2013 Lowes Form 10-K - 10­K 1 lowesform10k.htm FORM 10­K...

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Unformatted text preview: 10­K 1 lowesform10k.htm FORM 10­K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10­K (Mark One) x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended February 1, 2013 or o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________ Commission file number 1­7898 LOWE'S COMPANIES, INC. (Exact name of registrant as specified in its charter) NORTH CAROLINA (State or other jurisdiction of incorporation or organization) 56­0578072 (I.R.S. Employer Identification No.) 1000 Lowe's Blvd., Mooresville, NC (Address of principal executive offices) 28117 (Zip Code) Registrant's telephone number, including area code 704­758­1000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, $0.50 Par Value Name of each exchange on which registered New York Stock Exchange (NYSE) Indicate by check mark if the registrant is a well­known seasoned issuer, as defined in Rule 405 of the Securities Act. x Yes o No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. o Yes x No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S­T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S­K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10­K or any amendment to this Form 10­K. x Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non­accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b­2 of the Exchange Act. (Check one): Large accelerated filer x Accelerated filer o Non­accelerated filer o Smaller reporting company o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b­2 of the Exchange Act). o Yes x No As of August 3, 2012, the last business day of the Company's most recent second quarter, the aggregate market value of the registrant’s common stock held by non­affiliates of the registrant was $29.3 billion based on the closing sale price as reported on the New York Stock Exchange. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AT MARCH 28, 2013 Common Stock, $0.50 par value 1,088,511,808 DOCUMENTS INCORPORATED BY REFERENCE Document Portions of the Proxy Statement for Lowes 2013 Annual Meeting of Shareholders Parts Into Which Incorporated Part III LOWE’S COMPANIES, INC. ­ TABLE OF CONTENTS ­ PART I Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. PART II Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 9B. PART III Item 10. Item 11. Item 12. Item 13. Item 14. PART IV Item 15. Page No. Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures Executive Officers and Certain Significant Employees of the Registrant Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information 4­10 10­14 14 14 14 14 15 16­17 17 18­33 34 35­66 67 67 67 Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accountant Fees and Services 68 68 68 68 68 Exhibits and Financial Statement Schedules Signatures 69­75 76­77 Part I Item 1 ­ Business General Information Lowe’s Companies, Inc. and subsidiaries (the Company or Lowe’s) is a Fortune® 100 company and the world’s second largest home improvement retailer. As of February 1, 2013, we operated 1,754 stores, comprised of 1,715 stores across 50 U.S. states, 34 stores in Canada and five stores in Mexico. These stores represent approximately 197 million square feet of retail selling space. In 2013, we expect to open approximately 10 stores. Lowe’s was incorporated in North Carolina in 1952 and has been publicly held since 1961. The Company’s common stock is listed on the New York Stock Exchange ­ ticker symbol “LOW”. See Item 6, “Selected Financial Data”, of this Annual Report on Form 10­K, for historical revenues, profits and identifiable assets. For additional information about the Company’s performance and financial condition, see also Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, of this Annual Report on Form 10­ K. Our Promise We strive to be customers’ first choice for home improvement. Customers expect that we will not only sell the products they need and want, but also deliver a full solution by being a partner through each step of the home improvement process, from inspiration and planning to completion and enjoyment. Our goal is to make the process of home improvement as seamless and simple as possible, while ensuring we remain relevant to our customers. We have several initiatives designed to deliver seamless and simple experiences, which include evolving our sales culture across all selling channels, upgrading and continuously enhancing our information technology infrastructure, and allowing access to customers’ project and product status at all relevant touch points. Customers, Market and Competition Our Customers We serve homeowners, renters and commercial business customers (Pro customer). Individual homeowners and renters complete a wide array of projects and vary along the spectrum of do­it­yourself (DIY) and do­it­for­me (DIFM). The Pro customer consists of two broad categories, construction trade and maintenance & repair organizations. Based on our analysis of the market we have identified various types of home improvement customer mindsets. Our target customer mindset is the “creator”, whether they are a homeowner, renter, or Pro customer. Creators seek quality tailored experiences, and are on the lookout for new ideas to improve homes. The creator is the most active in the home improvement category in terms of visits and amount of spend. We believe that if we focus on the needs of these more discerning customers we will meet or exceed the needs of other customers. Our Market We are among the many businesses, including home centers, paint stores, hardware stores, lumber yards and garden centers, whose revenues are included in the Building Material and Garden Equipment and Supplies Dealers Subsector (444) of the Retail Trade Sector of the North American Industry Classification System (NAICS), the standard used by Federal statistical agencies in classifying business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. business economy. The total annual revenue reported for businesses included in NAICS 444 in 2012 was $294 billion, which represented an increase of 5.4% from the total amount reported in 2011. The total annual revenue reported for businesses included in NAICS 444 in 2011 was $279 billion, which represented an increase of 4.1% over the amount reported for 2010. 