Notes to Consolidated Financial Statements (Unaudited)
Note 1: Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements (unaudited) and notes to the consolidated financial statements (unaudited) are presented in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all the disclosures normally required in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The consolidated financial statements (unaudited), in the opinion of management, contain all adjustments necessary to present fairly the financial position as of November 1, 2019, and November 2, 2018, the results of operations, comprehensive income, and shareholders’ equity for the three and nine months ended November 1, 2019, and November 2, 2018, and cash flows for the nine months ended November 1, 2019 and November 2, 2018.
These interim consolidated financial statements (unaudited) should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Lowe’s Companies, Inc. (the Company) Annual Report on Form 10-K for the fiscal year ended February 1, 2019 (the Annual Report). The financial results for the interim periods may not be indicative of the financial results for the entire fiscal year.
Reclassifications
Certain prior period amounts have been reclassified to conform to current classifications.
Accounting Pronouncements Recently Adopted
Effective February 2, 2019, the Company adopted Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), and all related amendments, using the optional transition approach and recognized the cumulative impact of adoption in the opening balance of retained earnings. Under ASU 2016-02, lessees are required to recognize lease assets and lease liabilities on the balance sheet for those leases previously classified as operating leases. The Company adopted the standard utilizing the transition election to not restate comparative periods for the impact of adopting the standard and recognizing the cumulative impact of adoption in the opening balance of retained earnings. The Company elected the package of transition expedients available for expired or existing contracts, which allowed the carry-forward of historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. Adoption of the standard resulted in the recording of additional net lease-related assets and lease-related liabilities of approximately $3.6 billion and $3.9 billion, respectively, as of February 2, 2019. The difference between the additional lease assets and lease liabilities, net of the $87 million deferred tax impact, was $263 million and was recorded as an adjustment to retained earnings. This adjustment to retained earnings primarily represents the write-off of right-of-use assets associated with closed locations, net of previously established store closing lease obligations as well as the derecognition of build-to-suit leases. The adoption of this standard by the Company did not have a material impact on its consolidated statements of earnings, comprehensive income or cash flows and will have no impact on the Company’s debt covenant compliance under its current agreements. See Note 3 for additional details of the Company’s leases.
Accounting Pronouncements Not Yet Adopted
Recent accounting pronouncements pending adoption not discussed in this Form 10-Q or in the 2018 Form 10-K are either not applicable to the Company or are not expected to have a material impact on the Company.
Note 2: Change in Accounting Principle - During the fourth quarter of fiscal 2018, the Company changed its method of accounting for shipping and handling costs from the Company’s stores, distribution centers, and other locations to customers. Under the new accounting principle, shipping and handling costs related to the delivery of products from the Company to customers are included in costs of sales, whereas previously, they were included in SG&A expense as well as depreciation and amortization. In connection with the change in presentation, the Company also changed its definition of shipping and handling costs to include all direct and indirect costs associated with delivering product to a customer, including expenses associated with the central delivery terminals and depreciation and amortization of delivery assets. Under the previous definition of shipping and handling costs, the Company only included third-party delivery costs, salaries, and vehicle operations expenses relating to the delivery of product from stores and distribution centers to customers. The impact of this change in definition was not material.
The Company believes including these expenses in cost of sales is preferable, as it better aligns these costs with the related revenue in the gross profit calculation and is consistent with the practices of other retailers. This change in accounting principle has been applied retrospectively, and the consolidated statements of earnings reflect the effect of this accounting principle change in all years presented. This reclassification had no impact on operating income, net earnings or diluted earnings per share. The consolidated balance sheets, the consolidated statements of comprehensive income, consolidated statements of shareholders’ equity, and the consolidated statements of cash flows were not impacted by this accounting principle change.
The consolidated statements of earnings for the three and nine months ended November 2, 2018 have been adjusted to reflect this change in accounting principle. The impact of the adjustment for the three months ended November 2, 2018 was an increase of $283 million to cost of sales and a corresponding decrease to SG&A expense of $273 million and depreciation and amortization expense of $10 million. The impact of the adjustment for the nine months ended November 2, 2018 was an increase of $862 million to cost of sales and a corresponding decrease to SG&A expense for $832 million and depreciation and amortization expense of $30 million.
Note 3: Leases - During the first quarter of fiscal 2019, the Company adopted ASU 2016-02, Leases (Topic 842), which requires leases to be recognized on the balance sheet. Leases with an original term of 12 months or less are not recognized on the Company’s balance sheet, and the lease expense related to those short-term leases is recognized over the lease term. The Company does not account for lease and non-lease (e.g. common area maintenance) components of contracts separately for any underlying asset class.
The Company leases certain retail stores, warehouses, distribution centers, office space, land and equipment under finance and operating leases. Lease commencement occurs on the date the Company takes possession or control of the property or equipment. Original terms for our facility-related leases are generally between five and 20 years. These leases generally contain provisions for four to six renewal options of five years each. Original terms for equipment-related leases, primarily material handling equipment and vehicles, are generally between one and seven years. Some of the Company’s leases also include rental escalation clauses and/or termination provisions. Renewal options and termination options are included in the determination of lease payments when management determines the options are reasonably certain of exercise, considering financial performance, strategic importance and/or invested capital.
If readily determinable, the rate implicit in the lease is used to discount lease payments to present value; however, substantially all of the Company’s leases do not provide a readily determinable implicit rate. When the implicit rate is not determinable, the Company’s estimated incremental borrowing rate is utilized, determined on a collateralized basis, to discount lease payments based on information available at lease commencement.
Some lease agreements also provide for contingent rentals based on sales performance in excess of specified minimums or on changes in the consumer price index. Contingent rentals, which are based on future performance or changes in indices, are excluded from the determination of lease payments and were not significant for any of the periods presented. The Company’s lease agreements do not contain any material restrictions, covenants or any material residual value guarantees.
The Company subleases certain properties that are not used in its operations. Sublease income was not significant for any of the periods presented.
