-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Sv7pRu+OM3no0NSSyoNdoi3wW6dnhulhxPfYlPbV35A0DoEVDA5+jD9umvBEwsuR R3s4P9/w0gW4yWnnMBC5Xg== 0000060667-95-000003.txt : 19950501 0000060667-95-000003.hdr.sgml : 19950501 ACCESSION NUMBER: 0000060667-95-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19950131 FILED AS OF DATE: 19950428 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LOWES COMPANIES INC CENTRAL INDEX KEY: 0000060667 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-LUMBER & OTHER BUILDING MATERIALS DEALERS [5211] IRS NUMBER: 560578072 STATE OF INCORPORATION: NC FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07898 FILM NUMBER: 95532467 BUSINESS ADDRESS: STREET 1: PO BOX 1111 CITY: NORTH WILKESBORO STATE: NC ZIP: 28656 BUSINESS PHONE: 9196514000 MAIL ADDRESS: STREET 1: PO BOX 1111 CITY: NORTH WILKESBORO STATE: NC ZIP: 28656 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended January 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 0-94 LOWE'S COMPANIES, INC. (Exact name of registrant as specified in its charter) NORTH CAROLINA 56-0578072 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) P. 0. BOX 1111, NORTH WILKESBORO, N.C. 28656-0001 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (910) 651-4000 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 Pacific Stock Exchange The Stock Exchange (London) Securities registered pursuant to Section 12(g) of the Act: NONE 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 report(s), and (2) has been subject to such filing requirements for the past 90 days. Yes x , No . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the 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. [ ] State the aggregate market value of the voting stock held by non-affiliates of the registrant as of April 7, 1995: $4,397,463,813. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Class: COMMON STOCK, $.50 PAR VALUE, Outstanding at April 7, 1995: 159,925,313 shares. Documents Incorporated by Reference Annual Report to Security Holders for fiscal year ended January 31, 1995: Parts I and II. With the exception of specifically referenced information, the Annual Report to Security Holders for the fiscal year ended January 31, 1995 is not to be deemed filed as part of this report. Proxy Statement for Annual Meeting to be filed by April 25, 1995: Part III. Part I Item 1 - Business Reference is made to the back cover and to pages 4 through 11 of the Annual Report to Security Holders for fiscal year ended January 31, 1995. Item 2 - Properties At January 31, 1995, the Company operated 336 stores with a total of 18.6 million square feet of selling space. Since 1989, the Company has been implementing a store expansion strategy to transform the Company from a chain of small stores into a chain of destinantion home improvement superstores. The current prototype large store is an 85,000 square foot sales floor unit for smaller markets and a 114,000 square foot sales floor unit for medium and larger markets, each with a lawn and garden center comprising appoximately 30,000 additional square feet. The Company also operates three distribution centers and seven smaller support facilities, three of which are reload centers only. Reference is also made to the map and table on the inside front cover of the annual report and to notes 1, 4, 6 and 13 on pages 19, 20, 21 and 25 of the Annual Report to Security Holders for fiscal year ended January 31, 1995. Item 3 - Legal Proceedings Reference is made to Note 14 on page 26 of the Annual Report to Security Holders for fiscal year ended January 31, 1995. Item 4 - Submission of Matters to a Vote of Security Holders Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to General Instruction G(3) of Form 10-K, the following list is included as an unnumbered item in Part I of this Report in lieu of being included in the Proxy Statement for the Annual Meeting of Stockholders to be held on May 26, 1995. 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. PART I EXECUTIVE OFFICERS OF THE REGISTRANT Leonard G. Herring, 67 President and Chief Executive Officer since 1978. Robert L. Strickland, 64 Chairman of the Board since 1978. J. Gregory Dodge, 47 Senior Vice President - Real Estate/Engineering and Construction since 1994; Vice President, Sudberry Properties, Inc., 1988 - 1994. Richard D. Elledge, 53 Vice President (Chief Accounting Officer) since 1981; Assistant Secretary since 1991; Secretary, 1978 - 1990. William L. Irons, 51 Senior Vice President - Management Information Services since 1992; Partner, Ernst & Young, 1987 - 1992. W. Cliff Oxford, 43 Senior Vice President - Corporate Relations since 1994; Vice President - Corporate Realations, 1985 - 1994. R. Michael Rouleau, 56 Executive Vice President - Sales/Store Operations since 1992; President, The Contractor Yard, Inc. (wholly owned subsidiary) since 1994; President/Chief Operating Officer, Office Warehouse, 1988 - 1992. Robert L. Tillman, 51 Senior Executive Vice President and Chief Operating Officer since 1994; Executive Vice President - Merchandising, 1991-1994; Senior Vice President - Merchandising, 1989-1991. Harry B. Underwood II, 52 Senior Vice President and Treasurer (Chief Financial Officer) since 1985. William C. Warden, Jr., 42 Senior Vice President, General Counsel and Secretary since 1993; Assistant Secretary 1985 - 1993; Partner, McElwee, McElwee & Warden which served as General Counsel for the Company, 1979 - 1993. Part II Item 5 - Market for the Registrant's Common Stock and Related Security Holder Matters. The principal market for trading in Lowe's common stock is the New York Stock Exchange, Inc. (NYSE). Lowe's common stock is also listed on the Pacific exchange in the United States and the London exchange. The ticker symbol for Lowe's is LOW. As of January 31, 1995, there were 7,446 holders of record of Lowe's common stock. The table, "Lowe's Quarterly Stock Price Range and Cash Dividend Payment", on page 28 of the Annual Report to Security Holders for fiscal year ended January 31, 1995 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 adjusted for a 2- for- 1 stock split to shareholders of record on June 12, 1992 and a 2-for-1 stock split to shareholders of record on March 16, 1994. The Company is party to certain agreements which may limit its ability to declare dividends under certain circumstances. See Note 6 on page 21 of the Annual Report to Security Holders for fiscal year ended January 31, 1995. Reference is also made to notes 11 and 12 on pages 23, 24 and 25 of the Annual Report to Security Holders for fiscal year ended January 31, 1995. Item 6 - Selected Financial Data Reference is made to page 27 of the Annual Report to Security Holders for fiscal year ended January 31, 1995. Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. Reference is made to "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 13 through 15 of the Annual Report to Security Holders for fiscal year ended January 31, 1995. Item 8 - Financial Statements and Supplementary Data Reference is made to the "Independent Auditors' Report" on page 12 and to the financial statements and notes thereto on pages 16 through 26, and to the "Selected Quarterly Data" on page 27 of the Annual Report to Security Holders for fiscal year ended January 31, 1995. Item 9 - Disagreements on Accounting and Financial Disclosure Not applicable. Part III Item 10 - Directors and Executive Officers of the Registrant Reference is made to "Lowe's Board of Directors" on pages 30 and 31 of the Annual Report to Security Holders for fiscal year ended January 31, 1995, and to Part I - Executive Officers of the Registrant. Item 11 - Executive Compensation Reference is made to "Compensation of Executive Officers", "Option/SAR Grants in Last Fiscal Year", "Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-end Option/SAR Values", and "Long-term Incentive Plans - Awards in Last Fiscal Year" included in the definitive Proxy Statement which will be filed, pursuant to regulation 14A with the SEC by April 25, 1995, and is hereby incorporated by reference. The Company's Executive Compensation Program is comprised of 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 Incentive Plan The purpose of the 1994 Incentive Plan is to attract, motivate, retain and reward the executives whose leadership and performance are critical to the Company's success in enhancing shareholder value, to place further emphasis on executive ownership of Company Stock and to assure deductibility of executive compensation. The 1994 Incentive Plan authorizes 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 1994 Incentive Plan measure performance and create compensation solely on the basis of the appreciation in the price of the Company's Common Stock. Stock appreciation rights (STARs) also may be granted under the 1994 Incentive Plan. STARs entitle the recipient to receive a cash payment based on the appreciation in the Company's Common Stock following the date of the award and, accordingly, measure performance and create compensation only if the price of the Company's Common Stock appreciates. Company Common Stock also may be issued under stock awards pursuant to the 1994 Incentive Plan. The stock awards that have been made to date provide that the shares are subject to forfeiture and nontransferable for seven years following the award. Accelerated vesting is permitted if the Company achieves certain financial objectives during the three- and five- year periods following the award. The Management Bonus Program is the final component of the 1994 Incentive Plan. The Management Bonus Program provides bonus opportunities which can be earned upon achievement by the Company of preset annual financial goals. No bonuses are paid if performance is below the threshold level of corporate profitability. Additional bonus amounts are earned on a proportionate scale up to 100% of the stated bonus opportunity if the preset financial goals are met. Maximum bonuses were paid for the fiscal years ended January 31, 1993, January 31, 1994, and January 31, 1995, because the Company's financial results exceeded the preset performance goals. Benefit Restoration Plan The Benefit Restoration Plan was adopted by the Company in May 1990, to provide qualifying executives with benefits equivalent to those received by all other employees under the Company's basic qualified employee benefit plans. Qualifying executives are those executives 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, and who are selected by the Committee to participate in the Plan. The Benefit Restoration Plan benefits are determined annually. Participating executives may elect annually to defer benefits or to receive a current cash payment. 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. Item 12 - Security Ownership of Certain Beneficial Owners and Management Reference is made to "Security Ownership of Certain Beneficial Owners and Management" included in the definitive Proxy Statement which will be filed pursuant to regulation 14A, with the SEC by April 25, 1995, and is hereby incorporated by reference. Item 13 - Certain Relationships and Related Transactions Reference is made to "Information About the Board of Directors and Committees of the Board", "Certain Relationships and Related Transactions" included in the definitive Proxy Statement which will be filed, pursuant to regulation 14A, with the SEC by April 25, 1995, and is hereby incorporated by reference. Part IV Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K a) 1. Financial Statements Reference is made to the following items and page numbers appearing in the Annual Report to Security Holders for fiscal year ended January 31, 1995: Pages Independent Auditors' Report 12 Consolidated Statements of Current and Retained Earnings for each of the fiscal years in the three-year period ended January 31, 1995 16 Consolidated Balance Sheets at January 31, 1995, 1994 and 1993 17 Consolidated Statements of Cash Flows for each of the fiscal years in the three-year period ended January 31, 1995 18 Notes to Consolidated Financial Statements for each of the fiscal years in the three-year period endedJanuary 31, 1995 19-26 a) 2. Financial Statement Schedules Schedules are omitted because of the absence of conditions under which they are required or because information required is included in financial statements or the notes thereto. Part IV a)3. Exhibits (3.1) Restated and Amended Charter (filed as exhibit 3(a) to the Company's Form 8-K dated July 5, 1994 and incorporated by reference herein). (3.2) Bylaws, as amended. (4.1) Rights Agreement dated as of September 9, 1988 between the Company and Wachovia Bank and Trust Co., N.A., as Rights Agent (filed as Exhibit 4.1 to the Company's Form 8-K dated September 9, 1988 and incorporated by reference herein). (10.1) Lowe's Companies, Inc. 1985 Stock Option Plan (filed as Exhibit C to the Company's Proxy Statement dated May 31, 1985 and incorporated by reference herein). (10.2) Post Effective Amendment No. 1 to Lowe's Companies, Inc. 1985 Stock Option Plan (filed on the Company's Form S-8 dated June 23, 1987 (No. 33-2618) and incorporated by reference herein). (10.3) Lowe's Companies, Inc. 1989 Non-Employee Directors' Stock Option Plan (filed as Exhibit A to the Company's Proxy Statement dated June 9, 1989 and incorporated by reference herein). (10.4) Lowe's Companies, Inc. 1990 Benefit Restoration Plan (filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended January 31, 1991, and incorporated by reference herein). (10.5) Lowe's Companies, Inc. Stock Appreciation Incentive Plan (filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended January 31, 1992, and incorporated by reference herein). (10.6) Indenture dated April 15, 1992 between the Company and Chemical Bank, as Trustee (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-3 (No. 33-47269) and incorporated by reference herein). (10.7) Indenture dated July 22, 1994 between the Company and Wachovia Bank of North Carolina, N.A., as Trustee (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-3 (No. 33-64560) and incorporated by reference herein). (10.8) Form of Indenture between the Company and Chemical Bank, as Trustee (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-3 (No. 33-51865) and incorporated by reference herein). (10.9) Form of Indenture between the Company and Wachovia Bank of North Carolina, N.A., as Trustee (filed as Exhibit 4.2 to the Company's Registration Statement on Form S-3 (No. 33- 51865) and incorporated by reference herein). (10.10) Lowe's Companies, Inc. Director's Stock Incentive Plan (filed on the Company's Form S-8 dated July 8, 1994 (No. 33-54497) and incorporated by reference herein). (10.11) 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). (11) Computation of per share earnings. (13) Annual Report to Security Holders for fiscal year ended January 31, 1995. (21) List of Subsidiaries. (23) Consent of Deloitte & Touche (27) Financial Data Schedule b Reports on Form 8-K There were no reports on Form 8-K filed by the registrant during the last quarter of the period covered by this report. Part IV SIGNATURES 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. /s/ Lowe's Companies, Inc. Lowe's Companies, Inc. By /s/ Leonard.G. Herring 4/28/95 Leonard G. Herring Date President, Chief Executive Officer and Director By: /s/ Harry B. Underwood II 4/28/95 Harry B. Underwood II Date Senior VicePresident and Treasurer (Chief Financial Officer) 4/28/95 By: /s/ Richard D. Elledge Date Richard D. Elledge Vice President, and Chief Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Robert L. Strickland Chairman of the Board of 4/28/95 Robert L. Strickland Directors and Director Date /s/ Leonard G. Herring President, Chief Executive 4/28/95 Leonard G. Herring Officer and Director Date /s/ Robert L. Tillman Senior Executive Vice President (Chief 4/28/95 Robert L. Tillman Operating Officer) and Director Date /s/ Petro Kulynych Director 4/28/95 Petro Kulynych Date /s/ John M. Belk Director 4/28/95 John M. Belk Date /s/ Gordon E. Cadwgan Director 4/28/95 Gordon E. Cadwgan Date /s/ William A. Andres Director 4/28/95 William A. Andres Date Russell B. Long Director Date /s/ Robert G. Schwartz Director 4/28/95 Robert G. Schwartz Date Carol A. Farmer Director Date EX-3 2 EXHIBIT 3.2 BYLAWS OF LOWE'S COMPANIES, INC. As Amended and Restated December 9, 1994 INDEX ARTICLE I. OFFICES 1 ARTICLE II. SHAREHOLDERS 1 SECTION 1. ANNUAL MEETING 1 SECTION 2. SPECIAL MEETINGS 1 SECTION 3. PLACE OF MEETING 1 SECTION 4. NOTICE OF MEETING 2 SECTION 5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE 2 SECTION 6. VOTING LISTS 2 SECTION 7. QUORUM 3 SECTION 8. PROXIES 3 SECTION 9. VOTING OF SHARES 3 SECTION 10. CONDUCT OF MEETINGS 3 ARTICLE III. BOARD OF DIRECTORS 5 SECTION 1. GENERAL POWERS 5 SECTION 2. NUMBER, TENURE AND QUALIFICATIONS 5 SECTION 3. FOUNDING DIRECTOR 5 SECTION 4. DIRECTOR EMERITUS 5 SECTION 5. QUARTERLY MEETINGS 5 SECTION 6. SPECIAL MEETINGS 5 SECTION 7. NOTICE 5 SECTION 8. QUORUM 6 SECTION 9. MANNER OF ACTING 6 SECTION 10. VACANCIES 6 SECTION 11. COMPENSATION 6 SECTION 12. PRESUMPTION OF ASSENT 6 SECTION 13. ACTION WITHOUT MEETING 6 SECTION 14. INFORMAL ACTION BY DIRECTORS 6 SECTION 15. COMMITTEES GENERALLY 7 SECTION 16. EXECUTIVE COMMITTEE 7 SECTION 17. AUDIT COMMITTEE 8 SECTION 18. COMPENSATION COMMITTEE 8 SECTION 19. COMMITTEE OF INDEPENDENT DIRECTORS 8 SECTION 20. GOVERNMENT/LEGAL AFFAIRS COMMITTEE 8 SECTION 21. SALARY ADMINISTRATION; DIRECTORS COMPENSATION 8 ARTICLE IV. INDEMNIFICATION 9 SECTION 1. INDEMNIFICATION 9 SECTION 2. LIMITATION ON INDEMNIFICATION 9 SECTION 3. BOARD DETERMINATION 9 SECTION 4. RELIANCE 9 SECTION 5. AGENTS AND EMPLOYEES 9 SECTION 6. EXPENSES 10 SECTION 7. INSURANCE 10 ARTICLE V. OFFICERS 10 SECTION 1. TITLES 10 SECTION 2. ELECTION AND TERM OF OFFICE 10 SECTION 3. REMOVAL 10 SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS 10 SECTION 5. PRESIDENT 11 SECTION 6. VICE PRESIDENTS 11 SECTION 7. SECRETARY 11 SECTION 8. TREASURER 11 SECTION 9. CONTROLLER 11 ARTICLE VI. DEPARTMENTAL DESIGNATIONS 11 SECTION 1. DEPARTMENTAL DESIGNATIONS 11 ARTICLE VII. CERTIFICATES FOR SHARES AND THEIR TRANSFER 12 SECTION 1. CERTIFICATES FOR SHARES 12 SECTION 2. TRANSFER OF SHARES 12 SECTION 3. LOST CERTIFICATES 12 ARTICLE VIII. FISCAL YEAR 13 ARTICLE IX. DIVIDENDS 13 ARTICLE X. SEAL 13 ARTICLE XI. WAIVER OF NOTICE 13 ARTICLE XII. AMENDMENTS 13 BYLAWS OF LOWE'S COMPANIES, INC. As Amended and Restated December 9, 1994 ARTICLE I. OFFICES The principal and registered office of the corporation in the State of North Carolina shall be located in the City of North Wilkesboro, County of Wilkes. The corporation may have such other offices either within or without the State of North Carolina, as the Board of Directors may designate or the business of the corporation may require from time to time. ARTICLE II. SHAREHOLDERS SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders shall be held on the last Friday in the month of May in each year, at an hour to be designated by the Chairman of the Board, for the purpose of electing directors and for the transaction of such other business as may come before the meeting. The meeting shall be held on the following business day at the same time in the event the last Friday in May shall be a legal holiday. If the annual meeting shall not be held on the day designated by this Section 1, a substitute annual meeting shall be called in accordance with the provisions of Section 2 of this Article II. A meeting so called shall be designated and treated for all purposes as the annual meeting. SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders for any purpose or purposes may be called by the Chairman of the Board, the President, or by a majority of the Board of Directors. SECTION 3. PLACE OF MEETING. The Board of Directors may designate any place, either within or without the State of North Carolina, as the place of meeting for any annual meeting or for any special meeting called by the Board of Directors. In the event the directors do not designate the place of meeting for either an annual or special meeting of the shareholders, the Chairman of the Board may designate the place of meeting. If the Chairman of the Board does not designate the place of meeting, the meeting shall be held at the offices of the corporation in North Wilkesboro, North Carolina. SECTION 4. NOTICE OF MEETING. Written notice stating the place, day, and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be given not less than 10 nor more than 60 days before the day of the meeting, by mail, by or at the direction of the Secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. Such notice, when mailed, shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid. When a meeting is adjourned it shall not be necessary to give any notice of the adjourned meeting other than by announcement at the meeting at which the adjournment is taken unless a new record date for the adjourned meeting is or must be fixed, in which event notice shall be given to shareholders as of the new record date. SECTION 5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the purpose of determining shareholders entitled to notice of or to vote at the meeting or any adjournment thereof, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the corporation may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, 60 days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least 10 days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than 70 days and, in case of a meeting of shareholders, not less than 10 days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or of shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section 5, such determination shall apply to any adjournment thereof if the meeting is adjourned to a date not more than 120 days after the date fixed for the original meeting. SECTION 6. VOTING LISTS. The officer or agent having charge of the stock transfer books for shares of the corporation shall make before each meeting of shareholders a complete list of the shareholders entitled to vote at such meeting arranged in alphabetical order and by voting group (and within each voting group by class or series of shares), with the address of and the number of shares held by each. For a period beginning two business days after notice of the meeting is given and continuing through the meeting, this list shall be available at the corporation's principal office for inspection by any shareholder at any time during usual business hours. The list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original stock transfer books shall be prima facie evidence as to who are the shareholders entitled to examine such list or transfer books or to vote any meeting of shareholders. SECTION 7. QUORUM. Shares entitled to vote as a separate voting group may take action on a matter at a meeting if a quorum of that voting group exists with respect to that matter. In the absence of a quorum at the opening of any meeting of shareholders, the meeting may be adjourned from time to time by the vote of the majority of the votes cast on the motion to adjourn. A majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on that matter. Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of the meeting unless a new record date is or must be set for the adjourned meeting. If a quorum exists, action on a matter (other than the election of directors) by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the Articles of Incorporation, a Bylaw adopted by the shareholders, or the North Carolina Business Corporation Act requires a greater number of affirmative votes. SECTION 8. PROXIES. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his duly authorized attorney in fact. Such proxy shall be filed with the secretary of the corporation before or at the time of the meeting. No proxy shall be valid after 11 months from the date of its execution, unless otherwise provided in the proxy. If a proxy for the same shares confers authority upon two or more persons and does not otherwise provide a majority of them present at the meeting or if only one is present at the meeting then that one may exercise all the powers conferred by the proxy; but if the proxy holders present at the meeting are divided as to the right and manner of voting in any particular case, and there is no majority, the voting of such shares shall be prorated. SECTION 9. VOTING OF SHARES. Except as otherwise provided by law, each outstanding share of capital stock of the corporation entitled to vote shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders. The vote of a majority of the shares voted on any matter at a meeting of shareholders at which a quorum is present shall be the act of the shareholders on that matter, unless the vote of a greater number is required by law or by the Articles of Incorporation or Bylaws. Voting on all substantive matters shall be by a ballot vote on that particular matter. Voting on procedural matters shall be by voice vote or by a show of hands unless the holders of one-tenth of the shares represented at the meeting shall demand a ballot vote on procedural matters. SECTION 10. CONDUCT OF MEETINGS. At each meeting of the stockholders, the Chairman of the Board shall act as chairman and preside. In his absence, the Chairman of the Board may designate another officer or director to preside. The Secretary or an Assistant Secretary, or in their absence, a person whom the Chairman of such meeting shall appoint, shall act as secretary of the meeting. At any meeting of stockholders, only business that is properly brought before the meeting may be presented to and acted upon by stockholders. To be properly brought before the meeting, business must be brought (a) by or at the direction of the Board of Directors or (b) by a stockholder who has given written notice of business he expects to bring before the meeting to the Secretary not less than 15 days prior to the meeting. If mailed, such notice shall be sent by certified mail, return receipt requested, and shall be deemed to have been given when received by the Secretary. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the meeting (a) a brief description of the business to be brought before the meeting and the reasons for conducting such business at the meeting, (b) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the corporation's stock beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. No business shall be conducted at a meeting of stockholders except in accordance with the procedures set forth in this Section 10. The chairman of a meeting of stockholders shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 10, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Any nomination for director made by a stockholder must be made in writing to the Secretary not less than 15 days prior to the meeting of stockholders at which Directors are to be elected. If mailed, such notice shall be sent by certified mail, return receipt requested, and shall be deemed to have been given when received by the Secretary. A stockholder's nomination for director shall set forth (a) the name and business address of the stockholder's nominee, (b) the fact that the nominee has consented to his name being placed in nomination, (c) the name and address, as they appear on the corporation's books, of the stockholder making the nomination, (d) the class and number of shares of the corporation's stock beneficially owned by the stockholder, and (e) any material interest of the stockholder in the proposed nomination. Notwithstanding compliance with this Section 10, the chairman of a meeting of stockholders may rule out of order any business brought before the meeting that is not a proper matter for stockholder consideration. This Section 10 shall not limit the right of stockholders to speak at meetings of stockholders on matters germane to the corporation's business, subject to any rules for the orderly conduct of the meeting imposed by the Chairman of the meeting. The corporation shall not have any obligation to communicate with stockholders regarding any business or director nomination submitted by a stockholder in accordance with this Section 10 unless otherwise required by law. ARTICLE III. BOARD OF DIRECTORS SECTION 1. GENERAL POWERS. The business and affairs of the corporation shall be managed by the Board of Directors except as otherwise provided by law, by the Articles of Incorporation or by the Bylaws. SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of the corporation shall not be less than six nor more than 12, one of whom shall be designated and elected by the Board as the Chairman of the Board of Directors and shall preside at all meetings of the Board of Directors. The Board may elect a Vice Chairman whose only duties shall be to preside at Board meetings in the absence of the Chairman. Directors need not be residents of the State of North Carolina or shareholders of the corporation. Subject to the Articles of Incorporation, the Board of Directors shall each year prior to the annual meeting determine by appropriate resolution the number of directors which shall constitute the Board of Directors for the ensuing year. SECTION 3. FOUNDING DIRECTOR. A Founding Director is a person who was a director when it became a public company in 1961, who was a director on November 7, 1980, and who has served continuously as a director since 1961. SECTION 4. DIRECTOR EMERITUS. A Director Emeritus is a director with prior service as a Founding Director. The Board of Directors may designate a Founding Director as a Director Emeritus. The Director Emeritus lifetime benefit is 50% of the Founding Director fee in effect at the time the Founding Director (whether an Employee Director or a Non-Employee Director) becomes a Director Emeritus. SECTION 5. QUARTERLY MEETINGS. Quarterly meetings of the Board of Directors shall be held at a time and place determined by the Chairman of the Board of Directors. Any one or more of the directors or members of a committee designated by the directors may participate in a meeting of the Board or committee by means of a conference telephone or similar communications device which allows all persons participating in the meeting to hear each other and such participation in a meeting will be deemed presence in person. SECTION 6. SPECIAL MEETINGS. Special Meetings of the Board of Directors may be called by or at the request of the Chairman of the Board of Directors, [the President] or two of the directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of North Carolina, as the place for holding any special meeting of the Board of Directors called by them. SECTION 7. NOTICE. Notice of any special meeting shall be given by either mail, facsimile or telephone. Notice of any special meeting given by mail shall be given at least five days previous thereto. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail properly addressed, with postage thereon prepaid. If notice is given by facsimile or by telephone, it shall be done so at least two days prior to the special meeting and shall be deemed given at the time the facsimile is transmitted or of the telephone call itself. Any director may waive notice of any meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at nor the purpose of any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. SECTION 8. QUORUM. A majority of the number of directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. SECTION 9. MANNER OF ACTING. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors unless otherwise required by the Articles of Incorporation. SECTION 10. VACANCIES. Any vacancy occurring in the Board of Directors shall be filled as provided in the Articles of Incorporation. SECTION 11. COMPENSATION. The directors may be paid such expenses as are incurred in connection with their duties as directors. The Board of Directors may also pay to the directors compensation for their service as directors. SECTION 12. PRESUMPTION OF ASSENT. A director of the corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. SECTION 13. ACTION WITHOUT MEETING. Action taken by a majority of the Board, or a Committee thereof, without a meeting is nevertheless Board, or Committee, action if written consent to the action in question is signed by all of the directors, or Committee members, and filed with the minutes of the proceedings of the Board, or Committee, whether done before or after the action so taken. SECTION 14. INFORMAL ACTION BY DIRECTORS. Action taken by a majority of the directors without a meeting is action of the Board of Directors if written consent to the action is signed by all of the directors and filed with the minutes of the proceedings of the Board of Directors, whether done before or after the action so taken. SECTION 15. COMMITTEES GENERALLY. Committees of the Board of Directors shall be reestablished annually at the first Board of Directors Meeting held subsequent to the Annual Shareholders Meeting. Directors designated to serve on committees shall serve as members of such committees until the first Board of Directors Meeting following the next succeeding Annual Shareholders Meeting or until their successors shall have been duly designated. The Board of Directors may designate a committee chairman and a committee vice chairman from the membership for each committee established. In the absence of the designation of a committee chairman or vice chairman by the Board, a committee by majority vote may elect a chairman or vice chairman from its own membership. SECTION 16. EXECUTIVE COMMITTEE. (a) The Board may establish an Executive Committee comprising not less than three members. This Committee may exercise all of the authority of the Board of Directors to the full extent permitted by law, but shall not have power: i) To declare dividends or authorize distributions; ii) To approve or propose to shareholders any action that is required to be approved by shareholders under the North Carolina Business Corporation Act; iii) To approve an amendment to the Articles of Incorporation of the Corporation; iv) To approve a plan of dissolution; merger or consolidation; v) To approve the sale, lease or exchange of all or substantially all of the property of the Corporation; vi) To designate any other committee, or to fill vacancies in the Board of Directors or other committees; vii) To fix the compensation of directors for serving on the Board of Directors or any committee; viii) To amend or repeal the Bylaws, or adopt new Bylaws; ix) To authorize or approve reacquisition of shares, except according to a formula or method approved by the Board of Directors; x) To authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, unless the Board of Directors specifically authorizes the Executive Committee to do so within limits established by the Board of Directors; xi) To amend, or repeal any resolution of the Board of Directors which by its terms is not so amendable or repealable; or xii) To take any action expressly prohibited in a resolution of the Board of Directors. SECTION 17. AUDIT COMMITTEE. The Board may establish an Audit Committee comprising not less than three members, all of whom shall be non-employee directors. The Committee shall aid the Board in carrying out its responsibilities for accurate and informative financial reporting, shall assist the Board in making recommendations with respect to management's efforts to maintain and improve financial controls, shall review reports of examination by the independent auditors, and except as otherwise required by law, shall have authority to act for the Board in any matter delegated to this Committee by the Board of Directors. The Committee shall recommend to the stockholders at their annual meeting each year an independent certified public accounting