SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended January 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-94
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. 0. BOX 1111, NORTH WILKESBORO, N.C. 28656-0001
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (910) 651-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on
Which Registered
Common Stock $.50 Par Value New York Stock Exchange
Pacific Stock Exchange
The Stock Exchange (London)
Securities registered pursuant to Section 12(g) of the Act: NONE
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 report(s), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x , No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant as of April 8, 1996: $4,465,187,258.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
Class: COMMON STOCK, $.50 PAR VALUE, Outstanding at April 8, 1996:
161,232,836 shares.
Documents Incorporated by Reference
Annual Report to Security Holders for fiscal year ended January 31, 1996:
Parts I and II. With the exception of specifically referenced information, the
Annual Report to Security Holders for the fiscal year ended January 31, 1996
is not to be deemed filed as part of this report. Proxy Statement for Annual
Meeting filed by April 16, 1996: Part III.
Part I
Item 1 - Business
Reference is made to the back cover and to pages 4 through 16 of the
Annual Report to Security Holders for fiscal year ended January
31,1996.
Item 2 - Properties
At January 31, 1996, the Company operated 365 stores with a total of
23.9 million square feet of selling space. Since 1989, the Company
has been implementing a store expansion strategy to transform the
Company from a chain of small stores into a chain of destination
home improvement superstores. The current prototype large store is
an 100,000 square foot sales floor unit for smaller markets and a
114,000 square foot sales floor unit for medium and larger markets,
each with a lawn and garden center comprising approximately 30,000
additional square feet. The Company also operates three
distribution centers and eleven smaller support facilities, four of
which are reload centers only.
Reference is also made to the map and table on the inside front
cover and to notes 1, 4, 6 and 13 on pages 23, 24, 25 and 30 of the
Annual Report to Security Holders for fiscal year ended January 31,
1996.
Item 3 - Legal Proceedings
Reference is made to Note 14 on page 30 of the Annual Report to
Security Holders for fiscal year ended January 31, 1996.
Item 4 - Submission of Matters to a Vote of Security Holders
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K, the following list is
included as an unnumbered item in Part I of this Report in lieu of being
included in the Proxy Statement for the Annual Meeting of Stockholders to be
held on May 31, 1996.
The following is a list of names and ages of all of the executive officers of
the registrant indicating all positions and offices with the registrant held
by each such person and each person's principal occupations or employment
during the past five years.
PART I
EXECUTIVE OFFICERS OF THE REGISTRANT
Leonard G. Herring, 68
President and Chief Executive Officer since 1978.
Robert L. Strickland, 65
Chairman of the Board since 1978.
Gregory M Bridgeford, 41
Senior Vice President and General Merchandise Manager since 1996; Vice
President and General Merchandise Manager, 1994 - 1996; Vice President -
Merchandising, 1989 - 1994.
J. Gregory Dodge, 48
Senior Vice President - Real Estate/Engineering and Construction since
1994; Vice President, Sudberry Properties, Inc., 1988 - 1994.
Richard D. Elledge, 54
Senior Vice President (Chief Accounting Officer) since 1996; Vice
President (Chief Accounting Officer), 1981 - 1994; Assistant Secretary
since 1991.
Lee Herring, 42
Senior Vice President - Logistics since 1996; Vice President - Logistics,
1993 - 1996 Vice President - Merchandising, 1985 - 1993.
William L. Irons, 52
Senior Vice President - Management Information Services since 1992;
Partner, Ernst & Young, 1987 - 1992.
W. Cliff Oxford, 44
Senior Vice President - Corporate and Human Development since 1996;
Senior Vice President - Corporate Relations, 1994 - 1996; Vice President
- Corporate Relations, 1984 - 1994.
Dale C. Pond, 50
Senior Vice President - Marketing since 1993; Senior Vice President,
Marketing and New Business Development, Home Quarters Warehouse, Inc.,
1991 - 1993.
Larry D. Stone, 44
Executive Vice President - Store Operations since 1996; Senior Vice
President - Sales Operations, 1995 - 1996; Vice President - General
Merchandising, 1992 - 1995; Vice President - Store Merchandising, 1989 -
1992.
Robert L. Tillman, 52
Senior Executive Vice President and Chief Operating Officer since 1994;
Executive Vice President - Merchandising, 1991-1994; Senior Vice
President - Merchandising, 1989-1991.
William C. Warden, Jr., 43
Executive Vice President - General Counsel, Secretary and Chief
Administrative Officer since 1996; Senior Vice President, General Counsel
and Secretary, 1993 - 1996; Assistant Secretary 1985 - 1993; Partner,
McElwee, McElwee & Warden which served as General Counsel for the
Company, 1979 - 1993.
Gregory J. Wessling, 44
Senior Vice President and General Merchandise Manager since 1996; Vice
President and General Merchandise Manager, 1994 - 1996; Vice President -
Merchandising, 1989 - 1994.
Part II
Item 5 - Market for the Registrant's Common Stock and Related Security Holder
Matters.
The principal market for trading in Lowe's common stock is the New
York Stock Exchange, Inc. (NYSE). Lowe's common stock is also listed
on the Pacific Exchange in the United States and the Stock Exchange
in London. The ticker symbol for Lowe's is LOW. As of January 31,
1996, there were 11,299 holders of record of Lowe's common stock. The
table, "Lowe's Quarterly Stock Price Range and Cash Dividend
Payment", on page 32 of the Annual Report to Security Holders for
fiscal year ended January 31, 1996 sets forth, for the periods
indicated, the high and low sales prices per share of the common
stock as reported by the NYSE Composite Tape, and the dividends per
share declared on the common stock during such periods, as adjusted
for a 2-for-1 stock split to shareholders of record on March 16,
1994. The Company is party to certain agreements which may limit its
ability to declare dividends under certain circumstances. See Note 6
on page 25 of the Annual Report to Security Holders for fiscal year
ended January 31, 1996.
Reference is also made to notes 11 and 12 on pages 28 and 29 of the
Annual Report to Security Holders for fiscal year ended January 31,
1996.
Item 6 -Selected Financial Data
Reference is made to page 31 of the Annual Report to Security Holders
for fiscal year ended January 31, 1996.
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Reference is made to "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 17 through 19
of the Annual Report to Security Holders for fiscal year ended
January 31, 1996.
Item 8 - Financial Statements and Supplementary Data
Reference is made to the "Independent Auditors' Report" on page 16
and to the financial statements and notes thereto on pages 20 through
31, and to the "Selected Quarterly Data" on page 31 of the Annual
Report to Security Holders for fiscal year ended January 31, 1996.
Item 9 - Disagreements on Accounting and Financial Disclosure
Not applicable.
Part III
Item 10 - Directors and Executive Officers of the Registrant
Reference is made to "Lowe's Board of Directors" on pages 34 and 35
of the Annual Report to Security Holders for fiscal year ended
January 31, 1996, and to Part I - Executive Officers of the
Registrant.
Item 11 - Executive Compensation
Reference is made to "Compensation of Executive Officers",
"Option/SAR Grants in Last Fiscal Year", "Aggregated Option/SAR
Exercises in Last Fiscal Year and Fiscal Year-end Option/SAR Values",
and "Long-term Incentive Plans - Awards in Last Fiscal Year" included
in the definitive Proxy Statement which was filed, pursuant to
regulation 14A with the SEC on April 16, 1996, and is hereby
incorporated by reference.
The Company's Executive Compensation Program is comprised of the
following elements:
Base Salary
Salaries for Executive Officers are established on the basis of the
qualifications and experience of the executive, the nature of the job
responsibilities and salaries for competitive positions in the
retailing industry.
Executive Officers' base salaries are reviewed annually and are
approved by the Committee. Salaries of Executive Officers are compared with
those of comparable executive positions in the retailing industry throughout
the United States. The Committee uses the median level of base salary as a
guideline, in conjunction with the executive's performance and qualifications,
for establishing salary levels.
1994 Incentive Plan
The purpose of the 1994 Incentive Plan is to attract, motivate, retain
and reward the executives whose leadership and performance are critical to the
Company's success in enhancing shareholder value, to place further emphasis on
executive ownership of Company Stock and to assure deductibility of executive
compensation.
The 1994 Incentive Plan authorizes the grant of stock options. The
option price cannot be less than the market price of the Company's Common
Stock on the date on which the option is granted. Consequently, stock options
granted under the 1994 Incentive Plan measure performance and create
compensation solely on the basis of the appreciation in the price of the
Company's Common Stock.
Stock appreciation rights (STARs) also may be granted under the 1994
Incentive Plan. STARs entitle the recipient to receive a cash payment based
on the appreciation in the Company's Common Stock following the date of the
award and, accordingly, measure performance and create compensation only if
the price of the Company's Common Stock appreciates.
Company Common Stock also may be issued under stock awards pursuant to
the 1994 Incentive Plan. The stock awards that have been made to date provide
that the shares are subject to forfeiture and nontransferable for seven years
following the award. Accelerated vesting is permitted if the Company achieves
certain financial objectives during the three- and five-year periods following
the award.
The Management Bonus Program is the final component of the 1994 Incentive
Plan. The Management Bonus Program provides bonus opportunities which can be
earned upon achievement by the Company of preset annual financial goals. No
bonuses are paid if performance is below the threshold level of corporate
profitability. Additional bonus amounts are earned on a proportionate scale
up to 100% of the stated bonus opportunity if the preset financial goals are
met. Maximum bonuses were paid for the fiscal years ended January 31, 1994
and January 31, 1995, because the Company's financial results exceeded the
preset performance goals. A partial bonus equal to 25.669% of the basic bonus
opportunity was paid for the year ended January 31, 1996, because financial
results exceeded the minimum performance threshold but were below the goals
established for full bonus payment.
Benefit Restoration Plan
The Benefit Restoration Plan was adopted by the Company in May 1990, to
provide qualifying executives with benefits equivalent to those received by
all other employees under the Company's basic qualified employee benefit
plans. Qualifying executives are those executives whose annual additions and
other benefits, as normally provided to all participants under those qualified
plans, would be curtailed by the effect of Internal Revenue Code
restrictions,and who are selected by the Committee to participate in the Plan.
The Benefit Restoration Plan benefits are determined annually. Participating
executives may elect annually to defer benefits or to receive a current cash
payment.
Other Compensation
The Company's Executive Officers participate in the various qualified and
non-qualified employee benefit plans sponsored by the Company. The Company
makes only nominal use of perquisites in compensating its Executive Officers.
Item 12 - Security Ownership of Certain Beneficial Owners and Management
Reference is made to "Security Ownership of Certain Beneficial Owners and
Management" included in the definitive Proxy Statement which was filed
pursuant to regulation 14A, with the SEC on April 16, 1996, and is hereby
incorporated by reference.
Item 13 - Certain Relationships and Related Transactions
Reference is made to "Information About the Board of Directors and Committees
of the Board", "Certain Relationships and Related Transactions" included in
the definitive Proxy Statement which was filed, pursuant to regulation 14A,
with the SEC on April 16, 1996, and is hereby incorporated by reference.
Part IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
a) 1. Financial Statements
Reference is made to the following items and page numbers
appearing in the Annual Report to Security Holders for fiscal
year ended January 31, 1996:
Pages
Independent Auditors' Report 16
Consolidated Statements of Current and Retained Earnings
for each of the fiscal years in the three year period
ended January 31, 1996 20
Consolidated Balance Sheets at January 31, 1996, 1995
and 1994 21
Consolidated Statements of Cash Flows for each of the
fiscal years in the three-year period ended
January 31, 1996 22
Notes to Consolidated Financial Statements for each
of the fiscal years in the three-year period ended
January 31, 1996 23-31
a) 2. Financial Statement Schedules
Schedules are omitted because of the absence of conditions under
which they are required or because information required is
included in financial statements or the notes thereto.
Part IV
a) 3. Exhibits
(3.1) Restated and Amended Charter (filed as exhibit 3(a) to
the Company's Form 8-K dated July 5, 1994 and
incorporated by reference herein).
(3.2) Bylaws, as amended.
(4.1) Rights Agreement dated as of September 9, 1988 between
the Company and Wachovia Bank and Trust Co., N.A., as
Rights
Agent (filed as Exhibit 4.1 to the Company's Form 8-K
dated September 9, 1988 and incorporated by reference
herein).
(10.1) Lowe's Companies, Inc. 1985 Stock Option Plan (filed as
Exhibit C to the Company's Proxy Statement dated May 31,
1985 and incorporated by reference herein).
(10.2) Post Effective Amendment No. 1 to Lowe's Companies, Inc.
1985 Stock Option Plan (filed on the Company's Form S-8
dated June 23, 1987 (No. 33-2618) and incorporated by
reference herein).
(10.3) Lowe's Companies, Inc. 1989 Non-Employee Directors' Stock
Option Plan (filed as Exhibit A to the Company's Proxy
Statement dated June 9, 1989 and incorporated by
reference herein).
(10.4) Lowe's Companies, Inc. 1990 Benefit Restoration Plan
(filed as Exhibit 10.4 to the Company's Annual Report on
Form 10-K for the year ended January 31, 1991, and
incorporated by reference herein).
(10.5) Lowe's Companies, Inc. Stock Appreciation Incentive Plan
(filed as Exhibit 10.5 to the Company's Annual Report on
Form 10-K for the year ended January 31, 1992, and
incorporated by reference herein).
(10.6) Indenture dated April 15, 1992 between the Company and
Chemical Bank, as Trustee (filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-3 (No. 33-
47269) and incorporated by reference herein).
(10.7) Indenture dated July 22, 1994 between the Company and
Wachovia Bank of North Carolina, N.A., as Trustee (filed
as Exhibit 4.1 to the Company's Registration Statement on
Form S-3 (No. 33-64560) and incorporated by reference
herein).
(10.8) Form of Indenture between the Company and Chemical Bank,
as Trustee (filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-3 (No. 33-51865) and
incorporated by reference herein).
(10.9) Form of Indenture between the Company and Wachovia Bank
of North Carolina, N.A., as Trustee (filed as Exhibit 4.2
to the Company's Registration Statement on Form S-3 (No.
33-51865) and incorporated by reference herein).
(10.10)Lowe's Companies, Inc. Director's Stock Incentive Plan
(filed on the Company's Form S-8 dated July 8, 1994 (No.
33-54497) and incorporated by reference herein).
(10.11)Lowe's Companies, Inc. 1994 Incentive Plan (filed on the
Company's Form S-8 dated July 8, 1994 (No. 33-54499) and
incorporated by reference herein).
(10.12)Release and Separation Agreement dated November 9, 1995,
between the Company and Harry B. Underwood II (filed as
Exhibit 10 to the Company's Quarterly Report on Form 10-Q
for the period ended October 31, 1995, and incorporated
by reference herein).
(10.13)Amended and Restated Indenture, dated as of December 1,
1995, between the Company and First National Bank of
Chicago, as Trustee (filed as Exhibit 4.1 on Form 8-K
dated December 15, 1995, and incorporated by reference
herein).
(10.14)Form of the Company's 6 3/8 % Senior Note due December
15, 2005 (filed as Exhibit 4.2 on Form 8-K dated December
15, 1995, and incorporated by reference herein).
(11) Computation of per share earnings.
(12) Statement re computation of ratios
(13) Annual Report to Security Holders for fiscal year ended
January 31, 1996.
(21) List of Subsidiaries.
(23) Consent of Deloitte & Touche LLP
(27) Financial Data Schedule
b) Reports on Form 8-K
A report on Form 8-K was filed on December 15, 1995 by the registrant.
Therein under Item 7, the Company filed certain exhibits in connection
with the Registrant's offering of $100 million principal amount of Senior
Notes pursuant to its shelf registration statement on Form S-3 (file no.
33-51865).
Part IV
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
/s/ Lowe's Companies, Inc.
Lowe's Companies, Inc.
By /s/ Leonard.G. Herring
4/26/96 Leonard G. Herring
Date President, Chief Executive Officer
and Director
(Acting Chief Financial Officer)
By: /s/ Richard D. Elledge
4/26/96 Richard D. Elledge
Date Senior Vice President,
and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Chairman of the Board of
/s/ Robert L. Strickland Directors and Director 4/26/96
Robert L. Strickland Date
President, Chief Executive
/s/ Leonard G. Herring Officer and Director 4/26/96
Leonard G. Herring (Acting Chief Financial Officer) Date
Senior Executive Vice President (Chief
/s/ Robert L. Tillman Operating Officer) and Director 4/26/96
Robert L. Tillman Date
/s/ Petro Kulynych Director 4/26/96
Petro Kulynych Date
/s/ John M. Belk Director 4/26/96
John M. Belk Date
/s/ Gordon E. Cadwgan Director 4/26/96
Gordon E. Cadwgan Date
Director 4/26/96
William A. Andres Date
/s/ Russell B. Long Director 4/26/96
Russell B. Long Date
Director
Robert G. Schwartz Date
/s/ Carol A. Farmer Director 4/26/96
Carol A. Farmer Date
Director
Claudine Malone Date
EXHIBIT 3.2
BYLAWS OF
LOWE'S COMPANIES, INC.
