Lowe's is an American retail company based in Mooresville, Iredell County, North Carolina. The focus of business is on home improvement and household appliances. The company is listed in the Standard & Poorโs 100 stock index.
Lowe's was founded in North Wilkesboro, North Carolina in 1946. The company's shares have been traded on the New York Stock Exchange since 1961. Loweโs has 1,840 stores in 49 states across the United States and around 266,000 employees. The chain is also represented in Canada (33 branches) and Australia. In May 2015, the chain acquired 13 branches from Target Canada. Hardware store chain The Home Depot is Lowe's biggest competitor.
-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 October 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-7898 LOWE'S COMPANIES, INC. (Exact name of registrant as specified in its charter) NORTH CAROLINA 56-0578072 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) PO BOX 1111, NORTH WILKESBORO, NC 28656 (Address of principal executive offices) (Zip Code) (910) 651-4000 (Registrant's telephone number, including area code) NONE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at November 30, 1995 Common Stock, $.50 par value 160,807,046 20 TOTAL PAGES -2- LOWE'S COMPANIES, INC. - INDEX - PART I - Financial Information: Page No. Consolidated Balance Sheets - October 31, 1995 and January 31, 1995. 3 Consolidated Statements of Current and Retained Earnings - three months and nine months ended October 31, 1995 and 1994. 4 Consolidated Statements of Cash Flows - nine months ended October 31, 1995 and 1994. 5 Notes to Consolidated Financial Statements. 6-8 Management's Discussion and Analysis of Results of Operations and Financial Condition. 9-10 Independent Accountants' Report. 11 PART II - Other Information 12 Item 6 (a) - Exhibits. Item 6 (b) - Reports on Form 8-K. EXHIBIT INDEX 13 Exhibit 10 Release and Separation Agreement dated November 9, 1995, between the Company and Harry B. Underwood II 14-19 Exhibit 11 Computation of per share earnings 20 Consolidated Balance Sheets Lowe's Companies, Inc. and Subsidiary Companies Dollars in thousands <TABLE> <CAPTION> October 31, January 31, 1995 1995 <S> <C> <C> Assets Current assets: Cash and cash equivalents $47,179 $150,319 Short-term investments 95,906 118,155 Accounts receivable - net 144,317 109,214 Merchandise inventory 1,364,544 1,132,282 Other assets 53,556 47,198 ____________ ____________ Total current assets 1,705,502 1,557,168 Property, less accumulated depreciation 1,723,434 1,397,713 Long-term investments 42,641 83,459 Other assets 52,021 67,652 ____________ ____________ Total assets $3,523,598 $3,105,992 Liabilities and Shareholders' Equity Current liabilities: Current maturities of long-term debt $13,636 $26,913 Short-term notes payable 91,853 1,903 Accounts payable 713,945 675,436 Employee retirement plans 38,779 43,950 Accrued salaries and wages 51,808 63,356 Other current liabilities 172,174 134,334 ____________ ____________ Total current liabilities 1,082,195 945,892 Long-term debt, excluding current maturities 748,886 681,184 Deferred income taxes 65,620 49,211 Accrued store restructuring costs 151 9,815 ____________ ____________ Total liabilities 1,896,852 1,686,102 ____________ ____________ Shareholders' equity Common stock - $.50 par value; Issued and Outstanding October 31, 199160807046 January 31, 199159527389 80,389 79,764 Capital in excess of par 593,571 554,838 Retained earnings 958,304 792,891 Unearned compensation-restricted stock awards (4,757) (5,949) Unrealized loss on available-for-sale securities, net of income taxes of $481 at October 31, 1995 and $886 at January 31, 1995 (761) (1,654) Total shareholders' equity 1,626,746 1,419,890 ____________ ____________ Total liabilities and shareholders' equity $3,523,598 $3,105,992 See accompanying notes to consolidated financial statements. </TABLE> Consolidated Statements of Current and Retained Earnings Lowe's Companies, Inc. and Subsidiary Companies Dollars In Thousands, Except Per Share Data <TABLE> <CAPTION> Quarter Ended Nine Months Ended October 31, 1995 October 31, 1994 October 31,1995 October 31, 1994 Current Earnings Amount Percent Amount Percent Amount Percent Amount Percent <S> <C> <C> <C> <C> <C> <C> <C> <C> Net sales $1,765,992 100.00 $1,579,005 100.00 $5,378,740 100.00 $4,623,032 100.00 Cost of sales 1,337,049 75.71 1,197,859 75.86 4,034,115 75.00 3,501,618 75.74 