lowesform10q5012009.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended May 1,
2009
|
or
o
|
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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
o Yes
o
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer x
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting company o
|
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 MAY 29, 2009
|
Common
Stock, $.50 par value
|
|
1,476,524,035
|
LOWE’S
COMPANIES, INC.
-
INDEX -
|
|
|
|
|
PART I - Financial
Information
|
Page No.
|
|
|
|
|
|
Item
1.
|
Financial
Statements
|
|
|
|
|
|
|
|
|
4
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|
5
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6
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7 -
11
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12
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|
Item
2.
|
|
13
- 19
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|
Item
3.
|
|
19
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Item
4.
|
|
19
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|
|
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|
PART II - Other Information
|
|
|
|
|
Item
1A.
|
|
20
|
|
|
|
|
Item
6.
|
|
|
20
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21
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|
22
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|
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|
Part
I - FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lowe's
Companies, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
Millions, Except Par Value Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
May
1, 2009
|
|
May
2, 2008
|
|
January
30, 2009
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
682
|
|
$
|
913
|
|
$
|
245
|
|
Short-term
investments
|
|
|
460
|
|
|
295
|
|
|
416
|
|
Merchandise
inventory - net
|
|
|
9,013
|
|
|
8,438
|
|
|
8,209
|
|
Deferred
income taxes - net
|
|
|
183
|
|
|
259
|
|
|
166
|
|
Other
current assets
|
|
|
264
|
|
|
253
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
10,602
|
|
|
10,158
|
|
|
9,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
less accumulated depreciation
|
|
|
22,715
|
|
|
21,641
|
|
|
22,722
|
|
Long-term
investments
|
|
|
448
|
|
|
537
|
|
|
253
|
|
Other
assets
|
|
|
444
|
|
|
318
|
|
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
34,209
|
|
$
|
32,654
|
|
$
|
32,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and shareholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
$
|
-
|
|
$
|
147
|
|
$
|
987
|
|
Current
maturities of long-term debt
|
|
|
52
|
|
|
34
|
|
|
34
|
|
Accounts
payable
|
|
|
5,843
|
|
|
5,345
|
|
|
4,109
|
|
Accrued
compensation and employee benefits
|
|
|
535
|
|
|
481
|
|
|
434
|
|
Self-insurance
liabilities
|
|
|
750
|
|
|
685
|
|
|
751
|
|
Deferred
revenue
|
|
|
741
|
|
|
893
|
|
|
674
|
|
Other
current liabilities
|
|
|
1,283
|
|
|
1,388
|
|
|
1,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
9,204
|
|
|
8,973
|
|
|
8,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, excluding current maturities
|
|
|
5,023
|
|
|
5,576
|
|
|
5,039
|
|
Deferred
income taxes - net
|
|
|
594
|
|
|
699
|
|
|
660
|
|
Other
liabilities
|
|
|
951
|
|
|
787
|
|
|
910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
15,772
|
|
|
16,035
|
|
|
14,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock - $5 par value, none issued
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Common
stock - $.50 par value;
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued and outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
1,
2009 1,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
2,
2008 1,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
30,
2009 1,470
|
|
|
737
|
|
|
731
|
|
|
735
|
|
Capital
in excess of par value
|
|
|
296
|
|
|
48
|
|
|
277
|
|
Retained
earnings
|
|
|
17,399
|
|
|
15,835
|
|
|
17,049
|
|
Accumulated
other comprehensive income (loss)
|
|
|
5
|
|
|
5
|
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders' equity
|
|
|
18,437
|
|
|
16,619
|
|
|
18,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
$
|
34,209
|
|
$
|
32,654
|
|
$
|
32,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lowe's Companies,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
Millions, Except Per Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
May
1, 2009
|
|
|
May
2, 2008
|
|
Current Earnings
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
Net sales
|
|
$ |
11,832 |
|
|
|
100.00 |
|
|
$ |
12,009 |
|
|
|
100.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
7,636 |
|
|
|
64.54 |
|
|
|
7,843 |
|
|
|
65.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
4,196 |
|
|
|
35.46 |
|
|
|
4,166 |
|
|
|
34.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
2,944 |
|
|
|
24.88 |
|
|
|
2,725 |
|
|
|
22.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store
opening costs
|
|
|
13 |
|
|
|
0.11 |
|
|
|
18 |
|
|
|
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
401 |
|
|
|
3.39 |
|
|
|
375 |
|
|
|
3.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
- net
|
|
|
78 |
|
|
|
0.66 |
|
|
|
76 |
|
|
|
0.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
3,436 |
|
|
|
29.04 |
|
|
|
3,194 |
|
|
|
26.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax earnings
|
|
|
760 |
|
|
|
6.42 |
|
|
|
972 |
|
|
|
8.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision
|
|
|
284 |
|
|
|
2.40 |
|
|
|
365 |
|
|
|
3.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
476 |
|
|
|
4.02 |
|
|
$ |
607 |
|
|
|
5.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding - basic
|
|
|
1,462 |
|
|
|
|
|
|
|
1,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common
share
|
|
$ |
0.32 |
|
|
|
|
|
|
$ |
0.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding - diluted
|
|
|
1,464 |
|
|
|
|
|
|
|
1,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common
share
|
|
$ |
0.32 |
|
|
|
|
|
|
$ |
0.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per
share
|
|
$ |
0.085 |
|
|
|
|
|
|
$ |
0.080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
$ |
17,049 |
|
|
|
|
|
|
$ |
15,345 |
|
|
|
|
|
Net
earnings
|
|
|
476 |
|
|
|
|
|
|
|
607 |
|
|
|
|
|
Cash
dividends
|
|
|
(126 |
) |
|
|
|
|
|
|
(117 |
) |
|
|
|
|
Balance
at end of period
|
|
$ |
17,399 |
|
|
|
|
|
|
$ |
15,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lowe's
Companies, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
Millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
May
1, 2009
|
|
May
2, 2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
earnings
|
$
|
476
|
|
$
|
607
|
|
Adjustments
to reconcile net earnings to net cash provided by operating
activities:
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
434
|
|
|
404
|
|
Deferred
income taxes
|
|
(83)
|
|
|
17
|
|
Loss
on property and other assets
|
|
9
|
|
|
21
|
|
Transaction
loss from exchange rate changes
|
|
1
|
|
|
-
|
|
Share-based
payment expense
|
|
24
|
|
|
28
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
Merchandise
inventory - net
|
|
(801)
|
|
|
(828)
|
|
Other
operating assets
|
|
(1)
|
|
|
42
|
|
Accounts
payable
|
|
1,732
|
|
|
1,633
|
|
Other
operating liabilities
|
|
554
|
|
|
614
|
|
Net
cash provided by operating activities
|
|
2,345
|
|
|
2,538
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
Purchases
of short-term investments
|
|
(68)
|
|
|
(64)
|
|
Proceeds
from sale/maturity of short-term investments
|
|
122
|
|
|
86
|
|
Purchases
of long-term investments
|
|
(302)
|
|
|
(325)
|
|
Proceeds
from sale/maturity of long-term investments
|
|
6
|
|
|
224
|
|
Decrease
in other long-term assets
|
|
15
|
|
|
-
|
|
Property
acquired
|
|
(572)
|
|
|
(805)
|
|
Proceeds
from sale of property and other long-term assets
|
|
11
|
|
|
4
|
|
Net
cash used in investing activities
|
|
(788)
|
|
|
(880)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
Net
decrease in short-term borrowings
|
|
(986)
|
|
|
(915)
|
|
Proceeds
from issuance of long-term debt
|
|
-
|
|
|
8
|
|
Repayment
of long-term debt
|
|
(8)
|
|
|
(13)
|
|
Proceeds
from issuance of common stock from stock options exercised
|
|
1
|
|
|
10
|
|
Cash
dividend payments
|
|
(126)
|
|
|
(117)
|
|
Excess
tax benefits of share-based payments
|
|
-
|
|
|
1
|
|
Net
cash used in financing activities
|
|
(1,119)
|
|
|
(1,026)
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
(1)
|
|
|
-
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
437
|
|
|
632
|
|
Cash
and cash equivalents, beginning of period
|
|
245
|
|
|
281
|
|
Cash
and cash equivalents, end of period
|
$
|
682
|
|
$
|
913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lowe's
Companies, Inc.
Note 1: Basis of Presentation - The
accompanying consolidated financial statements (unaudited) and notes to
consolidated financial statements (unaudited) 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 May 1, 2009 and May 2,
2008, and the results of operations and cash flows for the three months ended
May 1, 2009 and May 2, 2008.
These
interim consolidated financial statements (unaudited) should be read in
conjunction with the audited consolidated 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 30, 2009 (the Annual Report). The
financial results for the interim periods may not be indicative of the financial
results for the entire fiscal year.
Note 2: Fair Value Measurements
- Statement
of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements,”
provides a single definition of fair value, together with a framework for
measuring it, and requires additional disclosure about the use of fair value to
measure assets and liabilities.
SFAS No.
157 defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date. SFAS No. 157 establishes a
three-level hierarchy, which encourages an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring
fair value. The three levels of the hierarchy are defined as
follows:
|
•
|
|
Level
1 - inputs
to the valuation techniques that are quoted prices in active markets for
identical assets or liabilities
|
|
•
|
|
Level
2 - inputs
to the valuation techniques that are other than quoted prices but are
observable for the assets or liabilities, either directly or
indirectly
|
|
•
|
|
Level
3 - inputs
to the valuation techniques that are unobservable for the assets or
liabilities
|
Effective
February 2, 2008, the Company adopted SFAS No. 157 for financial assets and
liabilities measured at fair value and other non-financial assets and
liabilities measured at fair value on a recurring basis.
The
following tables present the Company’s financial assets measured at fair value
on a recurring basis as of May 1, 2009, May 2, 2008 and January 30, 2009,
classified by SFAS No. 157 fair value hierarchy:
|
|
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted
Prices in Active Markets for Identical Assets
|
|
|
Significant
Other Observable Inputs
|
|
|
Significant
Unobservable Inputs
|
|
(In
millions)
|
|
May
1, 2009
|
|
|
(Level
1)
|
|
|
(Level 2)
|
|
|
(Level
3)
|
|
Short-term
investments
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
$ |
427 |
|
|
$ |
68 |
|
|
$ |
359 |
|
|
$ |
- |
|
Trading
securities
|
|
|
33 |
|
|
|
33 |
|
|
|
- |
|
|
|
- |
|
Long-term
investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
|
448 |
|
|
|
- |
|
|
|
448 |
|
|
|
- |
|
Total
investments
|
|
$ |
908 |
|
|
$ |
101 |
|
|
$ |
807 |
|
|
$ |
- |
|
|
|
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted
Prices in Active Markets for Identical Assets
|
|
|
Significant
Other Observable Inputs
|
|
|
Significant
Unobservable Inputs
|
|
(In
millions)
|
|
May
2, 2008
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
Short-term
investments
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
$ |
252 |
|
|
$ |
116 |
|
|
$ |
136 |
|
|
$ |
- |
|
Trading
securities
|
|
|
43 |
|
|
|
43 |
|
|
|
- |
|
|
|
- |
|
Long-term
investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
|
537 |
|
|
|
- |
|
|
|
537 |
|
|
|
- |
|
Total
investments
|
|
$ |
832 |
|
|
$ |
159 |
|
|
$ |
673 |
|
|
$ |
- |
|
|
|
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted
Prices in Active Markets for Identical Assets
|
|
|
Significant
Other Observable Inputs
|
|
|
Significant
Unobservable Inputs
|
|
(In
millions)
|
|
January
30, 2009
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
Short-term
investments
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
$ |
385 |
|
|
$ |
81 |
|
|
$ |
304 |
|
|
$ |
- |
|
Trading
securities
|
|
|
31 |
|
|
|
31 |
|
|
|
- |
|
|
|
- |
|
Long-term
investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
|
253 |
|
|
|
- |
|
|
|
253 |
|
|
|
- |
|
Total
investments
|
|
$ |
669 |
|
|
$ |
112 |
|
|
$ |
557 |
|
|
$ |
- |
|
When
available, quoted prices are used to determine fair value. When
quoted prices in active markets are available, investments are classified within
Level 1 of the fair value hierarchy. The Company’s Level 1 investments
primarily consist of investments in money market and mutual funds. When
quoted prices in active markets are not available, fair values are determined
using pricing models and the inputs to those pricing models are based on
observable market inputs in active markets. The inputs to the pricing
models are typically benchmark yields, reported trades, broker-dealer quotes,
issuer spreads and benchmark securities, among others. The Company’s Level
2 investments primarily consist of investments in municipal
obligations.
Effective
January 31, 2009, the Company adopted SFAS No. 157 for non-financial assets and
liabilities measured at fair value on a non-recurring basis.
The
Company reviews the carrying amounts of long-lived assets whenever events or
changes in circumstances indicate that the carrying amounts may not be
recoverable. If the carrying amount is not recoverable, an impairment
is recorded for the amount that the carrying amount of the asset exceeds its
fair value. The Company bases the fair values of long-lived assets
held-for-use on the Company’s own judgments about the assumptions that market
participants would use in pricing the asset and on observable market data, when
available. During the first quarter of 2009, certain retail
out-parcels classified as held-for-use, with a carrying value of $13 million,
were written down to their fair value resulting in an impairment charge of $5
million which was recorded in SG&A expense. The impairment charge
was primarily the result of a significant decline in demand for a particular
retail out-parcel.
The
following table presents the Company’s non-financial assets measured at fair
value on a non-recurring basis during the first quarter of 2009, classified by
SFAS No. 157 fair value hierarchy:
|
|
|
|
|
Fair
Value Measurements Using
|
|
|
|
Quarter
Ended
|
|
|
Quoted
Prices in Active Markets for Identical Assets
|
|
|
Significant
Other Observable Inputs
|
|
|
Significant
Unobservable Inputs
|
|
|
|
|
(In
millions)
|
|
May
1, 2009
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
|
|
|
Long-lived
assets held-for-use
|
|
$ |
8 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
8 |
|
|
$ |
(5 |
) |
In the
determination of impairment for retail out-parcels, the fair values are the
estimated selling prices. The Company determines the estimated
selling prices by obtaining information from brokers in the specific markets
being evaluated. The information includes comparable sales of similar
assets and assumptions about demand in the market for these assets.
Note 3: Restricted Investment
Balances - Short-term and long-term investments include restricted
balances pledged as collateral for letters of credit for the Company’s extended
warranty program and for a portion of the Company’s casualty insurance and
Installed Sales program liabilities. Restricted balances included in
short-term investments were $211 million at May 1, 2009, $173 million at May 2,
2008, and $214 million at January 30, 2009. Restricted balances
included in long-term investments were $144 million at May 1, 2009, $163 million
at May 2, 2008, and $143 million at January 30, 2009.
Note 4: Property - Property is
shown net of accumulated depreciation of $9.1 billion at May 1, 2009, $7.8
billion at May 2, 2008, and $8.8 billion at January 30, 2009.
Note 5: Short-Term Borrowings -
The Company had a Canadian dollar (C$) denominated credit facility in the
amount of C$200 million that expired March 30, 2009. The outstanding
borrowings at expiration were repaid with cash provided by consolidated
operating activities.
Note 6: Extended Warranties -
Lowe’s sells separately-priced extended warranty contracts under a
Lowe’s-branded program for which the Company is ultimately
self-insured. The Company recognizes revenue from extended warranty
sales on a straight-line basis over the respective contract
term. Extended warranty contract terms primarily range from one to
four years from the date of purchase or the end of the manufacturer’s warranty,
as applicable. The Company’s extended warranty deferred revenue is
included in other liabilities (non-current) on the consolidated balance
sheets. Changes in deferred revenue for extended warranty contracts
are summarized as follows:
|
|
Three
Months Ended
|
|
(In
millions)
|
|
May
1, 2009
|
|
|
May
2, 2008
|
|
Extended
warranty deferred revenue, beginning of period
|
|
$ |
479 |
|
|
$ |
407 |
|
Additions
to deferred revenue
|
|
|
52 |
|
|
|
49 |
|
Deferred
revenue recognized
|
|
|
(35 |
) |
|
|
(26 |
) |
Extended
warranty deferred revenue, end of period
|
|
$ |
496 |
|
|
$ |
430 |
|
Incremental
direct acquisition costs associated with the sale of extended warranties are
also deferred and recognized as expense on a straight-line basis over the
respective contract term. Deferred costs associated with extended
warranty contracts were $129 million at May 1, 2009, $99 million at May 2, 2008,
and $121 million at January 30, 2009. The Company’s extended warranty
deferred costs are included in other assets (non-current) on the consolidated
balance sheets. All other costs, such as costs of services performed
under the contract, general and administrative expenses and advertising
expenses, are expensed as incurred.
The
liability for extended warranty claims incurred is included in self-insurance
liabilities on the consolidated balance sheets. Changes in the
liability for extended warranty claims are summarized as follows:
|
|
Three
Months Ended
|
|
(In
millions)
|
|
May
1, 2009
|
|
|
May
2, 2008
|
|
Liability
for extended warranty claims, beginning of period
|
|
$ |
17 |
|
|
$ |
14 |
|
Accrual
for claims incurred
|
|
|
13 |
|
|
|
12 |
|
Claim
payments
|
|
|
(12 |
) |
|
|
(14 |
) |
Liability
for extended warranty claims, end of period
|
|
$ |
18 |
|
|
$ |
12 |
|
Note 7: Comprehensive Income -
Comprehensive income represents changes in shareholders’ equity from non-owner
sources and is comprised of net earnings plus or minus unrealized gains or
losses on available-for-sale securities and foreign currency translation adjustments. Comprehensive
income totaled $487 million and $604 million, compared to net earnings of $476
million and $607 million, for the three months ended May 1, 2009 and May 2,
2008, respectively.
Note 8: Earnings Per Share -
The Company adopted FASB Staff Position (FSP) EITF 03-6-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions are Participating
Securities,” effective January 31, 2009. FSP EITF 03-6-1 states that
all outstanding unvested share-based payment awards that contain rights to
nonforfeitable dividends participate in undistributed earnings with common
shareholders and, therefore, need to be included in the earnings allocation in
computing earnings per share under the two-class method. The
retrospective application of the provisions of FSP EITF 03-6-1 did not change
earnings per share amounts for any of the periods presented.
Under the
two-class method, net earnings are reduced by the amount of dividends declared
in the period for each class of common stock and participating
security. The remaining undistributed earnings are then allocated to
common stock and participating securities as if all of the net earnings for the
period had been distributed. Basic earnings per common share excludes
dilution and is calculated by dividing net earnings allocable to common shares
by the weighted-average number of common shares outstanding for the
period. Diluted earnings per common share is calculated by
dividing net earnings allocable to common shares by the weighted-average
number of common shares as of the balance sheet date, as adjusted for the
potential dilutive effect of non-participating share-based awards and
convertible notes. The following table reconciles earnings per common
share for the three months ended May 1, 2009 and May 2, 2008.
|
|
Three Months
Ended
|
(In
millions, except per share data)
|
|
May
1, 2009
|
|
May
2, 2008
|
Basic
earnings per common share:
|
|
|
|
|
|
Net
earnings
|
|
$ |
476 |
|
|
$ |
607 |
|
Less:
Net earnings allocable to participating securities
|
|
|
(4 |
) |
|
|
(3 |
) |
Net
earnings allocable to common shares
|
|
$ |
472 |
|
|
$ |
604 |
|
Weighted-average
common shares outstanding
|
|
|
1,462 |
|
|
|
1,454 |
|
Basic
earnings per common share
|
|
$ |
0.32 |
|
|
$ |
0.42 |
|
Diluted
earnings per common share:
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
476 |
|
|
$ |
607 |
|
Net
earnings adjustment for interest on convertible notes, net of
tax
|
|
|
- |
|
|
|
1 |
|
Net
earnings, as adjusted
|
|
|
476 |
|
|
|
608 |
|
Less:
Net earnings allocable to participating securities
|
|
|
(4 |
) |
|
|
(3 |
) |
Net
earnings allocable to common shares
|
|
$ |
472 |
|
|
$ |
605 |
|
Weighted-average
common shares outstanding
|
|
|
1,462 |
|
|
|
1,454 |
|
Dilutive
effect of non-participating share-based awards
|
|
|
2 |
|
|
|
3 |
|
Dilutive
effect of convertible notes
|
|
|
- |
|
|
|
20 |
|
Weighted-average
common shares, as adjusted
|
|
|
1,464 |
|
|
|
1,477 |
|
Diluted
earnings per common share
|
|
$ |
0.32 |
|
|
$ |
0.41 |
|
Stock
options to purchase 26.0 million and 13.9 million shares of common stock were
excluded from the computation of diluted earnings per common share because their
effect would have been anti-dilutive for the three months ended May 1, 2009 and
May 2, 2008, respectively.
Note
9: Supplemental Disclosure
Net
interest expense is comprised of the following:
|
|
Three
Months Ended
|
|
(In
millions)
|
|
May
1, 2009
|
|
|
May
2, 2008
|
|
Long-term
debt
|
|
$ |
73 |
|
|
$ |
73 |
|
Short-term
borrowings
|
|
|
2 |
|
|
|
6 |
|
Capitalized
leases
|
|
|
7 |
|
|
|
9 |
|
Interest
income
|
|
|
(5 |
) |
|
|
(9 |
) |
Interest
capitalized
|
|
|
(4 |
) |
|
|
(8 |
) |
Other
|
|
|
5 |
|
|
|
5 |
|
Interest
- net
|
|
$ |
78 |
|
|
$ |
76 |
|
Supplemental
disclosures of cash flow information:
|
|
Three
Months Ended
|
|
(In
millions)
|
|
May
1, 2009
|
|
|
May
2, 2008
|
|
Cash
paid for interest, net of amount capitalized
|
|
$ |
130 |
|
|
$ |
135 |
|
Cash
paid for income taxes
|
|
$ |
68 |
|
|
$ |
34 |
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Non-cash
property acquisitions
|
|
$ |
54 |
|
|
$ |
17 |
|
Note 10: Recent Accounting
Pronouncements - In April 2009, the FASB issued FSP FAS 107-1 and APB
28-1, “Interim Disclosures about Fair Value of Financial
Instruments”. FSP FAS 107-1 and APB 28-1 requires that the fair value
of all financial assets and financial liabilities for which it is practicable to
estimate fair value and are within the scope of SFAS No. 107, “Disclosures about
Fair Value of Financial Instruments,” be disclosed for interim and annual
periods. FSP FAS 107-1 and APB 28-1 is effective for interim
reporting periods ending after June 15, 2009. The adoption of FSP FAS
107-1 and APB 28-1 will have no effect on the Company’s consolidated financial
statements but will require additional disclosures in interim
periods.
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 May 1, 2009 and May 2, 2008, and the
related consolidated statements of current and retained earnings and of cash
flows for the fiscal three-month periods ended May 1, 2009 and May 2, 2008.
These consolidated interim financial statements are the responsibility of the
Company’s management.
We
conducted our reviews in accordance with the 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 the
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 interim 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 the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of
the Company as of January 30, 2009, and the related consolidated statements of
earnings, shareholders’ equity, and cash flows for the fiscal year then ended
(not presented herein); and in our report dated March 31, 2009, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet of the
Company as of January 30, 2009 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
June 1,
2009
Item
2.
This
discussion and analysis summarizes the significant factors affecting our
consolidated operating results, liquidity and capital resources during the three
month periods ended May 1, 2009 and May 2, 2008. This discussion and
analysis should be read in conjunction with the consolidated 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 30, 2009
(the Annual Report), as well as the consolidated financial statements
(unaudited) and notes to the consolidated financial statements (unaudited)
contained in this report.
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 (unaudited) and
notes to the consolidated financial statements (unaudited) contained in this
report that have been prepared 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 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. Our significant and critical accounting policies have not
changed significantly since the filing of our Annual Report.
EXECUTIVE
OVERVIEW
The sales
environment remained challenging in the first quarter of 2009, evidenced by our
eleventh consecutive quarter of comparable store sales declines. However,
several macro economic variables showed some encouraging signs of improvement in
the latter half of the quarter as consumer confidence increased, housing
turnover in certain markets began showing signs of a bottom, and home prices
slowed their rate of decline. While these may be positive signs for
the stabilization and ultimate recovery of home improvement industry sales, many
of these variables remained at or near historic lows. In this time of
uncertainty, we remain focused on maintaining flexibility in our staffing model
and in our logistics and distribution systems to appropriately respond to both
upside and downside scenarios.
During
the quarter, home improvement consumers remained willing to spend on routine
maintenance and outdoor projects. There was a resurgence of Do-It-Yourself (DIY)
as consumers looked to save money in a difficult economic environment by
tackling smaller projects that they had previously relied on others to
perform. We saw evidence of these trends with relative strength in
our paint category and also in outdoor power equipment repair and maintenance
products, which had mid single-digit positive comparable store sales, as
consumers migrated back to maintaining their own lawns. However,
consumers’ hesitancy to invest in larger discretionary projects continued to
pressure sales, resulting in double-digit declines in comparable store Installed
Sales and Special Order Sales. Highlighting these trends, first quarter
comparable store sales tickets below $50 were flat while comparable store sales
tickets above $500 decreased 14%.
We
continued to capitalize on available opportunities which helped us deliver solid
market share gains. According to third-party estimates we gained 160
basis points of unit market share in the first calendar quarter. This is a sign
of the evolving competitive landscape and an indication that our employees did
not let the current economic environment impact their dedication to customer
service.
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 period. These tables should
be read in conjunction with the following discussion and analysis and the
consolidated financial statements (unaudited), including the related notes to
the consolidated financial statements (unaudited).
|
Three
Months Ended
|
|
Basis
Point Increase / (Decrease) in Percentage of Net Sales from Prior
Period
|
|
Percentage
Increase / (Decrease) in Dollar Amounts from Prior Period
|
|
|
May
1, 2009
|
|
May
2, 2008
|
|
2009
vs. 2008
|
|
2009
vs. 2008
|
|
Net
sales
|
100.00
|
%
|
100.00
|
%
|
N/A
|
|
(1.5)
|
%
|
Gross
margin
|
35.46
|
|
34.69
|
|
77
|
|
0.7
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
24.88
|
|
22.69
|
|
219
|
|
8.0
|
|
Store
opening costs
|
0.11
|
|
0.15
|
|
(4)
|
|
(25.9)
|
|
Depreciation
|
3.39
|
|
3.12
|
|
27
|
|
6.8
|
|
Interest
- net
|
0.66
|
|
0.63
|
|
3
|
|
2.4
|
|
Total
expenses
|
29.04
|
|
26.59
|
|
245
|
|
7.6
|
|
Pre-tax
earnings
|
6.42
|
|
8.10
|
|
(168)
|
|
(21.9)
|
|
Income
tax provision
|
2.40
|
|
3.04
|
|
(64)
|
|
(22.2)
|
|
Net
earnings
|
4.02
|
%
|
5.06
|
%
|
(104)
|
|
(21.7)
|
%
|
|
|
|
|
|
|
|
|
|
EBIT
margin (1)
|
7.08
|
%
|
8.73
|
%
|
(165)
|
|
(20.1)
|
%
|
|
Three
Months Ended
|
|
Other
metrics:
|
May
1, 2009
|
|
May
2, 2008
|
|
Comparable
store sales changes (2)
|
(6.6)
|
%
|
(8.4)
|
%
|
Total
customer transactions (in millions)
|
186
|
|
181
|
|
Average
ticket (3)
|
$
|
63.71
|
|
$
|
66.23
|
|
At
end of period:
|
|
|
|
|
Number
of stores
|
1,670
|
|
1,554
|
|
Sales
floor square feet (in millions)
|
189
|
|
176
|
|
Average
store size selling square feet (in thousands) (4)
|
113
|
|
114
|
|
|
|
|
|
|
|
(1) We define EBIT margin as
earnings before interest and taxes as a percentage of sales (operating
margin).
|
|
(2)
We define a
comparable store as a store that has been open longer than 13
months. A store that is identified for relocation is no longer
considered comparable one month prior to its relocation. The
relocated store is considered comparable once it has been open longer than
13 months.
|
|
(3)
We define average
ticket as net sales divided by the total number of customer
transactions.
|
|
(4)
We define average
store size selling square feet as sales floor square feet divided by the
number of stores open at the end of the
period.
|
Net Sales - Reflective of the
challenging sales environment, net sales decreased 1.5% to $11.8 billion during
the first quarter of 2009. Total customer transactions increased 2.4%
compared to the first quarter of 2008 but average ticket decreased 3.8% to
$63.71. Comparable store sales declined 6.6% for the first quarter of
2009. Comparable store customer transactions decreased 2.6% and
comparable store average ticket decreased 4.2%, evidence that many consumers
continued to postpone or extend major projects, which pressured average
ticket. Cannibalization of existing stores sales by new stores
negatively impacted comparable store sales by approximately 140 basis points in
the first quarter of 2009, while sales in hurricane-impacted markets positively
impacted our comparable store sales by
approximately
90 basis points. In addition, building material inflation positively
impacted comparable store sales by approximately 60 basis points during the
quarter.
Despite a
late spring in certain areas of the country, we experienced relative strength in
many outdoor and seasonal products. In fact, consistent with trends
over the past two years, comparable store sales of our outdoor products
performed significantly better than our indoor products. Our lawn &
landscape products and nursery categories delivered positive comparable store
sales. In addition, we experienced positive comparable store sales in
our paint, home environment, and building materials categories during the
quarter. The positive impact of our paint category was driven by
consumers continued willingness to tackle smaller projects. The
relative strength in home environment was driven by air conditioners, and the
positive comparable store sales in building materials was driven by inflation
and strong demand for roofing products primarily in hurricane impacted
markets. Other categories that performed above our average comparable
store sales change included rough plumbing, hardware, seasonal living, and
appliances, while lumber performed at approximately the overall corporate
average.
As a
result of consumers’ focus on routine maintenance and repair projects instead of
larger discretionary projects, we continued to experience significant weakness
in our project- and style-related categories. Certain of our project
categories, including cabinets & countertops, flooring, and millwork,
delivered double-digit declines in comparable store sales. In
addition, style categories like lighting, windows & walls, home
organization, and fashion plumbing also experienced double-digit declines in
comparable store sales. However, according to
third-party estimates, we gained unit market share in 15 of our 20 product
categories in the first calendar quarter versus the same period last year,
evidence that we continued to provide a compelling product offering to consumers
and capitalized on the evolving competitive landscape.
Specialty
Sales continued to experience mixed results during the quarter. Commercial
Business Customer (CBC) sales delivered a comparable store sales change close to
the company average as a result of our targeted efforts to focus on the
professional tradesperson, property maintenance professional and the
repair/remodeler. However, our Installed Sales and Special Order Sales
performance remained weak due to the resurgence of DIY combined with consumers’
reluctance to take on major projects. These trends led to a 23% comparable store
sales decline for Installed Sales and a 26% comparable store sales decline in
Special Order Sales during the first quarter.
From a
geographic perspective, we experienced double-digit comparable store sales
declines in our Western U.S. markets. While these markets performed
better than the fourth quarter, sales remained soft. In order to
maximize our sales opportunities, we are monitoring foreclosure data as these
markets work towards stabilization from both a housing turnover and home price
perspective. In addition to our markets in the Western U.S., Southern
Florida and certain areas of the Northeast and Mid-Atlantic also experienced
double-digit comparable store sales declines. These areas have been impacted by
several years of housing pressures as well as the financial market turmoil over
the past several months. However, despite the broad-based macro
economic pressures, we experienced positive comparable stores sales in Southern
Texas due to the impact of last year’s hurricanes, and in the Ohio Valley driven
by the continued stability in this part of the country. We also
experienced above-average comparable store sales through most of the center of
the country.
Gross Margin - For the first quarter of
2009, gross margin increased 77 basis points as a percentage of sales compared
to the first quarter of 2008. The increase was driven by a moderating
promotional environment and our decision not to repeat certain promotions we had
implemented during the first quarter of 2008. In addition, we also experienced
leverage of approximately 13 basis points from lower inventory shrink and
approximately four basis points attributable to the mix of products sold across
product categories. The favorability in product mix was the result of
rough plumbing, hardware, and paint, which are all higher than the company
average margin categories.
SG&A - For the first quarter of
2009, SG&A increased 219 basis points as a percentage of sales compared to
the first quarter of 2008, primarily driven by de-leverage of 65 basis points in
store payroll resulting from comparable store sales declines. We also
experienced de-leverage of 60 basis points due to increased losses associated
with our proprietary credit program and 46 basis points in bonus expense
attributable to an increase in expected achievement against performance
targets. Additionally, we experienced de-leverage of approximately 30
basis points in fixed expenses such as utilities, property taxes, and rent
during the quarter as a result of comparable store sales declines.
Store Opening Costs - Store
opening costs, which include payroll and supply costs incurred prior to store
opening as well as grand opening advertising costs, totaled $13 million and $18
million in the first quarters of 2009 and 2008, respectively. Because
store opening costs are expensed as incurred, the timing of expense recognition
fluctuates based on the timing of store openings. We opened 21 new
stores in the first quarter of 2009, compared to the opening of 20 new stores in
the first quarter of 2008. Store opening costs for stores opened
during the first quarter of 2009 and 2008 averaged approximately $0.8 million
and $0.9 million per store, respectively.
Depreciation - Depreciation
de-leveraged 27 basis points in the first quarter of 2009, driven by comparable
store sales declines and the addition of 116 new stores over the past four
quarters. Property, less accumulated depreciation, totaled $22.7
billion at May 1, 2009, an increase of 5.0% from $21.6 billion at May 2,
2008. At May 1, 2009, we owned 88% of our stores, compared to 87% at
May 2, 2008, which includes stores on leased land.
Income Tax Provision - Our
effective income tax rate was 37.4% for the three month period ended May 1,
2009, and 37.6% for the three month period ended May 2, 2008. Our
effective income tax rate was 37.4% for fiscal 2008.
FINANCIAL
CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Inventory
At May 1,
2009, merchandise inventory was $9.0 billion compared to $8.4 billion at May 2,
2008, an increase of 6.8%. The increase was primarily attributable to
sales floor square footage growth of 7.0%. Comparable store inventory
was down 2.8% at May 1, 2009 versus May 2, 2008. We continued to work
to manage inventory in comparable stores in this difficult sales environment and
have successfully reduced the average comparable store inventory by more than
12% during the past three years. We will continue to look for ways to
further leverage our distribution centers to manage inventory in the coming
quarters. Merchandise inventory at May 1, 2009 increased 9.8% from
$8.2 billion at January 30, 2009. This increase was primarily
attributable to building our spring seasonal inventory. We planned
our 2009 spring seasonal inventory conservatively and do not anticipate higher
than normal seasonal markdowns during the second quarter.
Cash
Flows
Cash
flows from operating activities continue to provide the primary source of our
liquidity. Net cash provided by operating activities totaled $2.3
billion and $2.5 billion for the three month periods ended May 1, 2009 and May
2, 2008, respectively. The change in cash flows from operating
activities was primarily the result of decreased net earnings. This
was partially offset by an increase in accounts payable which exceeded the
increase in merchandise inventory over the same period and is attributable to
our ongoing efforts to improve vendor payment terms.
Net cash used in investing
activities was $788 million and $880 million for the three month periods ended
May 1, 2009 and May 2, 2008, respectively. The primary component of net
cash used in investing activities continues to be opening new stores, investing
in existing stores through resets and remerchandising, and investing in our
distribution center and corporate infrastructure,
including enhancements to our information technology
infrastructure. Cash
acquisitions of property were $572 million for the three
month period ended May 1, 2009 versus $805 million for the
prior year, a decrease of 28.9%, primarily driven by a reduction in our store
expansion program.
Net cash used in financing
activities was $1.1 billion and $1.0 billion for the three month periods ended
May 1, 2009 and May 2, 2008,
respectively. The change in net cash used in financing activities
was primarily
driven by a $74 million decrease in cash flows associated with net borrowing
activities. The ratio of debt to equity plus debt was 21.6%,
25.7% and 25.1% as of May 1, 2009, May 2, 2008, and January 30, 2009,
respectively.
Sources
of Liquidity
In
addition to our cash flows from operations, additional liquidity is provided by
our short-term borrowing facilities. We have a $1.75 billion senior credit
facility that expires in June 2012. The senior credit facility
supports our commercial
paper and
revolving credit programs. The senior credit facility has a $500 million
letter of credit sublimit. Amounts outstanding under letters of credit reduce
the amount available for borrowing under the senior credit
facility. Borrowings made under the senior credit facility are
unsecured and are priced at fixed rates based upon market conditions at the time
of funding in accordance with the terms of the senior credit
facility. The senior credit facility contains certain restrictive
covenants, which include maintenance of a debt leverage ratio as defined by the
senior credit facility. We were in compliance with those covenants at
May 1, 2009. Nineteen banking institutions are participating in the senior
credit facility. As of May 1, 2009, there were no outstanding borrowings
under the senior credit facility or under the commercial paper
program. As of May 1, 2009, there were no letters of credit
outstanding under the senior credit facility.
We also
have a Canadian dollar (C$) denominated credit facility in the amount of C$50
million that provides revolving credit support for our Canadian
operations. This uncommitted credit facility provides us with the
ability to make unsecured borrowings which are priced at fixed rates based upon
market conditions at the time of funding in accordance with the terms of the
credit facility. As of May 1, 2009, there were no outstanding
borrowings under the credit facility.
We had a
C$ denominated credit facility in the amount of C$200 million that expired March
30, 2009. The outstanding borrowings at expiration were repaid with
cash provided by consolidated operating activities.
Our debt
ratings at May 1, 2009 were as follows:
Current
Debt Ratings
|
S&P
|
Moody’s
|
Fitch
|
Commercial
Paper
|
A1
|
P1
|
F1
|
Senior
Debt
|
A+
|
A1
|
A+
|
Outlook
|
Negative
|
Stable
|
Negative
|
We
believe that net cash provided by operating and financing activities will be
adequate for our expansion plans and for our other operating requirements over
the next 12 months. The availability of funds through the issuance of commercial
paper or new debt or the borrowing cost of these funds could be adversely
affected due to a debt rating downgrade, which we do not expect, or a
deterioration of certain financial ratios. In addition, continuing volatility in
the global markets may affect our ability to access those markets for additional
borrowings or increase costs associated with those borrowings. 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.
Cash
Requirements
Capital
Expenditures
Our 2009
capital forecast is approximately $2.5 billion, inclusive of approximately $300
million of lease commitments, resulting in a net cash outflow of $2.2 billion in
2009. Approximately 72% of this planned commitment is for store
expansion. Our expansion plans for 2009 consist of 60 to 70 new
stores and are expected to increase sales floor square footage by approximately
4%. Approximately 98% of the 2009 projects will be owned, which includes
approximately 35% ground-leased properties.