As Amended and Restated December 8, 1995
INDEX
ARTICLE I. OFFICES 1
ARTICLE II. SHAREHOLDERS 1
SECTION 1. ANNUAL MEETING 1
SECTION 2. SPECIAL MEETINGS 1
SECTION 3. PLACE OF MEETING 1
SECTION 4. NOTICE OF MEETING 2
SECTION 5. CLOSING OF TRANSFER BOOKS OR
FIXING OF RECORD DATE 2
SECTION 6. VOTING LISTS 2
SECTION 7. QUORUM 3
SECTION 8. PROXIES 3
SECTION 9. VOTING OF SHARES 3
SECTION 10. CONDUCT OF MEETINGS 3
ARTICLE III. BOARD OF DIRECTORS 5
SECTION 1. GENERAL POWERS 5
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS 5
SECTION 3 FOUNDING DIRECTOR 5
SECTION 4 DIRECTOR EMERITUS 5
SECTION 5. QUARTERLY MEETINGS 5
SECTION 6. SPECIAL MEETINGS 5
SECTION 7. NOTICE 6
SECTION 8. QUORUM 6
SECTION 9. MANNER OF ACTING 6
SECTION 10. VACANCIES 6
SECTION 11. COMPENSATION 6
SECTION 12. PRESUMPTION OF ASSENT 6
SECTION 13. ACTION WITHOUT MEETING 6
SECTION 14. INFORMAL ACTION BY DIRECTORS 7
SECTION 15. COMMITTEES GENERALLY 7
SECTION 16. EXECUTIVE COMMITTEE 7
SECTION 17. AUDIT COMMITTEE 8
SECTION 18. COMPENSATION COMMITTEE 8
SECTION 19. GOVERNANCE COMMITTEE 8
SECTION 20. GOVERNMENT/LEGAL AFFAIRS COMMITTEE 8
SECTION 21. SALARY ADMINISTRATION; DIRECTORS
COMPENSATION 8
i
ARTICLE IV. INDEMNIFICATION 9
SECTION 1. INDEMNIFICATION 9
SECTION 2. LIMITATION ON INDEMNIFICATION 9
SECTION 3. BOARD DETERMINATION 9
SECTION 4. RELIANCE 9
SECTION 5. AGENTS AND EMPLOYEES 9
SECTION 6. EXPENSES 10
SECTION 7. INSURANCE 10
ARTICLE V. OFFICERS 10
SECTION 1. TITLES 10
SECTION 2. ELECTION AND TERM OF OFFICE 10
SECTION 3. REMOVAL 10
SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS 10
SECTION 5. PRESIDENT 11
SECTION 6. VICE PRESIDENTS 11
SECTION 7. SECRETARY 11
SECTION 8. TREASURER 11
SECTION 9. CONTROLLER 11
ARTICLE VI. DEPARTMENTAL DESIGNATIONS 11
SECTION 1. DEPARTMENTAL DESIGNATIONS 11
ARTICLE VII. CERTIFICATES FOR SHARES AND THEIR TRANSFER 12
SECTION 1. CERTIFICATES FOR SHARES 12
SECTION 2. TRANSFER OF SHARES 12
SECTION 3. LOST CERTIFICATES 12
ARTICLE VIII.FISCAL YEAR 13
ARTICLE IX. DIVIDENDS 13
ARTICLE X. SEAL 13
ARTICLE XI. WAlVER OF NOTICE 13
ARTICLE XII. AMENDMENTS 13
ii.
BYLAWS
OF
LOWE'S COMPANIES, INC.
As Amended and Restated December 8, 1995
ARTICLE I. OFFICES
The principal and registered office of the corporation in the
State of North Carolina shall be located in the City of North Wilkesboro,
County of Wilkes. The corporation may have such other offices either within or
without the State of North Carolina, as the Board of Directors may designate or
the business of the corporation may require from time to time.
ARTICLE II. SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders
shall be held on the last Friday in the month of May in each year, at an hour
to be designated by the Chairman of the Board, for the purpose of electing
directors and for the transaction of such other business as may come before the
meeting. The meeting shall be held on the following business day at the same
time in the event the last Friday in May shall be a legal holiday. If the
annual meeting shall not be held on the day designated by this Section 1, a
substitute annual meeting shall be called in accordance with the provisions of
Section 2 of this Article II. A meeting so called shall be designated and
treated for all purposes as the annual meeting.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders
for any purpose or purposes may be called by the Chairman of the Board, the
President, or by a majority of the Board of Directors.
SECTION 3. PLACE OF MEETING. The Board of Directors may designate
any place, either within or without the State of North Carolina, as the place
of meeting for any annual meeting or for any special meeting called by the
Board of Directors. In the event the directors do not designate the place of
meeting for either an annual or special meeting of the shareholders, the
Chairman of the Board may designate the place of meeting. If the Chairman of
the Board does not designate the place of meeting, the meeting shall be held at
the offices of the corporation in North Wilkesboro, North Carolina.
1
SECTION 4. NOTICE OF MEETING. Written notice stating the place,
day, and hour of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be given not less than 10 nor
more than 60 days before the day of the meeting, by mail, by or at the
direction of the Secretary, or the officer or persons calling the meeting, to
each shareholder of record entitled to vote at such meeting. Such notice, when
mailed, shall be deemed to be delivered when deposited in the United States
mail, addressed to the shareholder at his address as it appears on the stock
transfer books of the corporation, with postage thereon prepaid. When a meeting
is adjourned it shall not be necessary to give any notice of the adjourned
meeting other than by announcement at the meeting at which the adjournment is
taken unless a new record date for the adjourned meeting is or must be fixed,
in which event notice shall be given to shareholders as of the new record date.
SECTION 5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
For the purpose of determining shareholders entitled to notice of or to vote at
the meeting or any adjournment thereof, or shareholders entitled to receive
payment of any dividend, or in order to make a determination of shareholders
for any other proper purpose, the Board of Directors of the corporation may
provide that the stock transfer books shall be closed for a stated period but
not to exceed, in any case, 60 days. If the stock transfer books shall be
closed for the purpose of determining shareholders entitled to notice of or to
vote at a meeting of shareholders, such books shall be closed for at least 10
days immediately preceding such meeting. In lieu of closing the stock transfer
books, the Board of Directors may fix in advance a date as the record date for
any such determination of shareholders, such date in any case to be not more
than 70 days and, in case of a meeting of shareholders, not less than 10 days
prior to the date on which the particular action, requiring such determination
of shareholders, is to be taken. If the stock transfer books are not closed and
no record date is fixed for the determination of shareholders entitled to
notice of or to vote at a meeting of shareholders, or of shareholders entitled
to receive payment of a dividend, the date on which notice of the meeting is
mailed or the date on which the resolution of the Board of Directors declaring
such dividend is adopted, as the case may be, shall be the record date for such
determination of shareholders. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this Section
5, such determination shall apply to any adjournment thereof if the meeting is
adjourned to a date not more than 120 days after the date fixed for the
original meeting.
SECTION 6. VOTING LISTS. The officer or agent having charge of the
stock transfer books for shares of the corporation shall make before each
meeting of shareholders a complete list of the shareholders entitled to vote at
such meeting arranged in alphabetical order and by voting group (and within
each voting group by class or series of shares), with the address of and the
number of shares held by each. For a period beginning two business days after
notice of the meeting is given and continuing through the meeting, this list
shall be available at the corporation's principal office for inspection by any
shareholder at any time during usual business hours. The list shall also be
produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any shareholder during the whole time of the
meeting. The original stock transfer books shall be prima facie evidence as to
who are the shareholders entitled to examine such list or transfer books or to
vote any meeting of shareholders.
2
SECTION 7. QUORUM. Shares entitled to vote as a separate voting
group may take action on a matter at a meeting if a quorum of that voting group
exists with respect to that matter. In the absence of a quorum at the opening
of any meeting of shareholders, the meeting may be adjourned from time to time
by the vote of the majority of the votes cast on the motion to adjourn. A
majority of the votes entitled to be cast on the matter by the voting group
constitutes a quorum of that voting group for action on that matter. Once a
share is represented for any purpose at a meeting, it is deemed present for
quorum purposes for the remainder of the meeting and for any adjournment of the
meeting unless a new record date is or must be set for the adjourned meeting.
If a quorum exists, action on a matter (other than the election of directors)
by a voting group is approved if the votes cast within the voting group
favoring the action exceed the votes cast opposing the action, unless the
Articles of Incorporation, a Bylaw adopted by the shareholders, or the North
Carolina Business Corporation Act requires a greater number of affirmative
votes.
SECTION 8. PROXIES. At all meetings of shareholders, a shareholder
may vote by proxy executed in writing by the shareholder or by his duly
authorized attorney in fact. Such proxy shall be filed with the secretary of
the corporation before or at the time of the meeting. No proxy shall be valid
after 11 months from the date of its execution, unless otherwise provided in
the proxy. If a proxy for the same shares confers authority upon two or more
persons and does not otherwise provide a majority of them present at the
meeting or if only one is present at the meeting then that one may exercise all
the powers conferred by the proxy; but if the proxy holders present at the
meeting are divided as to the right and manner of voting in any particular
case, and there is no majority, the voting of such shares shall be prorated.
SECTION 9. VOTING OF SHARES. Except as otherwise provided by law,
each outstanding share of capital stock of the corporation entitled to vote
shall be entitled to one vote on each matter submitted to a vote at a meeting
of shareholders. The vote of a majority of the shares voted on any matter at a
meeting of shareholders at which a quorum is present shall be the act of the
shareholders on that matter, unless the vote of a greater number is required by
law or by the Articles of Incorporation or Bylaws. Voting on all substantive
matters shall be by a ballot vote on that particular matter. Voting on
procedural matters shall be by voice vote or by a show of hands unless the
holders of one-tenth of the shares represented at the meeting shall demand a
ballot vote on procedural matters.
SECTION 10. CONDUCT OF MEETINGS. At each meeting of the
stockholders,the Chairman of the Board shall act as chairman and preside. In
his absence, the Chairman of the Board may designate another officer or
director to preside. The Secretary or an Assistant Secretary, or in their
absence, a person whom the Chairman of such meeting shall appoint, shall act as
secretary of the meeting.
3
At any meeting of stockholders, only business that is properly brought
before the meeting may be presented to and acted upon by stockholders. To be
properly brought before the meeting, business must be brought (a) by or at the
direction of the Board of Directors or (b) by a stockholder who has given
written notice of business he expects to bring before the meeting to the
Secretary not less than 15 days prior to the meeting. If mailed, such notice
shall be sent by certified mail, return receipt requested, and shall be deemed
to have been given when received by the Secretary. A stockholder's notice to
the Secretary shall set forth as to each matter the stockholder proposes to
bring before the meeting (a) a brief description of the business to be brought
before the meeting and the reasons for conducting such business at the meeting,
b) the name and address, as they appear on the corporation's books, of the
stockholder proposing such business, (c) the class and number of shares of the
corporation's stock beneficially owned by the stockholder, and (d) any material
interest of the stockholder in such business. No business shall be conducted at
a meeting of stockholders except in accordance with the procedures set forth in
this Section 10. The chairman of a meeting of stockholders shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Section
10, and if he should so determine, he shall so declare to the meeting and any
such business not properly brought before the meeting shall not be transacted.
Any nomination for director made by a stockholder must be made in writing
to the Secretary not less than 15 days prior to the meeting of stockholders at
which Directors are to be elected. If mailed, such notice shall be sent by
certified mail, return receipt requested,and shall be deemed to have been given
when received by the Secretary. A stockholder's nomination for director shall
set forth (a) the name and business address of the stockholder's nominee, (b)
the fact that the nominee has consented to his name being placed in nomination,
(c) the name and address, as they appear on the corporation's books, of the
stockholder making the nomination, (d) the class and number of shares of the
corporation's stock beneficially owned by the stockholder, and (e) any material
interest of the stockholder in the proposed nomination.
Notwithstanding compliance with this Section 10, the chairman of a meeting
of stockholders may rule out of order any business brought before the meeting
that is not a proper matter for stockholder consideration. This Section 10
shall not limit the right of stockholders to speak at meetings of stockholders
on matters germane to the corporation's business, subject to any rules for the
orderly conduct of the meeting imposed by the Chairman of the meeting. The
corporation shall not have any obligation to communicate with stockholders
regarding any business or director nomination submitted by a stockholder in
accordance with this Section 10 unless otherwise required by law.
ARTICLE III. BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the
corporation shall be managed by the Board of Directors except as otherwise
provided by law, by the Articles of Incorporation or by the Bylaws.
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of
directors of the corporation shall not be less than six nor more than 12, one
of whom shall be designated and elected by the Board as the Chairman of the
Board of Directors and shall preside at all meetings of the Board of Directors.
The Board may elect a Vice Chairman whose only duties shall be to preside at
Board meetings in the absence of the Chairman. Directors need not be residents
of the State of North Carolina or shareholders of thecorporation. Subject to
the Articles of Incorporation, the Board of Directors shall each year prior to
the annual meeting determine by appropriate resolution the number of directors
which shall constitute the Board of Directors for the ensuing year.
SECTION 3. FOUNDING DIRECTOR. A Founding Director is a person who
was a director when it became a public company in 1961, who was a director on
November 7,1980, and who has served continuously as a director since 1961.
SECTION 4. DIRECTOR EMERITUS. A Director Emeritus is a director
with prior service as a Founding Director. The Board of Directors may designate
a Founding Director as a Director Emeritus. The Director Emeritus lifetime
benefit is 50% of the Founding Director fee in effect at the time the Founding
Director (whether an Employee Director or a Non-Employee Director) becomes a
Director Emeritus.
SECTION 5. QUARTERLY MEETINGS. Quarterly meetings of the Board of
Directors shall be held at a time and place determined by the Chairman of the
Board of Directors. Any one or more of the directors or members of a committee
designated by the directors may participate in a meeting of the Board or
Committee by means of a conference telephone or similar communications device
which allows all persons participating in the meeting to hear each other and
such participation in a meeting will be deemed presence in person.
SECTION 6. SPECIAL MEETINGS. Special Meetings of the Board of
Directors may be called by or at the request of the Chairman of the Board of
Directors, [the President] or two of the directors. The person or persons
authorized to call special meetings of the Board of Directors may fix any
place, either within or without the State of North Carolina, as the place for
holding any special meeting of the Board of Directors called by them.
5
SECTION 7. NOTICE. Notice of any special meeting shall be given by
either mail, facsimile or telephone. Notice of any special meeting given by
mail shall be given at least five days previous thereto. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail
properly addressed, with postage thereon prepaid. If notice is given by
facsimile or by telephone, it shall be done so at least two days prior to the
special meeting and shall be deemed given at the time the facsimile is
transmitted or of the telephone call itself. Any director may waive notice of
any meeting. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at nor the purpose of any regular or special meeting of the Board of
Directors need be specified in the notice or waiver of notice of such meeting.
SECTION 8. QUORUM. A majority of the number of directors shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors, but if less than such majority is present at a meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice.
SECTION 9. MANNER OF ACTING. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors unless otherwise required by the Articles of
Incorporation.
SECTION 10. VACANCIES. Any vacancy occurring in the Board of
Directors shall be filled as provided in the Articles of Incorporation.
SECTION 11. COMPENSATION. The directors may be paid such expenses
as are incurred in connection with their duties as directors. The Board of
Directors may also pay to the directors compensation for their service as
directors.
SECTION 12. PRESUMPTION OF ASSENT. A director of the corporation
who is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the secretary of the corporation immediately
after the adjournment of the meeting. Such right to dissent shall not apply to
a director who voted in favor of such action.
SECTION 13. ACTION WITHOUT MEETING. Action taken by a majority of
the Board, or a Committee thereof, without a meeting is nevertheless Board, or
Committee, action if written consent to the action in question is signed by all
of the directors, or Committee members, and filed with the minutes of the
proceedings of the Board, or Committee, whether done before or after the action
so taken.
6
SECTION 14. INFORMAL ACTION BY DIRECTORS. Action taken by a
majority of the directors without a meeting is action of the Board of Directors
if written consent to the action is signed by all of the directors and filed
with the minutes of the proceedings of the Board of Directors, whether done
before or after the action so taken.
SECTION 15. COMMITTEES GENERALLY. Committees of the Board of
Directors shall be reestablished annually at the first Board of Directors
Meeting held subsequent to the Annual Shareholders Meeting. Directors
designated to serve on committees shall serve as members of such committees
until the first Board of Directors Meeting following the next succeeding Annual
Shareholders Meeting or until their successors shall have been duly designated.
The Board of Directors may designate a committee chairman and a committee vice
chairman from the membership for each committee established. In the absence of
the designation of a committee chairman or vice chairman by the Board, a
committee by majority vote may elect a chairman or vice chairman from its own
membership.
