LOWES COMPANIES INC 10-K

Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and capital resources during the two-year period ended January 31, 2025 (our fiscal years 2024 and 2023). Unless otherwise noted, all references herein for the years 2024, 2023, and 2022 represent the fiscal years ended January 31, 2025, February 2, 2024, and February 3, 2023, respectively. Fiscal years 2024 and 2023 contained 52 weeks of operating results compared to fiscal year 2022, which contained 53 weeks. We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements. This discussion should be read in conjunction with our consolidated financial statements and notes to the consolidated financial statements included in this Annual Report that have been prepared in accordance with accounting principles generally accepted in the United States of America. This discussion and analysis is presented in four sections: • Executive Overview • Operations • Financial Condition, Liquidity and Capital Resources • Critical Accounting Policies and Estimates EXECUTIVE OVERVIEW The following table highlights our annual financial results: (in millions, except per share data) 2024 2023 2022 1 Net sales $ 83,674 $ 86,377 $ 97,059 Net earnings 6,957 7,726 6,437 Diluted earnings per share $ 12.23 $ 13.20 $ 10.17 Net cash provided by operating activities $ 9,625 $ 8,140 $ 8,589 Capital expenditures 1,927 1,964 1,829 Repurchases of common stock 2 3,929 6,334 14,128 Cash dividend payments 2,566 2,531 2,370 1 The fiscal year ended February 3, 2023 had 53 weeks. The fiscal years ended January 31, 2025 and February 2, 2024 had 52 weeks. 2 Repurchases of common stock on a trade-date basis. Net sales for fiscal 2024 decreased 3.1% from fiscal 2023 to $83.7 billion . Comparable sales for fiscal 2024 decreased 2.7% , consisting of a 3.0% decrease in comparable customer transactions, and a 0.3% increase in comparable average ticket . Net earnings for fiscal 2024 de creased 10.0% to $7.0 billion. Diluted earnings per common share decreased 7.4% in fiscal 2024 to $12.23 from $13.20 in fiscal 2023. Included in fiscal 2024 results is pre-tax income of $177 million associated with the fiscal 2022 sale of the Canadian retail business, w hich increased diluted earnings per share by $0.24 . Included in the fiscal 2023 results is $63 million of pre-tax income associated with the sale of the Canadian retail business, which increased diluted earnings per share by $0.11 in fiscal year 2023. Adjusting for these items, adjusted diluted earnings per common share decreased 8.4% to $11.99 in 2024 from adjusted diluted earnings per common share of $13.09 in 2023 (see the non-GAAP financial measures discussion). For fiscal 2024, cash flows from operating activities wer e $9.6 billion , with $1.9 billion used for capital expenditures. Continuing to deliver on our commitment to return excess cash to shareholders, the Company repurchased $3.9 billion of common stock and paid $2.6 billion in dividends during the year. Macroeconomic factors, such as ongoing inflation and higher interest rates resulting in depressed levels of housing turnover, continued to exert downward pressure on big-ticket DIY discretionary spending in fiscal 2024. Despite these factors, we generated positive Pro customer comparable sales and increased Pro penetration for the year. This is the result of our cumulative investments in the right brands and products, greater inventory depth, improved job site delivery, dedicated service levels, and the Pro customer digital experience. In addition, our strong online performance gives us confidence that our focus on an intuitive user experience and omnichannel fulfillment capabilities, specifically more same-day delivery options and an improved Buy Online Pickup in Store experience, are resonating with our customers. 24 Table of Contents Looking Forward The core demand drivers of our business that we track remain unchanged: disposable personal income, home price appreciation, and the age of the housing stock. We believe these drivers will sustain long-term demand as homeowners invest in repairs and upgrades. Trends such as millennial household formation, the elderly preference to age in place, and the persistence of remote work also support home improvement market demand. While these demand drivers remain supportive, broader market uncertainties also exist around tariffs, tax policy, and the overall geopolitical environment. We remain focused on delivering strong operating performance, while continuing to make the right long-term investments for growth. This includes executing at a high level through the near-term market pressures by driving productivity, managing costs, and investing in our updated Total Home strategy while continuing to drive sustainable, long-term shareholder value. OPERATIONS The following table sets forth the percentage relationship to net sales of each line item of the consolidated statements of earnings. This table should be read in conjunction with the following discussion and analysis and the consolidated