LOWES COMPANIES INC 10-K

Item 8 - Financial Statements and Supplementary Data Table of Contents Page No. Management’s Report on Internal Control over Financial Reporting 34 Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) 35 Consolidated Statements of Earnings 38 Consolidated Statements of Comprehensive Income 38 Consolidated Balance Sheets 39 Consolidated Statements of Shareholders’ (Deficit)/Equity 40 Consolidated Statements of Cash Flows 41 Notes to Consolidated Financial Statements 42 Note 1: Summary of Significant Accounting Policies 42 Note 2: Revenue 49 Note 3: Fair Value Measurements 50 Note 4: Property and Accumulated Depreciation 53 Note 5: Goodwill and Intangible Assets 52 Note 6: Leases 53 Note 7: D ivestiture of the Canadian Retail Business 55 Note 8: Debt 56 Note 9: Derivative Instruments 59 Note 10: Shareholders’ Deficit 59 Note 11: Share-Based Payments 61 Note 12: Employee Retirement Plans 64 Note 13: Income Taxes 65 Note 14: Earnings Per Share 67 Note 15: Commitments and Contingencies 67 Note 16: Related Parties 68 Note 17: Other Information 68 33 Table of Contents MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management of Lowe’s Companies, Inc. and its subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting (Internal Control) as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. Our Internal Control was designed to provide reasonable assurance to our management and the Board of Directors regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention or overriding of controls. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to the reliability of financial reporting and financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness may vary over time. Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our Internal Control as of February 3, 2023. In evaluating our Internal Control, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013). Based on our management’s assessment, we have concluded that, as of February 3, 2023, our Internal Control is effective. Deloitte & Touche LLP, the independent registered public accounting firm that audited the financial statements contained in this Annual Report, was engaged to audit our Internal Control. Their report appears on page 3 7 . 34 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Lowe’s Companies, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Lowe’s Companies, Inc. and subsidiaries (the “Company”) as of February 3, 2023 and January 28, 2022, the related consolidated statements of earnings, comprehensive income, shareholders’ (deficit)/equity, and cash flows, for each of the three fiscal years in the period ended February 3, 2023, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 3, 2023 and January 28, 2022, and the results of its operations and its cash flows for each of the three fiscal years in the period ended February 3, 2023, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of February 3, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 27, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Merchandise Inventory – Vendor Funds – Refer to Note 1 to the financial statements Critical Audit Matter Description The Company receives funds from its vendors in the normal course of business, principally as a result of purchase volumes and sales. In the fiscal year ended February 3, 2023, the Company purchased inventory from a significant number of vendors. Many of the vendor funds associated with these purchases are earned under agreements that are negotiated on an annual basis or shorter. The funds are recorded as a reduction to the cost of inventory as they are earned. As the related inventory is sold, the amounts are recorded as a reduction to cost of sales. We identified vendor funds as a critical audit matter because of the volume and varying terms of the individual vendor agreements. This required an increased extent of effort when performing audit procedures to evaluate whether the vendor funds were recorded in accordance with the terms of the vendor agreements. How the Critical Audit Matter Was Addressed in the Audit 35 Table of Contents Our audit procedures related to whether the vendor funds were recorded in accordance with the terms of the vendor agreements included the following, among others: • We tested the effectiveness of controls over vendor funds, including management’s controls over the accrual and recording of vendor funds as a reduction to the cost of inventory as they are earned, and as a reduction to cost of sales as the related inventory is sold, in accordance with the terms of the vendor agreements. • We selected a sample of vendor funds and recalculated the amount earned using the terms of the vendor agreement, including the amount recorded as a reduction to the cost of inventory as they are earned, and the amount recorded as a reduction to cost of sales as the related inventory is sold. • We selected a sample of vendor funds and confirmed the amount earned and terms of the agreement directly with the vendor. /s/ Deloitte & Touche LLP Charlotte, North Carolina March 27, 2023 We have served as the Company's auditor since 1962. 36 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Lowe’s Companies, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Lowe’s Companies, Inc. and subsidiaries (the “Company”) as of February 3, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 3, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedule as of and for the fiscal year ended February 3, 2023, of the Company and our report dated March 27, 2023, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP Charlotte, North Carolina March 27, 2023 37 Table of Contents Lowe’s Companies, Inc. Consolidated Statements of Earnings (In millions, except per share and percentage data) Fiscal Years Ended February 3, 2023 January 28, 2022 January 29, 2021 Current Earnings Amount % Sales Amount % Sales Amount % Sales Net sales $ 97,059 100.00 % $ 96,250 100.00 % $ 89,597 100.00 % Cost of sales 64,802 66.77 64,194 66.70 60,025 66.99 Gross margin 32,257 33.23 32,056 33.30 29,572 33.01 Expenses: Selling, general and administrative 20,332 20.94 18,301 19.01 18,526 20.68 Depreciation and amortization 1,766 1.82 1,662 1.73 1,399 1.56 Operating income 10,159 10.47 12,093 12.56 9,647 10.77 Interest – net 1,123 1.16 885 0.92 848 0.95 Loss on extinguishment of debt — — — — 1,060 1.18 Pre-tax earnings 9,036 9.31 11,208 11.64 7,739 8.64 Income tax provision 2,599 2.68 2,766 2.87 1,904 2.13 Net earnings $ 6,437 6.63 % $ 8,442 8.77 % $ 5,835 6.51 % Basic earnings per common share $ 10.20 $ 12.07 $ 7.77 Diluted earnings per common share $ 10.17 $ 12.04 $ 7.75 Lowe’s Companies, Inc. Consolidated Statements of Comprehensive Income (In millions, except percentage data) Fiscal Years Ended February 3, 2023 January 28, 2022 January 29, 2021 Amount % Sales Amount % Sales Amount % Sales Net earnings $ 6,437 6.63 % $ 8,442 8.77 % $ 5,835 6.51 % Foreign currency translation adjustments – net of tax 36 0.04 ( 4 ) — 78 0.09 Cash flow hedges – net of tax 309 0.32 109 0.11 ( 79 ) ( 0.09 ) Other ( 2 ) — ( 5 ) ( 0.01 ) 1 — Other comprehensive income 343 0.36 100 0.10 — — Comprehensive income $ 6,780 6.99 % $ 8,542 8.87 % $ 5,835 6.51 % See accompanying notes to consolidated financial statements. 38 Table of Contents Lowe’s Companies, Inc. Consolidated Balance Sheets (In millions, except par value) February 3, 2023 January 28, 2022 Assets Current assets: Cash and cash equivalents $ 1,348 $ 1,133 Short-term investments 384 271 Merchandise inventory – net 18,532 17,605 Other current assets 1,178 1,051 Total current assets 21,442 20,060 Property, less accumulated depreciation 17,567 19,071 Operating lease right-of-use assets 3,518 4,108 Long-term investments 121 199 Deferred income taxes – net 250 164 Other assets 810 1,038 Total assets $ 43,708 $ 44,640 Liabilities and shareholders’ deficit Current liabilities: Short-term borrowings $ 499 $ — Current maturities of long-term debt 585 868 Current operating lease liabilities 522 636 Accounts payable 10,524 11,354 Accrued compensation and employee benefits 1,109 1,561 Deferred revenue 1,603 1,914 Income taxes payable 1,181 128 Other current liabilities 3,488 3,207 Total current liabilities 19,511 19,668 Long-term debt, excluding current maturities 32,876 23,859 Noncurrent operating lease liabilities 3,512 4,021 Deferred revenue – Lowe’s protection plans 1,201 1,127 Other liabilities 862 781 Total liabilities 57,962 49,456 Commitments and contingencies Shareholders’ deficit: 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 – 601 million and 670 million, respectively 301 335 Accumulated deficit ( 14,862 ) ( 5,115 ) Accumulated other comprehensive income/(loss) 307 ( 36 ) Total shareholders’ deficit ( 14,254 ) ( 4,816 ) Total liabilities and shareholders’ deficit $ 43,708 $ 44,640 See accompanying notes to consolidated financial statements. 39 Table of Contents Lowe’s Companies, Inc. Consolidated Statements of Shareholders’ (Deficit)/Equity (In millions, except per share data) Common Stock Capital in Excess of Par Value Retained Earnings/(Accumulated Deficit) Accumulated Other Comprehensive Income/(Loss) Total Shares Amount Balance January 31, 2020 763 $ 381 $ — $ 1,727 $ ( 136 ) $ 1,972 Net earnings — — — 5,835 — 5,835 Cash dividends declared, $ 2.30 per share — — — ( 1,724 ) — ( 1,724 ) Share-based payment expense — — 155 — — 155 Repurchases of common stock ( 34 ) ( 16 ) ( 214 ) ( 4,721 ) — ( 4,951 ) Issuance of common stock under share-based payment plans 2 1 149 — — 150 Balance January 29, 2021 731 $ 366 $ 90 $ 1,117 $ ( 136 ) $ 1,437 Net earnings — — — 8,442 — 8,442 Other comprehensive income — — — — 100 100 Cash dividends declared, $ 3.00 per share — — — ( 2,081 ) — ( 2,081 ) Share-based payment expense — — 228 — — 228 Repurchases of common stock ( 63 ) ( 32 ) ( 449 ) ( 12,593 ) — ( 13,074 ) Issuance of common stock under share-based payment plans 2 1 131 — — 132 Balance January 28, 2022 670 $ 335 $ — $ ( 5,115 ) $ ( 36 ) $ ( 4,816 ) Net earnings — — — 6,437 — 6,437 Other comprehensive income — — — — 343 343 Cash dividends declared, $ 3.95 per share — — — ( 2,466 ) — ( 2,466 ) Share-based payment expense — — 225 — — 225 Repurchases of common stock ( 71 ) ( 35 ) ( 375 ) ( 13,718 ) — ( 14,128 ) Issuance of common stock under share-based payment plans 2 1 150 — — 151 Balance February 3, 2023 601 $ 301 $ — $ ( 14,862 ) $ 307 $ ( 14,254 ) See accompanying notes to consolidated financial statements. 40 Table of Contents Lowe’s Companies, Inc. Consolidated Statements of Cash Flows (In millions) Fiscal Years Ended February 3, 2023 January 28, 2022 January 29, 2021 Cash flows from operating activities: Net earnings $ 6,437 $ 8,442 $ 5,835 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 1,981 1,882 1,594 Noncash lease expense 530 517 479 Deferred income taxes ( 239 ) 135 ( 108 ) Asset impairment and loss on property - net 2,118 34 139 Loss on sale of business 421 — — Loss on extinguishment of debt — — 1,060 Share-based payment expense 223 230 155 Changes in operating assets and liabilities: Merchandise inventory – net ( 2,594 ) ( 1,413 ) ( 2,967 ) Other operating assets 56 ( 23 ) 326 Accounts payable ( 549 ) 466 3,211 Deferred revenue ( 183 ) 413 512 Other operating liabilities 388 ( 570 ) 813 Net cash provided by operating activities 8,589 10,113 11,049 Cash flows from investing activities: Purchases of investments ( 1,189 ) ( 3,065 ) ( 3,094 ) Proceeds from sale/maturity of investments 1,174 3,293 2,926 Capital expenditures ( 1,829 ) ( 1,853 ) ( 1,791 ) Proceeds from sale of property and other long-term assets 45 113 90 Proceeds from sale of business 491 — — Other – net ( 1 ) ( 134 ) ( 25 ) Net cash used in investing activities ( 1,309 ) ( 1,646 ) ( 1,894 ) Cash flows from financing activities: Net change in commercial paper 499 — ( 941 ) Net proceeds from issuance of debt 9,667 4,972 7,929 Repayment of debt ( 867 ) ( 2,118 ) ( 5,618 ) Proceeds from issuance of common stock under share-based payment plans 151 132 152 Cash dividend payments ( 2,370 ) ( 1,984 ) ( 1,704 ) Repurchases of common stock ( 14,124 ) ( 13,012 ) ( 4,971 ) Other – net ( 5 ) ( 6 ) ( 38 ) Net cash used in financing activities ( 7,049 ) ( 12,016 ) ( 5,191 ) Effect of exchange rate changes on cash ( 16 ) ( 8 ) 10 Net increase/(decrease) in cash and cash equivalents 215 ( 3,557 ) 3,974 Cash and cash equivalents, beginning of year 1,133 4,690 716 Cash and cash equivalents, end of year $ 1,348 $ 1,133 $ 4,690 See accompanying notes to consolidated financial statements. 41 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED FEBRUARY 3, 2023, JANUARY 28, 2022, AND JANUARY 29, 2021 NOTE 1: Summary of Significant Accounting Policies Lowe’s Companies, Inc. and subsidiaries (the Company) is the world’s second-largest home improvement retailer and operated 1,738 stores in the United States at February 3, 2023. On February 3, 2023, Lowe’s completed the sale of its Canadian retail business, which operated 232 stores in Canada, as well as serviced 210 dealer-owned stores. The Canadian retail business included a number of complementary formats under the banners of RONA, Lowe’s Canada, Réno-Dépôt, and Dick’s Lumber. See Note 7 for information on this divestiture. Below are those accounting policies considered by the Company to be significant. Fiscal Year - The Company’s fiscal year ends on the Friday nearest the end of January. Fiscal 2022 contained 53 weeks, and fiscal years 2021 and 2020 each contained 52 weeks. All references herein for the years 2022, 2021, and 2020 represent the fiscal years ended February 3, 2023, January 28, 2022, and January 29, 2021, respectively. Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned or controlled operating subsidiaries. All intercompany accounts and transactions have been eliminated. Foreign Currency - The functional currencies of the Company’s international subsidiaries are generally the local currencies of the countries in which the subsidiaries are located. Foreign currency denominated assets and liabilities are translated into U.S. dollars using the exchange rates in effect at the balance sheet date. Results of operations and cash flows are translated using the average exchange rates throughout the period. The effect of exchange rate fluctuations on translation of assets and liabilities is included as a component of shareholders’ deficit in accumulated other comprehensive income/(loss). Gains and losses from foreign currency transactions are included in SG&A expense. Use of Estimates - The preparation of the Company’s financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosures of contingent assets and liabilities. The Company bases these estimates on historical results and various other assumptions believed to be reasonable, all of which form the basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates. Cash and Cash Equivalents - Cash and cash equivalents include cash on hand, demand deposits, and short-term investments with original maturities of three months or less when purchased. Cash and cash equivalents are carried at amortized cost on the consolidated balance sheets. The majority of payments due from financial institutions for the settlement of credit card and debit card transactions process within two business days and are, therefore, classified as cash and cash equivalents. Investments - Investments generally consist of commercial paper, corporate debt securities, governmental securities, certificates of deposit, and money market funds, which are classified as available-for-sale. 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 income/(loss). The proceeds from sales of available-for-sale debt securities were $ 10 million, $ 308 million, and $ 42 million for 2022, 2021, and 2020, respectively. Gross realized gains and losses on the sale of available-for-sale debt securities were not significant for any of the periods presented. Also included in long-term investments is performance-based contingent consideration associated with the sale of the Canadian retail business. The Company accounts for the contingent consideration under the fair value option under Accounting Standards Codification (ASC) 825, Financial Instruments, which requires the contingent consideration to be recorded at its initial fair value upon recognition and as of each balance sheet date thereafter. Changes in the estimated fair value of the contingent consideration are recognized as non-cash changes in fair value included within SG&A expense in the consolidated statements of earnings. Investments with a stated maturity date of one year or less from the balance sheet date or that are expected to be used in current operations are classified as short-term investments. All other investments are classified as long-term. Available-for-sale debt securities classified as long-term at February 3, 2023, will mature in one to two years , based on stated maturity dates. The Company classifies as investments restricted balances pledged as collateral for the Company’s extended protection plan program. Restricted balances included in short-term investments were $ 384 million at February 3, 2023, and $ 271 million at 42 Table of Contents January 28, 2022. Restricted balances included in long-term investments were $ 100 million at February 3, 2023, and $ 199 million at January 28, 2022. Merchandise Inventory - The majority of the Company’s inventory is stated at the lower of cost and net realizable value using the first-in, first-out method of inventory accounting. Inventory for certain subsidiaries representing approximately 1 % and 7 % of the consolidated inventory balances as of February 3, 2023, and January 28, 2022, respectively, are stated at lower of cost and net realizable value using the weighted average cost method. The cost of inventory includes certain costs associated with the preparation of inventory for resale, including distribution center costs, and is net of vendor funds. The Company records an inventory reserve for the anticipated loss associated with selling inventories below cost. This reserve is based on management’s current knowledge with respect to inventory levels, sales trends, and historical experience. Management does not believe the Company’s merchandise inventories are subject to significant risk of obsolescence in the near term, and management has the ability to adjust purchasing patterns based on anticipated sales trends and general economic conditions. However, changes in consumer purchasing patterns could result in the need for additional reserves. The Company also records an inventory reserve for the estimated shrinkage between physical inventories. This reserve is based primarily on actual shrink results from previous physical inventories. Changes in the estimated shrink reserve are made based on the timing and results of physical inventories. The Company receives funds from vendors in the normal course of business, principally as a result of purchase volumes, sales, early payments, or promotions of vendors’ products. Generally, these vendor funds do not represent the reimbursement of specific, incremental, and identifiable costs incurred by the Company to sell the vendor’s product. Therefore, the Company treats these funds as a reduction in the cost of inventory and are recognized as a reduction of cost of sales when the inventory is sold. Funds that are determined to be reimbursements of specific, incremental, and identifiable costs incurred to sell vendors’ products are recorded as an offset to the related expense. The Company develops accrual rates for vendor funds based on the provisions of the agreements in place. Due to the diversity of the individual vendor agreements, the Company performs analyses and reviews historical trends throughout the year and confirms actual amounts with select vendors to ensure the amounts earned are appropriately recorded. Amounts accrued throughout the year could be impacted if actual purchase volumes differ from projected annual purchase volumes, especially in the case of programs that provide for increased funding when graduated purchase volumes are met. Derivative Financial Instruments - The Company is exposed to the impact of changes in benchmark interest rates and the prices of commodities used in the normal course of business. The Company occasionally utilizes derivative financial instruments to manage certain business risks. All derivative financial instruments are recognized at their fair values as either assets or liabilities at the balance sheet date and reported on a gross basis. The Company held forward interest rate swap agreements to hedge its exposure to changes in benchmark interest rates on forecasted debt issuances as of February 3, 2023, and January 28, 2022. The cash flows related to forward interest rate swap agreements are included within operating activities in the 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, net of tax effects, in the consolidated statements of comprehensive income and is amortized to interest expense over the term of the respective debt. The Company held fixed-to-floating interest rate swap agreements as fair value hedges on certain debt as of February 3, 2023, and January 28, 2022. The Company evaluates the effectiveness of the fair value hedges using the shortcut method of accounting under which the hedges are assumed to be perfectly effective. Thus, the change in fair value of the derivative instruments offsets the change in fair value on the hedged debt, and there is no net impact in the consolidated statements of earnings from the fair value of the derivatives. To hedge the economic risk of changes in value of the October 2020 cash tender offers prior to its pricing date, the Company entered into reverse treasury lock derivative contracts which were not designated as hedging instruments. The cash flows related to these contracts are included within financing activities in the consolidated statements of cash flows. Credit Programs and Sale of Business Accounts Receivable - The Company has branded and private label proprietary credit cards which generate sales that are not reflected in receivables. Under an agreement with Synchrony Bank (Synchrony), credit is extended directly to customers by Synchrony. All credit program-related services are performed and controlled directly by Synchrony. The Company has the option, but no obligation, to purchase the receivables at the end of the agreement. The Company also has an agreement with Synchrony under which Synchrony purchases at face value commercial business accounts receivable originated by the Company and services these accounts. The Company primarily accounts for these 43 Table of Contents transfers as sales of the accounts receivable. When the Company transfers its commercial business accounts receivable, it retains certain interests in those receivables, including the funding of a loss reserve and its obligation related to Synchrony’s ongoing servicing of the receivables sold. Any gain or loss on the sale is determined based on the previous carrying amounts of the transferred assets allocated at fair value between the receivables sold and the interests retained. Fair value is based on the present value of expected future cash flows, taking into account the key assumptions of anticipated credit losses, payment rates, late fee rates, Synchrony’s servicing costs, and the discount rate commensurate with the uncertainty involved. Due to the short-term nature of the receivables sold, changes to the key assumptions would not materially impact the recorded gain or loss on the sales of receivables or the fair value of the retained interests in the receivables. Total commercial business accounts receivable sold to Synchrony were $ 5.2 billion in 2022, $ 4.3 billion in 2021, and $ 3.3 billion in 2020. The Company recognized losses of $ 76 million in 2022, $ 50 million in 2021, and $ 54 million in 2020 on these receivable sales, which primarily relates to servicing costs that are remitted to Synchrony monthly. Property and Depreciation - Property is recorded at cost. Costs associated with major additions are capitalized and depreciated. Capital assets are expected to yield future benefits and have original useful lives which exceed one year. The total cost of a capital asset generally includes all applicable sales taxes, delivery costs, installation costs, and other appropriate costs incurred by the Company, including interest in the case of self-constructed assets. Upon disposal, the cost of properties and related accumulated depreciation is removed from the accounts, with gains and losses reflected in SG&A expense in the consolidated statements of earnings. Property consists of land, buildings and building improvements, equipment, finance lease