SECTION 16. EXECUTIVE COMMITTEE. (a) The Board may establish an
Executive Committee comprising not less than three members. This Committee may
exercise all of the authority of the Board of Directors to the full extent
permitted by law, but shall not have power:
i) To declare dividends or authorize distributions;
ii) To approve or propose to shareholders any action that is required to
be approved by shareholders under the North Carolina Business
Corporation Act;
iii) To approve an amendment to the Articles of Incorporation of the
Corporation;
iv) To approve a plan of dissolution; merger or consolidation;
v) To approve the sale, lease or exchange of all or substantially all of
the property of the Corporation;
vi) To designate any other committee, or to fill vacancies in the Board
of
Directors or other committees;
vii) To fix the compensation of directors for serving on the Board of
Directors or any committee;
vii) To amend or repeal the Bylaws, or adopt new Bylaws;
ix) To authorize or approve reacquisition of shares, except according to
a formula or method approved by the Board of Directors;
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x) To authorize or approve the issuance or sale or contract for sale of
shares, or determine the designation and relative rights, preferences
and limitations of a class or series of shares, unless the Board of
Directors specifically authorizes the Executive Committee to do so
within limits established by the Board of Directors;
xi) To amend, or repeal any resolution of the Board of Directors which by
its terms is not so amendable or repealable; or
xii) To take any action expressly prohibited in a resolution of the Board
of Directors.
SECTION 17. AUDIT COMMITTEE. The Board may establish an Audit
Committee comprising not less than three members, all of whom shall be non-
employee directors. The Committee shall aid the Board in carrying out its
responsibilities for accurate and informative financial reporting, shall assist
the Board in making recommendations with respect to management's efforts to
maintain and improve financial controls, shall review reports of examination by
the independent auditors, and except as otherwise required by law, shall have
authority to act for the Board in any matter delegated to this Committee by the
Board of Directors. The Committee shall recommend to the stockholders at their
annual meeting each year an independent certified public accounting firm as
independent auditors for the corporation.
SECTION 18. COMPENSATION COMMITTEE. The Board may establish a
Compensation Committee comprising not less than three members, all of whom
shall be non-employee directors. Except as otherwise required by law, the
Compensation Committee shall have authority to act for the Board in any matter
delegated to this Committee by the Board of Directors.
SECTION 19. GOVERNANCE COMMITTEE. The Board may establish a
Governance Committee comprising not less than three members, all of whom shall
be non-employee directors. Except as otherwise required by law, the Governance
Committee shall have authority to act for the Board in any matter delegated to
this Committee by the Board of Directors.
SECTION 20. GOVERNMENT/LEGAL AFFAIRS COMMITTEE. The Board may
establish a Government/Legal Affairs Committee to consist of not less than
three directors. Except as otherwise required by law, the Government/Legal
Affairs Committee shall have authority to act for the Board in any manner
delegated to this Committee by the Board of Directors.
SECTION 21. SALARY ADMINISTRATION; DIRECTORS COMPENSATION.
The compensation of employees not covered by the Compensation Committee duties
shall be the responsibility of the President, except that compensation of the
Chairman's staff shall be the mutual responsibility of the Chairman and the
President. The compensation of independent directors shall be recommended to
the Board of Directors as a mutual responsibility of the Chairman and the
President.
8
ARTICLE IV. INDEMNIFICATION
SECTION 1. INDEMNIFICATION. In addition to any indemnification
required or permitted by law, and except as otherwise provided in these Bylaws,
any person who at any time serves or has served as a director or officer of the
corporation, or in such capacity at the request of the corporation for any
other corporation, partnership, joint venture, trust or other enterprise, shall
have a right to be indemnified by the corporation to the fullest extent
permitted by law against (i) reasonable expenses, including attorneys' fees,
actually and necessarily incurred by him in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, seeking to hold him liable by reason of the
fact that he is or was acting in such capacity, and (ii) payments made by him
in satisfaction of any judgment, money decree, fine, penalty or reasonable
settlement for which he may have become liable in any such action, suit or
proceeding.
SECTION 2. LIMITATION ON INDEMNIFICATION. The corporation shall
not indemnify any person hereunder against liability or litigation expense he
may incur on account of his activities which were at the time taken known or
believed by him to be clearly in conflict with the best interests of the
corporation. The corporation shall not indemnify any director with respect to
any liability arising out of N.C.G.S. sec. 55-8-33 (relating to unlawful
declaration of dividends) or any transaction from which the director derived an
improper personal benefit as provided in N.C.G.S. sec. 55-2-02(b)(3).
SECTION 3. BOARD DETERMINATION. If any action is necessary or
appropriate to authorize the corporation to pay the indemnification required by
this Bylaw the Board of Directors shall take such action, including i)making a
good faith evaluation of the manner in which the claimant for indemnity acted
and of the reasonable amount of indemnify due him, (ii) giving notice to, and
obtaining approval by, the shareholders of the corporation, and (iii) taking
any other action.
SECTION 4. RELIANCE. Any person who at any time after the adoption
of this Bylaw serves or has served in any of the capacities indicated in
subsection (a) of this Bylaw shall be deemed to be doing or to have done so in
reliance upon, and as consideration for,the right of indemnification provided
herein. Such right shall inure to the benefit of the legal representatives of
any such person and shall not be exclusive of any other rights to which such
person may be entitled apart from the provision of this Bylaw.
SECTION 5. AGENTS AND EMPLOYEES. The provisions of subsection (a)
of this Bylaw shall not be deemed to preclude the corporation from indemnifying
persons serving as agents or employees of the corporation, or in such capacity
at the request of the corporation for any other corporation, partnership, joint
venture, trust or other enterprise, to the extent permitted by law.
9
SECTION 6. EXPENSES. The corporation shall be entitled to pay the
expenses incurred by a director or officer in defending a civil or criminal
action, suit or proceeding in advance of final disposition upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount
unless it shall ultimately be determined that he is entitled to be indemnified
by the Corporation against such expenses.
SECTION 7. INSURANCE. As provided by N.C.G.S. sec. 55-8-57, the
Corporation shall have the power to purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
corporation, or who is or was serving at the request of the corporation as a
director, officer or employee or agent of another corporation, partnership,
joint venture, trust or other enterprise or as a trustee or administrator under
an employee benefit plan against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation has the power to indemnify him against such
liability.
ARTICLE V. OFFICERS
SECTION 1. TITLES. The officers of the corporation may consist of
the Chairman of the Board of Directors, the President, and such Vice Presidents
as shall be elected as officers by the Board of Directors. There shall also be
a Secretary, Treasurer, Controller and such assistants thereto as may be
elected by the Board of Directors. Any one person may hold one or more offices
in the corporation. No officer may act in more than one capacity where action
of two or more is required.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the
corporation shall be elected annually by the Board of Directors at the first
meeting of the Board held after each annual meeting of the shareholders, or at
any other meeting of said Board. If the election of officers shall not be held
at such meeting, such election shall be held as soon thereafter as conveniently
may be. Each officer shall hold office until his successor shall have been duly
elected and shall have qualified or until his death or until he shall resign or
shall have been removed in the manner hereinafter provided.
SECTION 3. REMOVAL. Since officers serve at the pleasure of the
Board, any officer may be removed at any time by the Board of Directors, with
or without cause. Termination of an officer's employment with the Corporation
by the appropriate official shall also end his term as an officer.
SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. There shall be a
Chairman of the Board of Directors elected by the directors from their members.
The Chairman so elected by the directors shall be responsible to the Board of
Directors and shall seek Board approval and guidance on major corporation
strategies, policies, and objectives, including long-range planning, mergers,
acquisitions, consolidations and liquidations. He shall also issue annual
10
reports and recommend dividend policies for Board approval and shall perform
such other functions as the Board may require from time to time. The Chairman
shall have power to sign any deeds, mortgages, bonds, contracts, or any other
instruments or documents which may be lawfully executed on behalf of the
corporation.
SECTION 5. PRESIDENT. The office of President shall be held by a
director of the corporation duly elected to said office by a majority vote of
the Board of Directors, and shall be the Chief Executive Officer of the
corporation, and shall have direct supervision and control of all of the
business affairs of the corporation, not specifically allocated to the
Chairman of the Board in these Bylaws, subject to the general supervision and
control of the Board of Directors. The President shall have power to sign
certificates for shares of the corporation and any deeds, mortgages, bonds,
contracts, or any other instruments or documents which may be lawfully executed
on behalf of the corporation. The President shall vote as agent for this
corporation the capital stock held or owned by this corporation in any
corporation. The President is authorized to delegate the authority to officers
or employees of the corporation to execute and deliver agreements and other
instruments on behalf of the corporation. The President is authorized to
delegate the authority to execute and deliver agreements and other instruments
to other officers and employees of the Corporation.
SECTION 6. VICE PRESIDENTS. The duties of Vice Presidents shall be
the performance of such functions and duties as shall be assigned by the
President or the Board of Directors.
SECTION 7. SECRETARY. The Secretary shall perform such duties and
have such responsibilities as are assigned by the Board of Directors or the
President.
SECTION 8. TREASURER. The Treasurer shall perform such duties and
have such responsibilities as are assigned to him by the Board of Directors or
the President.
SECTION 9. CONTROLLER. The Controller shall perform such duties
and have such responsibilities as are assigned to him by the Board of Directors
or the President.
ARTICLE VI. DEPARTMENTAL DESIGNATIONS
SECTION 1. DEPARTMENTAL DESIGNATIONS. The President may establish
such departmental or functional designations or titles pertaining to
supervisory personnel as the President in his discretion deems wise. The
designations or titles may be that of Senior Vice President, Vice President or
such other term or terms as the President desires to utilize. The designation
or title contemplated by this section is for the purpose of administration
within the department or function concerned and is not with the intent of
designating those individuals bearing such titles as general officers of the
11
corporation. These individuals bearing these titles shall be known as
administrative managers of the corporation.
ARTICLE VII. CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing
shares of the corporation shall be in such form as shall be determined by the
Board of Directors. Such certificates shall be signed by the President and by
the Secretary, provided that where a certificate is signed by a transfer agent,
assistant transfer agent or co-transfer agent of the corporation or with the
duly designated transfer agent the signatures of such officers of the
corporation upon the certificate may be by facsimile engraved or printed. Each
certificate shall be sealed with the seal of the corporation or a facsimile
thereof. All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and class and date of
issue, shall be entered on the stock transfer books of the corporation, as the
transfer agent. All certificates surrendered to the corporation for transfer
shall be canceled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
canceled, except that in case of a lost, destroyed, or mutilated certificate a
new one may be issued therefor upon such terms and indemnity to the corporation
as the Board of Directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of the
corporation shall be made only on the stock transfer books of the corporation
by the holder of records thereof or by his legal representative, who shall
furnish proper evidence of authority to transfer, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the secretary of
the corporation, and on surrender for cancellation of the certificate for such
shares. The person in whose name shares stand on the books of the corporation
shall be deemed by the corporation to be the owner thereof for all purposes. To
the extent that any provision of the Rights Agreement between the Company and
Wachovia Bank and Trust Company, N.A., Rights Agent, dated as of September 9,
1988, is deemed to constitute a restriction on the transfer of any securities
of the Company, including, without limitation, the Rights, as defined therein,
such restriction is hereby authorized by the Bylaws of the Company.
SECTION 3. LOST CERTIFICATES. The Board of Directors may authorize
the issuance of a new certificate in place of a certificate claimed to have
been lost or destroyed, upon receipt of an affidavit of such fact from the
person claiming the loss or destruction. In authorizing such issuance of a new
certificate, the Board may require the claimant to give the corporation a bond
or the Board, by resolution reciting that the circumstances justify such
action, may authorize the issuance of the new certificate without requiring
such a bond. This function or duty on the part of the Board may be assigned by
the Board to the transfer agents of the common stock of the corporation.
12
ARTICLE VIII. FISCAL YEAR
The fiscal year of the Corporation shall be the 12 months ending January
31 of each year.
ARTICLE IX. DIVIDENDS
The Board of Directors may from time to time declare, and the corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and as provided in a resolution of the Board of
Directors.
ARTICLE X. SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation,
the state of incorporation, and the word "Seal".
ARTICLE XI. WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or director
of the corporation under the provisions of the charter or under the provisions
of applicable law, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent to the giving of such notice.
ARTICLE XII. AMENDMENTS
Unless otherwise prescribed by law or the charter, these Bylaws may be
amended or altered at any meeting of the Board of Directors by affirmative vote
of a majority of the directors. Unless otherwise prescribed by law or the
charter, the shareholders entitled to vote in respect of the election of
directors, however, shall have the power to rescind, amend, alter or repeat any
Bylaws and to enact Bylaws which, if expressly so provided, may not be amended,
altered or repealed by the Board of Directors.
13
Part IV
LOWE'S COMPANIES, INC. AND SUBSIDIARY COMPANIES
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
Amounts in thousands, except per share amounts
Years ended January 31,
1996 1995 1994
Earnings per Common & Common Equivalent Share:
Net Earnings $226,027 $223,560 $131,786
Weighted Average Shares
Outstanding 160,377 154,844 147,147
Dilutive Effect of Common
Stock Equivalents 76 82 251
Weighted Average Shares,
as Adjusted 160,453 154,926 147,398
Earnings per Common &
Common Equivalent Share $1.41 $1.44 $.89
Earnings per Common Share - Assuming Full Dilution:
Net Earnings $226,027 $223,560 131,786
Interest (After Taxes) on
Convertible Debt 7,589 7,696 4,058
Net Earnings, as Adjusted $233,616 $231,256 $135,844
Weighted Average Shares
Outstanding 160,377 154,844 147,147
Dilutive Effect of Common
Stock Equivalents 76 82 238
Shares Added if All Debt
Converted 10,898 10,995 5,848
Weighted Average Shares,
as Adjusted 171,351 165,921 153,233
Earnings per Common Share
- Assuming Full Dilution $1.36 $1.39 $.89
PART IV
EXHIBIT 13
Back cover:
Lowe's Profile
Lowe's Companies, Inc. is the world's second largest home improvement
retailer, serving the do-it-yourself home improvement, home decor, home
electronics, and home construction markets.
Lowe's 365 stores serve customers in 23 states located mainly in the East.
In 1995 our average store did $19.9 million in sales. Our big stores
averaged $23.4 million in sales.
At year-end, our retail sales space totaled approximately 24 million
square feet. Our employees numbered 44,546.
Lowe's has been a publicly owned company since October 6, 1961. Our stock
has been listed on the New York Stock Exchange since December 19, 1979; on
the Pacific Stock Exchange since January 26, 1981; and on the London Stock
Exchange since October 6, 1981. Shares are traded under the ticker symbol
LOW.
Pages 4 - 16:
Outlook on Opportunity
At Lowe's we help make people happy at home. It's been our job for fifty
years-- a good job, and we're good at it. What it takes to be good at our
job, however, has changed more than a little over time. We are no longer a
handful of small stores selling hardware and building supplies mainly to
Carolina contractors. Lowe's in the mid-Nineties is an interactive network of
45,000 well-educated, highly motivated people helping millions of
sophisticated consumers realize their personal vision of the American home.
Lowe's growth through the years has been driven by opportunity. We strive to
seize opportunity whenever it presents itself, whatever shape it takes-- new
customer needs, new locations, new services, or new technologies. While our
emphasis on value and low-cost operation has remained constant, almost
everything else about Lowe's has evolved in response to developing
opportunities. Our pledge to Lowe's investors is to be always on the lookout
for opportunity--and to keep them informed on the outlook!
The Lowe's that we know today got its start in 1946. The years following
World War II offered a tremendous opportunity to provide building materials
and appliances for the newly forming households of veterans who were eager to
find jobs, marry their sweethearts, and get on with life. Lowe's customers in
those days were members of the G. I. generation (thirty million strong, today)
and, a few years later, the Silent generation (forty million). No strangers
to shortages, rationing, and self-denial, they appreciated Lowe's
resourcefulness in supplying products that were scarce. They were thrilled to
be able to buy a commode: they didn't cared how much water it used, or how
much noise it made, and they knew they could have any color they wanted, as
long as it was white!
The Baby Boomers who were born into those new postwar households now
constitute half of Lowe's customer franchise. Their massive numbers alone--
seventy million nationwide--ensured that from the moment they learned to say
"I want," they have had the rapt attention of marketers in all sectors of the
economy.
Boomers are a well-educated generation, and they have been exposed to more
diverse cultural influences than previous generations. As a result, they are
more demanding and sophisticated consumers than their parents. Their sense of
individuality was honed on divisive issues such as the Vietnam conflict, civil
rights, drugs, women's lib, and the sexual revolution, distancing them from
the teamwork ethic that was an important part of their parent's war effort.
This made Boomers independent and comparatively self-indulgent.
When Baby Boomers started coming of age as consumers, Lowe's recognized an
opportunity to free ourselves from the cyclicality of housing starts by
developing a new identity as a home improvement retailer marketing directly to
consumers. Modern information-gathering and demographic techniques enabled us
to know more about our expanding marketplace than ever before, influencing
every strategic decision from the size and location of our stores to the
merchandise assortment on our racks.
The households established by Lowe's Boomer customers differed from their
parent's households in a number of important ways. Boomers had more money and
less time. More women worked outside the home; more adults were single
parents. Boomers had grown up with credit and were not uncomfortable in debt.
Their fiscal philosophy was "If you've got it, spend it; if you don't, borrow
it and then spend it." As consumers, they increasingly demanded broader
merchandise assortments, greater shopping convenience, and (because they
didn't have time to wait for sales) everyday competitive pricing.
