This discussion and analysis summarizes the significant factors affecting our
consolidated operating results, liquidity and capital resources during the three
and nine months ended October 30, 2020, and November 1, 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 ended January 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 third quarter of 2020 increased 28.3% to $22.3 billion compared
to net sales of $17.4 billion in the third quarter of 2019. The increase in
total sales was primarily driven by an increase in comparable sales. Net
earnings in the third quarter of 2020 were $692 million which represents a
decrease of 34.1% compared to net earnings of $1.0 billion in the third quarter
of 2019. Diluted earnings per common share decreased 32.7% in the third quarter
of 2020 to $0.91 from $1.36 in the third quarter of 2019. Included in the third
quarter results is a $1.1 billion pre-tax loss related to the extinguishment of
debt from a cash tender offer to purchase and retire $3.0 billion combined
aggregate principal amount of its outstanding notes with a weighted average
interest rate of 4.80%. The Company funded the cash tender offer with a $4
billion issuance of unsecured notes with a weighted average interest rate of
2.17%. These efforts took advantage of a favorable interest rate environment to
reduce our long-term interest expense. Also included in the third quarter of
fiscal 2020 results are operating costs related to the Canada restructuring. The
third quarter of 2019 included $53 million of pre-tax charges related to
long-lived asset impairments associated with the Canada restructuring. Excluding
the impact of these items, adjusted diluted earnings per common share increased
40.4% to $1.98 in the third quarter of 2020 from adjusted diluted earnings per
common share of $1.41 in the third quarter of 2019 (see the discussion of
non-GAAP financial measures ).
For the first nine months of 2020, cash flows from operating activities were
approximately $11.5 billion, while $1.2 billion was used for capital
expenditures. Continuing to deliver on our commitment to return excess cash to
shareholders, we reinstated our share repurchase program during the third
quarter and repurchased $621 million of common stock and paid $416 million in
dividends during the three months ended October 30, 2020.
During the third quarter of 2020, strong execution enabled us to meet
broad-based demand driven by a consumer focus on redesigning the function and
enjoyment of the home. Comparable sales increased by 30.1% with greater than 15%
growth in all 15 merchandising divisions and triple-digit growth online. All
geographic regions generated positive comparable sales of at least 20%. We have
experienced consistent strong project demand from both Do-It-Yourself (DIY) and
Pro customers throughout the quarter. During the third quarter, we made a
significant merchandising investment to reset the layout of our U.S. stores
(U.S. Stores Reset) to better align our product adjacencies and create a more
intuitive shopping experience, especially for Pro customers. As a result of this
ongoing U.S. Stores Reset, the Company incurred $100 million of expense during
the third quarter of fiscal 2020 and expects to incur approximately $150 million
of expense in the fourth quarter of fiscal 2020.
Our enhanced omnichannel capabilities have enabled us to meet the expectations
of customers to shop whichever way they choose. With the re-platforming of
Lowes.com to the cloud, we have been deploying enhancements to deliver a better
customer experience including online delivery scheduling. Also during the third
quarter, we began adding touchless buy online pickup in store (BOPIS) lockers to
our stores, which complement our curbside pickup and BOPIS pickup at checkout.
We are focused on rolling out these lockers to our major metro markets for the
holiday season.
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COVID-19 Response
We continue to be guided by our three key priorities in navigating the COVID-19
pandemic: 1) protecting the health and safety of our associates and customers
through a safe store environment and shopping experience; 2) providing support
for our community, including healthcare providers and first responders; and 3)
financially supporting our associates during this challenging time. In response
to these priorities, we have implemented store safety initiatives to support
social distancing and enhance cleaning procedures, as well as adopted a
requirement for all front-line associates to wear masks and a nationwide
standard for all customers to wear masks. As part of our commitment to provide
financial assistance to our associates, we incurred an incremental $245 million
of expense to support our associates in the third quarter. This included two
additional discretionary bonus payments for our hourly associates, bringing our
total investment in our associates to $807 million for the first nine months of
fiscal 2020. In support of our communities, we have contributed $104 million in
community pandemic relief year-to-date, including grants to support
minority-owned and rural small businesses.