assets, and construction in progress. Buildings and building improvements includes owned buildings, as well as buildings under finance lease and leasehold improvements. Equipment primarily includes store racking and displays, computer hardware and software, forklifts, vehicles, finance lease equipment, and other store equipment . In addition, excess properties held for use are included within land and buildings. Depreciation is recognized over the estimated useful lives of the depreciable assets. Assets are depreciated using the straight-line method. Leasehold improvements and finance lease assets are depreciated and amortized, respectively, over the shorter of their estimated useful lives or the term of the related lease. The amortization of these assets is included in depreciation and amortization expense in the consolidated statements of earnings. Long-Lived Asset Impairment - The carrying amounts of long-lived assets are reviewed whenever certain events or changes in circumstances indicate that the carrying amounts may not be recoverable. A potential impairment has occurred for long-lived assets held-for-use if projected future undiscounted cash flows expected to result from the use and eventual disposition of the assets are less than the carrying amounts of the assets. For operating locations identified for sale or closure, a market approach is used to determine the fair value of the asset group. The carrying value of an operating location’s asset group includes inventory, property, operating and finance lease right-of-use assets, and operating liabilities, including accounts payables, accrued compensation, and operating lease liabilities. Financial and non-operating liabilities are excluded from the carrying value of the asset group. An impairment loss is recorded for long-lived assets held-for-use when the carrying amount of the asset is not recoverable and exceeds its fair value. Impairment losses are included in SG&A expense in the consolidated statements of earnings. Excess properties that are expected to be sold within the next twelve months and meet the other relevant held-for-sale criteria are classified as long-lived assets held-for-sale. Excess properties consist primarily of retail outparcels and property associated with relocated or closed locations. An impairment loss is recorded for long-lived assets held-for-sale when the carrying amount of the asset exceeds its fair value less cost to sell. A long-lived asset is not depreciated while it is classified as held-for-sale. For long-lived assets to be abandoned, the Company considers the asset to be disposed of when it ceases to be used. Until it ceases to be used, the Company continues to classify the asset as held-for-use and tests for potential impairment accordingly. If the Company commits to a plan to abandon a long-lived asset before the end of its previously estimated useful life, its depreciable life is evaluated. Goodwill - Goodwill is the excess of the purchase price over the fair value of identifiable assets acquired, less liabilities assumed, in a business combination. The Company reviews goodwill for impairment at the reporting unit level, which is the operating segment level or one level below the operating segment level. Goodwill is not amortized but is evaluated for impairment at least annually on the first day of the fourth quarter or whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount may not be recoverable. The evaluation begins with a qualitative assessment to determine whether a quantitative impairment test is necessary. If, after assessing qualitative factors, we determine it is more 44 Table of Contents likely than not that the fair value of the reporting unit is less than the carrying amount, then the quantitative goodwill impairment test is performed. The quantitative goodwill impairment test used to identify potential impairment compares the fair value of a reporting unit with its carrying amount, including goodwill. Fair value represents the price a market participant would be willing to pay in a potential sale of the reporting unit and is based on a combination of an income approach, using discounted future cash flows, and a market approach, using market multiples applied to free cash flow. If the fair value exceeds carrying value, then no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. Any impairment identified is included within SG&A expense in the consolidated statements of earnings. The income tax effect from any tax deductible goodwill on the carrying amount of the reporting unit, if applicable, is considered in determining the goodwill impairment loss. A reporting unit is an operating segment or a business unit one level below that operating segment, for which discrete financial information is prepared and regularly reviewed by segment management. During fiscal 2022, goodwill was allocated to the U.S. Home Improvement reporting unit. In fiscal 2022, we completed our annual qualitative assessment of the recoverability of goodwill for the U.S. Home Improvement reporting unit and concluded that the fair value of the reporting unit significantly exceeded its carrying value. The changes in the carrying amount of goodwill for 2022, 2021, and 2020 were as follows: Years Ended (In millions) February 3, 2023 January 28, 2022 January 29, 2021 Goodwill, balance at beginning of year $ 311 $ 311 $ 303 Acquisitions — — 8 Goodwill, balance at end of year $ 311 $ 311 $ 311 Gross carrying amounts and cumulative goodwill impairment losses are as follows: February 3, 2023 January 28, 2022 (In millions) Gross Carrying Amount Cumulative Impairment Gross Carrying Amount Cumulative Impairment Goodwill 1 $ 311 $ — $ 1,310 $ ( 999 ) 1 The reduction in the gross carrying amount and cumulative impairment of goodwill is as a result of the sale of the Canadian retail business in fiscal 2022. Other Intangible Assets - Intangible assets with indefinite lives are evaluated for impairment on the first day of the fourth quarter or whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount may not be recoverable. The cost of definite-lived intangible assets is amortized over their estimated useful lives, which range up to 20 years. Intangible assets are recorded within other assets on the consolidated balance sheets. Leases - 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 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. Leases with an original term of twelve 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. 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. 45 Table of Contents The Company’s real estate leases typically require payment of common area maintenance and real estate taxes which represent the majority of variable lease costs. Certain lease agreements also provide for variable rental payments based on sales performance in excess of specified minimums, usage measures, or changes in the consumer price index. Variable rent payments based on future performance, usage, or changes in indices were not significant for any of the periods presented. Variable lease costs are excluded from the present value of lease obligations. 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. Accounts Payable - The Company has agreements with third parties to provide supplier finance programs which facilitate participating suppliers’ ability to finance payment obligations from the Company with designated third-party financial institutions. Participating suppliers may, at their sole discretion, make offers to finance one or more payment obligations of the Company prior to their scheduled due dates at a discounted price to participating financial institutions. The Company’s goal in entering into these arrangements is to capture overall supply chain savings in the form of pricing, payment terms, or vendor funding, created by facilitating suppliers’ ability to finance payment obligations at more favorable discount rates, while providing them with greater working capital flexibility. The Company’s obligations to its suppliers, including amounts due and scheduled payment dates, are not impacted by suppliers’ decisions to finance amounts under these arrangements. However, the Company’s right to offset balances due from suppliers against payment obligations is restricted by these arrangements for those payment obligations that have been financed by suppliers. The rollforward of the Company’s outstanding payment obligations that suppliers financed to participating financial institutions, which are included in accounts payable on the consolidated balance sheets, are as follows: Years Ended (In millions) February 3, 2023 January 28, 2022 January 29, 2021 Financed payment obligations outstanding at the beginning of the year $ 2,274 $ 1,710 $ 1,329 Payment obligations financed during the year 12,159 11,538 10,121 Financed payment obligations paid during the year ( 12,176 ) ( 10,974 ) ( 9,740 ) Financed payment obligations outstanding at the end of the year $ 2,257 $ 2,274 $ 1,710 Other Current Liabilities - Other current liabilities on the consolidated balance sheets consist of: (In millions) February 3, 2023 January 28, 2022 Accrued dividends $ 633 $ 537 Self-insurance liabilities 424 440 Accrued interest 441 275 Sales return reserve 234 245 Sales tax liabilities 314 228 Accrued property taxes 119 124 Other 1,323 1,358 Total $ 3,488 $ 3,207 Self-Insurance - The Company is self-insured for certain losses relating to workers’ compensation, automobile, property, and general and product liability claims. The Company has excess insurance coverage above certain retention amounts to limit exposure from these claims. The Company is also self-insured for certain losses relating to extended protection plans, as well as medical and dental claims. Self-insurance claims filed and claims incurred but not reported are accrued based upon management’s estimates of the discounted ultimate cost for self-insured claims incurred using actuarial assumptions followed in the insurance industry and historical experience. Although management believes it has the ability to reasonably estimate losses related to claims, it is possible that actual results could differ from recorded self-insurance liabilities. Total self-insurance liabilities, including the current and non-current portions, were $ 1.1 billion at February 3, 2023, and January 28, 2022. 46 Table of Contents The Company provides surety bonds issued by insurance companies to secure payment of workers’ compensation liabilities as required in certain states where the Company is self-insured. Outstanding surety bonds relating to self-insurance were $ 270 million at February 3, 2023, and January 28, 2022. Income Taxes - The Company establishes deferred income tax assets and liabilities for temporary differences between the tax and financial accounting bases of assets and liabilities. The tax effects of such differences are reflected in the consolidated balance sheets at the enacted tax rates expected to be in effect when the differences reverse. A valuation allowance is recorded to reduce the carrying amount of deferred tax assets if it is more likely than not that all or a portion of the asset will not be realized. The tax balances and income tax expense recognized by the Company are based on management’s interpretation of the tax statutes of multiple jurisdictions. The Company establishes a liability for tax positions for which there is uncertainty as to whether or not the position will be ultimately sustained. The Company includes interest related to tax issues as part of net interest on the consolidated statements of earnings. The Company records any applicable penalties related to tax issues within the income tax provision. Enactment of the Inflation Reduction Act On August 16, 2022, the U.S. government enacted the Inflation Reduction Act (IRA) which, among other changes, created a new 15% corporate alternative minimum tax based on adjusted financial statement income, which is effective for the Company beginning February 4, 2023. The Company does not expect the corporate alternative minimum tax will have a significant impact on the Company’s consolidated financial statements. Income Tax Relief On October 5, 2022, the Internal Revenue Service announced that businesses in certain states, including North Carolina, affected by Hurricane Ian would receive tax relief by postponing certain tax-payment deadlines. Under this relief, the Company’s quarterly federal estimated income tax payments originally due by October 17, 2022 and January 17, 2023, can be deferred until February 15, 2023. As of February 3, 2023, the Company deferred $ 1.2 billion of federal income taxes payable, which is included in income taxes payable in the consolidated balance sheets. Shareholders’ Deficit - The Company has a share repurchase program that is executed through purchases made from time to time either in the open market or through private market transactions. Shares purchased under the repurchase program are returned to authorized and unissued status. Any excess of cost over par value is charged to additional paid-in capital to the extent that a balance is present. Once additional paid-in capital is fully depleted, remaining excess of cost over par value is charged to accumulated deficit. In August 2022, the IRA enacted a 1% excise tax on net share repurchases after December 31, 2022. Any excise tax incurred on share repurchases is recognized as part of the cost basis of the shares acquired in the consolidated statements of shareholders’ (deficit)/equity. Revenue Recognition - The Company recognizes revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. A description of the Company’s principle revenue generating activities is as follows: • Products - 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. • Services - 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. Retail deferred revenue consists of amounts received for which customers have not yet taken possession of the merchandise or for which installation has not yet been completed. 