4 NAICS 444 represents less than half of what we consider the total market for our products and services. The broader market in which Lowe’s operates includes home­related sales through a variety of companies beyond those in NAICS 444. These include other companies in the retail sector, including mass retailers, home furnishings stores, and online retailers, as well as wholesalers that provide home­related products and services to homeowners, businesses, and the government. Based on our analysis of the most recent comprehensive data available, we estimate the size of the U.S. home improvement market at $645 billion in 2012, comprised of $499 billion of product sales and $146 billion of installed labor sales. There are many variables that affect consumer demand for the home improvement products and services Lowe’s offers. Key indicators we monitor include real disposable personal income, employment, home prices, housing turnover, and home ownership levels. We also monitor demographic and societal trends that shape home improvement industry growth. · Real disposable personal income is projected to grow at a slower pace in 2013 than in 2012, pulled lower by tax increases and the acceleration of dividend and bonus payments into 2012 that were made to allow recipients to avoid higher tax rates in 2013. Real disposable personal income is forecasted to increase 0.9% in calendar 2013, down from the 1.5% gain recorded in 2012, based on the March 2013 Blue Chip Economic Indicators®. * · The average unemployment rate for 2013 is forecasted to decline to 7.7% in 2013, according to the March 2013 Blue Chip Economic Indicators. While it is an improvement from the 8.1% average recorded in 2012, the rate remains elevated, suggesting that Americans will continue to face challenging employment prospects this year. · Recent evidence suggests that home prices are stabilizing. In 2012, home prices recorded their first year­to­year gains since 2007, according to the Federal Home Finance Agency purchase­only index. The gains were driven by strengthening demand and lower inventories of homes for sale. Economists generally expect home prices to continue to increase at a modest single­digit pace in 2013, but remain well below their peak level reached in 2007. · Housing turnover increased 8.9% in 2012 from low levels, according to The National Association of Realtors and U.S. Census Bureau, but remains 40% below its peak in 2005. Turnover is generally expected to continue to increase in 2013, though at a more moderate rate. · According to the U.S. Census Bureau, U.S. homeownership rates leveled off at approximately 65.5% in 2012, cushioned by the increase in home buying. That compares with a peak of about 69% in 2004. However, homeownership rates are expected to remain under downward pressure in the coming years as lending standards remain tight and delinquency and foreclosure activity remains elevated. These indicators are important to our business because they impact income available to purchase our products and services, or define a key customer base for home maintenance, repair, and upgrade projects. Currently, these indicators suggest moderately improving consumer demand for the home improvement products and services we sell. However, in this uncertain economic environment, we continue to balance implementation of our long­term growth plans with our near­term focus on improving performance and maintaining adequate liquidity. Our Competition The home improvement retailing business includes many competitors. We compete with other home improvement warehouse chains and lumberyards in most of our trade areas. We also compete with traditional hardware, plumbing, electrical and home supply retailers. In addition, we compete, with respect to some of our products, with general merchandise retailers, mail order firms, warehouse clubs, online and other specialty retailers. Our customers value reputation, customer experience, quality and price of merchandise, and range and availability of products and services. Location of stores also continues to be a key competitive factor in our industry. However, the increasing use of technology and the simplicity of online shopping also underline the importance of multi­channel presence as a competitive factor. See further discussion of competition in Item 1A, “Risk Factors”, of this Annual Report on Form 10­K. *Blue Chip Economic Indicators® (ISSN: 0193­4600) is published monthly by Aspen Publishers, 76 Ninth Avenue, New York, NY 10011, a division of Wolters Kluwer Law and Business. Printed in the U.S.A. 5 Products and Services Our Products Product Selection To meet customers’ varying home improvement needs, we offer a complete line of products for maintenance, repair, remodeling, and home decorating. We offer home improvement products in the following categories: Plumbing; Appliances; Tools & Outdoor Power Equipment; Lawn & Garden; Fashion Electrical; Lumber; Seasonal Living; Paint; Home Fashions, Storage & Cleaning; Flooring; Millwork; Building Materials; Hardware; and Cabinets & Countertops. A typical Lowe's store stocks approximately 40,000 items, with hundreds of thousands of items available through our Special Order Sales system, Lowes.com, Lowes.ca and ATGstores.com. In 2012, Lowe’simplemented flexible fulfillment, which allows the customer to order parcel post eligible products that are stocked in a regional distribution center (RDC), a store, or in a vendor's distribution center, and have them shipped directly to a home or place of business. Most items