firm as independent auditors for the corporation. SECTION 18. COMPENSATION COMMITTEE. The Board may establish a Compensation Committee comprising not less than three members, all of whom shall be non- employee directors. Except as otherwise required by law, the Compensation Committee shall have authority to act for the Board in any matter delegated to this Committee by the Board of Directors. SECTION 19. COMMITTEE OF INDEPENDENT DIRECTORS. The Board may establish a Committee of Independent Directors comprising not less than three members, all of whom shall be non-employee directors. Except as otherwise required by law, the Committee of Independent Directors shall have authority to act for the Board in any matter delegated to this Committee by the Board of Directors. SECTION 20. GOVERNMENT/LEGAL AFFAIRS COMMITTEE. The Board may establish a Government/Legal Affairs Committee to consist of not less than three directors. Except as otherwise required by law, the Government/Legal Affairs Committee shall have authority to act for the Board in any manner delegated to this Committee by the Board of Directors. SECTION 21. SALARY ADMINISTRATION; DIRECTORS COMPENSATION. The compensation of employees not covered by the Compensation Committee duties shall be the responsibility of the President, except that compensation of the Chairman's staff shall be the mutual responsibility of the Chairman and the President. The compensation of independent directors shall be recommended to the Board of Directors as a mutual responsibility of the Chairman and the President. ARTICLE IV. INDEMNIFICATION SECTION 1. INDEMNIFICATION. In addition to any indemnification required or permitted by law, and except as otherwise provided in these Bylaws, any person who at any time serves or has served as a director or officer of the corporation, or in such capacity at the request of the corporation for any other corporation, partnership, joint venture, trust or other enterprise, shall have a right to be indemnified by the corporation to the fullest extent permitted by law against (i) reasonable expenses, including attorneys' fees, actually and necessarily incurred by him in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, seeking to hold him liable by reason of the fact that he is or was acting in such capacity, and (ii) payments made by him in satisfaction of any judgment, money decree, fine, penalty or reasonable settlement for which he may have become liable in any such action, suit or proceeding. SECTION 2. LIMITATION ON INDEMNIFICATION. The corporation shall not indemnify any person hereunder against liability or litigation expense he may incur on account of his activities which were at the time taken known or believed by him to be clearly in conflict with the best interests of the corporation. The corporation shall not indemnify any director with respect to any liability arising out of NORTH CAROLINA GENERAL STATUTES section 55-8-33 (relating to unlawful declaration of dividends) or any transaction from which the director derived an improper personal benefit as provided in NORTH CAROLINA GENERAL STATUTES section 55-2-02(b)(3). SECTION 3. BOARD DETERMINATION. If any action is necessary or appropriate to authorize the corporation to pay the indemnification required by this Bylaw the Board of Directors shall take such action, including (i) making a good faith evaluation of the manner in which the claimant for indemnity acted and of the reasonable amount of indemnify due him, (ii) giving notice to, and obtaining approval by, the shareholders of the corporation, and (iii) taking any other action. SECTION 4. RELIANCE. Any person who at any time after the adoption of this Bylaw serves or has served in any of the capacities indicated in subsection (a) of this Bylaw shall be deemed to be doing or to have done so in reliance upon, and as consideration for, the right of indemnification provided herein. Such right shall inure to the benefit of the legal representatives of any such person and shall not be exclusive of any other rights to which such person may be entitled apart from the provision of this Bylaw. SECTION 5. AGENTS AND EMPLOYEES. The provisions of subsection (a) of this Bylaw shall not be deemed to preclude the corporation from indemnifying persons serving as agents or employees of the corporation, or in such capacity at the request of the corporation for any other corporation, partnership, joint venture, trust or other enterprise, to the extent permitted by law. SECTION 6. EXPENSES. The corporation shall be entitled to pay the expenses incurred by a director or officer in defending a civil or criminal action, suit or proceeding in advance of final disposition upon receipt of an undertaking by or on behalf of the director or officer to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation against such expenses. SECTION 7. INSURANCE. As provided by NORTH CAROLINA GENERAL STATUTES section 55-8-57, the Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or who is or was serving at the request of the corporation as a director, officer or employee or agent of another corporation, partnership, joint venture, trust or other enterprise or as a trustee or administrator under an employee benefit plan against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation has the power to indemnify him against such liability. ARTICLE V. OFFICERS SECTION 1. TITLES. The officers of the corporation may consist of the Chairman of the Board of Directors, the President, and such Vice Presidents as shall be elected as officers by the Board of Directors. There shall also be a Secretary, Treasurer, Controller and such assistants thereto as may be elected by the Board of Directors. Any one person may hold one or more offices in the corporation. No officer may act in more than one capacity where action of two or more is required. SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the corporation shall be elected annually by the Board of Directors at the first meeting of the Board held after each annual meeting of the shareholders, or at any other meeting of said Board. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. SECTION 3. REMOVAL. Since officers serve at the pleasure of the Board, any officer may be removed at any time by the Board of Directors, with or without cause. Termination of an officer's employment with the Corporation by the appropriate official shall also end his term as an officer. SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. There shall be a Chairman of the Board of Directors elected by the directors from their members. The Chairman so elected by the directors shall be responsible to the Board of Directors and shall seek Board approval and guidance on major corporation strategies, policies, and objectives, including long-range planning, mergers, acquisitions, consolidations and liquidations. He shall also issue annual reports and recommend dividend policies for Board approval and shall perform such other functions as the Board may require from time to time. The Chairman shall have power to sign any deeds, mortgages, bonds, contracts, or any other instruments or documents which may be lawfully executed on behalf of the corporation. SECTION 5. PRESIDENT. The office of President shall be held by a director of the corporation duly elected to said office by a majority vote of the Board of Directors, and shall be the Chief Executive Officer of the corporation, and shall have direct supervision and control of all of the business affairs of the corporation, not specifically allocated to the Chairman of the Board in these Bylaws, subject to the general supervision and control of the Board of Directors. The President shall have power to sign certificates for shares of the corporation and any deeds, mortgages, bonds, contracts, or any other instruments or documents which may be lawfully executed on behalf of the corporation. The President shall vote as agent for this corporation the capital stock held or owned by this corporation in any corporation. The President is authorized to delegate the authority to officers or employees of the corporation to execute and deliver agreements and other instruments on behalf of the corporation. The President is authorized to delegate the authority to execute and deliver agreements and other instruments to other officers and employees of the Corporation. SECTION 6. VICE PRESIDENTS. The duties of Vice Presidents shall be the performance of such functions and duties as shall be assigned by the President or the Board of Directors. SECTION 7. SECRETARY. The Secretary shall perform such duties and have such responsibilities as are assigned by the Board of Directors or the President. SECTION 8. TREASURER. The Treasurer shall perform such duties and have such responsibilities as are assigned to him by the Board of Directors or the President. SECTION 9. CONTROLLER. The Controller shall perform such duties and have such responsibilities as are assigned to him by the Board of Directors or the President. ARTICLE VI. DEPARTMENTAL DESIGNATIONS SECTION 1. DEPARTMENTAL DESIGNATIONS. The President may establish such departmental or functional designations or titles pertaining to supervisory personnel as the President in his discretion deems wise. The designations or titles may be that of Senior Vice President, Vice President or such other term or terms as the President desires to utilize. The designation or title contemplated by this section is for the purpose of administration within the department or function concerned and is not with the intent of designating those individuals bearing such titles as general officers of the corporation. These individuals bearing these titles shall be known as administrative managers of the corporation. ARTICLE VII. CERTIFICATES FOR SHARES AND THEIR TRANSFER SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of the corporation shall be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the President and by the Secretary, provided that where a certificate is signed by a transfer agent, assistant transfer agent or co-transfer agent of the corporation or with the duly designated transfer agent the signatures of such officers of the corporation upon the certificate may be by facsimile engraved or printed. Each certificate shall be sealed with the seal of the corporation or a facsimile thereof. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and class and date of issue, shall be entered on the stock transfer books of the corporation, as the transfer agent. All certificates surrendered to the corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed, or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the corporation as the Board of Directors may prescribe. SECTION 2. TRANSFER OF SHARES. Transfer of shares of the corporation shall be made only on the stock transfer books of the corporation by the holder of records thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by power of attorney duly executed and filed with the secretary of the corporation, and on surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes. To the extent that any provision of the Rights Agreement between the Company and Wachovia Bank and Trust Company, N.A., Rights Agent, dated as of September 9, 1988, is deemed to constitute a restriction on the transfer of any securities of the Company, including, without limitation, the Rights, as defined therein, such restriction is hereby authorized by the Bylaws of the Company. SECTION 3. LOST CERTIFICATES. The Board of Directors may authorize the issuance of a new certificate in place of a certificate claimed to have been lost or destroyed, upon receipt of an affidavit of such fact from the person claiming the loss or destruction. In authorizing such issuance of a new certificate, the Board may require the claimant to give the corporation a bond in such sum as it may direct to indemnify the corporation against loss from any claim with respect to the certificate claimed to have been lost or destroyed; or the Board, by resolution reciting that the circumstances justify such action, may authorize the issuance of the new certificate without requiring such a bond. This function or duty on the part of the Board may be assigned by the Board to the transfer agents of the common stock of the corporation. ARTICLE VIII. FISCAL YEAR The fiscal year of the Corporation shall be the 12 months ending January 31 of each year. ARTICLE IX. DIVIDENDS The Board of Directors may from time to time declare, and the corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and as provided in a resolution of the Board of Directors. ARTICLE X. SEAL The Board of Directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation, the state of incorporation, and the word "Seal". ARTICLE XI. WAIVER OF NOTICE Whenever any notice is required to be given to any shareholder or director of the corporation under the provisions of the charter or under the provisions of applicable law, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE XII. AMENDMENTS Unless otherwise prescribed by law or the charter, these Bylaws may be amended or altered at any meeting of the Board of Directors by affirmative vote of a majority of the directors. Unless otherwise prescribed by law or the charter, the shareholders entitled to vote in respect of the election of directors, however, shall have the power to rescind, amend, alter or repeat any Bylaws and to enact Bylaws which, if expressly so provided, may not be amended, altered or repealed by the Board of Directors. EX-11 3 Part IV LOWE'S COMPANIES, INC. AND SUBSIDIARY COMPANIES EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS Amounts in thousands, except per share amounts
Years ended January 31, 1995 1994 1993 Earnings per Common & Common Equivalent Share: Net Earnings $223,560 $131,786 $84,720 Weighted Average Shares Outstanding 154,844 147,147 145,873 Dilutive Effect of Common Stock Equivalents 82 251 279 Weighted Average Shares, as Adjusted 154,926 147,398 146,152 Earnings per Common & Common Equivalent Share $1.44 $.89 $.58 Earnings per Common Share - Assuming Full Dilution: Net Earnings $223,560 $131,786 $84,720 Interest (After Taxes) on Convertible Debt 7,696 4,058 0 Net Earnings, as Adjusted $231,256 $135,844 $84,720 Weighted Average Shares Outstanding 154,844 147,147 145,873 Dilutive Effect of Common Stock Equivalents 82 238 279 Shares Added if All Debt Converted 10,995 5,848 0 Weighted Average Shares, as Adjusted 165,921 153,233 146,152 Earnings per Common Share - Assuming Full Dilution $1.39 $.89 $.58
EX-13 4 PART IV EXHIBIT 13 Lowe's Profile Lowe's Companies, Inc. is one of America's top thirty retailers, serving the do-it-yourself home improvement, home decor, home electronics, and home construction markets. Lowe's 336 stores serve customers in 21 states located mainly in the South Atlantic and South Central regions. In 1994 our average store did $18.8 million in sales. Our big stores averaged $22.6 million in sales. At year-end, our retail sales space totaled approximately 18.6 million square feet. Our employees numbered 37,555. Lowe's has been a publicly owned company since October 6, 1961. Our stock has been listed on the New York Stock Exchange since December 19, 1979; on the Pacific Stock Exchange since January 26, 1981; and on the London Stock Exchange since October 6, 1981. Shares are traded under the ticker symbol LOW. Raise your hand if just a couple of years ago you thought the Information Highway would never run past your door. In America in the Nineties, the accelerating accessibility of information affects us all, every day. Lowe's loves the Nineties, and we choose to be not merely active but Interactive, putting the marvelous tools of this amazing age to work in the service of our customers. Interactive videos demonstrate home improvement techniques in our stores. Computer-assisted design programs help our customers plan complex projects. Special orders are transmitted by satellite. Millions of items flow through our distribution centers to the electronic orchestration of integrated systems. And through our increasing presence on cable TV, whether we're sponsoring a race car, a gardening show, or a home safety special, Lowe's is welcomed daily into millions of American homes. We want to take this opportunity to give our shareholders our address on the Internet. We have a World Wide Web site under construction; meanwhile, you can send us e-mail at lowesco@aol.com. Rx for DIY'ers: HGTV! Do you think that TV programming devoted to home and garden still means a half-hour local show at 5 a.m. with the production values of a fifth grade play and the signal strength of a gerbil on a treadmill? Get in the now, dude! As cable service spreads into practically every nook and cranny of the American landscape, cable subscribers are finding that they can choose from ever-widening variety of high-quality special interest programming. Last December the ranks of cable networks expanded to include Home & Garden Television (HGTV), a 24-hour network dedicated to home building and remodeling, gardening, decorating, home electronics, and other topics dear to the hearts of Lowe's customers. Lowe's is playing a major role in the development of HGTV, sponsoring a one- hour block of programming which airs during prime time on weekdays and on Saturday mornings. "At Home With Lowe's" features a variety of half-hour shows including "The House Doctor," "Klutz Around the House," "Jane Nugent's Garden Party," and "Kitty Bartholemew: You're Home." Based in Knoxville, Tennessee, HGTV is currently reaching more than 6.5 million homes. It was recently rated in a trade publication as one of the "Ten Most Likely to Succeed" from among dozens of new cable channels. What's six times the size of a Lowe's superstore, has 150 doors, contains five miles of conveyors, and employs more than 300 people? It's Lowe's distribution center in North