PART IV
EXHIBIT 13
Lowe's Profile
Lowe's Companies, Inc. is one of America's top thirty retailers, serving the
do-it-yourself home improvement, home decor, home electronics, and home
construction markets.
Lowe's 336 stores serve customers in 21 states located mainly in the South
Atlantic and South Central regions. In 1994 our average store did $18.8
million in sales. Our big stores averaged $22.6 million in sales.
At year-end, our retail sales space totaled approximately 18.6 million square
feet. Our employees numbered 37,555.
Lowe's has been a publicly owned company since October 6, 1961. Our stock has
been listed on the New York Stock Exchange since December 19, 1979; on the
Pacific Stock Exchange since January 26, 1981; and on the London Stock
Exchange since October 6, 1981. Shares are traded under the ticker symbol
LOW.
Raise your hand if just a couple of years ago you thought the Information
Highway would never run past your door. In America in the Nineties, the
accelerating accessibility of information affects us all, every day. Lowe's
loves the Nineties, and we choose to be not merely active but Interactive,
putting the marvelous tools of this amazing age to work in the service of our
customers.
Interactive videos demonstrate home improvement techniques in our stores.
Computer-assisted design programs help our customers plan complex projects.
Special orders are transmitted by satellite. Millions of items flow through
our distribution centers to the electronic orchestration of integrated
systems. And through our increasing presence on cable TV, whether we're
sponsoring a race car, a gardening show, or a home safety special, Lowe's is
welcomed daily into millions of American homes.
We want to take this opportunity to give our shareholders our address on the
Internet. We have a World Wide Web site under construction; meanwhile, you
can send us e-mail at lowesco@aol.com.
Rx for DIY'ers: HGTV! Do you think that TV programming devoted to home and
garden still means a half-hour local show at 5 a.m. with the production
values of a fifth grade play and the signal strength of a gerbil on a
treadmill? Get in the now, dude! As cable service spreads into practically
every nook and cranny of the American landscape, cable subscribers are
finding that they can choose from ever-widening variety of high-quality
special interest programming. Last December the ranks of cable networks
expanded to include Home & Garden Television (HGTV), a 24-hour network
dedicated to home building and remodeling, gardening, decorating, home
electronics, and other topics dear to the hearts of Lowe's customers.
Lowe's is playing a major role in the development of HGTV, sponsoring a one-
hour block of programming which airs during prime time on weekdays and on
Saturday mornings. "At Home With Lowe's" features a variety of half-hour
shows including "The House Doctor," "Klutz Around the House," "Jane Nugent's
Garden Party," and "Kitty Bartholemew: You're Home."
Based in Knoxville, Tennessee, HGTV is currently reaching more than 6.5
million homes. It was recently rated in a trade publication as one of the
"Ten Most Likely to Succeed" from among dozens of new cable channels.
What's six times the size of a Lowe's superstore, has 150 doors, contains
five miles of conveyors, and employs more than 300 people? It's Lowe's
distribution center in North Vernon, Indiana. Why is it good news for
shareholders? Because Lowe's distribution system is a source of strategic
advantage. Our distribution centers (d.c.'s) support Lowe's expansion. They
enable us to buy in larger volume, supply our stores with exactly the
products they need, and reduce labor costs because stores handle fewer
shipments from individual vendors.
The Indiana d.c. is a new prototype for Lowe's, featuring unique integrated
systems for sorting, conveyance, receiving, replenishing, order picking, and
shipping. The "carousel pick-and-pack" may sound like a carnival ride, but
it's a computer driven system that helps us ship precise quantities instead
of whole cases, thereby reducing the carrying costs of store inventory.
In addition to the Indiana center, Lowe's has d.c.'s in Villa Rica, Georgia
and North Wilkesboro, North Carolina. This year we will break ground for two
new centers on the Indiana model - one in Texas and the other in North
Carolina.
Lowe's home improvement warehouses give our customers instant access to more
than 40,000 items. But it's not enough. There are millions of products out
there, manufactured by our vendor partners to satisfy every imaginable
consumer need or desire. Unfortunately, even the largest store can't keep
them all in inventory. What's an interactive retailer to do? S.O.S! S.O.S!
Exactly. Lowe's Special Order System (S.O.S.) provides quick, convenient
access to hundreds of thousands of products for both our contractor and do-it-
yourself customers. By managing transactions at a project level, our custom-
designed S.O.S. software makes it easy to buy in-stock merchandise and
special order items at the same time. With all orders "pasted" to a numbered
project, and with follow-up tracking built in, we are maximizing efficiency
and minimizing the chance that an order might be lost.
Here's how it works. Let's say a customer is doing a major bath-room
renovation. A special order for a whirlpool bath is entered into a Lowe's
store computer. From there it's sent by satellite to a mainframe in North
Wilkesboro and subsequently to the manufacturer through electronic data
interchange (EDI). The manufacturer ships the order to the Lowe's store or
directly to the customer. The invoice is transmitted to Lowe's general
office in North Wilkesbor, where it gets paid by an electronic transfer of
funds. Voila! Satisfaction all around.
"Strike up the band!" And send them to Pasadena for the Tournament of Roses
Parade! There's no more cherished invitation on any band's calendar. But
Pasadena is a long way from Mahomet, Illinois: it takes a whole year and
lots of band candy to raise money to go. When Lowe's heard that the Marching
Bulldogs of Mahomet-Seymour High School had been invited to Pasadena, we
wanted to help. Enter Lowe's Charitable and Educational Foundation, which
has been supporting worthy efforts in Lowe's communities since 1957. From
marching bands to local fire departments to environmental initiatives, if our
customers care about it, so does Lowe's.
"How do I interact with thee? Let me count the ways..." Lowe's relationship
with our vendor partners is interactive in so many ways that it could never
be contained in a sonnet. For instance, Anchor Swan, Phillips Consumer
Electronics, and Water Ace are three of our most recent Suppliers of the
Year; they are also secondary sponsors of "At Home With Lowe's" on HGTV.
The Stanley Works and Larson Manufacturing are both primary sponsors of "At
Home With Lowe's;" they are also charter members of Lowe's Home Safety
Council. Armstong and Osram Sylvania, Inc. are LHSC charter members too, and
- - you've got it! They are also Suppliers of the Year!
Roll the highlight tape for Lowe's Home Safety Council, 1994 - a year of
outreach and infrastructure.
Lowe's Home Safety Council actively supports community efforts such as fire
safety houses operated by local fire departments. The council also sends
home safety experts into selected homes to help families make their
environments more injury-proof. In 1994 one high-profile "safety makeover"
was given to the Dilley family of Indianapolis, whose growing sextuplets
posed some interesting challenges to home safety.
In October a one-hour television special called "Safety Watch: Is Your Home A
Danger Zone?" aired in 13 media markets primarily in the Southeast. Hosts
MacLean Stevenson and Loretta Swit helped viewers identify hidden hazards in
the home and discussed safe alternatives and preventive techniques.
Viewership was estimated in the millions.
The council's world-class Board of Directors includes the Honorable Lamar
Alexander, former U.S. Secretary of Education; Meredith K. Appey of the
Nat'l. Fire Protection Association; Dr. Catherine Burns of the Nat'l. Assoc.
of Pediatric Nurse Associates and Practitioners; Malcolm Candlish of BRK
Brands/First Alert; Mary Ellen Fise of the Consumer Federation of America;
Kathleen Henning of the Nat'l. Assoc. of Search and Rescue; Diane Imhulse of
the Nat'l. Safety Council; the honorable Jack Kemp, former U.S. Secretary of
HUD; Chief Dennis Martin of the Nat'l. Assoc. of Chiefs of Police; Officer
Joseph McCaffrey of the American Federation of Police; Dr. Louis Sullivan,
former U.S. Secretary of Health and Human Services; Gaylord Walker of the
Nat'l. Child Safety Council; Michael Werner of Werner Ladder Company; and
Leonard G. Herring, W. Cliff Oxford, and Robert L. Strickland of Lowe's.
The council's plans for 1995 include the continuing installation of Safety
Watch kiosks in our stores, the development of a home safety curriculum for
school-age children, the increasing spread of information through the 1-800-4
SAFE HOME telephone line, and the further use of television as a major medium
for home safety education. The ongoing mission of Lowe's Home Safety Council
is to make every year "The Year of Living Safely."
In 1961 Archie Fain of Providence, Rhode Island bought 500 original shares of
Lowe's stock on the advice of Gordon Cadwgan, a founding member of our Board
of Directors who helped take the company public that year. "Lowe's was a new
issue," Fain recalls. "I understood it was a well-run chain of hardware
stores that wanted to expand, so I bought 500 shares for my family - my son
and daughter, my wife, and myself." Last year Fain celebrated his 90th
birthday and his 33rd year as a Lowe's shareholder partner. Over the years,
his original 500 shares have turned into 60,000 through stock splits and
dividends.
Since his retirement, Fain regularly spends winters in Sarasota, Florida.
Although he makes the trip by jet these days, he used to drive down from
Rhode Island, and he always made a point of visiting at least one Lowe's
store on his way south.
"I'll never forget an experience I had several years ago at a Lowe's store in
South Carolina," he says. "I told the manager that I was a Lowe's
shareholder and would like to ask him a few questions. He said he would do
his best to answer them.
"Then I told him a little more about my stock in the company. 'Well,' he
said, pointing out the store window, `do you see that driver in the Lowe's
truck? He owns about the same number of shares as you!'
"When the employees of a company are its shareholders too, and everyone is
working for the future, you've got great potential."
Long-range thinking may well be one key to Archie Fain's longevity. It has
certainly worked wonders for his portfolio! When asked what advice he would
give to investors today, he says "Of course it all depends on your individual
circumstances and goals. But if you're looking for a well-run company with a
promising future, I would still recommend Lowe's."
Independent Auditors' Report To the Board of Directors and Shareholders of
Lowe's Companies, Inc.
