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Lowe`s Cos. (LOW)

Document and Entity Information

Document and Entity Information - shares3 Months Ended
May 04, 2018Jun. 01, 2018
Document and Entity Information [Abstract]
Entity Registrant NameLOWES COMPANIES INC
Entity Central Index Key60667
Document Type10-Q
Document Period End DateMay 4,
2018
Amendment Flagfalse
Document Fiscal Year Focus2018
Document Fiscal Period FocusQ1
Current Fiscal Year End Date--02-01
Entity Well-known Seasoned IssuerYes
Entity Voluntary FilersNo
Entity Current Reporting StatusYes
Entity Filer CategoryLarge Accelerated Filer
Entity Common Stock, Shares Outstanding816,153,978

Consolidated Balance Sheets

Consolidated Balance Sheets - USD ($) $ in MillionsMay 04, 2018Feb. 02, 2018May 05, 2017
Current assets:
Cash and cash equivalents $ 1,565 $ 588 $ 1,963
Short-term investments205 102 84
Merchandise inventory - net13,204 11,393 12,254
Other current assets1,059 689 975
Total current assets16,033 12,772 15,276
Property, less accumulated depreciation19,500 19,721 19,748
Long-term investments321 408 477
Deferred income taxes - net199 168 272
Goodwill1,288 1,307 1,081
Other assets896 915 759
Total assets38,237 35,291 37,613
Current liabilities:
Short-term borrowings0 1,137 0
Current maturities of long-term debt896 294 295
Accounts payable10,104 6,590 9,905
Accrued compensation and employee benefits715 747 725
Deferred revenue1,439 1,378 1,415
Other current liabilities2,620 1,950 2,346
Total current liabilities15,774 12,096 14,686
Long-term debt, excluding current maturities14,948 15,564 15,770
Deferred revenue - extended protection plans808 803 769
Other liabilities962 955 857
Total liabilities32,492 29,418 32,082
Shareholders' equity:
Preferred stock - $5 par value, none issued0 0 0
Common stock - $0.50 par value; Shares issued and outstanding 822 at May 4, 2018, 853 at May 5, 2017, and 830 at February 2, 2018411 415 426
Capital in excess of par value0 22 0
Retained earnings5,405 5,425 5,346
Accumulated other comprehensive income/(loss)(71)11 (241)
Total shareholders' equity5,745 5,873 5,531
Total liabilities and shareholders' equity $ 38,237 $ 35,291 $ 37,613

Consolidated Balance Sheets (Pa

Consolidated Balance Sheets (Parenthetical) - $ / sharesMay 04, 2018Feb. 02, 2018May 05, 2017
Shareholders' equity:
Preferred stock, par value $ 5 $ 5 $ 5
Preferred stock, shares issued0 0 0
Common stock, par value $ 0.50 $ 0.50 $ 0.50
Common stock, shares issued822,000,000 830,000,000 853,000,000
Common stock, shares outstanding822,000,000 830,000,000 853,000,000

Consolidated Statements of Curr

Consolidated Statements of Current and Retained Earnings (Unaudited) - USD ($) shares in Millions, $ in Millions3 Months Ended
May 04, 2018May 05, 2017
Current Earnings
Net sales $ 17,360 $ 16,860
Cost of sales11,348 11,060
Gross margin6,012 5,800
Expenses:
Selling, general and administrative4,187 3,876
Depreciation and amortization360 365
Operating income1,465 1,559
Interest - net160 161
Loss on extinguishment of debt0 464
Pre-tax earnings1,305 934
Income tax provision317 332
Net earnings $ 988 $ 602
Weighted-average common shares outstanding - basic825 857
Basic earnings per common share $ 1.19 $ 0.70
Weighted-average common shares outstanding - diluted826 858
Diluted earnings per common share $ 1.19 $ 0.70
Cash dividends per share $ 0.41 $ 0.35
Retained Earnings
Beginning balance $ 5,425 $ 6,241
Cumulative effect of accounting change33 0
Net earnings988 602
Cash dividends declared(338)(299)
Share repurchases(703)(1,198)
Balance at end of period $ 5,405 $ 5,346

Consolidated Statements of Cur5

Consolidated Statements of Current and Retained Earnings (Percents) (Unaudited)3 Months Ended
May 04, 2018May 05, 2017
Current Earnings
Net sales100.00%100.00%
Cost of sales65.37%65.60%
Gross margin34.63%34.40%
Expenses:
Selling, general and administrative24.12%22.99%
Depreciation and amortization2.07%2.16%
Operating income8.44%9.25%
Interest - net0.92%0.96%
Loss on extinguishment of debt0.00%2.75%
Pre-tax earnings7.52%5.54%
Income tax provision1.83%1.97%
Net earnings5.69%3.57%

Consolidated Statements of Comp

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Millions3 Months Ended
May 04, 2018May 05, 2017
Comprehensive Income
Net earnings $ 988 $ 602
Foreign currency translation adjustments - net of tax(83)(1)
Other comprehensive loss(83)(1)
Comprehensive income $ 905 $ 601

Consolidated Statements of Com7

Consolidated Statements of Comprehensive Income (Percents) (Unaudited)3 Months Ended
May 04, 2018May 05, 2017
Comprehensive Income
Net earnings5.69%3.57%
Foreign currency translation adjustments - net of tax(0.48%)0.00%
Other comprehensive loss(0.48%)0.00%
Comprehensive income5.21%3.57%

