UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended ~~November 1, 2019~~October 30, 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.)

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

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

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



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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ 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~~23/2020
Common Stock, $0.50 par value						~~766,475,430~~732,722,859

LOWE’S COMPANIES, INC.

- TABLE OF CONTENTS -


						Page No.
Forward-Looking Statements						ii
PART I - Financial Information						~~Page No.~~ 1
			Item 1.		Financial Statements	1
			~~Item 1.~~		~~Financial Statements~~
��
		Consolidated Balance Sheets ~~— November 1, 2019 (Unaudited), November 2, 2018 (Unaudited) and February 1, 2019~~		31

		Consolidated Statements of ~~Current and Retained~~ Earnings ~~(Unaudited) — Three and nine months ended November 1, 2019 and November 2, 2018~~		42

		Consolidated Statements of Comprehensive Income ~~(Unaudited) — Three and nine months ended November 1, 2019 and November 2, 2018~~		42

		Consolidated Statements of Shareholders’ Equity ~~(Unaudited) — Three and nine months ended November 1, 2019 and November 2, 2018~~		53

		Consolidated Statements of Cash Flows ~~(Unaudited) — Nine months ended November 1, 2019 and November 2, 2018~~		75

		Notes to Consolidated Financial Statements ~~(Unaudited)~~		86
					Note 1: Summary of Significant Accounting Policies	6
					Note 2: Revenue	7
					Note 3: Investments	8
					Note 4: Fair Value Measurements	9
					Note 5 : Exit Activities	11
					Note 6 : Short-Term Borrowings	11
					Note 7 : Long-Term Debt	12
					Note 8 : Derivative Instruments	12
					Note 9 : Shareholders’ Equity	13
					Note 10 : Earnings Per Share	14
					Note 1 1 : Income Taxes	14
					Note 1 2 : Supplemental Disclosure	15
					Report of Independent Registered Public Accounting Firm	2316

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2417

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk		3326

	Item 4.	Controls and Procedures		3327

PART II - Other Information

	~~Item 1.~~	~~Legal Proceedings~~	3428

	Item ~~1A.~~1.	~~Risk Factors~~Legal Proceedings		3428
			Item 1A.		Risk Factors	28
			Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	3428

	Item 6.	Exhibits		3529

		Signature		3630

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 2 - 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


	October 30, 2020		November 1, 2019		January 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	8,249	$	794	$	716
Short-term investments	1,852		127		160
Merchandise inventory – net	15,712		13,716		13,179
Other current assets	1,103		1,025		1,263
Total current assets	26,916		15,662		15,318
Property, less accumulated depreciation	18,683		18,371		18,669
Operating lease right-of-use assets	3,823		3,873		3,891
Long-term investments	202		363		372
Deferred income taxes – net	241		479		216
Other assets	1,015		1,016		1,005
Total assets	$	50,880	$	39,764	$	39,471

Liabilities and shareholders' equity
Current liabilities:
Short-term borrowings	$	0	$	637	$	1,941
Current maturities of long-term debt	609		574		597
Current operating lease liabilities	530		499		501
Accounts payable	12,759		8,822		7,659
Accrued compensation and employee benefits	1,117		779		684
Deferred revenue	1,614		1,222		1,219
Other current liabilities	2,935		2,530		2,581
Total current liabilities	19,564		15,063		15,182
Long-term debt, excluding current maturities	21,185		16,635		16,768
Noncurrent operating lease liabilities	3,907		3,942		3,943
Deferred revenue – extended protection plans	1,007		875		894
Other liabilities	1,144		791		712
Total liabilities	46,807		37,306		37,499

Shareholders' equity:
Preferred stock, $5 par value: Authorized – 5.0 million shares; Issued and outstanding – 0ne	0		0		0
Common stock, $0.50 par value: Authorized – 5.6 billion shares; Issued and outstanding – 752 million, 768 million, and 763 million shares, respectively	376		384		381
Capital in excess of par value	0		0		0
Retained earnings	3,942		2,238		1,727
Accumulated other comprehensive loss	(245)		(164)		(136)
Total shareholders' equity	4,073		2,458		1,972
Total liabilities and shareholders' equity	$	50,880	$	39,764	$	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								Nine Months Ended
	October 30, 2020				November 1, 2019				October 30, 2020				November 1, 2019
Current Earnings	Amount		% Sales		Amount		% Sales		Amount		% Sales		Amount		% Sales
Net sales	$	22,309	100.00	%	$	17,388	100.00	%	$	69,286	100.00	%	$	56,121	100.00	%
Cost of sales	15,009		67.28		11,748		67.56		46,170		66.64		38,159		67.99
Gross margin	7,300		32.72		5,640		32.44		23,116		33.36		17,962		32.01
Expenses:
Selling, general and administrative	4,770		21.38		3,772		21.69		13,985		20.18		11,682		20.82
Depreciation and amortization	355		1.59		310		1.79		1,008		1.46		924		1.65
Operating income	2,175		9.75		1,558		8.96		8,123		11.72		5,356		9.54
Interest – net	221		0.99		177		1.02		644		0.93		508		0.90
Loss on extinguishment of debt	1,060		4.75		0		0		1,060		1.53		0		0
Pre-tax earnings	894		4.01		1,381		7.94		6,419		9.26		4,848		8.64
Income tax provision	202		0.91		332		1.90		1,562		2.25		1,077		1.92
Net earnings	$	692	3.10	%	$	1,049	6.04	%	$	4,857	7.01	%	$	3,771	6.72	%


Weighted average common shares outstanding – basic	752				769				753				782
Basic earnings per common share	$	0.92			$	1.36			$	6.42			$	4.81
Weighted average common shares outstanding – diluted	754				770				754				783
Diluted earnings per common share	$	0.91			$	1.36			$	6.41			$	4.80

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								Nine Months Ended
	November 1, 2019				November 2, 2018					November 1, 2019					November 2, 2018						October 30, 2020				November 1, 2019				October 30, 2020				November 1, 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	$	692	3.10	%	$	1,049	6.04	%	$	4,857	7.01	%	$	3,771	6.72	%
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	18		0.08		24		0.13		(27)		(0.04)		60		0.11
Cash flow hedges – net of tax																				Cash flow hedges – net of tax	24		0.11		(1)		0		(84)		(0.12)		(15)		(0.03)
Other	(1		)	—	(1		)	—		(15		)	(0.03	)	(1		)	—		Other	(2)		(0.01)		0		0		2		0		0		0
Other comprehensive income/(loss)	23			0.13	(22		)	(0.13	)	45			0.08		(177		)	(0.32	)	Other comprehensive income/(loss)	40		0.18		23		0.13		(109)		(0.16)		45		0.08
Comprehensive income	$	1,072		6.17	$	607		3.48		$	3,816		6.80		$	2,961		5.32		Comprehensive income	$	732	3.28	%	$	1,072	6.17	%	$	4,748	6.85	%	$	3,816	6.80	%

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 October 30, 2020
	Common Stock			Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
	Shares	Amount
Balance July 31, 2020	756	$	378	$	129	$	4,134	$	(285)	$	4,356

Net earnings	—	—		—		692		—		692
Other comprehensive income	—	—		—		—		40		40
Cash dividends declared, $0.60 per share	—	—		—		(452)		—		(452)
Share-based payment expense	—	—		39		—		—		39
Repurchases of common stock	(4)	(2)		(187)		(432)		—		(621)
Issuance of common stock under share-based payment plans	0	0		19		—		—		19
Balance October 30, 2020	752	$	376	$	0	$	3,942	$	(245)	$	4,073

	Nine Months Ended October 30, 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	$	0	$	1,727	$	(136)	$	1,972

Net earnings	—	—		—		4,857		—		4,857
Other comprehensive loss	—	—		—		—		(109)		(109)
Cash dividends declared, $1.70 per share	—	—		—		(1,284)		—		(1,284)
Share-based payment expense	—	—		103		—		—		103
Repurchases of common stock	(13)	(6)		(203)		(1,358)		—		(1,567)
Issuance of common stock under share-based payment plans	2	1		100		—		—		101
Balance October 30, 2020	752	$	376	$	0	$	3,942	$	(245)	$	4,073

Table of Contents


	Three Months Ended November 1, 2019																						Three Months Ended November 1, 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																Total Shareholders’ Equity
Balance August 2, 2019	776		$	388					$		—					$	2,439					$	(187	)	$	2,640	Balance August 2, 2019		776			$	388					$	0		$	2,439	$	(187)				$	2,640

