-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, N28/nhlpX8ANwe+nAHaPeB7VQtO+0BuzBzMvZduDA7tAXynChfTjW8sa59JaU5hl 49AT1F4bvN/ezT0p3UG0Ww== 0000060667-94-000015.txt : 19940505 0000060667-94-000015.hdr.sgml : 19940505 ACCESSION NUMBER: 0000060667-94-000015 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19940131 FILED AS OF DATE: 19940503 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LOWES COMPANIES INC CENTRAL INDEX KEY: 0000060667 STANDARD INDUSTRIAL CLASSIFICATION: 5211 IRS NUMBER: 590620505 STATE OF INCORPORATION: NC FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07898 FILM NUMBER: 94525885 BUSINESS ADDRESS: STREET 1: PO BOX 1111 CITY: NORTH WILKESBORO STATE: NC ZIP: 28656 BUSINESS PHONE: 9196514000 MAIL ADDRESS: STREET 1: PO BOX 1111 CITY: NORTH WILKESBORO STATE: NC ZIP: 28656 10-K 1 COVER &F SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended January 31, 1994 OR [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 0-94 LOWE'S COMPANIES, INC. (Exact name of registrant as specified in its charter) NORTH CAROLINA 56 0578072 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) P. 0. BOX 1111, NORTH WILKESBORO, N.C. 28656-0001 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (919) 651-4000 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Which Registered New York Stock Exchange Pacific Stock Exchange The Stock Exchange (London) Page 1 &F Securities registered pursuant to Section 12(g) of the Act: NONE 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 report(s), and (2) has been subject to such filing requirements for the past 90 days. Yes x , No . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S- K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] State the aggregate market value of the voting stock held by non affiliates of the registrant as of April 8, 1994: $3,892,555,310. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Class: COMMON STOCK, $.50 PAR VALUE, Outstanding at April 8, 1994: 148,210,288 shares. Documents Incorporated by Reference Annual Report to Security Holders for fiscal year ended January 31, 1994: Parts I and II. With the exception of specifically referenced information, the Annual Report to Security Holders for the fiscal year ended January 31, 1994 is not to be deemed filed as part of this report. Proxy Statement for Annual Meeting to be filed by May 1, 1994: Part III.
EX-1 2 PARTS 1 THRU 4 &F Part I Item 1 Business Reference is made to the back cover and to pages 4 through 14 of the Annual Report to Security Holders for fiscal year ended January 31, 1994 Page 2 &F Item 2 Properties Reference is made to pages 14 and 15 and to notes 1, 4, 6 and 12 on pages 23, 24, 25, 28 and 29 of the Annual Report to Security Holders for fiscal year ended January 31, 1994. Item 3 Legal Proceedings Reference is made to Note 13 on page 29 of the Annual Report to Security Holders for fiscal year ended January 31, 1994. Item 4 Submission of Matters to a Vote of Security Holders Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to General Instruction G(3) of Form 10 K, the following list is included as an unnumbered item in Part I of this Report in lieu of being included in the Proxy Statement for the Annual Meeting of Stockholders to be held on May 27, 1994. The following is a list of names and ages of all of the executive officers of the registrant indicating all positions and offices with the registrant held by each such person and each person's principal occupations or employment during the past five years. PART I EXECUTIVE OFFICERS OF THE REGISTRANT Leonard G. Herring, 66 President and Chief Executive Officer since 1978. Robert L. Strickland, 63 Chairman of the Board since 1978. J. Gregory Dodge, 46 Senior Vice President - Real Estate/Engineering and Construction since 1993; Sudberry Properties, Inc., Vice President 1988 - 1993; The Alexander Haaggen Company, Senior Developer 1988. Richard D. Elledge, 52 Vice President (Chief Accounting Officer) since 1981; Assistant Secretary since 1991; Secretary 1978 - 1990. William L. Irons, 50 Page 3 &F Senior Vice President - Management Information Systems since 1992; Partner with Ernst & Young 1987 - 1992. Michael Rouleau, 55 Executive Vice President - Sales/Store Operations since 1992; Office Warehouse, President/Chief Operating Officer 1988 - 1992. Robert L. Tillman, 50 Executive Vice President - Merchandising since 1991; Senior Vice President - Merchandising 1989-1991; Vice President Store Operations 1986-1989. Harry B. Underwood II, 51 Senior Vice President and Treasurer (Chief Financial Officer) since 1985 William C. Warden, Jr., 41 Senior Vice President, General Counsel and Secretary since 1993; Assistant Secretary 1985 - 1993; partner in the law firm McElwee, McElwee & Warden which served as General Counsel for the Company 1979 - 1993. Part II Item 5 Market for the Registrant's Common Stock and Related Security Holder Matters. The principal market for trading in Lowe's common stock is the New York Stock Exchange, Inc. (NYSE). Lowe's common stock is also listed on the Pacific exchange in the United States and the London exchange. The ticker symbol for Lowe's is LOW. As of January 31, 1994, there were 7,446 holders of record of Lowe's common stock. The table, "Lowe's Quarterly Stock Price Range and Cash Dividend Payment", on page 31 of the Annual Report to Security Holders for fiscal year ended January 31, 1994 sets forth, for the periods indicated, the high and low sales prices per share of the common stock as reported by the NYSE Composite Tape, and the dividends per share declared on the common stock during such periods, as adjusted for a 2-for-1 stock split to shareholders of record on June 12, 1992 and a 2-for-1 stock split to shareholders of record on March 16, 1994. The Company is party to certain agreements which may limit its ability to declare dividends under certain circumstances. See Note 6 on page 25 of the Annual Report to Security Holders for fiscal year ended January 31, 1994. Reference is also made to notes 10 and 11 on pages 27 and 28 of the Annual Report to Security Holders for fiscal year ended January 31, 1994 Item 6 Selected Financial Data Page 4 &F Reference is made to page 30 of the Annual Report to Security Holders for fiscal year ended January 31, 1994. Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations. Reference is made to "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 17 through 19 of the Annual Report to Security Holders for fiscal year ended January 31, 1994. Item 8 Financial Statements and Supplementary Data Reference is made to the "Independent Auditors' Report" on page 16 and to the financial statements and notes thereto on pages 20 through 29, and to the "Selected Quarterly Data" on page 30 of the Annual Report to Security Holders for fiscal year ended January 31, 1994 Item 9 Disagreements on Accounting and Financial Disclosure Not applicable. Part III Item 10 Directors and Executive Officers of the Registrant Reference is made to "Lowe's Board of Directors" on pages 34 and 35 and "Board of Directors Nominee" on page 36 of the Annual Report to Security Holders for fiscal year ended January 31, 1994, and to Part I Executive Officers of the Registrant. Item 11 Executive Compensation Reference is made to "Compensation of Executive Officers", Option Grants in Last Fiscal Year, "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-end Option Values", and Long-term Incentive Plans - Awards in Last Fiscal Year included in the definitive Proxy Statement which will be filed, pursuant to regulation 14A with the SEC by May 1, 1994, and is hereby incorporated by reference. The Company's Executive Compensation Program is comprised of the following elements: Base Salary Salaries for Executive Officers are established on the basis of the qualifications and experience of the executive, the nature of the job responsibilities and salaries for competitive positions in the Page 5 &F retailing industry. Executive Officers' base salaries are reviewed annually and are approved by the Compensation/Employee Stock Option Committee of the Board of Directors (Committee). Salaries of Executive Officers are compared with those of comparable executive positions in the retailing industry throughout the United States. The Committee uses the median level of base salary as a guideline, in conjunction with the executive's performance and qualifications, for establishing salary levels. Management Bonus Program All Executive Officers participate in the Company's Management Bonus Program. This Plan provides award opportunities which can be earned upon achievement by the Company of pre-set annual financial goals. Based on the annual business plan developed by management, the Committee establishes financial goals for each fiscal year as well as the award opportunities provided to each participant and the relationship between the performance goals and the award opportunities. Under the Plan, no bonuses are paid if performance is below the threshold level of Corporate profitability set by the Committee at the beginning of the year. If the threshold level is achieved, a minimum bonus payment is earned, typically 25 % of the stated bonus opportunity for the executive. Additional bonus amounts are earned on a proportionate scale up to 100% of the stated bonus opportunity if pre-set financial goals are met. Designated senior managers and executives can earn a bonus premium ranging from 27% to 43% of stated bonus opportunity if financial goals are exceeded. The maximum bonus, including bonus premium, which can be earned by any executive of the Company for 1994 is 70% of base annual salary. Stock Appreciation Incentive Plan The Stock Appreciation Incentive Plan is a "phantom stock" incentive plan which provides participating executives with the opportunity to earn cash incentive awards based on the Company's stock price appreciation during a defined performance cycle. Each participant is granted a specified number of units (reflecting the nature and magnitude of the executive's position and competitive marketplace long term incentive compensation opportunities). The amount of award earned by the participant for the performance cycle is equal to the difference between the price of the Company's Common Stock at the beginning of the cycle Page 6 &F and the two month average stock price as measured at the end of the period, multiplied by the number of units granted to the participant. The amount of incentive compensation which can be paid to any participant for a performance cycle is limited to $6,250 per 1,000 units. The term of the Stock Appreciation Incentive Plan has expired and no further awards may be made under the Plan. 1985 Stock Option Plan The 1985 Stock Option Plan allows the Committee to make grants of non-qualified stock options and/or incentive stock options. The Committee is empowered to set the option price on any grant (with the requirement that the option price on any incentive stock options cannot be less than the market price of the Company's Common Stock on the date on which the incentive stock option is granted). Non qualified stock options may be granted at market price, below market price or above market price, as of the date the options are granted. All stock options which have been granted under the Plan measure performance and create compensation solely on the basis of the appreciation in the price of the Company's Common Stock above the fair market value on the date of the grant. All options under the Plan must be granted prior to March 25, 1995, and no option may have a term exceeding ten years. Four million shares of the Company's Common Stock were originally authorized for grants under the Plan. Of that amount, options covering 2,814,000 shares had been granted by January 31, 1994, and 154,220 shares continued to be outstanding and unexercised on that date. 1994 Incentive Plan On January 31, 1994, the Board of Directors voted to amend and restate the 1985 Stock Option Plan as the 1994 Incentive Plan. The 1994 Incentive Plan is submitted for shareholder approval in the Proxy and described therein. The purpose of the 1994 Incentive Plan is to enable the Company to attract, motivate, retain and reward the executives whose leadership and performance are critical to the Company's success in enhancing shareholder value, to place further emphasis on executive ownership of Company Stock, to continue previously established incentive compensation practices under a single plan and to assure deductibility of executive compensation. Page 7 &F Benefit Restoration Plan The Benefit Restoration Plan was adopted by the Company in May 1990, to provide qualifying executives with benefits equivalent to those received by all other employees under the Company's basic qualified employee benefit plans. Qualifying executives are those executives whose annual additions and other benefits, as normally provided to all participants under those qualified plans, would be curtailed by the effect of Internal Revenue Code restrictions, and who are selected by the Committee to participate in the Plan. The Benefit Restoration Plan benefits are determined annually. Participating executives may elect annually to defer benefits or to receive a current cash payment. Other Compensation The Company's Executive Officers participate in the various qualified and non qualified employee benefit plans sponsored by the Company. The Company makes only nominal use of perquisites in compensating its Executive Officers. Item 12 Security Ownership of Certain Beneficial Owners and Management Reference is made to "Security Ownership of Certain Beneficial Owners and Management" included in the definitive Proxy Statement which will be filed pursuant to regulation 14A, with the SEC by May 1, 1994, and is hereby incorporated by reference. Item 13 Certain Relationships and Related Transactions Reference is made to "Information About the Board of Directors and Committees of the Board", "Certain Relationships and Related Transactions" included in the definitive Proxy Statement which will be filed, pursuant to regulation 14A, with the SEC by May 1, 1994, and is hereby incorporated by reference. Part IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8 K a) 1 Financial Statements Reference is made to the following items and page numbers appearing in the Annual Report to Security Holders for fiscal year ended January 31, 1994: Page 8 &F Pages Independent Auditors' Report 16 Consolidated Statements of Current and Retained Earnings for each of the fiscal years in the three- year period ended January 31, 1994 20 Consolidated Balance Sheets at January 31, 1994, 1993 21 Consolidated Statements of Cash Flows for each of the fiscal years in the three-year period ended 31-Jan-94 22 Notes to Consolidated Financial Statements for each of the fiscal years in the three year period ended 31-Jan-94 23-29 a) 2 Financial Statement Schedules Included in Part IV of this report: Page 6 &F Independent Auditors' Report on Financial Statement Schedules For the three fiscal years ended January 31, 1994, 1993 and 1992: Schedule V Property, Improvements and Equipment Schedule VI Accumulated Depreciation and Amortization The above listed financial statements are presented on a consolidated basis only since the Company is primarily an operating company and its subsidiaries included for the periods presented in the consolidated financial statements are totally held subsidiaries. Schedules other than those listed above are omitted because of the absence of conditions under which they are required or because information required is included in financial statements or the notes thereto. Part IV a) 3 Exhibits 3.1 Restated and Amended Charter. 3.2 Bylaws, as amended. 4.1 Rights Agreement dated as of September 9, 1988 between the Company and Wachovia Bank and Trust Co., N.A., as Rights Page 9 &F Agent (filed as Exhibit 4.1 to the Company's Form 8 K dated September 9, 1988 and incorporated by reference herein). -10.1 Lowe's Companies, Inc. 1985 Stock Option Plan (filed as Exhibit C to the Company's Proxy Statement dated May 31, 1985 and incorporated by reference herein). -10.2 Post Effective Amendment No. 1 to Lowe's Companies, Inc. 1985 Stock Option Plan (filed on the Company's Form S 8 dated June 23, 1987 (No. 33 2618) and incorporated by reference herein). -10.3 Lowe's Companies, Inc. 1989 Non Employee Directors' Stock Option Plan (filed as Exhibit A to the Company's Proxy Statement dated June 9, 1989 and incorporated by reference herein). -10.4 Lowe's Companies, Inc. 1990 Benefit Restoration Plan (filed as Exhibit 10.4 to the Company's Annual Report on Form 10 K for the year ended January 31, 1991, and incorporated by reference herein). -10.5 Lowe's Companies, Inc. Stock Appreciation Incentive Plan (filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended January 31, 1992, and incorporated by reference herein). -10.6 Indenture dated April 15, 1992 between the Company and Chemical Bank, as Trustee (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-3 (No. 33-47269) and incorporated by reference herein). -10.7 Indenture dated July 22, 1994 between the Company and Wachovia Bank of North Carolina, N.A., as Trustee (filed as Exhibit 4.1 to the Company's Registration Statement on Form S- 3 (No. 33-64560) and incorporated by reference herein). -10.8 Form of Indenture between the Company and Chemical Bank, as Trustee (filed as Exhibit 4.1 to the Company's Registration Statement on Form S-3 (No. 33-51865) and incorporated by reference herein). -10.9 Form of Indenture between the Company and Wachovia Bank of North Carolina, N.A., as Trustee (filed as Exhibit 4.2 to the Company's Registration Statement on Form S-3 (No. 33-51865) and incorporated by reference herein). -13 Annual Report to Security Holders for fiscal year ended January Page 10 &F 31, 1994. -21 List of Subsidiaries. -23 Consent of Deloitte & Touche -27 Financial Data Schedule b) Reports on Form 8 K There were no reports on Form 8-K filed by the registrant during the last quarter of the period covered by this report. Part IV SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registra has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. _____/s/ Lowe's ComInc.______________ Lowe's Companies, Inc. By:_______/s/ Leonard G. Herring 4-30-94 Leonard G. Herring Date President, Chief Executive Officer and Director By:_______/s/ Harry B. Underwood 4-30-94 Harry B. Underwood II Date Senior Vice President and Treasurer (Chief Financial Officer) 4-30-94 By:______/s/ Richard D. Elledge Date Richard D. Elledge Vice President, and Chief Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below b the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Chairman of the Board of /s/ Robert L. StricklanDirectors and Director 4-30-94 Page 11 &F Robert L. Strickland Date President, Chief Executive /s/ Leonard G. Herring Officer and Director 4-30-94 Leonard G. Herring Date Director /s/ Petro Kulynych 4-30-94 Petro Kulynych Date Director /s/ John M. Belk 4-30-94 John M. Belk Date Director /s/ Gordon E. Cadwgan 4-30-94 Gordon E. Cadwgan Date Director /s/ William A. Andres 4-30-94 William A. Andres Date Director 4-30-94 Russell B. Long Date Director /s/ Robert G. Schwartz 4-30-94 Robert G. Schwartz Date Director /s/ Jack C. Shewmaker 4-30-94 Jack C. Shewmaker Date
EX-2 3 AUDIT &F INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Lowe's Companies, Inc.: We have audited the consolidated financial statements of Lowe's Companies, Inc. and subsidiaries as of January 31, 1994, 1993, and 1992, and for each of the three fiscal years in the period ended January 31, 1994, and have issued our report thereon dated March 9, 1994; such financial statements and report are included in your 1993 Annual Report to Page 12 &F Shareholders and are incorporated herein by reference. Our audits also included the financial statement schedules of Lowe's Companies, Inc. and subsidiaries, listed in Item 14. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE Charlotte, North Carolina 09-Mar-94
EX-3 4 SCHEDULE 5 &F Part IV Schedule V LOWE'S COMPANIES, INC. AND SUBSIDIARY COMPANIES PROPERTY, IMPROVEMENTS AND EQUIPMENT (Thousands of Dollars) Balance Balance at Net at Year ended Beginning Additions Retirement Transfers Close January 31, 1994 of Period at cost or Sale Other Asse of Period
Land $188,562 $37,202 ($693) ($520) $224,551 Buildings 421,620 146,945 (4,765) (55,825) 507,975 Store & Office Equipment 278,687 140,526 (30,077) -319 388,817 Transportation Equipment 92,315 30,665 (11,263) 18 111,735 Leasehold Improvements 86,756 18,242 (8,333) (12,721) 83,944 $1,067,940 $373,580 ($55,131) ($69,367) $1,317,022 ======== ======== ======== ========= ======== Year ended January 31, 1993 Land $116,382 $78,502 ($299) ($6,023) $188,562 Buildings 400,877 52,179 (1,719) (29,717) 421,620 Store & Office Equipment 218,690 84,962 (24,930) -35 278,687 Transportation Equipment 84,018 19,366 (11,069) 92,315 Page 13 &F Leasehold Improvements 49,823 38,306 (1,373) 86,756 $869,790 $273,315 ($39,390) ($35,775) $1,067,940 ======== ======== ======== ========= ======== Year ended January 31, 1992 Land $99,127 $20,180 ($170) ($2,755) $116,382 Buildings 371,947 38,914 -275 (9,709) 400,877 Store & Office Equipment 182,905 59,248 (22,754) -709 218,690 Transportation Equipment 80,376 13,269 (9,627) 84,018 Leasehold Improvements 42,178 8,120 -475 49,823 $776,533 $139,731 ($33,301) ($13,173) $869,790 ======== ======= ======== ======== =======
EX-4 5 SCHEDULE 6 &F Part IV Schedule VI LOWE'S COMPANIES, INC. AND SUBSIDIARY COMPANIES ACCUMULATED DEPRECIATION AND AMORTIZATION (Thousands of Dollars) Balance Retirements, Balance at Addition Renewals Net at Year ended Beginning Charged and Transfers t Close January 31, 1994 of Period to IncomReplacements Other Assets of Period
Buildings $99,942 $18,142 ($2,189) ($17,013) $98,882 Store & Office Equipment 107,544 49,404 (24,095) (171) 132,682 Transportation Equipment 54,698 8,620 (10,747) 5 52,576 Leasehold Improvements 18,559 4,364 (1,284) (8,991) 12,648 $280,743 $80,530 ($38,315) ($26,170) $296,788 ======== ======== ========= ========= ======== Year ended January 31, 1993 Buildings $95,365 $16,671 ($864) ($11,230) $99,942 Page 14 &F Store & Office Equipment 91,331 38,597 (22,292) (92) 107,544 Transportation Equipment 54,876 10,426 (10,604) 54,698 Leasehold Improvements 15,263 4,126 (830) 18,559 $256,835 $69,820 ($34,590) ($11,322) $280,743 ======== ======== ========= ========= ======== Year ended January 31, 1992 Buildings $84,026 $16,007 ($169) ($4,499) $95,365 Store & Office Equipment 82,649 30,900 (21,831) (387) 91,331 Transportation Equipment 55,383 8,799 (9,306) 54,876 Leasehold Improvements 13,011 2,592 (340) 15,263 $235,069 $58,298 ($31,646) ($4,886) $256,835 ======== ======== ========= ========= ======== The estimated depreciable lives, in years, of the Company's property are: buildings, 20 40; store and office equipment, 3 to 10; transportation equipment, 5 to 7; leasehold improvements, generally the life of the related lease.