Consolidated Statements of Cash

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Millions3 Months Ended
May 04, 2018May 05, 2017
Cash flows from operating activities:
Net earnings $ 988 $ 602
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization387 389
Deferred income taxes(21)(64)
Loss on property and other assets - net6 11
Loss on extinguishment of debt0 464
Loss on cost method and equity method investments0 7
Share-based payment expense24 26
Changes in operating assets and liabilities:
Merchandise inventory - net(1,846)(1,808)
Other operating assets(234)(64)
Accounts payable3,521 3,291
Other operating liabilities604 441
Net cash provided by operating activities3,429 3,295
Cash flows from investing activities:
Purchases of investments(573)(153)
Proceeds from sale/maturity of investments556 59
Capital expenditures(224)(202)
Proceeds from sale of property and other long-term assets5 6
Other - net0 (1)
Net cash used in investing activities(236)(291)
Cash flows from financing activities:
Net change in short-term borrowings(1,140)(511)
Net proceeds from issuance of long-term debt0 2,968
Repayment of long-term debt(13)(2,558)
Proceeds from issuance of common stock under share-based payment plans8 38
Cash dividend payments(340)(304)
Repurchase of common stock(728)(1,237)
Other - net(2)(1)
Net cash used in financing activities(2,215)(1,605)
Effect of exchange rate changes on cash(1)6
Net increase in cash and cash equivalents977 1,405
Cash and cash equivalents, beginning of period588 558
Cash and cash equivalents, end of period $ 1,565 $ 1,963

Summary of Significant Accounti

Summary of Significant Accounting Policies3 Months Ended
May 04, 2018
Summary of Significant Accounting Policies
Summary of Significant Accounting PoliciesNote 1 : Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements (unaudited) and notes to the consolidated financial statements (unaudited) are presented in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all the disclosures normally required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). During the first quarter of fiscal year 2018, the Company conformed the financial reporting calendar of a subsidiary, which did not have a significant effect on the consolidated financial statements. The consolidated financial statements (unaudited), in the opinion of management, contain all adjustments necessary to present fairly the financial position as of May 4, 2018 , and May 5, 2017 , and the results of operations and comprehensive income for the three months ended May 4, 2018 , and May 5, 2017 , and cash flows for the three months ended May 4, 2018 and May 5, 2017 . These interim consolidated financial statements (unaudited) should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Lowe’s Companies, Inc. (the Company) Annual Report on Form 10-K for the fiscal year ended February 2, 2018 (the Annual Report). The financial results for the interim periods may not be indicative of the financial results for the entire fiscal year. Accounting Pronouncements Recently Adopted Effective February 3, 2018, the Company adopted Accounting Standards Update 2014-09 (ASU 2014-09), Revenue from Contracts with Customers (Topic 606) , and all the related amendments, using the modified retrospective method. ASU 2014-09 requires a company to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Upon adoption of ASU 2014-09, the Company recorded an immaterial adjustment to the opening balance of retained earnings as of February 3, 2018, with related adjustments to deferred revenue, accounts payable and related tax effects. The adjustment to retained earnings primarily relates to the change in revenue recognition related to gift card breakage. The adoption of the guidance also required a change in the timing of how installation services are recognized, the presentation of sales return reserve on the consolidated balance sheet, and a change in the presentation of the Company’s profit sharing income from its proprietary credit program. We applied ASU 2014-09 only to contracts that were not completed prior to fiscal 2018. Results for reporting periods beginning after February 2, 2018 are presented under ASU 2014-09, while comparative prior period amounts have not been restated and continue to be presented under accounting standards in effect in those periods. See Note 2 for additional details of the Company’s revenues. The impact of adopting the new revenue recognition guidance on our consolidated statement of earnings is as follows: Three Months Ended May 4, 2018 Consolidated Statements of Earnings (in millions) As Reported Under Historical Guidance Impact of Adopting ASU 2014-09 Net sales $ 17,360 $ 17,231 $ 129 Cost of sales 11,348 11,364 (16 ) Gross margin 6,012 5,867 145 Selling, general and administrative 4,187 4,043 144 Operating income 1,465 1,464 1 Pre-tax earnings 1,305 1,304 1 Net earnings $ 988 $ 987 $ 1 The impacts of adopting the new revenue recognition guidance to assets and liabilities on our consolidated balance sheets are as follows: Balance at May 4, 2018 Consolidated Balance Sheets (in millions) As Reported Under Historical Guidance Impact of Adopting ASU 2014-09 Assets Other current assets $ 1,059 $ 862 $ 197 Liabilities Accounts payable 10,104 10,092 12 Deferred revenue 1,439 1,517 (78 ) Other current liabilities 2,620 2,406 214 Accounting Pronouncements Not Yet Adopted In January 2017, the Financial Accounting Standards Board (FASB) issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350) . The ASU eliminates Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation to the identified assets and liabilities of the reporting unit to measure goodwill impairment. Under the amendments in this update, a goodwill impairment test is performed by comparing the fair value of the reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The adoption of this guidance by the Company is not expected to have a material impact on its consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) . The guidance in this ASU supersedes the leasing guidance in Topic 840, Leases . Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for those leases previously classified as operating leases. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements but expects the ASU to have a material impact on its consolidated balance sheets, as a result of the requirement to recognize right-of-use assets and lease liabilities.

Net Sales

Net Sales3 Months Ended
May 04, 2018
Net Sales
Net SalesNote 2 : Net Sales 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 May 4, 2018 May 5, 2017 Products $ 16,501 $ 16,220 Services 624 585 Other 235 55 Net sales $ 17,360 $ 16,860 Revenue from products primarily relates to in-store and online merchandise purchases, which are recognized at the point in time when the customer obtains control of the merchandise, which is at the time of in-store purchase or delivery of the product to the customer. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of sales in the period that the related sales are recorded. Under ASU 2014-09, the merchandise return reserve is presented on a gross basis, with a separate asset and liability included in the consolidated balance sheets as of reporting periods after February 2, 2018 . Reporting periods prior to the adoption of ASU 2014-09 reflect merchandise return reserves on a net basis. As of May 4, 2018 , anticipated sales returns of $305 million are reflected in other current liabilities, and the associated right of return assets of $197 million are reflected in other current assets. As of May 5, 2017 , the merchandise return reserve, net of the associated asset, was $101 million reflected in other current liabilities. Revenues from services primarily relate to professional installation services the Company provides through subcontractors related to merchandise purchased by a customer. In certain instances, installation services include materials provided by the subcontractor, and both product and installation are included in service revenue. The Company recognizes revenue associated with services as they are rendered, and the majority of services are completed within one week from initiation. Deferred revenue is presented for merchandise that has not yet transferred control to the customer and for services that have not yet been provided, but for which tender has been accepted. Deferred revenue is recognized in sales either at a point in time when the customer obtains control of merchandise through pickup or delivery, or over time as services are provided to the customer. Deferred revenues associated with amounts received for which customers have not taken possession of the merchandise or for which installation has not yet been completed were $1.0 billion and $967 million at May 4, 2018 and May 5, 2017 , respectively. The majority of revenue for goods and services is recognized in the quarter following revenue deferral. Stored-value cards In addition, the Company defers revenues from stored-value cards, which include gift cards and returned merchandise credits, and recognizes revenue into sales when the cards are redeemed. The liability associated with outstanding stored-value cards was $437 million and $449 million at May 4, 2018 , and May 5, 2017 , respectively, and these amounts are included in deferred revenue on the consolidated balance sheets. Upon adoption of ASU 2014-09, 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 months ended May 4, 2018 and May 5, 2017 . Extended protection plans The Company also defers revenues for its separately-priced extended protection plan contracts, which is a Lowe’s-branded program for which the Company is ultimately self-insured. The Company recognizes revenue from extended protection plan sales on a straight-line basis over the respective contract term. Extended protection plan contract terms primarily range from one to five years from the date of purchase or the end of the manufacturer’s warranty, as applicable. Deferred revenue from extended protection plans recognized into sales were insignificant for the three months ending May 4, 2018 and May 5, 2017. Incremental direct acquisition costs associated with the sale of extended protection plans are also deferred and recognized as expense on a straight-line basis over the respective contract term and were insignificant at May 4, 2018 and May 5, 2017, respectively. The Company’s extended protection plan deferred costs are included in other assets (noncurrent) on the consolidated balance sheets. All other costs, such as costs of services performed under the contract, general and administrative expenses, and advertising expenses are expensed as incurred. The liability for extended protection plan claims incurred is included in other current liabilities on the consolidated balance sheets and was not material in any of the periods presented. Expenses for claims are recognized when incurred and totaled $46 million and $36 million for the three months ended May 4, 2018 and May 5, 2017 , respectively. Disaggregation of Revenues The following table presents the Company’s net sales disaggregated by merchandise division: Three Months Ended May 4, 2018 May 5, 2017 (In millions) Total Sales % Total Sales % Home Décor 1 $ 7,009 40 % $ 6,752 40 % Building & Maintenance 2 6,797 39 6,484 38 Seasonal 3 3,223 19 3,472 21 Other 331 2 152 1 Total $ 17,360 100 % $ 16,860 100 % 1 Home Décor includes the following product categories: Appliances , Fashion Fixtures , Flooring , Kitchens , and Paint 2 Building & Maintenance includes the following product categories: Lumber & Building Materials , Millwork , Rough Plumbing & Electrical , and Tools & Hardware 3 Seasonal includes the following product categories: Lawn & Garden and Seasonal & Outdoor Living The following table presents the Company’s net sales disaggregated by geographical area: (In millions) Three Months Ended May 4, 2018 May 5, 2017 United States $ 16,173 $ 15,868 International 1,187 992 Net Sales $ 17,360 $ 16,860 Practical Expedients Sales commissions and selling-related goods or services are considered immaterial and are expensed as incurred because the amortization period of the assets would be one year or less. These costs are reflected within selling, general and administrative expenses.