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. The 47 Table of Contents majority of revenue for goods and services is recognized in the quarter following revenue deferral. 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 Company also defers revenues for its separately-priced long-term protection plan contracts (Lowe’s protection plans), which is a Lowe’s-branded program for which the Company is ultimately self-insured. The Company recognizes revenue from Lowe’s protection plan sales on a straight-line basis over the respective contract term. Expenses for claims are recognized in cost of sales when incurred. Incremental direct acquisition costs and administrative costs to fulfill the contracts associated with Lowe's 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. Lowe’s 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. Cost of Sales and Selling, General and Administrative Expenses - The following lists the primary costs classified in each major expense category: Cost of Sales Selling, General and Administrative n Total cost of products sold, including: - Purchase costs, net of vendor funds; - Freight expenses associated with moving merchandise inventories from vendors to selling locations; - Costs associated with operating the Company’s distribution network, including payroll and benefit costs and occupancy costs; - Depreciation of assets associated with the Company’s distribution network; n Costs of installation services provided; n Costs associated with shipping and handling to customers, as well as directly from vendors to customers by third parties; n Depreciation of assets used in delivering product to customers; n Costs associated with inventory shrinkage and obsolescence; n Costs of services performed under the extended protection plan. n Payroll and benefit costs for retail and corporate employees; n Occupancy costs of retail and corporate facilities; n Advertising; n Store environment costs; n Tender costs, including bank charges, costs associated with credit card interchange fees; n Costs associated with self-insured plans, and premium costs for stop-loss coverage and fully insured plans; n Long-lived asset impairment losses, gains/losses on disposal of assets, and exit costs; n Other administrative costs, such as supplies, and travel and entertainment. Advertising - Costs associated with advertising are charged to SG&A expense as incurred. Advertising expenses were $ 869 million, $ 877 million, and $ 798 million in 2022, 2021, and 2020, respectively. Comprehensive Income - The Company reports comprehensive income in its consolidated statements of comprehensive income and consolidated statements of shareholders’ (deficit)/equity. Comprehensive income represents changes in shareholders’ deficit from non-owner sources and is comprised of net earnings adjusted primarily for foreign currency translation adjustments and cash flow hedge derivative contracts. Net foreign currency translation (losses), net of tax, classified in accumulated other comprehensive income/(loss) were ($ 5 ) million, ($ 41 ) million, and ($ 37 ) million at February 3, 2023, January 28, 2022, and January 29, 2021, respectively. Net cash flow hedge gains/(losses), net of tax, classified in accumulated other comprehensive income/(loss) were $ 315 million, $ 6 million, and ($ 103 ) million at February 3, 2023, January 28, 2022, and January 29, 2021, respectively. Segment Information - The Company’s home improvement retail operations represent a single reportable segment. Key operating decisions are made at the Company level in order to maintain a consistent retail customer experience. The Company’s home improvement retail stores, in addition to online selling channels, sell similar products and services, use similar processes to sell those products and services, and sell their products and services to similar classes of customers. In addition, the Company’s operations exhibit similar long-term economic characteristics. As of February 3, 2023, long-lived assets outside of the U.S. were immaterial as a result of the sale of the Canadian retail business. Net sales outside of the U.S. were approximately 5.2 % for the fiscal year ended February 3, 2023. The amounts of long-lived assets and net sales outside of the U.S. were approximately 7.2 % and 6.1 %, respectively, at January 28, 2022. The amounts of long-lived assets and net sales outside of the U.S. were approximately 7.5 % and 5.9 %, respectively, at January 29, 2021. 48 Table of Contents Reclassifications - Income taxes payable for the prior year was reclassified to conform with current year presentation as a separate caption on the consolidated balance sheets. Accounting Pronouncements Recently Adopted - Effective February 3, 2023, the Company early adopted all disclosure requirements of Accounting Standards Update (ASU) 2022-04, Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations . The ASU requires disclosure about an entity’s use of supplier finance programs, including the key terms of the program, amount of obligations outstanding at the end of the reporting period, and a rollforward of activity within the program during the period. The ASU is effective for the Company in fiscal 2023, except for the disclosure of rollforward information, which is effective for fiscal 2024, with early adoption permitted. Accounting Pronouncements Not Yet Adopted - Recent accounting pronouncements pending adoption not discussed in this 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) Years Ended February 3, 2023 January 28, 2022 January 29, 2021 Products $ 93,392 $ 92,415 $ 86,046 Services 2,178 2,304 1,949 Other 1,489 1,531 1,602 Net sales $ 97,059 $ 96,250 $ 89,597 The balances and classification within the consolidated balance sheets for anticipated sales returns and the associated right of return assets are as follows: (In millions) Classification February 3, 2023 January 28, 2022 Anticipated sales returns Other current liabilities $ 234 $ 245 Right of return assets Other current assets 139 151 Deferred revenue - retail and stored-value cards Deferred revenue for retail and stored-value cards are as follows: (In millions) February 3, 2023 January 28, 2022 Retail deferred revenue $ 933 $ 1,285 Stored-value cards deferred revenue 670 629 Deferred revenue $ 1,603 $ 1,914 Deferred revenue - Lowe’s protection plans Deferred revenue associated with Lowe’s protection plans is as follows: (In millions) February 3, 2023 January 28, 2022 Deferred revenue - Lowe’s protection plans $ 1,201 $ 1,127 49 Table of Contents Lowe’s protection plan sales previously recorded as deferred revenue and claim expenses incurred are as follows: (In millions) Years Ended February 3, 2023 January 28, 2022 January 29, 2021 Lowe’s protection plan deferred revenue recognized into sales $ 527 $ 488 $ 430 Lowe’s protection plan claim expenses 180 178 158 Disaggregation of Revenues The following table presents the Company’s net sales disaggregated by merchandise division: Years Ended February 3, 2023 January 28, 2022 January 29, 2021 (In millions) Total Sales % Total Sales % Total Sales % Home Décor ¹ $ 36,221 37.3 % $ 35,712 37.1 % $ 33,152 37.0 % Building Products ² 31,048 32.0 29,621 30.8 26,541 29.6 Hardlines ³ 27,190 28.0 28,412 29.5 27,931 31.2 Other 2,600 2.7 2,505 2.6 1,973 2.2 Total $ 97,059 100.0 % $ 96,250 100.0 % $ 89,597 100.0 % Note: Merchandise division net sales for prior periods have been reclassified to conform to the current year presentation. 1 Home Décor includes the following product categories: Appliances, Décor, Flooring, Kitchens & Bath, and Paint. 2 Building Products includes the following product categories: Building Materials, Electrical, 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) Years Ended February 3, 2023 January 28, 2022 January 29, 2021 United States $ 92,010 $ 90,348 $ 84,303 Canada 1 5,049 5,902 5,294 Net Sales $ 97,059 $ 96,250 $ 89,597 1 The Canadian retail business was sold on February 3, 2023. NOTE 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 and financial liabilities measured at fair value on a recurring basis. 50 Table of Contents Fair Value Measurements at (In millions) Classification Measurement Level February 3, 2023 January 28, 2022 Available-for-sale debt securities: U.S. Treasury securities Short-term investments Level 1 $ 157 $ 75 Corporate debt securities Short-term investments Level 2 78 8 Commercial Paper Short-term investments Level 2 52 30 Money market funds Short-term investments Level 1 43 120 Certificates of deposit Short-term investments Level 1 40 14 Foreign government debt securities Short-term investments Level 2 14 14 Municipal obligations Short-term investments Level 2 — 10 U.S. Treasury securities Long-term investments Level 1 86 132 Corporate debt securities Long-term investments Level 2 12 50 Municipal obligations Long-term investments Level 2 2 3 Foreign government debt securities Long-term investments Level 2 — 14 Derivative instruments: Forward interest rate swaps Other current assets Level 2 $ 251 $ 66 Forward interest rate swaps Other assets Level 2 — 48 Fixed-to-floating interest rate swaps Other liabilities Level 2 88 21 Other financial instruments: Contingent consideration Long-term investments Level 3 $ 21 $ — 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, financial assets were classified within Level 1 of the fair value hierarchy. When quoted prices in active markets were not available, fair values for financial assets and liabilities classified within Level 2 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. The fair value for contingent consideration classified within Level 3 was determined based on an income approach using an option pricing model, calculated using the significant unobservable inputs such as total equity value, volatility, and expected term. The rollforward of the fair value of the performance-based contingent consideration associated with the sale of the Canadian retail business and classified as Level 3 for the fiscal year ended February 3, 2023, is as follows: Year Ended (In millions) February 3, 2023 Beginning balance $ — Recognition of contingent consideration at initial fair value 21 Ending balance $ 21 Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis For the fiscal year ended February 3, 2023, 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 as further described below. 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. When evaluating long-lived assets for impairment, the asset group is generally at an individual location level, as that is the lowest level for which cash flows are identifiable. Cash flows for individual locations do not include an allocation of corporate overhead. The Company evaluates long-lived assets for triggering events on a quarterly basis to determine when assets may not be recoverable. An impairment loss is recognized when the carrying amount of the asset (disposal) group is not recoverable and exceeds its fair value. The Company estimates the fair values of assets subject to long-lived asset impairment based on the Company’s own judgments about the assumptions that 51 Table of Contents market participants would use in pricing the assets and on observable market data, when available. The Company classifies these fair value measurements as Level 3. During the third quarter of fiscal 2022, the Company determined it was more likely than not that the assets within the Canadian retail business would be sold or otherwise disposed of significantly before the end of their previously estimated useful lives, and these assets were evaluated for recoverability. Based on the proposed transaction, the Company reconsidered the appropriate asset grouping of long-lived assets attributable to the Company’s Canadian locations given the change in the Company’s expectations regarding use and disposition of its associated assets. The Company determined the total Canadian retail business (Canada asset group) to be the appropriate asset group for which the long-lived assets should be evaluated, as this represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. The carrying value of the Canada asset group included substantially all assets and liabilities of the Canadian retail business, including accounts receivable, inventory, property, operating and finance lease right-of-use assets, definite-lived intangible assets, operating liabilities including accounts payable and accrued compensation, and operating and finance lease liabilities. A market approach of orderly transaction under current market conditions was used in determining the estimated fair value of the Canada asset group, which was based on the proposed transaction price, inclusive of performance-based contingent consideration. The estimated fair value of the Canada asset group was determined to be $ 421 million. As a result, the Company recorded $ 2.1 billion of long-lived asset impairment within SG&A expense in the consolidated statements of earnings, which reflected the full carrying value of the long-lived assets of the Canada asset group as of October 28, 2022. As of February 3, 2023, the Company finalized the sale of the Canadian retail business. Refer to Note 7 for details of the divestiture. The following table presents the Company’s impairment losses resulting from non-financial assets measured at estimated fair value on a nonrecurring basis included in earnings for the fiscal year ended February 3, 2023: (In millions) February 3, 2023 Canada asset group: Property, less accumulated depreciation $ 1,258 Operating lease right-of-use assets 621 Other assets 182 Other 36 Total $ 2,097 For the fiscal year ended January 28, 2022, the Company had no material measurements of assets and liabilities at fair value on a nonrecurring basis subsequent to their initial recognition. Other Fair Value Disclosures The Company’s financial assets and liabilities not measured at fair value on a recurring basis include cash and cash equivalents, accounts receivable, short-term borrowings, accounts payable, 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. As further described in Note 9 , certain long-term debt is associated with a fair value hedge, and the changes in fair value of the hedged debt is included in the carrying value of long-term debt on the consolidated balance sheets. 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 lease obligations, are as follows: February 3, 2023 January 28, 2022 (In millions) Carrying Amount Fair Value Carrying Amount Fair Value Unsecured notes (Level 1) $ 32,897 $ 30,190 $ 24,056 $ 25,425 Mortgage notes (Level 2) 2 2 5 5 Long-term debt (excluding finance lease obligations) $ 32,899 $ 30,192 $ 24,061 $ 25,430 52 Table of Contents NOTE 4: Property and Accumulated Depreciation Property is summarized by major class in the following table: (In millions) Estimated Depreciable Lives, In Years February 3, 2023 January 28, 2022 Cost: Land N/A $ 6,793 $ 7,278 Buildings and building improvements 5 - 40 17,784 18,433 Equipment 2 - 15 9,541 10,533 Construction in progress N/A 793 715 Total cost 34,911 36,959 Accumulated depreciation ( 17,344 ) ( 17,888 ) Property, less accumulated depreciation $ 17,567 $ 19,071 Included in property, less accumulated depreciation are right-of-use assets under finance leases. The related amortization expense for right-of-use assets under finance leases is included in depreciation and amortization expense. The Company recognized depreciation and amortization expense, inclusive of amounts presented in cost of sales, of $ 1.9 billion in 2022, $ 1.8 billion in 2021, and $ 1.5 billion in 2020. NOTE 5: Goodwill and Intangible Assets The carrying amount of goodwill as well as the gross carrying amount and accumulated amortization of intangible assets consist of the following: February 3, 2023 January 28, 2022 (In millions) Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Goodwill $ 311 $ — $ 311 $ — Definite-lived intangible assets: Customer-related 1 $ 238 $ ( 71 ) $ 344 $ ( 88 ) Trademarks and trade names 1 20 ( 18 ) 263 ( 131 ) Other 1 ( 1 ) 1 ( 1 ) Total definite-lived intangible assets $ 259 $ ( 90 ) $ 608 $ ( 220 ) Indefinite-lived intangible assets: Trademark $ 134 $ — $ 134 $ — Total intangible assets $ 393 $ ( 90 ) $ 742 $ ( 220 ) 1 Certain definite-lived intangible assets as of January 28, 2022, are denominated in a foreign currency and subject to translation. Amortization expense for intangible assets is as follows: Years Ended (In millions) February 3, 2023 January 28, 2022 January 29, 2021 Amortization expense $ 28 $ 32 $ 59 53 Table of Contents Amortization expense expected to be recognized in future periods for intangible assets is as follows: (In millions) Amortization Expense Fiscal 2023 $ 15 Fiscal 2024 13 Fiscal 2025 13 Fiscal 2026 12 Fiscal 2027 11 Thereafter 105 Total $ 169 NOTE 6: Leases The lease-related assets and liabilities recorded on the balance sheet are summarized in the following table: Leases (In millions) Classification February 3, 2023 January 28, 2022 Assets Operating lease assets Operating lease right-of-use assets $ 3,518 $ 4,108 Finance lease assets Property, less accumulated depreciation 1 462 548 Total lease assets 3,980 4,656 Liabilities Current Operating Current operating lease liabilities 522 636 Finance Current maturities of long-term debt 86 103 Noncurrent Operating Noncurrent operating lease liabilities 3,512 4,021 Finance Long-term debt, excluding current maturities 477 563 Total lease liabilities $ 4,597 $ 5,323 1 Finance lease assets are recorded net of accumulated amortization of $ 244 million as of February 3, 2023, and $ 206 million as of January 28, 2022. The table below presents the lease costs for finance and operating leases: Lease Cost (In millions) Years Ended February 3, 2023 January 28, 2022 January 29, 2021 Finance lease cost Amortization of leased assets $ 90 $ 89 $ 82 Interest on lease liabilities 29 30 32 Operating lease cost 1 734 699 659 Variable lease cost 329 268 244 Total lease cost $ 1,182 $ 1,086 $ 1,017 1 Includes short-term leases and sublease income, which are immaterial. The future minimum rental payments required under operating and finance lease obligations as of February 3, 2023, having initial or remaining non-cancelable lease terms in excess of one year are summarized as follows: 54 Table of Contents Maturity of lease liabilities (In millions) Operating Leases 1 Finance Leases 2 Total 2023 $ 665 $ 113 $ 778 2024 606 99 705 2025 635 95 730 2026 565 80 645 2027 488 49 537 After 2027 2,050 257 2,307 Total lease payments 5,009 693 5,702 Less: Interest 3 ( 975 ) ( 130 ) ( 1,105 ) Present value of lease liabilities $ 4,034 $ 563 $ 4,597 1 Operating lease payments include $ 261 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $ 602 million of minimum lease payments for leases signed but not yet commenced. 2 Finance lease payments exclude $ 20 million of minimum lease payments for leases signed but not yet commenced. 3 Calculated using the lease-specific incremental borrowing rate. Lease Term and Discount Rate February 3, 2023 January 28, 2022 Weighted-average remaining lease term (years) Operating leases 9.43 9.53 Finance leases 8.96 8.49 Weighted-average discount rate Operating leases 3.78 % 3.59 % Finance leases 4.92 % 4.91 % Other Information Years Ended (In millions) February 3, 2023 January 28, 2022 January 29, 2021 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows used for operating leases $ 788 $ 708 $ 643 Operating cash flows used for finance leases 29 30 32 Financing cash flows used for finance leases 90 92 104 Leased assets obtained in exchange for new finance lease liabilities 51 110 69 Leased assets obtained in exchange for new operating lease liabilities 1 729 815 465 1 Excludes $ 602 million of leases signed but not yet commenced as of February 3, 2023. NOTE 7: Divestiture of the Canadian Retail Business On February 3, 2023, the Company sold its Canadian retail business to Sycamore Partners for $ 491 million in cash, and performance-based contingent consideration with a fair value of $ 21 million, which is recognized as a financial asset in long-term investments on the consolidated balance sheet. The Canadian retail business operated or serviced the corporate and independent dealer-owned stores in a number of complementary formats under different banners, which include RONA, Lowe’s Canada, Réno-Dépôt, and Dick’s Lumber. The decision to sell the business was made as part of the Company’s strategy to simplify its business model and focus on the U.S. home improvement business. During the fiscal year ended February 3, 2023, the Company recorded $ 2.5 billion of pre-tax costs associated with the sale, inclusive of long-lived asset impairment, loss on sale, and transaction costs, which are all included within SG&A expense in the consolidated statements of earnings. The cumulative foreign currency translation adjustment previously included in accumulated other comprehensive income/(loss) was reclassified to earnings and is included in the loss on sale. A summary of the significant charges associated with the sale of the Canadian retail business is as follows: 55 Table of Contents Year Ended (In millions) February 3, 2023 Long-lived asset impairment $ 2,061 Loss on sale 421 Transaction costs 19 Total $ 2,501 NOTE 8: Debt Commercial Paper Program In January 2023, the Company amended its $ 2.0 billion five-year unsecured revolving third amended and restated credit agreement (the Third Amended and Restated Credit Agreement) with a syndicate of banks, which has a maturity date of December 2026 and an aggregate availability of $ 2.0 billion. Under the amendment, borrowings under the Third Amended and Restated Credit Agreement will bear interest calculated according to a Base Rate or a Term Secured Overnight Financing Rate (SOFR), plus an applicable margin. Also in January 2023, the Company amended the five-year unsecured revolving credit agreement dated March 23, 2020 (the 2020 Credit Agreement) with a syndicate of banks, which has a maturity date of December 2026 and an aggregate availability of $ 2.0 billion. Under the amendment, borrowings under the 2020 Credit Agreement will bear interest calculated according to a Base Rate or a Term SOFR, plus an applicable margin. Subject to obtaining commitments from the lenders and satisfying other conditions specified in the Third Amended and Restated Credit Agreement and the 2020 Credit Agreement (collectively, the Credit Agreements), the Company may increase the combined aggregate availability of both agreements by an additional $ 1.0 billion. The Credit Agreements contain customary representations, warranties, and covenants for transactions of these type. The Company was in compliance with those financial covenants at February 3, 2023. The Credit Agreements support the Company’s commercial paper program. The amounts available to be drawn under the Credit Agreements are reduced by the amount of borrowings under the commercial paper program. Outstanding borrowings under the Company’s commercial paper program were $ 499 million, with a weighted average interest rate of 4.78 %, as of February 3, 2023. There were no borrowings under the Third Amended and Restated Credit Agreement or the 2020 Credit Agreement as of February 3, 2023. There were no outstanding borrowings under the Company’s commercial paper program, the Third Amended and Restated Credit Agreement or the 2020 Credit Agreement as of January 28, 2022. Total combined availability under the Credit Agreements was $ 3.5 billion as of February 3, 2023. 