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 May 4, 2001 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 June 1, 2001 Common Stock, $.50 par value 385,333,443 13 TOTAL PAGES
-2- LOWE'S COMPANIES, INC. - INDEX - Page No. PART I - Financial Information: Consolidated Balance Sheets - May 4, 2001 (Unaudited), April 28, 2000 (Unaudited) and February 2, 2001 3 Consolidated Statements of Current and Retained Earnings (Unaudited) - three months ended May 4, 2001 and April 28, 2000 4 Consolidated Statements of Cash Flows (Unaudited) - three months ended May 4, 2001 and April 28, 2000 5 Notes to Unaudited Consolidated Financial Statements 6-8 Management's Discussion and Analysis of Financial Condition and Results of Operations 9-11 Independent Accountants' Report 12 PART II - Other Information 13 Item 6 (b) - Reports on Form 8-K
-3- <TABLE> Lowe's Companies, Inc. Consolidated Balance Sheets In Thousands <CAPTION> (Unaudited) (Unaudited) May 4, April 28, February 2, 2001 2000 2001 <S> <C> <C> <C> Assets Current assets: Cash and cash equivalents $ 999,953 $ 522,935 $ 455,658 Short-term investments 38,173 15,062 12,871 Accounts receivable - net 196,529 175,546 160,985 Merchandise inventory 3,917,667 3,338,322 3,285,370 Deferred income taxes 95,006 51,413 81,044 Other assets 221,844 161,815 179,085 Total current assets 5,469,172 4,265,093 4,175,013 Property, less accumulated depreciation 7,421,342 5,548,148 7,034,960 Long-term investments 32,141 33,028 34,690 Other assets 137,016 88,977 131,091 Total assets $13,059,671 $9,935,246 $11,375,754 Liabilities and Shareholders' Equity Current liabilities: Short-term borrowings $ 100,000 $ 100,000 $ 249,829 Current maturities of long-term debt 37,635 31,074 42,341 Accounts payable 2,473,599 2,204,307 1,731,957 Employee retirement plans 88,920 63,118 75,656 Accrued salaries and wages 179,594 157,976 166,392 Other current liabilities 841,854 562,282 662,410 Total current liabilities 3,721,602 3,118,757 2,928,585 Long-term debt, excluding current maturities 3,305,434 1,732,202 2,697,669 Deferred income taxes 261,580 203,467 251,450 Other long-term liabilities 3,193 3,858 3,165 Total liabilities 7,291,809 5,058,284 5,880,869 Shareholders' equity: Preferred stock - $5 par value, none issued - - - Common stock - $.50 par value; Shares Issued and Outstanding May 4, 2001 384,873 April 28, 2000 382,666 February 2, 2001 383,242 192,436 191,333 191,621 Capital in excess of par 1,846,440 1,760,421 1,786,769 Retained earnings 3,730,174 2,935,756 3,518,356 Unearned compensation- restricted stock awards (1,666) (10,222) (2,312) Accumulated other comprehensive income (loss) 478 (326) 451 Total shareholders' equity 5,767,862 4,876,962 5,494,885 Total liabilities and shareholders' equity $13,059,671 $9,935,246 $11,375,754 See accompanying notes to 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> Three Months Ended May 4, 2001 April 28, 2000 Current Earnings Amount Percent Amount Percent <S> <C> <C> <C> <C> Net sales $5,276,365 100.00 $4,467,114 100.00 Cost of sales 3,782,836 71.69 3,218,998 72.06 Gross margin 1,493,529 28.31 1,248,116 27.94 Expenses: Selling, general and administrative 939,745 17.81 806,708 18.06 Store opening costs 35,792 0.68 25,785 0.58 Depreciation 119,078 2.26 93,488 2.09 Interest 41,326 0.78 26,013 0.58 Total expenses 1,135,941 21.53 951,994 21.31 Pre-tax earnings 357,588 6.78 296,122 6.63 Income tax provision 132,308 2.51 108,973 2.44 Net earnings $225,280 4.27 $187,149 4.19 Shares outstanding - Basic 384,209 382,504 Basic Earnings Per Share $0.59 $0.49 Shares outstanding - Diluted 393,755 384,797 Diluted Earnings Per Share $0.58 $0.49 Pro forma shares outstanding - Basic (Note 2) 768,418 765,008 Pro forma basic earnings per share (Note 2) $0.29 $0.24 Pro forma shares outstanding - Diluted (Note 2) 787,510 769,594 Pro forma diluted earnings Per share (Note 2) $0.29 $0.24 Retained Earnings Balance at beginning of period $3,518,356 $2,761,964 Net earnings 225,280 187,149 Cash dividends (13,462) (13,357) Balance at end of period $3,730,174 $2,935,756 See accompanying notes to consolidated financial statements. </TABLE>
