SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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

For the quarterly period ended ~~November 1, 2019~~July 31, 2020



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

For the transition period from ______ to ______

Commission File Number 1-7898

LOWE’S COMPANIES, INC.

(Exact name of registrant as specified in its charter)

North Carolina

56-0578072

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

~~North Carolina~~

~~56-0578072~~

~~(State or other jurisdiction of incorporation or organization)~~

~~(I.R.S. Employer Identification No.)~~

1000 Lowe’s Blvd.

Mooresville,

North Carolina

28117

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code

~~(704)~~

(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. ☒ Yes ☐ 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). ☒ Yes ☐ 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 filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ 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 ~~11/29/2019~~8/24/2020
Common Stock, $0.50 par value						~~766,475,430~~755,736,046

LOWE’S COMPANIES, INC.

- TABLE OF CONTENTS -


						Page No.
Forward-Looking Statements							3
PART I - Financial Information						~~Page No.~~	4
			Item 1.		Financial Statements	4
			~~Item 1.~~		~~Financial Statements~~
��
		Consolidated Balance Sheets ~~— November 1, 2019 (Unaudited), November 2, 2018 (Unaudited) and February 1, 2019~~		34

		Consolidated Statements of ~~Current and Retained~~ Earnings ~~(Unaudited) — Three and nine months ended November 1, 2019 and November 2, 2018~~		45

		Consolidated Statements of Comprehensive Income ~~(Unaudited) — Three and nine months ended November 1, 2019 and November 2, 2018~~		45

		Consolidated Statements of Shareholders’ Equity ~~(Unaudited) — Three and nine months ended November 1, 2019 and November 2, 2018~~		56

		Consolidated Statements of Cash Flows ~~(Unaudited) — Nine months ended November 1, 2019 and November 2, 2018~~		78

		Notes to Consolidated Financial Statements ~~(Unaudited)~~		89
					Note 1 :Summary of Significant Accounting Policies	9
					Note 2: Revenue	10
					Note 3: Investments	11
					Note 4: Fair Value Measurements	12
					Note 5 : Short-Term Borrowings	14
					Note 6 : Long-Term Debt	14
					Note 7 : Derivative Instruments	14
					Note 8 : Shareholders’ Equity	15
					Note 9 : Earnings Per Share	16
					Note 1 0 : Income Taxes	16
					Note 1 1 : Supplemental Disclosure	16
					Report of Independent Registered Public Accounting Firm	2318

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2419

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk		3328

	Item 4.	Controls and Procedures		3328

PART II - Other Information

	~~Item 1.~~	~~Legal Proceedings~~30		34

	Item ~~1A.~~1.	~~Risk Factors~~Legal Proceedings		3430
			Item 1A.		Risk Factors	30
			Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	3430

	Item 6.	Exhibits		3531

		Signature		3632

Table of Contents

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”, “outlook”, “guidance”, and similar expressions are forward-looking statements. Forward-looking statements involve, among other things, expectations, projections, and assumptions about future financial and operating results, objectives, business outlook, priorities, sales growth, shareholder value, capital expenditures, cash flows, the housing market, the home improvement industry, demand for products and services, share repurchases, Lowe’s strategic initiatives, including those relating to acquisitions and dispositions and the impact of such transactions on our strategic and operational plans and financial results. Such statements involve risks and uncertainties and we can give no assurance that they 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, changes in commodity prices, changes or threatened changes in tariffs, outbreak of public health crises, such as the COVID-19 pandemic, availability and cost of goods from suppliers, changes in our management and key personnel, and other factors that can negatively affect our customers.

Investors and others should carefully consider the foregoing factors and other uncertainties, risks and potential events including, but not limited to, those described in “Item 1A - Risk Factors” in our most recent Annual Report on Form 10-K and as may be updated from time to time in Item 1A in our quarterly reports on Form 10-Q or other subsequent filings with the SEC, and in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” of this report on Form 10-Q. All such forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update these statements other than as required by law.

Table of Contents

Part I - FINANCIAL INFORMATION

Item 1. Financial Statements

Lowe’s Companies, Inc.

Consolidated Balance Sheets (Unaudited)

In Millions, Except Par Value Data

(Unaudited) (Unaudited)
November 1, 2019 November 2, 2018 February 1, 2019
Assets
Current assets:
Cash and cash equivalents $ 794
$ 1,668
$ 511
Short-term investments 127
208
218
Merchandise inventory - net 13,716
12,365
12,561
Other current assets 1,025
897
938
Total current assets 15,662
15,138
14,228
Property, less accumulated depreciation 18,371
18,923
18,432
Operating lease right-of-use assets 3,873
—
—
Long-term investments 363
290
256
Deferred income taxes - net 479
285
294
Goodwill 303
1,272
303
Other assets 713
805
995
Total assets $ 39,764
$ 36,713
$ 34,508

Liabilities and shareholders' equity
Current liabilities:
Short-term borrowings $ 637
$ —
$ 722
Current maturities of long-term debt 574
1,117
1,110
Current operating lease liabilities 499
—
—
Accounts payable 8,822
9,283
8,279
Accrued compensation and employee benefits 779
806
662
Deferred revenue 1,222
1,356
1,299
Other current liabilities 2,530
2,507
2,425
Total current liabilities 15,063
15,069
14,497
Long-term debt, excluding current maturities 16,635
14,460
14,391
Noncurrent operating lease liabilities 3,942
—
—
Deferred revenue - extended protection plans 875
827
827
Other liabilities 791
963
1,149
Total liabilities 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

February 1, 2019 801
384
403
401
Capital in excess of par value —
—
—
Retained earnings 2,238
5,156
3,452
Accumulated other comprehensive loss (164 ) (165 ) (209 )
Total shareholders' equity 2,458
5,394
3,644
Total liabilities and shareholders' equity $ 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
November 1, 2019 November 2, 2018 November 1, 2019 November 2, 2018
Current Earnings Amount % Sales Amount % Sales Amount % Sales Amount % Sales
Net sales $ 17,388
100.00 $ 17,415
100.00 $ 56,121
100.00 $ 55,662
100.00
Cost of sales 11,748
67.56 12,038
69.12 38,159
67.99 37,653
67.64
Gross margin 5,640
32.44 5,377
30.88 17,962
32.01 18,009
32.36
Expenses:
Selling, general and administrative 3,772
21.69 3,997
22.95 11,682
20.82 12,315
22.13
Depreciation and amortization 310
1.79 423
2.43 924
1.65 1,108
1.99
Operating income 1,558
8.96 957
5.50 5,356
9.54 4,586
8.24
Interest - net 177
1.02 153
0.88 508
0.90 467
0.84
Pre-tax earnings 1,381
7.94 804
4.62 4,848
8.64 4,119
7.40
Income tax provision 332
1.90 175
1.01 1,077
1.92 981
1.76
Net earnings $ 1,049
6.04 $ 629
3.61 $ 3,771
6.72 $ 3,138
5.64

Weighted average common shares outstanding - basic 769
806
782
815

Basic earnings per common share $ 1.36
$ 0.78
$ 4.81
$ 3.84

Weighted average common shares outstanding - diluted 770
807
783
816

Diluted earnings per common share $ 1.36
$ 0.78
$ 4.80
$ 3.83

Cash dividends per share $ 0.55
$ 0.48
$ 1.58
$ 1.37

Retained Earnings
Balance at beginning of period $ 2,439
$ 5,517
$ 3,452
$ 5,425

Cumulative effect of accounting change —
—
(263 ) 33

Net earnings 1,049
629
3,771
3,138

Cash dividends declared (423 ) (387 ) (1,233 ) (1,115 )
Share repurchases (827 ) (603 ) (3,489 ) (2,325 )
Balance at end of period $ 2,238
$ 5,156
$ 2,238
$ 5,156


	July 31, 2020		August 2, 2019		January 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	11,641	$	1,796	$	716
Short-term investments	1,085		275		160
Merchandise inventory – net	13,831		13,730		13,179
Other current assets	1,160		995		1,263
Total current assets	27,717		16,796		15,318
Property, less accumulated depreciation	18,612		18,203		18,669
Operating lease right-of-use assets	3,798		3,967		3,891
Long-term investments	326		179		372
Deferred income taxes – net	267		512		216
Other assets	1,043		1,038		1,005
Total assets	$	51,763	$	40,695	$	39,471

Liabilities and shareholders' equity
Current liabilities:
Short-term borrowings	$	1,000	$	—	$	1,941
Current maturities of long-term debt	609		1,009		597
Current operating lease liabilities	520		492		501
Accounts payable	12,916		9,499		7,659
Accrued compensation and employee benefits	1,139		717		684
Deferred revenue	1,715		1,324		1,219
Other current liabilities	3,471		2,794		2,581
Total current liabilities	21,370		15,835		15,182
Long-term debt, excluding current maturities	20,197		16,538		16,768
Noncurrent operating lease liabilities	3,859		4,055		3,943
Deferred revenue – extended protection plans	981		868		894
Other liabilities	1,000		759		712
Total liabilities	47,407		38,055		37,499

Shareholders' equity:
Preferred stock, $5 par value: Authorized – 5.0 million shares; Issued and outstanding – 0ne	—		—		—
Common stock, $0.50 par value: Authorized – 5.6 billion shares; Issued and outstanding – 756 million, 776 million, and 763 million shares, respectively	378		388		381
Capital in excess of par value	129		—		—
Retained earnings	4,134		2,439		1,727
Accumulated other comprehensive loss	(285)		(187)		(136)
Total shareholders' equity	4,356		2,640		1,972
Total liabilities and shareholders' equity	$	51,763	$	40,695	$	39,471

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

Table of Contents

Lowe’s Companies, Inc.

