SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-12
Lowe's Companies, Inc.
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(Name of Registrant as Specified In Its Charter)
N/A
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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LOWE'S COMPANIES, INC.
---------------------------------------------
NOTICE OF
ANNUAL MEETING
AND
PROXY STATEMENT
---------------------------------------------
2003
[LOGO] LOWE'S HOME IMPROVEMENT WAREHOUSE
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CORPORATE OFFICES 1605 Curtis Bridge Road
Wilkesboro, NC 28697
------------------------------------------------------ LOWE'S
COMPANIES,
INC.
April 16, 2003
TO LOWE'S SHAREHOLDERS:
It is my pleasure to invite you to the 2003 Annual Meeting to be held at
The Park Hotel located at 2200 Rexford Road, Charlotte, NC, on Friday, May 30,
2003 at 10:00 a.m. Directions to The Park Hotel are printed on the back of the
Proxy Statement.
We intend to broadcast the meeting live on the Internet. To participate,
visit Lowe's website (www.lowes.com) and navigate to the registration page by
clicking on "About Lowe's" and then "Investor Information." A link to the
webcast will be posted a few days before the May 30th meeting. An archived
replay will also be available beginning approximately three hours after the
conclusion of the meeting and running until June 6, 2003.
Our long time director, Bob Schwartz, is retiring at this meeting, and I
look forward to saluting his thirty years of service to Lowe's.
The formal Notice of Annual Meeting and Proxy Statement are enclosed with
this letter. The Proxy Statement tells you about the agenda and the procedures
for the meeting. It also describes how the company's Board of Directors operates
and gives certain information about the company. There are four items of
business, as described in detail in the Proxy Statement; so your vote or
attendance is important. I look forward to reporting on Fiscal Year 2002, as
well as commenting on the results of our first Fiscal Quarter of 2003.
Yours cordially,
/s/ Robert L. Tillman
ROBERT L. TILLMAN
Chairman of the Board
and Chief Executive Officer
-----------------------------------
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
OF LOWE'S COMPANIES, INC.
-----------------------------------
Date: May 30, 2003
Time: 10:00 a.m.
Place: The Park Hotel
2200 Rexford Road
Charlotte, North Carolina
Purpose: o To elect three Class II Directors to a term of three years.
o To vote on a shareholder proposal concerning global workplace
labor standards, if presented.
o To vote on a shareholder proposal concerning redemption of the
shareholder rights plan, if presented.
o To vote on a shareholder proposal concerning a bylaw amendment to
require an independent director to serve as chairman of the board
of directors, if presented.
o To transact such other business as may be properly brought before
the Annual Meeting.
/s/ Stephen A. Hellrung
STEPHEN A. HELLRUNG
Senior Vice President, General Counsel
& Secretary
Wilkesboro, North Carolina
April 16, 2003
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YOUR VOTE IS IMPORTANT. TO VOTE YOUR SHARES YOU MAY: VOTE AT THE INTERNET SITE
ADDRESS LISTED ON YOUR PROXY CARD; CALL THE TOLL-FREE NUMBER SET FORTH ON YOUR
PROXY CARD; OR SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY TO ENSURE
ITS ARRIVAL IN TIME FOR THE MEETING.
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TABLE OF CONTENTS
PAGE
----
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
PROPOSAL 1-- ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . 2
INFORMATION CONCERNING THE NOMINEES . . . . . . . . . . . . . . . . . . . 3
INFORMATION CONCERNING CONTINUING DIRECTORS . . . . . . . . . . . . . . . 4
INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD . . 6
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . 9
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. . . . . . . . . . 10
COMPENSATION OF EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . 10
TOTAL RETURN TO SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . 12
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE IN CONTROL ARRANGEMENTS . . . . . . . . . . . . . . . . . . . . . 12
REPORT OF THE COMPENSATION AND ORGANIZATION COMMITTEE. . . . . . . . . . . 13
AUDIT MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
PROPOSAL 2-- SHAREHOLDER PROPOSAL ON GLOBAL WORKERS' RIGHTS
STANDARDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
PROPOSAL 3-- SHAREHOLDER PROPOSAL ON SHAREHOLDER RIGHTS PLAN . . . . . . . 19
PROPOSAL 4-- SHAREHOLDER PROPOSAL ON BYLAW AMENDMENT TO REQUIRE AN
INDEPENDENT DIRECTOR TO SERVE AS CHAIRMAN OF THE BOARD OF DIRECTORS. . . 20
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SHAREHOLDER PROPOSALS FOR THE 2004 ANNUAL MEETING. . . . . . . . . . . . . 22
ANNUAL REPORT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
AUDIT COMMITTEE CHARTER. . . . . . . . . . . . . . . . . . . . . . . . . . A-1
LOWE'S COMPANIES, INC.
----------------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
MAY 30, 2003
----------------------------------
GENERAL INFORMATION
This Proxy Statement is being furnished in connection with the solicitation
by the Board of Directors of Lowe's Companies, Inc. (the "Company") of proxies
to be voted at the Annual Meeting of Shareholders to be held at The Park Hotel,
2200 Rexford Road, Charlotte, North Carolina on Friday, May 30, 2003 at 10:00
a.m. It is anticipated that this Proxy Statement and the enclosed form of proxy
will first be sent to shareholders on or about April 16, 2003.
OUTSTANDING SHARES
On April 1, 2003 there were 782,834,160 shares of Common Stock of the
Company outstanding and entitled to vote. Shareholders are entitled to one vote
for each share held on all matters to come before the meeting.
WHO MAY VOTE
Only shareholders of record at the close of business on April 1, 2003 are
entitled to notice of and to vote at the meeting or any adjournment thereof.
HOW TO VOTE
You may vote by proxy or in person at the meeting. To vote by proxy, you
may: call the toll-free number set forth on the proxy card; vote at the internet
site set forth on the proxy card; or mail your signed proxy card to our
tabulator in the envelope provided. Even if you plan to attend the meeting, we
recommend that you vote prior to the meeting. You can always change your vote as
described below.
HOW PROXIES WORK
The Company's Board of Directors is asking for your proxy. By giving us
your proxy, you authorize the proxyholders (members of Lowe's management) to
vote your shares at the meeting in the manner you direct. If you do not specify
how you wish us to vote your shares, your shares will be voted "for" all
director nominees, and "against" the shareholder proposals described on pages
17-21. Proxyholders will also vote shares according to their discretion on any
other matter properly brought before the meeting.
You may receive more than one proxy card depending on how you hold your
shares. Generally, you need to vote on the internet, call the toll-free number
or sign and return all of your proxy cards to vote all of your shares. For
example, if you hold shares through someone else, such as a stockbroker, you may
get proxy material from that person. Shares registered in your name are covered
by a separate proxy card.
If for any reason any of the nominees for election as directors becomes
unavailable for election, discretionary authority may be exercised by the
proxyholders to vote for substitutes proposed by the Board of Directors.
Abstentions and shares held of record by a broker or its nominee ("broker
shares") that are voted on any matter are included in determining the number of
votes present or represented at the meeting. Broker shares that are not voted on
any matter at the meeting are not included in determining whether a quorum is
present. The vote required to approve each of the matters to be considered at
the meeting is disclosed under the caption for such matters. Votes that are
withheld and broker shares that are not voted (commonly referred to as "broker
non-votes") are not included in determining the number of votes cast in the
election of Directors or on other matters.
QUORUM
In order to carry out the business of the meeting, we must have a quorum.
This means that at least a majority of the outstanding shares eligible to vote
must be represented at the meeting, either by proxy or in person. Shares owned
by the Company are not voted and do not count for this purpose.
CHANGING YOUR VOTE
The shares represented by a proxy will be voted as directed unless the
proxy is revoked. Any proxy may be revoked before it is exercised by filing with
the Secretary of the Company an instrument revoking the proxy or a proxy bearing
a later date. A proxy is revoked if the person who executed the proxy is present
at the meeting and elects to vote in person.
VOTES NEEDED
Director nominees receiving the largest number of votes cast are elected,
up to the maximum number of three directors fixed by the Board to be elected at
the meeting. As a result, any shares not voted (whether by abstention, broker
non-vote or otherwise) have no impact on the election of directors, except to
the extent that the failure to vote for a particular nominee may result in
another nominee receiving a larger number of votes. Approval of the shareholder
proposals described on pages 17-21 and any other matter properly brought before
the meeting requires the favorable vote of a majority of the votes cast.
ATTENDING IN PERSON
Only shareholders, their designated proxies and guests of the Company may
attend the meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
At the time of the Annual Meeting, the Board of Directors will have 10
members divided into three classes: Class I (three members), Class II (three
members) and Class III (four members), with one class being elected each year
for a three-year term.
The three nominees standing for re-election as Class II Directors are:
Peter C. Browning, Kenneth D. Lewis and Thomas D. O'Malley.
If elected, each Class II nominee will serve three consecutive years with
his term expiring in 2006 or until a successor is elected and qualified. The
election of each nominee requires the affirmative vote of the holders of the
plurality of the shares of Common Stock cast in the election of Directors.
Unless authority to vote in the election of Directors is withheld, it is the
intention of the persons named as Proxies to vote "FOR" the three nominees. If
at the time of the meeting any of these nominees is unavailable for election as
a Director for any reason, which is not expected to occur, the persons named as
Proxies will vote for such substitute nominee or nominees, if any, as shall be
designated by the Board of Directors.
