Lowe's 10-Q 2023-11-03

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended November 3, 2023

or

For the transition period from ______ to ______

Commission File Number 1-7898

LOWE’S COMPANIES, INC.

(Exact name of registrant as specified in its charter)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

LOWE’S COMPANIES, INC.

- TABLE OF CONTENTS -

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FORWARD-LOOKING STATEMENTS

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

A wide variety of potential risks, uncertainties, and other factors could materially affect our ability to achieve the results either expressed or implied by these forward-looking statements including, but not limited to, changes in general economic conditions, such as volatility and/or lack of liquidity from time to time in U.S. and world financial markets and the consequent reduced availability and/or higher cost of borrowing to Lowe’s and its customers, slower rates of growth in real disposable personal income that could affect the rate of growth in consumer spending, inflation and its impacts on discretionary spending and on our costs, shortages, and other disruptions in the labor supply, interest rate and currency fluctuations, home price appreciation or decreasing housing turnover, age of housing stock, the availability of consumer credit and of mortgage financing, trade policy changes or additional tariffs, outbreaks of pandemics, fluctuations in fuel and energy costs, inflation or deflation of commodity prices, natural disasters, armed conflicts, acts of both domestic and international terrorism, and other factors that can negatively affect our customers.

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

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Part I - FINANCIAL INFORMATION

Lowe’s Companies, Inc.

Consolidated Statements of Earnings (Unaudited)

In Millions, Except Per Share and Percentage Data

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

Lowe’s Companies, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)

In Millions, Except Percentage Data

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis summarizes the significant factors affecting our consolidated operating results, liquidity and capital resources during the three and nine months ended November 3, 2023, and October 28, 2022. This discussion and analysis should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements that are included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2023 (the Annual Report), as well as the consolidated financial statements (unaudited) and notes to the consolidated financial statements (unaudited) contained in this report. Unless otherwise specified, all comparisons made are to the corresponding period of fiscal 2022. In fiscal 2023, there is a one week shift as a result of the 53rd week in fiscal 2022. For the purposes of the following discussion, comparable sales, comparable customer transactions, and comparable average ticket are based upon the comparable 13-week and 39-week periods from fiscal 2022. This discussion and analysis is presented in four sections:

• Executive Overview

• Operations

• Financial Condition, Liquidity and Capital Resources

• Critical Accounting Policies and Estimates

EXECUTIVE OVERVIEW

Net sales in the third quarter of fiscal 2023 declined 12.8% to $20.5 billion compared to net sales of $23.5 billion in the third quarter of fiscal 2022. Prior year sales included $1.2 billion generated by our Canadian retail business, which was sold in the fourth quarter of fiscal 2022. Comparable sales for the third quarter of fiscal 2023 decreased 7.4%, consisting of a 6.9% decrease in comparable customer transactions and a 0.5% decrease in comparable average ticket. Net earnings in the third quarter of fiscal 2023 were $1.8 billion, compared to net earnings of $154 million in the third quarter of fiscal 2022. Diluted earnings per common share were $3.06 in the third quarter of fiscal 2023 compared to $0.25 in the third quarter of fiscal 2022. Included in the third quarter of 2022 results was a $2.1 billion pre-tax long-lived asset impairment associated with the Canadian retail business, which decreased diluted earnings per common share by $3.02. Excluding the impact of this item in the third quarter of 2022, adjusted diluted earnings per common share was $3.27 in the third quarter of 2022 (see the non-GAAP financial measures discussion).

For the first nine months of fiscal 2023, cash flows from operating activities were approximately $7.0 billion, with $1.3 billion used for capital expenditures. Continuing to deliver on our commitment to return excess cash to shareholders, during the three months ended November 3, 2023, we repurchased $1.6 billion of common stock and paid $642 million in dividends.

Third quarter fiscal 2023 comparable sales declined 7.4%, driven by a decline in DIY discretionary spending, particularly in bigger-ticket categories as homeowners scaled back on larger projects given the current macroeconomic environment. Despite soft DIY demand, we delivered positive comparable sales growth during the quarter with our Pro customers, demonstrating that we are making progress with our investments to improve our Pro service offering, including increasing loyalty through our MVP Pro rewards program, improving job site delivery, enhancing service levels in our stores, and creating a more seamless online experience.

