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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, 1994
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 of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P.O. BOX 1111, NORTH WILKESBORO, N.C. 28656
(Address of principle executive offices)
(Zip Code)
(919) 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 preceeding 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 issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 31, 1994
Common Stock, $.50 par value 148,358,180
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TOTAL PAGES
2
LOWE'S COMPANIES, INC.
INDEX
PART I Financial Information: Page No.
Consolidated Condensed Balance Sheets April 30, 1994
and January 31, 1994. 3
Consolidated Condensed Statements of Current and
Retained Earnings three months
ended April 30, 1994 and 1993. 4
Consolidated Condensed Statements of Cash Flows three
months ended April 30, 1994 and 1993. 5
Notes to Consolidated Condensed Financial Statements. 6-7
Management's Discussion and Analysis of Results
of Operations and Financial Condition. 8-9
Accountants' Review Report. 10
PART II Other Information
Item 6 (a) - Exhibits. 11
Exhibit Statement re computation of per share earnings
Exhibit Financial Data Schedule
Item 6 (b) - Reports on Form 8-K. 12
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Consolidated Condensed Balance Sheets
Lowe's Companies, Inc. and Subsidiary Companies
in thousands
<CAPTION>
April 30, January 31,
1994 1994
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents 53002 73253
Short-term investments 48443 35215
Accounts receivable - net 75159 53301
Merchandise inventory 946224 853707
Other assets 79211 68431
____________ ____________
Total current assets 1202039 1083907
Property, less accumulated depreciation 1081789 1020234
Long-term investments 42336 40408
Other assets 59512 57099
____________ ____________
Total assets 2385676 2201648
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term debt 50573 49547
Short-term notes payable 2061 2281
Accounts payable 561213 467278
Employee retirement plans 35562 34422
Accrued salaries and wages 22870 45883
Other current liabilities 126726 81765
____________ ____________
Total current liabilities 799005 681176
Long-term debt, excluding current maturities 605709 592333
Deferred income taxes 29934 26165
Accrued store restructuring costs 22777 28305
____________ ____________
Total liabilities 1457425 1327979
____________ ____________
Shareholders' equity:
Common stock - $.50 par value;
Issued and Outstanding
April 30, 1994 148,222,688
January 31, 1994 147,886,770 74111 73943
Capital in excess of par 211553 202962
Retained earnings 642587 596764
____________ ____________
Total shareholders' equity 928251 873669
____________ ____________
Total liabilities and
shareholders' equity 2385676 2201648
============ ============
See accompanying notes to consolidated condensed financial statements.
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Consolidated Condensed Statements of Current and Retained Earnings
Lowe's Companies, Inc. and Subsidiary Companies
In Thousands, Except Per Share Data
Three months ended
April 30, 1994 April 30, 1993
Current Earnings Amount Percent Amount Percent
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Net sales 1397008 100.00 992112 100.00
Cost of sales 1060300 75.90 757945 76.40
Gross margin 336708 24.10 234167 23.60
Expenses:
Selling, general and administrative 206214 14.75 156662 15.78
Store opening costs 7392 0.53 2929 0.30
Depreciation 23989 1.72 18687 1.88
Employee retirement plans 11110 0.80 8806 0.89
Interest 8383 0.60 3825 0.39
Total expenses 257088 18.40 190909 19.24
Pre-tax earnings 79620 5.70 43258 4.36
Income tax provision 27867 2.00 13810 1.39
Net earnings 51753 3.70 29448 2.97
Shares outstanding (weighted average) 148212 146596
Earnings per common & common
equivalent share 0.35 0.20
Earnings per common share -
assuming full dilution 0.34 0.20
Retained earnings
Balance at beginning of period 596764 489033
Net earnings 51753 29448
Cash dividends (5,930) (5,859)
Stock split 0 (130)
Balance at end of period 642587 512492
See accompanying notes to consolidated condensed financial statements.
