Item 8. Financial Statements and Supplementary Data

161K characters. Original on sec.gov · Markdown

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			40
Consolidated Statements of Cash Flows			41
Notes to Consolidated Financial Statements			42
Note 1: Summary of Significant Accounting Policies			42
Note 2: Revenue			48
Note 3: Fair Value Measurements			49
Note 4: Property and Accumulated Depreciation			51
Note 5: Leases			53
Note 6: Divestiture of the Canadian Retail Business			53
Note 7: Debt			54

Note 8: Derivative Instruments			55
Note 9: Shareholders’ Deficit			56
Note 10: Share-Based Payments			57
Note 11: Employee Retirement Plans			61
Note 12: Income Taxes			61
Note 13: Earnings Per Share			63
Note 14: Commitments and Contingencies			63
Note 15: Related Parties			64
Note 16: Other Information			64
Note 17: S egment Information			65


33

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 January 31, 2025. 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 January 31, 2025, 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 37.


						34

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors 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 January 31, 2025 and February 2, 2024, the related consolidated statements of earnings, comprehensive income, shareholders’ deficit, and cash flows, for each of the three years in the period ended January 31, 2025, and the related notes (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 January 31, 2025 and February 2, 2024, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2025, 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 January 31, 2025, 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 24, 2025, 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 Matters

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 vendors in the normal course of business, principally as a result of purchase volumes, early payments, or sales-based 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. 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.


35

We identified the completeness and accuracy of vendor funds as a critical audit matter given the significance of vendor funds to the financial statements and volume of the individual vendor agreements. This required an increased extent of effort when performing audit procedures to evaluate whether the vendor funds were completely and accurately recorded in accordance with the vendor agreements.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to whether the vendor funds were completely and accurately recorded in accordance with the terms of the vendor agreements included the following, among others:

We tested the design and operating effectiveness of controls over vendor funds, including management’s controls over the identification of vendor agreements as well as 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.
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 when 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 sent confirmations to test the completeness of programs as well as the accuracy of amounts earned and terms of the agreement directly with the vendor.

/s/ Deloitte & Touche LLP

Charlotte, North Carolina

March 24, 2025

We have served as the Company's auditor since 1962.


						36

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors 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 January 31, 2025, 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 January 31, 2025, 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 as of and for the fiscal year ended January 31, 2025, of the Company and our report dated March 24, 2025, 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 24, 2025


37

Lowe’s Companies, Inc.

Consolidated Statements of Earnings

(In millions, except per share and percentage data)


	Fiscal Years Ended
	January 31, 2025				February 2, 2024				February 3, 2023
Current Earnings	Amount		% Sales		Amount		% Sales		Amount		% Sales
Net sales	$	83,674	100.00	%	$	86,377	100.00	%	$	97,059	100.00	%
Cost of sales	55,797		66.68		57,533		66.61		64,802		66.77
Gross margin	27,877		33.32		28,844		33.39		32,257		33.23
Expenses:
Selling, general and administrative	15,682		18.74		15,570		18.02		20,332		20.94
Depreciation and amortization	1,729		2.07		1,717		1.99		1,766		1.82
Operating income	10,466		12.51		11,557		13.38		10,159		10.47
Interest – net	1,313		1.57		1,382		1.60		1,123		1.16

Pre-tax earnings	9,153		10.94		10,175		11.78		9,036		9.31
Income tax provision	2,196		2.63		2,449		2.83		2,599		2.68
Net earnings	$	6,957	8.31	%	$	7,726	8.95	%	$	6,437	6.63	%

Basic earnings per common share	$	12.25			$	13.23			$	10.20
Diluted earnings per common share	$	12.23			$	13.20			$	10.17

Lowe’s Companies, Inc.

Consolidated Statements of Comprehensive Income

(In millions, except percentage data)


	Fiscal Years Ended
	January 31, 2025				February 2, 2024				February 3, 2023
	Amount		% Sales		Amount		% Sales		Amount		% Sales
Net earnings	$	6,957	8.31	%	$	7,726	8.95	%	$	6,437	6.63	%
Foreign currency translation adjustments – net of tax	—		—		5		0.01		36		0.04
Cash flow hedges – net of tax	(13)		(0.02)		(14)		(0.02)		309		0.32
Other	1		0.01		2		—		(2)		—
Other comprehensive (loss)/income	(12)		(0.01)		(7)		(0.01)		343		0.36
Comprehensive income	$	6,945	8.30	%	$	7,719	8.94	%	$	6,780	6.99	%

See accompanying notes to consolidated financial statements.


						38

Lowe’s Companies, Inc.

Consolidated Balance Sheets

(In millions, except par value)


	January 31, 2025		February 2, 2024

Assets
Current assets:
Cash and cash equivalents	$	1,761	$	921
Short-term investments	372		307
Merchandise inventory – net	17,409		16,894
Other current assets	816		949
Total current assets	20,358		19,071
Property, less accumulated depreciation	17,649		17,653
Operating lease right-of-use assets	3,738		3,733
Long-term investments	277		252
Deferred income taxes – net	244		248
Other assets	836		838

Total assets	$	43,102	$	41,795

Liabilities and shareholders’ deficit
Current liabilities:

Current maturities of long-term debt	2,586		537
Current operating lease liabilities	563		487
Accounts payable	9,290		8,704
Accrued compensation and employee benefits	1,008		954
Deferred revenue	1,358		1,408

Other current liabilities	3,952		3,478
Total current liabilities	18,757		15,568
Long-term debt, excluding current maturities	32,901		35,384
Noncurrent operating lease liabilities	3,628		3,737
Deferred revenue – Lowe’s protection plans	1,268		1,225
Other liabilities	779		931
Total liabilities	57,333		56,845

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 – 560 million and 574 million, respectively	280		287

Accumulated deficit	(14,799)		(15,637)
Accumulated other comprehensive income	288		300
Total shareholders’ deficit	(14,231)		(15,050)
Total liabilities and shareholders’ deficit	$	43,102	$	41,795

See accompanying notes to consolidated financial statements.


39

Lowe’s Companies, Inc.

Consolidated Statements of Shareholders’ Deficit

(In millions, except per share data)


	Common Stock			Capital in Excess of Par Value		Accumulated Deficit		Accumulated Other Comprehensive (Loss)/Income		Total
	Shares	Amount
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)

Net earnings	—	—		—		7,726		—		7,726
Other comprehensive income	—	—		—		—		(7)		(7)
Cash dividends declared, $4.35 per share	—	—		—		(2,531)		—		(2,531)
Share-based payment expense	—	—		209		—		—		209
Repurchases of common stock	(30)	(15)		(349)		(5,970)		—		(6,334)
Issuance of common stock under share-based payment plans	3	1		140		—		—		141
Balance February 2, 2024	574	$	287	$	—	$	(15,637)	$	300	$	(15,050)

Net earnings	—	—		—		6,957		—		6,957
Other comprehensive loss	—	—		—		—		(12)		(12)
Cash dividends declared, $4.55 per share	—	—		—		(2,578)		—		(2,578)
Share-based payment expense	—	—		222		—		—		222
Repurchases of common stock	(16)	(8)		(380)		(3,541)		—		(3,929)
Issuance of common stock under share-based payment plans	2	1		158		—		—		159
Balance January 31, 2025	560	$	280	$	—	$	(14,799)	$	288	$	(14,231)

See accompanying notes to consolidated financial statements.


						40

Lowe’s Companies, Inc.

Consolidated Statements of Cash Flows

(In millions)


	Fiscal Years Ended
	January 31, 2025		February 2, 2024		February 3, 2023
Cash flows from operating activities:
Net earnings	$	6,957	$	7,726	$	6,437
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	1,972		1,923		1,981
Noncash lease expense	520		499		530
Deferred income taxes	9		6		(239)
Asset impairment and loss on property - net	5		83		2,118

(Gain)/loss on sale of business	(177)		(79)		421

Share-based payment expense	221		210		223
Changes in operating assets and liabilities:
Merchandise inventory – net	(514)		1,637		(2,594)
Other operating assets	93		182		56
Accounts payable	633		(1,820)		(549)
Other operating liabilities	(94)		(2,227)		205
Net cash provided by operating activities	9,625		8,140		8,589

Cash flows from investing activities:
Purchases of investments	(1,286)		(1,785)		(1,189)
Proceeds from sale/maturity of investments	1,204		1,722		1,174
Capital expenditures	(1,927)		(1,964)		(1,829)
Proceeds from sale of property and other long-term assets	105		53		45



Proceeds from sale of business	177		100		491
Other – net	(11)		(27)		(1)
Net cash used in investing activities	(1,738)		(1,901)		(1,309)

Cash flows from financing activities:
Net change in commercial paper	—		(499)		499
Net proceeds from issuance of debt	—		2,983		9,667
Repayment of debt	(545)		(601)		(867)
Proceeds from issuance of common stock under share-based payment plans	159		141		151
Cash dividend payments	(2,566)		(2,531)		(2,370)
Repurchases of common stock	(4,053)		(6,138)		(14,124)
Other – net	(42)		(21)		(5)
Net cash used in financing activities	(7,047)		(6,666)		(7,049)

Effect of exchange rate changes on cash	—		—		(16)



Net increase/(decrease) in cash and cash equivalents	840		(427)		215
Cash and cash equivalents, beginning of year	921		1,348		1,133
Cash and cash equivalents, end of year	$	1,761	$	921	$	1,348

See accompanying notes to consolidated financial statements.


41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED JANUARY 31, 2025, FEBRUARY 2, 2024, AND FEBRUARY 3, 2023

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 1,748 stores and outlets in the United States as of January 31, 2025. 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 6 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 2023 and 2024 each contained 52 weeks. All references herein for the years 2024, 2023, and 2022 represent the fiscal years ended January 31, 2025, February 2, 2024, and February 3, 2023, respectively.

Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned or controlled 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. 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 certificates of deposit, commercial paper, corporate debt securities, governmental securities, 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. The proceeds from sales and gross realized gains and losses on 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 fair value upon recognition and as of each balance sheet date thereafter. Changes in the estimated fair value of the contingent consideration are recognized 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 as of January 31, 2025, will mature in one to three 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 $372 million as of January 31, 2025, and $307 million as of February 2, 2024. Restricted balances included in long-term investments were $277 million as of January 31, 2025, and $252 million as of February 2, 2024.


						42

Merchandise Inventory - The Company’s inventory is stated at the lower of cost and net realizable value (LCNRV) using the first-in, first-out method of inventory accounting. 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 estimated adjustment to mark down merchandise inventory to the lower of cost or net realizable value. 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 markdown in the near term in excess of established reserves, 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’s LCNRV inventory reserve was $222 million as of January 31, 2025, and $245 million as of February 2, 2024.

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’s reserve for inventory shrinkage was $427 million as of January 31, 2025, and $425 million as of February 2, 2024.

The Company receives funds from vendors in the normal course of business, principally as a result of purchase volumes, early payments, or sales-based 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 fixed-to-floating interest rate swap agreements as fair value hedges on certain debt as of January 31, 2025, and February 2, 2024. 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.

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. 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 (loss)/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.

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.

Prior to September 2023, the Company also had an agreement with Synchrony under which Synchrony purchased at face value commercial business accounts receivable originated by the Company and serviced those accounts. The Company primarily accounted for these transfers as sales of the accounts receivable. When the Company transferred its commercial business accounts receivable, it retained 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 was determined based on the previous carrying amounts of the transferred assets allocated at fair value between the receivables sold and the interests


43

retained. Fair value was 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.

In 2023, Synchrony exercised an option under the agreement to directly extend credit to the commercial accounts receivable customers, for which the related transition period was completed in August 2023. In 2023, prior to the option’s effective date, $3.1 billion of accounts receivable were sold to Synchrony and the Company recognized a loss of $63 million related to the servicing costs remitted to Synchrony monthly. In 2022, total commercial business accounts receivable sold to Synchrony were $5.2 billion and the Company recognized a loss of $76 million.

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, 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.

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


						44

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.

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 an agreement with a third party to provide a supplier finance program which facilitates 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 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)	January 31, 2025		February 2, 2024		February 3, 2023
Financed payment obligations outstanding at the beginning of the year	$	1,356	$	2,257	$	2,274
Payment obligations financed during the year	9,926		9,573		12,159
Financed payment obligations paid during the year	(9,771)		(10,474)		(12,176)
Financed payment obligations outstanding at the end of the year	$	1,511	$	1,356	$	2,257

Other Current Liabilities - Other current liabilities on the consolidated balance sheets consist of:


(In millions)	January 31, 2025		February 2, 2024
Accrued dividends	$	645	$	633
Income taxes payable	491		33
Accrued interest	449		456
Self-insurance liabilities	432		431
Sales tax liabilities	195		164
Sales return reserve	167		191
Accrued property taxes	138		130
Other	1,435		1,440
Total	$	3,952	$	3,478

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


45

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 $966 million as of January 31, 2025, and $1.1 billion as of February 2, 2024.

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 $272 million as of January 31, 2025, and $280 million as of February 2, 2024.

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.

Transferable Tax Credits

In August 2022, the Inflation Reduction Act was enacted which included provisions that allow for the transfer of certain federal clean energy tax credits (Federal Transferable Tax Credits). The Company paid $909 million and $143 million for the purchase of Federal Transferable Tax Credits in 2024 and 2023, respectively. All amounts paid have been included in payments for income taxes, and differences between tax credits purchased and amounts paid are included as a component of the income tax provision.

Income Tax Relief

On October 1, 2024, the Internal Revenue Service announced that businesses in North Carolina, affected by Hurricane Helene would receive tax relief by postponing certain tax-payment deadlines. Under this relief, certain federal estimated income tax payments can be deferred until May 1, 2025. As of January 31, 2025, the Company deferred $478 million of federal income taxes payable, which is included in other current liabilities in the consolidated balance sheet.

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 Inflation Reduction Act 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.

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.


						46

*•*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 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 revenue 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 employee compensation 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 markdown; n Costs of services performed under the Lowe’s protection plan.						n Generally, 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 $921 million, $831 million, and $869 million in 2024, 2023, and 2022, respectively.

Comprehensive Income - The Company reports comprehensive income in its consolidated statements of comprehensive income and consolidated statements of shareholders’ deficit. Comprehensive income represents changes in shareholders’ deficit from non-owner sources and is comprised of net earnings adjusted primarily for cash flow hedge derivative contracts. Net cash flow hedge gains, net of tax, classified in accumulated other comprehensive income were $288 million, $301 million, and $315 million as of January 31, 2025, February 2, 2024, and February 3, 2023, respectively.

Reclassifications - Income taxes payable for the prior year was reclassified to conform with current year presentation and is included in Other current liabilities on the consolidated balance sheets.


47

Accounting Pronouncements Recently Adopted - Effective November 2, 2024, the Company adopted Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. Under the ASU, all disclosure requirements in this update and ASC 280, Segment Reporting, are required for public entities with a single reportable segment. See Note 1 7 for additional details of the Company’s reportable segment.

Accounting Pronouncements Not Yet Adopted -

In December 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU expands income tax disclosures in the effective tax rate reconciliation table and income taxes paid. The ASU is effective for the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2026. The Company is currently evaluating the impact of adopting this ASU on its disclosures.

In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures. The ASU requires a public business entity to provide disaggregated disclosures of certain categories of expenses on an annual and interim basis including purchases of inventory, employee compensation, depreciation, and intangible asset amortization for each income statement line item that contains those expenses. The ASU is effective for the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2028, and subsequent interim periods, with early adoption permitted. The Company is currently evaluating the impact of adopting this ASU on its disclosures.

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
	January 31, 2025			February 2, 2024			February 3, 2023
Products		$	80,538		$	83,002		$	93,392
Services		1,934			2,097			2,178
Other		1,202			1,278			1,489
Net sales		$	83,674		$	86,377		$	97,059

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	January 31, 2025		February 2, 2024
Anticipated sales returns	Other current liabilities	$	167	$	191
Right of return assets	Other current assets	99		111

Deferred revenue - retail and stored-value cards

Deferred revenue for retail and stored-value cards are as follows:


(In millions)	January 31, 2025		February 2, 2024
Retail deferred revenue	$	770	$	796
Stored-value cards deferred revenue	588		612
Deferred revenue	$	1,358	$	1,408


						48

Deferred revenue - Lowe’s protection plans

Deferred revenue associated with Lowe’s protection plans is as follows:


(In millions)			January 31, 2025						February 2, 2024
Deferred revenue - Lowe’s protection plans			$	1,268					$	1,225

Lowe’s protection plan sales previously recorded as deferred revenue and claim expenses incurred are as follows:


(In millions)		Years Ended
	January 31, 2025			February 2, 2024			February 3, 2023
Lowe’s protection plan deferred revenue recognized into sales		$	561		$	549		$	527
Lowe’s protection plan claim expenses		210			224			180

Disaggregation of Revenues

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


	Years Ended
	January 31, 2025				February 2, 2024				February 3, 2023
(In millions)	Total Sales		%		Total Sales		%		Total Sales		%
Home Décor1	$	30,862	36.9	%	$	32,136	37.2	%	$	36,212	37.3	%
Building Products2	26,380		31.5		26,949		31.2		31,321		32.3
Hardlines3	24,256		29.0		24,954		28.9		26,925		27.7
Other	2,176		2.6		2,338		2.7		2,601		2.7
Total	$	83,674	100.0	%	$	86,377	100.0	%	$	97,059	100.0	%

Note: Merchandise division net sales for prior periods have been reclassified to conform to the current year presentation.