Gross margin 428,943 24.29 381,146 24.14 1,344,625 25.00 1,121,414 24.26 Expenses: Selling, general and administrative 284,828 16.13 239,190 15.15 840,969 15.63 685,196 14.82 Store opening costs 16,322 0.92 10,628 0.67 36,351 0.68 25,366 0.55 Depreciation 38,867 2.20 28,661 1.82 107,648 2.00 78,824 1.71 Employee retirement plans 11,574 0.66 13,265 0.84 38,301 0.71 37,507 0.81 Interest 9,145 0.52 5,852 0.37 27,404 0.51 21,580 0.47 Total expenses 360,736 20.43 297,596 18.85 1,050,673 19.53 848,473 18.36 Pre-tax earnings 68,207 3.86 83,550 5.29 293,952 5.47 272,941 5.90 Income tax provision 24,288 1.37 29,359 1.86 106,100 1.98 95,646 2.06 Net earnings $43,919 2.49 $54,191 3.43 $187,852 3.49 $177,295 3.84 Shares outstanding (weighted average) 160,766 159,399 160,308 153,439 Earnings per common & common equivalent share $0.27 $0.34 $1.17 $1.16 Earnings per common share - assuming full dilution $0.27 $0.33 $1.13 $1.11 Retained earnings Balance at beginning of period $922,416 $706,782 $792,891 $596,763 Net earnings 43,919 54,191 187,852 177,295 Cash dividends (8,031) (7,172) (22,439) (20,257) Balance at end of period $958,304 $753,801 $958,304 $753,801 See accompanying notes to consolidated financial statements. </TABLE> CONSOLIDATED STATEMENTS OF CASH FLOWS Lowe's Companies, Inc. and Subsidiary Companies Dollars in Thousands <TABLE> <CAPTION> For the nine months ended October 31, 1995 1994 <S> <C> <C> Cash Flows From Operating Activities: Net Earnings $187,852 $177,295 Adjustments to Reconcile Net Earnings to Net Cash Provided By Operating Activities: Depreciation 107,648 78,824 Amortization of Original Issue Discount 2,756 2,399 Increase in Deferred Income Taxes 15,130 8,425 (Gain) Loss on Disposition/Writedown of Fixed and Other Assets (1,389) 3,635 Decrease (Increase) in Operating Assets: Accounts Receivable - Net (35,103) (117,426) Merchandise Inventory (232,262) (186,308) Other Operating Assets (5,377) 33,696 Increase (Decrease) in Operating Liabilities: Accounts Payable 38,509 129,853 Employee Retirement Plans 32,048 30,503 Accrued Store Restructuring (7,180) (7,281) Other Operating Liabilities 26,828 53,968 Net Cash Provided by Operating Activities 129,460 207,583 Cash Flows from Investing Activities: Decrease (Increase) in Investment Assets: Short-Term Investments 30,763 (212,043) Purchases of Long-Term Investments (24,388) (19,519) Proceeds from Sale/Maturity of Long-Term Investments 58,065 15,304 Other Long-Term Assets (1,092) (2,358) Fixed Assets Acquired (359,394) (257,578) Proceeds from the Sale of Fixed and Other Long-Term Assets 19,222 11,640 Net Cash Used in Investing Activities (276,824) (464,554) Cash Flows from Financing Activities: Sources: Long-Term Debt Borrowings 0 500 Net Increase in Short-Term Borrowings 89,950 Proceeds from Issuance of Common Stock 0 315,814 Stock Options Exercised 44 961 Total Financing Sources 89,994 317,275 Uses: Repayment of Long-term Debt (23,331) (39,086) Net Decrease in Short-Term Borrowings (363) Cash Dividend Payments (22,439) (20,257) Common Stock Purchased for Retirement (79) Total Financing Uses (45,770) (59,785) Net Cash Provided by Financing Activities 44,224 257,490 Net Increase (Decrease) in Cash and Cash Equivalents (103,140) 519 Cash and Cash Equivalents, Beginning of Period 150,319 73,253 Cash and Cash Equivalents, End of Period $47,179 $73,772 See accompanying notes to consolidated financial statements. </TABLE -6- Lowe's Companies, Inc. and Subsidiary Companies Notes to Consolidated Financial Statements Note 1: The accompanying Consolidated Financial Statements (unaudited) have been reviewed by an independent Certified Public Accountant, and in the opinion of management, they contain all adjustments necessary to present fairly the financial position as of October 31, 1995, and the results of operations for the three-month and nine-month periods ended October 31, 1995 and 1994, and the cash flows for the nine-month periods ended October 31, 1995 and 1994. Note 2: The results of operations for the nine-month periods ended October 31, 1995 and 1994 are not necessarily indicative of the results to be expected for the full year. Note 3: The Company has a cash management program which provides for the investment of excess cash balances in financial instruments which have maturities of up to three years. Investments that are readily convertible to cash within three months of purchase are classified as cash