Leases

6 Months Ended

Feb. 15, 2020

Leases [Abstract]

Leases

Note L – Leases

The Company adopted ASU 2016-02, Leases (Topic 842), beginning with its first quarter ended November 23, 2019 which requires leases to be recognized on the balance sheet. Leases with an original term of 12 months or less are not recognized in the Company’s Condensed Consolidated Balance Sheets, and the lease expense related to these short-term leases is recognized over the lease term. The Company elected the practical expedient to not separate lease components from the non-lease components, which includes fixed common-area maintenance costs at its retail store locations, for all classes of leased assets, except vehicles. Our vehicle leases typically include variable non-lease components, such as maintenance and fuel charges, which contain observable standalone prices. We have elected to exclude these variable non-lease components from vehicle lease payments for the purpose of calculating the right-of-use assets and liabilities. These variable lease payments are expensed as incurred.

The Company’s leases primarily relate to its retail stores, distribution centers and vehicles under various non-callable leases. Leases are categorized at their commencement date, which is the date the Company takes possession or control of the underlying asset. Most of the Company’s leases are operating leases; however, certain land and vehicles are leased under finance leases. The leases have varying terms and expire at various dates through 2040. Retail leases typically have initial terms of between one and 20 years, with one to six optional renewal periods of one to five years each. Finance leases for vehicles typically have original terms between one and five years and finance leases for real estate leases typically have terms of 20 or more years. The exercise of lease renewal options is at our sole discretion. The Company evaluates renewal options at lease commencement and on an ongoing basis and includes options that are reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities. The Company subleases certain properties that are not used in its operations. Sublease income was not significant for the periods presented. Certain lease agreements require variable payments based upon actual costs of common-area maintenance, real estate taxes and insurance. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Our finance leases for vehicles have a stated borrowing rate which we use in determining the present value of the lease payments over the lease term. Substantially all our operating leases and finance leases for real estate do not provide a stated borrowing rate. Accordingly, we use the Company’s incremental borrowing rate at commencement or modification date in determining the present value of lease payments over the lease term. For operating leases that commenced prior to the date of adoption of the new standard, the Company used the incremental borrowing rate that corresponded to the remaining lease term as of the date of adoption.

Lease-related assets and liabilities recorded on the Condensed Consolidated Balance Sheet are as follows:

(in thousands)	Classification	February 15, 2020
Assets:
Operating	Operating lease right-of-use assets	$	2,579,217
Finance	Property and equipment		294,449
Total lease assets		$	2,873,666
Liabilities: Current:
Operating	Current portion of operating lease liabilities	$	234,506
Finance	Accrued expenses and other		58,864
Noncurrent:
Operating	Operating lease liabilities, less current portion		2,494,840
Finance	Other long-term liabilities		137,182
Total lease liabilities		$	2,925,392

Accumulated amortization related to finance lease assets was $93.4 million as of February 15, 2020.

Lease costs for finance and operating leases for the twelve and twenty-four weeks ended February 15, 2020 are as follows:

(in thousands)	Statement of Income Location	Twelve Weeks Ended     February 15, 2020		Twenty-Four Weeks Ended     February 15, 2020
Finance lease cost:
Amortization of lease assets	Depreciation and amortization	$	12,872	$	25,528
Interest on lease liabilities	Interest expense, net		1,282		2,667
Operating lease cost(1)	Selling, general and administrative expenses		80,396		162,195
Total lease cost		$	94,550	$	190,390

(1)    Includes short-term leases, variable lease costs and sublease income, which are immaterial.

The future rental payments, inclusive of renewal options that have been included in defining the expected lease term, of our operating and finance lease obligations as of February 15, 2020 having initial or remaining lease terms in excess of one year are as follows:

(in thousands)	Finance     Leases			Operating             Leases			Total
2020	$	30,419		$	159,455		$	189,874
2021		61,560			320,472			382,032
2022		48,694			310,948			359,642
2023		33,567			291,256			324,823
2024		11,328			267,176			278,504
Thereafter		39,598			2,232,620			2,272,218
Total lease payments		225,166			3,581,927			3,807,093
Less: Interest		(29,120	)		(852,581	)		(881,701	)
Present value of lease liabilities	$	196,046		$	2,729,346		$	2,925,392

The following table summarizes the Company’s lease term and discount rate assumptions:

	February 15, 2020
Weighted-average remaining lease term in years, inclusive of renewal options that are reasonably certain to be exercised
Finance leases – real estate		30
Finance leases – vehicles		3
Operating leases		15
Weighted-average discount rate:
Finance leases – real estate		3.23%
Finance leases – vehicles		2.72%
Operating leases		3.55%

The following table summarizes the other information related to the Company’s lease liabilities:

(in thousands)	Twenty-Four  Weeks Ended         February 15, 2020
Cash paid for amounts included in the measurement of lease liabilities – operating cash flows from operating leases	$	98,021
Leased assets obtained in exchange for new finance lease liabilities		45,582
Leased assets obtained in exchange for new operating lease liabilities		174,038

As of February 15, 2020, the Company has entered into additional leases which have not yet commenced and are therefore not part of the right-of-use asset and liability. These leases are generally for real estate and have undiscounted future payments of approximately $31.1 million and will commence when the Company obtains possession of the underlying leased asset. Commencement dates are expected to be from fiscal 2020 to fiscal 2022.