We have audited the accompanying consolidated balance sheets of Lowe's
Companies, Inc. and subsidiaries as of January 31, 1995, 1994 and 1993, and
the related consolidated statements of current and retained earnings and cash
flows for the fiscal years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Lowe's Companies, Inc. and
subsidiaries at January 31, 1995, 1994 and 1993, and the results of their
operations and their cash flows for the fiscal years then ended in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Charlotte, North Carolina
February 20, 1995
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Introduction
This discussion summarizes the significant factors affecting Lowe's
consolidated operating results, financial condition and liquidity/cash flows
during the three-year period ended January 31, 1995 (i.e., Fiscal 1994,1993,
and 1992). This discussion should be read in conjunction with the Letter to
Shareholders, financial statements and financial statement footnotes included
in this annual report.
Lowe's embarked upon a large store prototype expansion program beginning in
1989 and furthered this commitment by recording a one-time restructuring
charge in Fiscal 1991 of $71.3 million pre-tax to cover expected costs and
expenses incident to this expansion program. This transformation from small
stores into home improvement destination centers, coupled with "dominant
inventory assortments," will continue to enhance our growth.
We ended 1994 with 336 stores and 18.6 million square feet of selling space.
This compares to 311 stores and 14.2 million square feet and 303 stores and
10 million square feet for the two prior years. We are particularly pleased
with the transformation process and performance of our new destination
centers in terms of sales and their contributions to overall profits. Net
earnings measured to sales were 3.7%, an achievement not seen since 1976 when
earnings were reported on a FIFO (first-in, first out) basis of accounting.
In addition, the return on beginning assets of 10.2% was the highest since
1984. Return on beginning shareholders' equity was 25.6%, the highest since
1974. Store performance perspective in terms of units, sales and operating
profits is depicted in Tables 1-3.
Expansion plans for 1995 envision about 50 to 55 new stores with 60% in new
markets and the balance in relocations for approximately 5.3 million square
feet of additional retail space. Approximately one half of the 1995 projects
will be leased and one half will be owned.
Distribution capabilities are a central component of Lowe's operating
strategy. At year-end, we operated three distribution centers (d.c.'s) and
seven smaller support facilities, three of which are reload centers only. One
of the three, a high-tech operation, became fully functional in the third
quarter. In addition, a new d.c. of approximately 775,000 square feet is
expected to be operational in early 1996 with a second d.c. of approximately
950,000 square feet expected to become operational shortly thereafter. This
distribution expansion program will support our ongoing store expansion.
Operations
Record sales of $6.11 billion were achieved during 1994, a 35% increase over
1993 sales of $4.54 billion. Sales for 1993 were 18% higher than 1992 levels.
These increases are attributable to customer receptiveness to the large
stores with their dominant inventory assortment, everyday competitive prices
and enhanced customer service.
Growth in disposable personal income and decreases in unemployment have been
good indicators of increased sales performance for Lowe's. The 1995 outlook
is favorable in our market area for each of these economic indicators.
However, as we begin 1995 the interest rate environment is less favorable.
Gross margin improved to 24.8% from 23.8% in 1993. An everyday competitive
pricing (ecp) strategy was implemented during 1992, causing a temporary
margin reduction to 23.4% from the preceding year. The ecp strategy working
in tandem with our large store marketing strategy creates higher sales
volumes and margin dollars.
LIFO charges reduced margins by 1, 34 and 25 basis points for 1994,1993 and
1992, respectively. Had inventory costs been stated on a FIFO basis, year-end
inventory totals would have been $65.0, $64.5 and $49.0 million higher for
these years.
Selling General and Administrative (SG&A) expenses for 1994 were $941.0
million or 15.4% of sales. This tracks favorably with each of the two
previous years of 15.8% and 16.7% to sales, respectively. Carefully managed
cost containment measures and leverage on higher sales volumes were the major
contributions to this favorable trend.
Store opening costs were $40.7 million for 1994. These costs were $29.3 and
$11.0 million for 1993 and 1992, respectively. These costs currently average
about $800 thousand per store. Projected costs for 1995 could grow somewhat
higher as store openings in new markets grow as a percentage of the total.
Depreciation, reflecting continuing fixed asset expansion, increased 36% to
$109.6 million. A 15% increase for l993, which was computed from a prior year
base of $69.8 million, was in line with expectations. Depreciation for these
years has maintained a percentage to sales of approximately l.8%. About one
half of new stores for 1994 and 1993 are leased, whereas previously more than
half were owned.
Employee retirement plans expenses for 1994 were $49.7 million or .8% to
sales. This cost is consistent with .8% and .9% for each of the two previous
years. A lower eligibility rate for plan participation, resulting from more
new hires relating to expansion, accounts for maintaining a favorable
percentage relative to sales for each of the years. See Note 10 to the
financial statements for further disclosure.
Interest costs were $27.9 million (.5% to sales), a 52% increase above 1993.
Interest costs were $15.6 million for 1992. Interest costs trended upward
during 1994 while near historic lows in borrowing rates were prevalent for
each of the two prior years. See Note 6 to the financial statements for
particulars on long-term indebtedness and discussion below on liquidity and
capital resources.
Cash dividends paid to common shareholders were $27.4, $23.6 and $21.2
million in 1994, 1993 and 1992, respectively. Lowe's has paid cash dividends
each quarter since becoming a public company in 1961. At January 31, 1995
there were 9,765 shareholders of record. Refer to the Stock Performance Chart
on page 28 for further particulars on dividends and stock performance.
Balance Sheet Management
Effective inventory turnover is a result of good product management. (Lowe's
calculates "turn" by using cost of sales as the numerator and divides by the
average of beginning inventory plus the subsequent four quarters' ending
inventories.) In l994 Lowe's inventory turned 4.7 times, comparable to 4.7
turns in 1993 and 4.6 turns in 1992.
Accounts receivable totaled $109 million at January 31, 1995 compared to $49
million for 1993 and $53 million for 1992. In 1992, an undivided fractional
interest in a designated pool of receivables was sold, with this program
continuing into 1993 and 1994. Because of the Company's surplus cash position
during the middle of 1994, management decided to carry the receivables in
lieu of continuing with the "pool sales program" in effect at that time.
Management reinstated this program during January of 1995. Fees associated
with this program are recorded in SG&A expenses. For more details, see Note 2
to the financial statements.
Property, less accumulated depreciation increased 37% to $1.40 billion for
1994. In 1993 it increased 30% over 1992 levels. The majority of the increase
stems from superstore investment, including point-of-sale equipment, fixtures
and displays.
Other assets primarily consist of land and buildings relating to vacated
stores which are available for sale or lease. These properties are carried at
their net realizable value. At January 31, 1995, this value was approximately
$42 million. One year ago, vacated properties were valued at $44 million. At
year-end, seven properties having a book value of approximately $8.5 million
were under contract to be sold. Notes receivable relating to sales of excess
properties were $7 million at year-end, up $4 million from the previous year.
Investments in low income housing at January 31,1995 were $11 million
compared to $7 million for the previous year.
Accounts payable, the major financing source for inventory, financed 60% of
1994 year-end inventory compared to 55% for 1993 and 56% for 1992. This
increase is the result of changes in inventory product mix and improved
payment terms from vendors.
Long-term debt, excluding current maturities, at January 31, 1995 was $681.2
million, up 15% from 1994. During 1993, $287.5 million 3% Convertible
Subordinated Notes were issued at a discount, raising $250 million.
Medium-term notes were issued in both 1993 and 1992 after the early
retirement of our long-term debt carrying double-digit interest rates. In
1992, most short-term debt was eliminated with this trend carrying over into
1993 and 1994. Further details on long-term financing can be found in Note 6
to the financial statements.
The special one-time restructuring charge is addressed at the beginning of
this MD&A, and more specifically in No(e 15 to the financial statements.
Charges against the restructuring accrual associated with relocating and
closing stores were $19.7, $19.0 and $16.6 million for 1994,1993 and 1992,
respectively. The remaining restructuring accrual (short-term and long-term)
at January 31,1995 was $13.8 million. Charges against this accrual for 1995
will complete the restructuring program.
Shareholders' equity continues to finance the largest portion of assets.
Total shareholders' equity increased by $546.2 million in 1994 and financed
45.7% of assets at January 31,1995. This compares to 39.7% for 1993 and 45.6%
for 1992. (See Note 11 to the financial statements for further particulars of
the 1994 stock offering and related comments under "working capital" below.)
Financial Management
Liquidity and Capital Resources
Primary sources of liquidity are cash fLows from operating activities and
certain financing activities. Information on consolidated cash flows
(operating, financing and investing activities) is set forth in the
Statements of Cash Flows on page 18.
Working capital at January 31,1995, was $611.3 million as compared to $402.7
million at January 31,1994, and $245 9 million at January 31,1993.
Financing activities include the sale of 10,350,000 shares of Lowe's common
stock under the shelf registration discussed below. The Company received
proceeds, net of the underwriting discount and other costs, of $315.7
million. The proceeds are being used to finance the Company s large store
expansion program and for general corporate purposes. The following schedule
depicts working capital debt activity (except for debt associated with
certain real property acquisitions in the normal course of business):
During 1994, Lowe's did not issue any long-term debt.
During 1993, Lowe's issued the following long-term debt:
$32 million medium-term notes issued in February 1993; and
$287.5 million aggregate (net $250 million) principal 3% Convertible
Subordinated Notes, issued at a discount in July 1993.
During 1992, Lowe's issued the following long-term debt:
$218 million medium-term notes issued in the last three quarters
During 1994, Lowe's reduced long-term debt as follows:
$41.5 million of scheduled miscellaneous repayments.
During 1993, Lowe's reduced long-term debt as follows:
$6.3 million of scheduled miscellaneous repayments.
During 1992, Lowe's reduced long-term debt as follows:
Redeemed $27.8 million, 11.5% unsecured notes; and
$8.4 million of scheduled miscellaneous repayments.
During 1994, 1993, and 1992, the Company entered into various leases for new
store facilities. Several of these leases were classified as capital leases,
the result of which is to increase long-term debt. Amounts classified as
capital leases were $104.2 million, $29.3 million and $24.6 million for 1994,
1993 and 1992, respectively.