equivalents. Investments with a maturity of between three months and one year are classified as short-term investments. Investments with maturities greater than one year are classified as long-term. Long-term investments were $42,641,000 and $83,459,000 at October 31, 1995 and January 31, 1995, respectively. Note 4: Net interest expense is composed of the following: Quarter ended Nine Months ended October 31, October 31, 1995 1994 1995 1994 Long-term debt $8,841 $9,474 $26,351 $26,958 Capitalized leases 4,277 1,916 11,339 4,523 Short-term debt 892 141 1,500 801 Amortization of loan cost 70 70 211 225 Short-term interest income (2,891) (4,481) (8,056) (8,058) Interest capitalized on construction in progress (2,044) (1,268) (3,941) (2,869) Net interest expense $9,145 $5,852 $27,404 $21,580 Note 5: If the FIFO method of inventory accounting had been used, inventories would have been $75,272,000 higher at October 31, 1995 and $64,976,000 higher at January 31, 1995. Note 6: Stock options exercised consisted of 7,000 shares resulting in proceeds of $45,000 for the three-month period ended October 31, 1994, and 4,000 and 117,800 shares resulting in proceeds of $44,000 and $961,000 for t he nine-month periods ended October 31, 1995 and 1994, respectively. There were no stock options exercised in the three-month period ended October 31, 1995. Note 7: Property is shown net of accumulated depreciation of $427,674,000 at October 31, 1995 and $344,438,000 at January 31, 1995. -7- Note 8: Supplemental disclosures of cash flow information: Nine months ended October 31 1995 1994 Cash paid for interest (net of capitalized) $ 42,502,000 $ 33,667,000 Cash paid for income taxes 76,373,000 83,136,000 Non-cash investing and financing activities: Common stock issued to ESOP 37,219,000 31,729,000 Fixed assets acquired under capital lease 77,232,000 48,795,000 Common stock issued to executives and directors 2,981,000 Conversion of debt to common stock 2,231,000 217,000 Note 9: On January 31, 1995, the Board of Directors authorized the funding of the Fiscal 1994 ESOP contribution primarily with the issuance of new shares of the Company's common stock. During the first three quarters of Fiscal 1995, the Company issued 1,182,253 shares with a market value of $37.2 million. Note 10: On January 10, 1994, the Company filed with the Securities and Exchange Commission a shelf registration statement covering $500 million of "unallocated" debt or equity securities. The shelf registration enables the company to issue common stock, preferred stock, senior unsecured debt securities or subordinated unsecured debt securities from time to time. On June 27, 1994, the Company sold 10,350,000 shares of common stock under the shelf registration discussed above. The Company received proceeds, net of the underwriting discount and other costs, of $315,814,000. An additional $117,000 in offering expenses were paid in the quarter ended January 31, 1995 and were netted against the proceeds of the offering. The proceeds are being used to finance the Company's large store expansion program and for general corporate purposes. Note 11: During the first three quarters of Fiscal 1995, $2,532,000 principal of the Company's 3% Convertible Subordinated Notes were converted into 96,904 shares of the Company's common stock. Note 12: Costs associated with the relocation and closing of stores during the three months and nine months ended October 31, 1995, which were recognized through the restructuring charge in Fiscal 1991, totaled $3,462,000 and $12,771,000. Comparable costs incurred during the three months and nine months ended October 31, 1994 were $4,990,000 and $15,850,000, respectively. Note 13: Unearned Compensation - Restricted Stock Awards of $4,757,000 included in Shareholders' Equity on the balance sheet is the result of stock grants totaling 190,000 shares made to certain executives and directors. The amount is being amortized as earned over periods not exceeding seven years. -8- Note 14: Earnings per common and common equivalent share is computed based upon the weighted average number of common shares outstanding during the period plus the dilutive effect of common shares contingently issuable from stock options. Earnings per common share - assuming full dilution reflects the potential dilutive effect of dilutive common share equivalents and the Company's 3% Convertible Subordinated Notes issued July 22, 1993. These