2
INFORMATION CONCERNING THE NOMINEES
CLASS II NOMINEES FOR ELECTION AS DIRECTORS -- TERM TO EXPIRE IN 2006
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PETER C. BROWNING DIRECTOR SINCE: 1998
AGE: 61
BUSINESS EXPERIENCE, DIRECTORSHIPS, AND POSITIONS WITHIN THE LAST FIVE YEARS
Chairman of Governance Committee, member of Audit Committee and Executive
[PICTURE OMITTED] Committee of the Company. Dean of the McColl Graduate School of Business at
Queens University of Charlotte since March 2002. Non-Executive Chairman of the
Board, Nucor Corporation (Steel Manufacturer) since 2000. President and CEO of
Sonoco Products Company April 1998 through July 2000. Other directorships:
Acuity Brands Inc.; EnPro Industries, Inc.; The Phoenix Companies, Inc.; Sykes
Enterprises, Inc.; and Wachovia Corporation.
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KENNETH D. LEWIS DIRECTOR SINCE: 2000
AGE: 56
BUSINESS EXPERIENCE, DIRECTORSHIPS, AND POSITIONS WITHIN THE LAST FIVE YEARS
Member of Compensation and Organization Committee and Governance Committee of
[PICTURE OMITTED] the Company. Chairman, Chief Executive Officer and President of Bank of America,
President and Chief Operating Officer (Oct. 1999 to April 2001), President (Jan.
1999 -- Oct. 1999), President, Consumer and Commercial Banking (1998-1999) of
that Company, and President of NationsBank Corporation (1993-1998). Director of
Bank of America since 1999. Other directorships: Health Management Associates,
Inc.
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THOMAS D. O'MALLEY DIRECTOR SINCE: 2000
AGE: 61
[PICTURE OMITTED] BUSINESS EXPERIENCE, DIRECTORSHIPS, AND POSITIONS WITHIN THE LAST FIVE YEARS
Member of Audit Committee and Governance Committee of the Company. Chairman of
the Board and Chief Executive Officer of Tosco Corporation until its sale to
Phillips Petroleum in 2001. Currently serving as Chairman, President and Chief
Executive Officer of Premcor Inc., an oil refiner. Other directorships:
PetsMart, Inc.
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3
INFORMATION CONCERNING CONTINUING DIRECTORS
CLASS III DIRECTORS -- TERM TO EXPIRE IN 2004
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LEONARD L. BERRY DIRECTOR SINCE: 1998
AGE: 60
BUSINESS EXPERIENCE, DIRECTORSHIPS, AND POSITIONS WITHIN THE LAST FIVE YEARS
[PICTURE OMITTED]
Member of Audit Committee and Governance Committee of the Company. Distinguished
Professor of Marketing and M. B. Zale Chair in Retailing and Marketing
Leadership, Texas A&M University, since 1982. Other directorships: Darden
Restaurants, Inc.; Genesco Inc.; and Grocery Outlet, Inc.
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PAUL FULTON DIRECTOR SINCE: 1996
AGE: 68
BUSINESS EXPERIENCE, DIRECTORSHIPS, AND POSITIONS WITHIN THE LAST FIVE YEARS
[PICTURE OMITTED]
Chairman of Compensation and Organization Committee, member of Executive
Committee and Governance Committee of the Company. Chairman of the Board of
Bassett Furniture Industries, Inc. since 2000 and Director since 1994, Chief
Executive Officer of Bassett Furniture from 1997 until 2000. Dean, Kenan-Flagler
Business School, University of North Carolina, Chapel Hill, NC, 1994-1997. Other
directorships: Bank of America; Sonoco Products Company; and Wm. Carter Company.
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DAWN E. HUDSON DIRECTOR SINCE: 2001
AGE: 45
BUSINESS EXPERIENCE, DIRECTORSHIPS, AND POSITIONS WITHIN THE LAST FIVE YEARS
[PICTURE OMITTED]
Member of Compensation and Organization Committee and Governance Committee of
the Company. President of Pepsi Cola Company North America since June 2002.
Senior Vice President, Strategy and Marketing for Pepsi Cola Company North
America (1997-2002).
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ROBERT L. TILLMAN DIRECTOR SINCE: 1994
AGE: 59
[PICTURE OMITTED]
Business Experience, Directorships, and Positions within the Last Five Years
Chairman of the Board since January 1998, Chief Executive Officer since 1996.
Chairman of Executive Committee of the Company.
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4
CLASS I DIRECTORS -- TERM TO EXPIRE IN 2005
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ROBERT A. INGRAM DIRECTOR SINCE: 2001
AGE: 60
Business Experience, Directorships, and Positions within the Last Five Years
Member of Compensation and Organization Committee and Governance Committee.
Non-Executive Chairman, OSI Pharmaceuticals, Inc.; Vice Chairman
[PICTURE OMITTED] Pharmaceuticals, GlaxoSmithKline (International Pharmaceutical Corporation);
Chief Operating Officer and President, Pharmaceutical Operations of
GlaxoSmithKline (January 2001-2002), having previously served as Chief Executive
of Glaxo Wellcome plc (1997-2000), Chairman of Glaxo Wellcome Inc., (Glaxo
Wellcome plc's United States subsidiary) (1999-2000); Chairman, President and
Chief Executive Officer of Glaxo Wellcome Inc. (1997-1999), and President and
Chief Executive Officer of Glaxo Wellcome Inc. prior thereto. Other
directorships: Edwards Lifesciences Corporation; Misys plc (Non-Executive
Director); Molson, Inc.; Nortel Networks; OSI Pharmaceuticals, Inc.
(Non-Executive Chairman); and Wachovia Corporation.
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RICHARD K. LOCHRIDGE DIRECTOR SINCE: 1998
AGE: 59
BUSINESS EXPERIENCE, DIRECTORSHIPS, AND POSITIONS WITHIN THE LAST FIVE YEARS
[PICTURE OMITTED]
Chairman of Audit Committee, member of Executive Committee and Governance
Committee of the Company. President, Lochridge & Company, Inc., (General
Management Consulting Firm) since 1986. Other directorships: Dover Corporation;
John H. Harland Company; and PetsMart, Inc.
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CLAUDINE B. MALONE DIRECTOR SINCE: 1995
AGE: 66
BUSINESS EXPERIENCE, DIRECTORSHIPS, AND POSITIONS WITHIN THE LAST FIVE YEARS
[PICTURE OMITTED] Member of Compensation and Organization Committee and Governance Committee of
the Company. President and Chief Executive Officer, Financial & Management
Consulting, Inc., since 1984; Former Chairman, Federal Reserve Bank, Richmond,
Va., 1996-1999 (Member since 1994). Other directorships: CGNU Life Insurance
Co.; Hasbro, Inc.; LaFarge Corporation; and Science Applications International
Corporation.
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5
INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
CLASSIFICATION OF DIRECTORS
Each Lowe's Director is classified as an "Independent Director" or a
"Management Director." A "Management Director" is a present or former employee
who serves as a Director. An "Independent Director" is a Director within the
scope of Securities and Exchange Commission rules defining "non-employee
directors." All Directors are Independent Directors, except for Mr. Tillman, who
is a Management Director.
COMPENSATION OF DIRECTORS -- STANDARD ARRANGEMENTS
Mr. Tillman receives no Director or Committee compensation. Directors who
are not employed by the Company are paid an annual retainer of $75,000, plus
$15,000 annually for serving as a Committee Chairman.
COMPENSATION OF DIRECTORS -- OTHER ARRANGEMENTS
In 1999, shareholders approved the Lowe's Companies, Inc. Directors' Stock
Option Plan. This Plan provides for each eligible Director to be awarded a stock
option to purchase 4,000 shares of Company Common Stock at the first Directors'
Meeting following the Annual Meeting (the "Award Date"). The Company reserved
500,000 shares of Common Stock for the Plan, of which 58,676 option shares are
currently exercisable. Each option becomes exercisable with respect to 1,334 of
the shares of Common Stock on May 15 of the first calendar year following the
Award Date and 1,333 shares on May 15 of each of the second and third calendar
years following the Award Date. Each option has a seven-year term. The exercise
price is set based on the closing price of a share of Common Stock as reported
on the New York Stock Exchange composite tape on the Award Date, which was
$47.16. Options for 4,000 shares each were granted on May 31, 2002 to Directors
Berry, Browning, Fulton, Hudson, Ingram, Lewis, Lochridge, Malone, O'Malley and
Schwartz. Mr. Tillman does not participate in this Plan.
In 1994, the Board adopted the Lowe's Companies, Inc. Directors' Deferred
Compensation Plan. This Plan allows each non-employee Director to defer receipt
of all, but not less than all, of the annual retainer and meeting fees otherwise
payable to the Director. Deferrals are credited to a bookkeeping account and
account values are adjusted based on the investment measure selected by the
Director. One investment measure adjusts the account based on the Wachovia Bank
and Trust Company prime rate plus 1%. The other investment measure assumes that
the deferrals are invested in the Company's Common Stock. A Director may
allocate deferrals between the two investment measures in 25% multiples. Account
balances are paid in cash following the termination of a Director's service.
BOARD OF DIRECTORS
During Fiscal Year 2002, the Board of Directors held seven meetings. The
Board has four standing committees, Audit, Compensation and Organization,
Executive and Governance. All Directors attended at least 75% of the meetings of
the Board and the Committees on which they served with the exception of Messrs.
Ingram and Lewis, who each attended 71% of the meetings of the Board and the
Committees on which they served.
