UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
|
x
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF
1934
|
|
|
|
|
For
the quarterly period ended July 29, 2005
|
|
|
|
|
|
¨
|
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 incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
1000
Lowe's Blvd., Mooresville, NC
|
28117
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
|
|
|
Registrant's
telephone number, including area code
|
(704)
758-1000
|
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.
|
x
|
Yes
|
o
|
No
|
Indicate
by check mark whether the registrant is an accelerated filer (as defined
in Rule
12b-2 of the Exchange Act).
|
x
|
Yes
|
o
|
No
|
Indicate
by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
|
o
|
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 AUGUST 26, 2005
|
|
|
Common
Stock, $.50 par value
|
779,660,336
|
|
LOWE'S
COMPANIES, INC.
-
INDEX -
|
|||||
|
PART
I - Financial Information
|
Page
No.
|
||||
|
Item
1. Financial Statements
|
|||||
|
3
|
|||||
|
4
|
|||||
|
5
|
|||||
|
6-10
|
|||||
|
11
|
|||||
|
12-18
|
|||||
|
19
|
|||||
|
|
|||||
|
19
|
|||||
|
PART
II - Other Information
|
|||||
|
19
|
|||||
|
20
|
|||||
|
20
|
|||||
|
21
|
|||||
|
22
|
|||||
Part
I - FINANCIAL INFORMATION
Item
1. Financial Statements
|
Lowe's
Companies, Inc.
|
|||||||||||||
|
In
Millions, Except Par Value Data
|
|||||||||||||
|
July
29,
|
July
30, 2004
|
January
28,
|
|||||||||||
|
2005
|
As
Restated
|
2005
|
|||||||||||
|
Assets
|
|||||||||||||
|
Current
assets:
|
|||||||||||||
|
Cash
and cash equivalents
|
$
|
1,112
|
$
|
696
|
$
|
642
|
|||||||
|
Short-term
investments
|
307
|
335
|
171
|
||||||||||
|
Accounts
receivable - net
|
19
|
41
|
9
|
||||||||||
|
Merchandise
inventory - net
|
6,340
|
5,286
|
5,982
|
||||||||||
|
Deferred
income taxes
|
95
|
82
|
95
|
||||||||||
|
Other
assets
|
94
|
62
|
75
|
||||||||||
|
Total
current assets
|
7,967
|
6,502
|
6,974
|
||||||||||
|
Property,
less accumulated depreciation
|
14,782
|
12,722
|
13,911
|
||||||||||
|
Long-term
investments
|
190
|
155
|
146
|
||||||||||
|
Other
assets
|
198
|
217
|
178
|
||||||||||
|
Total
assets
|
$
|
23,137
|
$
|
19,596
|
$
|
21,209
|
|||||||
|
Liabilities
and shareholders' equity
|
|||||||||||||
|
Current
liabilities:
|
|||||||||||||
|
Current
maturities of long-term debt
|
$
|
632
|
$
|
34
|
$
|
630
|
|||||||
|
Accounts
payable
|
2,981
|
2,452
|
2,687
|
||||||||||
|
Accrued
salaries and wages
|
329
|
250
|
386
|
||||||||||
|
Other
current liabilities
|
2,357
|
1,995
|
2,016
|
||||||||||
|
Total
current liabilities
|
6,299
|
4,731
|
5,719
|
||||||||||
|
Long-term
debt, excluding current maturities
|
2,810
|
3,664
|
3,060
|
||||||||||
|
Deferred
income taxes
|
691
|
656
|
736
|
||||||||||
|
Other
long-term liabilities
|
252
|
103
|
159
|
||||||||||
|
Total
liabilities
|
10,052
|
9,154
|
9,674
|
||||||||||
|
Shareholders'
equity:
|
|||||||||||||
|
Preferred
stock - $5 par value, none issued
|
-
|
-
|
-
|
||||||||||
|
Common
stock - $.50 par value;
|
|||||||||||||
|
Shares
issued and outstanding
|
|||||||||||||
|
July
29, 2005
|
780 | ||||||||||||
|
July
30, 2004
|
772 | ||||||||||||
|
January
28, 2005
|
774 |
390
|
386
|
387
|
|||||||||
|
Capital
in excess of par
|
1,710
|
1,385
|
1,514
|
||||||||||
|
Retained
earnings
|
10,984
|
8,672
|
9,634
|
||||||||||
|
Accumulated
other comprehensive income (loss)
|
1
|
(1
|
)
|
-
|
|||||||||
|
Total
shareholders' equity
|
13,085
|
10,442
|
11,535
|
||||||||||
|
Total
liabilities and shareholders' equity
|
$
|
23,137
|
$
|
19,596
|
$
|
21,209
|
|||||||
See
accompanying notes to the unaudited consolidated financial statements.
|
Lowe's
Companies, Inc.
|
|||||||||||||||||||||||||
|
In
Millions, Except Per Share Data
|
|||||||||||||||||||||||||
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||||||||||||||
|
July
30, 2004
|
July
30, 2004
|
||||||||||||||||||||||||
|
July
29, 2005
|
As
Restated
|
July
29, 2005
|
As
Restated
|
||||||||||||||||||||||
|
Current
Earnings
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
||||||||||
|
Net
sales
|
$
|
11,929
|
100.00
|
$
|
10,169
|
100.00
|
$
|
21,842
|
100.00
|
$
|
18,850
|
100.00
|
|||||||||||||
|
Cost
of sales
|
7,892
|
66.16
|
6,780
|
66.68
|
14,390
|
65.89
|
12,591
|
66.80
|
|||||||||||||||||
|
Gross
margin
|
4,037
|
33.84
|
3,389
|
33.32
|
7,452
|
34.11
|
6,259
|
33.20
|
|||||||||||||||||
|
Expenses:
|
|||||||||||||||||||||||||
|
Selling,
general and administrative
|
2,363
|
19.81
|
1,969
|
19.36
|
4,499
|
20.60
|
3,822
|
20.28
|
|||||||||||||||||
|
Store
opening costs
|
25
|
0.21
|
18
|
0.17
|
50
|
0.23
|
40
|
0.21
|
|||||||||||||||||
|
Depreciation
|
247
|
2.07
|
221
|
2.18
|
495
|
2.26
|
434
|
2.30
|
|||||||||||||||||
|
Interest
|
39
|
0.33
|
45
|
0.44
|
86
|
0.39
|
93
|
0.49
|
|||||||||||||||||
|
Total
expenses
|
2,674
|
22.42
|
2,253
|
22.15
|
5,130
|
23.48
|
4,389
|
23.28
|
|||||||||||||||||
|
Pre-tax
earnings
|
1,363
|
11.42
|
1,136
|
11.17
|
2,322
|
10.63
|
1,870
|
9.92
|
|||||||||||||||||
|
Income
tax provision
|
525
|
4.40
|
436
|
4.29
|
894
|
4.09
|
718
|
3.81
|
|||||||||||||||||
|
Net
earnings
|
$
|
838
|
7.02
|
$
|
700
|
6.88
|
$
|
1,428
|
6.54
|
$
|
1,152
|
6.11
|
|||||||||||||
|
Weighted
average shares outstanding - Basic
|
774
|
776
|
774
|
781
|
|||||||||||||||||||||
|
Basic
earnings per share
|
$
|
1.08
|
$
|
0.90
|
$
|
1.84
|
$
|
1.47
|
|||||||||||||||||
|
Weighted
average shares outstanding - Diluted
|
803
|
806
|
804
|
812
|
|||||||||||||||||||||
|
Diluted
earnings per share
|
$
|
1.05
|
$
|
0.87
|
$
|
1.78
|
$
|
1.43
|
|||||||||||||||||
|
Cash
dividends per share
|
$
|
0.06
|
$
|
0.04
|
$
|
0.10
|
$
|
0.07
|
|||||||||||||||||
|
Retained
Earnings
|
|||||||||||||||||||||||||
|
Balance
at beginning of period
|
$
|
10,193
|
$
|
8,002
|
$
|
9,634
|
$
|
7,574
|
|||||||||||||||||
|
Net
earnings
|
838
|
700
|
1,428
|
1,152
|
|||||||||||||||||||||
|
Cash
dividends
|
(47
|
)
|
(30
|
)
|
(78
|
)
|
(54
|
)
|
|||||||||||||||||
|
Balance
at end of period
|
$
|
10,984
|
$
|
8,672
|
$
|
10,984
|
$
|
8,672
|
|||||||||||||||||
See
accompanying notes to the unaudited consolidated financial
statements.