-5- <TABLE> Lowe's Companies, Inc. Consolidated Statements of Cash Flows (Unaudited) In Thousands <CAPTION> Three Months Ended May 4, April 28, 2001 2000 <S> <C> <C> Cash Flows From Operating Activities: Net Earnings $225,280 $187,149 Adjustments to Reconcile Net Earnings to Net Cash Provided By Operating Activities: Depreciation and Amortization 119,495 93,628 Deferred Income Taxes (3,845) 5,748 Loss on Disposition/Writedown of Fixed and Other Assets 13,614 11,722 Tax Effect of Stock Options Exercised 15,463 623 Changes in Operating Assets and Liabilities: Accounts Receivable - Net (35,544) (27,645) Merchandise Inventory (632,297) (525,961) Other Operating Assets (42,759) (34,414) Accounts Payable 741,642 637,361 Employee Retirement Plans 29,122 (38,828) Other Operating Liabilities 193,065 157,528 Net Cash Provided by Operating Activities 623,236 466,911 Cash Flows from Investing Activities: (Increase) Decrease in Short-Term Investments (21,723) 62,387 Purchases of Long-Term Investments (990) (1,969) Increase in Other Long-Term Assets (20,297) (9,552) Fixed Assets Acquired (511,842) (468,410) Proceeds from the Sale of Fixed and Other Long-Term Assets 7,140 7,236 Net Cash Used in Investing Activities (547,712) (410,308) Cash Flows from Financing Activities: Net Increase (Decrease) in Short-Term Borrowings (149,829) 7,525 Long-Term Debt Borrowings 614,677 18,176 Repayment of Long-Term Debt (12,034) (41,526) Proceeds from Stock Options Exercised 29,419 4,392 Cash Dividend Payments (13,462) (13,357) Net Cash Provided by (Used in) Financing Activities 468,771 (24,790) Net Increase in Cash and Cash Equivalents 544,295 31,813 Cash and Cash Equivalents, Beginning of Period 455,658 491,122 Cash and Cash Equivalents, End of Period $999,953 $522,935 See accompanying notes to 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 May 4, 2001, and the results of operations and the cash flows for the three months ended May 4, 2001 and April 28, 2000. 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 February 2, 2001. The financial results for the interim periods may not be indicative of the financial results for the entire fiscal year. Note 2: On May 25, 2001, the Company's Board of Directors approved a two- for-one split of the Company's common stock. As a result, shareholders will receive one additional share on June 29, 2001 for each share held as of the record date on June 8, 2001. The par value of the Company's common stock will remain $.50. Basic and fully diluted earnings per share restated for the stock split will be $.29 and $.24 for the first quarters of fiscal 2001 and 2000, respectively. Note 3: Diluted earnings per share is calculated on the weighted average shares of common stock as adjusted for the potential dilutive effect of stock options and convertible notes at the balance sheet date. The calculation is detailed below (in thousands, except per share data): Three Months Ended May 4, 2001 April 28, 2000 Net Earnings $ 225,280 $ 187,149 Weighted Average Number of Common Shares Outstanding 384,209 382,504 Basic Earnings Per Share $ .59 $ .49 Net Earnings $ 225,280 $ 187,149 Tax-Effected Interest Expense Attributable to 2.5% Convertible Notes (Note 8) 2,032 - Net Earnings Assuming Dilution $ 227,312 $ 187,149 Weighted Average Number of Common Shares Outstanding 384,209 382,504 Effect of Potentially Dilutive Securities: 2.5% Convertible Notes (Note 8) 7,085 - Employee Stock Option Plans 2,461 2,293 Weighted Average Number of Common Shares Assuming Dilution 393,755 384,797 Diluted Earnings Per Share $ .58 $ .49
-7- Note 4: Net interest expense is composed of the following (in thousands): Three Months Ended May 4, 2001 April 28, 2000 Long-term debt $ 45,070 $ 22,390 Capitalized leases 10,335 10,339 Short-term debt 1,844 2,355 Amortization of loan costs 668 237 Short-term interest income (8,296) (4,910) Interest capitalized on construction in progress (8,295) (4,398) Net interest expense $ 41,326 $ 26,013 Note 5: Property is shown net of accumulated depreciation of $1.7 billion at May 4, 2001, $1.3 billion at April 28, 2000 and $1.6 billion at February 2, 2001. Note 6: Supplemental disclosures of cash flow information (in thousands): Three Months Ended May 4, 2001 April 28, 2000 Cash paid for interest (Net of amount capitalized) $ 55,123 $ 53,298 Cash paid for income taxes 7,030 3,281 Non-cash investing and financing Activities: Common stock issued to ESOP 15,858 - Note 7: In January 2001, the Board of Directors