The table below presents the lease-related assets and liabilities recorded on the balance sheet.
|
|
|
|
|
|
Leases
(In millions)
|
Classification
|
November 1, 2019
|
Assets
|
|
|
Operating lease assets
|
Operating lease right-of-use assets
|
$
|
3,873
|
|
Finance lease assets
|
Property, less accumulated depreciation 1
|
403
|
|
Total lease assets
|
|
4,276
|
|
|
|
|
Liabilities
|
|
|
Current
|
|
|
Operating
|
Current operating lease liabilities
|
499
|
|
Finance
|
Current maturities of long-term debt
|
49
|
|
Noncurrent
|
|
|
Operating
|
Noncurrent operating lease liabilities
|
3,942
|
|
Finance
|
Long-term debt, excluding current maturities
|
481
|
|
Total lease liabilities
|
|
$
|
4,971
|
|
|
|
1
|
Finance lease assets are recorded net of accumulated amortization of $27 million as of November 1, 2019.
|
The table below presents the lease costs for finance and operating leases for the three and nine months ended November 1, 2019:
|
|
|
|
|
|
|
|
Lease Cost
(In millions)
|
Three Months Ended November 1, 2019
|
Nine Months Ended November 1, 2019
|
Finance lease cost
|
|
|
Amortization of leased assets
|
$
|
11
|
|
$
|
28
|
|
Interest on lease liabilities
|
7
|
|
21
|
|
Operating lease cost 1
|
185
|
|
524
|
|
Total lease cost
|
$
|
203
|
|
$
|
573
|
|
|
|
1
|
Includes short-term leases, variable lease costs, and sublease income, which are immaterial.
|
The future minimum rental payments required under operating and finance lease obligations as of November 1, 2019 having initial or remaining non-cancelable lease terms in excess of one year are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Maturity of lease liabilities
(In millions)
|
Operating Leases 1
|
Finance
Leases 2
|
Total
|
2019
|
$
|
124
|
|
$
|
15
|
|
$
|
139
|
|
2020
|
668
|
|
78
|
|
746
|
|
2021
|
652
|
|
77
|
|
729
|
|
2022
|
661
|
|
80
|
|
741
|
|
2023
|
571
|
|
75
|
|
646
|
|
After 2023
|
3,006
|
|
381
|
|
3,387
|
|
Total lease payments
|
5,682
|
|
706
|
|
6,388
|
|
Less: interest 3
|
(1,241
|
)
|
(176
|
)
|
(1,417
|
)
|
Present value of lease liabilities 4
|
$
|
4,441
|
|
$
|
530
|
|
$
|
4,971
|
|
|
|
1
|
Operating lease payments include $249 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $299 million of minimum lease payments for leases signed but not yet commenced.
|
|
|
2
|
Finance lease payments include $11 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $233 million of minimum lease payments for leases signed but not yet commenced.
|
|
|
3
|
Calculated using the lease-specific incremental borrowing rate.
|
|
|
4
|
Includes the current portion of $499 million for operating leases and $49 million for finance leases.
|
|
|
|
|
Lease Term and Discount Rate
|
November 1, 2019
|
Weighted-average remaining lease term (years)
|
|
Operating leases
|
10.64
|
|
Finance leases
|
10.00
|
|
Weighted-average discount rate
|
|
Operating leases
|
4.26
|
%
|
Finance leases
|
6.42
|
%
|
|
|
|
|
|
Other Information
(In millions)
|
Nine Months Ended November 1, 2019
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
Operating cash flows used for operating leases
|
$
|
629
|
|
Operating cash flows used for finance leases
|
22
|
|
Financing cash flows used for finance leases
|
37
|
|
Leased assets obtained in exchange for new finance lease liabilities
|
156
|
|
Leased assets obtained in exchange for new operating lease liabilities
|
374
|
|
Prior Period Disclosures
As a result of the adoption of ASC 842, Leases, on February 2, 2019, the Company is required to present future minimum lease payments for operating and finance lease obligations having initial or remaining non-cancelable lease terms in excess of one year. These future minimum lease payments were previously disclosed in our 2018 Annual Report on Form 10-K and accounted for under previous lease guidance. Commitments as of February 1, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
February 1, 2019
|
Fiscal Year
(In millions)
|
Operating Leases
|
|
Capitalized Lease Obligations
|
|
Total
|
|
2019
|
$
|
595
|
|
$
|
133
|
|
$
|
728
|
|
2020
|
605
|
|
87
|
|
692
|
|
2021
|
564
|
|
90
|
|
654
|
|
2022
|
519
|
|
87
|
|
606
|
|
2023
|
473
|
|
86
|
|
559
|
|
Later years
|
2,609
|
|
783
|
|
3,392
|
|
Total minimum lease payments
|
$
|
5,365
|
|
$
|
1,266
|
|
$
|
6,631
|
|
Less amount representing interest
|
|
(492
|
)
|
|
Present value of minimum lease payments
|
|
774
|
|
|
Less current maturities
|
|
(65
|
)
|
|
Present value of minimum lease payments, less current maturities
|
|
$
|
709
|
|
|
Note 4: Revenue Recognition - Net sales consists primarily of revenue, net of sales tax, associated with contracts with customers for the sale of goods and services in amounts that reflect consideration the Company is entitled to in exchange for those goods and services.