Consolidated Statements of Earnings (Unaudited)

In Millions, Except Per Share and Percentage Data


	Three Months Ended														Six Months Ended
	July 31, 2020						August 2, 2019						July 31, 2020				August 2, 2019
Current Earnings	Amount		% Sales		Amount		% Sales		Amount		% Sales		Amount		% Sales
Net sales	$	27,302	100.00	%	$	20,992	100.00	%	$	46,977	100.00	%	$	38,733	100.00	%
Cost of sales	17,998		65.92		14,252		67.89		31,161		66.33		26,412		68.19
Gross margin	9,304		34.08		6,740		32.11		15,816		33.67		12,321		31.81
Expenses:
Selling, general and administrative	5,020		18.39		4,048		19.29		9,215		19.62		7,909		20.42
Depreciation and amortization	327		1.20		311		1.48		653		1.39		614		1.58
Operating income	3,957		14.49		2,381		11.34		5,948		12.66		3,798		9.81
Interest – net	219		0.80		169		0.80		423		0.90		331		0.86

Pre-tax earnings	3,738		13.69		2,212		10.54		5,525		11.76		3,467		8.95
Income tax provision	910		3.33		536		2.56		1,360		2.89		745		1.92
Net earnings	$	2,828	10.36	%	$	1,676	7.98	%	$	4,165	8.87	%	$	2,722	7.03	%


Weighted average common shares outstanding – basic	752				781				754				788
Basic earnings per common share	$	3.74			$	2.14			$	5.50			$	3.44
Weighted average common shares outstanding – diluted	753				781				755				789
Diluted earnings per common share	$	3.74			$	2.14			$	5.50			$	3.44

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											Three Months Ended														Six Months Ended
	November 1, 2019				November 2, 2018					November 1, 2019					November 2, 2018						July 31, 2020						August 2, 2019						July 31, 2020				August 2, 2019
	Amount			% Sales	Amount			% Sales		Amount			% Sales		Amount			% Sales			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		Net earnings	$	2,828	10.36	%	$	1,676	7.98	%	$	4,165	8.87	%	$	2,722	7.03	%
Foreign currency translation adjustments - net of tax	24			0.13	(21		)	(0.13	)	60			0.11		(176		)	(0.32	)
Foreign currency translation adjustments – net of tax																				Foreign currency translation adjustments – net of tax	114		0.41		69		0.33		(45)		(0.10)		36		0.09
Cash flow hedges – net of tax																				Cash flow hedges – net of tax	(5)		(0.02)		—		—		(108)		(0.23)		(16)		(0.04)
Other	(1		)	—	(1		)	—		(15		)	(0.03	)	(1		)	—		Other	(1)		—		—		—		4		0.01		2		—
Other comprehensive income/(loss)	23			0.13	(22		)	(0.13	)	45			0.08		(177		)	(0.32	)	Other comprehensive income/(loss)	108		0.39		69		0.33		(149)		(0.32)		22		0.05
Comprehensive income	$	1,072		6.17	$	607		3.48		$	3,816		6.80		$	2,961		5.32		Comprehensive income	$	2,936	10.75	%	$	1,745	8.31	%	$	4,016	8.55	%	$	2,744	7.08	%

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

Table of Contents

Lowe’s Companies, Inc.

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

In Millions ~~Except Per Share Data~~


	Three Months Ended July 31, 2020
	Common Stock					Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
	Shares	Amount
Balance May 1, 2020	755	$	377	$	10	$	1,722	$	(393)		$	1,716

Net earnings	—	—		—		2,828		—			2,828
Other comprehensive income	—	—		—		—		108			108
Cash dividends declared, $0.55 per share	—	—		—		(416)		—			(416)
Share-based payment expense	—	—		41		—		—			41

Issuance of common stock under share-based payment plans	1	1		78		—		—			79
Balance July 31, 2020	756	$	378	$	129	$	4,134	$	(285)		$	4,356

	Six Months Ended July 31, 2020
	Common Stock					Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
	Shares	Amount
Balance January 31, 2020	763	$	381	$	—	$	1,727	$	(136)		$	1,972

Net earnings	—	—		—		4,165		—			4,165
Other comprehensive loss	—	—		—		—		(149)			(149)
Cash dividends declared, $1.10 per share	—	—		—		(831)		—			(831)
Share-based payment expense	—	—		64		—		—			64
Repurchases of common stock	(10)	(5)		(15)		(927)		—			(947)
Issuance of common stock under share-based payment plans	3	2		80		—		—			82
Balance July 31, 2020	756	$	378	$	129	$	4,134	$	(285)		$	4,356

Table of Contents


																							Three Months Ended August 2, 2019
	Three Months Ended November 1, 2019																						Common Stock													Capital in Excess of Par Value				Retained Earnings				Accumulated Other Comprehensive Loss									Total Shareholders’ Equity
	Common Stock					Capital in Excess of Par Value				Retained Earnings				Accumulated Other Comprehensive Income/(Loss)				Total Shareholders’ Equity					Shares						Amount
Balance May 3, 2019									Balance May 3, 2019				795											$	397					$	—		$	3,095			$	(256)										$	3,236
	Shares		Amount						Capital in Excess of Par Value				Retained Earnings				Accumulated Other Comprehensive Income/(Loss)				Total Shareholders’ Equity
Balance August 2, 2019	776		$	388
Net earnings										1,049															1,049			Net earnings		—			—				—				1,676				—									1,676
Other comprehensive income														23				23					Other comprehensive income		—						—			—				—				69										69
Cash dividends declared, $0.55 per share										(423		)						(423		)	Cash dividends declared, $0.55 per share		—						—			—				(428)				—										(428)
Share-based payment expense						20												20			Share-based payment expense		—						—			13				—				—										13
Repurchase of common stock	(8	)	(4		)	(27		)		(827		)						(858		)
Repurchases of common stock																					Repurchases of common stock		(20)						(9)			(51)				(1,904)				—										(1,964)
Issuance of common stock under share-based payment plans	—		—			7			��									7			Issuance of common stock under share-based payment plans		1						—			38				—				—										38
Balance November 1, 2019	768		$	384		$	—			$	2,238			$	(164	)		$	2,458
Balance August 2, 2019																					Balance August 2, 2019		776						$	388		$	—			$	2,439			$	(187)									$	2,640

	Nine Months Ended November 1, 2019																						Six Months Ended August 2, 2019
	Common Stock					Capital in Excess of Par Value				Retained Earnings				Accumulated Other Comprehensive Income/(Loss)				Total Shareholders’ Equity					Common Stock													Capital in Excess of Par Value				Retained Earnings				Accumulated Other Comprehensive Loss									Total Shareholders’ Equity
	Shares		Amount										Shares								Amount
Balance February 1, 2019	801		$	401					$		—					$	3,452					$	(209	)		$	3,644		Balance February 1, 2019		801			$	401			$	—			$	3,452			$	(209)								$	3,644
Cumulative effect of accounting change										(263		)						(263		)	Cumulative effect of accounting change		—						—			—					(263)				—											(263)
Net earnings										3,771								3,771			Net earnings		—						—			—				2,722				—											2,722
Other comprehensive income														45				45			Other comprehensive income		—						—			—				—				22										22
Cash dividends declared, $1.58 per share										(1,233		)						(1,233		)
Cash dividends declared, $1.03 per share																					Cash dividends declared, $1.03 per share		—						—			—				(810)				—										(810)
Share-based payment expense						72												72			Share-based payment expense		—						—			52				—				—										52
Repurchase of common stock	(36	)	(18		)	(148		)		(3,489		)						(3,655		)
Repurchases of common stock																					Repurchases of common stock		(28)						(14)			(121)				(2,662)				—										(2,797)
Issuance of common stock under share-based payment plans	3		1			76												77			Issuance of common stock under share-based payment plans		3						1			69				—				—										70
Balance November 1, 2019	768		$	384		$	—			$	2,238			$	(164	)		$	2,458
Balance August 2, 2019																					Balance August 2, 2019		776						$	388		$	—			$	2,439			$	(187)									$	2,640

~~Lowe’s Companies, Inc.~~

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

~~In Millions, Except Per Share Data~~

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
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

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).~~

Table of Contents

Lowe’s Companies, Inc.

Consolidated Statements of Cash Flows (Unaudited)

In Millions


	Nine Months Ended							Six Months Ended
	November 1, 2019			November 2, 2018				July 31, 2020		August 2, 2019
Cash flows from operating activities:							Cash flows from operating activities:
Net earnings	$	3,771		$	3,138		Net earnings	$	4,165	$	2,722
Adjustments to reconcile net earnings to net cash provided by operating activities:							Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	1,029			1,206			Depreciation and amortization	747		684
Noncash lease expense	341			—			Noncash lease expense	234		228
Deferred income taxes	(88		)	(139		)	Deferred income taxes	(14)		(121)
Loss on property and other assets - net	93			400
Loss on cost method and equity method investments	12			6
Loss on property and other assets – net							Loss on property and other assets – net	80		38

Share-based payment expense	75			79			Share-based payment expense	64		51
Changes in operating assets and liabilities:							Changes in operating assets and liabilities:
Merchandise inventory - net	(1,129		)	(1,030		)
Merchandise inventory – net							Merchandise inventory – net	(674)		(1,153)
Other operating assets	(108		)	(94		)	Other operating assets	66		(104)
Accounts payable	523			2,708			Accounts payable	5,259		1,202
Other operating liabilities	(408		)	524			Other operating liabilities	1,825		36
Net cash provided by operating activities	4,111			6,798			Net cash provided by operating activities	11,752		3,583

Cash flows from investing activities:							Cash flows from investing activities:
Purchases of investments	(563		)	(1,298		)	Purchases of investments	(1,132)		(245)
Proceeds from sale/maturity of investments	556			1,309			Proceeds from sale/maturity of investments	260		272
Capital expenditures	(927		)	(846		)	Capital expenditures	(710)		(526)
Proceeds from sale of property and other long-term assets	71			50			Proceeds from sale of property and other long-term assets	46		42
Other - net	—			(3		)
Other – net							Other – net	(24)		(1)
Net cash used in investing activities	(863		)	(788		)	Net cash used in investing activities	(1,560)		(458)