authorized the funding of the fiscal 2000 ESOP contribution primarily with the issuance of new shares of the Company's common stock. During the first quarter of fiscal 2001, the Company issued 267,640 shares, with a market value of $15.9 million. Note 8: In February 2001, the Company issued $1.005 billion principal of convertible notes at an issue price of $608.41 per note. Interest will not be paid on the notes prior to maturity on February 16, 2021 at which time the holders will receive $1,000 per note, representing a yield to maturity of 2.5%. Holders may convert their notes at any time on or before the maturity date, unless the notes have been purchased or redeemed previously, into 8.224 shares of the Company's common stock per note. The Company may redeem for cash all or a portion of the convertible notes at any time on or after February 16, 2004 at a price equal to the sum of the issue price and accrued original issue discount on the redemption date. Holders of the notes may require the Company to purchase all or a portion of their notes on February 16, 2004 at a price of $655.49 per note or on February 16, 2011 at a price of $780.01 per note. The Company may choose to pay the purchase price of the notes in cash
-8- or common stock, or a combination of cash and common stock. In addition, if a change in the control of the Company occurs on or before February 16, 2004, each holder may require the Company to purchase, for cash, all or a portion of their notes. Note 9: Both total comprehensive income, comprised of net earnings and unrealized holding gains (losses) on available-for-sale securities, and net earnings were $225.3 million for the quarter ended May 4, 2001. For the quarter ended April 28, 2000, total comprehensive income was $187.2 million, and net earnings were $187.1 million.
-9- 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 May 4, 2001. This discussion should be read in conjunction with the financial statements and financial statement footnotes that are included in the Company's fiscal 2000 Form 10-K. On May 25, 2001, the Company's Board of Directors approved a two-for-one split of the Company's common stock. As a result, shareholders will receive one additional share on June 29, 2001 for each share held as of the record date on June 8, 2001. The par value of the Company's common stock will remain $.50. OPERATIONS For the first quarter of fiscal 2001, sales increased 18% to $5.3 billion, comparable store sales for the quarter decreased 3%, and net earnings rose 20% to $225.3 million compared to last year's first quarter results. Diluted earnings per share were $.58 compared to $.49 for the comparable quarter of last year. The sales increase during the first quarter was primarily attributable to the addition of 13 million square feet of retail selling space relating to new and relocated stores since last year's first quarter. Comparable store sales performance was negatively impacted by the sluggish economy and by deflation in lumber and building materials prices. Gross margin was 28.31% of sales for the quarter ended May 4, 2001 compared to 27.94% for last year's comparable quarter. The increase in margin rate for the first quarter of 2001 is primarily due to favorable changes in product mix and cost reductions achieved through product line reviews, partially offset by an increase in inventory shrinkage. Selling, general and administrative expenses (SG&A) were 17.81% of sales versus 18.06% in last year's first quarter. SG&A increased by 16% compared to the 18% increase in sales for the quarter. The leverage in the current quarter was primarily the result of carefully controlling expenses, particularly store payroll costs, to keep them in line with current sales trends. Store opening costs were $35.8 million for the quarter ended May 4, 2001 compared to $25.8 million last year, representing costs associated with the opening of 37 stores during the current year's first quarter (32 new and 5 relocated) compared to 14 stores for the comparable period last year (12 new and 2 relocated). Charges in the quarter also included $11.6 million for future and prior store openings compared to $12.7 million in last year's first quarter. The Company's 2001 expansion plans are discussed under "Liquidity and Capital Resources" below.