Vernon, Indiana. Why is it good news for shareholders? Because Lowe's distribution system is a source of strategic advantage. Our distribution centers (d.c.'s) support Lowe's expansion. They enable us to buy in larger volume, supply our stores with exactly the products they need, and reduce labor costs because stores handle fewer shipments from individual vendors. The Indiana d.c. is a new prototype for Lowe's, featuring unique integrated systems for sorting, conveyance, receiving, replenishing, order picking, and shipping. The "carousel pick-and-pack" may sound like a carnival ride, but it's a computer driven system that helps us ship precise quantities instead of whole cases, thereby reducing the carrying costs of store inventory. In addition to the Indiana center, Lowe's has d.c.'s in Villa Rica, Georgia and North Wilkesboro, North Carolina. This year we will break ground for two new centers on the Indiana model - one in Texas and the other in North Carolina. Lowe's home improvement warehouses give our customers instant access to more than 40,000 items. But it's not enough. There are millions of products out there, manufactured by our vendor partners to satisfy every imaginable consumer need or desire. Unfortunately, even the largest store can't keep them all in inventory. What's an interactive retailer to do? S.O.S! S.O.S! Exactly. Lowe's Special Order System (S.O.S.) provides quick, convenient access to hundreds of thousands of products for both our contractor and do-it- yourself customers. By managing transactions at a project level, our custom- designed S.O.S. software makes it easy to buy in-stock merchandise and special order items at the same time. With all orders "pasted" to a numbered project, and with follow-up tracking built in, we are maximizing efficiency and minimizing the chance that an order might be lost. Here's how it works. Let's say a customer is doing a major bath-room renovation. A special order for a whirlpool bath is entered into a Lowe's store computer. From there it's sent by satellite to a mainframe in North Wilkesboro and subsequently to the manufacturer through electronic data interchange (EDI). The manufacturer ships the order to the Lowe's store or directly to the customer. The invoice is transmitted to Lowe's general office in North Wilkesbor, where it gets paid by an electronic transfer of funds. Voila! Satisfaction all around. "Strike up the band!" And send them to Pasadena for the Tournament of Roses Parade! There's no more cherished invitation on any band's calendar. But Pasadena is a long way from Mahomet, Illinois: it takes a whole year and lots of band candy to raise money to go. When Lowe's heard that the Marching Bulldogs of Mahomet-Seymour High School had been invited to Pasadena, we wanted to help. Enter Lowe's Charitable and Educational Foundation, which has been supporting worthy efforts in Lowe's communities since 1957. From marching bands to local fire departments to environmental initiatives, if our customers care about it, so does Lowe's. "How do I interact with thee? Let me count the ways..." Lowe's relationship with our vendor partners is interactive in so many ways that it could never be contained in a sonnet. For instance, Anchor Swan, Phillips Consumer Electronics, and Water Ace are three of our most recent Suppliers of the Year; they are also secondary sponsors of "At Home With Lowe's" on HGTV. The Stanley Works and Larson Manufacturing are both primary sponsors of "At Home With Lowe's;" they are also charter members of Lowe's Home Safety Council. Armstong and Osram Sylvania, Inc. are LHSC charter members too, and - - you've got it! They are also Suppliers of the Year! Roll the highlight tape for Lowe's Home Safety Council, 1994 - a year of outreach and infrastructure. Lowe's Home Safety Council actively supports community efforts such as fire safety houses operated by local fire departments. The council also sends home safety experts into selected homes to help families make their environments more injury-proof. In 1994 one high-profile "safety makeover" was given to the Dilley family of Indianapolis, whose growing sextuplets posed some interesting challenges to home safety. In October a one-hour television special called "Safety Watch: Is Your Home A Danger Zone?" aired in 13 media markets primarily in the Southeast. Hosts MacLean Stevenson and Loretta Swit helped viewers identify hidden hazards in the home and discussed safe alternatives and preventive techniques. Viewership was estimated in the millions. The council's world-class Board of Directors includes the Honorable Lamar Alexander, former U.S. Secretary of Education; Meredith K. Appey of the Nat'l. Fire Protection Association; Dr. Catherine Burns of the Nat'l. Assoc. of Pediatric Nurse Associates and Practitioners; Malcolm Candlish of BRK Brands/First Alert; Mary Ellen Fise of the Consumer Federation of America; Kathleen Henning of the Nat'l. Assoc. of Search and Rescue; Diane Imhulse of the Nat'l. Safety Council; the honorable Jack Kemp, former U.S. Secretary of HUD; Chief Dennis Martin of the Nat'l. Assoc. of Chiefs of Police; Officer Joseph McCaffrey of the American Federation of Police; Dr. Louis Sullivan, former U.S. Secretary of Health and Human Services; Gaylord Walker of the Nat'l. Child Safety Council; Michael Werner of Werner Ladder Company; and Leonard G. Herring, W. Cliff Oxford, and Robert L. Strickland of Lowe's. The council's plans for 1995 include the continuing installation of Safety Watch kiosks in our stores, the development of a home safety curriculum for school-age children, the increasing spread of information through the 1-800-4 SAFE HOME telephone line, and the further use of television as a major medium for home safety education. The ongoing mission of Lowe's Home Safety Council is to make every year "The Year of Living Safely." In 1961 Archie Fain of Providence, Rhode Island bought 500 original shares of Lowe's stock on the advice of Gordon Cadwgan, a founding member of our Board of Directors who helped take the company public that year. "Lowe's was a new issue," Fain recalls. "I understood it was a well-run chain of hardware stores that wanted to expand, so I bought 500 shares for my family - my son and daughter, my wife, and myself." Last year Fain celebrated his 90th birthday and his 33rd year as a Lowe's shareholder partner. Over the years, his original 500 shares have turned into 60,000 through stock splits and dividends. Since his retirement, Fain regularly spends winters in Sarasota, Florida. Although he makes the trip by jet these days, he used to drive down from Rhode Island, and he always made a point of visiting at least one Lowe's store on his way south. "I'll never forget an experience I had several years ago at a Lowe's store in South Carolina," he says. "I told the manager that I was a Lowe's shareholder and would like to ask him a few questions. He said he would do his best to answer them. "Then I told him a little more about my stock in the company. 'Well,' he said, pointing out the store window, `do you see that driver in the Lowe's truck? He owns about the same number of shares as you!' "When the employees of a company are its shareholders too, and everyone is working for the future, you've got great potential." Long-range thinking may well be one key to Archie Fain's longevity. It has certainly worked wonders for his portfolio! When asked what advice he would give to investors today, he says "Of course it all depends on your individual circumstances and goals. But if you're looking for a well-run company with a promising future, I would still recommend Lowe's." Independent Auditors' Report To the Board of Directors and Shareholders of Lowe's Companies, Inc. We have audited the accompanying consolidated balance sheets of Lowe's Companies, Inc. and subsidiaries as of January 31, 1995, 1994 and 1993, and the related consolidated statements of current and retained earnings and cash flows for the fiscal years then ended. 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 generally accepted auditing standards. 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 Lowe's Companies, Inc. and subsidiaries at January 31, 1995, 1994 and 1993, and the results of their operations and their cash flows for the fiscal years then ended in conformity with generally accepted accounting principles. Deloitte & Touche LLP Charlotte, North Carolina February 20, 1995 Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction This discussion summarizes the significant factors affecting Lowe's consolidated operating results, financial condition and liquidity/cash flows during the three-year period ended January 31, 1995 (i.e., Fiscal 1994,1993, and 1992). This discussion should be read in conjunction with the Letter to Shareholders, financial statements and financial statement footnotes included in this annual report. Lowe's embarked upon a large store prototype expansion program beginning in 1989 and furthered this commitment by recording a one-time restructuring charge in Fiscal 1991 of $71.3 million pre-tax to cover expected costs and expenses incident to this expansion program. This transformation from small stores into home improvement destination centers, coupled with "dominant inventory assortments," will continue to enhance our growth. We ended 1994 with 336 stores and 18.6 million square feet of selling space. This compares to 311 stores and 14.2 million square feet and 303 stores and 10 million square feet for the two prior years. We are particularly pleased with the transformation process and performance of our new destination centers in terms of sales and their contributions to overall profits. Net earnings measured to sales were 3.7%, an achievement not seen since 1976 when earnings were reported on a FIFO (first-in, first out) basis of accounting. In addition, the return on beginning assets of 10.2% was the highest since 1984. Return on beginning shareholders' equity was 25.6%, the highest since 1974. Store performance perspective in terms of units, sales and operating profits is depicted in Tables 1-3. Expansion plans for 1995 envision about 50 to 55 new stores with 60% in new markets and the balance in relocations for approximately 5.3 million square feet of additional retail space. Approximately one half of the 1995 projects will be leased and one half will be owned. Distribution capabilities are a central component of Lowe's operating strategy. At year-end, we operated three distribution centers (d.c.'s) and seven smaller support facilities, three of which are reload centers only. One of the three, a high-tech operation, became fully functional in the third quarter. In addition, a new d.c. of approximately 775,000 square feet is expected to be operational in early 1996 with a second d.c. of approximately 950,000 square feet expected to become operational shortly thereafter. This distribution expansion program will support our ongoing store expansion. Operations Record sales of $6.11 billion were achieved during 1994, a 35% increase over 1993 sales of $4.54 billion. Sales for 1993 were 18% higher than 1992 levels. These increases are attributable to customer receptiveness to the large stores with their dominant inventory assortment, everyday competitive prices and enhanced customer service. Growth in disposable personal income and decreases in unemployment have been good indicators of increased sales performance for Lowe's. The 1995 outlook is favorable in our market area for each of these economic indicators. However, as we begin 1995 the interest rate environment is less favorable. Gross margin improved to 24.8% from 23.8% in 1993. An everyday competitive pricing (ecp) strategy was implemented during 1992, causing a temporary margin reduction to 23.4% from the preceding year. The ecp strategy working in tandem with our large store marketing strategy creates higher sales volumes and margin dollars. LIFO charges reduced margins by 1, 34 and 25 basis points for 1994,1993 and 1992, respectively. Had inventory costs been stated on a FIFO basis, year-end inventory totals would have been $65.0, $64.5 and $49.0 million higher for these years. Selling General and Administrative (SG&A) expenses for 1994 were $941.0 million or 15.4% of sales. This tracks favorably with each of the two previous years of 15.8% and 16.7% to sales, respectively. Carefully managed cost containment measures and leverage on higher sales volumes were the major contributions to this favorable trend. Store opening costs were $40.7 million for 1994. These costs were $29.3 and $11.0 million for 1993 and 1992, respectively. These costs currently average about $800 thousand per store. Projected costs for 1995 could grow somewhat higher as store openings in new markets grow as a percentage of the total. Depreciation, reflecting continuing fixed asset expansion, increased 36% to $109.6 million. A 15% increase for l993, which was computed from a prior year base of $69.8 million, was in line with expectations. Depreciation for these years has maintained a percentage to sales of approximately l.8%. About one half of new stores for 1994 and 1993 are leased, whereas previously more than half were owned. Employee retirement plans expenses for 1994 were $49.7 million or .8% to sales. This cost is consistent with .8% and .9% for each of the two previous years. A lower eligibility rate for plan participation, resulting from more new hires relating to expansion, accounts for maintaining a favorable percentage relative to sales for each of the years. See Note 10 to the financial statements for further disclosure. Interest costs were $27.9 million (.5% to sales), a 52% increase above 1993. Interest costs were $15.6 million for 1992. Interest costs trended upward during 1994 while near historic lows in borrowing rates were prevalent for each of the two prior years. See Note 6 to the financial statements for particulars on long-term indebtedness and discussion below on liquidity and capital resources. Cash dividends paid to common shareholders were $27.4, $23.6 and $21.2 million in 1994, 1993 and 1992, respectively. Lowe's has paid cash dividends each quarter since becoming a public company in 1961. At January 31, 1995 there were 9,765 shareholders of record. Refer to the Stock Performance Chart on page 28 for further particulars on dividends and stock performance. Balance Sheet Management Effective inventory turnover is a result of good product management. (Lowe's calculates "turn" by using cost of sales as the numerator and divides by the average of beginning inventory plus the subsequent four quarters' ending inventories.) In l994 Lowe's inventory turned 4.7 times, comparable to 4.7 turns in 1993 and 4.6 turns in 1992. Accounts receivable totaled $109 million at January 31, 1995 compared to $49 million for 1993 and $53 million for 1992. In 1992, an undivided fractional interest in a designated pool of receivables was sold, with this program continuing into 1993 and 1994. Because of the Company's surplus cash position during the middle of 1994, management decided to carry the receivables in lieu of continuing with the "pool sales program" in effect at that time. Management reinstated this program during January of 1995. Fees associated with this program are recorded in SG&A expenses. For more details, see Note 2 to the financial statements. Property, less accumulated depreciation increased 37% to $1.40 billion for 1994. In 1993 it increased 30% over 1992 levels. The majority of the increase stems from superstore investment, including point-of-sale equipment, fixtures and displays. Other assets primarily consist of land and buildings relating to vacated stores which are available for sale or lease. These properties are carried at their net realizable value. At January 31, 1995, this value was approximately $42 million. One year ago, vacated properties were valued at $44 million. At year-end, seven properties having a book value of approximately $8.5 million were under contract to be sold. Notes receivable relating to sales of excess properties were $7 million at year-end, up $4 million from the previous year. Investments in low income housing at January 31,1995 were $11 million compared to $7 million for the previous year. Accounts payable, the major financing source for inventory, financed 60% of 1994 year-end inventory compared to 55% for 1993 and 56% for 1992. This increase is the result of changes in inventory product mix and improved payment terms from vendors. Long-term debt, excluding current maturities, at January 31, 1995 was $681.2 million, up 15% from 1994. During 1993, $287.5 million 3% Convertible Subordinated Notes were issued at a discount, raising $250 million. Medium-term notes were issued in both 1993 and 1992 after the early retirement of our long-term debt carrying double-digit interest rates. In 1992, most short-term debt was eliminated with this trend carrying over into 1993 and 1994. Further details on long-term financing can be found in Note 6 to the financial statements. The special one-time restructuring charge is addressed at the beginning of this MD&A, and more specifically in No(e 15 to the financial statements. Charges against the restructuring accrual associated with relocating and closing stores were $19.7, $19.0 and $16.6 million for 1994,1993 and 1992, respectively. The remaining restructuring accrual (short-term and long-term) at January 31,1995 was $13.8 million. Charges against this accrual for 1995 will complete the restructuring program. Shareholders' equity continues to finance the largest portion of assets. Total shareholders' equity increased by $546.2 million in 1994 and financed 45.7% of assets at January 31,1995. This compares to 39.7% for 1993 and 45.6% for 1992. (See Note 11 to the financial statements for further particulars of the 1994 stock offering and related comments under "working capital" below.) Financial Management Liquidity and