LEASES

12 Months Ended

Dec. 28, 2019

NOTE 12. LEASES

The Company leases retail stores and other facilities, vehicles, and equipment under operating lease agreements. Facility leases typically are for a fixed non-cancellable term with one or more renewal options. In addition to rent payments, the Company is required to pay certain variable lease costs such as real estate taxes, insurance and common-area maintenance on most of the facility leases. For leases beginning in 2019, the Company accounts for lease components (e.g., fixed payments including rent) and non-lease components (e.g., real estate taxes, insurance costs and common-area maintenance costs) as a single lease component. Certain leases contain provisions for additional rent to be paid if sales exceed a specified amount, though such payments have been immaterial during the periods presented, and are recognized as variable lease cost. The Company subleases certain real estate to third parties, consisting mainly of operating leases for space within the retail stores.

The components of lease expense were as follows:

(In millions)	2019
Finance lease cost:
Amortization of right-of-use assets	$	17
Interest on lease liabilities		5
Operating lease cost		433
Short-term lease cost		7
Variable lease cost		121
Sublease income		(3	)
Total lease cost	$	580

Supplemental cash flow information related to leases was as follows:

(In millions)	2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases	$	5
Operating cash flows from operating leases		489
Financing cash flows from finance leases		21
Right-of-use assets obtained in exchange for new finance lease liabilities		27
Right-of-use assets obtained in exchange for new operating lease liabilities		338

Supplemental balance sheet information related to leases was as follows:

	December 28,
(In millions, except lease term and discount rate)	2019
Property and equipment, net	$	52
Operating lease right-of-use assets		1,413
Accrued expenses and other current liabilities		373
Short-term borrowings and current maturities of long-term debt		19
Long-term debt, net of current maturities		58
Operating lease liabilities		1,208
Weighted-average remaining lease term – finance leases	5 years
Weighted-average remaining lease term – operating leases	5 years
Weighted-average discount rate – finance leases		6.2	%
Weighted-average discount rate – operating leases		6.6	%

Maturities of lease liabilities as of December 28, 2019 were as follows:

	December 28, 2019
	Operating			Finance
(In millions)	Leases⁽¹⁾			Leases⁽²⁾
2020	$	461		$	23
2021		383			21
2022		313			17
2023		243			13
2024		167			7
Thereafter		336			9
		1,903			90
Less imputed interest		(322	)		(13	)
Total	$	1,581		$	77

Reported as of December 28, 2019
Accrued expenses and other current liabilities	$	373		$	—
Short-term borrowings and current maturities of long-term debt		—			19
Long-term debt, net of current maturities		—			58
Operating lease liabilities		1,208			—
Total	$	1,581		$	77

(1)

Operating lease payments include $116 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $8 million of legally binding lease payments for 3 additional operating leases signed but not yet commenced. These operating leases will commence in fiscal year 2020 with lease terms of 10 years.

(2)	Finance lease payments include $17 million related to options to extend lease terms that are reasonably certain of being exercised.

Adoption of the new lease accounting standard using the alternative transition method required the Company to provide relevant disclosures in accordance with ASC 840, Leases for all prior periods presented. The table below represents future minimum lease payments due under the non-cancelable portions of leases including facility leases that were accrued as store closure costs as of December 29, 2018. The table was updated from the version previously included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018 within the Notes to Consolidated Financial Statements to adjust for certain inconsistencies that management identified in the first quarter of fiscal year 2019 during the implementation of ASC 842, Leases. Specifically, the Company corrected the schedule to include additional lease commitments for option periods at the time of execution as opposed to the original extension date.

	December 29,
(In millions)	2018
2019	$	466
2020		374
2021		285
2022		214
2023		144
Thereafter		235
		1,718
Less sublease income		(11	)
Total	$	1,707