LOWE'S COMPANIES, INC. This discussion and analysis summarizes the significant factors affecting our consolidated operating results, liquidity and capital resources during the three and six months endedJuly 31, 2020 , andAugust 2, 2019 . 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 endedJanuary 31, 2020 (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 2019. This discussion and analysis is presented in six sections: • Executive Overview • Operations • Financial Condition, Liquidity and Capital Resources • Off-Balance Sheet Arrangements • Contractual Obligations and Commercial Commitments • Critical Accounting Policies and Estimates
EXECUTIVE OVERVIEW
Performance Overview
Net sales in the second quarter of 2020 increased 30.1% to$27.3 billion compared to net sales of$21.0 billion in the second quarter of 2019. The increase in total sales was primarily driven by an increase in comparable store sales. Net earnings in the second quarter of 2020 increased 68.8% to$2.8 billion compared to net earnings of$1.7 billion in the second quarter of 2019. Diluted earnings per common share increased 74.9% in the second quarter of 2020 to$3.74 from$2.14 in the second quarter of 2019. Excluding the impact of operating costs related to theCanada restructuring, adjusted diluted earnings per common share increased 74.4% to$3.75 in the second quarter of 2020 from adjusted diluted earnings per common share of$2.15 in the second quarter of 2019 (see the discussion of non-GAAP financial measures ).
For the first six months of 2020, cash flows from operating activities were
approximately
We experienced unprecedented customer demand during the second quarter of 2020 largely due to a consumer mindset that remains heavily focused on the home during the COVID-19 pandemic. Our modernization efforts over the last 18 months to implement our retail fundamentals strategy created the technology and operational platforms needed to meet these demand levels and grow our business during these challenging times. Comparable sales increased by 34.2% with broad-based growth across all channels, product categories and geographies. All 15 U.S. regions generated positive comparable sales of at least 30%, while our Canadian region's comparable sales exceeded 20%. During the second quarter, we completed the re-platforming of Lowes.com to the cloud which enabled us to improve site functionality to achieve triple-digit online sales growth during the quarter. With a focus on enhancing our omnichannel capabilities, we launched "mobile check-in" for curbside pickup in early July and added an internal order picking app to improve our associate's speed and accuracy in fulfilling orders. We also completed the rollout of our touchscreen point of sale system at checkouts across all our stores.
COVID-19 Response
Our top priority in navigating the COVID-19 pandemic continues to be protecting the health and well-being of our associates and customers through a safe store environment. In addition to the safety measures we implemented in the first quarter to support social distancing and enhance cleaning procedures, we added additional safety measures in the second quarter by requiring all front-line associates to wear masks and adopting a nationwide standard for all customers to wear masks. We are also committed to providing financial assistance to our hourly associates and communities which was demonstrated through an incremental total investment during the second quarter of$461 million in support of our hourly associates, communities, and store safety initiatives. This support included two bonus payments in July and August for our hourly front-line associates totaling$228 million , bringing our combined COVID-related financial support for associates to$562 million year-to-date. In 19
--------------------------------------------------------------------------------
Table of Contents
support of our communities, we have contributed
Supply Chain
Due to strong customer demand during the second quarter and the impacts of COVID-19 on production, certain product categories have experienced delays in replenishment. Those categories primarily impacted are Seasonal & Outdoor Living, Appliances, and Lumber. Despite the supply pressure, our supply chain teams, partnering with our vendors, were able to continue to flow considerable product volume to the stores and delivery nodes during the quarter.
Looking Forward
In the second half of 2020, we plan to continue reinvesting in our business to elevate our product offering, simplify our store environment and improve our service offering to support long-term growth. We are beginning a merchandising reset across our store portfolio to better align our product adjacencies to customer shopping patterns, especially for our Pro customers. This reset is forecasted to be completed in the current fiscal year for the majority of stores and is expected to improve bay productivity and better support sales. In addition, we will continue to invest in advancing our supply chain infrastructure to further our omnichannel capabilities and position the Company for future growth. Over the next 18 months, we are currently planning to open 50 cross-dock delivery terminals, seven bulk distribution centers, and four e-commerce fulfillment centers. While we remain optimistic about our performance, we have limited visibility into future business trends in this unprecedented operating environment. This results in an unusually wide range of potential business outcomes and as such, we cannot be certain of the volume or duration of customer demand or potential supply chain constraints in future periods.
