Annual Report





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended January 30, 2009
 
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 1-7898
 
 
 
LOWE'S   COMPANIES,  INC .
(Exact name of registrant as specified in its charter)
 
NORTH CAROLINA
56-0578072
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
1000 Lowe's Blvd., Mooresville, NC
28117
(Address of principal executive offices)
(Zip Code)
 
 
Registrant's telephone number, including area code
704-758-1000
  
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Name of each exchange on which registered
Common Stock, $.50 Par Value
 
New York Stock Exchange (NYSE)
 
Indicate by check mark if the registrant is a well-known 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§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 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer," "accelerated filer,” and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o


 
 

 


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o
Yes
x
 No

As of August 1, 2008, the last business day of the Company's most recent second quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $22.8 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 issuer’s classes of common stock, as of the latest practicable date.

CLASS
 
OUTSTANDING AT MARCH 27, 2009
Common Stock, $.50 par value
 
1,474,239,704
 
DOCUMENTS INCORPORATED BY REFERENCE

Document
 
Parts Into Which Incorporated
Portions of Lowe’s 2008 Annual Report to Shareholders
 
Parts I, II and IV
Portions of the Proxy Statement for Lowe’s 2009 Annual Meeting of Shareholders
 
Part III
 

 
 

 

 
  LOWE’S COMPANIES, INC.
- INDEX -
       
 
Page No.
 
 
 
 
 
 
   
       
 
 
 
 
 
 
 
 
 
       
 
 
 
 
 
 
     
 
 
       
   


 
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Part I

Item 1 - Business
 
General Information

Lowe’s Companies, Inc. and subsidiaries (the Company) is a Fortune 50 company and the world’s second largest home improvement retailer.  As of January 30, 2009, we operated 1,638 stores across 50 states and 11 stores in Canada.  Our 1,649 stores represent approximately 187 million square feet of retail selling space.

Incorporated in North Carolina in 1952, Lowe’s Companies, Inc. has been publicly held since 1961. Our common stock is listed on the New York Stock Exchange - ticker symbol “LOW.”

See Item 6, “Selected Financial Data,” for historical revenues, profits and identifiable assets.

Who We Serve

We serve homeowners, renters and Commercial Business Customers.  Homeowners and renters primarily consist of do-it-yourself (DIY) customers and do-it-for-me (DIFM) customers who utilize our installed sales programs, as well as others buying for personal and family use.  Commercial Business Customers include those who work in the construction, repair/remodel, commercial and residential property management, and business maintenance professions.

To meet customers’ varying home improvement needs, we offer a complete line of products and services for home decorating, maintenance, repair, remodeling, and property maintenance.  We offer home improvement products in the following categories: appliances, lumber, paint, flooring, building materials, millwork, lawn & landscape products, fashion plumbing, hardware, lighting, tools, seasonal living, rough plumbing, outdoor power equipment, cabinets & countertops, nursery, rough electrical, home environment, home organization, and windows & walls.

Our Market

Using the most recent comprehensive data available, which is from 2007, we estimate the size of the U.S. home improvement market to be approximately $695 billion annually, comprised of $535 billion of product demand and $160 billion of installed labor opportunity during that period.  Data from a variety of primary and secondary sources, including trade associations, government publications, industry participants and other sources was analyzed as the basis for our estimate.  This data captures a wide range of categories relevant to our business, including major appliances and garden supplies.  Based on the most recently available data we believe that the size of the U.S. home improvement market decreased by more than 7% in 2008.

The home improvement retailing business includes many competitors.  We compete with a number of traditional hardware, plumbing, electrical and home supply retailers, as well as other chains of warehouse home improvement stores and lumberyards in most of our trade areas.  In addition, we compete, with respect to some of our products, with general merchandise stores, mail order firms, warehouse clubs, and online retailers.  The principal competitive factors are customer service, location, price, product and brand selection, and name recognition. 

There are many variables that impact consumer demand for the products and services we offer.  Key indicators we monitor include employment, real disposable personal income, housing turnover, and home ownership levels.  We also monitor demographic and societal trends that are indicators of home improvement industry growth. 

§
Employment is an indicator of home improvement sales.  The forecasted average unemployment rate of 8.6% for 2009 from the March 2009 Blue Chip Economic Indicators™ is higher than the 5.7% average seen in 2008 and suggests that Americans will continue to face challenging employment prospects this year.
 
§
Although real disposable personal income continues to grow, it is projected to grow at a slower pace for 2009 than the long-term average annual increase of 3.4%, calculated from 1960 to 2008.  Real disposable personal income growth is forecasted to be 1.7% for calendar 2009, compared with 1.1% for calendar 2008, based on data from the March 2009 Blue Chip Economic Indicators™.
 
§
Housing turnover, which peaked in calendar year 2005, continues to slow according to The National Association of Realtors®.  Recent data suggests that 2009 will remain challenging for housing turnover.

§
According to the U.S. Census Bureau, while U.S. home ownership levels over the past year have continued their decline from
 

 
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2007, they remain above their historical average.  Home ownership provides an established customer base for home maintenance and repair projects.   The vast majority of our customers are homeowners and they are not willing to let what is often their most valuable financial asset deteriorate.

Currently, all of these indicators suggest continued weakness in consumer demand.  In this economic environment, we seek to balance our long-term growth plans with a near-term focus on conserving capital and maintaining liquidity.

Our Stores

New Store Expansion
We opened 115 new stores in fiscal 2008, including five Canadian stores located primarily in the Greater Toronto Area.  Our 2008 store openings included three primary prototypes: 117,000-square-foot (117K) and 103,000-square-foot (103K) stores for large markets and a 94,000-square-foot (94K) store to serve smaller markets.  The following table illustrates our store expansion over the last three years:

 
2008
 
2007
 
2006
 
Number of stores, beginning of fiscal year
1,534
 
1,385
 
1,234
 
New stores opened
115
 
149
 
151
 
Relocated stores opened
-
 
4
 
4
 
Stores relocated
-
 
(4)
 
(4)
 
Number of stores, end of fiscal year
1,649
 
1,534
 
1,385
 
             
Consists of:            
Domestic
1,638
 
1,528
 
1,385
 
Canadian
11
 
6
 
-
 
             
We expect to open 60 to 70 new stores in fiscal 2009, which includes continued expansion in Canada as well as our first stores in Monterrey, Mexico.  Our fiscal 2009 store openings will be comprised primarily of 117K, 103K and 94K stores.  As we continue our expansion and strive to maximize our return on investment, we consider market demographics and land availability, among other factors, to determine the appropriate prototype for a particular market.  The reduction in store openings in 2009 as compared to 2008 reflects the challenging current economic environment.

Investments in Existing Stores
During fiscal 2008, we continued our long history of investing in our existing stores to enhance the shopping experience for our retail and Commercial Business Customers, while at the same time rationalizing our capital spending on these efforts to ensure appropriate return on investment.  These efforts included re-lamping our stores at regular intervals to ensure they remained bright, adding new displays, improving point-of-sale and directional signage, adding more product selection, repainting our building exteriors, and re-striping our parking lots.  We categorize our merchandising-related investments in our stores as resets or remerchandising.

Resets
Resets are necessary to keep our stores fresh with new and innovative products, updated fashions and compelling displays.  These resets can involve changing products, displays and vendors.  However, they generally do not require major changes in the store.  We conducted hundreds of resets in fiscal 2008, with each reset typically being performed across most or all of our stores.