In managing our business through this challenging macroeconomic environment, we remain focused on delivering value and convenience, excellent customer experience, and our strategic priorities. Our merchandising and marketing efforts highlight the everyday value available at Lowe’s, including this quarter’s launch of Lowe’s Lowest Price Guarantee. We are also pleased with the traction gained through our rural store format and Lowe’s Outlet stores. Our rural assortment provides our customers located in rural areas across the country an enhanced total home solution, while our smaller format Lowe’s Outlet stores offer savings opportunities to our value-conscious customers. We have also enhanced the customer experience through expedited fulfillment options and the continued expansion of our market-delivery model.

We remain focused on improving productivity through our Perpetual Productivity Improvement (PPI) initiatives, which give us the agility to manage our operational processes through periods of unpredictable demand. This has been enhanced by the technology and capability investments we have made over the last several years that have given us greater flexibility to manage costs. We believe the combination of these initiatives, in conjunction with our disciplined capital allocation strategy, positions us to deliver meaningful long-term shareholder value.

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OPERATIONS

The following table sets forth the percentage relationship to net sales of each line item of the consolidated statements of earnings (unaudited), as well as the percentage change in dollar amounts from the prior period. This table should be read in conjunction with the following discussion and analysis and the consolidated financial statements (unaudited), including the related notes to the consolidated financial statements (unaudited).

The following table sets forth key metrics utilized by management in assessing business performance. This table should be read in conjunction with the following discussion and analysis and the consolidated financial statements (unaudited), including the related notes to the consolidated financial statements (unaudited).

The Company adjusted its comparable sales metric to exclude days affected by national outages with its third-party credit and debit processor during the second quarter of fiscal 2022. By excluding the days impacted by the outages, and the corresponding days in the comparable periods, comparable sales decreased by approximately 10 basis points for the nine months ended November 3, 2023, and increased by approximately 10 basis points for the nine months ended October 28, 2022. The comparable sales metric for the three months ended November 3, 2023 and October 28, 2022, was not impacted or adjusted by similar outages.

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1 A comparable location is defined as a retail location that has been open longer than 13 months. A location that is identified for relocation is no longer considered comparable in the month of its relocation. The relocated location must then remain open longer than 13 months to be considered comparable. A location we decide to close is no longer considered comparable as of the beginning of the month in which we announce its closing. Operating locations which are sold are included in comparable sales until the date of sale. Comparable sales are presented on a transacted basis when tender is accepted from a customer. Comparable sales include online sales, which impacted third quarter fiscal 2023 and fiscal 2022 comparable sales by approximately -40 basis points and 80 basis points, respectively, and year-to-date fiscal 2023 and fiscal 2022 comparable sales by approximately 30 basis points and 45 basis points, respectively. The comparable store sales calculation included in the preceding table was calculated using comparable 13-week and 39-week periods.

2 Average ticket is defined as net sales divided by the total number of customer transactions.

3 Average store size selling square feet is defined as sales floor square feet divided by the number of stores open at the end of the period. The average Lowe’s-branded home improvement store has approximately 112,000 square feet of retail selling space.

4 Return on invested capital is calculated using a non-GAAP financial measure. Net earnings to average debt and shareholders’ deficit is the most comparable GAAP ratio. As of November 3, 2023, and October 28, 2022, return on invested capital was negatively impacted 125 basis points and 590 basis points, respectively, as a result of the sale of the Canadian retail business. See below for additional information and reconciliations of non-GAAP measures.

Non-GAAP Financial Measures

Adjusted Diluted Earnings Per Share

Adjusted diluted earnings per share is considered a non-GAAP financial measure. The Company believes this non-GAAP financial measure provides useful insight for analysts and investors in understanding the comparison of operational performance for the third quarter of fiscal 2022. Adjusted diluted earnings per share excludes the impact of a certain item, further described below, not contemplated in the Company’s business outlook for fiscal 2022. There were no non-GAAP adjustments to diluted earnings per share for the three months ended November 3, 2023.

Fiscal 2022 Impacts

*•*In the third quarter of fiscal 2022, the Company recognized a pre-tax $2.1 billion long-lived asset impairment of the Canadian retail business (Canadian retail business transaction).

Adjusted diluted earnings per share should not be considered an alternative to, or more meaningful indicator of, the Company’s diluted earnings per common share as prepared in accordance with GAAP. The Company’s methods of determining non-GAAP financial measures may differ from the method used by other companies and may not be comparable.

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1 Represents the corresponding tax benefit or expense specifically related to the item excluded from adjusted diluted earnings per share.