Audit Committee
6
NUMBER OF MEMBERS: Five
MEMBERS: Richard K. Lochridge (Chairman), Leonard L. Berry, Peter C. Browning,
Thomas D. O'Malley and Robert G. Schwartz
NUMBER OF MEETINGS
IN FISCAL YEAR 2002: Eight
FUNCTIONS: The Audit Committee meets with the internal auditing staff and
representatives of the Company's independent accounting firm without
senior management present and with representatives of senior
management. The Committee reviews the general scope of the Company's
annual audit and the fees charged by the independent accountants for
audit services, financial information systems design and
implementation services, and all other services; determines the duties
and responsibilities of the internal auditors; reviews financial
statements and the accounting principles being applied; and reviews
audit results and other matters relating to internal control and
compliance with the Company's code of ethics. In addition, the Audit
Committee recommends annually the engagement of the Company's
independent accountants. The Board of Directors adopted an amended and
restated Audit Committee Charter on April 4, 2003. The Amended and
Restated Audit Committee Charter is attached to this proxy statement
as Appendix A.
COMPENSATION AND ORGANIZATION COMMITTEE
NUMBER OF MEMBERS: Five
MEMBERS: Paul Fulton (Chairman), Dawn E. Hudson, Robert A. Ingram,
Kenneth D. Lewis and Claudine B. Malone
NUMBER OF MEETINGS
IN FISCAL YEAR 2002: Four
FUNCTIONS: This Committee reviews and sets the compensation of Directors who are
employees of the Company; reviews the compensation of Senior
management; reviews and approves all annual bonus plans; reviews and
approves all forms of compensation that exceed one year in duration,
including employee stock option and deferred compensation awards;
administers and interprets all provisions of all compensation,
employee stock option, stock appreciation rights and other incentive
plans; and approves awards pursuant to the terms of any employee stock
option or stock appreciation rights plan.
EXECUTIVE COMMITTEE
NUMBER OF MEMBERS: Four
MEMBERS: Robert L. Tillman (Chairman), Peter C. Browning, Paul
Fulton, and Richard K. Lochridge
NUMBER OF MEETINGS
IN FISCAL YEAR 2002: Two
FUNCTIONS: The Executive Committee exercises all of the powers of the Board of
Directors between meetings, except as otherwise limited by law.
7
GOVERNANCE COMMITTEE
NUMBER OF MEMBERS: Ten
MEMBERS: Peter C. Browning (Chairman), Leonard L. Berry, Paul Fulton, Dawn
E. Hudson, Robert A. Ingram, Kenneth D. Lewis, Richard K. Lochridge,
Claudine B. Malone, Thomas D. O'Malley and Robert G. Schwartz
NUMBER OF MEETINGS
IN FISCAL YEAR 2002: Three
FUNCTIONS: This Committee's responsibilities include screening suggestions for
new Board members and making recommendations to the full Board;
conducting an annual performance evaluation of the Chief Executive
Officer; and conducting an annual review of the performance of the
full Board and structure of Board Committees. This Committee functions
as a nominating committee by recommending nominees for election as
Directors of the Company. The Committee considers nominees recommended
by shareholders. Any such recommendation should be submitted in
writing to the Secretary of the Company no later than 120 days prior
to the date of mailing the proxy materials for each annual meeting
(generally, not later than the middle of December preceding the Annual
Meeting). The recommendation should include information that will
enable the Committee to evaluate the qualifications of the proposed
nominee.
8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the beneficial ownership as of April 1, 2003,
except as noted, of Common Stock of each Director of the Company, each nominee
for election as a Director of the Company, the Officers named in the Summary
Compensation Table, each shareholder known to the Company to be the beneficial
owner of more than 5% of the Company's Common Stock, and Directors and Executive
Officers as a group:
NAME OR NUMBER NUMBER OF PERCENT
OF PERSONS IN GROUP (1) SHARES (2) (3) OF CLASS
----------------------- -------------- ---------
Leonard L. Berry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,501 *
Peter C. Browning. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,168 *
Paul Fulton. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,127 *
Dawn E. Hudson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,401 *
Robert A. Ingram . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,052 *
Kenneth D. Lewis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,052 *
Richard K. Lochridge . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,001 *
Claudine B. Malone . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,001 *
Thomas D. O'Malley . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,001 *
Dale C. Pond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334,580 *
Robert G. Schwartz . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,001 *
Larry D. Stone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 562,506 *
Robert L. Tillman. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,685,370 *
Incumbent Directors, Director Nominees
and Executive Officers as a Group (32 in total). . . . . . . . . . . . . 6,554,658 *
State Street Bank and
Trust Company, Trustee
225 Franklin Street
Boston, MA 02110 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,667,029(4) 8.7%
Capital Research and Management Company
333 South Hope Street
Los Angeles, CA 90071. . . . . . . . . . . . . . . . . . . . . . . . . . 73,928,500(5) 9.5%
FMR Corp.
82 Devonshire Street E14B
Boston, MA 02109 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,418,413(6) 6.6%
-----------------------
* Less than 1%.
(1) Excludes Messrs. Warden and Whiddon who retired from the Company effective
March 7, 2003.
(2) Includes shares that may be acquired within 60 days under the Company's
Stock Option Plans as follows: Mr. Pond 226,430 shares; Mr. Stone 371,312
shares; Mr. Tillman 1,591,562 shares; Directors Berry, Browning, Fulton,
Lochridge, Malone and Schwartz 8,001 shares each; Directors Lewis and
O'Malley 4,001 shares each; Directors Hudson and Ingram 1,334 each with
aggregate shares for all Executive Officers and Directors as a group (32)
being 6,554,658.
(3) Does not include phantom shares credited to the accounts of Executive
Officers and Directors under the Company's Deferral Program as of the end
of Fiscal Year 2002 as follows: Mr. Browning 4,422 shares; Mr. Fulton 4,490
shares; Mr. Ingram 3,051 shares; Mr. Lewis 3,051 shares; Mr. Tillman
200,223 shares, with aggregate shares for participating Executive Officers
and Directors as a group (10) being 347,159.
(4) Shares held at December 31, 2002, according to Schedule 13G filed on
February 7, 2003 with the Securities and Exchange Commission, which total
includes 48,271,428 shares held in trust for the benefit of the Company's
401(k) Plan participants, Shares allocated to participants' 401(k) accounts
are voted by the participants by giving voting instructions to State Street
Bank (the "Trustee"). A fiduciary committee directs the Trustee in the
manner in which shares not voted by participants are to be voted. This
committee has six members, including Mr. Stone.
9
(5) Shares held at December 31, 2002, according to Schedule 13G filed on
February 13 , 2003 with the Securities and Exchange Commission.
(6) Shares held at December 31, 2002 according to Schedule 13G filed on
February 13, 2003 with the Securities and Exchange Commission.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company pursuant to Rule 16a-3(e) of the Securities Exchange
Act of 1934 during Fiscal Year 2002 and Form 5 and amendments thereto furnished
to the Company with respect to Fiscal Year 2002, and written representations
from certain reporting persons, the Company believes that all filing
requirements under Section 16(a) applicable to its Officers, Directors and
beneficial owners have been complied with, except that Michael K. Brown, Senior
Vice President -- Store Operations (Western), inadvertently did not disclose in
a timely manner a sale of 360 shares of the Company's Common Stock and filed an
amended Form 4 to report this transaction.
COMPENSATION OF EXECUTIVE OFFICERS
The following table discloses compensation received by the Company's Chief
Executive Officer and the four other most highly paid Executive Officers for the
three fiscal years ended January 31, 2003:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------- ---------------------------------
AWARDS PAYOUTS
------------------------ -------
FISCAL OTHER RESTRICTED STOCK
YEAR ANNUAL STOCK OPTIONS LTIP ALL OTHER
NAME & PRINCIPAL POSITION ENDED SALARY BONUS COMPENSATION AWARDS(1) # SHARES(2) PAYOUTS COMPENSATION(3)
------------------------- -------- --------- --------- ------------ ---------- ----------- -------- ---------------
Robert L. Tillman . . . . . . 01/31/03 1,000,000 3,000,000 400,391(4) 0 shares 216,000 0 0
Chairman of the Board and 02/01/02 935,000 1,916,049 471,384 0 shares 499,000 0 17,000
Chief Executive Officer 02/02/01 935,000 690,030 184,010 0 shares 320,000 0 11,900
Larry D. Stone . . . . . . . 01/31/03 675,000 1,350,000 188,508(5) 0 shares 102,000 0 0
Senior Executive Vice 02/01/02 600,000 982,950 232,144 0 shares 223,000 0 17,000
President, Store Operations 02/02/01 600,000 442,800 102,004 0 shares 154,000 0 11,900
William C. Warden, Jr.* . . . 01/31/03 505,000 1,010,000 138,799(6) 0 shares 76,000 0 0
Executive Vice President, 02/01/02 470,000 769,978 176,361 0 shares 193,000 0 17,000
Administration 02/02/01 460,000 339,480 73,995 0 shares 118,000 0 11,900
Thomas E. Whiddon* . . . . . 01/31/03 505,000 1,010,000 138,799(7) 0 shares 76,000 0 0
Executive Vice President, 02/01/02 470,000 769,978 176,360 0 shares 193,000 0 17,000
Logistics and Technology 02/02/01 450,000 332,100 75,070 0 shares 116,000 0 11,900
Dale C. Pond . . . . . . . . 01/31/03 518,000 1,036,000 143,365(8) 0 shares 78,000 0 0
Senior Executive Vice 02/01/02 450,000 737,213 169,208 0 shares 177,000 0 17,000
President, Merchandising 02/02/01 400,000 295,200 62,430 0 shares 104,000 0 11,900
-------------------------
* Messrs. Warden and Whiddon retired as officers of the Company effective
March 7, 2003.