financial statements, including the related notes to the consolidated financial statements. Basis Point Increase/(Decrease) in Percentage of Net Sales 2024 2023 2022 2024 vs. 2023 2023 vs. 2022 Net sales 100.00 % 100.00 % 100.00 % Gross margin 33.32 33.39 33.23 (7) 16 Expenses: Selling, general and administrative 18.74 18.02 20.94 72 (292) Depreciation and amortization 2.07 1.99 1.82 8 17 Operating income 12.51 13.38 10.47 (87) 291 Interest – net 1.57 1.60 1.16 (3) 44 Pre-tax earnings 10.94 11.78 9.31 (84) 247 Income tax provision 2.63 2.83 2.68 (20) 15 Net earnings 8.31 % 8.95 % 6.63 % (64) 232 The following table sets forth key metrics utilized by management in assessing business performance. This table should be read in conjunction with the following discussion and analysis and the consolidated financial statements, including the related notes to the consolidated financial statements. Other Metrics 2024 2023 2022 1 Comparable sales decrease 2 (2.7) % (4.7) % (0.9) % Total customer transactions (in millions) 809 835 937 Average ticket 3 $ 103.37 $ 103.51 $ 103.64 At end of year: Number of stores 1,748 1,746 1,738 Sales floor square feet (in millions) 195 195 195 Average store size selling square feet (in thousands) 4 112 112 112 Net earnings to average debt and shareholders’ deficit 27.5 % 31.6 % 26.6 % Return on invested capital 5 32.0 % 36.4 % 30.4 % 1 The fiscal year ended February 3, 2023 had 53 weeks. The fiscal years ended January 31, 2025 and February 2, 2024 had 52 weeks. 2 A comparable location is defined as a retail location that has been open longer than 13 months. A location that is identified for relocation is no longer considered comparable in the month of its relocation. The relocated location must then remain open longer than 13 months to be considered comparable. A location we have decided to close is no longer considered comparable as of the beginning of the month in which we announce its closing. Operating locations which are sold are included in comparable sales until the date of sale. Comparable sales include online sales, which positively impacted comparable sales in fiscal 2024, fiscal 2023, and fiscal 2022 by approximately 50 25 Table of Contents basis points, 25 basis points, and 45 basis points, respectively. The comparable sales calculation for fiscal 2022 was calculated using sales for a comparable 52-week period. 3 Average ticket is defined as net sales divided by the total number of customer transactions. 4 Average store size selling square feet is defined as sales floor square feet divided by the number of stores open at the end of the period. 5 Return on invested capital is calculated using a non-GAAP financial measure. See below for additional information and reconciliations of non-GAAP measures. Fiscal 2024 Compared to Fiscal 2023 Net Sales – Net sales decreased 3.1% to $83.7 billion in fiscal 2024. The decrease in total sales was primarily driven by the decrease in comparable sales. Comparable sales decreased 2.7% over the same period, driven by a 3.0% decline in comparable customer transactions, and a 0.3% increase in comparable average ticket. Comparable sales change during each quarter of the fiscal year, as reported, were declines of 4.1% in the first quarter, 5.1% in the second quarter, 1.1% in the third quarter, and an increase of 0.2% in the fourth quarter. During fiscal 2024, we had comparable sales increases in Building Materials. An additional four product categories performed above the Company average, including Hardware, Rough Plumbing, Appliances, and Millwork. Strength in Building Materials reflects strong demand from Pro customers. Our DIY customer categories were impacted by lower DIY discretionary demand, particularly in bigger-ticket interior projects. Gross Margin – Gross margin as a percentage of sales for fiscal 2024 decreased seven basis points compared to fiscal 2023. The gross margin decrease for the year was primarily driven by investments in our supply chain, partially offset by productivity initiatives. SG&A – SG&A expense for fiscal 2024 deleveraged 72 basis points as a percentage of sales compared to fiscal 2023. This was primarily driven by employee compensation and benefits, due to higher bonus attainment and employee insurance costs, as well as cycling favorable legal settlements in the prior year. Depreciation and Amortization – Depreciation and amortization expense deleveraged eight basis points for fiscal 2024 as a percentage of sales compared to fiscal 2023. Interest – Net – Net interest expense is comprised of the following: (In millions) 2024 2023 Interest expense, net of amount capitalized $ 1,445 $ 1,459 Amortization of original issue discount and loan costs 24 23 Interest on tax uncertainties 3 1 Interest income (159) (101) Interest – net $ 1,313 $ 1,382 Net interest expense in fiscal 2024 leveraged three basis points. Income Tax Provision – Our effective income tax rate was 24.0% in fiscal 2024 compared to 24.1% in fiscal 2023. Fiscal 2023 Compared to Fiscal 2022 For a comparison of our results of operations, financial condition, liquidity, and capital resources for the fiscal years ended February 2, 2024, and February 3, 2023, see “ Part II, Item 7. Management’s Discussion and Analysis of Financial Condition a nd Results of Operations ” of our Annual Report on Form 10-K for the fiscal year ended February 2, 2024, filed with the SEC on March 25, 2024. 