Return on Invested Capital

Return on Invested Capital (ROIC) is calculated using a non-GAAP financial measure. Management believes ROIC is a meaningful metric for analysts and investors as a measure of how effectively the Company is using capital to generate financial returns. Although ROIC is a common financial metric, numerous methods exist for calculating ROIC. Accordingly, the method used by our management may differ from the methods used by other companies. We encourage you to understand the methods used by another company to calculate ROIC before comparing its ROIC to ours.

We define ROIC as the rolling 12 months’ lease adjusted net operating profit after tax (Lease adjusted NOPAT) divided by the average of current year and prior year ending debt and shareholders’ deficit. Lease adjusted NOPAT is a non-GAAP financial measure, and net earnings is considered to be the most comparable GAAP financial measure. The calculation of ROIC, together with a reconciliation of net earnings to Lease adjusted NOPAT, is as follows:

1 Income tax adjustment is defined as lease adjusted net operating profit multiplied by the effective tax rate, which was 25.0% and 27.9% for the periods ended November 3, 2023, and October 28, 2022, respectively.

2 Average debt and shareholders’ deficit is defined as average current year and prior year ending debt, including current maturities, short-term borrowings, and operating lease liabilities, plus the average current year and prior year ending total shareholders’ deficit.

3 For the period ended November 3, 2023, and October 28, 2022, return on invested capital was negatively impacted 125 basis points and 590 basis points, respectively, as a result of the sale of the Canadian retail business.

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Results of Operations

Net Sales – Net sales in the third quarter of 2023 decreased 12.8% to $20.5 billion. The decrease in total sales was primarily driven by a comparable sales decline of 7.4% over the same period, consisting of a 6.9% decline in comparable customer transactions and a 0.5% decline in comparable average ticket. Prior year sales included $1.2 billion generated by our Canadian retail business, which was sold in the fourth quarter of fiscal 2022. Total sales also declined approximately $115 million due to the timing shift in our fiscal calendar, in which the third quarter of fiscal 2023 (a 52-week year) included one less week of summer and one more week of fall than fiscal 2022 (a 53-week year).

During the third quarter of 2023, we delivered positive comparable sales in Building Materials, partly driven by strong performance in Pro-heavy categories like roofing and drywall. Our DIY customer categories were impacted by lower DIY discretionary demand as consumers continue to navigate the macroeconomic environment.

Net sales decreased 9.2% to $67.8 billion for the first nine months of 2023 compared to 2022. The decrease in total sales was primarily driven by the sale of the Canadian retail business in fiscal 2022, which generated $4.1 billion of net sales in the first nine months of 2022. Comparable sales also declined 4.3% over the same period, driven by a 4.1% decline in comparable customer transactions and a 0.2% decline in comparable average ticket.

Gross Margin – For the third quarter of 2023, gross margin as a percentage of sales increased 36 basis points. The gross margin increase for the quarter is driven by productivity initiatives, favorable product mix and lower transportation costs, partially offset by higher costs associated with the expansion of our supply chain network.

Gross margin as a percentage of sales increased 16 basis points in the first nine months of 2023 compared to 2022 primarily due to the same factors that impacted gross margin for the third quarter.

SG&A – For the third quarter of 2023, SG&A expense leveraged 908 basis points as a percentage of sales compared to the third quarter of 2022, primarily due to the prior year long-lived asset impairment related to our Canadian retail business and ongoing productivity initiatives, partially offset by fixed cost pressure due to lower sales.

SG&A expense as a percentage of sales leveraged 315 basis points as a percentage of sales for the first nine months of 2023 compared to 2022, primarily due to the prior year long-lived asset impairment and current year gain on contingent consideration associated with the fiscal 2022 sale of the Canadian retail business, and legal settlements, partially offset by fixed cost pressure due to lower sales.

Depreciation and Amortization – Depreciation and amortization deleveraged 20 basis points as a percentage of sales for the third quarter of 2023 compared to 2022, primarily due to lower sales.

Depreciation and amortization deleveraged eight basis points as a percentage of sales for the first nine months of 2023 compared to 2022.

Interest – Net – Net interest expense for the third quarter of 2023 deleveraged 43 basis points, primarily due to interest expense related to the issuance of unsecured notes over the past year, partially offset by interest income on our cash equivalents and short-term investments.

Net interest expense for the first nine months of 2023 deleveraged 45 basis points, primarily due to the same factors that impacted interest expense for the third quarter.

