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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q / A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 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 November 30, 1994
Common Stock, $.50 par value 159,405,322
14
TOTAL PAGES
2
LOWE'S COMPANIES, INC.
INDEX
PART I Financial Information:
Page No.
Consolidated Condensed Balance Sheets October 31, 1994
and January 31, 1994. 3
Consolidated Condensed Statements of Current and
Retained Earnings three months and nine months
ended October 31, 1994 and 1993. 4
Consolidated Condensed Statements of Cash Flows three
months and nine months ended October 31, 1994 and 1993. 5
Notes to Consolidated Condensed Financial Statements. 6-7
Management's Discussion and Analysis of Results
of Operations and Financial Condition. 8-10
Independent Accountants' Report. 11
PART II Other Information
Item 6 (a) - Exhibits.
Exhibit Computation of per share earnings 12
Exhibit Financial Data Schedule 13
Item 6 (b) - Reports on Form 8-K. 14
<TABLE>
Consolidated Condensed Balance Sheets
Lowe's Companies, Inc. and Subsidiary Companies
Dollars in thousands
October 31, January 31,
1994 1994
_____________ _____________
<CAPTION>
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Assets
Current assets:
Cash and cash equivalents $73,772 $73,253
Short-term investments 246,309 35,215
Accounts receivable - net 165926 53,301
Merchandise inventory 1040015 853,707
Other assets 41,494 68,431
____________ ____________
Total current assets 1567516 1083907
Property, less accumulated depreciation 1223383 1,020,234
Long-term investments 44299 40,408
Other assets 62128 57,099
____________ ____________
Total assets $2,897,326 $2,201,648
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term debt $26,013 $49,547
Short-term notes payable 1917 2,281
Accounts payable 597131 467,278
Employee retirement plans 33196 34,422
Accrued salaries and wages 44650 45,883
Other current liabilities 135305 81,765
____________ ____________
Total current liabilities 838212 681176
Long-term debt, excluding current maturities 628288 592,333
Deferred income taxes 37121 26,165
Accrued store restructuring costs 14,985 28,305
____________ ____________
Total liabilities 1518606 1327979
____________ ____________
Shareholders' equity
Common stock - $.50 par value;
Issued and Outstanding
October 31, 1994 159,377,548
January 31, 1994 147,886,770 79689 73,943
Capital in excess of par 548814 202,962
Retained earnings 753801 596,764
Unearned compensation-restricted stock awards -2486
Unrealized holding losses for available-for-sal -1098
____________ ____________
Total shareholders' equity 1378720 873669
_____________ _____________
Total liabilities and
shareholders' equity $2,897,326 $2,201,648
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<TABLE>
Consolidated Condensed Statements of Current and Retained Earnings
Lowe's Companies, Inc. and Subsidiary Companies
Dollars In Thousands, Except Per Share Data
Three months ended Nine months ended
October 31, 199 October 31, 1993 October 31, 1 October 31, 1993
Current Earnings Amount Percent Amount Percent Amount Percen Amount Percent
____________________________________________
<CAPTION>
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Net sales 1579005 100.00 $1,158,370 100.00 $4,623,032 100.00 $3,392,173 100.00
Cost of sales 1197859 75.86 882750 76.21 3501618 75.74 2589906 76.35
Gross margin 381146 24.14 275620 23.79 1121414 24.26 802267 23.65
Expenses:
Selling, general and administrative 239190 15.15 185178 15.98 685196 14.82 525591 15.49
Store opening costs 10628 0.67 7217 0.62 25366 0.55 16666 0.49
Depreciation 28661 1.82 20223 1.75 78824 1.71 58394 1.72
Employee retirement plans 13265 0.84 10657 0.92 37507 0.81 30092 0.89
Interest 5852 0.37 4834 0.42 21580 0.47 12204 0.36
Total expenses 297596 18.85 228109 19.69 848473 18.36 642947 18.95
Pre-tax earnings 83550 5.29 47511 4.10 272941 5.90 159320 4.70