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).
Percentage
Basis Point Increase Increase /
/ (Decrease) in (Decrease) in
Percentage of Net Dollar Amounts
Sales from Prior from Prior
Three Months Ended Period Period
July 31, 2020 August 2, 2019 2020 vs. 2019 2020 vs. 2019
Net sales 100.00 % 100.00 % N/A 30.1 %
Gross margin 34.08 32.11 197 38.0
Expenses:
Selling, general and
administrative 18.39 19.29 (90) 24.0
Depreciation and amortization 1.20 1.48 (28) 5.0
Operating income 14.49 11.34 315 66.2
Interest - net 0.80 0.80 - 29.2
Pre-tax earnings 13.69 10.54 315 69.0
Income tax provision 3.33 2.56 77 69.8
Net earnings 10.36 % 7.98 % 238 68.8 %
20--------------------------------------------------------------------------------
Table of Contents
Percentage
Basis Point Increase Increase /
/ (Decrease) in (Decrease) in
Percentage of Net Dollar Amounts
Sales from Prior from Prior
Six Months Ended Period Period
July 31, 2020 August 2, 2019 2020 vs. 2019 2020 vs. 2019
Net sales 100.00 % 100.00 % N/A 21.3 %
Gross margin 33.67 31.81 186 28.4
Expenses:
Selling, general and
administrative 19.62 20.42 (80) 16.5
Depreciation and amortization 1.39 1.58 (19) 6.4
Operating income 12.66 9.81 285 56.6
Interest - net 0.90 0.86 4 27.7
Pre-tax earnings 11.76 8.95 281 59.4
Income tax provision 2.89 1.92 97 82.6
Net earnings 8.87 % 7.03 % 184 53.0 %
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).
Beginning onFebruary 1, 2020 , the Company changed the basis in which it presents the comparable sales metric. The current metric is presented on a transacted basis when tender is accepted from a customer. Prior to this change, the Company's comparable sales metric was based on when control of the good or service passed to the customer, which included timing impacts of deferred sales. These timing impacts have historically had an insignificant impact on annual comparable sales. The purpose of the change was to align the metric with how theLowe's management team evaluates the business throughout the year and views performance relative to peers. For the three and six months endedJuly 31, 2020 , the impact of excluding deferred sales increased the comparable sales metric by 291 basis points and 125 basis points, respectively. For the three and six months endedAugust 2, 2019 , the impact of excluding deferred sales decreased the comparable sales metric by 38 basis points and 34 basis points, respectively. The comparable sales metric for the three and six months endedAugust 2, 2019 , has been recast to conform to the current year presentation. 21
--------------------------------------------------------------------------------
Table of Contents
Three Months Ended Six Months Ended
Other Metrics July 31, 2020 August 2, 2019 July 31, 2020 August 2, 2019
Comparable sales increase 1 34.2 % 2.0 % 23.6 % 2.5 %
Total customer transactions (in millions) 330 269 563 499
Average ticket 2 $ 82.79 $ 77.97 $ 83.45 $ 77.61
At end of period:
Number of stores 1,968 2,003
Sales floor square feet (in millions) 208 209
Average store size selling square feet (in thousands) 3 106
104
Net earnings to average debt and equity 4 20.7 % 10.0 % Return on invested capital 4 23.3 % 12.3 % 1 A comparable location is defined as a 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 have decided to close is no longer considered comparable as of the beginning of the month in which we announce its closing. Comparable sales include online sales, which positively impacted second quarter fiscal 2020 comparable sales by approximately 650 basis points and year-to-date fiscal 2020 comparable sales by approximately 545 basis points. The comparable store sales calculation included in the preceding table was calculated using comparable 13-week and 26-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 averageLowe's -branded home improvement store has approximately 112 thousand 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 equity is the most comparable GAAP ratio. 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 evaluating what management considers the Company's core financial performance. Adjusted diluted earnings per share excludes the impact of certain discrete items, as further described below, not contemplated in the Company's original business outlooks for the second quarter of fiscal 2020 and fiscal 2019. Unless otherwise noted, the income tax effect of these adjustments is calculated using the marginal rates for the respective periods. Fiscal 2020 Impacts •Beginning in the third quarter of fiscal 2019, the Company began a strategic review of its Canadian operations, and in the fourth quarter of fiscal 2019, the Company announced additional actions to improve future performance and profitability of its Canadian operations. As a result of this review and related actions, during the three months endedJuly 31, 2020 , the Company recognized$10 million of pre-tax operating costs related to remaining inventory write-downs and store closing costs (Canada restructuring). Fiscal 2019 Impacts •Prior to the beginning of fiscal 2019, the Company announced its intention to exit itsMexico retail operations and had planned to sell the operating business. During the three months endedAugust 2, 2019 , the Company recognized a net loss of$12 million in pre-tax operating losses associated with the exit and ongoing wind-down of theMexico retail operations (Mexico adjustments). 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. 22
--------------------------------------------------------------------------------
Table of Contents
Three Months Ended
July 31, 2020 August 2, 2019
Pre-Tax
Earnings Tax Net Earnings Pre-Tax Earnings Tax Net Earnings
Diluted earnings per share, as
reported $ 3.74 $ 2.14
Non-GAAP adjustments - per share impacts Canada restructuring 0.01 - 0.01 - - - Mexico adjustments - - - 0.02 (0.01) 0.01 Adjusted diluted earnings per share$ 3.75 $ 2.15 Return onInvested Capital Return onInvested 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 profits. 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 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 equity. 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: For the Periods
Ended
(In millions, except percentage data) July 31, 2020 August 2, 2019 Calculation of Return onInvested Capital Numerator Net Earnings$ 5,724 $ 2,527 Plus: Interest expense - net 783 643 Operating lease interest 182 197 Provision for income taxes 1,957 1,018 Lease adjusted net operating profit 8,646
4,385
Less:
Income tax adjustment 1 2,203
1,258
Lease adjusted net operating profit after tax$ 6,443 $ 3,127 Denominator Average debt and equity 2$ 27,637 $ 25,395 Net earnings to average debt and equity 20.7 % 10.0 % Return on invested capital 23.3 % 12.3 % 1 Income tax adjustment is defined as net operating profit multiplied by the effective tax rate, which was 25.5% and 28.7% for the periods endedJuly 31, 2020 , andAugust 2, 2019 , respectively. 2 Average debt and equity 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 equity. Results of OperationsNet Sales - Net sales in the second quarter of 2020 increased 30.1% to$27.3 billion . The increase in total sales was primarily driven by comparable store sales growth. Comparable sales increased 34.2% over the same period, driven by a 22.6% increase in comparable customer transactions and a 11.6% increase in comparable average ticket. 23 -------------------------------------------------------------------------------- Table of Contents During the second quarter of 2020, we experienced comparable sales increases in all 15 product categories with broad-based strength in performance across both do-it-yourself (DIY) and Pro customers. Comparable sales were above the Company average in Lumber, Lawn & Garden, Tools, Paint, and Seasonal & Outdoor Living. During the quarter, we saw very strong demand for DIY areas as consumers focused on the home given the increased time spent there, and wallet share shift away from other expendable activities. This included core repair and maintenance categories, as well as incremental projects to improve the function of their homes. Despite supply pressure, Lumber experienced strong performance across all subdivisions driven by DIY projects and growth in Pro sales. COVID-19 preparation in cleaning and core spring categories was a key driver in Lawn & Garden. Tools and Paint experienced a significant increase in volume as consumers spent time on DIY friendly home projects and improvements. Geographically, all 15 U.S. regions and the Canadian region experienced positive comparable sales in excess of 20%. Net sales increased 21.3% to$47.0 billion for the first six months of 2020 compared to 2019. The increase in total sales was driven primarily by an increase in comparable store sales. Comparable sales increased 23.6% over the same period, primarily driven by a 13.0% increase in customer transactions and a 10.6% increase in comparable average ticket. Gross Margin - For the second quarter of 2020, gross margin as a percentage of sales increased 197 basis points. The gross margin increase for the quarter is driven by approximately 140 basis points of total rate improvement, driven by benefits from our improved pricing and promotional strategy, and 60 basis points due to a favorable product mix as demand was stronger in higher margin categories. Gross margin as a percentage of sales increased 186 basis points in the first six months of 2020 compared to 2019. Gross margin was positively impacted by approximately 120 basis points of total rate improvement and 45 basis points due to a favorable product mix as demand was stronger in higher margin categories. SG&A - For the second quarter of 2020, SG&A expense leveraged 90 basis points as a percentage of sales compared to the second quarter of 2019. This is primarily driven by approximately 110 basis points of leverage in retail operating salaries due to increased sales and improved operating efficiencies, 40 basis points of leverage in employee benefits resulting from lower insurance claims due to COVID-19 deferral of elective medical care, 40 basis points of occupancy leverage due to higher sales volume compared to fixed occupancy costs, and 35 basis points of leverage in advertising expense. These were partially offset by 155 basis points of deleverage due to COVID-19 related expenses, including two hourly front-line employee bonuses, emergency paid leave, charitable contributions, increased cleaning costs and other safety-related programs. SG&A expense as a percentage of sales leveraged 80 basis points in the first six months of 2020 compared to 2019. This was primarily driven by 115 basis points of leverage in retail operating salaries, 35 basis points of leverage in advertising, and 25 basis points of leverage in employee insurance. These were partially offset by 100 basis points of deleverage due to COVID-19 related compensation. Depreciation and Amortization - Depreciation and amortization leveraged 28 basis points for the second quarter of 2020 compared to the prior year primarily due to an increase in sales during the period. Property, less accumulated depreciation, increased to$18.6 billion atJuly 31, 2020 , compared to$18.2 billion atAugust 2, 2019 . As ofJuly 31, 2020 , andAugust 2, 2019 , we owned 84% and 83% of our stores, respectively, which included stores on leased land.
Depreciation and amortization leveraged 19 basis points for the first six months of 2020 compared to 2019 primarily due to the same factors that impacted depreciation and amortization for the second quarter.
Interest - Net - Interest expense for the second quarter of 2020 increased
primarily as a result of the issuance of
Interest expense for the first six months of 2020 increased primarily due to the same factors that impacted interest expense for the second quarter.
Income Tax Provision - Our effective income tax rates were 24.4% and 24.2% for
the three months ended
Our effective income tax rates were 24.6% and 21.5% for the six months endedJuly 31, 2020 , andAugust 2, 2019 , respectively. The increase in the effective tax rate for the first six months is primarily due to a favorable tax benefit recorded during the first quarter of 2019 associated with a change in approach to pursue a sale of theMexico operations through liquidation. 24 -------------------------------------------------------------------------------- Table of Contents FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Sources of Liquidity
Significant customer demand and operating performance year-to-date drove a substantial increase in cash flows from operations. These increases, supplemented with our short-term and long-term borrowings, have provided ample liquidity to fund our operations while allowing us to make strategic investments in our omnichannel capabilities to support long-term growth and return excess cash to shareholders in the form of dividends. Due to the uncertainty caused by the COVID-19 pandemic, we also suspended our share repurchases during the first quarter of fiscal 2020. As ofJuly 31, 2020 , we held$11.6 billion of cash and cash equivalents, as well as$3 billion in undrawn capacity on our revolving credit facilities.
Cash Flows Provided by Operating Activities
Six Months Ended
(In millions) July 31, 2020
Net cash provided by operating activities $ 11,752 $ 3,583
Cash flows from operating activities continued to provide the primary source of
our liquidity. The increase in net cash provided by operating activities for the
six months ended July 31, 2020 , versus the six months ended August 2, 2019 , was
driven primarily by higher net earnings and changes in working capital. Accounts
payable increased for the first six months of 2020 by $5.3 billion , compared to
an increase for the first six months of 2019 of $1.2 billion , driving an
additional $4.1 billion in operating cash flows for the first six months of
fiscal 2020, primarily due to significant inventory purchases in 2020 due to
high customer demand as compared to 2019. Other operating liabilities increased
$1.8 billion for the first six months of 2020 compared to an increase of $36
million in the first six months of 2019. The increase in other operating
liabilities in the current year is primarily driven by increases in deferred
revenue and income taxes payable related to higher sales in the current year,
increased accrued compensation and employee benefits driven by higher bonus
attainment as well as additional COVID-related accrued bonuses for employees,
and increased accrued payroll taxes due to the deferral of the employer portion
of social security tax in accordance with the CARES Act. Inventory decreased
operating cash flow for the first six months of 2020 by approximately $670
million , compared to a decrease of approximately $1.2 billion for the first six
months of 2019, primarily due to an earlier spring inventory build in 2020
compared to 2019.
Cash Flows Used in Investing Activities
Six Months Ended
(In millions) July 31, 2020 August2, 2019
Net cash used in investing activities $ (1,560) $ (458)
Net cash used in investing activities primarily consists of transactions related to capital expenditures and investments.
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 six months ended
Six Months Ended
(In millions) July 31, 2020 August 2, 2019
Existing store investments 1 $ 587 $ 369
Strategic initiatives 2 78 86
New stores, new corporate facilities and international 3 45 71
Total capital expenditures $ 710 $ 526
1Includes merchandising resets, facility repairs, replacements of IT and store
equipment, among other specific efforts.
2Represents investments related to our strategic focus areas aimed at improving
customers' experience and driving improved performance in the near and long
term.
3Represents expenditures primarily related to land purchases, buildings, and
personal property for new store projects and new corporate facilities projects,
as well as expenditures related to our international operations.
25--------------------------------------------------------------------------------
Table of Contents
Our 2020 capital expenditures forecast is approximately
Cash Flows Provided by Financing Activities
Six Months Ended
(In millions) July 31, 2020 August 2, 2019 Net cash provided by (used in) financing activities$ 729 $
(1,851)
Net cash provided by financing activities primarily consists of transactions related to our long-term debt, short-term borrowings, share repurchases, and cash dividend payments.
Short-term Borrowing Facilities
In
InMarch 2020 , we entered into a$1.02 billion five year unsecured revolving credit agreement (the 2020 Credit Agreement) with a syndicate of banks. In addition, we have a$1.98 billion five year unsecured revolving second amended and restated credit agreement (the Second Amended and Restated Credit Agreement) with a syndicate of banks. Subject to obtaining commitments from the lenders and satisfying other conditions specified in the 2020 Credit Agreement and the Second Amended and Restated Credit Agreement, the Company may increase the combined aggregate availability of both agreements by an additional$520 million . The 2020 Credit Agreement and the Second Amended and Restated Credit Agreement support our commercial paper program. The amount available to be drawn under the 2020 Credit Agreement and the Second Amended and Restated Credit Agreement is reduced by the amount of borrowings under our commercial paper program. There were no outstanding borrowings under the Company's commercial paper program, the 2020 Credit Agreement, or the Second Amended and Restated Credit Agreement as ofJuly 31, 2020 , andAugust 2, 2019 . Total combined availability under the 2020 Credit Agreement and the Second Amended and Restated Credit Agreement as ofJuly 31, 2020 , was$3.0 billion .