The 1980's saw the emergence of the "category killers"-- specialty retailers
offering very broad product assortments and consistently low prices, such as
Toys "R" Us and Circuit City. In Lowe's industry, the concept of warehouse
retailing was developed most quickly and successfully by Home Depot. Here was
an opportunity for a new Lowe's store format -- but one which entailed
conversion of the majority of our more than 200 stores.
Competition creates opportunity for those who know how to use it. The law of
the retail universe is that strong contenders gain market share, weak ones
fall by the wayside, and the customer gets what he wants. The recent years of
accelerating evolution and escalating competition in our industry have been
Lowe's period of greatest growth. Looking ahead, we see opportunities for
continued growth in both market size and market share.
Is there anyone alive who doesn't know that in 1996 the oldest Baby Boomers
are turning fifty? Every day for the next ten years, ten thousand Boomers
will celebrate the big Five-Oh. The press can't seem to get enough
assessments of the probable impact of this phenomenon. It has become a
milestone around our necks. Get over it, people: fifty isn't Walter Brennan,
it's Mick Jagger. Baby Boomers may not be as heavily into snowboards as
Generation X, but they know their way around a motherboard, and they're still
a long way from shuffleboard!
Boomers are just now entering their years of highest earning power and
greatest disposable personal income. They are taking up the reins of
government and moving into positions of top management in private enterprise.
As they once redefined young adulthood, so will they dictate the terms of
their maturity. Inevitably, our institutions will reflect the passing of the
leadership torch.
On the Boomers' personal agenda, however, home ownership has occupied a place
at the top as consistently as in any previous generation. Having paired off
and "nested'--some later than usual, some more than once-- they are now in the
process of trading up to homes that better suit their lifestyles and express
their tastes.
In 1972, as Baby Boomers began flooding the real estate market, there were 2.4
million housing starts--the largest number since World War II. Many of those
were multi-family dwellings, encouraged by government subsidies. Nowadays,
Boomers are in the process of trading up to single-family homes, to bigger
homes, and to homes in communities where they think they want to stay for a
while. The National Association of Home Builders reports that two-thirds of
new single-family homes are now being sold to trade-up buyers. Subject to
regional economies and fluctuations in mortgage rates, trade-up moves will
probably dominate the market and housing construction at least through the end
of the decade.
As the housing stock of more vigorous building boom years begins to age,
opportunity grows in the remodeling sector. Remodeling expenditures totaled
$40 billion in 1995, and are expected to reach $49 billion by the year 2000.
A survey conducted by the National Association of Home Builders found that
homeowners undertaking remodeling projects are frequently seeking to
incorporate contemporary amenities--such as home theatres and exercise rooms--
into their existing houses. Kitchen remodelers go for environmentally correct
trash compactors and "smart" appliances; owners of older homes frequently
choose to add windows and remove walls for a lighter, more airy feeling.
Sales of existing homes also create opportunity for Lowe's, as home buyers
customize newly acquired dwellings to their tastes and needs. We have found
existing home sales to be a useful leading indicator for our business,
especially if we allow a few months for home buyers to recover from closing
costs and moving expenses.
Even in periods of high employment and real wage growth, consumer confidence
can be shaken by fears of inflation and rising interest rates. That's what
happened in the first half of 1995, when the nation's housing markets shifted
into neutral. Since then, mortgage rates have dipped again and consumer
confidence has risen, apparently unaffected by talk about high debt levels.
Today's consumers tend to focus more on the manageability of monthly payments
than on their overall indebtedness. The current low interest rate environment
makes it possible for them to carry debt comfortably.
A comparison of personal consumption expenditures by category since the start
of this decade reveals great stability. Food, which accounted for 21% of
personal expenditures twenty years ago, has declined to 16% by 1991 and has
dipped to 15% for the past two years, Medical care, which made news by
rising from 11% to 15% of personal outlays between 1980 and 1990, has remained
at 15% ever since. The good news is that there is no bad news here: if
housing expenditures continue at 15%, and outlays for household operations
stay at 6%, there will still be an increase in real dollars spent as household
incomes rise.
What opportunities has Lowe's found on the other side of the Baby Boom? There
are eighty million members of the generation called (regrettably) "X." As
targeted consumers, they have repeatedly denied easy access to marketers, just
as they resisted cultural identification with specific issues or events. That
doesn't mean that ultimately their list of priorities won't look a lot like
their parents' by the time they reach their peak earning years. But Lowe's
doesn't expect to win their hearts and minds with the same marketing
techniques. Through programs such as our NASCAR sponsorship and our Internet
presence on the World Wide Web (http://www.lowes.com), we are establishing a
relationship with the next generation of homeowners.
Page 16:
Independent Auditors' Report
To the Board of Directors and Shareholders
of Lowe's Companies, Inc.
We have audited the accompanying consolidated balance sheets of Lowe's
Companies, Inc. and subsidiaries as of January 31, 1996, 1995 and 1994, and
the related consolidated statements of current and retained earnings and cash
flows for the fiscal years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Lowe's Companies, Inc. and
subsidiaries at January 31, 1996, 1995 and 1994, and the results of their
operations and their cash flows for the fiscal years then ended in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Charlotte, North Carolina
February 20, 1996
(March 4, 1996 as to the
fourth paragraph of Note 14)
Pages 17 - 19:
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Introduction
This discussion summarizes the significant factors affecting Lowe's
consolidated operating results, financial condition, and liquidity/cash flows
during the three-year period ended January 31, 1996 (i.e., Fiscal 1995, 1994,
and 1993). This discussion should be read in conjunction with the Letter to
Shareholders, financial statements, and financial statement footnotes included
in this annual report.
During these three years, Lowe's has been effecting a major transformation of
the company, from a chain of small stores designed principally to serve new
home builders, to a chain of "big box" home improvement stores designed to
serve the larger and faster growing retail consumer market for home
improvement. To this end, in 1991 we recorded a $71.3 million restructuring
charge to cover expected expenses incident to this strategy, over the four
years ending with fiscal 1995. The following table presents highlights of the
changes implemented by this policy over the last three years:
End of Fiscal
1995 1994 1993 1992
Stores 365 336 311 303
Sales Floor Square Footage (M) 24.0 18.6 14.2 10.0
Average Store Size 66K 55K 46K 33K
Sales (M) $7,075 $6,110 $4,538 $3,846
Net Earnings (M) $ 226 $ 224 $ 132 $ 85
Shareholders' Equity (M) $1,657 $1,420 $ 874 $ 733
These three years have been arguably the most successful in the history of the
company, and our transformation will continue.
We ended 1995 with 365 stores and 24 million square feet of selling space, a
29% increase over 1994 and a 69% expansion since 1993. Net earnings for 1995
were 3.2% of sales, return on beginning assets was 7.3%, and return on
beginning shareholders' equity was 15.9%. These returns are below the decade-
high results posted in 1994. Our results in 1994 were stimulated by favorable
interest rate movements which boosted consumer confidence, and mortgage
refinancing which augmented disposable income. Conversely, higher interest
rates and a less positive economic environment dampened growth in 1995.
Expansion plans for 1996 envision about 60 new stores with 75% in new markets
and the balance in relocations for approximately 6.7 million square feet of
additional retail space. Approximately one half of the 1996 projects will be
leased and one half will be owned.
Merchandise distribution capabilities are a central component of Lowe's
marketing and operating strategy. At year end, we operated three distribution
centers and eleven smaller support facilities, four of which are reload
centers only. In addition, a new center having approximately 775,000 square
feet will be operational in early 1996, a second center having approximately
950,000 square feet is expected to become operational during third quarter
1996 and a third center having approximately 778,000 square feet is expected
to be operational in early 1997.
OPERATIONS
Record sales of $7.1 billion were achieved during 1995, a 16% increase over
1994 sales of $6.1 billion. Sales for 1994 were 35% higher than 1993 levels.
These increases are attributable to customer receptiveness to our large stores
with their dominant inventory assortment, everyday competitive prices and
enhanced customer service.
Gross margin in 1995 moved up slightly, to 24.9% from 24.8% in 1994. Both
these years were an improvement over the 23.8% posted in 1993. As Lowe's
opens more large stores each year, the expanded merchandise selection helps
improve gross margin.
LIFO charges were $8.3 million, $435 thousand, and $15.5 million for 1995,
1994, and 1993, reducing gross margins by 12, 1, and 34 basis points,
respectively. Note 3 to the financial statements provides further
information.
Selling General and Administrative (SG&A) expenses for 1995 were $1.1 billion
or 15.9% of sales. SG&A in the two previous years was 15.4% and 15.8% to
sales. 1995's increase of 50 basis points primarily resulted from store
employment growing faster than the 16% sales growth, and an increase in credit
card expense.
Store opening costs were $49.6 million for 1995. These costs were $40.7 and
$29.3 million for 1994 and 1993, respectively. These costs currently average
about $900 thousand per store, and are expensed, not capitalized.
Depreciation, reflecting continuing fixed asset expansion, increased 36.8% to
$150 million. There was a 36% increase for 1994 which was computed from the
1993 base of $80.5 million. These increases were in line with expectations.
Depreciation for these years as a percentage of sales was 2.1% for 1995 and
1.8% for 1994 and 1993, which favorably tracks square footage increases.
Approximately one half of new stores opened in the last three years were
leased, whereas previously more than one half were owned.
Employee retirement plans for 1995 were $46.1 million or .7% to sales. This
cost is consistent with .8% for each of the two previous years. See Note 10
to the financial statements for further disclosure.
Interest costs as a percent of sales are holding relatively steady at .5% for
1995 and 1994 and .4% for 1993. Interest totaled $38 million in 1995, $27.9
million for 1994, and $18.3 million for 1993. Interest costs as represented
by capital leases were $16.9, $7.4, and $2.8 million for 1995, 1994, and 1993,
respectively. See Note 6 to the financial statements for particulars on long-
term indebtedness, and the discussion below on liquidity and capital resources.
Cash dividends paid to common shareholders were $30.5, $27.4, and $23.6
million in 1995, 1994, and 1993, respectively. Lowe's has paid cash dividends
each quarter since becoming a public company in 1961. At January 31, 1996
there were 11,299 shareholders of record. Please refer to the Stock
Performance Chart on page 32 for further details on dividends and stock
performance.
BALANCE SHEET MANAGEMENT
Effective inventory management stems from efficient logistics and distribution
of the "right" merchandise assortments based on sales plans and forecasts.
Inventory turnover is an often used performance measurement. (Lowe's
calculates "turn" by using cost of sales as the numerator and divides by the
average of beginning inventory plus the subsequent four quarters' ending
inventories.) In 1995, Lowe's inventory turned 4.3 times, comparable to 4.7
turns in 1994 and 1993, as sales fell below expectations in the second half of
1995.
Accounts receivable were $113 million at January 31, 1996 compared to $109
million for 1994 and $49 million for 1993. A program was in effect through
first quarter 1995 wherein the Company sold an undivided fractional interest
in a designated pool of receivables. Note 2 to the financial statements
provides more detail.
Property, less accumulated depreciation increased 33% to $1.86 billion for
1995. In 1994 it increased 37% over 1993 levels. The majority of the
increase stems from our expansion program, including point-of-sale equipment,
fixtures, and displays.
Other assets primarily consist of land and buildings relating to vacated
stores which are available for sale or lease, investments in low income
housing, and notes receivable relating to sales of excess properties. These
vacated properties are carried at their estimated net realizable value. At
January 31, 1996, this value was approximately $26 million compared to $42
million one year ago. At year-end, five properties having a book value of
approximately $5.7 million were under contract to be sold. Investments in low
income housing at January 31, 1996 was $13 million compared to $11 million for
the previous year. Notes receivable relating to sales of excess properties
were $9.7 million at year-end, up $.7 million from the previous year.
Accounts payable, the major financing source for inventory, financed 52% of
1995 year-end inventory compared to 60% for 1994 and 55% for 1993. The
proportions reflect the result of changes in inventory product mix, sales
velocity, and levels of purchases near year end.
Long-term debt, excluding current maturities, at January 31, 1996 was $866.2
million, up 27% from January 31, 1995. The previous year's increase was 15%.
These increases were in line with expectations and are being used to primarily
fund our continuing program for expansion and growth.
The special one-time restructuring charge is addressed in Note 15 to the
financial statements. Charges against the restructuring accrual associated
with relocating and closing stores were $13.8, $19.7, and $19.0 million for
1995, 1994, and 1993, respectively. Fiscal 1995 was the completion year
relating to the special one-time 1991 restructuring accrual of $71.3 million.
Shareholders' equity continues to finance the biggest portion of assets.
Total shareholders' equity increased by $236.8 million in 1995 and financed
46.6% of assets at January 31, 1996. This compares to 45.7% for 1994 and
39.7 % for 1993. (See Note 11 to the financial statements for further details
and related comments under "working capital" below.)
FINANCIAL MANAGEMENT
Liquidity and Capital Resources
Primary sources of liquidity are cash flows from operating activities and
certain financing activities. Information on consolidated cash flows
(operating, financing, and investing activities) is set forth in the
Statements of Cash Flows on page 22.
Working capital at January 31, 1996, was $653.8 million. This compared to
$611.3 million and $402.7 million for each of the two previous years,
respectively.
Financing activities in 1994 included the sale of 10,350,000 shares of Lowe's
common stock under the shelf registration discussed below. This transaction
realized $315.7 million, net of the underwriting discount and other costs.
The proceeds were used to finance the Company's expansion program and for
general corporate purposes. The schedule set forth below depicts working
capital debt activity (except for debt associated with certain real property
acquisitions in the normal course of business):
In 1995, Lowe's issued the following long-term debt:
* $100 million aggregate (net $99 million) principal 6.375%
Senior Notes, issued in December 1995.
In 1994, Lowe's did not issue any long term debt.
In 1993, Lowe's issued the following long-term debt:
* $32 million medium-term notes issued in February 1993; and
* $287.5 million aggregate (net $250 million) principal
3% Convertible Subordinated Notes, issued in July 1993.
Lowe's reduced long term debt as follows:
In 1995, $25.1 million of scheduled repayments
In 1994, $41.5 million of scheduled repayments.
In 1993, $6.3 million of scheduled repayments.
During 1995, 1994, and 1993, the Company entered into various leases for new
store facilities. Several of these leases were classified as capital leases,
the result of which is to increase long-term debt. Amounts classified as
capital leases (i.e. long-term debt) were $96.9 million, $104.2 million, and
$29.3 million for 1995, 1994, and 1993, respectively.
Major uses of cash will continue to be investments in new store facilities.
In 1995, capital investment was $637 million (cash outlays of $520 million
plus capital leases of $97 million and like-kind exchanges of $20 million)
which did not include operating leases of $113 million. Lowe's 1996 capital
budget is targeted at $1 billion, inclusive of approximately $240 million of
operating or capital leases. More than 80% of this planned commitment is for
store expansion.
Present plans are to finance 1996's expansion program through funds from
operations, operating leases, issuance of about $40 million of common stock to
the Employee Stock Ownership Plan, and from external financing.
During 1994, the Company filed with the Securities and Exchange Commission a
shelf registration statement covering $500 million of "unallocated" debt or
equity securities. At January 31, 1996, an uncommitted aggregate of $74
million was available under the shelf registration. This registration enables
the Company to issue common stock, preferred stock, senior unsecured debt
securities, or subordinated unsecured debt securities.
Short-term capital needs will be financed through utilization of Lowe's bank
credit agreements and commercial paper program. Formal bank credit agreements
in place are discussed in Note 5 to the financial statements.
The ratio of long-term debt to equity plus long-term debt was 34.3%, 32.4%,
and 40.4% with fixed charge coverage at 5.8, 6.8, and 6.5 for 1995, 1994, and
1993, respectively.
OTHER
General inflation has not had a material impact on Lowe's during the past
three years, although as noted above, the LIFO charge increased to $8.3
million in 1995 from $435 thousand in 1994. Overall inventory inflation was
.79%, .07%, and 2.38% for 1995, 1994, and 1993, respectively. Lumber products
have experienced substantially more volatility than other merchandise
categories, due to supply-demand variability, weather constraints,
environmental concerns, etc., etc. The inflation (deflation) rates for lumber
and building materials were (3.2%), (0.4%), and 12.0% for 1995, 1994, and 1993.
Store Performance Perspective
To further enhance understanding and analysis of the relative pace, progress,
and performance of our new family of stores, compared to two older and
smaller store groups, we are providing the following tables.
<TABLE>
<CAPTION>
Table 1 Store Group Unit Totals, Four Quarter Average
1995 1994 1993
% of % % of % % of
Total Change Units Total Change Units Total Units
<S> <C> <C> <C> <C> C> <C> <C> <C>
Small (1) 17% (11)% 59 20% (14)% 66 25% 77
Medium (2) 16 (19) 59 23 (22) 73 31 94
Large (3) 67 27 % 238 57 40 % 187 44 134
Total 100% 356 100% 326 100% 305
</TABLE>
Table l Comments: The small stores average less than 6,800 square feet of
sales floor, and represent 17% of the total units. The 24 contractor yards are
included in our small store totals. The medium stores stem from our l984-1988
expansion, and average about 22,000 square feet. The large stores average
about 86,500 square feet, with our 1996 prototypes being 101,000 to 115,000,
plus large garden centers.
