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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
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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
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Lowe's Companies, Inc.
Consolidated Balance Sheets
In Thousands
(Unaudited) (Unaudited)
May 4, April 28, February 2,
2001 2000 2001
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.
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Lowe's Companies, Inc.
Consolidated Statements of Current and Retained Earnings (Unaudited)
In Thousands, Except Per Share Data
Three Months Ended
May 4, 2001 April 28, 2000
Current Earnings Amount Percent Amount Percent
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.
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Lowe's Companies, Inc.
Consolidated Statements of Cash Flows (Unaudited)
In Thousands
Three Months Ended
May 4, April 28,
2001 2000
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.
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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 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
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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
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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.
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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 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.
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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
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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.
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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
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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