Major uses of cash continue to be investments in new store facilities. In
1994, capital investment was $529 million (cash outlays of $414 million plus
capital leases of $104 million and like-kind exchanges of $ 11 million) which
did not include operating leases of $113 million. Lowe's 1995 capital budget
is targeted between $810 and $835 million, inclusive of approximately $238
million of operating or capital leases. Over 80% of this planned commitment
is for store expansion.
Present plans are to finance 1995's expansion program through funds from
operations, operating leases, issuance of about $40 million of common stock
to the Employee Stock Ownership Plan and from external financing.
During 1994, the Company filed with the Securities and Exchange Commission a
shelf registration statement covering $500 million of "unallocated" debt or
equity securities. At January 31, 1995, an uncommitted aggregate of $ 174
million was available under the shelf registration. This registration enables
the Company to issue common stock, preferred stock, senior unsecured debt
securities or subordinated unsecured debt securities from time to time.
Short-term capital needs will be financed through utilization of Lowe's bank
credit agreements and commercial paper program. Formal bank credit agreements
in place are discussed in Note 5 to the financial statements.
The ratio of long-term debt to equity plus long-term debt was 32.4%, 40.4%
and 30.0% with fixed charge coverage at 6.8, 6.5 and 5.7 for 1994, 1993 and
1992, respectively.
Other
General inflation has not had a significant impact on Lowe's during the past
three years. With the exception of certain building commodity products,
deflation has been experienced in most product groupings. Lumber products
have experienced more price volatility than other building commodities due to
variability of demand and supply plus environmental concerns.
Inflation/(deflation) rates experienced by lumber products were (0.4%), 12.0%
and 9.7% for 1994, 1993 and 1992, respectively.
Store Performance Perspective
To further enhance understanding and analysis of the relative pace, progress,
and performance of our new family of stores, compared to two older and
smaller store groups, we are providing the following tables.
Table 1 Store Group Unit Totals, Average through Fourth Quarter
1994 1993 1992
% of % % of % % of
Total Change Units Total Change Units Total Units
Small (1) 20% (14)% 66 25% (22)% 77 32% 99
Medium (2) 23 (22) 73 31 (17) 94 37 113
Large (3) 57 40 % 187 44 44 % 134 31 93
Total 100% 326 100% 305 100% 305
Table l Comments: The small stores average less than 7,500 square feet of
sales floor, and represent 20% of the total units. The medium stores stem
from our l984-1988 expansion, and average about 23,000 square feet. A few
small and medium stores have been converted into focused contractor yards.
The 24 contractor yards are included in our small store totals. The large
stores average about 80,000 square feet, with our current prototypes being
85,000 to 11 S .000, plus large garden centers.
Table 2 Sales Contribution by Store Group, YTD Fourth Quarter
1994 1993 1992
% of % % of % % of
Total Change Total Change Total
Small (1) 13% 1 % 18% (10)% 23%
Medium (2) 18 (16) 28 (11) 37
Large (3) 69 72 % 54 62 % 40
Total 100% 100% 100%
Table 2 Comments: The results shown in Table 2 need to be read in conjunction
with the changing store numbers in Table 1 because these are aggregate
totals, not comparable store results. The sales increase of only 1% for the
small group and the 16% sales decrease in the medium group, is attributable
to their reduction in number. The small stores and contractor yards posted a
17% average sales gain as higher volume contractor yards became a larger
percentage of this group. Medium-size stores, on average, achieved a 9% sales
gain. The average large store's sales increase of 24%, combined with their
numerical increase, provided 69% of total sales, up from 40% just two years
ago.
Table 3 Operating Profits * by Store Group, YTD Fourth Quarter
1994 1993 1992
% of % % of % % of
Total Change Total Change Total
Small (1) 11% 7% 15% 12 % 20%
Medium (2) 18 (9) 30 12 39
Large (3) 71 91% 55 96 % 41
Total 100% 100% 100%
* Profits before corporate expense and intercompany charges, interest,
restructuring. LIFO and income taxes
Table 3 Comments: Here's the report card on profitability and growth Again,
these are not comparable store results but group totals.
The 66 small stores and yards, on average, improved their profit contribution
over the average of last year's 77 by 24%. These units are low-cost
operations including some "cash cows" and our focused contractor yards, and
are obviously able to do well in this business climate.
The 73 mid-sizers are stores of the mid-80's. Their average sales per store
average 17% higher than that of the small stores and they too, on average,
increased their profit over last year.
The 187 large stores are designed for our customers of the 90's and these
results are gratifying. With average sales per store 83% higher than the
average small store, and their average operating profits 128% greater than
the average of the small stores, the large stores contributed 71% of the
year's operating profits while contributing 69% of sales
With further reference to Table 3, we are pleased to advise that operating
profits are determined with consistency period-to-period, and without any
subsidization of stores or groups. Therefore, the performance shown in Table
3 is a hard proxy for the relative pre-tax profit contribution of these store
groups.
1994 1993 1992
Total Sq.Ft. Total Sq.Ft. Total Sq.Ft.
(000,000) (000,000) (000,000)
(1) Pre 1984 Stores; Contractor Yards: Avg 7,440 Sq.Ft. .5 .6 .9
(2) '84-'88 Stores Avg. 23,213 Sq.Ft. 1.5 2.0 2.6
(3) Post '88 Expansion Stores: Avg. 80,135 Sq.Ft. 16.6 11.6 6.5
CONSOLIDATED STATEMENTS OF CURRENT AND RETAINED EARNINGS
Lowe's Companies, Inc. and Subsidiary Companies
Dollars In Thousands, Except Per Share Data
FISCAL % FISCAL % FISCAL %
Fiscal Years End on January 31 of Following Year 1994 SALES 1993 SALES 1992 SALES
Current Earnings
Net Sales $6,110,521 100.0% $4,538,001 100.0% $3,846,418 100.0%
Cost of Sales 4,597,977 75.2% 3,456,717 76.2% 2,945,753 76.6%
Gross Margin 1,512,544 24.8% 1,081,284 23.8% 900,665 23.4%
Expenses:
Selling, General and Administrative 941,079 15.4% 717,028 15.8% 642,799 16.7%
Store Opening Costs 40,727 0.7% 29,251 0.6% 10,983 0.3%
Depreciation 109,647 1.8% 80,530 1.8% 69,820 1.8%
Employee Retirement Plans (Note 10) 49,687 0.8% 37,873 0.8% 35,572 0.9%
Interest (Notes 7 and 16) 27,873 0.5% 18,278 0.4% 15,599 0.4%
Total Expenses 1,169,013 19.1% 882,960 19.5% 774,773 20.1%
Pre-Tax Earnings 343,531 5.6% 198,324 4.4% 125,892 3.3%
Income Tax Provision (Note 9) 119,971 2.0% 66,538 1.5% 41,172 1.1%
Net Earnings $ 223,560 3.7% $ 131,786 2.9% $ 84,720 2.2%
Shares Outstanding - Weighted Average 154,926 147,398 146,152
Earnings Per Common & Common
Equivalent Share $ 1.44 $ 0.89 $ 0.58
Earnings Per Common Share -
Assuming Full Dilution $ 1.39 $ 0.89 $ 0.58
Per Per Per
Retained Earnings (Notes 6 and 11) Amount Share Amount Share Amount Share
Balance at Beginning of Year $ 596,764 $ 489,033 $ 425,526
Net Earnings 223,560 1.44 131,786 1.44 84,720 1.44
Cash Dividends (Notes 6 and 11) (27,433) (0.18) (23,571) (0.18) (21,153) (0.18)
Stock Split 0 (484) (60)
Balance at End of Year $ 792,891 $ 596,764 $ 489,033
See accompanying notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
Lowe's Companies, Inc. and Subsidiary Companies
Dollars in Thousands
Fiscal % Fiscal % Fiscal %
Fiscal Years End on January 31 of Following Year 1994 Total 1993 Total 1992 Total
Assets
Current Assets:
Cash and Cash Equivalents $ 150,319 4.8% $ 73,25 3.3% $ 48,94 3.0%
Short-Term Investments 118,155 3.8% 35,215 1.6% 5,900 0.4%
Accounts Receivable - Net (Note 2) 109,214 3.5% 48,500 2.2% 53,288 3.3%
Merchandise Inventory (Note 3) 1,132,282 36.5% 853,707 38.8% 594,195 36.9%
Deferred Income Taxes (Note 9) 18,129 0.6% 12,300 0.6% 8,512 0.5%
Other Current Assets (Note 13) 29,069 0.9% 60,932 2.8% 34,710 2.2%
Total Current Assets 1,557,168 50.1% 1,083,907 49.2% 745,554 46.3%
Property, Less Accumulated
Depreciation (Notes 4 and 6) 1,397,713 45.0% 1,020,234 46.3% 787,197 48.9%
Long-Term Investments (Note 8) 83,459 2.7% 40,408 1.8% 23,270 1.4%
Other Assets 67,652 2.2% 57,099 2.6% 52,856 3.3%
Total Assets $3,105,992 100.0% $2,201,648 100.0% $1,608,877 100.0%
Liabilities and Shareholders' Equity
Current Liabilities:
Short-Term Notes Payable (Note 5) $ 1,903 0.1% $ 2,281 0.1% $ 3,193 0.2%
Current Maturities of Long-Term
Debt (Note 6) 26,913 0.9% 49,547 2.3% 21,721 1.4%
Accounts Payable 675,436 21.7% 467,278 21.2% 330,584 20.5%
Employee Retirement Plans (Note 10) 43,950 1.4% 34,422 1.6% 32,038 2.0%
Accrued Salaries and Wages 63,356 2.0% 45,883 2.1% 39,472 2.5%
Other Current Liabilities 134,334 4.3% 81,765 3.7% 72,626 4.5%
Total Current Liabilities 945,892 30.5% 681,176 30.9% 499,634 31.1%
Long-Term Debt, Excluding Current
Maturities (Note 6) 681,184 21.9% 592,333 26.9% 313,562 19.5%
Deferred Income Taxes (Note 9) 49,211 1.6% 26,165 1.2% 16,517 1.0%
Accrued Store Restructuring Costs (Note 15) 9,815 0.3% 28,305 1.3% 45,944 2.9%
Total Liabilities 1,686,102 54.3% 1,327,979 60.3% 875,657 54.4%
Commitments, Contingencies and
Litigation (Notes 13 and 14)
Shareholders' Equity (Notes 6, 11 and 12):
Common Stock - $.50 Par Value;
Fiscal Issued and Outstanding
1994 159,527,389
1993 147,886,770
1992 145,945,916 79,764 2.6% 73,943 3.4% 72,973 4.5%
Capital in Excess of Par 554,838 17.9% 202,962 9.2% 171,214 10.6%
Retained Earnings 792,891 25.5% 596,764 27.1% 489,033 30.4%
Unearned Compensation-Restricted Stock Awar (5,949) -0.2%
Unrealized Loss on Available
For Sale Securities, Net of Income Taxes (1,654) -0.1
Total Shareholders' Equity 1,419,890 45.7% 873,669 39.7% 733,220 45.6%
Total Liabilities and
Shareholders' Equity $3,105,992 100.0% $2,201,648 100.0% $1,608,877 100.0%