Looking Forward
In the fourth quarter of 2020, we expect to have our U.S. Stores Reset complete
for over 90% of our U.S. stores, which is expected to improve bay productivity
and better support long-term sales growth. We also continue to focus on our
previously announced investment in our supply chain infrastructure to expand our
omnichannel retailing capabilities that will drive sustainable growth. In
addition, we are focused on our growth opportunity online and removing points of
friction from our online shopping experience.
While we remain optimistic about our performance, we have limited visibility
into long-term business trends in this unprecedented operating environment,
including the volume or duration of customer demand or potential supply chain
constraints. However, we remain confident that we are making the right
investments to drive sustainable growth.
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).
Basis Point Increase
/ (Decrease) in Percentage Increase /
Percentage of Net (Decrease) in Dollar
Sales from Prior Amounts from Prior
Three Months Ended Period Period
October 30, 2020 November 1, 2019 2020 vs. 2019 2020 vs. 2019
Net sales 100.00 % 100.00 % N/A 28.3 %
Gross margin 32.72 32.44 28 29.4
Expenses:
Selling, general and administrative 21.38 21.69 (31) 26.4
Depreciation and amortization 1.59 1.79 (20) 14.5
Operating income 9.75 8.96 79 39.6
Interest - net 0.99 1.02 (3) 25.4
Loss on extinguishment of debt 4.75 - 475 N/A
Pre-tax earnings 4.01 7.94 (393) (35.3)
Income tax provision 0.91 1.90 (99) (39.0)
Net earnings 3.10 % 6.04 % (294) (34.1) %
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Basis Point Increase
/ (Decrease) in Percentage Increase /
Percentage of Net (Decrease) in Dollar
Sales from Prior Amounts from Prior
Nine Months Ended Period Period
October 30, 2020 November 1, 2019 2020 vs. 2019 2020 vs. 2019
Net sales 100.00 % 100.00 % N/A 23.5 %
Gross margin 33.36 32.01 135 28.7
Expenses:
Selling, general and administrative 20.18 20.82 (64) 19.7
Depreciation and amortization 1.46 1.65 (19) 9.1
Operating income 11.72 9.54 218 51.7
Interest - net 0.93 0.90 3 26.9
Loss on extinguishment of debt 1.53 - 153 N/A
Pre-tax earnings 9.26 8.64 62 32.4
Income tax provision 2.25 1.92 33 45.1
Net earnings 7.01 % 6.72 % 29 28.8 %
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 on February 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 the
Lowe's management team evaluates the business throughout the year and views
performance relative to peers. For the three and nine months ended October 30,
2020, the impact of excluding deferred sales increased the comparable sales
metric by 8 basis points and 88 basis points, respectively. For the three and
nine months ended November 1, 2019, the impact of excluding deferred sales
decreased the comparable sales metric by 10 basis points and 26 basis points,
respectively. The comparable sales metric for the three and nine months ended
November 1, 2019, has been recast to conform to the current year presentation.
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Three Months Ended Nine Months Ended
Other Metrics October 30, 2020
November 1, 2019October 30, 2020November 1, 2019
Comparable sales increase 1
30.1 % 2.1 % 25.6 % 2.4 %
Total customer transactions (in millions) 257 221 819 720
Average ticket 2 $ 86.96 $ 78.71 $ 84.55 $ 77.95
At end of period:
Number of stores 1,969 2,004
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 19.5 % 11.7 %
Return on invested capital 4 25.1 % 14.2 %
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 third quarter fiscal 2020 comparable sales by
approximately 485 basis points and year-to-date fiscal 2020 comparable sales by
approximately 530 basis points. The comparable 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 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 third 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 ended October 30, 2020, the Company recognized
$13 million of pre-tax operating costs related to remaining inventory
write-downs and other closing costs (Canada restructuring).
•In the third quarter of fiscal 2020, the Company recognized a $1.1 billion loss
on extinguishment of debt in connection with a $3.0 billion cash tender offer
(Loss on extinguishment of debt).
Fiscal 2019 Impacts
•During the third quarter of fiscal 2019, the Company began a strategic review
of its Canadian operations, and as a result, recognized pre-tax charges of $53
million associated with long-lived asset impairment (Canada restructuring).