Income tax provision 29359 1.86 15866 1.37 95646 2.06 53267 1.57
Net earnings $54,191 3.43 $31,645 2.73 $177,295 3.84 $106,053 3.13
____________________________________________
Shares outstanding (weighted average) 159399 147906 153439 147185
Earnings per common & common
equivalent share $0.34 $0.21 $1.16 $0.72
Earnings per common share -
assuming full dilution $0.33 $0.21 $1.11 $0.71
____________________________________________
Retained earnings
____________________________________________
Balance at beginning of period $706,782 $551,396 $596,763 $489,033
Net earnings 54191 31645 177295 106053
Cash dividends -7172 -5911 -20257 -17656
Stock Split 0 -162 0 -462
Balance at end of period $753,801 $576,968 $753,801 $576,968
____________________________________________
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<TABLE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Lowe's Companies, Inc. and Subsidiary Companies
Dollars in Thousands For the nine months ended October 31
____________________________________
1994 1993
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Cash Flows From Operating Activities:
Net Earnings 177295 106053
Adjustments to Reconcile Net Earnings to Net Cash
Provided By Operating Activities:
Depreciation 78824 58394
Amortization of Original Issue Discount 2399 0
Increase (Decrease) in Deferred Income Taxes 8425 -3821
Loss on Disposition/Writedown of Fixed and Other Assets 3635 8397
Decrease (Increase) in Operating Assets:
Accounts Receivable - Net -112625 -21283
Merchandise Inventory -186308 -235056
Other Operating Assets 28895 -1748
Increase (Decrease) in Operating Liabilities:
Accounts Payable 129853 56944
Employee Retirement Plans 30503 26214
Accrued Store Restructuring -7281 -10138
Other Operating Liabilities 53968 30118
Net Cash Provided by Operating Activities 207583 14074
Cash Flows from Investing Activities:
Decrease (Increase) in Investment Assets:
Short-Term Investments -212043 -88310
Purchases of Long-Term Investments -19519 -36456
Proceeds from Sale/Maturity of Long-Term Investments 15304 6103
Other Long-Term Assets -2358 455
Fixed Assets Acquired -257578 -224474
Proceeds from the Sale of Fixed and Other Long-Term Assets 11640 21248
Net Cash Used in Investing Activities -464554 -321434
Cash Flows from Financing Activities:
Sources:
Long-Term Debt Borrowings 500 281915
Net (Decrease) Increase in Short-Term Borrowings -363 6444
Net Proceeds from Issuance of Common Stock 315814
Stock Options Exercised 961 854
Total Financing Sources 316912 289213
Uses:
Repayment of Long-term Debt -39086 -4177
Cash Dividend Payments -20257 -17656
Common Stock Purchased for Retirement -79
Total Financing Uses -59422 -21833
Net Cash Provided by Financing Activities 257490 267380
Net Increase (Decrease) in Cash and Cash Equivalents 519 -39980
Cash and Cash Equivalents, Beginning of Period 73253 48949
Cash and Cash Equivalents, End of Period 73772 8969
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<TABLE>
Notes to Consolidated Condensed Financial Statements
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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 October 31, 1994, and the results of operations for the three-month and
nine-month periods ended October 31, 1994 and 1993, and the cash flows for the nine-
month periods ended October 31, 1994 and 1993.
Note 2:The results of operations for the nine-month periods ended October 31, 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 $4,481,000 and $1,857,000 for
the three-month periods ended October 31, 1994 and 1993, respectively, and
$8,058,000 and $3,606,000 for the nine month periods ended October 31, 1994 and
1993, respectively. In addition, interest on construction in progress was capitalized in
the amount of $1,268,000 and $1,018,000 for the three-month periods ended October
31, 1994 and 1993, respectively, and $2,869,000 and $2,719,000 for the nine-month
periods ended October 31, 1994 and 1993, respectively.
