-----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, Ju++shERRoszZJyUJH7bi/CvevVTbolE1HU37YZLjx50dDJmYF+0lB/FUvtRo4wW 3P9oAKSqogDrZJ/+ZnTTXg== 0000060667-98-000009.txt : 19980615 0000060667-98-000009.hdr.sgml : 19980615 ACCESSION NUMBER: 0000060667-98-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980501 FILED AS OF DATE: 19980612 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: SEC FILE NUMBER: 001-07898 FILM NUMBER: 98647629 BUSINESS ADDRESS: STREET 1: PO BOX 1111 CITY: NORTH WILKESBORO STATE: NC ZIP: 28656 BUSINESS PHONE: 3366584000 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 1, 1998 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. EmployerIdentification No.) incorporation or organization) P.O. BOX 1111, NORTH WILKESBORO, N.C. 28656 (Address of principal executive offices) (Zip Code) (336) 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 29, 1998 Common Stock,$.50 par value 351,766,194 12 TOTAL PAGES -2- LOWE'S COMPANIES, INC. - INDEX - Page No. PART I - Financial Information: Consolidated Balance Sheets - May 1, 1998, May 2, 1997 and January 31, 1997 3 Consolidated Statements of Current and Retained Earnings - three months ended May 1, 1998 and May 2, 1997 4 Consolidated Statements of Cash Flows - three months ended May 1, 1998 and May 2, 1997 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 (b) - Reports on Form 8-K -3- Lowe's Companies, Inc. Consolidated Balance Sheets In Thousands
May 1, May 2, January 30, 1998 1997 1998 Assets Current assets: Cash and cash equivalents $623,406 $47,872 $195,146 Short-term investments 27,781 19,609 16,155 Accounts receivable - net 150,219 147,871 118,408 Merchandise inventory 2,033,143 1,819,125 1,714,592 Other assets 87,214 54,848 65,301 Total current assets 2,921,763 2,089,325 2,109,602 Property, less accumulated depreciation 3,097,253 2,583,027 3,005,199 Long-term investments 39,139 30,519 35,161 Other assets 57,708 46,455 69,315 Total assets $6,115,863 $4,749,326 $5,219,277 Liabilities and Shareholders' Equity Current liabilities: Short-term borrowings $93,975 $140,717 $98,104 Current maturities of long-term debt 21,745 23,285 12,478 Accounts payable 1,338,833 1,016,173 969,777 Employee retirement plans 63,787 67,857 64,669 Accrued salaries and wages 76,637 65,846 83,377 Other current liabilities 354,754 254,835 220,915 Total current liabilities 1,949,731 1,568,713 1,449,320 Long-term debt, excluding current maturities 1,331,177 788,637 1,045,570 Deferred income taxes 122,203 103,370 123,778 Total liabilities 3,403,111 2,460,720 2,618,668 Shareholders' equity Preferred stock - $5 par value, none issued - - - Common stock - $.50 par value; Issued and Outstanding May 1, 1998 351,456 May 2, 1997 347,258 January 30, 1998 350,632 175,728 173,629 175,316 Capital in excess of par 914,889 825,189 892,666 Retained earnings 1,649,988 1,306,755 1,565,133 Unearned compensation-restricted stock awards (27,900) (16,779) (32,694) Unrealized gain (loss) on available-for-sale securities 47 (188) 188 Total shareholders' equity 2,712,752 2,288,606 2,600,609 Total liabilities and shareholders' equity $6,115,863 $4,749,326 $5,219,277 See accompanying notes to consolidated financial statements.
-4- Lowe's Companies, Inc. Consolidated Statements of Current and Retained Earnings In Thousands, Except Per Share Data
Quarter Ended May 1, 1998 May 2, 1997 Current Earnings Amount Percent Amount Percent Net sales $2,899,540 100.00 $2,400,754 100.00 Cost of sales 2,139,502 73.79 1,777,051 74.02 Gross margin 760,038 26.21 623,703 25.98 Expenses: Selling, general and administrative 516,073 17.80 431,480 17.98 Store opening costs 11,365 0.39 8,252 0.34 Depreciation 64,732 2.23 56,712 2.36 Interest 19,663 0.68 17,286 0.72 Total expenses 611,833 21.10 513,730 21.40 Pre-tax earnings 148,205 5.11 109,973 4.58 Income tax provision 53,740 1.85 39,590 1.65 Net earnings $94,465 3.26 $70,383 2.93 Shares outstanding (weighted average) 351,033 346,906 Basic and Diluted Earnings Per Share $0.27 $0.20 Retained Earnings Balance at beginning of period $1,565,133 $1,245,888 Net earnings 94,465 70,383 Cash dividends (9,610) (9,516) Balance at end of period $1,649,988 $1,306,755 See accompanying notes to consolidated financial statements.