1 Home Decor 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
	January 31, 2025			February 2, 2024			February 3, 2023
United States		$	83,674		$	86,377		$	92,010
Canada1		—			—			5,049
Net Sales		$	83,674		$	86,377		$	97,059

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


49

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.


			Fair Value Measurements at
(In millions)	Classification	Measurement Level	January 31, 2025		February 2, 2024


Available-for-sale debt securities:
U.S. Treasury securities	Short-term investments	Level 1	$	199	$	152
Money market funds	Short-term investments	Level 1	91		56
Commercial paper	Short-term investments	Level 2	49		5
Corporate debt securities	Short-term investments	Level 2	16		50
Certificates of deposit	Short-term investments	Level 1	13		42
Foreign government debt securities	Short-term investments	Level 2	4		—
Municipal obligations	Short-term investments	Level 2	—		2








U.S. Treasury securities	Long-term investments	Level 1	150		213
Corporate debt securities	Long-term investments	Level 2	88		35

Foreign government debt securities	Long-term investments	Level 2	37		4
Municipal obligations	Long-term investments	Level 2	2		—



Derivative instruments:







Fixed-to-floating interest rate swaps	Other current liabilities	Level 2	$	11	$	—



Fixed-to-floating interest rate swaps	Other liabilities	Level 2	35		76

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.

In addition, the Company has received performance-based contingent consideration related to the fiscal 2022 sale of the Canadian retail business and is classified as a Level 3 long-term investment. The Company determined the initial fair value for contingent consideration as of February 3, 2023, 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. Subsequent measurements of fair value of the contingent consideration are based on an income approach, which requires certain assumptions considering operating performance of the business and a risk-adjusted discount rate.

The rollforward of the fair value of contingent consideration is as follows:


	Years Ended
(In millions)	January 31, 2025		February 2, 2024
Beginning balance	$	—	$	21

Change in fair value	177		102
Proceeds received	(177)		(123)
Ending balance	$	—	$	—

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

For the fiscal years ended January 31, 2025, and February 2, 2024, 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


						50

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 8, 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:


	January 31, 2025				February 2, 2024
(In millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Unsecured notes (Level 1)	$	35,011	$	31,557	$	35,409	$	32,757
Mortgage notes (Level 2)	1		1		2		2
Long-term debt (excluding finance lease obligations)	$	35,012	$	31,558	$	35,411	$	32,759

NOTE 4: Property and Accumulated Depreciation

Property is summarized by major class in the following table:


(In millions)	Estimated Depreciable Lives, In Years	January 31, 2025		February 2, 2024
Cost:
Land	N/A	$	6,811	$	6,785
Buildings and building improvements	7-40	18,386		18,039
Equipment	2-15	10,988		10,238

Construction in progress	N/A	616		708
Total cost		36,801		35,770
Accumulated depreciation		(19,152)		(18,117)
Property, less accumulated depreciation		$	17,649	$	17,653

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 $2.0 billion in 2024, and $1.9 billion in 2023 and 2022.


51

NOTE 5: Leases

The lease-related assets and liabilities recorded on the balance sheet are summarized in the following table:


(In millions)	Classification	January 31, 2025		February 2, 2024
Assets
Operating lease assets	Operating lease right-of-use assets	$	3,738	$	3,733
Finance lease assets	Property, less accumulated depreciation1	395		425
Total lease assets		4,133		4,158

Liabilities
Current
Operating	Current operating lease liabilities	563		487
Finance	Current maturities of long-term debt	87		87
Noncurrent
Operating	Noncurrent operating lease liabilities	3,628		3,737
Finance	Long-term debt, excluding current maturities	388		422
Total lease liabilities		$	4,666	$	4,733

1Finance lease assets are recorded net of accumulated amortization of $373 million as of January 31, 2025, and $326 million as of February 2, 2024.

The table below presents the lease costs for finance and operating leases:


(In millions)	Years Ended
January 31, 2025			February 2, 2024			February 3, 2023
Finance lease cost
Amortization of leased assets	$	92		$	88		$	90
Interest on lease liabilities	23			24			29
Operating lease cost1	712			630			734
Variable lease cost	268			258			329
Total lease cost	$	1,095		$	1,000		$	1,182

1Includes short-term leases and sublease income, which are immaterial.

The future minimum rental payments required under operating and finance lease obligations as of January 31, 2025, having initial or remaining non-cancelable lease terms in excess of one year are summarized as follows:


(In millions)	Operating Leases1		Finance Leases2		Total
Fiscal 2025	$	683	$	101	$	784
Fiscal 2026	726		95		821
Fiscal 2027	700		65		765
Fiscal 2028	676		59		735
Fiscal 2029	527		47		574
Thereafter	1,913		214		2,127
Total lease payments	5,225		581		5,806
Less: interest3	(1,034)		(106)		(1,140)
Present value of lease liabilities4	$	4,191	$	475	$	4,666

1Operating lease payments include $469 million related to options to extend lease terms that are reasonably certain of being exercised and


						52

exclude $205 million of minimum lease payments for leases signed but not yet commenced.

2Finance lease payments exclude $2 million of minimum lease payments for leases signed but not yet commenced.

3Calculated using the lease-specific incremental borrowing rate.

4Includes the current portion of $563 million for operating leases and $87 million for finance leases.


Lease Term and Discount Rate	January 31, 2025		February 2, 2024
Weighted-average remaining lease term (years)
Operating leases	8.97		9.23
Finance leases	8.68		8.75
Weighted-average discount rate
Operating leases	4.28	%	4.11	%
Finance leases	4.89	%	4.93	%


Other Information	Years Ended
(In millions)	January 31, 2025		February 2, 2024		February 3, 2023
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows used for operating leases	$	743	$	689	$	788
Operating cash flows used for finance leases	22		24		29
Financing cash flows used for finance leases	86		92		90
Leased assets obtained in exchange for new finance lease liabilities	47		50		51
Leased assets obtained in exchange for new operating lease liabilities1	545		696		729

1Excludes $205 million of leases signed but not yet commenced as of January 31, 2025.