<TABLE>
<CAPTION>
Table 2 Sales Contribution by Store Group, Fiscal Year
1995 1994 1993
% of % % of % % of
Total Change Total Change Total
<S> <C> <C> <C> <C> <C>
Small (1) 10% (18)% 13% 1% 18%
Medium (2) 11 (24) 18 (16) 28
Large (3) 79 32 % 69 72% 54%
Total 100% 100% 100%
</TABLE>
Table 2 Comments: The results shown in Table 2 need to be read in conjunction
with the changing store numbers in Table 1 because these are aggregate totals,
not comparable store results. The sales decreases of both the small and
medium groups are partially attributable to their reduction in number. The
small stores and contractor yards posted an 8% average sales decline as
contractor yards became a larger percentage of this group. Medium-size stores,
on average, had a 5% sales decrease. The average large store's sales increase
of 3.5%, combined with their numerical increase, provided 79% of total sales,
up from 54% just two years ago.
<TABLE>
<CAPTION>
Table 3 Operating Profits* by Store Group, Fiscal Year
1995 1994 1993
% of % of % of
Total Change Total Change Total
<S> <C> <C> <C> <C> <C>
Small (1) 7% (32)% 11% 7% 15%
Medium (2) 13 (31) 18 (9) 30
Large (3) 80 16 % 71 91% 55
Total 100% 100% 100%
* Profits before corporate expense and intercompany charges, interest,
restructuring. LIFO and income taxes
</TABLE>
Table 3 Comments: The above table presents group totals. 52 of the 59 small
stores and yards are "comparable" and their average sales declined 11% as
contractor yards now represent a larger percentage of this total group and
these units are more affected by weaker housing and lower commodity prices.
The 59 mid-sizers are stores of the mid-80's. Their average comparable
store sales declined 2.5%. The large stores are designed for our customers of
the 90's and they continue to outperform our smaller store groups. Their
larger sales floors and wider merchandise assortments helped them post better
performance per average store than the small and medium store groups. Indeed,
the 171 "comp" stores posted increasees of 2% in sales. Most importantly,
the 67% of our stores that are the large ones posted 79% of our sales and 80%
of operating profits.
<TABLE>
<CAPTION>
FOOTNOTES TO TABLES 1, 2 & 3
1995 1994 1993
Total Sq.Ft. Total Sq.Ft. Total Sq.Ft.
(000,000) (000,000) (000,000)
<S> <C> <C> <C>
(1) Pre 1984 Stores; Contractor Yards: Avg 6,762 Sq.Ft. .4 .5 .6
(2) '84-'88 Stores Avg. 22,112 Sq.Ft. 1.2 1.5 2.0
(3) Post '88 Expansion Stores: Avg. 86,484 Sq Ft. 22.4 16.6 11.6
</TABLE>
Pages 20 - 31:
Consolidated Statements of Current and Retained Earnings
Lowe's Companies, Inc. and Subsidiary Companies
Dollars In Thousands, Except Per Share Data
Fiscal Years End on January 31 of Following Year
<TABLE>
<CAPTION>
Fiscal % Fiscal % Fiscal %
1995 Sales 1994 Sales 1993 Sales
<S> <C> <C> <C> <C> <C> <C>
Current Earnings
Net Sales $7,075,442 100% $6,110,521 100% $4,538,001 100%
Cost of Sales 5,312,195 75.1 4,597,977 75.2 3,456,717 76.2
Gross Margin 1,763,247 24.9 1,512,544 24.8 1,081,284 23.8
Expenses:
Selling, General
and administrative 1,127,333 15.9 941,079 15.4 717,028 15.8
Store Opening Costs 49,626 0.7 40,727 0.7 29,251 0.6
Depreciation 150,011 2.1 109,647 1.8 80,530 1.8
Employee Retirement Plans (Note 10) 46,130 0.7 49,687 0.8 37,873 0.8
Interest (Notes 7 and 16) 38,040 0.5 27,873 0.5 18,278 0.4
Total Expenses 1,411,140 19.9 1,169,013 19.2 882,960 19.4
Pre-Tax Earnings 352,107 5.0 343,531 5.6 198,324 4.4
Income Tax Provision (Note 9) 126,080 1.8 119,971 1.9 66,538 1.5
Net Earnings $226,027 3.2% $223,560 3.7% $131,786 2.9%
Shares Outstanding-Weighted Average 160,453 154,926 147,398
Earnings Per Common & Common
Equivalent Share $1.41 $1.44 $0.89
Earnings Per Common Share -
Assuming Full Dilution $1.36 $1.39 $0.89
Per Per Per
Retained Earnings (Notes 6 and 11) Amount Share Amount Share Amount Share
Balance at beginning of year $792,891 $596,764 $489,033
Net Earnings 226,027 $1.41 223,560 $1.44 131,786 $0.89
Cash Dividends (30,471) ($0.19) (27,433) ($0.18) (23,571) ($0.16)
Stock Split - - (484)
Balance at end of year $988,447 $792,891 $596,764
See accompanying notes to consolidated financial statements.
</TABLE>
Consolidated Balance Sheets
Lowe's Companies, Inc. and Subsidiary Companies
Dollars in thousands
Fiscal Years End on January 31 of Following Year
<TABLE>
<CAPTION>
Fiscal % Fiscal % Fiscal %
1995 Total 1994 Total 1993 Total
<S> <C> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and Cash Equivalents $63,868 1.8% $150,319 4.8% $73,253 3.3%
Short-Term Investments 107,429 3.0 118,155 3.8 35,215 1.6
Accounts Receivable -Net (Note 2) 113,483 3.2 109,214 3.5 48,500 2.2
Merchandise Inventory (Note 3) 1,267,077 35.6 1,132,282 36.5 853,707 38.8
Deferred Income Taxes (Note 9) 19,168 0.5 18,129 0.6 12,300 0.6
Other Current Assets 32,659 0.9 29,069 0.9 60,932 2.7
Total Current Assets 1,603,684 45.0 1,557,168 50.1 1,083,907 49.2
Property, Less Accumulated
Depreciation (Notes 4 and 6) 1,858,274 52.3 1,397,713 45.0 1,020,234 46.3
Long-Term Investments (Note 8) 41,059 1.2 83,459 2.7 40,408 1.8
Other Assets 53,369 1.5 67,652 2.2 57,099 2.7
Total Assets $3,556,386 100.0% $3,105,992 100.0% $2,201,648 100.0%
Liabilities and Shareholders' Equity
Current Liabilities:
Short-Term Notes Payable (Note 5) $16,617 0.5% $1,903 0.1% $2,281 0.1%
Current Maturities of Long-Term
Debt (Note 6) 14,127 0.4 26,913 0.9 49,547 2.3
Accounts Payable 655,399 18.4 675,436 21.7 467,278 21.2
Employee Retirement Plans (Note 10) 44,924 1.3 43,950 1.4 34,422 1.6
Accrued Salaries and Wages 67,370 1.9 63,356 2.0 45,883 2.1
Other Current Liabilities 151,494 4.2 134,334 4.4 81,765 3.6
Total Current Liabilities 949,931 26.7 945,892 30.5 681,176 30.9
Long-Term Debt, Excluding Current
Maturities (Note 6) 866,183 24.4 681,184 21.9 592,333 26.9
Deferred Income Taxes (Note 9) 83,557 2.3 49,211 1.6 26,165 1.2
Accrued Store Restructuring Costs
(Note 15) 0 0.0 9,815 0.3 28,305 1.3
Total Liabilities 1,899,671 53.4 1,686,102 54.3 1,327,979 60.3
Commitments, Contingencies and
Litigation (Notes 13 and 14)
Shareholders' Equity (Notes 6, 11 and 12):
Common Stock - $.50 Par Value;
Fiscal Issued and Outstanding
1995 160,918,046
1994 159,527,389
1993 147,886,770 80,459 2.3 79,764 2.6 73,943 3.4
Capital in Excess of Par 596,828 16.7 554,838 17.9 202,962 9.2
Retained Earnings 988,447 27.8 792,891 25.5 596,764 27.1
Unearned Compensation-Restricted
Stock Awards (8,076) (0.2) (5,949) (0.2)
Unrealized Loss on Available
For Sale Securities (943) 0.0 (1,654) (0.1)
Total Shareholders' Equity 1,656,715 46.6 1,419,890 45.7 873,669 39.7
Total Liabilities and
Shareholders' Equity $3,556,386 100.0% $3,105,992 100.0% $2,201,648 100.0%
See accompanying notes to consolidated financial statements.
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Lowe's Companies, Inc. and Subsidiary Companies
Dollars in Thousands
Fiscal Years End on January 31 of Following Year
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1995 1994 1993
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Earnings $226,027 $223,560 $131,786
Adjustments to Reconcile Net Earnings to Net
Cash Provided By Operating Activities:
Depreciation 150,011 109,647 80,530
Amortization of Original Issue Discount 3,601 3,205 1,615
Increase in Deferred Income Taxes 32,924 18,108 5,860
(Gain) Loss on Disposition/Writedown of
Fixed and Other Assets (1,171) 5,924 8,969
Decrease (Increase) in Operating Assets:
Accounts Receivable - Net (4,269) (60,714) 4,788
Merchandise Inventory (134,795) (278,575) (259,512)
Other Operating Assets (3,298) 31,170 (26,186)
Increase (Decrease) in Operating Liabilities:
Accounts Payable (20,037) 208,158 136,694
Employee Retirement Plans 38,196 41,257 32,937
Accrued Store Restructuring (8,304) (10,000) (8,905)
Other Operating Liabilities 24,424 67,236 17,123
Net Cash Provided by Operating Activities 303,309 358,976 125,699
Cash Flows from Investing Activities:
Decrease (Increase) in Investment Assets:
Short-Term Investments 18,538 (83,374) (29,315)
Purchases of Long-Term Investments (30,906) (74,614) (41,714)
Proceeds from Sale/Maturity of Long-Term
Investments 66,588 29,452 24,576
Other Long-Term Assets (2,656) (2,438) 1,645
Fixed Assets Acquired (520,362) (414,103) (336,888)
Proceeds from the Sale of Fixed and
Other Long-Term Assets 20,856 15,179 27,641
Net Cash Used in Investing Activities (447,942) (529,898) (354,055)
Cash Flows from Financing Activities:
Sources:
Long-Term Debt Borrowings 98,959 500 281,915
Net Increase in Short-Term Borrowings 14,714
Proceeds from Issuance of Common Stock 315,697
Stock Options Exercised 44 1,100 1,504
Total Financing Sources 113,717 317,297 283,419
Uses:
Repayment of Long-term Debt (25,064) (41,498) (6,276)
Net Decrease in Short-Term Borrowings (378) (912)
Cash Dividend Payments (30,471) (27,433) (23,571)
Total Financing Uses (55,535) (69,309) (30,759)
Net Cash Provided by Financing Activities 58,182 247,988 252,660
Net Increase (Decrease) in Cash and Cash Equivalents (86,451) 77,066 24,304
Cash and Cash Equivalents, Beginning of Year 150,319 73,253 48,949
Cash and Cash Equivalents, End of Year $63,868 $150,319 $73,253
See accompanying notes to consolidated financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LOWE'S COMPANIES, INC. AND SUBSIDIARY COMPANIES
FISCAL YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
NOTE 1 - Summary of Significant Accounting Policies:
The Company is one of America's largest retailers serving the do-it-yourself
home improvement, home decor, and home construction markets. The Company
serves customers in 365 stores in states predominantly located in the
eastern half of the United States. Below are those accounting policies
considered to be significant.
Subsidiaries and Principles of Consolidation - The consolidated financial
statements include the accounts of the Company and its subsidiaries, all of
which are wholly owned. All material intercompany accounts and transactions
have been eliminated.
Use of Estimates - The preparation of the Company's financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents - Cash and cash equivalents include cash on hand,
demand deposits, and short-term investments that are readily convertible to
cash within three months of purchase.
Investments - 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 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. Investments
consist primarily of tax exempt notes and bonds, auction rate tax exempt
securities, municipal preferred tax exempt stock and reverse repurchase
agreements.
The Company has classified all investment securities as available-for-sale and
they are carried at fair value. Unrealized gains and losses on such securities
will be excluded from earnings and reported as a separate component of
shareholders' equity, net of the related income taxes, until realized.
Derivatives - Interest rate swap agreements, which are principally used by the
Company in the management of interest rate exposure, are accounted for on an
accrual basis. Income and expense are recorded in the same category as that
arising from the related liability. Amounts to be paid or received under
interest rate swap agreements are recognized as interest income or expense in
the periods in which they accrue.
Premiums paid for purchased interest rate cap agreements are being amortized
to interest expense over the terms of the caps. Unamortized premiums are
included in other assets in the consolidated balance sheet. Amounts to be
received under the cap agreements are accounted for on an accrual basis, and
are recognized as a reduction of interest expense.
Accounts Receivable - The majority of the accounts receivable arise from sales
to professional building contractors predominately located in the eastern half
of the United States. The allowance for doubtful accounts is based on
historical experience and a review of existing receivables.
Sales generated through the Company's private label credit card are not
reflected in receivables. These credit card receivables are sold, without
recourse, to an outside finance company.
Merchandise Inventory - Inventory is stated at the lower of cost or market. In
an effort to more closely match cost of sales and related sales, cost is
determined using the last-in, first-out (LIFO) method. Included in inventory
cost are administrative, warehousing and other costs directly associated with
buying, distributing and maintaining inventory in a condition for resale.
Property and Depreciation - Property is recorded at cost. Costs associated
with major additions are capitalized and depreciated. Upon disposal, the cost
of properties and related accumulated depreciation is removed from the
accounts with gains and losses reflected in earnings.
Depreciation is provided over the estimated useful lives of the depreciable
assets. Assets are generally depreciated on the straight-line method.
Leasehold improvements are depreciated over the shorter of their estimated
useful lives or term of the related lease.
Leases - Assets under capital leases are amortized in accordance with the
Company's normal depreciation policy for owned assets or over the lease term
if shorter. The charge to earnings resulting from amortization of these assets
is included in depreciation expense in the consolidated financial statements.
Income Taxes - Income taxes are provided for temporary differences between the
tax and financial accounting bases of assets and liabilities using the
liability method. The tax effects of such differences are reflected in the
balance sheet at the enacted tax rates expected to be in effect when the
differences reverse.
Store Pre-opening Costs - Costs of opening new retail stores are charged to
operations as incurred.
Store Closing Costs - Upon closing or relocating a store, costs considered to
be unrecoverable, such as the book value of leasehold improvements and the
estimated loss on sale of land and building, are charged to expense. The
Company also records a provision for the present value of future lease
obligations, net of sub-lease income. The estimated net realizable value of
closed store real estate owned is included in other assets. See Note 15
regarding store restructuring accrual in Fiscal 1991.
Earnings Per Share - Earnings per share are calculated on the weighted average
shares of common stock and dilutive common stock equivalents outstanding each
year. The Company's 3% Convertible Subordinated Notes due July 22, 2003, are
potentially dilutive securities for purposes of calculating fully diluted
earnings per share.
Recent Accounting Pronouncement - In March 1995, Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121) was issued.
SFAS 121 requires that long-lived assets and certain identifiable intangibles
held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If the sum of the expected future cash flows is less than the
carrying amount of the asset, an impairment loss is recognized Otherwise, an
impairment loss is not recognized. Also, SFAS 121 requires that certain long-
lived assets and certain identifiable intangibles to be disposed of be
reported at the lower of carrying amount or fair value less costs to sell.
Management believes that the adoption of SFAS 121 in fiscal 1996 will not
have a material effect on the Company's financial statements.
NOTE 2 - Accounts Receivable
Until termination in April 1995, the Company had an agreement to sell, with
limited recourse, an undivided fractional interest in a designated pool of
receivables. Under the agreement, as collections reduced previously sold
interests in receivables, an interest in new receivables could be sold. At
January 31, 1995 and 1994, the interest in receivables sold totaled $38.5 and
$121.9 million, respectively. Due to hold-back provisions of the agreement, the
Company was due $8.5 and $31.9 million at January 31, 1995 and 1994,
respectively, for interests sold. These receivables are included in Accounts
Receivable - Net in the balance sheet for the respective years. The costs
associated with selling the interest in receivables were $.5, $1.7 and $3.3
million for Fiscal 1995, 1994 and 1993, respectively. The Company maintained
an allowance for doubtful accounts because it retained substantially the same
risk of credit loss as if the receivables had not been sold.
The allowance for doubtful accounts was $1.9, $2.3 and $2.7 million at
January 31, 1996, 1995, and 1994, respectively.
NOTE 3 - Merchandise Inventory:
If the FIFO method had been used, inventories would have been $73.2 , $65.0
and $64.5 million higher at January 31, 1996, 1995 and 1994, respectively.
NOTE 4 - Property and Accumulated Depreciation:
Net property includes $248.9, $159.0 and $59.0 million in assets from capital
leases for Fiscal 1995, 1994 and 1993, respectively.