Cash flows from financing activities:							Cash flows from financing activities:
Net change in short-term borrowings	(85		)	(1,137		)
Net proceeds from issuance of long-term debt	2,972			—
Net change in commercial paper							Net change in commercial paper	(941)		(722)
Net proceeds from issuance of debt							Net proceeds from issuance of debt	3,961		2,972
Repayment of long-term debt	(1,092		)	(288		)	Repayment of long-term debt	(568)		(629)
Proceeds from issuance of common stock under share-based payment plans	78			73			Proceeds from issuance of common stock under share-based payment plans	83		72
Cash dividend payments	(1,195		)	(1,068		)	Cash dividend payments	(836)		(767)
Repurchase of common stock	(3,649		)	(2,498		)
Other - net	(7		)	(3		)
Net cash used in financing activities	(2,978		)	(4,921		)
Repurchases of common stock							Repurchases of common stock	(966)		(2,770)
Other – net							Other – net	(4)		(7)
Net cash provided by (used in) financing activities							Net cash provided by (used in) financing activities	729		(1,851)

Effect of exchange rate changes on cash	1			(9		)	Effect of exchange rate changes on cash	4		(1)

Net increase in cash and cash equivalents, including cash classified within current assets held for sale	271			1,080			Net increase in cash and cash equivalents, including cash classified within current assets held for sale	10,925		1,273
Less: Net decrease in cash classified within current assets held for sale	12			—			Less: Net decrease in cash classified within current assets held for sale	—		12
Net increase in cash and cash equivalents	283			1,080			Net increase in cash and cash equivalents	10,925		1,285
Cash and cash equivalents, beginning of period	511			588			Cash and cash equivalents, beginning of period	716		511
Cash and cash equivalents, end of period	$	794		$	1,668		Cash and cash equivalents, end of period	$	11,641	$	1,796

Lowe’s Companies, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Note 1: Summary of Significant Accounting Policies

Basis of Presentation

Also in response to COVID-19, the Company took proactive steps to further enhance its liquidity position by suspending its share repurchase program, increasing the capacity of its revolving credit facilities and the associated commercial paper program, as well as issuing senior notes in March 2020. See Note 5 and Note 6 for further discussion.

~~Accounting Pronouncements Recently Adopted~~

~~Effective February 2, 2019,~~period presentation, including the ~~Company adopted Accounting Standards Update (ASU) 2016-02,~~ ~~Leases (Topic 842),~~ ~~and all related amendments, using the optional transition approach and recognized the cumulative impact~~addition of adoption in the opening balance of retained earnings. Under ASU 2016-02, lessees are required to recognize lease assets and lease liabilities on the balance sheet for those leases previously classified as operating leases. The Company adopted the standard utilizing the transition election to not restate comparative periods for the impact of adopting the standard and recognizing the cumulative impact of adoption in the opening balance of retained earnings. The Company 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,cash flow hedges – 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~~on the write-off of right-of-use assets associated with closed locations, net of previously established store closing lease obligations as well as the 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~~the inclusion of goodwill within other assets on the ~~Company’s debt covenant compliance under its current agreements. See Note 3 for additional details~~consolidated balance sheets.

Accounting Pronouncements Not Yet Adopted

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-04, Reference Rate Reform (Topic 848): Facilitation of Effects of Reference Rate Reform on Financial Reporting. The ASU provides practical expedients for contract modification accounting related to the transition away from the London Interbank Offered Rate (LIBOR) and other interbank offering rates to alternative reference rates. The expedients are applicable to contract modifications made and hedging relationships entered into on or before December 31, 2022. The Company intends to leverage the expedient when needed for reference rate transition. The Company continues to evaluate this standard update, and does not expect a material impact to the Company’s financial statements or disclosures.

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

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

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:

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 adoption of ASC 842,~~ ~~Leases~~, on February 2, 2019, the Company is required to present future minimum lease payments for operating and finance lease obligations having initial or remaining non-cancelable lease terms in excess of one year. These future minimum lease payments were previously disclosed in our 2018 Annual Report on Form 10-K and accounted for under previous lease guidance. Commitments as of 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 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.


(In millions)	Three Months Ended									Six Months Ended
			July 31, 2020			August 2, 2019			July 31, 2020			August 2, 2019
Products	$	26,359		$	19,976		$	45,380		$	36,877
Services	508			591			907			1,144
Other	435			425			690			712
Net sales	$	27,302		$	20,992		$	46,977		$	38,733

(In millions) Three Months Ended Nine Months Ended
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

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. 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. The merchandise return reserve is presented on a gross basis, with a separate asset and liability included in the consolidated balance sheets. Anticipated sales returns reflected in other current liabilities were ~~$227~~$272 million at ~~November 1, 2019~~July 31, 2020, and ~~$229~~$232 million at ~~November~~August 2, ~~2018.~~2019. The associated right of return assets reflected in other current assets were ~~$148~~$173 million at ~~November 1, 2019~~July 31, 2020, and ~~$151~~$152 million at ~~November~~August 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.2019.

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. - retail

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~~$1.3 billion at July 31, 2020, and $875 million at ~~November 1, 2019 and $945 million at November~~August 2, ~~2018.~~2019. The majority of revenue for goods and services is recognized in the quarter following revenue deferral.

~~Stored-value~~Deferred revenue - stored-value cards

~~In addition, the Company defers~~The deferred 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 $444~~(gift cards and returned merchandise credits) were $433 million and ~~$411~~$449 million at ~~November 1,~~July 31, 2020, and August 2, 2019, ~~and November 2, 2018,~~ respectively, and these amounts are included in deferred revenue on the consolidated balance sheets. ~~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~~six months ended ~~November 1, 2019~~July 31, 2020, and ~~November~~August 2, ~~2018.~~2019.

~~Extended~~Deferred revenue - extended protection plans

The ~~Company also defers~~deferred revenues ~~for its separately-priced~~from 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 were $981 million and $868 million at July 31, 2020, and August 2, 2019, respectively. Revenue recognized into sales were ~~$103~~$101 million and ~~$303~~$208 million for the three and ~~nine~~six months ended ~~November 1, 2019,~~July 31, 2020, respectively, and ~~$97~~$101 million and ~~$293~~$200 million for the three and ~~nine~~six months ended ~~November~~August 2, ~~2018,~~2019, respectively. Incremental direct acquisition costs associated with the sale of extended protection plans for contracts greater than one year are also deferred and recognized as expense on a straight-line basis over the respective contract term and were insignificant at ~~November 1, 2019~~July 31, 2020, and ~~November~~August 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~~2019.

Disaggregation of Revenues

Building Products ³

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

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

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

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

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

³Building Products includes the following product categories: Building Materials, Electrical, Lighting, Lumber, Millwork, and Rough Plumbing


(In millions)	Three Months Ended									Six Months Ended
			July 31, 2020			August 2, 2019			July 31, 2020			August 2, 2019
United States	$	25,561		$	19,447		$	44,321		$	36,094
International	1,741			1,545			2,656			2,639
Net Sales	$	27,302		$	20,992		$	46,977		$	38,733

(In millions) Three Months Ended Nine Months Ended
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

Note 5:3: Investments - Available-for-sale debt securities are recorded at fair value, and unrealized gains and losses are recorded, net of tax, as a component of accumulated other comprehensive loss. Net unrealized gains on available-for-sale debt securities as of July 31, 2020, August 2, 2019, and January 31, 2020, were not material. Refer to Note 4 for the fair value of the Company’s available-for-sale debt securities by investment type.


(In millions)	July 31, 2020		August 2, 2019		January 31, 2020
Short-term investments:
Available-for-sale debt securities	$	435	275		$	160
Held-to-maturity securities	650		—		—
Total short-term investments	$	1,085	$	275	$	160
Long-term investments:
Available-for-sale debt securities	$	326	$	179	$	372
Total long-term investments	$	326	$	179	$	372


	Available-for-Sale
(In millions)	Cost Basis		Fair Value		Held-to-Maturity
Due in one year or less	$	433	$	435	$	650
Due after one year through five years	319		326		—
Total	$	752	$	761	$	650

Restricted Investments

Note 4: 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 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

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	July 31, 2020		August 2, 2019		January 31, 2020
Assets:
Short-term investments:
Available-for-sale debt securities
Certificates of deposit	Level 1	$	175	$	—	$	—
U.S. Treasury notes	Level 1	104		—		13
Money market funds	Level 1	98		241		105
Corporate debt securities	Level 2	35		12		23
Agency securities	Level 2	23		22		19
Total short-term investments		$	435	$	275	$	160
Long-term investments:
Available-for-sale debt securities
U.S. Treasury notes	Level 1	$	250	$	67	$	280
Corporate debt securities	Level 2	61		75		62
Agency securities	Level 2	15		37		30


Total long-term investments		$	326	$	179	$	372

Liabilities:
Other current liabilities:
Derivative instruments
Forward interest rate swaps	Level 2	$	20	$	—	$	11
Total other current liabilities		$	20	$	—	$	11
Other liabilities:
Derivative instruments
Forward interest rate swaps	Level 2	$	21	$	—	$	—
Total other liabilities		$	21	$	—	$	—

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

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 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 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 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 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 fiscal year 2018 as part of the Company’s strategic reassessment of the 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 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

Other Fair Value ~~of Financial Instruments~~Disclosures


	July 31, 2020						August 2, 2019						January 31, 2020
(In millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Unsecured notes (Level 1)	$	20,109	$	24,998	$	17,093	$	18,213	$	16,648	$	18,808
Mortgage notes (Level 2)	5		5		6		6		5		6
Long-term debt (excluding finance lease obligations)	$	20,114	$	25,003	$	17,099	$	18,219	$	16,653	$	18,814

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

Note 5: Short-Term Borrowings - In March 2020, the Company entered into a $1.02 billion five-year unsecured revolving credit agreement (the 2020 Credit Agreement) with a syndicate of banks. In connection with the 2020 Credit Agreement, the Company refinanced the 364-Day Credit Agreement (2019 Credit Agreement), dated as of September 9, 2019, and terminated any commitments under the 2019 Credit Agreement as of March 23, 2020. Borrowings under the 2020 Credit Agreement will bear interest calculated according to a Base Rate or a Eurocurrency Rate plus an applicable margin. The 2020 Credit Agreement contains customary representations, warranties and covenants for a transaction of this type. The Company was in compliance with those financial covenants at July 31, 2020.