|
Lowe's
Companies, Inc.
|
|||||||
|
In
Millions
|
|||||||
|
Six
Months Ended
|
|||||||
|
July
30, 2004
|
|||||||
|
July
29, 2005
|
As
Restated
|
||||||
|
Cash
flows from operating activities:
|
|||||||
|
Net
earnings
|
$
|
1,428
|
$
|
1,152
|
|||
|
Adjustments
to reconcile net earnings to net cash provided by
|
|||||||
|
operating
activities:
|
|||||||
|
Depreciation
and amortization
|
505
|
443
|
|||||
|
Deferred
income taxes
|
(45
|
)
|
42
|
||||
|
Loss
on disposition/writedown of fixed and other assets
|
17
|
21
|
|||||
|
Stock-based
compensation expense
|
38
|
36
|
|||||
|
Tax
effect of stock options exercised
|
40
|
12
|
|||||
|
Changes
in operating assets and liabilities:
|
|||||||
|
Accounts
receivable - net
|
(10
|
)
|
105
|
||||
|
Merchandise
inventory - net
|
(358
|
)
|
(702
|
)
|
|||
|
Other
operating assets
|
(19
|
)
|
44
|
||||
|
Accounts
payable
|
294
|
240
|
|||||
|
Other
operating liabilities
|
336
|
324
|
|||||
|
Net
cash provided by operating activities
|
2,226
|
1,717
|
|||||
|
Cash
flows from investing activities:
|
|||||||
|
(Increase)
decrease in short-term investments
|
(55
|
)
|
460
|
||||
|
Purchases
of long-term investments
|
(132
|
)
|
(78
|
)
|
|||
|
Proceeds
from sale/maturity of long-term investments
|
8
|
6
|
|||||
|
Increase
in other long-term assets
|
(35
|
)
|
(17
|
)
|
|||
|
Fixed
assets acquired
|
(1,365
|
)
|
(1,320
|
)
|
|||
|
Proceeds
from the sale of fixed and other long-term assets
|
37
|
53
|
|||||
|
Net
cash used in investing activities
|
(1,542
|
)
|
(896
|
)
|
|||
|
Cash
flows from financing activities:
|
|||||||
|
Repayment
of long-term debt
|
(16
|
)
|
(60
|
)
|
|||
|
Proceeds
from employee stock purchase plan
|
32
|
30
|
|||||
|
Proceeds
from stock options exercised
|
147
|
46
|
|||||
|
Cash
dividend payments
|
(78
|
)
|
(54
|
)
|
|||
|
Repurchase
of common stock
|
(299
|
)
|
(1,000
|
)
|
|||
|
Net
cash used in financing activities
|
(214
|
)
|
(1,038
|
)
|
|||
|
Net
increase (decrease) in cash and cash equivalents
|
470
|
(217
|
)
|
||||
|
Cash
and cash equivalents, beginning of period
|
642
|
913
|
|||||
|
Cash
and cash equivalents, end of period
|
$
|
1,112
|
$
|
696
|
|||
See
accompanying notes to the unaudited consolidated financial statements.
Lowe's
Companies, Inc.
Note
1: Basis
of Presentation
- The
accompanying Consolidated Financial Statements (Unaudited) and notes are
presented in accordance with the rules and regulations of the Securities and
Exchange Commission and do not include all the disclosures normally required
in
annual consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States of America. The Consolidated
Financial Statements (Unaudited), in the opinion of management, contain all
adjustments necessary to present fairly the financial position as of July 29,
2005 and July 30, 2004, as restated, the results of operations for the three
and
six months ended July 29, 2005 and July 30, 2004, as restated, and cash flows
for the six months ended July 29, 2005 and July 30, 2004, as
restated.
These
interim financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Lowe's Companies, Inc.
(the “Company”) Annual Report on Form 10-K for the fiscal year ended January 28,
2005 (the “Annual Report”). The financial results for the interim periods may
not be indicative of the financial results for the entire fiscal year.
Certain
prior period amounts have been reclassified to conform to current
classifications.
Note
2: Restatement
- As
described in Note 2 in the Annual Report, the Company restated its prior period
financial statements, including its interim financial statements, to correct
errors resulting from its accounting for leases. In the restatement, the Company
accelerated depreciation expense for lease assets and leasehold improvements
to
limit the depreciable lives of those assets to the lease term, as determined
in
accordance with Statement of Financial Accounting Standards (SFAS) No. 13,
“Accounting for Leases.” The Company also revised its calculation of rent
expense and the related deferred rent liability for certain of its ground leases
by including in the straight-line rent expense calculations any free-rent
occupancy periods allowed under those ground leases while a store is being
constructed on the leased property. In the restatement, the Company also
adjusted its prior period financial statements to correct immaterial accounting
errors previously identified during the audit of those financial statements.