EX-5 6 EXHIBIT 13 &F PART IV EXHIBIT 13 Lowe's Profile Lowe's Companies, Inc. is one of America's top forty retailers, serving the do-it-yourself home improvement, home decor, home electronics, and home construction markets. Lowe's 311 stores serve customers in 20 states located mainly in the South Atlantic and South Central regions. In 1993 our average store did $14.9 million in sales. Our big stores averaged $18.9 million in sales. At year-end, our retail sales space totaled approximately 14.2 million square feet. Our employees numbered 28,843. Lowe's has been a publicly owned company since October 6, 1961. Our stock has been listed on the New York Stock Exchange since December 19, 1979; on the Pacific Stock Exchange since January 26, 1981; and on the London Stock Exchange since October 6, 1981. Shares are traded under the ticker symbol LOW. Super Store Super Year Page 15 &F We asked retail experts and some of Lowe's Partners-In-Interest to tell us what they think of Lowe's today. Here is their take on our big stores, our marketplace, and our future. Lowe's has broken out of its past molds to meet the demands of today's marketplace on today's terms, says Wyatt Kash from his office in midtown Manhattan. A longtime observer of the home improvement retail industry and publisher of National Home Center News since 1987, Kash is contemplating the manifold success of Lowe's big stores. The underlying development is that consumers have never had so much choice in what they could do for their homes, he says. "At the National Homebuilders Show in Las Vegas. there's an amazing array Of products for home building and remodeling. But most homeowners don't really have any opportunity to see w hat's possible until they get into a large format store." Although big stores have been getting lots of press for several years now, from most consumers' point of view they are a recent phenomenon. How big are big stores? Lowe's newest superstore, which opened at the end of March in Winston-Salem North Carolina, contains 115,000 square feet of selling space and a 30,000-square-foot garden center which includes a year-round nursery. Lowe's completed 57 large store projects in 1993, increasing our total sales floor by 42% to 14.2 million square feet. Big stores are now 52% of Lowe's chain, up from 13% just three years ago. Last year these big stores accounted for 54% of Lowe s sales and 55% of operating earnings. The precise square footage of Lowe's big stores may vary; more important is our overriding mandate to dominate our markets by providing a "home improvement destination" -- a store which not only efficiently fulfills the present needs and desires of Lowe's customers, but also creates a stimulating context for idea generation. The store has emerged as a powerful marketing device, because it is a statement of priorities and values translated into products and assortment, Kash says. He echoes the consensus opinion that the latest recession and slowdown of the American economy caused consumers to examine their fiscal priorities. "People have been reevaluating their commitments to things like vacations, cars, and luxury goods." In the face of a future that's less certain than it used to seem, the American home has gained importance as the single biggest investment most consumers ever make. Yet, says Kash, "Only five cents out of every dollar [of disposable income] currently goes into home improvement and building materials at the retail level. So there's still lots of growth potential." He believes that this is a great time to emphasize the benefits and value of putting more of America's disposable income into the great American home. Lowe's has developed our destination stores to be effective vehicles for that message. Stores that will do the best in the future are the ones that make it fun to shop and easy to Page 16 &F buy, he says. Renowned retail consultant Walter Loeb affirms that destination stores are attracting shoppers by appealing to consumer priorities for the Nineties High on that priorities list, he says, is efficiency. Stores today must be clearly focused and oriented to serve the customer efficiently. Self- service is essential, along with good information at the point of sale and quick checkout proceedures. Every trip to the store must be productive, Loeb continues. This means you must offer deep assortments and good value, and products must be in stock. Lowe's stores used to be small and builder-oriented. The culture of Lowe's was the professional builder's culture. The big stores changed that. Now the future is looking very bight because of the new stores and their effective use of space. Lowe's service in these stores," says Loeb. "Growth will come mostly from Lowe's retail customers, but the professional builder will follow the retail customer to the consumer- oriented store" In 1993, Lowe's retail sales were up 21% while sales to contractors grew 11%. Our retail customers supplied an unprecedented 72% of our total sales of $4.5 billion; professional builders accounted for 28%. George Lorch is surrounded by tiles in the flooring showroom at the corporate headquarters of Armstrong World Industries in Lancaster, Pennsylvania. If you've only looked at flooring in catalogues or small displays, the variety of colors and styles and materials here is likely to, well, floor you. Right next door is Armstrong's ceiling showroom with a similarly overwhelming variety of products. George Lorch, Armstrong's president and CEO, thinks of these rooms as home decor wardrobes We would like consumers to be able to change their floor coverings as often as they buy new clothes, he says. Traditionally, flooring sales have been event driven: you bought flooring if you were moving or adding a room. We want the desire for fashion, choice, and variety to be equally powerful incentives. This is not an advertising strategy; it's our business plan. This is not an advertising strategy; it's our business plan. To make it work, we need relationships with retailers like Lowe's who are attracting large numbers of customers to their dominant assortments. By displaying more merchandise than was ever possible before, Lowe's big stores give consumers more exciting options and a hands on understanding of the products they are considering buying for their homes. Whether they intend to do the installation themselves or to buy the merchandise and hire a professional to do the work, better informed consumers make smarter decisions. This increases the likelihood that they will be satisfied with the merchandise and their contractor -- and, ultimately, with Lowe's. Page 17 &F As consumers put increasing importance on upgrading and personalizing their homes, the Repair and Remodeling (R&R) industry has thrived. Recognizing the vitality and growth potential of this market segment, Lowe's has been developing and expanding our Installed Sales program. We believe that this affords Lowe's yet another opportunity to be a service leader and to increase project sales. Wyatt Kash agrees. "The movement toward installed sales is an important trend supporting growth," he says. "More than half of the top retailers in this industry now offer some sort of installed sales program which supplies the link between consumers and reputable contractors." The effect is to take projects that would otherwise get postponed, and accelerate them into the current year's sales. I'm talking about installation of doors and windows, toilets, flooring, fencing--all kinds of products. A retailer like Lowe's is in the position of being a major source of information to help customers get their products installed. It's a potentially uncomfortable role, because you stand to get some grief if the installer doesn't do his job well. But in Lots of installers just don't understand the products they're working with. When they don't get good results, the customer blames us." Dick Stonesifer, president and CEO of General Electric Appliances, sees Lowe's Installed Sales program going hand in hand with the expanded display capabilities of our big stores. Lowe s now carries more of our built in appliances than just about anybody. Customers want to see how those appliances will look once they're in the home. In Lowe's big stores, customers can see entire kitchen systems on display. A basic strength of Lowe's is that you actually supply the whole system -- cabinetry, appliances, hardware, flooring, etc. With all that installation, too, Lowe's is cutting a wide swathe in the field of total service, above and beyond just selling. We've come a long way from the days when Henry Ford could get away with telling the public that they could have any color Ford they wanted, as long as it was black. In the fiercely Darwinian competition which defines our Nineties marketplace, the need to be responsive to consumer preferences has put a premium on rapid flow of information from the consumer through the retailer to the manufacturer. Lowe's partnership with our suppliers is strengthened by the high priority we are placing on state of-the art information systems. By increasing the speed and accuracy of information flowing from our sales floors to our suppliers' factory floors, we enable manufacturers to supply us with products that will maximize customer satisfaction. Bill Corbin is an executive vice president of Weyerhaeuser, one of the nation's leading manufacturers of wood products. He sees his company's relationship with Lowe's as an Page 18 &F alliance which depends on shared information about consumers' needs and desires. Lowe's has demonstrated a good understanding of the consumer, he says. "That's evident in the increased store space devoted to displays, the availability of quick reliable service, technical help, installation, and wood that is precut or which can be cut to the specifications of a particular job." Our role in partnership with Lowe's has been to be a good listener, Corbin says. "The better use we make of the information that we receive, the more we can reduce waste in our system and improve our product quality and service." The accurate flow of information is also increasing the efficiency of Weyerhaeuser's delivery systems. "Now we can offer 24 hour supply and direct delivery to a project location," Corbin explains. For Armstrong's George Lorch good information flow is the key to meeting the challenges of today's high fashion home decor marketplace. We've got to develop new products faster, and manufacture them in shorter runs with shorter setup times, he says. "We want to put out more products, offer more choice. At the same time, no retailer wants to carry lots of inventory. So we have to be able to get products to you quickly and replenish quickly. With up to the minute information coming from Lowe s, we can develop quick responses which give us a competitive advantage. Information coming right off the point of sale helps us eliminate lost time in ordering and shipping. This in turn increases productivity and helps us deliver the value that is essential to the growth of our business. In 1961, the year Lowe's went public, Bill Mayo-Smith was an investment adviser working with the firm of G.H. Walker. Also associated with the firm was Gordon Cadwgan, who became one of Lowe's founding directors, and it was to G.H. Walker that Cadwgan brought the underwriting of Lowe's initial public offering. Bill Mayo-Smith became one of Lowe's first big investors, buying stock in the young growth company at a considerable discount in 1962 following a market setback. He has been a Lowe's shareholder ever since. My usual practice is to buy stock in new companies and hold it until the character of the company undergoes a significant change," Mayo Smith says. He is still active, working these days with the firm of Ingalls and Snyder just a couple of blocks from the New York Stock Exchange. Factoring in all the times Lowe's stock has split in the past 32 years, the price I paid for those first shares comes out at 11 cents per share, he says, grinning. "At today's market price, that stock has seen approximately 20% appreciation compounded annually for 32 years. During the whole of that time. I have remained very close to Lowe's people. I've seen them here, I've visited North Wilkesboro, I've been in dozens of Lowe's stores. I've even worked on some of Lowe s annual reports! The company has gone through some Page 19 &F lean periods, but I decided to stick with it because I felt the odds favored Lowe's ability to reposition itself with a large store format that would attract retail customers. Lowe's really invented the D0-It-Yourself retailing industry. Mayo-Smith continues. They were the first to bring mass merchandising techniques to DIY. In the late Seventies, when very, large stores first appeared, Lowe's was understandably reluctant to embrace the concept because their strength had always been in small towns, and they weren't sure that those small towns could support huge stores. But starting about six years ago, they began to upgrade their existing stores and their new store expansion to a large format. After the early success of the first few big Lowe s stores, I knew that they were going to be able to pull off a major transformation. I added to my stock positions, and the stock has since done extremely well. The risk factor is now a thing of the past, Mayo Smith asserts. "Lowe s and Home Depot are the two leaders in DIY retailing, and they will continue as leaders through the coming years. Both companies have significant growth potential in front of them, in terms of industry growth and even more in terms of market share. Look at the food industry or the retail drug industry: the top chains have a lock on as much as 60% of the total market. After that point, their gains in market share flatten out because the surviving independents are sharp enough to offer real competition. But early on, at the stage where DIY retailing is now, good chains can grow very rapidly by taking business away from less efficient operators. I believe that Lowe's will continue to achieve success in an above average growth mode for the next several y ears, Bill Mayo Smith concludes. "I expect an increasing percentage of Lowe's revenues to come from retail sales. I've held Lowe's stock for a long time, and I have no intention of selling because I believe it has a long way to go before hitting serious resistance to further growth. In every generation, behaviors are driven by attitudes that reflect the impact of that generation's life experience. That s a generalization that could be applied to just about any aspect of a society. It's relevant here in terms of consumer behavior that is changing and defining Lowe's marketplace in the Nineties. According to Watts Wacker, an energetic young futurist with the firm of Yankelovich Partners, the way that Americans feel about their homes and the products that go into them is currently being influenced by a grab bag of societal factors. These include a crisis of confidence in institutions, the time constraints of the two income family lifestyle, the flood of useful but sometimes scary technology and the growing belief that America's s high rolling good times may be gone for good. As the World War II generation passes the torch of consumption to the Baby Boomers, says Wacker, we are experiencing a paradigm shift in which concepts retain their importance while their definitions change. Look at our definition of 'success,' he says. "It used to mean a killer job that paid more Page 20 &F money than your overloaded schedule would let you enjoy. Now success, like satisfaction, has become centered on the home. I don't mean the home as bunker, I mean the home as familial command center, a celebration place where we look to replace lost rituals in our search for meaningful structure. Wacker believes that America's crisis of confidence implicates not only the obvious formal institutions such as government and corporate America, but also informal institutions such as spring cleaning, prom night, and Halloween trick-or treating. Things change, he says simply. "If your marketing strategy is based on outmoded behaviors, you're dooming yourself to anachronism. For instance, consider the disappearance of the 'spring cleaning' tradition. For our mothers, it was a ritual, but neither women nor men have time for it now. Generally speaking, we don't maintain things anymore; we replace them. Retailers have to be aware ot these changes and strategize accordingly." Retailing is currently the focus of tremendus consumer dissatisfaction, Wacker says. It's part of our cultural schizophrenia: we want great deals, but we don't want to victimize somebody else. Furthermore, we don't want to be victimized ourselves by manufacturers and retailers who sometimes seem to regard us as pigeons ripe for plucking. According to Wacker, the Baby Boom generation doesn't believe advertising -- or at least, not in the same old tired formats. The technology of mass media makes consumer manipulation easy, he says, and advertising does it faster than anything else. On the other hand, he says, technology also facilitates the sort of "lean manufacturing" that Armstrong's George Lorch refers to when he talks about quick responses and shorter production runs. Manufacturing is now a service business, agrees Wacker, "in which technology makes for personalized distribution." As for standard retailing formats, Wacker says that the American public finds them sorely lacking. "Stores are pushing people away," he says. "Only one out of five consumers thinks that shopping malls are safe; 62% of shoppers say that they have abandoned items in a stores checkout aisle Most stores, he says, pay lip service to the familiar mantra of "quality, selection, style, and service" as criteria influencing consumer shopping habits. When asked, however, people are most likely to say that they will go to a store if they have had a good experience there before. What makes a good shopping experience for these demanding consumers? Wacker agrees with Walter Loeb (and with Lowe s) that efficient self service is a top priority. According to the Yankelovich Monitor, shopping convenience ranked even higher than selection (which came in second) as an important factor in a shopping experience. Pleasant atmosphere ranked third in importance. People will invest time in your store, says Wacker, "if the outcome is reduced stress, or Page 21 &F if the experience provides enough entertainment value to compensate for the lost time." American consumers today also have social and environmental concerns that retailers and manufacturers do well to heed. Weyerhaeuser's Bill Corbin says that his company has a very important message for the consumer: "We are environmentally conscientious, and our values are the same as your own. Says Corbin, "Lowe's is helping us inform the public about our environmentally friendly engineered wood products, which are made with I-beams that use less wood and save trees. while also being structurally stronger. We want Lowe's customers to know that we are listening to their concerns, that we are profoundly interested in conservation; that we do recycle and are working on waste reduction; and that we try very hard to manufacture with minimal environmental impact. Dick Stonesifer of GE pledges that "Through our partnership with Lowe's, we will be unfailingly responsive to our customers' desires. We will continue to invest in products that save water and energy while also performing quickly, quietly, and without polluting." Watts Wacker knows that consumers say they truly want all those things; they also want not to have to pay any more for products that measure up to those standards. What else would you expect from a society that wants savings in the future without sacrificing anything today; that demands better health care for everyone, but doesn't think anyone should pay more for it; and that hasn't learned yet that it can't have expanded government services and also pay lower taxes? We want structure and change, he says, "but not a limiting amount of structure, and not a scary amount of change. It's a delicate balance, and not easy to find." Perhaps because Lowe's grew up in small town America's, we have always wanted to be part of the communities where we operate, above and beyond the call of business. On local and regional levels we have always donated funds and materials to deserving individuals and organizations, and we are proud to be thought of as a good neighbor. Since 1957, we have administered our corporate philanthropy through Lowe's Charitable and Educational Foundation under the leadership of Pete Kulynych, one of Lowe's founding directors. In 1981 we co founded the Home Improvement Research Institute to fulfill a more overtly business related function as an objective and authoritative voice for our industry. In 1993 we embarked on a new philanthropic venture -- one which has the potential to save lives and money by addressing concerns very near the hearts of our home center and building products partners The new foundation is Lowe's Home Safety Council, and its mission is to enhance the quality of American homelife by helping families improve the comfort and security of their homes through good health and safety practices. Each year, American homes are the scene of nearly 20,000 accidental deaths and more Page 22 &F than six million disabling injuries. According to the National Safety Council (with whom Lowe's Home Safety Council is affiliated), these preventable accidents cost the taxpayer roughly $85 billion, or near half of every dollar of property tax paid in the United States. The function of the Home Safety Council will be to gather resources and channel them into a variety of charitable and educational projects. Each of Lowe's stores will serve an additional function as a home safety center where consumers will find the information and products they need to make their homes into safe havens. The council intends to establish a two way flow of energy and communication which will be generated at the local level by Lowe's store managers and district managers, and at the national level have an executive director and a highly visible board. All of Lowe's Partners In Interest, and especially our manufacturing partners, are invited to join this major home safety initiative. Their participation will reflect a shared concern for the welfare of the public who use their products, and will be a natural extension of their involvement in American homelife. Charter members of Lowe's Home Safety Council include the Honorable Lamar Alexander, the Honorable Jack Kemp, and the Honorable Louis Sullivan. Manufacturing charter members are Armstrong Corporation, BRK Electronics/First Alert, Clairson International, Nibco, Inc., Oatey Company, Osram Sylvania, Inc., R.D. Werner Co., Regent Lighting Corporation, and United Industries. The Home Safety Council is affiliated with a group of highly respected national organizations. These are the American Association of Retired Persons (AARP); the American Federation of Police; the Consumer Federation of America; the National Association of Chiefs of Police; the National Association of Pediatric Nurse Associates and Practitioners (NAPNAP); the National Association for Search and Rescue; the National Child Safety Council; the National Fire Protection Association; and the National Safety Council. Walter Loeb thinks that the establishment of Lowe's Home Safety Council "puts Lowe's on the leading edge of a very timely issue." Once again, Lowe's takes the initiative in a cause that will benefit all our partners in interest. Lowe's Store Locations * denotes Contractor Yard Alabama 14 Decatur Dothan Florence Gasden Huntsville Jasper Mobile (West) Montgomery Montgomery (South) Muscle Shoals Opelika(pepperell Corners) Oxford Prattville Tuscaloosa Arkansas 6 El Dorado Fayetteville Fort Smith Hot Springs Jonesboro Pine Bluff Page 23 &F Delaware 3 Chistiana Dover Sussex County Florida 16 Fort Pierce Fort Walton Beach Gainesville Gainesville (SW) Inverness Kissimmee Lake County Lakeland Lake Wales Mitland Ocala * Orange City Panama City Pensacloa (North) Tallahassee Tallahassee (NE) Georgia 18 Albany Athens Augusta Augusta (West) Brunswick Carrollton Columbus (North) Fort Oglethorpe Gainesville LaGrange Macon Rome Savannah Savannah (South) Thomasville Thomson Valdosta Warner Robbins Illinois 3 Decatur Marion Springfield Indiana 9 Anderson Clarkesville Indianapolis Indianapolis (East) Indianapolis (West) Kokomo Muncie Richmond Terre Houte Kentucky 19 Ashland Bowling Green Corbin Danville Elizabethton Frankfort Glasgow Lexington Lexington (East) Louisville Owensboro Paducah Paintsville Pikeville Richmand Saint Matthews Somerset Whitesburg Winchester Louisiana 14 Alexandria Baker Bossier City Hammond Houma Lafayette (Carenco) Lafayette (Acadiana Square) Lake Charles Leesville Natchitoches New Iberia Shreveport Thibodaux West Monroe Maryland 11 Bowie Charles County Cumberland Easton Frederick Frederick * Gaithersburg Hagerstown Saint Mary's County Salisbury Westminster Mississippi 7 Columbus Gautier Gulfport Hattiesburg Jackson Meridian Tupelo Missouri 2 Joplin Springfield Page 24 &F North Carolina 71 Albemarle Asheboro Asheville (East) Asheville (West) Banner Elk Boone Burlington Cary Chapel Hill Charlotte (North) Charlotte * Charlotte (Crown Point) Concord Durham * Durham (Oxford Commons) Elizabeth City Fayettevilee Forest City Franklin Garner Gastonia Gastonia(Franklin Square) Goldsboro Greensboro (North) Greensboro (SW) Greensboro * Greenville Henderson Hendersonville Hickory Hickory * High Point High Point (North) Jacksonville Kannapolis Kinston Lenoir Lexington Lincolnton Lumberton Monroe Mooresville Morehead City Morganton Mount Airy Murfreesboro New Bern Pineville Raleigh * Raleigh (North) Reidsville Rockingham Rocky Mount Salisbury Sanford Shelby Smithfield Southern Pines Southport Sparta Statesville Washington Waynesville Whiteville Wilkesboro Wilmington * Wilmington (University CWilson Winston- Salem Winston-Salem (Hanes MalZebulon Ohio 10 Cincinnati * Circleville Findlay Heath Lancaster Marion Ontario Springfield Wheelersburg Wooster Pennsylvania 7 Altoona Chambersburg Hanover (Hanover Crossings) Harrisburg Mechanicsburg State College York South Carolina 22 Aiken Anderson Charleston Columbia (NE) Columbia (West) Easley Florence Gaffney Greenville Greenwood Irmo Laurens Mount Pleasant Myrtle Beach Orangeburg Rock Hill Seneca Spartanburg Spartanburg * Summerville Sumter Taylors Tennessee 26 Page 25 &F Athens Bartlett * Chattanooga Chattanooga (North) Chattanooga * Clarkesville Cleveland Columbia Cookeville Crossville Gallatin Greenville Hermitage Jackson Johnson City Kingsport Knoxville (North) Knoxville (South) Knoxville (West) Madison Maryville Morristown Murfreesboro Nashville Nashville * Tullahoma Texas 2 Longview Tyler Virginia 34 Bluefield Bristol Chancellor Charlottesville * Charlottesville (Rio HilChesapeake Chester (Breckenridge)Chester * Christiansburg Churchland Claypool Hill Danville Denbigh Dublin Fredricksburg Galax Harrisburg Lynchburg Manassas Marion Martinsville Newport News * Richmond Richmond (West) Richmond (Victorian SquaRoanoke Roanoke * South Boston Stauton Suffolk Winchester Wise County Woodbridge * Woodbridge (Smoketown Station) West Virgina 17 Barboursville Beckley Belle Chapmanville Charleston Charleston (South) Clarksburg Cross Lanes Fairmont Huntington Martinsburg Matewan Morgantown Parkersburg Princeton Summersville Teays Valley
