0000060667-95-000005.txt : 19950915 0000060667-95-000005.hdr.sgml : 19950915 ACCESSION NUMBER: 0000060667-95-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950731 FILED AS OF DATE: 19950914 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07898 FILM NUMBER: 95573786 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-Q 1 -1- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-7898 LOWE'S COMPANIES, INC. (Exact name of registrant as specified in its charter) NORTH CAROLINA 56-0578072 State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) P.O. BOX 1111, NORTH WILKESBORO, N.C. 28656 (Address of principal executive offices) (Zip Code) (910) 651-4000 (Registrant's telephone number, including area code) NONE (Former name,former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at August 31, 1995 Common Stock, $.50 par value 160,593,516 13 TOTAL PAGES -2- LOWE'S COMPANIES, INC. - INDEX - PART I - Financial Information: Page No. Consolidated Balance Sheets - July 31, 1995 and January 31, 1995. 3 Consolidated Statements of Current and Retained Earnings - three months and six months ended July 31, 1995 and 1994. 4 Consolidated Statements of Cash Flows - six months ended July 31, 1995 and 1994. 5 Notes to Consolidated Financial Statements. 6-7 Management's Discussion and Analysis of Results of Operations and Financial Condition. 8-9 Independent Accountants' Report. 10 PART II - Other Information Item 4 - Submission of Matters to a Vote of Security Holders 11 Item 6 (a) - Exhibits. Exhibit 11 Computation of per share earnings 12 Item 6 (b) - Reports on Form 8-K. 13 -3- Consolidated Balance Sheets Lowe's Companies, Inc. and Subsidiary Companies Dollars in thousands July 31, January 31, 1995 1995 Assets Current assets: Cash and cash equivalents $ 93,321 $ 150,319 Short-term investments 122,560 118,155 Accounts receivable - net 146,932 109,214 Merchandise inventory 1,165,655 1,132,282 Other assets 55,642 47,198 Total current assets 1,584,110 1,557,168 Property, less accumulated depreciation 1,567,569 1,397,713 Long-term investments 42,461 83,459 Other assets 59,799 67,652 Total assets $ 3,253,939 $3,105,992 Liabilities and Shareholders' Equity Current liabilities: Current maturities of long-term debt $ 30,741 $26,913 Short-term notes payable 1,856 1,903 Accounts payable 597,254 675,436 Employee retirement plans 42,827 43,950 Accrued salaries and wages 52,845 63,356 Other current liabilities 173,054 134,334 Total current liabilities 898,577 45,892 Long-term debt, excluding current maturities 714,923 681,184 Deferred income taxes 59,320 49,211 Accrued store restructuring costs 2,686 9,815 Total liabilities 1,675,506 1,686,102 Shareholders' equity Common stock - $.50 par value; Issued and Outstanding July 31, 1995 160,451,886 January 31, 1995 159,527,389 80,226 79,764 Capital in excess of par 581,856 554,838 Retained earnings 922,416 792,891 Unearned compensation-restricted stock awards (5,452) (5,949) Unrealized loss on available-for-sale securities, net of income taxes of $330 at July 31, 1995 and $886 at January 31, 1995 (613) (1,654) Total shareholders' equity 1,578,433 1,419,890 Total liabilities and shareholders' equity $ 3,253,939 $3,105,992 See accompanying notes to consolidated financial statements. -4- Consolidated Statements of Current and Retained Earnings Lowe's Companies, Inc. and Subsidiary Companies Dollars In Thousands, Except Per Share Data
