<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 April 28, 2000
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 May 26, 2000
Common Stock, $.50 par value 382,686,076
12
TOTAL PAGES
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LOWE'S COMPANIES, INC.
- INDEX -
Page No.
PART I - Financial Information:
Consolidated Balance Sheets - April 28, 2000,
April 30, 1999 and January 28, 2000 3
Consolidated Statements of Current and
Retained Earnings - three months ended
April 28, 2000 and April 30, 1999 4
Consolidated Statements of Cash Flows - three
months ended April 28, 2000 and April 30, 1999 5
Notes to Consolidated Financial Statements 6-7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
Independent Accountants' Report 11
PART II - Other Information 12
Item 6 (a) - Exhibits
Item 6 (b) - Reports on Form 8-K
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<TABLE>
Lowe's Companies, Inc.
Consolidated Balance Sheets
In Thousands
<CAPTION>
April 28, April 30, January 28,
2000 1999 2000
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 522,935 $1,047,632 $ 491,122
Short-term investments 15,062 17,988 77,670
Accounts receivable - net 175,546 171,412 147,901
Merchandise inventory 3,338,322 2,814,402 2,812,361
Deferred income taxes 51,413 42,374 53,145
Other assets 168,336 80,232 127,342
Total current assets 4,271,614 4,174,040 3,709,541
Property, less
accumulated depreciation 5,548,148 4,289,230 5,177,222
Long-term investments 33,028 33,013 31,114
Other assets 82,456 114,212 94,446
Total assets $9,935,246 $8,610,495 $9,012,323
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings $ 100,000 $ 92,475 $ 92,475
Current maturities
of long-term debt 31,074 132,180 59,908
Accounts payable 2,204,307 1,715,441 1,566,946
Employee retirement plans 63,118 85,668 101,946
Accrued salaries and wages 157,976 127,230 164,003
Other current liabilities 562,282 445,713 400,676
Total current liabilities 3,118,757 2,598,707 2,385,954
Long-term debt, excluding
current maturities 1,732,202 1,722,316 1,726,579
Deferred income taxes 203,467 172,226 199,824
Other long-term liabilities 3,858 3,127 4,495
Total liabilities 5,058,284 4,496,376 4,316,852
Shareholders' equity
Preferred stock -
$5 par value, none issued - - -
Common stock -
$.50 par value;
Shares Issued and Outstanding
April 28, 2000 382,666
April 30, 1999 381,235
January 28, 2000 382,359 191,333 190,617 191,179
Capital in excess of par 1,760,421 1,698,757 1,755,616
Retained earnings 2,935,756 2,250,295 2,761,964
Unearned compensation-
restricted stock awards (10,222) (25,780) (12,868)
Accumulated other
comprehensive income (326) 230 (420)
Total shareholders' equity 4,876,962 4,114,119 4,695,471
Total liabilities and
shareholders' equity $9,935,246 $8,610,495 $9,012,323
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
Lowe's Companies, Inc.
Consolidated Statements of Current and Retained Earnings
In Thousands, Except Per Share Data
<CAPTION>
Three Months Ended
April 28, 2000 April 30, 1999
Current Earnings Amount Percent Amount Percent
<S> <C> <C> <C> <C>
Net sales $4,467,114 100.00 $3,771,919 100.00
Cost of sales 3,218,998 72.06 2,764,829 73.30
Gross margin 1,248,116 27.94 1,007,090 26.70
Expenses:
Selling, general
and administrative 806,708 18.06 664,351 17.61
Store opening costs 25,785 0.58 18,210 0.48
Depreciation 93,488 2.09 77,920 2.07
Interest 26,013 0.58 23,307 0.62
Nonrecurring merger costs - - 24,378 0.65
Total expenses 951,994 21.31 808,166 21.43
Pre-tax earnings 296,122 6.63 198,924 5.27
Income tax provision 108,973 2.44 73,966 1.96
Net earnings $187,149 4.19 $124,958 3.31
Shares outstanding - Basic 382,504 378,805
Basic Earnings Per Share $0.49 $0.33
Shares outstanding - Diluted 384,797 382,001
Diluted Earnings Per Share $0.49 $0.33
Retained Earnings
Balance at beginning
of period $2,761,964 $2,136,727
Net earnings 187,149 124,958
Cash dividends (13,357) (11,390)
Balance at end of period $2,935,756 $2,250,295
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
Lowe's Companies, Inc.
