Leases

6 Months Ended

Jun. 30, 2019

Leases

The Company’s lease portfolio mainly consists of retail stores, warehouses, distribution centers, office space, and, to a lesser extent, equipment. The Company’s accounting for finance leases (previously called capital leases) remains substantially unchanged. Finance leases are generally those leases that allow the Company to substantially utilize or pay for the entire asset over its estimated life. Assets acquired under finance leases are recorded in property, plant and equipment, net. All other leases are categorized as operating leases. Operating lease assets represent the Company’s right to use an underlying asset for the lease term whereas lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. These rates are assessed on a quarterly basis. The operating lease assets also include any lease payments made less lease incentives. Leases with an initial term of 12 months or

less are not recorded on the balance sheet. For operating leases, expense is recognized on a straight-line basis over the lease term. For finance leases, the Company recognizes a front-loaded pattern of total lease expense recognition due to the accretion of the lease liability and the straight-line amortization of the leased asset.

Many leases include one or more options to renew, with renewal terms that can extend the lease term for three years or more. The exercise of lease renewal options is at the Company’s sole discretion. Certain leases also include options to purchase the leased assets. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

The Company also has lease agreements with lease and non-lease components, which are accounted for as a single lease component. Additionally, for certain non-real estate leases, the portfolio approach is used to effectively account for the operating lease assets and liabilities.

Supplemental condensed consolidated balance sheet information related to leases for the period indicated, is as follows (in millions):



	Classification	June 30, 2019
Assets
Operating leases	Operating lease assets, net	$	646.0
Finance leases	Property, plant and equipment, net (1)	17.6
Total lease assets		$	663.6
Liabilities
Current
Operating leases	Other accrued liabilities	$	128.3
Finance leases	Short-term debt and current portion of long-term debt	3.5
Noncurrent
Operating leases	Long-term operating lease liabilities	572.7
Finance leases	Long-term debt	11.4
Total lease liabilities		$	715.9


(1)	Net of accumulated depreciation of $6.1 million.

Components of lease expense as of the date indicated, are as follows (in millions):



	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost:
Operating lease cost (1)	$	49.4	$	97.6
Variable lease costs (2)	6.0		12.0
Finance lease cost:
Amortization of leased assets	1.2		2.3
Interest on lease liabilities	0.1		0.3


(1)	Includes short-term leases, which are immaterial.


(2)	Consists primarily of additional payments for non-lease components, such as maintenance costs, payments of taxes and additional rent based on a level of the Company’s retail store sales.

Remaining lease term and discount rates as of the date indicated, are as follows:



	June 30, 2019
Weighted-average remaining lease term (years):
Operating leases	7
Finance leases	4
Weighted-average discount rate:
Operating leases	4.3%
Finance leases	3.4%

Supplemental cash flow information related to leases for the period indicated is as follows (in millions):



	Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	94.1
Operating cash flows from finance leases	0.3
Financing cash flows from finance leases	1.7
Right of use assets obtained in exchange for lease liabilities:
Operating leases	100.6
Finance leases	6.7

Maturities of lease liabilities for continuing operations under the new lease standard (see Footnote 1) as of June 30, 2019, are as follows (in millions):



	Operating Leases			Finance Leases
2019 (Excludes six months ended June 30, 2019)	$	80.3		$	2.2
2020	150.9			4.3
2021	124.5			4.2
2022	104.9			3.3
2023	84.3			1.5
Thereafter	283.7			0.4
Total lease payments	828.6			15.9
Less: imputed interest	(127.6		)	(1.0		)
Present value of lease liabilities	$	701.0		$	14.9

See Footnote 2 for information on lease liabilities included in discontinued operations and held for sale.

Future minimum rental payments for operating leases, prior to the adoption of the new lease standard, with initial or remaining terms in excess of one year at December 31, 2018 for the consolidated Company are as follows (in millions):



	Operating Leases
2019	$	180.0
2020	144.0
2021	117.8
2022	97.7
2023	74.0
Thereafter	263.9
Total lease payments	$	877.4

Rent expense under operating leases for continuing operations was $52.5 million and $105.2 million, respectively, during the three and six months ended June 30, 2018.