Quarter Ended Six Months Ended July 31, 1995 July 31,1994 July 31, 1995 July 31, 1994 Current Earnings Amount Percent Amount Percent Amount Percent Amount Percent Net sales $1,978,058 100.00 $1,647,019 100.00 $3,612,748 100.00 $3,044,027 100.00 Cost of sales 1,484,486 75.05 1,243,459 75.50 2,697,066 74.65 2,303,759 75.68 Gross margin 493,572 24.95 403,560 24.50 915,682 25.35 740,268 24.32 Expenses: Selling, general and administrative 290,677 14.69 239,79 14.55 556,141 15.40 446,004 14.65 Store opening costs 11,438 0.58 7,345 0.45 20,029 0.55 14,737 0.48 Depreciation 35,811 1.81 26,174 1.59 68,781 1.90 50,162 1.65 Employee retirement plans 13,188 0.67 13,135 0.80 26,727 0.74 24,246 0.80 Interest 8,929 0.45 7,345 0.45 18,259 0.51 15,728 0.52 Total expenses 360,043 18.20 293,789 17.84 689,937 19.10 550,877 18.10 Pre-tax earnings 133,529 6.75 109,771 6.66 225,745 6.25 189,391 6.22 Income tax provision 48,522 2.45 38,420 2.33 81,812 2.27 66,287 2.18 Net earnings $ 85,007 4.30 $ 71,351 4.33 $143,933 3.98 $ 123,104 4.04 Shares outstanding (weighted average) 160,432 152,576 160,350 150,417 Earnings per common & common equivalent share 0.53 0.47 0.90 0.82 Earnings per common share - assuming full dilution 0.51 0.45 0.86 0.79 Retained earnings Balance at beginning of period $ 844,620 $ 642,587 $ 792,891 $ 596,764 Net earnings 85,007 71,351 143,933 123,104 Cash dividends (7,211) (7,156) (14,408) (13,086) Balance at end of period $ 922,416 $ 706,782 $ 922,416 $ 706,782 See accompanying notes to consolidated financial statements.
-5- CONSOLIDATED STATEMENTS OF CASH FLOWS Lowe's Companies, Inc. and Subsidiary Companies Dollars in Thousands
For the sixmonths ended July 31 1995 1994 Cash Flows From Operating Activities: Net Earnings $143,933 $ 123,104 Adjustments to Reconcile Net Earnings to Net Cash Provided By Operating Activities: Depreciation 68,781 50,162 Amortization of Original Issue Discount 1,928 1,572 Increase in Deferred Income Taxes 9,287 5,610 (Gain) Loss on Disposition/Writedown of Fixed and Other Assets (1,041) 2,798 Decrease (Increase) in Operating Assets: Accounts Receivable - Net (37,718) (49,161) Merchandise Inventory (33,373) (88,007) Other Operating Assets (7,674) 34,280 Increase (Decrease) in Operating Liabilities: Accounts Payable (78,182) 48,863 Employee Retirement Plans 23,877 20,996 Accrued Store Restructuring (5,715) (4,348) Other Operating Liabilities 27,635 45,806 Net Cash Provided by Operating Activities 111,738 191,675 Cash Flows from Investing Activities: Decrease (Increase) in Investment Assets: Short-Term Investments( 1,046) (150,452) Purchases of Long-Term Investments (16,299) (13,800) Proceeds from Sale/Maturity of Long-Term Investments 55,156 11,368 Other Long-Term Assets 540 (1,663) Fixed Assets Acquired (203,269) (161,051) Proceeds from the Sale of Fixed and Other Long-Term Assets 13,224 5,184 Net Cash Used in Investing Activities (151,694) (310,414) Cash Flows from Financing Activities: Sources: Long-Term Debt Borrowings 500 Proceeds from Issuance of Common Stock 316,193 Stock Options Exercised 44 916 Total Financing Sources 44 317,609 Uses: Repayment of Long-term Debt (2,631) (19,606) Net Decrease in Short-Term Borrowings (47) (329) Cash Dividend Payments (14,408) (5,929) Common Stock Purchased for Retirement (78) Total Financing Uses (17,086) (25,942) Net Cash Provided by (Used in) Financing Activities (17,042) 291,667 Net Increase (Decrease) in Cash and Cash Equivalents (56,998) 172,928 Cash and Cash Equivalents, Beginning of Period 150,319 73,253 Cash and Cash Equivalents, End of Period $93,321 $ 246,181 See accompanying notes to consolidated financial statements.
