-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, 1996
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, 1996
Common Stock, $.50 par value 161,406,093
12
TOTAL PAGES
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LOWE'S COMPANIES, INC.
- INDEX -
PART I - Financial Information: Page No.
Consolidated Balance Sheets - April 30, 1996
and January 31, 1996 3
Consolidated Statements of Current and
Retained Earnings - three months
ended April 30, 1996 and 1995 4
Consolidated Statements of Cash Flows - three
months ended April 30, 1996 and 1995 5
Notes to Consolidated Financial Statements. 6-7
Management's Discussion and Analysis of Results
of Operations and Financial Condition 8-10
Independent Accountants' Report 11
PART II - Other Information 12
Item 6 (a) - Exhibits
Item 6 (b) - Reports on Form 8-K
EXHIBIT INDEX
Exhibit 11 Computation of per share earnings 13
<TABLE>
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Consolidated Balance Sheets
Lowe's Companies, Inc. and Subsidiary Companies
Dollars in thousands
<CAPTION>
April 30, January 31,
1996 1996
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $108,359 $63,868
Short-term investments 84,241 107,429
Accounts receivable - net 135,063 113,483
Merchandise inventory 1,451,823 1,267,077
Other assets 53,654 51,827
Total current assets 1,833,140 1,603,684
Property, less accumulated depreciation 1,984,704 1,858,274
Long-term investments 28,277 41,059
Other assets 56,931 53,369
Total assets $3,903,052 $3,556,386
Liabilities and Shareholders' Equity
Current liabilities:
Short-term notes payable $59,961 $16,617
Current maturities of long-term debt 8,718 14,127
Accounts payable 842,711 655,399
Employee retirement plans 45,846 44,924
Accrued salaries and wages 43,694 67,370
Other current liabilities 209,326 151,494
Total current liabilities 1,210,256 949,931
Long-term debt, excluding current maturities 897,978 866,183
Deferred income taxes 87,337 83,557
Total liabilities 2,195,571 1,899,671
Shareholders' equity
Common stock - $.50 par value;
Issued and Outstanding
April 30, 1996 161,234,218
January 31, 1996 160,918,046 80,617 80,459
Capital in excess of par 607,721 596,828
Retained earnings 1,027,462 988,447
Unearned compensation-restricted stock awards (7,597) (8,076)
Unrealized loss on available-for-sale securities (722) (943)
Total shareholders' equity 1,707,481 1,656,715
Total liabilities
shareholders' equity $3,903,052 $3,556,386
See accompanying notes to consolidated financial statements.
</TABLE>
<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
<CAPTION>
Quarter Ended
April 30, 1996 April 30, 1995
Amount Percent Amount Percent
<S> <C> <C> <C> <C>
Current Earnings
Net sales $1,906,498 100.00 $1,634,690 100.00
Cost of sales 1,429,998 75.01 1,212,580 74.18
Gross margin 476,500 24.99 422,110 25.82
Expenses:
Selling, general and administrative 318,978 16.72 265,464 16.23
Store opening costs 12,493 0.66 8,591 0.53
Depreciation 44,635 2.34 32,970 2.02
Employee retirement plans 13,671 0.72 13,539 0.83
Interest 13,189 0.69 9,330 0.57
Total expenses 402,966 21.13 329,894 20.18
Pre-tax earnings 73,534 3.86 92,216 5.64
Income tax provision 26,472 1.39 33,290 2.04
Net earnings $47,062 2.47 $58,926 3.60
Shares outstanding (weighted average) 161,140 159,815
Earnings per common & common
equivalent share $0.29 $0.37
Earnings per common share -
assuming full dilution $0.28 $0.36
Retained earnings
Balance at beginning of period $988,447 $792,891
Net earnings 47,062 58,926
Cash dividends (8,047) (7,197)
Balance at end of period $1,027,462 $844,620
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
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Consolidated Statements of Cash Flows
Lowe's Companies, Inc. and Subsidiary Companies
Dollars in Thousands
<CAPTION>
For the three months ended April 30,
1996 1995
<S> <C> <C>
Cash Flows From Operating Activities:
Net Earnings $47,062 $58,926
Adjustments to Reconcile Net Earnings to Net Cash
Provided By (Used in) Operating Activities:
Depreciation 44,635 32,970