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Lowe's Companies, Inc. and Subsidiary Companies
Dollars in Thousands
Fiscal Fiscal Fiscal
Fiscal Years End on January 31 of Following Year 1994 1993 1992
Cash Flows From Operating Activities:
Net Earnings $223,560 $131,786 $84,720
Adjustments to Reconcile Net Earnings to Net Cash
Provided By Operating Activities:
Depreciation 109,647 80,530 69,820
Amortization of Original Issue Discount 3,205 1,615 0
Increase in Deferred Income Taxes 18,108 5,860 8,231
Loss on Disposition/Writedown of Fixed and Other Assets 5,924 8,969 1,929
Decrease (Increase) in Operating Assets:
Accounts Receivable - Net (60,714) 4,788 62,451
Merchandise Inventory (278,575) (259,512) 8,600
Other Operating Assets 31,170 (26,186) (20,352)
Increase (Decrease) in Operating Liabilities:
Accounts Payable 208,158 136,694 22,770
Employee Retirement Plans 41,257 32,937 4,173
Accrued Store Restructuring (10,000) (8,905) (10,765)
Other Operating Liabilities 67,236 17,123 19,173
Net Cash Provided by Operating Activities 358,976 125,699 250,750
Cash Flows from Investing Activities:
Decrease (Increase) in Investment Assets:
Short-Term Investments (83,374) (29,315) (1,174)
Purchases of Long-Term Investments (74,614) (41,714) (12,500)
Proceeds from Sale/Maturity of Long-Term Invest 29,452 24,576 580
Other Long-Term Assets (2,438) 1,645 (2,213)
Fixed Assets Acquired (414,103) (336,888) (243,262)
Proceeds from the Sale of Fixed and Other Long-Term Assets 15,179 27,641 9,642
Net Cash Used in Investing Activities (529,898) (354,055) (248,927)
Cash Flows from Financing Activities:
Sources:
Long-Term Debt Borrowings 500 281,915 217,969
Net Decrease in Short-Term Borrowings (378) (912) (140,640)
Net Proceeds from Issuance of Common Stock 315,697
Stock Options Exercised 1,100 1,504 1,019
Total Financing Sources 316,919 282,507 78,348
Uses:
Repayment of Long-term Debt (41,498) (6,276) (36,157)
Cash Dividend Payments (27,433) (23,571) (21,153)
Total Financing Uses (68,931) (29,847) (57,310)
Net Cash Provided by Financing Activities 247,988 252,660 21,038
Net Increase in Cash and Cash Equivalents 77,066 24,304 22,861
Cash and Cash Equivalents, Beginning of Year 73,253 48,949 26,088
Cash and Cash Equivalents, End of Year $150,319 $73,253 $48,949
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LOWE'S COMPANIES, INC. AND SUBSIDIARY COMPANIES
FISCAL YEARS ENDED JANUARY 31, 1995, 1994 AND 1993
NOTE 1 - Summary of Significant Accounting Policies:
The Company is one of America's largest retailers serving the do-it-yourself
home improvement, home decor, and home construction markets. Below are those
accounting policies considered to be significant.
Subsidiaries and Principles of Consolidation - The consolidated financial
statements include the accounts of the Company and its subsidiaries, all of
which are wholly owned. All material intercompany accounts and transactions
have been eliminated.
Cash and Cash Equivalents - Cash and cash equivalents include cash on hand,
demand deposits, and short-term investments that are readily convertible to
cash within three months of purchase.
Investments - 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. Investments consist primarily of
tax exempt notes and bonds, auction rate tax exempt securities, municipal
preferred tax exempt stock and eurodollar time deposits.
Effective February 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities", which stipulates that debt securities not
classified as held-to-maturity securities and all equity securities will be
carried at fair value. Unrealized gains and losses on such securities will be
included in earnings if the securities are classified as trading securities
and will be excluded from earnings and reported as a separate component of
shareholders' equity, net of the related income taxes, until realized if
classified as available-for-sale. Debt securities classified as held-to-
maturity securities will be carried at amortized cost. The Company has
classified all investment securities as available-for-sale.
Derivatives - Interest rate swap agreements, which are principally used by
the Company in the management of interest rate exposure, are accounted for on
an accrual basis. Income and expense are recorded in the same category as
that arising from the related liability. Amounts to be paid or received
under interest rate swap agreements are recognized as interest income or
expense in the periods in which they accrue.
Premiums paid for purchased interest rate cap agreements are being amortized
to interest expense over the terms of the caps. Unamortized premiums are
included in other assets in the consolidated balance sheet. Amounts to be
received under the cap agreements are accounted for on an accrual basis, and
are recognized as a reduction of interest expense.
Accounts Receivable - The majority of the accounts receivable arise from
sales to professional building contractors principally in the South Atlantic
and South Central regions of the United States. The allowance for doubtful
accounts is based on historical experience and a review of existing
receivables. Sales generated through the Company's private label credit card
are not reflected in receivables. These receivables are sold, without
recourse, to an outside finance company.
Merchandise Inventory - Inventory is stated at the lower of cost or market.
In an effort to more closely match cost of sales and related sales, cost is
determined using the last-in, first-out (LIFO) method. Included in inventory
cost are administrative, warehousing and other costs directly associated with
buying, distributing and maintaining inventory in a condition for resale.
Property and Depreciation - Property is recorded at cost. Costs associated
with major additions are capitalized and depreciated. Upon disposal, the cost
of properties and related accumulated depreciation is removed from the
accounts with gains and losses reflected in earnings.
Depreciation is provided over the estimated useful lives of the depreciable
assets. Assets are generally depreciated on the straight-line method.
Leasehold improvements are depreciated over the shorter of their estimated
useful lives or term of the related lease.
Leases - Assets under capital leases are amortized in accordance with the
Company's normal depreciation policy for owned assets or over the lease term
if shorter. The charge to earnings resulting from amortization of these
assets is included in depreciation expense in the consolidated financial
statements.
Income Taxes - Income taxes are provided for temporary differences between
the tax and financial accounting bases of assets and liabilities using the
liability method. The tax effects of such differences are reflected in the
balance sheet at the tax rates expected to be in effect when the differences
reverse.
Store Pre-opening Costs - Costs of opening new retail stores are charged to
operations as incurred.
Store Closing Costs - Upon closing or relocating a store, costs considered to
be unrecoverable, such as the book value of leasehold improvements and the
estimated loss on sale of land and building, are charged to expense. The
Company also records a provision for the present value of future lease
obligations, net of sub-lease income. The estimated net realizable value of
closed store real estate owned is included in other assets. See Note 15
regarding store restructuring accrual in Fiscal 1991.
Employee Retirement Plans - Since 1957 the Company has maintained benefit
plans for its employees as described in Note 10. The plans are funded
annually.
Earnings Per Share - Earnings per share are calculated on the weighted
average shares of common stock and dilutive common stock equivalents
outstanding each year. The Company's 3% Convertible Subordinated Notes due
July 22, 2003, are potentially dilutive securities for purposes of
calculating fully diluted earnings per share.
NOTE 2 - Accounts Receivable
The Company has an agreement to sell, with limited recourse, an undivided
fractional interest in a designated pool of receivables. Under the agreement,
as collections reduce previously sold interests in receivables, an interest
in new receivables may be sold. At January 31, 1995, 1994 and 1993, the
interest in receivables sold totaled $38.5, $121.9 and $107.3 million,
respectively. Due to hold-back provisions of the agreement, the Company was
due $8.5, $31.9 and $27.3 million at January 31, 1995, 1994 and 1993,
respectively, for interests sold. These receivables are included in Accounts
Receivable - Net in the balance sheet. The cost associated with selling the
interest in receivables was $1.7, $3.3 and $3.6 million for Fiscal 1994, 1993
and 1992, respectively. The Company maintains an allowance for doubtful
accounts because it has retained substantially the same risk of credit loss
as if the receivables had not been sold.
The allowance for doubtful accounts was $2.3, $2.7, and $3.2 million at
January 31, 1995, 1994, and 1993, respectively.
NOTE 3 - Merchandise Inventory:
If the FIFO method had been used, inventories would have been $65.0, $64.5
and $49.0 million higher at January 31, 1995, 1994 and 1993, respectively.
NOTE 4 - Property and Accumulated Depreciation:
Net property includes $159.0, $59.0 and $33.7 million in assets from capital
leases for Fiscal 1994, 1993 and 1992, respectively.
Property is summarized below by major class:
January 31
1995 1994 1993
(Dollars in Thousands)
Cost:
Land $ 290,312 $ 224,551 $ 188,562
Buildings 686,737 478,373 421,620
Store and Office Equipment 666,885 500,811 371,002
Leasehold Improvements 98,217 113,287 86,756
Total Cost 1,742,151 1,317,022 1,067,940
Accumulated Depreciation and Amortization (344,438) (296,788) (280,743)
Net Property (Note 13) $1,397,713 $1,020,234 $ 787,197
The estimated depreciable lives, in years, of the Company's property are:
buildings, 20 to 40; store and office equipment, 3 to 10; leasehold
improvements, generally the life of the related lease.
