|
|
1,481
|
|
|
|
1,535
|
|
|
Dilutive
effect of share-based awards
|
|
|
7
|
|
|
|
8
|
|
|
|
9
|
|
|
Dilutive
effect of convertible notes
|
|
|
8
|
|
|
|
21
|
|
|
|
22
|
|
|
Weighted-average
shares, as adjusted
|
|
|
1,472
|
|
|
|
1,510
|
|
|
|
1,566
|
|
|
Diluted
earnings per share
|
|
$
|
1.49
|
|
|
$
|
1.86
|
|
|
$
|
1.99
|
|
Stock
options to purchase 19.1 million, 7.8 million and 6.8 million shares of common
stock for 2008, 2007 and 2006, respectively, were excluded from the computation
of diluted earnings per share because their effect would have been
antidilutive.
NOTE
12: Leases -
The
Company leases store facilities and land for certain store facilities under
agreements with original terms generally of 20 years. For lease
agreements that provide for escalating rent payments or free-rent occupancy
periods, the Company recognizes rent expense on a straight-line basis over the
non-cancelable lease term and any option renewal period where failure to
exercise such option would result in an economic penalty in such amount that
renewal appears, at the inception of the lease, to be reasonably
assured. The lease term commences on the date that the Company takes
possession of or controls the physical use of the property. The leases generally
contain provisions for four to six renewal options of five years
each.
Some
lease agreements also provide for contingent rentals based on sales performance
in excess of specified minimums. Contingent rentals were not significant for any
of the periods presented.
The
Company subleases certain properties that are no longer held-for-use in
operations. Sublease income was not significant for any of the
periods presented.
Certain
equipment is also leased by the Company under agreements ranging from three to
five years. These agreements typically contain renewal options providing for a
renegotiation of the lease, at the Company's option, based on the fair market
value at that time.
The
future minimum rental payments required under capital and operating leases
having initial or remaining non-cancelable lease terms in excess of one year are
summarized as follows:
|
(In
millions)
|
|
|
Operating
Leases
|
|
Capital
Leases
|
|
|
|
|
|
Fiscal
Year
|
|
|
Real
Estate
|
|
|
Equipment
|
|
|
Real
Estate
|
|
|
Equipment
|
|
|
Total
|
|
|
2009
|
|
$
|
389
|
|
$
|
-
|
|
$
|
62
|
|
$
|
1
|
|
$
|
452
|
|
|
2010
|
|
|
389
|
|
|
-
|
|
|
61
|
|
|
-
|
|
|
450
|
|
|
2011
|
|
|
388
|
|
|
-
|
|
|
61
|
|
|
-
|
|
|
449
|
|
|
2012
|
|
|
384
|
|
|
-
|
|
|
61
|
|
|
-
|
|
|
445
|
|
|
2013
|
|
|
379
|
|
|
-
|
|
|
60
|
|
|
-
|
|
|
439
|
|
|
Later
years
|
|
|
4,256
|
|
|
-
|
|
|
237
|
|
|
-
|
|
|
4,493
|
|
|
Total
minimum lease payments
|
|
$
|
6,185
|
|
$
|
-
|
|
$
|
542
|
|
$
|
1
|
|
$
|
6,728
|
|
|
Total
minimum capital lease payments
|
|
|
|
|
|
|
|
$
|
543
|
|
|
|
|
|
Less
amount representing interest
|
|
|
|
|
|
|
|
|
197
|
|
|
|
|
|
Present
value of minimum lease payments
|
|
|
|
|
|
|
|
|
346
|
|
|
|
|
|
Less
current maturities
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
Present
value of minimum lease payments, less current maturities
|
|
|
|
|
|
|
|
$
|
314
|
|
|
|
|
Rental
expenses under operating leases for real estate and equipment were $399 million,
$369 million and $318 million in 2008, 2007 and 2006, respectively, and were
recognized in SG&A expense.
