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 27, 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 Identification No.) incorporation or organization) 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 November 24, 2000 Common Stock, $.50 par value 382,871,747 31 TOTAL PAGES
-2- LOWE'S COMPANIES, INC. - INDEX - Page No. PART I - Financial Information: Consolidated Balance Sheets - October 27, 2000 (Unaudited), October 29, 1999 (Unaudited) and January 28, 2000 3 Consolidated Statements of Current and Retained Earnings (Unaudited) - quarter and nine months ended October 27, 2000 and October 29, 1999 4 Consolidated Statements of Cash Flows (Unaudited) - nine months ended October 27, 2000 and October 29, 1999 5 Notes to Unaudited Consolidated Financial Statements 6-7 Management's Discussion and Analysis of Financial Condition and Results of Operations 8-11 Independent Accountants' Report 12 PART II - Other Information 13 Item 6 (a) - Exhibits EXHIBIT INDEX 14
-3- <TABLE> Lowe's Companies, Inc. Consolidated Balance Sheets In Thousands <CAPTION> (Unaudited) (Unaudited) October 27, October 29, January 28, 2000 1999 2000 <S> <C> <C> <C> Assets Current assets: Cash and cash equivalents $128,746 $623,426 $491,122 Short-term investments 10,706 81,668 77,670 Accounts receivable - net 173,784 177,705 147,901 Merchandise inventory 3,500,202 2,820,000 2,812,361 Deferred income taxes 69,000 47,004 53,145 Other assets 210,151 127,403 127,342 Total current assets 4,092,589 3,877,206 3,709,541 Property, less accumulated depreciation 6,439,167 4,851,439 5,177,222 Long-term investments 37,213 32,404 31,114 Other assets 105,785 98,709 94,446 Total assets $10,674,754 $8,859,758 $9,012,323 Liabilities and Shareholders' Equity Current liabilities: Short-term borrowings $248,402 $92,475 $92,475 Current maturities of long-term debt 42,160 98,990 59,908 Accounts payable 1,797,764 1,549,447 1,566,946 Employee retirement plans 89,015 71,335 101,946 Accrued salaries and wages 179,406 172,481 164,003 Other current liabilities 529,633 406,746 400,676 Total current liabilities 2,886,380 2,391,474 2,385,954 Long-term debt, excluding current maturities 2,209,806 1,733,312 1,726,579 Deferred income taxes 228,456 184,838 199,824 Other long-term liabilities 3,882 4,468 4,495 Total liabilities 5,328,524 4,314,092 4,316,852 Shareholders' equity Preferred stock - $5 par value, none issued - - - Common stock - $.50 par value; Issued and Outstanding October 27, 2000 382,862 October 29, 1999 382,276 January 28, 2000 382,359 191,431 191,138 191,179 Capital in excess of par 1,768,850 1,745,958 1,755,616 Retained earnings 3,390,914 2,626,367 2,761,964 Unearned compensation- restricted stock awards (4,876) (17,549) (12,868) Accumulated other comprehensive loss (89) (248) (420) Total shareholders' equity 5,346,230 4,545,666 4,695,471 Total liabilities and shareholders' equity $10,674,754 $8,859,758 $9,012,323 See accompanying notes to unaudited consolidated financial statements. </TABLE>
-4- <TABLE> Lowe's Companies, Inc. Consolidated Statements of Current and Retained Earnings (Unaudited) In Thousands, Except Per Share Data <CAPTION> Quarter Ended Nine Months Ended October 27, 2000 October 29, 1999 October 27, 2000 October 29, 1999 Current Earnings Amount Percent Amount Percent Amount Percent Amount Percent <S> <C> <C> <C> <C> <C> <C> <C> <C> Net sales $4,504,141 100.00 $3,909,188 100.00 $14,235,507 100.00 $12,116,326 100.00 Cost of sales 3,204,769 71.15 2,819,639 72.13 10,235,992 71.90 8,832,401 72.90 Gross margin 1,299,372 28.85 1,089,549 27.87 3,999,515 28.10 3,283,925 27.10 Expenses: Selling, general and administrative 809,427 17.97 692,394 17.71 2,473,187 17.37 2,061,566 17.02 Store opening costs 37,161 0.83 25,722 0.66 90,798 0.64 59,397 0.49 Depreciation 104,681 2.32 86,440 2.21 296,664 2.08 246,083 2.03 Interest 28,021 0.62 18,921 0.48 80,258 0.57 64,324 0.53 Nonrecurring merger costs - - - - - - 24,378 0.20 Total expenses 979,290 21.74 823,477 21.06 2,940,907 20.66 2,455,748 20.27 Pre-tax earnings 320,082 7.11 266,072 6.81 1,058,608 7.44 828,177 6.83 Income tax provision 117,789 2.62 97,384 2.49 389,567 2.74 304,314 2.51 Net earnings $202,293 4.49 $168,688 4.32 $669,041 4.70 $523,863 4.32 Shares outstanding - Basic 382,840 382,168 382,691 380,869 Basic earnings per share $0.53 $0.44 $1.75 $1.38 Shares outstanding - Diluted 384,375 384,348 384,440 383,542 Diluted earnings per share $0.53 $0.44 $1.74 $1.37 Retained Earnings Balance at beginning of period $3,201,989 $2,469,102 $2,761,964 $2,136,728 Net earnings 202,293 168,688 669,041 523,863 Cash dividends (13,368) (11,423) (40,091) (34,224) Balance at end of period $3,390,914 $2,626,367 $3,390,914 $2,626,367 See accompanying notes to unaudited consolidated financial statements. </TABLE>