Net earnings										1,049								1,049			Net earnings		—				—				—					1,049				—							1,049
Other comprehensive income														23				23			Other comprehensive income		—				—			—					—				23							23
Cash dividends declared, $0.55 per share										(423		)						(423		)	Cash dividends declared, $0.55 per share		—				—			—				(423)				—							(423)
Share-based payment expense						20												20			Share-based payment expense		—				—			20				—				—							20
Repurchase of common stock	(8	)	(4		)	(27		)		(827		)						(858		)
Repurchases of common stock																					Repurchases of common stock		(8)				(4)			(27)				(827)				—							(858)
Issuance of common stock under share-based payment plans	—		—			7			��									7			Issuance of common stock under share-based payment plans		0				—			7				—				—							7
Balance November 1, 2019	768		$	384		$	—			$	2,238			$	(164	)		$	2,458		Balance November 1, 2019		768				$	384		$	0			$	2,238			$	(164)						$	2,458

	Nine Months Ended November 1, 2019																						Nine Months Ended November 1, 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																Total Shareholders’ Equity
Balance February 1, 2019	801		$	401					$		—					$	3,452					$	(209	)	$	3,644	Balance February 1, 2019		801			$	401					$	0		$	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		—				—			—					3,771				—							3,771
Other comprehensive income														45				45			Other comprehensive income		—				—			—				—				45							45
Cash dividends declared, $1.58 per share										(1,233		)						(1,233		)	Cash dividends declared, $1.58 per share		—				—			—				(1,233)				—							(1,233)
Share-based payment expense						72												72			Share-based payment expense		—				—			72				—				—							72
Repurchase of common stock	(36	)	(18		)	(148		)		(3,489		)						(3,655		)
Repurchases of common stock																					Repurchases of common stock		(36)				(18)			(148)				(3,489)				—							(3,655)
Issuance of common stock under share-based payment plans	3		1			76												77			Issuance of common stock under share-based payment plans		3				1			76				—				—							77
Balance November 1, 2019	768		$	384		$	—			$	2,238			$	(164	)		$	2,458		Balance November 1, 2019		768				$	384		$	0			$	2,238			$	(164)						$	2,458

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

~~Lowe’s Companies, Inc.~~

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

~~In Millions, Except Per Share Data~~

Three Months Ended November 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							Nine Months Ended
	November 1, 2019			November 2, 2018				October 30, 2020		November 1, 2019
Cash flows from operating activities:							Cash flows from operating activities:
Net earnings	$	3,771		$	3,138		Net earnings	$	4,857	$	3,771
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	1,152		1,029
Noncash lease expense	341			—			Noncash lease expense	356		341
Deferred income taxes	(88		)	(139		)	Deferred income taxes	5		(88)
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	114		93
Loss on extinguishment of debt							Loss on extinguishment of debt	1,060		0
Share-based payment expense	75			79			Share-based payment expense	107		75
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	(2,545)		(1,129)
Other operating assets	(108		)	(94		)	Other operating assets	147		(96)
Accounts payable	523			2,708			Accounts payable	5,099		523
Other operating liabilities	(408		)	524			Other operating liabilities	1,133		(408)
Net cash provided by operating activities	4,111			6,798			Net cash provided by operating activities	11,485		4,111

Cash flows from investing activities:							Cash flows from investing activities:
Purchases of investments	(563		)	(1,298		)	Purchases of investments	(2,548)		(563)
Proceeds from sale/maturity of investments	556			1,309			Proceeds from sale/maturity of investments	1,032		556
Capital expenditures	(927		)	(846		)	Capital expenditures	(1,172)		(927)
Proceeds from sale of property and other long-term assets	71			50			Proceeds from sale of property and other long-term assets	60		71
Other - net	—			(3		)
Other – net							Other – net	(24)		0
Net cash used in investing activities	(863		)	(788		)	Net cash used in investing activities	(2,652)		(863)

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			—
Repayment of long-term debt	(1,092		)	(288		)
Net change in commercial paper							Net change in commercial paper	(941)		(85)
Net proceeds from issuance of debt							Net proceeds from issuance of debt	7,929		2,972
Repayment of debt							Repayment of debt	(5,582)		(1,092)
Proceeds from issuance of common stock under share-based payment plans	78			73			Proceeds from issuance of common stock under share-based payment plans	102		78
Cash dividend payments	(1,195		)	(1,068		)	Cash dividend payments	(1,252)		(1,195)
Repurchase of common stock	(3,649		)	(2,498		)
Other - net	(7		)	(3		)
Repurchases of common stock							Repurchases of common stock	(1,528)		(3,649)
Other – net							Other – net	(32)		(7)
Net cash used in financing activities	(2,978		)	(4,921		)	Net cash used in financing activities	(1,304)		(2,978)

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	7,533		271
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	0		12
Net increase in cash and cash equivalents	283			1,080			Net increase in cash and cash equivalents	7,533		283
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	$	8,249	$	794

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

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Lowe’s Companies, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Note 1: Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements (unaudited) and notes to the condensed consolidated financial statements (unaudited) are presented in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all the disclosures normally required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The condensed consolidated financial statements (unaudited), in the opinion of management, contain all normal recurring adjustments necessary to present fairly the financial position as of October 30, 2020, and November 1, 2019, ~~and November 2, 2018,~~ the results of operations, comprehensive income, and shareholders’ equity for the three and nine months ended October 30, 2020, and November 1, 2019, ~~and November 2, 2018,~~ and cash flows for the nine months ended October 30, 2020, and November 1, ~~2019 and November 2, 2018.~~2019. The January 31, 2020 consolidated balance sheet was derived from the audited financial statements.

These interim condensed consolidated financial statements (unaudited) should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Lowe’s Companies, Inc. (the Company) Annual Report on Form 10-K for the fiscal year ended ~~February 1, 2019~~January 31, 2020 (the Annual Report). The financial results for the interim periods may not be indicative of the financial results for the entire fiscal year.

Impacts of COVID-19

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. In response to the COVID-19 pandemic, federal, state and local governments put in place travel restrictions, quarantines, “shelter-in-place” orders, and various other restrictive measures in an attempt to control the spread of the disease. Such restrictions or orders have resulted in, and continue to result in, business closures, work stoppages, slowdowns and delays, among other effects that impact the Company’s operations, as well as customer demand and the operations of our suppliers.

At the onset of the pandemic, the Company implemented a number of measures to facilitate a safer store environment and to provide support for its associates, customers and community. During the first quarter, the Company expanded associate benefits in response to COVID-19 to provide additional paid time off, special payments to hourly associates, temporary wage increases and other benefits. During the second and third quarters of 2020, the Company provided additional bonus payments to hourly associates, in addition to continued enhanced cleaning protocols and charitable contributions. These actions resulted in $288 million and $1.0 billion of expense included in selling, general and administrative (SG&A) expense in the consolidated statements of earnings for the three and nine months ended October 30, 2020, respectively.

Also in response to the uncertainties surrounding COVID-19, during the first quarter of 2020, the Company took proactive steps to further enhance its liquidity position by temporarily 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. During the third quarter, the Company reinstated its previously authorized share repurchase program.

The Company continues to evaluate the carrying amounts of its long-lived assets whenever certain events or changes in circumstances indicate that the carrying amounts may not be recoverable, including potential market impacts from the COVID-19 pandemic. The Company performed its quarterly assessment of long-lived assets and did not record any material long-lived asset impairments.

In addition, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), which was enacted on March 27, 2020, includes measures to assist companies in response to the COVID-19 pandemic. In accordance with the CARES Act, the Company has deferred the payment of qualifying employer payroll taxes which are required to be paid over two years, with half due by December 31, 2021 and the other half due by December 31, 2022. As of October 30, 2020, the Company deferred $407 million of qualifying employer payroll taxes which is included in other liabilities in the consolidated balance sheet and included in cash flows from other operating liabilities in the consolidated statement of cash flows.

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Reclassifications

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

~~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 of the Company’s leases.~~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 use the expedients where 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.

Recent accounting pronouncements pending adoption not discussed in this Form 10-Q or in the ~~2018~~2019 Form 10-K are either not applicable to the Company or are not expected to have a material impact on the Company.