Remerchandising
In fiscal 2008, we completed the remerchandising of 79 of our earlier format stores to make them more closely resemble our most current store prototypes.  These remerchandising efforts were focused on moving entire departments, improving adjacencies and enhancing the shopability within the appliances, cabinets & countertops, flooring, fashion plumbing, paint, lighting, and home style & organization departments.  We also replaced or refurbished all of our selling centers as well as returns and customer service areas of these stores.  All new interior graphics, signage, and way-finding materials were also added to increase shopability and brighten the atmosphere.  Finally, self check-out was included as a part of these remerchandising efforts for locations where it had not previously been installed.  These enhancements enable our stores to deliver stronger sales by offering our customers a best-in-class shopping experience.

Serving Our Customers
 
Our vision is to be our customers’ first choice for home improvement.  To achieve this vision, we continue to focus on excellent customer service, Everyday Low Prices, New Lower Price, and innovative operational, merchandising, marketing and distribution

 
 
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strategies.  We believe customers’ perceptions of the quality of service determine a retailer’s success or failure.  Therefore, we are always looking for ways to improve our level of service, optimize store labor and drive in-store process improvement, build our talent pool, and enhance our sales culture.  The following are several key initiatives we believe will continue to support our growth and success going forward.

Everyday Low Prices
Our customers do not have to wait for a sale to find a great value.  We offer low prices every day.  Our promise to customers is that if they find a lower everyday or advertised price on an identical stock product at a local competitor, we will not just match that price, but we will beat it by 10%.

Specialty Sales
Our Specialty Sales initiatives include Installed Sales, Special Order Sales and Commercial Business Customer sales.   We recognize the opportunity that our Specialty Sales initiatives represent and the importance of these businesses to our long-term growth.  However, in the current economic environment demand for Installed Sales and Special Order Sales offerings has declined due to hesitancy by consumers to make big ticket discretionary purchases.

Installed Sales
We offer installation services in over 40 categories with flooring, millwork and cabinets & countertops generating the highest sales.  Our Installed Sales model, which includes the separation of selling and administrative tasks, allows our sales associates to maintain their focus on project selling, while project managers ensure that the details related to an installation job are efficiently executed.  Installed Sales, which includes both product and labor, accounted for approximately 6% of total sales in fiscal 2008.

Special Order Sales
Our Special Order Sales product offerings provide our customers the opportunity to select a wider assortment of product options beyond the approximately 40,000 we carry in our stores.  We are making the Special Order Sales process easier for customers by providing more product displays and electronic product catalogs in our stores, as well as on Lowes.com.  We continue to enhance integrated design tools and ordering systems storewide in order for customers to envision projects, as well as to efficiently receive quotations and complete an order.

Our Special Order Express initiative is intended to allow for faster and more efficient delivery of Special Order products to customers, while at the same time provide the ability to better manage our inventory investment.  Under this approach, certain items that do not have enough individual store demand to be economically stocked in all stores, but have sizeable demand across a group of stores, will be kept on hand in our distribution centers.  This allows for fast shipment to our stores, or in some cases, direct shipment to a customer’s home.  Our Special Order Express initiative allows us to balance quickly satisfying customers’ needs with a desire to minimize our inventory investment.  We will continue to refine and enhance this initiative in fiscal 2009.

Commercial Business Customers
Growth in total sales to Commercial Business Customers continued to outpace the company average in fiscal 2008.  Our focus remains being a valued business partner to our customers who work in the construction, repair/remodel, commercial and residential property management, and business maintenance professions.  Because we understand the challenges of the current economic environment and the importance of timeliness to these customers, we continue to evaluate and tailor our product, service, and competitive offerings to best meet the needs of these customers.  These programs focus on in-stock and special order merchandise, contractor packs, business credit, pricing for larger projects, our LowesForPros.com dedicated business website, and convenience services such as fast ordering and 7-day delivery.

Lowes.com
Lowes.com seeks to empower consumers by providing a 24/7 shopping experience and helping reduce the complexity of product decisions and home improvement projects by providing online product information, customer ratings and reviews, online buying guides and how-to videos and information.  These tools help consumers make smarter, more informed purchasing decisions and give consumers confidence as they undertake simple to more complex home improvement projects.  We also enable consumers to choose from a variety of multichannel fulfillment options including buy online and pick-up in-store, product delivery and direct shipment to customers’ homes.  As our business evolves we continue to look for opportunities beyond fulfillment to leverage emerging technologies and online trends to build strong relationships with consumers that will make us the first choice for their home improvement needs.

Credit Financing
We offer a proprietary credit card for retail customers.  In addition, we offer a Lowe’s Project Card in all stores.  Lowe’s Project Card provides a major project, in-store financing solution to complement our Lowe’s Consumer Revolving Credit Card.

 
 
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We also offer proprietary credit programs for Commercial Business Customers.  They include a Lowe’s Business Account, which is ideal for small- to medium-size businesses and offers minimum monthly payments, and Lowe’s Accounts Receivable, which is ideal for medium- to large-size businesses that pay in full each month.

In addition, we accept Visa®, MasterCard®, Discover® and American Express® credit cards, as well as debit cards from all major networks.

For additional detail regarding our credit programs, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk”, and Item 8, “Financial Statements and Supplementary Data.”

Our Products

Product Sourcing
We source our products from over 7,000 merchandise vendors worldwide, with no single vendor accounting for more than seven percent of total purchases.  Management believes that alternative and competitive suppliers are available for virtually all our products.  Whenever possible, we purchase directly from manufacturers to provide savings for our customers and gross margin improvement for Lowe’s.

In addition to offering a wide selection of national brand name merchandise, we are committed to building long-term value for Lowe’s through the development of exclusive, proprietary brands where we focus on delivering the best quality, the best value and recognizably differentiated products to meet our customers’ needs and wants.

National Brand Name Merchandise
In many product categories, customers look for a brand they know and trust to instill confidence in their purchase.  A typical Lowe's home improvement store stocks approximately 40,000 items, with hundreds of thousands of items available through our Special Order Sales system.  Each store carries a wide selection of national brand name merchandise such as KitchenAid®, Samsung, Whirlpool®, Pella®, Werner®, Kohler®, DeWalt®, John Deere, Troy-Bilt®, Bosch®, Valspar®, Owens Corning®, Electrolux®, Porter-Cable® and many more.  Our merchandise selection provides the DIY, DIFM and Commercial Business Customer a one-stop shop for products needed to complete home improvement, repair, maintenance or construction projects.

Proprietary Brands
To further differentiate our offering, we carry many brands that are exclusive to Lowe’s.  These unique brands cover several categories like lighting, flooring, tools and more, and give our customers great quality and value. Exclusive brand names such as Premier Living™, Kobalt®, Portfolio®, Harbor Breeze®, Reliabilt®, Top-Choice® Lumber and Utilitech™ are found only at Lowe’s.

Distribution Network
To efficiently move product from our vendors to our stores and maintain in-stock levels, we own and operate 14 highly-automated regional distribution centers (RDCs).  The RDCs are strategically located in North Carolina (2), Georgia, Indiana, Pennsylvania (2), Texas, California, Ohio, Florida, Connecticut, Wyoming, Illinois and Oregon.  On average, each RDC serves 118 stores.  We also utilize a third-party distribution facility to serve our Canadian stores.

We operate 15 flatbed distribution centers (FDCs) to distribute merchandise that requires special handling due to size or type of packaging such as lumber, boards, panel products, irrigation pipe, vinyl sidings, ladders and building materials.  We own 13 and lease two of these FDCs.

We also operate four facilities to support our import business, Special Order Sales and internet fulfillment.  We own two and lease two of these facilities.  In addition, we utilize three third-party transload facilities.  These facilities do not hold inventory, but 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 2008, over 72% of the stock merchandise we purchased was shipped through our distribution network, while the remaining portion was shipped directly to stores from our vendors.

