-1-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-7898
LOWE'S COMPANIES, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-0578072
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. BOX 1111, NORTH WILKESBORO, N.C. 28656
(Address of principal executive offices)
(Zip Code)
(910) 651-4000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 31, 1995
Common Stock, $.50 par value 160,120,048
12
TOTAL PAGES
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LOWE'S COMPANIES, INC.
- INDEX -
PART I - Financial Information: Page No.
Consolidated Balance Sheets - April 30, 1995
and January 31, 1995. 3
Consolidated Statements of Current and
Retained Earnings - three months
ended April 30, 1995 and 1994. 4
Consolidated Statements of Cash Flows - three
months ended April 30, 1995 and 1994. 5
Notes to Consolidated Financial Statements. 6-7
Management's Discussion and Analysis of Results
of Operations and Financial Condition. 8-9
Independent Accountants' Report. 10
PART II - Other Information
Item 6 (a) - Exhibits.
Exhibit 11 Computation of per share earnings 11
Item 6 (b) - Reports on Form 8-K. 12
-3-
Consolidated Balance Sheets
Lowe's Companies, Inc. and Subsidiary Companies
Dollars in thousands
<TABLE>
<CAPTION>
April 30, January 31,
1995 1995
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 141,533 $ 150,319
Short-term investments 50,430 118,155
Accounts receivable - net 144,728 109,214
Merchandise inventory 1,261,075 1,132,282
Other assets 46,022 47,198
Total current assets 1,643,788 1,557,168
Property, less accumulated depreciation 1,460,003 1,397,713
Long-term investments 45,411 83,459
Other assets 69,461 67,652
Total assets $3,218,663 $3,105,992
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term debt $ 30,154 $ 26,91
Short-term notes payable 1,891 1,903
Accounts payable 691,755 675,436
Employee retirement plans 46,223 43,950
Accrued salaries and wages 27,440 63,356
Other current liabilities 193,696 134,334
Total current liabilities 991,159 945,892
Long-term debt, excluding current maturities 690,273 681,184
Deferred income taxes 49,211 49,211
Accrued store restructuring costs 3,204 9,815
Total liabilities 1,733,847 1,686,102
Shareholders' equity
Common stock - $.50 par value; issued and outstanding
April 30, 1995 159,527,389
January 31, 1995 147,886,770 79,963 79,764
Capital in excess of par 566,868 554,838
Retained earnings 844,620 792,891
Unearned compensation-restricted stock awards (5,591) (5,949)
Unrealized loss on available-for-sale securities,
net of income taxes of $562 and $891,
respectively (1,044) (1,654)
Total shareholders' equity 1,484,816 1,419,890
Total liabilities and
shareholders' equit $3,218,663 $3,105,992
See accompanying notes to consolidated financial statements.
</TABLE>
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Consolidated Statements of Current and Retained Earnings
Lowe's Companies, Inc. and Subsidiary Companies
Dollars In Thousands, Except Per Share Data
<TABLE>
<CAPTION>
Three months ended
April 30, 19 April 30, 1994
Current Earnings Amount Percent Amount Percent
<S> <C> <C> <C> <C>
Net sales $1,634,690 100.00% $1,397,008 100.00%
Cost of sales 1,212,580 74.18% 1,060,300 75.90%
Gross margin 422,110 25.82% 336,708 24.10%
Expenses:
Selling, general and administrative 265,464 16.24% 206,214 14.76%
Store opening costs 8,591 0.53% 7,392 0.53%
Depreciation 32,970 2.02% 23,989 1.72%
Employee retirement plans 13,539 0.83% 11,110 0.80%
Interest 9,330 0.57% 8,383 0.60%
Total expenses 329,894 20.18% 257,088 18.40%
Pre-tax earnings 92,216 5.64% 79,620 5.70%
Income tax provision 33,290 2.04% 27,867 1.99%
Net earnings $ 58,926 3.60% $ 51,753 3.70%
Shares outstanding (weighted average) 159,815 148,212
Earnings per common & common
equivalent share $ 0.37 $ 0.35
Earnings per common share -
assuming full dilution $ 0.36 $ 0.34
Retained earnings
Balance at beginning of period $ 792,891 $ 596,764
Net earnings 58,926 51,753
Cash dividends (7,197) (5,930)
Balance at end of period $ 844,620 $ 642,587
See accompanying notes to consolidated financial statements.