Capital Resources Primary sources of liquidity are cash fLows from operating activities and certain financing activities. Information on consolidated cash flows (operating, financing and investing activities) is set forth in the Statements of Cash Flows on page 18. Working capital at January 31,1995, was $611.3 million as compared to $402.7 million at January 31,1994, and $245 9 million at January 31,1993. Financing activities include the sale of 10,350,000 shares of Lowe's common stock under the shelf registration discussed below. The Company received proceeds, net of the underwriting discount and other costs, of $315.7 million. The proceeds are being used to finance the Company s large store expansion program and for general corporate purposes. The following schedule depicts working capital debt activity (except for debt associated with certain real property acquisitions in the normal course of business): During 1994, Lowe's did not issue any long-term debt. During 1993, Lowe's issued the following long-term debt: $32 million medium-term notes issued in February 1993; and $287.5 million aggregate (net $250 million) principal 3% Convertible Subordinated Notes, issued at a discount in July 1993. During 1992, Lowe's issued the following long-term debt: $218 million medium-term notes issued in the last three quarters During 1994, Lowe's reduced long-term debt as follows: $41.5 million of scheduled miscellaneous repayments. During 1993, Lowe's reduced long-term debt as follows: $6.3 million of scheduled miscellaneous repayments. During 1992, Lowe's reduced long-term debt as follows: Redeemed $27.8 million, 11.5% unsecured notes; and $8.4 million of scheduled miscellaneous repayments. During 1994, 1993, and 1992, the Company entered into various leases for new store facilities. Several of these leases were classified as capital leases, the result of which is to increase long-term debt. Amounts classified as capital leases were $104.2 million, $29.3 million and $24.6 million for 1994, 1993 and 1992, respectively. Major uses of cash continue to be investments in new store facilities. In 1994, capital investment was $529 million (cash outlays of $414 million plus capital leases of $104 million and like-kind exchanges of $ 11 million) which did not include operating leases of $113 million. Lowe's 1995 capital budget is targeted between $810 and $835 million, inclusive of approximately $238 million of operating or capital leases. Over 80% of this planned commitment is for store expansion. Present plans are to finance 1995's expansion program through funds from operations, operating leases, issuance of about $40 million of common stock to the Employee Stock Ownership Plan and from external financing. During 1994, the Company filed with the Securities and Exchange Commission a shelf registration statement covering $500 million of "unallocated" debt or equity securities. At January 31, 1995, an uncommitted aggregate of $ 174 million was available under the shelf registration. This registration enables the Company to issue common stock, preferred stock, senior unsecured debt securities or subordinated unsecured debt securities from time to time. Short-term capital needs will be financed through utilization of Lowe's bank credit agreements and commercial paper program. Formal bank credit agreements in place are discussed in Note 5 to the financial statements. The ratio of long-term debt to equity plus long-term debt was 32.4%, 40.4% and 30.0% with fixed charge coverage at 6.8, 6.5 and 5.7 for 1994, 1993 and 1992, respectively. Other General inflation has not had a significant impact on Lowe's during the past three years. With the exception of certain building commodity products, deflation has been experienced in most product groupings. Lumber products have experienced more price volatility than other building commodities due to variability of demand and supply plus environmental concerns. Inflation/(deflation) rates experienced by lumber products were (0.4%), 12.0% and 9.7% for 1994, 1993 and 1992, respectively. Store Performance Perspective To further enhance understanding and analysis of the relative pace, progress, and performance of our new family of stores, compared to two older and smaller store groups, we are providing the following tables. Table 1 Store Group Unit Totals, Average through Fourth Quarter
1994 1993 1992 % of % % of % % of Total Change Units Total Change Units Total Units Small (1) 20% (14)% 66 25% (22)% 77 32% 99 Medium (2) 23 (22) 73 31 (17) 94 37 113 Large (3) 57 40 % 187 44 44 % 134 31 93 Total 100% 326 100% 305 100% 305 Table l Comments: The small stores average less than 7,500 square feet of sales floor, and represent 20% of the total units. The medium stores stem from our l984-1988 expansion, and average about 23,000 square feet. A few small and medium stores have been converted into focused contractor yards. The 24 contractor yards are included in our small store totals. The large stores average about 80,000 square feet, with our current prototypes being 85,000 to 11 S .000, plus large garden centers. Table 2 Sales Contribution by Store Group, YTD Fourth Quarter 1994 1993 1992 % of % % of % % of Total Change Total Change Total Small (1) 13% 1 % 18% (10)% 23% Medium (2) 18 (16) 28 (11) 37 Large (3) 69 72 % 54 62 % 40 Total 100% 100% 100% Table 2 Comments: The results shown in Table 2 need to be read in conjunction with the changing store numbers in Table 1 because these are aggregate totals, not comparable store results. The sales increase of only 1% for the small group and the 16% sales decrease in the medium group, is attributable to their reduction in number. The small stores and contractor yards posted a 17% average sales gain as higher volume contractor yards became a larger percentage of this group. Medium-size stores, on average, achieved a 9% sales gain. The average large store's sales increase of 24%, combined with their numerical increase, provided 69% of total sales, up from 40% just two years ago. Table 3 Operating Profits * by Store Group, YTD Fourth Quarter 1994 1993 1992 % of % % of % % of Total Change Total Change Total Small (1) 11% 7% 15% 12 % 20% Medium (2) 18 (9) 30 12 39 Large (3) 71 91% 55 96 % 41 Total 100% 100% 100% * Profits before corporate expense and intercompany charges, interest, restructuring. LIFO and income taxes Table 3 Comments: Here's the report card on profitability and growth Again, these are not comparable store results but group totals. The 66 small stores and yards, on average, improved their profit contribution over the average of last year's 77 by 24%. These units are low-cost operations including some "cash cows" and our focused contractor yards, and are obviously able to do well in this business climate. The 73 mid-sizers are stores of the mid-80's. Their average sales per store average 17% higher than that of the small stores and they too, on average, increased their profit over last year. The 187 large stores are designed for our customers of the 90's and these results are gratifying. With average sales per store 83% higher than the average small store, and their average operating profits 128% greater than the average of the small stores, the large stores contributed 71% of the year's operating profits while contributing 69% of sales With further reference to Table 3, we are pleased to advise that operating profits are determined with consistency period-to-period, and without any subsidization of stores or groups. Therefore, the performance shown in Table 3 is a hard proxy for the relative pre-tax profit contribution of these store groups. 1994 1993 1992 Total Sq.Ft. Total Sq.Ft. Total Sq.Ft. (000,000) (000,000) (000,000) (1) Pre 1984 Stores; Contractor Yards: Avg 7,440 Sq.Ft. .5 .6 .9 (2) '84-'88 Stores Avg. 23,213 Sq.Ft. 1.5 2.0 2.6 (3) Post '88 Expansion Stores: Avg. 80,135 Sq.Ft. 16.6 11.6 6.5
CONSOLIDATED STATEMENTS OF CURRENT AND RETAINED EARNINGS Lowe's Companies, Inc. and Subsidiary Companies Dollars In Thousands, Except Per Share Data
FISCAL % FISCAL % FISCAL % Fiscal Years End on January 31 of Following Year 1994 SALES 1993 SALES 1992 SALES Current Earnings Net Sales $6,110,521 100.0% $4,538,001 100.0% $3,846,418 100.0% Cost of Sales 4,597,977 75.2% 3,456,717 76.2% 2,945,753 76.6% Gross Margin 1,512,544 24.8% 1,081,284 23.8% 900,665 23.4% Expenses: Selling, General and Administrative 941,079 15.4% 717,028 15.8% 642,799 16.7% Store Opening Costs 40,727 0.7% 29,251 0.6% 10,983 0.3% Depreciation 109,647 1.8% 80,530 1.8% 69,820 1.8% Employee Retirement Plans (Note 10) 49,687 0.8% 37,873 0.8% 35,572 0.9% Interest (Notes 7 and 16) 27,873 0.5% 18,278 0.4% 15,599 0.4% Total Expenses 1,169,013 19.1% 882,960 19.5% 774,773 20.1% Pre-Tax Earnings 343,531 5.6% 198,324 4.4% 125,892 3.3% Income Tax Provision (Note 9) 119,971 2.0% 66,538 1.5% 41,172 1.1% Net Earnings $ 223,560 3.7% $ 131,786 2.9% $ 84,720 2.2% Shares Outstanding - Weighted Average 154,926 147,398 146,152 Earnings Per Common & Common Equivalent Share $ 1.44 $ 0.89 $ 0.58 Earnings Per Common Share - Assuming Full Dilution $ 1.39 $ 0.89 $ 0.58 Per Per Per Retained Earnings (Notes 6 and 11) Amount Share Amount Share Amount Share Balance at Beginning of Year $ 596,764 $ 489,033 $ 425,526 Net Earnings 223,560 1.44 131,786 1.44 84,720 1.44 Cash Dividends (Notes 6 and 11) (27,433) (0.18) (23,571) (0.18) (21,153) (0.18) Stock Split 0 (484) (60) Balance at End of Year $ 792,891 $ 596,764 $ 489,033 See accompanying notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS Lowe's Companies, Inc. and Subsidiary Companies Dollars in Thousands
Fiscal % Fiscal % Fiscal % Fiscal Years End on January 31 of Following Year 1994 Total 1993 Total 1992 Total Assets Current Assets: Cash and Cash Equivalents $ 150,319 4.8% $ 73,25 3.3% $ 48,94 3.0% Short-Term Investments 118,155 3.8% 35,215 1.6% 5,900 0.4% Accounts Receivable - Net (Note 2) 109,214 3.5% 48,500 2.2% 53,288 3.3% Merchandise Inventory (Note 3) 1,132,282 36.5% 853,707 38.8% 594,195 36.9% Deferred Income Taxes (Note 9) 18,129 0.6% 12,300 0.6% 8,512 0.5% Other Current Assets (Note 13) 29,069 0.9% 60,932 2.8% 34,710 2.2% Total Current Assets 1,557,168 50.1% 1,083,907 49.2% 745,554 46.3% Property, Less Accumulated Depreciation (Notes 4 and 6) 1,397,713 45.0% 1,020,234 46.3% 787,197 48.9% Long-Term Investments (Note 8) 83,459 2.7% 40,408 1.8% 23,270 1.4% Other Assets 67,652 2.2% 57,099 2.6% 52,856 3.3% Total Assets $3,105,992 100.0% $2,201,648 100.0% $1,608,877 100.0% Liabilities and Shareholders' Equity Current Liabilities: Short-Term Notes Payable (Note 5) $ 1,903 0.1% $ 2,281 0.1% $ 3,193 0.2% Current Maturities of Long-Term Debt (Note 6) 26,913 0.9% 49,547 2.3% 21,721 1.4% Accounts Payable 675,436 21.7% 467,278 21.2% 330,584 20.5% Employee Retirement Plans (Note 10) 43,950 1.4% 34,422 1.6% 32,038 2.0% Accrued Salaries and Wages 63,356 2.0% 45,883 2.1% 39,472 2.5% Other Current Liabilities 134,334 4.3% 81,765 3.7% 72,626 4.5% Total Current Liabilities 945,892 30.5% 681,176 30.9% 499,634 31.1% Long-Term Debt, Excluding Current Maturities (Note 6) 681,184 21.9% 592,333 26.9% 313,562 19.5% Deferred Income Taxes (Note 9) 49,211 1.6% 26,165 1.2% 16,517 1.0% Accrued Store Restructuring Costs (Note 15) 9,815 0.3% 28,305 1.3% 45,944 2.9% Total Liabilities 1,686,102 54.3% 1,327,979 60.3% 875,657 54.4% Commitments, Contingencies and Litigation (Notes 13 and 14) Shareholders' Equity (Notes 6, 11 and 12): Common Stock - $.50 Par Value; Fiscal Issued and Outstanding 1994 159,527,389 1993 147,886,770 1992 145,945,916 79,764 2.6% 73,943 3.4% 72,973 4.5% Capital in Excess of Par 554,838 17.9% 202,962 9.2% 171,214 10.6% Retained Earnings 792,891 25.5% 596,764 27.1% 489,033 30.4% Unearned Compensation-Restricted Stock Awar (5,949) -0.2% Unrealized Loss on Available For Sale Securities, Net of Income Taxes (1,654) -0.1 Total Shareholders' Equity 1,419,890 45.7% 873,669 39.7% 733,220 45.6% Total Liabilities and Shareholders' Equity $3,105,992 100.0% $2,201,648 100.0% $1,608,877 100.0% See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS Lowe's Companies, Inc. and Subsidiary Companies Dollars in Thousands
Fiscal Fiscal Fiscal Fiscal Years End on January 31 of Following Year 1994 1993 1992 Cash Flows From Operating Activities: Net Earnings $223,560 $131,786 $84,720 Adjustments to Reconcile Net Earnings to Net Cash Provided By Operating Activities: Depreciation 109,647 80,530 69,820 Amortization of Original Issue Discount 3,205 1,615 0 Increase in Deferred Income Taxes 18,108 5,860 8,231 Loss on Disposition/Writedown of Fixed and Other Assets 5,924 8,969 1,929 Decrease (Increase) in Operating Assets: Accounts Receivable - Net (60,714) 4,788 62,451 Merchandise Inventory (278,575) (259,512) 8,600 Other Operating Assets 31,170 (26,186) (20,352) Increase (Decrease) in Operating Liabilities: Accounts Payable 208,158 136,694 22,770 Employee Retirement Plans 41,257 32,937 4,173 Accrued Store Restructuring (10,000) (8,905) (10,765) Other Operating Liabilities 67,236 17,123 19,173 Net Cash Provided by Operating Activities 358,976 125,699 250,750 Cash Flows from Investing Activities: Decrease (Increase) in Investment Assets: Short-Term Investments (83,374) (29,315) (1,174) Purchases of Long-Term Investments (74,614) (41,714) (12,500) Proceeds from Sale/Maturity of Long-Term Invest 29,452 24,576 580 Other Long-Term Assets (2,438) 1,645 (2,213) Fixed Assets Acquired (414,103) (336,888) (243,262) Proceeds from the Sale of Fixed and Other Long-Term Assets 15,179 27,641 9,642 Net Cash Used in Investing Activities (529,898) (354,055) (248,927) Cash Flows from Financing Activities: Sources: Long-Term Debt Borrowings 500 281,915 217,969 Net Decrease in Short-Term Borrowings (378) (912) (140,640) Net Proceeds from Issuance of Common Stock 315,697 Stock Options Exercised 1,100 1,504 1,019 Total Financing Sources 316,919 282,507 78,348 Uses: Repayment of Long-term Debt (41,498) (6,276) (36,157) Cash Dividend Payments (27,433) (23,571) (21,153) Total Financing Uses (68,931) (29,847) (57,310) Net Cash Provided by Financing Activities 247,988 252,660 21,038 Net Increase in Cash and Cash Equivalents 77,066 24,304 22,861 Cash and Cash Equivalents, Beginning of Year 73,253 48,949 26,088 Cash and Cash Equivalents, End of Year $150,319 $73,253 $48,949 See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LOWE'S COMPANIES, INC. AND SUBSIDIARY COMPANIES FISCAL YEARS ENDED JANUARY 31, 1995, 1994 AND 1993 NOTE 1 - Summary of Significant Accounting Policies: The Company is one of America's largest retailers serving the do-it-yourself home improvement, home decor, and home construction markets. Below are those accounting policies considered to be significant. Subsidiaries and Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All material intercompany accounts and transactions have been eliminated. Cash and Cash Equivalents - Cash and cash equivalents include cash on hand, demand deposits, and short-term investments that are readily convertible to cash within three months of purchase. Investments - The Company has a cash management program which provides for the investment of excess cash balances in financial instruments which have maturities of up to three years. Investments that are readily convertible to cash within three months of purchase are classified as cash equivalents. Investments with a maturity of between three months and one year are classified as short-term investments. Investments with maturities greater than one year are classified as long-term. Investments consist primarily of tax exempt notes and bonds, auction rate tax exempt securities, municipal preferred tax exempt stock and eurodollar time deposits. Effective February 1, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities", which stipulates that debt securities not classified as held-to-maturity securities and all equity securities will be carried at fair value. Unrealized gains and losses on such securities will be included in earnings if the securities are classified as trading securities and will be excluded from earnings and reported as a separate component of shareholders' equity, net of the related income taxes, until realized if classified as available-for-sale. Debt securities classified as held-to- maturity securities will be carried at amortized cost. The Company has classified all investment securities as available-for-sale. Derivatives - Interest rate swap agreements, which are principally used by the Company in the management of interest rate exposure, are accounted for on an accrual basis. Income and expense are recorded in the same category as that arising from the related liability. Amounts to be paid or received under interest rate swap agreements are recognized as interest income or expense in the periods in which they accrue. Premiums paid for purchased interest rate cap agreements are being amortized to interest expense over the terms of the caps. Unamortized premiums are included in other assets in the consolidated balance sheet. Amounts to be received under the cap agreements are accounted for on an accrual basis, and are recognized as a reduction of interest expense. Accounts Receivable - The majority of the accounts receivable arise from sales to professional building contractors principally in the South Atlantic and South Central regions of the United States. The allowance for doubtful accounts is based on historical experience and a review of existing receivables. Sales generated through the Company's private label credit card are not reflected in receivables. These receivables are sold, without recourse, to an outside finance company. Merchandise Inventory - Inventory is stated at the lower of cost or market. In an effort to more closely match cost of sales and related sales, cost is determined using the last-in, first-out (LIFO) method. Included in inventory cost are administrative, warehousing and other costs directly associated with buying, distributing and maintaining