Lowes Companies Inc PRE 14A, filed Apr 3, 2020
Lowes Companies Inc (LOW)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant ☒
Filed by a Party other than the Registrant ☐
Check the appropriate box:
| ☒ | Preliminary Proxy Statement | |
| ☐ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
| ☐ | Definitive Proxy Statement | |
| ☐ | Definitive Additional Materials | |
| ☐ | Soliciting Material Pursuant to § 240.14a-12 | |
LOWE’S COMPANIES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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2020 Notice of Annual Meeting of Shareholders & Proxy Statement |
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April 16, 2020
Dear Fellow Shareholders:
We are pleased to invite you to attend our 2020 Annual Meeting of Shareholders to be held at 10:00 a.m., Eastern Time, on Friday, May 29, 2020 at the Ballantyne Hotel, 10000 Ballantyne Commons Parkway, Charlotte, North Carolina 28277. Details regarding admission to the meeting and the business to be conducted are described in the accompanying Notice of 2020 Annual Meeting of Shareholders and Proxy Statement.
Your vote is important. Regardless of whether you plan to attend the meeting, we strongly encourage you to vote as soon as possible to ensure that your shares are represented at the meeting. The accompanying Proxy Statement explains more about voting. Please read it carefully, and thank you for your investment in Lowe’s.
Sincerely,
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| Richard W. Dreiling Chairman of the Board |
Marvin R. Ellison President and Chief Executive Officer |
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LOWE’S COMPANIES, INC.
1000 Lowes Boulevard
Mooresville, North Carolina 28117
(704) 758-1000
Notice of 2020 Annual Meeting of Shareholders
April 16, 2020
The 2020 Annual Meeting of Shareholders (the “Annual Meeting”) of Lowe’s Companies, Inc. (the “Company”) will be held at 10:00 a.m., Eastern Time, on Friday, May 29, 2020 at the Ballantyne Hotel, 10000 Ballantyne Commons Parkway, Charlotte, North Carolina 28277, for the purpose of voting on the following matters:
| 1. | To elect the 11 candidates nominated by the Board of Directors for election as directors; |
| 2. | To approve, on an advisory basis, the Company’s named executive officer compensation in fiscal 2019; |
| 3. | To ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for fiscal 2020; |
| 4. | To approve an amendment to the Company’s Bylaws decreasing the percentage of shares required for shareholders to call a special shareholder meeting; |
| 5. | To approve the Company’s 2020 Employee Stock Purchase Plan; |
| 6. | To consider and vote upon one shareholder proposal set forth in the accompanying Proxy Statement, if properly presented at the Annual Meeting; and |
| 7. | To transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof. |
The Board of Directors unanimously recommends a vote “FOR” items 1, 2, 3, 4 and 5, and a vote “AGAINST” the shareholder proposal in item 6. The persons named as proxies will use their discretion to vote on other matters that may properly arise at the Annual Meeting or any adjournment or postponement thereof.
Only shareholders of record as of the close of business on March 23, 2020 will be entitled to notice of, and to vote at, the Annual Meeting.
Your vote is important. Whether or not you plan to attend the Annual Meeting, you are encouraged to vote as soon as possible to ensure that your shares are represented at the meeting. If you received a printed copy of the proxy materials by mail, you may vote your shares by proxy using one of the following methods: (i) vote via the Internet; (ii) vote by telephone; or (iii) complete, sign, date and return your proxy card in the postage-paid envelope provided. If you received only a Notice of Internet Availability of Proxy Materials by mail, you may vote your shares at the Internet site address listed on your notice. If you hold your shares through an account with a bank, broker or similar organization, please follow the instructions you receive from the holder of record to vote your shares.
Sincerely,
Ross W. McCanless
Executive Vice President, General Counsel and Corporate Secretary
Important Notice Regarding the Availability of Proxy Materials
for the Annual Meeting of Shareholders To Be Held on May 29, 2020:
The Notice of 2020 Annual Meeting of Shareholders, Proxy Statement and
2019 Annual Report to Shareholders are available at www.proxyvote.com.
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PROXY SUMMARY
We have demonstrated a strong commitment to returning capital to our shareholders and have had continued dividend growth since 1961.
| 15% | $6.4 Billion | |
| 2019 INCREASE IN ANNUAL DIVIDEND |
DIVIDENDS PAID IN THE LAST FIVE YEARS |
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FISCAL 2019 FINANCIAL AND OPERATIONAL HIGHLIGHTS
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$72.1 BILLION IN SALES +1.2% Sales YOY
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$4.3 BILLION CASH FLOW FROM OPERATIONS |
$5.49 DILUTED EARNINGS PER SHARE +93.1% Diluted Earnings Per Share YOY |
$5.74 ADJUSTED DILUTED EARNINGS PER SHARE* +12.3% Adjusted Diluted Earnings Per Share* YOY |
YOY = Year over Year Comparison
* Adjusted diluted earnings per common share is a non-GAAP financial measure. Refer to Appendix C for a reconciliation of non-GAAP measures. Fiscal 2018 diluted earnings per share was $2.84 and adjusted diluted earnings per share was $5.11.
In fiscal 2019, we made significant progress in transforming our company and building a strong foundation from which to create shareholder value. Our focus on improving in-stocks and customer service coupled with our effort on winning with the Pro supported improved performance.
While we are still in the early stages of a multi-year transformation, we are focused on generating long-term profitable growth and substantial returns for our shareholders. This means taking a balanced approach to capital allocation with a focus on making strategic investments to grow our business while returning excess value to shareholders in the form of dividends and share repurchases.
| 2020 PROPOSALS | Board Recommends |
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Proposal 1: Election of Directors
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8
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Proposal 2: Advisory Vote to Approve Named Executive Officer Compensation
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56
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Proposal 3: Ratification of the Appointment of Independent Registered Public Accounting Firm
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57
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Proposal 4: Approve Amendment to Bylaws Reducing the Ownership Threshold to Call Special Shareholder Meetings to 15% of Outstanding Shares
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58
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Proposal 5: Approve 2020 Employee Stock Purchase Plan
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59
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Proposal 6: Shareholder Proposal to Reduce the Ownership Threshold to Call Special Shareholder Meetings to 10% of Outstanding Shares
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61
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Proxy Statement
The Board of Directors (the “Board of Directors” or the “Board”) of Lowe’s Companies, Inc. is providing these materials to you in connection with the 2020 Annual Meeting of Shareholders (the “Annual Meeting”). The Annual Meeting will be held at 10:00 a.m., Eastern Time, on Friday, May 29, 2020 at the Ballantyne Hotel, 10000 Ballantyne Commons Parkway, Charlotte, North Carolina 28277. The Board, upon proper notice to shareholders, may change the Annual Meeting date, time or location due to developments relating to the outbreak of COVID-19. References in this Proxy Statement to “Lowe’s,” the “Company,” “we,” “us,” “our” and similar terms refer to Lowe’s Companies, Inc.
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General Information
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General Information
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General Information
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Shareholder Engagement
Understanding the issues that are important to our shareholders is critical in ensuring that we address their interests in a meaningful and effective way. Lowe’s recognizes the value of and is committed to engaging with our shareholders and soliciting their views and input. In fiscal 2019, members of Lowe’s management and the Board continued this long-standing practice of shareholder engagement, reinforcing our commitment to building long-term relationships with our shareholders. We conduct shareholder outreach throughout the year to ensure that we understand and consider the issues of importance to our shareholders and are able to address them appropriately. During fiscal 2019, we engaged with representatives of many of our top institutional shareholders to discuss performance, strategy, board composition, refreshment and tenure, cybersecurity and risk management, climate change and sustainability efforts, governance practices, executive compensation, culture, human capital management and other matters. We report to our Nominating and Governance Committee and Board about these meetings and provide feedback from our shareholders.
The following diagram provides an overview of Lowe’s shareholder engagement practice:
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Shareholder Engagement
We have a proven track record of responsiveness to shareholders and are committed to continued engagement. The following diagrams illustrate changes we have made to our governance and executive compensation practices over the years in response to shareholder feedback as well as our commitment to ongoing improvement.
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Shareholder Engagement
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Proposal 1: Election of Directors
Proposal 1: Election of Directors
We are asking our shareholders to vote on the election of the 11 candidates nominated by the Board of Directors for election as directors.
The Board has nominated the 11 candidates named in this proposal for election as directors at the Annual Meeting. If elected, each nominee will serve until his or her term expires at the 2021 Annual Meeting of Shareholders or until his or her successor is duly elected and qualified. Each nominee has agreed to be named in this Proxy Statement and to serve if elected.
All of the nominees are currently serving as directors and were elected to the Board at the 2019 Annual Meeting of Shareholders. In accordance with the Board’s mandatory retirement policy, Mr. James H. Morgan will retire after 5 years of service on the Board and is not a nominee for re-election at the 2020 Annual Meeting of Shareholders.
The Nominating and Governance Committee identifies, considers and recommends to the Board director candidates who have expertise that would complement and enhance the current Board’s skills and experience. It also reviews the existing time commitments of director candidates to ensure that they do not have any obligations that would conflict with the time commitments of a director of the Company. The Nominating and Governance Committee also looks to recruit candidates with different perspectives so that they can contribute to the cognitive diversity on the Board, while also recognizing the importance of having diversity of age, gender, race and ethnicity on the Board. Generally, the Nominating and Governance Committee identifies candidates through third-party search firms and, from time to time, through business and organizational contacts of the directors and management.
In the past five years, the Company has refreshed more than half of its Board by adding seven new independent directors. At the same time, the Company also believes that it benefits from having several longer tenured directors, including our Chairman, on the Board who are familiar with the Company’s business and can help facilitate the transfer of institutional knowledge. We believe the average tenure for our independent directors of less than five-and-a-half years reflects the balance the Board seeks between different perspectives brought by longer-serving and new directors.
Although the Company knows of no reason why any of the nominees would not be able to serve, if any nominee is unavailable for election, the proxy holders intend to vote your shares for any substitute nominee proposed by the Board. At the Annual Meeting, proxies cannot be voted for a greater number of individuals than the 11 nominees named in this Proxy Statement.
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The Board of Directors unanimously recommends a vote “FOR” the election of each of the 11 nominees named in this proposal. Unless authority to vote in the election of directors is withheld, it is the intention of the persons named as proxies to vote “FOR” the election of each of the 11 nominees named in this proposal. |
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Proposal 1: Election of Directors
IDENTIFYING AND EVALUATING DIRECTOR NOMINEES
Director Nominees’ Skills and Expertise
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Proposal 1: Election of Directors
DIRECTOR NOMINEES
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Proposal 1: Election of Directors
DIRECTOR NOMINEES
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Proposal 1: Election of Directors
DIRECTOR NOMINEES
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Proposal 1: Election of Directors
DIRECTOR NOMINEES
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Proposal 1: Election of Directors
DIRECTOR NOMINEES
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Corporate Governance
CORPORATE GOVERNANCE GUIDELINES AND CODE OF BUSINESS CONDUCT AND ETHICS
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Corporate Governance
COMPENSATION OF DIRECTORS
Fiscal 2019 Compensation
The following table shows the compensation paid to each non-employee director who served on the Board in fiscal 2019:
| Name |
Fees Earned or Paid in Cash ($) |
Stock Awards ($)(1) |
Total ($) | ||||||||||||
| Raul Alvarez |
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102,500 |
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177,232 |
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279,732 |
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| David H. Batchelder |
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90,000 |
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177,232 |
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267,232 |
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| Angela F. Braly |
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105,000 |
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177,232 |
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282,232 |
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| Sandra B. Cochran |
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90,000 |
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177,232 |
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267,232 |
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| Laurie Z. Douglas |
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105,000 |
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177,232 |
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282,232 |
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| Richard W. Dreiling |
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160,000 |
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326,480 |
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486,480 |
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| Marshall O. Larsen(2) |
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52,500 |
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0 |
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52,500 |
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| James H. Morgan |
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90,000 |
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177,232 |
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267,232 |
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| Brian C. Rogers |
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101,250 |
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177,232 |
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278,482 |
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| Bertram L. Scott |
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108,750 |
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177,232 |
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285,982 |
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| Lisa W. Wardell |
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90,000 |
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177,232 |
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267,232 |
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| Eric C. Wiseman |
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110,000 |
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177,232 |
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287,232 |
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| (1) | The dollar amount shown for these stock awards represents the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 “Compensation—Stock Compensation” (“FASB ASC Topic 718”) for 1,900 deferred stock units granted to each non-employee director and an additional 1,600 deferred stock units granted to the Chairman of the Board in fiscal 2019. See Note 12, “Accounting for Share-Based Payments” to the Company’s consolidated financial statements in its Annual Report on Form 10-K for the fiscal year ended January 31, 2020 for additional information about the Company’s accounting for share-based compensation arrangements, including the assumptions used for calculating the grant date value of the deferred stock units. These amounts do not correspond to the actual value that may be recognized by a director with respect to these awards when they are paid in the form of Common Stock after the termination of the director’s service. |
| (2) | Mr. Larsen retired from the Board on May 31, 2019 and did not receive a grant of deferred share units in 2019. |
The following table shows the number of deferred stock units held by each non-employee director as of January 31, 2020:
| Name |
Deferred Stock Units(#) |
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| Raul Alvarez |
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31,117 |
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| David H. Batchelder |
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3,876 |
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| Angela F. Braly |
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14,138 |
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| Sandra B. Cochran |
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8,217 |
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| Laurie Z. Douglas |
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10,607 |
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| Richard W. Dreiling |
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27,502 |
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| James H. Morgan |
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10,607 |
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| Brian C. Rogers |
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3,876 |
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| Bertram L. Scott |
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8,217 |
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| Lisa W. Wardell |
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3,876 |
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| Eric C. Wiseman |
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24,340 |
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Director Stock Ownership Guidelines
To ensure that our directors become and remain meaningfully invested in Common Stock, non-employee directors are required to own shares of Common Stock having a market value equal to five times the annual retainer fee payable to them. A non-employee director must meet the stock ownership requirement within five years of becoming a member of the Board. In addition to shares owned by non-employee directors, the full value of deferred stock units is counted for purposes of determining a director’s compliance with the stock ownership requirement. All of our directors have met or are on track to meet their objectives within the five-year time requirement.
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Corporate Governance
BOARD MEETINGS, COMMITTEES OF THE BOARD AND BOARD LEADERSHIP STRUCTURE
ROLE OF THE INDEPENDENT CHAIRMAN
The independent Chairman of the Board:
| • | Presides at all meetings of the Board, including executive sessions of the independent directors; |
| • | Presides at all shareholder meetings; |
| • | Sets the agenda for executive sessions of independent directors; |
| • | Approves meeting schedules to assure that there is sufficient time for discussion of all agenda items; |
| • | Has the authority to call meetings of the Board and independent directors; |
| • | Facilitates effective communication between the Board and shareholders and shall be available for consultation and direct communication with major shareholders; |
| • | Leads the evaluation process for individual directors, committees and the Board; |
| • | Works with the Chair of the Nominating and Governance Committee in an annual performance review of the CEO; and |
| • | Serves as the contact person for interested parties to communicate directly with the independent directors. |
Lowe’s independent directors appointed Mr. Dreiling to serve as Chairman of the Board effective July 2, 2018. Mr. Dreiling joined the Board in 2012 and brings more than 40 years of retail industry experience at all operating levels. As Chairman and Chief Executive Officer of a publicly-traded retail company prior to his retirement, Mr. Dreiling developed strong executive leadership and strategic management skills in the retail industry, and he has a track record of enhancing operational effectiveness to yield value for shareholders.