</TABLE>
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Lowe's Companies, Inc. and Subsidiary Companies
Dollars in Thousands
<TABLE>
<CAPTION>
For the three months ended April 30
1995 1994
<S> <C> <C>
Cash Flows From Operating Activities:
Net Earnings $ 58,926 $ 51,753
Adjustments to Reconcile Net Earnings to Net Cash
Provided By (Used in) Operating Activities:
Depreciation 32,970 23,989
Amortization of Original Issue Discount 1,112 786
Increase in Deferred Income Taxes 0 685
(Gain) Loss on Disposition/Writedown of Fixed and Other Assets (800) 1,745
Decrease (Increase) in Operating Assets:
Accounts Receivable - Net (35,514) (26,659)
Merchandise Inventory (128,793) (92,517)
Other Operating Assets 1,825 (2,706)
Increase (Decrease) in Operating Liabilities:
Accounts Payable 16,319 93,935
Employee Retirement Plans 12,273 9,140
Accrued Store Restructuring (4,416) (2,848)
Other Operating Liabilities 13,419 21,948
Net Cash Provided by (Used in) Operating Activities (32,679) 79,251
Cash Flows from Investing Activities:
Decrease (Increase) in Investment Assets:
Short-Term Investments 67,684 (13,228)
Purchases of Long-Term Investments (8,450) (7,500)
Proceeds from Sale/Maturity of Long-Term Investments 46,558 5,572
Other Long-Term Assets 3,752 1,732
Fixed Assets Acquired (87,292) (81,758)
Proceeds from the Sale of Fixed and Other Long-Term Assets 3,093 2,413
Net Cash Provided by (Used in) Investing Activities 25,345 (92,769)
Cash Flows from Financing Activities:
Sources:
Long-Term Debt Borrowings 0 500
Stock Options Exercised 0 749
Total Financing Sources 0 1,249
Uses:
Repayment of Long-term Debt (1,440) (1,832)
Net Decrease in Short-Term Borrowings (12) (220)
Cash Dividend Payments 0 (5,930)
Total Financing Uses (1,452) (7,982)
Net Cash Used in Financing Activities (1,452) (6,733)
Net Decrease in Cash and Cash Equivalents (8,786) (20,251)
Cash and Cash Equivalents, Beginning of Period 150,319 73,253
Cash and Cash Equivalents, End of Period $141,533 $ 53,002
See accompanying notes to consolidated financial statements.
</TABLE>
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Lowe's Companies, Inc. and Subsidiary Companies
Notes to Consolidated Financial Statements
Note 1: The accompanying Consolidated Financial Statements (unaudited) have
been reviewed by an independent Certified Public Accountant, and in
the opinion of management, they contain all adjustments necessary to
present fairly the financial position as of April 30, 1995, and the
results of operations and the cash flows for the three-month periods
ended April 30, 1995 and 1994.
Note 2: The results of operations for the three-month periods ended April 30,
1995 and 1994 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 $2,259,000 and
$1,103,000 for the three-month periods ended April 30, 1995 and 1994,
respectively. In addition, interest on construction in progress was
capitalized in the amount of $939,000 and $719,000 for the three-month
periods ended April 30, 1995 and 1994, respectively.
Note 4: If the FIFO method of inventory accounting had been used, inventories
would have been $67,539,000 higher at April 30, 1995 and $64,976,000
higher at January 31, 1995.
Note 5: Stock options exercised consisted of 84,600 shares resulting in
proceeds of $749,000 for the three-month period ended April 30, 1994.
There were no stock options exercised in the three-month period ended
April 30, 1995.
Note 6: Property is shown net of accumulated depreciation of $367,106,000 at
April 30, 1995 and $344,438,000 at January 31, 1995.
Note 7: Supplemental disclosures of cash flow information:
Three months ended April 30 1995 1994
Cash paid for interest (net of capitalized) $ 15,555,000 $ 12,111,000
Cash paid for income taxes 739,000 1,204,000
Non-cash investing and financing activities:
Common stock issued to ESOP 10,000,000 8,000,000
Fixed assets acquired under capital lease 14,887,000 14,957,000
Conversion of debt to common stock 2,230,000 10,000
Note 8: On January 23, 1995, 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 quarter of
Fiscal 1995, the Company issued 301,058 shares with a market value of
$10.0 million. The remaining shares will be issued by the end of the
third quarter.