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

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

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

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

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

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

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

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

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

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

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


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

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

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


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

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

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


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


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


³	~~Calculated using the lease-specific incremental borrowing rate.~~


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



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

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

~~Prior Period Disclosures~~

~~As a result of the 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.

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


(In millions)	Three Months Ended				Nine Months Ended
	October 30, 2020		November 1, 2019		October 30, 2020		November 1, 2019
Products	$	21,342	$	16,379	$	66,724	$	53,259
Services	552		545		1,459		1,690
Other	415		464		1,103		1,172
Net sales	$	22,309	$	17,388	$	69,286	$	56,121

(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 $281 million at October 30, 2020, $227 million at November 1, 2019, and ~~$229~~$194 million at ~~November 2, 2018.~~January 31, 2020. The associated right of return assets reflected in other current assets were $180 million at October 30, 2020, $148 million at November 1, 2019, and ~~$151~~$129 million at ~~November 2, 2018.~~

Revenues from services primarily relate to professional installation services the Company provides through subcontractors related to merchandise purchased by a customer. In certain instances, installation services include materials provided by the subcontractor, and both product and installation are included in service revenue. The Company recognizes revenue associated with services as they are rendered, and the majority of services are completed within one week from initiation.January 31, 2020.

Deferred revenue is presented for merchandise that has not yet transferred control to the customer and for services that have not yet been provided, but for which tender has been accepted. Deferred revenue is recognized in sales either at a point in time when the customer obtains control of merchandise through pickup or delivery, or over time as services are provided to the customer. Deferred- retail

The 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 $1.2 billion at October 30, 2020, $778 million at November 1, 2019, and ~~$945~~$685 million at ~~November 2, 2018.~~January 31, 2020. 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~~(gift cards and returned merchandise credits) were $439 million, $444 million, and ~~$411~~$534 million at October 30, 2020, November 1, 2019, and ~~November 2, 2018,~~January 31, 2020, 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 months ended October 30, 2020, and November 1, 2019.

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Deferred revenue - extended protection plans

The deferred revenues from separately priced extended protection plans were $1.0 billion, $875 million, and $894 million at October 30, 2020, November 1, 2019, and ~~November 2, 2018.~~

~~Extended protection plans~~

The Company also defers revenues for its separately-priced extended protection plan contracts, which is a Lowe’s-branded program for which the Company is ultimately self-insured. The Company recognizes revenue from extended protection plan sales on a straight-line basis over the respective contract term. Extended protection plan contract terms primarily range from one to five years from the date of purchase or the end of the manufacturer’s warranty, as applicable. Deferred revenue from extended protection plansJanuary 31, 2020, respectively. Revenue recognized into sales were $106 million and $314 million for the three and nine months ended October 30, 2020, respectively, and $103 million and $303 million for the three and nine months ended November 1, 2019, ~~respectively, and $97 million and $293 million for the three and nine months ended November 2, 2018,~~ respectively. 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 October 30, 2020, and November 1, 2019 and November 2, 2018, respectively. The Company’s extended protection plan deferred costs are included in other assets (noncurrent) on the consolidated balance sheets. All other costs, such as costs of services performed under the contract, general and administrative expenses, and advertising expenses are expensed as incurred.2019.

The liability for extended protection plan claims incurred is included in other current liabilities on the consolidated balance sheets and was not material in any of the periods presented. Expenses for claims are recognized in cost of sales when incurred and totaled $43 million and $121 million for the three and nine months ended October 30, 2020, respectively, and $45 million and $141 million for the three and nine months ended November 1, 2019, ~~respectively, and $47 million and $141 million for the three and nine months ended November 2, 2018,~~ respectively.

Disaggregation of Revenues

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


	Three Months Ended						Nine Months Ended							Three Months Ended								Nine Months Ended
	November 1, 2019			November 2, 2018			November��1, 2019			November 2, 2018				October 30, 2020				November 1, 2019				October 30, 2020				November 1, 2019
(In millions)	Total Sales		%	Total Sales		%	Total Sales		%	Total Sales		%	(In millions)	Net Sales		%		Net Sales		%		Net Sales		%		Net Sales		%
Home Décor ¹	$	6,374	37	$	6,230	36	$	19,639	35	$	19,239	35
Building Products ²	5,961		34	5,939		34	17,865		32	17,913		32
Hardlines ³	4,515		26	4,399		25	17,134		30	16,392		29
Home Décor 1													Home Décor 1	$	8,168	36.6	%	$	6,490	37.3	%	$	23,855	34.4	%	$	19,929	35.5	%
Building Products 2													Building Products 2	7,587		34.0		5,794		33.3		21,527		31.1		17,405		31.0
Hardlines 3													Hardlines 3	6,013		27.0		4,551		26.2		22,466		32.4		17,235		30.7
Other	538		3	847		5	1,483		3	2,118		4	Other	541		2.4		553		3.2		1,438		2.1		1,552		2.8
Total	$	17,388	100	$	17,415	100	$	56,121	100	$	55,662	100	Total	$	22,309	100.0	%	$	17,388	100.0	%	$	69,286	100.0	%	$	56,121	100.0	%

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.


¹	Home Décor includes the following product categories: Appliances, Décor, Flooring, Kitchens & Bath, and Paint


²	~~Building Products includes the following product categories: Lighting, Lumber & Building Materials, Millwork, and Rough Plumbing & Electrical~~


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

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

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

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


(In millions)	Three Months Ended				Nine Months Ended
	October 30, 2020		November 1, 2019		October 30, 2020		November 1, 2019
United States	$	20,832	$	16,131	$	65,153	$	52,225
International	1,477		1,257		4,133		3,896
Net Sales	$	22,309	$	17,388	$	69,286	$	56,121

(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 October 30, 2020, November 1, 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.

Held-to-maturity securities are U.S. Treasury bills which the Company has the ability and intent to hold until maturity and are stated at amortized cost. Gross unrecognized holding gains and losses on the Company’s held-to-maturity securities were not material as of October 30, 2020.

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The Company’s investments are as follows:


(In millions)	October 30, 2020		November 1, 2019		January 31, 2020
Short-term investments:
Available-for-sale debt securities	$	702	127		$	160
Held-to-maturity securities	1,150		0		0
Total short-term investments	$	1,852	$	127	$	160
Long-term investments:
Available-for-sale debt securities	$	202	$	363	$	372
Total long-term investments	$	202	$	363	$	372

The maturities of available-for-sale and held-to-maturity securities at October 30, 2020, are as follows:


	Available-for-Sale
(In millions)	Cost Basis		Fair Value		Held-to-Maturity
Due in one year or less	$	699	$	702	$	1,150
Due after one year through five years	198		202		0
Total	$	897	$	904	$	1,150

Restricted Investments

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 $402 million at October 30, 2020, $127 million at November 1, 2019, and $160 million at January 31, 2020.

Restricted balances included in long-term investments were $202 million at October 30, 2020, $363 million at November 1, 2019, and $372 million at January 31, 2020.

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

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


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

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

The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis as of October 30, 2020, November 1, 2019, ~~November 2, 2018,~~ and ~~February 1, 2019. The fair values of these instruments approximated amortized costs.~~January 31, 2020.


		Fair Value Measurements at
(In millions)	Measurement Level	October 30, 2020		November 1, 2019		January 31, 2020
Assets:
Short-term investments:
Available-for-sale debt securities
Certificates of deposit	Level 1	$	300	$	0	$	0
U.S. Treasury notes	Level 1	220		13		13
Money market funds	Level 1	96		83		105
Corporate debt securities	Level 2	49		12		23
Agency securities	Level 2	37		19		19
Total short-term investments		$	702	$	127	$	160
Long-term investments:
Available-for-sale debt securities
U.S. Treasury notes	Level 1	$	140	$	258	$	280
Corporate debt securities	Level 2	52		75		62
Municipal obligations	Level 2	10		0		0
Agency securities	Level 2	0		30		30


Total long-term investments		$	202	$	363	$	372

Liabilities:
Other current liabilities:
Derivative instruments
Forward interest rate swaps	Level 2	$	9	$	0	$	11
Total other current liabilities		$	9	$	0	$	11
Other liabilities:
Derivative instruments
Forward interest rate swaps	Level 2	$	5	$	0	$	0
Total other liabilities		$	5	$	0	$	0

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

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

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

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

During the three and nine months ended October 30, 2020, and November 1, 2019, the Company had no material measurements of assets and ~~the three and nine months ended November 2, 2018, the Company’s only significant assets or~~ liabilities ~~measured~~ at fair value on a nonrecurring basis subsequent to their initial ~~recognition were certain long-lived assets.~~recognition.

