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
|
|||||
|
5
|
|||||
|
6
|
|||||
|
7 -
11
|
|||||
|
12
|
|||||
|
Item
2.
|
13
- 19
|
||||
|
Item
3.
|
19
|
||||
|
Item
4.
|
19
|
||||
|
PART II - Other Information
|
|||||
|
Item
1A.
|
20
|
||||
|
Item
6.
|
20
|
||||
|
21
|
|||||
|
22
|
|||||
3
|
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
|
|||||||
4
|
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 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
5
|
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
|
||
6
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 | $ | - | ||||||||
7
|
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.
8
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)
|
Total
Gains (Losses)
|
|||||||||||||||
|
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.
9
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 | ||||