The following table presents the Company’s sources of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Three Months Ended
|
|
Nine Months Ended
|
November 1, 2019
|
|
November 2, 2018
|
|
November 1, 2019
|
|
November 2, 2018
|
Products
|
$
|
16,379
|
|
|
$
|
16,293
|
|
|
$
|
53,259
|
|
|
$
|
52,527
|
|
Services
|
545
|
|
|
665
|
|
|
1,690
|
|
|
1,999
|
|
Other
|
464
|
|
|
457
|
|
|
1,172
|
|
|
1,136
|
|
Net sales
|
$
|
17,388
|
|
|
$
|
17,415
|
|
|
$
|
56,121
|
|
|
$
|
55,662
|
|
Revenue from products primarily relates to in-store and online merchandise purchases, which are recognized at the point in time when the customer obtains control of the merchandise. This occurs at the time of in-store purchase or delivery of the product to the customer. A provision for anticipated merchandise returns is provided through a reduction of sales and cost of sales in the period that the related sales are recorded. The merchandise return reserve is presented on a gross basis, with a separate asset and liability included in the consolidated balance sheets. Anticipated sales returns reflected in other current liabilities were $227 million at November 1, 2019 and $229 million at November 2, 2018. The associated right of return assets reflected in other current assets were $148 million at November 1, 2019 and $151 million at November 2, 2018.
Revenues from services primarily relate to professional installation services the Company provides through subcontractors related to merchandise purchased by a customer. In certain instances, installation services include materials provided by the subcontractor, and both product and installation are included in service revenue. The Company recognizes revenue associated with services as they are rendered, and the majority of services are completed within one week from initiation.
Deferred revenue is presented for merchandise that has not yet transferred control to the customer and for services that have not yet been provided, but for which tender has been accepted. Deferred revenue is recognized in sales either at a point in time when the customer obtains control of merchandise through pickup or delivery, or over time as services are provided to the customer. Deferred revenues associated with amounts received for which customers have not taken possession of the merchandise or for which installation has not yet been completed were $778 million at November 1, 2019 and $945 million at November 2, 2018. The majority of revenue for goods and services is recognized in the quarter following revenue deferral.
Stored-value cards
In addition, the Company defers revenues from stored-value cards, which include gift cards and returned merchandise credits, and recognizes revenue into sales when the cards are redeemed. The liability associated with outstanding stored-value cards was $444 million and $411 million at November 1, 2019, and November 2, 2018, respectively, and these amounts are included in deferred revenue on the consolidated balance sheets. The Company recognizes income from unredeemed stored-value cards in proportion to the pattern of rights exercised by the customer. Amounts recognized as breakage were insignificant for the three and nine months ended November 1, 2019 and November 2, 2018.
Extended protection plans
The Company also defers revenues for its separately-priced extended protection plan contracts, which is a Lowe’s-branded program for which the Company is ultimately self-insured. The Company recognizes revenue from extended protection plan sales on a straight-line basis over the respective contract term. Extended protection plan contract terms primarily range from one to five years from the date of purchase or the end of the manufacturer’s warranty, as applicable. Deferred revenue from extended protection plans recognized into sales were $103 million and $303 million for the three and nine months ended November 1, 2019, respectively, and $97 million and $293 million for the three and nine months ended November 2, 2018, respectively. Incremental direct acquisition costs associated with the sale of extended protection plans are also deferred and recognized as expense on a straight-line basis over the respective contract term and were insignificant at November 1, 2019 and November 2, 2018, respectively. The Company’s extended protection plan deferred costs are included in other assets (noncurrent) on the consolidated balance sheets. All other costs, such as costs of services performed under the contract, general and administrative expenses, and advertising expenses are expensed as incurred.
The liability for extended protection plan claims incurred is included in other current liabilities on the consolidated balance sheets and was not material in any of the periods presented. Expenses for claims are recognized when incurred and totaled $45 million and $141 million for the three and nine months ended November 1, 2019, respectively, and $47 million and $141 million for the three and nine months ended November 2, 2018, respectively.
Disaggregation of Revenues
The following table presents the Company’s net sales disaggregated by merchandise division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
November 1, 2019
|
|
November 2, 2018
|
|
November 1, 2019
|
|
November 2, 2018
|
(In millions)
|
Total Sales
|
|
%
|
|
Total Sales
|
|
%
|
|
Total Sales
|
|
%
|
|
Total Sales
|
|
%
|
Home Décor ¹
|
$
|
6,374
|
|
|
37
|
|
$
|
6,230
|
|
|
36
|
|
$
|
19,639
|
|
|
35
|
|
$
|
19,239
|
|
|
35
|
Building Products ²
|
5,961
|
|
|
34
|
|
5,939
|
|
|
34
|
|
17,865
|
|
|
32
|
|
17,913
|
|
|
32
|
Hardlines ³
|
4,515
|
|
|
26
|
|
4,399
|
|
|
25
|
|
17,134
|
|
|
30
|
|
16,392
|
|
|
29
|
Other
|
538
|
|
|
3
|
|
847
|
|
|
5
|
|
1,483
|
|
|
3
|
|
2,118
|
|
|
4
|
Total
|
$
|
17,388
|
|
|
100
|
|
$
|
17,415
|
|
|
100
|
|
$
|
56,121
|
|
|
100
|
|
$
|
55,662
|
|
|
100
|
Note: Net sales for certain merchandise divisions were reclassified in the third quarter of fiscal year 2019. As a result, prior periods have been reclassified to conform to the current quarter presentation.