26 Table of Contents Non-GAAP Financial Measures Adjusted Diluted Earnings Per Share Adjusted diluted earnings per share is considered a non-GAAP financial measure. The Company believes this non-GAAP financial measure provides useful insight for analysts and investors in understanding the comparison of operational performance for fiscal 2024 and fiscal 2023. Adjusted diluted earnings per share excludes the impact of certain items, further described below, not contemplated in the Company’s business outlook for fiscal 2024 and fiscal 2023. Fiscal 2024 Impacts • In fiscal 2024, the Company recognized pre-tax income of $177 million consisting of realized gains on the contingent consideration associated with the fiscal 2022 sale of the Canadian retail business (Canadian retail business transaction). Fiscal 2023 Impacts • In fiscal 2023, the Company recognized pre-tax income of $63 million consisting of a realized gain on the contingent consideration and adjustments to the selling price associated with the fiscal 2022 sale of the Canadian retail business (Canadian retail business transaction). Adjusted diluted earnings per share should not be considered an alternative to, or more meaningful indicator of, the Company’s diluted earnings per common share as prepared in accordance with GAAP. The Company’s methods of determining this non-GAAP financial measure may differ from the method used by other companies and may not be comparable. 2024 2023 Pre-Tax Earnings Tax 1 Net Earnings Pre-Tax Earnings Tax 1 Net Earnings Diluted earnings per share, as reported $ 12.23 $ 13.20 Non-GAAP adjustments – per share impacts Canadian retail business transaction (0.31) 0.07 (0.24) (0.11) — (0.11) Adjusted diluted earnings per share $ 11.99 $ 13.09 1 Represents the tax benefit or expense related to the item excluded from adjusted diluted earnings per share. Return on Invested Capital Return on Invested Capital (ROIC) is calculated using a non-GAAP financial measure. Management believes ROIC is a meaningful metric for analysts and investors as a measure of how effectively the Company is using capital to generate financial returns. Although ROIC is a common financial metric, numerous methods exist for calculating ROIC. Accordingly, the method used by our management may differ from the methods used by other companies. We encourage you to understand the methods used by another company to calculate ROIC before comparing its ROIC to ours. We define ROIC as the rolling 12 months’ lease adjusted net operating profit after tax (Lease adjusted NOPAT) divided by the average of current year and prior year ending debt and shareholders’ deficit. Lease adjusted NOPAT is a non-GAAP financial measure, and net earnings is considered to be the most comparable GAAP financial measure. The calculation of ROIC, together with a reconciliation of net earnings to Lease adjusted NOPAT, is as follows: 27 Table of Contents (In millions, except percentage data) 2024 2023 2022 Calculation of Return on Invested Capital Numerator Net earnings $ 6,957 $ 7,726 $ 6,437 Plus: Interest expense – net 1,314 1,382 1,123 Operating lease interest 173 157 163 Provision for income taxes 2,196 2,449 2,599 Lease adjusted net operating profit 10,640 11,714 10,322 Less: Income tax adjustment 1 2,552 2,819 2,970 Lease adjusted net operating profit after tax $ 8,088 $ 8,895 $ 7,352 Denominator Average debt and shareholders’ deficit 2 $ 25,270 $ 24,418 $ 24,155 Net earnings to average debt and shareholders’ deficit 27.5 % 31.6 % 26.6 % Return on invested capital 3 32.0 % 36.4 % 30.4 % 1 Income tax adjustment is defined as net operating profit multiplied by the effective tax rate, which was 24.0%, 24.1%, and 28.8% for fiscal 2024, fiscal 2023, and fiscal 2022, respectively. 2 Average debt and shareholders’ deficit is defined as average current year and prior year ending debt, including current maturities, short- term borrowings, and operating lease liabilities, plus the average current year and prior year ending total shareholders’ deficit. 3 For the year ended January 31, 2025, February 2, 2024, and February 3, 2023, return on invested capital was impacted by approximately 44 basis points, 19 basis points, an d -800 basis points, respectively, as a result of the sale of the Canadian retail business. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Sources of Liquidity Cash flows from operations, combined with our continued access to capital markets on both a short-term and long-term basis, as needed, remain adequate to fund our operations, make strategic investments to support long-term growth, return excess cash to shareholders in the form of dividends and share repurchases, and repay debt maturities as they become due. We believe these sources of liquidity will continue to support our business for the next twelve months. As of January 31, 2025, we held $1.8 billion of cash and cash equivalents, as well as $4.0 billion in undrawn capacity on our revolving credit facilities. As of January 31, 2025, our material contractual obligations and commercial commitments consist of leases, long-term debt, purchase obligations, and letters of credit. See Note 5 , Note 7 , and Note 14 of the Notes to the Consolidated Financial Statements in Item 8 , “Financial Statements and Supplementary Data”, of this Annual Report for amounts outstanding related to leases, long-term debt, and commitments, respectively, as of January 31, 2025. Cash Flows Provided by Operating Activities (In millions) 2024 2023 Net cash provided by operating activities $ 9,625 $ 8,140 Cash flows from operating activities continued to provide the primary source of our liquidity. The increase in net cash provided by operating activities for the year ended January 31, 2025, compared to the year ended February 2, 2024, was primarily due to timing of income tax payments and other changes in working capital, partially offset by lower net earnings. Cash flows relating to changes in other operating liabilities improved $2.1 billion due primarily to timing of federal estimated tax payments. Fiscal 2023 includes payment of certain fiscal 2022 estimated tax payments deferred under the income tax relief announced by the Internal Revenue Service (IRS) for businesses located in states impacted by Hurricane Ian. In addition, fiscal 2024 benefited from deferral of certain federal estimated tax payments that were deferred until fiscal 2025 under the income tax relief announced by the IRS for businesses impacted by Hurricane Helene. 28 Table of Contents Cash Flows Used in Investing Activities (In millions) 2024 2023 Net cash used in investing activities $ (1,738) $ (1,901) Net cash used in investing activities primarily consists of transactions related to capital expenditures. Capital expenditures Our capital expenditures generally consist of investments in our strategic initiatives to enhance our ability to serve customers, improve existing stores, and support expansion plans. Capital expenditures were $1.9 billion in fiscal 2024 and $2.0 billion in fiscal 2023. For fiscal 2025, our guidance for capital expenditures is approximately $2.5 billion. We may adjust our capital expenditures, if necessary or appropriate, to support our operations, to enhance long-term strategic positioning, or in response to the economic environment. Cash Flows Used in Financing Activities (In millions) 2024 2023 Net cash used in financing activities $ (7,047) $ (6,666) Net cash used in financing activities primarily consist of transactions related to our debt, share repurchases, and cash dividend payments. Total Debt In fiscal 2024, we repaid a $450 million senior note at maturity. In fiscal 2023, we issued $3.0 billion of unsecured notes in March 2023, and during fiscal 2023, we also repaid a $500 million senior note at maturity. We have a $2.0 billion five-year unsecured revolving third amended and restated credit agreement (the Third Amended and Restated Credit Agreement), with a syndicate of banks, which has a maturity date of December 2026 and an aggregate availability of $2.0 billion. We also have a $2.0 billion five-year unsecured revolving amended and restated credit agreement dated September 1, 2023 (the 2023 Credit Agreement), with a syndicate of banks, which has a maturity date of September 2028 and an aggregate availability of $2.0 billion. Subject to obtaining commitments from the lenders and satisfying other conditions specified in the Third Amended and Restated Credit Agreement and the 2023 Credit Agreement (collectively, the Credit Agreements), the Company may increase the combined aggregate availability of the Credit Agreements by an additional $1.0 billion. The Credit Agreements support our commercial paper program. The amount available to be drawn under the Credit Agreements is reduced by the amount of borrowings under our commercial paper program. There were no outstanding borrowings under the commercial paper program or Credit Agreements as of January 31, 2025. Total combined availability under the Credit Agreements as of January 31, 2025, was $4.0 billion. There were no outstanding borrowings under the Company’s commercial paper program as of February 2, 2024, and there were no outstanding borrowings under the Credit Agreements as of February 2, 2024. The Third Amended and Restated Credit Agreement and the 2023 Credit Agreement contain customary representations, warranties, and covenants. We were in compliance with those covenants as of January 31, 2025. 