Fair Value Measurements

Fair Value Measurements3 Months Ended
May 04, 2018
Fair Value Measurements
Fair Value MeasurementsNote 3 : 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 Assets and Liabilities that are Measured at Fair Value on a Recurring Basis The following table presents the Company’s financial assets measured at fair value on a recurring basis as of May 4, 2018 , May 5, 2017 , and February 2, 2018 . The fair values of these instruments approximated amortized costs. Fair Value Measurements at (In millions) Measurement Level May 4, 2018 May 5, 2017 February 2, 2018 Short-term investments: Available-for-sale securities Money market funds Level 1 $ 188 $ 70 $ 86 Certificates of deposit Level 1 17 12 16 Municipal obligations Level 2 — 2 — Total short-term investments $ 205 $ 84 $ 102 Long-term investments: Available-for-sale securities Municipal floating rate obligations Level 2 $ 321 $ 472 $ 407 Certificates of deposit Level 1 — 3 1 Municipal obligations Level 2 — 2 — Total long-term investments $ 321 $ 477 $ 408 There were no transfers between Levels 1, 2 or 3 during any of the periods presented. When available, quoted prices were used to determine fair value. When quoted prices in active markets were available, investments were classified within Level 1 of the fair value hierarchy. When quoted prices in active markets were not available, fair values were determined using pricing models, and the inputs to those pricing models were based on observable market inputs. The inputs to the pricing models were typically benchmark yields, reported trades, broker-dealer quotes, issuer spreads and benchmark securities, among others. Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis During the three months ended May 4, 2018 and May 5, 2017 , the Company had no significant measurements of assets and liabilities at fair value on a nonrecurring basis subsequent to their initial recognition. Fair Value of Financial Instruments The Company’s financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, accounts receivable, short-term borrowings, accounts payable, accrued liabilities and long-term debt and are reflected in the financial statements at cost. With the exception of long-term debt, cost approximates fair value for these items due to their short-term nature. The fair values of the Company’s unsecured notes were estimated using quoted market prices. The fair values of the Company’s mortgage notes were estimated using discounted cash flow analyses, based on the future cash outflows associated with these arrangements and discounted using the applicable incremental borrowing rate. Carrying amounts and the related estimated fair value of the Company’s long-term debt, excluding capitalized lease obligations, are as follows: May 4, 2018 May 5, 2017 February 2, 2018 (In millions) Carrying Amount Fair Value Carrying Amount Fair Value Carrying Amount Fair Value Unsecured notes (Level 1) $ 14,963 $ 15,151 $ 15,203 $ 15,948 $ 14,961 $ 15,608 Mortgage notes (Level 2) 6 7 7 7 6 7 Long-term debt (excluding capitalized lease obligations) $ 14,969 $ 15,158 $ 15,210 $ 15,955 $ 14,967 $ 15,615

Restricted Investment Balances

Restricted Investment Balances3 Months Ended
May 04, 2018
Restricted Investment Balances
Restricted Investment BalancesNote 4 : 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 $188 million at May 4, 2018 , $70 million at May 5, 2017 , and $86 million at February 2, 2018 . Restricted balances included in long-term investments were $298 million at May 4, 2018 , $340 million at May 5, 2017 , and $381 million at February 2, 2018 .

Property

Property3 Months Ended
May 04, 2018
Property
PropertyNote 5 : Property - Property is shown net of accumulated depreciation of $17.4 billion at May 4, 2018 , $16.9 billion at May 5, 2017 , and $17.2 billion at February 2, 2018 .

Shareholders' Equity

Shareholders' Equity3 Months Ended
May 04, 2018
Shareholders' Equity
Shareholders' EquityNote 6 : 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 27, 2017, 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 January 26, 2018, the Company’s Board of Directors authorized an additional $5.0 billion share repurchase program with no expiration, which was announced on the same day. As of May 4, 2018 , the Company had $6.2 billion remaining in its share repurchase program. During the three months ended May 4, 2018 , the Company repurchased shares of its common stock through the open market totaling 8.7 million shares for a cost of $750 million . 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 months ended May 4, 2018 and May 5, 2017 were as follows: Three Months Ended May 4, 2018 May 5, 2017 (In millions) Shares Cost 1 Shares Cost 1 Share repurchase program 8.7 $ 750 15.2 $ 1,250 Shares withheld from employees 0.1 8 0.2 14 Total share repurchases 8.8 $ 758 15.4 $ 1,264 1 Reductions of $703 million and $1.2 billion were recorded to retained earnings, after capital in excess of par value was depleted, for the three months ended May 4, 2018 and May 5, 2017 , respectively.

Earnings Per Share

Earnings Per Share3 Months Ended
May 04, 2018
Earnings Per Share
Earnings Per ShareNote 7 : 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 months ended May 4, 2018 and May 5, 2017 : Three Months Ended (In millions, except per share data) May 4, 2018 May 5, 2017 Basic earnings per common share: Net earnings $ 988 $ 602 Less: Net earnings allocable to participating securities (3 ) (2 ) Net earnings allocable to common shares, basic $ 985 $ 600 Weighted-average common shares outstanding 825 857 Basic earnings per common share $ 1.19 $ 0.70 Diluted earnings per common share: Net earnings $ 988 $ 602 Less: Net earnings allocable to participating securities (3 ) (2 ) Net earnings allocable to common shares, diluted $ 985 $ 600 Weighted-average common shares outstanding 825 857 Dilutive effect of non-participating share-based awards 1 1 Weighted-average common shares, as adjusted 826 858 Diluted earnings per common share $ 1.19 $ 0.70 Stock options to purchase 0.6 million and 0.8 million shares of common stock were anti-dilutive for the three months ended May 4, 2018 and May 5, 2017 , respectively.

Income Taxes

Income Taxes3 Months Ended
May 04, 2018
Income Taxes
Income TaxesNote 8 : Income Taxes - The Company’s effective income tax rates were 24.3% and 35.5% for the three months ended May 4, 2018 and May 5, 2017 , respectively. The lower effective income tax rate for the three months ended May 4, 2018 was primarily due to the enactment of the Tax Cuts and Jobs Act (Tax Act) during fiscal 2017, which lowered the corporate federal income tax rate from 35% to 21%. Based on the Company’s interpretation of the Tax Act, the Company made reasonable estimates to record provisional adjustments during the fourth quarter of fiscal 2017. However, the final impact may differ due to subsequent legislative action, changes in interpretations and assumptions, as well as the issuance of additional guidance from the Internal Revenue Service and state taxing authorities. We have not made any measurement-period adjustments related to these items during the three months ended May 4, 2018 , because we have not finalized the following items: the earnings and profits of the relevant subsidiaries, deemed repatriation of deferred foreign income, and prior year deferred tax activity. The Company will continue to evaluate the Tax Act and gather additional information within the measurement period allowed, which will be completed no later than the fourth quarter of fiscal 2018.

