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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended November 1, 2019
or 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to  ______
Commission File Number 1-7898
lowesgraphicimage01.jpg
LOWE’S COMPANIES, INC.
(Exact name of registrant as specified in its charter)
North Carolina
 
56-0578072
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
 
1000 Lowe’s Blvd.
 
 
 
Mooresville,
 
North Carolina
 
28117
(Address of principal executive offices)
 
(Zip Code)
 
 
 
 
 
 
Registrant’s telephone number, including area code
 
(704)
758-1000
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.50 per share
LOW
New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
Non-accelerated filer
 
Smaller reporting company
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
CLASS
 
OUTSTANDING AT 11/29/2019
Common Stock, $0.50 par value
 
766,475,430



LOWE’S COMPANIES, INC.
- TABLE OF CONTENTS -
PART I - Financial Information
Page No.
 
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
PART II - Other Information
 
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 6.
 
 
 
 
 


Table of Contents

Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Lowe’s Companies, Inc.
Consolidated Balance Sheets
In Millions, Except Par Value Data
 
 
 
(Unaudited)
 
(Unaudited)
 
 
 
 
 
November 1, 2019
 
November 2, 2018
 
February 1, 2019
Assets
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
$
794

 
$
1,668

 
$
511

Short-term investments
 
 
127

 
208

 
218

Merchandise inventory - net
 
 
13,716

 
12,365

 
12,561

Other current assets
 
 
1,025

 
897

 
938

Total current assets
 
 
15,662

 
15,138

 
14,228

Property, less accumulated depreciation
 
 
18,371

 
18,923

 
18,432

Operating lease right-of-use assets
 
 
3,873

 

 

Long-term investments
 
 
363

 
290

 
256

Deferred income taxes - net
 
 
479

 
285

 
294

Goodwill
 
 
303

 
1,272

 
303

Other assets
 
 
713

 
805

 
995

Total assets
 
 
$
39,764

 
$
36,713

 
$
34,508

 
 
 
 
 
 
 
 
Liabilities and shareholders' equity
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Short-term borrowings
 
 
$
637

 
$

 
$
722

Current maturities of long-term debt
 
 
574

 
1,117

 
1,110

Current operating lease liabilities
 
 
499

 

 

Accounts payable
 
 
8,822

 
9,283

 
8,279

Accrued compensation and employee benefits
 
 
779

 
806

 
662

Deferred revenue
 
 
1,222

 
1,356

 
1,299

Other current liabilities
 
 
2,530

 
2,507

 
2,425

Total current liabilities
 
 
15,063

 
15,069

 
14,497

Long-term debt, excluding current maturities
 
 
16,635

 
14,460

 
14,391

Noncurrent operating lease liabilities
 
 
3,942

 

 

Deferred revenue - extended protection plans
 
 
875

 
827

 
827

Other liabilities
 
 
791

 
963

 
1,149

Total liabilities
 
 
37,306

 
31,319

 
30,864

 
 
 
 
 
 
 
 
Shareholders' equity:
 
 
 
 
 
 
 
Preferred stock - $5 par value, none issued
 
 

 

 

Common stock - $0.50 par value;
 
 
 
 
 
 
 
Shares issued and outstanding
 
 
 
 
 
 
 
November 1, 2019
768

 
 
 
 
 
 
November 2, 2018
806

 
 
 
 
 
 
February 1, 2019
801

 
384

 
403

 
401

Capital in excess of par value
 
 

 

 

Retained earnings
 
 
2,238

 
5,156

 
3,452

Accumulated other comprehensive loss
 
 
(164
)
 
(165
)
 
(209
)
Total shareholders' equity
 
 
2,458

 
5,394

 
3,644

Total liabilities and shareholders' equity
 
 
$
39,764

 
$
36,713

 
$
34,508

 
 

 
 

 
 

 
 

See accompanying notes to the consolidated financial statements (unaudited).

3

Table of Contents

Lowe’s Companies, Inc.
Consolidated Statements of Current and Retained Earnings (Unaudited)
In Millions, Except Per Share and Percentage Data
 
Three Months Ended
 
Nine Months Ended
 
November 1, 2019
 
November 2, 2018
 
November 1, 2019
 
November 2, 2018
Current Earnings
Amount
 
% Sales
 
Amount
 
% Sales
 
Amount
 
% Sales
 
Amount
 
% Sales
Net sales
$
17,388

 
100.00
 
$
17,415

 
100.00
 
$
56,121

 
100.00
 
$
55,662

 
100.00
Cost of sales
11,748

 
67.56
 
12,038

 
69.12
 
38,159

 
67.99
 
37,653

 
67.64
Gross margin
5,640

 
32.44
 
5,377

 
30.88
 
17,962

 
32.01
 
18,009

 
32.36
Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative
3,772

 
21.69
 
3,997

 
22.95
 
11,682

 
20.82
 
12,315

 
22.13
Depreciation and amortization
310

 
1.79
 
423

 
2.43
 
924

 
1.65
 
1,108

 
1.99
Operating income
1,558

 
8.96
 
957

 
5.50
 
5,356

 
9.54
 
4,586

 
8.24
Interest - net
177

 
1.02
 
153

 
0.88
 
508

 
0.90
 
467

 
0.84
Pre-tax earnings
1,381

 
7.94
 
804

 
4.62
 
4,848

 
8.64
 
4,119

 
7.40
Income tax provision
332

 
1.90
 
175

 
1.01
 
1,077

 
1.92
 
981

 
1.76
Net earnings
$
1,049

 
6.04
 
$
629

 
3.61
 
$
3,771

 
6.72
 
$
3,138

 
5.64
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
769

 
 