Building Our Brand
 
Customers want Lowe’s to serve as a resource for products and projects to help them repair, maintain, and enhance their homes and communities.  Our marketing and advertising programs, communicated via television, radio, newspaper, magazine, direct mail,
 

 
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sponsorships, internet and in-store programs, all play a critical role in cultivating this emotional and rational connection with the consumer. Through an extensive understanding of our customers and their needs and expectations, we deliver a message that will develop loyal customer relationships and differentiate Lowe’s from other home improvement sources.

With the downturn in the economy that accelerated in the second half of fiscal 2008, consumers became even more value conscious.  As a result, we adjusted our communication to ensure that we presented value to consumers even more clearly, given our platform of Everyday Low Prices.

New Lower Price
Our ongoing New Lower Price initiative, which has been in place for several years, highlights price reductions on products that consumers want to purchase everyday.  In the current economic environment, we are emphasizing this initiative to pass along cost savings in order to deliver enhanced value to our customers.

Media Investment
A combination of national broadcast and cable television, supplemented by a number of national magazines, internet banner advertising and search investment, provides the platform for building brand awareness. We complement the national media investment in key markets by local television and radio schedules.

In the past, newspaper circulars and ROP (Run of Press) served as the primary communication vehicle for retail price and item messaging, and regularly featured Lowe’s breadth of product selection, customer services and Everyday Low Price positioning. However, given the accelerating erosion in newspaper subscription bases and readership, we have invested time and money in alternative retail price and item advertising delivery vehicles.  We are testing new on-line vehicles that deliver to a large audience at a low cost.  We believe this is more efficient and effective advertising in today’s fast paced and on-line world.

Major promotional events receive network radio support with a local radio overlay in key markets.  We promote internet access to Lowe’s retail advertising through the use of online banner and circular advertising. In many cases, we feature our entire circular on-line within the on-line advertising section of major market newspapers.  This is a location of increasing readership, as more households read their newspaper on line.  The Lowe’s brand has also been successfully integrated into television programming, including the Oprah Winfrey show and Rate My Space on HGTV.

Direct to Consumer Marketing
We continue to refine programs to respond to the changing needs and lifestyles of consumers.  Through innovative database technology, we create direct mail campaigns based on precise criteria such as purchase activity, affinity group subscription(s), household demographics, regional weather patterns, opt-in email requests, and even consumers who are preparing to move, are in the process of moving or have recently moved into a new home (“New Movers”).

Despite the housing slow-down, New Movers continue to spend considerably more on their previous and new homes than the average homeowner.  This past year, we executed our New Movers program through the U.S. Postal Service’s change of address program.  As the renter population grew in 2008, we quickly remixed our focus of this New Movers program to be more inclusive of this customer group, as well as the new opportunities associated with repairing and renovating foreclosed homes that have been repurchased.

Additionally, opt-in e-mail programs line up with Lowe’s affinity and education programs:  Lowe’s Creative Ideas for Home and Garden®, Lowe’s Creative Ideas for Outdoor Living™ and Lowe’s Creative Ideas for Woodworkers™.  The Lowe’s Creative Ideas Magazine subscription base is now as large as many major magazines and has become a very efficient way to market Lowe’s to a group of our most valuable customers.

Membership in the Team Lowe’s Racing Fan Club and participation in the Build-n-Grow children’s clinics creates another level of engagement with our consumers both inside Lowe’s stores and beyond our walls.  Each of these varying acquisition and retention programs creates loyal Lowe’s customers.

Multicultural Marketing
Lowe’s reaches its diverse communities and customer base in various manners, including multicultural marketing and outreach to Hispanic, African-American and Asian customers.  For these cultural groups, Lowe’s executes advertising across many media, including television, radio, print, and on line, in both English and native languages.  Some of the unique efforts include La Cancha Lowe’s, Lowe’s Hispanic mobile marketing program providing fun to families at key soccer events across the country; Lowe’s sponsorship of the CIAA’s annual Basketball Tournament, the nation’s oldest black athletic conference consisting of ten historically African-American institutions of higher education, that has blossomed into one of largest collegiate post-season tournaments in the country; the national Lowe’s sponsorship of the Piolin and Monique radio programs targeted to Hispanic and African American listeners; and Lowe’s new Chinese, Korean, and Vietnamese language websites offering a new way for many Asian consumers to learn more about home improvement.

 
 
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Team Lowe’s Racing
NASCAR remains an important part of building our brand. We are the proud sponsor of Jimmie Johnson, three time NASCAR Sprint® Cup Series champion, the #48 car and Lowe’s Motor Speedway.  We also host hospitality events at various sites throughout the racing season, leveraging and further building membership in the Team Lowe’s Racing Fan Club.  In 2008, we continued to sponsor Adrian Fernandez and Fernandez Racing to field the #15 car in the American Le Mans Series whose fan base is very different than that of NASCAR.  Going to market through both the #48 and #15 teams, helps us to connect with a broad base of customers through one of America’s favorite sports – auto racing.

Reaching Out

We believe community involvement extends beyond the boundaries of our stores.  In 2008, Lowe's and the Lowe's Charitable and Educational Foundation contributed more than $26 million to communities in which we operate across North America.  Following are some examples of how we are partnering with respected nonprofit organizations to make a difference in our communities:

Lowe’s Charitable and Educational Foundation
The Lowe’s Charitable and Educational Foundation (LCEF) was created in 1957 to assist communities through financial contributions while also encouraging employees to become involved through volunteerism.  In 2008, the Foundation supported more than 1,400 community and education projects in the U.S. and Canada with grants totaling more than $15 million.  Programs funded by LCEF include Lowe’s Toolbox for Education ®, SkillsUSA and Rebuilding Together®.

o  
Toolbox for Education® has two goals: Get parents involved in their children’s education and provide grants to parent groups to help improve their children’s schools.  In 2008, Lowe’s Toolbox for Education grant program contributed more than $4 million to schools throughout all 50 states.

o  
In 2008, LCEF donated $1 million to SkillsUSA, a national nonprofit organization serving teachers and high school and college students who are preparing for careers in trade, technical and skilled service occupations.  Additionally in June, Lowe’s helped kick off the SkillsUSA National Leadership and Skills Conference in Kansas City, Mo., which showcases the skills of career and technical education students.

o  
Lowe’s also continued its commitment to supporting safe and affordable housing in 2008 with a contribution from LCEF of $1 million to Rebuilding Together, the nation’s largest all-volunteer home rehabilitation organization.  For the second year, Lowe’s and Rebuilding Together worked together to support 83 projects that allowed low-income homeowners to stay warm and safe in their own homes.

Habitat for Humanity
As a home improvement retailer, Lowe’s helps our customers every day through the trials and triumphs of home ownership.  For more than five years, Lowe’s and Habitat for Humanity® International have worked together to combat substandard housing across America.  In 2008, Lowe’s contributed $2 million to help Habitat for Humanity International forward its goal of eliminating poverty housing, bringing Lowe’s total Habitat donations to more than $18 million since 2003.  This support has benefited more than 1,400 families.  Additionally since 2004, Lowe’s has underwritten the Habitat for Humanity Women Build® program, which empowers women to learn construction skills through How-to Clinics held at Lowe’s stores and to put those skills to use on build sites nationwide.  In 2008, Habitat for Humanity and Lowe’s launched National Women Build Week, hosting 150 Women Build projects in all 50 states in the week leading up to Mother’s Day.  Lowe’s pledged $750,000 to the initiative, contributing a $5,000 grant to each National Women Build Week participating affiliate.