|
|
1
|
Home Décor includes the following product categories: Appliances, Décor, Flooring, Kitchens & Bath, and Paint
|
|
|
2
|
Building Products includes the following product categories: Lighting, Lumber & Building Materials, Millwork, and Rough Plumbing & Electrical
|
|
|
3
|
Hardlines includes the following product categories: Hardware, Lawn & Garden, Seasonal & Outdoor Living, and Tools
|
The following table presents the Company’s net sales disaggregated by geographical area:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Three Months Ended
|
|
Nine Months Ended
|
November 1, 2019
|
|
November 2, 2018
|
|
November 1, 2019
|
|
November 2, 2018
|
United States
|
$
|
16,131
|
|
|
$
|
15,991
|
|
|
$
|
52,225
|
|
|
$
|
51,319
|
|
International
|
1,257
|
|
|
1,424
|
|
|
3,896
|
|
|
4,343
|
|
Net Sales
|
$
|
17,388
|
|
|
$
|
17,415
|
|
|
$
|
56,121
|
|
|
$
|
55,662
|
|
Note 5: Fair Value Measurements - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative guidance for fair value measurements establishes a three-level hierarchy, which encourages an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of the hierarchy are defined as follows:
|
|
•
|
Level 1 - inputs to the valuation techniques that are quoted prices in active markets for identical assets or liabilities
|
|
|
•
|
Level 2 - inputs to the valuation techniques that are other than quoted prices but are observable for the assets or liabilities, either directly or indirectly
|
|
|
•
|
Level 3 - inputs to the valuation techniques that are unobservable for the assets or liabilities
|
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
The following table presents the Company’s financial assets measured at fair value on a recurring basis as of November 1, 2019, November 2, 2018, and February 1, 2019. The fair values of these instruments approximated amortized costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
|
(In millions)
|
Measurement Level
|
|
November 1, 2019
|
|
November 2, 2018
|
|
February 1, 2019
|
Short-term investments:
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
Money market funds
|
Level 1
|
|
$
|
83
|
|
|
$
|
181
|
|
|
$
|
207
|
|
Agency securities
|
Level 2
|
|
19
|
|
|
10
|
|
|
10
|
|
U.S. Treasury securities
|
Level 1
|
|
13
|
|
|
—
|
|
|
—
|
|
Corporate debt securities
|
Level 2
|
|
12
|
|
|
—
|
|
|
1
|
|
Certificates of deposit
|
Level 1
|
|
—
|
|
|
17
|
|
|
—
|
|
Total short-term investments
|
|
|
$
|
127
|
|
|
$
|
208
|
|
|
$
|
218
|
|
Long-term investments:
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
Level 1
|
|
$
|
258
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Corporate debt securities
|
Level 2
|
|
75
|
|
|
224
|
|
|
191
|
|
Agency securities
|
Level 2
|
|
30
|
|
|
66
|
|
|
65
|
|
Total long-term investments
|
|
|
$
|
363
|
|
|
$
|
290
|
|
|
$
|
256
|
|
There were no transfers between Levels 1, 2 or 3 during any of the periods presented.
When available, quoted prices were used to determine fair value. When quoted prices in active markets were available, investments were classified within Level 1 of the fair value hierarchy. When quoted prices in active markets were not available, fair values were determined using pricing models, and the inputs to those pricing models were based on observable market inputs. The inputs to the pricing models were typically benchmark yields, reported trades, broker-dealer quotes, issuer spreads and benchmark securities, among others.
Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis
During the three and nine months ended November 1, 2019, and the three and nine months ended November 2, 2018, the Company’s only significant assets or liabilities measured at fair value on a nonrecurring basis subsequent to their initial recognition were certain long-lived assets.
The Company reviews the carrying amounts of long-lived assets whenever certain events or changes in circumstances indicate that the carrying amounts may not be recoverable. With input from executive management and retail store operations, the Company’s accounting and finance personnel that organizationally report to the chief financial officer assess the performance of retail stores quarterly against historical patterns, projections of future profitability and whether it is more likely than not the assets will be disposed of significantly prior to the end of their estimated useful life for evidence of possible impairment. An impairment loss is recognized when the carrying amount of the asset (disposal) group is not recoverable and exceeds its fair value. The Company estimated the fair values of assets subject to long-lived asset impairment based on the Company’s own judgments about the assumptions that market participants would use in pricing the assets and on observable market data, when available. The Company classified these fair value measurements as Level 3.
In the determination of impairment for operating locations, the Company determined the fair values of individual operating locations using an income approach, which required discounting projected future cash flows. When determining the stream of projected future cash flows associated with an individual operating location, management made assumptions, including highest and best use, incorporating local market conditions and inputs from retail store operations where necessary, and about key variables including the following unobservable inputs: sales growth rates, gross margin, controllable and uncontrollable expenses, and asset residual values. In order to calculate the present value of those future cash flows, the Company discounted cash flow estimates at a rate commensurate with the risk that selected market participants would assign to the cash flows. In
general, the selected market participants represented a group of other retailers with a location footprint similar in size to the Company’s.
During the three months ended November 1, 2019, the Company began a strategic review of its Canadian operations, and it was determined to be more likely than not the assets associated with certain Canadian stores would be sold or otherwise disposed of significantly before the end of their previously estimated useful lives, and therefore, these assets experienced a triggering event and were evaluated for recoverability. Based on this evaluation, certain long-lived assets were written down to their fair value of $40 million resulting in impairment charges of $53 million. These non-cash impairment charges are included in selling, general and administrative expense in the accompanying consolidated statements of current and retained earnings.
As part of a strategic reassessment of Orchard Supply Hardware (Orchard), during the three months ended August 3, 2018, it was determined to be more likely than not the assets of Orchard would be sold or otherwise disposed of significantly before the end of their previously estimated useful lives, and therefore, these assets experienced a triggering event and were evaluated for recoverability. Operating locations evaluated for recoverability included all Orchard stores, as well as a distribution facility that serviced the Orchard stores and a corporate facility. Based on this evaluation of Orchard, certain long-lived assets, including tangible and intangible assets, were written down to their fair value of $284 million resulting in impairment charges of $206 million. These non-cash impairment charges are included in selling, general and administrative expense in the accompanying consolidated statements of current and retained earnings.
During the three months ended November 2, 2018, the Company committed to closing 20 U.S. home improvement stores and 31 locations in Canada, including 27 stores, as well as exiting certain immaterial non-core activities within its U.S. home improvement business. As a result of these decisions, the related assets experienced a triggering event and were evaluated for recoverability. Based on this evaluation, certain long-lived assets were written down to their fair value of $81 million resulting in impairment charges of $99 million, with $90 million associated with the location closures and $9 million associated with the exit of non-core activities. These non-cash impairment charges are included in selling, general and administrative expense in the accompanying consolidated statements of current and retained earnings.