Note 4:If the FIFO method of inventory accounting had been used, inventories would have
been $74,051,000 higher at October 31, 1994 and $64,541,000 higher at January 31,
1994
Note 5:Stock options exercised consisted of 7,000 and 43,800 shares resulting in proceeds of
$45,000 and $268,000 for the three-month periods ended October 31, 1994 and 1993,
respectively, and 117,800 and 151,420 shares resulting in proceeds of $961,000 and
$854,000 for the nine-month periods ended October 31, 1994 and 1993, respectively.
Note 6:Property is shown net of accumulated depreciation of $339,492,000 at October 31,
1994 and $296,788,000 at January 31, 1994.
Note 7:Supplemental disclosures of cash flow information:
Nine months ended October 31 1994 1993
Cash paid for interest (net of capitalized) $33,667,000 $19,395,000
Cash paid for income taxes 83,136,000 47,247,000
Non-cash investing and financing activities:
Common stock issued to ESOP 31,729,000 30,558,000
Fixed assets acquired under capital lease 48,795,000 9,064,000
Common stock issued to executives
and directors 2,981,000
Conversion of debt to common stock 217,000
Note 8:On January 31, 1994, the Board of Directors authorized the funding of the Fiscal 1994
ESOP contribution primarily with the issuance of new shares of the Company's common
stock. During the first three quarters of Fiscal 1994, the Company issued 922,075
shares with a market value of $31.7 million.
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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.
On June 27, 1994, the Company sold 10,350,000 shares of common stock under the
shelf registration discussed above. The Company received proceeds, net of the
underwriting discount and other costs, of $315,814,000. The proceeds are being used
to finance the Company's large store expansion program and for general corporate
purposes.
Note 10:During the second quarter, the Company 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. During the third quarter, $207,000 principal of the Company's' 3%
Convertible Subordinated Notes were converted into 7,921 shares of the Company's
common stock.
Note 12:Costs associated with the relocation and closing of stores during the three months and
nine months ended October 31, 1994, which were recognized through the restructuring
charge in Fiscal 1991, totaled $4,990,000 and $15,850,000, respectively. Comparable
costs incurred during the three months and nine months ended October 31, 1993 were
$5,757,000 and $10,138,000, respectively.
Note 13:Unearned Compensation - Restricted Stock Awards of $2,486,000 included in
Shareholders' Equity on the balance sheet is the result of stock grants totaling 95,000
shares made to certain executives and directors. The amount will be amortized as
earned over periods not exceeding seven years.
Note 14: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 October 31, 1994,
the unrealized holding loss on available-for-sale securities was $1,098,000.
Note 15: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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<TABLE>
-8-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
<CAPTION>
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RESULTS OF OPERATIONS
Results of operations for the third quarter ended October 31, 1994 continued the strong
results of the first and second quarters. Quarterly sales were up 36% to a third quarter record
$1.579 billion with comparable store sales up 16%. Net earnings increased 71% to $54.2 million.
Earnings per share (fully diluted) were $.33 compared to $.21 in the comparable quarter of last
year. The earnings increase is attributable to a managed increase in margins of 38% and the
leveraging of expenses that increased only 30% relative to the 36% sales increase. For the nine
months ended October 31, 1994, sales were up 36% to $4.623 billion and net earnings up 67% to
$177.3 million. Earnings per share (fully diluted) were $1.11 compared to $.71 for the first nine
months last year.
Sales in the third 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 third quarter. Selling prices of lumber
and plywood were higher than in last year's third quarter; however we experienced deflation in
most other categories. On average, changing prices accounted for about 3% of the quarter's
sales increase.
Gross margin was 24.14% of sales for the quarter ended October 31, 1994, versus 23.79% in
last year's quarter. For the nine months ended October 31, 1994, gross margin was 24.26%,
compared with the prior year's 23.65%. The increase in gross margin percentage in the quarter
and nine-month period was primarily the result of favorable changes in our mix. The successful
implementation of our Everyday Competitive Pricing strategy is self evident as customers are
buying with confidence every day, increasing sales and margin dollars.