The following table includes additional information related to our short-term
borrowings for the six months ended
Six Months Ended
(In millions, except for interest rate data) July 31, 2020 August 2, 2019
Net change in commercial paper $ (941) $ (722)
Maximum commercial paper outstanding at any month-end $ 1,858 $ 1,189
Short-term borrowings outstanding at quarter-end $ 1,000 $ -
Weighted-average interest rate of short-term borrowings
outstanding 1.42 % - %
The 2020 Credit Agreement and the Second Amended and Restated Credit Agreement
contains customary representations, warranties, and covenants. We were in
compliance with those covenants at
26
--------------------------------------------------------------------------------
Table of Contents
Long-Term Debt
The following table includes additional information related to the Company's
long-term debt for the six months ended
Six Months Ended
(In millions) July 31, 2020 August 2, 2019
Net proceeds from issuance of debt
Repayment of long-term debt $ (568) $ (629)
During the six months endedJuly 31, 2020 , we issued$4.0 billion of unsecured notes to finance current year maturities and for other general corporate purposes. During the six months endedJuly 31, 2020 , we also paid$500 million to retire scheduled debts at maturity.
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. Due to the uncertainty caused by the COVID-19 pandemic, we suspended our share repurchases during the first quarter of fiscal 2020. The following table provides, on a settlement date basis, the total number of shares repurchased, average price paid per share, and the total amount paid for share repurchases for the six months endedJuly 31, 2020 , andAugust 2, 2019 : Six Months Ended
(In millions, except per share data)
Total amount paid for share repurchases $ 966 $
2,770
Total number of shares repurchased 9.8 27.4
Average price paid per share $ 98.78 $ 100.98
As of
Dividends
Dividends are paid in the quarter immediately following the quarter in which they are declared. Dividends paid per share increased from$0.96 per share for the six months endedAugust 2, 2019 , to$1.10 per share for the six months endedJuly 31, 2020 . 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 byStandard & Poor's (S&P) and Moody's as ofAugust 26, 2020 , 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 to refinance our debt as it becomes due at favorable rates in capital markets. 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. Debt Ratings S&P Moody's Commercial Paper A-2 P-2 Senior Debt BBB+ Baa1 Senior Debt Outlook Stable Stable 27
-------------------------------------------------------------------------------- Table of Contents 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. In addition, we do not believe it will be necessary to repatriate significant cash and cash equivalents and short-term investments held in foreign affiliates to fund domestic operations.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet financing that has, or is reasonably likely to have, a material, current or future effect on our financial condition, cash flows, results of operations, liquidity, capital expenditures or capital resources.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
InMarch 2020 , we issued$4.0 billion of unsecured notes in the ordinary course of business and used a portion of the net proceeds from the sale of the notes for the repayment of$500 million aggregate principal amount dueApril 2020 . The table below summarizes our contractual obligations relating to long-term debt, excluding operating and finance lease obligations, atJuly 31, 2020 . The unsecured notes issued in the first quarter of fiscal 2020 are further described in Note 6 to the consolidated financial statements included herein. Payments Due by Period Less Than 1-3 4-5 After 5 (In millions) Total 1 Year Years Years Years Long-term debt (principal amounts, excluding discounts and debt issuance costs)$ 20,313 $ 525 $ 1,268 $ 1,701 $ 16,819 Long-term debt (interest payments) 13,729 853 1,594 1,523 9,759 Total$ 34,042 $ 1,378 $ 2,862 $ 3,224 $ 26,578 As ofJuly 31, 2020 , there were no other material changes to our contractual obligations and commercial commitments outside the ordinary course of business since the end of 2019. Refer to the Annual Report on Form 10-K for additional information regarding our contractual obligations and commercial commitments.
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 have not changed significantly since the filing of the Annual Report.
© Edgar Online, source