-5- Lowe's Companies, Inc. Consolidated Statements of Cash Flows In Thousands
For the Three Months Ended May 1, May 2, 1998 1997 Cash Flows From Operating Activities: Net Earnings $94,465 $70,383 Adjustments to Reconcile Net Earnings to Net Cash Provided By Operating Activities: Depreciation 64,732 56,712 Amortization of Original Issue Discount 109 28 Increase (Decrease) in Deferred Income Taxes (7,436) 2,613 Loss on Disposition/Writedown of Fixed and Other Assets 12,197 6,120 Changes in Operating Assets and Liabilities: Accounts Receivable - Net (31,811) (30,309) Merchandise Inventory (318,551) (213,245) Other Operating Assets (15,935) 1,811 Accounts Payable 369,056 102,006 Employee Retirement Plans 17,046 15,587 Other Operating Liabilities 141,340 52,091 Net Cash Provided by Operating Activities 325,212 63,797 Cash Flows from Investing Activities: (Increase) Decrease in Investment Assets: Short-Term Investments (7,611) 16,879 Purchases of Long-Term Investments (8,193) (3,012) Proceeds from Sale/Maturity of Long-Term Investments - 1,958 Decrease in Other Long-Term Assets 831 315 Fixed Assets Acquired (156,255) (121,539) Proceeds from the Sale of Fixed and Other Long-Term Assets 1,927 1,984 Net Cash Used in Investing Activities (169,301) (103,415) Cash Flows from Financing Activities: Long-Term Debt Borrowings 296,160 - Net Increase (Decrease) in Short-Term Borrowings (4,129) 59,812 Proceeds from Stock Options Exercised 4,845 76 Repayment of Long-Term Debt (5,331) (3,269) Cash Dividend Payments (19,196) (9,516) Net Cash Provided by Financing Activities 272,349 47,103 Net Increase in Cash and Cash Equivalents 428,260 7,485 Cash and Cash Equivalents, Beginning of Year 195,146 40,387 Cash and Cash Equivalents, End of Period $623,406 $47,872 See accompanying notes to consolidated financial statements.
-6- Lowe's Companies, Inc. 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 1, 1998, and the results of operations and the cash flows for the three months ended May 1, 1998 and May 2, 1997. These interim financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended January 30, 1998. On May 29, 1998, the Board of Directors declared a two-for one stock split on the Company's common stock. One additional share will be issued on June 26, 1998 for each share held by shareholders of record on June 12, 1998. Par value will remain unchanged at $.50 and approximately $87.9 million will be transferred to common stock from capital in excess of par as of the record date. The accompanying Consolidated Financial Statements, including per share data, have been adjusted to reflect the effect of the stock split. Diluted earnings per share are calculated on the weighted average shares of common stock as adjusted for the dilutive effects of stock options outstanding at the balance sheet date. The post-split equivalents of weighted average shares, as adjusted for dilution, were 352,436,000 and 347,056,000 for the three months ended May 1, 1998 and May 2, 1997, respectively. Note 2: 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 five 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. At May 1, 1998 and May 2, 1997, the Company had no derivative financial instruments. Note 3 Net interest expense is composed of the following (in thousands): [CAPTION] Quarter ended May 1, 1998 May 2,1997 [S] [C] [C] Long-term debt $15,481 $ 6,576 Capitalized leases 9,967 10,010 Short-term debt 1,429 3,435 Amortization of loan cost 206 89 Short-term interest income (4,938) (1,499) Interest capitalized on construction in progress (2,482) (1,325) Net interest expense $19,663 $17,286 Note 4: Inventory is stated at the lower of cost or market using the last- in, first-out inventory accounting method. If the first-in, first out method of inventory accounting had been used, inventories would have been $67.6 million higher at May 1, 1998 and January 30, 1998 and $77.2 million higher at May 2, 1997. -7- Note 5: Property is shown net of accumulated depreciation of $846.9 million at May 1, 1998, $660.4 million at May 2, 1997 and $789.8 million at January 30, 1998. Note 6: Supplemental disclosures of cash flow information (in thousands): [CAPTION] Quarter ended May 1, 1998 May 2, 1997 [S] [C] [C] Cash paid for interest (net of capitalized) $24,305 $22,996 Cash paid for income taxes 6,611 4,982 Non-cash investing and financing activities: Common stock issued to ESOP 17,928 8,500 Fixed assets acquired under capital lease $ 3,937 $25,260 Note 7: In January 1998, the Board of Directors authorized the funding of the Fiscal 1997 ESOP contribution primarily with the issuance of new shares of the Company's common stock. During the first quarter of Fiscal 1998, the Company issued the post-split equivalent of 548,152 shares, with a market value of $17.9 million. Note 8: In February 1998, the Company issued $300 million of 6.875% Debentures due February 2028. The debentures were