Amortization of Original Issue Discount 874 1,112
Increase in Deferred Income Taxes 1,141
Gain on Disposition/Writedown of Fixed
and Other Assets (1,156) (800)
Decrease (Increase) in Operating Assets:
Accounts Receivable - Net (21,580) (35,514)
Merchandise Inventory (184,746) (128,793)
Other Operating Assets 752 1,825
Increase (Decrease) in Operating Liabilities:
Accounts Payable 187,312 16,319
Employee Retirement Plans 11,915 12,273
Accrued Store Restructuring (4,416)
Other Operating Liabilities 34,666 13,419
Net Cash Provided by (Used in) Operating Activities 120,875 (32,679)
Cash Flows from Investing Activities:
Decrease (Increase) in Investment Assets:
Short-Term Investments 33,398 67,684
Purchases of Long-Term Investments (7,636) (8,450)
Proceeds from Sale/Maturity of Long-Term
Investments 10,548 46,558
Other Long-Term Assets 76 3,752
Fixed Assets Acquired (144,121) (87,292)
Proceeds from the Sale of Fixed and Other
Long-Term Assets 3,825 3,093
Net Cash Provided by (Used in) Investing Activities (103,910) 25,345
Cash Flows from Financing Activities:
Sources:
Net Increase in Short-Term Borrowings 43,344
Uses:
Repayment of Long-term Debt (7,771) (1,440)
Net Decrease in Short-Term Borrowings (12)
Cash Dividend Payments (8,047)
Total Financing Uses (15,818) (1,452)
Net Cash Provided by (Used in) Financing Activities 27,526 (1,452)
Net Increase (Decrease) in Cash and Cash Equivalents 44,491 (8,786)
Cash and Cash Equivalents, Beginning of Period 63,868 150,319
Cash and Cash Equivalents, End of Period $108,359 $141,533
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, 1996, and the results of
operations and the cash flows for the three-month periods ended April 30, 1996
and 1995.
Note 2: The results of operations for the three-month periods ended April
30, 1996 and 1995 are not necessarily indicative of the results to be expected
for the full year.
Note 3: The Company has a cash management program which provides for the
investment of excess cash balances in financial instruments which have
maturities of up to three years. Investments that are readily convertible to
cash within three months of purchase are classified as cash equivalents.
Investments with a maturity of between three months and one year are
classified as short-term investments. Investments with maturities greater than
one year are classified as long-term.
Note 4: Net interest expense is composed of the following:
Quarter ended
April 30,
1996 1995
Long-term debt $9,763 $8,827
Capitalized leases 5,676 3,370
Short-term debt 1,198 261
Amortization of loan cost 103 70
Short-term interest income (2,221) (2,259)
Interest capitalized on construction
in progress (1,330) (939)
Net interest expense $13,189 $9,330
Note 5: If the FIFO method of inventory accounting had been used,
inventories would have been $77,717,000 higher at April 30, 1996 and
$73,226,000 higher at January 31, 1996.
Note 6: There were no stock options exercised in the three-month periods
ended April 30, 1996 and 1995.
Note 7: Property is shown net of accumulated depreciation of $496,635,000
at April 30, 1996 and $459,622,000 at January 31, 1996.
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Note 8: Supplemental disclosures of cash flow information:
Three months ended April 30 1996 1995
Cash paid for interest (net of capitalized) $ 17,758,000 $ 15,555,000
Cash paid for income taxes 1,811,000 739,000
Non-cash investing and financing activities:
Common stock issued to ESOP 10,993,000 10,000,000
Fixed assets acquired under capital lease 33,310,000 14,887,000
Common stock issued to executives
and directors 511,000 -
Conversion of debt to common stock 26,000 2,230,000
Note 9: In January 1996, the Board of Directors authorized the funding of
the Fiscal 1995 ESOP contribution primarily with the issuance of new shares of
the Company's common stock. During the first quarter of Fiscal 1996, the
Company issued 314,025 shares with a market value of $11.0 million. The
remaining shares will be issued by the end of the third quarter.
