-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H4Y/7UONKOqyVTV4d0f+9nsSY1TU8zAaQjhOGDM+j5eM0JNpdL8BLAbhtD6KkQfa VM3lVrL2zq5uY2Hp/fv6XA== 0000060667-96-000007.txt : 19960613 0000060667-96-000007.hdr.sgml : 19960613 ACCESSION NUMBER: 0000060667-96-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960430 FILED AS OF DATE: 19960612 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: 96580156 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 April 30, 1996 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 incorporation or organization) Identification No.) 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 May 31, 1996 Common Stock, $.50 par value 161,406,093 12 TOTAL PAGES -2- LOWE'S COMPANIES, INC. - INDEX - PART I - Financial Information: Page No. Consolidated Balance Sheets - April 30, 1996 and January 31, 1996 3 Consolidated Statements of Current and Retained Earnings - three months ended April 30, 1996 and 1995 4 Consolidated Statements of Cash Flows - three months ended April 30, 1996 and 1995 5 Notes to Consolidated Financial Statements. 6-7 Management's Discussion and Analysis of Results of Operations and Financial Condition 8-10 Independent Accountants' Report 11 PART II - Other Information 12 Item 6 (a) - Exhibits Item 6 (b) - Reports on Form 8-K EXHIBIT INDEX Exhibit 11 Computation of per share earnings 13 -3- Consolidated Balance Sheets Lowe's Companies, Inc. and Subsidiary Companies Dollars in thousands
April 30, January 31, 1996 1996 Assets Current assets: Cash and cash equivalents $108,359 $63,868 Short-term investments 84,241 107,429 Accounts receivable - net 135,063 113,483 Merchandise inventory 1,451,823 1,267,077 Other assets 53,654 51,827 Total current assets 1,833,140 1,603,684 Property, less accumulated depreciation 1,984,704 1,858,274 Long-term investments 28,277 41,059 Other assets 56,931 53,369 Total assets $3,903,052 $3,556,386 Liabilities and Shareholders' Equity Current liabilities: Short-term notes payable $59,961 $16,617 Current maturities of long-term debt 8,718 14,127 Accounts payable 842,711 655,399 Employee retirement plans 45,846 44,924 Accrued salaries and wages 43,694 67,370 Other current liabilities 209,326 151,494 Total current liabilities 1,210,256 949,931 Long-term debt, excluding current maturities 897,978 866,183 Deferred income taxes 87,337 83,557 Total liabilities 2,195,571 1,899,671 Shareholders' equity Common stock - $.50 par value; Issued and Outstanding April 30, 1996 161,234,218 January 31, 1996 160,918,046 80,617 80,459 Capital in excess of par 607,721 596,828 Retained earnings 1,027,462 988,447 Unearned compensation-restricted stock awards (7,597) (8,076) Unrealized loss on available-for-sale securities (722) (943) Total shareholders' equity 1,707,481 1,656,715 Total liabilities shareholders' equity $3,903,052 $3,556,386 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 April 30, 1996 April 30, 1995 Amount Percent Amount Percent Current Earnings Net sales $1,906,498 100.00 $1,634,690 100.00 Cost of sales 1,429,998 75.01 1,212,580 74.18 Gross margin 476,500 24.99 422,110 25.82 Expenses: Selling, general and administrative 318,978 16.72 265,464 16.23 Store opening costs 12,493 0.66 8,591 0.53 Depreciation 44,635 2.34 32,970 2.02 Employee retirement plans 13,671 0.72 13,539 0.83 Interest 13,189 0.69 9,330 0.57 Total expenses 402,966 21.13 329,894 20.18 Pre-tax earnings 73,534 3.86 92,216 5.64 Income tax provision 26,472 1.39 33,290 2.04 Net earnings $47,062 2.47 $58,926 3.60 Shares outstanding (weighted average) 161,140 159,815 Earnings per common & common equivalent share $0.29 $0.37 Earnings per common share - assuming full dilution $0.28 $0.36 Retained earnings Balance at beginning of period $988,447 $792,891 Net earnings 47,062 58,926 Cash dividends (8,047) (7,197) Balance at end of period $1,027,462 $844,620 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 three months ended April 30, 1996 1995 Cash Flows From Operating Activities: Net Earnings $47,062 $58,926 Adjustments to Reconcile Net Earnings to Net Cash Provided By (Used in) Operating Activities: Depreciation 44,635 32,970 Amortization of Original Issue Discount 874 1,112 Increase in