UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



ý☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November ~~2, 2018~~1, 2019



o☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number 1-7898

LOWE’SCOMPANIES, INC.

(Exact name of registrant as specified in its charter)



North Carolina		56-0578072
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1000 Lowe’s Blvd.,
Mooresville, NC	North Carolina	28117
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code		(704)	758-1000

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.50 per share	LOW	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý☒Yes o☐ No

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ý☒Yes o☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filerý	☒	Accelerated filero	☐
Non-accelerated filero	☐	Smaller reporting companyo	☐
		Emerging growth companyo	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o☐Yes ý☒No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



CLASS		OUTSTANDING AT 11/~~30/2018~~29/2019
Common Stock, $0.50 par value		~~802,957,007~~766,475,430

LOWE’S COMPANIES, INC.

- TABLE OF CONTENTS -



PART I - Financial Information			Page No.

	Item 1.	Financial Statements
��
		Consolidated Balance Sheets — November ~~2, 2018~~1, 2019 (Unaudited), November ~~3, 2017~~2, 2018 (Unaudited) and February ~~2, 2018~~1, 2019	3

		Consolidated Statements of Current and Retained Earnings (Unaudited) — Three and nine months ended November ~~2, 2018~~1, 2019 and November ~~3, 2017~~2, 2018	4

		Consolidated Statements of Comprehensive Income (Unaudited) — Three and nine months ended November ~~2, 2018~~1, 2019 and November ~~3, 2017~~2, 2018	4

		Consolidated Statements of Shareholders’ Equity (Unaudited) — Three and nine months ended November 1, 2019 and November 2, 2018	5

		Consolidated Statements of Cash Flows (Unaudited) — Nine months ended November ~~2, 2018~~1, 2019 and November ~~3, 2017~~	6

		~~Notes to Consolidated Financial Statements (Unaudited)~~2, 2018	7

		Notes to Consolidated Financial Statements (Unaudited)	8

		Report of Independent Registered Public Accounting Firm	1923

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2024

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3133

	Item 4.	Controls and Procedures	3133

PART II - Other Information

	Item 1.	Legal Proceedings	3234

	Item 1A.	Risk Factors	3234

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3334

	Item 6.	Exhibits	3435

		Signature	36

Part I - FINANCIAL INFORMATION

Item 1. Financial Statements

Lowe’s Companies, Inc.

Consolidated Balance Sheets

In Millions, Except Par Value Data


		(Unaudited)			(Unaudited)					(Unaudited)			(Unaudited)
		November 2, 2018			November 3, 2017		February 2, 2018			November 1, 2019			November 2, 2018			February 1, 2019
Assets
Current assets:
Cash and cash equivalents		$	1,668		$	743	$	588		$	794		$	1,668		$	511
Short-term investments		208			85		102			127			208			218
Merchandise inventory - net		12,365			12,393		11,393			13,716			12,365			12,561
Other current assets		897			788		689			1,025			897			938
Total current assets		15,138			14,009		12,772			15,662			15,138			14,228
Property, less accumulated depreciation		18,923			19,818		19,721			18,371			18,923			18,432
Operating lease right-of-use assets										3,873			—			—
Long-term investments		290			370		408			363			290			256
Deferred income taxes - net		285			347		168			479			285			294
Goodwill		1,272			1,327		1,307			303			1,272			303
Other assets		805			912		915			713			805			995
Total assets		$	36,713		$	36,783	$	35,291		$	39,764		$	36,713		$	34,508

Liabilities and shareholders' equity
Current liabilities:
Short-term borrowings		$	—		$	171	$	1,137		$	637		$	—		$	722
Current maturities of long-term debt		1,117			297		294			574			1,117			1,110
Current operating lease liabilities										499			—			—
Accounts payable		9,283			8,903		6,590			8,822			9,283			8,279
Accrued compensation and employee benefits		806			808		747			779			806			662
Deferred revenue		1,356			1,404		1,378			1,222			1,356			1,299
Other current liabilities		2,507			2,155		1,950			2,530			2,507			2,425
Total current liabilities		15,069			13,738		12,096			15,063			15,069			14,497
Long-term debt, excluding current maturities		14,460			15,570		15,564			16,635			14,460			14,391
Noncurrent operating lease liabilities										3,942			—			—
Deferred revenue - extended protection plans		827			794		803			875			827			827
Other liabilities		963			939		955			791			963			1,149
Total liabilities		31,319			31,041		29,418			37,306			31,319			30,864

Shareholders' equity:
Preferred stock - $5 par value, none issued		—			—		—			—			—			—
Common stock - $0.50 par value;
Shares issued and outstanding
November 1, 2019									768
November 2, 2018	806								806
November 3, 2017	831
February 2, 2018	830	403			415		415
February 1, 2019									801	384			403			401
Capital in excess of par value		—			—		22			—			—			—
Retained earnings		5,156			5,289		5,425			2,238			5,156			3,452
Accumulated other comprehensive income/(loss)		(165		)	38		11
Accumulated other comprehensive loss										(164		)	(165		)	(209		)
Total shareholders' equity		5,394			5,742		5,873			2,458			5,394			3,644
Total liabilities and shareholders' equity		$	36,713		$	36,783	$	35,291		$	39,764		$	36,713		$	34,508

See accompanying notes to the consolidated financial statements (unaudited).

Lowe’s Companies, Inc.

Consolidated Statements of Current and Retained Earnings (Unaudited)

In Millions, Except Per Share and Percentage Data


	Three Months Ended								Nine Months Ended								Three Months Ended								Nine Months Ended
	November 2, 2018				November 3, 2017				November 2, 2018				November 3, 2017				November 1, 2019				November 2, 2018				November 1, 2019				November 2, 2018
Current Earnings	Amount			% Sales	Amount			% Sales	Amount			% Sales	Amount			% Sales	Amount			% Sales	Amount			% Sales	Amount			% Sales	Amount			% Sales
Net sales	$	17,415		100.00	$	16,770		100.00	$	55,662		100.00	$	53,125		100.00	$	17,388		100.00	$	17,415		100.00	$	56,121		100.00	$	55,662		100.00
Cost of sales	11,755			67.50	11,057			65.93	36,791			66.10	34,942			65.77	11,748			67.56	12,038			69.12	38,159			67.99	37,653			67.64
Gross margin	5,660			32.50	5,713			34.07	18,871			33.90	18,183			34.23	5,640			32.44	5,377			30.88	17,962			32.01	18,009			32.36
Expenses:
Selling, general and administrative	4,270			24.51	3,808			22.71	13,147			23.62	11,615			21.87	3,772			21.69	3,997			22.95	11,682			20.82	12,315			22.13
Depreciation and amortization	433			2.49	358			2.13	1,138			2.04	1,080			2.03	310			1.79	423			2.43	924			1.65	1,108			1.99
Operating income	957			5.50	1,547			9.23	4,586			8.24	5,488			10.33	1,558			8.96	957			5.50	5,356			9.54	4,586			8.24
Interest - net	153			0.88	160			0.96	467			0.84	479			0.91	177			1.02	153			0.88	508			0.90	467			0.84
Loss on extinguishment of debt	—			—	—			—	—			—	464			0.87
Pre-tax earnings	804			4.62	1,387			8.27	4,119			7.40	4,545			8.55	1,381			7.94	804			4.62	4,848			8.64	4,119			7.40
Income tax provision	175			1.01	515			3.07	981			1.76	1,652			3.10	332			1.90	175			1.01	1,077			1.92	981			1.76
Net earnings	$	629		3.61	$	872		5.20	$	3,138		5.64	$	2,893		5.45	$	1,049		6.04	$	629		3.61	$	3,771		6.72	$	3,138		5.64


Weighted average common shares outstanding - basic	806				831				815				843				769				806				782				815
Basic earnings per common share	$	0.78			$	1.05			$	3.84			$	3.42			$	1.36			$	0.78			$	4.81			$	3.84
Weighted average common shares outstanding - diluted	807				832				816				844				770				807				783				816
Diluted earnings per common share	$	0.78			$	1.05			$	3.83			$	3.42			$	1.36			$	0.78			$	4.80			$	3.83
Cash dividends per share	$	0.48			$	0.41			$	1.37			$	1.17			$	0.55			$	0.48			$	1.58			$	1.37

Retained Earnings
Balance at beginning of period	$	5,517			$	5,253			$	5,425			$	6,241			$	2,439			$	5,517			$	3,452			$	5,425
Cumulative effect of accounting change	—				—				33				—				—				—				(263		)		33
Net earnings	629				872				3,138				2,893				1,049				629				3,771				3,138
Cash dividends declared	(387		)		(341		)		(1,115		)		(984		)		(423		)		(387		)		(1,233		)		(1,115		)
Share repurchases	(603		)		(495		)		(2,325		)		(2,861		)		(827		)		(603		)		(3,489		)		(2,325		)
Balance at end of period	$	5,156			$	5,289			$	5,156			$	5,289			$	2,238			$	5,156			$	2,238			$	5,156

See accompanying notes to the consolidated financial statements (unaudited).

Lowe’s Companies, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)

In Millions, Except Percentage Data



	Three Months Ended									Nine Months Ended
	November 1, 2019				November 2, 2018					November 1, 2019					November 2, 2018
	Amount			% Sales	Amount			% Sales		Amount			% Sales		Amount			% Sales
Net earnings	$	1,049		6.04	$	629		3.61		$	3,771		6.72		$	3,138		5.64
Foreign currency translation adjustments - net of tax	24			0.13	(21		)	(0.13	)	60			0.11		(176		)	(0.32	)
Other	(1		)	—	(1		)	—		(15		)	(0.03	)	(1		)	—
Other comprehensive income/(loss)	23			0.13	(22		)	(0.13	)	45			0.08		(177		)	(0.32	)
Comprehensive income	$	1,072		6.17	$	607		3.48		$	3,816		6.80		$	2,961		5.32

See accompanying notes to the consolidated financial statements (unaudited).

Lowe’s Companies, Inc.

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

In Millions, Except Per Share Data



	Three Months Ended November 1, 2019
	Common Stock					Capital in Excess of Par Value				Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total Shareholders’ Equity
	Shares		Amount			Capital in Excess of Par Value				Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total Shareholders’ Equity
Balance August 2, 2019	776		$	388		$	—			$	2,439		$	(187	)	$	2,640
Net earnings										1,049						1,049
Other comprehensive income													23			23
Cash dividends declared, $0.55 per share										(423		)				(423		)
Share-based payment expense						20										20
Repurchase of common stock	(8	)	(4		)	(27		)		(827		)				(858		)
Issuance of common stock under share-based payment plans	—		—			7			��							7
Balance November 1, 2019	768		$	384		$	—			$	2,238		$	(164	)	$	2,458

	Nine Months Ended November 1, 2019
	Common Stock					Capital in Excess of Par Value				Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total Shareholders’ Equity
	Shares		Amount			Capital in Excess of Par Value				Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total Shareholders’ Equity
Balance February 1, 2019	801		$	401		$	—			$	3,452		$	(209	)	$	3,644
Cumulative effect of accounting change										(263		)				(263		)
Net earnings										3,771						3,771
Other comprehensive income													45			45
Cash dividends declared, $1.58 per share										(1,233		)				(1,233		)
Share-based payment expense						72										72
Repurchase of common stock	(36	)	(18		)	(148		)		(3,489		)				(3,655		)
Issuance of common stock under share-based payment plans	3		1			76										77
Balance November 1, 2019	768		$	384		$	—			$	2,238		$	(164	)	$	2,458

See accompanying notes to the consolidated financial statements (unaudited).

Lowe’s Companies, Inc.

Consolidated Statements of ~~Comprehensive Income~~Changes in Shareholders’ Equity (Unaudited)

In Millions, Except ~~Percentage~~Per Share Data

Three Months Ended Nine Months Ended
November 2, 2018 November 3, 2017 November 2, 2018 November 3, 2017
Amount % Sales Amount % Sales Amount % Sales Amount % Sales
Net earnings $ 629
3.61
$ 872
5.20 $ 3,138
5.64
$ 2,893
5.45
Foreign currency translation adjustments - net of tax (21 ) (0.13 ) 173
1.03 (176 ) (0.32 ) 278
0.52
Net unrealized investment loss - net of tax (1 ) —
—
— (1 ) —
—
—
Other comprehensive income/(loss) (22 ) (0.13 ) 173
1.03 (177 ) (0.32 ) 278
0.52
Comprehensive income $ 607
3.48
$ 1,045
6.23 $ 2,961
5.32
$ 3,171
5.97



	Three Months Ended November 2, 2018
	Common Stock					Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total Shareholders’ Equity
	Shares		Amount			Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total Shareholders’ Equity
Balance August 3, 2018	811		$	406		$	—		$	5,517		$	(142	)	$	5,781
Net earnings									629						629
Other comprehensive loss												(23		)	(23		)
Cash dividends declared, $0.48 per share									(387		)				(387		)
Share-based payment expense						15									15
Repurchase of common stock	(6	)	(3		)	(38		)	(603		)				(644		)
Issuance of common stock under share-based payment plans	1		—			23									23
Balance November 2, 2018	806		$	403		$	—		$	5,156		$	(165	)	$	5,394

	Nine Months Ended November 2, 2018
	Common Stock					Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total Shareholders’ Equity
	Shares		Amount			Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total Shareholders’ Equity
Balance February 2, 2018	830		$	415		$	22		$	5,425		$	11		$	5,873
Cumulative effect of accounting change									33						33
Net earnings									3,138						3,138
Other comprehensive loss												(176		)	(176		)
Cash dividends declared, $1.37 per share									(1,115		)				(1,115		)
Share-based payment expense						77									77
Repurchase of common stock	(26	)	(13		)	(170		)	(2,325		)				(2,508		)
Issuance of common stock under share-based payment plans	2		1			71									72
Balance November 2, 2018	806		$	403		$	—		$	5,156		$	(165	)	$	5,394

See accompanying notes to the consolidated financial statements (unaudited).

Lowe’s Companies, Inc.

Consolidated Statements of Cash Flows (Unaudited)

In Millions


	Nine Months Ended						Nine Months Ended
	November 2, 2018			November 3, 2017			November 1, 2019			November 2, 2018
Cash flows from operating activities:
Net earnings	$	3,138		$	2,893		$	3,771		$	3,138
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	1,206			1,148			1,029			1,206
Noncash lease expense							341			—
Deferred income taxes	(139		)	(118		)	(88		)	(139		)
Loss on property and other assets - net	400			21			93			400
Loss on extinguishment of debt	—			464
(Gain) loss on cost method and equity method investments	6			(86		)
Loss on cost method and equity method investments							12			6
Share-based payment expense	79			78			75			79
Changes in operating assets and liabilities:
Merchandise inventory - net	(1,030		)	(1,783		)	(1,129		)	(1,030		)
Other operating assets	(94		)	186			(108		)	(94		)
Accounts payable	2,708			2,251			523			2,708
Other operating liabilities	524			318			(408		)	524
Net cash provided by operating activities	6,798			5,372			4,111			6,798

Cash flows from investing activities:
Purchases of investments	(1,298		)	(680		)	(563		)	(1,298		)
Proceeds from sale/maturity of investments	1,309			870			556			1,309
Capital expenditures	(846		)	(787		)	(927		)	(846		)
Proceeds from sale of property and other long-term assets	50			21			71			50
Acquisition of business - net	—			(509		)
Other - net	(3		)	13			—			(3		)
Net cash used in investing activities	(788		)	(1,072		)	(863		)	(788		)

Cash flows from financing activities:
Net change in short-term borrowings	(1,137		)	(340		)	(85		)	(1,137		)
Net proceeds from issuance of long-term debt	—			2,968			2,972			—
Repayment of long-term debt	(288		)	(2,836		)	(1,092		)	(288		)
Proceeds from issuance of common stock under share-based payment plans	73			87			78			73
Cash dividend payments	(1,068		)	(947		)	(1,195		)	(1,068		)
Repurchase of common stock	(2,498		)	(3,054		)	(3,649		)	(2,498		)
Other - net	(3		)	(8		)	(7		)	(3		)
Net cash used in financing activities	(4,921		)	(4,130		)	(2,978		)	(4,921		)

Effect of exchange rate changes on cash	(9		)	15			1			(9		)

Net increase in cash and cash equivalents, including cash classified within current assets held for sale							271			1,080
Less: Net decrease in cash classified within current assets held for sale							12			—
Net increase in cash and cash equivalents	1,080			185			283			1,080
Cash and cash equivalents, beginning of period	588			558			511			588
Cash and cash equivalents, end of period	$	1,668		$	743		$	794		$	1,668

See accompanying notes to the consolidated financial statements (unaudited).

Lowe’s Companies, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Note 1:Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements (unaudited) and notes to the consolidated financial statements (unaudited) are presented in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all the disclosures normally required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). ~~During the first quarter of fiscal year 2018, the Company conformed the financial reporting calendar of a subsidiary, which did not have a significant effect on the consolidated financial statements.~~ The consolidated financial statements (unaudited), in the opinion of management, contain all adjustments necessary to present fairly the financial position as of November ~~2, 2018,~~1, 2019, and November ~~3, 2017, and~~2, 2018, the results of operations, ~~and~~ comprehensive income, and shareholders’ equity for the three and nine months ended November ~~2, 2018,~~1, 2019, and November ~~3, 2017,~~2, 2018, and cash flows for the nine months ended November ~~2, 2018~~1, 2019 and November ~~3, 2017.~~2, 2018.

These interim consolidated financial statements (unaudited) should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Lowe’s Companies, Inc. (the Company) Annual Report on Form 10-K for the fiscal year ended February ~~2, 2018~~1, 2019 (the Annual Report). The financial results for the interim periods may not be indicative of the financial results for the entire fiscal year.

Reclassifications

Certain prior period amounts have been reclassified to conform to current classifications.