inventory in a condition for resale. Property and Depreciation - Property is recorded at cost. Costs associated with major additions are capitalized and depreciated. Upon disposal, the cost of properties and related accumulated depreciation is removed from the accounts with gains and losses reflected in earnings. Depreciation is provided over the estimated useful lives of the depreciable assets. Assets are generally depreciated on the straight-line method. Leasehold improvements are depreciated over the shorter of their estimated useful lives or term of the related lease. Leases - Assets under capital leases are amortized in accordance with the Company's normal depreciation policy for owned assets or over the lease term if shorter. The charge to earnings resulting from amortization of these assets is included in depreciation expense in the consolidated financial statements. Income Taxes - Income taxes are provided for temporary differences between the tax and financial accounting bases of assets and liabilities using the liability method. The tax effects of such differences are reflected in the balance sheet at the tax rates expected to be in effect when the differences reverse. Store Pre-opening Costs - Costs of opening new retail stores are charged to operations as incurred. Store Closing Costs - Upon closing or relocating a store, costs considered to be unrecoverable, such as the book value of leasehold improvements and the estimated loss on sale of land and building, are charged to expense. The Company also records a provision for the present value of future lease obligations, net of sub-lease income. The estimated net realizable value of closed store real estate owned is included in other assets. See Note 15 regarding store restructuring accrual in Fiscal 1991. Employee Retirement Plans - Since 1957 the Company has maintained benefit plans for its employees as described in Note 10. The plans are funded annually. Earnings Per Share - Earnings per share are calculated on the weighted average shares of common stock and dilutive common stock equivalents outstanding each year. The Company's 3% Convertible Subordinated Notes due July 22, 2003, are potentially dilutive securities for purposes of calculating fully diluted earnings per share. NOTE 2 - Accounts Receivable The Company has an agreement to sell, with limited recourse, an undivided fractional interest in a designated pool of receivables. Under the agreement, as collections reduce previously sold interests in receivables, an interest in new receivables may be sold. At January 31, 1995, 1994 and 1993, the interest in receivables sold totaled $38.5, $121.9 and $107.3 million, respectively. Due to hold-back provisions of the agreement, the Company was due $8.5, $31.9 and $27.3 million at January 31, 1995, 1994 and 1993, respectively, for interests sold. These receivables are included in Accounts Receivable - Net in the balance sheet. The cost associated with selling the interest in receivables was $1.7, $3.3 and $3.6 million for Fiscal 1994, 1993 and 1992, respectively. The Company maintains an allowance for doubtful accounts because it has retained substantially the same risk of credit loss as if the receivables had not been sold. The allowance for doubtful accounts was $2.3, $2.7, and $3.2 million at January 31, 1995, 1994, and 1993, respectively. NOTE 3 - Merchandise Inventory: If the FIFO method had been used, inventories would have been $65.0, $64.5 and $49.0 million higher at January 31, 1995, 1994 and 1993, respectively. NOTE 4 - Property and Accumulated Depreciation: Net property includes $159.0, $59.0 and $33.7 million in assets from capital leases for Fiscal 1994, 1993 and 1992, respectively. Property is summarized below by major class: January 31 1995 1994 1993 (Dollars in Thousands) Cost: Land $ 290,312 $ 224,551 $ 188,562 Buildings 686,737 478,373 421,620 Store and Office Equipment 666,885 500,811 371,002 Leasehold Improvements 98,217 113,287 86,756 Total Cost 1,742,151 1,317,022 1,067,940 Accumulated Depreciation and Amortization (344,438) (296,788) (280,743) Net Property (Note 13) $1,397,713 $1,020,234 $ 787,197 The estimated depreciable lives, in years, of the Company's property are: buildings, 20 to 40; store and office equipment, 3 to 10; leasehold improvements, generally the life of the related lease. NOTE 5 - Short-Term Borrowings and Lines of Credit: Several banks have extended lines of credit aggregating $158 million for the purpose of issuing documentary letters of credit and standby letters of credit. These lines do not have termination dates but are reviewed periodically. Commitment fees of .125% per annum are paid on the amounts used. At January 31, 1995, outstanding letters of credit aggregated $98 million. In addition $235 million is available, on an unsecured basis, for the purpose of short-term borrowings on a bid basis from various banks. These lines are uncommitted and are reviewed periodically by both the banks and the Company. At January 31, 1995, there were no amounts outstanding under these lines. NOTE 6 - Long-Term Debt: Fiscal Year Debt Interest of Final January 31 Category Rates Maturity 1995 1994 1993 (Dollars in Thousands) Secured Debt1: Insurance Company Notes 6.75% 1998 $ 414 $ 534 $ 1,323 Bank Notes 17 50 Industrial Revenue Bonds 833 1,133 Other Notes 8% to 10% 2005 561 663 770 Unsecured Debt: Industrial Revenue Bonds 3.75% to 6.46% * 2020 7,997 10,230 11,703 Industrial Revenue Bonds 2 3.65% * 2005 8,800 9,600 10,300 Medium Term Notes 36.50% to 8.20% 2022 249,972 249,966 217,959 Convertible Subordinated Notes 4 3.00% 2003 254,505 251,524 Bank Notes 5 4.95% to 5.11% * 1996 23,863 57,955 57,955 Capital Leases (Note 13) 6.58% to 11.56% 2033 161,985 60,558 34,090 Total Long-Term Debt 708,097 641,880 335,283 Less Current Maturities 26,913 49,547 21,721 Long-Term Debt, Excluding Current Maturities $681,184 $592,333 $313,562 * Interest rate varies as a percentage of prime rate or other interest index. Interest rates shown are as of January 31, 1995. Prime rate was 8.5% at January 31, 1995. Debt maturities, exclusive of capital leases (see Note 13), for the next five fiscal years are as follows (in millions): 1995, $23.1; 1996, $5.3; 1997, $13.3; 1998, $1.7 ; 1999, $46.5. Notes: 1 Real properties pledged as collateral for secured debt had net book values (in millions) at January 31, 1995, as follows: insurance company notes - $3.8 and other notes - $3.2. 2 The Company issued notes to secure $11.7 million floating rate monthly demand industrial revenue bonds in Fiscal 1985. The interest rates are tied to an interest index based on comparable securities traded at par and other pertinent financial market rates. With certain restrictions, the bonds can be converted to a fixed interest rate based on a fixed interest index at the Company's option. 3 In April 1992, the Company filed a shelf-registration with the Securities and Exchange Commission registering up to $250 million of Medium Term Notes to be issued in the future. The Company issued $218 million of these notes in Fiscal 1992. The remaining $32 million of these notes were issued in February 1993. The notes bear interest rates that range from 6.50% to 8.20% and are scheduled to mature from 1997 to 2022. 4 On July 22, 1993, the Company sold $287.5 million aggregate principal of its 3% Convertible Subordinated Notes due July 22, 2003. The notes are convertible into Lowe's Common Stock at the conversion rate of 38.32 shares of common stock per each $1,000 principal amount. The notes were issued at an original price of $880.27 per $1,000 principal amount, which represented an original issue discount of 11.973% payable at maturity. Annual interest on the notes at 3% and accretion of the original issue discount represents an annual yield to maturity of 4.5%. The notes are callable (subject to certain adjustments) at any time on or after July 22, 1996. During Fiscal 1994, $224,000 principal of the Company's 3% Convertible Subordinated Notes were converted into 8,570 shares of the Company's common stock. 5 The unsecured bank notes were obtained for the purpose of acquiring the Company's common stock to fund the ESOP. These notes require that certain financial conditions be maintained, restrict other borrowings, and limit the payment of dividends to $40 million during any one year. NOTE 7 - Derivative Financial Instruments: The Company has only limited involvement with derivative financial instruments, and does not use them for trading purposes. The Company enters into derivatives, exclusively interest rate swaps and caps, to lower funding costs or alter interest rate exposures for long-term liabilities. Interest rate swaps allow the Company to raise long-term borrowings at fixed rates and swap them into variable rates for shorter durations. This enables the Company to separate interest rate management from debt funding decisions. At January 31, 1995, the Company had 23 interest rate swap agreements outstanding with financial institutions, having notional amounts of $10 million each and a total notional amount of $230 million. Under the agreements, the Company will receive interest payments at an average fixed rate of 5.64% and will pay interest on the same notional amounts at a floating rate based on an interest rate index, which was 6.88% as of January 31, 1995. These interest rate swap agreements are scheduled to terminate as follows (in millions): 1995, $90; 1996, $90; 1997, $50. Interest rate cap agreements are used to reduce the potential impact of increases in interest rates on the interest rate swap agreements, discussed above. At January 31, 1995, the Company was a party to 23 interest rate cap agreements, each with terms tied to the terms of the interest rate swap agreements. The agreements entitle the Company to receive from counterparties on a semi-annual basis the amounts, if any, by which the Company's interest payments on its $230 million notional amount of interest rate swap agreements exceed approximately 75 basis points over the fixed rate on each swap. The Company is exposed to credit loss in the event of nonperformance by the counterparties to its interest rate swap agreements and interest rate cap agreements. The Company anticipates that counterparties will be able to fully satisfy their obligations under the agreements. The counterparties consist of a number of financial institutions whose credit ratings were AA or better at the time the agreements are instituted. No collateral is held in relation to the agreements. Credit exposure exists in relation to all the Company's financial instruments, and is not unique to derivatives. NOTE 8 - Disclosures about Fair Values of Financial Instruments: The following estimated fair value amounts have been determined, using available market information and appropriate valuation methodologies. However, considerable judgement is necessarily required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
(Dollars in Thousands) January 31, 1995 January 31, 1994 January 31, 1993 Carrying Fair Carrying Fair Carrying Fair Amount Value Amount Value Amount Value Assets: Cash and Cash Equivalents $150,319 $150,319 $73,253 $ 73,253 $ 48,949 $ 48,949 Short-Term Investments 118,155 118,155 35,215 35,240 5,900 5,900 Net Receivables 109,214 109,214 48,500 48,500 53,288 53,288 Long-Term Investments 83,459 83,459 40,408 40,801 23,270 23,664 Liabilities: Accounts Payable 675,436 675,436 467,278 467,278 330,584 330,584 Short-Term Debt 1,903 1,903 2,281 2,281 3,193 3,193 Long-Term Debt: Convertible Subordinated Notes 254,505 402,186 251,524 362,250 Other 453,592 456,914 390,356 410,216 335,283 340,578 Off-Balance Sheet Financial Instruments- Unrealized Gains (Losses) Interest Rate Swap Agreements (6,482) 4,421 2,434 Interest Rate Cap Agreements 3,915
Cash and cash equivalents, receivables, accounts payable, and short-term debt - The carrying amounts of these items are a reasonable estimate of their fair value. Short-term investments and long-term investments - At January 31, 1995, these investments are classified as available for sale and carried at their fair value in accordance with SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities". Prior year's fair value is estimated from quoted market prices for these or similar investments. Long-term debt - Interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities are used to estimate fair value for debt issues that are not quoted on an exchange. Interest rate swap agreements and interest rate cap agreements - The fair value of interest rate swaps and caps are the amounts at which they could be settled, based on estimates obtained from dealers. The amortized cost, gross unrealized gains and losses and fair values of investment securities, all of which are classified as available-for-sale securities, at January 31, 1995 are as follows: (Dollars in Thousands) Amortized Gross Unrealized Fair Type Cost Gains Losses Value Municipal Obligations $ 33,234 $ 1 $ (228) $ 33,007 Money Market Preferred Stock 86,476 13 (1,341) 85,148 Classified as Short-term 119,710 14 (1,569) 118,155 Municipal Obligations 50,944 989 (1,902) 50,031 Money Market Preferred Stock 33,500 (72) 33,428 Classified as Long-term 84,444 989 (1,974) 83,459 Total $204,154 $1,003 $(3,543) $201,614 The proceeds from sales of available-for-sale securities were $79.9 million for the year ended January 31, 1995. Gross realized gains and (losses) for the year ended January 31, 1995 on the sale of available for sale securities were $112 thousand and $(836) thousand, respectively. Maturities of municipal obligations classified as long-term are $9.9 million up to 1 year, $39.3 million after 1 year through 5 years, and $.8 million after 5 years through 10 years. The $33.4 million money market preferred stock has no stated maturity. NOTE 9 - Income Taxes:
(Dollars in Thousands) Fiscal Years End on January 31 Fiscal 1994 Fiscal 1993 Fiscal 1992 of Following Year Amount % Amount %Amount % Statutory Rate Reconciliation Pre-Tax Earnings $343,531 100.0% $198,324 100.0% $125,892 100.0% Federal Income Tax at Statutory Rate 120,236 35.0 69,413 35.0 42,803 34.0 State Income Taxes-Net of Federal Tax Benefit 4,248 1.2 2,340 1.2 1,443 1.1 Other (4,513) (1.3) (5,215) (2.6) (3,074) (2.4) Total Income Tax Provision $119,971 34.9% $66,538 33.6% $41,172 32.7% Components of Income Tax Provision Current Federal $ 98,432 82.0% $58,088 87.3% $31,289 76.0% State 3,431 2.9 2,590 3.9 1,651 4.0 Total Current 101,863 84.9 60,678 91.2 32,940 80.0 Deferred Federal 15,004 12.5 4,850 7.3 7,697 18.7 State 3,104 2.6 1,010 1.5 535 1.3 Total Deferred 18,108 15.1 5,860 8.8 8,232 20.0 Total Income Tax Provision $119,971 100.0% $66,538 100.0% $41,172 100.0%
The tax effect of cumulative temporary differences and carryforwards that gave rise to the deferred tax assets and liabilities and the related valuation allowance at January 31, 1995, 1994 and 1993 are as follows (in thousands): January 31, 1995 Assets LiabilitiesTotal Accrued Store Restructuring Costs $17,077 $17,077 Excess Tax Over Book Depreciation $(63,267) (63,267) Excess Book Over Tax Property Taxes 6,230 6,230 Other, Net 18,833 (9,806) 9,027 Less Valuation Allowance (149) (149) Total $41,991 $(73,073) $(31,082) January 31, 1994 Assets LiabilitiesTotal Accrued Store Restructuring Costs $22,381 $22,381 Excess Tax Over Book Depreciation $(46,787) (46,787) Excess Book Over Tax Property Taxes 4,944 (1,038) 3,906 Other, Net 18,355 (7,994) 10,361 Less Valuation Allowance (3,726) (3,726) Total $41,954 $(55,819) $(13,865) January 31, 1993 Assets LiabilitiesTotal Accrued Store Restructuring Costs $19,152 $19,152 Excess Tax Over Book Depreciation $(34,930) (34,930) Excess Book Over Tax Property Taxes 3,445 (1,921) 1,524 Other, Net 16,479 (6,924) 9,555 Less Valuation Allowance (3,306) (3,306) Total $35,770 $(43,775) $(8,005) The valuation allowance decreased $3,577,000, and increased $420,000 and $559,000 during the years ended January 31, 1995, 1994 and 1993, respectively. NOTE 10 - Employee Retirement Plans: The Company's contribution to its Employee Stock Ownership Plan (ESOP) is determined annually by the Board of Directors. The ESOP covers all employees after completion of one year of employment and 1000 hours of service during that year. Contributions are allocated to participants based on their eligible compensation relative to total eligible compensation. The Board authorized contributions totaling 13% of eligible compensation for each of the Fiscal Years 1994, 1993 and 1992. Contributions may be made in cash or shares of the Company's common stock and are generally made in the following fiscal year. On January 29, 1993, the Board of Directors authorized the funding of the Fiscal 1992 ESOP contribution primarily with the issuance of new shares of the Company's common stock. During Fiscal 1993, the Company issued 1,696,034 shares with a cost of $30.6 million. The remaining Fiscal 1992 contribution was funded with $1.0 million in cash. On January 31, 1994, the Board of Directors authorized the funding of the Fiscal 1993 ESOP contribution primarily with the issuance of new shares of the Company's common stock. During Fiscal 1994, the Company issued 922,075 shares with a cost of $31.7 million. The remaining Fiscal 1993 contribution was funded with $2.6 million in cash. During Fiscal 1994, the Company prefunded $1.0 million of the Fiscal 1994 ESOP contribution in cash. On January 23, 1995, the Board of Directors authorized the funding of the remaining Fiscal 1994 ESOP contribution primarily with the issuance of new shares of the Company's common stock. As of January 31, 1995, the Employee Stock Ownership Trust held approximately 17.8% of the outstanding common stock of the Company and was its largest shareholder. Shares allocated to ESOP participants accounts are voted by the trustee according to the participants' voting instructions. Unallocated shares and shares for which no voting instructions are received are voted by the trustee as directed by a management committee. At January 31, 1995, there were no unallocated shares. The Board of Directors determines contributions to the Company's Employee Savings and Investment Plan (ESIP) each year based upon a matching formula applied to employee contributions. All employees are eligible to participate in the ESIP on the first day of the month following completion of one year of employment. Company contributions to this plan for Fiscal 1994, 1993 and 1992 were $4.9, $3.9 and $3.4 million, respectively. The Company's common stock is an investment option for participants in the ESIP. As of January 31, 1995, the ESIP held approximately 1.0% of the outstanding common stock of the Company. Shares held in the ESIP are voted by the trustee as directed by an administrative committee of the ESIP. The Company does not believe that it has any material liability for postemployment or post-retirement benefits. NOTE 11 - Shareholders' Equity: Authorized shares of common stock were 700 million at January 31, 1995, and 120 million at January 31, 1994 and 1993. Transactions affecting the shareholders' equity section of the consolidated balance sheets are summarized as follows:
