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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 July 31, 2020
or 
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
low-20200731_g1.jpg
LOWE’S COMPANIES, INC.
(Exact name of registrant as specified in its charter)
North Carolina56-0578072
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1000 Lowe’s Blvd.
Mooresville,North Carolina28117
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code(704)758-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.50 per shareLOWNew 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 filerAccelerated filer
Non-accelerated filerSmaller 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.
CLASSOUTSTANDING AT 8/24/2020
Common Stock, $0.50 par value755,736,046



LOWE’S COMPANIES, INC.
- TABLE OF CONTENTS -
Page No.
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 6.


Table of Contents
FORWARD-LOOKING STATEMENTS

This Form 10-Q includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements including words such as “believe”, “expect”, “anticipate”, “plan”, “desire”, “project”, “estimate”, “intend”, “will”, “should”, “could”, “would”, “may”, “strategy”, “potential”, “opportunity”, “outlook”, “guidance”, and similar expressions are forward-looking statements. Forward-looking statements involve, among other things, expectations, projections, and assumptions about future financial and operating results, objectives, business outlook, priorities, sales growth, shareholder value, capital expenditures, cash flows, the housing market, the home improvement industry, demand for products and services, share repurchases, Lowe’s strategic initiatives, including those relating to acquisitions and dispositions and the impact of such transactions on our strategic and operational plans and financial results. Such statements involve risks and uncertainties and we can give no assurance that they will prove to be correct. Actual results may differ materially from those expressed or implied in such statements.

A wide variety of potential risks, uncertainties, and other factors could materially affect our ability to achieve the results either expressed or implied by these forward-looking statements including, but not limited to, changes in general economic conditions, such as the rate of unemployment, interest rate and currency fluctuations, fuel and other energy costs, slower growth in personal income, changes in consumer spending, changes in the rate of housing turnover, the availability of consumer credit and of mortgage financing, changes in commodity prices, changes or threatened changes in tariffs, outbreak of public health crises, such as the COVID-19 pandemic, availability and cost of goods from suppliers, changes in our management and key personnel, and other factors that can negatively affect our customers.

Investors and others should carefully consider the foregoing factors and other uncertainties, risks and potential events including, but not limited to, those described in “Item 1A - Risk Factors” in our most recent Annual Report on Form 10-K and as may be updated from time to time in Item 1A in our quarterly reports on Form 10-Q or other subsequent filings with the SEC, and in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” of this report on Form 10-Q. All such forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update these statements other than as required by law.
3

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
July 31,
2020
August 2,
2019
January 31, 2020
Assets
Current assets:
Cash and cash equivalents$11,641 $1,796 $716 
Short-term investments 1,085 275 160 
Merchandise inventory – net13,831 13,730 13,179 
Other current assets1,160 995 1,263 
Total current assets27,717 16,796 15,318 
Property, less accumulated depreciation 18,612 18,203 18,669 
Operating lease right-of-use assets3,798 3,967 3,891 
Long-term investments 326 179 372 
Deferred income taxes – net267 512 216 
Other assets1,043 1,038 1,005 
Total assets$51,763 $40,695 $39,471 
Liabilities and shareholders' equity
Current liabilities:
Short-term borrowings$1,000 $ $1,941 
Current maturities of long-term debt609 1,009 597 
Current operating lease liabilities520 492 501 
Accounts payable12,916 9,499 7,659 
Accrued compensation and employee benefits 1,139 717 684 
Deferred revenue1,715 1,324 1,219 
Other current liabilities3,471 2,794 2,581 
Total current liabilities21,370 15,835 15,182 
Long-term debt, excluding current maturities 20,197 16,538 16,768 
Noncurrent operating lease liabilities3,859 4,055 3,943 
Deferred revenue – extended protection plans981 868 894 
Other liabilities 1,000 759 712 
Total liabilities47,407 38,055 37,499 
Shareholders' equity:
Preferred stock, $5 par value: Authorized – 5.0 million shares; Issued and
   outstanding – none
   
Common stock, $0.50 par value: Authorized – 5.6 billion shares; Issued and
   outstanding – 756 million, 776 million, and 763 million shares, respectively
378 388 381 
Capital in excess of par value129   
Retained earnings4,134 2,439 1,727 
Accumulated other comprehensive loss(285)(187)(136)
Total shareholders' equity4,356 2,640 1,972 
Total liabilities and shareholders' equity$51,763 $40,695 $39,471 
See accompanying notes to the consolidated financial statements (unaudited).
4