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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Three Months Ended
October 30, 2020 November 1, 2019
Pre-Tax Earnings Tax Net Earnings Pre-Tax Earnings Tax Net
Earnings
Diluted earnings per share, as
reported $ 0.91 $
1.36
Non-GAAP adjustments - per share
impacts
Loss on extinguishment of debt 1.40 (0.35) 1.05 - - -
Canada restructuring 0.02 - 0.02 0.07 (0.02) 0.05
Adjusted diluted earnings per share $ 1.98$ 1.41
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 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 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 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) October 30, 2020 November 1, 2019
Calculation of Return on Invested Capital
Numerator
Net Earnings $ 5,367 $ 2,947
Plus:
Interest expense - net 827 665
Loss on extinguishment of debt 1,060 -
Operating lease interest 177 186
Provision for income taxes 1,828 1,177
Lease adjusted net operating profit 9,259
4,975
Less:
Income tax adjustment 1 2,353
1,414
Lease adjusted net operating profit after tax $ 6,906 $
3,561
Denominator
Average debt and equity 2 $ 27,525$ 25,106
Net earnings to average debt and equity 19.5 % 11.7 %
Return on invested capital 25.1 % 14.2 %
1 Income tax adjustment is defined as lease adjusted net operating profit
multiplied by the effective tax rate, which was 25.4% and 28.4% for the periods
ended October 30, 2020, and November 1, 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 Operations
Net Sales - Net sales in the third quarter of 2020 increased 28.3% to $22.3
billion. The increase in total sales was primarily driven by comparable sales
growth. Comparable sales increased 30.1% over the same period, driven by a 16.4%
increase in comparable customer transactions and a 13.7% increase in comparable
average ticket.
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During the third quarter of 2020, we experienced comparable sales increases in
all 15 product categories with broad-based strength in performance across both
DIY and Pro customers. Comparable sales were above the Company average in
Lumber, Lawn & Garden, Seasonal & Outdoor Living, and Décor. Lumber experienced
strong unit demand across DIY and Pro customers. As customers actively engaged
in outdoor landscaping and other beautification projects, Lawn & Garden
experienced broad based strength across the category. Hurricane preparation
activities and favorable weather drove growth in Seasonal & Outdoor Living.
Décor experienced strong performance in home accents and home organization as
customers continue to look for impactful DIY projects. Geographically, all 15
U.S. regions and the Canadian region experienced positive comparable sales in
excess of 20%.
Net sales increased 23.5% to $69.3 billion for the first nine months of 2020
compared to 2019. The increase in total sales was driven primarily by an
increase in comparable sales. Comparable sales increased 25.6% over the same
period, primarily driven by a 14.0% increase in customer transactions and a
11.6% increase in comparable average ticket.
Gross Margin - For the third quarter of 2020, gross margin as a percentage of
sales increased 28 basis points. The gross margin increase for the quarter is
driven by approximately 65 basis points of total rate improvement, driven by
continued improvements from our pricing and promotional strategies and 35 basis
points due to a favorable product mix as demand was stronger in higher margin
categories. These favorable impacts were partially offset by 30 basis points
from lower credit revenue, 25 basis points of deleverage from inventory shrink,
and 20 basis points of deleverage from supply chain costs.
Gross margin as a percentage of sales increased 135 basis points in the first
nine months of 2020 compared to 2019. Gross margin was positively impacted by
approximately 165 basis points of total rate improvement and 35 basis points of
leverage due to favorable product mix, partially offset by 30 basis points of
deleverage due to tariff pressure and 15 bps of deleverage from inventory
shrink.
SG&A - For the third quarter of 2020, SG&A expense leveraged 31 basis points as
a percentage of sales compared to the third quarter of 2019. This is primarily
driven by approximately 90 basis points of leverage in retail operating salaries
due to increased sales and improved operating efficiencies, 35 basis points of
occupancy leverage due to higher sales volume compared to fixed occupancy costs,
35 basis points of leverage in employee benefits due to the CARES Act employee
retention tax credit, 25 basis points of leverage in advertising expense due to
optimizing our channel mix, and 20 basis points of leverage from the prior
year's long-lived asset impairment due to the Company's strategic review of the
Canadian operations initiated during the third quarter of 2019. These were
partially offset by 130 basis points of deleverage due to COVID-19 related
expenses, including two hourly front-line employee bonuses, emergency paid
leave, and increased cleaning costs and other safety-related programs, as well
as 45 basis points of deleverage due to our U.S. Stores Reset.
SG&A expense as a percentage of sales leveraged 64 basis points in the first
nine months of 2020 compared to 2019. This was primarily driven by 105 basis
points of leverage in retail operating salaries, 35 basis points of leverage in
advertising, 35 basis points of leverage in employee benefits, and 35 basis
points of leverage in occupancy costs. These were partially offset by 150 basis
points of deleverage due to COVID-19 related expenses.
Depreciation and Amortization - Depreciation and amortization leveraged 20 basis
points as a percentage of sales for the third quarter of 2020 compared to the
prior year primarily due to an increase in sales during the period. Property,
less accumulated depreciation, increased to $18.7 billion at October 30, 2020,
compared to $18.4 billion at November 1, 2019. As of October 30, 2020, and
November 1, 2019, we owned 84% and 83% of our stores, respectively, which
included stores on leased land.
Depreciation and amortization leveraged 19 basis points as a percentage of sales
for the first nine months of 2020 compared to 2019 primarily due to the same
factors that impacted depreciation and amortization for the third quarter.
Interest - Net - Interest expense for the third quarter of 2020 increased
primarily as a result of the issuance of $4.0 billion unsecured notes in March
2020 and $4.0 billion unsecured notes in October 2020, the $1.0 billion term
loan entered in January 2020 that was repaid during the quarter, as well as
amortization of the loss on cash flow hedges.
Interest expense for the first nine months of 2020 increased primarily due to
the same factors that impacted interest expense for the third quarter.
Loss on Extinguishment of Debt - During the third quarter of 2020, we
repurchased and retired $3.0 billion aggregate principal amount of our
outstanding debt resulting in a loss on extinguishment of debt of $1.1 billion.
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Income Tax Provision - Our effective income tax rates were 22.6% and 24.0% for
the three months ended October 30, 2020, and November 1, 2019, respectively. The
decrease in the effective tax rate for the quarter was impacted by higher
earnings at RONA inc., which has a full valuation allowance on its deferred tax
assets, as well as a favorable discrete item related to excess tax benefits of
stock compensation.
Our effective income tax rates were 24.3% and 22.2% for the nine months ended
October 30, 2020, and November 1, 2019, respectively. The increase in the
effective tax rate for the first nine months is due to a favorable tax benefit
recorded during the first quarter of 2019 associated with a change in approach
to pursue a sale of the Mexico operations through liquidation.
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 and share repurchases. Due to the
uncertainty caused by the COVID-19 pandemic, we temporarily suspended our share
repurchases during the first quarter of fiscal 2020, but reinstated share
repurchases under this program during the third quarter. As of October 30, 2020,
we held $8.2 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
Nine Months
Ended
(In millions) October 30, 2020
November 1, 2019
Net cash provided by operating activities $ 11,485 $ 4,111
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
nine months ended October 30, 2020, versus the nine months ended November 1,
2019, was driven primarily by higher net earnings and changes in working
capital. Accounts payable increased for the first nine months of 2020 by $5.1
billion, compared to an increase for the first nine months of 2019 of $523
million, driving an additional $4.6 billion in operating cash flows for the
first nine months of fiscal 2020. The increase in accounts payable was driven by
higher sustained inventory purchase volume in 2020 as compared to 2019. Other
operating liabilities increased $1.1 billion for the first nine months of 2020
compared to a decrease of $408 million in the first nine months of 2019. The
increase in other operating liabilities in the current year is primarily driven
by increases in deferred revenue, increased accrued compensation and employee
benefits, and increased accrued payroll taxes due to the deferral of qualifying
employer payroll taxes in accordance with the CARES Act. Inventory decreased
operating cash flow for the first nine months of 2020 by approximately $2.5
billion, compared to a decrease of approximately $1.1 billion for the first nine
months of 2019, primarily due to higher inventory purchases to meet sustained
customer demand in 2020.
Cash Flows Used in Investing Activities
Nine Months Ended
(In millions) October 30, 2020
November 1, 2019
Net cash used in investing activities $ (2,652) $ (863)
Net cash used in investing activities primarily consists of transactions related
to capital expenditures and investments.