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

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

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

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

As part of a strategic reassessment of Orchard Supply Hardware (Orchard), during the three months ended August 3, 2018, it was determined to be more likely than not the assets of Orchard would be sold or otherwise disposed of significantly before the end of their previously estimated useful lives, and therefore, these assets experienced a triggering event and were evaluated for recoverability. Operating locations evaluated for recoverability included all Orchard stores, as well as a distribution facility that 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 1, 2019
Three Months Ended November 1, 2019
Nine Months Ended November 1, 2019
Assets-held-for-use:
Operating locations $ 46
$ 53
$ 61
Total $ 46
$ 53
$ 61

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

Other Fair Value ~~of Financial Instruments~~Disclosures

The Company’s financial ~~instruments~~assets and liabilities not measured at fair value on a recurring basis include cash and cash equivalents, accounts receivable, held-to-maturity securities, short-term borrowings, accounts payable, ~~accrued liabilities~~ and long-term debt and are reflected in the financial statements at cost. With the exception of long-term debt, cost approximates fair value for these items due to

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their short-term nature. The fair values of the Company’s unsecured notes were estimated using quoted market prices. The fair values of the Company’s mortgage notes were estimated using discounted cash flow analyses, based on the future cash outflows associated with these arrangements and discounted using the applicable incremental borrowing rate.

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


	October 30, 2020				November 1, 2019				January 31, 2020
(In millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Unsecured notes (Level 1)	$	21,119	$	24,340	$	16,646	$	18,184	$	16,648	$	18,808
Mortgage notes (Level 2)	5		5		5		5		5		6
Long-term debt (excluding finance lease obligations)	$	21,124	$	24,345	$	16,651	$	18,189	$	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 ~~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~~5: Exit Activities - 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~~year 2019, the Company ~~has~~ incurred costs associated with ~~an ongoing~~a 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, as a result of the ~~Company began a~~Company’s strategic review of its Canadian operations, ~~and as a result,~~the Company recognized pre-tax charges of $53 million associated with long-lived asset impairment. Expenses associated with long-lived asset impairment are included in SG&A expense in the consolidated statements of earnings. 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 store closings were completed in the ~~decision and associated impacts.~~

first quarter of fiscal 2020. A summary of the significant charges associated with the ~~2019~~ strategic review of the Canadian operations ~~are~~is as follows:


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



Total	$	53	$	53

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,~~Note 6: Short-Term Borrowings - In March 2020, the Company ~~approved plans~~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 ~~exit its Orchard operations by closing all 99 Orchard stores, which were located~~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 ~~California, Oregon~~compliance with those financial covenants at October 30, 2020.

The 2020 Credit Agreement, along with the $1.98 billion five year unsecured second amended and ~~Florida, as well as~~restated credit agreement (Second Amended and Restated Credit Agreement) entered into in September 2018, supports the ~~distribution facility that serviced~~Company’s commercial paper program. The amounts available to be drawn under the ~~Orchard stores,~~2020 Credit Agreement and the ~~Orchard corporate office. All facilities were closed~~Second Amended and Restated Credit Agreement are reduced by the ~~end~~amount of ~~fiscal year 2018. A summary~~borrowings under the commercial paper program. As of October 30, 2020, and November 1, 2019, there were 0 outstanding borrowings under the ~~significant charges associated~~2020 Credit Agreement or the Second Amended and Restated Credit Agreement. As of October 30, 2020, there were 0 outstanding borrowings under the Company’s commercial paper program. As of November 1, 2019, outstanding borrowings under the Company’s commercial paper program were $637 million, with a weighted average interest rate of 1.97%. Total combined availability under the ~~exit~~2020 Credit Agreement and the Second Amended and Restated Credit Agreement was $3.0 billion as of ~~the Orchard operations is as follows:~~October 30, 2020.

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~~Table 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

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~~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 9:7: Long-Term Debt - ~~During the first quarter of fiscal 2019,~~On October 22, 2020, the Company issued ~~$3.0~~$4.0 billion of unsecured fixed rate notes (October 2020 Notes) as follows:

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


Principal Amount (in millions)		Maturity Date	Interest Rate	Discount (in millions)
$	1,000	April 2028	1.300%	$	5
$	1,250	October 2030	1.700%	$	10
$	1,750	October 2050	3.000%	$	17

On March 26, 2020, the Company issued $4.0 billion of unsecured fixed rate notes (March 2020 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

Interest on the ~~notes issued in 2019~~October 2020 Notes and March 2020 Notes (collectively, the 2020 Notes) is payable semiannually in arrears in April and October of each year until maturity.

The ~~indenture~~indentures governing the ~~notes issued in 2019 contains~~2020 Notes contain a provision that allows the Company to redeem these notes at any time, in whole or in part, at specified redemption prices, plus accrued and unpaid interest, if any, up to, but excluding, the date of redemption. The indenture also contains a provision that allows the holders of the notes to require the Company to repurchase all or any part of their notes if a change of control triggering event occurs. If elected under the change of control provisions, the repurchase of the notes will occur at a purchase price of 101% of the principal amount, plus accrued and unpaid interest, if any, on such notes up to, but excluding, the date of purchase. The ~~indenture~~indentures governing the ~~notes does~~2020 Notes do not limit the aggregate principal amount of debt securities that the Company may issue and does not require the Company to maintain specified financial ratios or levels of net worth or liquidity. ~~However, the indenture includes various restrictive covenants, none of which is expected to impact the Company’s liquidity or capital resources.~~

~~Note 10: Short-Term Borrowings -~~

In ~~September 2019,~~addition, during October 2020, the Company ~~entered into~~completed a ~~$250 million unsecured 364-day credit agreement~~cash tender offer (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~~2020 Cash Tender Offer) to purchase and ~~other currencies approved by the administrative agent and the lenders. The Company must repay the~~retire $3.0 billion combined aggregate principal amount of ~~loans~~its 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,notes with a weighted average interest rate of ~~1.97%, as~~4.80%. As a result of the 2020 Cash Tender Offer, the Company recognized a loss on extinguishment of debt of $1.1 billion which includes premium paid to holders of the debt, unamortized deferred financing fees and original issue discounts, and loss on reverse treasury lock derivative contracts. See Note 8 for additional information regarding the reverse treasury lock derivative contracts.

Note 8: Derivative Instruments

Cash Flow Hedges

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 October 30, 2020, and $770 million at January 31, 2020. The Company did not hold forward interest rate swap agreements at November 1, 2019. AsSee Note 4 for the gross fair values of the Company’s 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.

The Company accounts for these contracts as cash flow hedges, thus the effective portion of gains and losses resulting from changes in fair value are recognized in other comprehensive income/(loss), net of tax effects, in the consolidated statements of comprehensive income and is recognized in earnings when the underlying hedged transaction impacts the consolidated statements of earnings. A summary of the gain/(loss) on forward interest rate swap derivatives designated as cash flow hedges recorded in other comprehensive loss and earnings for the three and nine months ended October 30, 2020, and November ~~2, 2018, there were 0 outstanding borrowings under~~1, 2019, including its line item in the ~~Second Amended~~financial statements, is as follows:

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(In millions)	Three Months Ended				Nine Months Ended
	October 30, 2020		November 1, 2019		October 30, 2020		November 1, 2019
Other comprehensive income/(loss)
Cash flow hedges – net of tax (expense)/benefit of ($7) million, $0 million, $28 million, $6 million, respectively	$	22	$	0	$	(85)	$	(15)
Net earnings
Interest – net	$	3	$	0	$	7	$	1

Other Derivatives Not Designated as Hedging Instruments

To hedge the economic risk of changes in value of the 2020 Cash Tender Offer prior to its pricing date, the Company entered into reverse treasury lock derivative contracts with a combined notional of $2.0 billion. Upon the pricing of the 2020 Cash Tender Offer, the Company settled the reverse treasury lock derivative contracts and ~~Restated Credit Agreement,~~made a payment to its counterparty for $26 million, which is included in loss on extinguishment of debt in the ~~364-Day Credit Agreement, or our commercial paper program.~~consolidated statements of earnings for the three and nine months ended October 30, 2020. The cash flows related to these contracts are included within financing activities in the accompanying consolidated statements of cash flows.