The
following tables summarize the effects of the restatement on the Company’s
consolidated balance sheet as of July 30, 2004, as well as the related effects
on the Company’s consolidated statements of earnings for the three and six
months ended July 30, 2004. The restatement did not affect net cash flows for
the six months ended July 30, 2004.
|
Consolidated
Balance Sheet
|
||||||||||
|
July
30, 2004
|
||||||||||
|
(In
Millions)
|
As
Previously Reported*
|
Adjustments
|
July
30, 2004
As
Restated
|
|||||||
|
Deferred
income taxes
|
$
|
80
|
$
|
2
|
$
|
82
|
||||
|
Total
current assets
|
6,500
|
2
|
6,502
|
|||||||
|
Property,
less accumulated depreciation
|
12,858
|
(136
|
)
|
12,722
|
||||||
|
Total
assets
|
$
|
19,730
|
$
|
(134
|
)
|
$
|
19,596
|
|||
|
Deferred
income taxes
|
726
|
(70
|
)
|
656
|
||||||
|
Other
long-term liabilities
|
62
|
41
|
103
|
|||||||
|
Total
liabilities
|
9,183
|
(29
|
)
|
9,154
|
||||||
|
Capital
in excess of par
|
1,380
|
5
|
1,385
|
|||||||
|
Retained
earnings
|
8,782
|
(110
|
)
|
8,672
|
||||||
|
Total
shareholders' equity
|
10,547
|
(105
|
)
|
10,442
|
||||||
|
Total
liabilities and shareholders' equity
|
$
|
19,730
|
$
|
(134
|
)
|
$
|
19,596
|
|||
|
*
Certain amounts have been reclassified to conform to current
classifications.
|
||||||||||
|
Consolidated
Statement of Earnings
|
||||||||||
|
July
30, 2004
|
||||||||||
|
Three
Months Ended
(In
Millions, Except Per Share Data)
|
As
Previously Reported
|
Adjustments
|
July
30, 2004
As
Restated
|
|||||||
|
Expenses:
|
||||||||||
|
Selling,
general and administrative
|
$
|
1,967
|
$
|
2
|
$
|
1,969
|
||||
|
Depreciation
|
216
|
5
|
221
|
|||||||
|
Total
expenses
|
2,246
|
7
|
2,253
|
|||||||
|
Pre-tax
earnings
|
1,143
|
(7
|
)
|
1,136
|
||||||
|
Income
tax provision
|
439
|
(3
|
)
|
436
|
||||||
|
Net
earnings
|
$
|
704
|
$
|
(4
|
)
|
$
|
700
|
|||
|
Basic
earnings per share
|
$
|
0.91
|
$
|
(0.01
|
)
|
$
|
0.90
|
|||
|
Diluted
earnings per share (Notes 3 and 9)
|
$
|
0.88
|
$
|
(0.01
|
)
|
$
|
0.87
|
|||
|
Consolidated
Statement of Earnings
|
||||||||||
|
July
30, 2004
|
||||||||||
|
Six
Months Ended
(In
Millions, Except Per Share Data)
|
As
Previously Reported
|
Adjustments
|
July
30, 2004
As
Restated*
|
|||||||
|
Expenses:
|
||||||||||
|
Selling,
general and administrative
|
$
|
3,821
|
$
|
2
|
$
|
3,822
|
||||
|
Depreciation
|
424
|
10
|
434
|
|||||||
|
Total
expenses
|
4,377
|
12
|
4,389
|
|||||||
|
Pre-tax
earnings
|
1,882
|
(12
|
)
|
1,870
|
||||||
|
Income
tax provision
|
723
|
(5
|
)
|
718
|
||||||
|
Net
earnings
|
$
|
1,159
|
$
|
(7
|
)
|
$
|
1,152
|
|||
|
Basic
earnings per share
|
$
|
1.48
|
$
|
(0.01
|
)
|
$
|
1.47
|
|||
|
Diluted
earnings per share (Notes 3 and 9)
|
$
|
1.44
|
$
|
(0.01
|
)
|
$
|
1.43
|
|||
|
*
Certain rows do not add due to rounding.
|
||||||||||
Additionally,
the Company’s auction rate securities are included in short-term investments to
conform to interpretations that make this classification more appropriate than
the previous years’ classification as cash equivalents. The amount reclassified
to short-term investments was $144 million at July 30, 2004. The impact on
cash
flows from investing activities resulting from this reclassification was an
increase of $389 million for the six month period ended July 30, 2004. There
was
no impact on total cash flows.
Note
3: Earnings Per Share
- Basic
earnings per share (EPS) excludes dilution and is computed by dividing the
applicable net earnings by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share is calculated based
on
the weighted-average shares of common stock as adjusted for the potential
dilutive effect of stock options and applicable convertible notes as of the
balance sheet date. In the fourth quarter of fiscal 2004, the Company
implemented Emerging Issues Task Force Issue No. 04-8 (EITF 04-8), "Accounting
Issues Related to Certain Features of Contingently Convertible Debt and the
Effect on Diluted Earnings per Share." Based on the EITF’s conclusion, the
dilutive effect of contingently convertible debt instruments should be included
in the calculation of diluted earnings per share regardless of whether the
contingency has been met. As a result of this implementation, the Company has
retroactively adjusted diluted earnings per share calculations for all periods
presented to include the dilutive effect of the assumed conversion of the
Company’s $580.7 million Senior Convertible Notes issued in October 2001. The
implementation of EITF 04-8 reduced previously reported diluted earnings per
share by approximately $0.01 for the three month period July 30, 2004 and $0.02
for the six month period ended July 30, 2004. The following table reconciles
EPS
for the three and six months ended July 29, 2005 and July 30,
2004.
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
|
(In
Millions, Except Per Share Data)
|
July
29, 2005
|
July
30, 2004
|
July
29, 2005
|
July
30, 2004
|
|||||||||
|
Net
earnings
|
$
|
838
|
$
|
700
|
$
|
1,428
|
$
|
1,152
|
|||||
|
Weighted
average shares outstanding
|
774
|
776
|
774
|
781
|
|||||||||
|
Basic
earnings per share
|
$
|
1.08
|
$
|
0.90
|
$
|
1.84
|
$
|
1.47
|
|||||
|
Diluted
earnings per share:
|
|||||||||||||
|
Net
earnings
|
$
|
838
|
$
|
700
|
$
|
1,428
|
$
|
1,152
|
|||||
|
Net
earnings adjustment for interest on convertible debt, net of
tax
|
3
|
3
|
7
|
7
|
|||||||||
|
Net
earnings, as adjusted
|
$
|
841
|
$
|
703
|
$
|
1,435
|
$
|
1,159
|
|||||
|
Weighted
average shares outstanding
|
774
|
776
|
774
|
781
|
|||||||||
|
Dilutive
effect of stock options
|
5
|
4
|
5
|
5
|
|||||||||
|
Dilutive
effect of convertible debt
|
24
|
26
|
25
|
26
|
|||||||||
|
Weighted
average shares, as adjusted
|
803
|
806
|
804
|
812
|
|||||||||
|
Diluted
earnings per share
|
$
|
1.05
|
$
|
0.87
|
$
|
1.78
|
$
|
1.43
|
|||||
Note
4: Property -
Property is shown net of accumulated depreciation of
$4.5 billion at
July
29, 2005, $3.7 billion at July 30, 2004 and $4.1 billion at January 28,
2005.