Accounting Pronouncements Recently Adopted

Effective February ~~3, 2018,~~2, 2019, the Company adopted Accounting Standards Update ~~2014-09 (ASU 2014-09),~~ ~~Revenue from Contracts with Customers~~(ASU) 2016-02, Leases (Topic ~~606)~~842), and all ~~the~~ related amendments, using the ~~modified retrospective method. ASU 2014-09 requires a company to recognize revenue to depict~~optional transition approach and recognized the ~~transfer~~cumulative impact of ~~goods or services to customers~~adoption in ~~an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.~~

~~Upon adoption of ASU 2014-09, the Company recorded an immaterial adjustment to~~ the opening balance of retained earnings as of February 3, 2018, with related adjustments to other current assets, deferred revenue, accounts payable, other current liabilities, and related tax effects. The adjustment to retained earnings primarily relates to the change in revenue recognition related to gift card breakage. The adoption of the guidance also required a change in the timing of when installation services are recognized, the presentation of sales return reserve on the consolidated balance sheet, and a change in the presentation of the Company’s profit sharing income from its proprietary credit program. We appliedearnings. Under ASU 2014-09 only to contracts that were not completed prior to fiscal 2018. Results for reporting periods beginning after February 2, 2018 are presented under ASU 2014-09, while comparative prior period amounts have not been restated and continue to be presented under accounting standards in effect in those periods. See Note 2 for additional details of the Company’s revenues.

~~The impact of adopting the new revenue recognition guidance on our consolidated statement of earnings is as follows:~~

Three Months Ended November 2, 2018
Consolidated Statement of Earnings
(in millions)
As Reported Under Historical Guidance Impact of Adopting ASU 2014-09
Net sales $ 17,415
$ 17,176
$ 239
Cost of sales 11,755
11,777
(22 )
Gross margin 5,660
5,399
261
Selling, general and administrative 4,270
4,009
261
Operating income 957
957
—
Pre-tax earnings 804
804
—
Net earnings 629
629
—

Nine Months Ended November 2, 2018
Consolidated Statement of Earnings
(in millions)
As Reported Under Historical Guidance Impact of Adopting ASU 2014-09
Net sales $ 55,662
$ 55,150
$ 512
Cost of sales 36,791
36,849
(58 )
Gross margin 18,871
18,301
570
Selling, general and administrative 13,147
12,578
569
Operating income 4,586
4,585
1
Pre-tax earnings 4,119
4,118
1
Net earnings 3,138
3,137
1

~~The impacts of adopting the new revenue recognition guidance to assets and liabilities on our consolidated balance sheet are as follows:~~

Balance at November 2, 2018
Consolidated Balance Sheet
(in millions)
As Reported Under Historical Guidance Impact of Adopting ASU 2014-09
Assets
Other current assets $ 897
$ 746
$ 151

Liabilities
Accounts payable 9,283
9,272
11
Deferred revenue 1,356
1,433
(77 )
Other current liabilities 2,507
2,339
168

~~Accounting Pronouncements Not Yet Adopted~~

~~In January 2017, the Financial Accounting Standards Board (FASB) issued ASU 2017-04,~~ ~~Intangibles-Goodwill and Other (Topic 350)~~. The ASU eliminates Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation to the identified assets and liabilities of the reporting unit to measure goodwill impairment. Under the amendments in this update, a goodwill impairment test is performed by comparing the fair value of the reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The adoption of this guidance by the Company is not expected to have a material impact on its consolidated financial statements.

~~In February 2016, the FASB issued ASU~~ 2016-02,~~Leases (Topic 842). The guidance in this ASU supersedes the leasing guidance in Topic 840,~~ ~~Leases. Under the new guidance,~~ lessees are required to recognize lease assets and lease liabilities on the balance sheet for those leases previously classified as operating leases. ~~In July 2018,~~The Company adopted the ~~FASB issued ASU 2018-11, which allows a~~standard utilizing the transition election to not restate comparative periods for the ~~effects~~impact of ~~applying the new standard. This transition election permits entities to change the date of initial application of~~adopting the standard ~~to the beginning of the year of adoption~~ and to recognize the effects of applying Topic 842 as a cumulative-effect adjustment to the opening balance of retained earnings. Certain qualitative and quantitative disclosures are also required. The Company will adopt this ASU and related amendments on February 2, 2019. The Company also expects to elect the optional transition approach and recognizerecognizing the cumulative impact of adoption in the opening balance of retained ~~earnings to beginning fiscal year 2019. Management is implementing a new lease software to assist in complying with the ASU.~~earnings. The Company ~~is currently evaluating~~elected the package of transition expedients available for expired or existing contracts, which allowed the carry-forward of historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. Adoption of the standard resulted in the recording of additional net lease-related assets and lease-related liabilities of approximately $3.6 billion and $3.9 billion, respectively, as of February 2, 2019. The difference between the additional lease assets and lease liabilities, net of the $87 million deferred tax impact, was $263 million and was recorded as an adjustment to retained earnings. This adjustment to retained earnings primarily represents the write-off of ~~adopting Topic 842 on its consolidated financial statements but expects~~right-of-use assets associated with closed locations, net of previously established store closing lease obligations as well as the ~~ASU to~~derecognition of build-to-suit leases. The adoption of this standard by the Company did not have a material impact on its consolidated statements of earnings, comprehensive income or cash flows and will have no impact on the Company’s debt covenant compliance under its current agreements. See Note 3 for additional details of the Company’s leases.

Accounting Pronouncements Not Yet Adopted

Recent accounting pronouncements pending adoption not discussed in this Form 10-Q or in the 2018 Form 10-K are either not applicable to the Company or are not expected to have a material impact on the Company.

Note 2: Change in Accounting Principle - During the fourth quarter of fiscal 2018, the Company changed its method of accounting for shipping and handling costs from the Company’s stores, distribution centers, and other locations to customers. Under the new accounting principle, shipping and handling costs related to the delivery of products from the Company to customers are included in costs of sales, whereas previously, they were included in SG&A expense as well as depreciation and amortization. In connection with the change in presentation, the Company also changed its definition of shipping and handling costs to include all direct and indirect costs associated with delivering product to a customer, including expenses associated with the central delivery terminals and depreciation and amortization of delivery assets. Under the previous definition of shipping and handling costs, the Company only included third-party delivery costs, salaries, and vehicle operations expenses relating to the delivery of product from stores and distribution centers to customers. The impact of this change in definition was not material.

The Company believes including these expenses in cost of sales is preferable, as it better aligns these costs with the related revenue in the gross profit calculation and is consistent with the practices of other retailers. This change in accounting principle has been applied retrospectively, and the consolidated statements of earnings reflect the effect of this accounting principle change in all years presented. This reclassification had no impact on operating income, net earnings or diluted earnings per share. The consolidated balance sheets, the consolidated statements of comprehensive income, consolidated statements of shareholders’ equity, and the consolidated statements of cash flows were not impacted by this accounting principle change.

The consolidated statements of earnings for the three and nine months ended November 2, 2018 have been adjusted to reflect this change in accounting principle. The impact of the adjustment for the three months ended November 2, 2018 was an increase of $283 million to cost of sales and a corresponding decrease to SG&A expense of $273 million and depreciation and amortization expense of $10 million. The impact of the adjustment for the nine months ended November 2, 2018 was an increase of $862 million to cost of sales and a corresponding decrease to SG&A expense for $832 million and depreciation and amortization expense of $30 million.

Note 3: Leases - During the first quarter of fiscal 2019, the Company adopted ASU 2016-02, Leases(Topic 842), which requires leases to be recognized on the balance sheet. Leases with an original term of 12 months or less are not recognized on the Company’s balance sheet, and the lease expense related to those short-term leases is recognized over the lease term. The Company does not account for lease and non-lease (e.g. common area maintenance) components of contracts separately for any underlying asset class.

The Company leases certain retail stores, warehouses, distribution centers, office space, land and equipment under finance and operating leases. Lease commencement occurs on the date the Company takes possession or control of the property or equipment. Original terms for our facility-related leases are generally between five and 20 years. These leases generally contain provisions for four to six renewal options of five years each. Original terms for equipment-related leases, primarily material handling equipment and vehicles, are generally between one and seven years. Some of the Company’s leases also include rental escalation clauses and/or termination provisions. Renewal options and termination options are included in the determination of lease payments when management determines the options are reasonably certain of exercise, considering financial performance, strategic importance and/or invested capital.

If readily determinable, the rate implicit in the lease is used to discount lease payments to present value; however, substantially all of the Company’s leases do not provide a readily determinable implicit rate. When the implicit rate is not determinable, the Company’s estimated incremental borrowing rate is utilized, determined on a collateralized basis, to discount lease payments based on information available at lease commencement.

Some lease agreements also provide for contingent rentals based on sales performance in excess of specified minimums or on changes in the consumer price index. Contingent rentals, which are based on future performance or changes in indices, are excluded from the determination of lease payments and were not significant for any of the periods presented. The Company’s lease agreements do not contain any material restrictions, covenants or any material residual value guarantees.

The Company subleases certain properties that are not used in its operations. Sublease income was not significant for any of the periods presented.

The table below presents the lease-related assets and liabilities recorded on the balance sheet.



Leases (In millions)	Classification	November 1, 2019
Assets
Operating lease assets	Operating lease right-of-use assets	$	3,873
Finance lease assets	Property, less accumulated depreciation ¹	403
Total lease assets		4,276

Liabilities
Current
Operating	Current operating lease liabilities	499
Finance	Current maturities of long-term debt	49
Noncurrent
Operating	Noncurrent operating lease liabilities	3,942
Finance	Long-term debt, excluding current maturities	481
Total lease liabilities		$	4,971


¹	Finance lease assets are recorded net of accumulated amortization of $27 million as of November 1, 2019.

The table below presents the lease costs for finance and operating leases for the three and nine months ended November 1, 2019:



Lease Cost (In millions)	Three Months Ended November 1, 2019		Nine Months Ended November 1, 2019
Finance lease cost
Amortization of leased assets	$	11	$	28
Interest on lease liabilities	7		21
Operating lease cost ¹	185		524
Total lease cost	$	203	$	573


¹	Includes short-term leases, variable lease costs, and sublease income, which are immaterial.

The future minimum rental payments required under operating and finance lease obligations as of November 1, 2019 having initial or remaining non-cancelable lease terms in excess of one year are summarized as follows:



Maturity of lease liabilities (In millions)	Operating Leases ¹			Finance Leases ²			Total
2019	$	124		$	15		$	139
2020	668			78			746
2021	652			77			729
2022	661			80			741
2023	571			75			646
After 2023	3,006			381			3,387
Total lease payments	5,682			706			6,388
Less: interest ³	(1,241		)	(176		)	(1,417		)
Present value of lease liabilities ⁴	$	4,441		$	530		$	4,971


¹	Operating lease payments include $249 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $299 million of minimum lease payments for leases signed but not yet commenced.


²	Finance lease payments include $11 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $233 million of minimum lease payments for leases signed but not yet commenced.


³	Calculated using the lease-specific incremental borrowing rate.


⁴	Includes the current portion of $499 million for operating leases and $49 million for finance leases.



Lease Term and Discount Rate	November 1, 2019
Weighted-average remaining lease term (years)
Operating leases	10.64
Finance leases	10.00
Weighted-average discount rate
Operating leases	4.26	%
Finance leases	6.42	%



Other Information (In millions)	Nine Months Ended November 1, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows used for operating leases	$	629
Operating cash flows used for finance leases	22
Financing cash flows used for finance leases	37
Leased assets obtained in exchange for new finance lease liabilities	156
Leased assets obtained in exchange for new operating lease liabilities	374

Prior Period Disclosures

As a result of the ~~requirement~~adoption of ASC 842, Leases, on February 2, 2019, the Company is required to ~~recognize right-of-use assets and~~present future minimum lease ~~liabilities~~payments for operating ~~leases. The Company does not expect a material impact to the Company’s Consolidated Statements~~and finance lease obligations having initial or remaining non-cancelable lease terms in excess of ~~Current~~one year. These future minimum lease payments were previously disclosed in our 2018 Annual Report on Form 10-K and ~~Retained Earnings or Consolidated Statements~~accounted for under previous lease guidance. Commitments as of ~~Cash Flows.~~February 1, 2019 were as follows:



	February 1, 2019
Fiscal Year (In millions)	Operating Leases		Capitalized Lease Obligations			Total
2019	$	595	$	133		$	728
2020	605		87			692
2021	564		90			654
2022	519		87			606
2023	473		86			559
Later years	2,609		783			3,392
Total minimum lease payments	$	5,365	$	1,266		$	6,631
Less amount representing interest			(492		)
Present value of minimum lease payments			774
Less current maturities			(65		)
Present value of minimum lease payments, less current maturities			$	709

Note ~~2: Net Sales~~4: Revenue Recognition - Net sales consists primarily of revenue, net of sales tax, associated with contracts with customers for the sale of goods and services in amounts that reflect consideration the Company is entitled to in exchange for those goods and services.

The following table presents the Company’s sources of revenue:



(In millions)	Three Months Ended				Nine Months Ended
(In millions)	November 1, 2019		November 2, 2018		November 1, 2019		November 2, 2018
Products	$	16,379	$	16,293	$	53,259	$	52,527
Services	545		665		1,690		1,999
Other	464		457		1,172		1,136
Net sales	$	17,388	$	17,415	$	56,121	$	55,662

(In millions) Three Months Ended Nine Months Ended
November 2, 2018 November 3, 2017 November 2, 2018 November 3, 2017
Products $ 16,293
$ 15,903
$ 52,527
$ 50,720
Services 665
657
1,999
1,915
Other 457
210
1,136
490
Net sales $ 17,415
$ 16,770
$ 55,662
$ 53,125

Revenue from products primarily relates to in-store and online merchandise purchases, which are recognized at the point in time when the customer obtains control of the ~~merchandise, which is~~merchandise. This occurs at the time of in-store purchase or delivery of the product to the customer. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of sales in the period that the related sales are recorded. ~~Under ASU 2014-09, the~~The merchandise return reserve is presented on a gross basis, with a separate asset and liability included in the consolidated balance ~~sheets as of reporting periods after February 2, 2018. Reporting periods prior to the adoption of ASU 2014-09 reflect merchandise return reserves on a net basis. As of November 2, 2018, anticipated~~sheets. Anticipated sales returns ~~of $229 million are~~ reflected in other current liabilities were $227 million at November 1, 2019 and ~~the~~$229 million at November 2, 2018. The associated right of return assets ~~of $151 million are~~ reflected in other current ~~assets. As of~~assets were $148 million at November ~~3, 2017, the merchandise return reserve, net of the associated asset, was $85~~1, 2019 and $151 million ~~reflected in other current liabilities.~~at November 2, 2018.

Revenues from services primarily relate to professional installation services the Company provides through subcontractors related to merchandise purchased by a customer. In certain instances, installation services include materials provided by the subcontractor, and both product and installation are included in service revenue. The Company recognizes revenue associated with services as they are rendered, and the majority of services are completed within one week from initiation.

Deferred revenue is presented for merchandise that has not yet transferred control to the customer and for services that have not yet been provided, but for which tender has been accepted. Deferred revenue is recognized in sales either at a point in time when the customer obtains control of merchandise through pickup or delivery, or over time as services are provided to the customer. Deferred revenues associated with amounts received for which customers have not taken possession of the merchandise or for which installation has not yet been completed were $778 million at November 1, 2019 and $945 million at November 2, ~~2018 and $952 million at November 3, 2017.~~2018. The majority of revenue for goods and services is recognized in the quarter following revenue deferral.

Stored-value cards

In addition, the Company defers revenues from stored-value cards, which include gift cards and returned merchandise credits, and recognizes revenue into sales when the cards are redeemed. The liability associated with outstanding stored-value cards was ~~$411~~$444 million and ~~$452~~$411 million at November ~~2, 2018,~~1, 2019, and November ~~3, 2017,~~2, 2018, respectively, and these amounts are included in deferred revenue on the consolidated balance sheets. ~~Upon adoption of ASU 2014-09, the~~The Company recognizes income from unredeemed stored-value cards in proportion to the pattern of rights exercised by the customer. Amounts recognized as breakage were insignificant for the three and nine months ended November ~~2, 2018~~1, 2019 and November ~~3, 2017.~~

2, 2018.

Extended protection plans

The Company also defers revenues for its separately-priced extended protection plan contracts, which is a Lowe’s-branded program for which the Company is ultimately self-insured. The Company recognizes revenue from extended protection plan sales on a straight-line basis over the respective contract term. Extended protection plan contract terms primarily range from one to five years from the date of purchase or the end of the manufacturer’s warranty, as applicable. Deferred revenue from extended protection plans recognized into sales were $103 million and $303 million for the three and nine months ended November 1, 2019, respectively, and $97 million and $293 million for the three and nine months ended November 2, 2018, ~~respectively, and $92 million and $273 million for the three and nine months ended November 3, 2017,~~ respectively. Incremental direct acquisition costs associated with the sale of extended protection plans are also deferred and recognized as expense on a straight-line basis over the respective contract term and were insignificant at November ~~2, 2018~~1, 2019 and November ~~3, 2017,~~2, 2018, respectively. The Company’s extended protection plan deferred costs are included in other assets (noncurrent) on the consolidated balance sheets. All other costs, such as costs of services performed under the contract, general and administrative expenses, and advertising expenses are expensed as incurred.

The liability for extended protection plan claims incurred is included in other current liabilities on the consolidated balance sheets and was not material in any of the periods presented. Expenses for claims are recognized when incurred and totaled $45 million and $141 million for the three and nine months ended November 1, 2019, respectively, and $47 million and $141 million for the three and nine months ended November 2, 2018, ~~respectively, and $43 million and $119 million for the three and nine months ended November 3, 2017,~~ respectively.