notes are due July 22, 2003. -9- MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS This discussion should be read in conjunction with the financial statements and the financial statement footnotes included in this Form 10-Q. For the quarter ended October 31, 1995, the Company reported third quarter sales growth of 12% to $1.766 billion, but regretfully an earnings decline to $43.9 million, the first one since the fourth quarter of 1991. Earnings per share (fully diluted) were $.27 compared to $.33 in the comparable quarter last year. For the nine months ended October 31, 1995, sales grew 16% to $5.379 billion, net earnings increased 6% to $187.9 million and earnings per share (fully diluted) were $1.13 compared to $1.11 in the comparable period of last year. Comparable store sales declined 3.6% quarter to date and increased .7% year to date. Sales in the third quarter were hindered by a softening in consumer demand. An analysis of product sales shows that consumers are in a currently cautious mood. Their emphasis is on just "fixing", rather than "fixing up" in a major way. Also, there are major variations of economic strength state by state. Overall, deflation caused a 2% decrease in total sales. The most significant deflation came in lumber/building materials but prices in electronics, tools and major appliances were lower also. Gross margin was 24.29% of sales for the quarter ended October 31, 1995, versus 24.14% in last year's quarter. Gross margin for the nine months ended October 31, 1995, was 25.00% versus 24.26% last year. The modest increase in gross margin rate continues to reflect favorable changes in our product mix as well as the continuing shift in business from contractor to retail. Selling, general and administrative expenses (SG&A) were 16.13% of sales in the third quarter versus 15.15% in last year's quarter. SG&A increased 19% compared to a 12% sales gain in the quarter. There was a 17% store salary increase (excluding those in store opening costs). For the nine months ended October 31, 1995, SG&A was 15.63% of sales versus 14.82% for the comparable period last year. The overall increase in expenses as a percentage of sales is due to the effect of lower comparable store sales and expenses related to the Company's continued investment in new stores. For the quarter ended October 31, 1995, store opening costs were $16.3 million versus $10.6 million last year, representing costs associated with the opening of 16 stores this quarter (10 new and 6 relocated) compared to 10 stores in last year's third quarter (3 new and 7 relocated). Advertising and staff training investments have been enhanced. For the nine months ended October 31, 1995, store opening costs were $36.4 million versus $25.4 million last year, representing costs associated with the opening of 42 stores this year (27 new and 15 relocated) compared to 31 stores in the comparable period last year (16 new and 15 relocated). Depreciation was $38.9 million for the quarter ended October 31, 1995 and $107.6 million for the nine months ended October 31, 1995, increases of 36% and 37%, respectively, over the comparable periods last year. The increases are due primarily to buildings, fixtures, displays and computer equipment for our store expansion program. Employee retirement plans expense was $11.6 million for the three months ended October 31, 1995, a 13% decrease compared to last year's quarter. For the nine months ended October 31, -10- 1995, employee retirement plans expense was up by only 2% to $38.3 million. The decrease during the quarter and only modest increase for the nine month period is due to an increase in new employees who are not yet eligible for the Employee Stock Ownership Plan which is funded totally by the Company. Interest expense increased $5.8 million to $27.4 million for the nine months ended October 31, 1995. This is the result of an increase of $.9 million in the first quarter, an increase of $1.6 million in the second quarter and an increase of $3.3 million in the third quarter. The increase is primarily due to interest on capitalized building leases. The Company's effective income tax rate was 35.61% for the three months ended October 31, 1995, compared to 35.14% for the comparable three months last year. The effective rate was 36.09% versus 35.04% for the nine months ended October 31, 1995 and 1994, respectively. The current year's higher rates are due primarily