Property is summarized below by major class:
<TABLE>
<CAPTION>
January 31
1996 1995 1994
(Dollars in Thousands)
Cost:
<S> <C> <C> <C>
Land $ 355,701 $ 290,312 $ 224,551
Buildings 939,120 686,737 478,373
Store and Office Equipment 913,225 666,885 500,811
Leasehold Improvements 109,850 98,217 113,287
Total Cost 2,317,896 1,742,151 1,317,022
Accumulated Depreciation and Amortization (459,622) (344,438) (296,788)
Net Property (Note 13) $1,858,274 $1,397,713 $1,020,234
</TABLE>
The estimated depreciable lives, in years, of the Company's property are:
buildings, 20 to 40; store and office equipment, 3 to 10; leasehold
improvements, generally the life of the related lease.
NOTE 5 - Short-Term Borrowings and Lines of Credit:
Several banks have extended lines of credit aggregating $176 million for the
purpose of issuing documentary letters of credit and standby letters of
credit. These lines do not have termination dates but are reviewed
periodically. Commitment fees from .12% to .50% per annum are paid on the
amounts of standby letters of credit used. At January 31, 1996, outstanding
letters of credit aggregated $89.9 million.
Effective April 10, 1995, the Company entered into a $300 million revolving
credit facility with a syndicate of 13 banks. The facility expires on April
10, 2000, and is used to support the Company's commercial paper program and
for short-term borrowings. A facility fee of .09% per annum is paid on the
unused amount of the facility. At January 31, 1996, there were no borrowings
outstanding under this revolving credit facility.
A $100 million revolving credit and security agreement, expiring in September
1996, is available from a financial institution. A portion of the Company's
accounts receivable is pledged as collateral. At January 31, 1996, there was
$14.8 million outstanding under this credit agreement.
In addition, $75 million is available, on an unsecured basis, for the purpose
of short-term borrowings on a bid basis from various banks. These lines are
uncommitted and are reviewed periodically by both the banks and the Company.
NOTE 6 - Long-Term Debt:
<TABLE>
<CAPTION>
Fiscal Year
Debt of Final January 31
Category Interest Rates Maturity 1996 1995 1994
(Dollars in Thousands)
<S> <C> <C> <C>
Secured Debt1:
Insurance Company Notes 6.75% 1998 $ 286 $ 414 $ 534
Bank Notes 17
Industrial Revenue Bonds 833
Other Notes 9.50% 2005 470 561 663
Unsecured Debt:
Industrial Revenue Bonds 3.30% to 5.27%* 2020 6,726 7,997 10,230
Industrial Revenue Bonds 2 3.85%* 2005 8,000 8,800 9,600
Medium Term Notes 6.50% to 8.20% 2022 249,979 249,972 249,966
Convertible Subordinated Notes 3 3.00% 2003 255,554 254,505 251,524
Senior Notes4 6.38% 2005 98,968
Bank Notes 5 4.75%* 1996 6,000 23,863 57,955
Capital Leases (Note 13) 6.12% to 11.56% 2033 254,327 61,985 60,558
Total Long-Term Debt 880,310 708,097 641,880
Less Current Maturities 14,127 26,913 49,547
Long-Term Debt, Excluding
Current Maturities $866,183 $681,184 $592,333
* Interest rate varies as a percentage of prime rate or other interest index.
Interest rates shown are as of January 31, 1996.
Prime rate was 8.5 % at January 31, 1996.
</TABLE>
Debt maturities, exclusive of capital leases (see Note 13), for the next five
fiscal years are as follows (in millions): 1996, $8.2; 1997, $13.3; 1998,
$1.7; 1999, $46.5; 2000, $74.4.
Notes:
1 Real properties pledged as collateral for secured debt had net book values
(in millions) at January 31, 1996, as follows: insurance company notes - $3.6
and other notes - $.8.
2 With certain restrictions, the floating rate demand industrial revenue
bonds can be converted to a fixed interest rate based on a fixed interest
index at the Company's option.
3 On July 22, 1993, the Company sold $287.5 million aggregate principal of
its 3% Convertible Subordinated Notes due July 22, 2003. The notes are
convertible into Lowe's Common Stock at the conversion rate of 38.32 shares of
common stock per each $1,000 principal amount. The notes were issued at an
original price of $880.27 per $1,000 principal amount, which represented an
original issue discount of 11.973% payable at maturity. Annual interest on the
notes at 3% and accretion of the original issue discount represents an annual
yield to maturity of 4.5%. The notes are callable (subject to certain
adjustments) at any time on or after July 22, 1996.
During Fiscal 1995 and 1994, $2,532,000 and $224,000 principal of the
Company's 3% Convertible Subordinated Notes were converted into 96,904 and
8,570 shares of the Company's common stock, respectively.
4 On December 15, 1995, the Company issued $100 million of 6.375% Senior
Notes due December 15, 2005. The notes were issued at an original price of
$989.55 per $1,000 principal amount, which represented an original issue
discount of .395% payable at maturity and an underwriters' discount of .65%.
Annual interest on the notes at 6.375% and accretion of the original issue
discount represents an annual yield to maturity of 6.429%. The notes may not
be redeemed prior to maturity.
5 These notes require that certain financial conditions be maintained,
restrict other borrowings, and limit the payment of dividends to $40 million
during any one year.
NOTE 7 - Derivative Financial Instruments:
The Company has only limited involvement with derivative financial
instruments, and does not use them for trading purposes.
The Company enters into derivatives, exclusively interest rate swaps and caps,
to lower funding costs or alter interest rate exposures for long-term
liabilities. Interest rate swaps allow the Company to raise long-term
borrowings at fixed rates and swap them into variable rates for shorter
durations. This enables the Company to separate interest rate management from
debt funding decisions. At January 31, 1996, the Company had 14 interest rate
swap agreements outstanding with financial institutions, having notional
amounts of $10 million each and a total notional amount of $140 million.
Under the agreements, the Company will receive interest payments at an average
fixed rate of 5.60% and will pay interest on the same notional amounts at a
floating rate based on an interest rate index, which was 5.27% as of January
31, 1996. These interest rate swap agreements are scheduled to terminate as
follows (in millions): 1996, $90; 1997, $50.
Interest rate cap agreements are used to reduce the potential impact of
increases in interest rates on the interest rate swap agreements, discussed
above. At January 31, 1996, the Company was a party to 14 interest rate cap
agreements, each with terms tied to the terms of the interest rate swap
agreements. The agreements entitle the Company to receive from counterparties
on a semi-annual basis the amounts, if any, by which the Company's interest
payments on its $140 million notional amount of interest rate swap agreements
exceed approximately 75 basis points over the fixed rate on each swap.
The Company is exposed to credit loss in the event of nonperformance by the
counterparties to its interest rate swap agreements and interest rate cap
agreements. The Company anticipates that counterparties will be able to fully
satisfy their obligations under the agreements. The counterparties consist of
a number of financial institutions whose credit ratings were AA or better at
the time the agreements were instituted. No collateral is held in relation to
the agreements. Credit exposure exists in relation to all the Company's
financial instruments, and is not unique to derivatives.
NOTE 8 - Disclosures about Fair Values of Financial Instruments:
The following estimated fair value amounts have been determined, using
available market information and appropriate valuation methodologies. However,
considerable judgement is necessarily required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated
fair value amounts.
<TABLE>
<CAPTION>
(Dollars in Thousands) January 31, 1996 January 31, 1995 January 31, 1994
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash and Cash Equivalents $ 63,868 $ 63,868 $150,319 $150,319 $ 73,253 $ 73,253
Short-Term Investments 107,429 107,429 118,155 118,155 35,215 35,240
Net Receivables 113,483 113,483 109,214 109,214 48,500 48,500
Long-Term Investments 41,059 41,059 83,459 83,459 40,408 40,801
Liabilities:
Accounts Payable 655,399 655,399 675,436 675,436 467,278 467,278
Short-Term Debt 16,617 16,617 1,903 1,903 2,281 2,281
Long-Term Debt:
Convertible Subordinated Notes 255,554 348,455 254,505 402,186 251,524 362,250
Other 624,756 670,313 453,592 456,914 390,356 410,216
Off-Balance Sheet Financial Instruments-
Unrealized Gains (Losses)
Interest Rate Swap Agreements 758 (6,482) 4,421
Interest Rate Cap Agreements 9 3,915
</TABLE>
Cash and cash equivalents, receivables, accounts payable, and short-term
debt - The carrying amounts of these items are a reasonable estimate of their
fair value.
Short-term investments and long-term investments - At January 31, 1996 and
1995, these investments are classified as available for sale and carried at
their fair value. January 31, 1994's fair value is estimated from quoted
market prices for these or similar investments.
Long-term debt - Interest rates that are currently available to the Company
for issuance of debt with similar terms and remaining maturities are used to
estimate fair value for debt issues that are not quoted on an exchange.
Interest rate swap agreements and interest rate cap agreements - The fair
value of interest rate swaps and caps are the amounts at which they could be
settled, based on estimates obtained from dealers.
The amortized cost, gross unrealized gains and losses and fair values of
investment securities, all of which are classified as available-for-sale
securities, at January 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
Amortized Gross Unrealized Fair
Type Cost Gains Losses Value
<S> <C> <C> <C> <C>
Municipal Obligations $ 29,298 $ 6 $ (1) $ 29,303
Auction Rate and Adjustable
Rate Preferred Stock 79,879 8 (1,761) 78,126
Classified as Short-term 109,177 14 (1,762) 107,429
Municipal Obligations 39,762 332 (35) 40,059
Auction Rate Preferred Stock 1,000 1,000
Classified as Long-term 40,762 332 (35) 41,059
Total at January 31, 1996 $149,939 $346 $(1,797) $148,488
Municipal Obligations $ 33,234 $ 1 $ (228) $ 33,007
Auction Rate and Adjustable
Rate Preferred Stock 86,476 13 (1,341) 85,148
Classified as Short-term 119,710 14 (1,569) 118,155
Municipal Obligations 50,944 989 (1,902) 50,031
Auction Rate Preferred Stock 33,500 (72) 33,428
Classified as Long-term 84,444 989 (1,974) 83,459
Total at January 31, 1995 $204,154 $1,003 $(3,543) $201,614
</TABLE>
The proceeds from sales of available-for-sale securities were $60.4 and $79.9
million for the years ended January 31, 1996 and 1995, respectively.
Gross realized gains and (losses) on the sale of available-for-sale securities
were $326 thousand and $(426) thousand for fiscal 1995 and $112 thousand and
$(836) thousand for fiscal 1994.
Maturities of municipal obligations classified as long-term are $12.4 million
up to 1 year, $23.3 million after 1 year through 5 years, $1.0 million after
5 years through 10 years and $3.3 million after 10 years. The $1.0 million
money market preferred stock has no stated maturity.
NOTE 9 - Income Taxes:
<TABLE>
<CAPTION>
(Dollars in Thousands)
Fiscal Years End on January 31 Fiscal 1995 Fiscal 1994 Fiscal 1993
of Following Year Amount % Amount % Amount %
Statutory Rate Reconciliation
<S> <C> <C> <C> <C> <C> <C>
Pre-Tax Earnings $352,107 100.0% $343,531 100.0% $198,324 100.0%
Federal Income Tax at Statutory Rate 123,237 35.0 120,236 35.0 69,413 35.0
State Income Taxes-Net of Federal
Tax Benefit 8,093 2.3 4,248 1.2 2,340 1.2
Other (5,250) (1.5) (4,513) (1.3) (5,215) (2.6)
Total Income Tax Provision $126,080 35.8% $119,971 34.9% $66,538 33.6%
Components of Income Tax Provision
Current
Federal $86,347 68.5% $ 98,432 82.0% $58,088 87.3%
State 6,809 5.4 3,431 2.9 2,590 3.9
Total Current 93,156 73.9 101,863 84.9 60,678 91.2
Deferred
Federal 27,282 21.6 15,004 12.5 4,850 7.3
State 5,642 4.5 3,104 2.6 1,010 1.5
Total Deferred 32,924 26.1 18,108 15.1 5,860 8.8
Total Income Tax Provision $126,080 100.0% $119,971 100.0% $66,538 100.0%
</TABLE>
The tax effect of cumulative temporary differences and carryforwards that gave
rise to the deferred tax assets and liabilities and the related valuation
allowance at January 31, 1996, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
January 31, 1996 January 31, 1995 January 31, 1994
Assets Liabilities Total Assets Liabilities Total Assets Liabilities Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accrued Store
Restructuring Costs $6,245 $6,245 $17,077 $17,077 $22,381 $22,381
Insurance 6,725 6,725 4,568 4,568 2,432 2,432
Depreciation $(92,280) (92,280) $(67,461) (67,461) $(49,090) (49,090)
Property Taxes 4,859 4,859 6,230 6,230 4,944 (1,038) 3,906
Other, Net 17,156 (5,529) 11,627 14,265 (5,612) 8,653 15,923 (5,691) 10,232
Less Valuation
Allowance (1,565) (1,565) (149) (149) (3,726) (3,726)
Total $33,420 $(97,809) $(64,389) $41,991 $(73,073) $(31,082) $41,954 $(55,819) $(13,865)
The valuation allowance increased $1,416,000, decreased $3,577,000 and
increased $420,000 during the years ended January 31, 1996, 1995 and 1994,
respectively.
</TABLE>
NOTE 10 - Employee Retirement Plans:
The Company's contribution to its Employee Stock Ownership Plan (ESOP) is
determined annually by the Board of Directors. The ESOP covers all employees
after completion of one year of employment and 1000 hours of service during
that year. Contributions are allocated to participants based on their eligible
compensation relative to total eligible compensation. The Board authorized
contributions totaling 14% of eligible compensation for the Fiscal Year 1995
and 13% of eligible compensation for each of the Fiscal Years 1994 and 1993.
Contributions may be made in cash or shares of the Company's common stock and
are generally made in the following fiscal year.
As of January 31, 1996, the Employee Stock Ownership Trust held approximately
15.3% of the outstanding common stock of the Company and was its largest
shareholder.
Shares allocated to ESOP participants' accounts are voted by the trustee
according to the participants' voting instructions. Unallocated shares and
shares for which no voting instructions are received are voted by the trustee
as directed by a management committee. At January 31, 1996, there were no
unallocated shares.
The Board of Directors determines contributions to the Company's Employee
Savings and Investment Plan (ESIP) each year based upon a matching formula
applied to employee contributions. All employees are eligible to participate
in the ESIP on the first day of the month following completion of one year of
employment. Company contributions to this plan for Fiscal 1995, 1994 and 1993
were $6.0, $4.9 and $3.9 million, respectively. The Company's common stock is
an investment option for participants in the ESIP. As of January 31, 1996, the
ESIP held approximately .9% of the outstanding common stock of the Company.
Shares held in the ESIP are voted by the trustee as directed by an
administrative committee of the ESIP.
The Company does not believe that it has any material liability for
postemployment or postretirement benefits.
NOTE 11 - Shareholders' Equity:
Authorized shares of common stock were 700 million at January 31, 1996.
Transactions affecting the shareholders' equity section of the consolidated
balance sheets are summarized as follows:
<TABLE>
<CAPTION>
(In Thousands) Shares (In Thousands) Shareholders' Equity
Unrealized
Unearned Loss on
Capital in Compensation Available
Common Excess of Retained Restricted For Sale Total
Outstanding Stock Par Value Earnings Stock Awards Securities Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 31, 1993 145,946 $72,973 $171,214 $489,033 nil nil $733,220
Net Earnings 131,786 131,786
Tax Effect of Incentive
Stock Options Exercised (Note 12) 172 172
Cash Dividends (23,571) (23,571)
Stock Options Exercised(Note 12) 245 122 1,442 (60) 1,504
Stock Issued to ESOP (Note 10) 1,696 848 30,134 (424) 30,558
Balance January 31, 1994 147,887 73,943 202,962 596,764 nil nil 873,669
Net Earnings 223,560 223,560
Tax Effect of Non-qualified
Stock Options Exercised (Note 12) 2,344 2,344
Cash Dividends (27,433) (27,433)
Stock Sale 10,350 5,175 310,522 315,697
Stock Options Exercised(Note 12) 172 86 1,219 1,305
Stock Received for Exercise of
Stock Options (6) (3) (202) (205)
Stock Issued to ESOP (Note 10) 922 461 31,268 31,729
Conversion of 3% Notes 8 4 193 197
Shares issued to Directors 4 2 124 126
Unearned Compensation-Restricted
Stock Awards 190 96 6,408 $(5,949) 555
Unrealized Loss on Available for Sale
Securities, Net of Income
Taxes of $886 $(1,654) (1,654)
Balance January 31, 1995 159,527 79,764 554,838 792,891 (5,949) (1,654) 1,419,890
Net Earnings 226,027 226,027
Tax Effect of Non-qualified
Stock Options Exercised (Note 12) 25 25
Cash Dividends (30,471) (30,471)
Stock Options Exercised (Note 12) 4 2 42 44
Stock Issued to ESOP (Note 10) 1,182 591 36,631 37,222
Conversion of 3% Notes 97 49 2,183 2,232
Shares issued to Directors 4 2 93 95
Unearned Compensation-Restricted
Stock Awards 104 51 3,016 (2,127) 940
Unrealized Loss on Available for Sale
Securities, Net of Income Tax
Benefit of $378 711 711
Balance January 31, 1996 160,918 $80,459 $596,828 $988,447 $(8,076) $(943) $1,656,715
</TABLE>
The Company has 5 million authorized shares of preferred stock ($5 par), none
of which have been issued. The preferred stock may be issued by the Board of
Directors (without action by shareholders) in one or more series, having such
voting rights, dividend and liquidation preferences and such conversion and
other rights as may be designated by the Board of Directors at the time of
issuance of the preferred shares.