The 2020 Credit Agreement, along with the $1.98 billion five year unsecured second amended and restated credit agreement (Second Amended and Restated Credit Agreement) entered into in September 2018, supports the Company’s commercial paper program. The amounts available to be drawn under the 2020 Credit Agreement and the Second Amended and Restated Credit Agreement are reduced by the amount of borrowings under the commercial paper program. As of July 31, 2020, and August 2, 2019, there were no outstanding borrowings under the 2020 Credit Agreement, Second Amended and Restated Credit Agreement, or the Company’s commercial paper program. Total combined availability under the 2020 Credit Agreement and the Second Amended and Restated Credit Agreement was $3.0 billion as of July 31, 2020.

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, and $218 million at February 1, 2019.

~~Restricted balances included in long-term investments were $363 million at November 1, 2019, $255 million at November 2, 2018, and $256 million at February 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, and $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 fiscal years 2018 and 2019, the Company has incurred costs associated with an ongoing strategic reassessment of its business to drive an increased focus on its core home improvement operations and to improve overall operating performance and profitability. As a result of this reassessment, the Company decided to exit certain activities and close certain locations as further described below. 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,~~On March 26, 2020, the Company issued ~~$3.0~~$4.0 billion of unsecured fixed rate notes as follows:


Principal Amount (in millions)		Maturity Date	Interest Rate	Discount (in millions)
$	750	April 2025	4.000%	$	4
$	1,250	April 2030	4.500%	$	12
$	750	April 2040	5.000%	$	10
$	1,250	April 2050	5.125%	$	13

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

Note 7: Derivative Instruments- The Company utilizes derivative financial instruments to hedge its exposure to changes in benchmark interest rates on forecasted debt issuances. The Company held forward interest rate swap agreements with notional amounts totaling $638 million at July 31, 2020, and $770 million at January 31, 2020. The Company did not hold forward interest rate swap agreements at August 2, 2019. See Note 4 for the ~~indenture includes various restrictive covenants, none~~gross fair values of ~~which is expected to impact~~ the Company’s ~~liquidity or capital resources.~~outstanding derivative financial instruments and corresponding fair value classifications. The cash flows related to forward interest rate swap agreements are included within operating activities in the accompanying consolidated statements of cash flows.


(In millions)	Three Months Ended									Six Months Ended
			July 31, 2020			August 2, 2019			July 31, 2020			August 2, 2019
Other comprehensive income/(loss)
Cash flow hedges – net of tax benefit of $1 million, $0 million, $35 million, $6 million, respectively	$	(3)		$	—		$	(107)		$	(16)
Net earnings
Interest – net	$	3		$	—		$	4		$	1

Note ~~10: Short-Term Borrowings -~~ In September 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 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 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 1, 2019.

The 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), 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 is reduced by the amount of borrowings under our commercial paper program. Outstanding borrowings under the Company’s commercial paper program were $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.

~~Note 11:~~8: 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 1, 2019,~~July 31, 2020, the Company had ~~$10.3~~$8.7 billion remaining in its share repurchase program. Due to the uncertainty caused by the COVID-19 pandemic, the Company suspended its share repurchases during the first quarter of fiscal 2020.

~~In March 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 2.9 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 8.93.9 million shares. The Company finalized the transaction and received an additional ~~1.0~~1.6 million shares ~~and a $420 million cash payment from the third-party financial institution~~ prior to the end of the ~~second~~first 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 the election to either deliver additional shares or cash to the financial institution, if required, and 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 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.

Each ASR 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.


	Three Months Ended
	July 31, 2020				August 2, 2019
(In millions)	Shares	Cost		Shares	Cost ¹
Share repurchase program	—	$	—	19.6	$	1,964

Total share repurchases	—	$	—	19.6	$	1,964

¹Reduction of $1.9 billion was recorded to retained earnings, after capital in excess of par value was depleted, for the three months endedAugust 2, 2019.


	Six Months Ended
	July 31, 2020				August 2, 2019
(In millions)	Shares	Cost ¹		Shares	Cost ¹
Share repurchase program	9.5	$	940	27.6	$	2,783
Shares withheld from employees	0.1	7		0.1	13
Total share repurchases	9.6	$	947	27.7	$	2,796

¹Reductions of $927 million and $2.7 billion were recorded to retained earnings, after capital in excess of par value was depleted, for the six months endedJuly 31, 2020, and August 2, 2019, respectively.

Three Months Ended
November 1, 2019 November 2, 2018
(In millions) Shares

Cost ¹

Shares

Cost ¹

Share repurchase program 7.7
$ 835
5.7
$ 620
Shares withheld from employees 0.2
23
0.2
25
Total share repurchases 7.9
$ 858
5.9
$ 645

~~Reductions of $827 million and $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, respectively.~~

Nine Months Ended
November 1, 2019 November 2, 2018
(In millions) Shares

Cost ²

Shares

Cost ²

Share repurchase program 35.3
$ 3,618
25.9
$ 2,470
Shares withheld from employees 0.3
36
0.3
38
Total share repurchases 35.6
$ 3,654
26.2
$ 2,508

~~Reductions of $3.5 billion and $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, respectively.~~

Note ~~12:~~9: 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 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~~six months ended ~~November 1, 2019~~July 31, 2020, and ~~November~~August 2, ~~2018:~~2019:


	Three Months Ended						Six Months Ended
(In millions, except per share data)	July 31, 2020		August 2, 2019		July 31, 2020		August 2, 2019
Basic earnings per common share:
Net earnings	$	2,828	$	1,676	$	4,165	$	2,722
Less: Net earnings allocable to participating securities	(12)		(6)		(16)		(9)
Net earnings allocable to common shares, basic	$	2,816	$	1,670	$	4,149	$	2,713
Weighted-average common shares outstanding	752		781		754		788
Basic earnings per common share	$	3.74	$	2.14	$	5.50	$	3.44
Diluted earnings per common share:
Net earnings	$	2,828	$	1,676	$	4,165	$	2,722
Less: Net earnings allocable to participating securities	(12)		(6)		(16)		(9)
Net earnings allocable to common shares, diluted	$	2,816	$	1,670	$	4,149	$	2,713
Weighted-average common shares outstanding	752		781		754		788
Dilutive effect of non-participating share-based awards	1		—		1		1
Weighted-average common shares, as adjusted	753		781		755		789
Diluted earnings per common share	$	3.74	$	2.14	$	5.50	$	3.44

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

Anti-dilutive stock options to purchase shares of common stock for the three months ended July 31, 2020, were insignificant. Stock options to purchase ~~0.9~~0.7 million shares of common stock were anti-dilutive for the six months ended July 31, 2020. Stock options to purchase 1.0 million and ~~0.9~~0.8 million shares of common stock were anti-dilutive for the three and ~~nine~~six months ended ~~November 1,~~August 2, 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.~~

Note ~~13:~~10: Income Taxes - The Company’s effective income tax rates were ~~24.0%~~24.4% and ~~22.2%~~24.6% for the three and ~~nine~~six months ended ~~November 1, 2019,~~July 31, 2020, respectively, and ~~21.8%~~24.2% and ~~23.8%~~21.5% for the three and ~~nine~~six months ended ~~November~~August 2, ~~2018, respectively.~~2019. 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~~six months ended ~~November 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 nine months ended November 1, 2019~~July 31, 2020, is primarily due to a favorable tax benefit recorded during the first quarter of 2019 associated with the 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 first quarter of 2019, after an extensive market evaluation, the decision was made to instead sell the assets of the business through liquidation, which resulted in a more favorable tax treatment.


	Three Months Ended						Six Months Ended
(In millions)	July 31, 2020		August 2, 2019		July 31, 2020		August 2, 2019
Long-term debt	$	211	$	173	$	398	$	327
Finance lease obligations	8		7		17		14
Short-term borrowings	2		—		12		6

Interest income	(8)		(12)		(12)		(19)
Interest capitalized	—		—		—		(1)
Interest on tax uncertainties	—		(1)		—		(2)
Other	6		2		8		6
Interest – net	$	219	$	169	$	423	$	331

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

Table of Contents

Supplemental disclosures of cash flow information:


	Six Months Ended
(In millions)	July 31, 2020		August 2, 2019
Cash paid for interest, net of amount capitalized	$	369	$	311
Cash paid for income taxes – net	$	670	$	612
Non-cash investing and financing activities:
Leased assets obtained in exchange for new finance lease liabilities	$	53	$	31
Leased assets obtained in exchange for new operating lease liabilities	$	193	$	317

Cash dividends declared but not paid	$	416	$	428

Nine Months Ended
(In millions) November 1, 2019 November 2, 2018
Cash paid for interest, net of amount capitalized $ 647
$ 555
Cash paid for income taxes - net $ 1,029
$ 1,069
Non-cash investing and financing activities:
Non-cash property acquisitions ¹
$ 251
$ 42
Cash dividends declared but not paid $ 423
$ 387

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

~~Note 15: Subsequent Events -~~ As part of a strategic review of Canadian operations, subsequent to the end of the Company’s third quarter of fiscal 2019, the Company decided to close 34 under-performing stores in Canada and execute additional restructuring actions to improve future sales and profitability of the remaining Canadian operations. As a result of these actions, the Company expects additional operating costs and pre-tax charges during the fourth quarter of 2019 of $175 to $225 million associated with inventory liquidation, accelerated depreciation and 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 1,~~July 31, 2020 and August 2, 2019, ~~and November 2, 2018,~~ the related consolidated statements of ~~current and retained~~ earnings, comprehensive income, and shareholders’ equity for the fiscal three-month and ~~nine-month~~six-month periods ended ~~November 1,~~July 31, 2020 and August 2, 2019, ~~and November 2, 2018,~~ and of cash flows for the ~~nine-month~~fiscal six-month periods ended ~~November 1,~~July 31, 2020 and August 2, 2019, ~~and November 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 1, 2019,~~January 31, 2020, 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 1, 2019,~~March 23, 2020, we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph regarding the ~~reclassification~~adoption 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.~~Financial Accounting Standards Board Accounting Standards Update 2016-02, Leases (Topic 842). In our opinion, the information set forth in the accompanying consolidated balance sheet as of ~~February 1, 2019,~~January 31, 2020, 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~~review 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 3, 2019~~August 26, 2020

