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Property and Leases

6 Months Ended

Aug. 04, 2019

PROPERTY AND LEASES

Net Property and Equipment

Net property and equipment includes accumulated depreciation and amortization of $21.3 billion as of August 4, 2019 and $20.6 billion as of February 3, 2019.

Leases

We lease certain retail locations, office space, warehouse and distribution space, equipment, and vehicles. While most of these leases are operating leases, certain retail locations and equipment are leased under finance leases. We consider various factors such as market conditions and the terms of any renewal options that may exist to determine whether we will renew or replace the lease. A substantial majority of our leases have remaining lease terms of one to 20 years, typically with the option to extend the leases for up to five years. Some of our leases may include the option to terminate in less than five years. In the event we are reasonably certain to exercise the option to extend a lease, we will include the extended terms in the operating lease right-of-use asset and operating lease liability. Real estate taxes, insurance, maintenance, and operating expenses applicable to the leased property are generally our obligations under the lease agreements.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Further, certain lease agreements include rental payments based on an index or rate and others include rental payments based on a percentage of sales.

The balance sheet location of assets and liabilities related to operating and finance leases follow.



in millions	Balance Sheet Caption	August 4, 2019
Assets:
Operating lease assets	Operating lease right-of-use assets	$	5,789
Finance lease assets	Net property and equipment	863
Total lease assets		$	6,652

Liabilities:
Current:
Operating lease liabilities	Current operating lease liabilities	$	831
Finance lease liabilities	Current installments of long-term debt	67
Long-term:
Operating lease liabilities	Long-term operating lease liabilities	5,263
Finance lease liabilities	Long-term debt, excluding current installments	1,020
Total lease liabilities		$	7,181

The components of lease cost follow.



in millions	Statement of Earnings Caption	Three Months Ended August 4, 2019			Six Months Ended August 4, 2019
Operating lease cost	Selling, general and administrative	$	205		$	415
Finance lease cost:
Amortization of leased assets	Depreciation and amortization	22			43
Interest on lease liabilities	Interest expense	23			46
Short-term lease cost	Selling, general and administrative	18			43
Variable lease cost	Selling, general and administrative	64			122
Sublease income	Selling, general and administrative	(4		)	(7		)
Net lease cost		$	328		$	662

ASU 2016-02 requires that public companies use a secured incremental borrowing rate as the discount rate for present value of lease payments when the rate implicit in the contract is not readily determinable. We determine a secured rate on a quarterly basis and update the weighted average discount rate accordingly. Lease terms and discount rates follow.



	August 4, 2019
Weighted Average Remaining Lease Term (Years):
Operating leases	10
Finance leases	13

Weighted Average Discount Rate:
Operating leases	3.1	%
Finance leases	11.3	%

The approximate future minimum lease payments under operating and finance leases at August 4, 2019 follow.



in millions	Operating Leases		Finance Leases
Fiscal 2019	$	479	$	82
Fiscal 2020	942		158
Fiscal 2021	834		153
Fiscal 2022	734		150
Fiscal 2023	640		143
Thereafter	3,341		993
Total lease payments	6,970		1,679
Less imputed interest	876		592
Present value of lease liabilities	$	6,094	$	1,087

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Note: Amounts presented do not include payments relating to immaterial leases excluded from the balance sheets as part of transition elections adopted upon implementation of Topic 842. Additionally, we have excluded approximately $1.4 billion of leases (undiscounted basis) that have not yet commenced. These leases will commence between 2019 and 2020 with lease terms of one to 20 years.

The approximate future minimum lease payments under capital and operating leases at February 3, 2019 and accounted for under previous lease guidance follow.



in millions	Operating Leases		Capital Leases
Fiscal 2019	$	976	$	150
Fiscal 2020	912		167
Fiscal 2021	792		143
Fiscal 2022	682		142
Fiscal 2023	584		137
Thereafter	3,090		970
	$	7,036	1,709
Less imputed interest			660
Net present value of capital lease obligations			1,049
Less current installments			57
Long-term capital lease obligations, excluding current installments			$	992

Other lease information follows.



in millions	Six Months Ended August 4, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows – operating leases	$	500
Operating cash flows – finance leases	46
Financing cash flows – finance leases	30
Leased assets obtained in exchange for new operating lease liabilities	520
Leased assets obtained in exchange for new finance lease liabilities	67

Property and Leases