ROLE OF THE LEAD DIRECTOR, IF APPOINTED
The Lead Director, if appointed:
| • | Presides at all meetingas of the Board at which the Chairman of the Board is not present, including executive sessions of independent directors; |
| • | Serves as a liaison between the Chairman and independent directors; |
| • | Approves meeting agendas for the Board; |
| • | Approves meeting schedules to assure that there is sufficient time for discussion of all agenda items; |
| • | Has the authority to call meetings of the independent directors; and |
| • | Will be available for consultation and direct communication with major shareholders. |
The Lead Director, if appointed, also serves as the Chair of the Nominating and Governance Committee of the Board, which is comprised entirely of independent directors. With Mr. Dreiling serving as Chairman of the Board, the Company does not currently have a Lead Director.
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Corporate Governance
BOARD MEETINGS, COMMITTEES OF THE BOARD AND BOARD LEADERSHIP STRUCTURE
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Corporate Governance
BOARD MEETINGS, COMMITTEES OF THE BOARD AND BOARD LEADERSHIP STRUCTURE
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Corporate Governance
BOARD MEETINGS, COMMITTEES OF THE BOARD AND BOARD LEADERSHIP STRUCTURE
Board Committees
The Board has five current standing committees: the Audit Committee, the Compensation Committee, the Nominating and Governance Committee, the Sustainability Committee and the Technology Committee. The Board may also establish other committees from time to time as it deems necessary. Committee members and committee chairs are appointed by the Board. The members of these committees as of January 31, 2020 are identified in the following table:
Audit Committee Compensation Committee Nominating and Governance Committee Public Policy Committee Executive Committee Sustainability Committee Technology Committee
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🌑 Member |
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| Raul Alvarez(1) |
🌑 | 🌑 | 🌑 | |||||||
| David H. Batchelder |
🌑 | 🌑 | ||||||||
| Angela F. Braly |
🌑 | Chair | 🌑 | |||||||
| Sandra B. Cochran |
🌑 | |||||||||
| Laurie Z. Douglas |
🌑 | 🌑 | Chair | |||||||
| Richard W. Dreiling |
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| Marvin R. Ellison |
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| Marshall O. Larsen(2) |
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| James H. Morgan |
🌑 | 🌑 | ||||||||
| Brian C. Rogers(3) |
🌑 | Chair | ||||||||
| Bertram L. Scott(4) |
Chair | 🌑 | ||||||||
| Lisa W. Wardell |
🌑 | 🌑 | 🌑 | |||||||
| Eric C. Wiseman |
Chair | 🌑 | 🌑 | |||||||
| Number of Meetings in Fiscal 2019 |
7 | 7 | 5 | 3 | 2 | |||||
| (1) | Effective May 31, 2019, Mr. Alvarez ended his tenure as Chair of the Audit Committee and was appointed to the Compensation Committee. |
| (2) | Mr. Larsen served as Chair of the Nominating and Governance Committee until May 31, 2019. |
| (3) | Mr. Rogers was appointed Chair of the Nominating and Governance Committee on May 31, 2019. |
| (4) | Mr. Scott was appointed Chair of the Audit Committee on May 31, 2019. |
Each of the current committees act pursuant to a written charter adopted by the Board. A copy of each committee charter and the Corporate Governance Guidelines are available on the Company’s website at www.Lowes.com/investor.
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Corporate Governance
BOARD MEETINGS, COMMITTEES OF THE BOARD AND BOARD LEADERSHIP STRUCTURE
The following table provides information about the operation and key functions of each of the current standing Board committees:
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Key Functions and Additional Information | |
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Audit Committee
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• Oversees the Company’s accounting and financial reporting processes, internal controls and internal audit functions.
• Reviews and discusses with management and the independent registered public accounting firm the annual and quarterly financial statements and earnings press releases.
• Reviews and discusses the Company’s major financial risk exposures, including data protection, cybersecurity, business continuity and operational risks, and the steps management has taken to identify, assess, monitor, control, remediate and report such exposures.
• Reviews with the Company’s General Counsel and Chief Compliance Officer legal matters and the program of monitoring compliance with the Company’s Code of Business Conduct and Ethics.
• Reviews and pre-approves all audit and non-audit services proposed to be performed by the independent registered public accounting firm.
• Reports regularly to the Board.
• The Board has determined that five of the six members of the Audit Committee, Messrs. Alvarez, Morgan, Rogers and Scott and Ms. Wardell, are each “audit committee financial experts” within the meaning of the SEC rules and that each of the members of the Audit Committee has accounting and related financial management expertise in accordance with the NYSE rules.
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Compensation Committee
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• Reviews and approves on an annual basis the corporate goals and objectives relevant to the compensation for the executive officers, evaluates at least once a year the Chief Executive Officer’s performance in light of these established goals and objectives and, based upon this evaluation, determines and approves the Chief Executive Officer’s compensation, which it forwards to the Board for ratification by the independent directors.
• Reviews and approves the compensation for the other executive officers.
• Makes recommendations to the Board with respect to incentive compensation and equity-based plans that are subject to Board approval.
• Reviews and approves all annual incentive plans for executives and all awards to executives under multi-year incentive plans, including equity-based incentive arrangements authorized under the Company’s equity incentive compensation plans.
• Oversees regulatory compliance and risk regarding compensation matters.
• Reports regularly to the Board.
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Nominating and Governance Committee
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• Develops criteria for evaluation of potential candidates for the Board and its committees.
• Makes recommendations to the Board concerning committee appointments.
• Makes recommendations to the Board with respect to determinations of director independence.
• Identifies, evaluates and recommends director candidates to the Board.
• Oversees annual evaluation of the Board, the committees of the Board and each individual director.
• Develops and recommends to the Board the Corporate Governance Guidelines applicable to the Company.
• Reviews and approves, ratifies or disapproves related person transactions.
• Considers and recommends to the Board other actions relating to corporate governance.
• Reports regularly to the Board.
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Sustainability Committee
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• Oversees sustainability and environmental matters.
• Assists the Board with the Company’s enterprise risk management system by identifying, evaluating and monitoring sustainability and environmental trends, issues, risks and concerns.
• Reviews the Company’s compliance with policies, programs and practices with regard to sustainability, environmental and related social responsibility issues and impacts to support the sustainable growth of the Company.
• Monitors the Company’s performance against relevant external sustainability indices and reviews the Company’s annual Corporate Social Responsibility Report.
• Reviews and makes recommendations to the Board regarding responses to stockholder proposals encompassing matters overseen by the Committee.
• Reports regularly to the Board. | |
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Technology Committee
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• Oversees matters of technology, eCommerce and innovation.
• Makes recommendations to the Board relating to the Company’s technology, eCommerce and innovation strategy in support of the Company’s objectives.
• Monitors and provides guidance on issues relating to significant emerging technology, eCommerce and innovation trends and issues that may affect the Company strategy.
• Reports regularly to the Board.
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Corporate Governance
CORPORATE RESPONSIBILITY AND POLITICAL ADVOCACY AND OVERSIGHT
CORPORATE RESPONSIBILITY AND POLITICAL ADVOCACY AND OVERSIGHT
Corporate Responsibility
Corporate responsibility is a cornerstone of our Company and fundamental to our success. The Sustainability Committee of the Board oversees Lowe’s corporate responsibility strategies and our Sustainability Council, composed of executives and subject matter experts from across the Company, leads the Company’s efforts to integrate corporate responsibility into our business. The Sustainability Committee receives regular updates related to corporate responsibility strategy and initiatives.
We have built our corporate responsibility strategy around three key areas: Product Sustainability; Our People and Communities; and Operational Excellence. These key areas align with our mission and overall strategic plan.
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PRODUCT SUSTAINABILITY
We strive to put the customer first in everything we do, stocking our shelves with quality items that people can feel good about buying. As we expand our portfolio of responsibly sourced, innovative and efficient eco-products, we hope to help customers reduce their impact on the environment. |
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OUR PEOPLE & COMMUNITIES
The Lowe’s community begins with more than 300,000 employees and extends to their families and the communities where we live and work. Developing our employees is foundational to ensuring Lowe’s success and outstanding customer experiences. Through charitable contributions, employee volunteerism and nonprofit partnerships, we invest in our communities, because when our people and communities are strong, so are we.
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OPERATIONAL EXCELLENCE
We are focused on creating long-term value for our shareholders while preserving our shared home, Earth, through sustainable practices and doing the right thing – acting responsibly, ethically, and being transparent. |
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IN 2019, we had more than 26,000 ENERGY STAR® products available for sale in-store and online. |
IN 2019, our employees contributed 330,000 hours of community service, and we invested 1.1 million hours of training in front-line leaders.
|
IN 2019, we reduced carbon emissions by 12.26% and recycled 102 thousands of metric tons of cardboard. |
We have adopted a number of policies that highlight the Company’s commitment to social and environmental responsibility and that seek to promote sustainability in the operation of our business. Our commitment to building an industry-leading corporate responsibility program is demonstrated by our inclusion in the Dow Jones Sustainability Index for North America, a benchmark for investors who integrate sustainability considerations into their portfolios. More information about Lowe’s corporate responsibility efforts and initiatives, including the 2018 Corporate Responsibility Report and our sustainability policies, is available at newsroom.Lowes.com/responsibility/.
Political Advocacy and Oversight
The Nominating and Governance Committee has oversight of Lowe’s political advocacy activities, including political contributions, trade association memberships, lobbying activities and the Lowe’s Companies, Inc. Political Action Committee (“LOWPAC”). As part of its oversight role, it reviews our political engagement and contribution policy and monitors our ongoing political strategy as it relates to the overall public policy objectives for the Company. Lowe’s does not make contributions from corporate funds to political campaigns, super political action committees or political parties. Political contributions made by LOWPAC are approved by its board of directors, which consists of members of the senior leadership team spanning corporate and operational roles. All political advocacy is conducted to promote the interests of the Company and is made without regard for the private political preferences of Lowe’s directors or executives.
| 26 | NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 |
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Table of Contents
Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners and Management
The following table provides information about the beneficial ownership of Common Stock as of March 23, 2020, except as otherwise noted, by each person known by the Company to beneficially own more than 5% of the outstanding shares of Common Stock as well as each director, nominee for director, named executive officer and all current directors and executive officers as a group. Except as otherwise indicated below, each of the persons named in the table has sole voting and investment power with respect to the securities indicated as beneficially owned by such person, subject to community property laws where applicable. Unless otherwise indicated, the address for each of the beneficial owners is c/o Lowe’s Companies, Inc., 1000 Lowes Boulevard, Mooresville, North Carolina 28117.
| Name or Number of Persons in Group |
Number of Shares(1) | Percent of Class | ||||||||
| Raul Alvarez |
|
31,257 |
|
* |
||||||
| David H. Batchelder |
|
25,893 |
|
* |
||||||
| William P. Boltz |
|
32,444 |
|
* |
||||||
| Angela F. Braly |
|
14,201 |
|
* |
||||||
| Sandra B. Cochran |
|
9,754 |
|
* |
||||||
| David M. Denton |
|
46,734 |
|
* |
||||||
| Laurie Z. Douglas |
|
10,655 |
|
* |
||||||
| Richard W. Dreiling |
|
27,626 |
|
* |
||||||
| Marvin R. Ellison |
|
172,991 |
|
* |
||||||
| Seemantini Godbole |
|
32,587 |
|
* |
||||||
| Joseph M. McFarland III |
|
42,298 |
|
* |
||||||
| James H. Morgan |
|
10,655 |
|
* |
||||||
| Brian C. Rogers |
|
13,893 |
|
* |
||||||
| Bertram L. Scott |
|
8,254 |
|
* |
||||||
| Lisa W. Wardell |
|
4,416 |
|
* |
||||||
| Eric C. Wiseman |
|
24,450 |
|
* |
||||||
| Current Directors and Executive Officers as a Group (20 total) |
760,874 | (2) | * | |||||||
|
BlackRock, Inc. |
57,618,135 | 7.6 | %(4) | |||||||
|
The Vanguard Group |
66,108,065 | 8.8 | %(5) | |||||||
| * | Represents holdings of less than 1%. |
| (1) | Includes shares that may be acquired or issued within 60 days through exercise of stock options, settlement of PSUs upon vesting or settlement of deferred stock units upon termination of employment or Board service under the Company’s stock plans as follows: Mr. Alvarez – 31,257 shares; Mr. Batchelder – 3,893 shares; Mr. Boltz – 18,984; Ms. Braly – 14,201 shares; Ms. Cochran – 8,254 shares; Mr. Denton – 27,534 shares; Ms. Douglas – 10,655 shares; Mr. Dreiling – 27,626 shares; Mr. Ellison – 82,901 shares; Ms. Godbole – 13,807 shares; Mr. McFarland – 24,668 shares; Mr. Morgan – 10,655 shares; Mr. Rogers – 3,893 shares; Mr. Scott – 8,254 shares; Ms. Wardell – 3,893 shares; Mr. Wiseman – 24,450 shares; and current directors and executive officers as a group (20 total) – 488,753 shares. |
| (2) | Includes 252,766 shares beneficially owned by other current executive officers not individually listed in the table. |
| (3) | Shares held at December 31, 2019, according to a Schedule 13G/A filed with the SEC on February 10, 2020 by BlackRock, Inc. (“BlackRock”). The Schedule 13G/A reports that BlackRock has sole voting power over 49,610,237 shares, shared voting power over no shares, sole investment power over 57,618,135 shares and shared investment power over no shares. |
| (4) | Shares held at December 31, 2019, according to a Schedule 13G/A filed with the SEC on February 12, 2020 by The Vanguard Group, Inc. (“Vanguard”). The Schedule 13G/A reports that Vanguard has sole voting power over 1,191,366 shares, shared voting power over 214,132 shares, sole investment power over 64,772,877 shares and shared investment power over 1,335,188 shares. |
|
|
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 | 27 |
Table of Contents
Compensation Discussion and Analysis
Compensation Discussion and Analysis
This Compensation Discussion and Analysis (“CD&A”) explains the key elements of our executive compensation program and compensation decisions as they relate to the following named executive officers (“NEOs”) of the Company in the 2019 fiscal year:
| Marvin R. Ellison |
President and Chief Executive Officer | |
| David M. Denton |
Executive Vice President, Chief Financial Officer | |
| Joseph M. McFarland III |
Executive Vice President, Stores | |
| William P. Boltz |
Executive Vice President, Merchandising | |
| Seemantini Godbole |
Executive Vice President, Chief Information Officer |
Our CD&A is organized as follows:
| I. | Executive Summary |
| II. | Compensation Philosophy and Elements |
| III. | Compensation Decision-Making Process |
| IV. | 2019 Compensation Actions |
| V. | Other Compensation Policies |
| VI. | Compensation Committee Report |
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Table of Contents
Compensation Discussion and Analysis
EXECUTIVE SUMMARY
We have demonstrated a strong commitment to returning capital to our shareholders and continued dividend growth since 1961.
| 15% | $6.4 Billion | |
| 2019 INCREASE IN ANNUAL DIVIDEND |
DIVIDENDS PAID IN THE LAST FIVE YEARS |
In fiscal 2019, we made significant progress in transforming our company and building a strong foundation from which to create increasing shareholder value. Throughout the year, our team executed the requisite steps allowing us to make progress toward a true omni-channel customer experience. We expect to capitalize on the opportunity in front of us by driving operational excellence and better serving our customers by continued execution on our strategic initiatives:
In fiscal 2019, we began to demonstrate success from executing our retail fundamentals framework. Our focus on improving in-stocks and customer service coupled with our efforts on winning with the Pro supported improved performance. This progress allowed us to achieve solid results from executing our retail fundamentals framework, with total sales growth of 1.2 percent driven by comparable sales growth of 2.6 percent. Additionally, we made strategic investments across our business throughout the year, including in technology, supply chain, eCommerce, customer service, improved category performance, operational efficiency and Pro business, while continuing to return excess cash to our shareholders. We delivered value to shareholders through the payment of $1.6 billion in dividends and the repurchase of nearly $4.3 billion of our common stock.
Our executive compensation program is designed to maximize long-term shareholder value by aligning executive pay with our strategy and shareholder interests, as well as attracting and retaining talented executives to drive long-term value. For fiscal 2019, we altered the incentive metrics to support our retail fundamentals strategy. Our annual incentive plan incorporated a metric for inventory improvement in support of our corporate strategy and to generate cash flow for investing in the business and returning value to shareholders. We also equally weighted the adjusted sales and adjusted operating income metrics within the annual incentive plan in recognition of the importance of growing our top line while maintaining a healthy focus on profitability. Finally, we replaced the metric of return on non-cash average assets with return-on-invested-capital in our long-term incentive plan, which promotes a strong focus on capital allocation that generates returns consistent with shareholder expectations and aligns with how we measure performance internally and how investors are measuring our capital returns.
We are pleased with the foundation we have built. While we are still in the early stages of our multi-year transformation, we are confident we are on the right path to generate long-term profitable growth.
|
|
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Table of Contents
Compensation Discussion and Analysis
EXECUTIVE SUMMARY
The CD&A includes disclosure of our incentive compensation performance measures including: adjusted sales, adjusted operating income, return on invested capital (“ROIC”), inventory improvement and return on non-cash average assets (“RONCAA”) for incentive compensation prior to 2019. Many of these performance measures are calculated in accordance with U.S. generally accepted accounting principles, or GAAP. However, there are some non-GAAP performance measures that management uses to assess our year-over-year performance. A reconciliation of these non-GAAP financial measures is included in Appendix C. For fiscal 2019, the Compensation Committee replaced the long-term incentive plan metric of RONCAA with ROIC for the reasons described above. Adjusted operating income for fiscal 2019 as presented in the CD&A includes an adjustment for incentive compensation performance achievement approved by the Compensation Committee as described on pages 38 to 39. Each of these performance measures is further described on pages 37 to 40.
2019 Executive Compensation
Lowe’s has a long-standing commitment to pay for performance that provides a significant portion of compensation opportunities through variable pay arrangements. These arrangements are designed to hold our executive officers accountable for business results and reward them for consistently strong financial performance and the creation of value for our shareholders.
Our 2019 executive compensation program consisted of the following elements:
| • | Base salary |
| • | Annual incentive awards |
| • | Performance share unit awards (“PSUs”) |
| • | Stock options |
| • | Restricted stock awards (“RSAs”) |
| • | Retirement, health and severance benefits |
| • | Limited perquisites |
Lowe’s mix is heavily performance-based with 72% of the CEO’s and 67% of the other NEOs’ annualized target compensation at risk and contingent upon the achievement of performance objectives or share price performance.
|
|
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Table of Contents
Compensation Discussion and Analysis
EXECUTIVE SUMMARY
How Our Executive Compensation Is Tied To Performance
A significant portion of our executive compensation program is performance-based with a balanced focus on top- and bottom-line growth and strategic initiatives.
| • | Annual Incentive Awards: Payout is generally based on the Company’s achievement of financial (adjusted sales and adjusted operating income) and strategic (inventory improvement) goals. Threshold performance objectives must be achieved for payouts to be earned. |
| • | PSUs: Payout is based on the Company’s achievement of (i) a three-year average RONCAA goal for PSUs granted in 2017 and 2018 and a three-year average ROIC goal for PSUs granted in 2019, in each case, established at the beginning of a three-year performance period and (ii) a relative total shareholder return (“TSR”) modifier, which compares the Company’s TSR to the median TSR of companies listed in the S&P 500 Index over a three-year period. Threshold performance objectives must be achieved for awards to be earned. |
| • | Stock Options: Value realized is based on the increase in the market value of Common Stock relative to when it was awarded. |
Based on our performance through fiscal 2019 illustrated below, certain executives received the following payouts of performance-based compensation:
| • | Annual incentive payouts were driven by (i) above threshold, but below target, performance in adjusted sales, (ii) threshold performance in adjusted operating income following the adjustment for incentive compensation performance achievement approved by the Compensation Committee as described on pages 38 to 39 and (iii) below threshold performance for inventory improvement. Overall award payments for the NEOs were at 43.4% of target. |
| • | The NEOs, who all joined the Company in 2018, did not receive the grant of PSUs for the 2017-2019 performance period. |
Annual Incentive Plan Achievement
| * | Dollars in billions |
| (1) | Adjusted operating income was adjusted by the Compansation Committee for incentive compensation performance achievement as described on pages 38 to 39. |
|
|
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Table of Contents
Compensation Discussion and Analysis
EXECUTIVE SUMMARY
| WHAT WE DO | WHAT WE DO NOT DO | |||||||
|
|
Provide 80% to 90% of total direct compensation opportunity (assuming target performance) for NEOs in the form of annual and long-term incentives.
|
|
|
|
Provide single-trigger severance or tax gross-ups following change-in-control.
| |||
|
|
Annually assess peer group composition, financial and stock price performance and competitive compensation practices.
|
|
|
|
Permit hedging, pledging or unauthorized trading of the Company’s securities by our employees or directors.
| |||
|
|
Annually assess compensation-related risks associated with regulatory, shareholder and market changes. |
|
|
|
Grant discounted stock options, extend the original option term, reprice or exchange underwater options without shareholder approval.
| |||
|
|
Annually assess the design and alignment of our incentive plans in relation to performance goals, business strategy, organizational priorities and shareholder interests.
|
|
|
|
Provide an evergreen provision in our Long-Term Incentive Plan.
| |||
|
|
Link incentive compensation to a clawback policy, which was updated in January 2020 to incorporate misconduct that may result in significant financial or reputational harm.
|
|
|
|
Provide employment agreements to executives.
| |||
|
|
Limit incentive payouts as a percentage of target awards.
|
|||||||
|
|
Require significant stock ownership by all senior executives.
|
|||||||
|
|
Provide limited perquisites.
|
|||||||
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Table of Contents
Compensation Discussion and Analysis
EXECUTIVE SUMMARY
|
|
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 | 33 |
Table of Contents
Compensation Discussion and Analysis
COMPENSATION PHILOSOPHY AND ELEMENTS
The following table lists the key elements of the Company’s 2019 executive compensation program:
|
KEY ELEMENTS OF EXECUTIVE COMPENSATION
|
||||||||||
|
Element
|
Form
|
Key Characteristics
|
Link to Shareholder Value
|
Key Decisions
|
||||||
|
Base Salary |
Cash |
Fixed cash compensation tied to the scope and responsibilities of each executive’s position and the performance and effectiveness of the executive |
Provide a foundation of fixed income to the executive; encourage retention and attraction of top talent; and recognize effective leadership |
Base salaries are reviewed annually based on the Compensation Committee’s evaluation of market compensation and an assessment of the executive’s performance. Approved adjustments are effective in March following the start of the fiscal year in alignment with all salaried employees
|
||||||
|
Annual Incentive Awards |
Cash |
At-risk cash compensation tied to the achievement of annual strategic and financial performance goals established by the Compensation Committee for each fiscal year
|
Promote the achievement of the Company’s annual strategic and financial goals; and incent and reward financial and operating performance |
Annual incentive plan design is reviewed and approved each January. Performance is certified in February following the completion of the fiscal year |
||||||
|
Long-Term Incentive Awards |
PSUs |
PSUs, which cliff vest at the end of the thee-year performance period, are based on (i) the Company’s average ROIC(1) relative to pre-determined threshold, target and maximum levels of performance for the three-year performance period, and (ii) a relative TSR modifier
|
Promote the achievement of efficient long-term growth and total shareholder return performance |
Long-term incentive plan design is reviewed and approved each March
Performance is certified in March following the completion of the performance period |
||||||
| Stock Options | Stock options vest ratably over three-years(2) | Promote the value-creating actions necessary to increase the market value of Common Stock
|
Awards are approved in March with a 10-year term | |||||||
| RSAs | RSAs granted pursuant to the annual long-term equity grant cliff vest on the third anniversary of the grant date(2)
|
Promote executive retention, stock ownership and alignment of interests with shareholders
|
Executive stock ownership guidelines and actual stock holdings are reviewed annually | |||||||
|
Retirement And Other Benefit Plans |
401(k) Plan
Group Insurance Plan
Employee Stock Purchase Plan
Benefit Restoration Plan
Cash Deferral Plan
|
Broad-based retirement and welfare plans sponsored by the Company on the same terms and conditions applicable to all eligible employees, including supplemental 401(k) and deferred compensation benefits |
Promote financial and physical wellness to enhance productivity and encourage the retention and attraction of top talent |
Reviewed periodically to align with market practice |
||||||
|
Executive Benefits |
Other Benefits |
Reimbursement of costs associated with tax and financial planning, physical examination and limited personal use of corporate aircraft
|
Promote financial and physical wellness to enhance productivity and safety and to encourage the retention and attraction of top talent |
Utilization is reviewed annually; programs are reviewed periodically to align with market practice |
||||||
|
Severance Plan for Senior Officers |
Severance Plan |
Provides severance payments, continuation of healthcare benefits and company-paid outplacement services
|
Provides a program to help attract and compete for top talent |
Program was approved by the Compensation Committee in August 2018 |
||||||
| (1) | ROIC is a comprehensive long-term financial metric that incorporates both operating profit and balance sheet performance in the calculation. This metric motivates management to generate sustained profitable growth over time while balancing the Company’s effectiveness at allocating capital to drive future investment and growth. ROIC is computed by dividing the Company’s net operating profit after taxes for the year by the average of the Company’s invested capital as of the beginning and end of the fiscal year. The return percentages for each fiscal year in the performance period are averaged to yield a ROIC measure for the three-year performance period. |
| (2) | Executives must maintain employment with the Company during the three-year period, or terminate employment with the Company due to death, disability or qualified retirement (as defined in the grant agreement), to earn the awards. |
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Compensation Discussion and Analysis
COMPENSATION DECISION-MAKING PROCESS
|
|
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 | 35 |
Table of Contents
Compensation Discussion and Analysis
COMPENSATION DECISION-MAKING PROCESS
Compensation Market Data and Peer Group
Each year, the Compensation Committee reviews the peer group companies used to assess compensation and performance with the advice of the independent compensation consultant. The Compensation Committee approved the use of data from two sources for fiscal 2019: the Survey Group and the Peer Group.
The Survey Group is comprised of a broad group of retail and general industry companies that Lowe’s competes with for executive talent, generally with over $15 billion in annual revenue.
The Peer Group is comprised of retail and customer service companies selected for direct relevance to Lowe’s business using the following criteria:
| • | Headquartered in the United States with publicly-traded securities listed on a major United States exchange; |
| • | Operating in the Consumer Discretionary or Food & Staples retail sectors; |
| • | Annual revenue greater than $15 billion; and |
| • | Retail or customer service-based business model focused on producing strong operating income and TSR growth. |
The companies in the Peer Group for fiscal 2019 were:
| Amazon.com, Inc. |
Best Buy Co., Inc. |
Costco Wholesale Corporation |
CVS Health Corporation | |||
| Kohl’s Corporation |
Macy’s, Inc. |
Nike, Inc. |
Nordstrom, Inc. | |||
| Starbucks Corporation |
Target Corporation |
The Home Depot, Inc. |
The Kroger Co. | |||
| The TJX Companies, Inc. |
Walgreens Boots Alliance, Inc. |
Walmart, Inc. |
||||
In fiscal 2019, Nike, Inc. and Starbucks Corporation were added to the Peer Group due to their similar size, operations, complexity, store count, omni-channel business model, customer profile and spend and employer brand. Staples, Inc. was removed from the Peer Group since it is no longer a publicly-traded company. The Compensation Committee agreed that the remaining companies in the Peer Group from fiscal 2018 were relevant given our peer selection criteria and that the size of the Peer Group remained appropriate based on market practices.
|
PEER GROUP DATA FOR FISCAL 2019(1) |
||||||||||||||||||||||||||||||
| Market | TSR | |||||||||||||||||||||||||||||
| Revenues (MM)
|
Capitalization (MM)
|
Operating Income (MM)
|
1-year
|
3-year
|
5-year
| |||||||||||||||||||||||||
| 75th Percentile |
$ |
144,785 |
$ |
142,470 |
$ |
8,493 |
|
26.97% |
|
|
91.84% |
|
|
131.77% |
||||||||||||||||
| 50th Percentile |
$ |
75,356 |
$ |
71,036 |
$ |
4,218 |
|
22.77% |
|
|
64.37% |
|
|
77.66% |
||||||||||||||||
| 25th Percentile |
$ |
32,741 |
$ |
21,710 |
$ |
2,257 |
|
-8.60% |
|
|
-4.36% |
|
|
-18.63% |
||||||||||||||||
| Lowe’s Companies, Inc. |
$ |
71,309 |
$ |
89,095 |
$ |
4,018 |
|
21.99% |
|
|
67.96% |
|
|
87.74% |
||||||||||||||||
| Percentile Ranking |
|
49.10% |
|
|
57.60% |
|
|
35.40% |
|
|
48.30% |
|
|
51.90% |
|
|
54.70% |
|||||||||||||
Source: S&P Capital IQ
| (1) | Revenues and operating income are as of each company’s latest fiscal year as of January 31, 2020. Market Capitalization and TSR are as of January 31, 2020, which aligns with Lowe’s fiscal year end date. |
At its November 2018 meeting, the Compensation Committee reviewed thorough compensation benchmarks based on the two groups described above. The Compensation Committee concluded that the benchmarks indicated that the NEOs’ target total direct compensation (“TDC”) approximated market median, with an opportunity to earn above market pay when the Company delivers results that exceed performance targets and below market pay when the Company performance falls short of performance targets.
| 36 | NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 |
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Table of Contents
Compensation Discussion and Analysis
2019 COMPENSATION ACTIONS
Base Salary Adjustments
The Compensation Committee reviews and adjusts the NEO base salaries each year after it has considered competitive benchmark and relative compensation positioning, which includes consideration of market adjustments, internal alignment, experience in the role, performance and any changes to roles or responsibilities. As a result of the review, Mr. Boltz received a salary increase of 5.9% in March 2019 based on a review of market competitiveness of similar positions at peer companies, and Ms. Godbole received a 5.7% increase in October 2019 due to quick progress on many critical technology priorities.
In 2019, the Compensation Committee approved the following base salaries for the NEOs:
| Name and Position
|
2018 Base Salary
|
2019 Base Salary
|
% Increase
| ||||||||||||
| Marvin R. Ellison President and Chief Executive Officer |
$ | 1,450,000 | $ | 1,450,000 | — | ||||||||||
| David M. Denton Executive Vice President, Chief Financial Officer |
$ | 925,000 | $ | 925,000 | — | ||||||||||
| Joseph M. McFarland III Executive Vice President, Stores |
$ | 750,000 | $ | 750,000 | — | ||||||||||
| William P. Boltz Executive Vice President, Merchandising |
$ | 675,000 | $ | 715,000 | 5.9 | % | |||||||||
| Seemantini Godbole Executive Vice President, Chief Technology Officer |
$ | 615,000 | $ | 650,000 | 5.7 | % | |||||||||
Annual Incentive Awards
Our annual incentive plan provides each NEO the opportunity to receive an annual cash award based on the Company’s achievement of predetermined financial and strategic goals. The formula for computing annual incentive payouts is as follows:
| BASE SALARY | X | TARGET AWARD PERCENTAGE(1) (% of Base Salary) |
X |
PERFORMANCE GOAL ACHIEVEMENT LEVEL(2) (% of Target Level)
|
= | ANNUAL INCENTIVE AWARD EARNED |
| (1) | The target award percentage was 200% of base salary for the CEO and ranged from 100% to 125% of base salary for the other NEOs. For fiscal 2019, target awards as a percentage of base salary for the CEO remained the same and increased from a range of 90% to 125% for the other NEOs from the prior year based on a review of similar positions at peer companies. |
| (2) | The threshold percentage for the NEOs, including the CEO, was 25% in 2019, which was the same percentage for threshold opportunity as the prior year. The NEOs, including the CEO, pursuant to a maximum plus feature adopted solely for fiscal 2019, had a maximum opportunity of 250% of target for adjusted sales and adjusted operating income in fiscal 2019, which was increased from 200% of target from the prior year, and a maximum opportunity of 200% of target for inventory improvement in fiscal 2019, which remained the same as the maximum for the strategic goal in place in fiscal 2018. |
|
|
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 | 37 |
Table of Contents
Compensation Discussion and Analysis
2019 COMPENSATION ACTIONS
The following table describes the financial and strategic goals for the 2019 annual incentive awards and the weighting assigned to each goal, which are the same for all of the NEOs:
|
Performance Metric
|
Metric Weighting
| |||||||
| Description
|
Performance Measured By
| |||||||
|
Adjusted Sales |
Rewards NEOs on effective merchandising, driving market share gains, and the enhancement of the Company’s omni-channel sales and marketing
|
Company’s adjusted sales |
45% | ||||
|
Adjusted Operating Income |
Rewards NEOs for profitability of Company operations and focuses management on operational efficiency and expense management
|
Company’s adjusted operating income |
45% | |||||
|
Inventory Improvement |
Rewards NEOs for focusing on improving inventory management, which generates cash flow for investing in the business and returns value to shareholders
|
Cost of goods sold / average inventory and measured in days improvement over the prior year |
10% |
Strategic Goals Financial Goals
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Table of Contents
Compensation Discussion and Analysis
2019 COMPENSATION ACTIONS
Based on the performance metrics established by the Compensation Committee, the Company’s 2019 performance and the aforementioned adjustments, the Compensation Committee determined that Lowe’s achieved approximately 43.4% of the target incentive opportunities for the NEOs.
| Performance Metric Payout(1)
|
Threshold 25%
|
Target 100%
|
Maximum 200%
|
Maximum Plus(2) 250%
|
2019
Actual
| ||||||||||||||||||||
| Adjusted Sales |
$71.151 billion |
$72.618 billion |
$73.707 billion |
$74.775 billion |
$72.060 billion | ||||||||||||||||||||
| Adjusted Operating Income |
$ 6.653 billion |
$ 6.870 billion |
$ 7.452 billion |
$ 7.865 billion |
$ 6.579 billion(3) | ||||||||||||||||||||
| Inventory Improvement |
0 days |
1.3 days |
3 days |
— |
-10.5 days | ||||||||||||||||||||
| (1) | Payouts for performance that falls between performance levels shall be determined by linear interpolation. |
| (2) | The maximum plus payout target was adopted solely for the fiscal 2019 annual incentive plan to reward executives for superior performance in adjusted sales and adjusted operating income. |
| (3) | The Compensation Committee approved an adjustment to adjusted operating income as described on pages 38 to 39. |
Based on results of the performance metrics approved and adjusted by the Compensation Committee, the NEOs earned annual incentive awards for 2019 as follows:
| Name
|
Base Salary(1)
|
x
|
Target Award %
|
x
|
Performance Goal
|
=
|
Actual Award Earned
| ||||||||||||||||||||||||||||
| Marvin R. Ellison |
$ |
1,450,000 |
|
200 |
% |
|
43.4 |
% |
$ |
1,258,657 |
|||||||||||||||||||||||||
| David M. Denton |
$ |
925,000 |
|
125 |
% |
|
43.4 |
% |
$ |
501,840 |
|||||||||||||||||||||||||
| Joseph M. McFarland III |
$ |
750,000 |
|
100 |
% |
|
43.4 |
% |
$ |
325,515 |
|||||||||||||||||||||||||
| William P. Boltz |
$ |
715,000 |
|
100 |
% |
|
43.4 |
% |
$ |
310,324 |
|||||||||||||||||||||||||
| Seemantini Godbole |
$ |
615,000 |
|
100 |
% |
|
43.4 |
% |
$ |
266,922 |
|||||||||||||||||||||||||
| (1) | Base salary considered for annual incentive plan purposes is as of April 1, 2019. |
Long-Term Equity Awards
In March each year, the Compensation Committee approves a target long-term equity award for each executive officer, expressed as a percentage of base salary. Target awards are determined based on each executive officer’s position and level of responsibility, the Company’s historical grant practices and market benchmarks reviewed annually by the Compensation Committee. For fiscal 2019, target awards as a percentage of base salary remained the same as the prior year for the NEOs, including the CEO.
In March 2019, the Compensation Committee approved equity awards for the NEOs granted as a mix of 50% PSUs, 25% stock options and 25% time-vested RSAs. The award mix did not change from the prior year. The Compensation Committee believes the mix of equity award types reflects an appropriate balance between providing incentive compensation for the achievement of Company-specific performance measures (PSUs), increases in the market value of the Common Stock (stock options) and retention (RSAs).
The following table reflects the target award value for 2019, as well as the actual grant value awarded to each NEO:
|
Name
|
2019 Target Long-Term % of Base Salary
|
Equity Awards ($000s)
| ||||||||
| Marvin R. Ellison |
|
565 |
% |
$ |
8,193 |
|||||
| David M. Denton |
|
450 |
% |
$ |
4,163 |
|||||
| Joseph M. McFarland III |
|
400 |
% |
$ |
3,000 |
|||||
| William P. Boltz |
|
400 |
% |
$ |
2,860 |
|||||
| Seemantini Godbole(1) |
|
300 |
% |
$ |
1,845 |
|||||
| (1) | Base salary considered for long-term incentive plan purposes is as of April 1, 2019. |
|
|
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 | 39 |
Table of Contents
Compensation Discussion and Analysis
2019 COMPENSATION ACTIONS
The Compensation Committee determined that the PSUs awarded in 2019 will be earned based on the Company’s ROIC for the three-year performance period of fiscal years 2019 through 2021 and the relative TSR modifier. ROIC is computed by dividing the Company’s net operating profit after taxes for the year by the average of the Company’s invested capital as of the beginning and end of the fiscal year. The return percentages for each fiscal year in the performance period will be averaged to yield a ROIC measure for the three-year performance period. The Compensation Committee believes strong ROIC performance is aligned with creating long-term value for the Company’s shareholders. Specifically, ROIC is a comprehensive long-term financial metric that incorporates both operating profit and balance sheet performance in the calculation, incenting management to generate sustained profitable growth over time. This metric also incentivizes the effective allocation of capital toward future growth investments.
The chart below illustrates how the relative TSR modifier expands the PSU performance award to range from 34% of target at threshold performance to 200% of target at maximum performance:
|
PSU Performance Level
|
Payout Percentage (% of Target Award)(1)
|
Lowe’s 3-Year TSR Percentage Spread from S&P 500 Index
|
Modifier(1)
|
PSU Performance Level
|
Final Payout Opportunity (% of Target Award)(1)
| |||||||||||||
| PSUs |
Maximum |
150% |
³+20% |
1.33x |
Maximum |
200% | ||||||||||||
|
Granted |
|
Target |
100% |
x |
0% |
1.00x |
= |
Target |
100% | |||||||||
| Threshold |
50% |
£ (20)% |
0.67x |
Threshold |
34% | |||||||||||||
|
<Threshold |
0% |
<Threshold |
0% |
| (1) | Performance between discrete points will be interpolated; TSR modifier cannot be lower than 0.67x or higher than 1.33x; if RONCAA or ROIC is below threshold, there will be no payout. |
2017 PSU Awards. The performance period for the PSUs awarded in 2017 (the “2017 PSUs”) ended on January 31, 2020, the last day of the 2019 fiscal year. The 2017 PSUs were eligible to be earned based on the Company’s average RONCAA for fiscal years 2017 through 2019. The NEOs, who all joined the Company in 2018, did not receive the grant of the 2017 PSUs.
Special Incentive Grant
In October 2019, in addition to the base salary increase described above, the Company approved a one-time grant of RSAs valued at approximately $1,000,000 to Ms. Godbole, which vest fully on October 1, 2022. Many of the initiatives in our strategic plan have IT dependencies. Ms. Godbole and her team are vital to the success of these critical technology initiatives necessary to develop and execute business strategies, obtain superior results and build long-term shareholder value, and this grant reflects her critical role in support of these initiatives.
| 40 | NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 |
|
Table of Contents
Compensation Discussion and Analysis
2019 COMPENSATION ACTIONS
|
|
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 | 41 |
Table of Contents
Compensation Discussion and Analysis
OTHER COMPENSATION POLICIES
| 42 | NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 |
|
Table of Contents
Compensation Discussion and Analysis
COMPENSATION COMMITTEE REPORT
VI. COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management of the Company. Based on such review and discussion, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2020.
Eric C. Wiseman, Chair
Raul Alvarez
David H. Batchelder
Angela F. Braly
Sandra B. Cochran
|
|
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 | 43 |
Table of Contents
Compensation Tables
Summary Compensation Table
This table shows the base salary, annual incentive compensation and all other compensation paid to the NEOs. The table also shows the grant date fair value of the stock and option awards made to the NEOs.
| Name and Principal Position
|
Year
|
Salary ($)
|
Bonus
|
Stock
|
Option
|
Non-Equity Incentive
Plan
|
All Other
|
Total ($)
|
||||||||||||||||||||||||
| Marvin R. Ellison President and Chief Executive Officer
|
2019 | 1,450,000 | 0 | 6,410,644 | 2,074,702 | 1,258,657 | 427,366 | 11,621,369 | ||||||||||||||||||||||||
|
|
2018
|
|
864,423 | 1,712,912 | 7,643,542 | 3,881,205 | 0 | 200,709 | 14,302,791 | |||||||||||||||||||||||
| David M. Denton Executive Vice President, Chief Financial Officer
|
2019 | 925,000 | 0 | 3,257,042 | 1,054,208 | 501,840 | 39,092 | 5,777,182 | ||||||||||||||||||||||||
|
|
2018
|
|
195,673 | 1,000,000 | 890,406 | 879,205 | 71,815 | 69,547 | 3,106,646 | |||||||||||||||||||||||
| Joseph M. McFarland III Executive Vice President, Stores
|
2019 | 750,000 | 0 | 2,347,848 | 759,583 | 325,515 | 176,225 | 4,359,171 | ||||||||||||||||||||||||
|
|
2018
|
|
360,577 | 875,000 | 1,225,112 | 1,222,220 | 0 | 52,843 | 3,735,752 | |||||||||||||||||||||||
| William P. Boltz Executive Vice President, Merchandising |
2019 | 709,615 | 0 | 2,237,661 | 724,108 | 310,324 | 47,063 | 4,028,771 | ||||||||||||||||||||||||
| Seemantini Godbole Executive Vice President, Chief Information Officer |
2019 | 626,442 | 0 | 2,443,212 | 467,223 | 266,922 | 209,323 | 4,013,122 | ||||||||||||||||||||||||
| (1) | The value of the stock and option awards presented in the table equals the grant date fair value of the awards for financial reporting purposes (excluding the effect of estimated forfeitures) computed in accordance with FASB ASC Topic 718. For financial reporting purposes, the Company determines the fair value of a stock or option award accounted for as an equity award on the grant date. The Company recognizes an expense for a stock or option award over the vesting period of the award. PSUs are expensed over the vesting period based on the probability of achieving the performance goal, with changes in expectations recognized as an adjustment in the period of the change. NEOs receive dividends on unvested shares of time-vested RSAs during the vesting period. Dividends are not paid or accrued on unearned PSUs. The right to receive dividends has been factored into the determination of the fair values used in the amounts presented above. |
| See Note 12, “Accounting for Share-Based Payments,” to the Company’s consolidated financial statements in its Annual Report on Form 10-K for the fiscal year ended January 31, 2020 for additional information about the Company’s accounting for share-based compensation arrangements, including the assumptions used in calculating the grant date fair values. |
| (2) | The amounts reported in this column include the sum of the grant date fair values of PSUs and RSAs. The 2019 PSUs will be earned based on the Company’s achievement of a three-year average ROIC goal, and a relative TSR modifier. The PSUs are accounted for as equity awards. The 2019 stock award amounts include the following grant date fair values of the PSUs: Mr. Ellison – $4,362,760; Mr. Denton – $2,216,760; Mr. McFarland – $1,597,320; Mr. Boltz – $1,523,080; and Ms. Godbole – $982,520. The grant date fair values of the PSUs, assuming the maximum number of shares would be earned at the end of the three-year performance period, would have been: Mr. Ellison – $8,703,596; Mr. Denton – $4,422,384; Mr. McFarland – $3,186,636; Mr. Boltz – $3,038,504; and Ms. Godbole – $1,960,052. |
| (3) | The amounts shown in this column reflect payments made under the Company annual incentive plan, which paid out below target based on performance achievement described in more detail on pages 38 to 39. |
| 44 | NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 |
|
Table of Contents
Compensation Tables
| (4) | Amounts presented consist of the following for the 2019 fiscal year: |
| Company Matching
|
||||||||||||||||||||||||||||
| Name
|
401(k)
|
Benefit Restoration ($)
|
Reimbursement of Tax ($)
|
Personal Use of Aircraft
|
Cost of Required ($)
|
Relocation(i)
|
Total
|
|||||||||||||||||||||
| Mr. Ellison |
0 | 0 | 0 | 36,150 | 3,516 | 387,700 | 427,366 | |||||||||||||||||||||
| Mr. Denton |
0 | 0 | 12,000 | 0 | 0 | 27,092 | 39,092 | |||||||||||||||||||||
| Mr. McFarland III |
0 | 0 | 0 | 4,242 | 0 | 171,983 | 176,225 | |||||||||||||||||||||
| Mr. Boltz |
14,238 | 0 | 0 | 13,358 | 3,266 | 16,201 | 47,063 | |||||||||||||||||||||
| Ms. Godbole |
3,899 | 0 | 2,750 | 22,057 | 0 | 180,617 | 209,323 | |||||||||||||||||||||
| All amounts presented above, other than the amount for personal use of corporate aircraft, equal the actual cost to the Company of the particular benefit or perquisite provided. The amount presented for personal use of corporate aircraft is equal to the incremental cost to the Company of such use. Incremental cost includes fuel, landing and ramp fees and other variable costs directly attributable to personal use. Incremental cost does not include an allocable share of the fixed costs associated with the Company’s ownership of the aircraft. |
| (i) | Messrs. Ellison, Denton, McFarland and Boltz and Ms. Godbole were provided relocation assistance in connection with their hiring. The relocation assistance provided is generally comparable to the relocation program provided as a benefit to other executives who relocate with the exception of an additional $3,156 beyond standard relocation coverage costs for Mr. Ellison’s household goods to remain in storage for an extended period of time. Items in this column include expenses from December 1, 2018 through November 30, 2019 including the following tax gross ups: Mr. Ellison – $172,905; Mr. Denton – $12,384; Mr. McFarland $78,081; Mr. Boltz – $7,404; and Ms. Godbole – $49,946. The remainder of relocation expenses and gross up taxes will be reported on the proxy statement for fiscal 2020. |
|
|
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 | 45 |
Table of Contents
Compensation Tables
Grants of Plan-Based Awards
This table presents the potential annual incentive awards the NEOs were eligible to earn in fiscal 2019, as well as the stock options, RSAs and PSUs awarded to the NEOs in fiscal 2019 and the grant date fair value of those awards.
| Name |
Grant Date |
Date of Committee Action |
Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) |
Estimated Future Payouts Under Equity Incentive Plan Awards(2) |
All Other Stock Awards: Number of Shares of Stock or Units (#)(3) |
All Other Option Awards: Number of Securities Underlying Options (#)(4) |
Exercise or Price of |
Grant Awards ($) |
||||||||||||||||||||||||||||||||||||||||
| Threshold ($) |
Target ($) |
Maximum ($) |
Threshold (#) |
Target (#) |
Maximum (#) |
|||||||||||||||||||||||||||||||||||||||||||
| Mr. Ellison |
||||||||||||||||||||||||||||||||||||||||||||||||
| Annual Incentive |
725,000 | 2,900,000 | 7,000,000 | |||||||||||||||||||||||||||||||||||||||||||||
| PSUs |
4/1/2019 | 3/22/2019 | 12,599 | 37,610 | 75,031 | 4,362,760 | ||||||||||||||||||||||||||||||||||||||||||
| Options |
4/1/2019 | 3/22/2019 | 82,460 | 108.93 | 2,074,702 | |||||||||||||||||||||||||||||||||||||||||||
| RSAs |
4/1/2019 | 3/22/2019 | 18,800 | 2,047,884 | ||||||||||||||||||||||||||||||||||||||||||||
| Mr. Denton |
||||||||||||||||||||||||||||||||||||||||||||||||
| Annual Incentive |
289,063 | 1,156,250 | 2,832,813 | |||||||||||||||||||||||||||||||||||||||||||||
| PSUs |
4/1/2019 | 3/22/2019 | 6,401 | 19,110 | 38,124 | 2,216,760 | ||||||||||||||||||||||||||||||||||||||||||
| Options |
4/1/2019 | 3/22/2019 | 41,900 | 108.93 | 1,054,208 | |||||||||||||||||||||||||||||||||||||||||||
| RSAs |
4/1/2019 | 3/22/2019 | 9,550 | 1,040,282 | ||||||||||||||||||||||||||||||||||||||||||||
| Mr. McFarland III |
||||||||||||||||||||||||||||||||||||||||||||||||
| Annual Incentive |
187,500 | 750,000 | 1,837,500 | |||||||||||||||||||||||||||||||||||||||||||||
| PSUs |
4/1/2019 | 3/22/2019 | 4,612 | 13,770 | 27,471 | 1,597,320 | ||||||||||||||||||||||||||||||||||||||||||
| Options |
4/1/2019 | 3/22/2019 | 30,190 | 108.93 | 759,583 | |||||||||||||||||||||||||||||||||||||||||||
| RSAs |
4/1/2019 | 3/22/2019 | 6,890 | 750,528 | ||||||||||||||||||||||||||||||||||||||||||||
| Mr. Boltz |
||||||||||||||||||||||||||||||||||||||||||||||||
| Annual Incentive |
178,750 | 715,000 | 1,751,750 | |||||||||||||||||||||||||||||||||||||||||||||
| PSUs |
4/1/2019 | 3/22/2019 | 4,398 | 13,130 | 26,194 | 1,523,080 | ||||||||||||||||||||||||||||||||||||||||||
| Options |
4/1/2019 | 3/22/2019 | 28,780 | 108.93 | 724,108 | |||||||||||||||||||||||||||||||||||||||||||
| RSAs |
4/1/2019 | 3/22/2019 | 6,560 | 714,581 | ||||||||||||||||||||||||||||||||||||||||||||
| Ms. Godbole |
||||||||||||||||||||||||||||||||||||||||||||||||
| Annual Incentive |
153,750 | 615,000 | 1,506,750 | |||||||||||||||||||||||||||||||||||||||||||||
| PSUs |
4/1/2019 | 3/22/2019 | 2,837 | 8,470 | 16,897 | 982,520 | ||||||||||||||||||||||||||||||||||||||||||
| Options |
4/1/2019 | 3/22/2019 | 18,570 | 108.93 | 467,223 | |||||||||||||||||||||||||||||||||||||||||||
| RSAs |
4/1/2019 | 3/22/2019 | 4,230 | 460,774 | ||||||||||||||||||||||||||||||||||||||||||||
| RSAs |
10/1/2019 | 9/20/2019 | 9,130 | 999,918 | ||||||||||||||||||||||||||||||||||||||||||||
| (1) | The NEOs are eligible to earn annual incentive compensation under the Company’s annual incentive plan for each fiscal year based on the Company’s achievement of one or more performance measures established at the beginning of the fiscal year by the Compensation Committee. For the 2019 fiscal year ended January 31, 2020, the performance measures selected by the Compensation Committee were the Company’s adjusted sales (weighted 45%), adjusted operating income (weighted 45%) and inventory improvement (weighted 10%). The performance levels for the performance measures, the Company’s actual performance and the amounts earned by the NEOs for the 2019 fiscal year are shown beginning on page 39. Base salary considered for annual incentive plan purposes is as of April 1, 2019. Mr. Ellison’s total payout under the Company’s 2016 Annual Incentive Plan may not exceed $7,000,000. The amounts earned by the NEOs are also reported in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table on page 44. |
| (2) | The PSUs reported in this column are earned based on the Company’s ROIC over a three-year performance period and a relative TSR modifier. No dividends will accrue or be paid on the PSUs during the three-year performance period. The terms of the PSUs are described in more detail beginning on page 40. |
| (3) | The time-vested RSAs vest on the third anniversary of the grant date or, if earlier, the date the NEO terminates employment due to death or disability. For the NEOs who meet the retirement provisions of the applicable RSA grant agreements, their awards will vest upon retirement, but will not be transferred to the NEO until the original vesting date of the award. Retirement for this purpose is defined as termination of employment with the approval of the Board on or after the date the NEO has satisfied an age and service requirement, provided the NEO has given the Board advance notice of such retirement. Messrs. Ellison, Denton, McFarland and Boltz and Ms. Godbole will satisfy the age and service requirement for retirement once their age in addition to years of service equals at least 70; provided the NEO is at least 55 years old. Ms. Godbole received an additional 9,130 shares of RSAs as described on page 40. The NEOs receive cash dividends paid with respect to the RSA shares during the vesting period on the same terms as the other shareholders of the Company. |
| (4) | All options have a 10-year term and an exercise price equal to the closing price of the Common Stock on the grant date. The options vest in three annual installments on each of the first three anniversaries of the grant date or, if earlier, the date the NEO terminates employment due to death or disability. The options granted to the NEOs will become exercisable in the event of retirement, as defined in the applicable grant agreement, in accordance with the original three-year vesting schedule and remain exercisable until their expiration dates. |
| 46 | NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 |
|
Table of Contents
Compensation Tables
Outstanding Equity Awards at Fiscal Year-End
This table presents information about unearned or unvested stock and option awards held by the NEOs on January 31, 2020.
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
| Name |
Number of Securities Underlying Unexercised Options (#) Exercisable |
Number of Securities Underlying Unexercised Options (#) Unexercisable |
Option Exercise Price ($) |
Option Expiration Date |
Number of Shares or Units of Stock That Have Not Vested (#)(1) |
Market Value of Shares or Units of Stock That Have Not Vested ($)(2) |
Equity Incentive Plan Awards; Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(3) |
Equity Incentive Plan Awards; Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | ||||||||||||||||||||||||||||
| Mr. Ellison |
55,414 | 110,826 | (4) | 94.87 | 7/2/2028 | 70,090 | 8,147,262 | 69,166 | 8,039,856 | |||||||||||||||||||||||||||
| — | 82,460 | (5) | 108.93 | 4/1/2029 | ||||||||||||||||||||||||||||||||
| Mr. Denton |
13,567 | 27,133 | (6) | 92.27 | 1/2/2029 | 19,200 | 2,231,808 | 25,416 | 2,954,356 | |||||||||||||||||||||||||||
| — | 41,900 | (5) | 108.93 | 4/1/2029 | ||||||||||||||||||||||||||||||||
| Mr. McFarland III |
14,604 | 29,206 | (7) | 114.07 | 10/1/2028 | 17,630 | 2,049,311 | 18,314 | 2,128,819 | |||||||||||||||||||||||||||
| — | 30,190 | (5) | 108.93 | 4/1/2029 | ||||||||||||||||||||||||||||||||
| Mr. Boltz |
9,390 | 18,780 | (7) | 114.07 | 10/1/2028 | 13,460 | 1,564,590 | 17,462 | 2,029,783 | |||||||||||||||||||||||||||
| — | 28,780 | (5) | 108.93 | 4/1/2029 | ||||||||||||||||||||||||||||||||
| Ms. Godbole |
7,617 | 15,233 | (6) | 92.27 | 1/2/2029 | 18,780 | 2,182,987 | 11,265 | 1,309,444 | |||||||||||||||||||||||||||
| — | 18,570 | (5) | 108.93 | 4/1/2029 | ||||||||||||||||||||||||||||||||
| (1) | The unvested RSAs vest as follows: |
|
7/2/2021 |
10/1/2021 |
1/2/2022 |
4/1/2022 |
|
Total |
|||||||||||||||||||
|
Mr. Ellison |
|
51,290 |
|
|
— |
|
|
— |
|
|
18,800 |
|
|
— |
|
|
70,090 |
| ||||||
|
Mr. Denton |
|
— |
|
|
— |
|
|
9,650 |
|
|
9,550 |
|
|
— |
|
|
19,200 |
| ||||||
| Mr. McFarland III |
|
— |
|
|
10,740 |
|
|
— |
|
|
6,890 |
|
|
— |
|
|
17,630 |
| ||||||
|
Mr. Boltz |
|
— |
|
|
6,900 |
|
|
— |
|
|
6,560 |
|
|
— |
|
|
13,460 |
| ||||||
|
Ms. Godbole |
|
— |
|
|
— |
|
|
5,420 |
|
|
4,230 |
|
|
9,130 |
|
|
18,780 |
| ||||||
| (2) | Amount is based on the closing market price of the Company’s Common Stock on January 31, 2020 of $116.24. |
| (3) | The number of unearned PSUs in this column is calculated in accordance with SEC requirements and equals (i) the minimum number of PSUs that may be earned based on the Company’s RONCAA during the 2018 through 2020 fiscal year period after applying the maximum relative TSR modifier and (ii) the minimum number of PSUs that may be earned based on the Company’s ROIC during the 2019 through 2021 fiscal year period after applying the maximum relative TSR modifier. No NEO received a grant of 2017 PSUs. No dividends are paid or accrued on unearned PSUs. |
| (4) | These options vest in two annual installments on July 2, 2020 and July 2, 2021. |
| (5) | These options vest in three annual installments on April 1, 2020, April 1, 2021 and April 1, 2022. |
| (6) | These options vest in two annual installments on January 2, 2021 and January 2, 2022. |
| (7) | These options vest in two annual installments on October 1, 2020 and October 1, 2021. |
|
|
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 | 47 |
Table of Contents
Compensation Tables
Option Exercises and Stock Vested at Fiscal Year-End
This table presents information about stock options exercised by the NEOs and the number and the value of the NEOs’ stock awards that vested during the 2019 fiscal year.
| Option Awards |
Stock Awards | |||||||||||||||||
|
Number of Shares |
Value Realized |
Number of Shares |
Value Realized on Vesting | |||||||||||||||
| Name |
(#) |
($) |
(#) |
($) | ||||||||||||||
|
Mr. Ellison |
|
— |
|
|
— |
|
|
— |
|
— | ||||||||
|
Mr. Denton |
|
— |
|
|
— |
|
|
— |
|
— | ||||||||
| Mr. McFarland III |
|
— |
|
|
— |
|
|
— |
|
— | ||||||||
|
Mr. Boltz |
|
— |
|
|
— |
|
|
— |
|
— | ||||||||
|
Ms. Godbole |
|
— |
|
|
— |
|
|
— |
|
— | ||||||||
| 48 | NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 |
|
Table of Contents
Compensation Tables
Potential Payments Upon Termination or Change-in-Control
The Company has entered into Change-in-Control Agreements with each of the current NEOs and certain other senior officers of the Company. The agreements provide for certain benefits if the Company experiences a change-in-control followed by termination of the executive’s employment within 24 months following such change-in-control:
| • | by the Company’s successor without cause, which means continued and willful failure to perform duties or conduct demonstrably and materially injurious to the Company or its affiliates; or |
| • | by the executive for certain reasons, including a downgrading of the executive’s position. |
The following describes the material provisions of the Change-in-Control Agreements that we have entered into with our NEOs. All of the agreements automatically expire on the second anniversary of a change-in-control notwithstanding the length of the terms remaining on the date of the change-in-control.
| Accrued Obligations |
The NEO receives the sum of (1) the NEO’s annual base salary through date of separation and (2) any accrued vacation pay to the extent not paid. | |
| Severance Benefit |
The NEO receives 2.99 times the sum of the present value of the NEO’s annual base salary, annual incentive compensation (as calculated pursuant to the agreement) and welfare insurance costs. | |
| No Tax Gross-Up |
There are no effective provisions for an excise tax gross-up. Instead, change-in-control payments will be subject to a provision, whereby the executives will receive either the original amount of the payment or a reduced amount, depending on which amount will provide them a greater after-tax benefit. | |
| Legal Fees |
All legal fees and expenses incurred by the executives in enforcing these agreements will be paid by the Company. | |
| Restrictive Covenants |
The Change-in-Control Agreements include restrictive covenants including, but not limited to, a covenant not to compete against the Company for the longer of (a) two years following termination of employment and (b) the period following the termination of employment during which Company equity awards held by the NEO continue to vest and a covenant not to solicit Company employees or customers for two years following termination of employment. |
|
|
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 | 49 |
Table of Contents
Compensation Tables
The following table shows the amounts payable to the NEOs in the event their employment terminated at the end of the 2019 fiscal year due to their resignation, death, disability or retirement and the amounts payable under the Severance Plan, the Change-in-Control Agreements and the long-term incentive plan if a change-in-control of the Company had occurred at the end of the 2019 fiscal year and/or the NEOs’ employment was terminated by the Company without Cause or by the NEO for Good Reason (in each case, as defined in the Change-in-Control Agreements) on January 31, 2020.
| Name and Benefit |
Voluntary Resignation ($) |
Death ($) |
Disability ($) |
Retirement(1) ($) |
Qualified ($)(2) |
Change of Control ($) |
Change of Control and Qualifying ($) | ||||||||||||||||||||||||||||
| Mr. Ellison |
|||||||||||||||||||||||||||||||||||
|
Severance(3) |
|
0 |
|
0 |
|
0 |
|
|
0 |
|
8,700,000 |
|
0 |
|
12,643,905 |
| |||||||||||||||||||
| Stock Options(4) |
|
0 |
|
2,971,134 |
|
2,971,134 |
|
|
0 |
|
0 |
|
0 |
|
2,971,134 |
| |||||||||||||||||||
| Restricted Stock Awards(4) |
|
0 |
|
8,147,262 |
|
8,147,262 |
|
|
0 |
|
0 |
|
0 |
|
8,147,262 |
| |||||||||||||||||||
| Performance Shares Units(5) |
|
0 |
|
0 |
|
0 |
|
|
0 |
|
0 |
|
0 |
|
0 |
| |||||||||||||||||||
| Welfare Benefits(6) |
|
0 |
|
0 |
|
0 |
|
|
0 |
|
0 |
|
0 |
|
65,986 |
| |||||||||||||||||||
| Total |
|
0 |
|
11,118,396 |
|
11,118,396 |
|
|
0 |
|
8,700,000 |
|
0 |
|
23,828,288 |
| |||||||||||||||||||
| Mr. Denton |
|||||||||||||||||||||||||||||||||||
|
Severance(3) |
|
0 |
|
0 |
|
0 |
|
|
0 |
|
4,162,500 |
|
0 |
|
6,050,101 |
| |||||||||||||||||||
| Stock Options(4) |
|
0 |
|
956,667 |
|
956,667 |
|
|
0 |
|
0 |
|
0 |
|
956,667 |
| |||||||||||||||||||
| Restricted Stock Awards(4) |
|
0 |
|
2,231,808 |
|
2,231,808 |
|
|
0 |
|
0 |
|
0 |
|
2,231,808 |
| |||||||||||||||||||
| Performance Shares Units(5) |
|
0 |
|
0 |
|
0 |
|
|
0 |
|
0 |
|
0 |
|
0 |
| |||||||||||||||||||
| Welfare Benefits(6) |
|
0 |
|
0 |
|
0 |
|
|
0 |
|
27,319 |
|
0 |
|
58,587 |
| |||||||||||||||||||
| Total |
|
0 |
|
3,188,475 |
|
3,188,475 |
|
|
0 |
|
4,189,819 |
|
0 |
|
9,297,163 |
| |||||||||||||||||||
| Mr. McFarland III |
|||||||||||||||||||||||||||||||||||
|
Severance(3) |
|
0 |
|
0 |
|
0 |
|
|
0 |
|
3,000,000 |
|
0 |
|
4,360,666 |
| |||||||||||||||||||
| Stock Options(4) |
|
0 |
|
284,066 |
|
284,066 |
|
|
0 |
|
0 |
|
0 |
|
284,066 |
| |||||||||||||||||||
| Restricted Stock Awards(4) |
|
0 |
|
2,049,311 |
|
2,049,311 |
|
|
0 |
|
0 |
|
0 |
|
2,049,311 |
| |||||||||||||||||||
| Performance Shares Units(5) |
|
0 |
|
0 |
|
0 |
|
|
0 |
|
0 |
|
0 |
|
0 |
| |||||||||||||||||||
| Welfare Benefits(6) |
|
0 |
|
0 |
|
0 |
|
|
0 |
|
25,806 |
|
0 |
|
65,986 |
| |||||||||||||||||||
| Parachute Payments Reduced(7) |
|
0 |
|
0 |
|
0 |
|
|
0 |
|
0 |
|
0 |
|
(1,175,321) |
| |||||||||||||||||||
| Total |
|
0 |
|
2,333,377 |
|
2,333,377 |
|
|
0 |
|
3,025,806 |
|
0 |
|
5,584,709 |
| |||||||||||||||||||
| Mr. Boltz |
|||||||||||||||||||||||||||||||||||
|
Severance(3) |
|
0 |
|
0 |
|
0 |
|
|
0 |
|
2,860,000 |
|
0 |
|
4,157,169 |
| |||||||||||||||||||
| Stock Options(4) |
|
0 |
|
251,134 |
|
251,134 |
|
|
0 |
|
0 |
|
0 |
|
251,134 |
| |||||||||||||||||||
| Restricted Stock Awards(4) |
|
0 |
|
1,564,590 |
|
1,564,590 |
|
|
0 |
|
0 |
|
0 |
|
1,564,590 |
| |||||||||||||||||||
| Performance Shares Units(5) |
|
0 |
|
0 |
|
0 |
|
|
0 |
|
0 |
|
0 |
|
0 |
| |||||||||||||||||||
| Welfare Benefits(6) |
|
0 |
|
0 |
|
0 |
|
|
0 |
|
25,806 |
|
0 |
|
65,986 |
| |||||||||||||||||||
| Total |
|
0 |
|
1,815,725 |
|
1,815,725 |
|
|
0 |
|
2,885,806 |
|
0 |
|
6,038,880 |
| |||||||||||||||||||
| Ms. Godbole |
|||||||||||||||||||||||||||||||||||
|
Severance(3) |
|
0 |
|
0 |
|
0 |
|
|
0 |
|
2,600,000 |
|
0 |
|
3,677,544 |
| |||||||||||||||||||
| Stock Options(4) |
|
0 |
|
500,882 |
|
500,882 |
|
|
0 |
|
0 |
|
0 |
|
500,882 |
| |||||||||||||||||||
| Restricted Stock Awards(4) |
|
0 |
|
2,182,987 |
|
2,182,987 |
|
|
0 |
|
0 |
|
0 |
|
2,182,987 |
| |||||||||||||||||||
| Performance Shares Units(4) |
|
0 |
|
0 |
|
0 |
|
|
0 |
|
0 |
|
0 |
|
0 |
| |||||||||||||||||||
| Welfare Benefits(3) |
|
0 |
|
0 |
|
0 |
|
|
0 |
|
25,806 |
|
0 |
|
65,986 |
| |||||||||||||||||||
| Parachute Payments Reduced(7) |
|
0 |
|
0 |
|
0 |
|
|
0 |
|
0 |
|
0 |
|
(1,201,451) |
| |||||||||||||||||||
| Total |
|
0 |
|
2,683,869 |
|
2,683,869 |
|
|
0 |
|
2,625,806 |
|
0 |
|
5,225,949 |
| |||||||||||||||||||
| (1) | No NEOs were eligible for retirement as of the end of the fiscal year 2019. |
| (2) | The Board approved a severance plan on August 16, 2018, described in more detail on page 49, which covers all NEOs below the CEO. Mr. Ellison’s severance entitlements are governed by his offer letter, described in more detail on page 49. For Mr. Ellison, this represents an involuntary termination of employment other than for Cause (as defined in his offer letter) and for each other NEO this represents a Qualified Termination under the Severance Plan. |
| (3) | The amounts presented are payable as follows: (i) in the case of a Qualified Termination, in equal installments in accordance with the Company’s payroll practices for 24 months; and (ii) in the case if a Change in Control and Qualified Termination, in cash in a lump sum. |
| 50 | NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 |
|
Table of Contents
Compensation Committee Interlocks and Insider Participation
| (4) | The amounts presented for the stock options and RSAs are equal to the values of the unvested in-the-money stock options and the restricted shares that would become vested based on the closing market price of the Common Stock on January 31, 2020 of $116.24. |
| (5) | The amounts presented for the PSUs are the value for the 2018 and 2019 PSU awards that would be earned assuming current performance as of January 31, 2020 and based on the closing market price of the Common Stock on January 31, 2020 of $116.24. No NEO received PSUs pursuant to the 2017 PSU award. |
| (6) | The costs for Welfare Benefits include the Company costs for continuing coverage in the case of a Qualified Termination over a period of 24 months. In the case of a Change-in-Control and Qualified Termination these amounts include costs to the Company and to the NEO and would be paid as a cash lump sum. Welfare Benefits costs in the case of death and disability are consistent with Company offerings for all employees. |
| (7) | Parachute Payment Reduced represents the estimated amount by which the payments and benefits that would have been payable to Mr. McFarland and Ms. Godbole would be reduced under the Change-in-Control Agreements or other plans in order to bring all applicable payments and benefits of such NEOs below the safe harbor limit for payments contingent on a change-in-control set forth in Internal Revenue Code Section 280G. |
CEO Pay Ratio
Compensation Committee Interlocks and Insider Participation
Raul Alvarez, David H. Batchelder, Angela F. Braly, Sandra B. Cochran, Brian C. Rogers and Eric C. Wiseman served on the Compensation Committee in fiscal 2019. None of the directors who served on the Compensation Committee in fiscal 2019 has ever served as one of the Company’s officers or employees or had any relationship with the Company or any of its subsidiaries during fiscal 2019 pursuant to which disclosure would be required under the SEC rules pertaining to the disclosure of transactions with related persons. During fiscal 2019, none of the Company’s executive officers served as a director or member of the compensation committee (or other committee performing similar functions) of any other entity of which an executive officer of such other entity served on the Company’s Board or the Compensation Committee.
|
|
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 | 51 |
Table of Contents
Equity Compensation Plan Information
Equity Compensation Plan Information
The following table provides information as of January 31, 2020 with respect to stock options and stock unit awards outstanding and shares available for future awards under all of Lowe’s equity compensation plans.
| Plan Category |
Number of (#)(1) |
Weighted- Exercise Price of ($)(1) |
Number of Securities Future Issuance Under Reflected in Column
(a)) | ||||||||||||
| (a) | (b) | (c) | |||||||||||||
| Equity compensation plans approved by security holders |
4,123,069 | 86.01 | 50,720,367 | (3) | |||||||||||
| Equity compensation plans not approved by security holders |
0 | 0 | 0 | ||||||||||||
| Total |
4,123,069 | 86.01 | 50,720,367 | (3) | |||||||||||
| (1) | Column (a) contains information regarding stock options and deferred, performance and restricted stock units only; there are no warrants or stock appreciation rights outstanding. As of January 31, 2020, there were 568,889 performance stock units outstanding. Column (a) includes 1,134,847 performance stock units which is equal to the maximum number of performance stock units that would be earned if the maximum performance goals were achieved. The weighted-average exercise price shown in column (b) does not take into account deferred, performance or restricted stock units because they are granted outright and do not have an exercise price. |
| (2) | In accordance with SEC rules, this column does not include shares available under the Lowe’s 401(k) Plan. |
| (3) | Includes the following: |
| * | 30,564,803 shares available for grants of stock options, stock appreciation rights, stock awards, performance shares, and deferred, performance and restricted stock units to key employees and outside directors under the Lowe’s Companies, Inc. 2006 Long Term Incentive Plan, as amended (“LTIP”). Stock options granted under the LTIP have terms of seven or ten years, with one-third of each grant vesting each year for three years and are assigned an exercise price equal to the closing market price of a share of Common Stock on the date of grant. No awards may be granted under the LTIP after 2024. |
| * | 20,155,564 shares available for issuance under the Lowe’s Companies, Inc. Employee Stock Purchase Plan—Stock Options for Everyone. Eligible employees may purchase shares of Common Stock through after-tax payroll deductions. The purchase price of this stock is equal to 85% of the closing price on the date of purchase for each semi-annual stock purchase period. |
| 52 | NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 |
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Table of Contents
Related Person Transactions
POLICY AND PROCEDURES FOR REVIEW, APPROVAL OR RATIFICATION OF RELATED PERSON TRANSACTIONS
APPROVED RELATED PERSON TRANSACTIONS
Since the beginning of fiscal 2017, there have been no related person transactions in which the Company (or a subsidiary) was a participant and in which any related person (or any of their immediate family members) had a direct or indirect material interest.
|
|
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 | 53 |
Table of Contents
Table of Contents
Audit Matters
FEES PAID TO THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FEES PAID TO THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The aggregate fees billed to the Company for each of the last two fiscal years by the Company’s independent registered public accounting firm, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates, were:
|
Fiscal 2018 |
Fiscal 2019 ($) | |||||
| Audit Fees(1) |
|
4,022,829 |
|
3,931,894 | ||
| Audit-Related Fees(2) |
|
142,993 |
|
139,257 | ||
| Tax Fees(3) |
|
26,338 |
|
23,824 | ||
| All Other Fees(4) |
|
875 |
|
555 | ||
| (1) | Audit Fees consist of fees billed by the independent registered public accounting firm for the respective year for professional services for the audit of the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K, review of the Company’s consolidated financial statements included in the Company’s Quarterly Reports on Form 10-Q and services provided by the independent registered public accounting firm in connection with the Company’s statutory filings for the last two fiscal years. Audit fees also include fees for professional services rendered for the audit of the Company’s internal control over financial reporting. |
| (2) | Audit-Related Fees consist of fees billed by the independent registered public accounting firm for the respective year for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s consolidated financial statements and include audits of the Company’s employee benefit plans and other consultations concerning financial accounting and reporting standards. |
| (3) | Tax Fees consist of fees billed by the independent registered public accounting firm for the respective year for tax compliance, planning and advice. |
| (4) | All Other Fees consist of fees billed by the independent registered public accounting firm in fiscal 2018 and 2019 for training and subscriptions. |
The Audit Committee has an established policy and procedures under which all audit and non-audit services performed by the Company’s independent registered public accounting firm must be approved in advance by the Audit Committee in order to assure that the provision of such services does not impair the independence of the independent registered public accounting firm. The policy also provides that the Audit Committee may delegate pre-approval authority to the Chair of the Audit Committee as permitted by the Audit Committee’s charter, provided that the Chair reports any such pre-approval decisions to the full Audit Committee at its next meeting. Any proposed services exceeding pre-approved fee levels require specific approval by the Audit Committee. The Audit Committee has pre-approved all audit and non-audit services provided in fiscal 2018 and fiscal 2019 in accordance with the Audit Committee’s policy and procedures.
|
|
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 | 55 |
Table of Contents
Proposal 2: Advisory Vote to Approve Named Executive Officer Compensation
Proposal 2: Advisory Vote to Approve Named Executive Officer Compensation
As required by Section 14A of the Exchange Act, we are providing our shareholders with the opportunity to vote on an advisory resolution to approve the compensation of our named executive officers in fiscal 2019, which is described in this Proxy Statement.
|
|
The Board of Directors unanimously recommends a vote “FOR” the resolution. Proxies received by the Board of Directors will be so voted unless shareholders specify in their proxies a contrary choice. |
| 56 | NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 |
|
Table of Contents
Proposal 3: Ratification of the Appointment of Independent Registered Public Accounting Firm
Proposal 3: Ratification of the Appointment of Independent Registered Public Accounting Firm
We are asking our shareholders to ratify the appointment of Deloitte & Touche LLP as Lowe’s independent registered public accounting firm for fiscal 2020.
|
|
The Board of Directors unanimously recommends a vote “FOR” the ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for fiscal 2020. Proxies received by the Board of Directors will be so voted unless shareholders specify in their proxies a contrary choice. |
|
|
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 | 57 |
Table of Contents
Proposal 4: Approval of Amendment to Company’s Bylaws
Proposal 4: Approval of Amendment to Company’s Bylaws
We are asking our shareholders to vote on an amendment to the Company’s Bylaws decreasing the percentage of shares required for shareholders to call a special meeting.
|
|
The Board of Directors unanimously recommends a vote “FOR” the resolution. Proxies received by the Board of Directors will be so voted unless shareholders specify in their proxies a contrary choice. |
| 58 | NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 |
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Table of Contents
Proposal 5: Approval of Lowe’s Companies, Inc. 2020 Stock Purchase Plan
Proposal 5: Approval of Lowe’s Companies, Inc. 2020 Employee Stock Purchase Plan
We are asking our shareholders to approve the Lowe’s Companies, Inc. 2020 Employee Stock Purchase Plan.
|
|
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 | 59 |
Table of Contents
Proposal 5: Approval of Lowe’s Companies, Inc. 2020 Stock Purchase Plan
|
|
The Board of Directors unanimously recommends a vote “FOR” the approval of the 2020 Employee Stock Purchase Plan. Proxies received by the Board of Directors will be so voted unless shareholders specify in their proxies a contrary choice. |
| 60 | NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 |
|
Table of Contents
Proposal 6: Shareholder Proposal Regarding Shareholder Special Meetings
Proposal 6: Shareholder Proposal – Make Shareholder Rights to Call Special Meetings More Accessible
John Chevedden has informed the Company that he intends to present the proposal set forth below for consideration at the Annual Meeting, which is printed exactly as it was submitted.
Lowe’s Board of Directors’ Statement OPPOSING this shareholder proposal.
|
|
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 | 61 |
Table of Contents
Proposal 6: Shareholder Proposal Regarding Shareholder Special Meetings
Summary
The Board believes that a 15% ownership threshold ensures a meaningful percentage of our shareholders agree on the need for a special meeting before a special meeting can be called. In light of these findings as well as the Company’s demonstrated commitment to establishing and implementing good governance practices, the Board believes that adoption of this proposal is not advisable. Lowe’s welcomes continued engagement with shareholders on these issues.
|
The Board of Directors unanimously recommends a vote “AGAINST” this shareholder proposal. Unless otherwise specified, proxies will be voted “AGAINST” the proposal. |
| 62 | NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 |
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Table of Contents
Table of Contents
Table of Contents
Table of Contents
Appendix A
| A-2 | NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 |
|
Table of Contents
Appendix B
Lowe’s Companies, Inc. 2020 Employee Stock Purchase Plan
The Lowe’s Companies, Inc. 2020 Employee Stock Purchase Plan is effective June 1, 2020, subject to approval by the Company’s shareholders.
1. Definitions.
1.1 “Account” means the funds accumulated with respect to an individual participant as a result of deductions from such participant’s paycheck (or otherwise as permitted in certain circumstances under the terms of the Plan) for the purpose of purchasing shares of Common Stock under this Plan. The funds allocated to a participant’s Account shall remain the property of the participant at all times but may be commingled with the general funds of the Company, except to the extent such commingling may be prohibited by the laws of any applicable jurisdiction.
1.2 “Administrator” means the Committee or the persons acting within the scope of their authority to administer the Plan pursuant to a delegation of authority from the Committee pursuant to Section 22.
1.3 “Affiliate” means an entity, other than a Subsidiary, in which the Company has an equity or other ownership interest.
1.4 “Board” means the Board of Directors of the Company.
1.5 “Code” means the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder.
1.6 “Committee” means the Compensation Committee of the Board. The Committee may delegate its responsibilities as provided in Section 22.
1.7 “Common Stock” means the common stock of the Company.
1.8 “Company” means Lowe’s Companies, Inc.
1.9 “Compensation” means, as to payroll periods ending during an offering, the actual base salary or hourly wages received by a participant in any such payroll period from a Participating Company; provided that the Administrator shall have the authority to determine and approve other forms of pay to be included in the definition of Compensation and may change the definition on a prospective basis.
1.10 “Eligible Employee” means an individual (i) classified as an employee of the Company or a Participating Company under the payroll procedures of the Company or Participating Company during the relevant participation periods and (ii) who has satisfied any waiting period not to exceed two (2) years imposed by the Committee, in each case except as otherwise required by law. For purposes of determining whether an individual is employed by a Participating Company, the Administrator may decide to what extent leaves of absence for governmental or military service, illness, temporary disability, or other reasons shall not be deemed interruptions of continuous employment. Eligible Employees shall not include individuals classified as independent contractors. Notwithstanding the foregoing, (i) in respect of the 423 Plan, the Administrator may exclude from participation employees who are “highly compensated employees” of the Company or Participating Company (within the meaning of Section 414(q) of the Code) or otherwise limit eligibility to the extent permitted by Section 423 of the Code and (ii) in respect of any Non-423 Plan, the Administrator may exclude from participation any employees it deems necessary or advisable in accordance with Section 22.2.
1.11 “Enrollment Date” as used in this Plan shall be the commencement date of an enrollment period for participation in the Plan. A different date may be set by the Committee.
1.12 “Enrollment Form” means an agreement between the Company and an employee, in such form as may be established by the Company from time to time, pursuant to which the employee elects to participate in the Plan or elects changes with respect to such participation as permitted under the Plan.
1.13 “Fair Market Value” means the closing price of a share of Common Stock on the primary exchange on which shares of the Common Stock are listed. If, on any given date, no share of Common Stock is traded on an established stock exchange, then Fair Market Value shall be determined with reference to the next preceding day that the Common Stock was so traded.
1.14 “Offering Date” as used in this Plan shall be the commencement date of an offering. A different date may be set by the Committee.
|
|
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT 2020 | B-1 |
Table of Contents
Appendix B
1.15 “Participating Company” means the Company and any Subsidiary or Affiliate that has been designated by the Administrator to participate in the Plan. For purposes of participation in the 423 Plan, only the Company and its Subsidiaries may be considered Participating Companies, and the Administrator shall designate from time to time which Subsidiaries will be Participating Companies in the 423 Plan. The Administrator shall designate from time to time which Subsidiaries and Affiliates will be Participating Companies in particular Non-423 Plans provided, however, that at any given time, a Subsidiary that is a Participating Company in the 423 Plan will not be a Participating Company in a Non-423 Plan. The foregoing designations and changes in designation by the Administrator shall not require shareholder approval. Notwithstanding the foregoing, the term “Participating Company” shall not include any Subsidiary or Affiliate that offers its employees the opportunity to participate in an employee stock purchase plan covering the Subsidiary’s or Affiliate’s common stock.
1.16 “Plan” means the Lowe’s Companies, Inc. 2020 Employee Stock Purchase Plan.
1.17 “Plan Broker” means a stock brokerage or other entity designated by the Company to establish accounts for stock purchased under the Plan by participants.
1.18 “Purchase Price” is the price per share of Common Stock as established pursuant to Section 5 of the Plan.
1.19 “Subsidiary” means any corporation (other than the Company), domestic or foreign, that is in an unbroken chain of corporations beginning with Company if, on an Offering Date, each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in the chain, as described in Code Section 424(f).
2. Purpose and Structure of the Plan.
2.1 The Plan is intended to assist the Company and other Participating Companies in recruiting and retaining individuals with ability and initiative by enabling such persons to participate in the future success of the Company and other Participating Companies and to associate their interests with those of the Company and its shareholders. The Plan document is an omnibus document which includes a sub-plan (the “423 Plan”) designed to permit offerings of grants to employees of the Company and certain Subsidiaries that are Participating Companies where such offerings are intended to satisfy the requirements of Section 423 of the Code (although the Company makes no undertaking nor representation to obtain or maintain qualification under Section 423 for any Subsidiary, individual, offering or grant) and also separate sub-plans (“Non-423 Plans”) which permit offerings of grants to employees of certain Participating Companies which are not intended to satisfy the requirements of Section 423 of the Code. Section 6 of the Plan sets forth the maximum number of shares to be offered under the Plan (and its sub-plans), subject to adjustments as permitted under Sections 19 and 20.
2.2 The 423 Plan shall be a separate and independent plan from the Non-423 Plans, provided, however, that the total number of shares of Common Stock authorized to be issued under the Plan applies in the aggregate to both the 423 Plan and the Non-423 Plans. Offerings under the Non-423 Plans may be made to achieve desired tax or other objectives in particular locations outside the United States of America or to comply with local laws applicable to offerings in such foreign jurisdictions. Offerings under the Non-423 Plans may also be made to employees of Participating Companies that are not Subsidiaries.
2.3 All employees who participate in the 423 Plan shall have the same rights and privileges under such sub-plan except for differences that may be mandated by local law and are consistent with the requirements of Code Section 423(b)(5). The terms of the 423 Plan shall be those set forth in this Plan document to the extent such terms are consistent with the requirements for qualification under Code Section 423. The Administrator may adopt Non-423 Plans applicable to particular Participating Companies or locations that are not participating in the 423 Plan. The terms of each Non-423 Plan may take precedence over other provisions in this document, with the exception of Sections 6, 19 and 20 with respect to the total number of shares available to be offered under the Plan for all sub-plans. Unless otherwise superseded by the terms of such Non-423 Plan, the provisions of this Plan document shall govern the operation of such Non-423 Plan. Except to the extent expressly set forth herein or where the context suggests otherwise, any reference herein to “Plan” shall be construed to include a reference to the 423 Plan and the Non-423 Plans.
3. Employees Eligible to Participate. Any Eligible Employee of the Company or a Participating Company who is employed on the day preceding the Enrollment Date for an offering is eligible to participate in that offering, subject to completion of an Enrollment Form as set forth in Section 7.1.
4. Offerings. Subject to the right of the Company in its sole discretion to sooner terminate the Plan or to change the commencement date or term of any offering, commencing with the Offering Date of December 1, 2020, the Plan will operate with separate
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consecutive six-month offerings with the following Offering Dates: June 1 and December 1; provided, however, that no offering may have a term in excess of 27 months. Unless a termination of or change to the Plan has previously been made by the Company, the final offering under this Plan shall commence on June 1, 2029 and terminate on November 30, 2029. In order to become eligible to purchase shares of Common Stock, an Eligible Employee must complete and submit an Enrollment Form and any other necessary documents at least 15 days (or such other period as may be designated by the Administrator) before the Offering Date of the particular offering in which he or she wishes to participate in accordance with Section 7. Participation in one offering under the Plan shall neither limit, nor require, participation in any other offering.
5. Price. The Purchase Price per share shall be eighty-five percent (85%) of the Fair Market Value of the Common Stock on the last day of the offering.
6. Number of Shares to be Offered. The maximum number of shares that will be offered under the Plan is 20,000,000 shares, subject to adjustment as permitted under Section 20. If the total number of shares of Common Stock for which options are to be granted on any date in accordance with Section 12 exceeds the number of shares of Common Stock then available under the Plan or a given sub-plan (after deduction of all shares for which options have been exercised under the Plan or are then outstanding), the Company shall make a pro rata allocation of the shares remaining available in as nearly a uniform manner as it determines is practicable and equitable. In such event, the payroll deductions to be made pursuant to the authorizations therefor shall be reduced accordingly and the Company shall give written notice of the reduction to each participant affected.
7. Participation.
7.1 An Eligible Employee may become a participant by completing an Enrollment Form provided by the Company and submitting it to the Company, or with such other entity designated by the Company for this purpose, no later than 15 days (or such other period as may be designated by the Administrator) prior to the commencement of the offering to which it relates.
7.2 Payroll deductions for a participant shall commence on the Offering Date as described above and shall continue through subsequent offerings pursuant to Section 10 until the participant’s termination of employment, subject to modification by the participant as provided in Section 8.1, and unless participation is earlier withdrawn or suspended by the employee as provided in Section 9 or deductions are reduced (including to zero) by the Company pursuant to Section 6.
7.3 Payroll deduction shall be the sole means of accumulating funds in a participant’s Account, except in foreign countries where payroll deductions are not allowed, in which case the Company may authorize alternative payment methods.
7.4 The Company may require current participants to complete a new Enrollment Form at any time it deems necessary or desirable to facilitate Plan administration or for any other reason.
8. Payroll Deductions.
8.1 At the time an Eligible Employee files a payroll deduction authorization, he or she shall elect to have deductions made from his or her Compensation on each payday during the time he or she is a participant in an offering at (i) any non-fractional percentage rate from one percent (1%) to twenty percent (20%) or (ii) any flat dollar amount (not exceeding 20%), but in each case shall not exceed $10,625 in any offering. A participant may change his or her payroll deduction percentage election, including changing the payroll deduction percentage or flat dollar amount to zero, effective as of any Offering Date by filing a revised authorization, provided the revised authorization is filed at least 15 days (or such other period as may be designated by the Administrator) prior to such Offering Date.
8.2 All payroll deductions made for a participant shall be credited to his or her Account under the Plan. A participant may not make any separate cash payment into his or her Account nor may payment for shares be made other than by payroll deduction, except as provided under Section 7.3.
8.3 A participant may withdraw from his or her participation in the Plan as provided in Section 9, but no other change can be made during an offering with respect to that offering. Other changes permitted under the Plan may only be made with respect to an offering that has not yet commenced.
9. Withdrawal.
9.1 A participant may withdraw from an offering, in whole but not in part, at any time prior to the first day of the last calendar month of such offering by submitting a withdrawal notice to the Company, in which event the Company will refund the entire balance of his or her Account as soon as practicable thereafter.
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9.2 If a participant withdraws his or her participation pursuant to Section 9.1, he or she shall not participate in a subsequent offering unless and until he or she re-enters the Plan. To re-enter the Plan, an Eligible Employee who has previously withdrawn participation by reducing payroll deductions to zero must file a new Enrollment Form in accordance with Section 7.1. The Eligible Employee’s re-entry into the Plan will not become effective before the beginning of the next offering following his or her withdrawal.
10. Automatic Re-Enrollment. At the termination of each offering each participant who continues to be an Eligible Employee shall be automatically re-enrolled in the next offering, unless the participant has advised the Company otherwise. Upon termination of the Plan, any balance in each participant’s Account shall be refunded to him or her.
11. Interest. No interest will be paid or allowed on any money in the Accounts of participants, except to the extent payment of interest is required by the laws of any applicable jurisdiction.
12. Granting of Option. On the last day of an offering, each participant shall be deemed to have been granted an option under the Plan for as many whole shares as he or she will be able to purchase with the amounts credited to his or her Account during his or her participation in that offering. An option covering a fractional share will not be granted under the Plan. Any amount remaining to the credit of a participant’s Account after the exercise of an option shall remain in the account and be applied to the payment of the option price of the option granted in the following offering, if the participant continues to participate in the Plan or, if he or she does not continue to participate in the Plan, shall be returned to the participant; provided, however, that in respect of any offering under the 423 Plan, any such remaining amount greater than the Purchase Price for the offering will in any event be returned to the participant.
13. Automatic Exercise of Option. Each Eligible Employee who continues to be a participant in an offering on the last day of that offering shall be deemed to have exercised his or her option on that date and shall be deemed to have purchased from the Company the number of whole shares of Common Stock reserved under the Plan as the balance of his or her Account on such date will pay for at the Purchase Price.
14. Tax Obligations. To the extent any (i) grant of an option to purchase shares of Common Stock, (ii) purchase of shares of Common Stock, or (iii) disposition of shares of Common Stock purchased under the Plan gives rise to any tax withholding obligation (including, without limitation, income and payroll withholding taxes imposed by any jurisdiction) the Administrator may implement appropriate procedures to ensure that such tax withholding obligations are met. Those procedures may include, without limitation, increased withholding from a participant’s current compensation, cash payments to the Company or another Participating Company by an employee, or a sale of a portion of the stock purchased under the Plan, which sale may be required and initiated by the Company.