NOTE 6: 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 an initial fair value of $21 million, which was 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 January 31, 2025, the Company recognized a pre-tax gain on sale of $177 million associated with performance-based contingent consideration received. During the fiscal year ended February 2, 2024, the Company recognized a pre-tax gain on sale of $79 million associated with performance-based consideration received, as well as final adjustments to the selling price. 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 other closing costs. The cumulative foreign currency translation adjustment previously included in accumulated other comprehensive income was reclassified to earnings and included in the loss on sale. A summary of the significant activity included within SG&A expense in the consolidated statements of earnings associated with the sale of the Canadian retail business is as follows:


	Years Ended
(In millions)	January 31, 2025		February 2, 2024		February 3, 2023
Long-lived asset impairment	$	—	$	—	$	2,061
(Gain)/loss on sale	(177)		(79)		421
Other closing costs	—		—		19
Total	$	(177)	$	(79)	$	2,501


53

NOTE 7: Debt

Commercial Paper Program

The Company’s commercial paper program is supported by the $2.0 billion five-year unsecured revolving credit agreement entered into in September 2023 (2023 Credit Agreement), and the $2.0 billion five-year unsecured third amended and restated credit agreement entered into in December 2021, and as amended (Third Amended and Restated Credit Agreement). The amounts available to be drawn under the 2023 Credit Agreement and the Third Amended and Restated Credit Agreement are reduced by the amount of borrowings under the commercial paper program.

Subject to obtaining commitments from the lenders and satisfying other conditions specified in the 2023 Credit Agreement and Third Amended and Restated 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 as of January 31, 2025.

There were no borrowings under the Company’s commercial paper program, Third Amended and Restated Credit Agreement, or the 2023 Credit Agreement as of January 31, 2025, and February 2, 2024. Total combined availability under the Credit Agreements was $4.0 billion as of January 31, 2025.

Long-Term Debt


Debt Category (In millions, except percentage data)	Weighted-Average Interest Rate as of January 31, 2025		January 31, 2025		February 2, 2024
Secured debt:
Mortgage notes due through fiscal 20271	6.24	%	$	1	$	2
Unsecured debt:
Notes due through fiscal 2029	3.40	%	11,215		11,623
Notes due fiscal 2030-2034	3.70	%	7,709		7,703
Notes due fiscal 2035-2039	5.93	%	858		858
Notes due fiscal 2040-2044	4.09	%	2,578		2,578
Notes due fiscal 2045-2049	4.04	%	3,820		3,818
Notes due fiscal 2050-2054	4.35	%	6,118		6,117

Notes due fiscal 2060-2064	5.19	%	2,713		2,713
Finance lease obligations due through fiscal 2043			475		509
Total long-term debt			35,487		35,921
Less: current maturities			(2,586)		(537)
Long-term debt, excluding current maturities			$	32,901	$	35,384

1 Real properties with an aggregate book value of $11 million as of January 31, 2025, were pledged as collateral for secured debt.

Principal amount of 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 2025	$	2,500
Fiscal 2026	2,350
Fiscal 2027	2,368
Fiscal 2028	2,255
Fiscal 2029	1,811
Thereafter	24,035
Total	$	35,319


						54

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 as of January 31, 2025.

During 2023, the Company issued $3.0 billion of unsecured fixed rate notes (collectively, the 2023 Notes) as follows:


Issue Date	Principal Amount (in millions)		Maturity Date	Interest Rate	Discount (in millions)
March 2023	$	1,000	April 2026	4.800%	$	3
March 2023	$	1,000	July 2033	5.150%	$	4
March 2023	$	500	July 2053	5.750%	$	5
March 2023	$	500	April 2063	5.850%	$	5

Interest on the 2023 Notes with April maturity dates is payable semiannually in arrears in April and October of each year until maturity. Interest on the 2023 Notes with July maturity dates is payable semiannually in arrears in January and July of each year until maturity.

The indenture governing the 2023 Notes contains 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 indenture also contains a provision that allows the holders of the notes to require the Company to repurchase all or any part of their notes if a change of control triggering event occurs. If elected under the change of control provisions, the repurchase of the notes will occur at a purchase price of 101% of the principal amount, plus accrued interest, if any, on such notes up to the date of purchase. The indenture governing the notes does not limit the aggregate principal amount of debt securities that the Company may issue and does not require the Company to maintain specified financial ratios or levels of net worth or liquidity. However, the indenture includes various restrictive covenants, none of which is expected to impact the Company’s liquidity or capital resources.

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.

NOTE 8: Derivative Instruments

The notional amounts of the Company’s material derivative instruments are as follows:


(In millions)	January 31, 2025		February 2, 2024


Fair value hedges:
Fixed-to-floating interest rate swap agreements	$	850	$	850

See Note 3 for the gross fair values of the Company’s outstanding derivative financial instruments and corresponding fair value classifications. The cash flows related to settlement of the Company’s hedging derivatives financial instruments are classified in the consolidated statements of cash flows based on the nature of the underlying hedged items.

The Company accounts for the fixed-to-floating interest rate swap agreements as 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.

In connection with the issuance of our 2023 Notes, we settled forward interest rate swap contracts with a combined notional amount of $2.0 billion and received a payment of $247 million. 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 (loss)/gain from forward interest rate swap derivatives, both matured and outstanding, designated as cash flow hedges recorded in other comprehensive (loss)/income and earnings for 2024, 2023, and 2022, including its line item in the financial statements, is as follows:


55


	Years Ended
(In millions)	January 31, 2025		February 2, 2024		February 3, 2023
Other comprehensive (loss)/income:
Cash flow hedges – net of tax benefit/(expense) of $4 million, $5 million, and ($102) million, respectively	$	(13)	$	(14)	$	311
Net earnings:
Interest – net	$	17	$	15	$	1

NOTE 9: Shareholders’ Deficit

Authorized shares of preferred stock were 5.0 million ($5 par value) as of January 31, 2025, and February 2, 2024, 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) as of January 31, 2025, and February 2, 2024.