NOTE 5 - Short-Term Borrowings and Lines of Credit:
Several banks have extended lines of credit aggregating $158 million for the
purpose of issuing documentary letters of credit and standby letters of
credit. These lines do not have termination dates but are reviewed
periodically. Commitment fees of .125% per annum are paid on the amounts
used. At January 31, 1995, outstanding letters of credit aggregated $98
million.
In addition $235 million is available, on an unsecured basis, for the purpose
of short-term borrowings on a bid basis from various banks. These lines are
uncommitted and are reviewed periodically by both the banks and the Company.
At January 31, 1995, there were no amounts outstanding under these lines.
NOTE 6 - Long-Term Debt:
Fiscal Year
Debt Interest of Final January 31
Category Rates Maturity 1995 1994 1993
(Dollars in Thousands)
Secured Debt1:
Insurance Company Notes 6.75% 1998 $ 414 $ 534 $ 1,323
Bank Notes 17 50
Industrial Revenue Bonds 833 1,133
Other Notes 8% to 10% 2005 561 663 770
Unsecured Debt:
Industrial Revenue Bonds 3.75% to 6.46% * 2020 7,997 10,230 11,703
Industrial Revenue Bonds 2 3.65% * 2005 8,800 9,600 10,300
Medium Term Notes 36.50% to 8.20% 2022 249,972 249,966 217,959
Convertible Subordinated Notes 4 3.00% 2003 254,505 251,524
Bank Notes 5 4.95% to 5.11% * 1996 23,863 57,955 57,955
Capital Leases (Note 13) 6.58% to 11.56% 2033 161,985 60,558 34,090
Total Long-Term Debt 708,097 641,880 335,283
Less Current Maturities 26,913 49,547 21,721
Long-Term Debt, Excluding
Current Maturities $681,184 $592,333 $313,562
* Interest rate varies as a percentage of prime rate or other interest index.
Interest rates shown are as of January 31, 1995.
Prime rate was 8.5% at January 31, 1995.
Debt maturities, exclusive of capital leases (see Note 13), for the next five
fiscal years are as follows (in millions): 1995, $23.1; 1996, $5.3; 1997,
$13.3; 1998, $1.7 ; 1999, $46.5.
Notes:
1 Real properties pledged as collateral for secured debt had net book
values (in millions) at January 31, 1995, as follows: insurance company
notes - $3.8 and other notes - $3.2.
2 The Company issued notes to secure $11.7 million floating rate monthly
demand industrial revenue bonds in Fiscal 1985. The interest rates are
tied to an interest index based on comparable securities traded at par
and other pertinent financial market rates. With certain restrictions,
the bonds can be converted to a fixed interest rate based on a fixed
interest index at the Company's option.
3 In April 1992, the Company filed a shelf-registration with the Securities
and Exchange Commission registering up to $250 million of Medium Term
Notes to be issued in the future. The Company issued $218 million of
these notes in Fiscal 1992. The remaining $32 million of these notes were
issued in February 1993. The notes bear interest rates that range from
6.50% to 8.20% and are scheduled to mature from 1997 to 2022.
4 On July 22, 1993, the Company sold $287.5 million aggregate principal of
its 3% Convertible Subordinated Notes due July 22, 2003. The notes are
convertible into Lowe's Common Stock at the conversion rate of 38.32
shares of common stock per each $1,000 principal amount. The notes were
issued at an original price of $880.27 per $1,000 principal amount, which
represented an original issue discount of 11.973% payable at maturity.
Annual interest on the notes at 3% and accretion of the original issue
discount represents an annual yield to maturity of 4.5%. The notes are
callable (subject to certain adjustments) at any time on or after July
22, 1996.
During Fiscal 1994, $224,000 principal of the Company's 3% Convertible
Subordinated Notes were converted into 8,570 shares of the Company's
common stock.
5 The unsecured bank notes were obtained for the purpose of acquiring the
Company's common stock to fund the ESOP. These notes require that certain
financial conditions be maintained, restrict other borrowings, and limit
the payment of dividends to $40 million during any one year.
NOTE 7 - Derivative Financial Instruments:
The Company has only limited involvement with derivative financial
instruments, and does not use them for trading purposes.
The Company enters into derivatives, exclusively interest rate swaps and
caps, to lower funding costs or alter interest rate exposures for long-term
liabilities. Interest rate swaps allow the Company to raise long-term
borrowings at fixed rates and swap them into variable rates for shorter
durations. This enables the Company to separate interest rate management
from debt funding decisions. At January 31, 1995, the Company had 23
interest rate swap agreements outstanding with financial institutions, having
notional amounts of $10 million each and a total notional amount of $230
million. Under the agreements, the Company will receive interest payments at
an average fixed rate of 5.64% and will pay interest on the same notional
amounts at a floating rate based on an interest rate index, which was 6.88%
as of January 31, 1995. These interest rate swap agreements are scheduled to
terminate as follows (in millions): 1995, $90; 1996, $90; 1997, $50.
Interest rate cap agreements are used to reduce the potential impact of
increases in interest rates on the interest rate swap agreements, discussed
above. At January 31, 1995, the Company was a party to 23 interest rate cap
agreements, each with terms tied to the terms of the interest rate swap
agreements. The agreements entitle the Company to receive from
counterparties on a semi-annual basis the amounts, if any, by which the
Company's interest payments on its $230 million notional amount of interest
rate swap agreements exceed approximately 75 basis points over the fixed rate
on each swap.
The Company is exposed to credit loss in the event of nonperformance by the
counterparties to its interest rate swap agreements and interest rate cap
agreements. The Company anticipates that counterparties will be able to
fully satisfy their obligations under the agreements. The counterparties
consist of a number of financial institutions whose credit ratings were AA or
better at the time the agreements are instituted. No collateral is held in
relation to the agreements. Credit exposure exists in relation to all the
Company's financial instruments, and is not unique to derivatives.
NOTE 8 - Disclosures about Fair Values of Financial Instruments:
The following estimated fair value amounts have been determined, using
available market information and appropriate valuation methodologies.
However, considerable judgement is necessarily required in interpreting
market data to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts that
the Company could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect
on the estimated fair value amounts.
(Dollars in Thousands) January 31, 1995 January 31, 1994 January 31, 1993
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
Assets:
Cash and Cash Equivalents $150,319 $150,319 $73,253 $ 73,253 $ 48,949 $ 48,949
Short-Term Investments 118,155 118,155 35,215 35,240 5,900 5,900
Net Receivables 109,214 109,214 48,500 48,500 53,288 53,288
Long-Term Investments 83,459 83,459 40,408 40,801 23,270 23,664
Liabilities:
Accounts Payable 675,436 675,436 467,278 467,278 330,584 330,584
Short-Term Debt 1,903 1,903 2,281 2,281 3,193 3,193
Long-Term Debt:
Convertible Subordinated Notes 254,505 402,186 251,524 362,250
Other 453,592 456,914 390,356 410,216 335,283 340,578
Off-Balance Sheet Financial Instruments-
Unrealized Gains (Losses)
Interest Rate Swap Agreements (6,482) 4,421 2,434
Interest Rate Cap Agreements 3,915
Cash and cash equivalents, receivables, accounts payable, and short-term
debt - The carrying amounts of these items are a reasonable estimate of their
fair value.
Short-term investments and long-term investments - At January 31, 1995, these
investments are classified as available for sale and carried at their fair
value in accordance with SFAS 115, "Accounting for Certain Investments in
Debt and Equity Securities". Prior year's fair value is estimated from
quoted market prices for these or similar investments.
Long-term debt - Interest rates that are currently available to the Company
for issuance of debt with similar terms and remaining maturities are used to
estimate fair value for debt issues that are not quoted on an exchange.
Interest rate swap agreements and interest rate cap agreements - The fair
value of interest rate swaps and caps are the amounts at which they could be
settled, based on estimates obtained from dealers.
The amortized cost, gross unrealized gains and losses and fair values of
investment securities, all of which are classified as available-for-sale
securities, at January 31, 1995 are as follows:
(Dollars in Thousands)
Amortized Gross Unrealized Fair
Type Cost Gains Losses Value
Municipal Obligations $ 33,234 $ 1 $ (228) $ 33,007
Money Market Preferred Stock 86,476 13 (1,341) 85,148
Classified as Short-term 119,710 14 (1,569) 118,155
Municipal Obligations 50,944 989 (1,902) 50,031
Money Market Preferred Stock 33,500 (72) 33,428
Classified as Long-term 84,444 989 (1,974) 83,459
Total $204,154 $1,003 $(3,543) $201,614
The proceeds from sales of available-for-sale securities were $79.9 million
for the year ended January 31, 1995.
Gross realized gains and (losses) for the year ended January 31, 1995 on the
sale of available for sale securities were $112 thousand and $(836) thousand,
respectively.
Maturities of municipal obligations classified as long-term are $9.9 million
up to 1 year, $39.3 million after 1 year through 5 years, and $.8 million
after 5 years through 10 years. The $33.4 million money market preferred
stock has no stated maturity.