-10- Depreciation was $119.1 million for the quarter ended May 4, 2001. This represents an increase of 27% over last year's first quarter. The increase is primarily due to additions of buildings, fixtures, displays and computer equipment relating to the Company's ongoing expansion program. Interest expense increased from $26.0 million to $41.3 million for the quarter ended May 4, 2001. Interest has increased during the current year's first quarter primarily due to interest expense relating to the issuance of $1.005 billion of convertible notes in February of 2001 as well as interest on $500 million principal of 8.25% Notes issued in May of 2000 and $500 million principal of 7.5% Notes issued in December of 2000. The increase in interest expense was partially offset by increases in investment income and interest capitalized to construction projects. The Company's effective income tax rate was 37.0% for the quarter ended May 4, 2001 and 36.8% for last year's first quarter. The higher rate during 2001 is primarily related to expansion into states with higher income tax rates. LIQUIDITY AND CAPITAL RESOURCES The primary sources of liquidity during the first quarter of 2001 were cash flows from operating activities and certain financing activities. Net cash provided by operating activities was $623.2 million for the three months ended May 4, 2001 compared to $466.9 million for the first three months of fiscal 2000. The $156.3 million increase in the current year resulted primarily from an increase in net earnings, increases in other operating liabilities and the funding of the Company's ESOP with the issuance of new stock as opposed to cash in the prior year. The Company's working capital was $1.7 billion at May 4, 2001 compared to $1.1 billion at April 28, 2000 and $1.2 billion at February 2, 2001. The increase in working capital for the first quarter of 2001 is primarily attributable to cash obtained from debt offerings in the current year that have not yet been expended for the Company's expansion program. 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 $511.8 million and $468.4 million for the quarters ended May 4, 2001 and April 28, 2000, respectively. At May 4, 2001, the Company operated 680 stores in 40 states with 71.9 million square feet of retail selling space, a 23% increase over the selling space as of April 28, 2000. Cash flows provided by financing activities were $468.8 million for the quarter ended May 4, 2001. For the quarter ended April 28, 2000, cash flows used in financing activities were $24.8 million. The major source of cash during the first three months of 2001 involved the issuance of $1.005 billion principal of convertible notes at an issue price of $608.41 per note. Interest will not be paid on the notes prior to maturity on February 16, 2021 at which time the holders will receive $1,000 per note, representing a yield to maturity of 2.5%. Holders may convert their notes at any time on or before the maturity date, unless the notes have been purchased or redeemed previously, into 8.224 shares of the Company's common stock per note. The major use of cash in financing activities in the first quarter of 2000 was long-term debt repayments and cash dividend payments. 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, increasing our market presence and by relocating smaller format stores to larger ones. The Company's 2001 capital budget is $2.7 billion, inclusive of
-11- approximately $286 million in operating or capital leases. Approximately 89% of this planned commitment is for store expansion and new distribution centers. Expansion plans for 2001 consist of approximately 115 stores (including the relocation of 13 smaller format stores). This planned expansion is expected to increase sales floor square footage by approximately 18% to 20%. Expansion in the first quarter of fiscal 2001 included 32 new stores and 5 relocations representing 4.1 million square feet of new incremental retail space. The Company also opened a regional distribution center in Perris, California bringing the total number of regional distribution centers to six. Construction continues on regional distribution centers in Cheyenne, Wyoming and Findlay, Ohio. During the fall of 2001, construction will begin on a distribution center in Northampton County, North Carolina. The Company believes that funds from operations, debt issuances, leases and existing short-term credit agreements will be adequate to finance the 2001 expansion plan and other operating requirements. MARKET RISK As discussed in the annual report to shareholders for the year ended February 2, 2001, 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 Company's market risk has not changed materially since February 2, 2001 with the exception of new debt issued during 2001. NEW ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), as amended by SFAS 137 and SFAS 138, was effective for the Company as of February 3, 2001 and requires that all derivatives be recognized as either assets or liabilities in the balance sheet at fair value. The adoption of SFAS 133 had no effect on the Company's financial condition or results of operations. FORWARD-LOOKING STATEMENTS This news release includes "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, as Lowe's expands into major metropolitan markets, the availability of real estate for expansion and its successful development may lengthen the timelines for store openings, the availability of sufficient labor to facilitate growth, fluctuations in prices and availability of product, unanticipated increases in competition and weather conditions that affect sales.
-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 May 4, 2001 and April 28, 2000, and the related consolidated statements of current and retained earnings, and cash flows for the three-month periods ended May 4, 2001 and April 28, 2000. These financial statements are the responsibility of the Company's management. We conducted our reviews 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 reviews, 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 February 2, 2001, 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 20, 2001, 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 February 2, 2001 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 25, 2001
-13- Part II - OTHER INFORMATION Item 6 (b) - Reports on Form 8-K A report on Form 8-K was filed by the registrant on February 12, 2001. The Company issued a news release dated February 9, 2001 relating to anticipated 2000 fiscal year and fourth quarter sales and earnings pursuant to regulation FD. A report was filed on Form 8-K by the registrant on February 23, 2001. The Company issued a news release dated February 12, 2001 announcing the private offering of 20-year convertible notes. The Company also issued a news release dated February 13, 2001 announcing the pricing of the private offering of 20-year convertible notes. A report was filed on Form 8-K by the registrant on March 9, 2001. The Company issued a news release announcing earnings for the fourth quarter ended February 2, 2001. 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 14, 2001 /s/ Kenneth W. Black, Jr. Date___________________ _________________________________ Kenneth W. Black, Jr. Senior Vice President and Chief Accounting Officer