Supplemental Disclosure

Supplemental Disclosure3 Months Ended
May 04, 2018
Supplemental Disclosure
Supplemental DisclosureNote 9 : Supplemental Disclosure Net interest expense is comprised of the following: Three Months Ended (In millions) May 4, 2018 May 5, 2017 Long-term debt $ 145 $ 145 Capitalized lease obligations 15 14 Interest income (3 ) (3 ) Interest capitalized (1 ) (1 ) Other 4 6 Interest - net $ 160 $ 161 Supplemental disclosures of cash flow information: Three Months Ended (In millions) May 4, 2018 May 5, 2017 Cash paid for interest, net of amount capitalized $ 288 $ 285 Cash paid for income taxes - net $ 43 $ 43 Non-cash investing and financing activities: Non-cash property acquisitions, including assets acquired under capital lease $ 8 $ 3 Cash dividends declared but not paid $ 338 $ 299

Summary of Significant Accoun18

Summary of Significant Accounting Policies (Policies)3 Months Ended
May 04, 2018
Summary of Significant Accounting Policies
Basis of PresentationBasis of Presentation The accompanying consolidated financial statements (unaudited) and notes to the consolidated financial statements (unaudited) are presented in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all the disclosures normally required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). During the first quarter of fiscal year 2018, the Company conformed the financial reporting calendar of a subsidiary, which did not have a significant effect on the consolidated financial statements. The consolidated financial statements (unaudited), in the opinion of management, contain all adjustments necessary to present fairly the financial position as of May 4, 2018 , and May 5, 2017 , and the results of operations and comprehensive income for the three months ended May 4, 2018 , and May 5, 2017 , and cash flows for the three months ended May 4, 2018 and May 5, 2017 . These interim consolidated financial statements (unaudited) should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Lowe’s Companies, Inc. (the Company) Annual Report on Form 10-K for the fiscal year ended February 2, 2018 (the Annual Report). The financial results for the interim periods may not be indicative of the financial results for the entire fiscal year.
Recent Accounting PronouncementsAccounting Pronouncements Recently Adopted Effective February 3, 2018, the Company adopted Accounting Standards Update 2014-09 (ASU 2014-09), Revenue from Contracts with Customers (Topic 606) , and all the related amendments, using the modified retrospective method. ASU 2014-09 requires a company to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Upon adoption of ASU 2014-09, the Company recorded an immaterial adjustment to the opening balance of retained earnings as of February 3, 2018, with related adjustments to deferred revenue, accounts payable and related tax effects. The adjustment to retained earnings primarily relates to the change in revenue recognition related to gift card breakage. The adoption of the guidance also required a change in the timing of how installation services are recognized, the presentation of sales return reserve on the consolidated balance sheet, and a change in the presentation of the Company’s profit sharing income from its proprietary credit program. We applied ASU 2014-09 only to contracts that were not completed prior to fiscal 2018. Results for reporting periods beginning after February 2, 2018 are presented under ASU 2014-09, while comparative prior period amounts have not been restated and continue to be presented under accounting standards in effect in those periods. See Note 2 for additional details of the Company’s revenues. The impact of adopting the new revenue recognition guidance on our consolidated statement of earnings is as follows: Three Months Ended May 4, 2018 Consolidated Statements of Earnings (in millions) As Reported Under Historical Guidance Impact of Adopting ASU 2014-09 Net sales $ 17,360 $ 17,231 $ 129 Cost of sales 11,348 11,364 (16 ) Gross margin 6,012 5,867 145 Selling, general and administrative 4,187 4,043 144 Operating income 1,465 1,464 1 Pre-tax earnings 1,305 1,304 1 Net earnings $ 988 $ 987 $ 1 The impacts of adopting the new revenue recognition guidance to assets and liabilities on our consolidated balance sheets are as follows: Balance at May 4, 2018 Consolidated Balance Sheets (in millions) As Reported Under Historical Guidance Impact of Adopting ASU 2014-09 Assets Other current assets $ 1,059 $ 862 $ 197 Liabilities Accounts payable 10,104 10,092 12 Deferred revenue 1,439 1,517 (78 ) Other current liabilities 2,620 2,406 214 Accounting Pronouncements Not Yet Adopted In January 2017, the Financial Accounting Standards Board (FASB) issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350) . The ASU eliminates Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation to the identified assets and liabilities of the reporting unit to measure goodwill impairment. Under the amendments in this update, a goodwill impairment test is performed by comparing the fair value of the reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The adoption of this guidance by the Company is not expected to have a material impact on its consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) . The guidance in this ASU supersedes the leasing guidance in Topic 840, Leases . Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for those leases previously classified as operating leases. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements but expects the ASU to have a material impact on its consolidated balance sheets, as a result of the requirement to recognize right-of-use assets and lease liabilities.

Summary of Significant Accoun19

Summary of Significant Accounting Policies (Tables)3 Months Ended
May 04, 2018
Summary of Significant Accounting Policies
Schedule of New Accounting Pronouncements and Changes in Accounting PrinciplesThe impact of adopting the new revenue recognition guidance on our consolidated statement of earnings is as follows: Three Months Ended May 4, 2018 Consolidated Statements of Earnings (in millions) As Reported Under Historical Guidance Impact of Adopting ASU 2014-09 Net sales $ 17,360 $ 17,231 $ 129 Cost of sales 11,348 11,364 (16 ) Gross margin 6,012 5,867 145 Selling, general and administrative 4,187 4,043 144 Operating income 1,465 1,464 1 Pre-tax earnings 1,305 1,304 1 Net earnings $ 988 $ 987 $ 1 The impacts of adopting the new revenue recognition guidance to assets and liabilities on our consolidated balance sheets are as follows: Balance at May 4, 2018 Consolidated Balance Sheets (in millions) As Reported Under Historical Guidance Impact of Adopting ASU 2014-09 Assets Other current assets $ 1,059 $ 862 $ 197 Liabilities Accounts payable 10,104 10,092 12 Deferred revenue 1,439 1,517 (78 ) Other current liabilities 2,620 2,406 214