 
806

 
 
 
782

 
 
 
815

 
 
Basic earnings per common share
$
1.36

 
 
 
$
0.78

 
 
 
$
4.81

 
 
 
$
3.84

 
 
Weighted average common shares outstanding - diluted
770

 
 
 
807

 
 
 
783

 
 
 
816

 
 
Diluted earnings per common share
$
1.36

 
 
 
$
0.78

 
 
 
$
4.80

 
 
 
$
3.83

 
 
Cash dividends per share
$
0.55

 
 
 
$
0.48

 
 
 
$
1.58

 
 
 
$
1.37

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Retained Earnings
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
$
2,439

 
 
 
$
5,517

 
 
 
$
3,452

 
 
 
$
5,425

 
 
Cumulative effect of accounting change

 
 
 

 
 
 
(263
)
 
 
 
33

 
 
Net earnings
1,049

 
 
 
629

 
 
 
3,771

 
 
 
3,138

 
 
Cash dividends declared
(423
)
 
 
 
(387
)
 
 
 
(1,233
)
 
 
 
(1,115
)
 
 
Share repurchases
(827
)
 
 
 
(603
)
 
 
 
(3,489
)
 
 
 
(2,325
)
 
 
Balance at end of period
$
2,238

 
 
 
$
5,156

 
 
 
$
2,238

 
 
 
$
5,156

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to the consolidated financial statements (unaudited).

Lowe’s Companies, Inc.
Consolidated Statements of Comprehensive Income (Unaudited)
In Millions, Except Percentage Data
 
Three Months Ended
 
Nine Months Ended
 
November 1, 2019
 
November 2, 2018
 
November 1, 2019
 
November 2, 2018
 
Amount
 
% Sales
 
Amount
 
% Sales
 
Amount
 
% Sales
 
Amount
 
% Sales
Net earnings
$
1,049

 
6.04
 
$
629

 
3.61

 
$
3,771

 
6.72

 
$
3,138

 
5.64

Foreign currency translation adjustments - net of tax
24

 
0.13
 
(21
)
 
(0.13
)
 
60

 
0.11

 
(176
)
 
(0.32
)
Other
(1
)
 
 
(1
)
 

 
(15
)
 
(0.03
)
 
(1
)
 

Other comprehensive income/(loss)
23

 
0.13
 
(22
)
 
(0.13
)
 
45

 
0.08

 
(177
)
 
(0.32
)
Comprehensive income
$
1,072

 
6.17
 
$
607

 
3.48

 
$
3,816

 
6.80

 
$
2,961

 
5.32

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to the consolidated financial statements (unaudited).

4

Table of Contents

Lowe’s Companies, Inc.
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
In Millions, Except Per Share Data
 
Three Months Ended November 1, 2019
 
Common Stock
 
Capital in Excess
of Par Value
 
Retained Earnings
 
Accumulated Other Comprehensive
Income/(Loss)
 
Total Shareholders’ Equity
 
Shares
 
Amount
 
 
 
 
Balance August 2, 2019
776

 
$
388

 
$

 
$
2,439

 
$
(187
)
 
$
2,640

Net earnings
 
 
 
 
 
 
1,049

 
 
 
1,049

Other comprehensive income
 
 
 
 
 
 
 
 
23

 
23

Cash dividends declared, $0.55 per share
 
 
 
 
 
 
(423
)
 
 
 
(423
)
Share-based payment expense
 
 
 
 
20

 
 
 
 
 
20

Repurchase of common stock
(8
)
 
(4
)
 
(27
)
 
(827
)
 
 
 
(858
)
Issuance of common stock under share-based payment plans

 

 
7

 
 
 
 
 
7

Balance November 1, 2019
768

 
$
384

 
$

 
$
2,238

 
$
(164
)
 
$
2,458

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended November 1, 2019
 
Common Stock
 
Capital in Excess
of Par Value
 
Retained Earnings
 
Accumulated Other Comprehensive
Income/(Loss)
 
Total Shareholders’ Equity
 
Shares

 
Amount

 
 
 
 
Balance February 1, 2019
801

 
$
401

 
$

 
$
3,452

 
$
(209
)
 
$
3,644

Cumulative effect of accounting change
 
 
 
 
 
 
(263
)
 
 
 
(263
)
Net earnings
 
 
 
 
 
 
3,771

 
 
 
3,771

Other comprehensive income
 
 
 
 
 
 
 
 
45

 
45

Cash dividends declared, $1.58 per share
 
 
 
 
 
 
(1,233
)
 
 
 
(1,233
)
Share-based payment expense
 
 
 
 
72

 
 
 
 
 
72

Repurchase of common stock
(36
)
 
(18
)
 
(148
)
 
(3,489
)
 
 
 
(3,655
)
Issuance of common stock under share-based payment plans
3

 
1

 
76

 
 
 
 
 
77

Balance November 1, 2019
768

 
$
384

 
$

 
$
2,238

 
$
(164
)
 
$
2,458

See accompanying notes to the consolidated financial statements (unaudited).