Disaggregation of Revenues

The following table presents the Company’s net sales disaggregated by merchandise division:


	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	November 2, 2018			November 3, 2017			November 2, 2018			November 3, 2017			November 1, 2019			November 2, 2018			November��1, 2019			November 2, 2018
(In millions)	Total Sales		%	Total Sales		%	Total Sales		%	Total Sales		%	Total Sales		%	Total Sales		%	Total Sales		%	Total Sales		%
Building & Maintenance ¹	$	7,322	42	$	7,202	43	$	22,042	40	$	21,069	40
Home Décor ²	6,959		40	6,874		41	21,207		37	20,688		39
Seasonal ³	2,570		15	2,382		15	10,964		20	10,573		20
Home Décor ¹													$	6,374	37	$	6,230	36	$	19,639	35	$	19,239	35
Building Products ²													5,961		34	5,939		34	17,865		32	17,913		32
Hardlines ³													4,515		26	4,399		25	17,134		30	16,392		29
Other	564		3	312		1	1,449		3	795		1	538		3	847		5	1,483		3	2,118		4
Total	$	17,415	100	$	16,770	100	$	55,662	100	$	53,125	100	$	17,388	100	$	17,415	100	$	56,121	100	$	55,662	100

Note: Net sales for certain merchandise divisions were reclassified in the third quarter of fiscal year 2019. As a result, prior periods have been reclassified to conform to the current quarter presentation.


¹	~~Building & Maintenance includes the following product categories: Lumber & Building Materials, Millwork, Rough Plumbing & Electrical, and Tools & Hardware~~


²	Home Décor includes the following product categories: Appliances, ~~Fashion Fixtures,~~Décor, Flooring, Kitchens & Bath, and Paint


³²	~~Seasonal~~Building Products includes the following product categories: Lighting, Lumber & Building Materials, Millwork, and Rough Plumbing & Electrical


³	Hardlines includes the following product categories: Hardware, Lawn & Garden, ~~and~~ Seasonal & Outdoor Living, and Tools

The following table presents the Company’s net sales disaggregated by geographical area:



(In millions)	Three Months Ended				Nine Months Ended
(In millions)	November 1, 2019		November 2, 2018		November 1, 2019		November 2, 2018
United States	$	16,131	$	15,991	$	52,225	$	51,319
International	1,257		1,424		3,896		4,343
Net Sales	$	17,388	$	17,415	$	56,121	$	55,662

(In millions) Three Months Ended Nine Months Ended
November 2, 2018 November 3, 2017 November 2, 2018 November 3, 2017
United States $ 15,991
$ 15,279
$ 51,319
$ 49,102
International 1,424
1,491
4,343
4,023
Net Sales $ 17,415
$ 16,770
$ 55,662
$ 53,125

~~Practical Expedients~~

Sales commissions and selling-related goods or services are considered immaterial and are expensed as incurred because the amortization period of the assets would be one year or less. These costs are reflected within selling, general and administrative expenses.

~~Note 3: Acquisitions -~~ On June 23, 2017, the Company completed its acquisition of Maintenance Supply Headquarters, a leading distributor of maintenance, repair and operations (MRO) products serving the multifamily housing industry. The acquisition is expected to enable the Company to deepen and broaden its relationship with Pro customers and better serve their needs. The aggregate cash purchase price of this acquisition was $513 million and is included in the investing section of the

~~consolidated statements of cash flows, net of cash acquired. Acquisition-related costs were expensed as incurred and were not significant.~~

~~The following table summarizes the aggregate purchase price allocation:~~

(In millions) June 23, 2017
Allocation:
Cash acquired $ 4
Merchandise inventory 68
Other current assets 36
Property 12
Goodwill 160
Other assets 260
Accounts payable (18 )
Other current liabilities (9 )
Net assets acquired $ 513

Intangible assets acquired totaled $259 million, and include a trademark of $34 million with a useful life of 15 years and a customer list of $225 million with a useful life of 20 years, each of which are included in other assets in the accompanying consolidated balance sheets. The goodwill of $160 million is primarily attributable to the synergies expected to arise after the acquisition and is deductible for tax purposes.

~~Pro forma and historical financial information has not been provided as the acquisition was not material to the consolidated financial statements.~~

~~Note 4: Investment in Australian Joint Venture -~~ During the second quarter of fiscal 2017, the Company completed the sale of our interest in the Australian joint venture with Woolworths Limited and received proceeds of $199 million, which is included in cash flows from investing activities in the accompanying consolidated statements of cash flows. The proceeds from the sale exceeded the carrying value of the investment and resulted in a gain of $96 million. The carrying value prior to the sale reflected the non-cash impairment charges taken in fiscal years 2015 and 2016. The gain is included in selling, general and administrative expense in the accompanying consolidated statements of current and retained earnings.

Note 5: Fair Value Measurements - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative guidance for fair value measurements establishes a three-level hierarchy, which encourages an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of the hierarchy are defined as follows:


•	Level 1 - inputs to the valuation techniques that are quoted prices in active markets for identical assets or liabilities


•	Level 2 - inputs to the valuation techniques that are other than quoted prices but are observable for the assets or liabilities, either directly or indirectly


•	Level 3 - inputs to the valuation techniques that are unobservable for the assets or liabilities

~~Level 1~~ - ~~inputs to the valuation techniques that are quoted prices in active markets for identical assets or liabilities~~

~~Level 2~~ - ~~inputs to the valuation techniques that are other than quoted prices but are observable for the assets or liabilities, either directly or indirectly~~

~~Level 3~~ - ~~inputs to the valuation techniques that are unobservable for the assets or liabilities~~

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

The following table presents the Company’s financial assets measured at fair value on a recurring basis as of November 1, 2019, November 2, 2018, ~~November 3, 2017,~~ and February ~~2, 2018.~~1, 2019. The fair values of these instruments approximated amortized costs.



		Fair Value Measurements at
(In millions)	Measurement Level	November 1, 2019		November 2, 2018		February 1, 2019
Short-term investments:
Available-for-sale securities
Money market funds	Level 1	$	83	$	181	$	207
Agency securities	Level 2	19		10		10
U.S. Treasury securities	Level 1	13		—		—
Corporate debt securities	Level 2	12		—		1
Certificates of deposit	Level 1	—		17		—
Total short-term investments		$	127	$	208	$	218
Long-term investments:
Available-for-sale securities
U.S. Treasury securities	Level 1	$	258	$	—	$	—
Corporate debt securities	Level 2	75		224		191
Agency securities	Level 2	30		66		65
Total long-term investments		$	363	$	290	$	256

Fair Value Measurements at
(In millions) Measurement Level November 2, 2018 November 3, 2017 February 2, 2018
Short-term investments:
Available-for-sale securities
Money market funds Level 1 $ 181
$ 70
$ 86
Certificates of deposit Level 1 17
15
16
Agency securities Level 2 10
—
—
Total short-term investments $ 208
$ 85
$ 102
Long-term investments:
Available-for-sale securities
Corporate debt securities Level 2 $ 224
$ —
$ —
Agency securities Level 2 66
—
—
Municipal floating rate obligations Level 2 —
368
407
Certificates of deposit Level 1 —
2
1
Total long-term investments $ 290
$ 370
$ 408

There were no transfers between Levels 1, 2 or 3 during any of the periods presented.

When available, quoted prices were used to determine fair value. When quoted prices in active markets were available, investments were classified within Level 1 of the fair value hierarchy. When quoted prices in active markets were not available, fair values were determined using pricing models, and the inputs to those pricing models were based on observable market inputs. The inputs to the pricing models were typically benchmark yields, reported trades, broker-dealer quotes, issuer spreads and benchmark securities, among others.

Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis

During the three and nine months ended November 1, 2019, and the three and nine months ended November 2, 2018, the Company’s only significant assets or liabilities measured at fair value on a nonrecurring basis subsequent to their initial recognition were certain long-lived assets. During the three and nine months ended November 3, 2017, the Company had no significant measurements of assets and liabilities at fair value on a nonrecurring basis subsequent to their initial recognition.

The Company reviews the carrying amounts of long-lived assets whenever certain events or changes in circumstances indicate that the carrying amounts may not be recoverable. With input from executive management and retail store operations, the Company’s accounting and finance personnel that organizationally report to the chief financial officer assess the performance of retail stores quarterly against historical patterns, projections of future profitability and whether it is more likely than not the assets will be disposed of significantly prior to the end of their estimated useful life for evidence of possible impairment. An impairment loss is recognized when the carrying amount of the asset (disposal) group is not recoverable and exceeds its fair value. The Company estimated the fair values of assets subject to long-lived asset impairment based on the Company’s own judgments about the assumptions that market participants would use in pricing the assets and on observable market data, when available. The Company classified these fair value measurements as Level 3.

In the determination of impairment for operating locations, the Company determined the fair values of individual operating locations using an income approach, which required discounting projected future cash flows. When determining the stream of projected future cash flows associated with an individual operating location, management made assumptions, including highest and best use, incorporating local market conditions and inputs from retail store operations where necessary, and about key variables including the following unobservable inputs: sales growth rates, gross margin, controllable and uncontrollable expenses, and asset residual values. In order to calculate the present value of those future cash flows, the Company discounted cash flow estimates at a rate commensurate with the risk that selected market participants would assign to the cash flows. In

general, the selected market participants represented a group of other retailers with a location footprint similar in size to the Company’s.

During the three months ended November 1, 2019, the Company began a strategic review of its Canadian operations, and it was determined to be more likely than not the assets associated with certain Canadian stores would be sold or otherwise disposed of significantly before the end of their previously estimated useful lives, and therefore, these assets experienced a triggering event and were evaluated for recoverability. Based on this evaluation, certain long-lived assets were written down to their fair value of $40 million resulting in impairment charges of $53 million. These non-cash impairment charges are included in selling, general and administrative expense in the accompanying consolidated statements of current and retained earnings.

As part of a strategic reassessment of Orchard Supply Hardware (Orchard), during the three months ended August 3, 2018, it was determined to be more likely than not the assets of Orchard would be sold or otherwise disposed of significantly before the end of their previously estimated useful lives, and therefore, these assets experienced a triggering event and were evaluated for recoverability. Operating locations evaluated for recoverability included all Orchard stores, as well as a distribution facility that ~~services~~serviced the Orchard stores and a corporate facility. Based on this evaluation of Orchard, certain long-lived assets, including tangible and intangible assets, were written down to their fair value of $284 million resulting in impairment charges of $206 million. These non-cash impairment charges are included in selling, general and administrative expense in the accompanying consolidated statements of current and retained earnings.

During the three months ended November 2, 2018, the ~~company~~Company committed to closing 20 U.S. home improvement stores and 31 locations in Canada, including 27 stores, as well as exiting certain immaterial non-core activities within its U.S. home improvement business. As a result of these decisions, the related assets experienced a triggering event and were evaluated for recoverability. Based on this evaluation, certain long-lived assets were written down to their fair value of $81 million resulting in impairment charges of $99 million, with $90 million associated with the location closures and $9 million associated with the exit of non-core activities. These non-cash impairment charges are included in selling, general and administrative expense in the accompanying consolidated statements of current and retained earnings.

In addition, as part of the Company’s strategic reassessment process, during the three months ended November 2, 2018, it was determined to be more likely than not the assets of the Mexico ~~retail~~ operations would be sold or otherwise disposed of significantly before the end of their previously estimated useful lives, and therefore, these assets experienced a triggering event and were evaluated for recoverability. Operating locations evaluated for recoverability included all 13 stores in Mexico, as well as a corporate facility. Based on this evaluation of the Mexico ~~retail~~ operations, certain long-lived assets were written down to their fair value of $107 million resulting in impairment charges of $22 million. These non-cash impairment charges are included in selling, general and administrative expense in the accompanying consolidated statements of current and retained earnings.

See Note 8 for additional information regarding the Company’s decisions to exit its Orchard operations and certain U.S. and Canada locations during ~~the third quarter~~fiscal year 2018 as part of the Company’s ~~ongoing~~ strategic reassessment of the ~~business.~~business as well as the Company’s strategic review of its Canadian operations in fiscal year 2019.

The following table presents the Company’s non-financial assets measured at estimated fair value on a nonrecurring basis and the resulting long-lived asset impairment losses included in earnings. Because assets subject to long-lived asset impairment are not measured at fair value on a recurring basis, certain fair value measurements presented in the table may reflect values at earlier measurement dates and may no longer represent the fair values at November 1, 2019 and November 2, 2018.



	Fair Value Measurements		Impairment Losses
(In millions)	November 1, 2019		Three Months Ended November 1, 2019		Nine Months Ended November 1, 2019
Assets-held-for-use:
Operating locations	$	46	$	53	$	61
Total	$	46	$	53	$	61



	Fair Value Measurements		Impairment Losses
(In millions)	November 2, 2018		Three Months Ended November 2, 2018		Nine Months Ended November 2, 2018
Assets-held-for-use:
Operating locations	$	473	$	112	$	329
Total	$	473	$	112	$	329

Fair Value Measurements
Impairment Losses
(In millions) November 2, 2018
Three Months Ended November 2, 2018
Nine Months Ended November 2, 2018
Assets-held-for-use:
Operating locations $ 473
$ (112 ) $ (329 )
Total $ 473
$ (112 ) $ (329 )

Fair Value of Financial Instruments

The Company’s financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, accounts receivable, short-term borrowings, accounts payable, accrued liabilities and long-term debt and are reflected in the financial statements at cost. With the exception of long-term debt, cost approximates fair value for these items due to their short-term nature. The fair values of the Company’s unsecured notes were estimated using quoted market prices. The fair values of the Company’s mortgage notes were estimated using discounted cash flow analyses, based on the future cash outflows associated with these arrangements and discounted using the applicable incremental borrowing rate.

Carrying amounts and the related estimated fair value of the Company’s long-term debt, excluding finance and capitalized lease obligations, are as follows:



	November 1, 2019				November 2, 2018				February 1, 2019
(In millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Unsecured notes (Level 1)	$	16,646	$	18,184	$	14,718	$	14,430	$	14,721	$	14,473
Mortgage notes (Level 2)	5		5		6		6		6		6
Long-term debt (excluding finance and capitalized lease obligations)	$	16,651	$	18,189	$	14,724	$	14,436	$	14,727	$	14,479

November 2, 2018 November 3, 2017 February 2, 2018
(In millions) Carrying Amount
Fair Value
Carrying Amount
Fair Value
Carrying Amount
Fair Value
Unsecured notes (Level 1) $ 14,718
$ 14,430
$ 14,958
$ 15,974
$ 14,961
$ 15,608
Mortgage notes (Level 2) 6
6
7
7
6
7
Long-term debt (excluding capitalized lease obligations) $ 14,724
$ 14,436
$ 14,965
$ 15,981
$ 14,967
$ 15,615

Note 6: Restricted Investment Balances - Short-term and long-term investments include restricted balances pledged as collateral primarily for the Company’s extended protection plan program. Restricted balances included in short-term investments were $127 million at November 1, 2019, $191 million at November 2, 2018, ~~$70 million at November 3, 2017,~~ and ~~$86~~$218 million at February ~~2, 2018.~~1, 2019.

Restricted balances included in long-term investments were $363 million at November 1, 2019, $255 million at November 2, 2018, ~~$332 million at November 3, 2017,~~ and ~~$381~~$256 million at February ~~2, 2018.~~1, 2019.

Note 7: Property and Accumulated Depreciation- Property is shown net of accumulated depreciation of $17.3 billion at November 1, 2019, $17.7 billion at November 2, 2018, ~~$17.1 billion at November 3, 2017,~~ and ~~$17.2~~$17.4 billion at February 1, 2019. The Company recognized depreciation expense, inclusive of amounts presented in cost of sales and depreciation and amortization, of $325 million and $968 million for the three and nine months ended November 1, 2019 and $444 million and $1.2 billion for the three and nine months ended November 2, 2018.

Note 8: Exit Activities- During ~~the second quarter of~~ fiscal ~~year~~years 2018 and 2019, the Company ~~initiated a~~has incurred costs associated with an ongoing strategic reassessment of its business to drive an increased focus on its core home improvement ~~operations.~~operations and to improve overall operating performance and profitability. As a result of this reassessment, the Company ~~has~~ decided to exit certain activities and close certain locations as further described below.

~~Orchard Supply Hardware (Orchard)~~

On August 17, 2018, the Company approved plans to exit its Orchard operations by closing all 99 Orchard stores, which are located in California, Oregon and Florida, as well as the distribution facility that services the Orchard stores, and the Orchard corporate office. To facilitate an orderly wind-down, the Company has partnered with Hilco Merchant Services to help manage the store closing sales process and provide a seamless experience for customers. All stores are expected to be closed before the end of the Company’s 2018 fiscal year (February 1, 2019).

During the second quarter ended August 3, 2018, the Company recorded $230 million of pre-tax charges associated with its Orchard operations. This included $206 million of impairment of certain long-lived assets, including tangible and intangible assets, due to the determination it was more likely than not the assets of Orchard would be sold or otherwise disposed of significantly before the end of their previously estimated useful lives (see Note 5 to the consolidated financial statements) and $24 million related primarily to three store projects that were discontinued during the quarter. During the third quarter ended November 2, 2018, the Company recorded $123 million of pre-tax charges related to the exit of its Orchard operations, including accelerated depreciation and amortization of $103 million, severance costs of $11 million, and costs associated with lease obligations of $9 million. The Company expects additional pre-tax charges associated with the exit of Orchard during the fourth quarter of fiscal 2018, of $270 to $350 million, primarily associated with lease obligation costs.

~~Other Store Closings and Exit of Certain Non-Core Activities~~

On October 31, 2018, the Company committed to closing 20 U.S. home improvement stores and 31 locations in Canada, including 27 stores. The store closings are estimated to be completed by the end of fiscal 2018. In addition, the Company concurrently decided to no longer pursue a new store project that was in process. As a result of these decisions, during the third quarter ended November 2, 2018, the Company recorded $121 million of pre-tax charges, including $90 million of impairment of certain long-lived assets (see Note 5 to the consolidated financial statements), severance costs of $21 million, and discontinued project costs of $10 million. The Company expects additional pre-tax charges associated with these closings during the fourth quarter of fiscal 2018, of $190 to $230 million, primarily associated with lease obligation costs and accelerated depreciation.

In addition, during the third quarter ended November 2, 2018, the Company decided to pursue an exit of certain immaterial non-core activities within its U.S. home improvement business. As a result of these decisions, during the third quarter ended November 2, 2018, the Company recorded $14 million of pre-tax charges, including long-lived asset impairments of $9 million (see Note 5 to the consolidated financial statements), and the write-down of inventory to net realizable value of $5 million.