Unearned Compensation - Restricted Stock Awards of $8,076,000 included in
Shareholders' Equity on the balance sheet is the result of restricted stock
grants totaling 294,000 shares made to certain executives and directors. The
amount will be amortized as earned over periods not exceeding seven years
The Company has a shareholder rights plan which provides for a dividend
distribution of one preferred share purchase right on each outstanding share
of common stock. Each purchase right will entitle shareholders to buy one
unit of a newly authorized series of preferred stock. A shareholder's
interest is not diluted by the effects of a stock dividend or stock split.
Each unit is intended to be the equivalent of one share of common stock. The
purchase rights will be exercisable only if a person or group acquires or
announces a tender offer for 20% or more of Lowe's common stock. The purchase
rights do not apply to the person or group acquiring the stock. The purchase
rights will expire on September 19, 1998.
NOTE 12 - Stock Incentive Plans:
The Company has a stock option plan under which incentive and non-qualified
stock options, stock appreciation rights, restricted stock awards and
incentive awards may be granted to key employees. No awards may be granted
after January 31, 2004. At January 31, 1996, there were 2,112,040 shares
available for grants under the plan. Option information is summarized as
follows:
Key Employee Stock Option Plan Option Price
Shares Per Share
(in Thousands)
Outstanding January 31, 1993 371 $4.063, $6.375, $10.188
Exercised (217) $4.063, $6.375
Outstanding January 31, 1994 154 $6.375, $10.188
Granted 20 $38.75
Canceled or Expired (2) $6.375
Exercised (152) $6.375, $10.188
Outstanding January 31, 1995
and 1996 20 $38.75
Prior to Fiscal 1989, all options granted were incentive options. Between
Fiscal 1989 and Fiscal 1994, options granted have been adjustable non-
qualified options exercisable at a maximum price of $10.188 per share. Upon
exercise of a non-qualified option, the optionee makes a payment to the
Company equal to the shares' fair market value on the date the option was
granted. In accordance with a formula set forth in each option agreement, the
Company uses part of the option price to make a federal income tax deposit on
behalf of the optionee. The options granted in Fiscal 1994 were incentive
options.
Incentive stock option shares which are sold by the optionee within two years
of grant or one year of exercise result in a tax deduction for the Company
equivalent to the taxable gain recognized by the optionee. For financial
reporting purposes, the tax effect of this deduction is accounted for as a
credit to capital in excess of par value rather than as a reduction of income
tax expense. Such optionee sales resulted in a tax benefit to the Company of
approximately $25 thousand, $2.34 million and $172 thousand during Fiscal
Years 1995, 1994 and 1993, respectively.
Stock appreciation rights are denominated in units, which are comparable to a
share of Common Stock for purposes of determining the amount payable under an
award. An award entitles the participant to receive the excess of the final
value of the unit over the fair market value of a share of common stock on the
first day of the performance period. The final value is the average closing
price of a share of Common Stock during the last month of the performance
period. Limits are established with respect to the amount payable on each
unit. A total of 888,450 stock appreciation rights, with performance periods
of one to three years, with a maximum payout of $7,173,000, were outstanding
at January 31, 1996. The costs of these rights are being expensed over the
performance periods.
A total of 325,500 restricted stock awards have been granted to certain
executives and directors. These shares are nontransferable and subject to
forfeiture for periods prescribed by the Company. These shares may become
transferable and vested earlier based on achievement of certain performance
measures. A total of 29,500 shares were forfeited during Fiscal 1995 and no
shares became vested or transferable during Fiscal 1995.
During Fiscal 1989, shareholders approved a Non-Employee Directors' Stock
Option Plan. This Plan provided that adjustable non-qualified options
representing 4,000 shares of Lowe's common stock would be granted to each
outside Director following the Annual Meeting in 1989, 1990, 1991, 1992 and
1993. Two hundred thousand shares of common stock were reserved to fulfill the
requirements of this Plan. Options representing 28,000 shares were granted
under this Plan in each of Fiscal 1989, Fiscal 1990, Fiscal 1991, Fiscal 1992
and Fiscal 1993, of which options representing 56,000 shares have been
exercised. The option price per share was $6.375 for Fiscal 1989, $10.906 for
Fiscal 1990, $8.625 for Fiscal 1991, $10.969 for Fiscal 1992 and $18.875 for
Fiscal 1993. The non-qualified options granted to Directors include the same
tax deposit feature described above with respect to the Key Employee Stock
Option Plan. This Plan expired at the end of Fiscal 1993.
At January 31, 1996, options for 20,000 shares (expiration date in 2004) were
exercisable under the Key Employee Stock Option Plan and options for 84,000
shares (expiration dates range from 1999 through 2003) were exercisable under
the Non-Employee Directors' Stock Option Plan.
The Company has a Director's Stock Incentive Plan. This Plan provides that at
the first Board meeting following each annual meeting of shareholders, the
Company shall issue each non-employee Director 500 shares of Common Stock. Up
to 25,000 shares may be issued under this Plan. In Fiscal 1995 and 1994, 3,500
and 4,000 shares, respectively, were issued under this Plan.
NOTE 13 - Leases:
The Company leases certain store facilities under agreements with original
terms generally of twenty years. Agreements generally provide for contingent
rental based on sales performance in excess of specified minimums. To date,
contingent rentals have been very nominal. The leases typically contain
provisions for four renewal options of five years each. Certain equipment is
also leased by the Company under agreements ranging from two to five years.
These agreements typically contain renewal options providing for a
renegotiation of the lease, at the Company's option, based on the fair market
value at that time.
The future minimum rental payments required under capital and operating leases
having initial or remaining noncancelable lease terms in excess of one year
are summarized as follows:
<TABLE>
<CAPTION>
Operating Leases Capital Leases
Fiscal Year Real Estate Equipment Real Estate Equipment Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
1996 $49,234 $645 $26,963 $316 $77,158
1997 50,261 36 26,982 197 77,476
1998 43,886 23 26,684 193 70,786
1999 43,368 11 26,658 193 70,230
2000 42,612 -- 26,676 120 69,408
Later Years 586,661 -- 384,202 -- 970,863
Total Minimum Lease
Payments $816,022* $715 $518,165 $1,019 $1,335,921
Total Minimum Capital
Lease Payments $519,184
Less Amount Representing
Interest 264,857
Present Value of Minimum
Lease Payments 254,327
Less Current Maturities 5,880
Present Value of Minimum
Lease Payments,
Less Current Maturities $248,447
</TABLE>
*Total minimum payments have not been reduced by minimum sublease rentals of
$3.6 million to be received in the future under noncancelable subleases.
Rental expenses under operating leases for real estate and equipment were
$54.1 million, $40.2 million and $27.2 million in Fiscal 1995, 1994 and 1993,
respectively.
NOTE 14 - Commitments, Contingencies and Litigation:
The Company had purchase commitments at January 31, 1996, of approximately
$46.5 million for land, buildings and construction of facilities, and $37.8
million for equipment.
The Company is a defendant in legal proceedings considered to be in the normal
course of business and none of which, singularly or collectively, are
considered material to the Company as a whole. Potential liability in excess
of the Company's self-insured retention under these proceedings is covered by
insurance.
The Company is subject to various environmental protection laws and
regulations and is operating within such laws or is taking action aimed at
assuring compliance with such laws and regulations. The Company has been
identified as a potentially responsible party in connection with three
landfill sites at which environmental damage is alleged. Any associated costs
to the Company is not expected to have a material impact on the Company's
financial condition or results of operations.
On March 4, 1996, a state government agency in one of the states where the
Company conducts business publicized that under certain conditions, imported
plastic mini-blinds of the type sold by the Company may create a lead
poisoning hazard for young children. The company has sold blinds of this type
for about ten years. Lowe's is in contact with the Consumer Products Safety
Commission, and is awaiting results of further testing of this product being
conducted by the state agency. It is too early in this process for the
Company to determine whether or not there is any significant potential loss or
liability to the Company. Therefore, no accounting provision for any
potential loss under adverse circumstances related to this publicized matter
has been made in the 1995 financial statements.
NOTE 15 - Store Restructuring:
In Fiscal 1991, the Company recorded a pre-tax fourth quarter charge of $71.3
million for the expected costs and expenses required to accelerate the
Company's conversion from a chain of small stores to a chain of large stores.
The restructuring charge is composed primarily of write-downs of long-lived
assets to their net realizable value, principally real estate for owned
locations, certain leasehold improvements, fixtures and equipment. It also
includes certain relocation costs and expenses. The charge included stores
relocated under the restructuring plan in the fourth quarter of Fiscal 1991
and those scheduled for closing and relocation through Fiscal 1995. As
anticipated, the last of these restructuring costs that were accrued for
were paid in Fiscal 1995.
NOTE 16 - Other Information:
<TABLE>
<CAPTION>
Net interest expense is composed of the following:
(Dollars in Thousands)
Years Ended January 31, 1996 1995 1994
<S> <C> <C> <C>
Long-Term Debt $34,536 $ 36,001 $ 22,388
Capitalized Leases 16,872 7,436 2,758
Short-Term Debt 3,001 1,056 1,217
Amortization of Loan Costs 296 295 272
Short-Term Interest Income (10,897) (12,237) (4,765)
Interest Capitalized (5,768) (4,678) (3,592)
Net Interest Expense $38,040 $ 27,873 $ 18,278
</TABLE>
<TABLE>
<CAPTION>
Supplemental Disclosures of Cash Flow Information:
Years Ended January 31, 1996 1995 1994
<S> <C> <C> <C>
Cash Paid for Interest
(Net of Amount Capitalized) $ 55,231 $ 43,145 $ 25,677
Cash Paid for Income Taxes $ 77,858 $ 108,064 $ 58,761
Noncash Investing and Financing Activities:
Fixed Assets Acquired under
Capital Leases $ 96,948 $ 104,207 $ 29,343
Common Stock Issued to ESOP (Note 10) 37,222 31,729 30,558
Common Stock Issued to
Executives and Directors 3,162 6,630
Common Stock Received for
Exercise of Stock Options 205
Conversion of Debt to Common Stock 2,232 197
Notes Received in Exchange
for Property 1,450 6,067 886
</TABLE>
Supplemental Disclosure of Operating Expenses:
Advertising expenses were $87.8, $71.0 and $59.3 million for Fiscal 1995,
1994 and 1993, respectively.
Page 31:
SELECTED FINANCIAL DATA
LOWE'S COMPANIES, INC. AND SUBSIDIARY COMPANIES
<TABLE>
<CAPTION>
(Dollars in Thousands, Except Per Share Data)
Fiscal Years End on January 31 of
Following Year (Unaudited) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Selected Income Statement Data:
Net Sales $7,075,442 $6,110,521 $4,538,001 $3,846,418 $3,056,247
Net Earnings 226,027 223,560 131,786 84,720 6,487
Earnings Per Share-Full Dilution 1.36 1.39 .89 .58 .04
Cash Dividends Per Share $ .19 $ .18 $ .16 $ .14 $ .14
Selected Balance Sheet Data:
Total Assets $3,556,386 $3,105,992 $2,201,648 1,608,877 $1,441,228
Long-Term Debt, Including
Current Maturities $880,310 $ 708,097 $ 641,880 $ 335,283 $131,350
</TABLE>
<TABLE>
<CAPTION>
Selected Quarterly Data (Unaudited) *
Three Months Ended January 31 October 31 July 31 April 30
<S> <C> <C> <C> <C>
Fiscal 1995
Net Sales $1,696,702 $1,765,992 $1,978,058 $1,634,690
Gross Margin 418,622 428,943 493,572 422,110
Net Earnings 38,175 43,919 85,007 58,926
Earnings Per Share-
Full Dilution $ .23 $ .27 $ .51 $ .36
Fiscal 1994
Net Sales $1,487,489 $1,579,005 $1,647,019 $1,397,008
Gross Margin 391,130 381,146 403,560 336,708
Net Earnings 46,265 54,191 71,351 51,753
Earnings Per Share-
Full Dilution $ .28 $ .33 $ .45 $ .34
Fiscal 1993
Net Sales $1,145,828 $1,158,370 $1,241,691 $ 992,112
Gross Margin 279,017 275,620 292,480 234,167
Net Earnings 25,733 31,645 44,960 29,448
Earnings Per Share-
Full Dilution $ .17 $ .21 $ .31 $ .20
</TABLE>
* LIFO Adjustment:
Fiscal 1995 - The total LIFO effect for the year was a charge of $8.3
million. A charge of $10.8 million was made against earnings through the
first nine months, resulting in a fourth quarter credit of $2.5 million.
Fiscal 1994 - The total LIFO effect for the year was a charge of $.4 million.
A charge of $9.5 million was made against earnings through the first nine
months, resulting in a fourth quarter credit of $9.1 million.
Fiscal 1993 - The total LIFO effect for the year was a charge of $15.5
million. A charge of $10.3 million was made against earnings through the
first nine months, resulting in a fourth quarter charge of $5.2 million.
Page 32:
Lowe's Quarterly Stock Price Range and Cash Dividend Payment*
Fiscal 1995 Fiscal 1994 Fiscal 1993
High Low Dividend High Low Dividend High Low Dividend
1st
Quarter $38 7/8 $27 1/2 $.045 $36 1/2 $27 3/4 $.040 $17 11/16 $13 5/16 $.040
2nd
Quarter 37 1/4 26 .045 37 3/4 30 1/2 .045 20 15 .040
3rd
Quarter 37 7/8 26 1/4 .050 40 7/8 30 .045 24 11/16 18 3/8 .040
4th
Quarter $34 7/8 $27 7/8 $.050 $41 3/8 $33 1/8 $.045 $31 $23 3/16 $.040
Source: The Wall Street Journal
* As restated for a 2-for-1 stock split to shareholders of record
March 16, 1994.
Pages 34 & 35:
Lowe's Board of Directors
William A. Andres
Director since 1986, age 69. Chairman of Governance Committee, Member of
Compensation Committee and Executive Committee of the Company. Previously
Chairman of the Board and Chief Executive Officer (1976-1983), Chairman of
Executive Committee (1983-1985) of Dayton Hudson Corporation (Retail Chain),
Minneapolis, Minn. (Mr. Andres retired in September 1985.) Other
directorships: Jostens, Inc., Minneapolis, Minn., since 1985; Hannaford
Bros., Scarborough, Me., since 1986.
John M. Belk
Director since 1986, age 76. Member of Audit Committee, Compensation Committee
and Governance Committee of the Company. Chairman of the Board, Belk Stores
Services, Inc. (Retail Department Stores), Charlotte, N.C., since 1980. Other
directorships: Coca-Cola Bottling Company Consolidated, Charlotte, N.C., since
1972; Chaparral Steel, Midlothian, Tex., since 1987.
Gordon E. Cadwgan
Director since 1961, age 82. Chairman of Audit Committee, Member of
Compensation Committee and Governance Committee of the Company. Cadwgan
Associates, Inc. (Trustee and Financial Consultant), affiliated with Tucker
Anthony, Inc., Boston, Mass., since 1979. Other directorships: Third Century
Fund, Inc., Providence, R.I., since 1981.
Carol A. Farmer
Director since 1994, age 51. Member of Audit Committee, Governance committee
and Government/Legal Affairs Committee of the Company. President of Carol
Farmer Associates, Inc. (Trend Forecasting and Consulting), Boca Raton, Fla.,
since 1985. Other directorships: The Sports Authority, Inc., Ft. Lauderdale,
Fla., since 1995.
Leonard G. Herring
Director since 1956, age 68. President and Chief Executive Officer since 1978,
Member of Executive Committee and Government/Legal Affairs Committee of the
Company. Other directorships: First Union Corporation, Charlotte, N.C.,
since 1986.
Petro Kulynych
Director since 1952, age 74. Member of Audit Committee, Executive Committee
and Government/Legal Affairs Committee of the Company, having previously
served as Managing Director (1978-1983). (Mr. Kulynych retired in December
1983.) Other directorships: Local Board, Wachovia Bank of North Carolina,
N.A., North Wilkesboro, N.C., since 1988; Carolina Motor Club, Inc.
Russell B. Long
Director since 1987, age 77. Chairman of Government/Legal Affairs Committee,
Member of Compensation Committee and Governance Committee of the Company.
Partner, Long Law Firm (Attorneys-at-Law), Washington, D.C., since 1988.
Other directorships: Catalyst Vidalia Corp., Vidalia, La., since 1989.
Other: Member of Advisory Board, Metropolitan Life Insurance Company, New
York, N.Y. since 1992; United States Senator 1948-1987; Member, Senate
Finance Committee 1952-1987 (Chairman 1965-1981).