Partnering with Customers
In addition to contributions made by Lowe’s, we have partnered with our customers to support organizations such as the American Red Cross and the Muscular Dystrophy Association (MDA).  Over the nearly 10-year span that Lowe’s has supported the American Red Cross, floods, hurricanes, tornadoes and wildfires have destroyed property and forever changed lives.  A constant throughout has been the quick action of Lowe’s employees and customers to help establish and support donation sites, resulting in more than $20 million in contributions.  In addition, for the first time during 2008, Lowe’s took its grassroots store support for MDA nationwide, making it one of the largest supporters of MDA’s Shamrocks Against Dystrophy Campaign. In 2008, Lowe’s stores helped raise more than $2 million during the Shamrocks campaign, bringing the total raised since the Lowe’s program began in the stores to more than $4 million.

Partnering with Employees
Lowe’s also partners with its employees through Lowe’s Heroes and the Lowe’s Employee Relief Fund.  Lowe’s Heroes employee volunteers tackle local problems in their communities.  In 2008, Lowe’s Heroes responded to needs big and small from Ontario, Canada, to Orange County, California.  The Lowe’s Employee Relief Fund distributes emergency funds to our employees who face financial hardships due to natural disasters, house fires or illness.  Making our donations even more powerful, Lowe’s matches each

 
 
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employee contribution dollar for dollar.  The Lowe’s Employee Relief Fund began in 1999 and has contributed more than $8 million in assistance to employees and their families, including more than $2 million in 2008.

Information Systems

We are continuously assessing and upgrading our information systems in an effort to support growth, augment new sales initiatives, control costs and enable better decision-making.  Our systems support all functions in the stores, distribution facilities, field-based offices, and the customer support centers in Mooresville, NC and Wilkesboro, NC.  Our two state-of-the-art data centers provide many additional fail-safe features to improve system availability and mitigate risks associated with unplanned outages.

We have invested significant resources to safeguard sensitive employee and customer information.  We work closely with industry standards groups to incorporate security best practices into our technology environment.    
    
Employees
 
As of January 30, 2009, we employed approximately 164,000 full-time and 65,000 part-time employees, none of which are covered by collective bargaining agreements.  Management considers its relations with its employees to be good.

Available Information
 
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are made available free of charge through our website at www.Lowes.com , under the “About Lowe’s” and “Investors” captions, as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the Securities and Exchange Commission (SEC).  The public may also read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549.  Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.  The SEC maintains an Internet site, www.sec.gov, that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.


We are exposed to a variety of risks and uncertainties. Most are general risks and uncertainties applicable to all retailers, but some are more particular to retailers serving the home improvement industry.   Our operations may also be affected by factors that are either not currently known to us or which we currently consider immaterial to our business.  We describe below some of the specific known factors that could negatively affect our business, financial condition and results of operations.  All forward-looking statements made by us in this Annual Report to the Securities and Exchange Commission on Form 10-K, in our Annual Report to Shareholders and in our subsequently filed quarterly and current reports to the Securities and Exchange Commission, as well as in our press releases and other public communications, are qualified by the risks described below.

Our sales are dependent upon the health and stability of the general economy.
General economic factors and other conditions, both domestically and internationally, may adversely affect the U.S. economy, the global economy and our financial performance.  These include, but are not limited to, periods of flat economic growth or recession, volatility and/or lack of liquidity from time to time in U.S. and world financial markets and the consequent reduced availability and/or higher cost of credit to Lowe’s and its customers, slower rates of growth in real disposable personal income, higher rates of unemployment, higher consumer debt levels, increasing fuel and energy costs, inflation or deflation of commodity prices, natural disasters, acts of terrorism and developments in the war against terrorism in Asia and the Middle East.

The deep global recession that officially began in the U.S. in December 2007 and the financial/credit crisis that has led to the collapse, government bailout or acquisition of weakened major financial institutions have had and will continue to have significant adverse effects on our results of operations.  Rising unemployment, reduced consumer confidence and reduced access to credit have combined to lead to sharply reduced consumer spending, particularly by our customers on many of the discretionary, big-ticket items we sell that tend to be larger home improvement project driven.  Consumer confidence and willingness to spend on discretionary items remains low and our sales and results of operations will continue to be adversely affected throughout the current fiscal year and, if the recovery from this deep recessionary period and financial crisis is unusually gradual and prolonged as some are predicting, potentially beyond.

Adverse changes in economic factors specific to the home improvement industry may negatively impact the rate of growth of our total sales and comparable store sales.
Sales of many of our product categories and services are driven by housing turnover and activity level of home improvement projects.  Sharply declining home prices that are expected to continue to decline in 2009, increasing mortgage delinquency and foreclosure rates, reduction in the availability of mortgage financing, rising interest rates on variable rate mortgages, and significantly lower housing

 
 
10

 


turnover, have limited and may continue to limit consumers’ discretionary spending, particularly on discretionary items, and affect their confidence level leading to further reduced spending on home improvement projects.  The impact of these economic factors specific to the home improvement industry is exacerbated by rising unemployment in a weak job market.

Unseasonable weather conditions and adverse weather events can negatively affect our total sales and comparable store sales.
If weather conditions are uncharacteristic of the time of year during any season, they can hurt our sales by making it difficult to sell seasonal merchandise.   Although the impact of unseasonable weather conditions is mitigated somewhat by the broad geographic dispersion of our stores, they continue to be a significant risk to the overall performance of our business, particularly when they occur across a broad region of the U.S.  Adverse weather events, such as a prolonged and widespread drought, can hurt our sales of particular products as well.

Our store expansion and relocation strategy depends upon our ability to successfully open and operate new stores each year.
Our growth in total sales depends not only on a recovery from the current recessionary period but also to a substantial degree on successfully and cost-effectively implementing our ongoing expansion program.  We scaled back our expansion plans significantly last year and plan to scale back even further in the current fiscal year in response to the weak environment.   As we expand further, we must adapt our merchandising, marketing and distribution initiatives to new markets both domestically and as we continue to expand into Canada and Mexico.   We also plan to increase the number of our stores in markets in which we currently operate.  Our ability to open additional stores depends, in large measure, upon our ability to locate and acquire new store sites on acceptable terms.   Local land use and other regulations restricting the construction of buildings in the formats with which we operate may affect our ability to open new stores in some markets.  As we develop more new stores in metropolitan markets, we may incur increased costs to remediate environmental pollution on some of the sites we are redeveloping that was caused by previous owners of those sites.  Our ability to continue to expand our operations depends also on our ability to attract and retain a large and growing number of qualified employees.  If we are unable to open new stores at the rate we currently plan and staff them with qualified employees, the growth in our sales and our competitive position could be adversely affected.

If we fail to hire, train and retain qualified managers, sales associates and other employees we could lose sales to our competitors.
Customers’ perceptions of the quality of service provided by employees can determine any retailer’s success or failure.  If we fail to attract, train and retain qualified managers and sales associates our financial performance could be adversely impacted.  Consumers shopping for goods and services for home improvement projects expect to have sales associates serving them who are knowledgeable about product categories located throughout our stores.

Excessive turnover, which has historically been high among employees in entry-level or part-time positions, increases the risk that sales associates will not have the training and experience needed to provide competitive, high quality customer service.

Our success in serving the needs of Commercial Business Customers is dependent upon our ability to attract and retain qualified commercial sales specialists.
Commercial Business Customers in the home improvement industry require that we have well-trained commercial sales specialists at our project desks.  By doing so, we can better serve the needs of this customer on a consistent basis.  Our commercial sales specialists have a great depth of knowledge about the products needed by Commercial Business Customers.  If we fail to staff our project desks with experienced and knowledgeable employees, we run the risk that we will lose Commercial Business Customers.

