Leases (Tables)

9 Months Ended

Sep. 28, 2019



In thousands		As of September 28, 2019
Type	Classification
	ASSETS
Finance	Property and equipment, net	$	29,314
Operating	Right of use assets^(a)	344,179
	Total leased assets	$	373,493
	LIABILITIES
	Current Liabilities:
Finance	Current maturities of long-term debt and finance lease obligations	$	3,236
Operating	Current operating lease obligations	56,814
	Other non-current liabilities:
Finance	Long-term debt and finance lease obligations, less current portion and debt discount	30,946
Operating	Non-current operating lease obligations	326,492
	Total lease liabilities	$	417,488
As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the net present value of minimum lease payments. We used the incremental borrowing rate on December 30, 2018, for operating leases that commenced prior to that date.
(a) TIA of $34.2 million and deferred rent of $14.2 million are treated as reductions of lease payments used to measure ROU assets as of September 28, 2019.



In thousands	Three Months Ended September 28, 2019			Nine Months Ended September 28, 2019
Lease cost by classification
Selling, general and administrative:
Operating lease cost ^(a)	$	18,542		$	54,955
Variable lease cost ^(b)	6,745			19,803
Sublease income^(c)	(965		)	(2,881		)

Depreciation and amortization:
Amortization of lease assets	1,176			3,231

Interest expense, net:
Interest on lease liabilities	903			2,689

Net lease cost	$	26,401		$	77,797
(a) Includes short-term leases, which are immaterial.
(b) Includes costs for insurance, real estate taxes and common area maintenance expenses, which are variable as well as lease costs above minimum thresholds for Fred Meyer stores and lease costs for Military stores.
(c) Income from sub-leasing of stores includes rental income from operating lease properties to ophthalmologists and optometrists who are independent contractors.



Lease Term and Discount Rate	As of September 28, 2019
Weighted average remaining lease term (months)
Operating leases	82
Finance leases	91
Weighted average discount rate ^(a)
Operating leases	4.6	%
Finance leases ^(b)	13.1	%
(a) The discount rate used to determine the lease assets and lease liabilities was derived upon considering (i) incremental borrowing rates on our long-term debt; (ii) fixed rates we pay on our interest rate swaps; (iii) LIBOR margins for issuers of similar credit rating; (iv) borrowing rates on five-year and ten-year US Treasuries; and (v) effect of collateralization. As a majority of our leases are five-year and 10-year leases, we determined a lease discount rate for such tenors and determined this discount rate is reasonable for leases that were entered into during the period.
(b) The discount rate on finance leases is higher than operating leases because the present value of minimum lease payments was higher than the fair value of leased properties for certain leases entered into prior to adoption of ASC 842. The discount rate differential for those leases is not material to our results of operations.



In thousands	Nine Months Ended September 28, 2019
Other Information	Nine Months Ended September 28, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows - operating leases	$	55,817

The following table summarizes the maturity of our lease liabilities as of September 28, 2019:



In thousands	Operating Leases ^(a)		Finance Leases^(b)
Fiscal Year	Operating Leases ^(a)		Finance Leases^(b)
2019 fourth quarter	$	13,090	$	1,398
2020	77,497		7,196
2021	71,292		7,116
2022	63,978		7,051
2023	56,958		6,077
Thereafter	168,637		20,021
Total lease liabilities	451,452		48,859
Less: Interest	68,146		14,677
Present value of lease liabilities^(c)	$	383,306	$	34,182
(a) Operating lease payments include $75.9 million related to options to extend lease terms that are reasonably certain of being exercised.
(b) Finance lease payments include $1.1 million related to options to extend lease terms that are reasonably certain of being exercised.
(c) The present value of lease liabilities excludes $19.1 million of legally binding minimum lease payments for leases signed but not yet commenced.

The following table summarizes the maturity of our lease liabilities as of September 28, 2019:



In thousands	Operating Leases ^(a)		Finance Leases^(b)
Fiscal Year	Operating Leases ^(a)		Finance Leases^(b)
2019 fourth quarter	$	13,090	$	1,398
2020	77,497		7,196
2021	71,292		7,116
2022	63,978		7,051
2023	56,958		6,077
Thereafter	168,637		20,021
Total lease liabilities	451,452		48,859
Less: Interest	68,146		14,677
Present value of lease liabilities^(c)	$	383,306	$	34,182
(a) Operating lease payments include $75.9 million related to options to extend lease terms that are reasonably certain of being exercised.
(b) Finance lease payments include $1.1 million related to options to extend lease terms that are reasonably certain of being exercised.
(c) The present value of lease liabilities excludes $19.1 million of legally binding minimum lease payments for leases signed but not yet commenced.

As of fiscal year end 2018, aggregate future minimum rental payments under our operating leases were as follows: