Lowe's (LOW) 10-K risk factor changes: FY2019 vs FY2019

These risk factors may change from time to time and may be amended, supplemented or superseded by updates to the risk factors contained in our future periodic reports on Form 10-K, Form 10-Q and reports on other forms we file with the [removed: Securities and Exchange Commission.][added: SEC.]

All forward-looking statements about our future results of operations or other matters made by us in this Annual Report, in our Annual Report to Lowe’s Shareholders and in our subsequently filed reports to the [removed: Securities and Exchange Commission,] [added: SEC,] as well as in our press releases and other public communications, are qualified by the risks described below.

You should read these risk factors in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in [removed: Item 7] [added: [Item 7](#s7C77936D13A951209C9B2FF63865C88D)] and our consolidated financial statements and related notes in [removed: Item 8.][added: [Item 8](#sDA86F660CCEB5055BB609F193FB7EF74).]

[removed: We] [added: *We] may be unable to adapt our business concept in a rapidly evolving retail environment to address the changing shopping habits, demands and demographics of our customers, or realize the intended benefits of organizational change [removed: initiatives.][added: initiatives.*]

[removed: We] [added: *We] may not be able to realize the benefits of our strategic initiatives focused on omni-channel sales and marketing presence if we fail to deliver the capabilities required to execute on [removed: them.][added: them.*]

Our interactions with customers [removed: has] [added: have] evolved into an omni-channel experience as they increasingly are using computers, tablets, mobile phones and other [added: electronic] devices to shop in our stores and online and provide feedback and public commentary about all [added: aspects of our business.]

The success of our strategic initiatives to adapt our business concept to our customers’ changing shopping habits and demands and changing demographics will require us to deliver large, complex programs requiring [removed: more] integrated planning, initiative prioritization and program sequencing.

[removed: To the extent they are unable] or unwilling to make these transformational changes, we may be unable to realize the full benefits of our strategic initiatives and expand our relevant market access.

[removed: Our] [added: *Our] business and our reputation could be adversely affected by cybersecurity incidents and the failure to protect customer, employee, vendor or Company information or to comply with evolving regulations relating to our obligation to protect our systems, assets and such [removed: information.][added: information.*]

As with many other retailers, we [removed: receive] [added: collect, process, transmit] and store certain personal information about our customers, employees and [removed: vendors.][added: vendors, as well as confidential, sensitive, proprietary and business, personal and payment card information.]

Additionally, we use third-party service providers for certain services, such as authentication, content delivery, back-office support and other functions, and we provide such third-party service providers with personal [added: and other confidential] information necessary for the services concerned.

Despite our continued vigilance and investment in information security, we, like others in our industry, are subject to the risk that unauthorized parties [removed: may] [added: will] attempt to gain access to our systems or our information through fraud or other means of deceiving our associates, third party providers, or vendors, and we or our third-party service providers cannot guarantee that we or they are able to adequately anticipate or prevent a future breach in our or their systems that results in the unauthorized access to, destruction, misuse or release of personal information or other sensitive data.

Our systems and our service providers’ systems are additionally vulnerable to a number of other causes, such as [removed: power] [added: critical infrastructure] outages, computer viruses, technology system [removed: failures or] [added: failures,] catastrophic [removed: events.][added: events or cyber-attacks, including the use of malicious codes, worms, phishing and ransomware.]

[removed: Data privacy and cybersecurity laws in the United States and internationally are constantly changing, and in] [added: In] the United States alone, we may be subject to regulation at both the federal and state level.

[removed: We] [added: *We] could be adversely affected by the failure to adequately protect and maintain our intellectual property rights or [removed: claims] by [added: claims of] third parties that we infringe their intellectual property [removed: rights.][added: rights.*]

Maintenance and, when necessary, enforcement of our intellectual property rights require expenditure of financial and managerial resources, and despite our efforts, we may not always be able to effectively protect all [removed: of] such rights.

Additionally, our trade secrets are vulnerable to public disclosure by our own employees or as a result of a breach of [added: or damage to our systems, which could result in theft of our proprietary property.]

[removed: We] [added: *We] are subject to payments-related risks that could increase our operating costs, expose us to fraud, subject us to potential liability and potentially disrupt our [removed: business.][added: business.*]

For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating [removed: costs and lower profitability.][added: costs.]

[removed: As] [added: *As] customer-facing technology systems become an increasingly important part of our omni-channel sales and marketing strategy, the failure of those systems to perform effectively and reliably could keep us from delivering positive customer [removed: experiences.][added: experiences.*]

[removed: If] [added: *If] we fail to hire, train, manage and retain qualified sales associates and specialists with expanded skill sets or corporate support staff with the capabilities of delivering on strategic objectives, we could lose sales to our competitors, and our labor costs, resulting from operations or the execution of corporate strategies, could be negatively [removed: affected.][added: affected.*]

[removed: Positively] [added: *Positively] and effectively managing our public image and reputation is critical to our business success, and, if our public image and reputation are damaged, it could negatively impact our relationships with our customers, vendors and store associates and specialists and, consequently, our business and results of [removed: operations.][added: operations.*]

[removed: Strategic] [added: *Strategic] transactions, such as our acquisition of RONA and Maintenance Supply Headquarters, involve risks, and we may not realize the expected benefits because of numerous uncertainties and [removed: risks.][added: risks.*]

[removed: Failure] [added: *Failure] to achieve and maintain a high level of product and service quality could damage our image with customers and negatively impact our sales, profitability, cash flows and financial [removed: condition.][added: condition.*]

As a result, Lowe’s reputation as a retailer of [removed: high quality] [added: high-quality] products and services, including both national and Lowe’s private brands, could suffer and impact customer loyalty.

[removed: We] [added: *We] have many competitors who could take sales and market share from us if we fail to execute our merchandising, marketing and distribution strategies effectively, or if they develop a substantially more effective or lower cost means of meeting customer needs, resulting in a negative impact on our business and results of [removed: operations.][added: operations.*]

[removed: We face growing] competition from online and omni-channel retailers who have a similar product or service offering.

[removed: Our] [added: *Our] inability to effectively and efficiently manage and maintain our relationships with selected suppliers of brand name products could negatively impact our business operations and financial [removed: results.][added: results.*]

[removed: Failure] [added: *Failure] of a key vendor or service provider that we cannot quickly replace could disrupt our operations and negatively impact our business, financial condition and results of [removed: operations.][added: operations.*]

[removed: If] [added: *If] our domestic or international supply chain or our fulfillment network for our products is ineffective or disrupted for any reason, or if these operations are subject to trade policy changes, our results of operations could be adversely [removed: affected.][added: affected.*]

The current United States administration has [added: enacted, and] signaled the possibility of [removed: major] [added: additional,] changes in certain tax and trade policies, tariffs and other regulations affecting trade between the United States and other countries, such as the imposition of additional tariffs or duties on imported products and the exit or renegotiation of certain trade [removed: agreements, including the North American Free Trade Act (NAFTA)] [added: agreements] and the rules of the World Trade Organization.

While it is not possible to predict [removed: whether or when any] [added: the long term impacts] such changes [removed: will occur or what form they] may [removed: take,] [added: have,] because we source a large percentage of our merchandise from outside the United States, [removed: major] [added: future] changes in tax or trade policies, tariffs or trade relations could adversely affect our business, results of operations, effective income tax rate, liquidity and net income.

If our fulfillment network does not operate properly or if a vendor fails to deliver on its commitments, we could experience delays in inventory, increased [added: delivery costs or merchandise out-of-stocks that could lead to lost sales and decreased customer confidence, and adversely affect our results of operations.]

[removed: Failure] [added: *Failure] to effectively manage our third-party installers could result in increased operational and legal risks and negatively impact our business, financial condition and results of [removed: operations.][added: operations.*]

We use third-party installers to provide installation services to our customers, and, as the general contractor, we are subject to regulatory requirements and risks applicable to general contractors, including the management of the permitting, licensing and [removed: quality of our third-party installers.]

[removed: Operating] [added: *Operating] internationally presents unique challenges, including some that have required us to adapt our store operations, merchandising, marketing and distribution functions to serve customers in [removed: Canada and Mexico.][added: Canada.]

Our business and results of operations could be negatively affected if we are unable to effectively address these [removed: challenges.][added: challenges.*]

Expanding and operating internationally presents unique challenges that may increase the anticipated costs and risks of operation and [removed: expansion,] [added: expansion] and slow the anticipated rate of expansion.

Our future operating results in [removed: these countries] [added: Canada] or in other countries or regions in which we [removed: currently operate or] may operate in the future could be negatively affected by a variety of factors, including unfavorable political or economic factors, adverse tax consequences, volatility in foreign currency exchange rates, increased difficulty in enforcing intellectual property rights, costs and difficulties of managing international operations, challenges with identifying and contracting with local suppliers and other risks created as a result of differences in culture, laws and regulations.

[removed: We] [added: *We] must comply with various and multiple laws and regulations that differ substantially in each area where we operate.

In connection with any investment decision with respect to our securities, you should carefully consider the following risk factors, as well as the other information contained in this report and our other filings with the SEC.

To the extent they are unable

Failure to realize the benefits of amounts we invest in new technologies, products, or

services could result in the value of those investments being written down or written off.

In addition, to support our strategic

initiatives and the related technology investments needed to implement our strategic investments, we must attract and retain a

large number of skilled professionals, including technology professionals.

The market for these professionals is increasingly

competitive.

Data privacy and cybersecurity laws in the United States and internationally are constantly changing, and the implementation of these laws has become more complex.

*Our business could be affected by uncharacteristic or significant weather conditions, including natural disasters, could impact our operations.*

Natural disasters, such as hurricanes and tropical storms, fires, floods, tornadoes, and earthquakes; unseasonable, or

unexpected or extreme weather conditions; or similar disruptions and catastrophic events can affect consumer spending and

confidence and consumers’ disposable income, particularly with respect to home improvement or construction projects, and

could have an adverse effect on our financial performance.

These types of events can also adversely affect our work force and

prevent associates and customers from reaching our stores and other facilities.

They can also disrupt or disable operations of stores, support centers, and portions of our supply chain and distribution network, including causing reductions in the availability of inventory and disruption of utility services.

In addition, these events may affect our information systems, resulting in disruption to various aspects of our operations, including our ability to transact with customers and fulfill orders and to communicate with our stores.

As a consequence of these or other catastrophic or uncharacteristic events, we may experience interruption to our operations, increased costs, or losses of property, equipment or inventory, which would adversely affect our revenue and profitability.

We face growing

The degree of our exposure is dependent on, among other things, the type of goods, rates imposed, and timing of tariffs.

The impact to our business, including net sales and gross margin, will be influenced in part by merchandising and pricing strategies in response to potential costs increases by us and our competitors.

While these potential impacts are uncertain, they could have an adverse impact on our financial results.

quality of our third-party installers.

We operate stores in Canada.

In addition, although we are monitoring the effects of a widespread outbreak of a contagious respiratory illness caused by a novel coronavirus first identified in Wuhan, China (COVID-19), we cannot predict whether, for how long, or the extent to which the outbreak may disrupt our supply chain, operations, sales, and/or product shipments and home installations.

A prolonged outbreak could negatively impact our vendors and customers, cause interruptions to our operations, including the reduction of store operating hours, temporary store closures and reduced store traffic, and adversely affect our results of operations.

More generally, a widespread health crisis could adversely affect the U.S. economy, resulting in an economic downturn that could decrease consumer confidence and affect demand for our products and therefore impact our results, including our business and financial outlook for fiscal 2020.

Any adverse impact on our results of operations, business or financial outlook could be material.

We have developed a risk management process using periodic surveys, external research, planning processes, risk mapping, analytics and other tools to identify and evaluate the operational, financial, environmental, reputational, strategic and other risks that could adversely affect our business.

For more information about our risk management framework, which is administered by our Chief Financial Officer and includes developing risk mitigation controls and procedures for the material risks we identify, see the description included in the definitive Proxy Statement for our 2019 annual meeting of shareholders (as defined in Item 10 of Part III of this Annual Report) under “Information About the Board of Directors and Committees of the Board - Board Meetings, Committees of the Board and Board Leadership Structure - Board’s Role in the Risk Management Process.”

aspects of our business.

or damage to our systems, which could result in theft of our proprietary property.

If we do not successfully manage the transitions associated with the appointment of a new Chairman, Chief Executive Officer and Chief Financial Officer and other members of our leadership team as part of a new leadership structure, it could have an adverse impact on our business operations as well as be viewed negatively by our customers and shareholders.

On May 20, 2018, the Board of Directors of the Company appointed Marvin R.

Ellison as President and Chief Executive Officer and Richard R.

Dreiling as Chairman of the Board of Directors, in each case, effective as of July 2, 2018.

On July 2, 2018, Mr. Ellison assumed the office of President and Chief Executive Officer and joined the Board of Directors, and Mr. Dreiling became Chairman of the Board of Directors.

Mr. Ellison and Mr. Dreiling succeeded Robert A.

Niblock.

who retired as Chairman, President and Chief Executive Officer of the Company and member of the Board of Directors effective July 2, 2018.

On June 4, 2018, we announced that Marshall A.

Croom planned to retire from the Company, effective October 5, 2018, and on August 22, 2018, we named David M.

Denton as Executive Vice President, Chief Financial Officer, which appointment became effective on November 19, 2018.

In addition, on July 9, 2018, we announced the implementation of a new leadership structure and named William P.

Boltz as Executive Vice President, Merchandising effective August 15, 2018.

On July 20, 2018, we named Joseph M.

McFarland III as Executive Vice President, Stores, effective August 15, 2018.

On August 7, 2018, we named Donald E.

Frieson as Executive Vice President, Supply Chain, effective August 8, 2018.

On November 2, 2018, the Company announced the appointment of Seemantini Godbole as Chief Information Officer, effective November 12, 2018.

Such leadership transitions can be inherently difficult to manage, and an inadequate transition may cause disruption to our business, including to our relationships with our customers, suppliers, vendors and employees.

It may also make it more difficult to hire and retain key employees.

For example, in the fourth quarter of fiscal 2018, we recognized a $952 million goodwill impairment charge on our Canadian business.

Political developments in the United States, including possible termination of NAFTA, or failure to finalize and implement the United States-Mexico-Canada Agreement (USMCA), the proposed replacement for NAFTA, may have implications for the trade arrangements among the United States, Mexico, and Canada.

delivery costs or merchandise out-of-stocks that could lead to lost sales and decreased customer confidence, and adversely affect our results of operations.

We operate stores in Canada and Mexico.

We have previously announced our intent to exit our Mexican operations, and we are currently exploring exit alternatives.

merchandise ordering, project design and execution, transportation, receipt processing and fulfillment.

Discontinuation, reform or replacement of LIBOR and other benchmark rates, or uncertainty related to the potential for any of the foregoing, may adversely affect our business.

The U.K. Financial Conduct Authority announced in 2017 that it intends to phase out LIBOR by the end of 2021.

In addition, other regulators have suggested reforming or replacing other benchmark rates.

The discontinuation, reform or replacement of LIBOR or any other benchmark rates may have an unpredictable impact on contractual mechanics in the credit markets or cause disruption to the broader financial markets.

Uncertainty as to the nature of such potential discontinuation, reform or replacement may negatively impact interest expense related to borrowings under our credit facilities.

We may in the future pursue amendments to our credit facilities to provide for a transition mechanism or other reference rate in anticipation of LIBOR’s discontinuation, but we may not be able to reach agreement with our lenders on any such amendments.

Further, certain of our current debt instruments limit the amount of indebtedness we and our subsidiaries may incur.

As a result, additional financing to replace our LIBOR-based debt may be unavailable, more expensive or restricted by the terms of our outstanding indebtedness.

The following discussion and analysis summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and capital resources during the three-year period ended [removed: February 1, 2019] [added: January 31, 2020] (our fiscal years [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016).][added: 2017).]

Unless otherwise noted, all references herein for the years [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016] [added: 2017] represent the fiscal years ended [added: January 31, 2020,] February 1, [removed: 2019, February 2, 2018] [added: 2019] and February [removed: 3, 2017,] [added: 2, 2018,] respectively.

[removed: | • | Executive Overview |][added: EXECUTIVE OVERVIEW]

[removed: | • | Operations |][added: OPERATIONS]

[removed: | • | Financial Condition, Liquidity and Capital Resources |][added: FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES]

[removed: | • | Off-Balance Sheet Arrangements |][added: OFF-BALANCE SHEET ARRANGEMENTS]

[removed: | • | Contractual Obligations and Commercial Commitments |][added: CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS]

[removed: | • | Critical Accounting Policies and Estimates |][added: CRITICAL ACCOUNTING POLICIES AND ESTIMATES]

See [removed: Note 2] [added: [Note](#s947ED68F44535DA9843D171862A48FF6) 11] to the consolidated financial statements included herein for additional information [removed: on the accounting principle change.][added: regarding share repurchases.]

[removed: EXECUTIVE OVERVIEW][added: | • | [Executive Overview](#s448807FA14EF5038A284409D765EDCA5) |]

Net sales for fiscal [removed: 2018] [added: 2019] increased [removed: 3.9%] [added: 1.2%] over fiscal year [removed: 2017] [added: 2018] to [removed: $71.3] [added: $72.1] billion.

Comparable sales increased [removed: 2.4%] [added: 2.6%] over fiscal year [removed: 2017,] [added: 2018,] driven by a comparable average ticket increase of [removed: 3.4%, offset by a decrease] [added: 2.1% and an increase] in comparable transactions of [removed: 1.1%.][added: 0.5%.]

Diluted earnings per common share [removed: decreased 30.5%] [added: increased 93.1%] in fiscal year [removed: 2018] [added: 2019] to [removed: $2.84] [added: $5.49] from [removed: $4.09] [added: $2.84] in [removed: 2017.][added: 2018.]

Adjusting [removed: 2018] [added: 2019] and [removed: 2017] [added: 2018] amounts for certain significant discrete items not [removed: originally] contemplated in the business outlooks for those respective years, adjusted diluted earnings per common share increased [removed: 16.4%] [added: 12.3%] in fiscal year [removed: 2018] [added: 2019] to [removed: $5.11] [added: $5.74] from [removed: $4.39] [added: $5.11] in [removed: 2017] [added: 2018] (see [removed: discussion on non-GAAP] [added: the [non-GAAP] financial [removed: measures beginning on page 25).][added: measures](#s9ED1B090F6185B58A0B5765D5F1BD426) discussion).]

For [removed: 2018,] [added: 2019,] cash flows from operating activities were approximately [removed: $6.2] [added: $4.3] billion, with [removed: $1.2] [added: $1.5] billion used for capital expenditures.

Continuing to deliver on our commitment to return excess cash to shareholders, the Company repurchased [removed: 31.2] [added: 41.0] million shares of stock through the share repurchase program for [removed: $3.0] [added: $4.3] billion and paid [removed: $1.5] [added: $1.6] billion in dividends during the year.

[removed: We intend to achieve this mission by winning in] [added: During the year, we made significant progress transforming our Company through our] four key [removed: areas including] [added: focus areas:] driving merchandising [removed: excellence,] [added: excellence;] transforming our supply [removed: chain,] [added: chain;] delivering operational [removed: efficiency,] [added: efficiency;] and intensifying customer engagement.

[removed: OPERATIONS][added: | • | [Operations](#s0F62D5DA6E055DA59236D16F1429B8A4) |]

| | | | | | [removed: Basis] [added: Basis] Point Increase / (Decrease) [removed: in Percentage] [added: in Percentage] of Net Sales [removed: from Prior Year1] [added: from Prior Year] | | | [removed: Percentage] [added: Percentage] Increase / (Decrease) in Dollar Amounts from Prior [removed: Year1] [added: Year] | |

| | [removed: 20182] [added: 2018] | | [removed: 20172] [added: 2017] | | [removed: 2018] [added: 2018] vs. [removed: 2017] [added: 2017] | | | [removed: 2018] [added: 2018] vs. [removed: 2017] [added: 2017] | |

| [removed: Net sales] [added: Net sales] | [removed: 100.00%] [added: 100.00%] | | [removed: 100.00%] [added: 100.00%] | | [removed: N/A] [added: N/A] | | | [removed: 3.9] [added: 3.9] | [removed: %] [added: %] |

| [removed: Gross margin] [added: Gross margin] | [removed: 32.12] [added: 32.12] | | [removed: 32.69] [added: 32.69] | | [removed: (57] [added: (57] | [removed: )] [added: )] | | [removed: 2.1] [added: 2.1] | |

| [removed: Operating income] [added: Operating income] | [removed: 5.64] [added: 5.64] | | [removed: 9.60] [added: 9.60] | | [removed: (396] [added: (396] | [removed: )] [added: )] | | [removed: (39.0] [added: (39.0] | [removed: )] [added: )] |

| Loss on extinguishment of debt | — | | 0.68 | | (68 | ) | | [removed: (100.0] [added: (100.0] | [removed: )] [added: )] |

| [removed: Pre-tax earnings] [added: Pre-tax earnings] | [removed: 4.76] [added: 4.76] | | [removed: 8.00] [added: 8.00] | | [removed: (324] [added: (324] | [removed: )] [added: )] | | [removed: (38.2] [added: (38.2] | [removed: )] [added: )] |

| [removed: Net earnings] [added: Net earnings] | [removed: 3.24%] [added: 3.24%] | | [removed: 5.02%] [added: 5.02%] | | [removed: (178] [added: (178] | [removed: )] [added: )] | | [removed: (32.9] [added: (32.9] | [removed: )%] [added: )%] |

| [removed: Net sales] [added: Net sales] | [removed: 100.00%] [added: 100.00%] | | [removed: 100.00%] [added: 100.00%] | | [removed: N/A] [added: N/A] | | | [removed: 5.5] [added: 1.2] | [removed: %] [added: %] |

| Loss on extinguishment of debt | [removed: 0.68] [added: —] | | [added: | |] — | | [removed: 68] | | [added: 464] | [removed: N/A] | |

| [removed: Pre-tax earnings] | [removed: 8.00] [added: Pre-Tax Earnings] | | [removed: 8.00] | [added: Tax] | [removed: —] | | [added: Net Earnings] | [removed: 5.5] | | [added: | Pre-Tax Earnings | | | Tax | | | Net Earnings | | |]

[removed: | 1 | The fiscal year ended February 3, 2017 had 53 weeks. The] [added: For a comparison of our results of operations for the] fiscal years ended February 1, 2019 and February 2, [removed: 2018 had 52 weeks. |][added: 2018, see “Part II, Item 7.]

| [removed: Other Metrics] [added: Other Metrics] | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | |

| Comparable sales increase [removed: 2] [added: 1] | [removed: 2.4] [added: 2.6] | | % | | [removed: 4.0] [added: 2.4] | | % | | [removed: 4.2] [added: 4.0] | | % |

| Total customer transactions (in millions) [removed: 1] | [removed: 941] [added: 921] | | | | [removed: 953] [added: 941] | | | | [removed: 945] [added: 953] | | |

| Average ticket [removed: 3] [added: 2] | $ | [removed: 75.79] [added: 78.36] | | | $ | [removed: 72.00] [added: 75.79] | | | $ | [removed: 68.83] [added: 72.00] | |

| [removed: At] [added: At] end of [removed: year:] [added: year:] | | | | | | | | | | | |

| Number of stores | [removed: 2,015] [added: 1,977] | | | | [removed: 2,152] [added: 2,015] | | | | [removed: 2,129] [added: 2,152] | | |

| Sales floor square feet (in millions) | [removed: 209] [added: 208] | | | | [removed: 215] [added: 209] | | | | [removed: 213] [added: 215] | | |

| Average store size selling square feet (in thousands) [removed: 4] [added: 3] | [removed: 104] [added: 105] | | | | [removed: 100] [added: 104] | | | | 100 | | |

| Return on average assets [removed: 5] [added: 4] | [removed: 6.4] [added: 10.8] | | % | | [removed: 9.5] [added: 6.4] | | % | | [removed: 8.9] [added: 9.5] | | % |

| Return on average shareholders’ equity [removed: 6] [added: 5] | [removed: 43.8] [added: 153.4] | | % | | [removed: 59.2] [added: 43.8] | | % | | [removed: 44.4] [added: 59.2] | | % |

The increase in total sales was driven by an increase in comparable sales, offset by a decrease in sales due to closed stores and the exit of the Mexico and Orchard Supply Hardware (Orchard) businesses.

Net earnings for fiscal 2019 increased 85.0% to $4.3 billion.

As further discussed below, during fiscal year 2019, we completed a strategic review of the Canadian operations and finalized the closure of the Mexico business, resulting in net pre-tax operating costs and charges of $265 million, which decreased diluted earnings per share by $0.25.

During the prior year, we announced our intention to exit our Mexico retail operations and our plan to sell the operating business.

However, during the first quarter of 2019, after an extensive market evaluation, the decision was made to instead sell the assets of the business.

This resulted in an $82 million tax benefit in the first quarter.

This benefit was partially offset by $35 million of pretax operating costs during the year associated with the exit and ongoing wind-down of the business.

In the third quarter of 2019, we commenced a strategic review of the Canadian operations to improve execution and deliver long-term improved profitability in Canada.

As a result, during the fourth quarter, we completed the closure of 28 under-performing stores with the remaining six planned closures to be completed in early fiscal 2020.

In addition, Canadian operations started a SKU rationalization project to present a more coordinated assortment of product to the customer across banners and began the reorganization of the corporate structure to more efficiently serve stores.

Total pretax operating costs and charges associated with the strategic review of the Canadian operations were $230 million for fiscal year 2019.

Our Merchandise Service Teams (MST) have improved our merchandising reset execution and day-to-day bay and end-cap maintenance at the store level to deliver a better shopping experience to our customers.

We made improvements to our store environment, optimizing our layout on the critically important seasonal pad at the front of our stores.

We also opened two new bulk distribution centers, relocated a third bulk distribution center, and opened four new cross-dock delivery terminals.

In 2019, we focused on improving our customer service and investing in our in-stock position, driving efficiency in our store operations and advancing our Pro service model.

We rolled out a customer centric scheduling system that allows us to provide better department coverage and customer service, while ensuring that we are using our payroll efficiently.

We have also added scheduling effectiveness tools that measure schedule efficiency and deployed new mobile devices to our store associates with

applications to help make our associates more efficient and ultimately allowed them to spend more time interacting with customers.

In 2019, our Pro strategy was primarily focused on improving retail fundamentals such as job lot quantities, improved service levels, dedicated loaders, Pro department supervisors and consistent volume pricing.

In addition, during the fourth quarter, we added dedicated point of sale terminals at our Pro desk to allow for more convenient, faster service.

In 2019, we made significant progress in transforming our company.

Although we are only one year into a multi-year transformation, we believe that we are on the right path to capitalize on demand in the home improvement market, and our planned improvements to the Lowes.com platform will allow these four strategic areas of focus to create a true omni-channel ecosystem for Lowe’s so we can efficiently serve our customers any way they choose to shop.

| | 2019 | | 2018 | | 2019 vs. 2018 | | | 2019 vs. 2018 | |

| Gross margin | 31.80 | | 32.12 | | (32 | ) | | 0.2 | |

| Selling, general and administrative | 21.30 | | 24.41 | | (311 | ) | | (11.7 | ) |

| Depreciation and amortization | 1.75 | | 2.07 | | (32 | ) | | (14.5 | ) |

| Operating income | 8.75 | | 5.64 | | 311 | | | 57.1 | |

| Interest - net | 0.96 | | 0.88 | | 8 | | | 10.6 | |

| Pre-tax earnings | 7.79 | | 4.76 | | 303 | | | 65.7 | |

| Income tax provision | 1.86 | | 1.52 | | 34 | | | 24.3 | |

| Net earnings | 5.93% | | 3.24% | | 269 | | | 85.0 | % |

| | | | | | Basis Point Increase / (Decrease) in Percentage of Net Sales from Prior Year | | | Percentage Increase / (Decrease) in Dollar Amounts from Prior Year | |

| Net earnings to average debt and equity 6 | 17.2 | | % | | 9.0 | | % | | 13.0 | | % |

| Operating lease interest | 195 | | | | 206 | | | | 209 | | |

| Lease adjusted net operating profit | 6,509 | | | | 4,224 | | | | 6,795 | | |

| Income tax adjustment 1 | 1,554 | | | | 1,344 | | | | 2,528 | | |

| Lease adjusted net operating profit after tax | $ | 4,955 | | | $ | 2,880 | | | $ | 4,267 | |

| Net earnings to average debt and equity | 17.2 | | % | | 9.0 | | % | | 13.0 | | % |

| Return on invested capital | 19.9 | | % | | 11.2 | | % | | 16.0 | | % |

*Fiscal 2019 Impacts*

Fiscal year 2016 contains 53 weeks of operating results compared to fiscal years 2018 and 2017 which contain 52 weeks.

| | |

| --- | --- |

During the fourth quarter of fiscal 2018, we changed our method of accounting related to the classification of customer delivery and shipping costs.

Under our new accounting principle, shipping and handling costs related to the delivery of products from the Company to customers are included in costs of sales, whereas previously, they were included in selling, general and administrative expense as well as depreciation and amortization.

Amounts presented for fiscal years 2018, 2017, and 2016 reflect adjusted amounts in accordance with this accounting principle change.

The increase in total sales was driven by an increase in comparable sales, the adoption of the revenue recognition accounting standard update (ASU) 2014-09, and new stores.

Net earnings for fiscal 2018 decreased 32.9% to $2.3 billion.

As further discussed below, during fiscal year 2018, we completed a strategic reassessment of the business resulting in total pre-tax charges of $1.1 billion, and we recognized a goodwill impairment charge of $952 million.

The year to date pre-tax charges totaling $2.1 billion decreased diluted earnings per share by $2.27.

During the last six months of fiscal 2018, we have had a comprehensive reassessment of the business, established a new leadership team, and worked with that team to develop action plans to improve performance, improve in-stocks and drive a better customer experience.

We have sharpened our focus on retail fundamentals, aligned our leadership team to improve our decision-making and execution, and aligned our portfolio to concentrate on our core home improvement business.

We have rationalized our store inventory to remove clutter and reduce lower-performing inventory, and we are now investing in top-selling items in job lot quantities for our Pro customer.

The 2018 strategic reassessment of the business was part of our focus to build a sustainable foundation to position the Company for long-term success.

During the third quarter of 2018, we committed to exit our Orchard Supply Hardware (Orchard) operations, as well as close 20 under-performing stores across the U.S. and 31 locations in Canada, including 27 stores and 4 other Canadian locations.

In addition, we also made the decision to pursue an exit of certain non-core activities within our U.S. home improvement business, specifically Alacrity Renovation Services and Iris Smart Home.

In the fourth quarter of 2018, we announced plans to pursue an exit of our Mexico retail operations consisting of 13 stores and are currently

exploring exit alternatives.

In addition, during the fourth quarter of 2018, we made the decision to eliminate our Project Specialists Interiors (PSI) position.

Total pre-tax charges associated with these decisions were $1.1 billion for fiscal year 2018.

In addition, our fourth quarter annual goodwill impairment review resulted in a non-cash goodwill impairment charge of $952 million related to our Canadian operations (Canadian goodwill impairment).

Given the softening outlook for the Canadian housing market, we determined that the book value of this business exceeded its fair market value.

This write-down eliminated all goodwill associated with our Canadian business.

As we transition into 2019, we will remain focused on our mission of delivering the right home improvement products, with the best service and value, across every channel and community we serve.

First, delivering merchandising excellence means having the right products in the right place at the right time so our customers can shop any way they choose.

To do this, we are working to improve productivity, drive localization and streamline our reset process to improve execution, as well as improve digital experiences.

Second, we intend to transform our supply chain to enhance the overall customer experience by advancing our fulfillment and delivery capabilities, and delivering operational excellence.

We want to serve customers the way they want to be served.

Third, to deliver operational efficiency, we intend to focus on simplifying store operations and work to improve our in-stock execution to better capitalize on the traffic we are driving to both our stores and online.

And, as a company, we intend to become more operationally efficient.

Finally, customer engagement is the fourth focus area and includes winning the Pro customer.

We have significant opportunity to grow this portion of our business by focusing on competitive pricing, in-stocks, carrying the brands that are important to Pro customers, consistent service levels, and providing a differentiated experience.

Overall, we are making progress in our business.

We are beginning to see positive results from merchandising pilots and improvement in performance in key categories, such as Paint, and are leveraging our improved reset process to better position us for the Spring selling season.

In addition, we continue to see strong customer response to CRAFTSMAN® with market share gains in each product category since introducing the brand.

We are also seeing positive results from our investment in job lot quantities to better meet the needs of the Pro customer.

Although we still have work to do to transform this company, our 2019 four key focus areas demonstrate that we are aligned on the right initiatives to achieve our long-term targets.

| | 20172 | | 20162 | | 2017 vs. 2016 | | | 2017 vs. 2016 | |

| Gross margin | 32.69 | | 33.34 | | (65 | ) | | 3.5 | |

| Selling, general and administrative | 21.04 | | 22.12 | | (108 | ) | | 0.5 | |

[removed: Interest] [added: Interest] Rate [removed: Risk][added: Risk]

[removed: Commodity] [added: Commodity] Price [removed: Risk][added: Risk]

[removed: Foreign] [added: Foreign] Currency Exchange Rate [removed: Risk][added: Risk]

We use forward starting interest rate swaps to hedge our exposure to the impact of interest rate changes in future debt issuances.

The fair value of our derivative financial instruments as of January 31, 2020 was not material.

We do not believe that changing prices for commodities due to inflation or deflation have had a material effect on our net sales or results of operations.

[removed: General Information][added: General Information]

As of [removed: February 1, 2019,] [added: January 31, 2020,] Lowe’s operated [removed: 2,015] [added: 1,977] home improvement and hardware stores, representing approximately [removed: 209] [added: 208] million square feet of retail selling space.

These operations included [removed: 1,723] [added: 1,728] stores located across 50 U.S. states, as well as [removed: 279] [added: 249] stores in Canada.

RONA operates [removed: 212] [added: 185] stores in Canada as of [removed: February 1, 2019,] [added: January 31, 2020,] as well as services approximately [removed: 231] [added: 237] dealer-owned stores.

See [removed: Item 6,] [added: [Item 6](#sEEE4A64BCE2952EC91FE6672E6E1C3B8),] “Selected Financial Data”, of this Annual Report on Form 10-K (Annual Report), for historical revenues, profits and identifiable assets.

For additional information about the Company’s performance and financial condition, see also [removed: Item 7,] [added: [Item 7](#s7C77936D13A951209C9B2FF63865C88D),] “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, of this Annual Report.

[removed: Customers,] [added: Customers,] Market and [removed: Competition][added: Competition]

[removed: Our Customers][added: Our Customers]

[removed: Our Market][added: Our Market]

The U.S. market remains our predominant market, accounting for approximately [removed: 92%] [added: 93%] of consolidated sales for the fiscal year ended [removed: February 1, 2019.][added: January 31, 2020.]

[removed: Our Competition][added: Our Competition]

The home improvement industry includes a broad competitive [removed: landscape.][added: landscape that continues to evolve.]

[removed: We compete] [added: Lowe’s competes] with [removed: other] national and international home improvement warehouse chains and [removed: lumberyards] [added: lumber yards] in most of [removed: our trade areas.][added: the markets we serve.]

In addition, we compete with general merchandise retailers, warehouse clubs, [removed: and online] [added: online,] and other specialty retailers as well as service providers that install home improvement products.

See further discussion of competition in [removed: Item 1A,] [added: [Item 1A](#sFB3427BA35E15EDAB5DBA7A175831645),] “Risk Factors”, of this Annual Report.

[removed: Products] [added: Products] and [removed: Services][added: Services]

[removed: Our Products][added: Our Products]

[removed: Product Selection][added: *Product Selection*]

We offer home improvement products in the following categories: [added: Appliances, Décor, Paint, Hardware, Millwork, Lawn & Garden, Lighting,] Lumber & Building Materials, [removed: Appliances, Seasonal & Outdoor Living, Tools] [added: Flooring, Kitchens] & [removed: Hardware, Fashion Fixtures,] [added: Bath,] Rough Plumbing & Electrical, [removed: Paint, Millwork, Lawn] [added: Seasonal] & [removed: Garden, Flooring,] [added: Outdoor Living,] and [removed: Kitchens.][added: Tools.]

A typical Lowe’s-branded home improvement store stocks approximately [removed: 34,000] [added: 35,000] items, with hundreds of thousands of additional items available through our Special Order Sales system and various online selling channels.

See [removed: Note 19] [added: [Note](#s59DE1DBDF6DD5B9E9DF7AF1A02040E36) 18] of the Notes to Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data”, of this Annual Report for historical revenues by product category for each of the last three fiscal years.

In addition, we are dedicated to ensuring the products we sell are sourced in a socially responsible, efficient, and [removed: cost effective] [added: cost-effective] manner.

[removed: National] [added: *National] Brand-Name [removed: Merchandise][added: Merchandise*]

Lowe’s home improvement stores carry a wide selection of national brand-name merchandise such as Whirlpool®, GE®, LG®, and Samsung® appliances, Stainmaster® carpets, Sherwin-Williams® and Valspar® paints and stains, Pella® windows and doors, Pergo® hardwood flooring, [removed: Dewalt®] [added: DeWALT®] power tools, [removed: Hitachi®] [added: Metabo®] pneumatic tools, Weber® and Char-Broil® grills, Owens Corning® insulation and roofing, GAF® roofing, James Hardie® fiber cement siding, Marshalltown® masonry tools and concrete, Husqvarna® outdoor power equipment, John Deere® riding lawn mowers, Werner® ladders, Quoizel® lighting, Nest® products, SharkBite® plumbing products, A. O. Smith® water heaters, Norton® abrasives, and many more.

[removed: Private Brands][added: *Private Brands*]

Private brands are an important element of our overall portfolio, helping to [removed: provide significant value] [added: increase customer loyalty, drive sales,] and [removed: coordinated style across core categories.][added: expand differentiation.]

[removed: Some] [added: We have a strong private brand presence across core categories, including some] of [removed: Lowe’s] [added: our] most [removed: important private] [added: valuable] brands [removed: include] [added: such as:] Kobalt® tools, allen+roth® home décor products, [removed: Blue Hawk® home improvement products,] Project Source® [removed: basic value products, Portfolio® lighting] [added: high-value project completers, Holiday Living® seasonal] products, [removed: Garden Treasures®] [added: Harbor Breeze® ceiling fans, Sta-Green®] lawn and [removed: patio] [added: garden] products, [removed: Utilitech® electrical and utility] [added: Moxie® cleaning] products, Reliabilt® [removed: doors and] [added: doors,] windows, [removed: Aquasource® faucets, sinks] and [removed: toilets, Harbor Breeze® ceiling fans,] [added: hardware,] and [removed: Top Choice® lumber] [added: Utilitech® electrical and utility] products.

[removed: Supply Chain][added: *Supply Chain*]

These facilities include 15 [removed: highly-automated] regional distribution centers (RDC) and 15 flatbed distribution centers (FDC) in the United States.

In addition to the RDCs and FDCs, we also operate coastal holding [removed: facilities,] [added: and] transload [removed: facilities, appliance] [added: facilities to handle import product, bulk] distribution [removed: centers,] [added: centers (BDC) to handle appliances] and [added: other big and bulky product, cross-dock delivery terminals (XDT) to fulfill final mile box truck deliveries, and] a direct fulfillment center focused on parcel post eligible products.

In fiscal [removed: 2018,] [added: 2019,] on average, approximately [removed: 80%] [added: 75%] of the total dollar amount of [removed: stock] merchandise we purchased was shipped through our distribution network, while the remaining portion was shipped directly to our stores from vendors.

[removed: Our Services][added: Our Services]

[removed: Installed Sales][added: *Installed Sales*]

We offer installation services through independent contractors in many of our product categories, with Appliances, Flooring, [removed: Kitchens,] [added: Kitchens & Bath,] Lumber & Building Materials, and Millwork accounting for the majority of installed sales.

Installed Sales, which includes both product and labor, accounted for approximately [removed: 7%] [added: 6%] of total sales in fiscal [removed: 2018.][added: 2019.]

[removed: Extended] [added: *Extended] Protection Plans and Repair [removed: Services][added: Services*]

We offer extended protection plans for various products within the Appliances, [removed: Kitchens, Fashion Fixtures,] [added: Kitchens & Bath, Décor,] Millwork, Rough Plumbing & Electrical, Seasonal & Outdoor Living, [added: Tools,] and [removed: Tools &] Hardware categories.

These protection plans provide customers with product protection that enhances or extends coverage offered by the manufacturer’s [removed: warranty,] [added: warranty] and provides additional [removed: customer friendly] [added: customer-friendly] benefits that go beyond the scope of a manufacturer’s warranty.

The protection plans provide in-warranty [added: benefits] and out-of-warranty repair services for major appliances, outdoor power equipment, tools, grills, fireplaces, air conditioners, water heaters, and other eligible products through our stores or in the home through the Lowe’s Authorized Service Repair Network.

[removed: Selling Channels][added: Selling Channels]

During 2018 and 2019, the Company initiated a strategic reassessment of its business which has resulted in the exit of Orchard Supply Hardware and its operations in Mexico, as well as the closure of under-performing stores across the U.S. and Canada.

Location of stores, product assortment, product pricing and customer service continue to be key competitive factors in our industry, while the evolution of technology and customer

expectations also underscores the importance of omni-channel capabilities as a competitive factor.

To ensure ongoing competitiveness, Lowe’s focuses on delivering the right home improvement products, with the best service and value, across every channel and community we serve.

In 2019, we completed our rollout of CRAFTSMAN® tools.

In fiscal 2019, we enhanced our distribution network by adding four XDTs and two BDCs, in addition to relocating one BDC.

and our distribution network to ensure we meet customer needs for products and resources.

Sustainability and environmental matters are overseen by the Sustainability Committee of the Board of Directors.

We have established goals to advance our corporate responsibility efforts, which can be found in our annual corporate responsibility report available at Newsroom.Lowes.com/Responsibility.

In fiscal 2019, Lowe’s was added to the Dow Jones Sustainability North America Index based on environmental, social, and governance practices.

In fiscal 2019, we published a human rights policy and a revised conflict minerals policy to hold all suppliers to our rigorous standards.

We continue to work with local and regional

In fiscal 2019, we conducted a pilot audit for compliance verification to Lowe’s wood sourcing policy and plan to roll out the audit process broadly in 2020.

Also, Lowe’s updated our safer chemicals policy, which guides our actions toward offering safer, more eco-friendly alternatives.

We also replaced 118 stores’ aging HVAC units with high-efficiency models.

Our renewable energy portfolio will expand in the first quarter of 2020 when 100 megawatts of wind energy becomes operational in central Texas.

The wind turbines will produce the equivalent amount of energy to power all 144 Lowe’s stores in Texas.

We met both of our 2020 climate goals ahead of schedule and developed a more aggressive goal for 2030, to reduce our absolute scope 1 and 2 emissions by 40% below 2016 levels.

Lowe’s believes in giving back to the neighborhoods where its associates live and work.

Through charitable contributions, associate volunteerism and nonprofit partnerships, Lowe's has invested in communities since its inception.

As a Fortune® 50 home improvement company, Lowe’s is committed to creating safe and affordable housing and helping develop the next generation of skilled trade experts.

Lowe’s and the Lowe’s Foundation donated more than $42 million in 2019 to nonprofit organizations supporting local communities in these areas, as well as military and disaster response.

This year, Lowe’s worked with organizations like Habitat for Humanity International, Rebuilding Together, Sleep In Heavenly Peace, Purple Heart Homes and Operation Finally Home to identify and address critical housing needs nationwide as part of its safe and affordable housing initiatives.

By partnering with AMVETS, USO, National Urban League and SkillsUSA, Lowe's is working to address the skilled trades education gap through education, job creation, and community investments.

Lowe's support for communities impacted by disaster goes far beyond clean-up and recovery supplies.

Lowe's partners with the American Red Cross, Reach Out WorldWide, Operation BBQ Relief, Federal Alliance for Safe Homes (FLASH) and others to not only respond to immediate needs, but to support impacted areas with rebuilding efforts in the months and years to come.

Lowe's is also passionate about serving its communities and encourages associates to support the neighborhoods where they live and work.

Through the Lowe’s Heroes program, funds are allocated to each U.S. and Canadian store for a project in its community that associates can complete together.

In 2019, all Lowe’s stores were able to give back to their communities due to this funding.

In addition, associates at company headquarters participated in on-campus community projects during the year, including assembling disaster cleanup buckets to be deployed to impacted areas after natural disasters and building beds that were donated to Sleep in Heavenly Peace, a nonprofit partner with a goal to end child bedlessness across the United States.

Lowe's is also dedicated to helping each other in times of need.

Our Lowe’s Employee Relief Fund, made possible through associate donations and company matching, supports associates in times of significant, unforeseen financial hardship.

In 2019, Lowe’s distributed over $2 million, helping 2,151 associates in need.

In addition, as of February 1, 2019, Lowe’s operated 13 stores in Mexico; however, on November 20, 2018, the Company announced its plans to exit its retail operations in Mexico and is currently exploring exit alternatives.

Location of stores continues to be a key competitive factor in our industry; however, the increasing use of technology and the simplicity of online shopping also underscore the importance of omni-channel capabilities as a

competitive factor.

We differentiate ourselves from our competitors by providing better customer experiences while delivering superior value in products and service.

In 2018, we welcomed CRAFTSMAN® to our portfolio of brands offering a variety of tools, storage and outdoor power equipment.

We also expanded our partnership with Sherwin Williams® becoming the only national home center to offer Krylon® spray paint, Minwax® stains and finishes, Cabot® stains, Thompson’s Water Seal® stains and waterproofing, and Purdy® paint brushes.

In addition, we added brand name merchandise such as Estwing® hammers, Zoeller® pumps, MAPEI® tile-setting materials, and SMARTCORE® vinyl plank products to our portfolio.

We sell private brands in several of our product categories.

In addition, our LowesForPros.com online tool allows for easy online ordering for our Pro customers, and their choice of in-store pick-up or delivery, saving them time and money.

We also established new goals to advance our corporate responsibility efforts and intend to work towards achieving the following goals by 2025:

| | |

| --- | --- |

| • | Lowe’s and the Lowe’s Foundation intends to invest $350 million in local communities through partnerships and charitable contributions. |

| • | Lowe’s will encourage employees to contribute more than three million volunteer hours to improve the communities where they live, work, and play. |

| • | Lowe’s intends to ensure all strategic suppliers have sustainability goals. |

| • | Lowe’s intends to increase the number of eco-friendly products available to customers, with the goal of helping our customers save more than $40 billion in energy costs through the sale of ENERGY STAR® products. |

| • | Lowe’s intends to have all wood products responsibly sourced. |

To manage chemicals more responsibly, Lowe’s implemented a safer chemicals policy through a number of strategic actions and commitments.

We also replaced 104 aging HVAC units with high-efficiency units and added Variable Fan Drive systems in over 419 stores.

We also signed our first renewable energy agreement comprised of 100 megawatts of renewable wind energy in 2018.

In addition, managing our water resources is essential, particularly in regions experiencing drought conditions.

Our HydroPoint systems, which combine real-time weather data with site-specific information to reduce water consumption and save on utility costs, are now deployed to approximately 925 locations, covering all stores with operable irrigation systems.

Lowe’s has a long and proud history of supporting local communities through volunteerism as well as public education and community improvement projects, beginning with the creation of the Lowe’s Foundation in 1957.

In 2018, all U.S. Lowe’s stores completed at least one Lowe’s Heroes volunteer project, contributing approximately 200,000 hours to improve spaces in their local communities.

Lowe’s and the Lowe’s Foundation donated approximately $46 million to schools and community organizations in the United States, Canada, and Mexico, including disaster relief and rebuilding efforts.

Lowe’s continues to work with national nonprofit partners to strengthen and stabilize neighborhoods across the country.

In 2018, Lowe’s contributed $7 million and teamed with Habitat for Humanity and Rebuilding Together to provide housing solutions for families across the country.

Lowe’s also supported nonprofits including the Hispanic Scholarship Fund, Thurgood Marshall Scholarship, United Negro College Fund, the Boys & Girls Clubs of America, SkillsUSA, The Nature Conservancy and Keep America Beautiful to improve communities and build tomorrow’s leaders.

Lowe’s is also committed to helping communities in the days leading up to and months following a natural disaster.

After Hurricane Florence made landfall, Lowe’s doubled the

Company’s match for the Employee Relief Fund, which provides financial support to associates affected by natural disasters and other hardships.

That match continued throughout the year.

Together, Lowe’s and its generous associates raised over $4.0 million in 2018, helping approximately 3,100 associates in need.

Today, Lowe’s strategic philanthropic giving focuses on the critical needs affecting its associates, communities and industry by supporting safe, affordable housing initiatives as well as skilled trade education.

As previously reported, in May 2019, the Company received a letter from the California South Coast Air Quality Management District (“SCAQMD”) regarding allegations that the Company sold denatured alcohol since 2015 in a manner that is not compliant with applicable rules.

The Company has settled the matter with SCAQMD, and the outcome did not have a material adverse effect on our consolidated financial condition, results of operations, or cash flows.

[removed: UNITED STATES][added: UNITED STATES]

[removed: SECURITIES] [added: SECURITIES] AND EXCHANGE [removed: COMMISSION][added: COMMISSION]

[removed: Washington,] [added: Washington,] D.C. [removed: 20549][added: 20549]

[removed: FORM 10-K][added: FORM 10-K]

| [removed: x] [added: ☒] | [removed: ANNUAL] [added: ANNUAL] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF [removed: 1934] [added: 1934] |

[removed: For] [added: For] the fiscal year [removed: ended February 1, 2019][added: ended January 31, 2020]

| [removed: o] [added: ☐] | [removed: TRANSITION] [added: TRANSITION] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF [removed: 1934] [added: 1934] |

[removed: For] [added: For] the transition period from ________ to [removed: _________][added: _________]

[removed: Commission] [added: Commission] file [removed: number 1-7898][added: number 1-7898]

[removed: ][added: ]

[removed: LOWE’S] [added: LOWE’S] COMPANIES, [removed: INC.][added: INC.]

| [removed: NORTH CAROLINA] [added: North Carolina] | | [removed: 56-0578072] | [added: | 56-0578072 | | |]

| (State or other jurisdiction of incorporation or organization) | | [added: | |] (I.R.S. Employer Identification No.) | [added: | |]

| [removed: 1000] [added: 1000] Lowe’s [removed: Blvd., Mooresville, NC] [added: Blvd.] | | [removed: 28117] | [added: | | | |]

| (Address of principal executive offices) | | [added: | |] (Zip Code) | [added: | |]

| Registrant’s telephone number, including area code | | [removed: 704-758-1000] | [added: | (704) | | 758-1000 |]

[removed: |] Securities registered pursuant to Section 12(b) of the Act: [removed: | | |]

| [removed: Title] [added: Title] of each [removed: class] [added: class] | [added: Trading Symbol(s)] | [removed: Name] [added: Name] of each exchange on which [removed: registered] [added: registered] |

| [removed: Common] [added: Common] Stock, [added: par value] $0.50 [removed: Par Value] [added: per share] | [added: LOW] | [removed: New] [added: New] York Stock [removed: Exchange (NYSE)] [added: Exchange] |

[removed: x] [added: ☒] Yes [removed: o] [added: ☐] No

[removed: o] [added: ☐] Yes [removed: x] [added: ☒] No

| Large accelerated filer [removed: ý] | [added: ☒] | [added: |] Accelerated filer [removed: o] | [added: ☐ |]

| Non-accelerated filer [removed: o] | [added: ☐] | [added: |] Smaller reporting company [removed: o] | [added: ☐ |]

| | | [added: |] Emerging growth company [removed: o] | [added: ☐ |]

As of August [removed: 3, 2018,] [added: 2, 2019,] the last business day of the Company’s most recent second quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was [removed: $79.2] [added: $77.0] billion based on the closing sale price as reported on the New York Stock Exchange.

| [removed: CLASS] [added: CLASS] | | [removed: OUTSTANDING] [added: OUTSTANDING] AT [removed: 3/29/2019] [added: 3/20/2020] |

| Common Stock, $0.50 par value | | [removed: 795,922,717] [added: 754,948,648] |

[removed: DOCUMENTS] [added: DOCUMENTS] INCORPORATED BY [removed: REFERENCE][added: REFERENCE]

| [removed: Document] [added: Document] | | [removed: Parts] [added: Parts] Into Which [removed: Incorporated] [added: Incorporated] |

| Portions of the Proxy Statement for Lowe’s [removed: 2019] [added: 2020] Annual Meeting of Shareholders | | Part III |

[removed: \-] [added: \-] TABLE OF CONTENTS [removed: -][added: -]

| | | | [removed: Page No.] [added: Page No.] |

| [removed: PART I] [added: PART I] | | | |

| | Item 1. | [removed: [Business](#s9AEB4112A2A35F3294B4E20C9A0BCF1A)] [added: [Business](#s482DAC57C8415BB9AB8DE738EC2820C9)] | [removed: [4](#s9AEB4112A2A35F3294B4E20C9A0BCF1A)] [added: [5](#s482DAC57C8415BB9AB8DE738EC2820C9)] |

| | Item 1A. | [Risk [removed: Factors](#s28F4949C5D8459D997F31A44AEEA507E)] [added: Factors](#sFB3427BA35E15EDAB5DBA7A175831645)] | [removed: [9](#s28F4949C5D8459D997F31A44AEEA507E)] [added: [10](#sFB3427BA35E15EDAB5DBA7A175831645)] |

| | Item 1B. | [Unresolved Staff [removed: Comments](#s9FFF9C0E517C50EEBDBB383506516695)] [added: Comments](#sC8E4250ACFCF5602A607F33AE0512086)] | [removed: [16](#s9FFF9C0E517C50EEBDBB383506516695)] [added: [17](#sC8E4250ACFCF5602A607F33AE0512086)] |

| | Item 2. | [removed: [Properties](#sC8D8404F4E9C59FE9DECB82AFD2EC099)] [added: [Properties](#s1971CF2DEDAA52A58F74E461F2858777)] | [removed: [16](#sC8D8404F4E9C59FE9DECB82AFD2EC099)] [added: [17](#s1971CF2DEDAA52A58F74E461F2858777)] |

| | Item 3. | [Legal [removed: Proceedings](#s57A5D4E1615C5C6A8164A7ABD86EEADD)] [added: Proceedings](#sCD2B9741D95D5C899B7B8FBE63E059A5)] | [removed: [16](#s57A5D4E1615C5C6A8164A7ABD86EEADD)] [added: [17](#sCD2B9741D95D5C899B7B8FBE63E059A5)] |

| | Item 4. | [Mine Safety [removed: Disclosures](#s8B5F502AFC8F547E9FB290F1A11E4421)] [added: Disclosures](#s8D02F5AA932D5FF8A3146B2F325E6C5B)] | [removed: [16](#s8B5F502AFC8F547E9FB290F1A11E4421)] [added: [17](#s8D02F5AA932D5FF8A3146B2F325E6C5B)] |

| [removed: PART II] [added: PART II] | | | |

or

LOWE’S COMPANIES, INC.

| | | | | | | |

| --- | --- | --- | --- | --- | --- | --- |

| | | | | | | |

| | | | | | | |

| Mooresville | | North Carolina | | 28117 | | |

| | | | | | | |

☒ Yes ☐ No

☒ Yes ☐ No

| | | | | |

| --- | --- | --- | --- | --- |

| | | | | |

☐ Yes ☒ No

| | | [Information About Our Executive Officers](#sDDBF0D3C11265C0E923683F4270FDA44) | [18](#sDDBF0D3C11265C0E923683F4270FDA44) |

| | | [Signatures](#s99B208889A3E520CAECF10DD584D79A4) | [88](#s99B208889A3E520CAECF10DD584D79A4) |

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K 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” and similar expressions are forward-looking statements.

Forward-looking statements involve estimates, expectations, projections, goals, forecasts, assumptions, risks and uncertainties.

Forward-looking statements include, but are not limited to, statements about future financial and operating results, Lowe’s plans, objectives, business outlook, priorities, expectations and intentions, expectations for sales growth, comparable sales, earnings and performance, shareholder value, capital expenditures, cash flows, the housing market, the home improvement industry, demand for services, share repurchases, Lowe’s strategic initiatives, including those relating to acquisitions and dispositions by Lowe’s and the expected impact of such transactions on our strategic and operational plans and financial results, and any statement of an assumption underlying any of the foregoing and other statements that are not historical facts.

Although we believe that the expectations, opinions, projections and comments reflected in these forward-looking statements are reasonable, such statements involve risks and uncertainties and we can give no assurance that such statements will prove to be correct.

Actual results may differ materially from those expressed or implied in such statements.

For a detailed description of the risks and uncertainties that we are exposed to, you should read [Item 1A](#sFB3427BA35E15EDAB5DBA7A175831645), “Risk Factors” included elsewhere in this Annual Report.

All forward-looking statements speak only as of the date of this Annual Report or, in the case of any document incorporated by reference, the date of that document.

All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are qualified by the cautionary statements in this section and in Item 1A, “Risk Factors” included elsewhere in this Annual Report.

We do not undertake any obligation to update or publicly release any revisions to forward-looking statements to reflect events, circumstances or changes in expectations after the date of this Annual Report.

10-K 1 form10k_02012019.htm FORM 10-K

or

| | | |

| --- | --- | --- |

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

| | | [Executive Officers of the Registrant](#s55F9A9F8737851EBBC27FA18D8F3F529) | [17](#s55F9A9F8737851EBBC27FA18D8F3F529) |

| | | [Signatures](#s3340BBF2FBDD5F13AD3BDDE5590479D6) | [91](#s3340BBF2FBDD5F13AD3BDDE5590479D6) |

At [removed: February 1, 2019,] [added: January 31, 2020,] our properties consisted of [removed: 2,002] [added: 1,977] stores in the U.S. and Canada with a total of approximately [removed: 209] [added: 208] million square feet of selling space.

Of the total stores operating at [removed: February 1, 2019,] [added: January 31, 2020,] approximately [removed: 83%] [added: 84%] are owned, which includes stores on leased land, with the remainder being leased from third parties.

In addition, at February 1, 2019, our properties included 13 stores in Mexico; however, on November 20, 2018, the Company announced its plans to exit its retail operations in Mexico.

| [removed: Name] [added: Name] | | [removed: Age] [added: Age] | | [removed: Title] [added: Title] |

| Marvin R. Ellison | | [removed: 54] [added: 55] | | President and Chief Executive Officer since July 2018; Chairman of the Board and Chief Executive Officer, J.C. Penney Company, Inc. (a department store retailer), 2016 [removed: – June] [added: - May] 2018; Chief Executive Officer, J.C. Penney Company, Inc., 2015 [removed: –] [added: -] 2016; President, J.C. Penney Company, Inc., 2014 [removed: –] [added: -] 2015; Executive Vice President [removed: –] [added: -] U.S. Stores, The Home Depot, Inc. (a home improvement retailer) 2008 [removed: –] [added: -] 2014. |

| William P. Boltz | | [removed: 56] [added: 57] | | Executive Vice President, Merchandising since August 2018; President and CEO, Chervon North America (a global power tool supplier), 2015-2018; President and owner of The Boltz Group, LLC (a retail consulting firm), 2013 [removed: –] [added: -] 2015; Senior Vice President, Merchandising, The Home Depot, Inc. (a home improvement retailer), 2006 [removed: –] [added: -] 2012. |

| David M. Denton | | [removed: 53] [added: 54] | | Executive Vice President and Chief Financial Officer since November 2018; Executive Vice President and Chief Financial Officer, CVS Health Corporation (a pharmacy innovation company), 2010 – November 2018. |

| Donald E. Frieson | | [removed: 60] [added: 61] | | Executive Vice President, Supply Chain since August 2018; Executive Vice President, Operations, Sam’s Club (a general merchandise retailer), 2014 [removed: –] [added: -] 2017; Senior Vice President, Replenishment, Planning and Real Estate, Sam’s Club, 2012 [removed: –] [added: -] 2014. |

| Seemantini Godbole | | [removed: 49] [added: 50] | | Executive Vice President, Chief Information Officer since November 2018; Senior Vice President, Technology and Digital, Target Corporation (a department store retailer), January 2017 – November 2018; Vice President, Technology and Digital, Target Corporation, 2013 – December 2016. |

| Ross W. McCanless | | [removed: 61] [added: 62] | | Executive Vice President, General Counsel and Corporate Secretary since 2017; Chief Legal Officer, Secretary and Chief Compliance Officer, 2016 [removed: –] [added: -] 2017; General Counsel, Secretary and Chief Compliance Officer, 2015 [removed: –] [added: -] 2016; Chief Legal Officer, Extended Stay America, Inc. (a hotel operating company) and ESH Hospitality, Inc. (a hotel real estate investment company), 2013 [removed: –] [added: -] 2014. |

| Joseph M. McFarland III | | [removed: 49] [added: 50] | | Executive Vice President, Stores since August 2018; Executive Vice President and Chief Customer Officer, J.C. Penney Company, Inc. (a department store retailer), March 2018 – August 2018; Executive Vice President, Stores, J.C. Penney Company, Inc., 2016 – March 2018; Divisional President, The Home Depot, Inc. (a home improvement retailer), 2007 – 2015. |

| Jennifer L. Weber | | [removed: 52] [added: 53] | | Executive Vice [removed: President and] [added: President,] Chief Human Resources Officer since 2016; Executive Vice President, External Affairs and Strategic Policy, Duke Energy Corporation (an electric power company), 2014 – [removed: 2016;] [added: 2016.] Executive Vice President and Chief Human Resources Officer, Duke Energy Corporation, 2011 [removed: –] [added: -] 2014. |

[removed: Part II][added: Part II]

INFORMATION ABOUT OUR EXECUTIVE OFFICERS

| Marisa F. Thalberg | | 50 | | Executive Vice President, Chief Brand and Marketing Officer since February 2020; Global Chief Brand Officer, Taco Bell Corporation (a fast-food company), January 2018 - February 2020; Chief Marketing Officer, Taco Bell Corporation, January 2016 - January 2018; Chief Brand Engagement Officer, Taco Bell Corporation, May 2015 - January 2016; Vice President, Corporate Digital and Content Marketing Worldwide, The Estee Lauder Companies (a beauty products company), 2007 - May 2015. |

EXECUTIVE OFFICERS OF THE REGISTRANT

| Matthew V. Hollifield | | 52 | | Senior Vice President and Chief Accounting Officer since 2005. |

As of March [removed: 29, 2019,] [added: 20, 2020,] there were [removed: 22,326] [added: 22,129] holders of record of Lowe’s common stock.

[removed: Total] [added: Total] Return to [removed: Shareholders][added: Shareholders]

The graph assumes $100 invested on January [removed: 31, 2014] [added: 30, 2015] in the Company’s common stock and each of the indices.

[removed: ][added: ]

| | [removed: 1/31/2014] [added: 1/30/2015] | | | | [removed: 1/30/2015] [added: 1/29/2016] | | | | [removed: 1/29/2016] [added: 2/3/2017] | | | | [removed: 2/3/2017] [added: 2/2/2018] | | | | [removed: 2/2/2018] [added: 2/1/2019] | | | | [removed: 2/1/2019] [added: 1/31/2020] | | |

[removed: Issuer] [added: Issuer] Purchases of Equity [removed: Securities][added: Securities]

The following table sets forth information with respect to purchases of the Company’s common stock made during the fourth quarter of fiscal [removed: 2018:][added: 2019:]

| | [removed: Total] [added: Total] Number [removed: of Shares Purchased 1] [added: of Shares Purchased 1] | | | [removed: Average Price Paid] [added: Average Price Paid] per [removed: Share] [added: Share] | | | | [removed: Total] [added: Total] Number of Shares Purchased as Part of Publicly Announced Plans or [removed: Programs 2] [added: Programs 2] | | | [removed: Dollar] [added: Dollar] Value of Shares that May Yet Be Purchased Under the Plans or [removed: Programs 2] [added: Programs 2] | | |

| 1 | [removed: The] [added: *The] total number of shares purchased 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 [removed: awards.] [added: awards.*] |

| 2 | [removed: On January 26, 2018, the Company announced that its Board of Directors authorized $5.0 billion of share repurchases with no expiration. On] [added: *On] December 12, 2018, the Company announced that its Board of Directors authorized an additional $10.0 billion of share [added: repurchases, in addition to the $5.0 billion of share] repurchases [added: authorized by the Board of Directors in January 2018,] with no [removed: expiration.] [added: expiration.*] |

| Lowe’s | $ | 100.00 | | | $ | 107.38 | | | $ | 111.78 | | | $ | 157.69 | | | $ | 153.89 | | | $ | 187.74 | |

| S&P 500 | 100.00 | | | | 99.33 | | | | 120.26 | | | | 147.48 | | | | 147.40 | | | | 179.17 | | |

| S&P Retail Index | $ | 100.00 | | | $ | 115.56 | | | $ | 134.42 | | | $ | 189.60 | | | $ | 203.54 | | | $ | 243.26 | |

| November 2, 2019 – November 29, 2019 | 1,639,183 | | | $ | 115.11 | | | 1,639,183 | | | $ | 10,138,558,200 | |

| November 30, 2019 – January 3, 2020 | 2,545,679 | | | 118.34 | | | | 2,545,047 | | | 9,837,384,381 | | |

| January 4, 2020 – January 31, 2020 | 1,493,160 | | | 120.62 | | | | 1,492,237 | | | 9,657,384,423 | | |

| As of January 31, 2020 | 5,678,022 | | | $ | 118.01 | | | 5,676,467 | | | $ | 9,657,384,423 | |

| Lowe’s | $ | 100.00 | | | $ | 148.79 | | | $ | 159.77 | | | $ | 166.32 | | | $ | 234.64 | | | $ | 228.98 | |

| S&P 500 | 100.00 | | | | 114.22 | | | | 113.46 | | | | 137.36 | | | | 168.46 | | | | 168.36 | | |

| S&P Retail Index | $ | 100.00 | | | $ | 118.75 | | | $ | 137.22 | | | $ | 159.62 | | | $ | 225.15 | | | $ | 241.71 | |

| November 3, 2018 – November 30, 20183 | 3,421,699 | | | $ | 90.33 | | | 3,421,143 | | | $ | 4,123,763,667 | |

| December 1, 2018 – January 4, 2019 | 1,159,359 | | | 91.19 | | | | 1,059,707 | | | 14,027,232,040 | | |

| January 5, 2019 – February 1, 2019 | 872,707 | | | 94.56 | | | | 872,036 | | | 13,944,777,229 | | |

| As of February 1, 2019 | 5,453,765 | | | $ | 91.19 | | | 5,352,886 | | | $ | 13,944,777,229 | |

| | |

| --- | --- |

| 3 | In November 2018, the Company entered into an Accelerated Share Repurchase (ASR) agreement with a third-party financial institution to repurchase $270 million of the Company’s common stock. Pursuant to the agreement, the Company paid $270 million to the financial institution and received an initial delivery of 2.6 million shares. Subsequent to the end of the fourth quarter, in February 2019, the Company finalized the transaction and received an additional 0.3 million shares. The average price paid per share reflected in the table above was derived using the fair market value of the shares on the date the initial 2.6 million shares were delivered. See Note 11 to the consolidated financial statements included herein for additional information regarding share repurchases. |

| [removed: Selected] [added: Selected] Statement of Earnings [removed: Data] [added: Data] (In millions, except per share data) | [removed: 20181, 2] [added: 2019] | | | | [removed: 20172] [added: 20181] | | | | [removed: 20162, 3, 4] [added: 2017] | | | | [removed: 20152] [added: 20162, 3] | | | | [removed: 20142] [added: 2015] | | |

| Net sales | $ | [removed: 71,309] [added: 72,148] | | | $ | [removed: 68,619] [added: 71,309] | | | $ | [removed: 65,017] [added: 68,619] | | | $ | [removed: 59,074] [added: 65,017] | | | $ | [removed: 56,223] [added: 59,074] | |

| Gross margin | [removed: 22,908] [added: 22,943] | | | | [removed: 22,434] [added: 22,908] | | | | [removed: 21,674] [added: 22,434] | | | | [removed: 19,933] [added: 21,674] | | | | [removed: 18,987] [added: 19,933] | | |

| Operating income | [removed: 4,018] [added: 6,314] | | | | [removed: 6,586] [added: 4,018] | | | | [removed: 5,846] [added: 6,586] | | | | [removed: 4,971] [added: 5,846] | | | | [removed: 4,792] [added: 4,971] | | |

| Net earnings | [removed: 2,314] [added: 4,281] | | | | [removed: 3,447] [added: 2,314] | | | | [removed: 3,093] [added: 3,447] | | | | [removed: 2,546] [added: 3,093] | | | | [removed: 2,698] [added: 2,546] | | |

| Basic earnings per common share | [removed: 2.84] [added: 5.49] | | | | [removed: 4.09] [added: 2.84] | | | | [removed: 3.48] [added: 4.09] | | | | [removed: 2.73] [added: 3.48] | | | | [removed: 2.71] [added: 2.73] | | |

| Diluted earnings per common share | [removed: 2.84] [added: 5.49] | | | | [removed: 4.09] [added: 2.84] | | | | [removed: 3.47] [added: 4.09] | | | | [removed: 2.73] [added: 3.47] | | | | [removed: 2.71] [added: 2.73] | | |

| Dividends per share | $ | [removed: 1.85] [added: 2.13] | | | $ | [removed: 1.58] [added: 1.85] | | | $ | [removed: 1.33] [added: 1.58] | | | $ | [removed: 1.07] [added: 1.33] | | | $ | [removed: 0.87] [added: 1.07] | |

| [removed: Selected] [added: Selected] Balance Sheet [removed: Data] [added: Data] | | | | | | | | | | | | | | | | | | | |

| Total [removed: assets] [added: assets4] | $ | [removed: 34,508] [added: 39,471] | | | $ | [removed: 35,291] [added: 34,508] | | | $ | [removed: 34,408] [added: 35,291] | | | $ | [removed: 31,266] [added: 34,408] | | | $ | [removed: 31,721] [added: 31,266] | |

| Long-term debt, excluding current maturities | $ | [removed: 14,391] [added: 16,768] | | | $ | [removed: 15,564] [added: 14,391] | | | $ | [removed: 14,394] [added: 15,564] | | | $ | [removed: 11,545] [added: 14,394] | | | $ | [removed: 10,806] [added: 11,545] | |

| 1 | [removed: Effective] [added: *Effective] February 3, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and all related amendments, using the modified retrospective method. Therefore, results for reporting periods beginning after February 2, 2018 are presented under ASU 2014-09, while comparative prior period amounts have not been restated and continue to be presented under accounting standards in effect in those [removed: periods. See Note 1 to the consolidated financial statements for additional information on the impacts of adopting this new revenue recognition guidance.] [added: periods.*] |

| [removed: 3] [added: 2] | [removed: Fiscal] [added: *Fiscal] 2016 contained 53 weeks, while all other years contained 52 [removed: weeks.] [added: weeks.*] |

| [removed: 4] [added: 3] | [removed: Fiscal] [added: *Fiscal] 2016 includes the acquisition of RONA [removed: inc. See Note 4 to the consolidated financial statements included in this Annual Report.] [added: inc.*] |

| *4* | *Effective February 2, 2019, the Company adopted ASU 2016-02, Leases (Topic 842), and all related amendments, using the optional transition approach to not restate comparative periods and recognized the cumulative impact of adoption in the opening balance of retained earnings. Therefore, results for reporting periods beginning after February 1, 2019 are presented under ASU 2016-02, while comparative prior period amounts have not been restated and continue to be presented under accounting standards in effect in those periods.* |

| 2 | In the fourth quarter of fiscal 2018, the Company changed its method of accounting for shipping and handling costs from the Company’s stores, distribution centers, and other locations to customers. Under the new accounting principle, shipping and handling costs related to the delivery of products from the Company to customers are included in cost of sales, whereas they were previously presented in selling, general, and administrative expense, and depreciation and amortization. Amounts presented for fiscal years 2018, 2017, 2016, 2015, and 2014 reflect adjusted amounts in accordance with this accounting principle change. See Note 2 to the consolidated financial statements included herein for additional information on the accounting principle change. |

[removed: MANAGEMENT’S] [added: MANAGEMENT’S] REPORT ON INTERNAL CONTROL OVER FINANCIAL [removed: REPORTING][added: REPORTING]

Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our Internal Control as of [removed: February 1, 2019.][added: January 31, 2020.]

Based on our management’s assessment, we have concluded that, as of [removed: February 1, 2019,] [added: January 31, 2020,] our Internal Control is effective.

Their report appears on page [removed: 42.][added: 40.]

[removed: REPORT] [added: REPORT] OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING [removed: FIRM][added: FIRM]

[removed: Opinion] [added: Opinion] on the Financial [removed: Statements][added: Statements]

We have audited the accompanying consolidated balance sheets of Lowe’s Companies, Inc. and subsidiaries (the “Company”) as of [removed: February 1, 2019] [added: January 31, 2020] and February [removed: 2, 2018,] [added: 1, 2019,] the related consolidated statements of earnings, comprehensive income, shareholders’ equity, and cash [removed: flows] [added: flows,] for each of the three fiscal years in the period ended [removed: February 1, 2019,] [added: January 31, 2020,] and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of [removed: February 1, 2019] [added: January 31, 2020] and February [removed: 2, 2018,] [added: 1, 2019,] and the results of its operations and its cash flows for each of the three fiscal years in the period ended [removed: February 1, 2019] [added: January 31, 2020,] in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of [removed: February 1, 2019,] [added: January 31, 2020,] based on criteria established in [removed: Internal] [added: *Internal] Control - Integrated Framework [removed: (2013)] [added: (2013)*] issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated [removed: April 1, 2019,] [added: March 23, 2020,] expressed an unqualified opinion on the Company's internal control over financial reporting.

[removed: Change in Accounting Principle][added: | Cumulative effect of accounting change | | | | | | | | | | | | 33 | | | | | | | | 33 | | |]

[removed: Basis] [added: Basis] for [removed: Opinion][added: Opinion]

[removed: Opinion] [added: Opinion] on Internal Control over Financial [removed: Reporting][added: Reporting]

We have audited the internal control over financial reporting of Lowe’s Companies, Inc. and subsidiaries (the “Company”) as of [removed: February 1, 2019,] [added: January 31, 2020,] based on criteria established in [removed: Internal] [added: *Internal] Control - Integrated Framework [removed: (2013)] [added: (2013)*] issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of [removed: February 1, 2019,] [added: January 31, 2020,] based on criteria established in [removed: Internal] [added: *Internal] Control - Integrated Framework [removed: (2013)] [added: (2013)*] issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedule as of and for the fiscal year ended [removed: February 1, 2019] [added: January 31, 2020] of the Company and our report dated [removed: April 1, 2019,] [added: March 23, 2020,] expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the [removed: reclassification of shipping and handling costs relating to the delivery of products to customers from selling, general and administrative and depreciation and amortization to cost] [added: Company’s adoption] of [removed: sales.][added: Financial Accounting Standards Board Accounting Standards Update 2016-02, *Leases (Topic 842)*.]

[removed: Definition] [added: Definition] and Limitations of Internal Control over Financial [removed: Reporting][added: Reporting]

[removed: Lowe’s] [added: Lowe’s] Companies, [removed: Inc.][added: Inc.]

[removed: Consolidated] [added: Consolidated] Statements of [removed: Earnings][added: Earnings]

| | [removed: February 1, 2019] [added: 2019] | | | | [removed: % Sales] | | | [removed: February 2, 2018] [added: 2018] | | | | [removed: % Sales] | | | [removed: February 3, 2017] [added: 2017] | | | | [removed: % Sales] | |

| [removed: Fiscal years ended on] | [added: Fiscal Years Ended] | | | | | | | | | | | | | | | | | | | |

| [removed: Net sales] [added: Net sales] | [removed: $] [added: $] | [removed: 71,309] [added: 72,148] | | | [removed: 100.00] [added: 100.00] | [removed: %] [added: %] | | [removed: $] [added: $] | [removed: 68,619] [added: 71,309] | | | [removed: 100.00] [added: 100.00] | [removed: %] [added: %] | | [removed: $] [added: $] | [removed: 65,017] [added: 68,619] | | | [removed: 100.00] [added: 100.00] | [removed: %] [added: %] |

| Cost of sales | [removed: 48,401] [added: 49,205] | | | | [removed: 67.88] [added: 68.20] | | | [removed: 46,185] [added: 48,401] | | | | [removed: 67.31] [added: 67.88] | | | [removed: 43,343] [added: 46,185] | | | | [removed: 66.66] [added: 67.31] | |

| [removed: Gross margin] [added: Gross margin] | [removed: 22,908] [added: 22,943] | | | | [removed: 32.12] [added: 31.80] | | | [removed: 22,434] [added: 22,908] | | | | [removed: 32.69] [added: 32.12] | | | [removed: 21,674] [added: 22,434] | | | | [removed: 33.34] [added: 32.69] | |

| Selling, general and administrative | [removed: 17,413] [added: 15,367] | | | | [removed: 24.41] [added: 21.30] | | | [removed: 14,444] [added: 17,413] | | | | [removed: 21.04] [added: 24.41] | | | [removed: 14,375] [added: 14,444] | | | | [removed: 22.12] [added: 21.04] | |

| Depreciation and amortization | [removed: 1,477] [added: 1,262] | | | | [removed: 2.07] [added: 1.75] | | | [removed: 1,404] [added: 1,477] | | | | [removed: 2.05] [added: 2.07] | | | [removed: 1,453] [added: 1,404] | | | | [removed: 2.23] [added: 2.05] | |

| [removed: Operating income] [added: Operating income] | [removed: 4,018] [added: 6,314] | | | | [removed: 5.64] [added: 8.75] | | | [removed: 6,586] [added: 4,018] | | | | [removed: 9.60] [added: 5.64] | | | [removed: 5,846] [added: 6,586] | | | | [removed: 8.99] [added: 9.60] | |

| Interest - net | [removed: 624] [added: 691] | | | | [removed: 0.88] [added: 0.96] | | | [removed: 633] [added: 624] | | | | [removed: 0.92] [added: 0.88] | | | [removed: 645] [added: 633] | | | | [removed: 0.99] [added: 0.92] | |

| Loss on extinguishment of debt | — | | | | — | | | [removed: 464] [added: —] | | | | [removed: 0.68] [added: —] | | | [removed: —] [added: 464] | | | | [removed: —] [added: 0.68] | |

| [removed: Pre-tax earnings] [added: Pre-tax earnings] | [removed: 3,394] [added: 5,623] | | | | [removed: 4.76] [added: 7.79] | | | [removed: 5,489] [added: 3,394] | | | | [removed: 8.00] [added: 4.76] | | | [removed: 5,201] [added: 5,489] | | | | [removed: 8.00] [added: 8.00] | |

| Income tax provision | [removed: 1,080] [added: 1,342] | | | | [removed: 1.52] [added: 1.86] | | | [removed: 2,042] [added: 1,080] | | | | [removed: 2.98] [added: 1.52] | | | [removed: 2,108] [added: 2,042] | | | | [removed: 3.24] [added: 2.98] | |

| [removed: Net earnings] [added: Net earnings] | [removed: $] [added: $] | [removed: 2,314] [added: 4,281] | | | [removed: 3.24] [added: 5.93] | [removed: %] [added: %] | | [removed: $] [added: $] | [removed: 3,447] [added: 2,314] | | | [removed: 5.02] [added: 3.24] | [removed: %] [added: %] | | [removed: $] [added: $] | [removed: 3,093] [added: 3,447] | | | [removed: 4.76] [added: 5.02] | [removed: %] [added: %] |

| [removed: Basic] [added: Basic] earnings per common [removed: share] [added: share] | [removed: $] [added: $] | [removed: 2.84] [added: 5.49] | | | | | | [removed: $] [added: $] | [removed: 4.09] [added: 2.84] | | | | | | [removed: $] [added: $] | [removed: 3.48] [added: 4.09] | | | | |

| [removed: Diluted] [added: Diluted] earnings per common [removed: share] [added: share] | [removed: $] [added: $] | [removed: 2.84] [added: 5.49] | | | | | | [removed: $] [added: $] | [removed: 4.09] [added: 2.84] | | | | | | [removed: $] [added: $] | [removed: 3.47] [added: 4.09] | | | | |

| [removed: Cash] [added: Cash] dividends per [removed: share] [added: share] | [removed: $] [added: $] | [removed: 1.85] [added: 2.13] | | | | | | [removed: $] [added: $] | [removed: 1.58] [added: 1.85] | | | | | | [removed: $] [added: $] | [removed: 1.33] [added: 1.58] | | | | |

[removed: Consolidated] [added: Consolidated] Statements of Comprehensive [removed: Income][added: Income]

| Foreign currency translation adjustments - net of tax | [removed: (221] [added: 94] | | [removed: )] | | [removed: (0.30] [added: 0.13] | [removed: )] | | [removed: 251] [added: (221] | | [added: )] | | [removed: 0.37] [added: (0.30] | [added: )] | | [removed: 154] [added: 251] | | | | [removed: 0.23] [added: 0.37] | |

| [removed: Other] [added: Other] comprehensive [removed: income/(loss)] [added: income/(loss)] | [removed: (220] [added: 73] | | [removed: )] | | [removed: (0.30] [added: 0.10] | [removed: )] | | [removed: 251] [added: (220] | | [added: )] | | [removed: 0.37] [added: (0.30] | [added: )] | | [removed: 154] [added: 251] | | | | [removed: 0.23] [added: 0.37] | |

| [removed: Comprehensive income] [added: Comprehensive income] | [removed: $] [added: $] | [removed: 2,094] [added: 4,354] | | | [removed: 2.94] [added: 6.03] | [removed: %] [added: %] | | [removed: $] [added: $] | [removed: 3,698] [added: 2,094] | | | [removed: 5.39] [added: 2.94] | [removed: %] [added: %] | | [removed: $] [added: $] | [removed: 3,247] [added: 3,698] | | | [removed: 4.99] [added: 5.39] | [removed: %] [added: %] |