Deferred Income Taxes 1,141 Gain on Disposition/Writedown of Fixed and Other Assets (1,156) (800) Decrease (Increase) in Operating Assets: Accounts Receivable - Net (21,580) (35,514) Merchandise Inventory (184,746) (128,793) Other Operating Assets 752 1,825 Increase (Decrease) in Operating Liabilities: Accounts Payable 187,312 16,319 Employee Retirement Plans 11,915 12,273 Accrued Store Restructuring (4,416) Other Operating Liabilities 34,666 13,419 Net Cash Provided by (Used in) Operating Activities 120,875 (32,679) Cash Flows from Investing Activities: Decrease (Increase) in Investment Assets: Short-Term Investments 33,398 67,684 Purchases of Long-Term Investments (7,636) (8,450) Proceeds from Sale/Maturity of Long-Term Investments 10,548 46,558 Other Long-Term Assets 76 3,752 Fixed Assets Acquired (144,121) (87,292) Proceeds from the Sale of Fixed and Other Long-Term Assets 3,825 3,093 Net Cash Provided by (Used in) Investing Activities (103,910) 25,345 Cash Flows from Financing Activities: Sources: Net Increase in Short-Term Borrowings 43,344 Uses: Repayment of Long-term Debt (7,771) (1,440) Net Decrease in Short-Term Borrowings (12) Cash Dividend Payments (8,047) Total Financing Uses (15,818) (1,452) Net Cash Provided by (Used in) Financing Activities 27,526 (1,452) Net Increase (Decrease) in Cash and Cash Equivalents 44,491 (8,786) Cash and Cash Equivalents, Beginning of Period 63,868 150,319 Cash and Cash Equivalents, End of Period $108,359 $141,533 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 April 30, 1996, and the results of operations and the cash flows for the three-month periods ended April 30, 1996 and 1995. Note 2: The results of operations for the three-month periods ended April 30, 1996 and 1995 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. Note 4: Net interest expense is composed of the following: Quarter ended April 30, 1996 1995 Long-term debt $9,763 $8,827 Capitalized leases 5,676 3,370 Short-term debt 1,198 261 Amortization of loan cost 103 70 Short-term interest income (2,221) (2,259) Interest capitalized on construction in progress (1,330) (939) Net interest expense $13,189 $9,330 Note 5: If the FIFO method of inventory accounting had been used, inventories would have been $77,717,000 higher at April 30, 1996 and $73,226,000 higher at January 31, 1996. Note 6: There were no stock options exercised in the three-month periods ended April 30, 1996 and 1995. Note 7: Property is shown net of accumulated depreciation of $496,635,000 at April 30, 1996 and $459,622,000 at January 31, 1996. -7- Note 8: Supplemental disclosures of cash flow information: Three months ended April 30 1996 1995 Cash paid for interest (net of capitalized) $ 17,758,000 $ 15,555,000 Cash paid for income taxes 1,811,000 739,000 Non-cash investing and financing activities: Common stock issued to ESOP 10,993,000 10,000,000 Fixed assets acquired under capital lease 33,310,000 14,887,000 Common stock issued to executives and directors 511,000 - Conversion of debt to common stock 26,000 2,230,000 Note 9: In January 1996, the Board of Directors authorized the funding of the Fiscal 1995 ESOP contribution primarily with the issuance of new shares of the Company's common stock. During the first quarter of Fiscal 1996, the Company issued 314,025 shares with a market value of $11.0 million. The remaining shares will be issued by the end of the third quarter. Note 10: During the first quarter of Fiscal 1996 and 1995, $30,000 and $2,531,000 principal of the Company's 3% Convertible Subordinated Notes were converted into 1,147 and 96,866 shares of the Company's common stock, respectively. Note 11: Costs associated with the relocation and closing of stores during the three months ended April 30, 1995, which were recognized through the restructuring charge in Fiscal 1991, totaled $2,942,000. There were no costs recognized through the restructuring charge during the three months ended April 30, 1996 since the store restructuring accrual was depleted as of January 31, 1996, as anticipated. Note 12: 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 first quarter of fiscal 1996, sales grew 17% to $1.906 billion and comparable store sales were up 1%, but net earnings declined 20% to $47.062 million compared to last year's first quarter results. Earnings per share (fully diluted) were $.28 compared to $.36 for the comparable quarter of last year. Extremely adverse weather conditions in March severely impacted our performance for the first quarter of fiscal 1996. Sales in the first quarter were enhanced by the addition of 5.7 million square feet of retail selling space at new and existing locations since last year's first quarter. February's total sales increase of 25% and April's sales growth of 20% were pulled down for the quarter by March's modest gain of 7%. Throughout the quarter, sales trends were strong on interior home improvement categories such as lighting, plumbing, interior paint, wall and window treatments, and kitchen appliances. The opposite was true on exterior products, such as outdoor power equipment, plywood and sidings, structural lumber, gypsum products, lawn and garden products and other basic construction materials. Reducing the overall 17% sales increase is 3% deflation in sales prices. While the most significant deflation came in lumber/building materials, prices in consumer electronics, home decor, electrical, major appliances/kitchens, nursery & garden products and power tools were lower also. Gross margin was 24.99% of sales for the quarter ended April 30, 1996 compared to 25.82% for the first quarter last year and 24.92% for all of fiscal 1995. An unusually strong product mix enhanced last year's first quarter. Nevertheless, this 24.99% is the second highest first quarter in the 1990's. This margin performance is highlighted by our commitment to Everyday Low Prices and our Price Guarantee program. Selling, general and administrative expenses (SG&A) were 16.72% of sales versus 16.23% in last year's first quarter. Store salaries (excluding those in store opening costs) rose 22% compared to the 17% sales growth and were responsible for 43 of the total 49 basis points increase. We increased our store staff in anticipation of a strong spring business. However, the spring weather did not come until the second week in April. -9- For the quarter ended April 30, 1996, store opening costs were $12.5 million versus $8.6 million last year, representing costs associated with the opening of 15 stores this year (10 new and 5 relocated) compared to 13 stores in last year's first quarter (7 new and 6 relocated). Charges in this quarter for future openings were $2.3 million compared to $1.2 million in 1995's first quarter. Depreciation was $44.6 million for the quarter ended April 30, 1996. This is an increase of 35% over the comparable period last year and is due primarily to fixtures, displays and computer equipment relating to the Company's expansion program. Employee retirement plans expense increased 1% to $13.7 million for the quarter ended April 30, 1996. This modest increase is caused by higher base salaries. Interest expense increased $3.9 million to $13.2 million for the quarter ended April 30, 1996. Interest increased primarily due to senior notes issued in December 1995 and our capitalized building leases. The Company's effective income tax rate was 36.00% for the quarter ended April 30, 1996, compared to 36.10% for the comparable quarter last year. LIQUIDITY AND CAPITAL RESOURCES The uses of cash in the first quarter have continued to lay the groundwork for successfully implementing the Company's strategic plan. Merchandise inventory has increased $184.7 million, about 26% due to our new and relocated stores and 74% due to seasonal increases in inventory and increased merchandise assortments. Real property has increased in line with the Company's strategic plan to continue expansion of retail sales floor square footage by expanding into new markets and relocating from older, smaller stores to larger stores. The Company's 1996 capital budget is targeted at $1 billion, inclusive of $240 million in operating or capital leases. Over 80% of this planned investment is for store expansion. Lowe's ended the first quarter with 375 stores and 25.4 million square feet of retail selling space, a 29% increase over last April's selling space. The Company's expansion plans for 1996 envision about 60 new stores with about 75% in new markets and the balance relocations, for approximately 6.7 million square feet of additional retail space. Approximately one half the 1996 projects will be leased and one half will be owned. Our first quarter expansion included 5 relocations and 10 new stores representing 1.5 million square feet of new incremental retail space. -10- Current plans are to finance our 1996 expansion program through funds from operations, operating leases, issuance of about $40 million in common stock to our ESOP (see Note 9) and from external financing. Financing in the first quarter came from net earnings and the sales of investments in our cash management program. In addition to these sources, the Company has available agreements for up to $176 million in lines of credit for issuing documentary and standby letters of credit. The Company has a five year, $300 million revolving credit facility with a syndicate of thirteen banks to provide alternate liquidity for the Company's commercial paper program and for general corporate purposes. A $100 million revolving credit and security agreement, expiring in September 1996, is available from a financial institution. Another $75 million is available for the purpose of short-term borrowings on a bid basis from various banks. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS As required, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" beginning February 1, 1996 and there was no material effect on the Company's financial statements. In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation," was issued and is effective for the Company on February 1, 1996. As permitted by No. 123, the Company will continue to apply APB Opinion No. 25, which recognizes compensation cost based on the intrinsic value of the equity instrument awarded, to its stock based compensation awards to employees and will disclose the required pro forma effect on net income and earnings per share. -11- 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 of April 30, 1996, and the related consolidated statements of current and retained earnings and of cash flows for the three-month periods ended April 30, 1996 and 1995. 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, 1996, and the related consolidated statements of current and retained earnings and of cash flows for the year then ended (not presented herein); and in our report dated February 20, 1996 (March 4, 1996 as to the fourth paragraph of Note 14), 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, 1996 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 May 10, 1996 -12- Part II OTHER INFORMATION 6 (a) - Exhibits - Computation of per share earnings Part II OTHER INFORMATION 6 (b) - Reports on Form 8 K There were no reports filed on Form 8-K during the quarter ended April 30, 1996. 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. \s\ Richard D. Elledge Date June 12, 1996 Richard D. Elledge, Senior Vice President and Chief Accounting Officer EX-11 2 -13- Exhibit 11 - Computation of per share earnings Three Months Ended April 30 1996 1995 Earnings per Common & Common Equivalent Share: Net Earnings $47,062 $58,926 Weighted Average Shares Outstanding 161,064 159,734 Dilutive Effect of Common Stock Equivalents 76 81 Weighted Average Shares, as Adjusted 161,140 159,815 Earnings per Common & Common Equivalent Share $.29 $.37 Earnings per Common Share - Assuming Full Dilution: Net Earnings $47,062 $58,926 Interest (After Taxes) on Convertible Debt 1,906 1,882 Net Earnings, as Adjusted $48,968 $60,808 Weighted Average Shares Outstanding 161,064 159,734 Dilutive Effect of Common Stock Equivalents 76 81 Shares Added if All Debt Converted 10,897 10,898 Weighted Average Shares, as Adjusted 172,037 170,713 Earnings per Common Share - Assuming Full Dilution $.28 $.36 EX-27 3
5 1000 3-MOS JAN-31-1997 APR-30-1996 108,389 84,241 135,063 0 1,451,823 1,833,140 1,984,704 0 39,033,052 1,210,256 0 0 0 80,617 1,626,864 3,903,052 1,906,498 1,906,498 1,429,998 1,429,998 389,777 0 13,189 73,534 26,472 47,062 0 0 0 47,062 .29 .28
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