Table of Contents
Lowe’s Companies, Inc.
Consolidated Statements of Earnings (Unaudited)
In Millions, Except Per Share and Percentage Data
 Three Months EndedSix Months Ended
 July 31, 2020August 2, 2019July 31, 2020August 2, 2019
Current EarningsAmount% SalesAmount% SalesAmount% SalesAmount% Sales
Net sales$27,302 100.00 %$20,992 100.00 %$46,977 100.00 %$38,733 100.00 %
Cost of sales17,998 65.92 14,252 67.89 31,161 66.33 26,412 68.19 
Gross margin9,304 34.08 6,740 32.11 15,816 33.67 12,321 31.81 
Expenses:
Selling, general and administrative5,020 18.39 4,048 19.29 9,215 19.62 7,909 20.42 
Depreciation and amortization327 1.20 311 1.48 653 1.39 614 1.58 
Operating income3,957 14.49 2,381 11.34 5,948 12.66 3,798 9.81 
Interest – net219 0.80 169 0.80 423 0.90 331 0.86 
Pre-tax earnings3,738 13.69 2,212 10.54 5,525 11.76 3,467 8.95 
Income tax provision 910 3.33 536 2.56 1,360 2.89 745 1.92 
Net earnings$2,828 10.36 %$1,676 7.98 %$4,165 8.87 %$2,722 7.03 %
Weighted average common shares outstanding basic
752 781 754 788 
Basic earnings per common share
$3.74 $2.14 $5.50 $3.44 
Weighted average common shares outstanding diluted
753 781 755 789 
Diluted earnings per common share
$3.74 $2.14 $5.50 $3.44 
See accompanying notes to the consolidated financial statements (unaudited).

Lowe’s Companies, Inc.
Consolidated Statements of Comprehensive Income (Unaudited)
In Millions, Except Percentage Data
 Three Months EndedSix Months Ended
 July 31, 2020August 2, 2019July 31, 2020August 2, 2019
 Amount% SalesAmount% SalesAmount% SalesAmount% Sales
Net earnings$2,828 10.36 %$1,676 7.98 %$4,165 8.87 %$2,722 7.03 %
Foreign currency translation adjustments net of tax
114 0.41 69 0.33 (45)(0.10)36 0.09 
Cash flow hedges net of tax
(5)(0.02)  (108)(0.23)(16)(0.04)
Other
(1)   4 0.01 2  
Other comprehensive income/(loss)
108 0.39 69 0.33 (149)(0.32)22 0.05 
Comprehensive income$2,936 10.75 %$1,745 8.31 %$4,016 8.55 %$2,744 7.08 %
See accompanying notes to the consolidated financial statements (unaudited).
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Lowe’s Companies, Inc.
Consolidated Statements of Shareholders’ Equity (Unaudited)
In Millions
Three Months Ended July 31, 2020
Common StockCapital in Excess
of Par Value
Retained EarningsAccumulated Other Comprehensive
Loss
Total Shareholders’ Equity
SharesAmount
Balance May 1, 2020755 $377 $10 $1,722 $(393)$1,716 
Net earnings   2,828  2,828 
Other comprehensive income    108 108 
Cash dividends declared, $0.55 per share
   (416) (416)
Share-based payment expense   41   41 
Issuance of common stock under share-based payment plans1 1 78   79 
Balance July 31, 2020756 $378 $129 $4,134 $(285)$4,356 
Six Months Ended July 31, 2020
Common StockCapital in Excess
of Par Value
Retained EarningsAccumulated Other Comprehensive
Loss
Total Shareholders’ Equity
SharesAmount
Balance January 31, 2020763 $381 $ $1,727 $(136)$1,972 
Net earnings   4,165  4,165 
Other comprehensive loss    (149)(149)
Cash dividends declared, $1.10 per share
   (831) (831)
Share-based payment expense   64   64 
Repurchases of common stock (10)(5)(15)(927) (947)
Issuance of common stock under share-based payment plans3 2 80   82 
Balance July 31, 2020756 $378 $129 $4,134 $(285)$4,356 
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Three Months Ended August 2, 2019
Common StockCapital in Excess
of Par Value
Retained EarningsAccumulated Other Comprehensive
Loss
Total Shareholders’ Equity
SharesAmount
Balance May 3, 2019795 $397 $ $3,095 $(256)$3,236 
Net earnings   1,676  1,676 
Other comprehensive income    69 69 
Cash dividends declared, $0.55 per share
   (428) (428)
Share-based payment expense   13   13 
Repurchases of common stock (20)(9)(51)(1,904) (1,964)
Issuance of common stock under share-based payment plans1  38   38 
Balance August 2, 2019776 $388 $ $2,439 $(187)$2,640 
Six Months Ended August 2, 2019
Common StockCapital in Excess
of Par Value
Retained EarningsAccumulated Other Comprehensive
Loss
Total Shareholders’ Equity
SharesAmount
Balance February 1, 2019801 $401 $ $3,452 $(209)$3,644 
Cumulative effect of accounting change   (263) (263)
Net earnings   2,722  2,722 
Other comprehensive income    22 22 
Cash dividends declared, $1.03 per share
   (810) (810)
Share-based payment expense   52   52 
Repurchases of common stock (28)(14)(121)(2,662) (2,797)
Issuance of common stock under share-based payment plans3 1 69   70 
Balance August 2, 2019776 $388 $ $2,439 $(187)$2,640 
See accompanying notes to the consolidated financial statements (unaudited).