Table of Contents

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~~six months ended ~~November 1, 2019,~~July 31, 2020, and ~~November~~August 2, ~~2018.~~2019. 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 1, 2019~~January 31, 2020 (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 ~~2018.~~2019. 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

Performance Overview

Net sales in the second quarter of 2020 increased 30.1% to $27.3 billion compared to net sales of $21.0 billion in the second quarter of 2019. The increase in total sales was primarily driven by an increase in comparable store sales. Net earnings in the ~~third~~second quarter of ~~2019~~2020 increased ~~66.8%~~68.8% to ~~$1.0~~$2.8 billion compared to net earnings of ~~$629 million~~$1.7 billion in the ~~third~~second quarter of ~~2018.~~2019. Diluted earnings per common share increased 74.9% in the ~~third~~second quarter of ~~2019~~2020 to ~~$1.36~~$3.74 from ~~$0.78~~$2.14 in the ~~third~~second quarter of 2018. Included in the third quarter of 2019 results is $53 million of non-cash pre-tax charges related to 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 included $280 million of pre-tax charges related to the Company’s prior year strategic reassessment of the business including cost related to long-lived asset impairments, accelerated depreciation and amortization, severance, discontinued project write-offs, lease obligation costs for closed locations and inventory adjustments to net realizable value.2019. Excluding the impact of ~~these items,~~operating costs related to the Canada restructuring, adjusted diluted earnings per common share increased ~~35.6%~~74.4% to ~~$1.41~~$3.75 in the ~~third~~second quarter of ~~2019~~2020 from adjusted diluted earnings per common share of ~~$1.04~~$2.15 in the ~~third~~second quarter of ~~2018~~2019 (see the discussion of non-GAAP financial measures ~~beginning on page 27)~~).

For the first ~~nine~~six months of ~~2019,~~2020, cash flows from operating activities were approximately ~~$4.1~~$11.8 billion, while ~~$927~~$710 million was used for capital expenditures. ~~Continuing~~We remain committed to ~~deliver on~~returning capital to 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~~dividend program and paid ~~$1.2 billion~~$416 million in ~~dividends.~~

~~During~~dividends during the ~~third~~second quarter of ~~2019, we capitalized on robust~~2020.

We experienced unprecedented customer demand ~~which drove strong traffic~~during the second quarter of 2020 largely due to a consumer mindset that remains heavily focused on the home during the COVID-19 pandemic. Our modernization efforts over the last 18 months to implement our ~~stores~~retail fundamentals strategy created the technology and ~~improved on store execution. We experienced comparable~~operational platforms needed to meet these demand levels and grow our business during these challenging times. Comparable sales ~~increase of 2.2% and~~increased by 34.2% with broad-based growth ~~with~~across all channels, product categories and geographies. All 15 U.S. regions ~~generating positive comparable sales for the second consecutive quarter, despite low single-digit online growth and higher than expected lumber deflation. Nine of 13 product categories~~ generated positive comparable sales ~~with particular strength~~of at least 30%, while our Canadian region’s comparable sales exceeded 20%.

During the second quarter, we completed the re-platforming of Lowes.com to the cloud which enabled us to improve site functionality to achieve triple-digit online sales growth during the quarter. With a focus on enhancing our omnichannel capabilities, we launched “mobile check-in” for curbside pickup in ~~Tools, Décor, Lawn & Garden, Appliances, Millwork, Paint, Hardware, Rough Plumbing & Electrical,~~early July and ~~Lumber & Building Materials.~~added an internal order picking app to improve our associate’s speed and accuracy in fulfilling orders. We also completed the rollout of our touchscreen point of sale system at checkouts across all our stores.

COVID-19 Response

Our ~~overall performance~~top priority in navigating the ~~third quarter demonstrates continued momentum executing~~COVID-19 pandemic continues to be protecting the health and well-being of our ~~retail fundamentals framework. Our initiatives to improve in-stock levels~~associates and ~~provide~~customers through 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 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 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.

safe store environment. In addition asto the safety measures we noted in the prior quarter, we are modernizing and transforming our e-commerce business as we address legacy issues with the Lowes.com website platform. We are working to improve the foundation of the platform to provide stability and increase our agility, which we believe are critical to growing our online presence. We expect to have the entire Lowes.com site on the cloudimplemented in the first quarter to support social distancing and enhance cleaning procedures, we added additional safety measures in the second quarter by requiring all front-line associates to wear masks and adopting a nationwide standard for all customers to wear masks. We are also committed to providing financial assistance to our hourly associates and communities which was demonstrated through an incremental total investment during the second quarter of ~~2020. With a modernized platform~~$461 million in ~~place, we expect to have the ability to address capability gaps to provide a better experience~~support of our hourly associates, communities, and store safety initiatives. This support included two bonus payments in July and August for our ~~customers.~~hourly front-line associates totaling $228 million, bringing our combined COVID-related financial support for associates to $562 million year-to-date. In

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~~During the third quarter, we initiated a strategic review~~support of our ~~Canadian business, inclusive~~communities, we have contributed $101 million in community pandemic relief, including grants to support minority-owned and rural small businesses.

Supply Chain

Due to strong customer demand during the second quarter and the impacts of ~~leadership changes,~~COVID-19 on production, certain product categories have experienced delays in replenishment. Those categories primarily impacted are Seasonal & Outdoor Living, Appliances, and Lumber. Despite the supply pressure, our supply chain teams, partnering with ~~a focus on improving execution and profitability. Based on this review, subsequent~~our vendors, were able to continue to flow considerable product volume to the ~~end~~stores and delivery nodes during the quarter.

Looking Forward

In the second half of 2020, we plan to continue reinvesting in our business to elevate our product offering, simplify our store environment and improve our service offering to support long-term growth. We are beginning a merchandising reset across our store portfolio to better align our product adjacencies to customer shopping patterns, especially for our Pro customers. This reset is forecasted to be completed in the current fiscal year for the majority of stores and is expected to improve bay productivity and better support sales. In addition, we will continue to invest in advancing our supply chain infrastructure to further our omnichannel capabilities and position the Company for future growth. Over the next 18 months, we are currently planning to open 50 cross-dock delivery terminals, seven bulk distribution centers, and four e-commerce fulfillment centers.

While we remain optimistic about our performance, we have limited visibility into future business trends in this unprecedented operating environment. This results in an unusually wide range of potential business outcomes and as such, we cannot be certain of the ~~third quarter~~volume or duration of ~~fiscal 2019, the Company decided to close 34 under-performing stores~~customer demand or potential supply chain constraints in Canada and execute additional restructuring actions to improve execution and profitability of the Canadian operations. As a result of these actions, the Company expects additional operating costs and pre-tax charges during the fourth quarter of 2019 of $175 to $225 million associated with inventory liquidation, accelerated depreciation and amortization, severance, and other costs.future periods.

OPERATIONS

The following ~~tables set~~table sets 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~~This table 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
	July 31, 2020		August 2, 2019		2020 vs. 2019	2020 vs. 2019
Net sales	100.00	%	100.00	%	N/A	30.1	%
Gross margin	34.08		32.11		197	38.0
Expenses:
Selling, general and administrative	18.39		19.29		(90)	24.0
Depreciation and amortization	1.20		1.48		(28)	5.0
Operating income	14.49		11.34		315	66.2
Interest – net	0.80		0.80		—	29.2
Pre-tax earnings	13.69		10.54		315	69.0
Income tax provision	3.33		2.56		77	69.8
Net earnings	10.36	%	7.98	%	238	68.8	%

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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 1, 2019 November 2, 2018 2019 vs. 2018
2019 vs. 2018
Net sales 100.00 % 100.00 % N/A
(0.2 )%
Gross margin 32.44
30.88
156
4.9
Expenses:
Selling, general and administrative 21.69
22.95
(126 ) (5.6 )
Depreciation and amortization 1.79
2.43
(64 ) (26.7 )
Operating income 8.96
5.50
346
62.7
Interest - net 1.02
0.88
14
14.9
Pre-tax earnings 7.94
4.62
332
71.8
Income tax provision 1.90
1.01
89
89.7
Net earnings 6.04 % 3.61 % 243
66.8 %


	Nine Months Ended				Basis Point Increase / (Decrease) in Percentage of Net Sales from Prior Period¹		Percentage Increase / (Decrease) in Dollar Amounts from Prior Period¹			Six Months Ended					Basis Point Increase / (Decrease) in Percentage of Net Sales from Prior Period		Percentage Increase / (Decrease) in Dollar Amounts from Prior Period
	November 1, 2019		November 2, 2018		2019 vs. 2018		2019 vs. 2018			July 31, 2020		August 2, 2019		2020 vs. 2019	2020 vs. 2019
Net sales	100.00	%	100.00	%	N/A		0.8	%	Net sales	100.00	%	100.00	%	N/A	21.3	%
Gross margin	32.01		32.36		(35	)	(0.3	)	Gross margin	33.67		31.81		186	28.4
Expenses:									Expenses:
Selling, general and administrative	20.82		22.13		(131	)	(5.1	)	Selling, general and administrative	19.62		20.42		(80)	16.5
Depreciation and amortization	1.65		1.99		(34	)	(16.6	)	Depreciation and amortization	1.39		1.58		(19)	6.4
Operating income	9.54		8.24		130		16.8		Operating income	12.66		9.81		285	56.6
Interest - net	0.90		0.84		6		8.8
Interest – net									Interest – net	0.90		0.86		4	27.7

Pre-tax earnings	8.64		7.40		124		17.7		Pre-tax earnings	11.76		8.95		281	59.4
Income tax provision	1.92		1.76		16		9.7		Income tax provision	2.89		1.92		97	82.6
Net earnings	6.72	%	5.64	%	108		20.2	%	Net earnings	8.87	%	7.03	%	184	53.0	%

The following table sets forth key metrics utilized by management in assessing business performance. This table 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).