EX-6 7 AUDIT REPORT &F Independent Auditors' Report To the Board of Directors and Shareholders of Lowe s Companies, Inc. Page 26 &F W e have audited the accompanying consolidated balance sheets of Lowe s Companies, Inc. and subsidiaries as of January 31 1994, 1993 and 1992 and the related consolidated statements of current and retained earnings and cash flows for the fiscal years then ended These financial statements are the responsibility of the Company's management Our responsibility is to express an opinion on these financial statements based on our audits We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Lowe's Companies, Inc. and subsidiaries at January 31, 1994, 1993 and 1992, and the results of their operations and their cash flows for the fiscal years then ended in conformity with generally accepted accounting principles. Deloitte & Touche Charlotte, North Carolina 09-Mar-94
EX-7 8 MD&A &F Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction This discussion summarizes the significant factors affecting Lowe's consolidated operating results, financial condition and liquidity/cash flows during the three year period ended January 31, 1994 (i.e., Fiscal 1993, 1992 and 1991). This discussion should be read in conjunction with the Letter to Shareholders, financial statements and financial statement footnotes included in this annual report. Lowe's embarked upon a large store prototype expansion program beginning in 1989 and furthered this commitment by recording a one time restructuring charge in Fiscal 1991 of $71.3 million pre tax to cover expected costs and expenses incident to this expansion program and transformation. This transformation from small stores into large home improvement destination centers coupled with "dominant inventory assortments" will continue to enhance our growth as the large store commitment continues. We ended 1993 with 311 stores and 14.2 million square feet of selling space. This compares to 303 stores and 10.0 million square feet and 306 stores and 8.0 million square feet for the two prior fiscal years' end, respectively. Store performance perspective in terms of units, sales and operating profits is depicted in Tables 1 3. Page 27 &F Expansion plans for 1994 envision about 50 new stores with 50% in new markets and 50% in relocations for approximately 4.4 million square feet of additional retail space. Approximately one half of the 1994 projects will be leased and one half will be owned. Distribution capabilities are a central component of Lowe's operating strategy. At year end, we operated two distribution facilities along with four smaller "satellite" support facilities. In addition, a new "high tech" distribution facility of approximately 650,000 square feet is expected to be operational by mid 1994 to Support our expansion program in new markets, sales floor square footage increases and expanded product offerings. Plans are under way for a fourth distribution center. Effective February 1, 1994, a new subsidiary was established (The Contractor Yard, Inc.) to own and operate Lowe's contractor yards currently in 18 locations. Additional contractor yards are expected as we continue our restructuring. This move is intended to represent a more focused marketing effort to building contractor in these locations. Operations Record sales of $4.54 billion were achieved during 1993, an 18% increase over 1992 sales of $3.85 billion. Sales for 1992 were 26% higher than 1991. These increases are attributable to customer receptiveness of the expansion program discussed above. Positive sales results are continuing into the first quarter of 1994. Retail sales increased 21% to $3.25 billion, an increase of $.56 billion over 1992. This category also increased 28% in 1992 from 1991 sales of $2.11 billion. Contractor sales increased 11 % to $ 1.29 billion, an increase of $.13 billion over 1992. This category accounted for a 22% increase in 1992 from 1991 sales of $.95 billion. Gross margin improved to 23.8% from 23.4% in 1992. An Everyday Competitive Pricing strategy was implemented during 1992 which caused a reduction in margin from 1991's margin of 24.1 %. This strategy has proved very successful as it creates higher sales volumes and margin dollars, resulting in a positive leveraged sales impact over expenses. LIFO charges reduced margins by 34, 25 and 20 basis points for 1993, 1992 and 1991, respectively. Had inventory costs been stated on a FlFO basis, year end inventory totals would have been $64.5, $49.0 and $39.5 million higher for these years. Selling General and Administrative (SG&A) expenses for 1993 were $717.0 million or 15.8% of sales. This tracks favorably with each of the two previous years of 16.7% and 18.0% to sales, respectively. Sales leverage on overall expenses plus cost containment in key areas such as advertising are major contributors to this favorable trend. Store opening costs exemplifying Lowe's commitment to its expansion program saw costs at $29.3 million for 1993 These costs were $11.0 and $3.9 million for 1992 and 1991, respectively. These costs currently average about $550 thousand per store. Projected costs for 1994 will average about $600 thousand per project. Page 28 &F Depreciation, reflecting continuing fixed asset expansion, increased 15% to $80.5 million. A 20% increase for 1992 was in line with this program which was computed from a prior year base of $58.3 million. Depreciation for these years has maintained a percentage to sales of approximately 18%. About one half of new stores for 1993 are operating leases, whereas previously a higher percentage of stores was owned. Employee retirement plans expenses for 1993 were $37.9 million or .8% to sales. This cost compares favorably with .9% and 1.0% for each of the two previous years. A lower eligibility rate, because of more new hires relating to expansion, accounts for the lower percentage costs to sales. See Note 9 to the financial statements for further disclosure. Interest costs were $18.3 million (4% to sales) and a 17% increase above 1992. Interest costs were $16.9 million for 1991. Near historic lows in borrowing rates have been favorable for each of these years. See Notes 5 and 6 to the financial statements for particulars on short term and long term indebtedness and discussion below on liquidity and capital resources. Cash dividends paid to common shareholders were $23.6, $21.2 and $20 0 million in 1993 1992 and 1991, respectively. Lowe s has paid cash dividends each quarter since becoming a public company in 1961. At January 31 1994 there were 7,470 shareholders of record. Refer to Stock Performance Chart on page 31 for further particulars on dividends and stock performance. Balance Sheet Management Effective inventory turnover is critical to efficient product management. (Lowe s calculates "turn" by using cost of sales as the numerator and divides by the average of beginning inventory plus the subsequent four quarters ending inventories.) In 1993 Lowe's inventory turned 4.7 times, up from 4.6 turns in 1992 and 4.4 turns in 1991. This improvement represents a savings in inventory financing costs and is noteworthy during this time of expansion of store size and inventory assortments. Accounts receivable remained flat with 1992 at $53.3 million. In that year, an undivided fractional interest in a designated pool of receivables was sold, with this program continuing into 1993. Accounts receivable totaled $115.7 million for 1991. For more details, see Note 2 to the financial statements. Property, less accumulated depreciation increased 30% to $1.02 billion for 1993, with 1992 increasing 28% from 1991. Primarily all of the increase represents a commitment to the superstore format. Large store investments also include increased purchases of point of sale equipment, fixtures and displays. Other assets primarily consist of land and buildings relating to closed and relocated stores which are available for sale or lease. These properties are carried at their net realizable value. At January 31, 1994, this value was approximately $44 million; up $4 million from the previous year. Fourteen properties were under contract to be sold at year end, carrying value of approximately $10 million. Page 29 &F Accounts payable, the major source of short term inventory financing, represented 55% of year end inventory compared to 56% for 1992 and 51% for 1991. Long term debt, excluding current maturities, at January 31, 1994 was $592.3 million, up 89% from the 1992 balance. The 1991 balance was $113.6 million. During 1993, $287.5 million 3% Convertible Subordinated Notes were issued at a discount, raising $250 million. Medium term notes were issued in both 1993 and 1992 after early retirement of our long term debt carrying double-digit interest rates. In 1992, most short term debt was eliminated with this trend carrying over into 1993. Further details on long-term financing can be found in Note 6 to the financial statements. The special one time restructuring charge is addressed at the beginning of this MD&A, and more specifically in Note 14 to the financial statements. This restructuring accrual associated with relocating and closing stores was $16.0, $10.8 and $2.1 million for 1993, 1992 and 1991, respectively. Also, $3.0 and $5.9 million were used to reduce vacated stores to their net realizable value in 1993 and 1992, respectively. The remaining restructuring accrual at January 31, 1994 was $33.5 million. Shareholders' equity continues to finance the biggest portion of assets. Total shareholders' equity increased by $140.4 million in 1993 and financed 39.7% of assets at January 31, 1994. This compares to 45.6% for 1992 and 46.4% for 1991 Financial Management Liquidity and Capital Resources Primary sources of liquidity are cash provided from operating activities and certain financing activities. Information on consolidated cash flows (operating, financing and investing activities is set forth in the Statements of Cash Flows on page 22 of this report Working capital at January 31, 1994, was $402.7 million as compared to $245.9 million at January 31,1993, and $181.1 million at January 31,1992 During 1993, Lowe's issued the following debt: o $32 million medium term notes issued in February 1993, and o $287.5 million aggregate (net $250 million principal 3% Convertible Subordinated Notes, issued at a discount in July 1993 During 1992, Lowe's issued the following debt: o $218 million medium term notes issued in the last three quarters. During 1993, Lowe's reduced long term debt as follows: o $6.3 million of scheduled miscellaneous repayments. During 1992, Lowe's reduced long term debt as follows: o Redeemed $27.8 million, 11.5% unsecured notes, and o $8.4 million of scheduled miscellaneous repayments. During 1991, Lowe's reduced long term debt as follows: o Redeemed $30 million, 12.75% unsecured notes, and o $10.7 million of scheduled miscellaneous repayments Page 30 &F Major uses of cash continue to be investments in new store facilities. In 1993, capital investment was $374 million (cash outlays of $337 million plus capital leases of $29 million and like kind exchanges of $8 million) which did not include operating leases of $166 million. Lowe's 1994 capital budget is targeted between $575 and $600 million, inclusive of approximately $220 million of market value of properties to be occupied under operating leases. Over 80% of this planned commitment is for store expansion. Present expansion plans are to finance 1994's program through funds from operations, operating leases, issuance of about $30 million of common stock to the Employee Stock Ownership Plan and from external financing. External financing in 1994 may involve a "takedown" under Lowe's Shelf Registration. On January 10, 1994 (approved effective February 8, 1994, the Company filed with the Securities and Exchange Commission a shelf registration statement covering $500 million of "unallocated" debt or equity securities. The shelf registration enables the Company to issue common stock, preferred stock, senior unsecured debt securities, or subordinated unsecured debt securities from time to time. Short term capital needs will be financed through utilization of Lowe's bank credit agreements and commercial paper program. Formal bank credit agreements in place are discussed in Note 5 to the financial statements. The ratio of long term debt to equity plus long term debt was 40.4%, 30.0% and 14.0% with fixed charge coverage at 6.5, 5.7 and 1.2 for 1993,1992 and 1991, respectively. Other General inflation has not had a significant impact on Lowe s during the past three years. With the exception of certain building commodity products, deflation has been experienced in most product groupings. Lumber products have experienced inflation rates considerably higher than that of other building commodities due to a combination of price volatility increased demand and diminished supply. Inflation rates experienced in the lumber product grouping were 12.0%.9.7% and 4.7% for 1993, 1992 and 1991, respectively. Environmental exposures are a common concern to most businesses. Lowe's is subject to various environmental protection laws and regulations and is operating within such laws or is taking action aimed at assuring compliance with such laws and regulations. Lowe's has been identified as a Potentially Responsible Party (PRP) at two Environmental Protection Agency designated clean up sites. Any cost to Lowe's is not expected to have a material impact on the consolidated financial statements. Store Performance Perspective To further enhance understanding and analysis of the relative pace, progress, and performance of our new family of stores, compared to two older and smaller store groups, we are providing the information in the following tables, both in this report, and quarterly. Table 1 Store Group Unit Totals, Four Quarter Average Page 31 &F 1993 1992 1991 1990 % of % of % of % of Total Units Total Units Total Units Total Units Small (1) 25% 77 32% 99 40% 122 45% 137 Medium (2) 31 94 37 113 41 127 42 130 Large (3) 44 134 31 93 19 58 13 40 Total 100% 305 100% 305 100% 307 100% 307 Table 1 Comments: The small stores average less than 9,000 square feet of sales floor and are being replaced by superstores. The medium stores stem from our 1984-1988 expansion, and average about 24,000 square feet. A few small and medium stores have been converted into focused contractor yards. These 18 yards are included in our small store totals. The large stores average about 72,000 square feet, with our current prototypes being 85,000 to 115,000, plus large garden centers. Table 2 Sales Contribution by Store Group, Fiscal Year 1993 1992 1991 1990 % of % % of % % of % % of Total Change Total ChangeTotal Change Total Small (1) 18% -10% 23% -4% 31% -9% 36% Medium (2) 28 -11 37 2 45 3 48 Large (3) 54 62% 40 108% 24 63% 16 Total 100% 100% 100% 100% Table 2 Comments: The results shown in Table 2 need to be read in conjunction with the changing store numbers in Table I because these are aggregate totals, not comparable store results. The small store sales decrease of 10% is attributable to their reduction in number, because the sales per store average increased 19%. The average mid sizer achieved a 7% sales increase. The average large store's sales growth of 11%, combined with their numerical increase, provided 54% of total sales, up from 16% in 1990. Table 3 Operating Profits by Store Group, Fiscal Year 1993 1992 1991 1990 % of % % of % % of % % of Total Change Total ChangeTotal Change Total Small (1) 15% 12% 20% 13% 25% -35% 36% Medium (2) 30 12 39 10 51 -9 50 Large (3) 55 62% 41 151% 24 52% 14 Total 100% 100% 100% 100% Table 3 Comments: Here is the report card on profitability and growth. Again, these are not comparable store results but group totals. The 77 small stores, on average, improved Page 32 &F their profit contribution over the average of last year's 99 stores by 44% in spite of a 22% reduction in number. These units are low cost operations, including some "cash cows" and our focused Contractor yards, and are obviously able to do well in this business climate. The mid sizers are stores of the mid 80's Their average sales per store was 26% higher than that of the small stores, and they too, on average increased their profit over last year. The large stores are designed for our customers of the 90's and their results are gratifying. With average sales per store 72% higher than the average small store, and their average operating profits 106% greater than the average of the small stores, the large stores contributed 55% of the year's operating profits while contributing 54% of sales. Operating profits are determined with consistency period to period, and without any subsidization of stores or groups. Therefore, the performance shown in Table 3 is a hard proxy for the relative pre tax profit contribution of these store groups. 1993 1992 1991 Total Sq. FTotal Sq. Total Sq. Ft. (000,000) (000,000) (000,000) (1) Pre 1984 Stores; Contrator Avg. 8,810 Sq. Ft. 0.6 0.9 1.2 (2) '84-'88 Stores: Avg. 23,980 Sq. Ft. 2 2.6 3 (3) Post '88 Expansion Stores: Avg. 72,110 Sq. Ft. 11.6 6.5 3.8
EX-8 9 BALANCE SHEET Consolidated Condensed Balance Sheets Lowe's Companies, Inc. and Subsidiary Companies Dollars in thousands _____________________________________________________________________________________________________ January 31, January 31, 1994 1993 ____________ ____________ Assets __________________ Page 33 &F
Current assets: Cash and cash equivalents $73,253 $48,949 Short-term investments 35,215 5,900 Accounts receivable - net 53,301 53,288 Merchandise inventory 853,707 594,195 Other assets 68,431 43,222 ____________ ____________ Total current assets 1,083,907 745,554 Property, less accumulated depreciation 1,020,234 787,197 Long-term investments 40,408 23,270 Other assets 57,099 52,856 ____________ ____________ Total assets $2,201,648 $1,608,877 ============ ============ Liabilities and Shareholders' Equity _________________________________________ Current liabilities: Current maturities of long-term debt $49,547 $21,721 Short-term notes payable 2,281 3,193 Accounts payable 467,278 330,584 Employee retirement plans 34,422 32,038 Accrued salaries and wages 45,883 39,472 Other current liabilities 81,765 72,626 ____________ ____________ Total current liabilities 681,176 499,634 Long-term debt, excluding current maturities 592,333 313,562 Deferred income taxes 26,165 16,517 Accrued store restructuring costs 28,305 45,944 ____________ ____________ Total liabilities 1,327,979 875,657 ____________ ____________ Shareholders' equity Common stock - $.50 par value; Issued and Outstanding January 31, 1994 147,886,770 January 31, 1993 145,945,916 73,943 72,973 Capital in excess of par 202,962 171,214 Retained earnings 596,764 489,033 ____________ ____________ Total shareholders' equity 873,669 733,220 Page 34 &F ____________ ____________ Total liabilities and shareholders' equity $2,201,648 $1,608,877 ============ ============ _____________________________________________________________________________________________________ See accompanying notes to consolidated condensed financial statements.
EX-9 10 INCOME STATEMENT Consolidated Condensed Statements of Current and Retained Earnings Lowe's Companies, Inc. and Subsidiary Companies Dollars In Thousands, Except Per Share Data Three months ended For the year ended January 31, 1994 January 31, 1993 January 31, 1994 January Current Earnings Amount Percent Amount Percent Amount Percent Amount ___________________________________________________________________________________________________________________
Net sales $1,145,828 100.00 $910,298 100.00 $4,538,001 100.00 $3,846,418 Cost of sales 866,811 75.65 700,961 77.00 3,456,717 76.17 2,945,753 Gross margin 279,017 24.35 209,337 23.00 1,081,284 23.83 900,665 Expenses: Selling, general and administrative 191,437 16.71 157,628 17.33 717,028 15.82 642,799 Store opening costs 12,585 1.10 2,934 0.32 29,251 0.64 10,983 Depreciation 22,136 1.93 18,956 2.08 80,530 1.77 69,820 Employee retirement plans 7,781 0.68 7,623 0.84 37,873 0.83 35,572 Interest 6,074 0.53 3,682 0.40 18,278 0.40 15,599 Total expenses 240,013 20.95 190,823 20.97 882,960 19.46 774,773 Page 35 &F Pre-tax earnings 39,004 3.40 18,514 2.03 198,324 4.37 125,892 Income tax provision 13,271 1.15 6,191 0.68 66,538 1.47 41,172 Net earnings $25,733 2.25 $12,323 1.35 $131,786 2.90 $84,720 ___________________________________________________________________________________________________________________ Shares outstanding (weighted average) 148,099 146,255 147,398 146,152 Earnings per share $0.17 $0.08 $0.89 $0.58 ___________________________________________________________________________________________________________________ Retained earnings ___________________________________________________________________________________________________________________ Balance at beginning of period $576,968 $482,555 $489,033 $425,526 Net earnings 25,733 12,323 131,786 84,720 Cash dividends (5,915) (5,838) (23,571) (21,153) Stock Split (22) (7) (484) (60) Balance at end of period $596,764 $489,033 $596,764 $489,033 ___________________________________________________________________________________________________________________ See accompanying notes to consolidated condensed financial statements.
EX-10 11 CASHFLOW CONSOLIDATED STATEMENTS OF CASH FLOWS Lowe's Companies, Inc. and Subsidiary Companies Dollars in Thousands Fiscal Fiscal 1993 1992 __________________________________________________________________________________________________________________
Cash Flows From Operating Activities: Net Earnings $131,786 $84,720 Adjustments to Reconcile Net Earnings to Net Cash Provided By Operating Activities: Depreciation 80,530 69,820 Amortization of Original Issue Discount 1,615 Store Restructuring Accrual Increase (Decrease) in Deferred Income Taxes 5,860 8,231 Loss on Disposition/Writedown of Fixed and Other Assets 8,969 1,929 Decrease (Increase) in Operating Assets: Accounts Receivable - Net (13) 62,451 Merchandise Inventory (259,512) 8,600 Other Operating Assets (21,385) (20,352) Increase (Decrease) in Operating Liabilities: Page 36 &F Accounts Payable 136,694 22,770 Employee Retirement Plans 32,937 4,173 Accrued Store Restructuring (8,905) (10,765) Other Operating Liabilities 17,123 19,173 Net Cash Provided by Operating Activities 125,699 250,750 __________________________________________________________________________________________________________________ Cash Flows from Investing Activities: Decrease (Increase) in Investment Assets: Short-Term Investments (29,315) (1,174) Purchases of Long-Term Investments (41,714) (12,500) Proceeds from Sale/Maturity of Long-Term Investments 24,576 580 Other Long-Term Assets 1,645 (2,213) Fixed Assets Acquired (336,888) (243,262) Proceeds from the Sale of Fixed and Other Long-Term Assets 27,641 9,642 Net Cash Used in Investing Activities (354,055) (248,927) __________________________________________________________________________________________________________________ Cash Flows from Financing Activities: Sources: Long-Term Debt Borrowings 281,915 217,969 Net Increase (Decrease) in Short-Term Borrowings (912) (140,640) Stock Options Exercised 1,504 1,019 Total Financing Sources 282,507 78,348 __________________________________________________________________________________________________________________ Uses: Repayment of Long-term Debt (6,276) (36,157) Cash Dividend Payments (23,571) (21,153) Common Stock Purchased for Retirement Total Financing Uses (29,847) (57,310) Net Cash Provided by Financing Activities 252,660 21,038 __________________________________________________________________________________________________________________ Net Increase in Cash and Cash Equivalents 24,304 22,861 Cash and Cash Equivalents, Beginning of Year 48,949 26,088 Cash and Cash Equivalents, End of Year $73,253 $48,949 __________________________________________________________________________________________________________________ See accompanying notes to consolidated financial statements.