-6- Lowe's Companies, Inc. and Subsidiary Companies Notes to Consolidated Financial Statements Note 1: The accompanying Consolidated Financial Statements (unaudited) have been reviewed by an independent Certified Public Accountant, and in the opinion of management, they contain all adjustments necessary to present fairly the financial position as of July 31, 1995, and the results of operations for the three-month and six-month periods ended July 31, 1995 and 1994, and the cash flows for the six- month periods ended July 31, 1995 and 1994. Note 2: The results of operations for the six-month periods ended July 31, 1995 and 1994 are not necessarily indicative of the results to be expected for the full year. Note 3: 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. Long-term investments were $42,461,000 and $83,459,000 at July 31, 1995 and January 31, 1995, respectively. Note 4: Net interest expense is composed of the following: Quarter ended Six Months ended July 31, July 31, 1995 1994 1995 1994 Long-term debt $8,692 $9,086 $17,581 $17,548 Capitalized leases 3,684 1,424 6,992 2,606 Short-term debt 347 85 608 659 Amortization of loan cost 70 76 140 154 Short-term interest income (2,906) (2,444) (5,165) (3,638) Interest capitalized on construction in progress (958) (882) (1,897) (1,601) Net interest expense $8,929 $7,345 $18,259 $15,728 Note 5: If the FIFO method of inventory accounting had been used, inventories would have been $72,260,000 higher at July 31, 1995 and $64,976,000 higher at January 31, 1995. Note 6: Stock options exercised consisted of 4,000 and 26,200 shares resulting in proceeds of $40,000 and $167,000 for the three-month periods ended July 31, 1995 and 1994, respectively, and 4,000 and 110,800 shares resulting in proceeds of $40,000 and $916,000 for the six-month periods ended July 31, 1995 and 1994, respectively. Note 7: Property is shown net of accumulated depreciation of $396,923,000 at July 31, 1995 and $344,438,000 at January 31, 1995. -7- Note 8: Supplemental disclosures of cash flow information: Six months ended July 31 1995 1994 Cash paid for interest (net of capitalized) $ 25,778,000 $ 19,808,000 Cash paid for income taxes 52,643,000 52,996,000 Non-cash investing and financing activities: Common stock issued to ESOP 25,000,000 20,000,000 Fixed assets acquired under capital lease 40,501,000 38,435,000 Conversion of debt to common stock 2,230,000 10,000 Note 9: On January 31, 1995, the Board of Directors authorized the funding of the Fiscal 1994 ESOP contribution primarily with the issuance of up to $40 million new shares of the Company's common stock with the remainder in cash. During the first half of Fiscal 1995, the Company issued 817,131 shares with a market value of $25.0 million. The remaining shares will be issued by the end of the third quarter. Note 10: 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. 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. Note 11: During the first half of Fiscal 1995, $2,531,000 principal of the Company's 3% Convertible Subordinated Notes were converted into 96,866 shares of the Company's common stock. Note 12: Costs associated with the relocation and closing of stores during the three months and six months ended July 31, 1995, which were recognized through the restructuring charge in Fiscal 1991, totaled $6,367,000 and $9,309,000, respectively. Comparable costs incurred during the three months and six months ended July 31, 1994 were $6,176,000 and $10,860,000, respectively. Note 13: Unearned Compensation - Restricted Stock Awards of $5,452,000 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 is being amortized as earned over periods not exceeding seven years. Note 14: Earnings per common and common equivalent share is computed based upon the weighted average number of common shares outstanding during the period plus the dilutive effect of common shares contingently issuable from stock options. Earnings per common share - assuming full dilution reflects the potential dilutive effect of dilutive common share equivalents and the Company's 3% Convertible Subordinated Notes issued July 22, 1993. These notes are due July 22, 2003. -8- MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS This discussion should be read in conjunction with the financial statements and the financial statement footnotes included in this Form 10-Q. For the quarter ended July 31, 1995, the Company reported record second quarter sales and earnings. Sales grew 20% to $1.978 billion, net earnings increased 19% to $85.0 million and earnings per share (fully diluted) were $.51 compared to $.45 in the comparable quarter of last year. Comparable store sales were up 4%. For the six months ended July 31, 1995, sales grew 19% to $3.613 billion, net earnings increased 17% to $143.9 million and earnings per share (fully