Note ~~11:~~9: 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,~~October 30, 2020, the Company had ~~$10.3~~$8.1 billion remaining in its share repurchase program. Due to the uncertainty caused by the COVID-19 pandemic, the Company temporarily suspended its share repurchases during the first quarter of 2020, but reinstated share repurchases under the program during the third quarter of 2020.

In ~~November 2018,~~February 2020, the Company entered into an Accelerated Share Repurchase (ASR) agreement with a third-party financial institution to repurchase $270 million of the Company’s common stock. At inception, pursuant to the agreement, the Company paid $270 million to the financial institution using cash on hand and took delivery of 2.6 million shares. The Company finalized the transaction and received an additional 0.3 million shares in February 2019.

~~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.

In addition, during the three and nine months ended ~~November 1, 2019,~~October 30, 2020, the Company repurchased shares of its common stock through the open market totaling ~~4.1~~3.6 million and ~~18.1~~7.7 million shares, respectively, for a cost of ~~$438~~$617 million and ~~$1.9~~$1.1 billion, respectively.

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

Shares repurchased for the three and nine months ended October 30, 2020, and November 1, 2019, ~~and November 2, 2018~~ were as follows:


	Three Months Ended
	October 30, 2020			November 1, 2019
(In millions)	Shares	Cost 1		Shares	Cost 1
Share repurchase program	3.6	$	617	7.7	$	835
Shares withheld from employees	0	4		0.2	23
Total share repurchases	3.6	$	621	7.9	$	858

1 Reductions of $431 million and $827 million was recorded to retained earnings, after capital in excess of par value was depleted, for the three months ended October 30, 2020 and November 1, 2019, respectively.

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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


¹	~~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
	October 30, 2020			November 1, 2019
(In millions)	Shares	Cost 1		Shares	Cost 1
Share repurchase program	13.2	$	1,557	35.3	$	3,618
Shares withheld from employees	0.1	10		0.3	36
Total share repurchases	13.3	$	1,567	35.6	$	3,654

1 Reductions of $1.4 billion and $3.5 billion were recorded to retained earnings, after capital in excess of par value was depleted, for the nine months endedOctober 30, 2020, and November 1, 2019, 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


²	~~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:~~10: 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 months ended October 30, 2020, and November 1, ~~2019 and November 2, 2018:~~2019:


	Three Months Ended				Nine Months Ended
(In millions, except per share data)	October 30, 2020		November 1, 2019		October 30, 2020		November 1, 2019
Basic earnings per common share:
Net earnings	$	692	$	1,049	$	4,857	$	3,771
Less: Net earnings allocable to participating securities	(3)		(3)		(20)		(11)
Net earnings allocable to common shares, basic	$	689	$	1,046	$	4,837	$	3,760
Weighted-average common shares outstanding	752		769		753		782
Basic earnings per common share	$	0.92	$	1.36	$	6.42	$	4.81
Diluted earnings per common share:
Net earnings	$	692	$	1,049	$	4,857	$	3,771
Less: Net earnings allocable to participating securities	(3)		(3)		(20)		(11)
Net earnings allocable to common shares, diluted	$	689	$	1,046	$	4,837	$	3,760
Weighted-average common shares outstanding	752		769		753		782
Dilutive effect of non-participating share-based awards	2		1		1		1
Weighted-average common shares, as adjusted	754		770		754		783
Diluted earnings per common share	$	0.91	$	1.36	$	6.41	$	4.80

Three Months Ended Nine Months Ended
(In millions, except per share data) November 1, 2019 November 2, 2018 November 1, 2019 November 2, 2018
Basic earnings per common share:
Net earnings $ 1,049
$ 629
$ 3,771
$ 3,138
Less: Net earnings allocable to participating securities (3 ) (1 ) (11 ) (10 )
Net earnings allocable to common shares, basic $ 1,046
$ 628
$ 3,760
$ 3,128
Weighted-average common shares outstanding 769
806
782
815
Basic earnings per common share $ 1.36
$ 0.78
$ 4.81
$ 3.84
Diluted earnings per common share:

Net earnings $ 1,049
$ 629
$ 3,771
$ 3,138
Less: Net earnings allocable to participating securities (3 ) (1 ) (11 ) (10 )
Net earnings allocable to common shares, diluted $ 1,046
$ 628
$ 3,760
$ 3,128
Weighted-average common shares outstanding 769
806
782
815
Dilutive effect of non-participating share-based awards 1
1
1
1
Weighted-average common shares, as adjusted 770
807
783
816
Diluted earnings per common share $ 1.36
$ 0.78
$ 4.80
$ 3.83

~~Stock options to purchase~~Anti-dilutive securities excluded from diluted weighted-average common shares outstanding totaled 0.3 million and 0.1 million shares for the three and nine months ended October 30, 2020, respectively. Anti-dilutive securities excluded from diluted weighted-average common shares outstanding totaled 0.9 million and 0.9 million shares ~~of common stock were anti-dilutive~~ for the three and nine months ended November 1, 2019, respectively. ~~Stock options to purchase 0.2 million and 0.4 million shares of common stock were anti-dilutive for the three and nine months ended November 2, 2018, respectively.~~

Note ~~13:~~11: Income Taxes - The Company’s effective income tax rates were 22.6% and 24.3% for the three and nine months ended October 30, 2020, respectively, and 24.0% and 22.2% for the three and nine months ended November 1, ~~2019, respectively, and 21.8% and 23.8%~~2019. The decrease in the effective tax rate for the three ~~and nine~~ months ended ~~November 2, 2018, respectively.~~October 30, 2020, was impacted by higher earnings at RONA inc. which has a full valuation allowance against its deferred tax assets, and a favorable discrete item related to excess tax benefits of stock compensation. The increase in the effective tax rate for the ~~quarter is primarily due to an increase in pre-tax earnings as compared to the three months ended November 2, 2018, 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~~October 30, 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~~

Table 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.~~Contents

Note ~~14:~~12: Supplemental Disclosure

Net interest expense is comprised of the following:


	Three Months Ended				Nine Months Ended
(In millions)	October 30, 2020		November 1, 2019		October 30, 2020		November 1, 2019
Long-term debt	$	213	$	171	$	610	$	498
Finance lease obligations	8		7		25		21
Short-term borrowings	1		0		13		7

Interest income	(6)		(5)		(18)		(24)
Interest capitalized	0		0		0		(1)
Interest on tax uncertainties	0		0		0		(2)
Other	5		4		14		9
Interest – net	$	221	$	177	$	644	$	508

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

Supplemental disclosures of cash flow information:


	Nine Months Ended
(In millions)	October 30, 2020		November 1, 2019
Cash paid for interest, net of amount capitalized	$	750	$	647
Cash paid for income taxes – net	$	1,357	$	1,029
Non-cash investing and financing activities:
Leased assets obtained in exchange for new finance lease liabilities	$	55	$	156
Leased assets obtained in exchange for new operating lease liabilities 1	$	355	$	374

Cash dividends declared but not paid	$	452	$	423

1 Excludes $565 million of leases signed but not yet commenced as of October 30, 2020.

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 October 30, 2020 and November 1, 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 periods ended October 30, 2020 and November 1, 2019, ~~and November 2, 2018,~~ and of cash flows for the fiscal nine-month periods ended October 30, 2020 and November 1, 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~~November 25, 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 months ended October 30, 2020, and November 1, ~~2019, and November 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 third quarter of 2020 increased 28.3% to $22.3 billion compared to net sales of $17.4 billion in the third quarter of 2019. The increase in total sales was primarily driven by an increase in comparable sales. Net earnings in the third quarter of ~~2019 increased 66.8% to $1.0 billion~~2020 were $692 million which represents a decrease of 34.1% compared to net earnings of ~~$629 million~~$1.0 billion in the third quarter of ~~2018.~~2019. Diluted earnings per common share ~~increased 74.9%~~decreased 32.7% in the third quarter of ~~2019~~2020 to ~~$1.36~~$0.91 from ~~$0.78~~$1.36 in the third quarter of ~~2018.~~2019. Included in the third quarter results is a $1.1 billion pre-tax loss related to the extinguishment of debt from a cash tender offer to purchase and retire $3.0 billion combined aggregate principal amount of its outstanding notes with a weighted average interest rate of 4.80%. The Company funded the cash tender offer with a $4 billion issuance of unsecured notes with a weighted average interest rate of 2.17%. These efforts took advantage of a favorable interest rate environment to reduce our long-term interest expense. Also included in the third quarter of fiscal 2020 results are operating costs related to the Canada restructuring. The third quarter of 2019 ~~results is~~included $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.Canada restructuring. Excluding the impact of these items, adjusted diluted earnings per common share increased ~~35.6%~~40.4% to ~~$1.41~~$1.98 in the third quarter of ~~2019~~2020 from adjusted diluted earnings per common share of ~~$1.04~~$1.41 in the third quarter of ~~2018~~2019 (see the discussion of non-GAAP financial measures ~~beginning on page 27)~~).