issued at an original price of $987.20 per $1,000 principal amount, which represented an original issue discount of .405% payable at maturity and an underwriters' discount of .875%. The debentures may not be redeemed prior to maturity. Note 9: Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130) was issued in June 1997 and became effective for the Company in the current fiscal year. SFAS 130 requires disclosure of comprehensive income (which is defined as "the change in equity during a period excluding changes resulting from investments by shareholders and distributions to shareholders") and its components. Total comprehensive income, comprised of net earnings and unrealized holding gains (losses) on available-for-sale securities, was $94.3 million and $70.5 million for the quarters ended May 1, 1998 and May 2, 1997, respectively. Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131), was also issued in June 1997and became effective for the Company in the current fiscal year. SFAS 131 redefines how operating segments are determined and requires disclosure of certain financial and descriptive information about a company's operating segments. The Company has determined that the adoption of SFAS 131 does not require additional disclosures of its one operating segment, home improvement retailing. -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 notes thereto included in the Company's most recent Form 10-K. For the first quarter of fiscal 1998, sales increased 21% to $2.9 billion, comparable store sales had a 5% gain and net earnings increased 34% to $94.5 million compared to last year's first quarter results. For the large store group (more than 80,000 square feet), comparable store sales were up 7.4% compared to last year's first quarter. Diluted earnings per share were $.27 compared to $.20 for the comparable quarter of last year. The sales increase in the first quarter was partially attributable to the addition of 6.3 million square feet of retail selling space at new and existing locations since last year's first quarter. Additionally, sales performances in our basic businesses were strong for the quarter. The Company experienced strong sales increases in lawn & garden, tools, outdoor hardlines, appliances, kitchen cabinets, electrical, home decor, paint and millwork categories. Gross margin was 26.21% of sales for the quarter ended May 1, 1998 compared to 25.98% for last year's comparable quarter. Of the 23 basis point increase in gross margin rate, 12 basis points were due to favorable changes in product mix and ongoing store pricing disciplines. The remaining 11 points were due to no LIFO charge in this year's first quarter compared to a charge of $2.5 million in last year's first quarter. Selling, general and administrative expenses (SG&A) were 17.80% of sales versus 17.98% in last year's first quarter. SG&A increased by 20% compared to the 21% increase in sales for the quarter. Expense controls specifically relating to store payroll costs and general office expenses contributed to the positive leverage in SG&A for the quarter. Store opening costs were $11.4 million for the quarter ended May 1, 1998 compared to $8.3 million last year, representing costs associated with the opening of 9 stores this year (7 new and 2 relocated) compared to 8 stores last year (6 new and 2 relocated). Charges in this quarter for future and prior openings were $4.9 million compared to $2.7 million in 1997's first quarter. The Company's 1998 expansion plans are discussed under "Liquidity and Capital Resources" below. Depreciation was $64.7 million for the quarter ended May 1, 1998. This is an increase of 14% over the comparable period last year and is due primarily to buildings, fixtures, displays and computer equipment relating to the Company's expansion program. Interest expense increased from $17.3 million to $19.7 million for the quarter ended May 1, 1998 compared to last year's first quarter. Interest has primarily increased due to interest expense on medium-term notes and debentures issued since last year's first quarter. -9- The Company's effective income tax rate was 36.26% for the quarter ended May 1, 1998 and 36.00% for last year's first quarter. The higher rate in 1998 was primarily due to expansion into states with higher tax rates. LIQUIDITY AND CAPITAL RESOURCES Primary sources of liquidity are cash flows from operating activities and certain financing activities. Net cash provided by operating activities was $325 million for the quarter ended May 1, 1998 compared to $64 million for last year's first quarter. The increase in the current quarter resulted primarily from increased earnings and a $51 million cash addition in 1998 versus a $111 million cash use resulting from the change in expansion related inventory levels net of the change in accounts payable. The Company's working capital was $972 million at May 1, 1998 compared