(In Thousands) Shares (In Thousands) Shareholders' Equity Unrealized Unearned Loss on Capital in Compensation Available Common Excess of Retained Restricted For Sale Total Outstanding Stock Par Value Earnings Stock Awards Securities Equity Balance January 31, 19921 45,760 $72,880 $170,148 $425,526 $668,554 Net Earnings 84,720 84,720 Tax Effect of Incentive Stock Options Exercised (Note 12) 80 80 Cash Dividends (21,153) (21,153) Stock Options Exercised (Note 12) 186 93 986 (60) 1,019 Balance January 31, 1993 145,946 72,973 171,214 489,033 nil nil 733,220 Net Earnings 131,786 131,786 Tax Effect of Incentive Stock Options Exercised (Note 12) 172 172 Cash Dividends (23,571) (23,571) Stock Options Exercised (Note 12) 245 122 1,442 (60) 1,504 Stock Issued to ESOP (Note 10) 1,696 848 30,134 (424) 30,558 Balance January 31, 1994 147,887 73,943 202,962 596,764 nil nil 873,669 Net Earnings 223,560 223,560 Tax Effect of Non-qualified Stock Options Exercised (Note 12) 2,344 2,344 Cash Dividends (27,433) (27,433) Stock Sale 10,350 5,175 310,522 315,697 Stock Options Exercised (Note 12) 172 86 1,219 1,305 Stock Received for Exercise of Stock Options (6) (3) (202) (205) Stock Issued to ESOP (Note 10) 922 461 31,268 31,729 Conversion of 3% Notes 8 4 193 197 Shares issued to Directors 4 2 124 126 Unearned Compensation-Restricted Stock Awards 190 96 6,408 (5,949) 555 Unrealized Loss on Available for Sale Securities $(1,654) (1,654) Balance January 31, 1995 159,527 $79,764 $554,838 $792,891 $(5,949) $(1,654) $1,419,890
The Company has 5 million authorized shares of preferred stock ($5 par), none of which have been issued. The preferred stock may be issued by the Board of Directors (without action by shareholders) in one or more series, having such voting rights, dividend and liquidation preferences and such conversion and other rights as may be designated by the Board of Directors at the time of issuance of the preferred shares. On January 10, 1994, the Company filed with the Securities and Exchange Commission a shelf registration statement covering $500 million of "unallocated" debt or equity securities. The shelf registration enables the Company to issue common stock, preferred stock, senior unsecured debt securities or subordinated unsecured debt securities from time to time. The shelf registration became effective on February 8, 1994. On June 27, 1994, the Company sold 10,350,000 shares of common stock under the shelf registration discussed above. The Company received proceeds, net of the underwriting discount and other costs, of $315,697,000. The proceeds are being used to finance the Company's large store expansion program and for general corporate purposes. Unearned Compensation - Restricted Stock Awards of $5,949,000 included in Shareholders' Equity on the balance sheet is the result of stock grants totaling 190,000 shares made to certain executives and directors. The amount will be amortized as earned over periods not exceeding seven years The Company has a shareholder rights plan which provides for a dividend distribution of one preferred share purchase right on each outstanding share of common stock. Each purchase right will entitle shareholders to buy one unit of a newly authorized series of preferred stock. A shareholder's interest is not diluted by the effects of a stock dividend or stock split. Each unit is intended to be the equivalent of one share of common stock. The purchase rights will be exercisable only if a person or group acquires or announces a tender offer for 20% or more of Lowe's common stock. The purchase rights do not apply to the person or group acquiring the stock. The purchase rights will expire on September 19, 1998. NOTE 12 - Stock Incentive Plans: The Company has a stock option plan under which incentive and non-qualified stock options, stock appreciation rights, stock awards and incentive awards may be granted to key employees. Four million common shares were reserved for option purposes when the plan began in 1985. An additional one million shares were reserved when the plan was amended in 1994. No awards may be granted after January 31, 2004. At January 31, 1995, there were 2,216,040 shares available for grants under the plan. Option information is summarized as follows: Key Employee Stock Option Plan Option Price Shares Per Share (in Thousands) Outstanding January 31, 1992 530 $4.063, $6.375 Granted 30 $10.188 Canceled or Expired (3) $4.063, $6.375 Exercised (186) $4.063, $6.375 Outstanding January 31, 1993 371 $4.063, $6.375, $10.188 Exercised (217) $4.063, $6.375 Outstanding January 31, 1994 154 $6.375, $10.188 Granted 20 $38.75 Canceled or Expired (2) $6.375 Exercised (152) $6.375, $10.188 Outstanding January 31, 1995 20 $38.75 Prior to Fiscal 1989, all options granted were incentive options whereby the option prices were at least equal to the fair market values of the stock at the grant dates. Between Fiscal 1989 and Fiscal 1994, options granted have been adjustable non-qualified options exercisable at a maximum price of $10.188 per share. Upon exercise of a non-qualified option, the optionee makes a payment to the Company equal to the shares' fair market value on the date the option was granted. In accordance with a formula set forth in each option agreement, the Company uses part of the option price to make a federal income tax deposit on behalf of the optionee. The options granted in Fiscal 1994 were incentive options. Incentive stock option shares which are sold by the optionee within two years of grant or one year of exercise result in a tax deduction for the Company equivalent to the taxable gain recognized by the optionee. For financial reporting purposes, the tax effect of this deduction is accounted for as a credit to capital in excess of par value rather than as a reduction of income tax expense. Such optionee sales resulted in a tax benefit to the Company of approximately $2,344 thousand, $172 thousand and $80 thousand during Fiscal Years 1994, 1993 and 1992, respectively. Stock appreciation rights are denominated in units, which are comparable to a share of Common Stock for purposes of determining the amount payable under an award. An award entitles the participant to receive the excess of the final value of the unit over the fair market value of a share of common stock on the first day of the performance period. The final value is the average closing price of a share of Common Stock during the last month of the performance period. Limits may be established with respect to the amount payable on each unit. A total of 1,104,500 stock appreciation rights, with performance periods of one to three years, with a maximum payout of $6,303,000, were outstanding at January 31, 1995. The costs of these are being expensed over the performance periods. A total of 192,000 stock awards have been granted under the plan. These shares are nontransferable and subject to forfeiture for periods prescribed by the Company. These shares may become transferable and vested earlier based on achievement of certain performance measures. A total of 2,000 shares were forfeited during Fiscal 1994 and no shares became vested or transferable during Fiscal 1994. During Fiscal 1989, shareholders approved a Non-Employee Directors' Stock Option Plan. This Plan provided that adjustable non-qualified options representing 4,000 shares of Lowe's common stock would be granted to each outside Director following the Annual Meeting in 1989, 1990, 1991, 1992 and 1993. Two hundred thousand shares of common stock were reserved to fulfill the requirements of this Plan. Options representing 28,000 shares were granted under this Plan in each of Fiscal 1989, Fiscal 1990, Fiscal 1991, Fiscal 1992 and Fiscal 1993, of which options representing 32,000 shares have been exercised. The option price per share was $6.375 for Fiscal 1989, $10.906 for Fiscal 1990, $8.625 for Fiscal 1991, $10.969 for Fiscal 1992 and $18.875 for Fiscal 1993. The non-qualified options granted to Directors include the same tax deposit feature described above with respect to the Key Employee Stock Option Plan. This Plan expired at the end of Fiscal 1993. At January 31, 1995, options for 20,000 shares (expiration date in 2004) were exercisable under the Key Employee Stock Option Plan and options for 88,000 shares (expiration dates range from 1999 through 2003) were exercisable under the Non-Employee Directors' Stock Option Plan. During Fiscal 1994, shareholders approved a Director's Stock Incentive Plan. This Plan provides that at the first Board meeting following each annual meeting of shareholders, the Company shall issue each non-employee Director 500 shares of Common Stock. Up to 25,000 shares may be issued under this Plan. The last issuance pursuant to this Plan will occur at the first Board meeting following the 1998 Annual Meeting. In Fiscal 1994, 4,000 shares were issued under this Plan. NOTE 13 - Leases: The future minimum rental payments required under capital and operating leases having initial or remaining noncancelable lease terms in excess of one year are summarized as follows: Operating Leases Capital Leases Fiscal Year Real Estate Equipment Real Estate Equipment Total (Dollars in Thousands) 1995 $ 52,390 $588 $ 16,644 $ 355 $ 69,977 1996 56,819 179 16,588 123 73,709 1997 56,179 10 16,607 4 72,800 1998 48,340 10 16,309 64,659 1999 47,935 10 16,283 64,228 Later Years 710,746 249,218 959,964 Total Minimum Lease Payments $972,409* $797 $331,649 $482 $1,305,337 Total Minimum Capital Lease Payments $332,131 Less Amount Representing Interest 170,146 Present Value of Minimum Lease Payments 161,985 Less Current Maturities 3,813 Present Value of Minimum Lease Payments, Less Current Maturities $158,172 * Total minimum payments have not been reduced by minimum sublease rentals of $1.4 million to be received in the future under noncancelable subleases. Rental expenses under operating leases for real estate and equipment were $40.2 million, $27.2 million and $20.4 million in Fiscal 1994, 1993 and 1992, respectively. The Company leases certain store facilities under agreements with original terms generally of twenty years. Agreements generally provide for contingent rental based on sales performance in excess of specified minimums. To date, contingent rentals have been very nominal. The leases typically contain provisions for four renewal options of five years each. Certain equipment is also leased by the Company under agreements ranging from two to five years. These agreements typically contain renewal options providing for a renegotiation of the lease, at the Company's option, based on the fair market value at that time. The Company entered into a lease agreement in January 1993 for ten store properties. The initial terms of these leases are three years with renewal terms for up to an additional nine years. The rental amounts are based on the cost of the property plus the borrowing cost of the lessor. Under the agreement, the Company advanced part of the acquisition cost of the properties and at January 31, 1994 had a receivable from the lessor of $44.0 million classified on the balance sheet under Other Current Assets. The receivable was collected in the subsequent fiscal year. The Company entered into a lease agreement in August 1990 for nine store properties. The initial terms of these leases are five years with renewal terms for up to an additional thirty-five years. The rental amounts are based on the cost of the property plus the borrowing cost of the lessor. Under the agreement, the Company advanced part of the acquisition cost of the properties and at January 31, 1993 had a receivable from the lessor of $17.4 million classified on the balance sheet under Other Current Assets. The receivable was collected in the subsequent fiscal year. NOTE 14 - Commitments, Contingencies and Litigation: The Company had purchase commitments at January 31, 1995, of approximately $21.3 million for land, buildings and construction of facilities, and $16.8 million for equipment. See Note 13 concerning commitments related to lease agreements. The Company is a defendant in legal proceedings considered to be in the normal course of business and none of which, singularly or collectively, are considered material to the Company as a whole. Potential liability in excess of the Company's self-insured retention under these proceedings is covered by insurance. The Company is subject to various environmental protection laws and regulations and is operating within such laws or is taking action aimed at assuring compliance with such laws and regulations. The Company has been identified as a potentially responsible party (PRP) in connection with three land-fill sites at which environmental damage is alleged. Any associated costs to the Company is not expected to have a material impact on the Company's financial condition or results of operations. NOTE 15 - Store Restructuring: In Fiscal 1991, the Company recorded a pre-tax fourth quarter charge of $71.3 million for the expected costs and expenses required to accelerate the Company's conversion from a chain of small stores to a chain of large stores. The restructuring charge is composed primarily of write-downs of long-lived assets to their net realizable value, principally real estate for owned locations, certain leasehold improvements, fixtures and equipment. It also includes certain relocation costs and expenses. The charge included stores relocated under the restructuring plan in the fourth quarter of Fiscal 1991 and those scheduled for closing and relocation through Fiscal 1995. NOTE 16 - Other Information: (Dollars in Thousands) Net interest expense is composed of the following: Years Ended January 31, 1995 1994 1993 Long-Term Debt $ 43,437 $ 25,146 $ 12,634 Short-Term Debt 1,056 1,217 6,529 Amortization of Loan Costs 295 272 274 Short-Term Interest Income (12,237) (4,765) (1,989) Interest Capitalized (4,678) (3,592) (1,849) Net Interest Expense $ 27,873 $ 18,278 $ 15,599 Supplemental Disclosures of Cash Flow Information: Years Ended January 31, 1995 1994 1993 Cash Paid for Interest (Net of Amount Capitalized) $43,145 $25,677 $17,857 Cash Paid for Income Taxes 108,064 58,761 40,042 Noncash Investing and Financing Activities: Fixed Assets Acquired under Capital Leases 104,207 29,343 24,566 Common Stock Issued to ESOP (Note 10) 31,729 30,558 Common Stock Issued to Executives and Directors 6,630 Common Stock Received for Exercise of Stock Options 205 Conversion of Debt to Common Stock 197 Notes Received in Exchange for Property $ 6,067 $ 886 $ 1,536 Supplemental Disclosure of Operating Expenses: Advertising expenses were $71.0, $59.3 and $65.0 million for Fiscal 1994, 1993 and 1992, respectively. SELECTED FINANCIAL DATA LOWE'S COMPANIES, INC. AND SUBSIDIARY COMPANIES
(Dollars in Thousands, Except Per Share Data) Fiscal Years End on January 31 of Following Year (Unaudited) 1994 1993 1992 1991 1990 Selected Income Statement Data: Net Sales $6,110,521 $4,538,001 $3,846,418 $3,056,247 $2,833,108 Net Earnings 223,560 131,786 84,720 6,487 71,087 Earnings Per Share-Full Dilution 1.39 .89 .58 .04 .48 Cash Dividends Per Share $ .18 $ .16 $ .14 $ .14 $ .13 Selected Balance Sheet Data: Total Assets $3,105,992 $2,201,648 $1,608,877 $1,441,228 $1,203,052 Long-Term Debt, Including Current Maturities $ 708,097 $ 641,880 $ 335,283 $ 131,350 $ 169,441 Selected Quarterly Data (Unaudited) * Three Months Ended January 31 October 31 July 31 April 30 Fiscal 1994 Net Sales $1,487,489 $1,579,005 $1,647,019 $1,397,008 Gross Margin 391,130 381,146 403,560 336,708 Net Earnings 46,265 54,191 71,351 51,753 Earnings Per Share-Full Dilution $ .28 $ .33 $ .45 $ .34 Fiscal 1993 Net Sales $1,145,828 $1,158,370 $1,241,691 $992,112 Gross Margin 279,017 275,620 292,480 234,167 Net Earnings 25,733 31,645 44,960 29,448 Earnings Per Share-Full Dilution $ .17 $ .21 $ .31 $ .20 Fiscal 1992 Net Sales $ 910,298 $ 991,192 $1,061,645 $883,283 Gross Margin 209,337 231,372 246,741 213,215 Net Earnings 12,323 18,900 29,718 23,779 Earnings Per Share-Full Dilution $ .08 $ .13 $ .20 $ .16
* LIFO Adjustment: Fiscal 1994 - The total LIFO effect for the year was a charge of $.4 million. A charge of $9.5 million was made against earnings through the first nine months, resulting in a fourth quarter credit of $9.1 million. Fiscal 1993 - The total LIFO effect for the year was a charge of $15.5 million. A charge of $10.3 million was made against earnings through the first nine months, resulting in a fourth quarter charge of $5.2 million. Fiscal 1992 - The total LIFO effect for the year was a charge of $9.5 million. A charge of $3.7 million was made against earnings through the first nine months, resulting in a fourth quarter charge of $5.8 million.