(1) No Restricted Stock Awards were granted during Fiscal 2000, 2001, or 2002.
(2) Prior year stock option grants have been adjusted to reflect the 2-for-1
stock split effective June 29, 2001.
(3) Amounts shown are employer contributions to the Employee Stock Ownership
Plan.
(4) Amount shown is the total of the company match under the Benefit
Restoration Plan ($381,737), the taxable value of group term life insurance
in excess of $50,000 ($1554), and taxable value of personal use of
corporate aircraft ($17,100).
(5) Amount shown is the total of the company match under the Benefit
Restoration Plan ($187,983) and the taxable value of group term life
insurance in excess of $50,000 ($525).
(6) Amount shown is the total of the company match under the Benefit
Restoration Plan ($138,249) and the taxable value of the group term life
insurance in excess of $50,000 ($550).
10
(7) Amount shown is the total of the company match under the Benefit
Restoration Plan ($138,249) and the taxable value of the group term life
insurance in excess of $50,000 ($550).
(8) Amount shown is the total of the company match under the Benefit
Restoration Plan ($141,750) and the taxable value of the group term life
insurance in excess of $50,000 ($1615).
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides information with respect to stock options and
SARs granted to the named Executive Officers during Fiscal Year 2002:
INDIVIDUAL GRANTS
--------------------------------------------------
NUMBER OF POTENTIAL REALIZABLE VALUE
SECURITIES % OF TOTAL AT ASSUMED ANNUAL
UNDERLYING OPTIONS/SARS EXERCISE RATES OF STOCK PRICE
OPTIONS/ GRANTED TO OR BASE APPRECIATION FOR OPTION TERM
SARS EMPLOYEES IN PRICE EXPIRATION ---------------------------------
NAME GRANTED FISCAL YEAR $/SHARE DATE 5% 10%
----- ---------- ------------- ---------- ---------- --------------- -------------
Robert L. Tillman. . . . . 216,000 3.88% $43.99 03/01/09 $3,868,203.08 $9,014,558.09
Larry D. Stone . . . . . . 102,000 1.83 43.99 03/01/09 1,826,651.45 4,256,874.65
Dale C. Pond . . . . . . . 78,000 1.40 43.99 03/01/09 1,396,851.11 3,255,257.09
William C. Warden, Jr. . . 76,000 1.36 43.99 03/01/09 1,361,034.42 3,171,788.96
Thomas E. Whiddon. . . . . 76,000 1.36 43.99 03/01/09 1,361,034.42 3,171,788.96
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table provides information concerning options exercised
during Fiscal Year 2002 and the unexercised options/SARs held by each of the
named Executive Officers at January 31, 2003:
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS/SARS AT FY END
OPTIONS/SARS AT FY-END ($34.18 AT FY-END)
ACQUIRED ON VALUE ------------------------------ -------------------------------
NAME EXERCISE (1) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ---------- ------------ --------------- ------------- ---------------
Robert L. Tillman. . . . . 0 0 828,000 607,000 8,790,500 1,441,800
Larry D. Stone . . . . . . 4,244 95,904 291,312 279,000 3,013,178 614,100
William C. Warden, Jr. . . 0 0 158,444 233,000 1,545,070 480,600
Thomas E. Whiddon. . . . . 58,400 1,456,696 214,400 233,000 2,200,762 480,600
Dale C. Pond . . . . . . . 0 0 169,764 224,332 1,718,850 409,391
---------------------
(1) All shares acquired on exercise of stock options. No stock appreciation
rights (SAR) grants were outstanding as of the end of Fiscal Year 2002.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
No awards were made under any long-term incentive plans for the Company
during Fiscal Year 2002.
11
TOTAL RETURN TO SHAREHOLDERS
The following graph compares the total returns (assuming reinvestment of
dividends) of the Company's Common Stock, the S&P 500 Index and the S&P Retail
Index. The graph assumes $100 invested on January 30, 1998 in the Company's
Common Stock and each of the indices.
[PERFORMANCE GRAPH]
SOURCE: BLOOMBERG FINANCIAL SERVICES
1/30/98 1/29/99 1/28/00 2/2/01 2/1/02 1/31/03
------- ------- ------- ------- ------- -------
LOWE'S . . . . . . $100.00 $231.36 $177.21 $214.76 $365.36 $273.84
S&P 500. . . . . . $100.00 $132.49 $142.59 $143.13 $120.63 $ 93.52
S&P RETAIL . . . . $100.00 $167.57 $183.67 $185.04 $200.70 $144.40
INDEX
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
AND CHANGE IN CONTROL ARRANGEMENTS
The Company has entered into Management Continuity Agreements with each of
Messrs. Tillman, Stone, Warden, Whiddon and Pond, and with Robert Niblock who
was elected President on March 1, 2003, as well as 17 other executive officers.
Other than the termination compensation amounts, the agreements are identical.
Each was unanimously approved by the non-employee members of the Board of
Directors.
The agreements provide for certain benefits if the Company has a
change-in-control followed by termination of the executive's employment without
cause by the Company's successor, or by the employee for certain reasons,
including a downgrading of the officer's position. "Cause" means continued and
willful failure to perform duties or conduct demonstrably and materially
injurious to the Company or its affiliates.
All agreements provide for three-year terms. On the third anniversary, and
every anniversary thereafter, the term is extended automatically for an
additional year unless the Company does not extend the term. The agreements are
automatically extended for 24 months after a change-in-control.
If benefits are paid under an agreement, the executive will receive (i) a
lump-sum severance payment equal to three times annual base salary, incentive
bonus and welfare insurance costs for Messrs. Tillman, Stone, Pond and Niblock
and two times annual base salary, incentive bonus and welfare insurance costs
for all other participating Executive Officers, and (ii) any other unpaid salary
and benefits to which the executive is otherwise entitled. In addition, the
executive will be compensated for any excise tax liability he may incur as a
result of excess parachute payments and for income taxes attributable to excise
tax reimbursements.
Messrs. Warden and Whiddon retired as officers of the Company on March 7,
2003. Upon retirement, neither former officer was entitled to any benefits under
his Management Continuity Agreement.
All legal fees and expenses incurred by the executives in enforcing these
agreements will be paid by the Company.
12
REPORT OF THE COMPENSATION AND ORGANIZATION COMMITTEE
THIS REPORT BY THE COMPENSATION AND ORGANIZATION COMMITTEE IS REQUIRED BY
RULES OF THE SECURITIES AND EXCHANGE COMMISSION. IT IS NOT TO BE DEEMED
INCORPORATED BY REFERENCE BY ANY GENERAL STATEMENT WHICH INCORPORATES BY
REFERENCE THIS PROXY STATEMENT INTO ANY FILING UNDER THE SECURITIES ACT OF 1933
OR THE SECURITIES EXCHANGE ACT OF 1934, AND IT IS NOT TO BE OTHERWISE DEEMED
FILED UNDER EITHER SUCH ACT.
The Compensation and Organization Committee (the "Committee") of the Board
of Directors comprises five Independent Directors and is responsible for
administering the Company's Executive Compensation Program for all executives at
a compensation level set by the Committee. In carrying out its responsibilities,
the Committee:
o Articulates the Company's executive compensation philosophies and
policies to executive management, participates in compensation program
development, and has authority for approval of awards under the
Company's plans and programs;
o Monitors and approves on-going base salary and incentive compensation
programs for executive management, including participation,
performance goals and criteria, interpretation of provisions and
determination of award payouts;
o Reviews and approves base salary recommendations for Executive
Officers of the Company; and
o Initiates all compensation actions for the Chairman of the Board and
Chief Executive Officer, subject to final Board approval.
The Committee has retained a national consulting firm (which reports to the
Committee) to be a source of on-going advice to both the Committee and
management.
EXECUTIVE COMPENSATION PRINCIPLES
The Company's Executive Compensation Program has been designed to establish
a strong link between the creation of shareholder value and the compensation
earned by its Executive Officers. It is the intention of the Committee that, to
the extent practical, all compensation paid under the Executive Compensation
Program of the Company (other than incentive stock options) will be tax
deductible to the Company in the year paid to the executive. The fundamental
objectives of the Program are to:
o Align executive compensation with the Company's mission, values and
business strategies;
o Attract, motivate, retain and reward the executives whose leadership
and performance are critical to the Company's success in enhancing
shareholder value; and
o Provide compensation which is commensurate with the Company's
performance and the contributions made by executives toward this
performance.
The Program is intended to provide compensation which is competitive with
comparable companies in the retailing industry (with particular emphasis on
specialty hard goods retailers and major U.S. retailers) when the Company is
meeting its targeted financial goals. At the same time, the Program seeks to
provide above average compensation when the Company's targeted goals are
exceeded, and below average compensation when targeted performance goals are not
achieved.
The Program provides for larger portions of total compensation to vary on
the basis of Company performance for higher levels of executives (i.e., the most
senior executive Officers have more of their total compensation at risk on the
basis of Company performance than do lower levels of executives). All Executive
Officers participate in the same direct compensation programs as the other
executives of the Company, with the only differences being the degree of
compensation risk and the overall magnitude of the potential awards.