NOTE 9 - Income Taxes:
(Dollars in Thousands)
Fiscal Years End on January 31 Fiscal 1994 Fiscal 1993 Fiscal 1992
of Following Year Amount % Amount %Amount %
Statutory Rate Reconciliation
Pre-Tax Earnings $343,531 100.0% $198,324 100.0% $125,892 100.0%
Federal Income Tax at Statutory
Rate 120,236 35.0 69,413 35.0 42,803 34.0
State Income Taxes-Net of Federal
Tax Benefit 4,248 1.2 2,340 1.2 1,443 1.1
Other (4,513) (1.3) (5,215) (2.6) (3,074) (2.4)
Total Income Tax Provision $119,971 34.9% $66,538 33.6% $41,172 32.7%
Components of Income Tax Provision
Current
Federal $ 98,432 82.0% $58,088 87.3% $31,289 76.0%
State 3,431 2.9 2,590 3.9 1,651 4.0
Total Current 101,863 84.9 60,678 91.2 32,940 80.0
Deferred
Federal 15,004 12.5 4,850 7.3 7,697 18.7
State 3,104 2.6 1,010 1.5 535 1.3
Total Deferred 18,108 15.1 5,860 8.8 8,232 20.0
Total Income Tax Provision $119,971 100.0% $66,538 100.0% $41,172 100.0%
The tax effect of cumulative temporary differences and carryforwards that
gave rise to the deferred tax assets and liabilities and the related
valuation allowance at January 31, 1995, 1994 and 1993 are as follows (in
thousands):
January 31, 1995
Assets LiabilitiesTotal
Accrued Store Restructuring Costs $17,077 $17,077
Excess Tax Over Book Depreciation $(63,267) (63,267)
Excess Book Over Tax Property Taxes 6,230 6,230
Other, Net 18,833 (9,806) 9,027
Less Valuation Allowance (149) (149)
Total $41,991 $(73,073) $(31,082)
January 31, 1994
Assets LiabilitiesTotal
Accrued Store Restructuring Costs $22,381 $22,381
Excess Tax Over Book Depreciation $(46,787) (46,787)
Excess Book Over Tax Property Taxes 4,944 (1,038) 3,906
Other, Net 18,355 (7,994) 10,361
Less Valuation Allowance (3,726) (3,726)
Total $41,954 $(55,819) $(13,865)
January 31, 1993
Assets LiabilitiesTotal
Accrued Store Restructuring Costs $19,152 $19,152
Excess Tax Over Book Depreciation $(34,930) (34,930)
Excess Book Over Tax Property Taxes 3,445 (1,921) 1,524
Other, Net 16,479 (6,924) 9,555
Less Valuation Allowance (3,306) (3,306)
Total $35,770 $(43,775) $(8,005)
The valuation allowance decreased $3,577,000, and increased $420,000 and
$559,000 during the years ended January 31, 1995, 1994 and 1993,
respectively.
NOTE 10 - Employee Retirement Plans:
The Company's contribution to its Employee Stock Ownership Plan (ESOP) is
determined annually by the Board of Directors. The ESOP covers all employees
after completion of one year of employment and 1000 hours of service during
that year. Contributions are allocated to participants based on their
eligible compensation relative to total eligible compensation. The Board
authorized contributions totaling 13% of eligible compensation for each of
the Fiscal Years 1994, 1993 and 1992. Contributions may be made in cash or
shares of the Company's common stock and are generally made in the following
fiscal year.
On January 29, 1993, the Board of Directors authorized the funding of the
Fiscal 1992 ESOP contribution primarily with the issuance of new shares of
the Company's common stock. During Fiscal 1993, the Company issued 1,696,034
shares with a cost of $30.6 million. The remaining Fiscal 1992 contribution
was funded with $1.0 million in cash.
On January 31, 1994, the Board of Directors authorized the funding of the
Fiscal 1993 ESOP contribution primarily with the issuance of new shares of
the Company's common stock. During Fiscal 1994, the Company issued 922,075
shares with a cost of $31.7 million. The remaining Fiscal 1993 contribution
was funded with $2.6 million in cash.
During Fiscal 1994, the Company prefunded $1.0 million of the Fiscal 1994
ESOP contribution in cash. On January 23, 1995, the Board of Directors
authorized the funding of the remaining Fiscal 1994 ESOP contribution
primarily with the issuance of new shares of the Company's common stock. As
of January 31, 1995, the Employee Stock Ownership Trust held approximately
17.8% of the outstanding common stock of the Company and was its largest
shareholder.
Shares allocated to ESOP participants accounts are voted by the trustee
according to the participants' voting instructions. Unallocated shares and
shares for which no voting instructions are received are voted by the trustee
as directed by a management committee. At January 31, 1995, there were no
unallocated shares.
The Board of Directors determines contributions to the Company's Employee
Savings and Investment Plan (ESIP) each year based upon a matching formula
applied to employee contributions. All employees are eligible to participate
in the ESIP on the first day of the month following completion of one year of
employment. Company contributions to this plan for Fiscal 1994, 1993 and 1992
were $4.9, $3.9 and $3.4 million, respectively. The Company's common stock is
an investment option for participants in the ESIP. As of January 31, 1995,
the ESIP held approximately 1.0% of the outstanding common stock of the
Company. Shares held in the ESIP are voted by the trustee as directed by an
administrative committee of the ESIP.
The Company does not believe that it has any material liability for
postemployment or post-retirement benefits.
NOTE 11 - Shareholders' Equity:
Authorized shares of common stock were 700 million at January 31, 1995, and
120 million at January 31, 1994 and 1993.
Transactions affecting the shareholders' equity section of the consolidated
balance sheets are summarized as follows:
(In Thousands) Shares (In Thousands) Shareholders' Equity
Unrealized
Unearned Loss on
Capital in Compensation Available
Common Excess of Retained Restricted For Sale Total
Outstanding Stock Par Value Earnings Stock Awards Securities Equity
Balance January 31, 19921 45,760 $72,880 $170,148 $425,526 $668,554
Net Earnings 84,720 84,720
Tax Effect of Incentive
Stock Options Exercised (Note 12) 80 80
Cash Dividends (21,153) (21,153)
Stock Options Exercised (Note 12) 186 93 986 (60) 1,019
Balance January 31, 1993 145,946 72,973 171,214 489,033 nil nil 733,220
Net Earnings 131,786 131,786
Tax Effect of Incentive
Stock Options Exercised (Note 12) 172 172
Cash Dividends (23,571) (23,571)
Stock Options Exercised (Note 12) 245 122 1,442 (60) 1,504
Stock Issued to ESOP (Note 10) 1,696 848 30,134 (424) 30,558
Balance January 31, 1994 147,887 73,943 202,962 596,764 nil nil 873,669
Net Earnings 223,560 223,560
Tax Effect of Non-qualified
Stock Options Exercised (Note 12) 2,344 2,344
Cash Dividends (27,433) (27,433)
Stock Sale 10,350 5,175 310,522 315,697
Stock Options Exercised (Note 12) 172 86 1,219 1,305
Stock Received for Exercise of Stock Options (6) (3) (202) (205)
Stock Issued to ESOP (Note 10) 922 461 31,268 31,729
Conversion of 3% Notes 8 4 193 197
Shares issued to Directors 4 2 124 126
Unearned Compensation-Restricted
Stock Awards 190 96 6,408 (5,949) 555
Unrealized Loss on Available for
Sale Securities $(1,654) (1,654)
Balance January 31, 1995 159,527 $79,764 $554,838 $792,891 $(5,949) $(1,654) $1,419,890
The Company has 5 million authorized shares of preferred stock ($5 par), none
of which have been issued. The preferred stock may be issued by the Board of
Directors (without action by shareholders) in one or more series, having such
voting rights, dividend and liquidation preferences and such conversion and
other rights as may be designated by the Board of Directors at the time of
issuance of the preferred shares.
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. The
shelf registration became effective on February 8, 1994.
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 $315,697,000. The proceeds
are being used to finance the Company's large store expansion program and for
general corporate purposes.
Unearned Compensation - Restricted Stock Awards of $5,949,000 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
will be amortized as earned over periods not exceeding seven years
The Company has a shareholder rights plan which provides for a dividend
distribution of one preferred share purchase right on each outstanding share
of common stock. Each purchase right will entitle shareholders to buy one
unit of a newly authorized series of preferred stock. A shareholder's
interest is not diluted by the effects of a stock dividend or stock split.
Each unit is intended to be the equivalent of one share of common stock. The
purchase rights will be exercisable only if a person or group acquires or
announces a tender offer for 20% or more of Lowe's common stock. The
purchase rights do not apply to the person or group acquiring the stock. The
purchase rights will expire on September 19, 1998.
NOTE 12 - Stock Incentive Plans:
The Company has a stock option plan under which incentive and non-qualified
stock options, stock appreciation rights, stock awards and incentive awards
may be granted to key employees. Four million common shares were reserved for
option purposes when the plan began in 1985. An additional one million shares
were reserved when the plan was amended in 1994. No awards may be granted
after January 31, 2004. At January 31, 1995, there were 2,216,040 shares
available for grants under the plan. Option information is summarized as
follows:
Key Employee Stock Option Plan Option Price
Shares Per Share
(in Thousands)
Outstanding January 31, 1992 530 $4.063, $6.375
Granted 30 $10.188
Canceled or Expired (3) $4.063, $6.375
Exercised (186) $4.063, $6.375
Outstanding January 31, 1993 371 $4.063, $6.375, $10.188
Exercised (217) $4.063, $6.375
Outstanding January 31, 1994 154 $6.375, $10.188
Granted 20 $38.75
Canceled or Expired (2) $6.375
Exercised (152) $6.375, $10.188
Outstanding January 31, 1995 20 $38.75
Prior to Fiscal 1989, all options granted were incentive options whereby the
option prices were at least equal to the fair market values of the stock at
the grant dates. Between Fiscal 1989 and Fiscal 1994, options granted have
been adjustable non-qualified options exercisable at a maximum price of
$10.188 per share. Upon exercise of a non-qualified option, the optionee
makes a payment to the Company equal to the shares' fair market value on the
date the option was granted. In accordance with a formula set forth in each
option agreement, the Company uses part of the option price to make a federal
income tax deposit on behalf of the optionee. The options granted in Fiscal
1994 were incentive options.
Incentive stock option shares which are sold by the optionee within two years
of grant or one year of exercise result in a tax deduction for the Company
equivalent to the taxable gain recognized by the optionee. For financial
reporting purposes, the tax effect of this deduction is accounted for as a
credit to capital in excess of par value rather than as a reduction of income
tax expense. Such optionee sales resulted in a tax benefit to the Company of
approximately $2,344 thousand, $172 thousand and $80 thousand during Fiscal
Years 1994, 1993 and 1992, respectively.
Stock appreciation rights are denominated in units, which are comparable to a
share of Common Stock for purposes of determining the amount payable under an
award. An award entitles the participant to receive the excess of the final
value of the unit over the fair market value of a share of common stock on
the first day of the performance period. The final value is the average
closing price of a share of Common Stock during the last month of the
performance period. Limits may be established with respect to the amount
payable on each unit. A total of 1,104,500 stock appreciation rights, with
performance periods of one to three years, with a maximum payout of
$6,303,000, were outstanding at January 31, 1995. The costs of these are
being expensed over the performance periods.
A total of 192,000 stock awards have been granted under the plan. These
shares are nontransferable and subject to forfeiture for periods prescribed
by the Company. These shares may become transferable and vested earlier
based on achievement of certain performance measures. A total of 2,000
shares were forfeited during Fiscal 1994 and no shares became vested or
transferable during Fiscal 1994.
During Fiscal 1989, shareholders approved a Non-Employee Directors' Stock
Option Plan. This Plan provided that adjustable non-qualified options
representing 4,000 shares of Lowe's common stock would be granted to each
outside Director following the Annual Meeting in 1989, 1990, 1991, 1992 and
1993. Two hundred thousand shares of common stock were reserved to fulfill
the requirements of this Plan. Options representing 28,000 shares were
granted under this Plan in each of Fiscal 1989, Fiscal 1990, Fiscal 1991,
Fiscal 1992 and Fiscal 1993, of which options representing 32,000 shares have
been exercised. The option price per share was $6.375 for Fiscal 1989,
$10.906 for Fiscal 1990, $8.625 for Fiscal 1991, $10.969 for Fiscal 1992 and
$18.875 for Fiscal 1993. The non-qualified options granted to Directors
include the same tax deposit feature described above with respect to the Key
Employee Stock Option Plan. This Plan expired at the end of Fiscal 1993.
At January 31, 1995, options for 20,000 shares (expiration date in 2004) were
exercisable under the Key Employee Stock Option Plan and options for 88,000
shares (expiration dates range from 1999 through 2003) were exercisable under
the Non-Employee Directors' Stock Option Plan.
During Fiscal 1994, shareholders approved a Director's Stock Incentive Plan.
This Plan provides that at the first Board meeting following each annual
meeting of shareholders, the Company shall issue each non-employee Director
500 shares of Common Stock. Up to 25,000 shares may be issued under this
Plan. The last issuance pursuant to this Plan will occur at the first Board
meeting following the 1998 Annual Meeting. In Fiscal 1994, 4,000 shares were
issued under this Plan.
NOTE 13 - Leases:
The future minimum rental payments required under capital and operating
leases having initial or remaining noncancelable lease terms in excess of one
year are summarized as follows:
Operating Leases Capital Leases
Fiscal Year Real Estate Equipment Real Estate Equipment Total
(Dollars in Thousands)
1995 $ 52,390 $588 $ 16,644 $ 355 $ 69,977
1996 56,819 179 16,588 123 73,709
1997 56,179 10 16,607 4 72,800
1998 48,340 10 16,309 64,659
1999 47,935 10 16,283 64,228
Later Years 710,746 249,218 959,964
Total Minimum Lease
Payments $972,409* $797 $331,649 $482 $1,305,337
Total Minimum Capital
Lease Payments $332,131
Less Amount Representing
Interest 170,146
Present Value of Minimum
Lease Payments 161,985
Less Current Maturities 3,813
Present Value of Minimum
Lease Payments,
Less Current Maturities $158,172
* Total minimum payments have not been reduced by minimum sublease rentals
of $1.4 million to be received in the future under noncancelable
subleases.
Rental expenses under operating leases for real estate and equipment were
$40.2 million, $27.2 million and $20.4 million in Fiscal 1994, 1993 and 1992,
respectively.
The Company leases certain store facilities under agreements with original
terms generally of twenty years. Agreements generally provide for contingent
rental based on sales performance in excess of specified minimums. To date,
contingent rentals have been very nominal. The leases typically contain
provisions for four renewal options of five years each. Certain equipment is
also leased by the Company under agreements ranging from two to five years.
These agreements typically contain renewal options providing for a
renegotiation of the lease, at the Company's option, based on the fair market
value at that time.
The Company entered into a lease agreement in January 1993 for ten store
properties. The initial terms of these leases are three years with renewal
terms for up to an additional nine years. The rental amounts are based on the
cost of the property plus the borrowing cost of the lessor. Under the
agreement, the Company advanced part of the acquisition cost of the
properties and at January 31, 1994 had a receivable from the lessor of $44.0
million classified on the balance sheet under Other Current Assets. The
receivable was collected in the subsequent fiscal year.
The Company entered into a lease agreement in August 1990 for nine store
properties. The initial terms of these leases are five years with renewal
terms for up to an additional thirty-five years. The rental amounts are based
on the cost of the property plus the borrowing cost of the lessor. Under the
agreement, the Company advanced part of the acquisition cost of the
properties and at January 31, 1993 had a receivable from the lessor of $17.4
million classified on the balance sheet under Other Current Assets. The
receivable was collected in the subsequent fiscal year.
NOTE 14 - Commitments, Contingencies and Litigation:
The Company had purchase commitments at January 31, 1995, of approximately
$21.3 million for land, buildings and construction of facilities, and $16.8
million for equipment.
See Note 13 concerning commitments related to lease agreements.
The Company is a defendant in legal proceedings considered to be in the
normal course of business and none of which, singularly or collectively, are
considered material to the Company as a whole. Potential liability in excess
of the Company's self-insured retention under these proceedings is covered by
insurance.
The Company is subject to various environmental protection laws and
regulations and is operating within such laws or is taking action aimed at
assuring compliance with such laws and regulations. The Company has been
identified as a potentially responsible party (PRP) in connection with three
land-fill sites at which environmental damage is alleged. Any associated
costs to the Company is not expected to have a material impact on the
Company's financial condition or results of operations.
NOTE 15 - Store Restructuring:
In Fiscal 1991, the Company recorded a pre-tax fourth quarter charge of $71.3
million for the expected costs and expenses required to accelerate the
Company's conversion from a chain of small stores to a chain of large stores.
The restructuring charge is composed primarily of write-downs of long-lived
assets to their net realizable value, principally real estate for owned
locations, certain leasehold improvements, fixtures and equipment. It also
includes certain relocation costs and expenses. The charge included stores
relocated under the restructuring plan in the fourth quarter of Fiscal 1991
and those scheduled for closing and relocation through Fiscal 1995.
NOTE 16 - Other Information:
(Dollars in Thousands)
Net interest expense is composed of the following:
Years Ended January 31, 1995 1994 1993
Long-Term Debt $ 43,437 $ 25,146 $ 12,634
Short-Term Debt 1,056 1,217 6,529
Amortization of Loan Costs 295 272 274
Short-Term Interest Income (12,237) (4,765) (1,989)
Interest Capitalized (4,678) (3,592) (1,849)
Net Interest Expense $ 27,873 $ 18,278 $ 15,599
Supplemental Disclosures of Cash Flow Information:
Years Ended January 31, 1995 1994 1993
Cash Paid for Interest
(Net of Amount Capitalized) $43,145 $25,677 $17,857
Cash Paid for Income Taxes 108,064 58,761 40,042
Noncash Investing and Financing Activities:
Fixed Assets Acquired under
Capital Leases 104,207 29,343 24,566
Common Stock Issued to ESOP (Note 10) 31,729 30,558
Common Stock Issued to
Executives and Directors 6,630
Common Stock Received for
Exercise of Stock Options 205
Conversion of Debt to Common Stock 197
Notes Received in Exchange
for Property $ 6,067 $ 886 $ 1,536
Supplemental Disclosure of Operating Expenses:
Advertising expenses were $71.0, $59.3 and $65.0 million for Fiscal 1994,
1993 and 1992, respectively.
SELECTED FINANCIAL DATA
LOWE'S COMPANIES, INC. AND SUBSIDIARY COMPANIES
(Dollars in Thousands, Except Per Share Data)
Fiscal Years End on January 31 of
Following Year (Unaudited) 1994 1993 1992 1991 1990
Selected Income Statement Data:
Net Sales $6,110,521 $4,538,001 $3,846,418 $3,056,247 $2,833,108
Net Earnings 223,560 131,786 84,720 6,487 71,087
Earnings Per Share-Full Dilution 1.39 .89 .58 .04 .48
Cash Dividends Per Share $ .18 $ .16 $ .14 $ .14 $ .13
Selected Balance Sheet Data:
Total Assets $3,105,992 $2,201,648 $1,608,877 $1,441,228 $1,203,052
Long-Term Debt, Including
Current Maturities $ 708,097 $ 641,880 $ 335,283 $ 131,350 $ 169,441
Selected Quarterly Data (Unaudited) *
Three Months Ended January 31 October 31 July 31 April 30
Fiscal 1994
Net Sales $1,487,489 $1,579,005 $1,647,019 $1,397,008
Gross Margin 391,130 381,146 403,560 336,708
Net Earnings 46,265 54,191 71,351 51,753
Earnings Per Share-Full Dilution $ .28 $ .33 $ .45 $ .34
Fiscal 1993
Net Sales $1,145,828 $1,158,370 $1,241,691 $992,112
Gross Margin 279,017 275,620 292,480 234,167
Net Earnings 25,733 31,645 44,960 29,448
Earnings Per Share-Full Dilution $ .17 $ .21 $ .31 $ .20
Fiscal 1992
Net Sales $ 910,298 $ 991,192 $1,061,645 $883,283
Gross Margin 209,337 231,372 246,741 213,215
Net Earnings 12,323 18,900 29,718 23,779
Earnings Per Share-Full Dilution $ .08 $ .13 $ .20 $ .16
* LIFO Adjustment:
Fiscal 1994 - The total LIFO effect for the year was a charge of $.4
million. A charge of $9.5 million was made against earnings through the
first nine months, resulting in a fourth quarter credit of $9.1 million.