Income Tax Provision – Our effective income tax rates were 24.6% and 75.5% for the three months ended November 3, 2023 and October 28, 2022, respectively, and 24.1% and 28.4% for the nine months ended November 3, 2023 and October 28, 2022, respectively. The favorable tax rate for the three and nine months ended November 3, 2023 compared to 2022 is largely driven by the prior year impact of increase in the valuation allowance for deferred taxes related to the long-lived asset impairment associated with RONA inc.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity

Cash flows from operations, combined with our continued access to capital markets on both a short-term and long-term basis, as needed, remain adequate to fund our operations, make strategic investments to support long-term growth, and return excess

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cash to shareholders in the form of dividends and share repurchases. We believe these sources of liquidity will continue to support our business for the next twelve months. As of November 3, 2023, we held $1.2 billion of cash and cash equivalents, as well as $4.0 billion in undrawn capacity on our revolving credit facilities.

Cash Flows Provided by Operating Activities

Cash flows from operating activities continued to provide the primary source of our liquidity. The decrease in net cash provided by operating activities for the nine months ended November 3, 2023, compared to the nine months ended October 28, 2022, was primarily driven by timing of income tax payments, partially offset by other changes in working capital. Other operating liabilities decreased operating cash flows by $2.1 billion during the first nine months of fiscal 2023. This decrease was primarily driven by the payment of our third and fourth quarter fiscal 2022 estimated federal tax payments that were deferred until the first quarter of fiscal 2023 under the income tax relief announced by the Internal Revenue Service for businesses located in states impacted by Hurricane Ian. Inventory increased operating cash flows for the nine months ended November 3, 2023, by approximately $1.0 billion. Inventory declined in the current year as we continue to manage inventory replenishment in line with sales trends.

Cash Flows Used in Investing Activities

Net cash used in investing activities primarily consists of transactions related to capital expenditures.

Capital expenditures

Our capital expenditures generally consist of investments in our strategic initiatives to enhance our ability to serve customers, improve existing stores, and support expansion plans. The following table provides our capital expenditures for the nine months ended November 3, 2023, and October 28, 2022:

1**Includes merchandising resets, facility repairs, replacements of IT and store equipment, among other specific efforts.

2**Represents investments related to our strategic focus areas aimed at improving customers’ experience and driving improved performance in the near and long term.

3**Represents expenditures primarily related to land purchases, buildings, and personal property for new store and corporate facilities projects.

For fiscal 2023, our guidance for capital expenditures is up to $2.0 billion.

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Cash Flows Used in Financing Activities

Net cash used in financing activities primarily consists of transactions related to our long-term debt, share repurchases, and cash dividend payments.

Total Debt

During the nine months ended November 3, 2023, we issued $3.0 billion of unsecured notes, the proceeds of which were designated for general corporate purposes. During the nine months ended November 3, 2023, we also paid $500 million due to the scheduled payoff of notes at maturity.

Our commercial paper program is supported by the 2023 Credit Agreement and the 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 our commercial paper program. There were no outstanding borrowings under our commercial paper program, 2023 Credit Agreement, or the Third Amended and Restated Credit Agreement as of November 3, 2023. Total combined availability under the 2023 Credit Agreement and the Third Amended and Restated Credit Agreement as of November 3, 2023 was $4.0 billion.

The 2023 Credit Agreement and the Third Amended and Restated Credit Agreement contain customary representations, warranties, and covenants. We were in compliance with those covenants at November 3, 2023.

The following table includes additional information related to our debt for the nine months ended November 3, 2023, and October 28, 2022:

Share Repurchases

We have an ongoing share repurchase program, authorized by the Company’s Board of Directors, that is executed through purchases made from time to time either in the open market or through private off-market transactions. We also withhold shares from employees to satisfy tax withholding liabilities. Shares repurchased are retired and returned to authorized and unissued status. The following table provides, on a settlement date basis, the total number of shares repurchased, average price paid per share, and the total cash used to repurchase shares for the nine months ended November 3, 2023, and October 28, 2022:

As of November 3, 2023, we had $15.0 billion remaining available under our share repurchase program with no expiration date. The Company determines the timing and amount of repurchases based on its assessment of various factors including prevailing market conditions, alternate uses of capital, liquidity, the economic environment and other factors. The timing and amount of these share repurchases are subject to change at any time.

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Dividends

Dividends are paid in the quarter immediately following the quarter in which they are declared. Dividends paid per share increased from $2.65 per share for the nine months ended October 28, 2022, to $3.20 per share for the nine months ended November 3, 2023.