At May 1,
2009, we owned and operated 14 regional distribution centers. We also
operated 15 flatbed distribution centers for the handling of lumber, building
materials and other long-length items. We are confident that our current
distribution network has the capacity to ensure that our stores remain in stock
and that customer demand is met.
Debt
and Capital
During
the first three months of 2009, there were no share repurchases under the share
repurchase program. As of May 1, 2009, we had remaining authorization
through fiscal 2009 under the share repurchase program of $2.2
billion.
On May
29, 2009, the Board of Directors declared a quarterly cash dividend of $0.09
per share, which represents a 5.9%
increase.
OFF-BALANCE
SHEET ARRANGEMENTS
Other
than in connection with executing operating leases, we do not have any
off-balance sheet financing that has, or is reasonably likely to have, a
material, current or future effect on our financial condition, cash flows,
results of operations, liquidity, capital expenditures or capital
resources.
CONTRACTUAL
OBLIGATIONS AND COMMERCIAL COMMITMENTS
There
have been no material changes to our contractual obligations and commercial
commitments other than in the ordinary course of business since the end of 2008.
Refer to the Annual Report for additional information regarding our contractual
obligations and commercial commitments.
COMPANY
OUTLOOK
Second Quarter
As of May
18, 2009, the date of our first
quarter 2009 earnings release, we expected to open approximately 18 new stores
during the second quarter of 2009, which ends on July 31, 2009, reflecting
square footage growth of approximately 7%. We expected total sales to
range from a decline of 2% to an increase of 1% and comparable store sales to
decline 4% to 8%. Earnings before interest and taxes as a percentage
of sales (operating margin) was expected to decline approximately 160 basis
points. In addition, store opening costs were expected to be
approximately $13 million. Diluted earnings per share of $0.51 to
$0.55 were expected for the second quarter. Our outlook for the
second quarter does not assume any share repurchases. All comparisons
are with the second quarter of fiscal 2008.
Fiscal
2009
As of May
18, 2009, the date of our first quarter 2009 earnings release, we expected to
open 60 to 70 stores during fiscal 2009, which ends on January 29, 2010,
reflecting total square footage growth of approximately 4%. We
expected total sales in 2009 to range from a decline of 2% to an increase of 1%
and comparable store sales to decline 4% to 8%. Earnings before
interest and taxes as a percentage of sales (operating margin) was expected to
decline 130 to 140 basis points. In addition, store opening costs
were expected to be approximately $50 million. Diluted earnings per
share of $1.13 to $1.25 were expected for fiscal 2009. Our outlook
for 2009 does not assume any share repurchases. All comparisons are
with fiscal 2008.
FORWARD-LOOKING
STATEMENTS
This Form
10-Q contains “forward-looking statements” within the meaning of 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, changes
in general economic conditions, such as rising unemployment, interest rate and
currency fluctuations, higher fuel and other energy costs, slower growth in
personal income, changes in consumer spending, the availability and increasing
regulation of consumer credit and mortgage financing, changes in the rate of
housing turnover, inflation or deflation of commodity prices and other factors
which can negatively affect our customers, as well as our ability
to: (i) respond to adverse trends in the housing industry and the
level of repairs, remodeling, and additions to existing homes, as well as
general reduction in commercial building activity; (ii) secure, develop, and
otherwise implement new technologies and processes designed to enhance our
efficiency and competitiveness; (iii) attract, train, and retain
highly-qualified associates; (iv) locate, secure, and successfully develop new
sites for store development particularly in major metropolitan markets; (v)
respond to fluctuations in the prices and availability of services, supplies,
and products; (vi) respond to the growth and impact of competition; (vii)
address legal and regulatory developments; and (viii) respond to unanticipated
weather conditions that could adversely affect sales. For more
information about these and other risks and uncertainties that we are exposed
to, you should read the “Risk Factors” included in our Annual Report on Form
10-K to the United States Securities and Exchange Commission and the description
of material changes, if any, in those “Risk Factors” included in our Quarterly
Reports on Form 10-Q.
The
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 from that disclosed in our
Annual Report on Form 10-K for the fiscal year ended January 30,
2009.
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 May 1, 2009, 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, no change in the Company’s internal control over financial reporting
occurred during the quarter ended May 1, 2009 that has materially affected, or
is reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Part
II - OTHER INFORMATION
There
have been no material changes in our risk factors from those disclosed in our
Annual Report on Form 10-K.
Exhibit
10.1 - Amended and
Restated Lowe’s Companies, Inc. 2006 Long Term Incentive Plan, effective as of
March 20, 2009 (incorporated herein by reference to Appendix B to Lowe’s
Companies, Inc. Proxy Statement, as filed on April 10, 2009).
Exhibit
12.1 - Statement Re Computation of Ratio of Earnings to Fixed
Charges
Exhibit
15.1 - Deloitte & Touche LLP Letter Re Unaudited Interim Financial
Information
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.
|
|
|
|
June
1, 2009
Date
|
|
/s/
Matthew V. Hollifield
Matthew
V. Hollifield
Senior
Vice President and Chief Accounting
Officer
|
Exhibit
No.
|
|
Description
|
|
|
|
10.1
|
|
Amended
and Restated Lowe’s Companies, Inc. 2006 Long Term Incentive Plan,
effective as of March 20, 2009 (incorporated herein by reference to
Appendix B to Lowe’s Companies, Inc. Proxy Statement, as filed on April
10, 2009).
|
|
|
|
12.1
|
|
Statement
Re Computation of Ratio of Earnings to Fixed Charges
|
|
|
|
15.1
|
|
Deloitte
& Touche LLP Letter Re Unaudited Interim Financial
Information
|
|
|
|
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
|
|
|
|