~~Mexico Retail Operations~~

On November 9, 2018, subsequent to the end of the Company’s third quarter of fiscal 2018, management and the board of directors decided to pursue an exit of the Company’s Mexico retail operations consisting of 13 stores, and the Company is exploring exit alternatives. During the third quarter ended November 2, 2018, the Company recorded $22 million of pre-tax charges Expenses associated with long-lived asset impairment, due to the determination it was more likely than not the assets of the Mexico retail operations would be sold or otherwise disposed of significantly before the end of their previously estimated useful lives (see Note 5 to the consolidated financial statements). The amounts, nature and timing of any additional charges associated with the intended exit of the Mexico retail operations will depend on the plan executed and cannot be reasonably estimated.

~~A summary of the significant components of charges associated with the exit activities discussed above, are as follows:~~

Costs Incurred
Three Months Ended Nine Months Ended
(In millions) November 2, 2018 November 2, 2018
Long-lived asset impairments $ 121
$ 327
Accelerated depreciation and amortization 103
103
Severance costs 32
32
Discontinued project write-offs 10
34
Lease obligation costs for closed locations 9
9
Inventory adjustments to net realizable value 5
5
Total $ 280
$ 510

~~All estimated amounts are subject to change until finalized. Expenses associated with long-lived asset impairment,~~accelerated depreciation, discontinued projects, severance, and lease obligations, are included in selling, general and administrative expense in the consolidated statement of current and retained earnings. Inventory adjustments to net realizable value are included in cost of sales in the consolidated statement of current and retained earnings.

2019 Canada Restructuring

During the third quarter of fiscal 2019, the Company began a strategic review of its Canadian operations, and as a result, recognized pre-tax charges of $53 million associated with long-lived asset impairment. Subsequent to the end of the Company’s third quarter of fiscal 2019, a decision was made to close 34 under-performing stores in Canada and take additional restructuring actions to improve future sales and profitability of the Canadian operations. See Note 15 for additional information regarding the decision and associated impacts.

A summary of the significant charges associated with the 2019 strategic review of the Canadian operations, are as follows:



	Costs Incurred
	Three Months Ended		Nine Months Ended		Cumulative Amount
(In millions)	November 1, 2019		November 1, 2019		November 1, 2019
Long-lived asset impairment	$	53	$	53	$	53
Total	$	53	$	53	$	53

Orchard Supply Hardware (Orchard)

On August 17, 2018, the Company approved plans to exit its Orchard operations by closing all 99 Orchard stores, which were located in California, Oregon and Florida, as well as the distribution facility that serviced the Orchard stores, and the Orchard corporate office. All facilities were closed by the end of fiscal year 2018. A summary of the significant charges associated with the exit of the Orchard operations is as follows:



	Costs Incurred
	Three Months Ended		Nine Months Ended		Cumulative Amount
(In millions)	November 2, 2018		November 2, 2018		November 1, 2019
Long-lived asset impairment	$	—	$	206	$	206
Accelerated depreciation and amortization	103		103		103
Discontinued project write-offs	—		24		24
Severance costs	11		11		11
Lease obligation costs for closed locations	9		9		217
Total	$	123	$	353	$	561

U.S. and Canada Location Closings

On October 31, 2018, the Company committed to closing 20 U.S. home improvement stores and 31 locations in Canada, including 27 stores. The store closings were completed by the end of fiscal year 2018. A summary of the significant charges associated with the closure of these stores is as follows:



	Costs Incurred
	Three Months Ended		Nine Months Ended		Cumulative Amount
(In millions)	November 2, 2018		November 2, 2018		November 1, 2019
Long-lived asset impairment	$	90	$	90	$	90
Severance costs	21		21		32
Discontinued project write-offs	10		10		10
Lease obligation costs for closed locations	—		—		89
Accelerated depreciation and amortization	—		—		50
Total	$	121	$	121	$	271

Other Non-Core Activities

During the third quarter ended November 2, 2018, the Company decided to pursue an exit of certain immaterial non-core activities within its U.S. home improvement business. A summary of the significant charges incurred as a result of these decisions is as follows:



	Costs Incurred
	Three Months Ended		Nine Months Ended		Cumulative Amount
(In millions)	November 2, 2018		November 2, 2018		November 1, 2019
Long-lived asset impairment	$	9	$	9	$	9
Inventory adjustments to net realizable value	5		5		7
Other closing costs	—		—		27
Severance costs	—		—		16
Total	$	14	$	14	$	59

Mexico Operations

On November 9, 2018, subsequent to the end of the Company’s third quarter of fiscal 2018, management and the Board of Directors decided to pursue an exit of the Company’s Mexico operations. A summary of the significant charges incurred as a result of the exit of the Company’s Mexico operations is as follows:



	Costs Incurred
	Three Months Ended		Nine Months Ended		Cumulative Amount
(In millions)	November 2, 2018		November 2, 2018		November 1, 2019
Long-lived asset impairment	$	22	$	22	$	244
Total	$	22	$	22	$	244

Note 9: Long-Term Debt - During the first quarter of fiscal 2019, the Company issued $3.0 billion of unsecured notes as follows:



Issue Date	Principal Amount (in millions)		Maturity Date	Fixed vs. Floating	Interest Rate	Discount (in millions)
April 5, 2019	$	1,500	April 2029	Fixed	3.650%	$	9
April 5, 2019	$	1,500	April 2049	Fixed	4.550%	$	19

Interest on the notes issued in 2019 is payable semiannually in arrears in April and October of each year until maturity.

The indenture governing the notes issued in 2019 contains a provision that allows the Company to redeem these notes at any time, in whole or in part, at specified redemption prices, plus accrued and unpaid interest, if any, up to, but excluding, the date of redemption. The indenture also contains a provision that allows the holders of the notes to require the Company to repurchase all or any part of their notes if a change of control triggering event occurs. If elected under the change of control provisions, the repurchase of the notes will occur at a purchase price of 101% of the principal amount, plus accrued and unpaid interest, if any, on such notes up to, but excluding, the date of purchase. The indenture governing the notes does not limit the aggregate principal amount of debt securities that the Company may issue and does not require the Company to maintain specified financial ratios or levels of net worth or liquidity. However, the indenture includes various restrictive covenants, none of which is expected to impact the Company’s liquidity or capital resources.

Note 10: Short-Term Borrowings - In September 2018, the Company entered into a $1.75 billion five year unsecured revolving second amended and restated credit agreement (the Second Amended and Restated Credit Agreement) with a syndicate of banks. The Second Amended and Restated Credit Agreement amends and restates the Company’s amended and restated credit agreement, dated November 23, 2016 (the Amended and Restated Credit Agreement), to among other things (i) extend the maturity date of the revolving credit facility to September 2023 and (ii) modify the revolving commitments of the existing lenders. The Company may request borrowings under the Second Amended and Restated Credit Agreement that are denominated in U.S. Dollar, Euro, Sterling, Canadian Dollar and other currencies approved by the administrative agent and the lenders. Borrowings under the Second Amended and Restated Credit Agreement will bear interest calculated according to a Base Rate or a Eurocurrency Rate, plus an applicable margin.

Subject to obtaining commitments from the lenders and satisfying other conditions specified in the Second Amended and Restated Credit Agreement, the Company may increase the aggregate availability by an additional $500 million. The Second Amended and Restated Credit Agreement contains customary representations, warranties, and covenants for a transaction of this type. The Company was in compliance with those covenants at November 2, 2018.

~~In September 2018,~~2019, the Company entered into a $250 million unsecured 364-day credit agreement (the 364-Day Credit Agreement) with a syndicate of banks. The Company may request borrowings under the ~~364-Day~~364-

Day Credit Agreement that are denominated in U.S. Dollar, Euro, Sterling, Canadian Dollar and other currencies approved by the administrative agent and the lenders. The Company must repay the aggregate principal amount of loans outstanding under the 364-Day Credit Agreement on the termination date in effect at such time (currently September ~~9, 2019)~~8, 2020). The Company may elect to convert all of the loans outstanding under the 364-Day Credit Agreement on the termination date into a term loan which the Company shall repay in full on the first anniversary date of the termination date. Borrowings under the 364-Day Credit Agreement will bear interest calculated according to a Base Rate or a Eurocurrency Rate plus an applicable margin. The 364-Day Credit Agreement contains customary representations, warranties and covenants for a transaction of this type. The Company was in compliance with those covenants at November ~~2, 2018.~~1, 2019.

The ~~Second~~364-Day Credit Agreement, along with the $1.98 billion five year unsecured second amended and restated credit agreement (Second Amended and Restated Credit ~~Agreement and the 364-Day Credit Agreement both~~Agreement), support our commercial paper program. The amount available to be drawn under the 364-Day Credit Agreement and the Second Amended and Restated ~~Credit Agreement and the 364-Day~~

Credit Agreement is reduced by the amount of borrowings under our commercial paper program. ~~There~~Outstanding borrowings under the Company’s commercial paper program were no$637 million, with a weighted average interest rate of 1.97%, as of November 1, 2019. As of November 2, 2018, there were 0 outstanding borrowings under the Second Amended and Restated Credit Agreement, the 364-Day Credit Agreement, or our commercial paper program as of November 2, 2018. As of November 3, 2017, there were $171 million of outstanding borrowings under the commercial paper program with a weighted average interest rate of 1.37% and no outstanding borrowings or letters of credit under the Amended and Restated Credit Agreement.program.

Note ~~10:~~11: Shareholders’ Equity - The Company has a share repurchase program that is executed through purchases made from time to time either in the open market, which may be made under pre-set trading plans meeting the requirements of Rule 10b5-1(c) of the Securities Exchange Act of 1934, or through private off-market transactions. Shares purchased under the repurchase program are retired and returned to authorized and unissued status. On January 26, 2018, the Company’s Board of Directors authorized a $5.0 billion share repurchase program with no expiration, which was announced on the same day. On December 12, 2018, the Company’s Board of Directors authorized an additional $10.0 billion share repurchase program with no expiration, which was announced on the same day. As of November ~~2, 2018,~~1, 2019, the Company had ~~$4.5~~$10.3 billion remaining in its share repurchase program.

In ~~May~~November 2018, the Company entered into an Accelerated Share Repurchase (ASR) agreement with a third-party financial institution to repurchase ~~$550~~$270 million of the Company’s common stock. At inception, pursuant to the agreement, the Company paid ~~$550~~$270 million to the financial institution using cash on hand and took delivery of ~~4.8~~2.6 million shares. The Company finalized the transaction and received an additional ~~0.8~~0.3 million shares ~~prior to the end of the second quarter.~~in February 2019.

In ~~August 2018,~~March 2019, the Company entered into ana variable notional ASR agreement with a third-party financial institution to repurchase ~~$310~~$350 million to $500 million of the Company’s common stock. At inception, pursuant to the agreement, the Company paid ~~$310~~$500 million to the financial institution using cash on hand and took delivery of ~~2.5~~2.9 million shares. The Company finalized the transaction to receive an additional 0.3 million shares prior to the end of the first quarter. Subsequent to the end of the first quarter, the Company received a $150 million cash payment from the third-party financial institution, which is equal to the difference between the $500 million payment made at inception and the final notional amount of $350 million.

In May 2019, the Company entered into a variable notional ASR agreement with a third-party financial institution to repurchase $990 million to $1.4 billion of the Company’s common stock. At inception, pursuant to the agreement, the Company paid $1.4 billion to the financial institution using cash on hand and took delivery of 8.9 million shares. The Company finalized the transaction and received an additional ~~0.3~~1.0 million shares and a $420 million cash payment from the third-party financial institution prior to the end of the second quarter. The cash payment received is equal to the difference between the $1.4 billion payment made at inception and the final notional amount of $990 million.

In August 2019, the Company entered into a variable notional ASR agreement with a third-party financial institution to repurchase $350 million to $500 million of the Company’s common stock. At inception, pursuant to the agreement, the Company paid $500 million to the financial institution using cash on hand and took delivery of 2.8 million shares. The Company finalized the transaction and received an additional 0.8 million shares and a $103 million cash payment from the third-party financial institution prior to the end of the third quarter. The cash payment received is equal to the difference between the $500 million payment made at inception and the final notional amount of $397 million.

Under the terms of the ASR agreements, upon settlement, the Company would either receive additional shares from the applicable financial institution or be required to deliver additional shares or cash to such financial institution. The Company controlled ~~its~~the election to either deliver additional shares or cash to the financial institution, if required, and ~~was~~the ASR agreements were subject to provisions which limited the number of shares the Company would be required to deliver.

The final number of shares received upon settlement of each of the ASR agreements was determined with reference to the volume-weighted average price of the Company’s common stock over the term of the applicable ASR agreement. The initial

repurchase of shares under the ~~agreement~~agreements resulted in an immediate reduction of the outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted earnings per share.

~~The~~Each ASR ~~agreements were~~agreement was accounted for as a treasury stock transaction and forward stock purchase contract. The par value of the shares received was recorded as a reduction to common stock with the remainder recorded as a reduction to capital in excess of par value and retained earnings. The forward stock purchase contract was considered indexed to the Company’s own stock and was classified as an equity instrument.

~~During~~In addition, during the three and nine months ended November ~~2, 2018,~~1, 2019, the Company repurchased shares of its common stock through the open market totaling ~~2.9~~4.1 million and ~~17.5~~18.1 million shares, respectively, for a cost of ~~$310~~$438 million and ~~$1.6~~$1.9 billion, respectively.

The Company also withholds shares from employees to satisfy either the exercise price of stock options exercised or the statutory withholding tax liability resulting from the vesting of share-based awards.

Shares repurchased for the three and nine months ended November ~~2, 2018~~1, 2019 and November ~~3, 2017~~2, 2018 were as follows:


	Three Months Ended						Three Months Ended
	November 2, 2018			November 3, 2017			November 1, 2019			November 2, 2018
(In millions)	Shares	Cost ¹		Shares	Cost ¹		Shares	Cost ¹		Shares	Cost ¹
Share repurchase program	5.7	$	620	6.4	$	500	7.7	$	835	5.7	$	620
Shares withheld from employees	0.2	25		0.4	27		0.2	23		0.2	25
Total share repurchases	5.9	$	645	6.8	$	527	7.9	$	858	5.9	$	645


¹	Reductions of ~~$603~~$827 million and ~~$495~~$603 million were recorded to retained earnings, after capital in excess of par value was depleted, for the three months endedNovember 1, 2019 and November 2, 2018, ~~and November 3, 2017,~~ respectively.


	Nine Months Ended						Nine Months Ended
	November 2, 2018			November 3, 2017			November 1, 2019			November 2, 2018
(In millions)	Shares	Cost ²		Shares	Cost ²		Shares	Cost ²		Shares	Cost ²
Share repurchase program	25.9	$	2,470	37.5	$	3,000	35.3	$	3,618	25.9	$	2,470
Shares withheld from employees	0.3	38		0.5	41		0.3	36		0.3	38
Total share repurchases	26.2	$	2,508	38.0	$	3,041	35.6	$	3,654	26.2	$	2,508


²	Reductions of ~~$2.3~~$3.5 billion and ~~$2.9~~$2.3 billion were recorded to retained earnings, after capital in excess of par value was depleted, for the nine months endedNovember 1, 2019 and November 2, 2018, ~~and November 3, 2017,~~ respectively.

Note ~~11:~~12: Earnings Per Share- The Company calculates basic and diluted earnings per common share using the two-class method. Under the two-class method, net earnings are allocated to each class of common stock and participating security as if all of the net earnings for the period had been distributed. The Company’s participating securities consist of share-based payment awards that contain a ~~non-forfeitable~~nonforfeitable right to receive dividends and, therefore, are considered to participate in undistributed earnings with common shareholders.

Basic earnings per common share excludes dilution and is calculated by dividing net earnings allocable to common shares by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing net earnings allocable to common shares by the weighted-average number of common shares as of the balance sheet date, as adjusted for the potential dilutive effect of non-participating share-based awards. The following table reconciles earnings per common share for the three and nine months ended November ~~2, 2018~~1, 2019 and November ~~3, 2017:~~

Three Months Ended Nine Months Ended
(In millions, except per share data) November 2, 2018 November 3, 2017 November 2, 2018 November 3, 2017
Basic earnings per common share:
Net earnings $ 629
$ 872
$ 3,138
$ 2,893
Less: Net earnings allocable to participating securities (1 ) (2 ) (10 ) (10 )
Net earnings allocable to common shares, basic 628
$ 870
$ 3,128
$ 2,883
Weighted-average common shares outstanding 806
831
815
843
Basic earnings per common share $ 0.78
$ 1.05
$ 3.84
$ 3.42
Diluted earnings per common share:

Net earnings $ 629
$ 872
$ 3,138
$ 2,893
Less: Net earnings allocable to participating securities (1 ) (2 ) (10 ) (10 )
Net earnings allocable to common shares, diluted $ 628
$ 870
$ 3,128
$ 2,883
Weighted-average common shares outstanding 806
831
815
843
Dilutive effect of non-participating share-based awards 1
1
1
1
Weighted-average common shares, as adjusted 807
832
816
844
Diluted earnings per common share $ 0.78
$ 1.05
$ 3.83
$ 3.42
2, 2018:



	Three Months Ended						Nine Months Ended
(In millions, except per share data)	November 1, 2019			November 2, 2018			November 1, 2019			November 2, 2018
Basic earnings per common share:
Net earnings	$	1,049		$	629		$	3,771		$	3,138
Less: Net earnings allocable to participating securities	(3		)	(1		)	(11		)	(10		)
Net earnings allocable to common shares, basic	$	1,046		$	628		$	3,760		$	3,128
Weighted-average common shares outstanding	769			806			782			815
Basic earnings per common share	$	1.36		$	0.78		$	4.81		$	3.84
Diluted earnings per common share:
Net earnings	$	1,049		$	629		$	3,771		$	3,138
Less: Net earnings allocable to participating securities	(3		)	(1		)	(11		)	(10		)
Net earnings allocable to common shares, diluted	$	1,046		$	628		$	3,760		$	3,128
Weighted-average common shares outstanding	769			806			782			815
Dilutive effect of non-participating share-based awards	1			1			1			1
Weighted-average common shares, as adjusted	770			807			783			816
Diluted earnings per common share	$	1.36		$	0.78		$	4.80		$	3.83

Stock options to purchase 0.9 million and 0.9 million shares of common stock were anti-dilutive for the three and nine months ended November 1, 2019, respectively. Stock options to purchase 0.2 million and 0.4 million shares of common stock were anti-dilutive for the three and nine months ended November 2, 2018, respectively. ~~Stock options to purchase 1.0 million shares of common stock~~

Note 13: Income Taxes- The Company’s effective income tax rates were ~~anti-dilutive~~24.0% and 22.2% for the three and nine months ended November ~~3, 2017, respectively.~~

~~Note 12: Income Taxes~~- ~~The Company’s effective income tax rates were~~1, 2019, respectively, and 21.8% and 23.8% for the three and nine months ended November 2, 2018, ~~respectively, and 37.1% and 36.3%~~respectively. The increase in the effective tax rate for the quarter is primarily due to an increase in pre-tax earnings as compared to the three ~~and nine~~ months ended November ~~3, 2017, respectively.~~2, 2018, as well as the favorable discrete event related to stock compensation

was smaller in 2019 as compared to 2018. The lower effective income tax rate for the ~~three and~~ nine months ended November ~~2, 2018 was~~1, 2019 is primarily due to

a favorable tax benefit recorded during the ~~enactment~~first quarter associated with the planned exit of the ~~Tax Cuts~~Mexico retail operations. In fiscal 2018, the Company announced its intention to exit its Mexico retail operations and ~~Jobs Act (Tax Act) during fiscal 2017, which lowered~~had planned to sell the ~~corporate federal income tax rate from 35%~~operating business. However, in the first quarter of 2019, after an extensive market evaluation, the decision was made to ~~21%.~~

~~Based on~~instead sell the ~~Company’s interpretation~~assets of the Tax Act, the Company made reasonable estimates to record provisional adjustments during the fourth quarter of fiscal 2017. However, the final impact may differ due to subsequent legislative action, changesbusiness through liquidation, which resulted in interpretations and assumptions, as well as the issuance of additional guidance from the Internal Revenue Service and state taxing authorities. We have not made any measurement-period adjustments related to these items during the nine months ended November 2, 2018, because we have not finalized the following items: the earnings and profits of the relevant subsidiaries, deemed repatriation of deferred foreign income, and prior year deferreda more favorable tax activity. The Company will continue to evaluate the Tax Act and gather additional information within the measurement period allowed, which will be completed no later than the fourth quarter of fiscal 2018.treatment.

Note ~~13:~~14: Supplemental Disclosure

Net interest expense is comprised of the following:



	Three Months Ended						Nine Months Ended
(In millions)	November 1, 2019			November 2, 2018			November 1, 2019			November 2, 2018
Long-term debt	$	171		$	145		$	498		$	437
Finance lease obligations	7			—			21			—
Capitalized lease obligations	—			15			—			44
Interest income	(5		)	(9		)	(24		)	(21		)
Interest capitalized	—			—			(1		)	(2		)
Interest on tax uncertainties	—			—			(2		)	—
Other	4			2			16			9
Interest - net	$	177		$	153		$	508		$	467

Three Months Ended Nine Months Ended
(In millions) November 2, 2018 November 3, 2017 November 2, 2018 November 3, 2017
Long-term debt $ 145
$ 146
$ 437
$ 438
Capitalized lease obligations 15
14
44
41
Interest income (9 ) (2 ) (21 ) (10 )
Interest capitalized —
(2 ) (2 ) (4 )
Interest on tax uncertainties —
—
—
(1 )
Other 2
4
9
15
Interest - net $ 153
$ 160
$ 467
$ 479

Supplemental disclosures of cash flow information:


	Nine Months Ended				Nine Months Ended
(In millions)	November 2, 2018		November 3, 2017		November 1, 2019		November 2, 2018
Cash paid for interest, net of amount capitalized	$	555	$	610	$	647	$	555
Cash paid for income taxes - net	$	1,069	$	1,322	$	1,029	$	1,069
Non-cash investing and financing activities:
Non-cash property acquisitions, including assets acquired under capital lease	$	42	$	91
Non-cash property acquisitions ¹					$	251	$	42
Cash dividends declared but not paid	$	387	$	341	$	423	$	387

¹ See Note 3 for supplemental cash flow disclosures related to finance and operating leases.

Note ~~14:~~15: Subsequent Events - As part of a strategic ~~reassessment, on November 9, 2018,~~review of Canadian operations, subsequent to the end of the Company’s third quarter of fiscal ~~2018, management and~~2019, the ~~board of directors~~Company decided to ~~pursue an exit~~close 34 under-performing stores in Canada and execute additional restructuring actions to improve future sales and profitability of the ~~Company’s Mexico retail operations consisting~~remaining Canadian operations. As a result of ~~13 stores, and~~these actions, the Company ~~is exploring exit alternatives. The amounts, nature~~expects additional operating costs and ~~timing~~pre-tax charges during the fourth quarter of ~~any future charges~~2019 of $175 to $225 million associated with ~~the intended exit of the Mexico retail operations will depend on the plan executed~~inventory liquidation, accelerated depreciation and cannot be reasonably estimated. As of November 2, 2018, the total net book value of the Company’s Mexico retail operation is $294 million, including a cumulative translation adjustment of $100 million.amortization, severance, and other costs.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Lowe’s Companies, Inc.

Results of Review of Interim Financial Information

We have reviewed the accompanying consolidated balance sheets of Lowe’s Companies, Inc. and subsidiaries (the “Company”) as of November ~~2, 2018~~1, 2019 and November ~~3, 2017,~~2, 2018, the related consolidated statements of current and retained earnings, ~~and~~ comprehensive income, and shareholders’ equity for the fiscal three-month and nine-month periods ended November ~~2, 2018~~1, 2019 and November ~~3, 2017,~~2, 2018, and of cash flows for the nine-month periods ended November ~~2, 2018~~1, 2019 and November ~~3, 2017,~~2, 2018, and the related notes (collectively referred to as the “interim financial information”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of February ~~2, 2018,~~1, 2019, and the related consolidated statements of earnings, comprehensive income, shareholders’ equity, and cash flows for the fiscal year then ended (not presented herein); and in our report dated April ~~2, 2018,~~1, 2019, we expressed an unqualified opinion on those consolidated financial ~~statements.~~statements and included an explanatory paragraph regarding the reclassification of shipping and handling costs relating to the delivery of products to customers from selling, general and administrative and depreciation and amortization to cost of sales. In our opinion, the information set forth in the accompanying consolidated balance sheet as of February ~~2, 2018,~~1, 2019, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

This interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ DELOITTE & TOUCHE LLP

Charlotte, North Carolina

December ~~5, 2018~~3, 2019

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis summarizes the significant factors affecting our consolidated operating results, liquidity and capital resources during the three and nine months ended November ~~2, 2018,~~1, 2019, and November ~~3, 2017.~~2, 2018. This discussion and analysis should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements that are included in our Annual Report on Form 10-K for the fiscal year ended February ~~2, 2018~~1, 2019 (the Annual Report), as well as the consolidated financial statements (unaudited) and notes to the consolidated financial statements (unaudited) contained in this report. Unless otherwise specified, all comparisons made are to the corresponding period of ~~2017.~~2018. This discussion and analysis is presented in six sections:

Executive Overview

Operations

Financial Condition, Liquidity and Capital Resources

Off-Balance Sheet Arrangements

Contractual Obligations and Commercial Commitments

Critical Accounting Policies and Estimates

EXECUTIVE OVERVIEW

Our top priority during the quarter was taking necessary steps to build a sustainable foundation to position the Company for long-term success through a continued strategic reassessment of our business. As part of this, earlyNet earnings in the third quarter of ~~2018, the Company committed~~2019 increased 66.8% to ~~exit its Orchard Supply Hardware (Orchard) operations and plans~~$1.0 billion compared to ~~have all stores closed before the end~~net earnings of ~~the Company’s 2018 fiscal year (February 1, 2019). In addition, during~~$629 million in the third quarter ~~we committed~~of 2018. Diluted earnings per common share increased 74.9% in the third quarter of 2019 to ~~close 20 underperforming stores across~~$1.36 from $0.78 in the ~~U.S. and 31 locations~~third quarter of 2018. Included in ~~Canada, including 27 stores and 4 other Canadian locations. We expect these store closings~~the third quarter of 2019 results is $53 million of non-cash pre-tax charges related to ~~be completed by the end~~long-lived asset impairments associated with a strategic review of the Canadian business, discussed further below, which decreased diluted earnings per share by $0.05. The third quarter of 2018 fiscal year as well. We also made the decision during the quarter to pursue an exit of certain non-core activities within our U.S home improvement business, specifically Alacrity Renovation Services and Iris Smart Home, and intend to complete these exits before fiscal year-end. In addition, based on the strategic reassessment during the quarter, management and the board of directors decided on November 9, 2018, to pursue an exit of the Company’s Mexico retail operations consisting of 13 stores. As a result of these assessments and decisions, the Company recordedincluded $280 million of pre-tax charges ~~during~~related to the ~~third quarter~~Company’s prior year strategic reassessment of ~~2018, primarily~~the business including cost related to long-lived asset impairments, accelerated depreciation and amortization, severance, ~~and lease obligations. The Company expects additional pre-tax charges associated with these decisions during the fourth quarter of fiscal 2018, of $460 to $580 million, primarily associated with~~discontinued project write-offs, lease obligation costs for closed locations and ~~accelerated depreciation and amortization.~~

~~Impacted by the charges associated with the strategic actions discussed above,~~inventory adjustments to net earnings for the third quarter of 2018 decreased 27.9% to $629 million. Diluted earnings per common share decreased 25.7% in the third quarter of 2018 to $0.78 from $1.05 in the third quarter of the prior year. The pre-tax charges totaling $280 million decreased diluted earnings per share by $0.26.realizable value. Excluding the impact of these items, adjusted diluted earnings per common share ~~decreased 1.0%~~increased 35.6% to ~~$1.04~~$1.41 in the third quarter of ~~2018~~2019 from adjusted diluted earnings per common share of ~~$1.05~~$1.04 in the ~~same period~~third quarter of ~~the prior year~~2018 (see discussion of non-GAAP financial measures beginning on page ~~22)~~27).

~~Net sales~~For the first nine months of 2019, cash flows from operating activities were approximately $4.1 billion, while $927 million was used for capital expenditures. Continuing to deliver on our commitment to return excess cash to shareholders, during the first nine months of 2019, we repurchased $3.6 billion of common stock through our share repurchase program and paid $1.2 billion in dividends.

During the third quarter of ~~2018 increased by 3.8%~~2019, we capitalized on robust customer demand, which drove strong traffic to ~~$17.4 billion,~~our stores and improved on store execution. We experienced comparable sales ~~increased 1.5%. During the quarter, 11~~increase of 142.2% and broad-based growth with all 15 U.S. regions ~~generated~~generating positive comparable sales ~~increases with~~for the ~~Tampa, Florida~~second consecutive quarter, despite low single-digit online growth and ~~Houston, Texas markets experiencing the weakest comparable sales, primarily due to comparisons to prior year Hurricanes Harvey and Irma. Seven~~higher than expected lumber deflation. Nine of 1113 product categories generated positive comparable sales with particular strength in ~~Seasonal & Outdoor Living, Appliances,~~Tools, Décor, Lawn & Garden, ~~Kitchens, and~~Appliances, Millwork, Paint, Hardware, Rough Plumbing & ~~Electrical. While~~Electrical, and Lumber & Building Materials.

Our overall performance in the third quarter demonstrates continued momentum executing our retail fundamentals framework. Our initiatives to improve in-stock levels and provide a better customer service experience, along with our advances in serving the Pro customer, contributed to strong execution in the quarter. Our success focusing on retail fundamentals is evident as we drove strong ~~traffic~~performance in merchandising departments that have historically underperformed. Our continued focus on the Pro customer, including increased job lot quantities, department supervisors, and improved in-store experience, led to strong sales performance with our ~~stores during~~Pro customer in the third quarter. We are now transitioning from retail fundamentals to other initiatives to deepen our relationship and continue to grow sales with the Pro customer. We plan to roll-out dedicated point-of-sale terminals at the Pro desk in the fourth quarter of 2019 and launch our Pro loyalty program nationally in the first half of 2020.

In addition, as we noted in the prior quarter, we ~~continued~~are modernizing and transforming our e-commerce business as we address legacy issues with the Lowes.com website platform. We are working to ~~experience challenges with out-of-stocks, reset execution,~~improve the foundation of the platform to provide stability and ~~assortments~~increase our agility, which we believe are critical to growing our online presence. We expect to have the entire Lowes.com site on the cloud in ~~certain categories, which put pressure on our~~the first quarter of 2020. With a modernized platform in place, we expect to have the ability to ~~turn those visits into transactions. We experienced pressure in Millwork, Paint, Fashion Fixtures, and Flooring, primarily due~~address capability gaps to ~~reset execution.~~provide a better experience for our customers.

~~With~~During the ~~substantial completion~~third quarter, we initiated a strategic review of our ~~strategic reassessment~~Canadian business, inclusive of ~~the business, we can now intensify our attention~~leadership changes, with a focus on improving execution ~~in our retail stores~~ and ~~online. With our new leadership team, we have begun~~profitability. Based on this review, subsequent to ~~design and implement store operations and merchandising strategies to address some~~the end of ~~the issues we experienced during~~ the third quarter ~~such as reset~~of fiscal 2019, the Company decided to close 34 under-performing stores in Canada and execute additional restructuring actions to improve execution and ~~out-of-stocks,~~profitability of the Canadian operations. As a result of these actions, the Company expects additional operating costs and ~~have developed plans~~pre-tax charges during the fourth quarter of 2019 of $175 to ~~drive sustainable improvements. This is reflective of our priority of building a foundation for sustainable long-term success.~~$225 million associated with inventory liquidation, accelerated depreciation and amortization, severance, and other costs.

Although interest rates have ticked up and housing turnover has been pressured, the home improvement backdrop remains strong, driven by robust real residential investment and home price appreciation which continues to encourage homeowners to engage in discretionary projects. Consumer confidence continues to hover at high levels as consumers remain upbeat about their employment and income prospects, suggesting that we should see continued gains in consumer spending supported by stronger real disposable personal income growth. In addition, we operate in a fragmented $900 billion marketplace and believe we have a compelling opportunity to improve our performance and increase our market share as we address certain process and system issues.

OPERATIONS

The following tables set forth the percentage relationship to net sales of each line item of the consolidated statements of current and retained earnings (unaudited), as well as the percentage change in dollar amounts from the prior period. These tables should be read in conjunction with the following discussion and analysis and the consolidated financial statements (unaudited), including the related notes to the consolidated financial statements (unaudited).


	Three Months Ended				Basis Point Increase / (Decrease) in Percentage of Net Sales from Prior Period		Percentage Increase / (Decrease) in Dollar Amounts from Prior Period		Three Months Ended				Basis Point Increase / (Decrease) in Percentage of Net Sales from Prior Period¹		Percentage Increase / (Decrease) in Dollar Amounts from Prior Period¹
	November 2, 2018		November 3, 2017		2018 vs. 2017		2018 vs. 2017		November 1, 2019		November 2, 2018		2019 vs. 2018		2019 vs. 2018
Net sales	100.00	%	100.00	%	N/A		3.8	%	100.00	%	100.00	%	N/A		(0.2	)%
Gross margin	32.50		34.07		(157	)	(0.9	)	32.44		30.88		156		4.9
Expenses:
Selling, general and administrative	24.51		22.71		180		12.1		21.69		22.95		(126	)	(5.6	)
Depreciation and amortization	2.49		2.13		36		21.0		1.79		2.43		(64	)	(26.7	)
Operating income	5.50		9.23		(373	)	(38.1	)	8.96		5.50		346		62.7
Interest - net	0.88		0.96		(8	)	(4.3	)	1.02		0.88		14		14.9
Pre-tax earnings	4.62		8.27		(365	)	(42.0	)	7.94		4.62		332		71.8
Income tax provision	1.01		3.07		(206	)	(66.0	)	1.90		1.01		89		89.7
Net earnings	3.61	%	5.20	%	(159	)	(27.9	)%	6.04	%	3.61	%	243		66.8	%


	Nine Months Ended				Basis Point Increase / (Decrease) in Percentage of Net Sales from Prior Period		Percentage Increase / (Decrease) in Dollar Amounts from Prior Period		Nine Months Ended				Basis Point Increase / (Decrease) in Percentage of Net Sales from Prior Period¹		Percentage Increase / (Decrease) in Dollar Amounts from Prior Period¹
	November 2, 2018		November 3, 2017		2018 vs. 2017		2018 vs. 2017		November 1, 2019		November 2, 2018		2019 vs. 2018		2019 vs. 2018
Net sales	100.00	%	100.00	%	N/A		4.8	%	100.00	%	100.00	%	N/A		0.8	%
Gross margin	33.90		34.23		(33	)	3.8		32.01		32.36		(35	)	(0.3	)
Expenses:
Selling, general and administrative	23.62		21.87		175		13.2		20.82		22.13		(131	)	(5.1	)
Depreciation and amortization	2.04		2.03		1		5.4		1.65		1.99		(34	)	(16.6	)
Operating income	8.24		10.33		(209	)	(16.4	)	9.54		8.24		130		16.8
Interest - net	0.84		0.91		(7	)	(2.7	)	0.90		0.84		6		8.8
Loss on extinguishment of debt	—		0.87		(87	)	(100.0	)
Pre-tax earnings	7.40		8.55		(115	)	(9.4	)	8.64		7.40		124		17.7
Income tax provision	1.76		3.10		(134	)	(40.6	)	1.92		1.76		16		9.7
Net earnings	5.64	%	5.45	%	19		8.5	%	6.72	%	5.64	%	108		20.2	%

~~Note: The~~¹In the fourth quarter of fiscal 2018, we changed our method of accounting for shipping and handling costs from the Company’s stores, distribution centers, and other locations to customers. Under this new accounting principle, shipping and handling costs related to the delivery of products from the Company ~~adopted ASU 2014-09~~to customers are included in costs of sales, whereas they were previously included in selling, general, and ~~all~~administrative expense, and depreciation and amortization. Amounts presented for the ~~related amendments using the modified retrospective method, effective February 3, 2018. Prior period results have not been restated, which affects comparability.~~three and nine months ended November 2, 2018 reflect adjusted amounts in accordance with this accounting principle change.