29 Table of Contents The following table includes additional information related to our debt for fiscal 2024 and fiscal 2023: (In millions, except for interest rate data) 2024 2023 Net proceeds from issuance of debt $ — $ 2,983 Repayment of debt $ (545) $ (601) Net change in commercial paper $ — $ (499) Maximum commercial paper outstanding at any period $ 250 $ 2,195 Short-term borrowings outstanding at year-end $ — $ — Weighted-average interest rate of short-term borrowings outstanding — % — % Share Repurchases We have an ongoing share repurchase program, authorized by the Company’s Board of Directors, that is executed through purchases made from time to time either in the open market or through private off-market transactions. We also withhold shares from employees to satisfy tax withholding liabilities on share-based payments. Shares repurchased are returned to authorized and unissued status. The following table provides, on a settlement date basis, the total number of shares repurchased, average price paid per share, and the total amount paid for share repurchases for fiscal 2024 and fiscal 2023: (In millions, except per share data) 2024 2023 Total amount paid for share repurchases 1 $ 4,053 $ 6,138 Total number of shares repurchased 16.6 29.2 Average price paid per share $ 244.63 $ 210.07 1 Excludes unsettled share repurchases and unpaid excise taxes. As of January 31, 2025, we had $10.8 billion remaining under our share repurchase program with no expiration date. Dividends In the third quarter of fiscal 2024, we increased our quarterly dividend payment by 5% to $1.15 per share. Our dividend payment dates are established such that dividends are paid in the quarter immediately following the quarter in which they are declared. The following table provides additional information related to our dividend payments for fiscal 2024 and fiscal 2023: (In millions, except per share data and percentage data) 2024 2023 Total cash dividend payments $ 2,566 $ 2,531 Dividends paid per share $ 4.50 $ 4.30 Dividend payout ratio 37 % 33 % Capital Resources We expect to continue to have access to the capital markets on both short-term and long-term bases when needed for liquidity purposes by issuing commercial paper or new long-term debt. The availability and the borrowing costs of these funds could be adversely affected, however, by a downgrade of our debt ratings or a deterioration of certain financial ratios. The table below reflects our debt ratings by Standard & Poor’s (S&P) and Moody’s as of March 24, 2025, which is disclosed to provide an enhanced understanding of our sources of liquidity and the effect of our ratings on our cost of funds. Our debt ratings have enabled, and should continue to enable, us the option to refinance our debt as it becomes due. Our commercial paper and senior debt ratings may be subject to revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating. Debt Ratings S&P Moody’s Commercial Paper A-2 P-2 Senior Debt BBB+ Baa1 Outlook Stable Stable There are no provisions in any agreements that would require early cash settlement of existing debt or leases as a result of a downgrade in our debt rating or a decrease in our stock price. 30 Table of Contents CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of the consolidated financial statements and notes to consolidated financial statements presented in this Annual Report requires us to make estimates that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosures of contingent assets and liabilities. We base these estimates on historical results and various other assumptions believed to be reasonable, all of which form the basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates. Our significant accounting policies are described in Note 1 to the consolidated financial statements included herein. We believe that the following accounting policies affect the most significant estimates and management judgments used in preparing the consolidated financial statements. Merchandise Inventory Description We record an inventory reserve for the estimated adjustment to mark down merchandise inventory to the lower of cost or net realizable value (LCNRV). This reserve is based on our current knowledge with respect to inventory levels, sales trends and historical experience. During fiscal 2024, our reserve decreased approximately $23 million to $222 million as of January 31, 2025. We also record an inventory reserve for the estimated shrinkage between physical inventories. This reserve is based primarily on actual shrink results from previous physical inventories. During fiscal 2024, the inventory shrink reserve increased approximately $2 million to $427 million as of January 31, 2025. In addition, we receive funds from vendors in the normal course of business, principally as a result of purchase volumes, early payments, or sales-based promotions of vendors’ products. Generally, these vendor funds do not represent the reimbursement of specific, incremental, and identifiable costs that we incurred to sell the vendor’s product. The majority of the vendor funds associated with these purchases are earned under agreements that are negotiated on an annual basis or shorter. The funds are recorded as a reduction to the cost of inventory as they are earned. As the related inventory is sold, the amounts are recorded as a reduction to cost of sales. Funds that are determined to be reimbursements of specific, incremental, and identifiable costs incurred to sell vendors’ products are recorded as an offset to the related expense. Judgments and uncertainties involved in the estimate We do not believe that our merchandise inventories are subject to significant risk of markdown in the near term in excess of our established reserves, and we have the ability to adjust purchasing practices based on anticipated sales trends and general economic conditions. However, changes in consumer purchasing patterns or a deterioration in product quality could result in the need for additional reserves. Likewise, changes in the estimated shrink reserve may be necessary, based on the timing and results of physical inventories. We also apply judgment in the determination of obsolete inventory and assumptions about net realizable value. For vendor funds, we develop accrual rates based on the provisions of the agreements in place. Due to the diversity of the individual vendor agreements, we perform analyses and review historical purchase trends and volumes throughout the year, adjust accrual rates as appropriate and confirm actual amounts with select vendors to ensure the amounts earned are appropriately recorded. Amounts accrued throughout the year could be impacted if actual purchase volumes differ from projected purchase volumes, especially in the case of programs that provide for increased funding when graduated purchase volumes are met. Effect if actual results differ from assumptions We have not made any material changes in the methodology used to establish our inventory valuation or the related reserves for inventory during the past three fiscal years. We believe that we have sufficient current and historical knowledge to record reasonable estimates for both of these inventory reserves. However, it is possible that actual results could differ from recorded reserves. A 10% change in either the amount of inventory subject to markdown or the weighted average estimated loss rate used in the calculation of our LCNRV inventory reserve would each have affected net earnings by approximately $17 million for fiscal 2024. A 10% change in the estimated shrinkage rate included in the calculation of our inventory shrink reserve would have affected net earnings by approximately $32 million for fiscal 2024. We have not made any material changes in the methodology used to recognize vendor funds during the past three fiscal years. If actual results are not consistent with the assumptions and estimates used, we could be exposed to additional adjustments that could positively or negatively impact gross margin and inventory. However, substantially all receivables 31 Table of Contents associated with these activities do not require subjective long-term estimates because they are collected within the following fiscal year. Adjustments to gross margin and inventory in the following fiscal year have historically not been material. Self-Insurance Description We are self-insured for certain losses relating to workers’ compensation, automobile, property, general and product liability, extended protection plans, and certain medical and dental claims. We have excess insurance coverage above certain retention amounts to limit exposure from single events and earnings volatility. Our self-insured retention or deductible, as applicable, is limited to $2 million per occurrence involving workers’ compensation, and $10 million per occurrence involving general liability, product liability, and automobile liability. We do not have any excess insurance coverage for self-insured extended protection plan or medical and dental claims. Self-insurance claims filed and claims incurred but not reported are accrued based upon our estimates of the discounted ultimate cost for self-insured claims incurred using actuarial assumptions followed in the insurance industry and historical experience. During fiscal 2024, our self-insurance liabilities decreased approximately $138 million to $966 million as of January 31, 2025. Judgments and uncertainties involved in the estimate These estimates are subject to changes in the regulatory environment, utilized discount rate, projected exposures including payroll, sales and vehicle units, as well as the frequency, lag and severity of claims. Effect if actual results differ from assumptions We have not made any material changes in the methodology used to establish our self-insurance liability during the past three fiscal years. Although we believe that we have the ability to reasonably estimate losses related to claims, it is possible that actual results could differ from recorded self-insurance liabilities . A 10% change in our self-insurance liability would have affected net earnings by approximately $72 million for fiscal 2024. A 100 basis point change in our discount rate would have affected net earnings by approximately $18 million for fiscal 2024.