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Lowe's Companies, Inc. and Subsidiary Companies
Dollars in Thousands For the three months ended April 30
____________________________________
1994 1993
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Cash Flows From Operating Activities:
Net Earnings 51,753 29,448
Adjustments to Reconcile Net Earnings to Net Cash
Provided By Operating Activities:
Depreciation and Amortization 24,775 18,687
Increase (Decrease) in Deferred Income Taxes 685 (53)
Loss on Disposition/Writedown of Fixed and Other Assets 1,745 2,668
Increase in Operating Assets:
Accounts Receivable - Net (21,858) (13,605)
Merchandise Inventory (92,517) (97,200)
Other Operating Assets (7,507) (12,088)
Increase (Decrease) in Operating Liabilities:
Accounts Payable 93,935 22,989
Employee Retirement Plans 9,140 7,974
Accrued Store Restructuring (2,848) (2,002)
Other Operating Liabilities 21,948 1,435
Net Cash Provided by (Used in) Operating Activities 79,251 (41,747)
Cash Flows from Investing Activities:
Decrease (Increase) in Investment Assets:
Short-Term Investments (13,228) (23,202)
Purchases of Long-Term Investments (7,500) (6,098)
Proceeds from Sale/Maturity of Long-Term Investments 5,572 3,000
Other Long-Term Assets 1,732 608
Fixed Assets Acquired (81,758) (53,092)
Proceeds from the Sale of Fixed and Other Long-Term Assets 2,413 5,914
Net Cash Used in Investing Activities (92,769) (72,870)
Cash Flows from Financing Activities:
Sources:
Long-Term Debt Borrowings 500 32,000
Net Increase (Decrease) in Short-Term Borrowings (220) 67,486
Stock Options Exercised 749 292
Total Financing Sources 1,029 99,778
Uses:
Repayment of Long-term Debt (1,832) (1,157)
Cash Dividend Payments (5,930) (5,859)
Common Stock Purchased for Retirement
Total Financing Uses (7,762) (7,016)
Net Cash Provided by (Used in) Financing Activities (6,733) 92,762
Net Decrease in Cash and Cash Equivalents (20,251) (21,855)
Cash and Cash Equivalents, Beginning of Period 73,253 48,949
Cash and Cash Equivalents, End of Period 53,002 27,094
See accompanying notes to consolidated condensed financial statements.
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Lowe's Companies, Inc. and Subsidiary Companies
Notes to Consolidated Condensed Financial Statements
<S> <C> <C> <C>
Note 1: The accompanying Consolidated Condensed 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, 1994, and the results of operations and the cash flows for the
three-month periods ended April 30, 1994 and 1993.
Note 2: The results of operations for the three-month periods ended April 30, 1994 and 1993
are not necessarily indicative of the results to be expected for the full year.
Note 3: Interest and loan expense is net of interest income of $1,103,000 and $674,000 for the
three-month periods ended April 30, 1994 and 1993, respectively. In addition, interest
on construction in progress was capitalized in the amount of $719,000 and $810,000 for
the three-month periods ended April 30, 1994 and 1993, respectively.
Note 4: If the FIFO method of inventory accounting had been used, inventories would have
been $69,198,000 higher at April 30, 1994 and $64,541,000 higher at January 31, 1994.
Note 5: Stock options exercised consisted of 84,600 and 50,220 shares resulting in proceeds of
$749,000 and $292,000 for the three-month periods ended April 30, 1994 and 1993,
respectively.
Note 6: Property is shown net of accumulated depreciation of $311,769,000 at April 30, 1994
and $296,788,000 at January 31, 1994.
Note 7: Supplemental disclosures of cash flow information:
Three months ended April 30 1994 1993
Cash paid for interest (net of capitalized) $12,111,000 $8,650,000
Cash paid for income taxes 1,204,000 486,000
Non-cash investing and financing activities:
Common stock issued to ESOP 8,000,000 7,299,000
Fixed assets acquired under capital lease 14,957,000
Conversion of debt to common stock 10,000
Note 8: On January 31, 1994, the Board of Directors authorized the funding of the Fiscal 1993
ESOP contribution primarily with the issuance of new shares of the Company's common
stock. During the first quarter of Fiscal 1994, the Company issued 250,936 shares with
a market value of $8.0 million. The remaining shares will be issued by the end of the
third quarter.
Note 9: 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.
7
Note 10: Subsequent to April 30, 1994, the Company has purchased interest rate caps on its
interest rate swap agreements. The caps limit the Company's floating interest rate
exposure to approximately 75 basis points over the fixed rate received in the
agreements. The costs of the caps are amortized over the life of the agreements.
Note 11: During the first quarter of Fiscal 1994, $10,000 principal of the Company's 3%
Convertible Subordinated Notes were converted into 382 shares of the Company's
common stock.
Note 12: Costs associated with the relocation and closing of stores during the three months
ended April 30, 1994, which were recognized through the restructuring charge in Fiscal
1991, totaled $4,684,000. Comparable costs incurred during the three months ended
April 30, 1993 were $2,002,000.
Note 13: The Company considers its debt and equity securities portfolio, presented herein as
both long and short-term investments, to be available for sale under the provisions of
Statement of Financial Accounting Standards (SFAS) No. 115. At April 30, 1994, the
market value of the securities portfolio was not materially different from cost.
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.
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8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
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This discussion should be read in conjunction with the financial statements and the financial
statement footnotes included in this Form 10-Q.
Results of operations for the first quarter ended April 30, 1994 reflect Lowe's greatest quarter
ever in terms of sales, net earnings, earnings per share and dividends paid. Sales grew 41% to
$1.397 billion with comparable store sales up 21%. Net earnings increased 76% to $51.8 million.
Earnings per share (fully diluted) were $.34 compared to $.20 in the comparable quarter of last
year. The earnings increase is attributable to an increase in gross margin dollars of 44% and the
leveraging of expenses that increased only 35% relative to the 41% sales increase.
The 41% first quarter sales increase was made up of a 56% increase in retail sales
(accounting for 77% of total sales in 1994 and 69% in 1993) and a 7% increase in contractor sales
(23% of total sales in 1994 and 31% in 1993). Retail sales in the first quarter were enhanced by
the addition of 4.6 million square feet of retail selling space at new and existing locations since last
year's first quarter. On average, inflation was not a factor in the sales increase. Higher prices of
lumber and plywood relative to last year's first quarter were offset by deflation in most other
categories.
Gross margin was 24.10% of sales for the quarter ended April 30, 1994, versus 23.60% in last
year's quarter. The increase in gross margin percentage in the quarter was primarily the result of
a higher proportion of retail sales versus contractor sales and favorable changes in our product
mix. The successful implementation of our Everyday Competitive Pricing strategy is increasing
sales and margin dollars.
Selling, general and administrative expenses (SG&A) were $206.2 million for the quarter
ended April 30, 1994, a 32% increase over last year's first quarter. We experienced positive
leverage however, as SG&A dropped from 15.78% of sales to 14.75% due to the 41% sales
increase. The increase in store salaries (excluding those in store opening costs), due primarily to
the staffing requirements for our new and relocated stores, was 35% compared to the 41% sales
increase. In addition, general office costs were up only 16%.
For the quarter ended April 30, 1994, store opening costs were $7.4 million representing costs
associated with the opening of 11 stores this year (6 new and 5 relocated), plus some advertising
and other grand opening expenses from the 6 stores opened in January 1994. In the first quarter
of 1993, opening costs were $2.9 million representing 3 new and 4 relocated stores. There were
no stores opened in January 1993. Store opening costs averaged $400 thousand per project in
the first quarter of 1993 and we anticipate these costs will average $600 thousand per project in
1994.
Depreciation was $24.0 million for the quarter ended April 30, 1994. This is an increase of
28% over the comparable period last year. The increase is due primarily to fixtures, displays and
computer equipment for our store expansion program.
Employee retirement plans expense increased 26% to $11.1 million for the three months
ended April 30, 1994, due to a 35% increase in salaries offset by a lower percentage of
employees qualifying for the plans.
9
Interest expense increased $4.6 million to $8.4 million for the three months ended April 30,
1994. The increase is primarily due to interest on our convertible notes and other long term debt.
The Company's effective income tax rate was 35.00% for the three months ended April 30,
1994, compared to 31.92% for the comparable three months last year. The current year's higher
rates reflect the change in the federal corporate tax rate from 34% to 35% and the effect of fixed
dollar tax credits in relation to higher profitability.
LIQUIDITY AND CAPITAL RESOURCES
The uses of cash in the first three months have continued to lay the groundwork for
successfully implementing our strategic plan. Merchandise inventory has increased $92.5 million,
about half due to the increased merchandise assortments in our new and relocated stores and
half due to seasonal increases in inventory. 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 1994
capital budget will range between $575 and $600 million, inclusive of $220 million in operating
leases. Over 80% of this planned investment is for our store expansion program.
