
(4)	Leases


(a)	Lessee

In 2019, the Company adopted the ASU requiring the lease rights and obligations arising from existing and new lease agreements be recognized as assets and liabilities on the balance sheet. The Company adopted the ASU on a modified retrospective basis and elected the transitional provisions eliminating the requirement to restate reporting periods prior to the date of adoption. The Company also elected to not reassess the original conclusions reached regarding lease identification, lease classification and initial direct costs for leases entered into prior to the adoption of the ASU. As of December 30, 2018, the Company recognized its operating lease right-of-use assets and operating lease liabilities on the balance sheet. The adoption of the ASU did not have a material effect on the Company’s results of operations and had no effect on the Company’s cash flows.

The Company included finance lease right-of-use assets of $134,541,000 in net property, plant and equipment and finance lease liabilities of $4,831,000 and $111,982,000 in other accrued expenses and other noncurrent liabilities, respectively, on the condensed consolidated balance sheet as of June 29, 2019.

The Company conducts a major portion of its retail operations from leased locations. The Company determines whether a lease exists at inception. Initial lease terms are typically 20 years followed by five year renewal options and may include rent escalation clauses. A renewal option is included in the right-of-use asset and lease liability to the extent it is reasonably certain the option will be exercised. The present value of future payments for each lease is determined by using the Company’s incremental borrowing rate at the time of lease commencement. Additionally, the Company has operating leases for certain transportation and other equipment with initial lease terms ranging up to five years.

Operating lease expense primarily represents fixed lease payments for operating leases recognized on a straight-line basis over the applicable lease term. Variable lease expense represents the payment of real estate taxes, insurance, maintenance and, for certain locations, additional rentals based on a percentage of sales in excess of stipulated minimums (excess rent). The payment of variable real estate taxes, insurance and maintenance is generally based on the Company’s pro-rata share of total shopping center square footage. The Company estimates excess rent, where applicable, based on annual sales projections and uses the straight-line method to amortize the cost to variable lease expense.

Lease expense for the three and six months ended June 29, 2019 was as follows:



	Three Months Ended				Six Months Ended
	June 29, 2019				June 29, 2019
	(Amounts are in thousands)
Operating lease expense		$	106,808			217,473
Finance lease expense:
Amortization of right-of-use assets		2,396				4,336
Interest on lease liabilities		789				1,437
Variable lease expense		14,471				28,888
Sublease rental income		(650		)		(1,543	)
		$	123,814			250,591

Supplemental cash flow information related to leases for the six months ended June 29, 2019 was as follows:



	Six Months Ended
	June 29, 2019
	(Amounts are in thousands)
Operating cash flows from rent paid for operating lease liabilities		210,008
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases		202,392
Finance leases		46,339

The weighted-average remaining lease term and weighted-average discount rate as of June 29, 2019 are as follows:



	June 29, 2019
Weighted-average remaining lease term:
Operating leases		12 years
Finance leases		18 years
Weighted-average discount rate:
Operating leases		3.5	%
Finance leases		4.0	%

Maturities of lease liabilities as of June 29, 2019 are as follows:




Year	Operating Leases			Finance Leases
	(Amounts are in thousands)
2019	$	210,606		3,902
2020	409,915			31,596
2021	376,811			6,629
2022	341,069			6,629
2023	298,538			21,344
Thereafter	1,902,650			76,548
	3,539,589			146,648
Less: Imputed interest	(691,598		)	(29,835	)
	$	2,847,991		116,813

As of June 29, 2019, the Company has lease agreements that have not yet commenced with fixed lease payments totaling $318,361,000. These leases will commence in future periods with terms ranging up to 20 years.