Lowe's Quarterly Stock Price Range and Cash Dividend Payment* Fiscal 1994 Fiscal 1993 Fiscal l992 High Low Dividend High Low Dividend High Low Dividend 1st Quarter $36 1/2 $27 3/4 $.040 $17 11/16 $13 5/16 $.040 $10 7/8 $8 21/32 $.035 2nd Quarter 37 3/4 30 1/2 .045 20 15 .040 11 13/16 9 1/16 .035 3rd Quarter 40 7/8 30 .045 24 11/16 18 3/8 .040 12 5/16 8 .035 4th Quarter $41 3/8 $33 1/8 $.045 $31 $23 3/16 $.040 $14 6/16 $9 1/4 $.040 Source: The Wall Street Journal * As restated for a 2-for-1 stock split to shareholders of record March 16, 1994.
Lowe's Board of Directors William A. Andres Director since 1986, age 68. Chairman of Committee of Independent Directors, Member of Audit Committee and Compensation Committee of the Company. Previously Chairman of the Board and Chief Executive Officer (1976-1983), Chairman of Executive Committee (1983-1985) of Dayton Hudson Corporation (Retail Chain), Minneapolis, Minn. (Mr. Andres retired in September 1985.) Other directorships: Jostens, Inc., Minneapolis, Minn., since 1985; Scott Paper Company, Philadelphia, Penn., since 1983; Multifoods, Inc., Minneapolis, Minn., since 1978; Hannaford Bros., Scarborough, Me., since 1986. John M. Belk Director since 1986, age 75. Member of Audit Committee, Compensation Committee and Committee of Independent Directors of the Company. Chairman of the Board, Belk Stores Services, Inc. (Retail Department Stores), Charlotte, N.C., since 1980. Other directorships: Coca-Cola Bottling Company Consolidated, Charlotte, N.C., since 1972; Chaparral Steel, Midlothian, Tex., since 1987. Gordon E. Cadwgan Director since 1961, age 81. Chairman of Audit Committee, Member of Compensation Committee, Executive Committee and Committee of Independent Directors of the Company. Cadwgan Associates, Inc. (Trustee and Financial Consultant), affiliated with Tucker Anthony, Inc., Boston, Mass., since 1979. Other directorships: Third Century Fund, Inc., Providence, R.I., since 1981. Carol A. Farmer Director since 1994, age 50. Member of Audit Committee, Government/Legal Affairs Committee and Committee of Independent Directors of the Company. President of Carol Farmer Associates, Inc. (Trend Forecasting and Consulting), Boca Raton, Fla., since 1985. Other directorships: The Sports Authority, Inc., Ft. Lauderdale, Fla., since 1995. Leonard G. Herring Director since 1956, age 67. President and Chief Executive Officer since 1978, Member of Executive Committee and Government/Legal Affairs Committee of the Company. Other directorships: First Union Corporation, Charlotte, N.C., since 1986. Petro Kulynych Director since 1952, age 73. Member of Audit Committee, Executive Committee and Government/Legal Affairs Committee of the Company, having previously served as Managing Director (1978-1983). (Mr. Kulynych retired in December 1983.) Other directorships: Local Board, Wachovia Bank of North Carolina, N.A., North Wilkesboro, N.C., since 1988; Carolina Motor Club, Inc. Russell B. Long Director since 1987, age 76. Chairman of Government/Legal Affairs Committee, Member of Compensation Committee and Committee of Independent Directors of the Company. Partner, Long Law Firm (Attorneys-at-Law), Washington, D.C., since 1988. Other directorships: Catalyst Vidalia Corp., Vidalia, La., since 1989; The New York Stock Exchange, Inc., New York, N.Y., since 1987. Other: United States Senator 1948-1987; Member, Senate Finance Committee 1952-1987 (Chairman 1965-1981). Robert G. Schwartz Director since 1973, age 67. Chairman of Compensation Committee, Member of Audit Committee and Committee of Independent Directors of the Company. Director of Metropolitan Life Insurance Company, New York, N.Y., since 1980, having previously served as Chairman of the Board (1983-1993), President and Chief Executive Officer (1989-1993) of that company. (Mr. Schwartz retired in March 1993.) Other directorships: Potlatch Corporation, San Francisco, Calif., since 1973; Comsat Corporation, Washington, D.C., since 1986; Mobil Corporation, New York, N.Y., since 1987; The Reader's Digest Association, Inc., Pleasantville, N.Y., since 1989; Consolidated Edison Company of New York, New York, N.Y., since 1989; CS First Boston, Inc., New York, N.Y., since 1989; Lone Star Industries, Inc., Stamford, Conn., since 1994. Robert L. Strickland Director since 1961, age 64. Chairman of the Board since 1978, Chairman of Executive Committee and Member of Government/Legal Affairs Committee. Other directorships: Summit Communications, Atlanta, Ga., since 1987; T. Rowe Price Associates, Inc., Baltimore, Md., since 1991; Hannaford Bros., Scarborough, Me., since 1994. Robert L. Tillman Director since 1994, age 51. Senior Executive Vice President and Chief Operating Officer of the Company since 1994, having previously served as Executive Vice President - Merchandising (1991-1994), Senior Vice President - Merchandising (1989-1991). Other directorships: Wachovia Bank of North Carolina, N.A., Winston-Salem, N.C., since 1994; Home Center Institute, Chicago, Ill., since 1994. Appendix to EXHIBIT 13 Graphic and Image Material Inside front cover Map showing location of Lowe's stores Indide front cover Chart state # of stores Alabama 13 Arkansas 6 Delaware 3 Florida 15 Georgia 20 Illinois 4 Indiana 16 Kentucky 19 Louisiana 13 Maryland 11 Michigan 2 Mississippi 7 Missouri 3 North Carolina 71 Ohio 19 Pennsylvania 11 South Carolina 24 Tennessee 26 Texas 2 Virginia 35 West Virginia 16 Page 4 Picture NASCAR fans at Atlanta Motor Speedway Page 5 Picture Ron Hazelton, host of HGTV's "The House Doctor" Page 5 Picture Lowe's #11 NASCAR, owned by Junior Johnson and driven by Brett Bodine page 6 Picture Lowe's distribution center in Indiana Page 7 Picture Kitchen layout computer design kiosk Page 7 Picture Bath Page 8 Picture The Mahomet-Seymour Marching Bulldogs Page 8 Picture Tree-planting project in Arden, NC Page 9 Picture Lowes Home Safety Council Board of Directors Page 9 Picture Fire safety houses teach prevention and escape techniques Page 10 Picture Lowe's investor Archie Fain Page 11 Chart The Competivie situation-Top Ten Building Supply/Home Centers Dollars in Millions Percent of 1994 Home Rank Company 1994 Sales 1993 Sales Improvement Market * 1 The Home Depot $12,477 $ 9,239 9.9% 2 Lowe's Companies 6,111 4,538 4.8 3 Builders Square 2,951 2,150 2.3 4 Payless Cashways 2,723 2,601 2.2 5 Hechinger 2,500 2,103 2.0 6 Menard 2,400 1,700 1.9 7 Homebase 1,357 1,700 1.1 8 84 Lumber 1,250 1,000 1.0 9 Wickes Lumber 987 820 .8 10 Grossmans 759 852 .6 Total $33,515 $26,703 26.6% * based on HIRI's estimate of $126.2 billion for 1994 home improvement market Source: Building Supply Home Center's annual giants issue Page 11 Chart Lowe's Total Market Potential Dollars in Billions Home Center Market Building Contractor HomeOwner New Housing R&R* DIY Durable Total 1999e $75 $50 $113 $79 $317 1994p 61 37 89 54 241 1993 52 36 81 45 214 1992 46 33 74 41 194 1991 39 32 69 39 179 1990 45 36 70 36 187 1985 40 25 53 25 143 1980 $24 $16 $ 38 $14 $ 92 R&R=Repair and Remodel e=estimate p=preliminary Source: Home Improvement Research Institute; Management Horizons Page 11 Chart Merchandise Sales Trends Dollars in Millions
Total Sales Change 1994 1994 1993 1993 1992 1992 1989 1989 5-Year From Total Total Total Total Category CGR 1993 Sales % Sales % Sales % Sales % 1.Structural Lumber +15% +22% $ 911 15 745 16 622 16 $ 455 17 2.Building Commodities & Millwork +10 +25 1,225 20 979 21 909 24 761 29 3.Home Decorating & Illumination +28 +48 1,195 20 807 18 656 17 346 13 4.Kitchen, Bathroom, & Laundry +24 +41 701 11 498 11 388 10 237 9 5.Heating, Cooling, & Water Syastems +19 +30 348 6 267 6 211 6 144 5 6.Home Entertainment +17 +24 271 4 218 5 184 5 125 5 7.Yard,Patio,&Garden +23 +49 736 12 493 11 435 11 261 10 8.Tools +28 +47 382 6 259 6 200 5 112 4 9.Special Order Sales +10 +26 342 6 272 6 241 6 210 8 Totals +18% +35% $6,111 100 $4,538 100 $3,846 100 $2,651 100
Page 30 Picture Robert L. Tillman, William A. Andres, Robert L. Strickland, Leonard G. Herring, Carol A. Farmer, John M. Belk, Petro Kulnych, Russell B. Long, Robert G Schwartz, Gordon E. Cadwgan
EX-21 5 Part IV LOWE'S COMPANIES, INC. AND SUBSIDIARY COMPANIES EXHIBIT 21 - SCHEDULE OF SUBSIDIARIES NAME AND DOING BUSINESS AS: STATE OF INCORPORATION Lowe's Home Centers, Inc. North Carolina The Contractor Yards, Inc. North Carolina Sterling Advertising, Ltd. North Carolina LF Corporation Delaware EX-23 6 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT Lowe's Companies, Inc. We consent to the incorporation by reference in Registration Statement No. 33-64560 on Form S-3, Registration Statement No. 33-51865 on Form S- 3, Post-Effective Amendment No. 1 to Registration Statement No. 33-2618 on Form S-8, Registration Statement No. 33-29772 on Form S-8, Registration Statement No. 33-54497 on Form S-8, and Registration Statement No. 33-54499 on Form S-8, of our report dated February 20, 1995 appearing in or incorporated by reference in this Annual Report on Form 10-K of Lowe's Companies, Inc. for the year ended January 31, 1995. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Charlotte, North Carolina April 28, 1995 EX-27 7
5 0000060667 LOWE'S COMPANIES, INC. 1000 YEAR JAN-31-1995 JAN-31-1995 150,319 118,155 109,214 0 1,132,282 1,557,168 1,397,713 0 3,105,992 945,892 0 79,794 0 0 1,340,126 3,105,992 6,110,521 6,110,521 4,597,977 4,597,977 1,141,140 0 27,873 343,531 119,971 223,560 0 0 0 223,560 1.44 1.39
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