can be ordered and delivered within two days. See Note 16 of the Notes to Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data”, of this Annual Report on Form 10­K for historical revenues by product category for each of the last three fiscal years. We are committed to offering a wide selection of national brand name merchandise, as well as building long­term value for Lowe’s through the development of private brands. In addition, we are dedicated to ensuring product is sourced in a responsible, efficient, and cost effective manner through our supply chain. National Brand Name Merchandise In many product categories, customers look for a brand they know and trust to instill confidence in their purchase. Each Lowe’s store carries a wide selection of national brand­name merchandise such as Whirlpool® appliances and water heaters, GE® and Samsung® appliances, Stainmaster® carpets, Valspar® paints and stains, Pella® windows and doors, Sylvania® light bulbs, Dewalt® power tools, Owens Corning® roofing, Johns Manville® insulation, James Hardie® fiber cement siding, Husqvarna® outdoor power equipment, Werner® ladders and many more. Our merchandise selection provides the DIY, DIFM and Pro customer a one­stop shop for a wide variety of national brand name merchandise needed to complete home improvement, repair, maintenance or construction projects. Private Brands Private brands are an important element of our overall portfolio, helping to differentiate us from the competition with unique innovations and designs and providing a value alternative to national brands. We sell private brands throughout our stores including Tools, Seasonal Living, Home Fashions, Storage & Cleaning, Paint, Fashion Plumbing, Flooring, Millwork, Hardware, Fashion Electrical and Lumber. Some of Lowe’s most important private brands include Kobalt® tools, allen+roth® home décor products, Blue Hawk® home improvement products, Portfolio® lighting products, Garden Treasures® lawn and patio products, Utilitech® electrical and utility products, Reliabilt® doors and windows, Aquasource® faucets, sinks and toilets, Harbor Breeze® ceiling fans, Top Choice® lumber products and Iris® home automation and management products. Supply Chain We source our products from over 7,000 vendors worldwide with no single vendor accounting for more than 7% of total purchases. We believe that alternative and competitive suppliers are available for virtually all of our products. Whenever possible, we purchase directly from manufacturers to provide savings for customers and improve our gross margin. To efficiently move product from our vendors to our stores and maintain in­stock levels, we own and operate 14 highly­automated RDCs in the United States, with a fifteenth RDC expected to open in the first quarter of 2013. On average, each domestic RDC currently serves approximately 120 stores. In addition, we lease and operate a distribution facility to serve our Canadian stores. We also operate 15 flatbed distribution centers to distribute merchandise that requires special handling due to size or type of packaging such as lumber, boards, panel products, pipe, siding, ladders and building materials. Additionally, we 6 operate four facilities to support our import business and flexible fulfillment capabilities. We also utilize three third­party transload facilities, which are the first point of receipt for imported products. The transload facilities sort and allocate products to RDCs based on individual store demand and forecasts. On average, in fiscal 2012, approximately 75% of the total dollar amount of stock merchandise we purchased was shipped through our distribution network, while the remaining portion was shipped directly to our stores from vendors. Our Services Installed Sales We offer installation services through independent contractors in many of our product categories, with Flooring, Millwork and Cabinets & Countertops accounting for the majority of installed sales. Our Installed Sales model, which separates selling and project administration tasks, allows our sales associates to maintain their focus on project selling, while project managers ensure that the details related to installing the products are efficiently executed. Installed Sales, which includes both product and labor, accounted for approximately 7% of total sales in fiscal 2012. Pro Services During 2012, we rebranded our commercial business program as Pro Services with the intent of re­energizing our focus on the Pro customer. Pro Services employees are a dedicated team that supports the Pro customer. To meet the needs of our Pro customer, we provide job lot quantities in categories such as Building Materials, Plumbing, Electrical, Hardware, Paint, and Tools & Outdoor Power Equipment that are critical to the success of the Pro customer. In addition, we provide Pro customers 5% off their purchases every day when they use Lowe's proprietary credit. Extended Protection Plans and Repair Services We offer extended protection plans in Appliances and Tools & Outdoor Power Equipment. Lowe’s extended protection plans provide customers with product protection that enhances or extends the manufacturer’s warranty. We provide in­warranty and out­of­warranty repair services for major appliances, outdoor power equipment and tools through our stores or in the home through our Lowe’s Authorized Service Repair Network. Our contact center takes the calls, diagnoses the problems, and facilitates the resolutions making after­ sales service simpler for customers because we manage the entire process. Credit Financing We offer a proprietary consumer credit card for retail customers under an agreement with GE Capital Retail Bank. This program provides Lowe's consumer credit cardholders with 5% off their purchases every day. For purchases above $299, customers have their choice of short­term no­interest financing or the 5% ...
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