Net Sales (Tables)

Net Sales (Tables)3 Months Ended
May 04, 2018
Net Sales
Sources of RevenueThe following table presents the Company’s sources of revenue: (In millions) Three Months Ended May 4, 2018 May 5, 2017 Products $ 16,501 $ 16,220 Services 624 585 Other 235 55 Net sales $ 17,360 $ 16,860
Revenue from External Customers by Merchandise DivisionThe following table presents the Company’s net sales disaggregated by merchandise division: Three Months Ended May 4, 2018 May 5, 2017 (In millions) Total Sales % Total Sales % Home Décor 1 $ 7,009 40 % $ 6,752 40 % Building & Maintenance 2 6,797 39 6,484 38 Seasonal 3 3,223 19 3,472 21 Other 331 2 152 1 Total $ 17,360 100 % $ 16,860 100 % 1 Home Décor includes the following product categories: Appliances , Fashion Fixtures , Flooring , Kitchens , and Paint 2 Building & Maintenance includes the following product categories: Lumber & Building Materials , Millwork , Rough Plumbing & Electrical , and Tools & Hardware 3 Seasonal includes the following product categories: Lawn & Garden and Seasonal & Outdoor Living
Revenue from External Customers by Geographic AreasThe following table presents the Company’s net sales disaggregated by geographical area: (In millions) Three Months Ended May 4, 2018 May 5, 2017 United States $ 16,173 $ 15,868 International 1,187 992 Net Sales $ 17,360 $ 16,860

Fair Value Measurements (Tables

Fair Value Measurements (Tables)3 Months Ended
May 04, 2018
Fair Value Measurements
Fair value measurements - recurring basisThe following table presents the Company’s financial assets measured at fair value on a recurring basis as of May 4, 2018 , May 5, 2017 , and February 2, 2018 . The fair values of these instruments approximated amortized costs. Fair Value Measurements at (In millions) Measurement Level May 4, 2018 May 5, 2017 February 2, 2018 Short-term investments: Available-for-sale securities Money market funds Level 1 $ 188 $ 70 $ 86 Certificates of deposit Level 1 17 12 16 Municipal obligations Level 2 — 2 — Total short-term investments $ 205 $ 84 $ 102 Long-term investments: Available-for-sale securities Municipal floating rate obligations Level 2 $ 321 $ 472 $ 407 Certificates of deposit Level 1 — 3 1 Municipal obligations Level 2 — 2 — Total long-term investments $ 321 $ 477 $ 408 There were no transfers between Levels 1, 2 or 3 during any of the periods presented.
Fair value of financial instrumentsCarrying amounts and the related estimated fair value of the Company’s long-term debt, excluding capitalized lease obligations, are as follows: May 4, 2018 May 5, 2017 February 2, 2018 (In millions) Carrying Amount Fair Value Carrying Amount Fair Value Carrying Amount Fair Value Unsecured notes (Level 1) $ 14,963 $ 15,151 $ 15,203 $ 15,948 $ 14,961 $ 15,608 Mortgage notes (Level 2) 6 7 7 7 6 7 Long-term debt (excluding capitalized lease obligations) $ 14,969 $ 15,158 $ 15,210 $ 15,955 $ 14,967 $ 15,615

Shareholders' Equity (Tables)

Shareholders' Equity (Tables)3 Months Ended
May 04, 2018
Shareholders' Equity
Schedule of share repurchasesShares repurchased for the three months ended May 4, 2018 and May 5, 2017 were as follows: Three Months Ended May 4, 2018 May 5, 2017 (In millions) Shares Cost 1 Shares Cost 1 Share repurchase program 8.7 $ 750 15.2 $ 1,250 Shares withheld from employees 0.1 8 0.2 14 Total share repurchases 8.8 $ 758 15.4 $ 1,264 1 Reductions of $703 million and $1.2 billion were recorded to retained earnings, after capital in excess of par value was depleted, for the three months ended May 4, 2018 and May 5, 2017 , respectively.

Earnings Per Share (Tables)

Earnings Per Share (Tables)3 Months Ended
May 04, 2018
Earnings Per Share
Schedule of earnings per share, basic and dilutedThe following table reconciles earnings per common share for the three months ended May 4, 2018 and May 5, 2017 : Three Months Ended (In millions, except per share data) May 4, 2018 May 5, 2017 Basic earnings per common share: Net earnings $ 988 $ 602 Less: Net earnings allocable to participating securities (3 ) (2 ) Net earnings allocable to common shares, basic $ 985 $ 600 Weighted-average common shares outstanding 825 857 Basic earnings per common share $ 1.19 $ 0.70 Diluted earnings per common share: Net earnings $ 988 $ 602 Less: Net earnings allocable to participating securities (3 ) (2 ) Net earnings allocable to common shares, diluted $ 985 $ 600 Weighted-average common shares outstanding 825 857 Dilutive effect of non-participating share-based awards 1 1 Weighted-average common shares, as adjusted 826 858 Diluted earnings per common share $ 1.19 $ 0.70