	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
Other Metrics	November 2, 2018			November 3, 2017			November 2, 2018			November 3, 2017			November 1, 2019			November 2, 2018			November 1, 2019			November 2, 2018
Comparable sales increase ¹	1.5		%	5.7		%	2.6		%	4.0		%	2.2		%	1.5		%	2.7		%	2.6		%
Total customer transactions (in millions)	229			231			738			742			221			229			720			738
Average ticket ²	$	75.89		$	72.63		$	75.47		$	71.59		$	78.71		$	75.89		$	77.95		$	75.47
At end of period:
Number of stores	2,133			2,144									2,004			2,133
Sales floor square feet (in millions)	215			214									209			215
Average store size selling square feet (in thousands) ³	101			100									104			101
Net earnings to average debt and equity ⁴													11.7		%	14.3		%
Return on invested capital ⁴	19.0		%	19.5		%							14.2		%	16.7		%

A comparable location is defined as a location that has been open longer than 13 months.A location that is identified for relocation is no longer considered comparable in the month of its relocation.The relocated location must then remain open longer than 13 months to be considered comparable.A location we have decided to close is no longer considered comparable as of the beginning of the month in which we announce its closing. Acquired locations are included in the comparable sales calculation beginning in the first full month following the first anniversary of the date of the acquisition. Comparable sales include online sales, which positively impacted third quarter fiscal ~~2018~~2019 comparable sales by approximately 6015 basis points and year-to-date fiscal ~~2018~~2019 comparable sales by approximately 8530 basis points. The comparable store sales calculation included in the preceding table was calculated using comparable 13-week and ~~39-week~~26-week periods.


²	Average ticket is defined as net sales divided by the total number of customer transactions.


³	Average store size selling square feet is defined as sales floor square feet divided by the number of stores open at the end of the period. The average Lowe’s-branded home improvement store has approximately 112,000 square feet of retail selling space.


⁴	Return on invested capital is calculated using a non-GAAP financial measure. Net earnings to average debt and equity is the most comparable GAAP ratio. See below for additional information and ~~a reconciliation to the most comparable GAAP measure.~~ reconciliations of non-GAAP measures.

Non-GAAP Financial Measures

Adjusted Diluted Earnings Per Share

Adjusted diluted earnings per share is considered a non-GAAP financial measure. The Company believes this non-GAAP financial measure provides useful insight for analysts and investors in evaluating what management considers the Company’s core financial performance. Adjusted diluted earnings per share excludes the impact of certain discrete items, as further described below, not contemplated in the Company’s original business ~~outlooks~~outlook for fiscal ~~2018 and 2017.~~2019. Unless otherwise noted, the income tax effect of these adjustments is calculated using the marginal rates for the respective periods.

During the ~~nine~~three months ended November ~~3, 2017,~~1, 2019, the Company began a strategic review of its Canadian operations, and as a result, recognized ~~the following~~ pre-tax ~~charges:~~charges of $53 million associated with long-lived asset impairment (2019 Canada restructuring).

~~In the first quarter of 2017, the Company recognized a $464 million loss on extinguishment of debt in connection with a $1.6 billion cash tender offer.~~

In the second quarter of 2017, the Company recognized a $96 million gain from the sale of the Company’s interest in its Australian joint venture. This gain had no impact on the Company’s income tax provision due to the reduction of a previously established deferred tax valuation allowance.

During the ~~nine~~three months ended November 2, 2018, the Company recognized the following pre-tax charges resulting from ~~its~~the strategic reassessment of ~~the~~its business:

In the second quarter of 2018, the Company recognized $230 million of pre-tax charges, consisting of long-lived asset impairments and discontinued projects, associated with Orchard. In addition, during the third quarter of 2018, theThe Company recorded $123 million of pre-tax charges, consisting of accelerated depreciation and amortization, severance, and lease obligations related to the decision to close all Orchard locations (Orchard Supply Hardware charges).

~~In the third quarter of 2018, the~~The Company recognized $121 million of pre-tax charges, consisting of long-lived asset impairment and severance associated with the decision to close 20 U.S. stores and 31 stores and other locations in Canada (U.S. and Canada closing charges).

~~In the third quarter of 2018, the~~The Company recognized $22 million of pre-tax charges, consisting of long-lived asset impairments, associated with its Mexico retail operations (Mexico impairment charge).

~~In the third quarter of 2018, the~~The Company recognized $14 million of pre-tax charges associated with the exit of certain immaterial non-core activities within its U.S. home improvement business (Non-core activities ~~charges)~~charge).

Adjusted diluted earnings per share should not be considered an alternative to, or more meaningful indicator of, the Company’s diluted earnings per common share as prepared in accordance with GAAP. The Company’s methods of determining this non-GAAP financial measure may differ from the method used by other companies for this or similar non-GAAP financial measures. Accordingly, these non-GAAP measures may not be comparable to the measures used by other companies.


	Three Months Ended									Three Months Ended
	November 2, 2018					November 3, 2017				November 1, 2019					November 2, 2018
	Pre-Tax Earnings	Tax		Net Earnings		Pre-Tax Earnings	Tax	Net Earnings		Pre-Tax Earnings	Tax		Net Earnings		Pre-Tax Earnings	Tax		Net Earnings
Diluted earnings per share, as reported				$	0.78			$	1.05				$	1.36				$	0.78
Non-GAAP adjustments - per share impacts
2019 Canada restructuring										0.07	(0.02	)	0.05		—	—		—
Orchard Supply Hardware charges	0.15	(0.03	)	0.12		—	—	—		—	—		—		0.15	(0.03	)	0.12
U.S. and Canada closing charges	0.15	(0.04	)	0.11		—	—	—		—	—		—		0.15	(0.04	)	0.11
Mexico impairment charge	0.02	—		0.02		—	—	—
Mexico impairment charges										—	—		—		0.02	—		0.02
Non-core activities charges	0.02	(0.01	)	$	0.01	—	—	$	—	—	—		—		0.02	(0.01	)	0.01
Adjusted diluted earnings per share				$	1.04			$	1.05				$	1.41				$	1.04

Nine Months Ended
November 2, 2018 November 3, 2017
Pre-Tax Earnings Tax Net Earnings Pre-Tax Earnings Tax Net Earnings
Diluted earnings per share, as reported $ 3.83
$ 3.42
Non-GAAP adjustments - per share impacts
Orchard Supply Hardware charges 0.44
(0.11 ) 0.33
—
—
—
U.S. and Canada closing charges 0.15
(0.04 ) 0.11
—
—
—
Mexico impairment charge 0.02
—
0.02
—
—
—
Non-core activities charges 0.02
(0.01 ) 0.01
—
—
—
Gain on sale of interest in Australian joint venture —
—
—
(0.11 ) —
(0.11 )
Loss on extinguishment of debt —
—
—
0.54
(0.21 ) 0.33
Adjusted diluted earnings per share $ 4.30
$ 3.64

Return on Invested Capital

Return on Invested Capital (ROIC) is calculated using a non-GAAP financial measure. We believe ROIC is a meaningful metric for investors because it represents management’s measure of how effectively the Company is using capital to generate profits. Although ROIC is a common financial metric, numerous methods exist for calculating ROIC. Accordingly, the method used by our management to calculate ROIC may differ from the methods other companies use to calculate their ROIC. We encourage you to understand the methods used by another company to calculate its ROIC before comparing its ROIC to ours.

We define ROIC as ~~trailing four quarters’~~rolling 12 months’ lease adjusted net operating profit after tax ~~(NOPAT)~~(Lease adjusted NOPAT) divided by the average of current year and prior year ending debt and ~~equity for the last five quarters.~~equity. Lease adjusted NOPAT is a non-GAAP financial measure, and net earnings is considered to be the most comparable GAAP financial ~~measure to NOPAT.~~measure. The calculation of ROIC, together with a reconciliation of ~~NOPAT to~~ net earnings ~~the most comparable GAAP financial measure,~~to Lease adjusted NOPAT, is as follows:


	For the Periods Ended						For the Periods Ended
(In millions, except percentage data)	November 2, 2018			November 3, 2017			November 1, 2019			November 2, 2018
Calculation of Return on Invested Capital
Numerator
Net earnings	$	3,692		$	3,556
Net Earnings							$	2,947		$	3,692
Plus:
Interest expense - net	620			639			665			620
Loss on extinguishment of debt	—			464
Operating lease interest							186			214
Provision for income taxes	1,371			2,099			1,177			1,371
Net operating profit	5,683			6,758
Lease adjusted net operating profit							4,975			5,897
Less:
Income tax adjustment ¹	1,539			2,509			1,414			1,597
Net operating profit after tax	$	4,144		$	4,249
Lease adjusted net operating profit after tax							$	3,561		$	4,300
Denominator
Average debt and equity ²	$	21,764		$	21,806		$	25,106		$	25,734
Net earnings to average debt and equity							11.7		%	14.3		%
Return on invested capital	19.0		%	19.5		%	14.2		%	16.7		%


¹	Income tax adjustment is defined as net operating profit multiplied by the effective tax rate, which was ~~27.1%~~28.4% and ~~37.1%~~27.1% for the periods ended November ~~2, 2018~~1, 2019 and November ~~3, 2017,~~2, 2018, respectively.


²	Average debt and equity is defined as average current year and prior year ending debt, including current maturities, ~~and~~ short-term borrowings, and operating lease liabilities, plus the average current year and prior year ending total ~~equity for the last five quarters.~~equity.

Results of Operations

Net Sales – Net sales in the third quarter of ~~2018 increased 3.8%~~2019 decreased 0.2% to $17.4 billion. The decrease in sales is driven by the impact of previous store closures and the exit of Orchard, partially offset by comparable sales growth. Comparable sales increased ~~1.5%~~2.2% over the same period, driven by a ~~2.3%~~2.4% increase in comparable average ticket, ~~and~~partially offset by a ~~0.8%~~0.1% decrease in comparable customer transactions. The adoption of the revenue recognition accounting standard ASU 2014-09 contributed 1.4% to sales growth, primarily due to the reclassification of profit sharing income associated with the proprietary credit program from SG&A to sales. New stores also contributed to sales growth during the third quarter.

During the third quarter of ~~2018,~~2019, we experienced comparable sales increases in ~~seven~~nine of 1113 product categories. Comparable sales were above the company average in ~~Seasonal & Outdoor Living, Appliances,~~Tools, Décor, Lawn & Garden, ~~Kitchens,~~Appliances, Millwork, Paint, Hardware, and Rough Plumbing & Electrical. WePerformance in Tools led the merchandising department growth with a continued strong customer response to our CRAFTSMAN® reset, as well as sales with our key Pro brands, such as DeWalt® power tools. Décor experienced ~~low-digit negative~~mid-single digit comparable sales, with strong double-digit comparable sales in ~~Flooring, Fashion Fixtures, Paint,~~Blinds and ~~Millwork primarily due to inventory out-of-stocks, poor reset execution, and assortment misalignment.~~Shades. We achieved comparable sales in Seasonal & Outdoor Living driven by strong demand for grills and lawn mowers, as well as strong demand from inventory rationalization activity. In addition, Seasonal & Outdoor Living benefited from hurricane related demand for generators, air conditioners, and dehumidifiers. Strong brand and service advantages in Appliances, as well as Labor Day and Columbus Day holiday events, drove strong comparable sales during the quarter. Strong comparable salesexperienced strength in Lawn & Garden, ~~were the result of capitalizing on the extended growing season and fall preparation activity~~driven by double-digit comparable sales in ~~our grass seed, fall fertilizer,~~ live goods and ~~watering programs. Strength~~landscape products. Appliances delivered strong sales during Labor Day and with great values and special buys in ~~organization~~refrigerators and ~~shelving, as well as cabinets~~freezers. For the second consecutive quarter, Millwork performed above the company average driven by our focus on the Pro customer, an investment in job lot quantities, an improved localized assortment approach, and ~~countertops, drove strong~~an updated and refreshed department. Paint outperformed the company average driven by our improved service model, better in-stock position, strength in the exterior project categories, and our compelling offers. We saw positive comparable sales in ~~Kitchens. We achieved strong comparable sales~~Hardware supported by investments in ~~Rough Plumbing & Electrical driven by demand from the~~job-lot quantities and increased Pro ~~customer.~~demand.

Net sales increased ~~4.8%~~0.8% to ~~$55.7~~$56.1 billion for the first nine months of ~~2018~~2019 compared to ~~2017.~~2018. The increase in total sales was driven primarily by an increase in comparable sales, partially offset by the closure of Orchard, as well as other closed locations. Comparable sales increased ~~2.6%~~2.7% over the same period, primarily driven by a ~~3.8%~~1.9% increase in comparable average ticket and a ~~1.2% decrease~~0.8% increase in customer transactions.

Gross Margin – For the third quarter of 2019, gross margin as a percentage of sales increased 156 basis points. The ~~adoption~~gross margin increase for the quarter resulted from our prior year inventory rationalization efforts to eliminate less productive SKUs

and reduce clutter in our stores, which negatively impacted the prior year gross margin and drove approximately 170 basis points of ~~the revenue recognition standard ASU 2014-09 represented 1.0%~~improvement, and product mix, which increased margin approximately 35 basis points. Gross margin was negatively impacted approximately 40 basis points due to tariff pressure, 20 basis points due to supply chain costs associated with new facilities, transportation and customer deliveries, and 20 basis points associated with increased inventory shrink.

Gross margin as a percentage of ~~the~~ sales ~~growth. New stores and the addition of Maintenance Supply Headquarters also contributed to sales growth during~~decreased 35 basis points in the first nine months of 2019 compared to 2018.

~~Gross Margin –~~ ~~For the third quarter of 2018, gross margin decreased 157 basis points as a percentage of sales.~~ Gross margin was negatively impacted by approximately ~~180~~35 basis points due to tariff pressure, 30 basis points from supply chain costs associated with new facilities, transportation and customer deliveries, and 10 basis points due to higher inventory shrink. This was partially offset by a gross margin increase of approximately 50 basis points due to our prior year inventory rationalization efforts to eliminate less productive SKUs and reduce clutter in our stores. We also experienced approximately 35 basis points of deleverage from reset-related clearance activity and 25 basis points from the wind-down of the Orchard operations. In addition, we experienced approximately 10 basis points of deleverage due to product mix shifts. This was partially offset by approximately 107 basis points due to the adoption of the revenue recognition accounting standard ASU 2014-09, which primarily resulted in a reclassification of profit sharing income associated with the proprietary credit program from SG&A to sales.

Gross margin as a percentage of sales decreased 33 basis points in the first nine months of 2018 compared to 2017. Gross margin was negatively impacted by approximately 60 basis points due to our efforts to rationalize inventory, as well as approximately 15 basis points of deleverage from reset-related clearance activity. Additionally, we experienced 15 basis points of deleverage due to mix of products sold. This was partially offset by approximately 72 basis points due to the adoption of the revenue recognition accounting standard ASU 2014-09.

SG&A – For the third quarter of ~~2018,~~2019, SG&A expense ~~deleveraged 180~~leveraged 126 basis points as a percentage of sales compared to the third quarter of ~~2017.~~2018. This ~~was~~is primarily driven by ~~118~~104 basis points of deleverage due to the adoption of the revenue recognition accounting standard ASU 2014-09, which primarily resulted in the reclassification of profit sharing income associated with the proprietary credit program from SG&A to sales. In addition, we experienced 105 basis points of deleverageleverage due to long-lived asset impairments ~~severance~~ and ~~lease obligation costs~~discontinued projects associated with the Company’s prior year strategic reassessment ~~previously discussed. These were partially offset by 20~~of Orchard, USHI, Canada, and Mexico locations. There was an additional 43 basis points of leverage in ~~incentive compensation due to lower attainment levels~~salaries expenses and 1510 basis points of leverage ~~in employee insurance.~~due to optimizing the channel mix for advertising. This was partially offset by 31 basis points of deleverage associated with long-lived asset impairment due to the company’s strategic review of the Canadian operations initiated during the third quarter.

SG&A expense as a percentage of sales ~~deleveraged 175~~leveraged 131 basis points in the first nine months of ~~2018~~2019 compared to ~~2017.~~2018. This was primarily driven ~~primarily~~ by 8173 basis points of ~~deleverage~~leverage due to prior year long-lived asset impairments and discontinued projects associated with the ~~adoption~~Company’s prior year strategic reassessment of ~~the revenue recognition accounting standard ASU 2014-09, 75~~Orchard, USHI, Canada, and Mexico locations, 54 basis points of ~~deleverage due to the Company’s strategic reassessment, 18~~leverage in salaries expenses, 16 basis points of ~~deleverage due~~leverage from lease terminations and lease assignments primarily toassociated with the prior ~~year sale~~year’s store closing activities, and 14 basis points of ~~our interest~~leverage in ~~the Australian joint venture, 11~~advertising due to improved advertising efficiency. These were partially offset by 19 basis points of deleverage in ~~customer delivery to meet increased demand in Appliances, and 11~~incentive compensation, 10 basis points of deleverage ~~in external labor. These were partially offset by 18~~associated with long-lived asset impairment due to the company’s strategic review of the Canadian operations, and 10 basis points of ~~leverage in employee insurance.~~deleverage related to severance costs.