Beginning on February 1, In2020, the ~~fourth quarter of fiscal 2018, we~~Company changed ~~our method of accounting for shipping and handling costs~~the basis in which it presents the comparable sales metric. The current metric is presented on a transacted basis when tender is accepted from a customer. Prior to this change, the Company’s ~~stores, distribution centers, and other locations to customers. Under this new accounting principle, shipping and handling costs related~~comparable sales metric was based on when control of the good or service passed to the ~~delivery~~customer, which included timing impacts of ~~products from~~deferred sales. These timing impacts have historically had an insignificant impact on annual comparable sales. The purpose of the ~~Company~~change was to ~~customers are included in costs~~align the metric with how the Lowe’s management team evaluates the business throughout the year and views performance relative to peers. For the three and six months ended July 31, 2020, the impact of excluding deferred sales ~~whereas they were previously included in selling, general,~~increased the comparable sales metric by 291 basis points and ~~administrative expense,~~125 basis points, respectively. For the three and ~~depreciation~~six months ended August 2, 2019, the impact of excluding deferred sales decreased the comparable sales metric by 38 basis points and ~~amortization. Amounts presented~~34 basis points, respectively. The comparable sales metric for the three and ~~nine~~six months ended ~~November~~August 2, ~~2018 reflect adjusted amounts~~2019, has been recast to conform to the current year presentation.

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	Three Months Ended									Six Months Ended
Other Metrics	July 31, 2020			August 2, 2019			July 31, 2020			August 2, 2019
Comparable sales increase ¹	34.2		%	2.0		%	23.6		%	2.5		%
Total customer transactions (in millions)	330			269			563			499
Average ticket ²	$	82.79		$	77.97		$	83.45		$	77.61
At end of period:
Number of stores	1,968			2,003
Sales floor square feet (in millions)	208			209
Average store size selling square feet (in thousands) ³	106			104
Net earnings to average debt and equity ⁴	20.7		%	10.0		%
Return on invested capital ⁴	23.3		%	12.3		%

¹ 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 ~~accordance with this accounting principle change.~~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. Comparable sales include online sales, which positively impacted second quarter fiscal 2020 comparable sales by approximately 650 basis points and year-to-date fiscal 2020 comparable sales by approximately 545 basis points. The comparable store sales calculation included in the preceding table was calculated using comparable 13-week and 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 thousand 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 reconciliations of non-GAAP measures.

Three Months Ended Nine Months Ended
Other Metrics November 1, 2019 November 2, 2018 November 1, 2019 November 2, 2018
Comparable sales increase ¹
2.2 % 1.5 % 2.7 % 2.6 %
Total customer transactions (in millions) 221
229
720
738
Average ticket ²
$ 78.71
$ 75.89
$ 77.95
$ 75.47
At end of period:
Number of stores 2,004
2,133

Sales floor square feet (in millions) 209
215

Average store size selling square feet (in thousands) ³
104
101

Net earnings to average debt and equity ⁴
11.7 % 14.3 %
Return on invested capital ⁴
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 2019 comparable sales by approximately 15 basis points and year-to-date fiscal 2019 comparable sales by approximately 30 basis points. The comparable store sales calculation included in the preceding table was calculated using comparable 13-week and 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 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 ~~outlook~~outlooks for the second quarter of fiscal 2020 and fiscal 2019. Unless otherwise noted, the income tax effect of these adjustments is calculated using the marginal rates for the respective periods.

~~During~~Fiscal 2020 Impacts

•Beginning in the ~~three months ended November 1,~~third quarter of fiscal 2019, the Company began a strategic review of its Canadian operations, and asin the fourth quarter of fiscal 2019, the Company announced additional actions to improve future performance and profitability of its Canadian operations. As a result of this review and related actions, during the three months ended July 31, 2020, the Company recognized $10 million of pre-tax ~~charges~~operating costs related to remaining inventory write-downs and store closing costs (Canada restructuring).

Fiscal 2019 Impacts

•Prior to the beginning of ~~$53 million associated with long-lived asset impairment (2019 Canada restructuring).~~

fiscal 2019, the Company announced its intention to exit its Mexico retail operations and had planned to sell the operating business. During the three months ended ~~November~~August 2, ~~2018,~~2019, the Company recognized ~~the following~~a net loss of $12 million in pre-tax ~~charges resulting from the strategic reassessment of its business:~~

The 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).

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

~~The Company recognized $22 million~~ongoing wind-down of ~~pre-tax charges, consisting of long-lived asset impairments, associated with its~~the Mexico retail operations (Mexico ~~impairment charge)~~adjustments).

~~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 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~~measures may differ from the method used by other companies ~~for this or similar non-GAAP financial measures. Accordingly, these non-GAAP measures~~and may not be ~~comparable to the measures used by other companies.~~comparable.

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Three Months Ended
November 1, 2019 November 2, 2018
Pre-Tax Earnings Tax Net Earnings Pre-Tax Earnings Tax Net Earnings
Diluted earnings per share, as reported $ 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
U.S. and Canada closing charges —
—
—
0.15
(0.04 ) 0.11
Mexico impairment charges —
—
—
0.02
—
0.02
Non-core activities charges —
—
—
0.02
(0.01 ) 0.01
Adjusted diluted earnings per share $ 1.41
$ 1.04


	Three Months Ended
	July 31, 2020						August 2, 2019
	Pre-Tax Earnings	Tax	Net Earnings		Pre-Tax Earnings	Tax	Net Earnings
Diluted earnings per share, as reported			$	3.74			$	2.14
Non-GAAP adjustments – per share impacts
Canada restructuring	0.01	—	0.01		—	—	—
Mexico adjustments	—	—	—		0.02	(0.01)	0.01




Adjusted diluted earnings per share			$	3.75			$	2.15

Return on Invested Capital

Return on Invested Capital (ROIC) is calculated using a non-GAAP financial measure. ~~We believe~~Management believes ROIC is a meaningful metric for analysts and investors ~~because it represents management’s~~as a 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 used by other ~~companies use to calculate their ROIC.~~companies. 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 rolling 12 months’ lease adjusted net operating profit after tax (Lease adjusted NOPAT) divided by the average of current year and prior year ending debt and equity. Lease adjusted NOPAT is a non-GAAP financial measure, and net earnings is considered to be the most comparable GAAP financial measure. The calculation of ROIC, together with a reconciliation of net earnings to Lease adjusted NOPAT, is as follows:


	For the Periods Ended
(In millions, except percentage data)	July 31, 2020			August 2, 2019
Calculation of Return on Invested Capital
Numerator
Net Earnings	$	5,724		$	2,527
Plus:
Interest expense – net	783			643
Operating lease interest	182			197
Provision for income taxes	1,957			1,018
Lease adjusted net operating profit	8,646			4,385
Less:
Income tax adjustment ¹	2,203			1,258
Lease adjusted net operating profit after tax	$	6,443		$	3,127

Denominator
Average debt and equity ²	$	27,637		$	25,395
Net earnings to average debt and equity	20.7		%	10.0		%
Return on invested capital	23.3		%	12.3		%

For the Periods Ended
(In millions, except percentage data) November 1, 2019 November 2, 2018
Calculation of Return on Invested Capital
Numerator

Net Earnings $ 2,947
$ 3,692
Plus:
Interest expense - net 665
620
Operating lease interest 186
214
Provision for income taxes 1,177
1,371
Lease adjusted net operating profit 4,975
5,897
Less:
Income tax adjustment ¹
1,414
1,597
Lease adjusted net operating profit after tax $ 3,561
$ 4,300
Denominator
Average debt and equity ²
$ 25,106
$ 25,734
Net earnings to average debt and equity 11.7 % 14.3 %
Return on invested capital 14.2 % 16.7 %


¹¹Income tax adjustment is defined as net operating profit multiplied by the effective tax rate, which was 25.5% and 28.7% for the periods ended July 31, 2020, and August 2, 2019, respectively.	~~Income tax adjustment is defined as net operating profit multiplied by the effective tax rate, which was 28.4% and 27.1% for the periods ended November 1, 2019 and November 2, 2018, respectively.~~


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

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

Results of Operations

Net Sales – Net sales in the ~~third~~second quarter of ~~2019 decreased 0.2%~~2020 increased 30.1% to ~~$17.4~~$27.3 billion. The ~~decrease~~increase in total sales iswas primarily driven by ~~the impact of previous~~comparable store ~~closures and the exit of Orchard, partially offset by comparable~~ sales growth. Comparable sales increased ~~2.2%~~34.2% over the same period, driven by a ~~2.4%~~22.6% increase in comparable customer transactions and a 11.6% increase in comparable average ~~ticket, partially offset by a 0.1% decrease in comparable customer transactions.~~ticket.

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During the ~~third~~second quarter of ~~2019,~~2020, we experienced comparable sales increases in ~~nine of 13~~all 15 product ~~categories.~~categories with broad-based strength in performance across both do-it-yourself (DIY) and Pro customers. Comparable sales were above the ~~company~~Company average in ~~Tools, Décor,~~Lumber, Lawn & Garden, ~~Appliances, Millwork,~~Tools, Paint, ~~Hardware,~~ and ~~Rough Plumbing~~Seasonal & ~~Electrical. Performance in Tools led~~Outdoor Living. During the ~~merchandising department growth with a continued~~quarter, we saw very strong ~~customer response to our CRAFTSMAN® reset,~~demand for DIY areas as consumers focused on the home given the increased time spent there, and wallet share shift away from other expendable activities. This included core repair and maintenance categories, as well as ~~sales with our~~incremental projects to improve the function of their homes. Despite supply pressure, Lumber experienced strong performance across all subdivisions driven by DIY projects and growth in Pro sales. COVID-19 preparation in cleaning and core spring categories was a key ~~Pro brands, such as DeWalt® power tools. Décor experienced mid-single digit comparable sales, with strong double-digit comparable sales in Blinds and Shades. We experienced strength~~driver in Lawn & ~~Garden, driven by double-digit comparable sales~~Garden. Tools and Paint experienced a significant increase in ~~live goods~~volume as consumers spent time on DIY friendly home projects and ~~landscape products. Appliances delivered strong sales during Labor Day~~improvements. Geographically, all 15 U.S. regions and ~~with great values and special buys in refrigerators and 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 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 sawCanadian region experienced positive comparable sales in ~~Hardware supported by investments in job-lot quantities and increased Pro demand.~~excess of 20%.