In addition, as part of the Company’s strategic reassessment process, during the three months ended November 2, 2018, it was determined to be more likely than not the assets of the Mexico operations would be sold or otherwise disposed of significantly before the end of their previously estimated useful lives, and therefore, these assets experienced a triggering event and were evaluated for recoverability. Operating locations evaluated for recoverability included all 13 stores in Mexico, as well as a corporate facility. Based on this evaluation of the Mexico operations, certain long-lived assets were written down to their fair value of $107 million resulting in impairment charges of $22 million. These non-cash impairment charges are included in selling, general and administrative expense in the accompanying consolidated statements of current and retained earnings.
See Note 8 for additional information regarding the Company’s decisions to exit its Orchard operations and certain U.S. and Canada locations during fiscal year 2018 as part of the Company’s strategic reassessment of the business as well as the Company’s strategic review of its Canadian operations in fiscal year 2019.
The following table presents the Company’s non-financial assets measured at estimated fair value on a nonrecurring basis and the resulting long-lived asset impairment losses included in earnings. Because assets subject to long-lived asset impairment are not measured at fair value on a recurring basis, certain fair value measurements presented in the table may reflect values at earlier measurement dates and may no longer represent the fair values at November 1, 2019 and November 2, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
Impairment Losses
|
(In millions)
|
November 1, 2019
|
|
|
Three Months Ended November 1, 2019
|
|
|
Nine Months Ended November 1, 2019
|
|
Assets-held-for-use:
|
|
|
|
|
|
Operating locations
|
$
|
46
|
|
|
$
|
53
|
|
|
$
|
61
|
|
Total
|
$
|
46
|
|
|
$
|
53
|
|
|
$
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
Impairment Losses
|
(In millions)
|
November 2, 2018
|
|
|
Three Months Ended November 2, 2018
|
|
|
Nine Months Ended November 2, 2018
|
|
Assets-held-for-use:
|
|
|
|
|
|
Operating locations
|
$
|
473
|
|
|
$
|
112
|
|
|
$
|
329
|
|
Total
|
$
|
473
|
|
|
$
|
112
|
|
|
$
|
329
|
|
Fair Value of Financial Instruments
The Company’s financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, accounts receivable, short-term borrowings, accounts payable, accrued liabilities and long-term debt and are reflected in the financial statements at cost. With the exception of long-term debt, cost approximates fair value for these items due to their short-term nature. The fair values of the Company’s unsecured notes were estimated using quoted market prices. The fair values of the Company’s mortgage notes were estimated using discounted cash flow analyses, based on the future cash outflows associated with these arrangements and discounted using the applicable incremental borrowing rate.
Carrying amounts and the related estimated fair value of the Company’s long-term debt, excluding finance and capitalized lease obligations, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1, 2019
|
|
November 2, 2018
|
|
February 1, 2019
|
(In millions)
|
Carrying Amount
|
|
|
Fair Value
|
|
|
Carrying Amount
|
|
|
Fair Value
|
|
|
Carrying Amount
|
|
|
Fair Value
|
|
Unsecured notes (Level 1)
|
$
|
16,646
|
|
|
$
|
18,184
|
|
|
$
|
14,718
|
|
|
$
|
14,430
|
|
|
$
|
14,721
|
|
|
$
|
14,473
|
|
Mortgage notes (Level 2)
|
5
|
|
|
5
|
|
|
6
|
|
|
6
|
|
|
6
|
|
|
6
|
|
Long-term debt (excluding finance and capitalized lease obligations)
|
$
|
16,651
|
|
|
$
|
18,189
|
|
|
$
|
14,724
|
|
|
$
|
14,436
|
|
|
$
|
14,727
|
|
|
$
|
14,479
|
|
Note 6: Restricted Investment Balances - Short-term and long-term investments include restricted balances pledged as collateral primarily for the Company’s extended protection plan program. Restricted balances included in short-term investments were $127 million at November 1, 2019, $191 million at November 2, 2018, and $218 million at February 1, 2019.
Restricted balances included in long-term investments were $363 million at November 1, 2019, $255 million at November 2, 2018, and $256 million at February 1, 2019.
Note 7: Property and Accumulated Depreciation - Property is shown net of accumulated depreciation of $17.3 billion at November 1, 2019, $17.7 billion at November 2, 2018, and $17.4 billion at February 1, 2019. The Company recognized depreciation expense, inclusive of amounts presented in cost of sales and depreciation and amortization, of $325 million and $968 million for the three and nine months ended November 1, 2019 and $444 million and $1.2 billion for the three and nine months ended November 2, 2018.
Note 8: Exit Activities - During fiscal years 2018 and 2019, the Company has incurred costs associated with an ongoing strategic reassessment of its business to drive an increased focus on its core home improvement operations and to improve overall operating performance and profitability. As a result of this reassessment, the Company decided to exit certain activities and close certain locations as further described below. Expenses associated with long-lived asset impairment, accelerated depreciation, discontinued projects, severance, and lease obligations, are included in selling, general and administrative expense in the consolidated statement of current and retained earnings. Inventory adjustments to net realizable value are included in cost of sales in the consolidated statement of current and retained earnings.
2019 Canada Restructuring
During the third quarter of fiscal 2019, the Company began a strategic review of its Canadian operations, and as a result, recognized pre-tax charges of $53 million associated with long-lived asset impairment. Subsequent to the end of the Company’s third quarter of fiscal 2019, a decision was made to close 34 under-performing stores in Canada and take additional restructuring actions to improve future sales and profitability of the Canadian operations. See Note 15 for additional information regarding the decision and associated impacts.