Selling, general and administrative expenses (SG&A) were $239.2 million for the quarter
ended October 31, 1994, a 29% increase over last year's third quarter. We experienced positive
leverage however, as SG&A dropped from 15.98% of sales to 15.15% due to the 36% sales
increase. For the nine months ended October 31, 1994, SG&A was up 30% but declined as a
percentage of sales from 15.49% to 14.82%. The positive leverage came from several factors.
The increase in store salaries (excluding those in opening costs) was 32%, due primarily to the
staffing requirements for our new and relocated stores. General office expense rose just 14% and
advertising rose 18%, both providing positive leverage. The same factors account for the nine-
month improvement relative to sales.
For the quarter ended October 31, 1994, store opening costs were $10.6 million versus $7.2
million last year, representing costs associated with the opening of 10 stores this year (3 new and
7 relocated) compared to 9 stores in last year's third quarter (4 new and 5 relocated). Store
opening costs averaged $530,000 in the third quarter of 1993 and these costs averaged $692,000
per project in 1994. Advertising and staff training expenditures have been increased, as we now
have a training coordinator in every new store. For the nine months ended October 31, 1994,
store opening costs were $25.4 million versus $16.7 million last year representing costs
associated with the opening of 31 stores this year (16 new and 15 relocated) versus 32 stores last
year (13 new and 19 relocated).
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Depreciation was $28.7 million for the quarter ended October 31, 1994, and $78.8 million for
the nine months ended October 31, 1994. This is an increase of 42% and 35%, respectively, over
the comparable periods last year. The increases are due primarily to fixtures, displays and
computer equipment related to our store expansion program.
Employee retirement plans expense increased 24% to $13.3 million for the three months
ended October 31, 1994, due to a 31% increase in salaries offset by a lower percentage of
employees qualifying for the ESOP. For the nine months ended October 31, 1994, employee
retirement plans expense was up 25%.
Interest expense increased $9.4 million to $21.6 million for the nine months ended October
31, 1994, a 77% increase. This is the result of an increase of $4.6 million in the first quarter, an
increase of $3.8 million in the second and an increase of $1.0 million in the third quarter. The
increases are primarily due to interest on our convertible notes and other long-term debt.
The Company's effective income tax rate was 35.14% for the three months ended October
31, 1994, compared to 33.39% for the comparable three months last year. For the nine months
ended October 31, 1994, the effective tax rate was 35.04% compared to 33.43% for the previous
year. The current year's higher rates are due to a slight increase in the effective state rate and
the effect of fixed dollar tax credits in relation to higher profitability.
LIQUIDITY AND CAPITAL RESOURCES
The uses of cash in the first nine months have continued to lay the groundwork for
successfully implementing our strategic plan. Merchandise inventory has increased $186.3
million, mostly due to the increased merchandise assortments in our new and relocated stores.
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 expenditures 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.
Our 1994 expansion has been financed through the net proceeds from our equity offering,
funds from operations, operating leases, and issuance of about $32 million in common stock to
our ESOP (see Note 8). On June 27, the Company sold 10.35 million shares of common stock.
The proceeds (net of the underwriting discount and other costs) of $315.8 million were added to
the general funds of the Company and will be used to finance the store expansion program and
for general corporate purposes. The shares were included in a registration statement covering
$500 million of "unallocated" equity or debt securities (see Note 9). Additional financings that may
be made from time to time over an approximate two-year period will be used for our ongoing
expansion program and for general corporate purposes. In addition to these sources, the
Company had available at October 31, 1994, agreements for up to $144 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.
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Lowe's ended the third quarter with 326 stores and 16.8 million square feet of retail selling
space, a 38% increase over last October'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 nine months of Fiscal 1994 we have
completed 31 of our projected 50 store projects for the year and added 1.8 million square feet of
selling space. We also closed 4 smaller, older stores. Our expansion plans for the fourth quarter
include 9 relocations and 10 stores in new markets. By the close of Fiscal 1994 our plans are to
have approximately 18.6 million square feet, double our Fiscal 1992 year end square footage.