diluted) were $.86 compared to $.79 in the comparable period of last year. Comparable store sales were up 3% year to date. Sales in the second quarter were enhanced by the addition of 5.1 million square feet of retail selling space at new and existing locations since last year's second quarter. Significant sales gains came in yard, patio and garden, tools, kitchen cabinets and appliances, home decor, lighting, bathrooms, home water systems, heating/cooling and home care/safety. Included in the 20% sales increase is approximately 2% decrease due to changing prices. While we experienced deflation in lumber, there was enough inflation in other products to nearly offset it. Gross margin was 24.95% of sales for the quarter ended July 31, 1995, versus 24.50% in last year's quarter. The increase in gross margin rate continues to reflect both the continuing shift in business from contractor to retail and favorable changes in our product mix. Gross margin for the six months ended July 31, 1995, was 25.35% versus 24.32% last year. Selling, general and administrative expenses (SG&A) were 14.69% of sales in the second quarter versus 14.55% in last year's quarter. SG&A increased 21% compared to a 20% sales increase in the quarter. Store salaries (excluding those in store opening costs) increased 20%. For the six months ended July 31, 1995, SG&A was 15.40% of sales versus 14.65% for the comparable period last year. For the quarter ended July 31, 1995, store opening costs were $11.4 million versus $7.3 million last year, representing costs associated with the opening of 13 stores this year (10 new and 3 relocated) compared to 10 stores in last year's second quarter (7 new and 3 relocated). Store opening costs averaged $821,000 per project in the second quarter of 1995. Advertising and staff training investments have been enhanced. For the six months ended July 31, 1995, store opening costs were $20.0 million versus $14.7 million last year, representing costs associated with the opening of 26 stores this year (17 new and 9 relocated) compared to 21 stores in the comparable period last year (13 new and 8 relocated). Depreciation was $35.8 million for the quarter ended July 31, 1995 and $68.8 million for the six months ended July 31, 1995, increases of 37% over the comparable periods last year. The increases are due primarily to fixtures, displays and computer equipment for our store expansion program. Employee retirement plans expense was $13.2 million for the three months ended July 31, 1995, flat compared to last year's quarter. For the six months ended July 31, 1995, employee retirement plans expense was up 10% to $26.7 million. Interest expense increased $2.5 million to $18.3 million for the six months ended July 31, 1995. This is the result of an increase of $.9 million in the first quarter and an increase of $1.6 million in the second quarter. The increase is primarily due to interest on capitalized building leases. -9- The Company's effective income tax rate was 36.34% for the three months ended July 31, 1995, compared to 35.00% for the comparable three months last year. The effective rate was 36.24% versus 35.00% for the six months ended July 31, 1995 and 1994, respectively. The current year's higher rates are due primarily to a higher effective state tax rate. LIQUIDITY AND CAPITAL RESOURCES The uses of cash in the first six months have continued to lay the groundwork for successfully implementing our strategic plan. Merchandise inventory has increased $33.4 million. Real property has increased in line with the Company's strategic plan to continue expansion of sales floor square footage by relocating from older, smaller stores to larger stores and to expand into new markets. The Company's 1995 capital budget will range between $810 and $835 million, inclusive of $238 million in operating leases. Over 80% of this planned investment is for our store expansion program. Present plans are to finance our 1995 expansion through funds from operations, operating leases, issuance of about $40 million in common stock to our ESOP (see Note 9) and external financing. Financing in the first six months came from net earnings and the sales of investments in our cash management program. At July 31, 1995, the Company had an uncommitted aggregate of $174 million available under a shelf registration statement filed with the Securities and Exchange Commission (see Note 10). In addition to these sources, the Company has available agreements for up to $146 million in lines of credit for issuing documentary and standby letters of credit. Another $235 million is available for the purpose of short-term borrowings on a bid basis from various banks. On April 10, 1995, the Company entered into a five year, $300 million revolving credit facility with a group of thirteen commercial banks to provide alternate