A summary of the significant charges associated with the 2019 strategic review of the Canadian operations, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Incurred
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
Cumulative Amount
|
(In millions)
|
November 1, 2019
|
|
November 1, 2019
|
|
November 1, 2019
|
Long-lived asset impairment
|
$
|
53
|
|
|
$
|
53
|
|
|
$
|
53
|
|
Total
|
$
|
53
|
|
|
$
|
53
|
|
|
$
|
53
|
|
Orchard Supply Hardware (Orchard)
On August 17, 2018, the Company approved plans to exit its Orchard operations by closing all 99 Orchard stores, which were located in California, Oregon and Florida, as well as the distribution facility that serviced the Orchard stores, and the Orchard corporate office. All facilities were closed by the end of fiscal year 2018. A summary of the significant charges associated with the exit of the Orchard operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Incurred
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
Cumulative Amount
|
(In millions)
|
November 2, 2018
|
|
November 2, 2018
|
|
November 1, 2019
|
Long-lived asset impairment
|
$
|
—
|
|
|
$
|
206
|
|
|
$
|
206
|
|
Accelerated depreciation and amortization
|
103
|
|
|
103
|
|
|
103
|
|
Discontinued project write-offs
|
—
|
|
|
24
|
|
|
24
|
|
Severance costs
|
11
|
|
|
11
|
|
|
11
|
|
Lease obligation costs for closed locations
|
9
|
|
|
9
|
|
|
217
|
|
Total
|
$
|
123
|
|
|
$
|
353
|
|
|
$
|
561
|
|
U.S. and Canada Location Closings
On October 31, 2018, the Company committed to closing 20 U.S. home improvement stores and 31 locations in Canada, including 27 stores. The store closings were completed by the end of fiscal year 2018. A summary of the significant charges associated with the closure of these stores is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Incurred
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
Cumulative Amount
|
(In millions)
|
November 2, 2018
|
|
November 2, 2018
|
|
November 1, 2019
|
Long-lived asset impairment
|
$
|
90
|
|
|
$
|
90
|
|
|
$
|
90
|
|
Severance costs
|
21
|
|
|
21
|
|
|
32
|
|
Discontinued project write-offs
|
10
|
|
|
10
|
|
|
10
|
|
Lease obligation costs for closed locations
|
—
|
|
|
—
|
|
|
89
|
|
Accelerated depreciation and amortization
|
—
|
|
|
—
|
|
|
50
|
|
Total
|
$
|
121
|
|
|
$
|
121
|
|
|
$
|
271
|
|
Other Non-Core Activities
During the third quarter ended November 2, 2018, the Company decided to pursue an exit of certain immaterial non-core activities within its U.S. home improvement business. A summary of the significant charges incurred as a result of these decisions is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Incurred
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
Cumulative Amount
|
(In millions)
|
November 2, 2018
|
|
November 2, 2018
|
|
November 1, 2019
|
Long-lived asset impairment
|
$
|
9
|
|
|
$
|
9
|
|
|
$
|
9
|
|
Inventory adjustments to net realizable value
|
5
|
|
|
5
|
|
|
7
|
|
Other closing costs
|
—
|
|
|
—
|
|
|
27
|
|
Severance costs
|
—
|
|
|
—
|
|
|
16
|
|
Total
|
$
|
14
|
|
|
$
|
14
|
|
|
$
|
59
|
|
Mexico Operations
On November 9, 2018, subsequent to the end of the Company’s third quarter of fiscal 2018, management and the Board of Directors decided to pursue an exit of the Company’s Mexico operations. A summary of the significant charges incurred as a result of the exit of the Company’s Mexico operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Incurred
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
Cumulative Amount
|
(In millions)
|
November 2, 2018
|
|
November 2, 2018
|
|
November 1, 2019
|
Long-lived asset impairment
|
$
|
22
|
|
|
$
|
22
|
|
|
$
|
244
|
|
Total
|
$
|
22
|
|
|
$
|
22
|
|
|
$
|
244
|
|
Note 9: Long-Term Debt - During the first quarter of fiscal 2019, the Company issued $3.0 billion of unsecured notes as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue Date
|
|
Principal Amount (in millions)
|
|
Maturity Date
|
|
Fixed vs. Floating
|
|
Interest Rate
|
|
Discount (in millions)
|
April 5, 2019
|
|
$
|
1,500
|
|
|
April 2029
|
|
Fixed
|
|
3.650%
|
|
$
|
9
|
|
April 5, 2019
|
|
$
|
1,500
|
|
|
April 2049
|
|
Fixed
|
|
4.550%
|
|
$
|
19
|
|
Interest on the notes issued in 2019 is payable semiannually in arrears in April and October of each year until maturity.
The indenture governing the notes issued in 2019 contains a provision that allows the Company to redeem these notes at any time, in whole or in part, at specified redemption prices, plus accrued and unpaid interest, if any, up to, but excluding, the date of redemption. The indenture also contains a provision that allows the holders of the notes to require the Company to repurchase all or any part of their notes if a change of control triggering event occurs. If elected under the change of control provisions, the repurchase of the notes will occur at a purchase price of 101% of the principal amount, plus accrued and unpaid interest, if any, on such notes up to, but excluding, the date of purchase. The indenture governing the notes does not limit the aggregate principal amount of debt securities that the Company may issue and does not require the Company to maintain specified financial ratios or levels of net worth or liquidity. However, the indenture includes various restrictive covenants, none of which is expected to impact the Company’s liquidity or capital resources.
Note 10: Short-Term Borrowings - In September 2019, the Company entered into a $250 million unsecured 364-day credit agreement (the 364-Day Credit Agreement) with a syndicate of banks. The Company may request borrowings under the 364-
Day Credit Agreement that are denominated in U.S. Dollar, Euro, Sterling, Canadian Dollar and other currencies approved by the administrative agent and the lenders. The Company must repay the aggregate principal amount of loans outstanding under the 364-Day Credit Agreement on the termination date in effect at such time (currently September 8, 2020). The Company may elect to convert all of the loans outstanding under the 364-Day Credit Agreement on the termination date into a term loan which the Company shall repay in full on the first anniversary date of the termination date. Borrowings under the 364-Day Credit Agreement will bear interest calculated according to a Base Rate or a Eurocurrency Rate plus an applicable margin. The 364-Day Credit Agreement contains customary representations, warranties and covenants for a transaction of this type. The Company was in compliance with those covenants at November 1, 2019.