Consolidated Statements of Cash Flows
In Thousands
<CAPTION>
For the Three Months Ended
April 28, April 30,
2000 1999
<S> <C> <C>
Cash Flows From Operating Activities:
Net Earnings $187,149 $124,958
Adjustments to Reconcile Net
Earnings to Net Cash Provided By
Operating Activities:
Depreciation 93,488 77,920
Amortization of Original Issue Discount 140 161
Increase (Decrease) in Deferred Income Taxes 5,748 (3,700)
Loss on Disposition/Writedown of
Fixed and Other Assets 11,722 25,535
Changes in Operating Assets and Liabilities:
Accounts Receivable - Net (27,645) (27,484)
Merchandise Inventory (525,961) (429,701)
Other Operating Assets (40,934) (30,820)
Accounts Payable 637,361 494,898
Employee Retirement Plans (38,828) 18,456
Other Operating Liabilities 157,528 183,849
Net Cash Provided by Operating Activities 459,768 434,072
Cash Flows from Investing Activities:
(Increase) Decrease in Investment Assets:
Short-Term Investments 62,387 2,916
Purchases of Long-Term Investments (1,969) (6,554)
Proceeds from Sale/Maturity of
Long-Term Investments - 1,509
Increase in Other Long-Term Assets (3,032) (28,975)
Fixed Assets Acquired (468,410) (288,771)
Proceeds from the Sale of Fixed
and Other Long-Term Assets 7,236 3,652
Net Cash Used in Investing Activities (403,788) (316,223)
Cash Flows from Financing Activities:
Net Increase (Decrease) in
Short-Term Borrowings 7,525 (24,600)
Long-Term Debt Borrowings 18,176 394,587
Repayment of Long-Term Debt (41,526) (16,135)
Proceeds from Stock Offering - 348,299
Proceeds from Stock Options Exercised 5,015 10,148
Cash Dividend Payments (13,357) (11,390)
Net Cash (Used in) Provided by
Financing Activities (24,167) 700,909
Net Increase in Cash and Cash Equivalents 31,813 818,758
Cash and Cash Equivalents, Beginning of Period 491,122 228,874
Cash and Cash Equivalents, End of Period $522,935 $1,047,632
See accompanying notes to consolidated financial statements.
</TABLE>
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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 April 28, 2000, and the
results of operations and cash flows for the quarters ended April 28,
2000 and April 30, 1999.
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 28, 2000. Financial results for the interim
periods may not be indicative of the financial results for the entire
fiscal year.
Note 2: 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.
<TABLE>
Note 3: Net interest expense is composed of the following (in thousands):
<CAPTION>
Three months ended
April 28, 2000 April 30, 1999
<S> <C> <C>
Long-term debt $ 22,390 $ 22,535
Capitalized leases 10,339 10,337
Short-term debt 2,355 1,868
Amortization of loan cost 237 237
Short-term interest income (4,910) (7,954)
Interest capitalized on construction in progress (4,398) (3,716)
Net interest expense $ 26,013 $ 23,307
</TABLE>
Note 4: Inventory is stated at the lower of cost or market using the First-
In, First-Out inventory accounting method.
Note 5: Property is shown net of accumulated depreciation of $1.3 billion at
April 28, 2000, $1.1 billion at April 30, 1999 and $1.2 billion at
January 28, 2000.