Supplemental Disclosure (Tables

Supplemental Disclosure (Tables)3 Months Ended
May 04, 2018
Supplemental Disclosure
Net interest expenseNet interest expense is comprised of the following: Three Months Ended (In millions) May 4, 2018 May 5, 2017 Long-term debt $ 145 $ 145 Capitalized lease obligations 15 14 Interest income (3 ) (3 ) Interest capitalized (1 ) (1 ) Other 4 6 Interest - net $ 160 $ 161
Supplemental disclosures of cash flow informationSupplemental disclosures of cash flow information: Three Months Ended (In millions) May 4, 2018 May 5, 2017 Cash paid for interest, net of amount capitalized $ 288 $ 285 Cash paid for income taxes - net $ 43 $ 43 Non-cash investing and financing activities: Non-cash property acquisitions, including assets acquired under capital lease $ 8 $ 3 Cash dividends declared but not paid $ 338 $ 299

Summary of Significant Accoun25

Summary of Significant Accounting Policies (Details) - USD ($) $ in Millions3 Months Ended
May 04, 2018May 05, 2017Feb. 02, 2018
Consolidated Statements Of Earnings
Net sales $ 17,360 $ 16,860
Cost of sales11,348 11,060
Gross margin6,012 5,800
Selling, general and administrative4,187 3,876
Operating income1,465 1,559
Pre-tax earnings1,305 934
Net earnings988 602
Consolidated Balance Sheets
Other current assets1,059 975 $ 689
Accounts payable10,104 9,905 6,590
Deferred revenue1,439 1,415 1,378
Other current liabilities2,620 $ 2,346 $ 1,950
Accounting Standards Update 2014-09 | Calculated under Revenue Guidance in Effect before Topic 606
Consolidated Statements Of Earnings
Net sales17,231
Cost of sales11,364
Gross margin5,867
Selling, general and administrative4,043
Operating income1,464
Pre-tax earnings1,304
Net earnings987
Consolidated Balance Sheets
Other current assets862
Accounts payable10,092
Deferred revenue1,517
Other current liabilities2,406
Accounting Standards Update 2014-09 | Difference between Revenue Guidance in Effect before and after Topic 606
Consolidated Statements Of Earnings
Net sales129
Cost of sales(16)
Gross margin145
Selling, general and administrative144
Operating income1
Pre-tax earnings1
Net earnings1
Consolidated Balance Sheets
Other current assets197
Accounts payable12
Deferred revenue(78)
Other current liabilities $ 214

Net Sales (Details)

Net Sales (Details) - USD ($) $ in Millions3 Months Ended
May 04, 2018May 05, 2017
Disaggregation of Revenue [Line Items]
Products $ 16,501 $ 16,220
Services624 585
Other235 55
Net sales $ 17,360 $ 16,860
Percentage of net sales100.00%100.00%
Home Décor
Disaggregation of Revenue [Line Items]
Net sales[1] $ 7,009 $ 6,752
Percentage of net sales[1]40.00%40.00%
Building and Maintenance
Disaggregation of Revenue [Line Items]
Net sales[2] $ 6,797 $ 6,484
Percentage of net sales[2]39.00%38.00%
Seasonal
Disaggregation of Revenue [Line Items]
Net sales[3] $ 3,223 $ 3,472
Percentage of net sales[3]19.00%21.00%
Other
Disaggregation of Revenue [Line Items]
Net sales $ 331 $ 152
Percentage of net sales2.00%1.00%
United States
Disaggregation of Revenue [Line Items]
Net sales $ 16,173 $ 15,868
International
Disaggregation of Revenue [Line Items]
Net sales $ 1,187 $ 992
[1]Home Décor includes the following product categories: Appliances, Fashion Fixtures, Flooring, Kitchens, and Paint
[2]Building & Maintenance includes the following product categories: Lumber & Building Materials, Millwork, Rough Plumbing & Electrical, and Tools & Hardware
[3]Seasonal includes the following product categories: Lawn & Garden and Seasonal & Outdoor Living

Net Sales (Details Textual)

Net Sales (Details Textual) - USD ($) $ in Millions3 Months Ended
May 04, 2018May 05, 2017
Contract with Customer, Asset and Liability
Sales return liability $ 305
Right of return assets197
Sales return liability, net $ 101
Deferred Revenue
Deferred revenue from undelivered products and installation1,000 967
Outstanding stored-value cards437 449
Expenses for claims incurred $ 46 $ 36

Fair Value Measurements (Detail

Fair Value Measurements (Details) - Fair Value, Measurements, Recurring - Estimate of Fair Value - USD ($) $ in MillionsMay 04, 2018Feb. 02, 2018May 05, 2017
Short-term Investments
Assets, Fair Value Disclosure
Available-for-sale securities, fair value $ 205 $ 102 $ 84
Short-term Investments | Money Market Funds | Fair Value (Level 1)
Assets, Fair Value Disclosure
Available-for-sale securities, fair value188 86 70
Short-term Investments | Certificates Of Deposit | Fair Value (Level 1)
Assets, Fair Value Disclosure
Available-for-sale securities, fair value17 16 12
Short-term Investments | Municipal Obligations | Fair Value (Level 2)
Assets, Fair Value Disclosure
Available-for-sale securities, fair value0 0 2
Long-term Investments
Assets, Fair Value Disclosure
Available-for-sale securities, fair value321 408 477
Long-term Investments | Certificates Of Deposit | Fair Value (Level 1)
Assets, Fair Value Disclosure
Available-for-sale securities, fair value0 1 3
Long-term Investments | Municipal Obligations | Fair Value (Level 2)
Assets, Fair Value Disclosure
Available-for-sale securities, fair value0 0 2
Long-term Investments | Municipal Floating Rate Obligations | Fair Value (Level 2)
Assets, Fair Value Disclosure
Available-for-sale securities, fair value $ 321 $ 407 $ 472