The 364-Day Credit Agreement, along with the $1.98 billion five year unsecured second amended and restated credit agreement (Second Amended and Restated Credit Agreement), support our commercial paper program. The amount available to be drawn under the 364-Day Credit Agreement and the Second Amended and Restated Credit Agreement is reduced by the amount of borrowings under our commercial paper program. Outstanding borrowings under the Company’s commercial paper program were $637 million, with a weighted average interest rate of 1.97%, as of November 1, 2019. As of November 2, 2018, there were no outstanding borrowings under the Second Amended and Restated Credit Agreement, the 364-Day Credit Agreement, or our commercial paper program.
Note 11: Shareholders’ Equity - The Company has a share repurchase program that is executed through purchases made from time to time either in the open market, which may be made under pre-set trading plans meeting the requirements of Rule 10b5-1(c) of the Securities Exchange Act of 1934, or through private off-market transactions. Shares purchased under the repurchase program are retired and returned to authorized and unissued status. On January 26, 2018, the Company’s Board of Directors authorized a $5.0 billion share repurchase program with no expiration, which was announced on the same day. On December 12, 2018, the Company’s Board of Directors authorized an additional $10.0 billion share repurchase program with no expiration, which was announced on the same day. As of November 1, 2019, the Company had $10.3 billion remaining in its share repurchase program.
In November 2018, the Company entered into an Accelerated Share Repurchase (ASR) agreement with a third-party financial institution to repurchase $270 million of the Company’s common stock. At inception, pursuant to the agreement, the Company paid $270 million to the financial institution using cash on hand and took delivery of 2.6 million shares. The Company finalized the transaction and received an additional 0.3 million shares in February 2019.
In March 2019, the Company entered into a variable notional ASR agreement with a third-party financial institution to repurchase $350 million to $500 million of the Company’s common stock. At inception, pursuant to the agreement, the Company paid $500 million to the financial institution using cash on hand and took delivery of 2.9 million shares. The Company finalized the transaction to receive an additional 0.3 million shares prior to the end of the first quarter. Subsequent to the end of the first quarter, the Company received a $150 million cash payment from the third-party financial institution, which is equal to the difference between the $500 million payment made at inception and the final notional amount of $350 million.
In May 2019, the Company entered into a variable notional ASR agreement with a third-party financial institution to repurchase $990 million to $1.4 billion of the Company’s common stock. At inception, pursuant to the agreement, the Company paid $1.4 billion to the financial institution using cash on hand and took delivery of 8.9 million shares. The Company finalized the transaction and received an additional 1.0 million shares and a $420 million cash payment from the third-party financial institution prior to the end of the second quarter. The cash payment received is equal to the difference between the $1.4 billion payment made at inception and the final notional amount of $990 million.
In August 2019, the Company entered into a variable notional ASR agreement with a third-party financial institution to repurchase $350 million to $500 million of the Company’s common stock. At inception, pursuant to the agreement, the Company paid $500 million to the financial institution using cash on hand and took delivery of 2.8 million shares. The Company finalized the transaction and received an additional 0.8 million shares and a $103 million cash payment from the third-party financial institution prior to the end of the third quarter. The cash payment received is equal to the difference between the $500 million payment made at inception and the final notional amount of $397 million.
Under the terms of the ASR agreements, upon settlement, the Company would either receive additional shares from the applicable financial institution or be required to deliver additional shares or cash to such financial institution. The Company controlled the election to either deliver additional shares or cash to the financial institution, if required, and the ASR agreements were subject to provisions which limited the number of shares the Company would be required to deliver.
The final number of shares received upon settlement of each of the ASR agreements was determined with reference to the volume-weighted average price of the Company’s common stock over the term of the applicable ASR agreement. The initial
repurchase of shares under the agreements resulted in an immediate reduction of the outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted earnings per share.
Each ASR agreement was accounted for as a treasury stock transaction and forward stock purchase contract. The par value of the shares received was recorded as a reduction to common stock with the remainder recorded as a reduction to capital in excess of par value and retained earnings. The forward stock purchase contract was considered indexed to the Company’s own stock and was classified as an equity instrument.
In addition, during the three and nine months ended November 1, 2019, the Company repurchased shares of its common stock through the open market totaling 4.1 million and 18.1 million shares, respectively, for a cost of $438 million and $1.9 billion, respectively.
The Company also withholds shares from employees to satisfy either the exercise price of stock options exercised or the statutory withholding tax liability resulting from the vesting of share-based awards.
Shares repurchased for the three and nine months ended November 1, 2019 and November 2, 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
November 1, 2019
|
|
November 2, 2018
|
(In millions)
|
Shares
|
|
|
Cost 1
|
|
|
Shares
|
|
|
Cost 1
|
|
Share repurchase program
|
7.7
|
|
|
$
|
835
|
|
|
5.7
|
|
|
$
|
620
|
|
Shares withheld from employees
|
0.2
|
|
|
23
|
|
|
0.2
|
|
|
25
|
|
Total share repurchases
|
7.9
|
|
|
$
|
858
|
|
|
5.9
|
|
|
$
|
645
|
|
|
|
1
|
Reductions of $827 million and $603 million were recorded to retained earnings, after capital in excess of par value was depleted, for the three months ended November 1, 2019 and November 2, 2018, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
November 1, 2019
|
|
November 2, 2018
|
(In millions)
|
Shares
|
|
|
Cost 2
|
|
|
Shares
|
|
|
Cost 2
|
|
Share repurchase program
|
35.3
|
|
|
$
|
3,618
|
|
|
25.9
|
|
|
$
|
2,470
|
|
Shares withheld from employees
|
0.3
|
|
|
36
|
|
|
0.3
|
|
|
38
|
|
Total share repurchases
|
35.6
|
|
|
$
|
3,654
|
|
|
26.2
|
|
|
$
|
2,508
|
|
|
|
2
|
Reductions of $3.5 billion and $2.3 billion were recorded to retained earnings, after capital in excess of par value was depleted, for the nine months ended November 1, 2019 and November 2, 2018, respectively.
|
Note 12: Earnings Per Share - The Company calculates basic and diluted earnings per common share using the two-class method. Under the two-class method, net earnings are allocated to each class of common stock and participating security as if all of the net earnings for the period had been distributed. The Company’s participating securities consist of share-based payment awards that contain a nonforfeitable right to receive dividends and, therefore, are considered to participate in undistributed earnings with common shareholders.