Note 6: Supplemental disclosures of cash flow information (in thousands):
Three months ended
April 28, 2000 April 30, 1999
Cash paid for interest (net of capitalized) $ 53,298 $ 42,459
Cash paid for income taxes 7,293 3,414
Non-cash investing and financing activities:
Common stock issued to ESOP - 18,254
Fixed assets acquired under capital lease - 3,709
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Note 7: In January 2000, the Board of Directors authorized the funding of
the Fiscal 1999 ESOP contribution primarily with the purchase of
existing shares of the Company's common stock. During the first three
months of Fiscal 2000, the Company funded $60 million toward the
purchase of shares to be contributed. 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 quarter of 1999, the Company issued 296,244
shares with an aggregate market value of $18.3 million.
Note 8: On May 31, 2000, the Company issued $500 million principal of 8.25%
Notes due June 1, 2010. The notes were issued at an original price of
$990.90 per $1,000 principal amount, net of the original issue
discount and underwriters' discount. The notes may not be redeemed
prior to maturity. The notes were issued under a shelf registration
statement filed with the Securities and Exchange Commission in April
2000.
Note 9: Total comprehensive income, comprised of net earnings and unrealized
holding gains (losses) on available-for-sale securities, was $187.2
and $124.8 million for the quarters ended April 28, 2000 and April 30,
1999, respectively, compared to reported net earnings of $187.1 and
$125.0 million for the first quarter of 2000 and 1999, respectively.
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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 ended April 28, 2000. 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 dated April 26, 2000.
OPERATIONS
For the first quarter of fiscal 2000, sales increased 18% to $4.5 billion,
comparable store sales increased 4.1% and net earnings rose 50% to $187.1
million compared to last year's first quarter results. Diluted earnings per
share were $.49 compared to $.33 for the comparable quarter of last year.
First quarter 1999 earnings per share included a one-time charge of $.04 per
share for costs relating to the Company's merger with Eagle Hardware & Garden,
Inc. (Eagle). Excluding the one-time charge, both net earnings and diluted
earnings per share increased 32% over the comparable quarter last year.
The sales increase in the first quarter was attributable to the addition of
9.4 million square feet of retail selling space relating to new and relocated
stores since last year's first quarter and the 4.1% comparable store sales
gain. Sales in the Company's core businesses performed well during the first
quarter. The Company experienced its strongest sales increases in appliances,
kitchen cabinets and furniture, floors, windows and walls, nursery and
gardening products, tools and outdoor hardlines.
Gross margin was 27.94% of sales for the quarter ended April 28, 2000
compared to 26.70% for last year's comparable quarter. The increase in this
year's margin rate is primarily due to favorable changes in product mix,
ongoing store pricing disciplines, lower product costs and more effective
controls relating to inventory shrinkage.
Selling, general and administrative expenses (SG&A) were 18.06% of sales
versus 17.61% in last year's first quarter. SG&A increased by 21% compared to
the 18% increase in sales for the quarter. Higher store salaries, which were
partially offset by lower net advertising costs and higher credit card program
income, brought about the increase in SG&A as a percent of sales during the
first quarter.
Store opening costs were $25.8 million for the quarter ended April 28, 2000
compared to $18.2 million last year, representing costs associated with the
opening of 15 stores during the current year's first quarter (12 new, 2
relocated and 1 contractor yard) compared to 13 stores for the comparable
period last year (8 new and 5 relocated). Charges in this quarter for future
and prior openings were $12.7 million compared to $6.0 million in last year's
first quarter. The Company's 2000 expansion plans are discussed under
"Liquidity and Capital Resources" below.
Depreciation was $93.5 million for the quarter ended April 28, 2000,
representing an increase of 20.0% over the comparable period 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 $23.3 million in last year's first quarter
to $26.0 million for the quarter ended April 28, 2000. Interest has increased
due to interest expense on debentures issued during last year's first quarter
and a decrease in short-term interest income.
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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 write-off of non-usable Eagle properties, $1.5 million
in future severance payments 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 36.80% for the quarter ended
April 28, 2000 and 37.18% for last year's first quarter. The higher rate in
1999 is primarily related to the impact of non-deductible merger expenses
incurred during last year's first quarter.