We have many competitors, who, if we fail to execute our merchandising, marketing and distribution strategies effectively, could take sales and market share from us.
We operate in a highly competitive market for home improvement products and services and have numerous large and small, direct and indirect competitors.  The competitive environment in which we operate is particularly challenging during recessionary periods with heavy promotions, particularly of discretionary items, and competitor closings. The principal competitive factors in our industry include location of stores, price and quality of merchandise, in-stock consistency, merchandise assortment and presentation, and customer service.  Our failure to respond effectively to competitive pressures and changes in the retail markets could affect our financial performance.  Moreover, changes in the promotional pricing and other practices of our competitors, including the effects of competitor liquidation activities, may impact our expected results.

An unusual number of product liability or breach of warranty claims for defective products could expose us to expensive claims and damage our standing with customers.
We are exposed to product liability and product warranty claims relating to the products we sell that could adversely affect our financial condition, results of operations and cash flows.  Because we do not have direct control over the quality of products manufactured or supplied to us by our vendors and because we self-insure for such product liability and warranty claims, we are exposed to risks relating to the quality of such products.  Product liability claims can be expensive to defend and can divert the attention of management and other personnel for significant periods, regardless of the ultimate outcome. Claims of this nature could also have a negative impact on customer confidence in the products we stock and in our reputation.

 
 
11

 


Our financial performance could suffer if we fail to properly maintain our critical information systems or if those systems are seriously disrupted.
An important part of our efforts to achieve efficiencies, cost reductions, and sales and cash flow growth is the identification and implementation of improvements to our management information systems to improve operations such as inventory replenishment systems, merchandise ordering, transportation, and receipt processing.  Our financial performance could be adversely affected if our management information systems are seriously disrupted or we are unable to improve, upgrade, maintain, and expand our systems.

If the domestic or international supply chain for our products is disrupted, our sales and gross margin would be adversely impacted.
We source the approximately 40,000 products we stock and sell from approximately 7,000 domestic and international vendors.  We source many of those products directly from foreign manufacturers.  Political or financial instability among suppliers, trade restrictions, tariffs, currency exchange rates and transport capacity and costs are beyond our control and could negatively impact our business if they seriously disrupted the movement of products through our supply chain.   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 inability to effectively manage our relationships with selected suppliers of brand name products could negatively impact our ability to differentiate ourselves from competitors.
Part of our expansion strategy includes continued differentiation from competitors.  To better distinguish our product offering, we form strategic relationships with selected suppliers to market and develop products under a variety of recognized and respected brand names.  The inability to effectively and efficiently manage the relationships with these suppliers could negatively impact our business plan and financial results.


None.

 
At January 30, 2009 we operated 1,649 stores in the U.S. and Canada with a total of 187 million square feet of selling space. Of the total stores operating at January 30, 2009, approximately 88% are owned, which includes stores on leased land, with the remainder being leased from unaffiliated third-parties.  Approximately 49% of our store leases are capital leases. We also own and operate 14 RDCs and 13 FDCs for lumber and building commodities.  We lease and operate two additional FDCs. We operate one third-party distribution facility to serve our Canadian stores.   We also operate four facilities to support our import business, Special Order Sales and internet fulfillment.  We own two and lease two of these facilities.  In addition, we utilize three third-party transload facilities, which do not hold inventory but are the first point of receipt for imported products.  We own one data center and lease one data center that serve as hubs for our computer processing, critical data storage and information technology systems.  We own our executive offices, which are located in Mooresville, North Carolina.  We also own and maintain offices in Wilkes County, North Carolina, and lease and maintain offices in Toronto, Canada and Monterrey, Mexico.

 
We are a defendant in legal proceedings considered to be in the normal course of business, none of which, individually or collectively, is considered material.
 
 
None.
 

 
12

 



The following is a list of names and ages of all of the executive officers of the registrant indicating all positions and offices with the registrant held by each such person and each person's principal occupations or employment during the past five years.
 
 
Name
 
Age
 
Title
Robert A. Niblock
46
Chairman of the Board and Chief Executive Officer since 2005; President,  2003 - 2006.
     
Maureen K. Ausura
53
Senior Vice President, Human Resources since 2005; Corporate Vice President of Human Resources, Archer Daniels Midland Company, 2000 - 2005.
     
Gregory M. Bridgeford
54
Executive Vice President, Business Development since 2004; Senior Vice President, Business Development, 1999 - 2004.
     
Michael K. Brown
45
Executive Vice President, Store Operations since December 2006; Senior Vice President, Store Operations, 2001 - 2006.
     
Charles W. (Nick) Canter, Jr.
58
Executive Vice President, Merchandising since December 2006; Executive Vice President, Store Operations, 2005 - 2006; Senior Vice President, Store Operations, 1999 - 2005.
     
Marshall A. Croom
48
Senior Vice President and Chief Risk Officer   since 2009; Senior Vice President, Merchandising and Store Support 2006 - 2009; Senior Vice President, Finance 2003 - 2006.
     
Matthew V. Hollifield
42
Senior Vice President and Chief Accounting Officer since 2005; Vice President, Corporate Accounts Payable 2002 - 2005.
     
Robert F. Hull, Jr.
44
Executive Vice President and Chief Financial Officer since 2004; Senior Vice President and Chief Financial Officer, 2003 - 2004.
     
Gaither M. Keener, Jr .
59
Senior Vice President, General Counsel, Secretary and Chief Compliance Officer since 2006; Vice President, Deputy General Counsel, 2005 - 2006; Vice President, Associate General Counsel, 2003 - 2005.
     
Joseph M. Mabry, Jr.
46
Executive Vice President, Logistics and Distribution since 2004; Senior Vice President, Distribution, 2003 - 2004.
     
N. Brian Peace
43
Senior Vice President, Corporate Affairs since 2006; Vice President, Corporate Communications, 1999 - 2006.
     
Larry D. Stone
 
57
President and Chief Operating Officer since December 2006; Senior Executive Vice President Merchandising/Marketing, 2005 - 2006; Senior Executive Vice President Store Operations, 2003 -2005.
     
Steven M. Stone
 
47
Senior Vice President and Chief Information Officer since 2003.
 

 
13

 


 

Lowe's common stock is traded on the New York Stock Exchange (NYSE). The ticker symbol for Lowe's is “LOW”.  As of March 27, 2009, there were 1,474,239,704 holders of record of Lowe's common stock. The table, "Quarterly Stock Price Range and Cash Dividend Payment", on page 44 of the 2008 Lowe’s Annual Report to Shareholders for the fiscal year ended January 30, 2009 sets forth, for the periods indicated, the high and low sales prices per share of the common stock as reported by the NYSE Composite Tape and the dividends per share declared on the common stock during such periods.

As of January 30, 2009, the total remaining authorization through fiscal 2009 under the share repurchase program was $2.2 billion.


See "Selected Financial Data" on page 43 of the Lowe’s 2008 Annual Report to Shareholders.


See "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 17 through 25 and "Disclosure Regarding Forward-Looking Statements" on page 26 of Lowe’s 2008 Annual Report to Shareholders.


See "Quantitative and Qualitative Disclosures About Market Risk" on page 25 of Lowe’s 2008 Annual Report to Shareholders.


See "Report of Independent Registered Public Accounting Firm" of Deloitte & Touche LLP on page 27, the financial statements and notes thereto on pages 28 through 42, and the "Selected Quarterly Data" on page 43 of Lowe’s 2008 Annual Report to Shareholders.


None.


The Company's management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s “disclosure controls and procedures”, (as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the Exchange Act)). Based upon their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the SEC) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
 
In addition, no change in the Company’s internal control over financial reporting occurred during the fiscal fourth quarter ended January 30, 2009 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
Management’s report on internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) and the report of Deloitte & Touche LLP, the Company’s independent registered public accounting firm, are included in Lowe’s 2008 Annual Report to Shareholders on pages 26 and 27 under the headings, “Management’s Report on Internal Control Over Financial Reporting” and “Report of Independent Registered Public Accounting Firm,” respectively, and are incorporated herein by reference.


None.
 

 
14

 


 

Information required by this item is furnished by incorporation by reference to all information under the captions entitled, "Election of Directors," "Information Concerning the Nominees," "Information Concerning Continuing Directors," "Information about the Board of Directors and Committees of the Board," and "Section 16(a) Beneficial Ownership Reporting Compliance" included in the definitive Proxy Statement which will be filed pursuant to regulation 14A, with the SEC within 120 days after the fiscal year ended January 30, 2009 (the Proxy Statement).  The information required by this item with respect to our executive officers appears in Part I of this Annual Report on Form 10-K under the caption, "Executive Officers of the Registrant. "

All employees of the Company, including its Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer are required to abide by the Lowe's Companies, Inc. and Subsidiaries Code of Business Conduct and Ethics (the Code). The Code is designed to ensure that the Company's business is conducted in a legal and ethical manner. The Code covers all areas of professional conduct including compliance with laws and regulations, conflicts of interest, fair dealing among customers and suppliers, corporate opportunity, confidential information, insider trading, employee relations and accounting complaints. A full text of the Code can be found at www.Lowes.com, under the "About Lowe’s," “Investors” and "Code of Ethics" captions. You can also obtain a copy of the complete Code by contacting Shareholder Services at 1-888-345-6937.

We will disclose information pertaining to amendments or waivers to provisions of our Code that apply to our principal executive officer, principal financial officer, principal accounting officer or persons performing similar functions and that relate to the elements of our Code enumerated in the SEC rules and regulations by posting this information on our website at www.Lowes.com. The information on our website is not a part of this Annual Report and is not incorporated by reference in this report or any of our other filings with the SEC.


Information required by this item is furnished by incorporation by reference to all information under the captions entitled, "Executive Officer Compensation" and "Information about the Board of Directors and Committees of the Board – Compensation of Directors" included in the Proxy Statement.


Information required by this item is furnished by incorporation by reference to all information under the captions entitled, "Security Ownership of Certain Beneficial Owners and Management" and “Equity Compensation Plan Information” included in the Proxy Statement.


Information required by this item is furnished by incorporation by reference to all information under the captions entitled, "Related-Party Transactions" and "Information about the Board of Directors and Committees of the Board - Director Independence" included in the Proxy Statement.


Information required by this item is furnished by incorporation by reference to all information under the caption entitled, "Audit Matters - Fees Paid to the Independent Registered Public Accounting Firm" included in the Proxy Statement.
 

 
15

 

 

a) 1. Financial Statements
See the following items and page numbers appearing in Lowe’s 2008 Annual Report to Shareholders:
 
     
Page(s)
 
Reports of Independent Registered Public Accounting Firm
 
27
       
 
Consolidated Statements of Earnings for each of the three fiscal years in the period ended January 30, 2009
 
28
       
 
Consolidated Balance Sheets at January 30, 2009 and February 1, 2008
 
29
       
 
Consolidated Statements of Shareholders' Equity for each of the three fiscal years in the period ended January 30, 2009
 
30
       
 
Consolidated Statements of Cash Flows for each of the three fiscal years in the period ended January 30, 2009
 
31
       
 
Notes to Consolidated Financial Statements for each of the three fiscal years in the period ended January 30, 2009
 
32-42


  2. Financial Statement Schedule

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 accompanying consolidated financial statements of Lowe's Companies, Inc. and subsidiaries (the "Company")  as of January 30, 2009 and February 1, 2008, and for each of the three fiscal years in the period ended January 30, 2009, and the Company's internal control over financial reporting as of January 30, 2009, and have issued our reports thereon dated March 31, 2009 ; such consolidated financial statements and reports are included in the Company's 2008 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of the Company listed in Item 15. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ Deloitte & Touche LLP
 
Charlotte, North Carolina
March 31, 2009


 
16

 


SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
 
 
 
(In Millions)
 
Balance at beginning of period
   
Charges to costs and expenses
   
Deductions
   
Balance at end of period
                       
January 30, 2009:
                     
Reserve for loss on obsolete inventory
  $ 67     $ -     $ (9)
(a)
  $ 58
Reserve for inventory shrinkage
    137       374       (382)
(b)
    129
Reserve for sales returns
    51       -       (2)
(c)
    49
Self-insurance liabilities
    671       958       (878)
(d)
    751
Store closing lease liability
    11       1       (5)
(e)
    7
Deferred tax valuation allowance
    22       20
(f)
    -       42
                               
February 1, 2008:
                             
Reserve for loss on obsolete inventory
  $ 66     $ 1
(a)
  $ -     $ 67
Reserve for inventory shrinkage
    129       428       (420)
(b)
    137
Reserve for sales returns
    55       -       (4)
(c)
    51
Self-insurance liabilities
    650       820       (799)
(d)
    671
Store closing lease liability
    19       4       (12)
(e)
    11
Deferred tax valuation allowance
    4       18
(f)
    -       22
                               
February 2, 2007:
                             
Reserve for loss on obsolete inventory
  $ 104     $ -     $ (38)
(a)
  $ 66
Reserve for inventory shrinkage
    113       455       (439)
(b)
    129
Reserve for sales returns
    54       1
(c)
    -       55
Self-insurance liabilities
    571       674       (595)
(d)
    650
Store closing lease liability
    23       2       (6)
(e)
    19
Deferred tax valuation allowance
    -       4
(f)
    -       4
 
(a) :    Represents increase/(decrease) in the required reserve based on the Company’s evaluation of obsolete inventory.
(b) :    Represents the actual inventory shrinkage experienced at the time of physical inventories.
(c) :    Represents increase/(decrease) in the required reserve based on the Company’s evaluation of anticipated merchandise returns.
(d) :    Represents claim payments for self-insured claims.
(e) :    Represents lease payments and adjustments, net of sublease income.
(f) :     Represents an increase in the required reserve based on the Company’s evaluation of deferred tax assets.
 

 
17

 


  3.
  Exhibits
   
(3.1)
Restated and Amended Charter (filed as Exhibit 3.1 to the Company's Form 10-Q dated September 3, 2008 and incorporated by reference herein).
   
(3.2)
Bylaws, as amended and restated (filed as Exhibit 3.1 to the Company's Form 8-K dated August 28, 2008 and incorporated by reference herein).
   
(4.1)
Indenture dated April 15, 1992 between the Company and The Bank of New York, as successor trustee (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-3 (No. 33-47269) and incorporated by reference herein).
   
(4.2)
Amended and Restated Indenture, dated as of December 1, 1995, between the Company and The Bank of New York, as successor trustee (filed as Exhibit 4.1 on Form 8-K dated December 15, 1995, and incorporated by reference herein).
   
(4.3)
First Supplemental Indenture, dated as of February 23, 1999, to the Amended and Restated Indenture dated as of December 1, 1995, between the Company and The Bank of New York, as successor trustee (filed as Exhibit 10.13 to the Company's Annual  Report on Form 10-K dated April 19, 1999, and incorporated by reference herein).
   
(4.4)
Second Supplemental Indenture, dated as of October 19, 2001, to the Amended and Restated Indenture dated as of  December 1, 1995, between the Company and The Bank of New York, as successor trustee (filed as Exhibit 4.1 on Form  8-K dated October 25, 2001, and incorporated by reference herein).
   
(4.5)
Third Supplemental Indenture, dated as of October 6, 2005, to the Amended and Restated Indenture dated as of December 1, 1995, between the Company and The Bank of New York, as trustee, (filed as Exhibit 4.5 to the Company’s Annual Report on Form 10-K dated April 3, 2007, and incorporated by reference herein) including as an exhibit thereto a form of the Company’s 5.0% Notes maturing in October 2015 and the Company’s 5.5% Notes maturing in October 2035.
   
(4.6)
Fourth Supplemental Indenture, dated as of October 10, 2006, between Lowe’s Companies, Inc. and The Bank of New York, as trustee (filed as Exhibit 4.5 to the Company’s Registration Statement on Form S-3 (No. 333-137750) and incorporated by reference herein), including as an exhibit thereto a form of the Company’s 5.4% Senior Notes maturing in October 2016 and the Company’s 5.8% Senior Notes maturing in October 2036.
   
(4.7)
Fifth Supplemental Indenture, dated as of September 11, 2007, between Lowe’s Companies, Inc. and The Bank of New York, as trustee (filed as Exhibit 4.1 to the Company’s Form 8-K dated September 6, 2007 and incorporated by reference herein), including as an exhibit thereto a form of the Company’s 5.6% Senior Notes maturing in September 2012, the Company’s 6.1% Senior Notes maturing in September 2017, and the Company’s 6.65% Senior Notes maturing in September 2037.
   
(4.8)
Indenture between the Company and The Bank of New York, dated as of February 16, 2001 (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-3 (No. 333-60434), and incorporated by reference herein).
   
(4.9)
Form of the Company's 6 7/8 % Debenture due February 20, 2028 (filed as Exhibit 4.2 on Form 8-K dated February 20, 1998, and incorporated by reference herein).
   
(4.10)
Form of the Company's 6 1/2 % Debenture due March 15, 2029 (filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended January 29, 1999, and incorporated by reference herein).
   
(4.11)
Form of the Company's 8 1/4 % Notes due June 1, 2010 (filed as Exhibit 4.2 on Form 8-K dated
 

 
18

 


 
June 8, 2000, and incorporated by reference herein).
   
(4.12)
Amended and Restated Credit Agreement dated as of June 15, 2007 (filed as Exhbit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended August 3, 2007 and incorporated by reference herein).
 
*(10.1)
Lowe's Companies, Inc. Directors' Deferred Compensation Plan, effective July 1, 1994 (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended October 31, 2008 and incorporated by reference herein).
   
*(10.2)
Lowe's Companies, Inc., 1994 Incentive Plan (filed on the Company's Form S-8 dated July 8, 1994 (No. 33-54499) and incorporated by reference herein).
   
*(10.3)
Amendments to the Lowe's Companies, Inc. 1994 Incentive Plan dated December 9, 1994 (filed as Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended January 29, 1999, and incorporated by reference herein).
   
*(10.4)
Amendments to the Lowe's Companies, Inc. 1994 Incentive Plan dated September 17, 1998 (filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended January 29, 1999, and incorporated by reference herein).
   
*(10.5)
Amendments to the Lowe's Companies, Inc. 1994 Incentive Plan dated December 4, 1998 (filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended January 29, 1999, and incorporated by reference herein).
   
*(10.6)
Lowe's Companies, Inc. 1997 Incentive Plan (filed on the Company's Form S-8 dated August 29, 1997 (No. 333-34631) and incorporated by reference herein).
   
*(10.7)
Amendments to the Lowe's Companies, Inc. 1997 Incentive Plan dated January 25, 1998 (filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended January 29, 1999, and incorporated by reference herein).
   
*(10.8)
Amendments to the Lowe's Companies, Inc. 1997 Incentive Plan dated September 17, 1998 (filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended January 29, 1999, and incorporated by reference herein).
   
*(10.9)
Lowe's/Eagle Stock Option Plan (filed as Exhibit 4.2 on the Company's Form S-8 filed April 7, 1999 (No. 333-75793) and incorporated by reference herein).
   
*(10.10)
Lowe's Companies, Inc. Employee Stock Purchase Plan - Stock Options for Everyone, as amended and restated (filed herewith).
   
*(10.11)
Lowe's Companies, Inc. 2001 Incentive Plan (filed on the Company's Form S-8 dated November 15, 2001 (No. 333-73408) and incorporated by reference herein).
   
*(10.12)
Lowe's Companies, Inc. Benefit Restoration Plan as amended and restated as of January 1, 2008 (filed as Exhibit 10.2 to the Company’s Form 10-Q dated December 12, 2007, and incorporated by reference herein).
   
*(10.13)
Form of the Company's Management Continuity Agreement for Tier I Senior Officers (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 1, 2008, and incorporated by reference herein).  
   
*(10.14)
Form of the Company's Management Continuity Agreement for Tier II Senior Officers (filed as Exhibit 10.2 to the Company's Form 10-Q for the quarter ended August 1, 2008, and incorporated by reference herein). 
   
*(10.15)
Lowe’s Companies, Inc. Cash Deferral Plan (filed as Exhibit 10.1 to the Company’s Form 10-Q
 

 
  19

 


 
dated June 4, 2004 and incorporated by reference herein).
   
*(10.16)
Amendment  No. 1 to the Lowe’s Companies, Inc. Cash Deferral Plan (filed as Exhibit 10.1 to the Company’s Form 10-Q dated December 12, 2007 and incorporated by reference herein).
   
*(10.17)
Lowe’s Companies, Inc. Amended and Restated Directors’ Stock Option and Deferred Stock Unit Plan (filed as Exhibit 10.1 to the Company’s Form 8-K dated May 27, 2005 and incorporated by reference herein).
   
*(10.18)
Form of Lowe’s Companies, Inc. Deferred Stock Unit Agreement for Directors (filed as Exhibit 10.2 to the Company’s Form 8-K dated May 27, 2005 and incorporated by reference herein).
   
*(10.19)
Form of Lowe’s Companies, Inc. Restricted Stock Award Agreement (filed as Exhibit 10.1 to the Company’s Form 10-Q dated September 1, 2005 and incorporated by reference herein).
   
*(10.20)
Lowe's Companies, Inc. 2006 Annual Incentive Plan (filed as Exhibit 10.1 to the Company’s Form 10-Q dated September 7, 2006 and incorporated by reference herein).
   
*(10.21)
Lowe's Companies, Inc. 2006 Long Term Incentive Plan (filed as Exhibit 10.2 to the Company’s Form 10-Q dated September 7, 2006 and incorporated by reference herein).
   
*(10.22)
Amendment No. 2 to the Lowe’s Companies, Inc. Deferred Compensation Program (filed herewith).
   
*(10.23)
Amendment No. 1 to the Lowe’s Companies, Inc. 2006 Long Term Incentive Plan (filed herewith).
   
(12.1)
Statement Re Computation of Ratio of Earnings to Fixed Charges
   
(13)
Portions of the 2008 Lowe’s Annual Report to Shareholders for the fiscal year ended January  30, 2009
   
(21)
List of Subsidiaries
   
(23)
Consent of Deloitte & Touche LLP
   
(31.1)
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
(31.2)
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
(32.1)
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
(32.2)
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
 
* Management contract or compensatory plan or arrangement required to be filed as an exhibit to this form.