For the first nine months of ~~2019,~~2020, cash flows from operating activities were approximately ~~$4.1~~$11.5 billion, while ~~$927 million~~$1.2 billion was used for capital expenditures. Continuing to deliver on our commitment to return excess cash to shareholders, ~~during the first nine months of 2019,~~ we ~~repurchased $3.6 billion of common stock through~~reinstated our share repurchase program during the third quarter and repurchased $621 million of common stock and paid ~~$1.2 billion~~$416 million in ~~dividends.~~dividends during the three months ended October 30, 2020.

During the third quarter of ~~2019, we capitalized~~2020, strong execution enabled us to meet broad-based demand driven by a consumer focus on ~~robust customer demand, which drove strong traffic to our stores~~redesigning the function and ~~improved on store execution. We experienced comparable~~enjoyment of the home. Comparable sales ~~increase of 2.2% and broad-based~~increased by 30.1% with greater than 15% growth ~~with~~in all 15 ~~U.S.~~merchandising divisions and triple-digit growth online. All geographic 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 in Tools, Décor, Lawn & Garden, Appliances, Millwork, Paint, Hardware, Rough Plumbing & Electrical,~~of at least 20%. We have experienced consistent strong project demand from both Do-It-Yourself (DIY) and ~~Lumber & Building Materials.~~

~~Our overall performance in~~Pro customers throughout the quarter. During the third quarter, ~~demonstrates continued momentum executing~~we made a significant merchandising investment to reset the layout of our ~~retail fundamentals framework. Our initiatives~~U.S. stores (U.S. Stores Reset) to ~~improve in-stock levels~~better align our product adjacencies and ~~provide~~create a ~~better customer service~~more intuitive shopping experience, ~~along with our advances in serving~~especially for Pro customers. As a result of this ongoing U.S. Stores Reset, 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 inCompany incurred $100 million of expense during the third ~~quarter. We are now transitioning from retail fundamentals~~quarter of fiscal 2020 and expects 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~~incur approximately $150 million of expense in the fourth quarter of ~~2019~~fiscal 2020.

Our enhanced omnichannel capabilities have enabled us to meet the expectations of customers to shop whichever way they choose. With the re-platforming of Lowes.com to the cloud, we have been deploying enhancements to deliver a better customer experience including online delivery scheduling. Also during the third quarter, we began adding touchless buy online pickup in store (BOPIS) lockers to our stores, which complement our curbside pickup and ~~launch~~BOPIS pickup at checkout. We are focused on rolling out these lockers to our ~~Pro loyalty program nationally~~major metro markets for the holiday season.

Table of Contents

COVID-19 Response

We continue to be guided by our three key priorities in navigating the COVID-19 pandemic: 1) protecting the health and safety of our associates and customers through a safe store environment and shopping experience; 2) providing support for our community, including healthcare providers and first responders; and 3) financially supporting our associates during this challenging time. In response to these priorities, we have implemented store safety initiatives to support social distancing and enhance cleaning procedures, as well as adopted a requirement for all front-line associates to wear masks and a nationwide standard for all customers to wear masks. As part of our commitment to provide financial assistance to our associates, we incurred an incremental $245 million of expense to support our associates in the third quarter. This included two additional discretionary bonus payments for our hourly associates, bringing our total investment in our associates to $807 million for the first ~~half~~nine months of fiscal 2020. In support of our communities, we have contributed $104 million in community pandemic relief year-to-date, including grants to support minority-owned and rural small businesses.

Looking Forward

In ~~addition, as 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 cloud in the firstfourth quarter of ~~2020. With a modernized platform in place,~~2020, we expect to have ~~the ability to address capability gaps to provide a better experience~~our U.S. Stores Reset complete for ~~our customers.~~

~~During the third quarter, we initiated a strategic review~~over 90% of our ~~Canadian business, inclusive of leadership changes, with a~~U.S. stores, which is expected to improve bay productivity and better support long-term sales growth. We also continue to focus on ~~improving execution~~our previously announced investment in our supply chain infrastructure to expand our omnichannel retailing capabilities that will drive sustainable growth. In addition, we are focused on our growth opportunity online and ~~profitability. Based on~~removing points of friction from our online shopping experience.

While we remain optimistic about our performance, we have limited visibility into long-term business trends in this ~~review, subsequent~~unprecedented operating environment, including the volume or duration of customer demand or potential supply chain constraints. However, we remain confident that we are making the right investments to the end of the third quarter of fiscal 2019, the Company decided to close 34 under-performing stores 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.drive sustainable growth.

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
	October 30, 2020		November 1, 2019		2020 vs. 2019	2020 vs. 2019
Net sales	100.00	%	100.00	%	N/A	28.3	%
Gross margin	32.72		32.44		28	29.4
Expenses:
Selling, general and administrative	21.38		21.69		(31)	26.4
Depreciation and amortization	1.59		1.79		(20)	14.5
Operating income	9.75		8.96		79	39.6
Interest – net	0.99		1.02		(3)	25.4
Loss on extinguishment of debt	4.75		—		475	N/A
Pre-tax earnings	4.01		7.94		(393)	(35.3)
Income tax provision	0.91		1.90		(99)	(39.0)
Net earnings	3.10	%	6.04	%	(294)	(34.1)	%

Table of Contents

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			Nine 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			October 30, 2020		November 1, 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	23.5	%
Gross margin	32.01		32.36		(35	)	(0.3	)	Gross margin	33.36		32.01		135	28.7
Expenses:									Expenses:
Selling, general and administrative	20.82		22.13		(131	)	(5.1	)	Selling, general and administrative	20.18		20.82		(64)	19.7
Depreciation and amortization	1.65		1.99		(34	)	(16.6	)	Depreciation and amortization	1.46		1.65		(19)	9.1
Operating income	9.54		8.24		130		16.8		Operating income	11.72		9.54		218	51.7
Interest - net	0.90		0.84		6		8.8
Interest – net									Interest – net	0.93		0.90		3	26.9
Loss on extinguishment of debt									Loss on extinguishment of debt	1.53		—		153	N/A
Pre-tax earnings	8.64		7.40		124		17.7		Pre-tax earnings	9.26		8.64		62	32.4
Income tax provision	1.92		1.76		16		9.7		Income tax provision	2.25		1.92		33	45.1
Net earnings	6.72	%	5.64	%	108		20.2	%	Net earnings	7.01	%	6.72	%	29	28.8	%

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 nine months ended October 30, 2020, the impact of excluding deferred sales ~~whereas they were previously included in selling, general,~~increased the comparable sales metric by 8 basis points and ~~administrative expense,~~88 basis points, respectively. For the three and ~~depreciation~~nine months ended November 1, 2019, the impact of excluding deferred sales decreased the comparable sales metric by 10 basis points and ~~amortization. Amounts presented~~26 basis points, respectively. The comparable sales metric for the three and nine months ended November ~~2, 2018 reflect adjusted amounts~~1, 2019, has been recast to conform to the current year presentation.

Table of Contents


	Three Months Ended						Nine Months Ended
Other Metrics	October 30, 2020			November 1, 2019			October 30, 2020			November 1, 2019
Comparable sales increase 1	30.1		%	2.1		%	25.6		%	2.4		%
Total customer transactions (in millions)	257			221			819			720
Average ticket 2	$	86.96		$	78.71		$	84.55		$	77.95
At end of period:
Number of stores	1,969			2,004
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	19.5		%	11.7		%
Return on invested capital 4	25.1		%	14.2		%

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 third quarter fiscal 2020 comparable sales by approximately 485 basis points and year-to-date fiscal 2020 comparable sales by approximately 530 basis points. The comparable sales calculation included in the preceding table was calculated using comparable 13-week and 39-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 third 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 third quarter of fiscal 2019, the Company began a strategic review of its Canadian operations, and in 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 ~~November 1,~~October 30, 2020, the Company recognized $13 million of pre-tax operating costs related to remaining inventory write-downs and other closing costs (Canada restructuring).