Net sales increased ~~0.8%~~21.3% to ~~$56.1~~$47.0 billion for the first ~~nine~~six months of ~~2019~~2020 compared to ~~2018.~~2019. 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.~~store sales. Comparable sales increased ~~2.7%~~23.6% over the same period, primarily driven by a ~~1.9%~~13.0% increase in customer transactions and a 10.6% increase in comparable average ~~ticket and a 0.8% increase in customer transactions.~~ticket.

Gross Margin – For the ~~third~~second quarter of ~~2019,~~2020, gross margin as a percentage of sales increased ~~156~~197 basis points. The 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~~is driven by approximately ~~170~~140 basis points of total rate improvement, driven by benefits from our improved pricing and ~~product mix, which increased margin approximately 35 basis points. Gross margin was negatively impacted approximately 40~~promotional strategy, and 60 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.~~a favorable product mix as demand was stronger in higher margin categories.

Gross margin as a percentage of sales ~~decreased 35~~increased 186 basis points in the first ~~nine~~six months of ~~2019~~2020 compared to ~~2018.~~2019. Gross margin was ~~negatively~~positively impacted by approximately 35120 basis points of total rate improvement and 45 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~~a favorable product mix as demand was stronger in 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.~~categories.

SG&A – For the ~~third~~second quarter of ~~2019,~~2020, SG&A expense leveraged ~~126~~90 basis points as a percentage of sales compared to the ~~third~~second quarter of ~~2018.~~2019. This is primarily driven by 104 basis points of leverage due to long-lived asset impairments and discontinued projects associated with the Company’s prior year strategic reassessment of Orchard, USHI, Canada, and Mexico locations. There was an additional 43approximately 110 basis points of leverage in retail operating salaries ~~expenses~~due to increased sales and 10improved operating efficiencies, 40 basis points of leverage in employee benefits resulting from lower insurance claims due to ~~optimizing the channel mix for advertising. This was~~COVID-19 deferral of elective medical care, 40 basis points of occupancy leverage due to higher sales volume compared to fixed occupancy costs, and 35 basis points of leverage in advertising expense. These were partially offset by 31155 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.~~COVID-19 related expenses, including two hourly front-line employee bonuses, emergency paid leave, charitable contributions, increased cleaning costs and other safety-related programs.

SG&A expense as a percentage of sales leveraged ~~131~~80 basis points in the first ~~nine~~six months of ~~2019~~2020 compared to ~~2018.~~2019. This was primarily driven by 73 basis points of leverage due to prior year long-lived asset impairments and discontinued projects associated with the Company’s prior year strategic reassessment of Orchard, USHI, Canada, and Mexico locations, 54115 basis points of leverage in retail operating salaries, ~~expenses, 16 basis points of leverage from lease terminations and lease assignments primarily associated with the prior year’s store closing activities, and 14~~35 basis points of leverage in advertising, ~~due to improved advertising efficiency.~~and 25 basis points of leverage in employee insurance. These were partially offset by 19100 basis points of deleverage ~~in incentive compensation, 10 basis points of deleverage associated with long-lived asset impairment~~ due to ~~the company’s strategic review of the Canadian operations, and 10 basis points of deleverage~~COVID-19 related ~~to severance costs.~~compensation.

Depreciation and Amortization – Depreciation and amortization leveraged 6428 basis points for the ~~third~~second quarter of ~~2019~~2020 compared to the prior year primarily due to ~~store closures~~an increase in ~~2018, and assets becoming fully depreciated.~~sales during the period. Property, less accumulated depreciation, ~~decreased~~increased to ~~$18.4~~$18.6 billion at ~~November 1, 2019,~~July 31, 2020, compared to ~~$18.9~~$18.2 billion at ~~November~~August 2, ~~2018.~~2019. As of ~~November 1,~~July 31, 2020, and August 2, 2019, ~~and November 2, 2018,~~ we owned ~~83%~~84% and ~~80%~~83% of our stores, respectively, which included stores on leased land.

Depreciation and amortization leveraged 3419 basis points for the first ~~nine~~six months of ~~2019~~2020 compared to ~~2018~~2019 primarily due to the same factors that impacted depreciation and amortization for the ~~third~~second quarter.

Interest – Net – Interest expense for the ~~third~~second quarter of ~~2019~~2020 increased primarily as a result of the issuance of ~~$3.0~~$4.0 billion unsecured notes in ~~April 2019, partially offset by a decrease~~March 2020 and the $1.0 billion term loan entered in ~~expense associated with the adoption of ASU 2016-02,~~ ~~Leases(Topic 842), in the first quarter of 2019.~~January 2020.

Interest expense for the first ~~nine~~six months of ~~2019~~2020 increased ~~compared to 2018~~ primarily due to the same factors that impacted interest expense for the ~~third~~second quarter.

Income Tax Provision – Our effective income tax rates were ~~24.0%~~24.4% and ~~21.8%~~24.2% for the three months ended ~~November 1,~~July 31, 2020, and August 2, 2019, respectively.

Our effective income tax rates were 24.6% and ~~November~~21.5% for the six months ended July 31, 2020, and August 2, ~~2018,~~2019, 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~~first six months ~~ended November 2, 2018, as well as the favorable discrete event related to stock compensation was smaller in 2019 as compared to 2018.~~

~~Our effective income tax rates were 22.2% and 23.8% for the nine months ended November 1, 2019 and November 2, 2018, respectively. The decrease in the effective tax rate~~ is primarily due to a favorable tax benefit recorded during the first quarter of 2019 associated with ~~the planned exit~~a change in approach to pursue a sale 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 first quarter~~through liquidation.

Table 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.~~Contents

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity

~~Cash~~Significant customer demand and operating performance year-to-date drove a substantial increase in cash flows from ~~operations,~~operations. These increases, supplemented with our short-term and long-term borrowings, have ~~been sufficient~~provided ample liquidity to fund our operations while allowing us to make strategic investments ~~that will grow~~in our ~~business,~~omnichannel capabilities to support long-term growth and to return excess cash to shareholders in the form of ~~dividends and share repurchases. We believe that our sources of liquidity will continue~~dividends. Due to ~~be adequate to fund our operations and investments to grow our business, repay our debt as it becomes due, pay dividends, and fund~~the uncertainty caused by the COVID-19 pandemic, we also suspended our share repurchases ~~over~~during the ~~next 12 months.~~first quarter of fiscal 2020. As of July 31, 2020, we held $11.6 billion of cash and cash equivalents, as well as $3 billion in undrawn capacity on our revolving credit facilities.

Cash Flows Provided by Operating Activities


	Six Months Ended
(In millions)	July 31, 2020		August 2, 2019
Net cash provided by operating activities	$	11,752	$	3,583

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

Cash flows from operating activities continued to provide the primary source of our liquidity. The ~~decrease~~increase in net cash provided by operating activities for the ~~nine~~six months ended ~~November 1, 2019,~~July 31, 2020, versus the ~~nine~~six months ended ~~November~~August 2, ~~2018,~~2019, was driven primarily by higher net earnings and changes in working ~~capital, driven~~capital. Accounts payable increased for the first six months of 2020 by ~~accounts payable and~~$5.3 billion, compared to an increase for the first six months of 2019 of $1.2 billion, driving an additional $4.1 billion in operating cash flows for the first six months of fiscal 2020, primarily due to significant inventory purchases in 2020 due to high customer demand as compared to 2019. Other operating liabilities increased $1.8 billion for the first six months of 2020 compared to an increase of $36 million in the first six months of 2019. The increase in other operating liabilities ~~which~~in the current year is primarily driven by increases in deferred revenue and income taxes payable related to higher sales in the current year, increased accrued compensation and employee benefits driven by higher bonus attainment as well as additional COVID-related accrued bonuses for employees, and increased accrued payroll taxes due to the deferral of the employer portion of social security tax in accordance with the CARES Act. Inventory decreased operating cash flow for the first ~~nine~~six months of ~~2018~~2020 by approximately ~~$3.2 billion,~~$670 million, compared to ~~an increase~~a decrease of approximately ~~$115 million~~$1.2 billion for the first ~~nine~~six months of ~~2019.~~

~~In the first nine months of 2018, the increase in accounts payable exceeded the increase in inventory, driving approximately $1.7 billion of operating cash flow,~~2019, primarily due to ~~later~~an earlier 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~~2020 compared 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.2019.

Cash Flows Used in Investing Activities


	Six Months Ended
(In millions)	July 31, 2020		August 2, 2019
Net cash used in investing activities	$	(1,560)	$	(458)

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

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

Capital expenditures

Our capital expenditures generally consist of investments in our strategic initiatives to enhance our ability to serve customers, improve existing stores, and support expansion plans. The following table provides our capital expenditures for the ~~nine~~six months ended ~~November 1, 2019,~~July 31, 2020, and ~~November~~August 2, ~~2018:~~2019:


	Six Months Ended
(In millions)	July 31, 2020		August 2, 2019
Existing store investments ¹	$	587	$	369
Strategic initiatives ²	78		86
New stores, new corporate facilities and international ³	45		71
Total capital expenditures	$	710	$	526

¹Includes merchandising resets, facility repairs, replacements of IT and store equipment, among other specific efforts.

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

³Represents expenditures primarily related to land purchases, buildings, and personal property for new store projects and new corporate facilities projects, as well as expenditures related to our international operations.

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


¹	~~Includes merchandising resets, facility repairs, replacements of IT and store equipment, among other specific efforts.~~


²	~~Represents investments related to our 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 expenditures related to our international operations.~~

Our ~~2019~~2020 capital expenditures forecast is approximately $1.6 billion.