liquidity for the Company's commercial paper program and for general corporate purposes. Lowe's ended the second quarter with 353 stores and 21.1 million square feet of retail selling space, a 32% increase over last July's selling space. Our expansion plans for 1995 envision about 55 new stores with about 65% in new markets and the balance relocations, for approximately 5.5 million square feet of incremental selling space. Approximately half the 1995 projects will be leased and half will be owned. Our first half expansion included 9 relocations, 17 new stores and 2 new contractor yards representing 2.5 million square feet of incremental retail space. We also closed 1 contractor yard. Our expansion plans for the remainder of Fiscal 1995 include 9 relocations and 20 new stores in new markets. Also during the first quarter, both Moody's Investor Service and Standard and Poor raised the Company's securities ratings. Moody's raised its ratings as follows: Senior Unsecured Debt to A2 from A3; Subordinated Debt to A3 from Baa1; and Commercial Paper to Prime-1 from Prime-2. Standard and Poor raised its ratings as follows: Senior Unsecured Debt to A from A-; Subordinated Debt to A- from BBB+; and Commercial Paper to A-1 from A-2. -10- INDEPENDENT ACCOUNTANTS' REPORT The Board of Directors Lowe's Companies, Inc.: We have reviewed the accompanying consolidated balance sheet of Lowe's Companies, Inc. and subsidiary companies as ofJuly 31, 1995, and the related consolidated statements of current and retained earnings for the three-month and six-month periods ended July 31, 1995 and 1994, and cash flows for the six-month periods ended July 31, 1995 and 1994. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Lowe's Companies, Inc. and subsidiary companies as of January 31, 1995, and the related consolidated statements of current and retained earnings and cash flows for the year then ended (not presented herein); and in our report dated February 20, 1995, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of January 31, 1995 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ Deloitte & Touche LLP Charlotte, North Carolina August 11, 1995 -11- Part II - OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders. (a)-The annual meeting of shareholders was held May 26, 1995. (b)-Directors elected at the meeting: Gordon E. Cadwgan, Petro Kulynych, Russell B. Long, and Robert L. Tillman. -Incumbent Directors whose terms expire in subsequent years are: William A. Andres, John M. Belk, Carol A. Farmer, Leonard G. Herring, Robert G. Schwartz, Robert L. Strickland. (c)-The matters voted upon at the meeting and the results of the voting were as follows: (1) Election of Class II Directors: FOR WITHHELD Gordon E. Cadwgan 137,376,136 578,209 Petro Kulynych 137,590,740 363,605 Rusell B. Long 137,408,944 545,401 Robert L. Tillman 137,294,856 659,489 (2) Proposal to approve the appointment of Deloitte & Touche as the independent certified public accountants of the company: For 137,539,477, Against 148,341, Abstain 266,527. (3) Shareholder proposal to declassify the Board of Directors for the purpose of Director elections: For 52,678,859, Against 70,406,661, Abstain 1,155,911 -13- Part II - OTHER INFORMATION Item 6 (b) - Reports on Form 8-K There were no reports filed on Form 8-K during the quarter ended July 31, 1995. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LOWE'S COMPANIES, INC. September 13, 1995 \s\ Richard D. Elledge Date Richard D. Elledge, Vice President and Chief Accounting Officer EX-11 2 -12- Item 6 (a) - Exhibits Exhibit 11 - Computation of per share earnings Three Months Ended Six Months Ended July 31 July 31 1995 1994 1995 1994 Earnings per Common & Common Equivalent Share: Net Earnings $85,007 $71,351 $143,933 $123,104 Weighted Average Shares Outstanding 160,341 152,436 160,257 150,277 Dilutive Effect of Common Stock Equivalents 91 140 93 140 Weighted Average Shares, as Adjusted 160,432 152,576 160,350 150,417 Earnings per Common & Common Equivalent Share $.53 $.47 $.90 $.82 Earnings per Common Share - Assuming Full Dilution: Net Earnings $85,007 $71,351 $143,933 $123,104 Interest (After Taxes) on Convertible Debt 1,878 1,913 3,759 3,824 Net Earnings, as Adjusted $86,885 $73,264 $147,692 $126,928 Weighted Average Shares Outstanding 160,341 152,436 160,257 150,277 Dilutive Effect of Common Stock Equivalents 112 140 113 140 Shares Added if All Debt Converted 10,898 11,003 10,898 11,003 Weighted Average Shares, as Adjusted 171,351 163,579 171,268 161,420 Earnings per Common Share - Assuming Full Dilution $.51 $.45 $.86 $.79 EX-27 3
5 1000 6-MOS JAN-31-1996 JUL-31-1995 93,321 122,560 146,932 0 1,165,655 1,584,110 1,567,569 0 3,253,939 898,577 0 80,226 0 0 1,498,207 3,253,939 3,612,748 3,612,748 2,697,066 2,697,066 671,678 0 18,259 225,745 81,812 143,933 0 0 0 143,933 .90 .86