56 Table of Contents Long-Term Debt Debt Category (In millions, except percentage data) Weighted-Average Interest Rate at February 3, 2023 February 3, 2023 January 28, 2022 Secured debt: Mortgage notes due through fiscal 2027 1 6.24 % $ 2 $ 5 Unsecured debt: Notes due through fiscal 2027 3.44 % 7,056 6,139 Notes due fiscal 2028-2032 3.09 % 9,511 8,013 Notes due fiscal 2033-2037 5.38 % 2,097 857 Notes due fiscal 2038-2042 3.97 % 2,130 2,129 Notes due fiscal 2043-2047 4.03 % 3,669 3,667 Notes due fiscal 2048-2052 3.83 % 4,736 3,251 Notes due fiscal 2053-2057 5.63 % 1,479 — Notes due fiscal 2058-2062 5.05 % 2,219 — Finance lease obligations due through fiscal 2042 562 666 Total long-term debt 33,461 24,727 Less: current maturities ( 585 ) ( 868 ) Long-term debt, excluding current maturities $ 32,876 $ 23,859 1 Real properties with an aggregate book value of $ 12 million as of February 3, 2023, were pledged as collateral for secured debt. Debt maturities, exclusive of unamortized original issue discounts, unamortized debt issuance costs, fair-value hedge adjustments, and finance lease obligations, for the next five fiscal years and thereafter are as follows: (In millions) Principal Fiscal 2023 $ 500 Fiscal 2024 450 Fiscal 2025 2,500 Fiscal 2026 1,350 Fiscal 2027 2,368 Thereafter 26,102 Total $ 33,270 The Company’s unsecured notes are issued under indentures that generally have similar terms and, therefore, have been grouped by maturity date for presentation purposes in the table above. The notes contain certain restrictive covenants, none of which are expected to impact the Company’s capital resources or liquidity. The Company was in compliance with all financial covenants of these agreements at February 3, 2023. 57 Table of Contents During 2022, the Company issued $ 9.8 billion of unsecured fixed rate notes (collectively, the 2022 Notes) as follows: Issue Date Principal Amount (in millions) Maturity Date Interest Rate Discount (in millions) March 2022 $ 750 April 2027 3.350 % $ 3 March 2022 $ 1,500 April 2032 3.750 % $ 7 March 2022 $ 1,500 April 2052 4.250 % $ 14 March 2022 $ 1,250 April 2062 4.450 % $ 12 September 2022 $ 1,000 September 2025 4.400 % $ 3 September 2022 $ 1,250 April 2033 5.000 % $ 9 September 2022 $ 1,500 April 2053 5.625 % $ 18 September 2022 $ 1,000 September 2062 5.800 % $ 16 Interest on the September 2022 Notes and March 2022 Notes with April maturity dates is payable semiannually in arrears in April and October of each year until maturity. Interest on the September 2022 Notes with September maturity dates is payable semiannually in arrears in March and September of each year until maturity. During 2021, the Company issued $ 4.0 billion of unsecured fixed rate notes (collectively, the 2021 Notes) as follows: Issue Date Principal Amount (in millions) Maturity Date Interest Rate Discount (in millions) March 2021 $ 1,500 April 2031 2.625 % $ 7 March 2021 $ 500 April 2051 3.500 % $ 5 September 2021 $ 1,000 September 2028 1.700 % $ 6 September 2021 $ 1,000 September 2041 2.800 % $ 10 Interest on the September 2021 Notes is payable semiannually in arrears in March and September of each year until maturity. Interest on the March 2021 Notes is payable semiannually in arrears in April and October of each year until maturity. The indentures governing the 2022 and 2021 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 interest, if any, up to the date of redemption. The indentures also contain 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 interest, if any, on such notes up to the date of purchase. The indentures governing the notes do not limit the aggregate principal amount of debt securities that the Company may issue and do not require the Company to maintain specified financial ratios or levels of net worth or liquidity. However, the indentures include various restrictive covenants, none of which is expected to impact the Company’s liquidity or capital resources. The discounts associated with these issuances, which include the underwriting and issuance discounts, are recorded in long-term debt and are being amortized over the respective terms of the notes using the effective interest method. During 2020, the Company completed cash tender offers to purchase and retire $ 3.0 billion combined aggregate principal amount of its outstanding notes with a weighted average interest rate of 4.80 %. As a result of the 2020 cash tender offers, 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 9 for additional information regarding the reverse treasury lock derivative contracts. 58 Table of Contents NOTE 9: Derivative Instruments Derivatives Designated as Hedging Instruments The notional amounts of the Company’s material derivative instruments are as follows: (In millions) February 3, 2023 January 28, 2022 Cash flow hedges: Forward interest rate swap agreement notional amounts $ 1,290 $ 2,560 Fair value hedges: Fixed-to-floating interest rate swap agreement notional amounts $ 850 $ 850 See Note 3 for the gross fair values of the Company’s outstanding derivative financial instruments and corresponding fair value classifications. In connection with the issuance of the March 2022 Notes, the Company settled forward interest rate swap contracts with a combined notional amount of $ 1.5 billion and received a payment of $ 143 million. In connection with the issuance of the September 2022 Notes, the Company settled forward interest rate swap contracts with a combined notional amount of $ 1.3 billion and received a payment of $ 136 million. The gain/(loss) from forward interest rate swap derivatives, both matured and outstanding, designated as cash flow hedges recorded in other comprehensive income and earnings for 2022, 2021, and 2020, including its line item in the financial statements, is as follows: Years Ended (In millions) February 3, 2023 January 28, 2022 January 29, 2021 Other comprehensive income: Cash flow hedges – net of tax (expense)/benefit of ($ 102 ) million, ($ 35 ) million, and $ 21 million, respectively $ 311 $ 103 $ ( 76 ) Net earnings: Interest – net $ 1 $ ( 11 ) $ ( 10 ) Other Derivatives Not Designated as Hedging Instruments To hedge the economic risk of changes in value of the 2020 cash tender offers prior to the pricing date, the Company entered into reverse treasury lock derivative contracts with a combined notional amount of $ 2.0 billion. Upon the pricing of the 2020 cash tender offers, the Company settled the reverse treasury lock derivative contracts and made a payment to its counterparty for $ 26 million, which is included in loss on extinguishment of debt in the consolidated statements of earnings for the year ended January 29, 2021. The cash flows related to these contracts are included within financing activities in the accompanying consolidated statements of cash flows. NOTE 10: Shareholders’ Deficit Authorized shares of preferred stock were 5.0 million ($ 5 par value) at February 3, 2023, and January 28, 2022, none of which have been issued. The Board of Directors may issue the preferred stock (without action by shareholders) in one or more series, having such voting rights, dividend and liquidation preferences, and such conversion and other rights as may be designated by the Board of Directors at the time of issuance. Authorized shares of common stock were 5.6 billion ($ 0.50 par value) at February 3, 2023, and January 28, 2022. The Company has a share repurchase program that is executed through purchases made from time to time either in the open market or through private off-market transactions. Shares purchased under the repurchase program are returned to authorized and unissued status. On December 7, 2022, the Company announced that its Board of Directors authorized $ 15.0 billion of share repurchases under the program, in addition to the $ 13.0 billion of share repurchases authorized by the Board of Directors in December 2021, with no expiration. As of February 3, 2023, the Company had $ 20.7 billion remaining under the program. During the year ended February 3, 2023, the Company entered into Accelerated Share Repurchase (ASR) agreements with third-party financial institutions to repurchase a total of 27.2 million shares of the Company’s common stock for $ 5.3 billion. At inception, the Company paid the financial institutions using cash on hand and took initial delivery of shares. Under the 59 Table of Contents terms of the ASR agreements, upon settlement, the Company would either receive additional shares from the financial institution or be required to deliver additional shares or cash to the financial institution. The Company controlled its election to either deliver additional shares or cash to the financial institution and was 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 ASR agreement was determined with reference to the volume-weighted average price of the Company’s common stock over the term of the ASR agreement. The initial repurchase of shares under these 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. These ASR agreements were accounted for as treasury stock transactions and forward stock purchase contracts. 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 accumulated deficit. The forward stock purchase contracts were considered indexed to the Company’s own stock and were classified as equity instruments. The terms of each ASR agreement entered into during the last three fiscal years, structured as outlined above, are as follows (in millions): Agreement Execution Date ASR Settlement Date ASR Agreement Amount Minimum Notional Amount 1 Maximum Notional Amount 1 Cash Payment Received at Settlement 1 Initial Shares Delivered Additional Shares Delivered at Settlement Total Shares Delivered Q1 2020 Q1 2020 500 — — — 3.9 1.6 5.5 Q4 2020 Q4 2020 3,000 — — — 17.1 1.6 18.7 Q1 2021 Q1 2021 2,000 — — — 10.7 0.2 10.9 Q2 2021 Q2 2021 2,132 1,750 2,500 368 7.2 4.0 11.2 Q3 2021 Q3 2021 1,592 1,500 2,000 408 5.9 1.7 7.6 Q4 2021 Q4 2021 3,000 — — — 10.3 1.6 11.9 Q1 2022 Q1 2022 750 — — — 2.8 0.6 3.4 Q2 2022 Q2 2022 1,750 — — — 7.5 2.1 9.6 Q3 2022 Q3 2022 2,250 — — — 8.3 3.3 11.6 Q4 2022 Q4 2022 530 — — — 2.0 0.6 2.6 1 The Company entered into variable notional ASR agreements with third-party financial institutions to repurchase between a minimum notional amount and a maximum notional amount. At inception of each transaction, the Company paid the maximum notional amount and received shares. When the Company finalized each transaction, it received additional shares as well as a cash payment from the third-party financial institution equal to the difference between the prepayment amount (maximum notional amount) and the final notional amount. During the year ended February 3, 2023, the Company also repurchased shares of its common stock through the open market totaling 43.4 million shares for a cost of $ 8.7 billion. 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 restricted stock awards and performance share units. Total shares repurchased for 2022, 2021, and 2020 were as follows: Years Ended February 3, 2023 January 28, 2022 January 29, 2021 (In millions) Shares Cost Shares Cost Shares Cost Share repurchase program 1 70.6 $ 14,004 62.6 $ 12,990 34.2 $ 4,940 Shares withheld from employees 0.6 124 0.4 84 0.1 11 Total share repurchases 71.2 $ 14,128 63.0 $ 13,074 34.3 $ 4,951 1 As of January 1, 2023, share repurchases in excess of issuances are subject to a 1 % excise tax, which is included as part of the cost basis of the shares acquired. 