EX-11 12 FOOTNOTES &F NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LOWE'S COMPANIES, INC. AND SUBSIDIARY COMPANIES FISCAL YEARS ENDED JANUARY 31, 1994, 1993 AND 1992 NOTE 1 Summary of Significant Accounting Policies: Page 37 &F The Company is one of America's largest retailers serving the do-it-yourself home improvement, home decor, and home construction markets. Below are those accounting policies considered to be significant. Subsidiaries and Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All material intercompany accounts and transactions have been eliminated. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, demand deposits, and short-term investments that are readily convertible to cash within three months of purchase. Investments The Company has a cash management program which provides for the investment of excess cash balances in financial instruments which have maturities of up to three years. Investments that are readily convertible to cash within three months of purchase are classified as cash equivalents. Investments with a maturity of between three months and one year are classified as short-term investments and are stated at amortized cost. Investments with maturities greater than one year are classified as long-term and are stated at the lower of amortized cost or market value. Investments consist primarily of tax exempt notes and bonds, auction rate tax exempt securities, and municipal preferred tax exempt stock. Effective February 1, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities", which stipulates that debt securities not classified as held-to-maturity securities and all equity securities will be carried at fair value. Unrealized gains and losses on such securities will be included in earnings if the securities are classified as trading securities and will be excluded from earnings and reported as a separate component of shareholders' equity until realized if classified as available-for-sale. Debt securities classified as held-to-maturity securities will be carried at amortized cost. Management does not believe that adoption of SFAS No. 115 will have a material effect on the Company's financial statements. Future financial statement effects of applying this new standard will depend on classification and market values of the securities. Accounts Receivable The majority of the accounts receivable arise from sales to professional building contractors principally in the South Atlantic and South Central regions of the United States. The allowance for doubtful accounts is based on historical experience and a review of existing receivables. Sales generated through the Company's private label credit card and consumer installment sales are not reflected in receivables. These receivables are sold, without recourse, to an outside finance company. Merchandise Inventory Inventory is stated at the lower of cost or market. In an effort to more closely match inventory costs and related sales, cost is determined using the last- in, first-out (LIFO) method. Included in inventory cost are administrative, warehousing and other costs directly associated with buying, distributing and maintaining inventory in a condition for resale. Page 38 &F Property and Depreciation Property is recorded at cost. Costs associated with major additions are capitalized and depreciated. Upon disposal, the cost of properties and related accumulated depreciation is removed from the accounts with gains and losses reflected in earnings. Depreciation is provided over the estimated useful lives of the depreciable assets. Assets are generally depreciated on the straight-line method. Leasehold improvements are depreciated over the shorter of their estimated useful lives or term of the related lease. Other Assets Real property representing closed stores are included in other assets at their estimated net realizable value. Leases Assets under capital leases are amortized in accordance with the Company's normal depreciation policy for owned assets or over the lease term if shorter. The charge to earnings resulting from amortization of these assets is included in depreciation expense in the consolidated financial statements. Income Taxes Income taxes are provided for temporary differences between the tax and financial accounting bases of assets and liabilities using the liability method under SFAS No. 109. The tax effects of such differences are reflected in the balance sheet at the tax rates expected to be in effect when the differences reverse. Store Pre opening Costs Costs of opening new retail stores are charged to operations as incurred. Employee Retirement Plans Since 1957 the Company has maintained benefit plans for its employees as described in Note 9. The plans are funded annually. Earnings Per Share Earnings per share are calculated on the weighted average shares of common stock and dilutive common stock equivalents outstanding each year. Earnings per share have been retroactively adjusted to reflect the two-for-one stock split described in Note 10. The Company's 3% Convertible Subordinated Notes due July 22, 2003, are potentially dilutive securities for purposes of calculating earnings per share; however, their effect is not material and fully diluted earnings per share is not presented. NOTE 2 Accounts Receivable During 1992, the Company entered into an agreement to sell, with limited recourse, an undivided fractional interest in a designated pool of receivables. As collections reduce previously sold interests in receivables, an interest in new receivables may be sold under the agreement. At January 31, 1994 and 1993, the interest in receivables sold totaled $121.9 and $107.3 million, respectively. At January 31, 1994 and 1993, the Company had received $90 and $80 million, respectively, in cash and a receivable for $31.9 and $27.3 million, respectively. The $31.9 and $27.3 million receivable are included in Accounts Receivable - Net in the balance sheet. The Company maintains an allowance for doubtful accounts because it has retained substantially the same risk of credit loss as if the receivables had not been sold. The allowance for doubtful accounts was $4.7, $4.7, and $4.1 million at January 31, 1994, 1993, and 1992, respectively. Page 39 &F NOTE 3 Merchandise Inventory: If the FIFO method had been used, inventories would have been $64.5, $49.0 and $39.5 million higher at January 31, 1994, 1993 and 1992, respectively. NOTE 4 Property and Accumulated Depreciation: Net property includes $59.0, $33.7 and $13.9 million in assets from capital leases for Fiscal 1993, 1992 and 1991, respectively. Property is summarized below by major class: Janurary 31 1994 1993 1992 (Dollars in Thousands) Cost: Land $, 224,551 $188,562 $116,382 Buildings 478,373 421,620 400,877 Store and Office Equipment 500,811 371,002 302,708 Leasehold Improvements 113,287 86,756 49,823 Total Cost 1,317,022 1,067,940 869,790 Accumulated Depreciation and Amortization (296,788) (280,743) (256,835) Net Property (Note 12) $1,020,234 $787,197 $612,955 NOTE 5 Short-Term Borrowings and Lines of Credit: The Company has agreements with a group of banks at January 31, 1994, which provide for short-term unsecured borrowings of up to $140 million with interest at the lower of prime or bank transaction rate. The agreements expire on May 1, 1994. In addition the agreements have a commitment fee of .125% annually. The Company expects to renew these agreements at similar terms. These agreements may also be used to support the issuance of commercial paper. The agreements may be withdrawn if there is a material change in the financial condition of the Company. At January 31, 1994, there were no amounts outstanding under these agreements. Several banks have extended lines of credit aggregating $140 million for the purpose of issuing documentary letters of credit and standby letters of credit. These lines do not have termination dates but are reviewed periodically. Commitment fees of .125% per annum are paid on the amounts used. At January 31, 1994, unused lines of credit totaled $101.9 million. In addition $200 million is available for the purpose of short-term borrowings on a bid basis from various banks. These lines are uncommitted and are reviewed periodically by both the banks and the Company. At January 31, 1994, there were no amounts outstanding under these lines. Page 40 &F The following relates to aggregate short-term borrowings from banks and commercial paper transactions in Fiscal 1993, 1992 and 1991: Maximum Average Weighted Category of WeightedAmount Amount Average Aggregate Balance Average OutstandinOutstandingInterest Rate Short-Termat End oInterestAt Any During the During the BorrowingsYear Rate Month End Year (a) Year (b) (Dollars in thousands) Fiscal 1993 Commercial Paper $65,000 $15,408 3.30% Bank Borrowings 49,000 21,468 3.3 Fiscal 1992 Commercial Paper 150,000 97,892 3.9 Bank Borrowings 127,900 66,946 4 Fiscal 1991 Commercial Pape$97,000 4.3 97,000 54,097 5.4 Bank Borrowings$43,500 4.10% $118,200 $42,792 5.50% (a) Average of daily ending balances. (b) Total interest expense on short-term borrowings for the year divided by average amount outstanding during the year.
NOTE 6 Long-Term Debt: Fiscal Year Debt of Final Janurary 31 Category Interest Rates Maturity 1994 1993 1992 (Dollars in Thousands) Secured Debt1:
Insurance Company Notes6.75% to 9% 1998 $534 $1,323 $2,721 Bank Notes 7.0% * 1994 17 50 83 Industrial Revenue Bond4.2% * 1997 833 1,133 1,721 Other Notes 8% to 10% 2005 663 770 892 Unsecured Debt: Page 41 &F Insurance Company Notes 8.25% 1992 600 Industrial Revenue Bond4.55% to 6.50% * 2020 10,230 11,703 13,086 Industrial Revenue Bond2.25% * 2005 9,600 10,300 11,000 Unsecured Notes 11.50% 1992 27,813 Medium Term Notes 6.50% to 8.20% 2022 249,966 217,959 Convertible Subordinate 3.00% 2003 251,524 Bank Notes 4 2.63% to 2.76% * 1996 57,955 57,955 57,955 Capital Leases (Note 125.99% to 12.00% 2033 60,558 34,090 15,479 Total Long-Term Debt 641,880 335,283 131,350 Less Current Maturities 49,547 21,721 17,700 Long-Term Debt, Excluding Current Maturities $592,333 $313,562 $113,650
* Interest rate varies as a percentage of prime rate or other interest index. Interest rates shown are as of January 31, 1994, or year of maturity if earlier. Prime rate was 6.0% at January 31, 1994. In April 1992, the Company filed a shelf-registration with the Securities and Exchange Commission registering up to $250 million of Medium Term Notes to be issued in the future. The Company issued $218 million of these notes in Fiscal 1992. The remaining $32 million of these notes were issued in February 1993. The notes bear interest rates that range from 6.50% to 8.20% and are scheduled to mature from 1997 to 2022. At January 31, 1994, the Company had outstanding 25 interest rate swap agreements with financial institutions, having a total notional principal amount of $250 million. Under the agreements with notional amounts of $10 million each, the Company will receive interest payments at an average fixed rate of 5.71% and will pay interest on the same notional amounts at a floating rate based on an interest rate index, currently estimated at 3.38%. These swaps are scheduled to terminate in Fiscal 1995. The Company is exposed to credit loss in the event of nonperformance by the banks and financial institutions. However, management does not anticipate such nonperformance. Debt maturities, exclusive of capital leases (see Note 12), for the next five fiscal years are as follows (in millions): 1994, $47.8; 1995, $13.6; 1996, $4.6; 1997, $13.6 ; 1998, $1.8. Notes: 1 Real properties pledged as collateral for secured debt had net book values (in millions) at January 31, 1994, as follows: insurance company notes $6.1; bank notes $.5; industrial revenue bonds $1.9; and other notes $3.8. 2 The Company issued notes to secure $11.7 million floating rate monthly demand Page 42 &F industrial revenue bonds in Fiscal 1985. The interest rates are tied to an interest index based on comparable securities traded at par and other pertinent financial market rates. With certain restrictions, the bonds can be converted to a fixed interest rate based on a fixed interest index at the Company's option. 3 On July 22, 1993, the Company sold $287.5 million aggregate principal of its 3% Convertible Subordinated Notes due July 22, 2003. The notes are convertible into Lowe's Common Stock at the conversion rate of 38.32 shares of common stock per each $1,000 principal amount. The notes were issued at an original price of $880.27 per $1,000 principal amount, which represented an original issue discount of 11.973% payable at maturity. Annual interest on the notes at 3% and accretion of the original issue discount represents an annual yield to maturity of 4.5%. The notes are callable (subject to certain adjustments) at any time on or after July 22, 1996 4 The unsecured bank notes were obtained for the purpose of acquiring the Company's common stock to fund the ESOP. These notes require that certain financial conditions be maintained, restrict other borrowings, and limit the payment of dividends to $40 million during any one year. NOTE 7 Disclosures about Fair Values of Financial Instruments The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS No. 107, ("Disclosures about Fair Value of Financial Instruments"). The estimated fair value amounts have been determined, using available market information and appropriate valuation methodologies. However, considerable judgement is necessarily required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. (Dollars in Thousands) Janurary 31, 1994 Janurary 31, 1993 Carrying Fair Carrying Fair Amount Value Amount Value Assets: Cash, Cash Equivalents and Short-Term Investments $108,468 $108,493 $54,849 $54,849 Net Receivables 53,301 53,301 53,288 53,288 Long-Term Investments 40,408 40,801 23,270 23,664 Liabilities: Accounts Payable 467,278 467,278 330,584 330,584 Short-Term Debt 2,281 2,281 3,193 3,193 Long-Term Debt 641,880 772,466 335,283 340,578 Off-Balance Sheet Financial Instruments- Unrealized Gains Interest Rate Swap Agreements 4,421 2,434 Page 43 &F Cash, cash equivalents and short-term investments, receivables, accounts payable, and short-term debt The carrying amounts of these items are a reasonable estimate of their fair value. Long-term investments The fair value is estimated from quoted market prices for these or similar investments. Long-term debt Interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities are used to estimate fair value for debt issues that are not quoted on an exchange. Interest rate swap agreements The fair value of interest rate swaps is the amount at which they could be settled, based on estimates obtained from dealers. NOTE 8 Income Taxes: (Dollars in Thousands)
Page 6 &F Fiscal Years End on January 31 Fiscal 1993 Fiscal 1992 Fiscal 1991 of Following Year Amount % Amount % Amount % Statutory Rate Reconciliation
Pre-Tax Earnings $198,324 100.00% $125,892 100.00% $4,951 100.00% Federal Income Tax at Statutory Rate 69,413 35 42,803 34 1,683 34 State Income Taxes-Net of Federal Tax Benefit 2,340 1.2 1,443 1.1 131 2.6 Other (5,215) -2.6 (3,074) -2.4 (3,350) -67.6 Total Income Tax Provision $66,538 33.60% $41,172 32.70% ($1,536) -31.00% Components of Income Tax Provision Current Federal $58,088 87.30% $31,289 76.00% $23,524 -1531.50% State 2,590 3.9 1,651 4 198 -12.9 Total Current 60,678 91.2 32,940 80 23,722 ********* Deferred Federal 4,850 7.3 7,697 18.7 (25,258)1,644.40 State 1,010 1.5 535 1.3 0 0 Total Deferred 5,860 8.8 8,232 20 (25,258)1,644.40 Total Income Tax Provision $66,538 100.00% $41,172 100.00% ($1,536) 100.00% Page 44 &F Deferred income taxes arise principally from the temporary differences between financial reporting and income tax reporting of depreciation and certain other accrued expenses. During Fiscal Year 1991, the tax effect of the restructuring charge resulted in a deferred tax benefit representing future tax deductible expenditures which substantially offset existing deferred tax liabilities. The tax effect of cumulative temporary differences and carryforwards that gave rise to the deferred tax assets and liabilities and the related valuation allowance at January 31, 1994, are as follows (in thousands): Janurary 31, 1994 Janurary 31, 1993 Assets Liabilities Total Assets Liabilitie Total Accrued Store Restructuring Cos $22,381 $22,381 $19,152 $19,152 Excess Tax Over Book Depreciation ($46,787) (46,787) ($34,930) (34,930) Excess Book Over Tax Property T 4,944 (1,038) 3,906 3,445 (1,921) 1,524 Other, Net 18,355 (7,994) 10,361 16,479 (6,924) 9,555 Less Valuation Allowance (3,726) (3,726) (3,306) (3,306) Total $41,954 ($55,819) ($13,865) $35,770 ($43,775) ($8,005) The valuation allowance increased $420,000 and $559,000 during the years ended January 31, 1994 and 1993, respectively.
NOTE 9 Employee Retirement Plans: The Company's contribution to its Employee Stock Ownership Plan (ESOP) is determined annually by the Board of Directors. The ESOP covers all employees after completion of one year of employment and 1000 hours of service during that year. Contributions are allocated to participants based on their eligible compensation relative to total eligible compensation. The Board authorized contributions totaling 13% of eligible compensation for each of the Fiscal Years 1993, 1992 and 1991. Contributions may be made in cash or shares of Lowe's Companies, Inc. common stock and are generally made in the following fiscal year. On January 29, 1993, the Board of Directors authorized the funding of the Fiscal 1992 ESOP contribution primarily with a new issue of the Company's common stock. During Fiscal 1993, the Company issued 1,696,034 shares with a cost of $30.6 million, or a weighted average cost per share of $18.02. The remaining Fiscal 1992 contribution was funded with $1.0 million in cash. On January 31, 1994, the Board of Directors authorized the funding of the Fiscal 1993 ESOP contribution primarily with the issuance of new shares of the Company's common stock. As of January 31, 1994, the Employee Stock Ownership Trust held approximately 21.6% of the outstanding common stock of the Company and was its largest shareholder. Shares allocated to ESOP participants accounts are voted by the Trustee according to the participants' voting instructions. Unallocated shares and shares for which no voting Page 45 &F instructions are received are voted by the Trustee as directed by a management committee. At January 31, 1994, there were no unallocated shares. The Board of Directors determines contributions to the Company's Employee Savings and Investment Plan (ESIP) each year based upon a matching formula applied to employee contributions. All employees are eligible to participate in the ESIP on the first day of the month following completion of one year of employment. Company contributions to this plan for Fiscal 1993, 1992 and 1991 were $3.9, $3.4 and $2.9 million, respectively. The Company's common stock is an investment option for participants in the ESIP. As of January 31, 1994, the ESIP held approximately .7% of the outstanding common stock of the Company. Shares held in the ESIP are voted by the trustee as directed by an administrative committee of the ESIP. The Company does not believe that it has any material liability for postemployment or post-retirement benefits. NOTE 10 Shareholders' Equity: On March 7, 1994, the Board of Directors announced a two-for-one stock split effective March 31, 1994 to shareholders of record on March 16, 1994. Accordingly, in the financial statements, an amount equal to the par value of the additional shares issued has been transferred from Retained Earnings to Common stock retroactive to January 31, 1991. Shares and per share amounts in the financial statements and footnotes have been adjusted to give retroactive effect to the split. In conjunction with the stock split, the Board of Directors increased the authorized number of shares to 240 million effective March 16, 1994. Authorized shares of common stock were 120 million at January 31, 1994, 1993 and 1992.
Transactions affecting the shareholders' equity section of the consolidated balance sheets are summarized as follows: (In Thousands) Shares (In Thousands) Shareholders' Equity Capital in Common Excess of Retained Total OutstandingStock Par Value Earnings Equity
Balance January 31, 1991 145,840 $72,920 $169,177 $440,575 $682,672 Net Earnings 6,487 6,487 Tax Effect of Incentive Stock Options Exercised (Note 11) 61 61 Cash Dividends (20,020) (20,020) Stock Options Exercised(Note 11) 232 116 1,269 (87) 1,298 Stock Received for Exercise Page 46 &F of Stock Options (12) (6) (13) (56) (75) Shares Purchased and Retired (300) (150) (346) (1,373) (1,869) Balance January 31, 1992 145,760 72,880 170,148 425,526 668,554 Net Earnings 84,720 84,720 Tax Effect of Incentive Stock Options Exercised (Note 11) 80 80 Cash Dividends (21,153) (21,153) Stock Options Exercised (Note 11) 186 93 986 (60) 1,019 Balance January 31, 1993 145,946 72,973 171,214 489,033 733,220 Net Earnings 131,786 131,786 Tax Effect of Incentive Stock Options Exercised (Note 11) 172 172 Cash Dividends (23,571) (23,571) Stock Options Exercised(Note 11) 245 122 1,442 (60) 1,504 Stock Issued to ESOP (Note 9) 1,696 848 30,134 (424) 30,558 Balance January 31, 1994 147,887 $73,943 $202,962 $596,764 $873,669 On January 10, 1994, the Company filed with the Securities and Exchange Commission a shelf registration statement covering $500 million of "unallocated" debt or equity securities. The shelf registration enables the Company to issue common stock, preferred stock, senior unsecured debt securities or subordinated unsecured debt securities from time to time. The shelf registration was approved by the Securities and Exchange Commission effective February 8, 1994. The Company has 5 million authorized shares of preferred stock ($5 par), none of which have been issued. The preferred stock may be issued by the Board of Directors (without action by shareholders) in one or more series, having such voting rights, dividend and liquidation preferences and such conversion and other rights as may be designated by the Board of Directors at the time of issuance of the preferred shares. The Company has a shareholder rights plan which provides for a dividend distribution of one preferred share purchase right on each outstanding share of common stock. Each purchase right will entitle shareholders to buy one unit of a newly authorized series of preferred stock. A shareholder's interest is not diluted by the effects of a stock dividend or stock split. Each unit is intended to be the equivalent of one share of common stock. The purchase rights will be exercisable only if a person or group acquires or announces a tender offer for 20% or more of Lowe's common stock. The purchase rights do not apply to the person or group acquiring the stock. The purchase rights will expire on September 19, 1998. Page 47 &F NOTE 11 Stock Options: The Company has a stock option plan under which incentive and non-qualified stock options may be granted to key employees. Four million common shares were reserved for option purposes. Options granted are exercisable from the date of grant through expiration dates which range from 1994 through 1997. At January 31, 1994, there were 1,423,640 shares available for options that could be granted.
Option information is summarized as follows: Key Employee Stock Option Plan Option Price Per Share
Outstanding January 31, 1991 764 $4.063, $5.344, $6.375 Canceled or Expired -6 $5.84 Exercised -228 $4.063, $5.344, $6.375 Outstanding January 31, 1992 530 $4.063, $6.375 Granted 30 $10.188 Canceled or Expired -3 $4.063, $6.375 Exercised -186 $4.063, $6.375 Outstanding January 31, 1993 371 $4.063, $6.375, $10.188 Exercised -217 $4.063, $6.375 Outstanding January 31, 1994 154 $6.375, $10.188 Prior to Fiscal 1989, all options granted were incentive options whereby the option prices were at least equal to the fair market values of the stock at the grant dates. Since Fiscal 1989, all options granted have been adjustable non-qualified options exercisable at a maximum price of $10.188 per share. Upon exercise of a non-qualified option, the optionee makes a payment to the Company equal to the shares' fair market value on the date the option was granted. In accordance with a formula set forth in each option agreement, the Company uses part of the option price to make a federal income tax deposit on behalf of the optionee. During Fiscal 1989, shareholders approved a Non-Employee Directors' Stock Option Plan. This Plan provided that adjustable non-qualified options representing 4,000 shares of Lowe's common stock would be granted to each outside Director following the Annual Meeting in 1989, 1990, 1991, 1992 and 1993. Two hundred thousand shares of common Page 48 &F stock were reserved to fulfill the requirements of this Plan. Options representing 28,000 shares were granted under this Plan in each of Fiscal 1989, Fiscal 1990, Fiscal 1991, Fiscal 1992 and Fiscal 1993, of which options representing 32,000 shares have been exercised. The option price per share was $6.375 for Fiscal 1989, $10.906 for Fiscal 1990, $8.625 for Fiscal 1991, $10.969 for Fiscal 1992 and $18.875 for Fiscal 1993. The non-qualified options granted to Directors include the same tax deposit feature described above with respect to the Key Employee Stock Option Plan. At January 31, 1994, options for 154,220 shares were exercisable under the Key Employee Stock Option Plan and options for 108,000 shares were exercisable under the Non-Employee Directors' Stock Option Plan. Incentive stock option shares which are sold by the optionee within two years of grant or one year of exercise result in a tax deduction for the Company equivalent to the taxable gain recognized by the optionee. For financial reporting purposes, the tax effect of this deduction is accounted for as a credit to capital in excess of par value rather than as a reduction of income tax expense. Such optionee sales resulted in a tax benefit to the Company of approximately $172 thousand, $80 thousand and $61 thousand during Fiscal Years 1993, 1992 and 1991, respectively.
NOTE 12 Leases: The future minimum rental payments required under capital and operating leases having initial or remaining noncancelable lease terms in excess of one year are summarized as follows: Operating Leases Capital Leases Fiscal Year Real EstatEquipment Real EstatEquipment Total (Dollars in Thousands)
1994 $39,624 $1,217 $6,312 $565 $47,718 1995 49,072 482 6,202 355 56,111 1996 48,208 136 6,226 123 54,693 1997 47,323 10 6,246 4 53,583 1998 44,368 10 5,845 50,223 Later Years 638,694 9 101,115 739,818 Total Minimum Lease Payments $867,289* $1,864 $131,946 $1,047 $1,002,146 Total Minimum Capital Lease Payments $132,993 Less Amount Representing Interest 72,435 Present Value of Minimum Lease Payments 60,558 Less Current Maturities 1,790 Present Value of Minimum Page 49 &F Lease Payments, Less Current Maturities $58,768 * Total minimum payments have not been reduced by minimum sublease rentals of $1.8 million to be received in the future under noncancelable subleases. Rental expenses under operating leases for real estate and equipment were $27.2 million, $20.4 million and $15.1 million in Fiscal 1993, 1992 and 1991, respectively. The Company leases certain store facilities under agreements with original terms generally of twenty years. Agreements generally provide for contingent rental based on sales performance in excess of specified minimums. To date, contingent rentals have been very nominal. The leases typically contain provisions for four renewal options of five years each. Certain equipment is also leased by the Company under agreements ranging from two to five years. These agreements typically contain renewal options providing for a renegotiation of the lease, at the Company's option, based on the fair market value at that time. The Company entered into a lease agreement in January 1993 for ten store properties with a total cost of approximately $70.6 million. The lease terms will be finalized as the stores open. The rental amounts will be based on the cost of the property plus the borrowing cost of the lessor. The agreement also called for the Company to advance part of the acquisition cost of the properties to be reimbursed by the Lessor. At January 31, 1994, the Company had a receivable from the Lessor of $44.0 million classified on the balance sheet under Other Current Assets. The minimum lease payments under this agreement will be dependent on the final cost and financing of the lessor and are not included in the table above. The Company expects these leases will be classified as operating leases. The Company entered into a lease agreement in August 1990 for nine store properties. The initial terms of these leases are five years with renewal terms for up to an additional thirty-five years. The rental amounts are based on the cost of the property plus the borrowing cost of the lessor. Under the agreement, the Company advanced part of the acquisition cost of the properties and at January 31, 1993 had a receivable from the lessor of $17.4 million classified on the balance sheet under Other Current Assets. NOTE 13 Commitments, Contingencies and Litigation: The Company had purchase commitments at January 31, 1994, of approximately $24.4 million for land, buildings and construction of facilities, and $16.6 million for equipment. See Note 12 concerning commitments related to lease agreements. The Company is a defendant in legal proceedings considered to be in the normal course of business and none of which, singularly or collectively, are considered material to the Company as a whole. Potential liability in excess of the Company's self-insured retention under these proceedings is covered by insurance. Page 50 &F NOTE 14 Store Restructuring: In Fiscal 1991, the Company recorded a pre-tax fourth quarter charge of $71.3 million for the expected costs and expenses required to accelerate the Company's conversion from a chain of small stores to a chain of large stores. The restructuring charge is composed primarily of write-downs of long-lived assets to their net realizable value, principally real estate for owned locations, certain leasehold improvements, fixtures and equipment. It also includes certain relocation costs and expenses. The charge included stores relocated under the restructuring plan in the fourth quarter of Fiscal 1991 and those scheduled for closing and relocation through Fiscal 1995.