Depreciation and Amortization – Depreciation and amortization ~~deleveraged 36~~leveraged 64 basis points for the third quarter of ~~2018~~2019 compared to the prior year primarily due to ~~accelerated depreciation related to the exit of Orchard.~~store closures in 2018, and assets becoming fully depreciated. Property, less accumulated depreciation, decreased to $18.4 billion at November 1, 2019, compared to $18.9 billion at November 2, ~~2018, compared to $19.8 billion at November 3, 2017.~~2018. As of November 1, 2019 and November 2, 2018, ~~and November 3, 2017,~~ we owned ~~80%~~83% and ~~78%~~80% of our stores, respectively, which included stores on leased land.

Depreciation and amortization ~~deleveraged 1~~leveraged 34 basis ~~point~~points for the first nine months of ~~2018~~2019 compared to ~~2017~~2018 primarily due to ~~accelerated~~the same factors that impacted depreciation ~~related to~~and amortization for the ~~exit of Orchard partially offset by assets becoming fully depreciated.~~third quarter.

Interest – Net – Interest expense for the third quarter of ~~2018 decreased~~2019 increased primarily as a result of the ~~payoff~~issuance of ~~scheduled debts at maturity. In addition, interest income increased over the prior year due to higher average interest rates~~$3.0 billion unsecured notes in April 2019, partially offset by a decrease in expense associated with the ~~Company’s cash balances.~~adoption of ASU 2016-02, Leases(Topic 842), in the first quarter of 2019.

Interest expense for the first nine months of 2019 increased compared to 2018 ~~decreased~~ primarily as a result of the prior year cash tender offer to purchase and retire $1.6 billion aggregate principal amount of our outstanding notes in the first quarter of 2017 and the payoff of scheduled debts at maturity. In addition, interest income increased over the prior year due to ~~higher average~~the same factors that impacted interest ~~rates associated with~~expense for the ~~Company’s cash balances. These were partially offset by the issuance of unsecured notes in May 2017.~~third quarter.

Income Tax Provision – Our effective income tax rates were 24.0% and 21.8% for the three months ended November 1, 2019 and ~~37.1%~~November 2, 2018, respectively. The increase in the effective tax rate for the quarter is primarily due to an increase in pre-tax earnings as compared to the three months ended November 2, 2018, ~~and November 3, 2017, respectively. The decrease~~as well as the favorable discrete event related to stock compensation was smaller in ~~the effective income tax rate is primarily due~~2019 as compared to ~~the enactment of the Tax Act, effective January 1, 2018, which lowered the federal tax rate from 35% to 21%.~~2018.

Our effective income tax rates were ~~23.8%~~22.2% and ~~36.3%~~23.8% for the nine months ended November ~~2, 2018~~1, 2019 and November ~~3, 2017,~~2, 2018, respectively. The decrease in the effective tax rate is primarily due to a favorable tax benefit recorded during the ~~same factor that impacted~~first quarter of 2019 associated with the ~~effective income tax rate~~planned exit of the Mexico retail operations. In fiscal 2018, the Company announced its intention to exit its Mexico retail operations and had planned to sell the operating business. However, in the ~~third quarter.~~first quarter of 2019, after an extensive market evaluation, the decision was made to sell the assets of the business through liquidation, which results in a more favorable tax treatment.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity

Cash flows from operations, supplemented with our short-term and long-term borrowings, have been sufficient to fund our operations while allowing us to make strategic investments that will grow our business, and to return excess cash to shareholders in the form of dividends and share repurchases. We believe that our sources of liquidity will continue to be adequate to fund our operations and investments to grow our business, repay our debt as it becomes due, pay dividends, and fund our share repurchases over the next 12 months.

Cash Flows Provided by Operating Activities


	Nine Months Ended				Nine Months Ended
(In millions)	November 2, 2018		November 3, 2017		November 1, 2019		November 2, 2018
Net cash provided by operating activities	$	6,798	$	5,372	$	4,111	$	6,798

Cash flows from operating activities continued to provide the primary source of our liquidity. The ~~increase~~decrease in net cash provided by operating activities for the nine months ended November ~~2, 2018,~~1, 2019, versus the nine months ended November ~~3, 2017,~~2, 2018, was driven primarily by changes in working capital, driven by accounts payable and other operating ~~assets and~~ liabilities, ~~and~~which increased operating cash flow for the first nine months of 2018 by approximately $3.2 billion, compared to an increase of approximately $115 million for the first nine months of 2019.

In the first nine months of 2018, the increase in ~~net earnings adjusted for non-cash~~accounts payable exceeded the increase in inventory, driving approximately $1.7 billion of operating cash flow, primarily due to later spring inventory build in fiscal 2018. In the first nine months of 2019, the increase in inventory exceeded the increase in accounts payable, resulting in negative impact to cash flow of approximately $600 million, driven by timing of inventory purchases and related payments. In addition, other operating liabilities decreased approximately $400 million in the first nine months of 2019 and increased approximately $500 million in the first nine months of 2018, primarily related to deferred revenue and timing of payments related to exit activities and other expenses.

Cash Flows Used in Investing Activities


	Nine Months Ended						Nine Months Ended
(In millions)	November 2, 2018			November 3, 2017			November 1, 2019			November 2, 2018
Net cash used in investing activities	$	(788	)	$	(1,072	)	$	(863	)	$	(788	)

Net cash used in investing activities primarily ~~consist~~consists of transactions related to capital expenditures and ~~business acquisitions.~~investments.

Capital expenditures

Our capital expenditures generally consist of investments in our strategic initiatives to enhance our ability to serve customers, existing stores, and expansion plans. The following table provides our capital expenditures for the nine months ended November ~~2, 2018,~~1, 2019, and November ~~3, 2017:~~2, 2018:


	Nine Months Ended				Nine Months Ended
(In millions)	November 2, 2018		November 3, 2017		November 1, 2019		November 2, 2018
Existing store investments ¹	$	324	$	220	$	694	$	490
Strategic initiatives ²	69		216		127		145
New stores	453		351
New stores and international ³					106		211
Total capital expenditures	$	846	$	787	$	927	$	846


¹	Includes merchandising resets, facility repairs, replacements of IT and store equipment, ~~for existing stores, facility repairs, enhancements to existing information technology assets, and remerchandising.~~among other specific efforts.


²	Represents investments related to ~~support~~ our ~~omnichannel strategy~~strategic focus areas aimed at improving customers’ experience and driving improved performance in the near and long term.


³	Represents expenditures primarily related to land purchases, buildings, and personal property for new store projects as well as ~~information technology investments~~expenditures related to ~~enhance customer experience.~~our international operations.

~~During the second quarter, we lowered our 2018~~Our 2019 capital expenditures forecast ~~by $500 million, to~~is approximately ~~$1.2 billion, as a result of the elimination of certain planned capital projects~~ ~~that were not focused on improving our core business, delivering productivity for our associates, or meeting our internal hurdle rate.~~$1.6 billion.

~~Business Acquisitions~~

During the second quarter of 2017, we paid $505 million, inclusive of cash acquired and $4 million of deferred components, to acquire Maintenance Supply Headquarters, which is expected to enable us to deepen and broaden our relationship with the Pro

~~customer and better serve their needs. See Note 3 to the consolidated financial statements included herein for additional information regarding our business acquisitions.~~

Cash Flows Used in Financing Activities


	Nine Months Ended						Nine Months Ended
(In millions)	November 2, 2018			November 3, 2017			November 1, 2019			November 2, 2018
Net cash used in financing activities	$	(4,921	)	$	(4,130	)	$	(2,978	)	$	(4,921	)

Net cash used in financing activities primarily ~~consist~~consists of transactions related to our long-term debt, short-term borrowings, ~~long-term debt,~~ share repurchases, and cash dividend payments.

Long-Term Debt

The following table includes additional information related to the Company’s long-term debt for the nine months ended November 1, 2019, and November 2, 2018:



	Nine Months Ended
(In millions)	November 1, 2019			November 2, 2018
Net proceeds from issuance of long-term debt	$	2,972		$	—
Repayment of long-term debt	$	(1,092	)	$	(288	)

During the nine months ended November 1, 2019, we issued $3.0 billion of unsecured notes to finance current year maturities and for other general corporate purposes. During the nine months ended November 1, 2019, we also paid $1.1 billion to retire scheduled debts at maturity.

Short-term Borrowing Facilities

In September 2018, the Company entered into a $1.75 billion five year unsecured revolving second amended and restated credit agreement (the “Second Amended and Restated Credit Agreement”) with a syndicate of banks. The Second Amended and Restated Credit Agreement amends and restates the Company’s amended and restated credit agreement, dated November 23, 2016 (the Amended and Restated Credit Agreement), to among other things (i) extend the maturity date of the revolving credit facility to September 2023 and (ii) modify the revolving commitments of the existing lenders. In September 2018, the Company entered into a $250 millionWe have an unsecured 364-day credit agreement (the 364-Day Credit Agreement) with a syndicate of ~~banks.~~banks which provides for borrowings up to $250 million. The Company may request borrowings under the 364-Day Credit Agreement that are denominated in U.S. Dollar, Euro, Sterling, Canadian Dollar and other currencies approved by the administrative agent and the lenders. The Company must repay the aggregate principal amount of loans outstanding under the 364-Day Credit Agreement on the termination date in effect at such time (currently September ~~9, 2019)~~8, 2020). The Company may elect to convert all of the loans outstanding under the 364-Day Credit Agreement on the termination date into a term loan which the Company shall repay in full on the first anniversary date of the termination date.

The Second Amended and Restated Credit Agreement and the 364-Day Credit Agreement both support our commercial paper program. The amount available to be drawn under the Second Amended and Restated Credit Agreement and the 364-Day Credit Agreement is reduced by the amount of borrowings under our commercial paper program. ~~All~~Outstanding borrowings under the Company’s commercial paper program were $637 million, with a weighted average interest rate of ~~our short-term~~1.97%, as of November 1, 2019. There were no outstanding borrowings ~~during~~under the ~~nine months ended~~Second Amended and Restated Credit Agreement or the 364-Day Credit Agreement as of November 1, 2019 and as of November 2, ~~2018, and November 3, 2017, were under the commercial paper program.~~2018. The following table includes additional information related to our short-term borrowings for the nine months ended November ~~2, 2018,~~1, 2019, and November ~~3, 2017:~~2, 2018:


	Nine Months Ended						Nine Months Ended
(In millions, except for interest rate data)	November 2, 2018			November 3, 2017			November 1, 2019			November 2, 2018
Net change in short-term borrowings	$	(1,137	)	$	(340	)	$	(85	)	$	(1,137	)
Amount outstanding at quarter-end	$	—		$	171		$	637		$	—
Maximum amount outstanding at any month-end	$	892		$	878		$	1,189		$	892
Weighted-average interest rate of short-term borrowings outstanding	—		%	1.37		%	1.97		%	—		%

The Second Amended and Restated Credit Agreement and the 364-Day Credit Agreement contains customary representations, warranties, and covenants. We were in compliance with those covenants at November 2, 2018. Subject to obtaining commitments from the lenders and satisfying other conditions specified in the Second Amended and Restated Credit Agreement, the Company may increase the aggregate availability by an additional $500 million.1, 2019.

~~Long-term Debt~~

~~The following table includes additional information related to the Company’s long-term debt for the nine months ended November 2, 2018, and November 3, 2017:~~

Nine Months Ended
(In millions) November 2, 2018 November 3, 2017
Net proceeds from issuance of long-term debt $ —
$ 2,968
Repayment of long-term debt $ (288 ) $ (2,836 )

~~During the nine months ended November 2, 2018, we paid $250 million to retire scheduled debts at maturity.~~

During the nine months ended November 3, 2017, we paid approximately $2.0 billion to purchase $1.6 billion of our higher coupon notes prior to maturity in connection with a cash tender offer. We issued $3.0 billion of unsecured notes to fund the tender offer, finance current year maturities, and for other general corporate purposes, which included share repurchases, capital expenditures, strategic investments, and working capital needs.

Share Repurchases

We have an ongoing share repurchase program, authorized by the Company’s Board of Directors, that is executed through purchases made from time to time either in the open market or through private off-market transactions. We also withhold shares from employees to satisfy tax withholding liabilities. Shares repurchased are retired and returned to authorized and unissued status. The following table provides, on a settlement date basis, the total number of shares repurchased, average price paid per share, and the total amount paid for share repurchases for the nine months ended November ~~2, 2018,~~1, 2019, and November ~~3, 2017:~~2, 2018:


	Nine Months Ended				Nine Months Ended
(In millions, except per share data)	November 2, 2018		November 3, 2017		November 1, 2019		November 2, 2018
Total amount paid for share repurchases	$	2,498	$	3,054	$	3,649	$	2,498
Total number of shares repurchased	26.1		38.1		35.6		26.1
Average price paid per share	$	95.67	$	80.05	$	102.59	$	95.67

As of November ~~2, 2018,~~1, 2019, we had ~~$4.5~~$10.3 billion remaining available under our share repurchase program with no expiration date. We expect to repurchase shares totaling ~~$3.0~~$4.0 billion in ~~2018~~2019 (including the amount repurchased during the first nine months of fiscal year ~~2018)~~2019). See Note 1011 to the consolidated financial statements included herein for additional information regarding share repurchases.

Dividends

Our dividend payment dates are established such that dividends are paid in the quarter immediately following the quarter in which they are declared. The following table provides additional information related to our dividend payments for the nine months ended November ~~2, 2018,~~1, 2019, and November ~~3, 2017:~~2, 2018:


	Nine Months Ended				Nine Months Ended
(In millions, except per share data)	November 2, 2018		November 3, 2017		November 1, 2019		November 2, 2018
Total cash dividend payments	$	1,068	$	947	$	1,195	$	1,068
Dividends paid per share	$	1.30	$	1.11	$	1.51	$	1.30

Capital Resources

We expect to continue to have access to the capital markets on both short-term and long-term bases when needed for liquidity purposes by issuing commercial paper or new long-term debt. The availability and the borrowing costs of these funds could be adversely affected, however, by a downgrade of our debt ratings or a deterioration of certain financial ratios. The table below reflects our debt ratings by Standard & Poor’s (S&P) and Moody’s as of December ~~5, 2018,~~3, 2019, which we are disclosing to enhance understanding of our sources of liquidity and the effect of our ratings on our cost of funds. Our debt ratings have enabled, and should continue to enable, us to refinance our debt as it becomes due at favorable rates in capital markets. Our commercial paper and senior debt ratings may be subject to revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating.



Debt Ratings	S&P	Moody’s
Commercial Paper	A-2	P-2
Senior Debt	A-BBB+	A3Baa1
Senior Debt Outlook	Stable	Stable

There are no provisions in any agreements that would require early cash settlement of existing debt or leases as a result of a downgrade in our debt rating or a decrease in our stock price. In addition, we do not believe it will be necessary to repatriate significant cash and cash equivalents and short-term investments held in foreign affiliates to fund domestic operations.

OFF-BALANCE SHEET ARRANGEMENTS

~~Other than in connection with executing operating leases, we~~We do not have any off-balance sheet financing that has, or is reasonably likely to have, a material, current or future effect on our financial condition, cash flows, results of operations, liquidity, capital expenditures or capital resources.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

During the first quarter of 2019, we issued $3.0 billion of unsecured notes in the ordinary course of business and used a portion of the net proceeds from the sale of the Notes for the repayment of $600 million aggregate principal amount due April 2019 and $450 million aggregate principal amount due September 2019. The table below summarizes our contractual obligations relating to long-term debt, excluding operating and finance lease obligations, at November 1, 2019. Interest payments included in the table below are calculated based upon the rates in effect at November 1, 2019. The unsecured notes issued in the first quarter of fiscal 2019 are further described in Note 9 to the consolidated financial statements included herein.



	Payments Due by Period
			Less Than		1-3		4-5		After 5
(In millions)	Total		1 Year		Years		Years		Years
Long-term debt (principal amounts, excluding discounts and debt issuance costs)	$	16,813	$	500	$	1,786	958		$	13,569
Long-term debt (interest payments)	10,740		667		1,259		1,164		7,650
Total	$	27,553	$	1,167	$	3,045	$	2,122	$	21,219

As of November ~~2, 2018,~~1, 2019, other than changes related to the adoption of the new lease accounting standard as described in Note 1 and Note 3 to the consolidated financial statements, there were no other material changes to our contractual obligations and commercial commitments outside the ordinary course of business since the end of ~~2017.~~2018. Refer to the Annual Report on Form 10-K for additional information regarding our contractual obligations and commercial commitments.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our significant accounting policies are described in Note 1 to the consolidated financial statements presented in the Annual Report. Our critical accounting policies and estimates are described in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Annual Report. Our significant and critical accounting policies have not changed significantly since the filing of the Annual Report. However, given the estimates made this quarter regarding the evaluation of long-lived asset impairment, we have elected to provide additional disclosure related to our critical accounting policy for long-lived asset impairment.

~~Long-Lived Asset Impairment~~

~~Description~~

We review the carrying amounts of locations whenever certain events or changes in circumstances indicate that the carrying amounts may not be recoverable. When evaluating locations for impairment, our asset group is at an individual location level, as that is the lowest level for which cash flows are identifiable. Cash flows for individual locations do not include an allocation of corporate overhead.

We evaluate locations for triggering events relating to long-lived asset impairment on a quarterly basis to determine when a location’s assets may not be recoverable. For operating locations, our primary indicator that assets may not be recoverable is consistently negative cash flow for a 12-month period for those locations that have been open in the same location for a sufficient period of time to allow for meaningful analysis of ongoing operating results. Management also monitors other factors when evaluating operating locations for impairment, including individual locations’ execution of their operating plans and local market conditions, including incursion, which is the opening of either other Lowe’s locations or those of a direct competitor within the same market. We also consider there to be a triggering event when there is a current expectation that it is more likely than not that a given location will be closed significantly before the end of its previously estimated useful life.

A potential impairment has occurred if projected future undiscounted cash flows expected to result from the use and eventual disposition of the location’s assets are less than the carrying amount of the assets. When determining the stream of projected future cash flows associated with an individual operating location, management makes assumptions, incorporating local market conditions, about key store variables including sales growth rates, gross margin and controllable expenses, such as store payroll and occupancy expense, as well as asset residual values or lease rates. An impairment loss is recognized when the carrying amount of the operating location is not recoverable and exceeds its fair value.