NOTE
13: Commitments and Contingencies -
The
Company is a defendant in legal proceedings considered to be in the normal
course of business, none of which, individually or collectively, are believed to
have a risk of having a material impact on the Company’s financial
statements. In evaluating liabilities associated with its various
legal proceedings, the Company has accrued for probable liabilities associated
with these matters. The amounts accrued were not material to the Company’s
consolidated financial statements in any of the years presented.
As of
January 30, 2009, the Company had non-cancelable commitments related to
purchases of merchandise inventory, property and construction of buildings, as
well as commitments related to certain marketing and information technology
programs of $1.0 billion. Payments under these commitments are
scheduled to be made as follows: 2009, $620 million; 2010, $295 million; 2011,
$50 million; 2012, $11 million; 2013, $5 million; thereafter, $14
million.
NOTE
14: 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 2008, the Company purchased products in
the amount of $92 million from this vendor, while in both 2007 and 2006 the
Company purchased products in the amount of $101 million from this vendor.
Amounts payable to this vendor were insignificant at January 30, 2009 and
February 1, 2008.
NOTE
15: Other Information -
Net
interest expense is comprised of the following:
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Long-term
debt
|
|
$
|
292
|
|
|
$
|
247
|
|
|
$
|
183
|
|
|
Short-term
borrowings
|
|
|
11
|
|
|
|
8
|
|
|
|
1
|
|
|
Capitalized
leases
|
|
|
31
|
|
|
|
32
|
|
|
|
34
|
|
|
Interest
income
|
|
|
(40
|
)
|
|
|
(45
|
)
|
|
|
(52
|
)
|
|
Interest
capitalized
|
|
|
(36
|
)
|
|
|
(65
|
)
|
|
|
(32
|
)
|
|
Other
|
|
|
22
|
|
|
|
17
|
|
|
|
20
|
|
|
Interest
- net
|
|
$
|
280
|
|
|
$
|
194
|
|
|
$
|
154
|
|
Supplemental
disclosures of cash flow information:
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cash
paid for interest, net of amount capitalized
|
|
$
|
309
|
|
|
$
|
198
|
|
|
$
|
179
|
|
|
Cash
paid for income taxes
|
|
$
|
1,138
|
|
|
$
|
1,725
|
|
|
$
|
2,031
|
|
|
Noncash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
Noncash
property acquisitions, including assets acquired under capital
lease
|
|
$
|
124
|
|
|
$
|
99
|
|
|
$
|
159
|
|
|
Conversions
of long-term debt to equity
|
|
$
|
1
|
|
|
$
|
13
|
|
|
$
|
82
|
|
Sales by
product category:
|
(Dollars
in millions)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Product
category
|
|
Total
Sales
|
|
|
%
|
|
|
Total
Sales
|
|
|
%
|
|
|
Total
Sales
|
|
|
%
|
|
|
Appliances
|
|
$
|
4,405
|
|
|
|
9
|
%
|
|
$
|
4,324
|
|
|
|
9
|
%
|
|
$
|
4,139
|
|
|
|
9
|
%
|
|
Lumber
|
|
|
3,595
|
|
|
|
8
|
|
|
|
3,638
|
|
|
|
8
|
|
|
|
3,672
|
|
|
|
8
|
|
|
Paint
|
|
|
3,387
|
|
|
|
7
|
|
|
|
3,256
|
|
|
|
7
|
|
|
|
3,077
|
|
|
|
7
|
|
|
Flooring
|
|
|