•In the third quarter of fiscal 2020, the Company recognized a $1.1 billion loss on extinguishment of debt in connection with a $3.0 billion cash tender offer (Loss on extinguishment of debt).

Fiscal 2019 Impacts

•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 ~~(2019 Canada~~(Canada restructuring).

~~During the three months ended November 2, 2018, the Company recognized the following 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 associated with the decision to close 20 U.S. stores and 31 stores and other locations in Canada (U.S. and Canada closing charges).

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

~~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
	October 30, 2020				November 1, 2019
	Pre-Tax Earnings	Tax	Net Earnings		Pre-Tax Earnings	Tax	Net Earnings
Diluted earnings per share, as reported			$	0.91			$	1.36
Non-GAAP adjustments – per share impacts
Loss on extinguishment of debt	1.40	(0.35)	1.05		—	—	—
Canada restructuring	0.02	—	0.02		0.07	(0.02)	0.05





Adjusted diluted earnings per share			$	1.98			$	1.41

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 the 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)	October 30, 2020			November 1, 2019
Calculation of Return on Invested Capital
Numerator
Net Earnings	$	5,367		$	2,947
Plus:
Interest expense – net	827			665
Loss on extinguishment of debt	1,060			—
Operating lease interest	177			186
Provision for income taxes	1,828			1,177
Lease adjusted net operating profit	9,259			4,975
Less:
Income tax adjustment 1	2,353			1,414
Lease adjusted net operating profit after tax	$	6,906		$	3,561

Denominator
Average debt and equity 2	$	27,525		$	25,106
Net earnings to average debt and equity	19.5		%	11.7		%
Return on invested capital	25.1		%	14.2		%

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 %


¹1 Income tax adjustment is defined as lease adjusted net operating profit multiplied by the effective tax rate, which was 25.4% and 28.4% for the periods ended October 30, 2020, and November 1, 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 quarter of ~~2019 decreased 0.2%~~2020 increased 28.3% to ~~$17.4~~$22.3 billion. The ~~decrease~~increase in total sales iswas primarily driven ~~by the impact of previous store closures and the exit of Orchard, partially offset~~ by comparable sales growth. Comparable sales increased ~~2.2%~~30.1% over the same period, driven by a ~~2.4%~~16.4% increase in comparable customer transactions and a 13.7% increase in comparable average ~~ticket, partially offset by a 0.1% decrease in comparable customer transactions.~~ticket.

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During the third 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 DIY and Pro customers. Comparable sales were above the ~~company~~Company average in ~~Tools, Décor,~~Lumber, Lawn & Garden, ~~Appliances, Millwork, Paint, Hardware,~~Seasonal & Outdoor Living, and ~~Rough Plumbing~~Décor. Lumber experienced strong unit demand across DIY and Pro customers. As customers actively engaged in outdoor landscaping and other beautification projects, Lawn & ~~Electrical. Performance~~Garden experienced broad based strength across the category. Hurricane preparation activities and favorable weather drove growth in ~~Tools led the merchandising department growth with a continued strong customer response to our CRAFTSMAN® reset, as well as sales with our key Pro brands, such as DeWalt® power tools.~~Seasonal & Outdoor Living. Décor experienced ~~mid-single digit comparable sales, with~~ strong ~~double-digit comparable sales~~performance in ~~Blinds~~home accents and ~~Shades. We~~home organization as customers continue to look for impactful DIY projects. Geographically, all 15 U.S. regions and the Canadian region experienced strength in Lawn & Garden, driven by double-digit comparable sales in live goods and landscape products. Appliances delivered strong sales during Labor Day 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 saw positive comparable sales in ~~Hardware supported by investments in job-lot quantities and increased Pro demand.~~excess of 20%.

Net sales increased ~~0.8%~~23.5% to ~~$56.1~~$69.3 billion for the first nine 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.~~sales. Comparable sales increased ~~2.7%~~25.6% over the same period, primarily driven by a ~~1.9%~~14.0% increase in customer transactions and a 11.6% increase in comparable average ~~ticket and a 0.8% increase in customer transactions.~~ticket.

Gross Margin – For the third quarter of ~~2019,~~2020, gross margin as a percentage of sales increased ~~156~~28 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~~65 basis points of total rate improvement, driven by continued improvements from our pricing and ~~product mix, which increased margin approximately~~promotional strategies and 35 ~~basis points. Gross margin was negatively impacted approximately 40~~ basis points due to ~~tariff pressure, 20~~a favorable product mix as demand was stronger in higher margin categories. These favorable impacts were partially offset by 30 basis points ~~due to supply chain costs associated with new facilities, transportation and customer deliveries,~~from lower credit revenue, 25 basis points of deleverage from inventory shrink, and 20 basis points ~~associated with increased inventory shrink.~~of deleverage from supply chain costs.

Gross margin as a percentage of sales ~~decreased 35~~increased 135 basis points in the first nine months of ~~2019~~2020 compared to ~~2018.~~2019. Gross margin was ~~negatively~~positively impacted by approximately 165 basis points of total rate improvement and 35 basis points of leverage due to favorable product mix, partially offset by 30 basis points of deleverage due to tariff pressure ~~30 basis points~~and 15 bps of deleverage from ~~supply chain costs associated with new facilities, transportation and customer deliveries, and 10 basis points due to higher~~ inventory shrink. This was partially offset by a gross margin increase of approximately 50 basis points due to our prior year inventory rationalization efforts to eliminate less productive SKUs and reduce clutter in our stores.

SG&A – For the third quarter of ~~2019,~~2020, SG&A expense leveraged ~~126~~31 basis points as a percentage of sales compared to the third 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 90 basis points of leverage in retail operating salaries ~~expenses~~due to increased sales and 10improved operating efficiencies, 35 basis points of occupancy leverage due to higher sales volume compared to fixed occupancy costs, 35 basis points of leverage in employee benefits due to the CARES Act employee retention tax credit, 25 basis points of leverage in advertising expense due to optimizing ~~the~~our channel mix, ~~for advertising. This was partially offset by 31~~and 20 basis points of ~~deleverage associated with~~leverage from the prior year’s long-lived asset impairment due to the ~~company’s~~Company’s strategic review of the Canadian operations initiated during the third ~~quarter.~~quarter of 2019. These were partially offset by 130 basis points of deleverage due to COVID-19 related expenses, including two hourly front-line employee bonuses, emergency paid leave, and increased cleaning costs and other safety-related programs, as well as 45 basis points of deleverage due to our U.S. Stores Reset.

SG&A expense as a percentage of sales leveraged ~~131~~64 basis points in the first nine 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, 54105 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.~~35 basis points of leverage in employee benefits, and 35 basis points of leverage in occupancy costs. These were partially offset by 19150 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.~~expenses.

Depreciation and Amortization – Depreciation and amortization leveraged 6420 basis points as a percentage of sales for the third 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 $18.7 billion at October 30, 2020, compared to $18.4 billion at November 1, ~~2019, compared to $18.9 billion at November 2, 2018.~~2019. As of October 30, 2020, and November 1, 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 as a percentage of sales for the first nine months of ~~2019~~2020 compared to ~~2018~~2019 primarily due to the same factors that impacted depreciation and amortization for the third quarter.

Interest – Net – Interest expense for the third 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 $4.0 billion unsecured notes in ~~expense associated with~~October 2020, the ~~adoption~~$1.0 billion term loan entered in January 2020 that was repaid during the quarter, as well as amortization of ~~ASU 2016-02,~~ ~~Leases(Topic 842), in~~ the ~~first quarter of 2019.~~loss on cash flow hedges.

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

Loss on Extinguishment of Debt – During the third quarter of 2020, we repurchased and retired $3.0 billion aggregate principal amount of our outstanding debt resulting in a loss on extinguishment of debt of $1.1 billion.

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Income Tax Provision – Our effective income tax rates were ~~24.0%~~22.6% and ~~21.8%~~24.0% for the three months ended October 30, 2020, and November 1, 2019, respectively. The decrease in the effective tax rate for the quarter was impacted by higher earnings at RONA inc., which has a full valuation allowance on its deferred tax assets, as well as a favorable discrete item related to excess tax benefits of stock compensation.