Note
5: Supplemental Disclosure
Supplemental
disclosures of cash flow information:
|
Six
Months Ended
|
|||||||
|
(In
Millions)
|
July
29, 2005
|
July
30, 2004
|
|||||
|
Cash
paid for interest (net of amount capitalized)
|
$
|
100
|
$
|
103
|
|||
|
Cash
paid for income taxes
|
$
|
884
|
$
|
552
|
|||
|
Conversions
of long-term debt to equity
|
$
|
250
|
$
|
7
|
|||
|
Non-cash
fixed asset acquisitions, including assets acquired under capital
lease
|
$
|
40
|
$
|
50
|
|||
Note
6: Comprehensive
Income -
Total
comprehensive income, comprised of net earnings and unrealized holding gains
(losses) on available-for-sale securities, totaled $839 million and $699
million, compared to net earnings of $838 million and $700 million for the
three
months ended July 29, 2005 and July 30, 2004, respectively. For the six months
ended July 29, 2005 and July 30, 2004, total comprehensive income totaled $1.428
billion and $1.151 billion, respectively.
Note
7: Accounting for Stock-Based Compensation
- The
Company has three stock incentive plans which are described more fully in Note
12 to the consolidated financial statements presented in the Annual Report.
The
Company recognizes stock-based compensation expense in accordance with the
fair-value recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," using the Black-Scholes option pricing model. The assumptions
used to determine the fair value of options granted during the six months ended
July 29, 2005 have not changed significantly from those disclosed in the Annual
Report. During the three month periods ended July 29, 2005 and July 30, 2004,
the Company recognized compensation expense totaling $22 million and $21
million, respectively, relating to stock options and awards, which generally
vest over three years. During the six month periods ended July 29, 2005 and
July
30, 2004, the Company recognized compensation expense totaling $38 million
and
$36 million, respectively.
As
the
Company adopted the fair-value recognition provisions of SFAS No. 123
prospectively for all employee awards granted or modified after January 31,
2003, the cost related to the stock-based compensation included in the
determination of net earnings for the three and six month periods ended July
29,
2005 and July 30, 2004 is less than that which would have been recognized if
the
fair-value-based method had been applied to all awards since the original
effective date of SFAS No. 123. The following table illustrates the effect
on
net earnings and earnings per share in each period if the fair-value-based
method had been applied to all outstanding and unvested awards.
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
|
(In
Millions, Except Per Share Data)
|
July
29, 2005
|
July
30, 2004
|
July
29, 2005
|
July
30, 2004
|
|||||||||
|
Net
earnings, as reported
|
$
|
838
|
$
|
700
|
$
|
1,428
|
$
|
1,152
|
|||||
|
Add:
Stock-based compensation expense included in net earnings, net
of related
tax effects
|
13
|
13
|
23
|
23
|
|||||||||
|
Deduct:
Total stock-based compensation expense determined under the
fair-value-based method for all awards, net of related tax
effects
|
(13
|
)
|
(23
|
)
|
(25
|
)
|
(45
|
)
|
|||||
|
Pro
forma net earnings
|
$
|
838
|
$
|
690
|
$
|
1,426
|
$
|
1,130
|
|||||
|
Earnings
per share:
|
|||||||||||||
|
Basic
- as reported
|
$
|
1.08
|
$
|
0.90
|
$
|
1.84
|
$
|
1.47
|
|||||
|
Basic
- pro forma
|
$
|
1.08
|
$
|
0.89
|
$
|
1.84
|
$
|
1.45
|
|||||
|
Diluted
- as reported
|
$
|
1.05
|
$
|
0.87
|
$
|
1.78
|
$
|
1.43
|
|||||
|
Diluted
- pro forma
|
$
|
1.05
|
$
|
0.86
|
$
|
1.77
|
$
|
1.40
|
|||||
Note
8:
Shareholders’
Equity
- The
Company repurchased 5.2 million common shares during the first six months of
fiscal 2005 at a cost of $299 million under the $1 billion share repurchase
program authorized by the Board of Directors in January 2005. As of July 29,
2005, the Company has remaining authorization under this share repurchase
program of $701 million.
The
Company repurchased 18.4 million common shares during the first six months
of
fiscal 2004 at a cost of $1 billion under the share repurchase program
authorized by the Board of Directors in December 2003. There were no amounts
remaining under this prior authorization as of July 30, 2004.
During
the first six months of fiscal 2005, holders of $360.5 million principal amount
of the Company’s convertible notes exercised their right to convert the notes
into 5.9 million shares of the Company’s common stock at the rate of 16.448
shares per note. During the first six months of fiscal 2004, holders of $10.0
million principal amount of convertible notes exercised their right to convert
the notes into 0.2 million shares of the Company’s common stock at the rate of
16.448 shares per note.
Note
9: Recent Accounting
Pronouncements
In
June
2005, the EITF reached a consensus on Issue No. 05-6 (EITF 05-6), "Determining
the Amortization Period for Leasehold Improvements." This guidance provides
that
leasehold improvements acquired in a business combination and those acquired
after the inception of a lease should be amortized over the shorter of the
useful life of the assets or a term that includes renewals that are reasonably
assured at the date of acquisition of the leasehold improvements. The guidance
is effective for periods beginning after June 29, 2005. The adoption of EITF
05-6 is not expected to have an impact on the Company’s consolidated financial
statements.
In
October 2004, the EITF reached a consensus on EITF 04-8. Based on the EITF’s
conclusion, the dilutive effect of contingently convertible debt instruments
should be included in the calculation of diluted earnings per share regardless
of whether the contingency has been met. The Company implemented the provisions
of EITF 04-8 in the fourth quarter of 2004. In accordance with the transition
provisions of EITF 04-8, the Company has retroactively adjusted diluted earnings
per share calculations for all periods presented to include the dilutive effect
of the assumed conversion of the Company’s $580.7 million Senior Convertible
Notes issued in October 2001. The implementation of EITF 04-8 reduced diluted
earnings per share by approximately $0.01 for each of the three month periods
ended July 29, 2005 and July 30, 2004 and $0.02 for each of the six month
periods ended July 29, 2005 and July 30, 2004. See further discussion in Note
3
to the consolidated financial statements herein.
In
December 2004, the Financial Accounting Standards Board issued SFAS No. 123
(revised) "Share-Based Payment." This statement eliminates the alternative
to
account for share-based compensation transactions using APB Opinion No. 25
and
will require that compensation expense be measured based on the grant-date
fair
value of the award and recognized over the requisite service period for awards
that vest. SFAS
No.
123 (revised) will also require a change in the classification of the benefits
of tax deductions in excess of recognized compensation cost to financing rather
than operating cash flows. The
Company is currently evaluating the impact of this statement, which will be
effective at the beginning of the Company’s fiscal 2006. The Company currently
recognizes stock-based compensation expense in accordance with the fair-value
provisions of SFAS No. 123. The adoption of SFAS No. 123 (revised) may affect
the Company’s methodology for determining the fair value of stock-based
compensation transactions and the method for recognizing the expense associated
with these transactions. However, the Company does not expect the adoption
of
this statement to have a material impact on its consolidated financial
statements.
To
the
Board of Directors and Shareholders of Lowe’s Companies, Inc.
Mooresville,
North Carolina
We
have
reviewed the accompanying consolidated balance
sheets of Lowe’s Companies, Inc. and subsidiaries (the “Company”) as of July 29,
2005 and July 30, 2004, and the related consolidated statements of current
and
retained earnings for the three-month and six-month periods then ended, and
of
cash flows for the six-month periods ended July 29, 2005 and July 30, 2004.
These interim financial statements are the responsibility of the Company’s
management.
We
conducted our reviews in accordance with standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with standards
of the Public Company Accounting Oversight Board (United States), 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 of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet
of
Lowe’s Companies, Inc. and subsidiaries as of January 28, 2005, 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 April 11,
2005 we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of January 28, 2005, 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
September
1, 2005
Item
2.
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This
discussion and analysis summarizes the significant factors affecting our
consolidated operating results, liquidity and capital resources during the
three
and six months ended July 29, 2005. This discussion and analysis should be
read
in conjunction with the financial statements and notes to the consolidated
financial statements that are included in our Annual Report on Form 10-K for
the
fiscal year ended January 28, 2005 (the “Annual Report”), as well as the notes
to the consolidated financial statements contained in this report.
As
described in Note 2 to the consolidated financial statements contained in this
report, we have restated our prior period financial statements to correct errors
resulting from our accounting for leases. The 2004 information presented in
the
accompanying Management's Discussion and Analysis reflects such restatement.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The
following discussion and analysis of the financial condition and results of
operations are based on the consolidated financial statements and notes to
consolidated financial statements contained in this report that have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
us to make estimates that affect the reported amounts of assets, liabilities,
sales and expenses, and related disclosures of contingent assets and
liabilities. We base these estimates on historical results and various other
assumptions believed to be reasonable, all of which form the basis for making
estimates concerning the carrying values of assets and liabilities that are
not
readily available from other sources. Actual results may differ from these
estimates.
Our
significant accounting polices are described in Note 1 to the consolidated
financial statements presented in the Annual Report. Our critical accounting
policies and estimates are described in Management’s Discussion and Analysis of
Financial Condition and Results of Operations in the Annual Report and have
not
changed significantly since January 28, 2005.
OPERATIONS
The
following tables set forth the percentage relationship to net sales of each
line
item of the consolidated statements of earnings, as well as the percentage
change in dollar amounts from the prior year. These tables should be read in
conjunction with the following discussion and analysis and the consolidated
financial statements, including the related notes to the consolidated financial
statements.
|
Three
Months Ended
|
Percentage
Increase / (Decrease) in Dollar Amounts from Prior
Year
|
Basis
Point Increase / (Decrease) in Percentage of Net Sales from Prior
Year
|
|||||||||||
|
July
29,2005
|
July
30, 2004
|
2004
- 2005
|
2004
- 2005
|
||||||||||
|
Net
Sales
|
100.00
|
%
|
100.00
|
%
|
17
|
%
|
N/A
|
||||||
|
Gross
Margin
|
33.84
|
33.32
|
19
|
52
|
|||||||||
|
Expenses:
|
|||||||||||||
|
Selling,
General and Administrative
|
19.81
|
19.36
|
20
|
45
|
|||||||||
|
Store
Opening Costs
|
0.21
|
0.17
|
39
|
4
|
|||||||||
|
Depreciation
|
2.07
|
2.18
|
12
|
(11
|
)
|
||||||||
|
Interest
|
0.33
|
0.44
|
(13
|
)
|
(11
|
)
|
|||||||
|
Total
Expenses
|
22.42
|
22.15
|
19
|
27
|
|||||||||
|
Pre-Tax
Earnings
|
11.42
|
11.17
|
20
|
25
|
|||||||||
|
Income
Tax Provision
|
4.40
|
4.29
|
20
|
11
|
|||||||||
|
Net
Earnings
|
7.02
|
%
|
6.88
|
%
|
20
|
%
|
14
|
||||||
|
Six
Months Ended
|
Percentage
Increase / (Decrease) in Dollar Amounts from Prior
Year
|
Basis
Point Increase / (Decrease) in Percentage of Net Sales from Prior
Year
|
|||||||||||
|
July
29, 2005
|
July
30, 2004
|
2004
- 2005
|
2004
- 2005
|
||||||||||
|
Net
Sales
|
100.00
|
%
|
100.00
|
%
|
16
|
%
|
N/A
|
||||||
|
Gross
Margin
|
34.11
|
33.20
|
19
|
91
|
|||||||||
|
Expenses:
|
|||||||||||||
|
Selling,
General and Administrative
|
20.60
|
20.28
|
18
|
32
|
|||||||||
|
Store
Opening Costs
|
0.23
|
0.21
|
25
|
2
|
|||||||||
|
Depreciation
|
2.26
|
2.30
|
14
|
(4
|
)
|
||||||||
|
Interest
|
0.39
|
0.49
|
(8
|
)
|
(10
|
)
|
|||||||
|
Total
Expenses
|
23.48
|
23.28
|
17
|
20
|
|||||||||
|
Pre-Tax
Earnings
|
10.63
|
9.92
|
24
|
71
|
|||||||||
|
Income
Tax Provision
|
4.09
|
3.81
|
25
|
28
|
|||||||||
|
Net
Earnings
|
6.54
|
%
|
6.11
|
%
|
24
|
%
|
43
|
||||||
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
|
Other
Metrics
|
July
29, 2005
|
July
30, 2004
|
July
29, 2005
|
July
30, 2004
|
|||||||||
|
Comparable
Store Sales Increases 1
|
6.5
|
%
|
5.1
|
%
|
5.2
|
%
|
7.2
|
%
|
|||||
|
Customer
Transactions (in millions)
|
177
|
159
|
326
|
298
|
|||||||||
|
Average
Ticket 2
|
$
|
67.40
|
$
|
63.82
|
$
|
66.91
|
$
|
63.23
|
|||||
|
At
end of period:
|
|||||||||||||
|
Number
of Stores (end of period)
|
1,138
|
997
|
|||||||||||
|
Sales
Floor Square Feet (in millions, end of period)
|
129.4
|
113.8
|
|||||||||||
|
Average
Store Size Square Feet (in thousands)
|
114
|
114
|
|||||||||||
1 We
define a comparable store as a store that has been open longer than 13
months.
2
We
define average ticket as net sales divided by number of
transactions.
Performance
Net
Sales - The
increase in sales for the second quarter and six months ended July 29, 2005
was
driven primarily by our store expansion program and comparable store sales
increases. We added 27 stores during the quarter, including one relocation,
for
a total of 54 new stores opened in the first six months of 2005, including
three
relocations. During the second quarter, we added our first store in New
Hampshire, making it the 49th
state
served by a Lowe’s store. We also announced our plans to enter the Canadian
market where we expect to open six to 10 stores in 2007 in the Toronto area.
Toronto represents the fourth largest metropolitan market in North America
and
will provide further opportunity for our expansion.
Our
comparable store sales increase of 6.5% for the quarter was driven by strong
performance in our specialty sales initiatives of Installed Sales, Special
Order
Sales and Commercial Business Customers, as well as our store employees’ focus
on serving our customers. Our stores delivered comparable store sales increases
in each month of the second quarter, as consumers completed weather-delayed
spring projects.
In
the
second quarter of 2005, our average ticket increased 6% to $67.40 and total
customer transactions increased 11%. For the first half of 2005, average ticket
increased 6% and total customer transactions increased 10%. In early 2004,
a
larger portion of our comparable store sales increases were being driven by
increases in average ticket, rather than increased customer transactions. As
a
result, we fine-tuned our marketing message to ensure we were effectively
highlighting the traffic-generating opening price points in our merchandising
offering. We also implemented changes in store presentation and the line design
of traffic-generating products. In the second quarter of 2005, approximately
25%
of our comparable store sales increase was driven by increased customer
transactions, which is approaching the balance we are working to achieve between
increases in average ticket and customer transactions.
We
experienced comparable store sales increases in 18 of 19 product categories
for
the second quarter. Only the lumber category, which was impacted by deflation,
experienced a slight decrease in comparable store sales. Inflation in building
materials was partially offset by deflation in lumber, resulting in a net
favorable impact on second quarter comparable store sales of approximately
25
basis points. The
categories that performed above our average comparable store sales increase
for
the second quarter included rough plumbing, rough electrical, hardware, outdoor
power equipment, appliances, home environment, paint, nursery, and cabinets
& countertops. In addition, millwork, building materials, and home
organization performed at approximately the overall corporate average comparable
store sales increase for the second quarter. Appliances continued to perform
well during the second quarter of 2005 as we gained additional market share
in
this category. We continue to strengthen our appliance offering, including
the
addition of Samsung appliances starting in the fall of 2005. The home
environment category experienced increased air conditioner sales driven by
higher temperatures in most parts of the country. Outdoor power equipment
continued its consistent sales performance for the quarter, driven by riding
mower and generator sales. We will enhance our product line in this category
with the addition of John Deere products in the spring of 2006, which we believe
will drive continued comparable store sales increases in this
category.
Gross
Margin - The
increase in gross margin as a percentage of sales compared to the second quarter
of 2004 was primarily due to lower inventory acquisition costs and reduced
inventory shrink.
The
increase in gross margin as a percentage of sales for the first six months
of
2005 was primarily due to the impact of the implementation of EITF Issue No.
02-16 (EITF 02-16), “Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor,” which reduced gross margin in the first
six months of 2004 as vendor funds associated with cooperative advertising
and
in-store services were capitalized into inventory and recognized in income
when
the product was sold. This was combined with increases resulting from improved
inventory shrink and favorable changes in product mix.
We
believe that there are opportunities to continue to increase gross margin
through our global sourcing programs. In 2004, products from these programs
accounted for over $3 billion in sales. Our goal is to maintain a growth rate
for our global sourcing programs of twice our total sales growth. Additionally,
private label programs provide us another opportunity to expand margins due
to
lower product acquisition costs, as well as providing product and design
exclusivity.
SG&A
-
Increased bonus, rent, insurance, and store remerchandising costs as a
percentage of sales drove the increase in SG&A expense as a percentage of
sales in the second quarter of 2005. The increase in bonus costs as a percentage
of sales was driven by strong sales and earnings performance and our Customer
Focus program. This program rewards store employees for providing exceptional
customer service. The increase in rent costs as a percentage of sales was
primarily due to an increase in the number of ground leases located in
metropolitan markets. Insurance expense, which includes employee health,
worker’s compensation, and general liability insurance increased as a percentage
of sales due to expansion into states with high related costs. The expenses
associated with our 180 store remerchandising projects, ongoing merchandising
re-sets and the completion of exterior projects that were delayed due to a
wet
first quarter drove the increase in store remerchandising as a percentage of
sales. These items were slightly offset by a decrease in gross advertising
expense as a percentage of sales from the second quarter of fiscal
2004.
For
the
first six months of 2005, the key drivers of the increase in SG&A as a
percentage of sales were also bonus, rent and insurance expense. These items
were slightly offset by a decrease in gross advertising expense as a percentage
of sales compared to the first six months of 2004.
Store
Opening Costs - Store
opening costs, which include payroll and supply costs incurred prior to store
opening and grand opening advertising costs, are expensed as incurred and
totaled $25 million in the second quarter of 2005 compared to $18 million in
the
second quarter of 2004. These costs are associated with the opening of 27 stores
in the second quarter of 2005 (26 new and one relocated), as compared with
the
opening of 20 stores in the second quarter of 2004 (17 new and three relocated).
Store opening costs averaged approximately $0.8 million per store in the second
quarter of 2005 and $0.6 million in the second quarter of 2004. Because store
opening costs are expensed as incurred, the expenses recognized may fluctuate
based on the timing of store openings in future or prior periods.
Store
opening costs of $50 million and $40 million for the first six months of 2005
and 2004, respectively, were associated with the opening of 54 stores in 2005
(51 new and three relocated), compared to 49 stores in 2004 (46 new and three
relocated).
Depreciation
- Property,
less accumulated depreciation, increased to $14.8 billion at July 29, 2005,
compared to $12.7 billion at July 30, 2004. The increase in property resulted
primarily from our store expansion program, increased distribution capacity
and
our investment in information technology. At the end of the second quarter
of
2005, we owned 82% of our stores compared to 80% at the end of second quarter
of
2004.
Income
Tax Provision - Our
effective income tax rate was 38.5% for both the quarter and six months ended
July 29, 2005, compared to 38.4% for the comparable periods last
year.
Initiatives
Driving Performance
The
three
specialty sales initiatives, which are Installed Sales, Special Order Sales
and
sales to Commercial Business Customers, drove a significant portion of our
second quarter 2005 comparable store sales performance. Installed sales in
our
comparable stores for the second quarter mirrored first quarter performance
with
strong double-digit comparable store sales increases. The key drivers of the
installed sales business continue to be cabinets & countertops, flooring and
millwork. While our sales have been strong, we have also increased our level
of
customer satisfaction with 92% of our customers surveyed saying they would
use
our service again. In addition we have rolled out roofing and siding
installation services to the majority of our stores, which we believe will
provide a significant growth opportunity going forward. Our Special Order Sales
initiatives also continue to perform well, delivering comparable store sales
increases above the company average for the second quarter. Our special order
sales are growing as consumers continue to look for unique products for their
homes, aided by our efforts to simplify the ordering process. Finally, sales
to
Commercial Business Customers continue to grow, with comparable store sales
outpacing the company average for the second quarter, driven by our focus on
customer service, product selection and convenience of our store locations.
During
the second quarter of 2005, we continued to make progress against our Rapid
Response Replenishment (R3) initiative with the goal of reducing lead-time
and
lead-time variability by increasing the products shipped through our network
of
regional distribution centers (RDCs) and increasing the frequency of deliveries
of products from our RDCs to our stores. One indicator of our progress to date
is the reduction in our RDC replenishment cycle time, which is the time from
when demand is created until product is back on the shelf, from an average
of
seven to six days. To maintain service levels in our stores as we implement
the
R3 initiative, we have continued to take a conservative approach by adding
inventory to our RDCs in advance of reducing inventory levels in the stores.
Consequently, inventory growth continued to outpace sales growth slightly in
the
second quarter. As we reduce safety stock of products in our stores during
the
second half of 2005, however, we expect to benefit from inventory leverage
and
inventory turn improvements and to see an inventory growth rate lower than
our
sales growth rate.
Our
second quarter inventory balance increased $1,054 million, or 19.9%, over the
same period last year. Approximately $600 million, or 56.9%, of the total
increase was an increase in inventory in our stores. The percentage increase
in
our store inventory of 13.1% was slightly less than our 13.7% increase in square
footage of selling space during the twelve months ended July 29, 2005. The
remaining $454 million increase in our second quarter inventory balance was
a
result of adding safety stock to our RDCs necessary to implement the R3
initiative, opening two additional RDCs since the second quarter of 2004, and
recognizing the initial shipment of trim-a-tree products for the holiday season
at the of the second quarter this year, as opposed to early in the third quarter
last year.
LIQUIDITY
AND CAPITAL RESOURCES
The
primary sources of liquidity are cash flows from operating activities and our
$1
billion senior credit facility that expires in July 2009. Net cash provided
by
operating activities totaled $2.2 billion and $1.7 billion for the six month
periods ended July 29, 2005 and July 30, 2004, respectively. Working capital
at
July 29, 2005 was $1.7 billion compared to $1.8 billion at July 30, 2004 and
$1.3 billion at January 28, 2005. The decrease in working capital from the
second quarter of 2004 was due primarily to continued share repurchases and
our
investment in inventory related to the R3 initiative.
The
primary component of net cash used in investing activities continues to be
opening new stores. Cash acquisitions of fixed assets were $1.4 billion and
$1.3
billion for the six months ended July 29, 2005 and July 30, 2004, respectively.
At July 29, 2005, we operated 1,138 stores in 49 states with 129.4 million
square feet of retail selling space, representing a 13.7% increase over the
retail selling space at July 30, 2004.
Net
cash used in financing activities was $214 million for the six months ended
July
29, 2005 compared to $1.0 billion for the six months ended July 30, 2004. The
decrease in cash used in financing activities during the first six months of
the
current fiscal year primarily resulted from fewer repurchases of common stock
under our share repurchase program compared to the six months ended July 30,
2004. The
ratio
of long-term debt to equity plus long-term debt was 17.7%, 26.0% and 21.0%
as of
July 29, 2005, July 30, 2004 and January 28, 2005, respectively. In the fourth
quarter of fiscal 2005, long-term debt totaling $608 million will mature. We
anticipate having the ability to repay this debt through cash from
operations.
We
have a
$1 billion senior credit facility that became effective in July 2004 and expires
in July 2009. The facility is available to support our $1 billion commercial
paper program and for short-term borrowings. Borrowings made are priced based
upon market conditions at the time of funding in accordance with the terms
of
the senior credit facility. The senior credit facility contains certain
restrictive covenants which include maintenance of a specific financial ratio.
We were in compliance with those covenants at July 29, 2005. Fifteen banking
institutions are participating in the $1 billion senior credit facility. As
of
July 29, 2005, there were no outstanding loans under the facility and there
were
no outstanding borrowings under our commercial paper program.
Through
the end of the second quarter, principal amounts of $371 million or
approximately 37% of our February 2001 convertible debentures had converted
from
debt to equity. Of this total, $352 million in principal were converted in
the
second quarter of 2005.
In
January 2005, the Board of Directors authorized up to $1 billion in share
repurchases through 2006. This program is intended to be implemented through
purchases made from time to time either in the open market or through private
transactions. Shares purchased under this program are retired and returned
to
authorized and unissued status. As of July 29, 2005 the share repurchase program
had a remaining authorization of $701 million for common stock
repurchases.
Our
2005
capital budget is $3.7 billion, inclusive of approximately $335 million of
operating leases. Approximately 78% of this planned commitment is for
store expansion and our distribution centers. Expansion plans for 2005
consist of approximately 150 stores, including the three relocations of older
stores that have already occurred. This planned expansion is expected
to
increase sales floor square footage by approximately 13%. Approximately
68% of the 2005 projects will be owned, 31% will be ground leased properties
and
1% will be build-to-suit leases.
At
July
29, 2005, we owned and operated 11 regional distribution centers. We expect
to
open an additional regional distribution center in Lebanon, Oregon in 2007.
In
addition, we plan on expanding three existing distribution centers in Valdosta,
Georgia, Statesville, North Carolina and North Vernon, Indiana by spring of
2006. We also owned and operated 10 flatbed distribution centers for the
handling of lumber, building materials and other long-length items.
We
expect to open one additional flatbed distribution center later in 2005.
We
believe that net cash provided by operating activities and financing activities
will be adequate for our expansion plans and other operating requirements over
the next 12 months. However, the availability of funds through the issuance
of
commercial paper and new debt could be adversely affected due to a debt rating
downgrade or a deterioration of certain financial ratios. There are no
provisions in any agreements that would require early cash settlement of
existing debt or leases as a result of a downgrade in our debt rating or a
decrease in our stock price. Holders of the $580.7 million Senior Convertible
Notes may convert their notes into common stock if the minimum investment grade
rating is not maintained. There is no indication that we will not be able to
maintain this minimum investment grade rating. In addition, if a change in
control of the company occurs on or before October 2006, each holder of the
Senior Convertible Notes may require us to purchase for cash all or a portion
of
such holder’s notes. We may redeem for cash all or a portion of the notes at any
time beginning October 2006, at a price equal to the sum of the issue price
plus
accrued original issue discount and accrued cash interest, if any, on the
redemption date. Our debt ratings at July 29, 2005, were as
follows:
|
Current
Debt Ratings
|
S&P
|
Moody’s
|
Fitch
|
|
Commercial
paper
|
A1
|
P1
|
F1
|
|
Senior
debt
|
A+
|
A2
|
A
|
|
Outlook
|
Stable
|
Positive
|
Positive
|
COMPANY
OUTLOOK
Third
Quarter
As
of
August 15, 2005, the
date
of our second quarter 2005 earnings release, we
expected to open 34 stores during the third quarter of fiscal 2005, which ends
on October 28, 2005, reflecting square footage growth of approximately 13%.
Total sales were expected to increase approximately 16% and comparable store
sales were expected to increase 4% to 6%. We expected diluted earnings per
share
of $0.76 to $0.78. All comparisons are with the third quarter of fiscal
2004.