60 Table of Contents NOTE 11: Share-Based Payments Overview of Share-Based Payment Plans The Company has an active equity incentive plan (the Incentive Plan) under which the Company has been authorized to grant share-based awards to key employees and non-employee directors. The Company also has an employee stock purchase plan (the ESPP) that allows employees to purchase Company shares at a discount through payroll deductions. Both of these plans contain a non-discretionary anti-dilution provision that is designed to equalize the value of an award as a result of any stock dividend, stock split, recapitalization, or any other similar equity restructuring. A total of 80.0 million shares were authorized for grants of share-based awards to key employees and non-employee directors under the Company’s currently active Incentive Plan, of which there were 26.0 million shares remaining available for grants as of February 3, 2023. On May 29, 2020, shareholders approved the Lowe’s Companies, Inc. 2020 Employee Stock Purchase Plan (the 2020 ESPP), which permits a maximum number of shares offered under the new plan of 20.0 million shares. The first offering date under the 2020 ESPP began December 1, 2020, following the expiration of the Lowe’s Companies Employee Stock Purchase Plan – Stock Options for Everyone (the Former ESPP). From its adoption to expiration on November 30, 2020, there were 50.5 million of the 70.0 million authorized shares issued under the Former ESPP. The first offering period under the 2020 ESPP ended May 31, 2021, with the automatic exercise of options occurring the same day. As of February 3, 2023, there were 18.8 million s hares remaining available for purchases. The Company recognized share-based payment expense within SG&A expense in the consolidated statements of earnings of $ 224 million, $ 230 million, and $ 155 million in 2022, 2021, and 2020, respectively. The total associated income tax benefit recognized, exclusive of excess tax benefits, was $ 36 million, $ 40 million, and $ 29 million in 2022, 2021, and 2020, respectively. Total unrecognized share-based payment expense for all share-based payment plans was $ 273 million at February 3, 2023, of which $ 160 million will be recognized in 2023, $ 96 million in 2024, and $ 17 million thereafter. This results in these amounts being recognized over a weighted-average period of 1.5 years. For all share-based payment awards, the expense recognized has been adjusted for estimated forfeitures where the requisite service is not expected to be met. Estimated forfeiture rates are developed based on the Company’s analysis of historical forfeiture data for homogeneous employee groups. General terms and methods of valuation for the Company’s share-based awards are as follows: Stock Options Stock options have terms of 10 years, with one-third of each grant vesting each year for three years , subsequent to the date of the grant, and are assigned an exercise price equal to the closing market price of a share of the Company’s common stock on the date of grant. Options are expensed on a straight-line basis over the grant vesting period, which is considered to be the requisite service period. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. When determining expected volatility, the Company considers the historical volatility of the Company’s stock price, as well as implied volatility. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant, based on the options’ expected term. The expected term of the options is based on the Company’s evaluation of option holders’ exercise patterns and represents the period of time that options are expected to remain unexercised. The Company uses historical data to estimate the timing and amount of forfeitures. The weighted average assumptions used in the Black-Scholes option-pricing 61 Table of Contents model and weighted-average grant date fair value for options granted in 2022, 2021, and 2020 are as follows: Years Ended February 3, 2023 January 28, 2022 January 29, 2021 Weighted-average assumptions used: Expected volatility 30.7 % 30.2 % 28.8 % Dividend yield 1.66 % 1.73 % 1.78 % Risk-free interest rate 2.56 % 1.25 % 0.47 % Expected term, in years 6.51 6.49 6.50 Weighted-average grant date fair value $ 58.66 $ 49.47 $ 18.82 The total intrinsic value of options exercised, representing the difference between the exercise price and the market price on the date of exercise, was approximately $ 41 million, $ 46 million, and $ 60 million in 2022, 2021, and 2020, respectively. Transactions related to stock options for the fiscal year ended February 3, 2023, are summarized as follows: Shares (In thousands) Weighted-Average Exercise Price Per Share Weighted-Average Remaining Term (In years) Aggregate Intrinsic Value (In thousands) Outstanding at January 28, 2022 2,011 $ 106.43 Granted 328 201.12 Canceled, forfeited or expired ( 109 ) 152.77 Exercised ( 385 ) 95.09 Outstanding at February 3, 2023 1,845 $ 122.90 6.89 $ 171,738 Vested and expected to vest at February 3, 2023 1 1,807 $ 121.32 6.84 $ 171,004 Exercisable at February 3, 2023 1,184 $ 100.53 6.09 $ 136,701 1 Includes outstanding vested options as well as outstanding nonvested options after a forfeiture rate is applied. Restricted Stock Awards Restricted stock awards are valued at the market price of a share of the Company’s common stock on the date of grant. In general, these awards vest ratably over a three-year period from the date of grant. Certain awards vest 50 % at the end of a two-year period from the date of grant and 50 % at the end of a three-year period from the date of grant, or vest 100 % at the end of a three-year period from the date of grant. All awards are expensed on a straight-line basis over a three-year period, which is considered to be the requisite service period. The Company uses historical data to estimate the timing and amount of forfeitures. The weighted-average grant-date fair value per share of restricted stock awards granted was $ 201.10 , $ 192.26 , and $ 83.83 in 2022, 2021, and 2020, respectively. The total fair value of restricted stock awards vesting each year was approximately $ 203 million, $ 200 million, and $ 31 million in 2022, 2021, and 2020, respectively. Transactions related to restricted stock awards for the fiscal year ended February 3, 2023, are summarized as follows: Shares (In thousands) Weighted-Average Grant-Date Fair Value Per Share Nonvested at January 28, 2022 2,307 $ 117.04 Granted 726 201.10 Vested ( 1,007 ) 95.70 Canceled or forfeited ( 234 ) 154.37 Nonvested at February 3, 2023 1,792 $ 158.20 62 Table of Contents Deferred Stock Units Deferred stock units are valued at the market price of a share of the Company’s common stock on the date of grant and earn dividend equivalents. For non-employee Directors, these awards vest on the earlier of the first anniversary of the grant date and the day immediately preceding the next Annual Meeting of Shareholders, subject to acceleration in certain circumstances, and are expensed on a straight-line basis over the requisite service period. Awards granted prior to 2022 vested immediately and were expensed on the grant date. During 2022, 2021, and 2020, each non-employee Director was awarded a number of deferred stock units determined by dividing the annual award amount, or a pro-rata allocation of this amount if appointed to the board after the annual grant date, by the fair market value of a share of the Company’s common stock on the award date and rounding up to the next 100 units. The annual award amount used to determine the number of deferred stock units granted to each Director was $ 200,000 for 2022, and $ 175,000 for 2021 and 2020. During 2022, 11,800 deferred stock units were granted for non-employee Directors. The weighted-average grant-date fair value per share of deferred stock units granted was $ 200.27 , $ 194.83 , and $ 130.35 in 2022, 2021, and 2020, respectively. There were no deferred stock units vested in 2022. The total fair value of deferred stock units vested was $ 2 million in 2021 and 2020. At February 3, 2023, there were 118,600 deferred stock units outstanding, which are either fully vested or will be vested within one year. Performance Share Units The Company issues performance share units classified as equity awards. Expense is recognized on a straight-line basis over the requisite service period, based on the probability of achieving the performance condition, with changes in expectations recognized as an adjustment to earnings in the period of the change. Compensation cost is not recognized for performance share units that do not vest because service or performance conditions are not satisfied, and any previously recognized compensation cost is reversed. Performance share units do not have dividend rights. The Company uses historical data to estimate the timing and amount of forfeitures. The Company’s performance share units are classified as equity and contain performance and service conditions that must be satisfied for an employee to earn the right to benefit from the award. The performance share units contain a market condition modifier, in addition to having a performance and service condition. The performance condition for these awards continues to be based primarily on the achievement of the Company’s return on invested capital (ROIC) targets. The market condition is based on the Company’s total shareholder return (TSR) compared to the median TSR of companies listed in the S&P 500 Index over a three-year performance period. The Company uses a Monte-Carlo simulation to determine the grant date fair value for these awards, which takes into consideration the market price of a share of the Company’s common stock on the date of grant less the present value of dividends expected during the requisite service period, as well as the possible outcomes pertaining to the TSR market condition. The weighted-average assumptions used in the Monte Carlo simulations for these awards granted in 2022, 2021, and 2020 are as follows: Years Ended February 3, 2023 January 28, 2022 January 29, 2021 Weighted-average assumptions used: Expected volatility 37.1 % 37.5 % 38.5 % Dividend yield 1.58 % 1.77 % 1.89 % Risk-free interest rate 2.54 % 0.35 % 0.13 % Expected term, in years 2.84 2.84 2.42 In general, 0 % to 200 % of the Company’s performance share units vest at the end of a three-year service period from the date of grant based upon achievement of the performance condition, or a combination of the performance and market conditions, specified in the performance share unit agreement. The weighted-average grant-date fair value per unit of performance share units classified as equity awards granted was $ 200.06 , $ 208.74 , and $ 203.85 in 2022, 2021, and 2020, respectively. The total fair value of performance share units vesting was approximately $ 74 million in 2022. There were no performance share units vesting in 2021 or 2020. 63 Table of Contents Transactions related to performance share units classified as equity awards for the fiscal year ended February 3, 2023 are summarized as follows: Units (In thousands) 1 Weighted-Average Grant-Date Fair Value Per Unit Nonvested at January 28, 2022 646 $ 180.13 Granted 188 200.06 Vested ( 183 ) 115.90 Canceled or forfeited ( 94 ) 203.88 Nonvested at February 3, 2023 557 $ 203.93 ¹ The number of units presented is based on achieving the targeted performance goals as defined in the performance share unit agreements. As of February 3, 2023, the maximum number of nonvested units that could vest under the provisions of the agreements was 1.1 million. Restricted Stock Units Restricted stock units do not have dividend rights and are valued at the market price of a share of the Company’s common stock on the date of grant less the present value of dividends expected during the requisite service period. In general, these awards vest ratably over a three-year period from the date of grant. Certain awards vest 50 % at the end of a two-year period from the date of grant and 50 % at the end of a three-year period from the date of grant, or vest 100 % at the end of a three-year period from the date of grant. All awards are expensed on a straight-line basis over that period, which is considered to be the requisite service period. The Company uses historical data to estimate the timing and amount of forfeitures. The weighted-average grant-date fair value per share of restricted stock units granted was $ 192.46 , $ 184.40 , and $ 75.59 in 2022, 2021, and 2020, respectively. The total fair value of restricted stock units vesting was approximately $ 73 million, $ 47 million, and $ 5 million in 2022, 2021, and 2020, respectively. Transactions related to restricted stock units for the fiscal year ended February 3, 2023, are summarized as follows: Shares (In thousands) Weighted-Average Grant-Date Fair Value Per Share Nonvested at January 28, 2022 894 $ 113.51 Granted 324 192.46 Vested ( 362 ) 86.19 Canceled or forfeited ( 263 ) 152.07 Nonvested at February 3, 2023 593 $ 156.24 ESPP The purchase price of the shares under both the 2020 ESPP and the Former ESPP equals 85 % of the closing price on the date of purchase. The Company’s share-based payment expense per share is equal to 15 % of the closing price on the date of purchase. The ESPP is considered a liability award and is measured at fair value at each reporting date, and the share-based payment expense is recognized over the six-month offering period. Under the 2020 ESPP, the Company issued 0.7 million and 0.6 million shares of common stock in 2022 and 2021, respectively, and recognized $ 20 million of share-based payment expense in 2022 and 2021. Under the Former ESPP, the Company issued 0.7 million shares of common stock and recognized $ 16 million of share-based payment expense in 2020. NOTE 12: Employee Retirement Plans The Company maintains a defined contribution retirement plan for eligible employees (the 401(k) Plan). Eligible employees may participate in the 401(k) Plan the first of the month after thirty days of employment. The Company makes contributions to the 401(k) Plan each payroll period, based upon a matching formula applied to employee deferrals (the Company Match). Participants are eligible to receive the Company Match pursuant to the terms of the 401(k) Plan. The Company Match varies based on how much the employee elects to defer up to a maximum of 4.25 % of eligible compensation. The Company Match is invested identically to employee contributions and is immediately vested. 64 Table of Contents The Company maintains a Benefit Restoration Plan to supplement benefits provided under the 401(k) Plan to participants whose benefits are restricted as a result of certain provisions of the Internal Revenue Code of 1986. This plan provides for employee salary deferrals and employer contributions in the form of a Company Match. The Company maintains a non-qualified deferred compensation program called the Lowe’s Cash Deferral Plan. This plan is designed to permit certain employees to defer receipt of portions of their compensation, thereby delaying taxation on the deferral amount and on subsequent earnings until the balance is distributed. This plan does not provide for Company contributions. The Company recognized expense associated with these employee retirement plans of $ 174 million, $ 177 million, and $ 175 million in 2022, 2021, and 2020, respectively. NOTE 13: Income Taxes The following is a reconciliation of the federal statutory tax rate to the effective tax rate: Years Ended February 3, 2023 January 28, 2022 January 29, 2021 Statutory federal income tax rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal tax benefit 4.8 4.0 4.0 Loss on divestiture of Canadian retail business ( 4.1 ) — — Expiration of capital loss carryforward 2.5 — — Valuation allowance 5.5 — — Other, net ( 0.9 ) ( 0.3 ) ( 0.4 ) Effective tax rate 28.8 % 24.7 % 24.6 % The components of the income tax provision/(benefit) are as follows: Years Ended (In millions) February 3, 2023 January 28, 2022 January 29, 2021 Current: Federal $ 2,226 $ 2,069 $ 1,578 State 561 557 425 Total current 1 2,787 2,626 2,003 Deferred: Federal ( 179 ) 129 ( 73 ) State ( 9 ) 11 ( 26 ) Total deferred 1 ( 188 ) 140 ( 99 ) Total income tax provision $ 2,599 $ 2,766 $ 1,904 1 Amounts applicable to foreign income taxes were insignificant for all periods presented. 65 Table of Contents The tax effects of cumulative temporary differences that gave rise to the deferred tax assets and liabilities were as follows: (In millions) February 3, 2023 January 28, 2022 Deferred tax assets: Self-insurance $ 267 $ 287 Share-based payment expense 64 53 Operating lease liabilities 1,126 1,386 Capital loss carryforwards 722 225 Net operating losses 409 251 Other, net 363 242 Total deferred tax assets 2,951 2,444 Valuation allowance ( 1,136 ) ( 590 ) Net deferred tax assets 1,815 1,854 Deferred tax liabilities: Operating lease right-of-use assets ( 974 ) ( 1,378 ) Property ( 438 ) ( 267 ) Other, net ( 153 ) ( 45 ) Total deferred tax liabilities ( 1,565 ) ( 1,690 ) Net deferred tax assets $ 250 $ 164 As of February 3, 2023, and January 28, 2022, the Company had Canadian net operating loss carryforwards of $ 1.6 billion and $ 939 million, respectively. The increase in net operating loss carryforwards results primarily from the sale of the Canadian retail business. The net operating losses expire in 2024 through 2042. As a result of the sale of the Canadian retail business, the Company generated a capital loss carryforward of $ 2.5 billion for Canadian tax purposes which does not expire. During 2022, a U.S. capital loss carryforward of $ 895 million expired unused, resulting in the elimination of the $ 225 million deferred tax asset and a reduction in the valuation allowance in the same amount. A valuation allowance of $ 1.1 billion and $ 590 million was recorded as of February 3, 2023, and January 28, 2022, respectively. The increase in the valuation allowance is primarily due to uncertainty regarding the realization of net operating and capital losses resulting from the sale of the Canadian retail business, partially offset by the reversal of the valuation allowance related to the expiration of the U.S. capital loss. A reconciliation of the beginning and ending balances of unrecognized tax benefits is as follows: Years Ended (In millions) February 3, 2023 January 28, 2022 January 29, 2021 Unrecognized tax benefits, beginning of year $ 38 $ 2 $ 4 Additions for tax positions of prior years — 38 — Settlements ( 1 ) ( 2 ) ( 2 ) Unrecognized tax benefits, end of year $ 37 $ 38 $ 2 The unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate were $ 37 million and $ 38 million as of February 3, 2023, and January 28, 2022, respectively. The net interest expense recognized by the Company related to uncertain tax positions was $ 3 million for 2022, $ 12 million for 2021, and insignificant for 2020. The Company had $ 14 million and $ 11 million of accrued interest related to uncertain tax positions as of February 3, 2023, and January 28, 2022, respectively. No penalties were recognized related to uncertain tax positions for 2022 and $ 4 million was recognized for 2021. An insignificant amount was recognized for tax year 2020. The Company had $ 4 million of accrued penalties related to uncertain tax positions as of February 3, 2023, and January 28, 2022. 66 Table of Contents The Company is subject to examination by various foreign and domestic taxing authorities. There are ongoing U.S. state audits covering tax years 2015 to 2021. Audits performed by the Canada Revenue Agency for fiscal years 2017 and 2018 and the Mexican Tax Administration Service for 2018 are on-going. The Company remains subject to income tax examinations for fiscal years 2015 through 2021. The Company believes appropriate provisions for all outstanding issues have been made for all jurisdictions and all open years. Note 14: 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 2022, 2021, and 2020: Years Ended (In millions, except per share data) February 3, 2023 January 28, 2022 January 29, 2021 Basic earnings per common share: Net earnings attributable to Lowe's Companies, Inc. $ 6,437 $ 8,442 $ 5,835 Less: Net earnings allocable to participating securities ( 21 ) ( 33 ) ( 24 ) Net earnings allocable to common shares, basic $ 6,416 $ 8,409 $ 5,811 Weighted-average common shares outstanding 629 696 748 Basic earnings per common share $ 10.20 $ 12.07 $ 7.77 Diluted earnings per common share: Net earnings attributable to Lowe's Companies, Inc. $ 6,437 $ 8,442 $ 5,835 Less: Net earnings allocable to participating securities ( 21 ) ( 33 ) ( 24 ) Net earnings allocable to common shares, diluted $ 6,416 $ 8,409 $ 5,811 Weighted-average common shares outstanding 629 696 748 Dilutive effect of non-participating share-based awards 2 3 2 Weighted-average common shares, as adjusted 631 699 750 Diluted earnings per common share $ 10.17 $ 12.04 $ 7.75 Anti-dilutive securities excluded from diluted weighted-average common shares 0.5 0.3 0.3 NOTE 15: Commitments and Contingencies The Company is, from time to time, party to various legal proceedings considered to be in the normal course of business, none of which, individually or in the aggregate, are expected to be material to the Company’s financial statements. In evaluating liabilities associated with its various legal proceedings, the Company has accrued for probable liabilities associated with these matters. The amounts accrued were not material to the Company’s consolidated financial statements in any of the years presented. Reasonably possible losses for any of the individual legal proceedings which have not been accrued were not material to the Company’s consolidated financial statements. As of February 3, 2023, the Company had non-cancellable commitments of $ 2.3 billion related to certain marketing and information technology programs, and purchases of merchandise inventory. These commitments include agreements to purchase goods or services that are enforceable, are legally binding, and specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Payments under these commitments are scheduled to be made as follows: 2023, $ 952 million; 2024, $ 548 million; 2025, $ 331 million; 2026, $ 259 million; 2027, $ 243 million; and thereafter, $ 7 million. 67 Table of Contents At February 3, 2023, the Company held standby and documentary letters of credit issued under banking arrangements which totaled $ 462 million. The majority of the Company’s letters of credit were issued to support the Company’s warranty program. NOTE 16: Related Parties The Company’s President and Chief Executive Officer also serves on the Board of Directors of a vendor that provides transportation and business services to the Company. The Company purchased services from this vendor in the amount of $ 228 million in 2022, $ 269 million in 2021, and $ 138 million in 2020. Amounts payable to this vendor were insignificant to the Company at February 3, 2023, and January 28, 2022. A former member of the Company’s Board of Directors also serves on the Board of Directors of a vendor that provides branded consumer packaged goods to the Company. The Company purchased products from this vendor in the amount of $ 203 million in 2021 and $ 214 million in 2020. This was no longer considered a related party relationship as of January 28, 2022. NOTE 17: Other Information Interest – net is comprised of the following: Years Ended (In millions) February 3, 2023 January 28, 2022 January 29, 2021 Long-term debt $ 1,108 $ 827 $ 807 Lease obligations 29 30 32 Short-term borrowings 5 5 13 Interest income ( 37 ) ( 12 ) ( 24 ) Interest capitalized ( 4 ) ( 3 ) — Interest on tax uncertainties 3 12 — Other 19 26 20 Interest – net $ 1,123 $ 885 $ 848 Supplemental disclosures of cash flow information: Years Ended (In millions) February 3, 2023 January 28, 2022 January 29, 2021 Cash paid for interest, net of amount capitalized $ 976 $ 837 $ 824 Cash paid for income taxes, net $ 1,720 $ 2,735 $ 1,588 Non-cash investing and financing activities: 1 Cash dividends declared but not paid $ 633 $ 537 $ 440 1 See Note 6 for supplemental cash flow disclosures related to finance and operating leases. 68 Table of Contents Sales by product category: Years Ended February 3, 2023 January 28, 2022 January 29, 2021 (In millions, except percentage data) Total Sales % Total Sales % Total Sales % Appliances $ 13,508 13.9 % $ 13,424 13.9 % $ 12,091 13.5 % Lumber 9,499 9.8 9,727 10.1 8,308 9.3 Seasonal & Outdoor Living 8,860 9.1 9,551 9.9 8,852 9.9 Lawn & Garden 8,639 8.9 9,037 9.4 8,890 9.9 Kitchens & Bath 7,010 7.2 6,782 7.0 5,997 6.7 Millwork 5,759 5.9 5,329 5.5 4,925 5.5 Paint 5,425 5.6 5,114 5.3 5,473 6.1 Rough Plumbing 5,376 5.5 4,774 5.0 4,348 4.9 Electrical 5,334 5.5 5,275 5.5 4,709 5.3 Décor 5,235 5.4 5,437 5.6 5,214 5.8 Tools 5,168 5.3 5,389 5.6 5,460 6.1 Building Materials 5,080 5.2 4,515 4.7 4,252 4.7 Flooring 5,044 5.2 4,956 5.1 4,377 4.9 Hardware 4,522 4.7 4,434 4.6 4,729 5.3 Other 2,600 2.8 2,506 2.8 1,972 2.1 Net sales $ 97,059 100.0 % $ 96,250 100.0 % $ 89,597 100.0 % Note: Product category sales for prior periods have been reclassified to conform to the current year presentation. Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.