5

Table of Contents

Lowe’s Companies, Inc.
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
In Millions, Except Per Share Data
 
Three Months Ended November 2, 2018
 
Common Stock
 
Capital in Excess
of Par Value
 
Retained Earnings
 
Accumulated Other Comprehensive
Income/(Loss)
 
Total Shareholders’ Equity
 
Shares
 
Amount
 
 
 
 
Balance August 3, 2018
811

 
$
406

 
$

 
$
5,517

 
$
(142
)
 
$
5,781

Net earnings
 
 
 
 
 
 
629

 
 
 
629

Other comprehensive loss
 
 
 
 
 
 
 
 
(23
)
 
(23
)
Cash dividends declared, $0.48 per share
 
 
 
 
 
 
(387
)
 
 
 
(387
)
Share-based payment expense
 
 
 
 
15

 
 
 
 
 
15

Repurchase of common stock
(6
)
 
(3
)
 
(38
)
 
(603
)
 
 
 
(644
)
Issuance of common stock under share-based payment plans
1

 

 
23

 
 
 
 
 
23

Balance November 2, 2018
806

 
$
403

 
$

 
$
5,156

 
$
(165
)
 
$
5,394

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended November 2, 2018
 
Common Stock
 
Capital in Excess
of Par Value
 
Retained Earnings
 
Accumulated Other Comprehensive
Income/(Loss)
 
Total Shareholders’ Equity
 
Shares

 
Amount

 
 
 
 
Balance February 2, 2018
830

 
$
415

 
$
22

 
$
5,425

 
$
11

 
$
5,873

Cumulative effect of accounting change
 
 
 
 
 
 
33

 
 
 
33

Net earnings
 
 
 
 
 
 
3,138

 
 
 
3,138

Other comprehensive loss
 
 
 
 
 
 
 
 
(176
)
 
(176
)
Cash dividends declared, $1.37 per share
 
 
 
 
 
 
(1,115
)
 
 
 
(1,115
)
Share-based payment expense
 
 
 
 
77

 
 
 
 
 
77

Repurchase of common stock
(26
)
 
(13
)
 
(170
)
 
(2,325
)
 
 
 
(2,508
)
Issuance of common stock under share-based payment plans
2

 
1

 
71

 
 
 
 
 
72

Balance November 2, 2018
806

 
$
403

 
$

 
$
5,156

 
$
(165
)
 
$
5,394

See accompanying notes to the consolidated financial statements (unaudited).

6

Table of Contents

Lowe’s Companies, Inc.
Consolidated Statements of Cash Flows (Unaudited)
In Millions
 
Nine Months Ended
 
November 1, 2019
 
November 2, 2018
Cash flows from operating activities:
 
 
 
Net earnings
$
3,771

 
$
3,138

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation and amortization
1,029

 
1,206

Noncash lease expense
341

 

Deferred income taxes
(88
)
 
(139
)
Loss on property and other assets - net
93

 
400

Loss on cost method and equity method investments
12

 
6

Share-based payment expense
75

 
79

Changes in operating assets and liabilities:
 
 
 
Merchandise inventory - net
(1,129
)
 
(1,030
)
Other operating assets
(108
)
 
(94
)
Accounts payable
523

 
2,708

Other operating liabilities
(408
)
 
524

Net cash provided by operating activities
4,111

 
6,798

 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases of investments
(563
)
 
(1,298
)
Proceeds from sale/maturity of investments
556

 
1,309

Capital expenditures
(927
)
 
(846
)
Proceeds from sale of property and other long-term assets
71

 
50

Other - net

 
(3
)
Net cash used in investing activities
(863
)
 
(788
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Net change in short-term borrowings
(85
)
 
(1,137
)
Net proceeds from issuance of long-term debt
2,972

 

Repayment of long-term debt
(1,092
)
 
(288
)
Proceeds from issuance of common stock under share-based payment plans
78

 
73

Cash dividend payments
(1,195
)
 
(1,068
)
Repurchase of common stock
(3,649
)
 
(2,498
)
Other - net
(7
)
 
(3
)
Net cash used in financing activities
(2,978
)
 
(4,921
)
 
 
 
 
Effect of exchange rate changes on cash
1

 
(9
)
 
 
 
 
Net increase in cash and cash equivalents, including cash classified within current assets
   held for sale
271

 
1,080

Less: Net decrease in cash classified within current assets held for sale
12

 

Net increase in cash and cash equivalents
283

 
1,080

Cash and cash equivalents, beginning of period
511

 
588

Cash and cash equivalents, end of period
$
794

 
$
1,668

 
 
 
 
See accompanying notes to the consolidated financial statements (unaudited).

7

Table of Contents

Lowe’s Companies, Inc.
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.

8

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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.


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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.


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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.


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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