The Committee believes that Executive Officers of the Company should be
encouraged to own significant holdings of the Company's Common Stock to align
their interests with those of the Company's shareholders. Through the operation
of the Company's 401(k) Plan, the Employee Stock Purchase Plan, the 1994
Incentive Plan, the 1997 Incentive Plan, and the 2001 Incentive Plan, vehicles
are provided to enable executives to acquire Common Stock, subject to regulatory
limitations. The Company also has stock ownership guidelines for the Chairman
and CEO, President and Senior Executive Vice Presidents.
13
ELEMENTS IN THE EXECUTIVE COMPENSATION PROGRAM
The Company's Executive Compensation Program comprises the following
elements:
BASE SALARY
Salaries for Executive Officers are established on the basis of the
qualifications and experience of the executive, the nature of the job
responsibilities and salaries for competitive positions in the retailing
industry.
Executive Officers' base salaries are reviewed annually and are approved by
the Committee. Salaries of Executive Officers are compared with those of
comparable executive positions in the retailing industry throughout the United
States. The Committee uses the median level of base salary as a guideline, in
conjunction with the executive's performance and qualifications, for
establishing salary levels.
1994, 1997 AND 2001 INCENTIVE PLANS
The 1994, 1997 and 2001 Incentive Plans, which were approved by
shareholders in 1994, 1997 and 2001, respectively, are intended to attract,
motivate, retain and reward the executives whose leadership and performance are
critical to the Company's success in enhancing shareholder value. The Incentive
Plans help to place further emphasis on executive ownership of the Company's
Common Stock. The Incentive Plans are designed to assure the deductibility of
executive compensation for federal and state income tax purposes.
SHORT-TERM INCENTIVES. The Management Bonus Program is administered
pursuant to the Incentive Plans. The Management Bonus Program provides bonus
opportunities that can be earned upon the achievement by the Company of
predetermined annual earnings growth objectives. No bonuses are paid if
performance is below the threshold level of corporate profitability. If the
financial goals are fully met, 100% of the stated bonus opportunity is earned. A
bonus equal to 300% of the February 2, 2002 base salary was paid to the Chairman
and CEO and bonuses equal to 200% of the February 2, 2002 base salary were paid
to the four other most highly paid Executive Officers for the year ended January
31, 2003 because the Company's financial results exceeded the maximum
predetermined annual earnings growth objectives.
LONG-TERM INCENTIVES. The Incentive Plans authorize the grant of stock
options. The option price cannot be less than the market price of the Company's
Common Stock on the date on which the option is granted. Consequently, stock
options granted under the Incentive Plans measure performance and provide
compensation solely on the basis of the appreciation in the price of the
Company's Common Stock. During Fiscal Year 2002, the Committee approved a
broad-based stock option grant to executive and senior management, middle
managers and professionals, and retail store managers and assistant managers.
Stock appreciation rights also may be granted under the Incentive Plans.
These rights entitle the recipient to receive a payment based solely on the
appreciation in the Company's Common Stock following the date of the award.
Stock appreciation rights thus measure performance and provide compensation only
if the price of the Company's Common Stock appreciates. No stock appreciation
rights grants were made during Fiscal Year 2002 nor are any previous grants
outstanding.
Under the 2001 Incentive Plan, the Committee approved the grant of deferred
stock units for a total of 550,000 shares to senior executives on March 1, 2003.
Mr. Tillman was granted 150,000 shares. Mr. Niblock, the Company's President,
and Messrs. Pond and Stone, two Senior Executive Vice Presidents, were granted
100,000 shares each, and two Senior Vice Presidents were granted 50,000 shares
each. Each of the grants, with the exception of Mr. Niblock's, will vest 40% on
the third anniversary of the grant and the remaining 60% on the fifth
anniversary of the grant. Mr. Niblock's grant will be fully vested on the fifth
anniversary of the grant. The executives must make a deferral election within 30
days of the date of the grant.
The Incentive Plans also authorize awards of Company Common Stock. No
Performance Accelerated Restricted Stock (PARS) or Performance Stock Awards were
issued during Fiscal Year 2002, nor are any previous grants outstanding.
The 1994, 1997, and 2001 Incentive Plans include a Deferral Program. The
Deferral Program, available to executives at or above the Vice-President level,
permits deferral of receipt of certain stock incentives (vested performance
stock awards and performance accelerated restricted stock and gain on
non-qualified stock options), but not salary or bonus. The single exception to
this provision is that the Deferral Program will accept the mandatory deferral
of cash compensation to the extent that it would not be a tax-deductible item
for the Company under the Internal Revenue Code Section 162(m).
14
The Deferral Program requires that the executive make a deferral election
in the year prior to the year in which a stock option is exercised or the year a
restricted stock grant vests. Deferred shares are cancelled upon the
participant's election and tracked as phantom shares. During the deferral
period, the participant's account is credited with amounts equal to the
dividends paid on actual shares. Shares are reissued when distributed to the
executive. Unless a participant elects otherwise, deferred benefits are
generally payable beginning on the March 15 following the earlier of the
executive's retirement or other termination of employment or his or her 65th
birthday.
The Deferral Program is unfunded. A deferred benefit under the Program is
at all times a mere contractual obligation of the Company. A participant and his
beneficiaries have no right, title, or interest in the benefits deferred under
the Program or any claim against them.
BENEFIT RESTORATION PLAN
The Amended and Restated Benefit Restoration Plan, effective August 3,
2002, is intended to provide qualifying executives with benefits equivalent to
those received by all other employees under the Company's basic qualified
employee retirement plans. Qualifying executives are those whose annual
additions and other benefits, as normally provided to all participants under
those qualified plans, would be curtailed by the effect of Internal Revenue Code
restrictions.
OTHER COMPENSATION
The Company's Executive Officers participate in the various qualified and
non-qualified employee benefit plans sponsored by the Company. The Company makes
only nominal use of perquisites in compensating its Executive Officers.
THE CEO'S COMPENSATION IN THE FISCAL YEAR ENDED JANUARY 31, 2003
The Committee made no change to Mr. Tillman's annual base salary of
$1,000,000 effective February 1, 2003, the start of the next fiscal year. The
Committee made its decision based upon the operating performance of the Company.
The Committee authorized payment to Mr. Tillman of an annual bonus of
$3,000,0000 under the 2002 Management Bonus Program. The Committee determined
Mr. Tillman's bonus solely on the basis of the Company's earnings performance
versus the goals for such performance, which the Committee established at the
beginning of the performance period.
Mr. Tillman was granted options for 216,000 shares of Company Stock on
March 1, 2002 at $43.99, the fair market value of the Stock on the date of the
grant; 2,273 shares of the grant are incentive stock options and the remaining
213,727 shares are non-qualified stock options. The options become exercisable
in thirds after one, two and three years from the date of the grant. The options
expire after seven years.
Mr. Tillman earned a Benefit Restoration Plan payment of $381,737 for the
fiscal year ended January 31, 2003.
The Committee believes that the payments and stock incentives described
herein were necessary to maintain the competitiveness of Mr. Tillman's
compensation package in comparison to those of other chief executive officers of
similarly situated companies.
* * *
The Committee believes that the Company's Executive Compensation Program
has been strongly linked to the Company's performance and the enhancement of
shareholder value. The Committee intends to continually evaluate the Company's
compensation philosophies and plans to ensure that they are appropriately
configured to align the interests of executives and shareholders and to ensure
that the Company can attract, motivate and retain talented management personnel.
Paul Fulton, Chairman
Dawn E. Hudson
Robert A. Ingram
Kenneth D. Lewis
Claudine B. Malone
April 3, 2003
15
AUDIT MATTERS
REPORT OF THE AUDIT COMMITTEE
THIS REPORT BY THE AUDIT COMMITTEE IS REQUIRED BY THE RULES OF THE
SECURITIES AND EXCHANGE COMMISSION. IT IS NOT TO BE DEEMED INCORPORATED BY
REFERENCE BY ANY GENERAL STATEMENT WHICH INCORPORATES BY REFERENCE THIS PROXY
STATEMENT INTO ANY FILING UNDER SECURITIES ACT OF 1933 OR THE SECURITIES
EXCHANGE ACT OF 1934, AND IT IS NOT TO BE OTHERWISE DEEMED FILED UNDER EITHER
SUCH ACT.
The Audit Committee has five members, all of which are independent
directors as defined by Section 303.01(B)(2)(a) and (3) of the New York Stock
Exchange Listed Company Manual: Richard K. Lochridge (Chairman), Leonard L.
Berry, Peter C. Browning, Thomas D. O'Malley and Robert G. Schwartz. The Audit
Committee meets regularly with (1) the internal auditing staff, (2)
representatives of the Company's independent accounting firm (Deloitte & Touche
LLP, the member firms of Deloitte Touche Tohmatsu, and their respective
affiliates (collectively, "Deloitte")) without senior management present and (3)
representatives of senior management. The Committee reviews the general scope of
the Company's annual audit and the fees charged by the independent accountants,
determines duties and responsibilities of the internal auditors, reviews
financial statements and accounting principles being applied, and reviews audit
results and other matters relating to internal control and compliance with the
Company's code of ethics.
In carrying out its responsibilities, the Committee has
o reviewed and discussed the audited financial statements with
management,
o discussed with the independent auditors the matters required to be
communicated to audit committees by Statement on Auditing Standards
No. 61, and
o received the written disclosures and the letter from Deloitte required
by Independence Standards Board Standard No. 1 and has discussed with
Deloitte that firm's independence.