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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
$315,697,000. The proceeds are being used to finance the Company's
large store expansion program and for general corporate purposes.
Note 10: During the first quarter of Fiscal 1995, $2,531,000 principal of the
Company's 3% Convertible Subordinated Notes were converted into 96,866
shares of the Company's common stock.
Note 11: Costs associated with the relocation and closing of stores during the
three months ended April 30, 1995, which were recognized through the
restructuring charge in Fiscal 1991, totaled $2,942,000. Comparable
costs incurred during the three months ended April 30, 1994 were
$4,684,000.
Note 12: Unearned Compensation - Restricted Stock Awards of $5,591,000 included
in Shareholders' Equity on the balance sheet is the result of stock
grants totaling 190,000 shares made to certain executives and
directors. The amount is amortized to expense as earned over periods
not exceeding seven years.
Note 13: Earnings per common and common equivalent share is computed based upon
the weighted average number of common shares outstanding during the
period plus the dilutive effect of common shares contingently issuable
from stock options. Earnings per common share - assuming full
dilution reflects the potential dilutive effect of dilutive common
share equivalents and the Company's 3% Convertible Subordinated Notes
issued July 22, 1993. These notes are due July 22, 2003.
-8-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
This discussion should be read in conjunction with the financial statements
and the financial statement footnotes included in this Form 10-Q.
For the first quarter ended April 30, sales grew 17% to $1.635 billion, net
earnings increased 14% to $58.9 million and earnings per share (fully diluted)
were $.36 compared to $.34 in the comparable quarter of last year. Comparable
store sales were up 2%. Factors impacting overall performance in the first
quarter included higher interest rates, prolonged inclement weather, weaker
demand for home construction materials and an economy which grew more slowly in
the first quarter than it did in 1994.
Sales in the first quarter were enhanced by the addition of 4.7 million
square feet of retail selling space at new and existing locations since last
year's first quarter. The Company experienced a significant amount of cold and
wet weather in our trading areas during February and March in comparison to
milder weather in 1994. This resulted in a sales mix that was strong in
categories related to home interiors such as cabinets, interior paint,
electrical and plumbing, and weak in categories related to exteriors, such as
lumber, outdoor power equipment and bag goods. Included in the 17% sales
increase is approximately 1% decrease due to changing prices. While we
experienced deflation in lumber, there was enough inflation in other products
to basically offset it.
Gross margin was 25.82% of sales for the quarter ended April 30, 1995,
versus 24.10% in last year's quarter. The increase in gross margin rate
continues to reflect favorable changes in our product mix, although a more
balanced exterior-interior product sales mix would have held down this
increase.. The successful implementation of our Everyday Competitive Pricing
strategy is increasing sales and margin dollars.
Selling, general and administrative expenses (SG&A) were 16.23% of sales
versus 14.75% in last year's quarter. Store salaries (excluding those in store
opening costs) increased 27% compared to the 17% sales increase. Rising
interest rates reduced credit card related income compared to last year causing
an unfavorable variance of 32 basis points. Net advertising expenses rose 38%,
producing a 22 basis point impact.
For the quarter ended April 30, 1995, store opening costs were $8.6 million
versus $7.4 million last year, representing costs associated with the opening
of 13 stores this year (7 new and 6 relocated) compared to 11 stores in last
year's third quarter (6 new and 5 relocated). Store opening costs averaged
$735,000 per project in the first quarter of 1995 and these costs averaged
$670,000 in the first quarter of 1994. Advertising and staff training
investments have been enhanced.
Depreciation was $33.0 million for the quarter ended April 30, 1995. This
is an increase of 37% 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 22% to $13.5 million for the
three months ended April 30, 1995, due to a 25% increase in salaries offset by
a lower percentage of employees qualifying for the plans.
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Interest expense increased $.9 million to $9.3 million for the three months
ended April 30, 1995. The increase is primarily due to interest on capitalized
building leases and other long term debt.
The Company's effective income tax rate was 36.10% for the three months
ended April 30, 1995, compared to 35.00% for the comparable three months last
year. The current year's higher rates are due primarily to a higher effective
state tax rate..
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 $128.8 million, about 25% due to the increased
merchandise assortments in our new and relocated stores and 75% 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 1995 capital budget will range between $810 and $835
million, inclusive of $238 million in operating leases. Over 80% of this
planned investment is for our store expansion program.