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. As of January 31, 2025, the Company had $10.8 billion remaining under the program.

During the year ended January 31, 2025, the Company entered into Accelerated Share Repurchase (ASR) agreements with third-party financial institutions to repurchase a total of 6.1 million shares of the Company’s common stock for $1.5 billion. At inception, the Company paid the financial institutions using cash on hand and took initial delivery of shares. Under the 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.


						56

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	Initial Shares Delivered	Additional Shares Delivered at Settlement	Total Shares Delivered
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
Q1 2023	Q1 2023	750	3.1	0.7	3.8
Q2 2023	Q2 2023	1,000	3.9	0.7	4.6
Q3 2023	Q3 2023	1,500	5.3	1.7	7.0
Q1 2024	Q1 2024	325	1.1	0.2	1.3
Q2 2024	Q2 2024	375	1.4	0.3	1.7
Q3 2024	Q3 2024	400	1.3	0.2	1.5
Q4 2024	Q4 2024	400	1.2	0.4	1.6

During the year ended January 31, 2025, the Company also repurchased shares of its common stock through the open market totaling 9.3 million shares for a cost of $2.3 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 2024, 2023, and 2022 were as follows:


	Years Ended
	January 31, 2025			February 2, 2024			February 3, 2023
(In millions)	Shares	Cost		Shares	Cost		Shares	Cost
Share repurchase program1	15.4	$	3,834	29.2	$	6,199	70.6	$	14,004
Shares withheld from employees	0.4	94		0.7	135		0.6	124
Total share repurchases	15.8	$	3,928	29.9	$	6,334	71.2	$	14,128

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.

NOTE 10: 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 23.5 million shares remaining available for grants as of January 31, 2025. The 2020 Employee Stock Purchase Plan (the ESPP) permits a maximum of 20.0 million shares to be offered for purchase. As of January 31, 2025, there were 17.5 million shares remaining available for purchase.

The Company recognized share-based payment expense within SG&A expense in the consolidated statements of earnings of $221 million, $210 million, and $224 million in 2024, 2023, and 2022, respectively. The total associated income tax benefit recognized, exclusive of excess tax benefits, was $42 million, $30 million, and $36 million in 2024, 2023, and 2022, respectively.


57

Total unrecognized share-based payment expense for all share-based payment plans was $281 million as of January 31, 2025, of which $163 million will be recognized in 2025, $101 million in 2026, and $17 million thereafter. This results in these amounts being recognized over a weighted-average period of 1.4 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 model and weighted-average grant date fair value for options granted in 2024, 2023, and 2022 are as follows:


	Years Ended
	January 31, 2025			February 2, 2024			February 3, 2023
Weighted-average assumptions used:
Expected volatility	31.6		%	32.2		%	30.7		%
Dividend yield	1.79		%	1.74		%	1.66		%
Risk-free interest rate	4.33		%	3.59		%	2.56		%
Expected term, in years	7.00			6.50			6.51

Weighted-average grant date fair value	$	84.76		$	64.41		$	58.66

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 $45 million, $28 million, and $41 million in 2024, 2023, and 2022, respectively.

Transactions related to stock options for the fiscal year ended January 31, 2025, are summarized as follows:


(in thousands, except per share and years data)	Shares	Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Term	Aggregate Intrinsic Value
Outstanding as of February 2, 2024	1,830	$	136.74
Granted	117	249.28
Canceled, forfeited or expired	(10)	200.73
Exercised	(312)	106.62
Outstanding as of January 31, 2025	1,625	$	150.23	5.84	$	178,457
Vested and expected to vest as of January 31, 20251	1,613	$	149.69	5.82	$	177,957
Exercisable as of January 31, 2025	1,249	$	130.47	5.11	$	161,887

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-


						58

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 $249.31, $201.78, and $201.10 in 2024, 2023, and 2022, respectively. The total fair value of restricted stock awards vesting each year was approximately $158 million, $208 million, and $203 million in 2024, 2023, and 2022, respectively.

Transactions related to restricted stock awards for the fiscal year ended January 31, 2025, are summarized as follows:


(in thousands, except per share data)	Shares	Weighted-Average Grant-Date Fair Value Per Share
Nonvested as of February 2, 2024	1,378	$	199.88
Granted	663	249.31
Vested	(635)	198.05
Canceled or forfeited	(129)	222.85
Nonvested as of January 31, 2025	1,277	$	224.15

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. Deferred stock units granted to non-employee Directors in 2024, 2023, and 2022 are as follows:


	Years Ended
(In thousands, except per share data)	January 31, 2025		February 2, 2024		February 3, 2023
Deferred shares granted to non-employee Directors	12		11		12




Weighted-average grant date fair value per share	$	221.29	$	206.52	$	200.27

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 contain performance and service conditions that must be satisfied for an employee to earn the right to benefit from the award, as well as a market condition modifier. 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.


59

The weighted-average assumptions used in the Monte Carlo simulations for these awards granted in 2024, 2023, and 2022 are as follows:


	Years Ended
	January 31, 2025		February 2, 2024		February 3, 2023
Weighted-average assumptions used:
Expected volatility	27.1	%	29.3	%	37.1	%
Dividend yield	1.77	%	2.10	%	1.58	%
Risk-free interest rate	4.49	%	3.83	%	2.54	%
Expected term, in years	2.83		2.82		2.84

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 $273.37, $209.50, and $200.06 in 2024, 2023, and 2022, respectively. The total fair value of performance share units vesting was approximately $55 million, $105 million and $74 million in 2024, 2023 and 2022, respectively.