Based on the review and discussions noted above and the report of Deloitte
to the Audit Committee, the Audit Committee has recommended to the Board of
Directors that the Company's audited financial statements be included in the
Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2003.
Richard K. Lochridge (Chairman)
Leonard L. Berry
Peter C. Browning
Thomas D. O'Malley
Robert G. Schwartz
April 3, 2003
16
AUDIT FEES
Aggregate fees billed to the Company for the fiscal year ended January 31,
2003 by the Company's principal accounting firm, Deloitte & Touche LLP, the
member firms of Deloitte Touche Tohmatsu, and their respective affiliates
(collectively, "Deloitte"):
2002
----
Audit Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $600,000
========
Financial Information Systems Design and Implementation Fees. . . . . . . . . . . . . . . . . . . 0
Audit-Related Fees-- Fees for Consents, Comfort Letters and for Audits of the Company's
Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155,306
Other Non-audit Related Fees-- Tax Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 537,387
-------
All Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $692,693
========
The Committee has considered whether the provision of the information
technology services and other non-audit services to the Company is compatible
with Deloitte's independence.
INDEPENDENT PUBLIC ACCOUNTANTS
Upon the recommendation of the Audit Committee, the Board of Directors has
reappointed Deloitte as independent auditors to audit the consolidated financial
statements of the Company and its subsidiaries for fiscal year 2003. Deloitte
has served in such capacity continuously since 1982.
Representatives of Deloitte are expected to be present at the Annual
Meeting, where they will have the opportunity to make a statement, if they
desire to do so, and be available to respond to appropriate questions.
PROPOSAL 2
SHAREHOLDER PROPOSAL ON GLOBAL WORKERS' RIGHTS STANDARDS
The second proposal to be voted upon at the Annual Meeting asks the
shareholders to consider a proposal of the Comptroller of the City of New York,
as custodian and trustee of the New York City Teachers, Employees, Fire and
Police Pension Funds (the "Pension Funds"), 1 Centre Street, New York, NY
10007-2341, owner of 2,637,328 shares of the Company's Common Stock. The Pension
Funds have offered the following proposal, which, to be approved, requires the
affirmative vote of a majority of shares of Common Stock represented at the
Annual Meeting:
SHAREHOLDER PROPOSAL:
LOWE'S COMPANIES
GLOBAL HUMAN RIGHTS STANDARDS
Whereas, Lowe's Companies currently has extensive overseas operations, and
Whereas, reports of human rights abuses in the overseas subsidiaries and
suppliers of some U.S.-based corporations has led to an increased public
awareness of the problems of child labor, "sweatshop" conditions, and the denial
of labor rights in U.S. corporate overseas operations, and
Whereas, corporate violations of human rights in these overseas operations
can lead to negative publicity, public protests, and a loss of consumer
confidence which can have a negative impact on shareholder value, and
Whereas, a number of corporations have implemented independent monitoring
programs with respected human rights and religious organizations to strengthen
compliance with international human rights norms in subsidiary and supplier
factories, and
Whereas, these standards incorporate the conventions of the United Nations'
International Labor Organization (ILO) on workplace human rights which include
the following principles:
1) All workers have the right to form and join trade unions and to
bargain collectively. (ILO Conventions 87 and 98)
2) Workers representatives shall not be the subject of discrimination and
shall have access to all workplaces necessary to enable them to carry
out their representation functions. (ILO Convention 135)
17
3) There shall be no discrimination or intimidation in employment.
Equality of opportunity and treatment shall be provided regardless of
race, color, sex, religion, political opinion, age, nationality,
social origin, or other distinguishing characteristics. (ILO
Convention 100 and 111)
4) Employment shall be freely chosen. There shall be no use of force,
including bonded or prison labor. (ILO Conventions 29 and 105)
5) There shall be no use of child labor. (ILO Convention 138), and,
Whereas, independent monitoring of corporate adherence to these standards
is essential if consumer and investor confidence in our company's commitment to
human rights is to be maintained,
Therefore, be it resolved that shareholders request that the company commit
itself to the implementation of a code of corporate conduct based on the
aforementioned ILO human rights standards by its international suppliers and in
its own international production facilities and commit to a program of outside,
independent monitoring of compliance with these standards.
COMPANY RESPONSE:
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
"AGAINST" THE PROPOSAL RESPECTING THE GLOBAL WORKER'S RIGHTS STANDARDS FOR THE
FOLLOWING REASONS:
This is the third year that this proposal has been offered by the
Comptroller of the City of New York. Even though the proposal received less than
7% of the shares voted at the 2002 annual meeting, rules of the Securities and
Exchange Commission require the Company to include the proposal as a matter to
be presented at this year's annual meeting. The proponents have submitted the
proposal notwithstanding that, in the intervening year, to the Company's
knowledge there have been no changes concerning these alleged abuses involving
the Company or its suppliers.
As noted in the last two years' statements opposing the proposal, the
Company has long supported human rights in the workplace, and the Company's
policies and procedures have reflected those values for many years. The
Company's Code of Ethics, its Statement of Business Ethics, and its buying
agreements with domestic and international suppliers require all suppliers and
suppliers' vendors not to use child or forced labor and to comply with
applicable laws and regulations in the production of goods and services for, and
in their conduct of business with, the Company. The Company is committed, and
expects its suppliers to be similarly committed, to operating within the spirit
and letter of laws and regulations affecting the Company's business and
employees.
To fulfill its commitment, beginning in 1997 the Company implemented a
five-part compliance program for its international suppliers consisting of (i)
informing suppliers of the Company's policy, (ii) inquiring into suppliers'
policies, (iii) verifying suppliers' responses to the Company's inquiries, (iv)
entering into contracts containing representations on this issue, and (v)
randomly and periodically inspecting suppliers' manufacturing facilities for
compliance during contract fulfillment.
The Company regularly conducts seminars on the requirements of its Code of
Ethics and Statement of Business Ethics for the Company's merchants/buyers,
distributes its Code of Ethics and Statement of Business Ethics to management
employees, and outlines on a continuous basis its policies and procedures to
domestic and foreign suppliers. Through its buying agreements, the Company
obtains representations from suppliers (both domestic and international) that
they, and their vendors, do not permit the use of child or forced labor and that
their operations comply with all applicable laws and regulations.
Because of the Company's high ethical standards and ongoing efforts in
these areas, the Company does not believe that adoption of the standards in the
shareholder proposal is necessary. Further, the proposal calls for third party
monitoring of compliance by the Company, its suppliers, and their vendors, which
would require expenditures beyond any benefit such third party compliance
procedures reasonably could be expected to provide.
FOR THESE REASONS, THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "AGAINST" THIS SHAREHOLDER PROPOSAL.
18
PROPOSAL 3
SHAREHOLDER PROPOSAL ON SHAREHOLDER RIGHTS PLAN
The third proposal to be voted upon at the Annual Meeting asks the
shareholders to consider a proposal of the Trowel Trades S&P 500 Index Fund
("Trowel Trades"), P.O. Box 75000, Detroit, Michigan 48275, owner of 15,500
shares of the Company's Common Stock. Trowel Trades has offered the following
proposal, which, to be approved, requires the affirmative vote of a majority of
shares of Common Stock represented at the Annual Meeting:
SHAREHOLDER PROPOSAL:
RESOLVED, That the shareholders of Lowe's Companies, Inc. (hereinafter "the
Company") request the Board of Directors to redeem the shareholder rights plan
that was adopted in 1988 and renewed in 1998 unless such plan is approved by a
majority vote of shareholders to be held as soon as may be practicable.
SHAREHOLDER'S SUPPORTING STATEMENT
In 1988 the Company's Board of Directors adopted a shareholder rights plan,
commonly known as a "poison pill," without shareholder approval. The plan was
renewed in 1998, again without shareholder approval. This plan is an
anti-takeover device that can adversely affect shareholder value by discouraging
takeovers that could be beneficial to shareholders.
Poison pills, according to the book "Power and Accountability" by Nell
Minow and Robert Monks: "amount to major de facto shifts of voting rights away
from shareholders to management on matters pertaining to the sale of the
corporation. They give target boards of directors absolute veto power over any
proposed business combination, no matter how beneficial it might be for the
shareholders."
Thus it is no surprise that the Shareholder Bill of Rights adopted by the
Council of Institutional Investors, whose members represent nearly $2 trillion
in benefit fund assets, calls for poison pills to be approved by shareholders
before they take effect.
At a minimum, the shareholders of our Company should have the right to vote
on the necessity of adopting such a powerful anti-takeover weapon. Therefore,
your support for this proposal is respectfully sought.
COMPANY RESPONSE:
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
"AGAINST" THE PROPOSAL RESPECTING THE SHAREHOLDER RIGHTS PLAN FOR THE FOLLOWING
REASONS:
The Company has had a shareholder rights plan in effect since 1988. This
type of plan sometimes is referred to as a "poison pill" and is challenged by
the foregoing proposal. In the event of an acquisition or change of control of
the Company, the Board of Directors believes that the rights plan can
significantly enhance shareholder value. The rights plan provides the Board of
Directors with more time to negotiate and to make a decision in a transaction
involving a change of control of the Company.