We use an income approach to determine the fair value of our individual operating locations, which requires discounting projected future cash flows. This involves making assumptions regarding both a location’s future cash flows, as described above, and an appropriate discount rate to determine the present value of those future cash flows. We discount our cash flow estimates at a rate commensurate with the risk that selected market participants would assign to the cash flows. The selected market participants represent a group of other retailers with a market footprint similar in size to ours.

We use a market approach to determine the fair value of our individual locations identified for closure. This involves making assumptions regarding the estimated selling prices or estimated lease rates by obtaining information from property brokers or appraisers in the specific markets being evaluated. The information includes comparable sales of similar assets and assumptions about demand in the market for purchase or lease of these assets.

~~Judgments and uncertainties involved in the estimate~~

Our impairment evaluations require us to apply judgment in determining whether a triggering event has occurred, including the evaluation of whether it is more likely than not that a location will be closed significantly before the end of its previously estimated useful life. Our impairment loss calculations require us to apply judgment in estimating expected future cash flows, including estimated sales, margin and controllable expenses, and assumptions about market performance for operating locations and estimated selling prices or lease rates for locations identified for closure. We also apply judgment in estimating asset fair values, including the selection of an appropriate discount rate for fair values determined using an income approach.

~~Effect if actual results differ from assumptions~~

During the first nine months of 2018, the Company recorded impairment charges totaling $329 million within selling, general and administrative expenses in the consolidated statements of current and retained earnings. We have not made any material changes in the methodology used to estimate the future cash flows of operating locations or locations identified for closure during the past three fiscal years. If the actual results are not consistent with the assumptions and judgments we have made in determining whether it is more likely than not that a location will be closed significantly before the end of its useful life or in estimating future cash flows and determining asset fair values, our actual impairment losses could vary positively or negatively from our estimated impairment losses. In the event that our estimates vary from actual results, we may record additional impairment losses, which could be material to our results of operations.

FORWARD-LOOKING STATEMENTS

This Form 10-Q includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements including words such as “believe,” “expect,” “anticipate,” “plan,” “desire,” “project,” “estimate,” “intend,” “will,” “should,” “could,” “would,” “may,” “strategy,” “potential,” “opportunity,”“believe”, “expect”, “anticipate”, “plan”, “desire”, “project”, “estimate”, “intend”, “will”, “should”, “could”, “would”, “may”, “strategy”, “potential”, “opportunity” and similar expressions are forward-looking statements. Forward-looking statements involve estimates, expectations, projections, goals, forecasts, assumptions, risks and uncertainties. Forward-looking statements include, but are not limited to, statements about future financial and operating results, Lowe’s plans, objectives, business outlook, priorities, expectations and intentions, expectations for sales growth, comparable sales, earnings and performance, shareholder value, capital expenditures, cash flows, the housing market, the home improvement industry, demand for services, share repurchases, Lowe’s strategic initiatives, including those relating to acquisitions and dispositions by Lowe’s and the expected impact of such transactions on our strategic and operational plans and financial results, and any statement of an assumption underlying any of the foregoing and other statements that are not historical facts. Although we believe that the expectations, opinions, projections and comments reflected in these forward-looking statements are reasonable, such statements involve risks and uncertainties and we can give no assurance that such statements will prove to be correct. Actual results may differ materially from those expressed or implied in such statements.

A wide variety of potential risks, uncertainties and other factors could materially affect our ability to achieve the results either expressed or implied by these forward-looking statements including, but not limited to, changes in general economic conditions, such as the rate of unemployment, interest rate and currency fluctuations, fuel and other energy costs, slower growth in personal income, changes in consumer spending, changes in the rate of housing turnover, the availability of consumer credit and of mortgage financing, inflation or deflation of commodity prices, recently enacted or proposed tariffs, ~~and~~any disruptions caused by our recent management and key personnel changes, and other factors that can negatively affect our customers, as well as our ability to: (i) respond to adverse trends in the housing industry, a reduced rate of growth in household formation, and slower rates of growth in housing renovation and repair activity, as well as uneven recovery in commercial building activity; (ii) secure, develop, and otherwise implement new technologies and processes necessary to realize the benefits of our strategic initiatives focused on omni-channel sales and marketing presence and enhance our efficiency and otherwise successfully execute on our strategy and implement our strategic initiatives, including acquisitions, dispositions and

the closing of certain stores and facilities; (iii) attract, train, and retain highly-qualified associates; (iv) manage our business effectively as we adapt our operating model to meet the changing expectations of our customers; (v) maintain, improve, upgrade and protect our critical information systems from system outages, data security breaches, ransomware and other cyber threats; (vi) respond to fluctuations in the prices and availability of services, supplies, and products; (vii) respond to the growth and impact of competition; (viii) address changes in existing or new laws or regulations that affect consumer credit, employment/labor, trade, product safety, transportation/logistics, energy costs, health care, tax, environmental issues or privacy and data protection; (ix) positively and effectively manage our public image and reputation and respond appropriately to unanticipated failures to maintain a high level of product and service quality that could result in a negative impact on customer confidence and adversely affect sales; and (x) effectively manage our relationships with selected suppliers of brand name products and key vendors and service providers, including third-party installers. In addition, we could experience impairment losses and other charges if either the actual results of our operating stores are not consistent with the assumptions and judgments we have made in estimating future cash flows and determining asset fair values, or we are required to reduce the carrying amount of our investment in certain unconsolidated entities. With respect to acquisitions and dispositions, potential risks include the effect of such transactions on Lowe’s and the target company’s or operating business’s strategic relationships, operating results and businesses generally; our ability to

integrate or divest personnel, labor models, financial, IT and other systems successfully; disruption of our ongoing business and distraction of management; hiring additional management and other critical personnel; increasing or decreasing the scope, geographic diversity, and complexity of our operations; significant integration or disposition costs or unknown liabilities; and failure to realize the expected benefits of the transaction. For more information about these and other risks and uncertainties that we are exposed to, you should read “Item 1A - Risk Factors” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” included in our most recent Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the SEC) and the description of material changes thereto, if any, included in our Quarterly Reports on Form 10-Q or subsequent filings with the SEC.

The forward-looking statements contained in this Form 10-Q are expressly qualified in their entirety by the foregoing cautionary statements. The foregoing list of important factors that may affect future results is not exhaustive. When relying on forward-looking statements to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. All such forward-looking statements are based upon data available as of the date of this Form 10-Q or other specified date and speak only as of such date. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf about any of the matters covered in this Form 10-Q are qualified by these cautionary statements and the risk factors disclosed in “Item 1A - Risk Factors” in the Annual Report and the description of material changes thereto, if any, included in our Quarterly Reports on Form 10-Q or subsequent filings with the SEC. We expressly disclaim any obligation to update or revise any forward-looking statement, whether as a result of new information, change in circumstances, future events or otherwise, except as may be required by law.

Item 3. - Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to certain market risks, including changes in foreign currency exchange rates related to our international operations, interest rates, and commodity prices. The Company’s market risks have not changed materially from that disclosed in the Annual Report for the fiscal year ended February ~~2, 2018.~~1, 2019.

Item 4. - Controls and Procedures

The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company’s “disclosure controls and procedures,” (as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act)). Based upon their evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of November ~~2, 2018,~~1, 2019, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

In addition, no change in the Company’s internal control over financial reporting occurred during the quarter ended November ~~2, 2018,~~1, 2019, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II – OTHER INFORMATION

Item 1. - Legal Proceedings

The Company is from time to time a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. With respect to such lawsuits, claims and proceedings, the Company records reserves when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. The Company does not believe that any of these proceedings, individually or in the aggregate, would be expected to have a material adverse effect on its results of operations, financial position or cash flows. The Company maintains liability insurance for certain risks that are subject to certain self-insurance limits.

As previously reported, in May 2019, the Company received a letter from the California South Coast Air Quality Management District ("SCAQMD") regarding allegations that the Company sold denatured alcohol since 2015 in a manner that is not compliant with applicable rules. The Company is currently in discussions with SCAQMD. Although the Company cannot predict the outcome of this matter, the Company does not expect the outcome to have a material adverse effect on its consolidated financial condition, results of operations, or cash flows.

Item 1A. - Risk Factors

There have been no material changes in the Company’s risk factors from those disclosed in “Item 1A - Risk Factors” in the Annual Report, except with respect to the risk factor regarding the retirement of our Chief Executive Officer and the appointment of a new Chief Executive Officer and other members of our leadership team, which has been amended and restated as follows:Report.

If we do not successfully manage the transitions associated with the retirement of our Chief Financial Officer and the appointment of a new Chairman and a new Chief Executive Officer and Chief Financial Officer and other members of our leadership team as part of a new leadership structure, it could have an adverse impact on our business operations as well as be viewed negatively by our customers and shareholders.

On May 20, 2018, the Board of Directors of the Company appointed Marvin R. Ellison as President and Chief Executive Officer and Richard R. Dreiling as Chairman of the Board of Directors, in each case, effective as of July 2, 2018. On July 2, 2018, Mr. Ellison assumed the office of President and Chief Executive Officer and joined the Board of Directors, and Mr. Dreiling became Chairman of the Board of Directors. Mr. Ellison and Mr. Dreiling succeeded Robert A. Niblock, who retired as Chairman, President and Chief Executive Officer of the Company and member of the Board of Directors effective July 2, 2018. On June 4, 2018, we announced that Marshall A. Croom plans to retire from the Company, effective October 5, 2018, and on August 22, 2018, we named David M. Denton as Executive Vice President, Chief Financial Officer, which appointment became effective on November 19, 2018. On October 2, 2018, the Board of Directors of the Company appointed Tiffany L. Mason as Interim Chief Financial Officer, in addition to her duties as Senior Vice President, Corporate Finance and Treasurer, effective from October 5, 2018 until Mr. Denton joined the Company on November 19, 2018. On October 5, 2018, Marshall A. Croom retired as Chief Financial Officer of the Company. In addition, on July 9, 2018, we announced the implementation of a new leadership structure and named William P. Boltz as Executive Vice President, Merchandising effective August 15, 2018. On July 20, 2018, we named Joseph M. MacFarland III as Executive Vice President, Stores effective August 15, 2018. On August 7, 2018, we named Donald E. Frieson as Executive Vice President, Supply Chain effective August 8, 2018. On November 2, 2018, the Company announced ~~the appointment of Seemantini Godbole as Chief Information Officer, effective~~ ~~November 12, 2018~~. Such leadership transitions can be inherently difficult to manage, and an inadequate transition may cause disruption to our business, including to our relationships with our customers, suppliers, vendors and employees. It may also make it more difficult to hire and retain key employees.

Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The following table sets forth information with respect to purchases of the Company’s common stock made during the third quarter of fiscal ~~2018:~~2019:

Total Number of Shares Purchased ¹

Average Price Paid per Share

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ²

Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ²

August 4, 2018 - August 31, 2018 ³
3,305,025
$ 109.02
3,304,298
$ 4,696,523,850
September 1, 2018 - October 5, 2018 1,658,249
112.96
1,441,668
4,570,177,217
October 6, 2018 - November 2, 2018 ³
963,730
100.69
962,300
4,473,280,600
As of November 2, 2018 5,927,004
$ 108.77
5,708,266
$ 4,473,280,600



	Total Number of Shares Purchased ¹	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ²	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ²
August 3, 2019 - August 30, 2019 ³	4,075,074	$	106.21	4,074,119	$	10,633,132,657
August 31, 2019 - October 4, 2019	1,722,158	111.55		1,518,990	10,464,045,888
October 5, 2019 - November 1, 2019 ³	2,119,679	110.10		2,118,262	10,327,247,150
As of November 1, 2019	7,916,911	$	108.41	7,711,371	$	10,327,247,150


¹	The total number of shares repurchased includes shares withheld from employees to satisfy either the exercise price of stock options or the statutory withholding tax liability upon the vesting of share-based awards.


²	On January 26, 2018, the Company’s Board of Directors authorized a $5.0 billion share repurchase program with no expiration, which was announced on the same day. On December 12, 2018, the Company’s Board of Directors authorized an additional $10.0 billion share repurchase program with no expiration, which was announced on the same day.

In August ~~2018,~~2019, the Company entered into ana variable notional Accelerated Share Repurchase (ASR) agreement with a third-party financial institution to repurchase ~~$310~~between $350 million and $500 million of the Company’s common stock. ~~Pursuant~~At inception, pursuant to the agreement, the Company paid ~~$310~~$500 million to the financial institution and received an initial delivery of ~~2.5~~2.8 million shares. In October, ~~2018,~~ prior to the end of the third quarter, the Company finalized the transaction for $397 million and received an additional ~~0.3~~0.8 million ~~shares.~~shares and a $103 million cash payment from the financial institution, which is equal to the difference between the $500 million payment made at inception and the final notional amount. The average price paid per share in settlement of the ASR agreement included in the table above was determined with reference to the volume-weighted average price of the Company’s common stock over the term of the ASR agreement. See Note 1011 to the consolidated financial statements included herein for additional information regarding share repurchases.

Item 6. - Exhibits

Exhibit
Number
Incorporated by Reference
Exhibit Description Form File No. Exhibit Filing Date

3.1
Restated Charter of Lowe’s Companies, Inc.
10-Q 001-07898 3.1 September 1, 2009

3.2
Bylaws of Lowe’s Companies, Inc., as amended and restated August 17, 2018.
8-K 001-07898 3.1 August 22, 2018

10.1
Offer Letter between Lowe’s Companies, Inc. and David M. Denton entered into on August 20, 2018.*
10-Q 001-07898 10.3 September 4, 2018

10.2
Lowe’s Companies, Inc. Severance Plan for Senior Officers effective August 16, 2018.*
10-Q 001-07898 10.9 September 4, 2018

10.3
Second Amended and Restated Credit Agreement, dated as of September 10, 2018, by and among Lowe’s Companies, Inc., Bank of America, N.A., as administrative agent and a letter of credit issuer, U.S. Bank National Association, as syndication agent and a letter of credit issuer, Citibank, N.A., Goldman Sachs Bank USA, JPMorgan Chase Bank, N.A. and Wells Fargo Bank, National Association, as co-documentation agents, and the other lenders party thereto.

8-K
001-07898

10.1 September 12, 2018

10.4
364-Day Credit Agreement, dated as of September 10, 2018, by and among Lowe’s Companies, Inc., Bank of America, N.A., as administrative agent, U.S. Bank National Association, as syndication agent Citibank, N.A., Goldman Sachs Bank USA, JPMorgan Chase Bank, N.A. and Wells Fargo Bank, National Association, as co-documentation agents, and the other lenders party thereto.

8-K
001-07898

10.2 September 12, 2018

10.5
Retirement Agreement between Lowe’s Companies, Inc. and Marshall A. Croom entered into on September 27, 2018.*‡

10.6
Form of Lowe’s Companies, Inc. Director Indemnification Agreement.*‡

15.1
Deloitte & Touche LLP Letter re Unaudited Interim Financial Information.‡

31.1
Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.‡

31.2
Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.‡

32.1
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.†



~~32.2~~		~~Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.†~~

~~101.INS~~		~~XBRL Instance Document.‡~~

~~101.SCH~~		~~XBRL Taxonomy Extension Schema Document.‡~~

~~101.CAL~~		~~XBRL Taxonomy Extension Calculation Linkbase Document.‡~~

~~101.DEF~~		~~XBRL Taxonomy Extension Definition Linkbase Document.‡~~

~~101.LAB~~		~~XBRL Taxonomy Extension Label Linkbase Document.‡~~

~~101.PRE~~		~~XBRL Taxonomy Extension Presentation Linkbase Document.‡~~


*		~~Indicates a management contract or compensatory plan or arrangement.~~
‡		~~Filed herewith.~~
†		~~Furnished herewith.~~



Exhibit Number		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date

3.1	Restated Charter of Lowe’s Companies, Inc.	10-Q	001-07898	3.1	September 1, 2009

3.2	Bylaws of Lowe’s Companies, Inc., as amended and restated January 25, 2019.	8-K	001-07898	3.1	January 28, 2019

15.1	Deloitte & Touche LLP Letter re Unaudited Interim Financial Information.‡

31.1	Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.‡

31.2	Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.‡

32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.†

32.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.†

101.INS	XBRL Instance Document.‡

101.SCH	XBRL Taxonomy Extension Schema Document.‡

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.‡

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.‡

101.LAB	XBRL Taxonomy Extension Label Linkbase Document.‡

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.‡

104	Cover Page Interactive Data File (formatted as Inline XBRL document and included in Exhibit 101).‡


*	Indicates a management contract or compensatory plan or arrangement.
‡	Filed herewith.
†	Furnished herewith.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		LOWE’S COMPANIES, INC.
		(Registrant)

December ~~6, 2018~~3, 2019		By: /s/ ~~Matthew V. Hollifield~~David M. Denton
Date		~~Matthew V. Hollifield~~ ~~Senior~~ David M. Denton Executive Vice President, ~~and~~ Chief ~~Accounting~~Financial Officer



	Three Months Ended November 2, 2018
Consolidated Statement of Earnings (in millions)	As Reported		Under Historical Guidance		Impact of Adopting ASU 2014-09
Net sales	$	17,415	$	17,176	$	239
Cost of sales	11,755		11,777		(22		)
Gross margin	5,660		5,399		261
Selling, general and administrative	4,270		4,009		261
Operating income	957		957		—
Pre-tax earnings	804		804		—
Net earnings	629		629		—



	Balance at November 2, 2018
Consolidated Balance Sheet (in millions)	As Reported		Under Historical Guidance		Impact of Adopting ASU 2014-09
Assets
Other current assets	$	897	$	746	$	151

Liabilities
Accounts payable	9,283		9,272		11
Deferred revenue	1,356		1,433		(77		)
Other current liabilities	2,507		2,339		168



(In millions)	June 23, 2017
Allocation:
Cash acquired	$	4
Merchandise inventory	68
Other current assets	36
Property	12
Goodwill	160
Other assets	260
Accounts payable	(18		)
Other current liabilities	(9		)
Net assets acquired	$	513