Claudine B. Malone
Director since 1995, age 59. Member of Audit Committee, Governance Committee
and Government/Legal Affairs Committee of the Company. President, Financial &
Management Consulting, Inc., Inc., McLean, Va, since 1984. Other
directorships: Chairman, Federal Reserve Bank, Richmond, Va., since 1996
(Member since 1994): Dell Computer Corporation, Austin, Tex., since 1993;
Hannaford Brothers, Scarborough, Me., since 1991; Hasbro, Inc., Pawtucket,
R.I., since 1992; Houghton Mifflin, Boston, Mass., since 1982; LaFarge
Corporation, Reston, Va., since 1994; The Limited, Inc., Columbus Oh., since
1982; Mallinckrodt Group Inc., St. Louis, Mo., since 1994; Penn Mutual Life
Insurance Company, Philadelphia, Pa., Since 1978; SAIC-Science Applications
International Corporation, San Diego, Calif., since 1993; Union Pacific
Resources Corporation, Fort Worth, Tex., since 1995.
Robert G. Schwartz
Director since 1973, age 68. Chairman of Compensation Committee, Member of
Audit Committee and Governance Committee of the Company. Director of
Metropolitan Life Insurance Company, New York, N.Y., since 1980, having
previously served as Chairman of the Board (1983-1993), President and Chief
Executive Officer (1989-1993) of that company. (Mr. Schwartz retired in
March, 1993.) Other directorships: Potlatch Corporation, San Francisco,
Calif., since 1973; Comsat Corporation, Washington, D.C., since 1986; Mobil
Corporation, New York, N.Y., since 1987; The Reader's Digest Association,
Inc., Pleasantville, N.Y., since 1989; Consolidated Edison Company of New
York, New York, N.Y., since 1989; CS First Boston, Inc., New York, N.Y., since
1989; Lone Star Industries, Inc., Stamford, Conn., since 1994; Ascent
Entertainment Group, Inc., Denver, Colo., since 1995.
Robert L. Strickland
Director since 1961, age 65. Chairman of the Board since 1978, Chairman of
Executive Committee and Member of Government/Legal Affairs Committee of the
Company. Other directorships: Deputy Chairman, Federal Reserve Bank,
Richmond, Va., since 1996; T. Rowe Price Associates, Inc., Baltimore, Md.,
since 1991; Hannaford Bros., Scarborough, Me., since 1994.
Robert L. Tillman
Director since 1994, age 52. Senior Executive Vice President and Chief
Operating Officer of the Company since 1994, having previously served as
Executive Vice President - Merchandising (1991-1994), Member of Executive
Committee and Government/Legal Affairs Committee of the Company. Other
directorships: Wachovia Bank of North Carolina, N.A., Winston-Salem, N.C.,
since 1994; Home Center Institute, Chicago, Ill., since 1994.
Appendix to EXHIBIT 13
Graphic and Image Material
Inside front cover Map and Chart describing location of Lowe's stores.
State # of stores
Alabama 16
Arkansas 6
Delaware 3
Florida 13
Georgia 22
Iowa 1
Illinois 7
Indiana 18
Kentucky 20
Louisiana 13
Maryland 11
Michigan 3
Mississippi 6
Missouri 3
North Carolina 70
Ohio 25
Oklahoma 1
Pennsylvania 15
South Carolina 24
Tennessee 25
Texas 12
Virginia 36
West Virginia 15
Page 4 Picture
Shows portion of the front of a 2 story house with following quotation:
"To be happy at home is the ultimate result of all ambition, the end to which
every enterprise and labor tends..." - Samuel Johnson
Page 5 Two Pictures
Shows Karen and Charlie (see following story)landscaping with plants.
Tallahassee, Florida - Karen and Charlie Richardson will do anything for a
home, from pressure washing to landscape gardening to interior design. As the
owners of K's House Dressing since 1989, there's no aisle at Lowe's that they
don't know like the back of their hands. Lowe's home decor assortments and
huge garden center are important to them, but what they value most is their
relationship with store manager Kem Smith. Says Karen, "I was redecorating a
country club and I was buying things like 22 identical lamps. One day I
needed a lot of vents that were a strange size. Kem got on the phone, called
three other stores, and said `Your vents will be here Friday.' Then he took
me back to shipping and receiving and introduced me, so I would know who I was
dealing with when my orders started coming in. He knows everybody in that
store by name."
Page 6 Quotation
"A nation of homeowners, of people who won a real share in their own land, is
unconquerable." - Franklin D. Roosevelt
Page 6 Graph
Home Ownership Rate vs. Mortgage Rate Trends
Illustrated on a quarterly basis through 3rd quarter 1995
Home Ownership % Mortgage Rates
1993
1st qtr 64.2 % 7.6 %
2nd qtr 63.9 7.5
3rd qtr 64.2 7.1
4th qtr 64.2 7.3
1994
1st qtr 63.8 % 7.6 %
2nd qtr 63.8 8.7
3rd qtr 64.1 8.8
4th qtr 64.2 9.3
1995
1st qtr 64.2 % 8.8 %
2nd qtr 64.7 8.0
3rd qtr 65.0 7.8
Source: Bureau of the Census, "Current Housing Reports"; Department of
Housing and Urban Development
Page 7 Two Pictures
Shows Jake and Mamie (see following story)inside their kitchen and the interior
of their bathroom.
Vale, North Carolina - Jake and Mamie Lee Wilson have been married for 52
years, and they've been Lowe's customers almost as long. Says Mamie Lee, "We
built our house here in 1954. We hauled all the materials in a truck from
North Wilkesboro [fifty miles away], because at that time there was no Lowe's
store around here. Jake went to get the doors for the house, and I think we
needed about sixty of them. He came back with mahogany doors. I didn't want
mahogany doors; I wanted birch doors! He said, `If you want birch doors
you'll have to load these doors back up and take them to Lowe's yourself!'"
Says Jake, smiling, "Well, I helped her load a few of them." With some
exceptions, the house today preserves the original decor. Mamie says "If you
want something to last forever, go to Lowe's."
Page 8 Quotation:
"Home is where you keep your stuff while you're out getting other stuff."
- - George Carlin
Page 8 Bar Graph
America's Age Distribution
Age Category Millions of People
35-39 22
40-44 20
45-49 18
50-54 14
55-59 12
Source: Bureau of the Census, "Current Population Reports"
Page 8 Chart
Top Ten World Powers of DIY Retailing
Rank Company Country 1995 Sales
US $Billions
1 The Home Depot United States $15.47
2 Lowe's Companies United States 7.08
3 Castorama France 3.22
4 GIB Group Belgium 3.10*
5 OBI German 3.03
6 Canadian Tire Canada 2.90
7 Praktiker Germany 2.78
8 Menard United States 2.73
9 Payless Cashways United States 2.68
10 Builders Square United States 2.64
*Preliminary NHCN estimate
Conversion rates as of March 8, 1996
Source: National Home Center News
Page 9 Two Pictures
Shows Cheri and Homer (see following story)sawing off a shutter and a
close-up of their faces.
Piedmont, North Carolina - Cheri Johnson never forgets a favor. Several years
ago, her neighbor Homer Humphreys gave her a job when she needed one. Time
passed; Cheri went to work up North, then moved back to her old neighborhood.
To her distress, she found Homer living on the street. She decided to build
him a house in the corner of her backyard where there was a tumbledown old
garage. She went to Lowe's and bought studs and plywood, insulation, doors
and windows, paint, and roofing materials. Even with Homer's help, the
project took three years to complete. Finally, just before Christmas, Homer
moved into his new home. As for Cheri, she's now a Lowe's stockholder. "I
have nearly $30,000 in receipts from Lowe's," she says. "I figure there are
thousands like me out here, and the trend is for people to put more money into
their homes. So it should be a good investment."
Page 10 Quotation
"A house is the only regularly recurring symbol of the whole human body in
dreams." -Sigmund Freud
Page 10 Chart
Lowe's Total Market Potential
$Billions
Home Center Market
Building Contractor Home Owner
New
Housing R&R* DIY Durables Total
2000e $75 $49 $121 $88 $333
1999e 70 47 114 78 309
1998e 67 46 109 68 290
1997e 63 44 104 61 272
1996e 63 42 100 58 263
1995p 60 40 94 56 250
1994 61 38 91 49 239
1993 52 36 83 41 212
1992 45 33 77 36 191
1991 39 32 71 34 176
1990 45 36 72 33 186
1985 40 25 53 25 143
1980 24 16 38 14 92
1977 $27 $11 $28 $10 $76
*R&R=Repair and Remodel e=estimate p=preliminary
Source: Home Improvement Research Institute; Management Horizons
Page 11 Picture
Shows Troy and Pam (see following story) petting ostriches on the farm where
they breed them.
Stuarts Draft, Virginia - When builder Troy Rutherford first came here in
1980, the town didn't even have a stoplight. Then Hershey decided to build a
plant, and Troy started buying land. Pam Rutherford, Troy's wife, is a
realtor, and together they have developed a subdivision called Forest Springs
Estates, not far from the farm where they breed ostriches. Troy says, "We
kept buying options on land when our competitors didn't. We built efficiently
and kept our costs down. Lowe's has played a big part in our success,
supplying us with materials at low prices whenever and wherever we need them."
A Lowe's representative visits the Rutherfords' job sites every day, and Troy
can call a special number at the store to get immediate personal attention.
he says "I'm very happy in my partnership with Lowe's."
Page 12 Quotation
"A man builds a house in England with the expectation of living in it and
leaving it to his children; while we shed our houses in America as easily as
a snail does his shell." - Harriet Beecher Stowe
Page 12 Two Bar Graphs
Home Ownership: Key to the Good Life?
Keys to the good life:
To have - % who said yes
Home You Own
1994 90%
1991 87
1975 85
A Good Marriage
1994 77%
1991 77
1975 84
A Car
1994 77%
1991 75
1975 71
Children
1994 66%
1991 69
1975 73
Home Ownership by Age Group
Age Category % Owning Homes
35-39 64%
40-44 70
45-49 75
50-54 78
55-59 80
Page 13 Two Pictures
Shows Tommy (see following story) on his shrimp boat, both close-up and
from a distance.
Galveston Bay, Texas - Lowe's stores serve the special needs of their
communities. For instance, our store in Texas City, Texas carries a broad
assortment of marine supplies for boating enthusiasts and professional
fishermen. Lowe's customer Tommy Cooke is the captain of a shrimp boat, the
Debbie J. On the day of these photos, he had just made his final boat
payment. Tommy says "I like Lowe's because of their low prices on things I
need for the Debbie J, like epoxy and paint."
Page 14 Two Quotations
"Dine on onions, but have a home; reduce your food and add to your dwelling."
- - The Talmud
"If I ever go looking for my heart's desire again, I won't look any further
than my own back yard; because if it isn't there, I never really lost it to
begin with." - Judy Garland as Dorothy in "The Wizard of Oz"
Page 14 chart
Gross Domestic Product,
Disposable Personal Income
and Savings Rate
Dollars in Billions
Savings CPI-U*
Rate as % 1982-84
Year GDP DPI of DPI =100
1995p $7,113.2 $5,268.8 4.2% $152.4
1994 6,738.4 4,959.3 4.1 148.2
1993 6,347.8 4,706.7 4.1 144.5
1992 6,025.8 4,500.2 5.5 140.3
1991 5,737.1 4,230.5 4.7 136.2
1990 5,567.8 4,050.5 4.3 130.7
1989 5,266.8 3 787.0 4.0 124.0
1988 4,908.2 3,548.2 4.4 118.3
1987 4,544.5 3,289.5 4.3 113.6
1986 4,277.7 3,131.5 6.0 109.6
1985 4,053.6 2,943.0 6.4 107.6
1980 2,742.1 1,952.9 7.9 82.4
*Consumer Price Index - Urban
p = preliminary
Source: U.S. Department of Commerce; Bureau of Economic Analysis;
Bureau of Labor Statistics
Page 15 Three Pictures
Shows Marshall (see following story) in front of his home computer, with his
wife, and with his guitar with the Golden Gate Bridge in the background.
San Francisco, California - Although the nearest Lowe's store is a thousand
miles away, Bay area composer Marshall Crutcher is part of Lowe's community.
With his wife, Katita Waldo, a principal dancer for the San Francisco Ballet,
Marshall recently bought a townhouse built in 1906. While he was doing some
online surfing one day, his search engine turned up a hot link to Lowe's home
page on the World Wide Web (http://www.lowes.com). Now he visits our site at
least once a month. "I've downloaded some great stuff," he says. "The How-To
clinics are especially useful, because we're starting to fix up the house
whenever we have a spare moment. Last month, one of the clinics was `How to
Hang Wallpaper,' which I read just in time: it told me how I should have
prepped the plaster!"
Page 16 Chart
Merchandise Sales Trends
Dollars in Millions
Base Year
Change 1995 1994 1993 1989
Total Sales From Total Total Total Total
6-Year CGR 1994 Sales % Sales % Sales % Sales %
Category
1.Structural Lumber +10% (10%) $ 823 12 $ 911 15 $ 745 16 $ 455 17
2.Building Commodities
& Millwork +10 +9 1,331 19 1,225 20 979 21 761 29
3.Home Decorating &
Illumination +28 +28 1,524 22 1,195 20 807 18 346 13
4.Kitchen, Bathroom,
& Laundry +24 +21 846 12 701 11 498 11 237 9
5.Heating, Cooling, &
Water Systems +21 +27 443 6 348 6 267 6 144 5
6.Home Entertainment +16 +13 305 4 271 4 218 5 125 5
7.Yard,Patio,&Garden +25 +32 974 14 736 12 493 11 261 10
8.Tools +27 +22 465 6 382 6 259 6 112 4
9.Special Order Sales +10 +6 364 5 342 6 272 6 210 8
Totals +18% +16% $7,075 100 $6,111 100 $4,538 100 $2,651 100
Page 20 Two graphs below the statements of current and retained earnings.
Comparable Store Sales1
Dollars in millions
Sales %
Quarter 1995 1994 Change
1 $1.284 $1.259 +2
2 1.554 1.496 +4
3 1.402 1.453 -4
4 1.332 1.374 -3
1 Comparable store: stores open more
than 1 year with comparable square footage.
1989-1995 Sales and Earnings*
Percent of Total Year -- A Six-Year Average
Quarter Sales % Earnings %
1 23 25
2 28 36
3 27 22
4 22 17
* 1991 is not included in the analysis
because the restructuring charge distorts results.
Page 34 Individual Pictures of the Directors
William A. Andres, John M. Belk, Gordon E. Cadwgan, Carol A. Farmer,
Leonard G. Herring, Petro Kulynych, Russell B. Long, Claudine B. Malone,
Robert G Schwartz, Robert L. Strickland, Robert L. Tillman
Part IV
LOWE'S COMPANIES, INC. AND SUBSIDIARY COMPANIES
EXHIBIT 21 - SCHEDULE OF SUBSIDIARIES
NAME AND DOING BUSINESS AS: STATE OF INCORPORATION
Lowe's Home Centers, Inc. North Carolina
Contractor Yards, Inc. North Carolina
Sterling Advertising, Ltd. North Carolina
LF Corporation Delaware
Lowe's Home Centres (Canada), Inc. Canada
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
Lowe's Companies, Inc.
We consent to the incorporation by reference in Registration Statement No. 33-
64560 on Form S-3, Registration Statement No. 33-51865 on Form S-3, Post-
Effective Amendment No. 1 to Registration Statement No. 33-2618 on Form S-8,
Registration Statement No. 33-29772 on Form S-8, Registration Statement No.
33-54497 on Form S-8, and Registration Statement No. 33-54499 on Form S-8, of
our report dated February 20, 1996 (March 4, 1996 as to the fourth paragraph
of Note 14) appearing in or incorporated by reference in this Annual Report on
Form 10-K of Lowe's Companies, Inc. for the year ended January 31, 1996.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
April 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<CASH> 63,868
<SECURITIES> 0
<RECEIVABLES> 113,483
<ALLOWANCES> 0
<INVENTORY> 1,267,077
<CURRENT-ASSETS> 1,603,684
<PP&E> 1,858,274
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,556,386
<CURRENT-LIABILITIES> 949,931
<BONDS> 0
0
0
<COMMON> 80,459
<OTHER-SE> 1,576,256
<TOTAL-LIABILITY-AND-EQUITY> 3,556,386
<SALES> 7,075,442
<TOTAL-REVENUES> 0
<CGS> 5,312,195
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,373,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,040
<INCOME-PRETAX> 352,107
<INCOME-TAX> 126,080
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 226,027
<EPS-PRIMARY> 1.41
<EPS-DILUTED> 1.36
</TABLE>
Part IV
LOWE'S COMPANIES, INC. AND SUBSIDIARY COMPANIES
EXHIBIT 12 - COMPUTATION OF FIXED CHARGE COVERAGE
(In Thousands)
For the Year Ended January 31,
1996 1995 1994
Income Before Income Taxes 352,107 343,531 198,324
Fixed Charges:
Interest Expense 48,937 40,110 23,043
1/3 Rental Expense 18,045 13,400 9,067
Earnings, as Defined 419,089 397,041 230,434
Fixed Charges:
Interest Expense 48,937 40,110 23,043
Capitalized Interest 5,768 4,678 3,592
1/3 Rental Expense 18,045 13,400 9,067
Fixed Charges 72,750 58,188 35,702
Fixed Charge Coverage
(Ratio of Earnings to Fixed Charges) 5.8 6.8 6.5