Present plans are to finance our 1994 expansion through funds from operations, operating
leases, issuance of about $30 million in common stock to our ESOP (see Note 8) and external
financing. The external financing may involve a "takedown" under a shelf registration filed with the
SEC (see Note 9). Financing in the first quarter came from net earnings and an increase in
vendor accounts payable approximately equal to the increase in inventory. In addition to these
sources, the Company has available agreements for up to $140 million in unsecured short-term
borrowings and $95 million in lines of credit for issuing documentary and standby letters of credit.
Another $275 million is available for the purpose of short-term borrowings on a bid basis from
various banks.
Lowe's ended the first quarter with 317 stores and 15.0 million square feet of retail selling
space, a 44% increase over last April's selling space. Our expansion plans for 1994 envision
about 50 new stores with half in new markets and half relocations, for approximately 4.4 million
square feet of incremental selling space. During the first three months of Fiscal 1994 we have
completed 11 of our projected 50 store projects for Fiscal 1994 and added 900 thousand square
feet of selling space. We also closed 2 smaller, older stores. Our expansion plans for the
remainder of this year presently include 10 projects in the second quarter, 5 in the third quarter
and 24 in the fourth quarter. By the close of Fiscal 1994 our plans are to have approximately 19
million square feet, double our Fiscal 1992 year end square footage.
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INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors
Lowe's Companies, Inc.:
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We have reviewed the accompanying consolidated condensed balance sheet of
Lowe's Companies, Inc. and subsidiary companies as of April 30, 1994, and the
related consolidated condensed statements of current and retained earnings and
cash flows for the three month periods ended April 30, 1994 and 1993. 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 condensed 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, 1994, 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 March 9, 1994, we expressed an unqualified opinion
on those consolidated financial statements. In our opinion, the information set forth
in the accompanying consolidated condensed balance sheet as of January 31, 1994
is fairly stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
/s/ Deloitte & Touche
Charlotte, North Carolina
May 10, 1994
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Part II OTHER INFORMATION
6 (a) - Exhibits
Exhibit 11 - Computation of per share earnings
Three Months Ended
April 30
1994 1993
Earnings per Common & Common Equivalent Share:
Net Earnings $51,753 $29,448
Weighted Average Shares
Outstanding 148,045 146,220
Dilutive Effect of Common
Stock Equivalents 167 376
Weighted Average Shares,
as Adjusted 148,212 146,596
Earnings per Common &
Common Equivalent Share $0.35 $0.20
Earnings per Common Share - Assuming Full Dilution:
Net Earnings $51,753 $29,448
Interest (After Taxes) on
Convertible Debt 1,912
Net Earnings, as Adjusted $53,665 $29,448
Weighted Average Shares
Outstanding 148,045 146,220
Dilutive Effect of Common
Stock Equivalents 167 376
Shares Added if All Debt
Converted 11,003
Weighted Average Shares,
as Adjusted 159,215 146,596
Earnings per Common Share
- Assuming Full Dilution $0.34 $0.20
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<S> <C>
EXHIBIT 27
Financial Data Schedule
Fiscal year ended Jan-31-1994
period end Apr-30-94
Multiplier 1000
cash and cash items 53002
marketable securities 48443
notes and accounts receivable-trade 80403
allowances for doubtful accounts (5244)
inventory 946224
total current assets 1202039
property plant and equipment 1393557
accumulated depreciation (311768)
total assets 2385676
total current liabilities 799005
bonds,mortgages and similar debt 605709
preferred stock-madatory redemption 0
preferred stock-no mandatory redemption 0
common stock 74111
other stockholders equity 854140
total liabilities and stockholders equity 2385676
net sales of tangible products 1397008
total revenue 1397008
costs of tangible goods sold 1060300
total costs and expenses applicable to sales 1060300
other costs and expenses 248705
provision for doubtful accounts and notes 0
interest and amortization of debt discount 8383
income before tax and other items 79620
income tax expense 27887
income/loss continuing operations 51753
discontinued operations 0
extraordinary items 0
cummulative effect-change in accounting principles 0
net income or loss 51753
earnings per share primary 0.35
earnings per share-fully diluted 0.34
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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, 1994.
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 10, 1994 Richard D. Elledge
Vice President and Chief Accounting Officer