Note 10: During the first quarter of Fiscal 1996 and 1995, $30,000 and
$2,531,000 principal of the Company's 3% Convertible Subordinated Notes were
converted into 1,147 and 96,866 shares of the Company's common stock,
respectively.
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. There were no costs
recognized through the restructuring charge during the three months ended
April 30, 1996 since the store restructuring accrual was depleted as of
January 31, 1996, as anticipated.
Note 12: 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 of fiscal 1996, sales grew 17% to $1.906 billion
and comparable store sales were up 1%, but net earnings declined 20% to
$47.062 million compared to last year's first quarter results. Earnings per
share (fully diluted) were $.28 compared to $.36 for the comparable quarter of
last year. Extremely adverse weather conditions in March severely impacted
our performance for the first quarter of fiscal 1996.
Sales in the first quarter were enhanced by the addition of 5.7 million
square feet of retail selling space at new and existing locations since last
year's first quarter. February's total sales increase of 25% and April's
sales growth of 20% were pulled down for the quarter by March's modest gain of
7%. Throughout the quarter, sales trends were strong on interior home
improvement categories such as lighting, plumbing, interior paint, wall and
window treatments, and kitchen appliances. The opposite was true on exterior
products, such as outdoor power equipment, plywood and sidings, structural
lumber, gypsum products, lawn and garden products and other basic construction
materials.
Reducing the overall 17% sales increase is 3% deflation in sales prices.
While the most significant deflation came in lumber/building materials, prices
in consumer electronics, home decor, electrical, major appliances/kitchens,
nursery & garden products and power tools were lower also.
Gross margin was 24.99% of sales for the quarter ended April 30, 1996
compared to 25.82% for the first quarter last year and 24.92% for all of
fiscal 1995. An unusually strong product mix enhanced last year's first
quarter. Nevertheless, this 24.99% is the second highest first quarter in the
1990's. This margin performance is highlighted by our commitment to Everyday
Low Prices and our Price Guarantee program.
Selling, general and administrative expenses (SG&A) were 16.72% of sales
versus 16.23% in last year's first quarter. Store salaries (excluding those in
store opening costs) rose 22% compared to the 17% sales growth and were
responsible for 43 of the total 49 basis points increase. We increased our
store staff in anticipation of a strong spring business. However, the spring
weather did not come until the second week in April.
-9-
For the quarter ended April 30, 1996, store opening costs were $12.5
million versus $8.6 million last year, representing costs associated with the
opening of 15 stores this year (10 new and 5 relocated) compared to 13 stores
in last year's first quarter (7 new and 6 relocated). Charges in this quarter
for future openings were $2.3 million compared to $1.2 million in 1995's first
quarter.
Depreciation was $44.6 million for the quarter ended April 30, 1996.
This is an increase of 35% over the comparable period last year and is due
primarily to fixtures, displays and computer equipment relating to the
Company's expansion program.
Employee retirement plans expense increased 1% to $13.7 million for the
quarter ended April 30, 1996. This modest increase is caused by higher base
salaries.
Interest expense increased $3.9 million to $13.2 million for the quarter
ended April 30, 1996. Interest increased primarily due to senior notes issued
in December 1995 and our capitalized building leases.
The Company's effective income tax rate was 36.00% for the quarter ended
April 30, 1996, compared to 36.10% for the comparable quarter last year.
LIQUIDITY AND CAPITAL RESOURCES
The uses of cash in the first quarter have continued to lay the
groundwork for successfully implementing the Company's strategic plan.
Merchandise inventory has increased $184.7 million, about 26% due to our new
and relocated stores and 74% due to seasonal increases in inventory and
increased merchandise assortments. Real property has increased in line with
the Company's strategic 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 1996 capital budget is
targeted at $1 billion, inclusive of $240 million in operating or capital
leases. Over 80% of this planned investment is for store expansion.
Lowe's ended the first quarter with 375 stores and 25.4 million square
feet of retail selling space, a 29% increase over last April's selling space.