Cash Flows ~~Used in~~Provided by Financing Activities


	Six Months Ended
(In millions)	July 31, 2020		August 2, 2019
Net cash provided by (used in) financing activities	$	729	$	(1,851)

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

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

Short-term Borrowing Facilities

In January 2020, we entered into a $1.0 billion unsecured 364-day term loan facility (the Term Loan), which has a maturity date of December 31, 2020. Outstanding borrowings under the Term Loan were $1.0 billion, with an interest rate of 1.42%, as of July 31, 2020.

In March 2020, we entered into a $1.02 billion five year unsecured revolving credit agreement (the 2020 Credit Agreement) with a syndicate of banks. In addition, we have a $1.98 billion five year unsecured revolving second amended and restated credit agreement (the Second Amended and Restated Credit Agreement) with a syndicate of banks. Subject to obtaining commitments from the lenders and satisfying other conditions specified in the 2020 Credit Agreement and the Second Amended and Restated Credit Agreement, the Company may increase the combined aggregate availability of both agreements by an additional $520 million.

The 2020 Credit Agreement and the Second Amended and Restated Credit Agreement support our commercial paper program. The amount available to be drawn under the 2020 Credit Agreement and the Second Amended and Restated Credit Agreement is reduced by the amount of borrowings under our commercial paper program. There were no outstanding borrowings under the Company’s commercial paper program, the 2020 Credit Agreement, or the Second Amended and Restated Credit Agreement as of July 31, 2020, and August 2, 2019. Total combined availability under the 2020 Credit Agreement and the Second Amended and Restated Credit Agreement as of July 31, 2020, was $3.0 billion.

The following table includes additional information related to our short-term borrowings for the six months ended July 31, 2020, and August 2, 2019:


	Six Months Ended
(In millions, except for interest rate data)	July 31, 2020			August 2, 2019
Net change in commercial paper	$	(941)		$	(722)
Maximum commercial paper outstanding at any month-end	$	1,858		$	1,189
Short-term borrowings outstanding at quarter-end	$	1,000		$	—
Weighted-average interest rate of short-term borrowings outstanding	1.42		%	—		%

The 2020 Credit Agreement and the Second Amended and Restated Credit Agreement contains customary representations, warranties, and covenants. We were in compliance with those covenants at July 31, 2020.

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Long-Term Debt

The following table includes additional information related to the Company’s long-term debt for the ~~nine~~six months ended ~~November 1, 2019,~~July 31, 2020, and ~~November~~August 2, ~~2018:~~2019:


	Six Months Ended
(In millions)	July 31, 2020		August 2, 2019
Net proceeds from issuance of debt	$	3,961	$	2,972
Repayment of long-term debt	$	(568)	$	(629)

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~~six months ended ~~November 1, 2019,~~July 31, 2020, we issued ~~$3.0~~$4.0 billion of unsecured notes to finance current year maturities and for other general corporate purposes. During the ~~nine~~six months ended ~~November 1, 2019,~~July 31, 2020, we also paid ~~$1.1 billion~~$500 million to retire scheduled debts at maturity.

~~Short-term Borrowing Facilities~~

We have an unsecured 364-day credit agreement (the 364-Day Credit Agreement) with a syndicate of 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 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. Outstanding borrowings under the Company’s commercial paper program were $637 million, with a weighted average interest rate of 1.97%, as of November 1, 2019. There were no outstanding borrowings under the Second Amended and Restated Credit Agreement or the 364-Day Credit Agreement as of November 1, 2019 and as of November 2, 2018. The following table includes additional information related to our short-term borrowings for the nine months ended November 1, 2019, and November 2, 2018:

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

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. Due to the uncertainty caused by the COVID-19 pandemic, we suspended our share repurchases during the first quarter of fiscal 2020. 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~~six months ended ~~November 1, 2019,~~July 31, 2020, and ~~November~~August 2, ~~2018:~~2019:


	Six Months Ended
(In millions, except per share data)	July 31, 2020		August 2, 2019
Total amount paid for share repurchases	$	966	$	2,770
Total number of shares repurchased	9.8		27.4
Average price paid per share	$	98.78	$	100.98

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

As of ~~November 1, 2019,~~July 31, 2020, we had ~~$10.3~~$8.7 billion remaining available under our share repurchase program with no expiration date. We expect to repurchase shares totaling $4.0 billion in 2019 (including the amount repurchased during the first nine months of fiscal year 2019). See Note 11 to the consolidated financial statements included herein for additional information regarding share repurchases.

Dividends

~~Our dividend payment dates are established such that dividends~~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~~Dividends paid per share increased from $0.96 per share for the ~~nine~~six months ended ~~November 1,~~August 2, 2019, ~~and November 2, 2018:~~to $1.10 per share for the six months ended July 31, 2020.

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

Capital Resources

We expect to continue to have access to the capital markets on both a short-term and long-term ~~bases~~basis 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 3, 2019,~~August 26, 2020, 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	BBB+	Baa1
Senior Debt Outlook	Stable	Stable

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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

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,~~In March 2020, we issued ~~$3.0~~$4.0 billion of unsecured notes in the ordinary course of business and used a portion of the net proceeds from the sale of the ~~Notes~~notes for the repayment of ~~$600~~$500 million aggregate principal amount due April ~~2019 and $450 million aggregate principal amount due September 2019.~~2020. 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~~July 31, 2020. The unsecured notes issued in the first quarter of fiscal ~~2019~~2020 are further described in Note 96 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


	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)	$	20,313	$	525	$	1,268	$	1,701	$	16,819
Long-term debt (interest payments)	13,729		853		1,594		1,523		9,759
Total	$	34,042	$	1,378	$	2,862	$	3,224	$	26,578

As of ~~November 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,~~July 31, 2020, there were no other material changes to our contractual obligations and commercial commitments outside the ordinary course of business since the end of ~~2018.~~2019. 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.

~~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” 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, 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 1, 2019.~~January 31, 2020.

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 1, 2019,~~July 31, 2020, 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 1, 2019,~~July 31, 2020, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Although most of our corporate employees are working remotely due to the COVID-19 global health crisis, we have

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not experienced a material impact to our internal control over financial reporting. We continue to monitor the pandemic and its effects on the design and operating effectiveness of our internal controls.

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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 addition to the other information set forth in this Quarterly Report, you should carefully consider the ~~Company’s~~ risk factors ~~from those disclosed~~described in Part I, “Item ~~1A -~~1A. Risk Factors” in our Annual Report filed with the ~~Annual Report.~~SEC on March 23, 2020, and as updated in Item 1A in our first quarter report on Form 10-Q filed with the SEC on May 28, 2020, which could materially affect our business, financial condition and/or operating results.

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~~second quarter of fiscal ~~2019:~~2020:


	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
May 2, 2020 - May 29, 2020	252	$	112.98	—	$	8,717,610,699
May 30, 2020 - July 3, 2020	10	104.46		—	8,717,610,699
July 4, 2020 - July 31, 2020	108	144.39		—	8,717,610,699
As of July 31, 2020	370	$	121.92	—	$	8,717,610,699

¹The total number of shares repurchased are 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.

²On 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.

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 Table of Contents	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 2019, the Company entered into a variable notional Accelerated Share Repurchase (ASR) agreement with a third-party financial institution to repurchase between $350 million and $500 million of the Company’s common stock. At inception, pursuant to the agreement, the Company paid $500 million to the financial institution and received an initial delivery of 2.8 million shares. In October, prior to the end of the third quarter, the Company finalized the transaction for $397 million and received an additional 0.8 million 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 11 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 May 29, 2020.

8-K

001-07898

3.1

June 2, 2020

10.1

Lowe ’s Compa nies, In c. Severance Plan for Senior Officers as amended and restated May 29, 2020. * ‡

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.†

99.1

T enth Ame ndment to the Lowe ’s 401(k) Plan , effective as of June 16, 2020 (filed to include this amendment as an exhibit to the Registration Statement on Form S-8, Registration No. 033-29772. ‡

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.

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 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.

Table of Contents

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)

August 26, 2020		~~LOWE’S COMPANIES, INC.~~
	~~(Registrant)~~

~~December 3, 2019~~	By: /s/ David M. Denton
Date		David M. Denton Executive Vice President, Chief Financial Officer

3632



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



~~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~~	%



		(Unaudited)			(Unaudited)
		November 1, 2019			November 2, 2018			February 1, 2019
Assets
Current assets:
Cash and cash equivalents		$	794		$	1,668		$	511
Short-term investments		127			208			218
Merchandise inventory - net		13,716			12,365			12,561
Other current assets		1,025			897			938
Total current assets		15,662			15,138			14,228
Property, less accumulated depreciation		18,371			18,923			18,432
Operating lease right-of-use assets		3,873			—			—
Long-term investments		363			290			256
Deferred income taxes - net		479			285			294
Goodwill		303			1,272			303
Other assets		713			805			995
Total assets		$	39,764		$	36,713		$	34,508

Liabilities and shareholders' equity
Current liabilities:
Short-term borrowings		$	637		$	—		$	722
Current maturities of long-term debt		574			1,117			1,110
Current operating lease liabilities		499			—			—
Accounts payable		8,822			9,283			8,279
Accrued compensation and employee benefits		779			806			662
Deferred revenue		1,222			1,356			1,299
Other current liabilities		2,530			2,507			2,425
Total current liabilities		15,063			15,069			14,497
Long-term debt, excluding current maturities		16,635			14,460			14,391
Noncurrent operating lease liabilities		3,942			—			—
Deferred revenue - extended protection plans		875			827			827
Other liabilities		791			963			1,149
Total liabilities		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
February 1, 2019	801	384			403			401
Capital in excess of par value		—			—			—
Retained earnings		2,238			5,156			3,452
Accumulated other comprehensive loss		(164		)	(165		)	(209		)
Total shareholders' equity		2,458			5,394			3,644
Total liabilities and shareholders' equity		$	39,764		$	36,713		$	34,508



	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



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.~~


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



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.~~



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



	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



	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



	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



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