Capital Resources

We expect to continue to have access to the capital markets on both a short-term and long-term basis when needed for liquidity purposes by issuing commercial paper or new long-term debt. The availability and the borrowing costs of these funds could be adversely affected, however, by a downgrade of our debt ratings or a deterioration of certain financial ratios. The table below reflects our debt ratings by Standard & Poor’s (S&P) and Moody’s as of November 29, 2023, which we are disclosing to enhance understanding of our sources of liquidity and the effect of our ratings on our cost of funds. Our debt ratings have enabled, and should continue to enable, us the option to refinance our debt as it becomes due. Our commercial paper and senior debt ratings may be subject to revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating.

There are no provisions in any agreements that would require early cash settlement of existing debt or leases as a result of a downgrade in our debt rating or a decrease in our stock price.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our significant accounting policies are described in Note 1 to the consolidated financial statements presented in the Annual Report. Our critical accounting policies and estimates are described in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Annual Report. Our significant and critical accounting policies and estimates have not changed significantly since the filing of the Annual Report.

The Company is exposed to certain market risks, including changes in interest rates and commodity prices. The Company’s market risks have not changed materially from those disclosed in the Annual Report for the fiscal year ended February 3, 2023.

The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company’s “disclosure controls and procedures,” (as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act)). Based upon their evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of November 3, 2023, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

The Company is undergoing a multi-year technology transformation which includes updating and modernizing our merchandise selling system, as well as certain accounting and finance systems. These updates are expected to continue for the next few years, and management will continue to evaluate the design and implementation of the Company’s internal controls over financial reporting as the transformation continues. No change in the Company’s internal control over financial reporting occurred during the quarter ended November 3, 2023, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II – OTHER INFORMATION

Item 1. - Legal Proceedings

The Company is from time to time a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. With respect to such lawsuits, claims and proceedings, the Company records reserves when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. The Company does not believe that any of these proceedings, individually or in the aggregate, would be expected to have a material adverse effect on its results of operations, financial position or cash flows. The Company maintains liability insurance for certain risks that are subject to certain self-insurance limits.

As previously reported, the U.S. Attorney’s Office for the Central District of California and the U.S. Environmental Protection Agency’s Region 9 Office are conducting an investigation with respect to whether the Company and independent contractors who performed installations under the Company’s third-party installer program complied with applicable recordkeeping requirements and lead-safe practices under the Toxic Substances Control Act, the Environmental Protection Agency’s Lead Renovation, Repair and Painting Rules, and with an Environmental Protection Agency civil consent decree that the Company entered into in 2014 in the context of projects in homes constructed before 1978. In the third quarter of fiscal 2023, the EPA’s Region 5 and other EPA and U.S. Department of Justice representatives informed the Company that they have identified possible deviations from the consent decree. While we cannot predict the ultimate outcomes of these matters, we do not expect them to have a material adverse effect on our consolidated financial condition, results of operations, or cash flows.

There have been no material changes in the Company’s risk factors from those disclosed in Part I, “Item 1A. Risk Factors” in our Annual Report filed with the SEC on March 27, 2023.

Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The following table sets forth information with respect to purchases of the Company’s common stock on a trade date basis made during the three months ended November 3, 2023:

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

2**On December 7, 2022, the Company announced that its Board of Directors authorized an additional $15.0 billion of share repurchases, in addition to the $13.0 billion of share repurchases authorized by the Board of Directors in December 2021, with no expiration.

3**Beginning January 1, 2023, the Company’s share repurchases in excess of issuances are subject to a 1% excise tax enacted by the Inflation Reduction Act. 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.

4**In August 2023, the Company entered into an Accelerated Share Repurchase (ASR) agreement with a third-party financial institution to repurchase the Company’s common stock. At inception, pursuant to the agreement, the Company paid $1.5 billion to the financial institution and received an initial delivery of 5.3 million shares. In October, the Company finalized the transaction and received an additional 1.7 million shares. The average price paid per share in settlement of the ASR agreement included in the table above was determined with reference to the volume-weighted average price of the Company’s common stock over the term of the ASR agreement. See Note 8 to the consolidated financial statements included herein for additional information regarding share repurchases.

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During the three months ended November 3, 2023, none of the Company’s directors or executive officers adopted or terminated any contract, instruction, or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” (as those terms are defined in Regulation S-K, Item 408).

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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