-----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, R4E98wN041uIRBVuGbzY7FwnroHwq44dNjPBpGPhvBe7l7grI9BUgOwDnetQYjnO 5zDLk2ggR44pskrUZNUuRA== 0000060667-97-000016.txt : 19970616 0000060667-97-000016.hdr.sgml : 19970616 ACCESSION NUMBER: 0000060667-97-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970502 FILED AS OF DATE: 19970613 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: 97623657 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 May 2, 1997 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)658-4000 (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 30, 1997 Common Stock, $.50 par value 173,866,419 13 TOTAL PAGES -2- LOWE'S COMPANIES, INC. -INDEX- PART I Financial Information: Page No. Consolidated Balance Sheets May 2, 1997, April 30, 1996 and January 31, 1997 3 Consolidated Statements of Current and Retained Earnings three months ended May 2, 1997 and April 30, 1996 4 Consolidated Statements of Cash Flows three months ended May 2, 1997 and April 30, 1996 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
May 2, April 30, January 31, 1997 1996 1997 Assets Current assets: Cash and cash equivalents $ 47,872 $ 108,359 $ 40,387 Short-term investments 19,609 84,241 30,103 Accounts receivable - net 147,871 135,063 117,562 Merchandise inventory 1,819,125 1,451,823 1,605,880 Other assets 54,848 53,654 57,534 Total current assets 2,089,325 1,833,140 1,851,466 Property, less accumulated depreciation 2,583,027 1,984,704 2,494,396 Long-term investments 30,519 28,277 35,615 Other assets 46,455 56,931 53,477 Total assets $4,749,326 $3,903,052 $4,434,954 Liabilities and Shareholders' Equity Current liabilities: Short-term borrowings $ 140,717 $ 59,961 $ 80,905 Current maturities of long-term debt 23,285 8,718 22,566 Accounts payable 1,016,173 842,711 914,167 Employee retirement plans 67,857 45,846 60,770 Accrued salaries and wages 65,846 43,694 71,662 Other current liabilities 254,835 209,326 198,461 Total current liabilities 1,568,713 1,210,256 1,348,531 Long-term debt, excluding current maturities 788,637 897,978 767,338 Deferred income taxes 103,370 87,337 101,609 Total liabilities 2,460,720 2,195,571 2,217,478 Shareholders' equity Preferred stock - $5 par value, none issued - - - Common stock - $.50 par value; Issued and Outstanding May 2, 1997 173,628,954 April 30, 1996 161,234,218 January 31, 1997 173,403,639 86,814 80,617 86,702 Capital in excess of par 912,004 607,721 903,661 Retained earnings 1,306,755 1,027,462 1,245,888 Unearned compensation-restricted stock awards (16,779) (7,597) (18,434) Unrealized loss on available- for-sale securities (188) (722) (341) Total shareholders' equity 2,288,606 1,707,481 2,217,476 Total liabilities and shareholders' equity $4,749,326 $3,903,052 $4,434,954 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 May 2, 1997 April 30, 1996 Amount Percent Amount Percent Current Earnings Net sales $2,400,754 100.00 $1,906,498 100.00 Cost of sales 1,777,051 74.02 1,429,998 75.01 Gross margin 623,703 25.98 476,500 24.99 Expenses: Selling, general and administrative 412,218 17.18 318,978 16.72 Store opening costs 8,252 0.34 12,493 0.66 Depreciation 56,712 2.36 44,635 2.34 Employee retirement plans 19,262 0.80 13,671 0.72 Interest 17,286 0.72 13,189 0.69 Total expenses 513,730 21.40 402,966 21.13 Pre-tax earnings 109,973 4.58 73,534 3.86 Income tax provision 39,590 1.65 26,472 1.39 Net earnings $ 70,383 2.93 $47,062 2.47 Shares outstanding (weighted average) 173,528 161,140 Earnings per common & common equivalent share $0.41 $0.29 Earnings per common share - assuming full dilution $0.41 $0.28 Retained earnings Balance at beginning of period $1,245,888 $988,447 Net earnings 70,383 47,062 Cash dividends (9,516) (8,047) Balance at end of period $1,306,755 $1,027,462 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 May 2, April 30, 1997 1996 Cash Flows From Operating Activities: Net Earnings $ 70,383 $ 47,062 Adjustments to Reconcile Net Earnings to Net Cash Provided By Operating Activities: Depreciation 56,712 44,635 Amortization of Original Issue Discount 28 874 Increase in Deferred Income Taxes 2,613 1,141 (Gain)Loss on Disposition/Writedown of Fixed and Other Assets 6,120 (1,156) Decrease (Increase) in Operating Assets: Accounts Receivable - Net (30,309) (21,580) Merchandise Inventory (213,245) (184,746) Other Operating Assets 1,811 752 Increase in Operating Liabilities: Accounts Payable 102,006 187,312 Employee Retirement Plans 15,587 11,915 Other Operating Liabilities 52,091 34,666 Net Cash Provided by Operating Activities 63,797 120,875 Cash Flows from Investing Activities: Decrease (Increase) in Investment Assets: Short-Term Investments 16,879 33,398 Purchases of Long-Term Investments (3,012) (7,636) Proceeds from Sale/Maturity of Long-Term Investments 1,958 10,548 Decrease in Other Long-Term Assets 315 76 Fixed Assets Acquired (121,539) (144,121) Proceeds from the Sale of Fixed and Other Long-Term Assets 1,984 3,825 Net Cash Used in Investing Activities (103,415) (103,910) Cash Flows from Financing Activities: Sources: Net Increase in Short-Term Borrowings 59,812 43,344 Stock Options Exercised 76 - Total Financing Sources 59,888 43,344 Uses: Repayment of Long-term Debt (3,269) (7,771) Cash Dividend Payments (9,516) (8,047) Total Financing Uses (12,785) (15,818) Net Cash Provided by Financing Activities 47,103 27,526 Net Increase in Cash and Cash Equivalents 7,485 44,491 Cash and Cash Equivalents, Beginning of Period 40,387 63,868 Cash and Cash Equivalents, End of Period $47,872 $108,359 See accompanying notes to consolidated financial statements.
-6- Lowe's Companies, Inc. and Subsidiary Companies Notes to Consolidated Financial Statements Note 1: The accompanying Consolidated Financial Statements (unaudited) have been reviewed by an independent certified public accountant, and in the opinion of management, they contain all adjustments necessary to present fairly the financial position as of May 2, 1997, and the results of operations and the cash flows for the three-month periods ended May 2, 1997 and April 30, 1996. Note 2: During this fiscal year, when the current quarter is compared with the same fiscal quarter in the prior year, certain variances result because, effective February 1, 1997, the Company adopted a 52 week fiscal year, changing the year end date from January 31 to the Friday nearest January 31. Each quarter of the 52 week fiscal year will contain 13 weeks except for the infrequent fiscal years with 53 weeks. The Company estimates that had it been on a similar calendar in fiscal 1996, the previously reported results for the first quarter would have been favorably impacted by approximately three cents per share. The earnings differences for the second, third and fourth quarters of fiscal 1996 attributable to the Company's change of its fiscal calendar are approximately one cent per share or less. Note 3: The Company has a cash management program which provides for the investment of excess cash balances in financial instruments which have maturities of up to three years. Investments with original maturities of three months or less when purchased are classified as cash equivalents. Investments with a maturity of between three months and one year from the balance sheet date are classified as short-term investments. Investments with maturities greater than one year are classified as long-term. Note 4: Net interest expense is composed of the following ($ in thousands):
Quarter ended May 2, April 30, 1997 1996 Long-term debt $ 6,576 $ 9,763 Capitalized leases 10,010 5,676 Short-term debt 3,435 1,198 Amortization of loan cost 89 103 Short-term interest income (1,499) (2,221) Interest capitalized on construction in progress (1,325) (1,330) Net interest expense $17,286 $13,189
Note 5: If the FIFO method of inventory accounting had been used, inventories would have been $77,162,000 higher at May 2, 1997, $77,717,000 higher at April 30, 1996 and $74,616,000 higher at January 31, 1997. Note 6: Stock options exercised consisted of 4,000 shares resulting in proceeds of $75,500 for the quarter ended May 2, 1997. There were no stock options exercised in the quarter ended April 30, 1996. Note 7: Property is shown net of accumulated depreciation of $660,374,000 at May 2, 1997, $496,635,000 at April 30, 1996 and $609,707,000 at January 31, 1997. -7- Note 8: Supplemental disclosures of cash flow information ($ in thousands):
Quarter ended May 2, 1997 April 30, 1996 Cash paid for interest (net of capitalized) $22,996 $17,758 Cash paid for income taxes 4,982 1,811 Non-cash investing and financing activities: Common stock issued to ESOP 8,500 10,993 Fixed assets acquired under capital lease 25,260 33,310
Note 9: In January 1997, the Board of Directors authorized the funding of the Fiscal 1996 ESOP contribution primarily with the issuance of new shares of the Company's common stock. During the first quarter of Fiscal 1997, the Company issued 225,165 shares with a market value of $8.5 million. Note 10: On May 9, 1997, the Company registered $350 million of Medium- Term Notes (MTN's) from its shelf registration filed with the SEC on November 8, 1996. As of May 15, 1997, the Company had sold $100 million of these MTN's to investors with a final maturity of May 15, 2037, at a yield of 7.11%. This issuance of MTN's may be put at the option of the holder on either the tenth or twentieth anniversary date of the issue. Note 11: 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. In February 1997, Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128) was issued to simplify the standards for computing earnings per share (EPS) and make them comparable to international EPS standards. SFAS 128 is effective for periods ending after December 15, 1997 and can not be adopted at an earlier date. SFAS 128 will require dual presentation of basic and diluted EPS on the face of the statement of current earnings and a reconciliation of the components of the basic and diluted EPS calculations in the notes to the financial statements. Basic EPS excludes dilution and is computed by dividing net earnings by the weighted-average number of common shares outstanding for the period. Diluted EPS is similar to fully diluted EPS pursuant to Accounting Principles Board (APB) Opinion No. 15. The Company will adopt SFAS 128 in the quarter and year ending January 30, 1998. Had the new standard been applied in the quarter ending May 2, 1997, basic and diluted EPS would have been the same as primary and fully diluted EPS under APB Opinion No. 15. Note 12: The Company has a program with General Electric Capital Corporation (GECC) under which it sells credit card receivables from its proprietary credit card to GECC. Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" (SFAS 125), effective for transactions after December 31, 1996, would require the Company to record the receivables sold to GECC as assets on its consolidated balance sheet, with a corresponding amount shown as a liability under the structure of the current credit card sales agreement. At May 2, 1997, the Company has not reflected the credit card receivables which have arisen and been sold to GECC since December 31, 1996 in its consolidated balance sheet, as such amounts are not material. The Company is currently working with GECC to restructure the credit card sales agreement, and believes that under the new agreement, the credit card receivables will continue to be excluded from the consolidated balance sheet under SFAS 125. -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 1997, sales increased 26% to $2.401 billion, comparable store sales had a 7% gain and net earnings increased by 50% to $70.383 million compared to last year's first quarter results. Earnings per share (fully diluted) were $.41 compared to $.28 for the comparable quarter of last year. 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. Sales performances in our basic businesses were strong through-out the quarter. Electrical, home decor, tools, appliances, kitchen cabinets and lawn and garden categories all posted sales increases exceeding 25%. Gross margin was 25.98% of sales for the quarter ended May 2, 1997 compared to 24.99% for the first quarter of last year. Of the 99 basis point improvement, 12 basis points were due to a favorable LIFO comparison. The balance of 87 points is due to several components including continued efforts in monitoring store pricing disciplines, favorable changes in the merchandise mix as well as the mix shift from contractor to retail. The newer higher margin categories which are less seasonal, such as floor care and R.T.A. (ready-to-assemble) furniture also contributed to improved margin performance. These categories were introduced in the second half of 1996 as the consumer electronics offering was modified. Selling, general and administrative expenses (SG&A) were 17.18% of sales versus 16.72% in last year's first quarter. The sudden shift to cooler and wetter weather in April and its effect on sales in that month resulted in stores' payroll not being leveraged by sales for the quarter. In addition, the timing of write-downs of properties related to future closings or relocations of stores, in accordance with SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," had a negative impact on the SG&A comparison. For the quarter ended May 2, 1997, store opening costs were $8.3 million versus $12.5 million last year, representing costs associated with the opening of 8 stores this year (6 new and 2 relocated) compared to 15 stores in last year's first quarter (10 new and 5 relocated). Charges in this quarter for future and prior openings were $2.7 million compared to $3.3 million in 1996's first quarter. The Company's 1997 expansion plans are discussed under "Liquidity and Capital Resources" below. Depreciation was $56.7 million for the quarter ended May 2, 1997. This is an increase of 27% over the comparable period last year and is due primarily to real estate, fixtures, displays and computer equipment relating to the Company's expansion program. -9- Employee retirement plans expense increased 41% to $19.3 million for the quarter ended May 2, 1997. Higher estimated eligibility rates were primarily responsible for the increase. Interest expense increased from $13.2 million to $17.3 million for the quarter ended May 2, 1997. Interest increased primarily due to capitalized building leases and short-term interest expense. The Company's effective income tax rate was 36.00% for the quarters ended May 2, 1997 and April 30, 1996. 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. Net cash provided by operating activities was $64 million for the quarter ended May 2, 1997 compared to $121 million for last year's first quarter. The decrease in this year's first quarter resulted primarily from expansion related increases in inventory levels and a smaller increase in accounts payable. The Company's working capital was $521 million at May 2, 1997 compared to $623 million at April 30, 1996 and $503 million at January 31, 1997. Real property has increased as a result of the Company's 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 1997 capital budget is targeted at $1.2 billion, inclusive of $300 million in operating or capital leases. Over 80% of the capital budget is for store expansion. Lowe's ended the first quarter with 407 stores and 31.1 million square feet of retail selling space, a 23% increase over first quarter 1996's selling space. Expansion plans for 1997 consist of approximately 60 to 65 new stores with about 70% in new markets and the balance relocations of existing stores, for approximately 6.2 million square feet of additional retail space. Approximately one-half of the 1997 projects will be leased. Our first quarter expansion included 2 relocations and 6 new stores representing 760 thousand square feet of new incremental retail space. Current plans are to finance the Company's 1997 expansion program through funds from operations, leases, issuance of $58 million in common stock to our ESOP and from external financing. The Company had $141 million of short-term borrowings at May 2, 1997 compared to $60 million at April 30, 1996 and $81 million at January 31, 1997. On May 9, 1997, the Company registered $350 million of Medium-Term Notes (MTN's) from its shelf registration filed with the SEC on November 8, 1996. As of May 15, 1997, the Company had sold $100 million of these MTN's to investors with a final maturity of May 15, 2037, at a yield of 7.11%. This issuance of MTN's may be put at the option of the holder on either the tenth or twentieth anniversary date of the issue. -10- IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS In February 1997, Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128) was issued to simplify the standards for computing earnings per share (EPS) and make them comparable to international EPS standards. SFAS 128 is effective for periods ending after December 15, 1997 and can not be adopted at an earlier date. SFAS 128 will require dual presentation of basic and diluted EPS on the face of the statement of current earnings and a reconciliation of the components of the basic and diluted EPS calculations in the notes to the financial statements. Basic EPS excludes dilution and is computed by dividing net earnings by the weighted-average number of common shares outstanding for the period. Diluted EPS is similar to fully diluted EPS pursuant to Accounting Principles Board (APB) Opinion No. 15. The Company will adopt SFAS 128 in the quarter and year ending January 30, 1998. Had the new standard been applied in the quarter ending May 2, 1997, basic and diluted EPS would have been the same as primary and fully diluted EPS under APB Opinion No. 15. FORWARD-LOOKING LANGUAGE This Securities and Exchange Commission Form 10-Q may include "forward- looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Although the Company believes that comments reflected in such forward-looking statements are reasonable, they are based on information existing at the time made. Therefore, it can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ from expectations include, but are not limited to, general economic trends, availability and development of real estate for expansion, commodity markets, and the nature of competition and weather conditions, all which are described in detail in the Company's 1996 Annual Report. -11- INDEPENDENT ACCOUNTANTS' REPORT The Board of Directors Lowe's Companies, Inc.: We have reviewed the accompanying consolidated balance sheets of Lowe's Companies, Inc. and subsidiary companies as of May 2, 1997 and April 30, 1996, and the related consolidated statements of current and retained earnings and of cash flows for the three-month periods ended May 2, 1997 and April 30, 1996. 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, 1997, 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, 1997, 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, 1997 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 13, 1997 -12- Part II OTHER INFORMATION 6 (a) - Exhibits Exhibit 11 - 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 May 2, 1997. 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. Date June 13, 1997 \s\ Richard D. Elledge Richard D. Elledge, Senior Vice President and Chief Accounting Officer EX-11 2 -13- Exhibit 11 - Computation of per share earnings Three Months Ended May 2, April 30, 1997 1996 Earnings per Common & Common Equivalent Share: Net Earnings $70,383 $47,062 Weighted Average Shares Outstanding 173,453 161,064 Dilutive Effect of Common Stock Equivalents 75 76 Weighted Average Shares, as Adjusted 173,528 161,140 Earnings per Common & Common Equivalent Share $.41 $.29 Earnings per Common Share - Assuming Full Dilution: Net Earnings $70,383 $47,062 Interest (After Taxes) on Convertible Debt - 1,906 Net Earnings, as Adjusted $70,383 $48,968 Weighted Average Shares Outstanding 173,453 161,064 Dilutive Effect of Common Stock Equivalents 75 76 Shares Added if All Debt Converted - 10,897 Weighted Average Shares, as Adjusted 173,528 172,037 Earnings per Common Share - Assuming Full Dilution $.41 $.28 EX-27 3
5 1000 3-MOS JAN-30-1998 MAY-02-1997 47,872 19,609 147,871 0 1,819,125 2,089,325 2,583,027 0 4,749,326 1,568,713 0 0 0 86,814 2,201,792 4,749,326 2,400,754 2,400,754 1,777,051 1,777,051 496,444 0 17,286 109,973 39,590 109,973 0 0 0 70,383 .41 .41
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