NOTE 15 Other Information: (Dollars in Thousands) Net interest expense is composed of the following: Years Ended January 31, 1994 1993 1992
Long-Term Debt $25,146 $12,634 $14,467 Short-Term Debt 1,217 6,529 5,317 Amortization of Loan Costs 272 274 125 Cost of Early Debt Retirement 1,149 Short-Term Interest Income (4,765) (1,989) (3,006) Interest Capitalized (3,592) (1,849) (1,114) Net Interest Expense 18,278 15,599 16,938 Supplemental Disclosures of Cash Flow Information: Years Ended January 31, 1,994 1,993 1,992 Cash Paid for Interest (Net of Amount Capitalized) 25,677 17,857 22,162 Cash Paid for Income Taxes 58,761 40,042 21,028 Noncash Investing and Financing Activities: Fixed Assets Acquired under Capital Leases 29,343 24,566 2,595 Common Stock Issued to ESOP (Note 9) 30,558 Common Stock Received for Exercise of Stock Options 75 Notes Received in Exchange for Property 886 1,536 2,478 Page 51 &F Supplemental Disclosure of Operating Expenses: Advertising expenses were $59.3, $65.0 and $61.8 million for Fiscal 1993, 1992 and 1991, respectively.
EX-12 13 FINANCIAL DATA &F SELECTED FINANCIAL DATA LOWE'S COMPANIES, INC. AND SUBSIDIARY COMPANIES (Dollars in Thousands, Except Per Share Data) Fiscal Years End on January 31 of Following Year (Unaudite 1993 1992 1991 1990 1989
Selected Income Statement Data: Net Sales $4,538,001 $3,846,418 $3,056,247 $2,833,108 $2,650,547 Net Earnings 131,786 84,720 6,487 71,087 74,912 Earnings Per Common Share: Net Earnings $0.89 $0.58 $0.04 $0.48 $0.50 Selected Balance Sheet Data: Total Assets $2,201,648 $1,608,877 $1,441,228 $1,203,052 $1,147,394 Long-Term Debt, Including Current Maturities $641,880 $335,283 $131,350 $169,441 $178,554 Selected Quarterly Data (Unaudited) * Three Months Ended Janurary 31October 31 July 31 April 30 Fiscal 1993 Net Sales $1,145,828 $1,158,370 $1,241,691 $992,112 Gross Margin 279,017 275,620 292,480 234,167 Net Earnings 25,733 31,645 44,960 29,448 Earnings Per Share $0.17 $0.21 $0.31 $0.20 Fiscal 1992 Net Sales $910,298 $991,192 $1,061,645 $883,283 Gross Margin 209,337 231,372 246,741 213,215 Net Earnings 12,323 18,900 29,718 23,779 Earnings Per Share $0.08 $0.13 $0.20 $0.16 Fiscal 1991 Net Sales $709,613 $790,274 $863,009 $693,351 Page 52 &F Gross Margin 170,539 188,485 208,816 167,418 Net Earnings (Loss) (43,265) 12,992 25,284 11,476 Earnings (Loss) Per Shar ($0.30) $0.09 $0.17 $0.08
EX-13 14 LIFO DATA &F * LIFO Adjustment: Fiscal 1993 The total LIFO effect for the year was a charge of $15.5 million. A charge of $10.3 million was made against earnings through the first nine months, resulting in a fourth quarter charge of $5.2 million. Fiscal 1992 The total LIFO effect for the year was a charge of $9.5 million. A charge of $3.7 million was made against earnings through the first nine months, resulting in a fourth quarter charge of $5.8 million. At the end of the third quarter, lumber and plywood composite prices were at record levels and due to decreased demand projected, the Company expected the prices to plateau at then current levels. Prices however, continued to rise through the end of the year resulting in the fourth quarter charge. Fiscal 1991 The total LIFO effect for the year was a charge of $6.0 million. A charge of $.9 million was made against earnings through the first nine months, resulting in a fourth quarter charge of $5.1 million. Through the year, the Company experienced slight deflation in products other than building commodities. In building commodities, particularly lumber, prices had risen sharply in the second quarter, then dropped as expected during the third and early fourth quarters. The Company expected this pattern to continue through the end of the year, however, increased demand for lumber drove prices upward at the end of the year resulting in the fourth quarter adjustment. Store Restructuring Charge: During the fourth quarter of Fiscal 1991, the Company recorded a $71.3 million pre-tax charge to earnings related to the planned conversion from a chain of small stores to a chain of large stores (See Note 14 to the Consolidated Financial Statements).
* LIFO Adjustment: Fiscal 1993 The total LIFO effect for the year was a charge of $15.5 million. A charge of $10.3 million was made against earnings through the first nine months, resulting in a fourth quarter charge of $5.2 million. Page 53 &F Fiscal 1992 The total LIFO effect for the year was a charge of $9.5 million. A charge of $3.7 million was made against earnings through the first nine months, resulting in a fourth quarter charge of $5.8 million. At the end of the third quarter, lumber and plywood composite prices were at record levels and due to decreased demand projected, the Company expected the prices to plateau at then current levels. Prices however, continued to rise through the end of the year resulting in the fourth quarter charge. Fiscal 1991 The total LIFO effect for the year was a charge of $6.0 million. A charge of $.9 million was made against earnings through the first nine months, resulting in a fourth quarter charge of $5.1 million. Through the year, the Company experienced slight deflation in products other than building commodities. In building commodities, particularly lumber, prices had risen sharply in the second quarter, then dropped as expected during the third and early fourth quarters. The Company expected this pattern to continue through the end of the year, however, increased demand for lumber drove prices upward at the end of the year resulting in the fourth quarter adjustment. Store Restructuring Charge: During the fourth quarter of Fiscal 1991, the Company recorded a $71.3 million pre-tax charge to earnings related to the planned conversion from a chain of small stores to a chain of large stores (See Note 14 to the Consolidated Financial Statements).
EX-14 15 STOCK DATA &F Lowe's Quarterly Stock Price Range and Cash Dividend Payment* Fiscal 1993 Fiscal 1992 Fiscal l991 High Low Dividend High Low Dividend High Low Dividend
1st Quarter 17.6875 13.3125 $0.04 10.875 8.65625 $0.04 8.71875 6.25 $0.03 2nd Quarter 20 15 0.04 11.8125 9.0625 0.035 9.28125 7.15625 0.035 3rd Quarter 24.6875 18.375 0.04 12.3125 8 0.035 8.75 5.75 0.035 4th Quarter $31 23.1875 $0.04 14.375 9.25 $0.04 10.3437 6.40625 $0.04 Page 54 &F Source: The Wall Street Journal * As restated for a 2-for-1 stock split to shareholders of record March 16, 1994.
EX-15 16 BOARD INFO &F Lowe's Board of Directors William A. Andres Director since 1986, age 67. Chairman of Committee of Outside Directors, Member of Audit Committee and Compensation/Employee Stock Option Committee of the Company. Previously Chairman of the Board (1976 1983), Chairman of Executive Committee (1983 1985) of Dayton Hudson Corporation (Retail Chain), Minneapolis, Minn. (Mr. Andres retired in September, 1985.) Other directorships: Jostens, Inc., Minneapolis, Minn., since 1985; Scott Paper Company, Philadelphia, Penn., since 1983: Multifoods, Inc., Minneapolis, Minn., since 1978; Hannaford Bros., Scarborough, Me., since 1986. John M. Belk Director since 1986, age 74. Member of Audit Committee. Compensation/Employee Stock Option Committee and Committee of Outside Directors of the Company. Chairman of the Board, Belk Stores Services, Inc. (Retail Department Stores), Charlotte, N..C., since 1980. Other directorships: Coca Cola Bottling Company Consolidated, Charlotte, N.C., since 1972; Chaparral Steel, Midlothian, Tex., since 1987. Gordon E. Cadwgan Director since 1961, age 80. Chairman of Audit Committee, Member of Compensation/Employee Stock Option Committee, Executive Committee and Committee of Outside Directors of the Company. Trustee and Financial Consultant, affiliated with Tucker Anthony, Inc., Boston, Mass., since 1979. Other directorships: Third Century Fund, Inc., Providence, R.I., since 1981. Leonard G. Herring Director since 1956, age 66. President and Chief Executive Officer since 1978, Chairman of Non Employee Directors' Stock Option Committee, Member of Executive Committee and Govemment/Legal Affairs Committee of the Company. Other directorships: First Union Corporation, Charlotte, N.C., since 1986. Petro Kulynych Director since 1952, age 72. Member of Audit Committee, Executive Committee and Government/Legal Affairs Committee of the Company, having previously served as Managing Director (1978 1983). (Mr. Kulynych retired in December, 1983.) Other directorships: Local Board. Wachovia Bank of North Carolina. N.A., North Wilkesboro, N.C., since 1988: Carolina Motor Club. Inc. Page 55 &F Russell B. Long Director since 1987, age 75. Chairman of Government/Legal Affairs Committee, Member of Compensation/Employee Stock Option Committee and Committee of Outside Directors of the Company. Partner, Long Law Firm (Attorneys at Law), Washington, D.C., since 1988. Other directorships: Catalyst Vidalia Corp. Vidalia, La., since 1989; The New York Stock Exchange, Inc., New York, N.Y., since 1987. Other: United States Senator 1948 1987; Member, Senate Finance Committee 1952 1987 (Chairman 1965 1981). Robert G. Schwartz Director since 1973, age 66. Chairman of Compensation/Employee Stock Option Committee, Member of Audit Committee and Committee of Outside Directors of the Company. Director of Metropolitan Life Insurance Company, New York, N.Y., since 1980. having previously served as Chairman of the Board (1983 1993), President and Chief Executive Officer (1989 1993) of that company. (Mr. Schwartz, retired in March, 1993.) Other directorships: Potlatch Corporation, San Francisco, Calif., since 1973; Comsat Corporation, Washington, D.C., since 1986; Mobil Corporation, New York, N.Y., since 1987; The Readers Digest Association, Inc., Pleasantville, N.Y., since 1989; Consolidated Edison Company of New York, New York, N.Y., since 1989; CS First Boston, Inc., New York, N.Y., since 1989; Lone Star Industries, Inc., Stanford, Conn., since 1994. Jack C. Shewmaker Director since 1985, age 56. Member of Compensation/Employee Stock Option Committee, Executive Committee and Committee of Outside Directors of the Company. Director of Wal Mart Stores, Inc. (Discount Retail Chain), Bentonville, Ark., since 1977 having previously served as Vice Chairman of the Board (1984 1988) President and Chief Operating Officer (1978 1984) of that company . (Mr. Shewmaker retired in February, 1988.) Other directorships: Vons Companies, Inc., El Monte, Calif., since 1988 Robert L. Strickland Director since 1961, age 63. Chairman of the Board since 1978, Chairman of Executive Committee, Member of Government/ Legal Affairs Committee and Non Employee Directors' Stock Option Committee of the Company. Other directorships: Summit Communications, Atlanta. Ga., since 1987: T. Rowe Price Associates, Inc., Baltimore, Md., since 1991. Board of Directors Nominee Carol Farmer Age 49. President of Carol Farmer Associates, Inc. (Trend Forecasting and Consulting) Boca Raton, Fla., since 1985
EX-16 17 APPENDIX 13 &F Appendix to EXHIBIT 13 Graphic and Image Material Page 5 Picture Consultant Walter Loeb: "The future is looking very bright because of the new stores." Page 6 Picture Publisher Wyatt Kash: "Make it fun to shop and Easy to buy." Page 7 Chart Lowe's Total Market Potential $Billions Home Center Market Building Contractor HomeOwner New Housing R&R* DIY Durable Total 1998e $77 $50 $102 $73 $302 1993p 52 37 79 73 215 1992 46 33 74 41 194 1991 39 32 69 39 179 1990 45 36 70 36 187 1985 40 25 53 25 143 1980 24 16 38 14 92 1977 $27 $11 $28 $10 $76 R&R=Repair and Remodel e=estimate p=preliminary Source: Home Improvement Research Institute; Management Horizons Page 7 Graphs Graphs of above chart. Page 8 Picture Lowe's Home Safety Council charter menmbers Meri-K appy of the National Fire Protection Association and Lamar Alexander meet with Lowe's David Oliver and Cynthia Haynes in Washington, D.C. Inset, Charter member Jack Kemp. Page 9 Picture Investment adviser Bill Mayo-Smith: "After the early success of Lowe's first few big stores, I knew they were going to pull off a major transformation." Page 9 Picture George Lorch of Armstrong: "With up-to-the- minute information coming from Lowe's, we can develop quick responses." Page 10Picture GE's Dick Stonesifer: "Lowe'sis cutting a wide swathe in the field of total service." Page 10Chart Estimated Disposable Income - 2000 Graph Dollars in Billions 1994 $4,980 1995 5,245 1996 5,532 Page 57 &F 1997 5,812 1998 6,124 1999 6,461 2000 $6,816 Source: Management Horizons Page 10 Chart Disposable Personal Income And Savings Rate Page 1 &F Savings As A % DPI Of DPI 1993p $4,706.00 4.00% 1992 4500.2 5.3 1991 4230.5 4.8 1990 4050.5 4.2 1989 3787.2 4 1987 3289.5 4.3 1986 3131.5 6 1985 2943 6.4 1984 2759.5 8 1983 2493.7 6.8 1982 $2,319.60 8.60% Source: Departmetn of Commerce, Bureau of Economic Analysis, Economic Indcators p=preliminary Page 11 Picture Watts Wacker of Yankelovich Partners: "Success, like satisfaction, has become centered on the home." Page 12 Picture Weyerhaeuser's Bill Corbin: "we want Lowe's customers to know we are listening to their concerns." Page 13 Picture After the inaugural meeting of Lowe's Home Safety Council, charter members toured a Lowe's store in Greensbor, N.C. Dennis Ray Martin, Diane Imhulse, Dr. Louis Sullivan Page 13 Chart Housing affordability Monthly Mortgage Median- Effective Payment Priced Total As A % Existing Mortagage Household Single- Rate% Income Family Home 1993p 7.24 19 106,100 1992 8.13 20 103,700 1991 9.31 22.1 100,300 1990 10.04 22.8 95,500 1989 10.12 23.1 93,100 1988 9.29 22 89,300 1987 9.3 21.9 85,600 1986 10.26 23 80,300 Page 58 &F 1985 11.71 26.2 75,500 1984 12.48 28.2 72,400 1983 12.82 29.9 70,300 source : Management Horizons, Home Sales, National Association of Realtors p=preliminary Page 14Graph Total Sales Floor Sq. Footage 1989 6,219,018 1990 7,061,925 1991 8,016,136 1992 9,975,537 1993 14,174,889 Page 2 &F Page 14 Graph Square Footage By Store Size Millions of Square Feet Large Medium Small 1991 3.8 3 1.2 1992 6.5 2.6 0.9 1993 11.6 2 0.6 Page 14 Chart Merchandise Sales Trends 1.Structural Lumbe 10% 20% $745 16 $622 16 $484 16 $470 19 2.Building Commodities & Millwork 6 8 979 21 909 24 762 25 720 29 3.Home Decorating & Illumination 21 23 807 18 656 17 496 16 307 12 4.Kitchen, Bathroom, & Laundry 16 28 498 11 388 10 311 10 233 9 5.Heating, Cooling, & Water Syastems 16 27 267 6 211 6 183 6 129 5 6.Home Entertainme 13 18 218 5 184 5 147 5 119 5 7.Yard,Patio,&Gard 17 13 493 11 435 11 329 11 223 9 8.Tools 24 30 259 6 200 5 150 5 88 3 9.Special Order Sa 4 13 272 6 241 6 194 6 228 9 Totals 13% 18% $4,538 100 $3,846 100 $3,056 100 $2,517 100 Page 59 &F Page 34 Pictures William A. Andres, John M. Belk, Gordon E. Cadwgan, Leonard G. Herring, Petro Kulnych Page 35 Pictures Russell B. Long, Robert G> Schwartz, Jack C. Shewmaker, Robert L. Strickland Page 36 Picture Carol Farmer
EX-17 18 REMAINDER &F Part IV LOWE'S COMPANIES, INC. AND SUBSIDIARY COMPANIES EXHIBIT 21 SCHEDULE OF SUBSIDIARIES NAME AND DOING BUSINESS AS: STATE OF INCORPORATION Lowe's Home Centers, Inc. North Carolina The Contractor Yards, Inc. North Carolina Sterling Advertising, Ltd. North Carolina LF Corporation Delaware Exhibit 23 INDEPENDENT AUDITORS' CONSENT Lowe's Companies, Inc. We consent to the incorporation by reference in Registration Statement No. 33-64560 on Form S-3, Registration Statement No. 33-51865 on Form S-3, Post Effective Amendment No. 1 to Registration Statement No. 33 2618 on Form S 8 and Registration Statement No. 33 29772 on Form S 8, of our reports dated March 9, 1994 appearing in or incorporated by reference in this Annual Report on Form 10 K of Lowe's Companies, Inc. for the year ended January 31, 1994. DELOITTE & TOUCHE Charlotte, North Carolina 28-Apr-94 Page 60 &F EXHIBIT 27 Financial Data Schedule Fiscal year ended Jan-31-1994 period end Jan-31-1994 Multiplier 1,000 cash and cash items 73,253 marketable securities 35,215 notes and accounts receivable-trade 58,008 allowances for doubtful accounts (4,707) inventory 853,707 total current assets 1,083,907 property plant and equipment 1,317,022 accumulated depreciation (296,788) total assets 2,201,648 total current liabilities 681,176 bonds,mortgages and similar debt 592,333 Page 1 &F preferred stock-madatory redemption 0 preferred stock-no mandatory redemption 0 common stock 73,973 other stockholders equity 799,726 total liabilities and stockholders equity 2,201,648 net sales of tangible products 4,538,001 total revenue 4,538,001 costs of tangible goods sold 3,456,717 total costs and expenses applicable to sales 3,456,717 other costs and expenses 864,682 provision for doubtful accounts and notes 0 interest and amortization of debt discount 18,278 income before tax and other items 198,324 income tax expense 66,538 income/loss continuing operations 131,786 discontinued operations 0 extraordinary items 0 cummulative effect-change in accounting principl 0 net income or loss 131,786 earnings per share primary 1 earnings per share-fully diluted 1
EX-18 19 AMMENDMENTS Page 61 &F PART IV EXHIBIT 3.1 STATE OF NORTH CAROLINA Department of The Secretary of State To all whom these presents shall come, Greetings: I Rufus L. Edmisten, Secretary of State of the State of North Carolina, do hereby certify the following and hereto attached to be a true copy of ARTICLES OF AMENDMENT OF LOWE'S COMPANIES, INC. the original of which was filed in this office on the 16th day of March, 1994. IN WlTNESS WHEREOF, I have hereunto set my hand and affixed my official seal at the City of Raleigh, this 16th day of March, 1994 /s/ Rufus L. Edmisten Secretary of State ARTICLES OF AMENDMENT TO RESTATED AND AMENDED CHARTER OF LOWE'S COMPANIES, INC. The undersigned corporation hereby submits these Articles of Amendment for the purpose of amending its Restated and Amended Charter: 1 The name of the corporation is LOWE'S COMPANIES, INC. 2 The Restated and Amended Charter is amended as follows: The first paragraph of Article 4 of the Restated and Amended Charter is struck out and the following is substituted therefor: 4 Authorized Stock. The Corporation shall have the authority to issue 5,000,000 shares of Preferred Stock of a par value of $5 per share and 240,000,000 shares of Common Stock of a par value of $ .50 per share. Page 62 &F 3 No shares of Preferred Stock are issued and outstanding. 4 Each issued and unissued share of Common Stock, upon the effectiveness of these Articles of Amendment, shall be changed into two shares of Common Stock. The Corporation shall deliver to each record holder of Common Stock on March 16, 1994, a new certificate representing the number of additional shares to which such record holder is entitled pursuant to the foregoing amendment. 5 The foregoing amendment was adopted on the 7th day of March, 1994, by the Board of Directors of the Corporation pursuant to North Carolina General Statutes 55-10-2(4) without shareholder action. 6 These Articles of Amendment shall be effective as of 5:00 p.m. on March 16, 1994. Dated: March 7, 1994 LOWE'S COMPANIES, INC. By: /s/ Leonard G. Herring President and CEO STATE OF NORTH CAROLINA Department of The Secretary of State To all whom these presents shall come, Greeting: I, Rufus L. Edmisten, Secretary of State of the State of North Carolina, do hereby certify the following and hereto attached (34 sheets) to be a true copy of CHARTER DOCUMENTS OF LOWE'S COMPANIES, INC. the original of which is now on file and a matter of record in this office. In Witness Whereof, I have hereunto set my hand and affixed my official seal. Done in Office, at Raleigh, this 6th day of February in the year of our Lord 1990. /s/ Rufus L. Edmisten Secretary of State Page 63 &F RESTATED AND AMENDED CHARTER OF LOWE'S COMPANIES, INC. The undersigned corporation, pursuant to action by its shareholders, hereby executes this Restated and Amended Charter for the purpose of integrating into one document its original articles of incorporation and all amendments thereto: 1 . Name . The name of the Corporation is Lowe' s Companies, Inc . 2. Duration. The period of duration of the Corporation is perpetual . 3. Purpose. The purpose for which the Corporation is organized is to engage in any lawful act or activity for which corporations may be organized under the Business Corporation Act of North Carolina. 4. Authorized Stock. The Corporation shall have the authority to issue 5,000,000 shares of Preferred Stock of a par value of $5 per share and 120,000,000 shares of Common Stock of a par value of $.50 per share. Preferred Stock. Authority is expressly vested in the Board of Directors to divide the Preferred Stock into series and, within the following limitations, to fix and determine the relative rights and preferences as between series so established and to provide for the issuance thereof. Each series shall be so designated as to distinguish the shares thereof from the shares of all other series and classes. All shares of Preferred Stock shall be identical except as to the following relative rights and preferences, as to which there may be variations between different series: ( 1 ) The rate of dividend; ( 2 ) The price at and the terms and conditions on which shares may be redeemed; (3) The amount payable upon shares in event of involuntary liquidation; Page 64 &F (4) The amount payable upon shares in event of voluntary liquidation; (5) Sinking fund provisions for the redemption or purchase of shares; (6) The terms and conditions on which shares may be converted if the shares of any series are issued with the privilege of conversion; and (7) The terms and conditions on which shares may be voted in the election of Directors or otherwise, either as a class or together with other voting securities. Prior to the issuance of any shares of a series of Preferred Stock the Board of Directors shall establish such series by adopting a resolution setting forth the designation of the series and the preferences, limitations and relative rights thereof to the extent that variations are permitted by the provisions hereof. All series of Preferred Stock shall rank on a parity as to dividends and assets with all other series according to the respective dividend rates and amounts distributable upon any voluntary or involuntary liquidation of the Corporation fixed for each such series; but all shares of Preferred Stock shall be preferred over Common Stock as to both dividends and amounts distributable upon any voluntary or involuntary liquidation of the Corporation. All shares of any one series shall be identical. Common Stock. The holders of Common Stock shall, to the exclusion of the holders of any other class of stock of the Corporation, have the sole and full power to vote for the election of Directors and for all other purposes without limitation except only (i) as otherwise provided in the resolutions establishing and designating a particular series of Preferred Stock and (ii) as otherwise expressly provided by the then existing statutes of the State of North Carolina . The holders of Common Stock Subject to the provisions of resolutions establishing and designating series of Preferred Stock, the holders of shares of Common Stock shall be entitled to receive dividends if, when and as declared by the Board of Directors out of funds legally available therefor and to the net assets remaining after payment of all liabilities upon voluntary or involuntary liquidation of the Corporation. Page 65 &F 5. Stated Capital. The stated capital of the Corporation is $18,550,694 as of April 4, 1986, being the date that the Board of Directors adopted a resolution setting forth this Restated and Amended Charter for submission to the shareholders for approval. 6. Shareholders' Preemptive Right. No holder of stock of the Corporation shall have any preemptive right to subscribe for or purchase any additional or increased stock of the Corporation of any class, whether now or hereafter authorized, including treasury stock, or obligations convertible into any class of stock, or stock of any class convertible into stock of any other class, or obligations, stock or other securities carrying warrants or rights to subscribe to stock of the Corporation of any class, whether now or hereafter authorized, but any and all shares of stock, bonds, debentures or other securities or obligations, whether or not convertible into stock or carrying warrants entitling the holders thereof to subscribe to stock, may be issued, sold or disposed of from time to time by authority of the Board of Directors to such persons, firms, corporations or employee stock ownership plans and for such consideration, as far as it may be permitted by law, as the Board of Directors shall from time to time determine. 7. Registered Office. The address of the registered office of the Corporation in the State of North Carolina is Elkin Highway, Wilkes County, North Wilkesboro, North Carolina 28659; and the name of its registered agent at such address is L. G. Herring. 8. Incorporators. The names and addresses of the original incorporators of the Corporation are as follows: NAME ADDRESS H. C. Buchan, Jr . North Wilkesboro, N C Ruth Lowe Buchan North Wilkesboro, N. C. Hal E. Church North Wilkesboro, N. C. 9. Board of Directors. (a) Number, Election & Term of Directors. The number of Directors shall be set forth in the Bylaws, but in the Page 66 &F absence of such a provision in the Bylaws, the number of Directors of the Corporation shall be nine, provided that the number of Directors set forth in the Bylaws cannot be increased by more than two during any 1-month period except by the affirmative vote of the holders of at least 70% of the outstanding Voting Shares. Commencing with the 1986 Annual Meeting of Shareholders, the Board of Directors shall be divided into three classes, Class I, Class II and Class III, as nearly equal in number as possible. At the 1986 annual meeting of Shareholders, Directors of the first class (Class I) shall be elected to hold office for a term expiring at the 1987 Annual meeting of Shareholders; Directors of the second class ( Class II) shall be elected to hold office for a term expiring at the 1988 Annual meeting of Shareholders; and Directors of the third class (Class III) shall be elected to hold office for a term expiring at the 1989 Annual meeting of Shareholders. At each Annual meeting of Shareholders after 1986, the successors to the class of Directors whose term shall then expire shall be identified as being of the same class as the Directors they succeed and elected to hold office for a term expiring at the third succeeding Annual Meeting of Shareholders. when the number of Directors is changed, any newly created directorships or any decrease in directorships shall be so apportioned among the classes by the Board of Directors as to make all classes as nearly equal in number as possible. (b ) Newly Created Directorships and Vacancies . Subject to the rights of the holders of Preferred Stock then outstanding, any vacancy occurring in the Board of Directors, including a vacancy resulting from an increase by not more than two in the number of Directors, may be filled by the affirmative vote of a majority of the remaining Directors though less than a quorum of the Board of Directors, and Directors so chosen shall hold office for a term expiring at the Annual Meeting of Shareholders at which the term of the class to which they have been elected expires. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director. (c) Removal of Directors. Subject to the rights of the holders of Preferred Stock then outstanding, any Director may be removed, with or without cause, only by the affirmative vote of the holders of at least 70% of the outstanding Voting Shares. Page 67 &F (d) Amendment or Repeal. The provisions of this Article shall not be amended or repealed; nor shall any provision of this Charter be adopted that is inconsistent with this Article, unless such action shall have been approved by the affirmative vote of either: (i) the holders of at least 70% of the outstanding Voting Shares; or (ii) a majority of those Directors who are Disinterested Directors and the holders of the requisite number of shares specified under applicable North Carolina law for the amendment of the charter of a North Carolina corporation. (e) Certain Definitions. For purposes of this Article: (i) " Disinterested Director" means any member of the Board of Directors who: (A) was elected to the Board of Directors at the 1986 Annual Meeting of Shareholders; or ( B ) was recommended for election by a majority of the Disinterested Directors then on the Board, or was elected by the Board to fill a vacancy and received the affirmative vote of a majority of the Disinterested Directors then on the Board. (ii) "Voting Shares" shall mean the outstanding shares of all classes or series of the Corporation's stock entitled to vote generally in the election of Directors. 10. (a) Vote Required for Certain Business Combinations. (i) Higher Vote for Certain Business Combinations. In addition to any affirmative vote required by law or this Charter, and except as otherwise expressly provided in Section (b ) of this Article: (A) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (a) any Interested Stockholder (as hereinafter defined) or (b ) any other Corporation which immediately before such merger or consolidation is an Affiliate or Associate ( as hereinafter defined) of an Interested Stockholder; or Page 68 &F (B) any statutory share exchange in which any Interested Stockholder or any Affiliate or Associate of an Interested Stockholder acquires the issued and outstanding shares of any class of Capital Stock of the Corporation or a Subsidiary; or (C) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions during any 12 month period) to or with any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value (as hereinafter defined) in excess of 5% of the Corporation's consolidated assets as of the date of the most recently available financial statements; or any guaranty by the Corporation or any Subsidiary (in one transaction or a series of transactions during any 12 month period) of indebtedness of any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder in excess of 5% of the Corporation's consolidated assets as of the date of the most recently available financial statements; or any transaction or series of transactions involving in excess of 5% of the Corporation's consolidated assets as of the date of the most recently available financial statements to which the Corporation or any Subsidiary and any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder is a party; or (D) the sale or other disposition by the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder (in one transaction or a series of transactions during any 12 month period) of any securities of the Corporation or any Subsidiary having an aggregate Fair Market Value in excess of 5% of the aggregate Fair Market Value of all outstanding Voting Shares of the Corporation as of the date on which the Interested Stockholder became an Interested Stockholder (the " Determination Date" ) except pursuant to a share dividend or the exercise of rights or warrants distributed or offered on a basis affording substantially proportionate treatment to all holders of the same class or series; or (E) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Stockholder or any Affiliate or Associate of any Interested Stockholder: or Page 69 &F (F) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction ( whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly (in one transaction or a series of transactions during any 12 month period), of increasing by more than 5% the percentage of any class of securities of the Corporation or any Subsidiary directly or indirectly owned by any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder ; shall require the affirmative vote of the holders of at least 70% of the outstanding Voting Shares. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. (ii) Definition of " Business combination The term Business Combination as used in this Article shall mean any transaction which is referred to in any one or more of clauses (A) through (F) of paragraph (i) of this Section (a). (b ) When Higher Vote is not Required for Certain Business Combination. The provisions of Section (a) of this Article shall not be applicable to any particular Business Combination, and such Business Combination shall require only such approval as is required by law and any other provision of these Articles of Incorporation, if consideration will be paid to the holders of each class or series of Voting Shares and all of the conditions specified in either of the following paragraphs (i) or (ii) are met. (i) Approval by Disinterested Directors. The business Combination shall have been approved by a majority of those persons who are Disinterested Directors (as hereinafter defined ) . (ii) Price and Procedure Requirements. (A) The aggregate amount of the cash and the Fair Market Value as of the Valuation Date of consideration other than cash to be received per share by holders of each class or series of voting Shares in such Business Combination Page 70 &F shall be at least equal to the highest of the following (taking into account all stock dividends and stock splits ): (I) (If applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder for any shares of such class or series acquired by it ( 1 ) within the two year period (the " Preannouncement Period" ) ending at 11:59 p. m., Eastern time , on the date of the first public announcement of the proposal of the Business Combination (the '' Announcement Date" ) or ( 2 ) in the transaction in which it became an Interested Stockholder, whichever is higher; (II) the Fair Market Value per share of such class or series on the Determination Date or on the day after the Announcement Date, whichever is higher; (III) (if applicable) the price per share equal to the Fair Market Value per share of such class or series determined pursuant to paragraph (ii) (A) (II) above, multiplied by the ratio of ( 1 ) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder for any shares of such class or series acquired by it within the Preannouncement Period, to ( 2 ) the Fair Market value per share of such class or series on the first day during the Preannouncement Period upon which the Interested Stockholder acquired any shares of such class or series; and (IV) (if applicable), the highest preferential amount, if any, per share to which the holders of such class or series are entitled in the event of any voluntary or involuntary dissolution of the Corporation . (B) The consideration to be received by the holder of outstanding shares in such Business Combination shall be in cash or in the same form as the Interested Stockholder has previously paid for shares of the same class or series. If the Interested Stockholder has paid for shares with varying forms of consideration, the form of consideration shall be either cash or the form used to acquire the largest number of shares of such class or series previously acquired by the Interested stockholder . (C) During such portion of the three y ear period preceding the Announcement Date that such Interested Page 71 &F Stockholder has been an Interested Stockholder, except as approved by a majority of the Disinterested Directors: (a) there shall have been no failure to declare and pay at the regular date therefor any full periodic dividends (whether or not cumulative) on any outstanding shares of the Corporation; (b) there shall have been ( 1) no reduction in the annual rate of dividends paid on any class or series of Voting Shares, (except as necessary to reflect any subdivision of the class or series ) and ( 2 ) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the class or series; and ( c ) such Interested Stockholder shall have not become the beneficial owner of any additional Voting Shares except as part of the transaction which results in such Interested Stockholder becoming an Interested Stockholder . (D ) During such portion of the three year period preceding the Announcement Date that such Interested Stockholder has been an Interested Stockholder, except as approved by a majority of the Disinterested Directors, such Interested Stockholder shall not have received the benefit, directly or indirectly ( except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise. (E) Except as otherwise approved by a majority of the Disinterested Directors, a proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934. and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to stockholders of the Corporation at least 20 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). (c) Certain Definitions. For the purposes of this Article: (i) A "person" shall mean any individual, firm. corporation, partnership, joint venture, or other entity . (ii) "Interested Stockholder" shall mean any person who or which is the beneficial owner, directly or indirectly, of 20% or more of the outstanding voting Shares of the Page 72 &F Corporation; provided, however, the term. Interested Stockholder shall not include the Corporation, any Subsidiary, or any savings, employee stock ownership or other employee benefit plan of the Corporation or any Subsidiary, or any fiduciary with respect to any such plan when acting in such capacity. For the purposes of determining whether a person is an Interested Stockholder, the number of shares of voting Shares deemed to be outstanding shall include shares deemed owned through application of paragraph (iii) of this Section (c) but shall not include any other Voting Shares that may be issuable pursuant to any contract, arrangement or understanding, or upon exercise of conversion rights, exchange rights, warrants or options, or otherwise . (iii) A person shall be a "beneficial owner" of any Voting Shares as to which such person and any of such person's Affiliates or Associates, individually or in the aggregate, have or share directly, or indirectly through any contract, arrangement, understanding, relationship, or otherwise: (A) voting power, which includes the power to vote, or to direct the voting of the Voting Shares; (B) investment power, which includes the power to dispose or to direct the disposition of the Voting Shares; (C) economic benefit, which includes the right to receive or control the disposition of income or liquidation proceeds from the Voting Shares; or (D) the right to acquire voting power, investment power or economic benefit (whether such right is exercisable immediately or only after the passage of time ) pursuant to any contract, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise; provided, that in no case shall a Director of the Corporation be deemed to be the beneficial owner of Voting Shares beneficially owned by another Director of the Corporation solely by reason of actions undertaken by such persons in their capacity as Directors of the Corporation. (iv) " Affiliate" means a person that directly, or indirectly through one or more intermediaries, controls or is Page 73 &F controlled by, or is under common control with the person specified . (v) "Associate" means as to any specified person: (A) any entity (other than the Corporation and its Subsidiaries ) of which such person is an Officer, Director or partner or is, directly or in directly, the beneficial owner of 10% or more of the Voting Shares; (B) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity; or (C) any relative or spouse of such person, or any relative of such spouse, who has the same home as such person or who is an Officer or Director o the Corporation or any of its Affiliates. (vi) As to any Corporation, "Subsidiary" means any other Corporation of which it owns directly or indirectly a majority of the Voting Shares. (vii) "Disinterested Director" means any member of the Board of Directors who: (A) was elected to the Board of Directors of the Corporation at the 1986 Annual meeting of Shareholders: or (B) was recommended for election by c majority of the Disinterested Directors then on the Board, or was elected by the Board to fill a vacancy and received the affirmative vote of a majority of the Disinterested Directors then on the Board. (viii) "Fair Market Value" means: (A) in the case of stock the highest closing sale price during the 30 day period ending at 11: 59 p. m., Eastern time, on the date in question of a share of such stock on the Composite Tape for New York Stock Exchange Listed Stocks, or, if such stock is not quoted on the Composite Tape on the .New York Stock Exchange, or, if such stock is not listed or. such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such Page 74 &F exchange, the highest closing bid quotation with respect to a share of such stock during the 30 day period ending at 11:59 p.m., Eastern time, on the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the Fair Market Value on the date in question of a share of such stock as determined by a majority of the Disinterested Directors: and (B) in the case of property other t. an cash or stock, the Fair Market Value of such property on the date in question as determined by a majority of the Disinterested Directors. (ix) "Voting; Shares" shall mean the outstanding shares of all classes or series of the Corporation's stock; entitled to vote generally in the election of Directors. (x) " Control" shall mean the possession, directly or indirectly, through the ownership of voting securities, by contract, arrangement, understanding, relationship or otherwise, of the power to direct or cause the direction of the management and policies of the person. The beneficial ownership of 20% or more of the Corporation's Voting Shares shall be deemed to constitute control. (d) Certain Determinations. Directors who are Disinterested Directors of the Corporation shall have the power and duty to determine for the purpose of this Article, on the basis of information known to them after reasonable inquiry, (i) whether a particular person is an Interested Stockholder, (ii) the number of Voting Shares beneficially owned by such person, (iii) whether any person is an Affiliate or Associate of such person, and (iv) whether the assets that are the subject of any Business Combination involving such person have an aggregate Fair Market Value in excess of 5% of the Corporation's consolidated assets as of the date of the most recently available financial statement, or the securities to be issued or transferred by the Corporation or any Subsidiary in any Business Combination involving such person have an aggregate Fair Market value in excess of 5% of the aggregate Fair Market Value of all outstanding Voting Shares of the Corporation as of the Determination Date . Page 75 &F (e) No Effect on Certain Obligations. Nothing contained in this Article shall be construed to relieve any Interested Stockholder or any Director of the Corporation from any obligation imposed by law. ( f ) Amendment or Repeal . The provisions of this Article shall not be amended or repealed, nor shall any provision of these Articles of Incorporation be adopted that is inconsistent with this Article, unless such action shall have been approved by the affirmative vote o f either: (i) the holders of at least 70% of the outstanding Voting Shares; or (ii) a majority of those Directors who are Disinterested Directors and the holders of the requisite number of shares specified under applicable North Carolina law for the amendment of the charter of a North Carolina corporation . 11. This Restated and Amended Charter was adopted by the shareholders of the Corporation on the 16th day of June, 1986, in the manner prescribed by law for adopting a charter amendment; and it integrates the original Articles of Incorporation and all amendments thereto . 12. The number of shares of Common Stock (the only class of stock outstanding) of the Corporation outstanding at the time shareholders voted was 39,618,225; and the number of shares of Common Stock entitled to vote was 37,106,438 . 13. The number of shares of Common Stock voted for amendment of the Charter to authorize a class of Preferred Stock consisting of 5 million shares was 24,999,783; the number of shares of Common Stock voted against adoption of such proposal was 5,900,610; and the number of shares of Common Stock abstaining from voting on such proposal was 1,806,088 . 14. The number of shares of Common Stock voted for amendment of the Charter to provide for classification of the Board of Directors into three classes and that directors cannot be removed during their term of office without the affirmative vote of holders of a; least 70% of outstanding Page 76 &F shares of Common Stock was 24,641,126; the number of shares of Common Stock voted against such proposal was 6,265,258; and the number of shares of Common Stock abstaining from voting on such proposal was 1,800,097. 15. The number of shares of Common Stock voted for amendment of the Charter to provide for certain minimum price procedures or, alternatively, require a higher voting requirement for certain transactions, was 24,941,586; the number of shares of Common Stock voted against such proposal was 5,636,077; and the number of shares of Common Stock abstaining from voting on such proposal was 2,128,818. 16. The number of shares of Common Stock voted for approval of a Restated and Amended Charter incorporating those of the proposals described in paragraphs 13, 14 and 15 which were approved by shareholders was 26,624,636; the number of shares of Common. Stock voted against such proposal was 4,978,302; and the number of shares of Common Stock abstaining from voting on such proposal was 1,103,543. 17. Adoption of the proposals described in paragraphs 13, 14, 15 and 16 did not give rise to (i) dissenter's rights, because the amendments to the Charter and adoption of the Restated and Amended Charter do not change the Corporation into a non profit corporation or cooperative organization and no shares of the Corporation that are outstanding are entitled to any preference as to dividends or liquidation, or (ii) class voting rights, because the only class of stock outstanding is Common Stock. IN WITNESS WHEREOF, this statement is excuted by the president and secretary of the corporation this 25th day of June, 1986. LOWE'S E' S COMPANIES, INC . By /s/ Leonard G. Herring President By /s/ Richard D. Elledge Secretary STATE OF NORTH CAROLINA COUNTY OF WILKES Page 77 &F I, Geraldine Bumgarner, a notary public, hereby certify that on this 25th day of June, 1986: personally appeared before me Leonard G. Herring and Richard D. Elledge, each of whom being by me first duly sworn, declared that he signed the foregoing document in the capacity indicated, that he was authorized so to sign, and that the statements therein contained are true. /s/ Geraldine Bumgarner Notary Public My Commission Expires: 9-21-88 ARTICLES OF AMENDMENT OF LOWE'S COMPANIES, INC . The undersigned corporation hereby executes these Articles of Amendment for the purpose of amending its charter: 1 The name of the corporation is Lowe's Companies, Inc. 2 The following amendment to the charter of the corporation was adopted by its shareholders on the 5th day of November, 1987, in the manner prescribed by law: By adding the following sub paragraph: 9. (f) To the full extent that the North Carolina Business Corporation Act, as it exists on the date that this Amendment became effective, permits the elimination of the liability of Directors, a Director of the Company shall not be liable for monetary damages for breach of his duty as a Director. 3 The number ofof the corporation outstanding at the time of such adoption was 39,630,050; and the number of shares entitled to vote thereon was 39,630,050 4 The designation and number of outstanding shares of each class entitled to vote on such amendment as a class were as follows: Number of Class shares Common 39,630,050 5. The number of shares voted for such amendment was 30,174,450; and the number of shares voted against such amendment was 2,775,537. Voting within each class entitled to vote as a class was as follows: Page 78 &F Number of Shares Voted Class For Against Common 30,174,450 2,775,537 6. The amendment herein effected does not give rise to dissenter's rights to payment for the reason that .he only effect of such amendment is to add an article to the Articles of Incorporation limiting the liability of Directors of the Corporation. IN WITNESS WHEREOF, these articles are signed by the president and secretary of the corporation this 6th day of November 1987. /s/ Leonard G. Herring, President /s/ Richard D. Elledge, Secretary STATE OF NORTH CAROLINA COUNTY OF WILKES I, Geraldine Bumgarner, a notary public, hereby certify that on this 6th day of November, 1987, personally appeared before me Leonard G. Herring and Richard D. Elledge, each of whom being first duly sworn, declared that he signed the foregoing document in the capacity indicated, that he was authorized so to sign, and that the statements therein contained are true. /s/ Geraldine Bumgarner Notary Public My Commission Expires: 9-1-88 STATEMENT OF CLASSIFICATION OF SHARES OF LOWE'S COMPANIES, INC. 1. The name of the corporation is LOWE' S COMPANIES, INC. 2. On September 9, 1988, pursuant to Sections 55 41 and 55 42 of the North Carolina Business Corporation Act and the authority conferred upon the Board of Directors by the Restated and Amended Charter of Corporation, the Board of Directors of the Corporation duly adopted the following resolutions creating a series of 160,000 shares of Preferred Stock designated as Participating Cumulative Page 79 &F Preferred Stock, Series A: RESOLVED, that it is hereby declared to be in the best interests of the Corporation that a new series of Preferred Stock be created to consist of 160,000 shares and to be designated as Participating Cumulative Preferred Stock, Series A, and to determine the preferences, limitations and relative rights of the Participating Cumulative Preferred Stock, Series A, by adopting a Statement of Classification of Shares of Lowe's Companies, Inc. to read in the form attached hereto as Appendix I. RESOLVED, that the Statement of Classification of Shares of the Corporation attached hereto as Appendix I is hereby adopted and that the appropriate officers of the Corporation are authorized and directed to prepare and to file with the North Carolina Secretary of State a Statement of Classification of Shares of Lowe's Companies, Inc. to give effect thereto. 3. That Appendix I hereto constitutes the Statement of Classification of Shares of Lowe's Companies, Inc. referred to in the foregoing resolutions. 4. That such Statement of Classification of Shares of Lowe's Companies, Inc. was adopted before the issuance of the Participating Cumulative Preferred Stock, Series A, by the Board of Directors of the Corporation on September 9, 1988. Shareholder action was not required. Dated: September 9, 1988 LOWE'S COMPANIES, INC. By: /s/ Robert L. Strickland Chairman of the Board Attest: /s/ Richard D. Elledge Secretary [Corporate Seal] Appendix I The Corporation has designated 160,000 shares of the authorized but unissued shares of the Corporation's Preferred Stock, par value $5.00 per share, as Participating Cumulative Preferred Stock, Series A Page 80 &F (hereinafter referred to as "Series A Preferred Stock"). The terms of the Series A Preferred Stock, in the respect in which the shares of such series may vary from shares of any and all other series of Preferred Stock, are as follows: (a) Dividends and Distributions. (1) The holders of shares of Series A Preferred Stock in preference to the holders of Common Stock and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available therefor, dividends payable quarterly on the last business day of each April, July, October and January (each such date being referred to herein as a Quarterly Dividend Payment Date), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $120 or (b) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time after September 9, 1988 (the Rights Declaration Date), (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (2) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in Page 81 &F paragraph (1) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $120 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (3) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a dale after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share by share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof. (b) Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: (1) Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the shareholders of the Corporation. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a Page 82 &F fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (2) Except as otherwise provided herein, in the Restated and Amended Charter, or under applicable law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock shall vote together as one voting group on all matters submitted to a vote of stockholders of the Corporation. (3) (i) If at any time dividends on any shares of Series A Preferred Stock shall be in arrears in an amount equal to six quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (a default period) that shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all shares of Series A Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of the outstanding shares of Series A Preferred Stock together with any other series of Preferred Stock then entitled to such a vote under the terms of the Restated and Amended Charter, voting as a separate voting group, shall be entitled to elect two members of the Board of Directors of the Corporation. (ii) During any default period, such voting right of the holders of Series A Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Subsection (b)(3) or at any annual meeting of stockholders, and thereafter at annual meetings of stockholders, provided that neither such voting right nor the right of the holders of any other series of Preferred Stock, if any, to increase, in certain cases, the authorized number of Directors shall be exercised unless the holders of ten percent (10%) in number of shares of Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of Preferred Stock of such voting right. At any meeting at which the holders of Preferred Stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a separate voting group, to elect Directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two (2) Page 83 &F Directors, or if such right is exercised at an annual meeting, to elect two (2) Directors. If the number which may be so elected at any special meeting does not amount to the required number, the holders of the Preferred Stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them of the required number. After the holders of the Preferred Stock shall have exercised their right to elect Directors in any default period and during the continuance of such period, the number of Directors shall not be increased or decreased except by vote of the holders of Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series A Preferred Stock. (iii) Unless the holders of Preferred Stock shall, during an existing default period, have previously exercised their right to elect Directors, the Board of Directors may order, or any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding, irrespective of series, may request, the calling of a special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the Chairman, President, a Vice President or the Secretary of the Corporation. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this paragraph (b)(3)(iii) shall be given to each holder of record of Preferred Stock by mailing a copy of such notice to him at his last address as the same appears on the books of the Corporation. Such meeting shall be called for a time not earlier than 10 days and not later than 60 days after such order or request. In the event such meeting is not called within 60 days after such order or request, such meeting may be called on similar notice by any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding. Notwithstanding the provisions of this paragraph (b)(3)(iii), no such special meeting shall be called during the period within 60 days immediately preceding the date fixed for the next annual meeting of the stockholders. (iv) In any default period, the holders of Common Stock, and other classes of stock of the Corporation if applicable, shall continue to be entitled to elect the whole number of Directors until the holders of Preferred Stock shall have exercises their right to elect two (2) Directors voting as a Page 84 &F separate voting group, after the exercise of which right (x) the Directors so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board of Directors may (except as provided in paragraph (b)(3)( i)) be filled by vote of a majority of he remaining Directors theretofore elected by the voting group which elected the Director whose office shall have become vacant. References in this paragraph (b)(3)(iv) to Directors elected by a particular voting group shall include Directors elected by such Directors to fill vacancies as provided in clause (y) of the foregoing sentence. (v) Immediately upon the expiration of a default period, (x) the right of the holders of Preferred Stock, as a separate voting group, to elect Directors shall cease, (y) the term of any Directors elected by the holders of Preferred Stock, as a separate voting group, shall terminate, and (z) the number of Directors shall be such number as may be provided for in, or pursuant to, the Restated and Amended Charter or bylaws irrespective of any increase made pursuant to the provisions of paragraph 5(b)(3)(ii) (such number being subject, however, to change thereafter in any manner provided by law or in the Restated and Amended Charter or bylaws). Any vacancies in the Board of Directors affected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining Directors, even though less than a quorum. (4) Except as set forth herein or as otherwise provided in the Restated and Amended Charter, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. (c) Certain Restrictions. (1) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Subsection (a) are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not: Page 85 &F (i) declare or pay or set apart for payment any dividends (other than dividends payable in shares of any class or classes of stock of the Corporation ranking junior to the Series A Preferred Stock) or make any other distributions on, any class of stock of the Corporation ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock and shall not redeem, purchase or otherwise acquire, directly or indirectly, whether voluntarily, for a sinking fund, or otherwise any shares of any class of stock of the corporation ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that, notwithstanding .he foregoing, the Corporation may at any time redeem, purchase or otherwise acquire shares of stock of any such junior class in exchange for, or out of the net cash proceeds from the concurrent sale of, other shares of stock of any such junior class; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) t~ the Series A Preferred Stock; (iv) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall Page 86 &F determine in good faith will result in fair and equitable treatment among the respective series or classes. (2) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (1) of Subsection (c), purchase or otherwise acquire such shares at such time and in such manner. (d) Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. (e) Liquidation, Dissolution or Winding Up. (1) Upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $5.00 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Series A Liquidation Preference"). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 1,000 (as appropriately adjusted as set forth in subparagraph 3 below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii) being hereinafter referred to as the "Adjustment Number"). Following the payment of the full amount of the Series A Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series Page 87 &F A Preferred Stock and Common Stock, respectively, holders of Series A Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Series A Preferred Stock and Common Stock, on a per share basis, respectively. (2) In the event, however, that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of Preferred Stock, if any, then such remaining assets shall be distributed ratably to the holders of all such shares in proportion to their respective liquidation preferences. In the event, however, that there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock. (3) In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (f) Consolidation, Merger, Share Exchange, etc. In case the Corporation shall enter into any consolidation, merger, share exchange, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the Page 88 &F case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (g) Redemption. The outstanding shares of Series A Preferred Stock may be redeemed at the option of the Board of Directors as a whole, but not in part, at any time, or from time to time, at a cash price per share equal to (i) 100% of the product of the Adjustment Number times the Average market Value (as such term is hereinafter defined) of the Common Stock, plus (ii) all dividends which on the redemption date have accrued on the shares to be redeemed and have not been paid or declared and a sum sufficient for the payment thereof set apart, without interest. The "Average Market Value" is the average of the closing sale prices of a share of the Common Stock during the 30 day period immediately preceding the date before the redemption date on the Composite Tape for New York Stock Exchange Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended, on which such stock is listed, or, if such stock is not listed on any such exchange, the average of the closing bid quotations with respect to a share of Common Stock during such 30 day period on the National Association of Securities Dealers, Inc. Automated Quotation System or any system then in use, or if no such quotations are available, the fair market value of a share of the Common Stock as determined by the Board of Directors in good faith. (h) Ranking. The Series A Preferred Stock shall rank on a parity with any and all other series of Preferred Stock as to the payment of dividends and the distribution of assets. Page 89 &F (i) Amendment. The Restated and Amended Charter shall not be further amended in any manner that would adversely affect the preferences, rights or powers of the Series A Preferred Stock without the affirmative vote of the holders of more than two thirds of the outstanding shares of the Series A Preferred Stock, if any, voting separately as one voting group. (j) Fractional Shares. Series A Preferred Stock may be issued in fractions of one one thousandth of a share (and integral multiples thereof) which shall entitle the holder, in proportion to such holders' fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Preferred Stock. ARTICLES OF MERGER OF LOWE'S OF OHIO, INC. INTO LOWE'S COMPANIES, INC. The undersigned corporations hereby execute these Articles of Merger for the purpose of merging the wholly owned subsidiary corporation into its parent corporation: I. The following Plan and Agreement of Merger was duly approved by the Board of Directors of each of the undersigned corporations in the manner prescribed by law: SEE ATTACHED PLAN AND AGREEMENT OF MERGER II. At the time of the approval of the foregoing Plan and Agreement of Merger by the Board of Directors of each of the undersigned corporations the surviving corporation was the owner of all the outstanding shares of the other corporation; and the foregoing Plan and Agreement of Merger does not provide for any changes in the charter of, or the issuance of any shares by, the surviving corporation. III. The foregoing Plan and Agreement of Merger was approved by the sole shareholder of Lowe's of Ohio, Inc. Page 90 &F on the 2nd day of December, 1988. IV. The merger between the corporations shall be effective as of the close of business for the corporations on December 31, 1988. IN WITNESS WHEREOF, these articles are signed by the President and Secretary of each corporation this 22nd day of December, 1988, at 11:59 P.M. LOWE'S OF OHIO, INC. By: /s/ LEONARD G. HERRING President, ATTEST: /s/ RICHARD D. ELLEDGE Secretary (CORPORATE SEAL) LOWE'S COMPANIES, INC. By: /s/ LEONARD G. HERRING President, ATTEST: /s/ RICHARD D. ELLEDGE Secretary (CORPORATE SEAL) STATE OF NORTH CAROLINA COUNTY OF WILKES I, Gaither M. Keener, Jr., a notary public, hereby certify that on this 22nd day of December, 1988, personally appeared before me Leonard G. Herring, President and Richard D. Elledge, Secretary of Lowe's of Ohio, Inc.; each of whom being first duly sworn, declared that he signed the foregoing document in the capacity indicated, that he was authorized so to sign, and that the statements therein contained are true. /s/ Gaither M. Keener, Jr. Notary Public Page 91 &F My Commission Expires: 4-30-91 STATE OF NORTH CAROLINA COUNTY OF WILKES I, Gaither M. Keener, Jr., a notary public, hereby certify that on this 22nd day of December 1988, personally appeared before me Leonard G. Herring, President and Richard D. Elledge, Secretary of Lowe's Companies, Inc.; each of whom being first duly sworn, declared that he signed the foregoing document in the capacity indicated, that he was authorized so to sign, and that the statements therein contained are true. /s/ Gaither M. Keener, Jr. Notary Public My Commission Expires: 4-30-91 PLAN AND AGREEMENT OF MERGER THIS PLAN AND AGREEMENT OF MERGER (this Agreement) is made as of December 22nd, 1988 by Lowe's Companies, Inc., a North Carolina corporation (the "Surviving Corporation") and Lowe's of Ohio, Inc., an Ohio corporation (the "Merging Corporation"). RECITALS: A. The Merging Corporation is a wholly owned subsidiary of the Surviving Corporation, with the Surviving Corporation owning all 500 issued and outstanding shares of common stock of the Merging Corporation. B. The Surviving Corporation and the Merging Corporation have agreed to reorganize by merging the Merging Corporation into the Surviving Corporation as provided in this Agreement, with no change to occur in the Articles of Merger of incorporation of the Surviving Corporation after the effective date of the merger. STATEMENT OF AGREEMENT: In consideration of the mutual covenants contained in this Agreement, each of the Surviving Corporation and the Merging Corporation agrees as follows: ARTICLE 1 Page 92 &F Merger into the Surviving Corporate Section 1.1. Merger. As of the Effective Date (as hereinafter defined), the Merging Corporation, as a constituent corporation within the meaning of Section 1701.01 of the Ohio Revised Code, shall be merged, pursuant to Sections 1701.79 and 1701.80 of the Ohio Revised Code and pursuant to Sections 55 108.1 and 55 111 of the north Carolina General Statutes, into the Surviving Corporation as the surviving corporation within the meaning of Section 1701.01 of the Ohio Revised Code and Section 55 110 of the North Carolina General Statutes. The existing Articles of Merger of incorporation of the Surviving Corporation shall be the Articles of Merger of incorporation of the Surviving Corporation until amended in accordance with law. Section 1.2. Effective Date. The Effective Date shall be 11:59 p.m., Eastern Standard Time, on December 31, 1988 Section 1.3. Articles and Agreement of Merger. This Agreement shall serve as the "Articles of Merger" within the meaning of Section i5 109 of the North Carolina General Statutes, as well as the ".agreement of Merger" within the meaning of Sections 1701.79 and 1701.80 of the Ohio Revised Code. ARTICLE 2 Extinguishment of Constituent Shares Section 2.1. Extinguishment of Constituent Shares. At the Effective Date and as a result of the merger of the Merging Corporation into the Surviving Corporation, the shares of each outstanding class of capital stock of the Merging Corporation shall, automatically and without further act of either the Merging Corporation or any holder of any such share, be extinguished. ARTICLE 3 Process; Qualification Section 3.1. Service of Process. The Surviving Corporation hereby agrees that it may be served with process in the State of Ohio in an,; proceeding for enforcement of any obligation of the Merging Corporation as well as for enforcement of any obligation resulting Page 93 &F from the merger, and hereby irrevocably appoints the Secretary of State of the State of Ohio as its agent to accept service of process in any such proceeding. The address to which a copy of such process shall be mailed by the Secretary of State of Ohio is Leonard G. Herring, President, Lowe's Companies, Inc., Box 1111, North Wilkesboro, North Carolina 28656 0001. Section 3.2. Foreign Qualification. The Surviving Corporation desires to transact business in the State of Ohio as a foreign corporation. The Surviving Corporation does hereby irrevocably consent that it may be served with any process in the State of Ohio by service upon C. T. Corporation Systems, 815 Superior Avenue, North East, Cleveland, Ohio 44144 (the "named Agent") and any successor Named Agent that may be appointed pursuant to Chapter 1703, Ohio Revised Code; and the Surviving Corporation hereby irrevocably consents to the service of process upon the Secretary of State of the State of Ohio as its agent to receive such process in the event that the Named Agent cannot be found or in any other event as provided in Chapter 1703, Ohio Revised Code. ARTICLE 4 Amendment Section 4.1. Amendment. From time to time and at any time prior to the Effective Date, this Agreement may be amended by an agreement in writing authorized by the respective Boards of Directors of the Surviving Corporation and the Merging Corporation and executed in the same manner as this Agreement. ARTICLE 5 Miscellaneous Section 5.1. Headings. The captions or headings in this Agreement are for convenience only and in no way define, limit or describe the scope or intent of any of the provisions of this Agreement. Section 5.2. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original and all of which shall constitute one and the same document. Page 94 &F Section 5.3. Severability. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any jurisdiction for any reason, such invalidity, illegality or unenforceability shall not affect the remainder of this Agreement, and the remainder of this Agreement shall be construed and enforced as if such invalid, illegal or unenforceable portion were not contained herein. Section 5.4. Governing Law. This Agreement shall be governed by and construed under the laws of the State of North Carolina. The Surviving Corporation: The Merging CORPORATION Lowe's Companies, Inc. Lowe's of Ohio, Inc. By /s/ Leonard G. Herring By /s/ Leonard G. Herring Title: President Title: President Attest: Attest: /s/ Richard D. Elledge /s/ Richard D. Elledge Secretary (Corporate Seal) Secretary (Corporate Seal) STATE OF NORTH CAROLINA COUNTY OF WILKES I, Gaither M. Keener, Jr., a notary public, hereby certify that on this 22nd day of December 1988, personally appeared before me Leonard G. Herring, President and Richard D. Elledge, Secretary of Lowe's Companies, Inc.; each of whom being first duly sworn, declared that he signed the foregoing document in the capacity indicated, that he was authorized so to sign, and that the statements therein contained are true. /s/ Gaither M. Keener, Jr. Notary Public My Commission Expires: 4-30-91 STATE OF NORTH CAROLINA COUNTY OF WILKES I, Gaither M. Keener, Jr., a notary public, hereby certify Page 95 &F that on this 22nd day of December, 1988, personally appeared before me Leonard G. Herring, President and Richard D. Elledge, Secretary of Lowe's of Ohio, Inc.; each of whom being first duly sworn, declared that he signed the foregoing document in the capacity indicated, that he was authorized so to sign, and that the statements therein contained are true. /s/ Gaither M. Keener, Jr. Notary Public My Commission Expires: 4-30-91
EX-19 20 BYLAWS &F PART IV EHHIBIT 3.2 BYLAWS OF LOWE'S COMPANIES, INC. INDEX ARTICLE I OFFICES 1 ARTICLE II SHAREHOLDERS 1-3 SECTION 1 ANNUAL MEETING 1 SECTION 2 SPECIAL MEETING 1 SECTION 3 PLACE OF MEETING 1 SECTION 4 NOTICE OF MEETING 1-2 SECTION 5 CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE 2 SECTION 6 VOTING LISTS 2-3 SECTION 7 QUORUM 3 SECTION 8 PROXIES 3 SECTION 9 VOTING OF SHARES 3 ARTICLE III BOARD OF DIRECTORS 3-7 SECTION 1 GENERAL POWERS 3 Page 96 &F SECTION 2 NUMBER, TENURE AND QUALIFICATIONS 3-4 SECTION 3 MANAGING DIRECTOR 4 SECTION 4 FOUNDING DIRECTOR 4 SECTION 5 DIRECTOR EMERITUS 4 SECTION 6 REGULAR MEETINGS 4 SECTION 7 SPECIAL MEETINGS 4-5 SECTION 8 NOTICE 5 SECTION 9 QUORUM 5 SECTION 10 MANNER OF ACTING 5 SECTION 11 VACANCIES 5 SECTION 12 COMPENSATION 5 SECTION 13 PRESUMPTION OF ASSENT 5 SECTION 14 ACTION WITHOUT MEETING 5-6 SECTION 15 COMMITTEES 6 SECTION 16 EXECUTIVE COMMITTEE 6 SECTION 17 AUDIT COMMITTEE 6 SECTION 18 COMPENSATION/EMPLOYEE STOCK 6-7 OPTION COMMITTEE SECTION 19 COMMITTEE OF OUTSIDE DIRECTORS 7 SECTION 20 GOVERNMENT/LEGAL AFFAIRS 7 COMMITTEE SECTION 21 SALARY ADMINISTRATION 7 ARTICLE IV INDEMNIFICATION 7-10 SECTION 1 DEFINITIONS 7-8 SECTION 2 INDEMNIFICATION 8 SECTION 3 NO PRESUMPTION 8 SECTION 4 EXPENSES 8 SECTION 5 PROCEDURE TO INDEMNIFY 9 SECTION 6 PAYMENT OF EXPENSES IN ADVANCE 9-10 SECTION 7 INSURANCE 10 SECTION 8 FORMER DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS INDEMNIFIED 10 ARTICLE V OFFICERS 10-12 SECTION 1 TITLES 10-11 SECTION 2 ELECTION AND TERM OF OFFICE 11 SECTION 3 REMOVAL 11 SECTION 4 VACANCIES 11 SECTION 5 CHAIRMAN OF THE BOARD OF DIRECTORS 11 SECTION 6 PRESIDENT 11 SECTION 7 EXECUTIVE VICE PRESIDENTS, SENIOR VICE PRESIDENTS AND VICE PRESIDENTS 11-12 SECTION 8 SECRETARY 12 SECTION 9 TREASURER 12 SECTION 10 CONTROLLER 12 Page 97 &F ARTICLE VI DEPARTMENTAL DESIGNATIONS 12 SECTION 1 DEPARTMENTAL DESIGNATIONS 12 ARTICLE VII CONTRACTS, LOANS, CHECKS, AND 12-13 DEPOSITS SECTION 1 CONTRACTS 12-13 SECTION 2 LOANS 13 SECTION 3 CHECKS, DRAFTS, ETC. 13 SECTION 4 DEPOSITS 13 ARTICLE VIIICERTIFICATES FOR SHARES AND THEIR 13-14 TRANSFERS SECTION 1 CERTIFICATES FOR SHARES 13-14 SECTION 2 TRANSFER OF SHARES 14 SECTION 3 LOST CERTIFICATES 14 ARTICLE IX FISCAL YEAR 14 ARTICLE X DIVIDENDS 15 ARTICLE XI SEAL 15 ARTICLE XII WAIVER OF NOTICE 15 ARTICLE XIIIAMENDMENTS 15 BYLAWS OF LOWE'S COMPANIES, INC. ARTICLE I. OFFICES The principal and registered office of the corporation in the State of North Carolina shall be located in the City of North Wilkesboro, County of Wilkes. The corporation may have such other offices either within or without the State of North Carolina, as the Board of Directors may designate or the business of the corporation may require from time to time. Page 98 &F ARTICLE II. SHAREHOLDERS SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders shall be held on the last Friday in the month of May in each year, at an hour to be designated by the Chairman of the Board, for the purpose of electing directors and for the transaction of such other business as may come before the meeting. The meeting shall be held on the following day at the same time in the event the last Friday in May shall be a legal holiday. If the annual meeting shall not be held on the day designated by this section, a substitute annual meeting shall be called in accordance with the provisions of Section 2 of this Article II. A meeting so called shall be designated and treated for all purposes as the annual meeting. The Chairman of the Board of Directors shall chair all shareholder meetings. SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Chairman of the Board or the President or by a majority of the Board of Directors. SECTION 3. PLACE OF MEETING. The Board of Directors may designate any place, either within or without the State of North Carolina, as the place of meeting for any annual meeting or for any special meeting called by the Board of Directors. In the event the directors shall fail to designate the place of meeting for either an annual or special meeting of the shareholders, the meeting shall be held at the offices of the corporation in North Wilkesboro, North Carolina. SECTION 4. NOTICE OF MEETING. Written or printed notice stating the place, day, and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than 50 days before the day of the meeting, by mail, by or at the direction of the Secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. Such notice, when mailed, shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid. When a meeting is adjourned for 30 days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. When a meeting is adjourned for less than 30 days in any one adjournment, it shall not be necessary to give any notice of the adjourned meeting other than by announcement at the meeting at which the adjournment is taken. SECTION 5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the purpose of determining shareholders entitled to notice of or to vote at the meeting or any adjournment thereof, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the corporation may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, 50 days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten days immediately preceding such meeting. In lieu of closing the Page 99 &F stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than 60 days and, in case of a meeting of shareholders, not less than ten days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or of shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof regardless of its length, except where the determination has been made through the closing of the stock transfer books and the stated period of closing has expired. SECTION 6. VOTING LISTS. The officer or agent having charge of the stock transfer books for shares of the corporation shall make, at least ten days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting, or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of ten days prior to such meeting, shall be kept on file at the principal office of the corporation and shall be subject to inspection by any shareholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original stock transfer books shall be prima facie evidence as to who are the shareholders entitled to examine such list or transfer books or to vote any meeting of shareholders. SECTION 7. QUORUM. A majority of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If less than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. SECTION 8. PROXIES. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his duly authorized attorney in fact. Such proxy shall be filed with the secretary of the corporation before or at the time of the meeting. No proxy shall be valid after 11 months from the date of its execution, unless otherwise provided in the proxy. If a proxy for the same shares confers authority upon two or more persons and does not otherwise provide a majority of them present at the meeting or if only one is present at the meeting then that one may exercise all the powers conferred by the proxy; but if the proxy holders present at the meeting are divided as to the right and manner of voting in any particular case, and there is no majority, the voting of such shares shall be prorated. Page 100 &F SECTION 9. VOTING OF SHARES. Except as otherwise provided by law, each outstanding share of capital stock of the corporation entitled to vote shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders. The vote of a majority of the shares voted on any matter at a meeting of shareholders at which a quorum is present shall be the act of the shareholders on that matter, unless the vote of a greater number is required by law or by the charter or Bylaws of the corporation. Voting on all matters unless otherwise required by law shall be by voice, vote or by a show of hands, unless the holders of one-tenth of the shares represented at the meeting shall, prior to the voting on any matter, demand a ballot vote on that particular matter. ARTICLE III. BOARD OF DIRECTORS SECTION 1. GENERAL POWERS. The business and affairs of the corporation shall be managed by the Board of Directors except as otherwise provided by law, by the charter of the corporation or by the Bylaws of the corporation. SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of the corporation shall not be less than six nor more than 12, one of whom shall be designated and elected as the Chairman of the Board of Directors, by the Board, and shall as said Chairman preside at all meetings of the Board of Directors. The Board may elect a Vice Chairman whose only duties shall be to preside at Board meetings in the absence of the Chairman. The directors shall be divided into classes and serve terms as provided in the charter. Directors need not be residents of the State of North Carolina or shareholders of the corporation. Subject to the charter, the Board of Directors shall each year prior to the annual meeting determine by appropriate resolution the number of directors which shall constitute the Board of Directors for the ensuing year. An appropriate notice of this resolution shall be given to the shareholders prior to the annual meeting of shareholders. SECTION 3. MANAGING DIRECTOR. The Board of Directors by majority vote is authorized to designate any director who is also an employee of the corporation as Managing Director. The number of Managing Directors at any time shall be determined by the Board of Directors. Each Managing Director shall perform such duties and have such responsibilities as are specifically assigned to him by the Board of Directors. SECTION 4. FOUNDING DIRECTOR. A Founding Director is a director of the corporation at November 7, 1980, who was elected as a director of the corporation when it became a public corporation in 1961 and who has served continuously as a Board Member since that time. SECTION 5. DIRECTOR EMERITUS. A Director Emeritus is a director with prior service as a Founding Director. The Board of Directors by majority vote is authorized to designate such Founding Director as Director Emeritus as they deem wise. The number of Directors Emeriti at any time shall be determined by the Board of Directors. The Director Emeritus lifetime benefit will be equal to 50% of the Founding Director fee in effect at the time the Founding Director (whether an Employee Director or Page 101 &F a Non-Employee Director) becomes a Director Emeritus. Determination of who is and who is not a Founding Director shall be based on the provisions of Article III, Section 4 of the Bylaws of Lowe's Companies, Inc. SECTION 6. REGULAR MEETINGS. The regular quarterly meetings of the Board of Directors shall be held at a time and place as determined by the Chairman of the Board of Directors. In addition to the provisions hereinbefore provided, any one or more of the directors or members of a committee designated by the directors may participate in a meeting of the Board or committee by means of a conference telephone or similar communications device which allows all persons participating in the meeting to hear each other and such participation in a meeting will be deemed presence in person. SECTION 7. SPECIAL MEETINGS. Special Meetings of the Board of Directors may be called by or at the request of the Chairman of the Board of Directors or a majority of the directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of North Carolina, as the place for holding any special meeting of the Board of Directors called by them. SECTION 8. NOTICE. Notice of any special meeting shall be given by either mail or telephone. Notice of any special meeting administered by mail shall be given at least five days previous thereto. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail properly addressed, with postage thereon prepaid. If notice is given by telephone, it shall be done so at least two days prior to the special meeting and shall be deemed given at the time of the telephone call itself. Any director may waive notice of any meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at nor the purpose of any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. SECTION 9. QUORUM. A majority of the number of directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. SECTION 10. MANNER OF ACTING. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors unless otherwise required by the charter. SECTION 11. VACANCIES. Any vacancy occurring in the Board of Directors shall be filled as provided in the charter. SECTION 12. COMPENSATION. By appropriate resolution, the directors may be paid such expenses as are incurred in connection with their duties as directors. The Board of Directors may also by appropriate action pay to the directors, or such members thereof as they designate, other compensation for their services on said Board. SECTION 13. PRESUMPTION OF ASSENT. A director of the corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such Page 102 &F action with the person acting as secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. SECTION 14. ACTION WITHOUT MEETING. Action taken by a majority of the Board, or a Committee thereof, without a meeting is nevertheless Board, or Committee, action if written consent to the action in question is signed by all of the directors, or Committee members, and filed with the minutes of the proceedings of the Board, or Committee, whether done before or after the action so taken. SECTION 15. COMMITTEES. Committees, defined pursuant to Article III of the corporate Bylaws, shall be reestablished annually at the first Board of Directors Meeting held subsequent to the Annual Shareholders Meeting. Directors designated to serve on committees shall serve as members of such committees until the first Board of Directors Meeting following the next succeeding Annual Shareholders Meeting or until their successors shall have been duly designated. The Board of Directors may designate a committee chairman from the membership for each committee established. In the absence of the designation of a committee chairman by the Board, a committee by majority vote may elect a chairman from its own membership. SECTION 16. EXECUTIVE COMMITTEE. The Board, by a majority vote, may establish an Executive Committee composed of not less than three members or more than six members. This Committee may exercise all of the authority of the Board of Directors to the fullest extent permitted by law. The chairman shall be appointed by the Board of Directors. SECTION 17. AUDIT COMMITTEE. The Board, by a majority vote, may establish an Audit Committee composed of not more than five and not less than three members which members shall be selected from the Board of Directors. The Committee shall from time to time report to the Board of Directors through its Chairman. The Committee shall aid the Board in carrying out its responsibilities for accurate and informative financial reporting and shall assist the Board in making recommendations with respect to management's efforts to maintain and improve financial controls. The Committee shall recommend to the stockholders at their annual meeting each year an independent certified public accounting firm as independent auditors for the corporation. The duties of the Committee shall also include such other functions and responsibilities as are generally performed by Audit Committees. SECTION 18. COMPENSATION/EMPLOYEE STOCK OPTION COMMITTEE. The Board, by a majority vote, may establish a committee to be designated as a Compensation/Employee Stock Option Committee. This Committee shall be composed of not more than eight members and not fewer than five members, all of whom must be non-employee directors. The Committee shall have the following responsibilities: (a) Review and set, at least annually, the compensation of directors who are employees of the corporation. Page 103 &F (b) Review at least annually the compensation of all other employees whose annual salary and current bonus opportunity exceeds a dollar amount oposition is above a certain level as established from time to time by the Compensation Committee as the threshold for review. Further, the Compensation Committee my review the salary and bonus opportunity of any other employee that it chooses to review. (c) Review and approve all annual bonus plans. (d) Review and approve all forms of compensation which exceed one year in duration, including stock options, deferred compensation, etc. (e) Full authority to administer and interpret all provisions of any compensation or employee stock option plan approved by the Board. (f) Grant options pursuant to the terms within any employee stock option plan. (g) File reports of such reviews with the Board of Directors, including such recommendations as are adopted by a majority vote of the Committee. SECTION 19. COMMITTEE OF OUTSIDE DIRECTORS. The Board, by a majority vote, may establish a Committee of Outside Directors to consist of not fewer than three non-employee directors. Except as otherwise required by law, the Committee of Outside Directors shall have full authority to act for the Board in any matter designated to this Committee be a majority of the Board of Directors. SECTION 20. GOVERNMENT/LEGAL AFFAIRS COMMITTEE. The Board, by a majority vote, may establish a Government/Legal Affairs Committee to consist of not fewer than three directors. Except as otherwise required by law, the Government/Legal Affairs Committee shall have full authority to act for the full Board in any manner designated to this Committee by a majority of the Board of Directors. SECTION 21. SALARY ADMINISTRATION. The compensation of employees not covered by the Compensation Committee duties shall be the responsibility of the President, except that compensation of the Chairman's staff shall be mutual responsibility of the Chairman and the President. ARTICLE IV. INDEMNIFICATION SECTION 1. DEFINITIONS. In this Bylaw: Applicant means the person seeking indemnification. Page 104 &F Expenses include counsel fees. Liability means the obligation to pay a judgment, settlement, penalty, fine (including any excise tax assessed with respect to an employee benefit plan) or reasonable expenses incurred with respect to a proceeding. Party includes an individual who was, is, or is threatened to be made, a named defendant or respondent in a proceeding. Proceeding means any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal. SECTION 2. INDEMNIFICATION. The corporation shall indemnify any person who was or is a party to any proceeding, including a proceeding by or in the right of the corporation to procure a judgment in its favor, by reason of the fact that he is or was, or attributable to his activities as, a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, partner or officer of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against any liability incurred by him in connection with such proceeding, provided, however, indemnification shall not be available if, at the time the activities which are the subject of such proceeding were taken, such person knew or believed that such activities were clearly in conflict with the best interests of the corporation. The burden of proving any such knowledge or belief shall be on the corporation. A person is considered to be serving an employee benefit plan at the corporation's request if his duties to the corporation also impose duties on, or otherwise involve services by, him to the plan or to participants in or beneficiaries of the plan. A person's conduct with respect to an employee benefit plan for a purpose he believed to be in the interests of the participants and beneficiaries of the plan is conduct that satisfies the requirements of this section. The indemnification rights provided for herein are intended to provide the indemnified person with the most complete indemnification permitted by North Carolina law. SECTION 3. NO PRESUMPTION. The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that the applicant did not meet the standard of conduct described in Section 2 of this Article. SECTION 4. EXPENSES. To the extent that the applicant has been successful on the merits or otherwise in defense of any proceeding referred to in Section 2 of this Article, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses actually and reasonably incurred by him in connection therewith. SECTION 5. PROCEDURE TO INDEMNIFY. Any indemnification under Section 2 of this Article (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the applicant is proper in the circumstances because he has met the standard of conduct set forth in Section 2. Page 105 &F The determination shall be made: (a) By the Board of Directors by a majority vote of a quorum con- sisting of directors not at the time parties to the proceeding; (b) If a quorum cannot be obtained under subsection (a) of this section, by a majority vote of a committee duly designated by the Board of Directors (in which designation directors who are parties may participate), consisting solely of two or more directors not at the time parties to the proceeding; (c) By special legal counsel: (i) Selected by the Board of Directors or its committee in the manner prescribed in subsection (a) or (b) of this section; or (ii) If a quorum of the Board of Directors cannot be obtained under subsection (a) of this section and a committee cannot be designated under subsection (b) of this section, selected by majority vote of the full Board of Directors, in which selection directors who are parties may participate; or (d) By the shareholders, but shares owned by or voted under the control of directors who are at the time parties to the pro- ceeding may not be voted on the determination. Authorization of indemnification and evaluation as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible, except that if the determination is made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of expenses, shall be made by those entitled under subsection (c) of this section to select counsel. SECTION 6. PAYMENT OF EXPENSES IN ADVANCE. (a) The corporation may pay for or reimburse the expenses incurred by any applicant who is a party to a proceeding in advance of final disposition of the proceeding if the applicant furnishes the corporation with a written undertaking, executed personally or on his behalf, to repay the advance if it is ultimately determined that he is not entitled to be indemnified by the corporation as authorized in this Article or applicable pro- visions of North Carolina law. (b) The undertaking required by subsection (a) of this section shall be an unlimited general obligation of the applicant but Page 106 &F need not be secured and may be accepted without reference to financial ability to make repayment. (c) Determinations and authorizations of payment under this section shall be made in the manner specified in Section 5. SECTION 7. INSURANCE. The corporation may purchase and maintain insurance to indemnify it against the whole or any portion of the liability assumed by it in accordance with this Article or imposed by North Carolina law and may also procure such insurance, in such amounts as the Board of Directors may determine, on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against any liability asserted against or incurred by him in any such capacity or arising from his status as such, whether or not the corporation would have power to indemnify him against such liability under the provisions of this Article. SECTION 8. FORMER DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS INDEMNIFIED. Every reference herein to directors, officers, employees or agents shall include former directors, officers, employees, agents and their respective heirs, executors and administrators. The indemnification hereby provided and provided hereafter pursuant to the power hereby conferred on the Board of Directors shall not be exclusive of any other rights to which any person may be entitled, including any right under policies of insurance that may be purchased and maintained by the corporation or others, with respect to claims, issues or matters in relation to which the corporation would not have the power to indemnify such person under the provisions of this Article. ARTICLE V. OFFICERS SECTION 1. TITLES. The officers of the corporation may consist of the Chairman of the Board of Directors, the President, and such Executive Vice Presidents, Senior Vice Presidents and Vice Presidents as shall be elected and designated as officers by the Board of Directors. There shall also be a Secretary, Treasurer, Controller and such assistants thereto as may be elected by the Board of Directors. Any one person may hold one or more offices in the corporation. No officer may act in more than one capacity where action of two or more is required. SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the corporation shall be elected annually by the Board of Directors at the first meeting of the Board held after each annual meeting of the shareholders, or at any other meeting of said Board. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Page 107 &F SECTION 3. REMOVAL. Any officer or agent of the corporation may be removed by the Board of Directors, with or without cause, whenever in its judgment the best interest of the corporation would be served thereby. SECTION 4. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term. SECTION 5. CHAIRMAN OF THE BOARD OF DIRECTORS. There shall be a Chairman of the Board of Directors elected by the directors from their members. The Chairman so elected by the directors shall be responsible to the Board of Directors and shall seek Board approval and guidance on major corporation strategies, policies, and objectives, including long-range planning, mergers, acquisitions, consolidations and liquidations. He shall also issue annual reports and recommend dividend policies for Board approval and shall perform such other functions as the Board may require from time to time. The Chairman shall have power to sign any deeds, mortgages, bonds, contracts, or any other instruments or documents which may be lawfully executed on behalf of the corporation. SECTION 6. PRESIDENT. The office of President shall be held by a director of the corporation duly elected to said office by a majority vote of the Board of Directors, and shall be the Chief Executive Officer of the corporation, and shall have direct supervision and control of all of the business affairs of the corporation, not specifically allocated to the Chairman of the Board in these Bylaws, subject to the general supervision and control of the Board of Directors. The President shall have power to sign certificates for shares of the corporation and any deeds, mortgages, bonds, contracts, or any other instruments or documents which may be lawfully executed on behalf of the corporation. The President shall vote as agent for this corporation the capital stock held or owned by this corporation in any corporation. SECTION 7. EXECUTIVE VICE PRESIDENTS, SENIOR VICE PRESIDENTS AND VICE PRESIDENTS. The duties of Executive Vice Presidents, Senior Vice Presidents and Vice Presidents shall be the performance of such functions and duties as shall be assigned by the President or the Board of Directors. Each of these officers may sign with the secretary or other proper officer of the corporation thereunto authorized by the Board of Directors certificates for shares of the corporation, any deeds, mortgages, bonds, contracts or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed and executed. SECTION 8. SECRETARY. The Secretary shall perform such duties and functions as are assigned from time to time by the Board of Directors or the President. SECTION 9. TREASURER. The Treasurer shall perform such duties and have such responsibilities as are specifically assigned to him from time to time by the Board of Page 108 &F Directors or the President. SECTION 10. CONTROLLER. The Controller shall perform such duties and have such responsibilities as are specifically assigned to him from time to time by the Board of Directors or the President. ARTICLE VI. DEPARTMENTAL DESIGNATIONS SECTION 1. DEPARTMENTAL DESIGNATIONS. The President may establish such departmental or functional designations or titles pertaining to supervisory personnel as the President in his discretion deems wise. The designations or titles may be that of Senior Vice President, Vice President or such other term or terms as the President desires to utilize. The designation or title contemplated by this section is for the purpose of administration within the department or function concerned and is not with the intent of designating those individuals bearing such titles as general officers of the corporation. These individuals bearing these titles shall be known as administrative managers of the corporation. ARTICLE VII. CONTRACTS, LOANS, CHECKS AND DEPOSITS SECTION 1. CONTRACTS. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. In the absence of such authorization no officer, agent, or employee, except the President and Chief Executive Officer, may do or perform the following acts or deeds, to-wit: (a) Enter into any contract pledging the funds or the full faith and credit of the corporation except in the ordinary course of business. (b) Sell, lease, agree to sell, or encumber in any manner whatso- ever any of the real property of the corporation. (c) Enter into any agreement to purchase, lease or acquire in any manner real property on behalf of the corporation. (d) Encumber or pledge in any manner the real or personal property of the corporation except in the ordinary course of business. The President and Chief Executive Officer is authorized to enter into the above transactions and may for any particular transaction designate a particular officer or agent of the corporation to execute and deliver instruments relating to that particular transaction. Page 109 &F SECTION 2. LOANS. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances. SECTION 3. CHECKS, DRAFTS, ETC.. All checks, drafts, or other orders for the payment of money, notes, or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined be resolution of the Board of Directors. SECTION 4. DEPOSITS. All funds of the corporation not otherwise employed shall be deposited or invested from time to time to the credit of the corporation in such banks, trust companies, or other depositories as the Board of Directors or the Chief Executive Officer may select. ARTICLE VIII. CERTIFICATES FOR SHARES AND THEIR TRANSFER. SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of the corporation shall be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the President and by the Secretary, provided that where a certificate is signed by a transfer agent, assistant transfer agent or co-transfer agent of the corporation or with the duly designated transfer agent the signatures of such officers of the corporation upon the certificate may be by facsimile engraved or printed. Each certificate shall be sealed with the seal of the corporation or a facsimile thereof. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and class and date of issue, shall be entered on the stock transfer books of the corporation, as the transfer agent. All certificates surrendered to the corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed, or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the corporation as the Board of Directors may prescribe. SECTION 2. TRANSFER OF SHARES. Transfer of shares of the corporation shall be made only on the stock transfer books of the corporation by the holder of records thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by power of attorney duly executed and filed with the secretary of the corporation, and on surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes. To the extent that any provision of the Rights Agreement between the Company and Wachovia Bank and Trust Company, N.A., Rights Agent, dated as of September 9, 1988, is deemed to constitute a restriction on the transfer of any securities of the Company, Page 110 &F including, without limitation, the Rights, as defined therein, such restriction is hereby authorized by the Bylaws of the Company. SECTION 3. LOST CERTIFICATES. The Board of Directors may authorize the issuance of a new certificate in place of a certificate claimed to have been lost or destroyed, upon receipt of an affidavit of such fact from the person claiming the loss or destruction. In authorizing such issuance of a new certificate, the Board may require the claimant to give the corporation a bond in such sum as it may direct to indemnify the corporation against loss from any claim with respect to the certificate claimed to have been lost or destroyed; or the Board, by resolution reciting that the circumstances justify such action, may authorize the issuance of the new certificate without requiring such a bond. This function or duty on the part of the Board may be assigned by the Board to the transfer agents of the common stock of the corporation. ARTICLE IX. FISCAL YEAR The fiscal year of the corporation shall be the 12 months ending January 31 of each year. ARTICLE X. DIVIDENDS The Board of Directors may from time to time declare, and the corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and as provided in a resolution of the Board of Directors. ARTICLE XI. SEAL The Board of Directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation, the state of incorporation, and the word "Seal". ARTICLE XII. WAIVER OF NOTICE Whenever any notice is required to be given to any shareholder or director of the corporation under the provisions of the charter or under the provisions of applicable law, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE XIII. AMENDMENTS Unless otherwise prescribed by law or the charter, these Bylaws may be amended or altered at any meeting of the Board of Directors by affirmative vote of a majority of the directors. Unless otherwise prescribed by law or the charter, the shareholders entitled to vote in respect of the election of directors, however, shall have the power to rescind, amend, alter or repeat any Bylaws and to enact Bylaws which, if expressly so provided, may not be amended, altered or repealed by the Board of Directors. Page 111 &F
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