3,323
|
|
|
|
7
|
|
|
|
3,292
|
|
|
|
7
|
|
|
|
3,229
|
|
|
|
7
|
|
|
Building
materials
|
|
|
2,971
|
|
|
|
6
|
|
|
|
2,749
|
|
|
|
6
|
|
|
|
2,880
|
|
|
|
6
|
|
|
Millwork
|
|
|
2,965
|
|
|
|
6
|
|
|
|
3,238
|
|
|
|
7
|
|
|
|
3,262
|
|
|
|
7
|
|
|
Lawn
& landscape products
|
|
|
2,581
|
|
|
|
5
|
|
|
|
2,446
|
|
|
|
5
|
|
|
|
2,263
|
|
|
|
5
|
|
|
Fashion
plumbing
|
|
|
2,572
|
|
|
|
5
|
|
|
|
2,762
|
|
|
|
6
|
|
|
|
2,635
|
|
|
|
6
|
|
|
Hardware
|
|
|
2,514
|
|
|
|
5
|
|
|
|
2,434
|
|
|
|
5
|
|
|
|
2,283
|
|
|
|
5
|
|
|
Lighting
|
|
|
2,508
|
|
|
|
5
|
|
|
|
2,705
|
|
|
|
6
|
|
|
|
2,574
|
|
|
|
5
|
|
|
Tools
|
|
|
2,492
|
|
|
|
5
|
|
|
|
2,598
|
|
|
|
5
|
|
|
|
2,555
|
|
|
|
5
|
|
|
Seasonal
living
|
|
|
2,136
|
|
|
|
5
|
|
|
|
2,107
|
|
|
|
4
|
|
|
|
2,072
|
|
|
|
4
|
|
|
Rough
plumbing
|
|
|
1,983
|
|
|
|
4
|
|
|
|
1,867
|
|
|
|
4
|
|
|
|
1,663
|
|
|
|
4
|
|
|
Outdoor
power equipment
|
|
|
1,963
|
|
|
|
4
|
|
|
|
1,838
|
|
|
|
4
|
|
|
|
1,805
|
|
|
|
4
|
|
|
Cabinets
& countertops
|
|
|
1,934
|
|
|
|
4
|
|
|
|
2,180
|
|
|
|
4
|
|
|
|
2,162
|
|
|
|
5
|
|
|
Nursery
|
|
|
1,808
|
|
|
|
4
|
|
|
|
1,687
|
|
|
|
3
|
|
|
|
1,569
|
|
|
|
3
|
|
|
Rough
electrical
|
|
|
1,446
|
|
|
|
3
|
|
|
|
1,490
|
|
|
|
3
|
|
|
|
1,486
|
|
|
|
3
|
|
|
Home
environment
|
|
|
1,235
|
|
|
|
3
|
|
|
|
1,218
|
|
|
|
2
|
|
|
|
1,200
|
|
|
|
3
|
|
|
Home
organization
|
|
|
1,062
|
|
|
|
2
|
|
|
|
1,075
|
|
|
|
2
|
|
|
|
1,063
|
|
|
|
2
|
|
|
Windows
& walls
|
|
|
1,054
|
|
|
|
2
|
|
|
|
1,090
|
|
|
|
2
|
|
|
|
1,103
|
|
|
|
2
|
|
|
Other
|
|
|
296
|
|
|
|
1
|
|
|
|
289
|
|
|
|
1
|
|
|
|
235
|
|
|
|
-
|
|
|
Totals
|
|
$
|
48,230
|
|
|
|
100
|
%
|
|
$
|
48,283
|
|
|
|
100
|
%
|
|
$
|
46,927
|
|
|
|
100
|
%
|
|
Lowe's
Companies, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Statement of Earnings Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions, except per share data)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
2005
|
*
|
|
2004
|
|
|
Net
sales
|
|
$
|
48,230
|
|
|
$
|
48,283
|
|
|
$
|
46,927
|
|
|
$
|
43,243
|
|
|
$
|
36,464
|
|
|
Gross
margin
|
|
|
16,501
|
|
|
|
16,727
|
|
|
|
16,198
|
|
|
|
14,790
|
|
|
|
12,240
|
|
|
Net
earnings
|
|
|
2,195
|
|
|
|
2,809
|
|
|
|
3,105
|
|
|
|
2,765
|
|
|
|
2,167
|
|
|
Basic
earnings per share
|
|
|
1.51
|
|
|
|
1.90
|
|
|
|
2.02
|
|
|
|
1.78
|
|
|
|
1.39
|
|
|
Diluted
earnings per share
|
|
|
1.49
|
|
|
|
1.86
|
|
|
|
1.99
|
|
|
|
1.73
|
|
|
|
1.35
|
|
|
Dividends
per share
|
|
$
|
0.335
|
|
|
$
|
0.290
|
|
|
$
|
0.180
|
|
|
$
|
0.110
|
|
|
$
|
0.075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
32,686
|
|
|
$
|
30,869
|
|
|
$
|
27,767
|
|
|
$
|
24,639
|
|
|
$
|
21,101
|
|
|
Long-term
debt, excluding current maturities
|
|
$
|
5,039
|
|
|
$
|
5,576
|
|
|
$
|
4,325
|
|
|
$
|
3,499
|
|
|
$
|
3,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Fiscal
year 2005 contained 53 weeks, while all other years contained 52
weeks.