Present plans are to finance our 1995 expansion through funds from
operations, operating leases, issuance of about $40 million in common stock to
our ESOP (see Note 8) and external financing. Financing in the first quarter
came from net earnings and the sales of investments in our cash management
program. At April 30, 1995, the Company had an uncommitted aggregate of $174
million available under a shelf registration statement filed with the
Securities and Exchange Commission (see Note 9). In addition to these sources,
the Company has available agreements for up to $146 million in lines of credit
for issuing documentary and standby letters of credit. Another $235 million is
available for the purpose of short-term borrowings on a bid basis from various
banks. On April 10, 1995, the Company entered into a five year, $300 million
revolving credit facility with a group of thirteen commercial banks to provide
alternate liquidity for the Company's commercial paper program and for general
corporate purposes.
Lowe's ended the first quarter with 343 stores and 19.7 million square feet
of retail selling space, a 31% increase over last April's selling space. Our
expansion plans for 1995 envision about 50 to 55 new stores with about 65% in
new markets and the balance relocations, for approximately 5.3 million square
feet of incremental selling space. Approximately half the 1995 projects will
be leased and half will be owned. Our first quarter expansion included 6
relocations, 7 new stores and 2 new contractor yards representing 1.1 million
square feet of incremental retail space. We also closed 1 contractor yard.
Also during the first quarter, both Moody's Investor Service and Standard
and Poor raised the Company's securities ratings. Moody's raised its ratings
as follows: Senior Unsecured Debt to A2 from A3; Subordinated Debt to A3 from
Baa1; and Commercial Paper to Prime-1 from Prime-2. Standard and Poor raised
its ratings as follows: Senior Unsecured Debt to A from A-; Subordinated Debt
to A- from BBB+; and Commercial Paper to A-1 from A-2.
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INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors
Lowe's Companies, Inc.:
We have reviewed the accompanying consolidated balance sheet of Lowe's
Companies, Inc. and subsidiary companies as of April 30, 1995, and the related
consolidated statements of current and retained earnings and cash flows for the
three-month periods ended April 30, 1995 and 1994. 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, 1995, 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 February 20, 1995, 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, 1995 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 11, 1995
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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, 1995.
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 13, 1995 \s\ Richard D. Elledge
Date Richard D. Elledge,
Vice President and Chief Accounting Officer
-11-
Exhibit 11 - Computation of per share earnings
Three Months Ended
April 30
1995 1994
<TABLE>
<S> <C> <C>
Earnings per Common & Common Equivalent Share:
Net Earnings $58,926 $51,753
Weighted Average Shares Outstanding 159,734 148,045
Dilutive Effect of Common Stock Equivalents 81 167
Weighted Average Shares, as Adjusted 159,815 148,212
Earnings per Common & Common Equivalent Share $.37 $.35
Earnings per Common Share - Assuming Full Dilution:
Net Earnings $58,926 $51,753
Interest (After Taxes) on Convertible Debt 1,882 1,912
Net Earnings, as Adjusted $60,808 $53,665
Weighted Average Shares Outstanding 159,734 148,045
Dilutive Effect of Common Stock Equivalents 81 167
Shares Added if All Debt Converted 10,898 11,003
Weighted Average Shares, as Adjusted 170,713 159,215
Earnings per Common Share - Assuming Full Dilution $.36 $.34
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> APR-30-1995
<CASH> 141,533
<SECURITIES> 50,430
<RECEIVABLES> 144,728
<ALLOWANCES> 0
<INVENTORY> 1,261,075
<CURRENT-ASSETS> 1,643,788
<PP&E> 1,460,003
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,218,663
<CURRENT-LIABILITIES> 991,159
<BONDS> 690,273
<COMMON> 79,963
0
0
<OTHER-SE> 1,404,853
<TOTAL-LIABILITY-AND-EQUITY> 3,218,663
<SALES> 1,634,690
<TOTAL-REVENUES> 1,634,690
<CGS> 1,212,580
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 320,564
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,330
<INCOME-PRETAX> 92,216
<INCOME-TAX> 33,290
<INCOME-CONTINUING> 58,926
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,926
<EPS-PRIMARY> .37
<EPS-DILUTED> .36
</TABLE>