15. Participant’s Rights as a Shareholder; Unfunded Plan. No participant shall have any right as a shareholder with respect to any shares of Common Stock until the shares have been purchased in accordance with Section 13 above and have been issued by the Company. The Plan, insofar as it provides for option grants, shall be unfunded, and the Company shall not be required to segregate any assets that may at any time be represented by options granted under the Plan. Any liability of the Company to any person with respect to any option granted under the Plan shall be based solely upon any contractual obligations that may be created pursuant to this Plan. No such obligation of the Company shall be deemed to be secured by any pledge of, or other encumbrance on, any property of the Company.
16. Evidence of Stock Ownership.
16.1 Following the end of each offering, the number of shares of Common Stock purchased by each participant shall be deposited into an account established in the participant’s name at the Plan Broker.
16.2 A participant may move his or her shares to another brokerage account of his or her choosing at any time, without regard to the satisfaction of the holding period set forth in Section 423(a) of the Code.
17. Rights Not Transferable. No participant shall be permitted to sell, assign, transfer, pledge, or otherwise dispose of or encumber either the payroll deductions credited to his or her Account or an option or any rights with regard to the exercise of an option or rights to receive shares of Common Stock under the Plan other than by will or the laws of descent and distribution, and such right and interest shall not be liable for, or subject to, the debts, contracts, or liabilities of the participant. If any such action is taken by a participant, or any claim is asserted by any other party in respect of such right and interest whether by garnishment, levy, attachment or otherwise, the action or claim will be treated as an election to withdraw funds in accordance with Section 9. During
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the Eligible Employee’s lifetime, only he or she can make decisions regarding the participation in or withdrawal from an offering under the Plan.
18. Termination of Employment. Upon termination of employment for any reason whatsoever, including but not limited to death or retirement, the balance in the Account of a participant shall be paid to the participant or his or her estate. Whether and when employment is deemed terminated for purposes of this Plan shall be determined by the Administrator in its sole discretion and may be determined without regard to statutory notice periods or other periods following termination of active employment.
19. Amendment or Discontinuance of the Plan. The Committee and the Board shall have the right at any time and without notice to amend, modify or terminate the Plan; provided, that no participant’s existing rights under any offering already made under Section 4 hereof may be adversely affected thereby, and provided further that no such amendment of the Plan shall, except as provided in Section 20, increase the total number of shares to be offered under the Plan above the limit specified in Section 6 unless shareholder approval is obtained therefor.
20. Changes in Capitalization. In the event of reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, offerings of rights, or any other change in the capitalization structure of the Company, the Committee may make such adjustment, if any, as it may deem appropriate in the number, kind, and the price of shares of Common Stock available for purchase under the Plan, and in the number of shares which a participant is entitled to purchase including, without limitation, closing an offering early and permitting purchase on the last day of the reduced offering period, or terminating an offering and refunding participants’ Account balances.
21. Share Ownership.
21.1 No individual shall be permitted to subscribe for any shares of Common Stock under the Plan if he or she, immediately after such subscription, owns shares (including all shares that may be purchased under outstanding subscriptions under the Plan) possessing five percent (5%) or more of the total combined voting power or value of all classes of shares of the Company or of its parent or subsidiary corporations. For the foregoing purposes, the rules of Section 424(d) of the Code shall apply in determining share ownership, and shares of Common Stock an individual may purchase under outstanding options shall be treated as owned by the individual.
21.2 In addition, no Eligible Employee shall be allowed to subscribe for any shares of Common Stock under the Plan that permit his or her rights to purchase shares under all “employee stock purchase plans” of the Company and its parent or subsidiary corporations to accrue at a rate that exceeds $25,000 of Fair Market Value of such shares (determined at the time such right to subscribe is granted) for each calendar year in which the right to subscribe is outstanding at any time. Notwithstanding the above, lower limitations may be imposed with respect to participants in a Non-423 Plan or participants in the 423 Plan who are subject to laws of another jurisdiction where lower limitations are required.
22. Administration and Board Authority.
22.1 The Plan shall be administered by the Board. The Board has delegated its full authority under the Plan to the Committee, and the Committee may further delegate any or all of its authority under this Plan to the Company’s Executive Vice President of Human Resources or such other senior officer(s) of the Company as it may designate. Notwithstanding any such delegation of authority, the Board may itself take any action under the Plan in its discretion at any time, and any reference in this Plan document to the rights and obligations of the Committee shall be construed to apply equally to the Board. Any references to the Board mean only the Board. The authority that may be delegated by the Committee includes, without limitation, the authority to (i) establish Non-423 Plans and determine the terms of such sub-plans, (ii) designate from time to time which Subsidiaries will participate in the 423 Plan, which Subsidiaries and Affiliates will be Participating Companies, and which Participating Companies will participate in a particular Non-423 Plan, (iii) determine procedures for Eligible Employees to enroll in or withdraw from a sub-plan, setting or changing payroll deduction percentages, and obtaining necessary tax withholdings, (iv) allocate the available shares of Common Stock under the Plan to the sub-plans for particular offerings, and (v) adopt amendments to the Plan or any sub-plan including, without limitation, amendments to increase the shares available for issuance under the Plan pursuant to Section 20 (but not including increases in the available shares above the maximum permitted by Sections 6 and 20 which shall require Board and shareholder approval).
22.2 The Administrator shall be vested with full authority and discretion to construe the terms of the Plan and make factual determinations under the Plan, and to make, administer, and interpret such rules and regulations as it deems necessary to administer the Plan, and any determination, decision, or action of the Administrator in connection with the construction,
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interpretation, administration, or application of the Plan shall be final, conclusive, and binding upon all participants and any and all persons claiming under or through any participant. The Administrator may retain outside entities and professionals to assist in the administration of the Plan including, without limitation, a vendor or vendors to perform enrollment and brokerage services. The authority of the Administrator will specifically include, without limitation, the power to make any changes to the Plan with respect to the participation of Eligible Employees of any Subsidiary or Affiliate that is organized under the laws of a country other than the United States of America when the Administrator deems such changes to be necessary or appropriate including without limitation for the purposes of achieving a desired tax treatment in such foreign jurisdiction and complying with the laws applicable to such non-U.S. Subsidiaries or Affiliates. Those changes may include, without limitation, the exclusion of particular Subsidiaries or Affiliates from participation in the plan; modifications to eligibility criteria, maximum number or value of shares that may be purchased in a given period, or other requirements set forth herein; and procedural or administrative modifications. Any modification relating to offerings to a particular Participating Company will apply only to that Participating Company and will apply equally to all similarly situated employees of that Participating Company. The rights and privileges of all Eligible Employees granted options under the 423 Plan shall be the same. To the extent any changes approved by the Administrator would jeopardize the tax-qualified status of the 423 Plan, the change shall cause the Participating Companies affected thereby to be considered Participating Companies under a Non-423 Plan or Non-423 Plans instead of the 423 Plan.
23. Notices. All notices or other communications by a participant to the Company or other entity designated for a particular purpose under or in connection with the Plan shall be deemed to have been duly given when received by the Company or other designated entity, or when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.
24. Termination of the Plan. This Plan will terminate at the earliest of the following:
(a) December 31, 2029;
(b) The date of the filing of a Statement of Intent to Dissolve by the Company or the effective date of a merger or consolidation wherein the Company is not to be the surviving corporation, which merger or consolidation is not between or among corporations related to the Company. Prior to the occurrence of either of such events, on such date as the Company may determine, the Company may permit a participant to exercise the option to purchase shares of Common Stock for as many shares as the balance of his or her Account will allow at the price set forth in accordance with Section 5. If the participant elects to purchase shares, any remaining balance of the participant’s Account will be refunded to the participant after that purchase;
(c) The date the Board acts to terminate the Plan in accordance with Section 19; and
(d) The date when all shares of Common Stock reserved under the Plan have been purchased.
25. Limitations on Sale of Stock Purchased Under the Plan. The Plan is intended to provide Common Stock for investment and not for resale. The Company does not, however, intend to restrict or influence any employee in the conduct of the employee’s own affairs. An employee, therefore, may sell stock purchased under the Plan at any time the employee chooses, subject to compliance with any applicable Federal, state or foreign securities laws. THE EMPLOYEE ASSUMES THE RISK OF ANY MARKET FLUCTUATIONS IN THE PRICE OF THE COMPANY’S STOCK.
26. Governmental Regulation/Compliance with Applicable Law/Separate Offering. The Company’s obligation to sell and deliver shares of the Company’s Common Stock under this Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance, or sale of such shares and to applicable law. No option shall be exercisable, no Common Stock shall be issued, and no payment shall be made under this Plan, except in compliance with all applicable federal and state laws and regulations (including, without limitation, withholding tax requirements), any listing agreement to which the Company is a party and the rules of all domestic stock exchanges on which the Company’s shares may be listed. The Company shall have the right to rely on an opinion of its counsel as to such compliance. No option shall be exercisable, no Common Stock shall be issued and no payment shall be made under this Plan until the Company has obtained such consent or approval as the Administrator may deem advisable from regulatory bodies having jurisdiction over such matters. In addition, the terms of an offering under this Plan, or the rights of a participant under an offering, may be modified to the extent required by applicable law. For purposes of the Plan, the Administrator also may designate separate offerings under the Plan (the terms of which need not be identical) in which Eligible Employees of one or more Participating Companies will participate, even if the dates of the offerings are identical.
27. No Employment/Service Rights. Nothing in the Plan shall confer upon any employee of the Company or any Subsidiary or Affiliate the right to continue in employment for any period of specific duration, nor interfere with or otherwise restrict in any way
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the rights of the Company (or any Subsidiary or Affiliate employing such person), or of any employee, which rights are hereby expressly reserved by each, to terminate such person’s employment at any time for any reason, with or without cause.
28. Dates and Times. All references in the Plan to a date or time are intended to refer to dates and times determined pursuant to U.S. Eastern Time. Business days for purposes of the Plan are U.S. business days.
29. Masculine and Feminine, Singular and Plural. Whenever used in the Plan, a pronoun shall include the opposite gender and the singular shall include the plural, and the plural shall include the singular, whenever the context shall plainly so require.
30. Governing Law. The Plan shall be governed by the laws of the State of North Carolina, U.S.A., without regard to North Carolina laws that might cause other law to govern under applicable principles of conflicts of law.
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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Management uses certain non-GAAP financial measures, because it considers them to be important supplemental measures of the Company’s performance. Management also believes that these non-GAAP financial measures provide additional insight for analysts and investors in evaluating the Company’s financial and operating performance. As used in this Proxy Statement, we have presented non-GAAP financial measures to exclude, as applicable, the impacts of certain discrete items, as further detailed below, not contemplated in Lowe’s business outlooks for fiscal 2019 and fiscal 2018. These non-GAAP financial measures should not be considered an alternative to, or more meaningful indicator of, the company’s financial and operating performance in accordance with GAAP. The company’s methods of determining these non-GAAP financial measures may differ from the methods used by other companies for this or similar non-GAAP financial measures. Accordingly, these non-GAAP measures may not be comparable to the measures used by other companies.
The following provides a reconciliation of adjusted sales to sales, adjusted operating income to operating income, and adjusted diluted earnings per share to diluted earnings per common share, the most directly comparable GAAP financial measures.
| Sales (MM) |
Operating Income (MM) |
|||||||
| Fiscal 2019 Results, As Reported |
$ |
72,148 |
|
$ |
6,314 |
| ||
| 2019 Canada restructuring(1) |
($ |
25 |
) |
$ |
230 |
| ||
| Mexico adjustments(2) |
($ |
63 |
) |
$ |
35 |
| ||
| Adjusted Fiscal 2019 Results |
$ |
72,060 |
|
$ |
6,579 |
| ||
| Year Ended | ||||||||||||||||||||||||||||
| January 31, 2020 | February 1, 2019 | |||||||||||||||||||||||||||
| Name |
Pre-Tax Earnings | Tax | Net Earnings | Pre-Tax Earnings | Tax | Net Earnings | ||||||||||||||||||||||
| Diluted Earnings Per Share, As Reported |
$ | 5.49 | $ | 2.84 | ||||||||||||||||||||||||
| 2019 Canada restructuring(1) |
0.29 | 0.02 | 0.31 | — | — | — | ||||||||||||||||||||||
| Mexico adjustments(2) |
0.05 | (0.11 | ) | (0.06 | ) | — | — | — | ||||||||||||||||||||
| Canadian goodwill impairment(3) |
— | — | — | 1.17 | (0.03 | ) | 1.14 | |||||||||||||||||||||
| Orchard Supply Hardware charges(4) |
— | — | — | 0.68 | (0.17 | ) | 0.51 | |||||||||||||||||||||
| U.S. & Canada charges(5) |
— | — | — | 0.33 | (0.08 | ) | 0.25 | |||||||||||||||||||||
| Mexico impairment charges(6) |
— | — | — | 0.30 | 0.01 | 0.31 | ||||||||||||||||||||||
| Non-core activities charges(7) |
— | — | — | 0.06 | (0.02 | ) | 0.04 | |||||||||||||||||||||
| Project Specialists Interiors charge(8) |
— | — | — | 0.02 | — | 0.02 | ||||||||||||||||||||||
| Adjusted Diluted Earnings Per Share |
$ | 5.74 | $ | 5.11 | ||||||||||||||||||||||||
| (1) | Represents costs associated with the Company’s 2019 strategic review of its Canadian operations. Adjustments included inventory liquidation, long-lived asset impairments, accelerated depreciation and amortization, severance, and other costs. |
| (2) | Represents adjustments associated with the Company’s decision to pursue a sale through liquidation of its Mexico operations, instead of its original intention of selling the operating business. As a result, the Company recognized a favorable tax benefit, offset by operating losses, net of tax, for the period associated with the wind-down of the Mexico operations. |
| (3) | Represents costs associated with the goodwill impairment of the Company’s Canadian operations. The majority of the charge was non-deductible for tax purposes, and therefore, had an insignificant tax impact. |
| (4) | Represents costs associated with the Company’s decision to close all Orchard Supply Hardware locations as part of a strategic reassessment of our business. Costs included long-lived asset impairments, discontinued projects, accelerated depreciation and amortization, severance and lease obligation costs. |
| (5) | Represents costs associated with the Company’s decision to close 20 U.S. stores and 31 stores and other locations in Canada during 2018 as part of a strategic reassessment of our business. Costs included long-lived asset impairments, accelerated depreciation and amortization, severance and lease obligation costs. |
| (6) | Represents impairment charges associated with the Company’s decision to exit its retail operations in Mexico as part of a strategic reassessment of our business. This decision resulted in negative tax impacts associated with the re-capture of previously deducted operating losses and other non-deductible amounts. |
| (7) | Represents costs associated with the Company’s decision to exit certain non-core activities within its U.S. Home Improvement business as part of a strategic reassessment of our business. Costs included long-lived asset impairment, severance and lease obligation costs, and inventory write-down. |
| (8) | Represents severance obligations associated with the elimination of the Project Specialists Interiors position as part of a strategic reassessment of our business |
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LOWE’S COMPANIES, INC.
1000 Lowes Boulevard
Mooresville, North Carolina 28117
www.Lowes.com
Printed on Recycled Paper
Lowe’s and the Gable Mansard Design are trademarks or registered trademarks of LF, LLC.