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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 October 30, 2020, and November 1, 2019:
Nine Months Ended
(In millions) October 30, 2020 November 1, 2019
Existing store investments 1 $ 960 $ 694
Strategic initiatives 2 138 127
New stores, new corporate facilities and international 3 74 106
Total capital expenditures $ 1,172 $ 927
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.
Our 2020 outlook for capital expenditures is approximately $1.7 billion.
Cash Flows Used in Financing Activities
Nine Months Ended
(In millions) October 30, 2020
November 1, 2019
Net cash used in financing activities $ (1,304) $ (2,978)
Net cash used in 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 March 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 of
October 30, 2020, and November 1, 2019. Total combined availability under the
2020 Credit Agreement and the Second Amended and Restated Credit Agreement as of
October 30, 2020, was $3.0 billion.
The following table includes additional information related to our short-term
borrowings for the nine months ended October 30, 2020, and November 1, 2019:
Nine Months Ended
(In millions, except for interest rate data) October 30, 2020 November 1, 2019
Net change in commercial paper $ (941) $ (85)
Maximum commercial paper outstanding at any month-end $ 1,858 $ 1,189
Short-term borrowings outstanding at quarter-end $ - $ 637
Weighted-average interest rate of short-term borrowings
outstanding - % 1.97 %
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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 October 30, 2020.
Long-Term Debt
The following table includes additional information related to the Company's
long-term debt for the nine months ended October 30, 2020, and November 1, 2019:
Nine Months Ended
(In millions) October 30, 2020
November 1, 2019
Net proceeds from issuance of debt $ 7,929 $
2,972
Repayment of debt $ (5,582) $ (1,092)
During the nine months ended October 30, 2020, we issued $8.0 billion of
unsecured notes. This is comprised of $4.0 billion of unsecured notes issued in
March 2020 to finance current year maturities and for other general corporate
purposes and $4.0 billion of unsecured notes issued in October 2020 to fund the
2020 Cash Tender Offer to purchase existing unsecured notes and for other
general corporate purposes. We completed the tender offer in October 2020 in
which we purchased and retired $3.0 billion of our higher coupon notes prior to
maturity to take advantage of a favorable interest rate environment to reduce
our long-term interest expense. As part of this transaction, we incurred $1.1
billion of debt extinguishment costs which included premium to noteholders and
the cost of reverse treasury lock derivative contracts associated with the
tender offer. During the nine months ended October 30, 2020, we paid $500
million to repay scheduled long-term debts at maturity, as well as $1.0 billion
early repayment of the 364-day term loan facility entered into in January 2020.
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 temporarily suspended our share
repurchases during the first quarter of fiscal 2020, but as announced on
September 29, 2020, determined to reinstate the previously authorized share
repurchase program. 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 nine months ended October 30,
2020, and November 1, 2019:
Nine Months Ended
(In millions, except per share data) October 30, 2020November 1, 2019
Total amount paid for share repurchases $ 1,528 $ 3,649
Total number of shares repurchased 13.1 35.6
Average price paid per share $ 116.99 $ 102.59
As of October 30, 2020, we had $8.1 billion remaining available under our share
repurchase program with no expiration date.
Dividends
Dividends are paid in the quarter immediately following the quarter in which
they are declared. Dividends paid per share increased from $1.51 per share for
the nine months ended November 1, 2019, to $1.65 per share for the nine months
ended October 30, 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 by Standard & Poor's (S&P) and Moody's as of November 25, 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
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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
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
In March 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 due April 2020. In
October 2020, we issued $4.0 billion of unsecured notes in the ordinary course
of business and used the proceeds from this issuance to repurchase $3.0 billion
of unsecured debt before maturity. The table below summarizes our contractual
obligations relating to long-term debt, excluding operating and finance lease
obligations, at October 30, 2020. The unsecured notes issued in the first and
third quarters of fiscal 2020 are further described in Note 7 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) $ 21,313$ 525$ 1,768$ 1,951$ 17,069
Long-term debt (interest payments) 19,455 775 1,467 1,376 15,837
Total $ 40,768$ 1,300$ 3,235$ 3,327$ 32,906
As of October 30, 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.
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