to a higher effective state tax rate. LIQUIDITY AND CAPITAL RESOURCES The uses of cash in the first nine months have continued to lay the groundwork for successfully implementing our strategic plan. Merchandise inventory has increased $232.3 million. Real property has increased in line with the Company's strategic plan to continue expansion of sales floor square footage by relocating from older, smaller stores to larger stores and to expand into new markets. Our 1995 expansion has been financed through funds from operations, operating leases, issuance of about $40 million in common stock to our ESOP (see Note 9) and external financing. Financing in the first nine months came from net earnings, short-term borrowings and sales of investments in our cash management program. At October 31, 1995, the Company had an aggregate of $174 million available under a shelf registration statement filed with the Securities and Exchange Commission (see Note 10). In addition to these sources, the Company has available agreements for up to $155 million in lines of credit for issuing documentary and standby letters of credit. Another $120 million is available for the purpose of short-term borrowings on a bid basis from various banks. On April 10, 1995, the Company entered into a five year, $300 million revolving credit facility with a group of thirteen commercial banks to provide alternate liquidity for the Company's commercial paper program and for general corporate purposes. On September 26, 1995, the Company effectuated a separate, short-term revolving credit and security agreement not to exceed $100 million and borrowed $90 million. Lowe's ended the third quarter with 362 stores and 22.8 million square feet of retail selling space, a 36% increase over last October's selling space. Our first nine months' expansion included 15 relocations, 27 new stores and 2 new contractor yards representing 4.2 million square feet of incremental retail space. We also closed 2 contractor yards and 1 store. Our expansion plans for the remainder of 1995 include 10 new stores in new markets and 3 relocations, for approximately 1.7 million square feet of incremental selling space. Approximately half the 1995 projects have been or will be leased and the other half owned. Also during the first quarter, both Moody's Investor Service and Standard and Poor raised the Company's securities ratings. Moody's raised its ratings as follows: Senior Unsecured Debt to A2 from A3; Subordinated Debt to A3 from Baa1; and Commercial Paper to Prime-1 from Prime-2. Standard and Poor raised its ratings as follows: Senior Unsecured Debt to A from A-; Subordinated Debt to A- from BBB+; and Commercial Paper to A-1 from A-2. -11- INDEPENDENT ACCOUNTANTS' REPORT The Board of Directors Lowe's Companies, Inc.: We have reviewed the accompanying consolidated balance sheet of Lowe's Companies, Inc. and subsidiary companies as of October 31, 1995, and the related consolidated statements of current and retained earnings for the three-month and nine-month periods ended October 31, 1995 and 1994, and cash flows for the nine-month periods ended October 31, 1995 and 1994. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Lowe's Companies, Inc. and subsidiary companies as of January 31, 1995, and the related consolidated statements of current and retained earnings and cash flows for the year then ended (not presented herein); and in our report dated February 20, 1995, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of January 31, 1995 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ Deloitte & Touche LLP Charlotte, North Carolina November 10, 1995 -12- Part II - OTHER INFORMATION Item 6 (a) - Exhibits Exhibit 10 - Release and Separation Agreement dated November 9, 1995, between the Company and Harry B. Underwood II Exhibit 11 - Computation of per share earnings Item 6 (b) - Reports on Form 8-K There were no reports filed on Form 8-K during the quarter ended October 31, 1995. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LOWE'S COMPANIES, INC. December 13, 1995 \s\ Richard D. Elledge Date __________________ ___________________________________________ Richard D. Elledge, Vice President and Chief Accounting Officer -13- EXHIBIT INDEX Exhibit No. Description Page No. 10 Release and Separation Agreement dated November 9, 1995, between the Company and Harry B. Underwood II 14-19 11 Computation of per share earnings 20 </TABLE>