Transactions related to performance share units classified as equity awards for the fiscal year ended January 31, 2025, are summarized as follows:


(in thousands, except per share data)	Units1	Weighted-Average Grant-Date Fair Value Per Unit
Nonvested as of February 2, 2024	437	$	206.23
Granted	152	273.37
Vested	(120)	208.72
Canceled or forfeited	(15)	225.08
Nonvested as of January 31, 2025	454	$	227.46

1 The number of units presented is based on achieving the targeted performance goals as defined in the performance share unit agreements. As of January 31, 2025, the maximum number of nonvested units that could vest under the provisions of the agreements was 0.9 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 $236.96, $188.22, and $192.46 in 2024, 2023, and 2022, respectively. The total fair value of restricted stock units vesting was approximately $56 million, $67 million, and $73 million in 2024, 2023, and 2022, respectively.


						60

Transactions related to restricted stock units for the fiscal year ended January 31, 2025, are summarized as follows:


(in thousands, except per share data)	Shares	Weighted-Average Grant-Date Fair Value Per Share
Nonvested as of February 2, 2024	476	$	188.84
Granted	257	236.96
Vested	(223)	188.25
Canceled or forfeited	(58)	211.92
Nonvested as of January 31, 2025	452	$	213.52

ESPP

The purchase price of the shares under the 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 ESPP, the Company issued 0.6 million shares of common stock in 2024, and 0.7 million shares of common stock in 2023 and 2022, and recognized share-based payment expense of $22 million, $21 million, and $20 million in 2024, 2023, and 2022, respectively.

NOTE 11: 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.

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 $172 million, $167 million, and $174 million in 2024, 2023, and 2022, respectively.

NOTE 12: Income Taxes

The following is a reconciliation of the federal statutory tax rate to the effective tax rate:


	Years Ended
	January 31, 2025		February 2, 2024		February 3, 2023
Statutory federal income tax rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal tax benefit	3.7		3.8		4.8
Valuation allowance	(0.4)		0.7		5.5
Expiration of capital loss carryforward	0.1		—		2.5
Loss on divestiture of Canadian retail business	—		(1.0)		(4.1)
Other, net	(0.4)		(0.4)		(0.9)
Effective tax rate	24.0	%	24.1	%	28.8	%


61

The components of the income tax provision/(benefit) are as follows:


	Years Ended
(In millions)	January 31, 2025		February 2, 2024		February 3, 2023
Current:
Federal	$	1,764	$	1,955	$	2,226
State	424		489		561
Total current1	2,188		2,444		2,787
Deferred:
Federal	—		3		(179)
State	8		2		(9)
Total deferred1	8		5		(188)
Total income tax provision	$	2,196	$	2,449	$	2,599

1 Amounts applicable to foreign income taxes were insignificant for all periods presented.

The tax effects of cumulative temporary differences that gave rise to the deferred tax assets and liabilities were as follows:


(In millions)	January 31, 2025		February 2, 2024
Deferred tax assets:
Self-insurance	$	233	$	261
Share-based payment expense	46		49

Operating lease liabilities	1,143		1,159

Capital loss carryforwards	645		695
Net operating losses	261		332
Other, net	390		446
Total deferred tax assets	2,718		2,942
Valuation allowance	(1,003)		(1,133)
Net deferred tax assets	1,715		1,809

Deferred tax liabilities:
Operating lease right-of-use assets	(1,012)		(1,017)
Property	(315)		(389)
Other, net	(144)		(155)
Total deferred tax liabilities	(1,471)		(1,561)

Net deferred tax assets	$	244	$	248

As of January 31, 2025, and February 2, 2024, the Company had Canadian net operating loss carryforwards of $1 billion and $1.3 billion, respectively. The net operating losses expire in 2025 through 2042. As of January 31, 2025, and February 2, 2024, the Company had capital loss carryforwards of $2.5 billion and $2.7 billion, respectively, for Canadian tax purposes which do not expire. A valuation allowance of $1.0 billion and $1.1 billion was recorded as of January 31, 2025, and February 2, 2024, respectively.

A reconciliation of the beginning and ending balances of unrecognized tax benefits is as follows:


	Years Ended
(In millions)	January 31, 2025		February 2, 2024		February 3, 2023
Unrecognized tax benefits, beginning of year	$	37	$	37	$	38
Additions for tax positions of prior years	—		—		—


Settlements	—		—		(1)

Unrecognized tax benefits, end of year	$	37	$	37	$	37


						62

The unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate were $37 million as of January 31, 2025, and February 2, 2024.

The net interest expense recognized by the Company related to uncertain tax positions was $1 million for 2024, $1 million for 2023, and $3 million for 2022. The Company had $15 million and $14 million of accrued interest related to uncertain tax positions as of January 31, 2025, and February 2, 2024, respectively.

No penalties were recognized related to uncertain tax positions for 2024, 2023, and 2022. The Company had $4 million of accrued penalties related to uncertain tax positions as of January 31, 2025, and February 2, 2024, respectively.

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 2023. Audits performed by the Canada Revenue Agency for fiscal years 2021 and 2022 and the Mexican Tax Administration Service for 2018 are on-going. The Company remains subject to income tax examinations for fiscal years 2015 through 2023. The Company believes appropriate provisions for all outstanding issues have been made for all jurisdictions and all open years.