Shareholder rights plans are designed to enhance shareholder value, and
there is no empirical evidence that they adversely affect shareholder value by
discouraging takeovers that could be beneficial to shareholders, as alleged by
the proponents. On balance, shareholders of a corporation with a rights plan do
better in the event of a change of control than shareholders of those companies
that do not have a rights plan. With a rights plan in place, any person
proposing an acquisition of a company is required to negotiate with the board of
directors, rather than merely announcing a takeover and moving forward.
A 1997 study prepared by the Georgeson & Company's research department
determined that companies with rights plans received $13 billion in additional
takeover premiums during the period 1992-1996, and shareholders of companies
without rights plans may have given up $14.5 billion in value. Investment
banking firms that have studied the matter usually have concluded that adoption
of a rights plan has no effect on the stock prices of companies that are not the
subject of takeover speculation. Indeed, the price history of the Company's
Common Stock since adoption of the rights plan demonstrates that there has been
no adverse effect on the value of the Common Stock; since 1988 the Company's
stock price has appreciated in excess of a 25% compound annual rate.
19
The purpose of the rights plan is to protect against inadequate offers and
abusive tactics and increase the bargaining power of the Board of Directors --
all of which should result in higher value for shareholders. The Company is
organized under North Carolina law, and North Carolina law requires each
director to make decisions in good faith, with the care an ordinarily prudent
person in a like position would exercise under similar circumstances, and in a
manner he or she reasonably believes to be in the best interests of the
corporation. North Carolina law also specifically authorizes rights plans. In
adopting a rights plan in 1988 and renewing it in 1998, the Board gave careful
consideration to the effects of a rights plan on shareholders of the Company
and, after consultation with outside financial and legal advisors, concluded
that the rights plan would benefit the Company's shareholders. The Board of
Directors continues to hold this view.
FOR THESE REASONS, THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "AGAINST" THE SHAREHOLDER PROPOSAL.
PROPOSAL 4
SHAREHOLDER PROPOSAL ON BYLAW AMENDMENT TO REQUIRE AN INDEPENDENT
DIRECTOR TO SERVE AS CHAIRMAN OF THE BOARD OF DIRECTORS
The fourth proposal to be voted upon at the Annual Meeting asks the
shareholders to consider a proposal of Financial Investors Trust, 370
Seventeenth Street, Suite 3100, Denver, Colorado 80202-5627, on behalf of the
United Association S&P 500 Index Fund ("United Association"), owner of 55,757
shares of the Company's Common Stock. United Association has offered the
following proposal, which, to be approved, requires the affirmative vote of a
majority of shares of Common Stock represented at the Annual Meeting:
SHAREHOLDER PROPOSAL:
RESOLVED: The shareholders of Lowe's Companies, Inc. ("Company") urge the
Board of Directors to amend the Company's bylaws to require that an independent
director -- as defined by the rules of the New York Stock Exchange ("NYSE") --
who has not served as an officer of the Company be its Chairman of the Board of
Directors.
SHAREHOLDER'S SUPPORTING STATEMENT
The recent wave of corporate scandals at such companies as Enron, WorldCom
and Tyco has resulted in renewed emphasis on the importance of independent
directors. For example, both the NYSE and the NASDAQ have proposed new rules
that would require corporations that wish to be traded on them to have a
majority of independent directors.
Unfortunately, having a majority of independent directors alone is clearly
not enough to prevent the type of scandals that have afflicted Enron, WorldCom
and Tyco. All of these corporations had a majority of independent directors on
their boards when the scandals occurred.
All of these corporations also had a Chairman of the Board who was also an
insider, usually the Chief Executive Officer ("CEO"), or a former CEO, or some
other officer. Obviously, no matter how many independent directors there are on
a board, that board is less likely to protect shareholder interests by providing
independent oversight of the officers if the Chairman of that board is also the
CEO, former CEO or some other officer of the company.
We respectfully urge the board of our Company to dramatically change its
corporate governance structure and the public's perception of it by having an
independent director serve as its Chairman who is not a former CEO.
Although this change would be dramatic, it would hardly be radical. In the
United Kingdom it is common to separate the offices of Chairman and CEO. In
1996, a blue ribbon commission on Director Professionalism of the National
Association of Corporate Directors recommended that an independent director
should be charged with "organizing the board's evaluation of the CEO and
providing continuous ongoing feedback; chairing executive sessions of the board;
setting the agenda with the CEO, and leading the board in anticipating and
responding to crises.
20
COMPANY RESPONSE:
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
"AGAINST" THE PROPOSAL TO REQUIRE THAT AN INDEPENDENT DIRECTOR SERVE AS CHAIRMAN
OF THE BOARD OF DIRECTORS.
The Board of Directors recommends that shareholders reject this proposal.
The Board believes that the Company is well served by having one person, Robert
L. Tillman, serve as Chairman of the Board and Chief Executive Officer. Mr.
Tillman acts as the link between the Board and the operating company and
provides critical leadership in achieving the Company's strategic objectives.
All of the directors of the Company, except Mr. Tillman, are independent
directors. In addition to being Chief Executive Officer, Mr. Tillman serves as
Chairman of the Board, but he has no greater or lesser vote on matters
considered by the Board than does any other director.
All of the directors, including Mr. Tillman, are bound by the fiduciary
obligations imposed by North Carolina law, which are discussed in some detail in
the Company's response to Shareholder Proposal 3. Separating the offices of
Chairman and Chief Executive Officer does not better enable any director to
fulfill his or her fiduciary duties. The Company's practice of having one
individual perform both roles is consistent with the widespread practice of
major companies and with current United States law, including the Sarbanes-Oxley
Act of 2002. Recent regulations proposed and promulgated by the Securities and
Exchange Commission and the New York Stock Exchange respecting corporate
governance, including specifically additional requirements for independent
directors, do not in any way require the separation of the offices of the
Chairman of the Board and Chief Executive Officer. The Company's ten independent
directors regularly meet without Mr. Tillman, the Company's only
officer/director, in attendance. This practice is consistent with a proposed New
York Stock Exchange regulation, which would require NYSE-listed companies to
empower the independent directors to meet under such circumstances. The
Company's corporate governance guidelines provide that the Chairman of its
Corporate Governance Committee, an independent director, preside over these
meetings.
If, in the future, the Board should determine that the two offices should
be separated, it can do so, but so long as it believes it should be joined in
the person of Mr. Tillman, the Company's Board of Directors should not be
constrained by a bylaw requiring that the two positions be separate.
FOR THESE REASONS, THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "AGAINST" THIS SHAREHOLDER PROPOSAL.
21
ADDITIONAL INFORMATION
The cost of solicitations of proxies will be borne by the Company. In
addition to the use of the mail, proxies may be solicited personally, by
telephone, by telegraph or by certain employees of the Company. The Company may
reimburse brokers or other persons holding stock in their names or in the names
of nominees for their expense in sending proxy materials to principals and
obtaining their proxies. The Company has engaged the proxy soliciting firm of
Georgeson Shareholder Communications Inc. to solicit proxies for the Annual
Meeting at an anticipated cost of $18,000 (plus handling fees).
Where a choice is specified with respect to any matter to come before the
meeting, the shares represented by the proxy will be voted in accordance with
such specifications.
Where a choice is not so specified, the shares represented by the proxy
will be voted "FOR" proposal 1 and "AGAINST" proposals 2, 3 and 4 as set forth
in the Notice of Annual Meeting and Proxy Card.
Management is not aware that any matters other than those specified herein
will be presented for action at the meeting, but if any other matters do
properly come before the meeting, the persons named as Proxies will vote upon
such matters in accordance with their best judgment.
In the election of Directors, a specification to withhold authority to vote
for the slate of management nominees will not constitute an authorization to
vote for any other nominee.
SHAREHOLDER PROPOSALS FOR THE 2004 ANNUAL MEETING
Proposals of shareholders intended to be presented at the 2004 Annual
Meeting must be received by the Board of Directors for consideration for
inclusion in the Proxy Statement and form of proxy relating to that meeting on
or before December 17, 2003. In addition, if the Company receives notice of a
shareholder proposal after March 2, 2004, the persons named as Proxies in the
Proxy Statement for the 2004 Annual Meeting will have discretionary voting
authority to vote on such proposal at the 2004 Annual Meeting.
ANNUAL REPORT
The Annual Report to shareholders accompanies this Proxy Statement. The
Company's report to the Securities and Exchange Commission on Form 10-K for the
Fiscal Year ended January 31, 2003 is available upon written request addressed
to Lowe's Companies, Inc., Investor Relations Department, 1605 Curtis Bridge
Road, Wilkesboro, NC 28697.
By order of the Board of Directors,
/s/ Stephen A. Hellrung
STEPHEN A. HELLRUNG
Senior Vice President,
General Counsel & Secretary
Wilkesboro, North Carolina
April 16, 2003
22
APPENDIX A
AUDIT COMMITTEE CHARTER
AMENDED AND RESTATED APRIL 4, 2003
LOWE'S COMPANIES, INC.
BOARD OF DIRECTORS AUDIT COMMITTEE
PURPOSE
The Audit Committee (the "Committee") is established by the Board of
Directors (the "Board") of Lowe's Companies, Inc. (the "Company") as an
independent and objective committee of the Board. The primary purpose of the
Committee is to assist the Board in overseeing the (1) integrity of the
financial statements of the Company, (2) compliance by the Company with its
established internal controls, legal and regulatory requirements and (3)
independence and performance of the Company's independent auditor and internal
auditors.