 
20

 



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

   
LOWE’S COMPANIES, INC.
   
(Registrant)
     
March 31, 2009
 
By: /s/ Robert A. Niblock                                 
Date
 
Robert A. Niblock
   
Chairman of the Board and Chief Executive Officer
     
March 31, 2009
 
By: /s/ Robert F. Hull, Jr.
Date
 
Robert F. Hull, Jr.
   
Executive Vice President and Chief Financial Officer
     
March 31, 2009
 
By: /s/ Matthew V. Hollifield
Date
 
Matthew V. Hollifield
   
Senior Vice President and Chief Accounting Officer


 
21

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Each of the directors of the Registrant whose signature appears below hereby appoints Robert F. Hull, Jr., Matthew V. Hollifield and Gaither M. Keener, Jr., and each of them severally, as his or her attorney-in-fact to sign in his or her name and behalf, in any and all capacities stated below, and to file with the Securities and Exchange Commission any and all amendments to this report on Form 10-K, making such changes in this report on Form 10-K as appropriate, and generally to do all such things in their behalf in their capacities as directors and/or officers to enable the Registrant to comply with the provisions of the Securities Exchange Act of 1934, and all requirements of the Securities and Exchange Commission.

         
/s/ Robert A. Niblock
 
Chairman of the Board of Directors, Chief Executive Officer and Director
 
March 31, 2009
Robert A. Niblock
     
Date
         
/s/ David W. Bernauer
 
Director
 
March 31, 2009
David W. Bernauer
     
Date
         
/s/ Leonard L. Berry
 
Director
 
March 31, 2009
Leonard L. Berry
     
Date
         
/s/ Peter C. Browning
 
Director
 
March 31, 2009
Peter C. Browning
     
Date
         
/s/ Dawn E. Hudson
 
Director
 
March 31, 2009
Dawn E. Hudson
     
Date
         
/s/ Robert A. Ingram
 
Director
 
March 31, 2009
Robert A. Ingram
     
Date
         
/s/ Robert L. Johnson
 
Director
 
March 31, 2009
Robert L. Johnson
     
Date
         
/s/ Marshall O. Larsen
 
Director
 
March 31, 2009
Marshall O. Larsen
     
Date
         
/s/ Richard K. Lochridge
 
Director
 
March 31, 2009
Richard K. Lochridge
     
Date
         
/s/ Stephen F. Page
 
Director
 
March 31, 2009
Stephen F. Page
     
Date
         
/s/ O. Temple Sloan , Jr.
 
Director
 
March 31, 2009
O. Temple Sloan, Jr.
     
Date
 

 
22

 

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:

(i)
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;

(ii)
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

(iii)
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
 

 
 

 

 
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.
 

 
2

 


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.
 

 
3

 
 

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.

1.19
Offering Period .

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.
 

 
4

 


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.

(a)
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.

(b)
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.

(c)
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.

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 .

(a)
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.
 

 
5

 

 
(b)
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.

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 .

(a)
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.

(b)
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.

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.
 

 
6

 

 
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.
 

 
7

 


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.
 

 
8

 


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.
 

 
9

 





Exhibit 10.22

AMENDMENT NUMBER TWO
TO THE
LOWE’S COMPANIES, INC. DEFERRED COMPENSATION PROGRAM

This Amendment Number Two to the Lowe’s Companies, Inc. Deferred Compensation Program (the “ Program ”) is adopted by Lowe’s Companies, Inc. (the “ Company ”) effective as of December 31, 2008.
 
W I T N E S S E T H:
 
WHEREAS, the Company currently maintains the Program as Exhibit 1 to the Lowe’s Companies, Inc. 2001 Incentive Plan; and
 
WHEREAS, the Company desire to amend the Program to eliminate the mandatory deferral of any stock awards made prior to January 1, 2009 that become vested on or after January 1, 2009; and
 
WHEREAS, under Section 13 of the Program, the Company may amend the Program at any time;
 
NOW, THEREFORE, effective as of December 31, 2008, the Company hereby amends Section 2(n) of the Program (the definition of “Mandatory Deferred Benefit”) by adding the following to the end thereof:
 
Notwithstanding any contrary provision of the Program, no Eligible Employee shall earn a Mandatory Deferred Benefit under the Program in any Deferral Year beginning on and after January 1, 2009.
 
IN WITNESS WHEREOF, the Company has adopted this Amendment Number Two to the Program effective as of the day and year first above written.
 
LOWE’S COMPANIES, INC.


By: _____________________________
Name: ___________________                                                               
Title: ____________________                                                               


 
 

 

Exhibit 10.23

AMENDMENT NUMBER ONE
TO THE
LOWE’S COMPANIES, INC. 2006 LONG TERM INCENTIVE PLAN

This Amendment Number One to the Lowe’s Companies, Inc. 2006 Long Term Incentive Plan (the “ Plan ”) is adopted by Lowe’s Companies, Inc. (the “ Company ”) effective as of December 31, 2008.
 
W I T N E S S E T H:
 
WHEREAS, the Company currently maintains the Lowe’s Companies, Inc. 2006 Long Term Incentive Plan; and
 
WHEREAS, the Company desire to amend the Plan to eliminate the mandatory deferral of any currently outstanding stock awards under the Plan or any stock awards made on or after January 1, 2009; and
 
WHEREAS, under Section 15.1 of the Plan, the Company may amend the Plan at any time;
 
NOW, THEREFORE, effective as of December 31, 2008, the Company hereby amends Article XI of the Plan by adding the following new Section 11.5 to the end thereof:
 
Section 11.5   Termination of Mandatory Deferrals .  Notwithstanding any contrary provision of the Plan, no Participant shall earn a Deferred Stock Benefit under the Plan with respect to any Stock Award or award of Performance Shares outstanding or awarded on and after January 1, 2009.
 
IN WITNESS WHEREOF, the Company has adopted this Amendment Number One to the Plan effective as of the day and year first above written.
 
LOWE’S COMPANIES, INC.


By: _____________________________
Name: ___________________                                                               
Title: ____________________                                                               

 
 
 

 

Exhibit 12.1

Lowe’s Companies, Inc.
Statement Re Computation of Ratio of Earnings to Fixed Charges
In Millions, Except Ratio Data

 
    Fiscal Years Ended On
   
January 28,
 
February 3,
 
February 2,
 
February 1,
 
January 30,
 
   
2005
 
2006
 
2007
 
2008
 
2009
 
Earnings:
                     
  Earnings Before Income Taxes
  $ 3,520   $ 4,496   $ 4,998   $ 4,511   $ 3,506  
  Add: Fixed Charges
    310     340     344     424     479  
  Less: Capitalized Interest
    (28 )   (28 )   (32 )   (65 )   (36 )
    Adjusted Earnings
  $ 3,802   $ 4,808   $ 5,310   $ 4,870   $ 3,949  
                                 
Fixed Charges:
                               
  Interest Expense (1)
  $ 220   $ 231   $ 238   $ 301   $ 346  
  Rental Expense (2)
    90     109     106     123     133  
    Total Fixed Charges
  $ 310   $ 340   $ 344   $ 424   $ 479  
                                 
                                 
Ratio of Earnings to Fixed Charges
    12.3     14.1     15.4     11.5     8.2  

(1) Interest accrued on uncertain tax positions is excluded from Interest Expense in the computation of Fixed Charges.
 
(2) The portion of rental expense that is representative of the interest factor in these rentals.
 


Exhibit 13

 
 
 



MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

 
 
 

 


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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.
 
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

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’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
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.

 
 
 

 


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 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