-5- <TABLE> Lowe's Companies, Inc. Consolidated Statements of Cash Flows (Unaudited) In Thousands <CAPTION> For the Nine Months Ended October 27, October 29, Periods Ended On 2000 1999 <S> <C> <C> Cash Flows From Operating Activities: Net Earnings $669,041 $523,863 Adjustments to Reconcile Net Earnings to Net Cash Provided By Operating Activities: Depreciation 296,664 246,083 Amortization of Original Issue Discount 570 467 Deferred Income Taxes 12,642 4,505 Loss on Disposition/Writedown of Fixed and Other Assets 20,281 43,252 Tax Effect of Stock Options Exercised 5,196 3,622 Changes in Operating Assets and Liabilities: Accounts Receivable - Net (25,883) (33,777) Merchandise Inventory (687,841) (435,300) Other Operating Assets (82,632) (77,872) Accounts Payable 230,818 328,905 Employee Retirement Plans (12,998) 45,381 Other Operating Liabilities 150,712 199,733 Net Cash Provided by Operating Activities 576,570 848,862 Cash Flows from Investing Activities: (Increase) Decrease in Investment Assets: Short-Term Investments 75,288 (55,989) Purchases of Long-Term Investments (13,957) (12,447) Proceeds from Sale/Maturity of Long-Term Investments - 2,531 Increase in Other Long-Term Assets (30,964) (12,152) Fixed Assets Acquired (1,614,455) (1,045,897) Proceeds from the Sale of Fixed and Other Long-Term Assets 55,013 34,685 Net Cash Used in Investing Activities (1,529,075) (1,089,269) Cash Flows from Financing Activities: Net Increase (Decrease) in Short-Term Borrowings 155,927 (24,600) Long-Term Debt Borrowings 519,402 394,590 Repayment of Long-Term Debt (54,493) (62,487) Proceeds from Stock Offering - 348,299 Proceeds from Stock Options Exercised 9,384 13,381 Cash Dividend Payments (40,091) (34,224) Net Cash Provided by Financing Activities 590,129 634,959 Net Increase (Decrease)in Cash and Cash Equivalents (362,376) 394,552 Cash and Cash Equivalents, Beginning of Period 491,122 228,874 Cash and Cash Equivalents, End of Period $128,746 $623,426 See accompanying notes to unaudited consolidated financial statements. </TABLE>
-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 October 27, 2000, and the results of operations and the cash flows for the nine months ended October 27, 2000 and October 29, 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. The 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> Quarter ended Nine months ended Oct. 27, 2000 Oct. 29, 1999 Oct. 27, 2000 Oct. 29,1999 <S> <C> <C> <C> <C> Long-term debt $ 32,698 $ 23,673 $ 83,971 $ 70,139 Capitalized leases 10,261 10,511 30,952 31,674 Short-term debt 1,848 1,311 5,900 4,387 Amortization of loan cost 350 236 880 730 Short-term interest income (6,232) (11,592) (19,803) (29,367) Interest capitalized on construction in progress ( 10,904) (5,218) (21,642) (13,239) Net interest expense $ 28,021 $ 18,921 $ 80,258 $ 64,324 </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 $1.5 billion at October 27, 2000, $1.2 billion at October 29, 1999 and $1.2 billion at January 28, 2000. Note 6: Supplemental disclosures of cash flow information (in thousands): Nine months ended Oct. 27, 2000 Oct. 29, 1999 Cash paid for interest (net of capitalized) $ 122,964 $ 116,712 Cash paid for income taxes 344,779 289,677 Non-cash investing and financing activities: Common stock issued to ESOP - 59,691 Fixed assets acquired under capital lease - 27,561
-7- 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 nine months of Fiscal 2000, the Company completed its funding of the 1999 ESOP by contributing $90 million toward the purchase of the shares on the open market. As of October 27, 2000, the Company purchased 1,653,496 shares with a total cost of $86,999,937. 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 $1 billion 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 $202.4 million and $168.5 million for the quarters ended October 27, 2000 and October 29, 1999, respectively, compared to reported net earnings of $202.3 million and $168.7 million for the third quarter of 2000 and 1999. Total comprehensive income was $669.4 million and $523.2 million for the nine months ended October 27, 2000 and October 29, 1999 respectively, compared to reported net earnings of $669.0 million and $523.9 million for the first nine months of 2000 and 1999.