LIQUIDITY AND CAPITAL RESOURCES
The primary source of liquidity during the first quarter of 2000 was cash
flows from operating activities. Net cash provided by operating activities
was $460 million for the three months ended April 28, 2000 compared to $434
million for the first three months of fiscal 1999. The $26 million increase
in the current year resulted primarily from increased earnings and an increase
in accounts payable. These increases were partially offset by an increase in
merchandise inventory, a decrease in the liability for employee retirement
plans, due to the earlier funding of the Company's ESOP, and a decrease in
other operating liabilities due to the timing of payments. The Company's
working capital was $1.2 billion at April 28, 2000 compared to $1.6 billion at
April 30, 1999 and $1.3 billion at January 28, 2000.
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 $468 million and $289 million for the three
months ended April 28, 2000 and April 30, 1999, respectively. At April 28,
2000, the Company had 589 stores in 39 states and 58.5 million square feet of
retail selling space, a 19% increase over the selling space as of April 30,
1999.
Cash flows used in financing activities were $24 million for the three
months ended April 28, 2000. Cash flows provided by financing activities for
the three months ended April 30, 1999 totaled $701 million. The major uses of
cash during the first quarter of 2000 consisted of payments totaling $34
million for debt maturities relating to the Company's Series A Medium Term
Notes, other normal debt repayments, and cash dividend payments totaling $13
million. The major sources of cash provided by financing activities in the
first three 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 its
expansion of retail sales floor square footage by entering new markets and by
relocating from older, smaller format stores to larger, more modern stores.
The Company's 2000 capital budget is $2.2 billion, inclusive of approximately
$225 million in operating or capital leases. Approximately 85% of this
planned commitment is for store expansion and new distribution centers.
Expansion plans for 2000 consist of approximately 95 stores (including the
relocation of 17 older, smaller format stores). This planned expansion is
expected to increase sales floor square footage by approximately 18%.
Expansion in the first three months of fiscal 2000 included 12 new stores, 2
relocations and 1 contractor yard representing 1.5 million square feet of new
incremental retail space.
The Company believes that funds from operations, debt issuances, leases and
existing short-term credit agreements will be adequate to finance the 2000
expansion plan and other operating requirements.
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On May 31, 2000, the Company issued $500 million principal of 8.25% Notes
due June 1, 2010. The notes were issued at an original price of $990.90 per
$1,000 principal amount, net of the original issue discount and underwriters'
discount. The notes may not be redeemed prior to maturity. The notes were
issued under a shelf registration statement filed with the Securities and
Exchange Commission in April 2000.
MARKET RISK
As discussed in the annual report for the year ended January 28, 2000, 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 April 28, 2000 have not changed
materially since January 28, 2000.
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 February 3,
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 1999 Annual Report.
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INDEPENDENT ACCOUNTANTS' REPORT
To 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 April 28, 2000
and April 30, 1999, and the related consolidated statements of current and
retained earnings, and cash flows for the three-month periods ended April 28,
2000 and April 30, 1999. These financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with auditing standards generally accepted in the
United States of America, 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 accounting principles generally accepted in the United States
of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
Lowe's Companies, Inc. and subsidiary companies as of January 28, 2000, and
the related consolidated statements of earnings, shareholders' equity, and
cash flows for the year then ended (not presented herein); and in our report
dated February 17, 2000, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth
in the accompanying consolidated balance sheet as of January 28, 2000 is
fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
/s/ DELOITTE & TOUCHE LLP
Charlotte, North Carolina
May 10, 2000
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Part II - OTHER INFORMATION
Item 6 (a) - Exhibits
27. Financial Data Schedule (only submitted to the SEC in electronic
format).
Item 6 (b) - Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter ended April
28, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LOWE'S COMPANIES, INC.
June 8, 2000 /s/ Kenneth W. Black, Jr.
Date_______________ ______________________________
Kenneth W. Black, Jr.
Senior Vice President and
Chief Accounting Officer