Our effective income tax rates were 24.3% and 22.2% for the nine months ended October 30, 2020, and November ~~2, 2018,~~1, 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 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~~first 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 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.~~liquidation.

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~~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 temporarily suspended our share repurchases ~~over~~during the ~~next 12 months.~~first quarter of fiscal 2020, but reinstated share repurchases under this program during the third quarter. As of October 30, 2020, we held $8.2 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


	Nine Months Ended
(In millions)	October 30, 2020		November 1, 2019
Net cash provided by operating activities	$	11,485	$	4,111

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 months ended ~~November 1, 2019,~~October 30, 2020, versus the nine months ended November ~~2, 2018,~~1, 2019, was driven primarily by higher net earnings and changes in working ~~capital,~~capital. Accounts payable increased for the first nine months of 2020 by $5.1 billion, compared to an increase for the first nine months of 2019 of $523 million, driving an additional $4.6 billion in operating cash flows for the first nine months of fiscal 2020. The increase in accounts payable was driven by ~~accounts payable and~~higher sustained inventory purchase volume in 2020 as compared to 2019. Other operating liabilities increased $1.1 billion for the first nine months of 2020 compared to a decrease of $408 million in the first nine months of 2019. The increase in other operating liabilities ~~which~~in the current year is primarily driven by increases in deferred revenue, increased accrued compensation and employee benefits, and increased accrued payroll taxes due to the deferral of qualifying employer payroll taxes in accordance with the CARES Act. Inventory decreased operating cash flow for the first nine months of ~~2018~~2020 by approximately ~~$3.2~~$2.5 billion, compared to ~~an increase~~a decrease of approximately ~~$115 million~~$1.1 billion for the first nine 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 spring inventory build in fiscal 2018. In the first nine months of 2019, the increase in inventory exceeded the increase in accounts payable, resulting in negative impact to cash flow of approximately $600 million, driven by timing ofhigher inventory purchases ~~and related payments. In addition, other operating liabilities decreased approximately $400 million~~to meet sustained customer demand 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.2020.

Cash Flows Used in Investing Activities


	Nine Months Ended
(In millions)	October 30, 2020		November 1, 2019
Net cash used in investing activities	$	(2,652)	$	(863)

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.

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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 months ended October 30, 2020, and November 1, ~~2019,~~2019:


	Nine Months Ended
(In millions)	October 30, 2020		November 1, 2019
Existing store investments 1	$	960	$	694
Strategic initiatives 2	138		127
New stores, new corporate facilities and international 3	74		106
Total capital expenditures	$	1,172	$	927

1Includes merchandising resets, facility repairs, replacements of IT and ~~November 2, 2018:~~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.

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
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.


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 outlook for capital expenditures ~~forecast~~ is approximately ~~$1.6~~$1.7 billion.

Cash Flows Used in Financing Activities


	Nine Months Ended
(In millions)	October 30, 2020		November 1, 2019
Net cash used in financing activities	$	(1,304)	$	(2,978)

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 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 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 October 30, 2020, and November 1, 2019. Total combined availability under the 2020 Credit Agreement and the Second Amended and Restated Credit Agreement as of October 30, 2020, was $3.0 billion.

The following table includes additional information related to our short-term borrowings for the nine months ended October 30, 2020, and November 1, 2019:


	Nine Months Ended
(In millions, except for interest rate data)	October 30, 2020			November 1, 2019
Net change in commercial paper	$	(941)		$	(85)
Maximum commercial paper outstanding at any month-end	$	1,858		$	1,189
Short-term borrowings outstanding at quarter-end	$	—		$	637
Weighted-average interest rate of short-term borrowings outstanding	—		%	1.97		%

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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 October 30, 2020.

Long-Term Debt

The following table includes additional information related to the Company’s long-term debt for the nine months ended October 30, 2020, and November 1, ~~2019, and November 2, 2018:~~2019:


	Nine Months Ended
(In millions)	October 30, 2020		November 1, 2019
Net proceeds from issuance of debt	$	7,929	$	2,972
Repayment of debt	$	(5,582)	$	(1,092)

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

During the nine months ended ~~November 1, 2019,~~October 30, 2020, we issued ~~$3.0~~$8.0 billion of unsecured notes. This is comprised of $4.0 billion of unsecured notes issued in March 2020 to finance current year maturities and for other general corporate purposes and $4.0 billion of unsecured notes issued in October 2020 to fund the 2020 Cash Tender Offer to purchase existing unsecured notes and for other general corporate purposes. We completed the tender offer in October 2020 in which we purchased and retired $3.0 billion of our higher coupon notes prior to maturity to take advantage of a favorable interest rate environment to reduce our long-term interest expense. As part of this transaction, we incurred $1.1 billion of debt extinguishment costs which included premium to noteholders and the cost of reverse treasury lock derivative contracts associated with the tender offer. During the nine months ended ~~November 1, 2019,~~October 30, 2020, we ~~also~~ paid ~~$1.1 billion~~$500 million to ~~retire~~repay scheduled long-term 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 allmaturity, as well as $1.0 billion early repayment of the ~~loans outstanding under the 364-Day Credit Agreement on the termination date into a~~364-day term loan ~~which the Company shall repay~~facility entered into in ~~full on the first anniversary date of the termination date.~~January 2020.

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 temporarily suspended our share repurchases during the first quarter of fiscal 2020, but as announced on September 29, 2020, determined to reinstate the previously authorized share repurchase program. The following table provides, on a settlement date basis, the total number of shares repurchased, average price paid per share, and the total amount paid for share repurchases for the nine months ended October 30, 2020, and November 1, ~~2019, and November 2, 2018:~~2019:


	Nine Months Ended
(In millions, except per share data)	October 30, 2020		November 1, 2019
Total amount paid for share repurchases	$	1,528	$	3,649
Total number of shares repurchased	13.1		35.6
Average price paid per share	$	116.99	$	102.59

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,~~October 30, 2020, we had ~~$10.3~~$8.1 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 $1.51 per share for the nine months ended November 1, 2019, ~~and November 2, 2018:~~to $1.65 per share for the nine months ended October 30, 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,~~November 25, 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

Table of Contents

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

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~~2020. In October 2020, we issued $4.0 billion of unsecured notes in the ordinary course of business and ~~$450 million aggregate principal amount due September 2019.~~used the proceeds from this issuance to repurchase $3.0 billion of unsecured debt before maturity. 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~~October 30, 2020. The unsecured notes issued in the first ~~quarter~~and third quarters of fiscal ~~2019~~2020 are further described in Note 9 7 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)	$	21,313	$	525	$	1,768	$	1,951	$	17,069
Long-term debt (interest payments)	19,455		775		1,467		1,376		15,837
Total	$	40,768	$	1,300	$	3,235	$	3,327	$	32,906

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,~~October 30, 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.

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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,~~October 30, 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,~~October 30, 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 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.

Table of Contents

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 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
August 1, 2020 - August 28, 2020	5,818	$	158.53	—	$	8,717,610,699
August 29, 2020 - October 2, 2020	327,547	166.54		324,542	8,663,561,264
October 3, 2020 - October 30, 2020	3,314,043	170.51		3,301,996	8,100,499,267
As of October 30, 2020	3,647,408	$	170.14	3,626,538	$	8,100,499,267

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

2 On 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

4.1

Seventeenth Supplemental Indenture, dated as of October 22, 2020, between Lowe’s Companies, Inc. and U.S. Bank National Association (as successor trustee).

8-K

001-07898

4.2

October 22, 2020

10.1

Form of Lowe’s Companies, Inc. Performance Share Unit Award Agreement. *‡

10.2

Offer Letter between Lowe’s Companies, Inc. and Dan C . Griggs, Jr. entered into on October 2, 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.†

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)

November 25, 2020		~~LOWE’S COMPANIES, INC.~~By: /s/ Dan C. Griggs, Jr.
Date		~~(Registrant)~~

~~December 3, 2019~~	~~By: /s/ David M. Denton~~
~~Date~~	~~David M. Denton~~ ~~Executive~~ Dan C. Griggs, Jr. Vice President and Chief ~~Financial~~Accounting Officer

3630



		(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



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



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



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



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



	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