Note 13: 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 non-forfeitable 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 2024, 2023, and 2022:


	Years Ended
(In millions, except per share data)	January 31, 2025		February 2, 2024		February 3, 2023
Basic earnings per common share:
Net earnings attributable to Lowe's Companies, Inc.	$	6,957	$	7,726	$	6,437
Less: Net earnings allocable to participating securities	(17)		(20)		(21)

Net earnings allocable to common shares, basic	$	6,940	$	7,706	$	6,416
Weighted-average common shares outstanding	567		582		629
Basic earnings per common share	$	12.25	$	13.23	$	10.20
Diluted earnings per common share:
Net earnings attributable to Lowe's Companies, Inc.	$	6,957	$	7,726	$	6,437
Less: Net earnings allocable to participating securities	(17)		(20)		(21)

Net earnings allocable to common shares, diluted	$	6,940	$	7,706	$	6,416
Weighted-average common shares outstanding	567		582		629
Dilutive effect of non-participating share-based awards	1		2		2
Weighted-average common shares, as adjusted	568		584		631
Diluted earnings per common share	$	12.23	$	13.20	$	10.17

Anti-dilutive securities excluded from diluted weighted-average common shares	0.1		0.5		0.5

NOTE 14: 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


63

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 January 31, 2025, 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:


(In millions)	Commitments
Fiscal 2025	$	965
Fiscal 2026	693
Fiscal 2027	342
Fiscal 2028	105
Fiscal 2029	83
Thereafter	118
Total	$	2,306

As of January 31, 2025, the Company held standby and documentary letters of credit issued under banking arrangements which totaled $488 million. The majority of the Company’s letters of credit were issued to support the Company’s warranty program.

NOTE 15: 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 $240 million in 2024, $217 million in 2023, and $228 million in 2022. Amounts payable to this vendor were insignificant to the Company as of January 31, 2025, and February 2, 2024.

NOTE 16: Other Information

Interest – net is comprised of the following:


	Years Ended
(In millions)	January 31, 2025		February 2, 2024		February 3, 2023
Long-term debt	$	1,452	$	1,438	$	1,108
Finance lease obligations	23		24		29
Short-term borrowings	—		15		5
Interest income	(159)		(101)		(37)
Interest capitalized	(6)		(4)		(4)
Interest on tax uncertainties	1		1		3
Other	2		9		19
Interest – net	$	1,313	$	1,382	$	1,123

Supplemental disclosures of cash flow information:


	Years Ended
(In millions)	January 31, 2025		February 2, 2024		February 3, 2023
Cash paid for interest, net of amount capitalized	$	1,475	$	1,464	$	976
Cash paid for income taxes, net	$	1,648	$	3,700	$	1,720
Non-cash investing and financing activities:1


Cash dividends declared but not paid	$	645	$	633	$	633

1See Note 5 for supplemental cash flow disclosures related to finance and operating leases.


						64

Sales by product category:


	Years Ended
	January 31, 2025				February 2, 2024				February 3, 2023
(In millions, except percentage data)	Total Sales		%		Total Sales		%		Total Sales		%
Appliances	$	12,053	14.4	%	$	12,326	14.3	%	$	13,486	13.9	%
Seasonal & Outdoor Living	7,370		8.8		7,686		8.9		8,657		8.9
Lumber	6,747		8.1		7,021		8.1		9,767		10.1
Lawn & Garden	6,526		7.8		6,718		7.8		6,917		7.1
Kitchens & Bath	5,869		7.0		6,178		7.2		6,969		7.2
Hardware	5,821		7.0		5,848		6.8		6,188		6.4
Building Materials	5,419		6.5		5,255		6.1		5,074		5.2
Millwork	4,986		6.0		5,180		6.0		5,769		5.9
Paint	4,976		5.9		5,117		5.9		5,405		5.6
Rough Plumbing	4,930		5.9		5,013		5.8		5,376		5.5
Tools	4,539		5.4		4,703		5.4		5,162		5.3
Electrical	4,299		5.1		4,479		5.2		5,336		5.5
Flooring	4,102		4.9		4,359		5.0		5,077		5.2
Décor	3,862		4.6		4,156		4.8		5,274		5.4
Other	2,175		2.6		2,338		2.7		2,602		2.8
Net sales	$	83,674	100.0	%	$	86,377	100.0	%	$	97,059	100.0	%

Note: Product category sales for prior periods have been reclassified to conform to the current year presentation.

NOTE 17: Segment Information

The Company’s home improvement operations represent a single operating segment designed to enable customers to purchase products and services seamlessly through all channels. The Company’s chief operating decision maker (CODM) is the Chairman, President, and Chief Executive Officer. The CODM has the ultimate decision-making authority for resource allocation and assessing the performance of the Company. Thereby, the CODM regularly reviews consolidated net earnings as the measure of segment profit or loss, as well as significant segment expenses included in the below table, to evaluate operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. The CODM also uses these measures in monitoring plan versus actual results. The CODM does not review segment assets at a different asset level or category than those disclosed in the consolidated balance sheets.


65

The following presents the Company’s operating results, including significant segment expenses.


	Years Ended
	January 31, 2025				February 2, 2024				February 3, 2023
(In millions, except percentage data)	Amount		% Sales		Amount		% Sales		Amount		% Sales
Net sales	$	83,674	100.00	%	$	86,377	100.00	%	$	97,059	100.00	%
Less:
Cost of sales	55,797		66.68		57,533		66.61		64,802		66.77
Selling, general and administrative:
Employee compensation and benefits	10,830		12.94		10,801		12.50		12,059		12.42
Occupancy and facility costs	1,897		2.27		1,836		2.13		2,127		2.19
Advertising	921		1.10		831		0.96		869		0.90
Impairment and (gain)/loss on sale of Canadian retail business	(169)		(0.20)		(57)		(0.07)		2,536		2.61
Other SG&A items1	2,203		2.63		2,159		2.50		2,741		2.82
Depreciation and amortization	1,729		2.07		1,717		1.99		1,766		1.82
Interest – net	1,313		1.57		1,382		1.60		1,123		1.16
Income tax provision	2,196		2.63		2,449		2.83		2,599		2.68
Net earnings	$	6,957	8.31	%	$	7,726	8.95	%	$	6,437	6.63	%

1 Other SG&A items primarily include financial services costs, technology service costs, insurance costs, and store environment initiative and display costs.


						66

Previous: Item 7A. Quantitative and Qualitative Disclosures about Market Risk · Next: Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure