<PAGE> -1-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended July 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 1-7898
LOWE'S COMPANIES, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-0578072
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1605 CURTIS BRIDGE ROAD, WILKESBORO, N.C. 28697
(Address of principal executive offices)
(Zip Code)
(336) 658-4000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class ____ Outstanding at August 27, 1999
Common Stock, $.50 par value 382,137,544
16
TOTAL PAGES
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LOWE'S COMPANIES, INC.
- INDEX -
Page No.
PART I - Financial Information:
Consolidated Balance Sheets - July 30, 1999,
July 31, 1998 and January 29, 1999 3
Consolidated Statements of Current and
Retained Earnings - quarter and six months
ended July 30, 1999 and July 31, 1998 4
Consolidated Statements of Cash Flows - six
months ended July 30, 1999 and July 31, 1998 5
Notes to Consolidated Financial Statements. 6-7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-12
Independent Accountants' Report 13
PART II - Other Information 14
Item 4 - Submission of Matters to a Vote of Security Holders
Item 6 (a) - Exhibits
Item 6 (b) - Reports on Form 8-K
EXHIBIT INDEX 16
<PAGE> -3-
Lowe's Companies, Inc.
Consolidated Balance Sheets
In Thousands
<TABLE>
<CAPTION>
July 30, July 31, January 29,
1999 1998 1999
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $973,684 $603,330 $228,874
Short-term investments 51,366 43,680 20,343
Accounts receivable - net 181,651 159,613 143,928
Merchandise inventory 2,589,854 2,182,043 2,346,092
Deferred income taxes 56,245 43,566 56,124
Other assets 77,051 94,907 49,021
Total current assets 3,929,851 3,127,139 2,844,382
Property, less
accumulated depreciation 4,535,999 3,602,045 4,085,798
Long-term investments 33,202 36,775 28,716
Other assets 119,402 80,080 105,508
Total assets $8,618,454 $6,846,039 $7,064,404
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings $92,475 $93,975 $117,075
Current maturities
of long-term debt 118,217 48,020 107,893
Accounts payable 1,472,209 1,287,855 1,220,543
Employee retirement plans 78,350 59,361 85,466
Accrued salaries and wages 119,972 87,944 123,545
Other current liabilities 464,610 369,801 269,734
Total current liabilities 2,345,833 1,946,956 1,924,256
Long-term debt, excluding
current maturities 1,747,142 1,495,495 1,364,278
Deferred income taxes 174,028 139,366 175,372
Other long-term liabilities 3,603 3,516 3,209
Total liabilities 4,270,606 3,585,333 3,467,115
Shareholders' equity
Preferred stock - $5 par value,
none issued - - -
Common stock - $.50 par value;
Issued and Outstanding
July 30, 1999 381,918
July 31, 1998 370,932
January 29, 1999 374,388 190,959 185,466 187,194
Capital in excess of par 1,731,544 1,209,739 1,325,817
Retained earnings 2,446,622 1,898,022 2,114,248
Unearned compensation-
restricted stock awards (21,204) (32,679) (30,387)
Accumulated other
comprehensive income (loss) (73) 158 417
Total shareholders' equity 4,347,848 3,260,706 3,597,289
Total liabilities and
shareholders' equity $8,618,454 $6,846,039 $7,064,404
See accompanying notes to consolidated financial statements.
</TABLE>
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Lowe's Companies, Inc.
Consolidated Statements of Current and Retained Earnings
In Thousands, Except Per Share Data
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
July 30, 1999 July 31, 1998 July 30, 1999 July 31, 1998
Current Earnings Amount Percent Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $4,435,219 100.00 $3,733,642 100.00 $8,207,138 100.00 $6,883,421 100.00
Cost of sales 3,247,933 73.23 2,743,765 73.49 6,012,762 73.26 5,063,041 73.55
Gross margin 1,187,286 26.77 989,877 26.51 2,194,376 26.74 1,820,380 26.45
Expenses:
Selling, general
and administrative 704,821 15.89 602,055 16.13 1,369,172 16.68 1,171,610 17.02
Store opening costs 15,465 0.35 14,952 0.40 33,675 0.41 27,347 0.40
Depreciation 81,723 1.84 70,455 1.89 159,643 1.95 139,303 2.02
Interest 22,096 0.50 18,810 0.50 45,403 0.55 40,449 0.59
Nonrecurring merger costs - - - - 24,378 0.30 - -
Total expenses 824,105 18.58 706,272 18.92 1,632,271 19.89 1,378,709 20.03
Pre-tax earnings 363,181 8.19 283,605 7.59 562,105 6.85 441,671 6.42
Income tax provision 132,964 3.00 102,856 2.75 206,930 2.52 160,195 2.33
Net earnings $230,217 5.19 $180,749 4.84 $355,175 4.33 $281,476 4.09
Shares outstanding - Basic 381,635 370,612 380,220 370,125
Basic earnings per share $0.60 $0.49 $0.93 $0.76
Shares outstanding - Diluted 384,311 375,667 383,104 375,004
Diluted earnings per share $0.60 $0.48 $0.93 $0.76
Retained Earnings
Balance at beginning
of period $2,227,816 $1,727,783 $2,114,248 $1,636,666
Net earnings 230,217 180,749 355,175 281,476
Cash dividends (11,411) (10,510) (22,801) (20,120)
Balance at end
of period $2,446,622 $1,898,022 $2,446,622 $1,898,022
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> -5-
Lowe's Companies, Inc.
Consolidated Statements of Cash Flows
In Thousands
<TABLE>
<CAPTION>
For the Six Months Ended
July 30, July 31,
Periods Ended On 1999 1998
<S> <C> <C>
Cash Flows From Operating Activities:
Net Earnings $355,175 $281,476
Adjustments to Reconcile
Net Earnings to Net Cash Provided By
Operating Activities:
Depreciation 159,643 139,303
Amortization of Original Issue Discount 307 221
Decrease in Deferred Income Taxes (1,329) (6,494)
Loss on Disposition/Writedown
of Fixed and Other Assets 37,994 14,722
Changes in Operating Assets and Liabilities:
Accounts Receivable - Net (37,723) (41,205)
Merchandise Inventory (243,762) (264,618)
Other Operating Assets (25,759) (56,648)
Accounts Payable 251,666 251,973
Employee Retirement Plans 40,455 33,989
Other Operating Liabilities 200,241 146,895
Net Cash Provided by Operating Activities 736,908 499,614
Cash Flows from Investing Activities:
(Increase) Decrease in Investment Assets:
Short-Term Investments (29,926) (16,059)
Purchases of Long-Term Investments (7,713) (13,632)
Proceeds from Sale/Maturity
of Long-Term Investments 1,509 522
Increase in Other Long-Term Assets (32,733) (7,768)
Fixed Assets Acquired (617,395) (422,232)
Proceeds from the Sale of Fixed
and Other Long-Term Assets 21,377 12,188
Net Cash Used in Investing Activities (664,881) (446,981)
Cash Flows from Financing Activities:
Net Decrease in Short-Term Borrowings (24,600) (4,129)
Long-Term Debt Borrowings 394,587 328,160
Repayment of Long-Term Debt (36,951) (10,917)
Proceeds from Stock Offering 348,299 -
Proceeds from Stock Options Exercised 14,249 8,587
Cash Dividend Payments (22,801) (29,707)
Net Cash Provided by Financing Activities 672,783 291,994
Net Increase in Cash and Cash Equivalents 744,810 344,627
Cash and Cash Equivalents, Beginning of Period 228,874 258,703
Cash and Cash Equivalents, End of Period $973,684 $603,330
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> -6-
Lowe's Companies, Inc.
Notes to Consolidated Financial Statements
Note 1: The accompanying Consolidated Financial Statements (unaudited) have
been reviewed by independent certified public accountants, and in
the opinion of management, they contain all adjustments necessary to
present fairly the financial position as of July 30, 1999, and the
results of operations for the quarters and six months ended July 30,
1999 and July 31, 1998, and the cash flows for the six months ended
July 30, 1999 and July 31, 1998.
These interim financial statements should be read in conjunction
with the financial statements and notes thereto included in the
Lowe's Companies, Inc. (the Company) Annual Report on Form 10-K for
the fiscal year ended January 29, 1999. The financial results for
the interim periods may not be indicative of the financial results
for the entire fiscal year.
Note 2: The Company completed its merger with Eagle Hardware & Garden, Inc.
(Eagle) on April 2, 1999. The transaction, which is valued at
approximately $1.3 billion, was structured as a tax-free exchange of
the Company's common stock for Eagle's common stock, and was
accounted for as a pooling of interests. The financial statements
and notes presented provide information on a combined basis for the
quarters and six months periods ended July 30, 1999, July 31, 1998
and as of January 29, 1999.
Note 3: Diluted earnings per share are calculated on the weighted average
shares of common stock as adjusted for the dilutive effect of stock
options at the balance sheet date. The weighted average number of
shares, as adjusted for dilution, were 384,311,000 and 375,667,000
for the quarters ended July 30, 1999 and July 31, 1998,
respectively,and 383,104,000 and 375,004,000 for the six months
ended July 30, 1999 and July 31, 1998, respectively.
Note 4: Net interest expense is composed of the following (in thousands):
<TABLE>
<CAPTION>
Quarter ended Six months ended
July 30, July 31, July 30, July 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Long-term debt $ 23,930 $ 19,364 $ 46,465 $ 37,850
Capitalized leases 10,825 9,736 21,163 19,759
Short-term debt 1,208 1,387 3,076 2,816
Amortization of loan cost 259 189 495 394
Short-term interest income (9,821) (7,903) (17,775) (13,687)
Interest capitalized on
construction in progress (4,305) (3,963) (8,021) (6,683)
Net interest expense $ 22,096 $ 18,810 $ 45,403 $ 40,449
</TABLE>
Note 5: Inventory is stated at the lower of cost or market using the last-
in, first-out inventory accounting method, except for the inventory
held by Eagle. Inventory held by Eagle of $271.0 and $213.8 million
at July 30, 1999 and July 31, 1998, respectively, is stated at the
lower of cost or market using the weighted average method of
inventory accounting. The Company's LIFO reserve was $38.6 million
at July 30, 1999 and January 29, 1999 and $64.6 million at July 31,
1998.
<PAGE> -7-
Note 6: Property is shown net of accumulated depreciation of $1.1 billion at
July 30, 1999, $.9 billion at July 31, 1998 and $1.0 billion at
January 29, 1999.
Note 7: Supplemental disclosures of cash flow information (in thousands):
<TABLE>
<CAPTION>
Six months ended
July 30, 1999 July 31, 1998
<S> <C> <C>
Cash paid for interest $ 60,448 $ 50,898
(net of capitalized)
Cash paid for income taxes 150,552 128,266
Non-cash investing and
financing activities:
Common stock issued to ESOP 47,571 44,597
Fixed assets acquired under
capital lease 35,243 12,597
</TABLE>
Note 8: In January 1999, the Board of Directors authorized the funding of
the Fiscal 1998 ESOP contribution primarily with the issuance of new
shares of the Company's common stock. During the first half of
Fiscal 1999, the Company issued 823,190 shares, with a market value
of $47.6 million.
Note 9: In February 1999, the Company issued $400 million of 6.5% Debentures
due March 15, 2029 in a private offering. The debentures were
registered in July 1999 with the filing of Form S-4 with the
Securities and Exchange Commission. The debentures were issued at
an original price of $986.47 per $1,000 principal amount, net of the
original issue discount and underwriters' discount. The debentures
may not be redeemed prior to maturity. In March 1999, the Company
issued 6,206,895 shares of common stock in a public offering. The
net proceeds from the offering were $348.3 million and were issued
under a shelf registration statement filed with the Securities and
Exchange Commission in December 1997.
Note 10: Total comprehensive income, comprised of net earnings and unrealized
holding gains (losses) on available-for-sale securities, was $229.9
and $180.9 million for the quarters ended July 30, 1999 and July 31,
1998, respectively, compared to reported net earnings of $230.2 and
$180.7 million for the second quarter of 1999 and 1998. Total
comprehensive income was $354.7 and $281.4 million for the six
months ended July 30, 1999 and July 31, 1998, respectively, compared
to reported net earnings of $355.2 and $281.5 million for the first
six months of 1999 and 1998.
<PAGE> -8-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion summarizes the significant factors affecting the Company's
consolidated operating results and liquidity and capital resources during the
quarter and six months ended July 30, 1999. This discussion should be read in
conjunction with the financial statements, and financial statement footnotes
included in the Company's most recent Form 10-K.
The Company completed its merger with Eagle Hardware & Garden, Inc. (Eagle)
on April 2, 1999. The transaction, which is valued at approximately $1.3
billion, was structured as a tax-free exchange of the Company's common stock
for Eagle's common stock, and was accounted for as a pooling of interests. As
a result, all current and historical financial information is presented on a
combined basis.
OPERATIONS
For the second quarter of fiscal 1999, sales increased 19% to $4.4 billion,
comparable store sales increased 5.6% and net earnings rose 27% to $230.2
million compared to last year's second quarter results. Diluted earnings per
share were $.60 compared to $.48 for the comparable quarter of last year. For
the six months ended July 30, 1999, sales increased 19% to $8.2 billion,
comparable store sales increased 6.1% and net earnings increased 26% to $355.2
million compared to the first six months of 1998. Diluted earnings per share
were $.93 compared to $.76 for the first six months of last year. Pretax
earnings for the first six months of 1999 were reduced by a nonrecurring
charge of $24.4 million relating to the Company's merger with Eagle.
Excluding the one-time charge, diluted earnings per share would have been $.97
for the first six months of 1999.
The sales increase in the second quarter was attributable to 8.1 million
square feet of retail selling space relating to new and relocated stores since
last year's second quarter and the 5.6% comparable store sales gain. Sales in
the Company's core businesses performed well during the second quarter. The
Company experienced its strongest sales increases in appliances, kitchen
cabinets, nursery and garden products, hardware and home decor categories.
Gross margin was 26.77% of sales for the quarter ended July 30, 1999
compared to 26.51% for last year's comparable quarter. Gross margin for the
six months ended July 30, 1999 was 26.74% versus 26.45% in the first six
months of 1998. The increase in margin rate for the second quarter and first
six months of 1999 results primarily from favorable changes in product mix,
ongoing store pricing disciplines, leveraging of distribution facilities and
lower product costs. There was a LIFO credit of $3.0 million for the first
six months of 1998 compared to no LIFO charge or credit in the first six
months of 1999.
Selling, general and administrative expenses (SG&A) were 15.89% of sales
versus 16.13% in last year's second quarter. SG&A increased by 17% compared
to the 19% increase in sales for the quarter. SG&A was 16.68% of sales for the
six months ended July 30, 1999 compared to 17.02% for the first six months of
1998. SG&A increased by 17% compared to the 19% increase in sales for the
first six
<PAGE> -9-
months of 1999. Lower net advertising expense, increased credit card program
income and controls relating to other expenses contributed to the positive
leverage in SG&A for the second quarter and the first six months of 1999.
Store opening costs were $15.5 million for the quarter ended July 30, 1999
compared to $15.0 million last year, representing costs associated with the
opening of 21 stores during the current year's second quarter (8 new and 13
relocated). This compares to 15 stores for the comparable period last year (8
new and 7 relocated). Charges in this quarter for future and prior openings
were $4.3 million compared to $5.4 million in last year's second quarter.
Charges totaling $2.4 and $3.6 million related to stores opening in the second
quarter of 1999 and 1998, respectively, were expensed prior to the respective
quarter. Store opening costs for the six months ended July 30 ,1999 were
$33.7 million compared to $27.3 million last year. These costs were
associated with the opening of 34 stores during the first six months of 1999
(16 new and 18 relocated) compared to 25 stores (15 new and 10 relocated)
opened during the first six months of last year. For the six months ended,
store opening costs also included a $2.2 million charge relating to Eagle's
adoption of the American Institute of Certified Public Accountants' Statement
of Position 98-5, "Reporting on the Costs of Start-Up Activities". These
expenses were previously capitalized and written off after stores were opened.
Currently, these costs are expensed as incurred. The Company's 1999 expansion
plans are discussed under "Liquidity and Capital Resources" below.
Depreciation was $81.7 million for the quarter ended July 30, 1999 and
$159.6 million for the six months then ended. This represents an increase of
16.0% and 14.6% over the respective comparable periods last year. The
increase is due primarily to additions of buildings, fixtures, displays and
computer equipment relating to the Company's expansion program.
Interest expense increased from $18.8 and $40.4 million to $22.1 and $45.4
million for the quarter and six months ended July 30, 1999, respectively.
Interest has increased primarily due to interest expense on debentures issued
since last year's second quarter.
In the first quarter of 1999, the Company recorded nonrecurring costs of
$24.4 million relating to the merger with Eagle which consisted of $15.7
million relating to the writeoff of nonusable Eagle properties, $1.5 million
for severance obligations to former Eagle executives and $7.2 million in
direct merger costs such as accounting, legal, investment banker and other
miscellaneous fees.
The Company's effective income tax rate was 36.61% for the quarter ended
July 30, 1999 and 36.27% for last year's second quarter. The effective rate
was 36.81% compared to 36.27% for the six months ended July 30, 1999 and July
31, 1998, respectively. The higher rate in 1999 is primarily related to the
expansion into states with higher income tax rates and the impact of non-
deductible merger expenses.
LIQUIDITY AND CAPITAL RESOURCES
Primary sources of liquidity are cash flows from operating activities and
certain financing activities. Net cash provided by operating activities was
$737 million for the six months ended July 30, 1999 compared to $500 million
for the first six months of 1998. The $237 million increase in the current
year resulted primarily from increased cash earnings, an increase in other
liabilities due to payment
<PAGE> -10-
timing differences and a smaller increase in merchandise inventory as compared
to the prior period. The Company's working capital was $1.6 billion at July
30, 1999 compared to $1.2 billion at July 31, 1998 and $920 million at January
29, 1999.
The primary component of net cash used in investing activities continues to
be new store facilities in connection with the Company's expansion plan. Cash
acquisitions of fixed assets were $617 million and $422 million for the six
months ended July 30, 1999 and July 31, 1998, respectively. At July 30, 1999,
the Company had 533 stores in 37 states and 50.6 million square feet of retail
selling space, a 19% increase over the selling space as of July 31, 1998.
Cash flows provided by financing activities were $673 million for the six
months ended July 30, 1999 compared to $292 million for the six months ended
July 31, 1998. The major cash components of financing activities in the first
six months of 1999 included the issuance of $400 million principal of 6.5%
debentures and $348.3 million in net proceeds from a common stock offering.
Property has increased as a result of the Company's plan to continue
expansion of retail sales floor square footage by expanding into new markets
and relocating from older, smaller stores to larger stores. The Company's
1999 capital budget is approximately $1.7 billion, inclusive of approximately
$214 million in operating or capital leases. More than 80% of this planned
commitment is for store expansion. Expansion plans for 1999 consist of
approximately 85 to 90 stores (including the relocation of 30 to 35 older,
smaller format stores). This planned expansion is expected to increase sales
floor square footage by approximately 18%. Approximately 15% of the 1999
projects will be leased and 85% will be owned. Expansion in the first six
months of fiscal 1999 included 16 new stores and 18 relocations representing
3.1 million square feet of new incremental retail space.
The Company believes that funds from operations, debt issuances, leases and
existing credit agreements will be adequate to finance the 1999 expansion plan
and other operating needs.
As discussed in the annual report for the year ending January 29, 1999, the
Company's major market risk exposure is the potential loss arising from
changing interest rates and its impact on long-term investments and long-term
debt. The Company's policy is to manage interest rate risks by maintaining a
combination of fixed and variable rate financial instruments. The risks
associated with long-term investments at July 30, 1999 have not changed
materially since January 29, 1999. Long-term debt has increased primarily due
to the issuance of $400 million principal amount of 6.5% Debentures due March
15, 2029.
YEAR 2000
The Year 2000 problem arose because many existing computer programs and
embedded computer chips use only the last two digits to refer to a year. If
not addressed, computer programs that are date sensitive may not have the
ability to properly recognize dates in year 2000 and beyond. The result could
be a disruption of operations and the processing of transactions.
In 1997 and 1998, the Company completed an analysis of the impact and costs
relating to the Year 2000 problem and developed an implementation plan to
address information technology (IT), non-information technology (non-IT) and
third party readiness issues.
<PAGE> -11-
In preparing IT systems for the Year 2000, the Company has utilized both
internal and external resources. Contracted programming costs to convert the
Company's IT systems during 1997, 1998 and 1999 are estimated to total
approximately $5 million and are being expensed as incurred, the majority of
which had been incurred through the first quarter. Currently, over 99% of the
programs have been remediated. In addition, approximately $19 million of
computer hardware has been purchased to replace non-compliant computer
hardware. The cost of new hardware is being capitalized and depreciated over
useful lives ranging from 3 to 5 years. Cash flow from operations is the
Company's source of funding all Year 2000 costs. The incremental cost to
convert systems has been mitigated by substantial investments in new computer
systems over the past six years. During this period, new computer systems
have been developed or purchased including, but not limited to, these
applications: Distribution, Electronic Data Interchange, Payroll and Human
Resources, General Ledger, Accounts Payable, Forecasting and Replenishment,
and Supply Services. All of these new systems are Year 2000 compliant. The
Company's conversion of internally developed legacy systems was completed by
the end of fiscal 1998. The first stage of certification testing was completed
by September, 1999 with stage two planned to be completed in mid December,
1999.
With respect to non-IT related risks, each functional area of the Company
is responsible for identifying these issues. Within each business function,
objectives are being prioritized and evaluated for risk of Year 2000 problems.
The assessment phase was completed in April 1999. Based on those assessments,
contingency plans for high priority and critical business functions have been
developed and have been reviewed by the Company's senior management. The
contingency plans approved by senior management will be implemented and
revised during the remainder of calendar year 1999. Examples of potential
non-IT risks of Year 2000 problems would be power outages and failures of
communication systems, bar code readers and security devices. Over half of
the Company's stores have generators in place that would mitigate most
problems associated with a temporary power outage, while the remaining stores
have the capability to continue operations on a curtailed basis until power is
restored.
In regards to third party readiness, the Company mailed Year 2000
questionnaires to all identified third parties (merchandise vendors and other
entities with which the Company conducts business) in order to assess whether
they are Year 2000 compliant or have adequately addressed their system
conversion requirements. Of the approximate six thousand questionnaires
mailed, 44% of the recipients have currently responded. A majority of the
non-respondents have been contacted by phone and our questionnaire has been
faxed to them requesting signed returns within 24 hours. The Company is
currently assessing the adequacy of these responses. The Company cannot
predict how many of the responses received may prove later to be inaccurate or
overly optimistic. To address this uncertainty, the Company has developed
contingency plans to address unanticipated interruptions or down time in both
the Company's and third parties' systems and services.
The Company is continuing to closely monitor adherence to the remainder of
its Year 2000 implementation plan and is currently satisfied that it will be
completed in the third quarter of 1999. For the remainder of the project, the
Company's efforts will be devoted to four primary areas:
(1) certification testing of IT systems to ensure Year 2000 compliance,
(2) contingency plan implementation and revisions for business areas as well
as IT systems,
(3) continued follow-up to questionnaires sent to third parties, and
(4) updating some of the purchased software packages with Year 2000
compliant upgrades.
If the Company encounters unforeseen complications or issues not previously
addressed in the comprehensive plan, additional resources from internal and
external sources will be committed to
<PAGE> -12-
complete the project by the planned completion time of the third quarter of
1999. Since the use of these additional resources is considered unlikely, no
estimates as to their costs have been made at this time.
Following completion of the merger on April 2, 1999, the Company began a
review of the Eagle Hardware and Garden subsidiary preparedness for the Year
2000. The findings indicated that the Eagle computer systems are
substantially Year 2000 ready. For the Eagle operations, the remainder of
this year will be focused on developing contingency plans and upgrading point-
of-sale software.
The Company believes that its contingency plan should mitigate any adverse
effect on its business from the Year 2000 problem. However, if:
(1) the implementation of the plan is not completed on time,
(2) the Company has failed to identify and fix material non-complying
equipment or software, or
(3) third parties are unable to fulfill significant commitments to the
Company as a result of their failure to effectively address their Year
2000 problems,
the Company's ability to carry out its business could be adversely affected.
For example, the Company believes that its most likely worst case scenarios
would involve the inability of the Company's IT and non-IT systems to process
transactions in the stores or on a regional or company-wide basis. If that
were to occur, the Company could be forced to process these transactions
manually. The volume of business the Company could transact, and its sales
and income, would be reduced until it was able to develop alternatives to
defective systems or non-complying vendors. These reductions could occur at
individual stores or in clusters of stores sharing defective systems or non-
complying vendors. The effect of any failures on the Company's results of
operations would depend, of course, upon the extent of any non-compliance and
its impact on critical business systems and sources of supply, but could be
significant.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133) was issued in June
1998. SFAS 133 is effective for the Company in the year beginning January 26,
2001. SFAS 133 requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at
fair value. Management is currently evaluating the impact of the adoption of
SFAS 133 and its effect on the Company's financial statements.
FORWARD-LOOKING STATEMENTS
This Securities and Exchange Commission Form 10-Q may include "forward-
looking statements" within the meaning of Section 27A of the Securities Act
and Section 21E of the Exchange Act. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to be correct.
Important factors that could cause actual results to differ from expectations
include, but are not limited to, general economic trends, availability and
development of real estate for expansion, commodity markets, the nature of
competition, vendor supply, and weather conditions, all which are described in
detail in the Company's 1998 Annual Report.
<PAGE> -13-
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors
Lowe's Companies, Inc.:
We have reviewed the accompanying consolidated balance sheet of Lowe's
Companies, Inc. and subsidiary companies (the "Company") as of July 30, 1999,
and the related consolidated statements of current and retained earnings, and
cash flows for the three-month periods ended July 30, 1999 and July 31, 1998.
These financial statements are the responsibility of the Company's management.
The accompanying consolidated financial statements give retroactive effect to
the 1999 merger of the Company and Eagle Hardware & Garden, Inc. which has
been accounted for as a pooling of interests as described in note 2 to the
consolidated financial statements. We were furnished with the reports of
other accountants on their review of the interim financial information of
Eagle Hardware and Garden, Inc., whose total revenues constituted 8% of
consolidated total revenues for both the three-month and six-month periods
ended July 31, 1998.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Lowe's Companies, Inc. and
subsidiary companies as of January 29, 1999, prior to restatement for the 1999
pooling of interests (not presented herein); and in our report dated February
19, 1999, we expressed an unqualified opinion on those consolidated financial
statements. The financial statements of Eagle Hardware & Garden, Inc. for the
year ended January 29, 1999, were audited by other auditors whose report,
dated March 10, 1999, expressed an unqualified opinion on those financial
statements (not presented herein). We also audited the adjustments described
in Note 2 to the consolidated statements that were applied to restate the
January 29, 1999 consolidated balance sheet of the Company (not presented
herein). In our opinion, such statements are appropriate and have been
properly applied and the information set forth in the accompanying
consolidated balance sheet as of January 29, 1999 is fairly stated, in all
material respects, in relation to the restated consolidated balance sheet from
which it has been derived.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
August 11, 1999
<PAGE> -14-
Part II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders.
(a) - The annual meeting of shareholders was held May 28, 1999.
(b) - Directors elected at the meeting: James F. Halpin, Richard K.
Lochridge, and Claudine B. Malone
Incumbent Directors whose terms expire in subsequent years are: Carol
A. Farmer, Robert L. Strickland, Peter C. Browning, Leonard L. Berry,
Paul Fulton, Robert G Schwartz and Robert L. Tillman
(c) - The matters voted upon at the meeting and the results of the voting
were as follows:
(1) Election of Directors: FOR WITHHELD
James F. Halpin 285,735,042 35,841,835
Richard K. Lochridge 285,757,119 35,819,758
Claudine B. Malone 285,693,327 35,883,550
(2) Proposal to approve the Lowe's Companies, Inc. Directors' Stock
Option Plan
FOR AGAINST ABSTAIN
266,432,259 53,525,960 1,598,756
Item 6 (a) - Exhibits
(3.2) Bylaws, as Amended and Restated May 28, 1999
Refer to the Exhibit Index on page 16
Item 6 (b) - Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter ended July
30, 1999.
<PAGE> -15-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LOWE'S COMPANIES, INC.
September 8, 1999 /s/ Kenneth W. Black, Jr.
Date ------------------ ----------------------------------------
Kenneth W. Black, Jr.
Vice President and Corporate Controller
<PAGE> -16-
EXHIBIT INDEX
Page No.
Exhibit 3.2 - Bylaws, as Amended and Restated May 28, 1999 17 - 33
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-28-2000
<PERIOD-END> JUL-30-1999
<CASH> 973,684
<SECURITIES> 51,366
<RECEIVABLES> 181,651
<ALLOWANCES> 0
<INVENTORY> 2,589,854
<CURRENT-ASSETS> 3,929,851
<PP&E> 4,535,999
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,618,454
<CURRENT-LIABILITIES> 2,345,833
<BONDS> 0
0
0
<COMMON> 190,959
<OTHER-SE> 4,156,889
<TOTAL-LIABILITY-AND-EQUITY> 8,618,454
<SALES> 8,207,138
<TOTAL-REVENUES> 8,207,138
<CGS> 6,012,762
<TOTAL-COSTS> 6,012,762
<OTHER-EXPENSES> 1,586,868
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,403
<INCOME-PRETAX> 562,105
<INCOME-TAX> 206,930
<INCOME-CONTINUING> 355,175
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 355,175
<EPS-BASIC> 0.93
<EPS-DILUTED> 0.93
</TABLE>
<PAGE> -17-
Exhibit 3.2
BYLAWS OF
LOWE'S COMPANIES, INC.
As Amended and Restated May 28, 1999
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; ELECTRONIC AUTHORIZATION 3
SECTION 9. VOTING OF SHARES 4
SECTION 10. CONDUCT OF MEETINGS 4
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. QUARTERLY MEETINGS 5
SECTION 5. SPECIAL MEETINGS 6
SECTION 6. NOTICE 6
SECTION 7. QUORUM 6
SECTION 8. MANNER OF ACTING 6
SECTION 9. VACANCIES 6
SECTION 10. COMPENSATION 6
SECTION 11. PRESUMPTION OF ASSENT 6
SECTION 12. ACTION WITHOUT MEETING 7
SECTION 13. INFORMAL ACTION BY DIRECTORS 7
SECTION 14. COMMITTEES GENERALLY 7
SECTION 15. EXECUTIVE COMMITTEE 7
SECTION 16. AUDIT COMMITTEE 8
SECTION 17. COMPENSATION COMMITTEE 8
SECTION 18. GOVERNANCE COMMITTEE 8
<PAGE> -18-
SECTION 19. GOVERNMENT/LEGAL AFFAIRS COMMITTEE 8
SECTION 20. SALARY ADMINISTRATION; DIRECTORS
COMPENSATION 9
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 10
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 11
SECTION 5. VICE CHAIRMEN OF THE BOARD OF DIRECTORS 11
SECTION 6. PRESIDENT 11
SECTION 7. VICE PRESIDENTS 11
SECTION 8. SECRETARY 11
SECTION 9. TREASURER 11
SECTION 10. 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; NON-CERTIFICATED
SHARES 12
SECTION 2. TRANSFER OF SHARES 12
SECTION 3. LOST CERTIFICATES 13
ARTICLE VIII. FISCAL YEAR 13
ARTICLE IX. DIVIDENDS 13
ARTICLE X. SEAL 13
<PAGE> -19-
ARTICLE XI. WAIVER OF NOTICE 14
ARTICLE XII. AMENDMENTS 14
<PAGE> -20-
BYLAWS
OF
LOWE'S COMPANIES, INC.
As Amended and Restated May 28, 1999
ARTICLE I. OFFICES
The principal office of the corporation in the State of North
Carolina shall be located in the County of Wilkes. The registered office
of the corporation, required by law to be continuously maintained in the
State of North Carolina, may be, but need not be, identical with the
principal office and shall be maintained at that location identified as
the address of the business office of the registered agent with the North
Carolina Secretary of State. 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 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
<PAGE> -21-
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.
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
<PAGE> -22-
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
te any meeting of shareholders.
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 isrepresented 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; ELECTRONIC AUTHORIZATION
(a) 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.
(b)The secretary may approve procedures to enable a shareholder
or a shareholder's duly authorized attorney in fact to authorize another
person or persons to act for him or her as proxy by transmitting or
authorizing the transmission of a telegram, cablegram, internet
transmission, telephone transmission or other means of electronic
transmission to the person who will be the holder of the proxy or to a
proxy solicitation firm, proxy support service organization or like agent
duly authorized by the person who will be the holder of the proxy to
receive such transmission, provided that any such transmission must
either set forth or be submitted with information from which the
inspectors of election can determine that the transmission was authorized
<PAGE> -23-
by the shareholder or the shareholder's duly authorized attorney in fact.
If it is determined that such transmissions are valid, the inspectors
shall specify the information upon which they relied. Any copy,
facsimile telecommunications or other reliable reproduction of the
writing or transmission created pursuant to this Section 8 may be
substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission could
be used, provided that such copy, facsimile telecommunication or other
reproduction shall be a complete reproduction of the entire original
writing or transmission.
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.