Fiscal
2005
As
of
August 15, 2005, the
date
of our second quarter 2005 earnings release, we
expected to open 150 stores during fiscal 2005, which ends on February 3, 2006,
reflecting total square footage growth of approximately 13%. Total sales were
expected to increase approximately 17% for the year, while comparable store
sales were expected to increase approximately 5%. We expected diluted earnings
per share of $3.31 to $3.37. Fiscal 2005 will include an extra week in the
fourth quarter for a total of 53 weeks. All comparisons are with fiscal 2004,
a
52-week year.
FORWARD-LOOKING
STATEMENTS
This
Form
10-Q contains “forward-looking statements,” as such are provided for by the
Private Securities Litigation Reform Act of 1995 (the “Act”). All statements
other than those reciting historic fact are statements that could be
“forward-looking statements” under the Act. Such forward-looking statements are
found in, among other places, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.” Statements containing words such as
“expects,”“plans,”“strategy,”“projects,”“believes,”“opportunity,”“anticipates,”“desires,”
and similar expressions are intended to highlight or indicate “forward-looking
statements.” Although we believe that the expectations, opinions, projections,
and comments reflected in our forward-looking statements are reasonable, we
can
give no assurance that such statements will prove to be correct. A wide variety
of potential risks, uncertainties, and other factors could materially affect
our
ability to achieve the results expressed or implied by our forward-looking
statements including, but not limited to: (i) changes in general economic
conditions which can negatively affect our customers’ spending patterns; (ii)
decreases in housing turnover and the level of repairs, remodeling, and
additions to existing homes, as well as general reduction in commercial building
activity; (iii) ability to secure, develop, and otherwise implement new
technologies and processes designed to enhance our efficiency and
competitiveness; (iv) ability to attract, train, and retain highly-qualified
associates; (v) ability to locate, secure, and develop new sites for store
development; (vi) fluctuations in the prices and availability of services,
supplies, and products; (vii) growth and impact of competition; (viii) ability
to address legal and regulatory matters; and (ix) impact of unanticipated
weather conditions.
Any
forward-looking statements contained in this Form 10-Q are based upon data
available as of the date of this report or other specified date and speak only
as of such date. We expressly disclaim any obligation to update or revise any
forward-looking statement, whether as a result of new information, change in
circumstances, future events, or otherwise.
The
Company's market risk has not changed materially since January 28, 2005.
The
Company's management, with the participation of the Chief Executive Officer
and
Chief Financial Officer, has evaluated the effectiveness of the Company’s
“disclosure controls and procedures”, (as such term is defined in
Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934,
as
amended, (the “Exchange Act”)). Based upon their evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that, as of July 29, 2005, the
Company’s disclosure controls and procedures were effective for the purpose of
ensuring that the information required to be disclosed in the reports that
the
Company files or submits under the Exchange Act with the Securities and Exchange
Commission (the “SEC”) (1) is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms, and (2) is
accumulated and communicated to the Company’s management, including its
principal executive and principal financial officers, as appropriate to allow
timely decisions regarding required disclosure.
In
addition, based on that evaluation, no change in the Company’s internal control
over financial reporting occurred during the fiscal quarter ended July 29,
2005
that has materially affected, or is reasonably likely to materially affect,
the
Company’s internal control over financial reporting.
Part
II - OTHER INFORMATION
Issuer
Purchases of Equity Securities
|
(In
millions, except average price
paid per share)
|
Total
Number of Shares Purchased (1)
|
Average
Price Paid per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
(2)
|
Dollar
Value of Shares that May Yet Be Purchased Under the Plans or
Programs
|
|||||||||
|
April
30, 2005 - May 27, 2005
|
1.3
|
$
|
57.41
|
1.3
|
$
|
791
|
|||||||
|
May
28, 2005 - July 1, 2005
|
1.6
|
57.38
|
1.6
|
701
|
|||||||||
|
July
2, 2005 - July 29, 2005
|
-
|
-
|
-
|
701
|
|||||||||
|
As
of July 29, 2005
|
2.9
|
$
|
57.39
|
2.9
|
$
|
701
|
|||||||
| (1) |
During
the second quarter of fiscal 2005, the Company repurchased an aggregate
of
2,878,913 shares of its common stock pursuant to the repurchase program
publicly announced on January 28, 2005 (the “Program”). The total number
of shares purchased also includes a nominal amount of shares repurchased
from employees to satisfy the exercise price of certain stock option
exercises.
|
| (2) |
On
January 28, 2005, the Board of Directors approved the Program under
which
the Company is authorized to repurchase up to $1 billion of the Company’s
common stock. The Program expires at the end of fiscal
2006.
|
| (a) |
The
annual meeting of shareholders was held on May 27,
2005.
|
| (b) |
Directors
elected at the meeting were: Robert A. Ingram, Robert L. Johnson
and
Richard K. Lochridge.
|
Incumbent
Directors whose terms expire in subsequent years are: Robert A. Niblock, Leonard
L. Berry, Peter C. Browning, Paul Fulton, Dawn E. Hudson, Marshall O. Larsen,
Stephen F. Page and O. Temple Sloan, Jr.
| (c) |
The
matters voted upon at the meeting and the results of the voting were
as
follows:
|
| (1) |
Election
of Directors:
|
|
CLASS
|
TERM
EXPIRING
|
FOR
|
WITHHELD
|
|
|
Robert
A. Ingram
|
I
|
2008
|
666,792,867
|
34,394,307
|
|
Robert
L. Johnson
|
I
|
2008
|
692,611,636
|
8,575,538
|
|
Richard
K. Lochridge
|
I
|
2008
|
694,476,579
|
6,710,595
|
| (2) |
Amendment
to the Lowe’s Companies, Inc. Directors’ Stock Option
Plan:
|
|
FOR
|
AGAINST
|
ABSTAIN
|
BROKER
NON VOTE
|
|
578,948,796
|
17,121,143
|
5,988,856
|
99,128,379
|
| (3) |
Ratification
of Appointment of Deloitte & Touche LLP as the Company’s Independent
Registered Public Accounting Firm for the 2005 Fiscal
Year:
|
|
FOR
|
AGAINST
|
ABSTAIN
|
|
684,913,540
|
11,375,954
|
4,897,680
|
Exhibit
10.1 - Form of Lowe’s Companies, Inc. Restricted Stock Award
Agreement
Exhibit
31.1 - Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the
Securities Exchange Act of 1934, as amended
Exhibit
31.2 - Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the
Securities Exchange Act of 1934, as amended
Exhibit
32.1 - Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit
32.2 - Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
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.
|
||
|
September
1, 2005
Date
|
/s/Kenneth
W. Black, Jr.
Kenneth
W. Black, Jr.
Senior
Vice President and Chief Accounting
Officer
|
|
Exhibit
No.
|
|
Description
|
|
|
|
|
|
10.1
|
Form
of Lowe’s Companies, Inc. Restricted Stock Award
Agreement
|
|
|
31.1
|
|
Certification
Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
Act of 1934, as amended
|
|
|
|
|
|
31.2
|
|
Certification
Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
Act of 1934, as amended
|
|
|
|
|
|
32.1
|
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
32.2
|
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002
|