Fiscal 1993 - The total LIFO effect for the year was a charge of $15.5
million. A charge of $10.3 million was made against earnings through the
first nine months, resulting in a fourth quarter charge of $5.2 million.
Fiscal 1992 - The total LIFO effect for the year was a charge of $9.5
million. A charge of $3.7 million was made against earnings through the
first nine months, resulting in a fourth quarter charge of $5.8 million.
Lowe's Quarterly Stock Price Range and Cash Dividend Payment*
Fiscal 1994 Fiscal 1993 Fiscal l992
High Low Dividend High Low Dividend High Low Dividend
1st Quarter $36 1/2 $27 3/4 $.040 $17 11/16 $13 5/16 $.040 $10 7/8 $8 21/32 $.035
2nd Quarter 37 3/4 30 1/2 .045 20 15 .040 11 13/16 9 1/16 .035
3rd Quarter 40 7/8 30 .045 24 11/16 18 3/8 .040 12 5/16 8 .035
4th Quarter $41 3/8 $33 1/8 $.045 $31 $23 3/16 $.040 $14 6/16 $9 1/4 $.040
<FN>
Source: The Wall Street Journal
* As restated for a 2-for-1 stock split to shareholders of record March 16, 1994.
</FN>
Lowe's Board of Directors
William A. Andres
Director since 1986, age 68. Chairman of Committee of Independent Directors,
Member of Audit Committee and Compensation Committee of the Company.
Previously Chairman of the Board and Chief Executive Officer (1976-1983),
Chairman of Executive Committee (1983-1985) of Dayton Hudson Corporation
(Retail Chain), Minneapolis, Minn. (Mr. Andres retired in September 1985.)
Other directorships: Jostens, Inc., Minneapolis, Minn., since 1985; Scott
Paper Company, Philadelphia, Penn., since 1983; Multifoods, Inc.,
Minneapolis, Minn., since 1978; Hannaford Bros., Scarborough, Me., since
1986.
John M. Belk
Director since 1986, age 75. Member of Audit Committee, Compensation
Committee and Committee of Independent Directors of the Company. Chairman of
the Board, Belk Stores Services, Inc. (Retail Department Stores), Charlotte,
N.C., since 1980. Other directorships: Coca-Cola Bottling Company
Consolidated, Charlotte, N.C., since 1972; Chaparral Steel, Midlothian, Tex.,
since 1987.
Gordon E. Cadwgan
Director since 1961, age 81. Chairman of Audit Committee, Member of
Compensation Committee, Executive Committee and Committee of Independent
Directors of the Company. Cadwgan Associates, Inc. (Trustee and Financial
Consultant), affiliated with Tucker Anthony, Inc., Boston, Mass., since 1979.
Other directorships: Third Century Fund, Inc., Providence, R.I., since 1981.
Carol A. Farmer
Director since 1994, age 50. Member of Audit Committee, Government/Legal
Affairs Committee and Committee of Independent Directors of the Company.
President of Carol Farmer Associates, Inc. (Trend Forecasting and
Consulting), Boca Raton, Fla., since 1985. Other directorships: The Sports
Authority, Inc., Ft. Lauderdale, Fla., since 1995.
Leonard G. Herring
Director since 1956, age 67. President and Chief Executive Officer since
1978, Member of Executive Committee and Government/Legal Affairs Committee of
the Company. Other directorships: First Union Corporation, Charlotte, N.C.,
since 1986.
Petro Kulynych
Director since 1952, age 73. Member of Audit Committee, Executive Committee
and Government/Legal Affairs Committee of the Company, having previously
served as Managing Director (1978-1983). (Mr. Kulynych retired in December
1983.) Other directorships: Local Board, Wachovia Bank of North Carolina,
N.A., North Wilkesboro, N.C., since 1988; Carolina Motor Club, Inc.
Russell B. Long
Director since 1987, age 76. Chairman of Government/Legal Affairs Committee,
Member of Compensation Committee and Committee of Independent Directors of
the Company. Partner, Long Law Firm (Attorneys-at-Law), Washington, D.C.,
since 1988. Other directorships: Catalyst Vidalia Corp., Vidalia, La., since
1989; The New York Stock Exchange, Inc., New York, N.Y., since 1987. Other:
United States Senator 1948-1987; Member, Senate Finance Committee 1952-1987
(Chairman 1965-1981).
Robert G. Schwartz
Director since 1973, age 67. Chairman of Compensation Committee, Member of
Audit Committee and Committee of Independent Directors of the Company.
Director of Metropolitan Life Insurance Company, New York, N.Y., since 1980,
having previously served as Chairman of the Board (1983-1993), President and
Chief Executive Officer (1989-1993) of that company. (Mr. Schwartz retired
in March 1993.) Other directorships: Potlatch Corporation, San Francisco,
Calif., since 1973; Comsat Corporation, Washington, D.C., since 1986; Mobil
Corporation, New York, N.Y., since 1987; The Reader's Digest Association,
Inc., Pleasantville, N.Y., since 1989; Consolidated Edison Company of New
York, New York, N.Y., since 1989; CS First Boston, Inc., New York, N.Y.,
since 1989; Lone Star Industries, Inc., Stamford, Conn., since 1994.
Robert L. Strickland
Director since 1961, age 64. Chairman of the Board since 1978, Chairman of
Executive Committee and Member of Government/Legal Affairs Committee. Other
directorships: Summit Communications, Atlanta, Ga., since 1987; T. Rowe
Price Associates, Inc., Baltimore, Md., since 1991; Hannaford Bros.,
Scarborough, Me., since 1994.
Robert L. Tillman
Director since 1994, age 51. Senior Executive Vice President and Chief
Operating Officer of the Company since 1994, having previously served as
Executive Vice President - Merchandising (1991-1994), Senior Vice President -
Merchandising (1989-1991). Other directorships: Wachovia Bank of North
Carolina, N.A., Winston-Salem, N.C., since 1994; Home Center Institute,
Chicago, Ill., since 1994.
Appendix to EXHIBIT 13
Graphic and Image Material
Inside front cover Map showing location of Lowe's stores
Indide front cover Chart
state # of stores
Alabama 13
Arkansas 6
Delaware 3
Florida 15
Georgia 20
Illinois 4
Indiana 16
Kentucky 19
Louisiana 13
Maryland 11
Michigan 2
Mississippi 7
Missouri 3
North Carolina 71
Ohio 19
Pennsylvania 11
South Carolina 24
Tennessee 26
Texas 2
Virginia 35
West Virginia 16
Page 4 Picture NASCAR fans at Atlanta Motor Speedway
Page 5 Picture Ron Hazelton, host of HGTV's "The House Doctor"
Page 5 Picture Lowe's #11 NASCAR, owned by Junior Johnson and
driven by Brett Bodine
page 6 Picture Lowe's distribution center in Indiana
Page 7 Picture Kitchen layout computer design kiosk
Page 7 Picture Bath
Page 8 Picture The Mahomet-Seymour Marching Bulldogs
Page 8 Picture Tree-planting project in Arden, NC
Page 9 Picture Lowes Home Safety Council Board of Directors
Page 9 Picture Fire safety houses teach prevention and escape
techniques
Page 10 Picture Lowe's investor Archie Fain
Page 11 Chart
The Competivie situation-Top Ten Building Supply/Home Centers
Dollars in Millions
Percent of 1994 Home
Rank Company 1994 Sales 1993 Sales Improvement Market *
1 The Home Depot $12,477 $ 9,239 9.9%
2 Lowe's Companies 6,111 4,538 4.8
3 Builders Square 2,951 2,150 2.3
4 Payless Cashways 2,723 2,601 2.2
5 Hechinger 2,500 2,103 2.0
6 Menard 2,400 1,700 1.9
7 Homebase 1,357 1,700 1.1
8 84 Lumber 1,250 1,000 1.0
9 Wickes Lumber 987 820 .8
10 Grossmans 759 852 .6
Total $33,515 $26,703 26.6%
* based on HIRI's estimate of $126.2 billion for 1994 home improvement market
Source: Building Supply Home Center's annual giants issue
Page 11 Chart Lowe's Total Market Potential
Dollars in Billions
Home Center Market
Building Contractor HomeOwner
New
Housing R&R* DIY Durable Total
1999e $75 $50 $113 $79 $317
1994p 61 37 89 54 241
1993 52 36 81 45 214
1992 46 33 74 41 194
1991 39 32 69 39 179
1990 45 36 70 36 187
1985 40 25 53 25 143
1980 $24 $16 $ 38 $14 $ 92
R&R=Repair and Remodel e=estimate p=preliminary
Source: Home Improvement Research Institute; Management Horizons
Page 11 Chart Merchandise Sales Trends
Dollars in Millions
Total Sales Change 1994 1994 1993 1993 1992 1992 1989 1989
5-Year From Total Total Total Total
Category CGR 1993 Sales % Sales % Sales % Sales %
1.Structural Lumber +15% +22% $ 911 15 745 16 622 16 $ 455 17
2.Building Commodities
& Millwork +10 +25 1,225 20 979 21 909 24 761 29
3.Home Decorating &
Illumination +28 +48 1,195 20 807 18 656 17 346 13
4.Kitchen, Bathroom,
& Laundry +24 +41 701 11 498 11 388 10 237 9
5.Heating, Cooling, &
Water Syastems +19 +30 348 6 267 6 211 6 144 5
6.Home Entertainment +17 +24 271 4 218 5 184 5 125 5
7.Yard,Patio,&Garden +23 +49 736 12 493 11 435 11 261 10
8.Tools +28 +47 382 6 259 6 200 5 112 4
9.Special Order Sales +10 +26 342 6 272 6 241 6 210 8
Totals +18% +35% $6,111 100 $4,538 100 $3,846 100 $2,651 100
Page 30 Picture Robert L. Tillman, William A. Andres, Robert L. Strickland,
Leonard G. Herring, Carol A. Farmer, John M. Belk, Petro
Kulnych, Russell B. Long, Robert G Schwartz, Gordon E. Cadwgan