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Lowe’s Companies, Inc.
Consolidated Statements of Cash Flows (Unaudited)
In Millions
Six Months Ended
July 31, 2020August 2, 2019
Cash flows from operating activities:
Net earnings $4,165 $2,722 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization747 684 
Noncash lease expense234 228 
Deferred income taxes(14)(121)
Loss on property and other assets – net80 38 
Share-based payment expense64 51 
Changes in operating assets and liabilities:
Merchandise inventory – net(674)(1,153)
Other operating assets66 (104)
Accounts payable 5,259 1,202 
Other operating liabilities1,825 36 
Net cash provided by operating activities11,752 3,583 
Cash flows from investing activities:
Purchases of investments(1,132)(245)
Proceeds from sale/maturity of investments260 272 
Capital expenditures(710)(526)
Proceeds from sale of property and other long-term assets46 42 
Other – net(24)(1)
Net cash used in investing activities(1,560)(458)
Cash flows from financing activities:
Net change in commercial paper(941)(722)
Net proceeds from issuance of debt3,961 2,972 
Repayment of long-term debt(568)(629)
Proceeds from issuance of common stock under share-based payment plans83 72 
Cash dividend payments(836)(767)
Repurchases of common stock(966)(2,770)
Other – net(4)(7)
Net cash provided by (used in) financing activities729 (1,851)
Effect of exchange rate changes on cash4 (1)
Net increase in cash and cash equivalents, including cash classified within current assets
held for sale
10,925 1,273 
Less: Net decrease in cash classified within current assets held for sale 12 
Net increase in cash and cash equivalents10,925 1,285 
Cash and cash equivalents, beginning of period716 511 
Cash and cash equivalents, end of period$11,641 $1,796 
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 July 31, 2020, and August 2, 2019, the results of operations, comprehensive income, and shareholders’ equity for the three and six months ended July 31, 2020, and August 2, 2019, and cash flows for the six months ended July 31, 2020, and August 2, 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 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 quarter 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 $428 million and $740 million of expense included in selling, general and administrative (SG&A) expense in the consolidated statements of earnings for the three and six months ended July 31, 2020, respectively.

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

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 to be paid by December 31, 2021 and the other half by December 31, 2022. As of July 31, 2020, the Company deferred $251 million of qualifying employer payroll taxes which is included in other liabilities in the consolidated balance sheets and included in cash flows from other operating liabilities in the consolidated statements of cash flows.

Reclassifications

Certain prior period amounts have been reclassified to conform to current period presentation, including the addition of cash flow hedges – net of tax on the consolidated statements of comprehensive income, and the inclusion of goodwill within other assets on the consolidated balance sheets.
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Accounting Pronouncements Not Yet Adopted

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

Recent accounting pronouncements pending adoption not discussed in this Form 10-Q or in the 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: Revenue - 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 EndedSix Months Ended
July 31, 2020August 2, 2019July 31, 2020August 2, 2019
Products $26,359 $19,976 $45,380 $36,877 
Services508 591 907 1,144 
Other435 425 690 712 
Net sales$27,302 $20,992 $46,977 $38,733 

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 $272 million at July 31, 2020, and $232 million at August 2, 2019. The associated right of return assets reflected in other current assets were $173 million at July 31, 2020, and $152 million at August 2, 2019.
Deferred revenue - retail
Deferred revenues associated with amounts received for which customers have not taken possession of the merchandise or for which installation has not yet been completed were $1.3 billion at July 31, 2020, and $875 million at August 2, 2019. The majority of revenue for goods and services is recognized in the quarter following revenue deferral.
Deferred revenue - stored-value cards
The deferred revenues associated with outstanding stored-value cards (gift cards and returned merchandise credits) were $433 million and $449 million at July 31, 2020, and August 2, 2019, respectively, and these amounts are included in deferred revenue on the consolidated balance sheets. Amounts recognized as breakage were insignificant for the three and six months ended July 31, 2020, and August 2, 2019.
Deferred revenue - extended protection plans
The deferred revenues from separately priced extended protection plans were $981 million and $868 million at July 31, 2020, and August 2, 2019, respectively. Revenue recognized into sales were $101 million and $208 million for the three and six months ended July 31, 2020, respectively, and $101 million and $200 million for the three and six months ended August 2, 2019, respectively. Incremental direct acquisition costs associated with the sale of extended protection plans for contracts greater than one year are also deferred and recognized as expense on a straight-line basis over the respective contract term and were insignificant at July 31, 2020, and August 2, 2019. 
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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 $42 million and $78 million for the three and six months ended July 31, 2020, respectively, and $48 million and $96 million for the three and six months ended August 2, 2019, respectively.

Disaggregation of Revenues

The following table presents the Company’s net sales disaggregated by merchandise division:
Three Months EndedSix Months Ended
July 31, 2020August 2, 2019July 31, 2020August 2, 2019
(In millions)Net Sales%Net Sales%Net Sales%Net Sales%
Hardlines 1
$10,091 37 %$7,188 34 %$16,524