-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 nine months ended October 27, 2000. This discussion should be read in conjunction with the financial statements and financial statement footnotes that are included in the Company's fiscal 1999 Form 10-K. OPERATIONS For the third quarter of fiscal 2000, sales increased 15% to $4.5 billion, comparable store sales were flat for the quarter, and net earnings rose 20% to $202.3 million compared to last year's third quarter results. Diluted earnings per share was $.53 compared to $.44 for the comparable quarter of last year. For the nine months ended October 27, 2000, sales increased 17% to $14.2 billion, comparable store sales increased 2.6% and net earnings increased 28% to $669.0 million compared to the first nine months of 1999. Earnings per share for the first nine months of 1999 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, net earnings for the nine months ended October 27, 2000 increased 24% and diluted earnings per share increased 23% over the same period a year ago. The sales increase in the third quarter was attributable to the addition of 11 million square feet of retail selling space relating to new and relocated stores since last year's third quarter. Comparable store sales performance was negatively impacted by the remerchandising of former Eagle Hardware & Garden stores, deflation in lumber prices and a softer economy during the third quarter of 2000. During the third quarter, the Company experienced its strongest sales increases in appliances, kitchen cabinets and furniture; floors, windows and walls; nursery and gardening products; fashion plumbing and outdoor hardlines. Gross margin was 28.85% of sales for the quarter ended October 27, 2000 compared to 27.87% for last year's comparable quarter. Gross margin for the nine months ended October 27, 2000 was 28.10% of sales versus 27.10% during the first nine months of 1999. The increase in margin rate for the quarter and first nine months of 2000 is primarily due to favorable changes in product mix, ongoing store pricing disciplines and lower product costs. Selling, general and administrative expenses (SG&A) were 17.97% of sales versus 17.71% in last year's third quarter. SG&A increased by 17% compared to the 15% increase in sales for the quarter. During the first nine months of 2000, SG&A was 17.37% of sales compared to 17.02% for the same period last year. SG&A increased by 20% compared to the 17% increase in sales for the first nine months of 2000. Lower than expected sales levels, which were partially offset by lower store bonus expense and lower net credit card program expense, were the significant factors causing the increase in SG&A as a percent of sales during the third quarter and first nine months of 2000.