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
<PAGE> -24-
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 be 10, divided into three classes:
Class I, (three), Class II, (four), and Class III, (three). One
director shall be designated and elected by the Board as 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 the corporation. 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, and the number of directors which shall constitute the class of
directors being elected at such annual meeting. The directors may amend
the Bylaws between meetings of shareholders to increase or decrease the
number of directors to make vacancies available for the election of new
directors.
<PAGE> -25-
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. 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 5. 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 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.
SECTION 6. 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 7. 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 8. 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 9. VACANCIES. Any vacancy occurring in the Board of
Directors shall be filled as provided in the Articles of Incorporation.
<PAGE> -26-
SECTION 10. 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 11. 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 12. 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.
SECTION 13. 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 14. 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 15. 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;
<PAGE> -27-
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;
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 16. 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 each year an independent certified public
accounting firm as independent auditors for the Corporation. The
<PAGE> -28-
Corporation's Head of Internal Audit shall report to the Audit Committee,
and his employment may only be terminated with the approval of the
Committee.
SECTION 17. 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 18. 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 19. 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 20. SALARY ADMINISTRATION; DIRECTORS COMPENSATION. The
compensation of employees not covered by the Compensation Committee
duties shall be the responsibility of the Chief Executive Officer. The
compensation of independent directors shall be recommended to the Board
of Directors by the Chief Executive Officer.
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.
<PAGE> -29-
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.Section 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.
Section 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
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 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.
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. Section 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.
<PAGE> -30-
ARTICLE V. OFFICERS
SECTION 1. TITLES. The officers of the corporation may consist of
the Chairman of the Board of Directors, Vice Chairmen, 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 (and by the Audit Committee for
the Head of Internal Audit) 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 shall preside at meetings of the Board of
Directors, 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, subject to the general supervision and control of the
Board of Directors. The Chairman 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 Chairman shall vote as agent for the
corporation the capital stock held or owned by the corporation in any
corporation. The Chairman is authorized to delegate the authority to vote
capital stock held or owned by the corporation and to execute and deliver
agreements and other instruments to other officers of the corporation.
SECTION 5. VICE CHAIRMEN OF THE BOARD OF DIRECTORS. The Board of
Directors may elect one or more Vice Chairmen from their members. A Vice
Chairman shall preside at meetings of the Board of Directors in the
absence of the Chairman.
SECTION 6. PRESIDENT. The President perform such duties and have
such responsibilities as are assigned by the Board of Directors or the
Chief Executive Officer.
<PAGE> -31-
SECTION 7. VICE PRESIDENTS. The Vice Presidents shall perform such
duties and have such responsibilities as are assigned by the Board of
Directors or the Chief Executive Officer.
SECTION 8. SECRETARY. The Secretary shall perform such duties and
have such responsibilities as are assigned by the Board of Directors or
the Chief Executive Officer.
SECTION 9. TREASURER. The Treasurer shall perform such duties and
have such responsibilities as are assigned by the Board of Directors or
the Chief Executive Officer.
SECTION 10. CONTROLLER. The Controller shall perform such duties and
have such responsibilities as are assigned by the Board of Directors or
the Chief Executive Officer.
ARTICLE VI. DEPARTMENTAL DESIGNATIONS
SECTION 1. DEPARTMENTAL DESIGNATIONS. The Chief Executive Officer may
establish such departmental or functional designations or titles
pertaining to supervisory personnel as the Chief Executive Officer 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 Chief
Executive Officer 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 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; NON-CERTIFICATED SHARES
(a) 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 Chairman of the Board 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 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
<PAGE> -32-
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.
(b)The Board of Directors may authorize the issuance of some or all
of the shares of any or all of the corporation's classes or series of
stock without certificates. Such authorization shall not affect shares
already represented by certificates until such shares are surrendered to
the corporation. Within a reasonable time after the issuance or transfer
of shares without certificates, the corporation shall send the
shareholder a written statement with information required on certificates
by North Carolina General Statutes 55-6-25(b) and (c), and, if
applicable, North Carolina General Statutes 55-6-27, or any successor
law.
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, N.A., Rights
Agent, dated as of September 9, 1998, 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.
Transfer of shares not represented by certificates shall be made in
accordance with such requirements with respect to transfer as appear in
Article 8 of the Uniform Commercial Code as in effect from time to time
in North Carolina.
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 in such sum as it may direct to indemnify the
corporation against loss from any claim with respect to the certificate
claimed to have been lost or destroyed; 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.
<PAGE> -33-
ARTICLE VIII. FISCAL YEAR
The fiscal year of the Corporation shall end on the Friday nearest
to January 31 of each year. The fiscal year shall consist of four
quarterly periods, each comprising 13 weeks, with the 13-week periods
divided into three periods of four weeks, five weeks, and four weeks.
Every six to eight years, the fiscal year shall be a 53-week year, with
the fourth period comprising four weeks, five weeks, and five weeks, to
reflect the 365th day of each year and the 29th day of February in leap
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 repeal any Bylaws and to enact Bylaws which, if
expressly so provided, may not be amended, altered or repealed by the
Board of Directors.
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