COMPOSITION AND PROCEDURE
The Committee shall consist of at least three (3) directors. The members of
the Committee shall qualify as "independent" under the rules of the New York
Stock Exchange and, as applicable, Section 10A(m)(3) of the Securities Exchange
Act of 1934 (the "Exchange Act") and the rules and regulations of the Securities
and Exchange Commission (the "Commission"). The members of the Committee must
meet the financial literacy requirements of, and at least one member of the
Committee shall have the expertise required by, the rules of the New York Stock
Exchange.
The members of the Committee shall be nominated by the Governance Committee
of the Board and appointed by the Board in accordance with the Bylaws of the
Company. The members of the Committee shall serve at the pleasure of the Board
for such term or terms as the Board may determine. The Board shall designate the
Chairperson of the Committee. Except as expressly provided in this Charter, the
Bylaws of the Company or the Corporate Governance Guidelines of the Company, the
Committee shall fix its own rules of procedure.
The Committee shall have full and unrestricted access to all personnel,
records, operations, properties and other informational sources of the Company
as required to properly discharge its responsibilities. Further, the Committee
is granted the authority to investigate any activity of the Company, and all
employees are directed to cooperate as requested by members of the Committee.
The Committee will also be empowered to retain outside counsel or persons having
special competencies as necessary to assist the Committee in fulfilling its
responsibilities. The Committee shall meet at such times as it deems necessary,
but not less frequently than quarterly, and shall make regular reports to the
Board.
COMMITTEE AUTHORITY AND RESPONSIBILITIES
The Committee shall have the following authority and responsibilities:
o To be directly responsible for the appointment, compensation,
retention and oversight of the work of the independent auditor
(including resolution of disagreements between management and the
independent auditor regarding financial reporting) which firm shall
report directly to the Committee.
o To provide a focal point for communication between the independent
auditor, Internal Audit, management and the Board.
o To review and reassess the adequacy of this Charter annually and
submit changes to the Board for approval.
o To recommend to the Board whether the Company's annual audited
financial statements should be included in the Company's Form 10-K. In
connection with such recommendation:
o To review with management of the Company's annual audited
financial statements, including major issues regarding accounting
and auditing principles and practices, as well as the adequacy of
internal controls that could significantly affect the Company's
financial statements;
A-1
o To discuss with the independent auditor of the matters required
to be discussed by Statement of Auditing Standards No. 61
relating to the conduct of the audit; and
o To review and discuss with the independent auditor of the written
disclosures required by Independence Standards Board Standard No.
1 and the independent auditor's independence.
o To conduct a review with management and the independent auditor of the
Company's quarterly financial statements prior to the filing of its
Form 10-Q, including the results of the independent auditor's review
of the quarterly financial statements.
o To review with management and the independent auditor at least
annually the effect of significant regulatory and accounting
initiatives, as well as off balance sheet structures, on the Company's
financial statements.
o To discuss with management, the independent auditor and Internal
Audit, their qualitative judgments about the appropriateness, not just
the acceptability, of accounting principles and financial disclosure
practices used or proposed to be adopted by the Company, particularly
the degree of aggressiveness or conservatism of its accounting
principles and underlying estimates.
o To meet periodically with management to review the Company's major
financial risk-exposures and the steps management has taken to monitor
and control such exposures.
o As necessary, to review an analysis prepared by management and/or the
independent auditor of significant financial reporting issues and
judgments made in connection with the preparation of the Company's
financial statements.
o To review major changes to the Company's auditing and accounting
principles and practices as suggested by the independent auditor,
internal auditors or management.
o To approve any change of the lead audit partner.
o To review with the senior audit partner and management the experience
and qualifications of the senior members of the independent auditor
team and the quality control procedures of the independent auditor.
o Based on disclosures received from, and discussions with, the
independent auditor regarding the auditor's independence, if so
determined by the Committee, to recommend that the Board take
appropriate action to ensure the independence of the auditor.
o To consider whether the provision of non-audit services by the
independent auditor is compatible with maintaining the independent
auditor's independence.
o To review the scope and general extent of the independent auditor's
audit examination prior to the annual audit, taking into account the
Vice President of Internal Audit's evaluation for the performance of
the independent accountants, including the degree of audit
coordination and overall audit coverage.
o To review and concur in the appointment, annual performance appraisal,
replacement, reassignment or discharge of the Vice President of
Internal Audit.
o To review with the Vice President of Internal Audit the department's
scope, staffing, training/development, budget and audit schedule,
including the risk assessment upon which the audit schedule was
developed, as well as plans for reviews of the Company's information
systems, procedures and controls.
o To review and approve the initial audit plan and any significant
subsequent changes in the plan, the results of internal audit
activities, including the independence, objectivity and qualifications
of the internal audit staff, and periodically review and approve the
Internal Audit Department's charter.
o To review with the independent auditor any problems or difficulties
the auditor may have encountered, including:
o Any difficulties encountered in the course of the audit work,
including any restrictions on the scope of activities or access
to required information, and any disagreements with management;
o Any changes required in the planned scope of the internal audit;
and
o The internal audit department responsibilities, budget and
staffing.
A-2
o To prepare the report required by the rules of the Commission to be
included in the Company's annual proxy statement.
o To periodically review management's monitoring of compliance with the
Company's Code of Ethics, including disclosures of insider and
affiliated party transactions, and conduct or monitor any special
investigations of conflict of interest and compliance with federal,
state and local laws and regulations as may be warranted.
o To periodically obtain reports from management and the Company's
senior internal auditing executive that the Company is in conformity
with applicable accounting requirements, internal controls and the
Company's Code of Ethics.
o To periodically review with the Company's General Counsel legal
matters that may have a material impact on the financial statements,
the Company's compliance policies and any material reports or
inquiries received from regulators or governmental agencies.
o To meet at least annually with the chief financial officer, the senior
internal auditing executive and the independent auditor in separate
executive sessions.
o To preapprove all engagements for audit and non-audit services
permitted under the Exchange Act to be performed for the Company by
its independent auditor and to establish policies and procedures for
the pre-approval of such engagements in compliance with the rules and
regulations of the Commission.
o To ensure the rotation of audit partners in accordance with applicable
law.
o To set policies for hiring current or former partners, principals,
shareholders or professional employees of the independent auditor in
accordance with applicable law.
o To review a report from the independent auditor annually prior to the
filing of the Company's Form 10-K and prior to any other filing of an
audit report with the Commission on:
o All critical accounting policies and practices used by the
Company;
o All alternative treatments of financial information within GAAP
for policies and practices related to material items that have
been discussed with management, including ramifications of the
use of such alternative disclosures and treatments, and the
treatment preferred by the independent auditor; and
o Other material written communications between the independent
auditor and management, such as any management letter or schedule
of unadjusted differences.
o To establish procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters, and the confidential,
anonymous submission by employees of concerns regarding questionable
accounting or auditing matters.
DELEGATION
The Committee may delegate in writing to the Chairperson of the Committee,
as a subcommittee of the Committee, the authority to grant preapprovals of
engagements related to audit services and non-audit services permitted under the
Exchange Act, provided that decisions of the Chairperson to grant preapprovals
shall be presented to the full Committee at its next scheduled meeting and
subject to the disclosure provisions of the Exchange Act. In addition, the
Committee may, in its discretion, delegate all or a portion of its authority and
responsibilities to a subcommittee of the Committee when appropriate.
LIMITATION OF COMMITTEE'S ROLE
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Company's financial statements and disclosures are complete
and accurate and are in accordance with generally accepted accounting principles
and applicable rules and regulations. This is the responsibility of management
and the independent auditor.
A-3
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DIRECTIONS TO THE PARK HOTEL
FROM CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT:
Take airport freeway to Billy Graham Parkway South. Follow Billy Graham
until the road name changes to Woodlawn Road. Cross 3 intersections (Old
Pineville Road, South Boulevard and Park Road). Woodlawn becomes Runnymede
at the intersection of Selwyn Avenue. Continue straight on Runnymede. At
the second light turn right onto Colony Road. Turn right onto Roxborough
Road. Turn right onto Rexford, and The Park Hotel is on the left.
FROM I-85 NORTH:
Take Billy Graham Parkway Exit #33. Follow Billy Graham until the road name
changes to Woodlawn Road. Cross 3 intersections (Old Pineville Road, South
Boulevard and Park Road). Woodlawn becomes Runnymede at the intersection of
Selwyn Avenue. Continue straight on Runnymede. At the second light turn
right onto Colony Road. Turn right onto Roxborough Road. Turn right onto
Rexford, and The Park Hotel is on the left.
FROM I-85 SOUTH:
Take Billy Graham Parkway Exit #33. Follow Billy Graham until the road name
changes to Woodlawn Road. Cross 3 intersections (Old Pineville Road, South
Boulevard and Park Road). Woodlawn becomes Runnymede at the intersection of
Selwyn Avenue. Continue straight on Runnymede. At the second light turn
right onto Colony Road. Turn right onto Roxborough Road. Turn right onto
Rexford, and The Park Hotel is on the left.
FROM I-77 SOUTH:
Take Exit #5, Tyvola Road and turn left at the end of the ramp. Continue on
Tyvola Road. At the intersection of Park Road and Tyvola Road, cross Park
Road, Tyvola becomes Fairview Road. Continue on Fairview. At Barclay Downs
(First Union is on the left) turn left. Turn right at the light (second
intersection) onto Morrison Boulevard. Turn left onto Coca-Cola Boulevard
(first left). Turn right onto Rexford Road, and The Park Hotel is on the
right.
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LOWE'S-PS-03