The Company's expansion plans for 1996 envision about 60 new stores with about
75% in new markets and the balance relocations, for approximately 6.7 million
square feet of additional retail space. Approximately one half the 1996
projects will be leased and one half will be owned. Our first quarter
expansion included 5 relocations and 10 new stores representing 1.5 million
square feet of new incremental retail space.
-10-
Current plans are to finance our 1996 expansion program through funds
from operations, operating leases, issuance of about $40 million in common
stock to our ESOP (see Note 9) and from external financing. Financing in the
first quarter came from net earnings and the sales of investments in our cash
management program. In addition to these sources, the Company has available
agreements for up to $176 million in lines of credit for issuing documentary
and standby letters of credit. The Company has a five year, $300 million
revolving credit facility with a syndicate of thirteen banks to provide
alternate liquidity for the Company's commercial paper program and for general
corporate purposes. A $100 million revolving credit and security agreement,
expiring in September 1996, is available from a financial institution.
Another $75 million is available for the purpose of short-term borrowings on a
bid basis from various banks.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
As required, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" beginning February 1, 1996 and
there was no material effect on the Company's financial statements.
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation,"
was issued and is effective for the Company on February 1, 1996. As permitted
by No. 123, the Company will continue to apply APB Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded, to its stock based compensation awards to employees and
will disclose the required pro forma effect on net income and earnings per
share.
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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, 1996, and the related
consolidated statements of current and retained earnings and of cash flows for
the three-month periods ended April 30, 1996 and 1995. 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, 1996, and the related consolidated
statements of current and retained earnings and of cash flows for the year
then ended (not presented herein); and in our report dated February 20, 1996
(March 4, 1996 as to the fourth paragraph of Note 14), 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, 1996 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 10, 1996
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Part II OTHER INFORMATION
6 (a) - Exhibits - Computation of per share earnings
Part II OTHER INFORMATION
6 (b) - Reports on Form 8 K
There were no reports filed on Form 8-K during the quarter ended
April 30, 1996.
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 12, 1996
Richard D. Elledge,
Senior Vice President and Chief Accounting Officer
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Exhibit 11 - Computation of per share earnings
Three Months Ended
April 30
1996 1995
Earnings per Common & Common Equivalent Share:
Net Earnings $47,062 $58,926
Weighted Average Shares
Outstanding 161,064 159,734
Dilutive Effect of Common
Stock Equivalents 76 81
Weighted Average Shares,
as Adjusted 161,140 159,815
Earnings per Common &
Common Equivalent Share $.29 $.37
Earnings per Common Share - Assuming Full Dilution:
Net Earnings $47,062 $58,926
Interest (After Taxes) on
Convertible Debt 1,906 1,882
Net Earnings, as Adjusted $48,968 $60,808
Weighted Average Shares
Outstanding 161,064 159,734
Dilutive Effect of Common
Stock Equivalents 76 81
Shares Added if All Debt
Converted 10,897 10,898
Weighted Average Shares,
as Adjusted 172,037 170,713
Earnings per Common Share
- Assuming Full Dilution $.28 $.36
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> APR-30-1996
<CASH> 108,389
<SECURITIES> 84,241
<RECEIVABLES> 135,063
<ALLOWANCES> 0
<INVENTORY> 1,451,823
<CURRENT-ASSETS> 1,833,140
<PP&E> 1,984,704
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,033,052
<CURRENT-LIABILITIES> 1,210,256
<BONDS> 0
0
0
<COMMON> 80,617
<OTHER-SE> 1,626,864
<TOTAL-LIABILITY-AND-EQUITY> 3,903,052
<SALES> 1,906,498
<TOTAL-REVENUES> 1,906,498
<CGS> 1,429,998
<TOTAL-COSTS> 1,429,998
<OTHER-EXPENSES> 389,777
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,189
<INCOME-PRETAX> 73,534
<INCOME-TAX> 26,472
<INCOME-CONTINUING> 47,062
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,062
<EPS-PRIMARY> .29
<EPS-DILUTED> .28
</TABLE>