Lowe's expansion plans for Fiscal 1995 and 1996 are to expand our store count from the
present base of 326 stores to approximately 400 by January 31, 1997. This a planned growth of
about 25% in stores in 27 months. From 1992 through 1995, almost 60% of our new store
investment was and will be in existing markets, with therefore, only a portion of the new store
sales being incremental. In 1996 and beyond, with relocations at a lower level, about 80% of our
new store investment will be in new markets, which is expected to create an additional boost in
incremental sales volume.
</TABLE>
<TABLE>
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<CAPTION>
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INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors
Lowe's Companies, Inc.:
We have reviewed the accompanying consolidated condensed balance sheet of
Lowe's Companies, Inc. and subsidiary companies as of October 31, 1994, and the
related consolidated condensed statements of current and retained earnings for the
three-month and nine-month periods ended October 31, 1994 and 1993 and cash
flows for the nine month periods ended October 31, 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 LLP
Charlotte, North Carolina
November 10, 1994
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12
Part II OTHER INFORMATION
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6 (a) - Exhibits
Exhibit 11 - Computation of per share earnings
Three Months Ended Nine Months Ended
October 31 October 31
1994 1993 1994 1993
Earnings per Common & Common Equivalent Share:
Net Earnings $54,191 $31,645 $177,295 $106,053
Weighted Average Shares
Outstanding 159,264 147,566 153,306 146,914
Dilutive Effect of Common
Stock Equivalents 135 340 133 271
Weighted Average Shares,
as Adjusted 159,399 147,906 153,439 147,185
Earnings per Common &
Common Equivalent Share $0.34 $0.21 $1.16 $0.72
Earnings per Common Share - Assuming Full Dilution:
Net Earnings $54,191 $31,645 $177,295 $106,053
Interest (After Taxes) on
Convertible Debt 1,919 1,950 5,744 2,116
Net Earnings, as Adjusted $56,110 $33,595 $183,039 $108,169
Weighted Average Shares
Outstanding 159,264 147,566 153,306 146,914
Dilutive Effect of Common
Stock Equivalents 136 335 136 332
Shares Added if All Debt
Converted 10,995 11,003 10,995 4,111
Weighted Average Shares,
as Adjusted 170,395 158,904 164,437 151,357
Earnings per Common Share
- Assuming Full Dilution $0.33 $0.21 $1.11 $0.71
</TABLE>
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EXHIBIT 27
Financial Data Schedule
Fiscal year ended Jan-31-1994
Period end Oct-31-94
Multiplier 1000
Cash and cash items 73772
Marketable securities 246309
Notes and accounts receivable-trade 165926
Allowances for doubtful accounts 0
Inventory 1040015
Total current assets 1567516
Property plant and equipment 1223383
Accumulated depreciation 0
Total assets 2897326
Total current liabilities 838212
Bonds,mortgages and similar debt 628288
Preferred stock-mandatory redemption 0
Preferred stock-no mandatory redemption 0
Common stock 79689
Other stockholders equity 1299031
Total liabilities and stockholders equity 2897326
Net sales of tangible products 4623032
Total revenue 4623032
Costs of tangible goods sold 3501618
Total costs and expenses applicable to sales 3501618
Other costs and expenses 0
Provision for doubtful accounts and notes 0
Interest and amortization of debt discount 21580
Income before tax and other items 272941
Income tax expense 95646
Income/loss continuing operations 177295
Discontinued operations 0
Extraordinary items 0
Cumulative effect-change in accounting principles 0
Net income or loss 177295
Earnings per share primary 1.16
Earnings per share-fully diluted 1.11
14
Part II - OTHER INFORMATION
6(b) - Reports on Form 8-K
There were no reports filed on Form 8-K during
the quarter ended October 31, 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 December 15, 1994 Richard D. Elledge
Vice President and Chief Accounting Officer