-9- Store opening costs were $37.2 million for the quarter ended October 27, 2000 compared to $25.7 million last year, representing costs associated with the opening of 27 stores during the current year's third quarter (24 new and 3 relocated) compared to 22 stores for the comparable period last year (14 new and 8 relocated). Charges in this quarter for future and prior openings were $12.9 million compared to $7.7 million in last year's third quarter. Store opening costs for the nine months ended October 27, 2000 were $90.8 million compared to $59.4 million last year. These costs were associated with the opening of 64 stores during the first nine months of 2000 (51 new, 12 relocated and 1 contractor yard) compared to 56 stores (30 new and 26 relocated) opened during the first nine months of 1999. The Company's 2000 expansion plans are discussed under "Liquidity and Capital Resources" below. Depreciation was $104.7 million for the quarter ended October 27, 2000 and $296.7 million for the nine months then ended. This represents an increase of 21% 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 ongoing expansion program. Interest expense increased from $18.9 million and $64.3 million to $28.0 million and $80.3 million for the quarter and nine months ended October 27, 2000, respectively. Interest has increased during the current year's third quarter primarily due to interest expense relating to the issuance of $500 million principal of 8.25% Notes on May 31, 2000. Interest expense for the first nine months of 2000 primarily increased due to interest expense on the notes mentioned above and interest expense on debentures issued during the first nine months of 1999. The Company's effective income tax rate was 36.80% for the quarter ended October 27, 2000 and 36.60% for last year's third quarter. The effective rate was 36.80% compared to 36.75% for the first nine months of 2000 and 1999, respectively. The higher rate for the quarter and nine months ended October 27, 2000 is primarily related to expansion into states with higher income tax rates. The effect of higher state tax rates for the nine months ended October 27, 2000 was partially offset by non-deductible merger costs incurred during the first quarter of 1999. LIQUIDITY AND CAPITAL RESOURCES The primary sources of liquidity during the third quarter of 2000 were cash flows from operating activities and certain financing activities. Net cash provided by operating activities was $576.6 million for the nine months ended October 27, 2000 compared to $848.9 million for the first nine months of fiscal 1999. The $272.3 million decrease in the current year resulted primarily from a larger increase in merchandise inventory combined with a smaller increase in accounts payable and the earlier funding of the Company's ESOP with cash as opposed to stock. These factors were partially offset by the increase in earnings. The Company's working capital was $1.2 billion at October 27, 2000 compared to $1.5 billion at October 29, 1999 and $1.3 billion at January 28, 2000. The decrease in working capital for the third quarter of 2000 is primarily attributable to excess cash obtained from debt and equity offerings in the prior year that had not yet been committed to the Company's expansion program.
-10- 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 $1.6 billion and $1.0 billion for the nine months ended October 27, 2000 and October 29, 1999, respectively. At October 27, 2000, the Company operated 624 stores in 40 states with 63.8 million square feet of retail selling space, a 21% increase over the selling space as of October 29, 1999. Cash flows provided by financing activities were $590.1 and $635.0 million for the nine months ended October 27, 2000 and October 29, 1999, respectively. The major sources of cash during the first nine months of 2000 involved the issuance of $500 million principal of 8.25% Notes due June 1, 2010 and the issuance of commercial paper with a face amount of $150 million due in December 2000. 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 $1 billion shelf registration statement filed with the Securities and Exchange Commission in April 2000. The major source of cash provided by financing activities in the first nine 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 12 to 15 older, smaller format stores). This planned expansion is expected to increase sales floor square footage by approximately 18%. Expansion in the first nine months of fiscal 2000 included 51 new stores, 12 relocations and 1 contractor yard representing 6.9 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. 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 debt. The Company's policy is to manage interest rate risks by maintaining a combination of fixed and variable rate financial instruments. The risks have not changed materially since January 28, 2000.
-11- 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 was to be effective for fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," making the standard effective for the Company in the year beginning February 3, 2001. SFAS 133 was also amended in June 2000 by Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" (SFAS 138). SFAS 133 and SFAS 138 expand the definition of a derivative to include embedded derivatives and requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and that they be measured at fair value. Management does not believe that the adoption of SFAS 133 will have a material impact, if any, 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 comments reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Possible risks and uncertainties regarding these statements include, but are not limited to, the direction of general economic trends, the availability of real estate for expansion and its successful development, the availability of sufficient labor to facilitate growth, fluctuations in prices and availability of product, unanticipated increases in competition, weather conditions that effect sales and greater than anticipated disruption associated with the integration of Eagle Hardware and Garden with Lowe's.
-12- INDEPENDENT ACCOUNTANTS' REPORT To the Board of Directors Lowe's Companies, Inc.: We have reviewed the accompanying consolidated balance sheets of Lowe's Companies, Inc. and subsidiaries (the "Company") as of October 27, 2000 and October 29, 1999, and the related consolidated statements of current and retained earnings for the three-month and nine-month periods ended October 27, 2000 and October 29, 1999 and consolidated statements of cash flows for the nine months ended October 27, 2000 and October 29, 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 subsidiaries 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 November 8, 2000
-13- Part II - OTHER INFORMATION Item 6 (a) - Exhibits (3.1) Restated Charter, November 7, 2000 27. Financial Data Schedule (only submitted to the SEC in electronic format). Refer to the Exhibit Index on page 14. Item 6 (b) - Reports on Form 8-K There were no reports filed on Form 8-K during the quarter ended October 27, 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. December 8, 2000 /s/ Kenneth W. Black, Jr. Date_________________ _______________________________ Kenneth W. Black, Jr. Senior Vice President and Chief Accounting Officer
-14- EXHIBIT INDEX Page No. Exhibit 3.1 - Restated Charter, November 7, 2000 15 - 31