|
Selected
Quarterly Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions, except per share data)
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
12,009
|
|
|
$
|
14,509
|
|
|
$
|
11,728
|
|
|
$
|
9,984
|
|
|
Gross
margin
|
|
|
4,166
|
|
|
|
4,982
|
|
|
|
3,985
|
|
|
|
3,368
|
|
|
Net
earnings
|
|
|
607
|
|
|
|
938
|
|
|
|
488
|
|
|
|
162
|
|
|
Basic
earnings per share
|
|
|
0.42
|
|
|
|
0.64
|
|
|
|
0.33
|
|
|
|
0.11
|
|
|
Diluted
earnings per share
|
|
$
|
0.41
|
|
|
$
|
0.64
|
|
|
$
|
0.33
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions, except per share data)
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
12,172
|
|
|
$
|
14,167
|
|
|
$
|
11,565
|
|
|
$
|
10,379
|
|
|
Gross
margin
|
|
|
4,259
|
|
|
|
4,883
|
|
|
|
3,964
|
|
|
|
3,620
|
|
|
Net
earnings
|
|
|
739
|
|
|
|
1,019
|
|
|
|
643
|
|
|
|
408
|
|
|
Basic
earnings per share
|
|
|
0.49
|
|
|
|
0.68
|
|
|
|
0.44
|
|
|
|
0.28
|
|
|
Diluted
earnings per share
|
|
$
|
0.48
|
|
|
$
|
0.67
|
|
|
$
|
0.43
|
|
|
$
|
0.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2008
|
|
Fiscal
2007
|
|
Fiscal
2006
|
|
|
|
|
High
|
|
Low
|
|
Dividend
|
|
High
|
|
Low
|
|
Dividend
|
|
High
|
|
Low
|
|
Dividend
|
|
|
1st
Quarter
|
|
$
|
27.18
|
|
$
|
20.25
|
|
$
|
0.080
|
|
$
|
35.74
|
|
$
|
29.87
|
|
$
|
0.05
|
|
$
|
34.83
|
|
$
|
30.58
|
|
$
|
0.03
|
|
|
2nd
Quarter
|
|
|
26.18
|
|
|
18.00
|
|
|
0.085
|
|
|
33.19
|
|
|
27.38
|
|
|
0.08
|
|
|
32.85
|
|
|
26.90
|
|
|
0.05
|
|
|
3rd
Quarter
|
|
|
28.49
|
|
|
15.76
|
|
|
0.085
|
|
|
32.53
|
|
|
25.71
|
|
|
0.08
|
|
|
31.55
|
|
|
26.15
|
|
|
0.05
|
|
|
4th
Quarter
|
|
$
|
23.73
|
|
$
|
15.85
|
|
$
|
0.085
|
|
$
|
26.87
|
|
$
|
19.94
|
|
$
|
0.08
|
|
$
|
34.65
|
|
$
|
28.59
|
|
$
|
0.05
|
|
As of
March 27, 2009 there
were 31,701
registered
holders of Lowe's common stock.