Fair Value Measurements (Deta29

Fair Value Measurements (Details 1) - USD ($) $ in MillionsMay 04, 2018Feb. 02, 2018May 05, 2017
Financial Instruments
Long-term debt carrying value (excluding capitalized lease obligations) $ 14,969 $ 14,967 $ 15,210
Unsecured Notes
Financial Instruments
Long-term debt carrying value (excluding capitalized lease obligations)14,963 14,961 15,203
Mortgage Notes
Financial Instruments
Long-term debt carrying value (excluding capitalized lease obligations)6 6 7
Estimate of Fair Value
Financial Instruments
Long-term debt fair value (excluding capitalized lease obligations)15,158 15,615 15,955
Estimate of Fair Value | Unsecured Notes | Fair Value (Level 1)
Financial Instruments
Long-term debt fair value (excluding capitalized lease obligations)15,151 15,608 15,948
Estimate of Fair Value | Mortgage Notes | Fair Value (Level 2)
Financial Instruments
Long-term debt fair value (excluding capitalized lease obligations) $ 7 $ 7 $ 7

Restricted Investment Balances

Restricted Investment Balances (Details) - USD ($) $ in MillionsMay 04, 2018Feb. 02, 2018May 05, 2017
Restricted Investment Balances
Restricted balances included in short-term investments $ 188 $ 86 $ 70
Restricted balances included in long-term investments $ 298 $ 381 $ 340

Property (Details)

Property (Details) - USD ($) $ in BillionsMay 04, 2018Feb. 02, 2018May 05, 2017
Property
Accumulated depreciation $ 17.4 $ 17.2 $ 16.9

Shareholders' Equity (Details)

Shareholders' Equity (Details) - USD ($) shares in Millions, $ in Millions3 Months Ended
May 04, 2018May 05, 2017
Shareholders' Equity
Reduction in retained earnings $ 703 $ 1,198
Share Repurchases
Share repurchases, value[1] $ 758 $ 1,264
Share repurchases, shares8.8 15.4
Share Repurchase Program
Share Repurchases
Share repurchases, value[1] $ 750 $ 1,250
Share repurchases, shares8.7 15.2
Shares Withheld from Employees
Share Repurchases
Share repurchases, value[1] $ 8 $ 14
Share repurchases, shares0.1 0.2
[1]Reductions of $703 million and $1.2 billion were recorded to retained earnings, after capital in excess of par value was depleted, for the three months ended May 4, 2018 and May 5, 2017, respectively.

Shareholders' Equity (Details T

Shareholders' Equity (Details Textual) - USD ($) shares in Millions3 Months Ended
May 04, 2018May 05, 2017Jan. 26, 2018Jan. 27, 2017
Share Repurchases
Share repurchases, shares8.8 15.4
Share repurchases, value[1] $ 758,000,000 $ 1,264,000,000
Share Repurchase Program
Share Repurchases
Remaining share repurchases authorization, value $ 6,200,000,000
Share repurchases, shares8.7 15.2
Share repurchases, value[1] $ 750,000,000 $ 1,250,000,000
January 27, 2017 Share Repurchase Authorization
Share Repurchases
Share repurchases authorized, value $ 5,000,000,000
January 26, 2018 Share Repurchase Authorization
Share Repurchases
Share repurchases authorized, value $ 5,000,000,000
Open market purchases
Share Repurchases
Share repurchases, shares8.7
Share repurchases, value $ 750,000,000
[1]Reductions of $703 million and $1.2 billion were recorded to retained earnings, after capital in excess of par value was depleted, for the three months ended May 4, 2018 and May 5, 2017, respectively.

Earnings Per Share (Details)

Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions3 Months Ended
May 04, 2018May 05, 2017
Basic earnings per common share:
Net earnings $ 988 $ 602
Less: Net earnings allocable to participating securities(3)(2)
Net earnings allocable to common shares, basic $ 985 $ 600
Weighted-average common shares outstanding825 857
Basic earnings per common share $ 1.19 $ 0.70
Diluted earnings per common share:
Net earnings $ 988 $ 602
Less: Net earnings allocable to participating securities(3)(2)
Net earnings allocable to common shares, diluted $ 985 $ 600
Weighted-average common shares outstanding825 857
Dilutive effect of non-participating share-based awards1 1
Weighted-average common shares, as adjusted826 858
Diluted earnings per common share $ 1.19 $ 0.70

Earnings Per Share (Details Tex

Earnings Per Share (Details Textual) - shares shares in Millions3 Months Ended
May 04, 2018May 05, 2017
Earnings Per Share
Anti-dilutive securities0.6 0.8

Income Taxes (Details)

Income Taxes (Details)3 Months Ended
May 04, 2018May 05, 2017
Income Taxes
Effective income tax rate24.30%35.50%

Supplemental Disclosure (Detail

Supplemental Disclosure (Details) - USD ($) $ in Millions3 Months Ended
May 04, 2018May 05, 2017
Net interest expense
Long-term debt $ 145 $ 145
Capitalized lease obligations15 14
Interest income(3)(3)
Interest capitalized(1)(1)
Other4 6
Interest - net $ 160 $ 161

Supplemental Disclosure (Deta38

Supplemental Disclosure (Details 1) - USD ($) $ in Millions3 Months Ended
May 04, 2018May 05, 2017
Supplemental disclosures of cash flow information
Cash paid for interest, net of amount capitalized $ 288 $ 285
Cash paid for income taxes, net43 43
Non-cash investing and financing activities:
Non-cash property acquisitions, including assets acquired under capital lease8 3
Cash dividends declared but not paid $ 338 $ 299