to $521 million at May 2, 1997 and $660 million at January 30, 1998. The primary component of net cash used in investing activities continues to be new store facilities in connection with the Company's expansion plan. Cash acquisitions of fixed assets were $156 million and $122 million for the quarters ended May 1, 1998 and May 2, 1997, respectively. At May 1, 1998, the Company had 451 stores in 26 states and 37.4 million square feet of retail selling space, a 20% increase over the selling space at May 2, 1997. Cash flows provided by financing activities were $272 million for the quarter ended May 1, 1998 compared to $47 million for last year's first quarter. Proceeds from borrowings (long-term and short-term) were $292 million in first quarter 1998 versus $60 million in last year's first quarter. In February 1998, the Company issued $300,000,000 principal amount of 6.875% Debentures due February 15, 2028. The debentures may not be redeemed prior to maturity. 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 1998 capital budget is approximately $1.4 billion, inclusive of approximately $400 million in operating or capital leases. More than 80% of this planned commitment is for store expansion. Expansion plans for 1998 consist of approximately 75 to 80 new stores with about 60% in new markets and the balance being relocations of existing stores, the combination of which will increase retail selling space by approximately 20%. Approximately 30% of the 1998 projects will be leased and 70% will be owned. Expansion in the first quarter of 1998 included 7 new stores and 2 relocations representing 896 thousand square feet of new incremental retail space. The Company believes that funds from operations, funds from debt issuances, leases and existing credit agreements will be adequate to finance the 1998 expansion plan and other operating needs. -10- As discussed in the annual report for the year ending January 30, 1998, the Company's major market risk exposure is the potential loss arising from changing interest rates and its impact on long-term investments and long-term debt. The Company's policy is to manage interest rate risks by maintaining a combination of fixed and variable rate financial instruments. The risks associated with long-term investments at May 1, 1998 have not changed materially since January 30, 1998. Long-term debt has increased primarily due to the issuance of $300,000,000 principal amount of 6.875% Debentures due February 15, 2028. Disclosures of the Company's principal cash outflows for long-term debt and related interest rates have changed since January 30, 1998 due to the new fixed rate debt. 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 the expectations reflected in such forward-looking statements are reasonable, 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 1997 Annual Report. -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 May 1, 1998, and the related consolidated statements of current and retained earnings and of cash flows for the three-month periods ended May 1, 1998 and May 2, 1997. 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 30, 1998, and the related consolidated statements of earnings, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 19, 1998, 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 30, 1998 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 29, 1998 -12- Part II - OTHER INFORMATION 6 (b) - Reports on Form 8-K A report on Form 8-K was filed on February 20, 1998 by the registrant. Therein under Item 7, the company filed certain exhibits in connection with the Registrant's offering of $300,000,000 principal amount of 6 7/8% Debentures pursuant to its Shelf Registration Statements on Form S-3 (File No. 333-14257 and File No. 333-42733). 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. June 12, 1998 /s/ Kenneth W. Black, Jr. Date __________________ ________________________________________ Kenneth W. Black, Jr. Vice President and Corporate Controller EX-27 2
5 1000 3-MOS JAN-29-1999 MAY-01-1998 623,406 27,781 150,219 0 2,033,143 2,921,763 3,097,253 0 6,115,863 1,949,731 0 0 0 175,728 2,537,024 6,115,863 2,899,540 2,899,540 2,139,502 2,139,502 592,170 0 19,663 148,205 53,740 94,465 0 0 0 94,465 .27 .27 On May 29, 1998, the Board of directors declared a two-for-one stock split on the Company's common stock. One additional share will be issued on June 26, 1998 for each share held by shareholders of record on June 12, 1998. Par value will remain unchanged at $.50 and approximately $87.9 million will be transferred to common stock from capital in excess of par as of the record date. The accompanying Consolidated Financial Statements, including per share data, have been adjusted to reflect the effect of the stock split. Prior Financial Data Schedules have not been restated for this recapitalization.
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