Basic earnings per common share excludes dilution and is calculated by dividing net earnings allocable to common shares by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing net earnings allocable to common shares by the weighted-average number of common shares as of the balance sheet date, as adjusted for the potential dilutive effect of non-participating share-based awards. The following table reconciles earnings per common share for the three and nine months ended November 1, 2019 and November 2, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(In millions, except per share data)
|
November 1, 2019
|
|
November 2, 2018
|
|
November 1, 2019
|
|
November 2, 2018
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
Net earnings
|
$
|
1,049
|
|
|
$
|
629
|
|
|
$
|
3,771
|
|
|
$
|
3,138
|
|
Less: Net earnings allocable to participating securities
|
(3
|
)
|
|
(1
|
)
|
|
(11
|
)
|
|
(10
|
)
|
Net earnings allocable to common shares, basic
|
$
|
1,046
|
|
|
$
|
628
|
|
|
$
|
3,760
|
|
|
$
|
3,128
|
|
Weighted-average common shares outstanding
|
769
|
|
|
806
|
|
|
782
|
|
|
815
|
|
Basic earnings per common share
|
$
|
1.36
|
|
|
$
|
0.78
|
|
|
$
|
4.81
|
|
|
$
|
3.84
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
Net earnings
|
$
|
1,049
|
|
|
$
|
629
|
|
|
$
|
3,771
|
|
|
$
|
3,138
|
|
Less: Net earnings allocable to participating securities
|
(3
|
)
|
|
(1
|
)
|
|
(11
|
)
|
|
(10
|
)
|
Net earnings allocable to common shares, diluted
|
$
|
1,046
|
|
|
$
|
628
|
|
|
$
|
3,760
|
|
|
$
|
3,128
|
|
Weighted-average common shares outstanding
|
769
|
|
|
806
|
|
|
782
|
|
|
815
|
|
Dilutive effect of non-participating share-based awards
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
Weighted-average common shares, as adjusted
|
770
|
|
|
807
|
|
|
783
|
|
|
816
|
|
Diluted earnings per common share
|
$
|
1.36
|
|
|
$
|
0.78
|
|
|
$
|
4.80
|
|
|
$
|
3.83
|
|
Stock options to purchase 0.9 million and 0.9 million shares of common stock were anti-dilutive for the three and nine months ended November 1, 2019, respectively. Stock options to purchase 0.2 million and 0.4 million shares of common stock were anti-dilutive for the three and nine months ended November 2, 2018, respectively.
Note 13: Income Taxes - The Company’s effective income tax rates were 24.0% and 22.2% for the three and nine months ended November 1, 2019, respectively, and 21.8% and 23.8% for the three and nine months ended November 2, 2018, respectively. The increase in the effective tax rate for the quarter is primarily due to an increase in pre-tax earnings as compared to the three months ended November 2, 2018, as well as the favorable discrete event related to stock compensation
was smaller in 2019 as compared to 2018. The lower effective income tax rate for the nine months ended November 1, 2019 is primarily due to a favorable tax benefit recorded during the first quarter associated with the planned exit of the Mexico retail operations. In fiscal 2018, the Company announced its intention to exit its Mexico retail operations and had planned to sell the operating business. However, in the first quarter of 2019, after an extensive market evaluation, the decision was made to instead sell the assets of the business through liquidation, which resulted in a more favorable tax treatment.
Note 14: Supplemental Disclosure
Net interest expense is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(In millions)
|
November 1, 2019
|
|
November 2, 2018
|
|
November 1, 2019
|
|
November 2, 2018
|
Long-term debt
|
$
|
171
|
|
|
$
|
145
|
|
|
$
|
498
|
|
|
$
|
437
|
|
Finance lease obligations
|
7
|
|
|
—
|
|
|
21
|
|
|
—
|
|
Capitalized lease obligations
|
—
|
|
|
15
|
|
|
—
|
|
|
44
|
|
Interest income
|
(5
|
)
|
|
(9
|
)
|
|
(24
|
)
|
|
(21
|
)
|
Interest capitalized
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(2
|
)
|
Interest on tax uncertainties
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
Other
|
4
|
|
|
2
|
|
|
16
|
|
|
9
|
|
Interest - net
|
$
|
177
|
|
|
$
|
153
|
|
|
$
|
508
|
|
|
$
|
467
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
(In millions)
|
November 1, 2019
|
|
November 2, 2018
|
Cash paid for interest, net of amount capitalized
|
$
|
647
|
|
|
$
|
555
|
|
Cash paid for income taxes - net
|
$
|
1,029
|
|
|
$
|
1,069
|
|
Non-cash investing and financing activities:
|
|
|
|
Non-cash property acquisitions 1
|
$
|
251
|
|
|
$
|
42
|
|
Cash dividends declared but not paid
|
$
|
423
|
|
|
$
|
387
|
|
1 See Note 3 for supplemental cash flow disclosures related to finance and operating leases.
Note 15: Subsequent Events - As part of a strategic review of Canadian operations, subsequent to the end of the Company’s third quarter of fiscal 2019, the Company decided to close 34 under-performing stores in Canada and execute additional restructuring actions to improve future sales and profitability of the remaining Canadian operations. As a result of these actions, the Company expects additional operating costs and pre-tax charges during the fourth quarter of 2019 of $175 to $225 million associated with inventory liquidation, accelerated depreciation and amortization, severance, and other costs.