Leases

3 Months Ended

Jun. 01, 2019

Leases [Abstract]

Leases

Leases

The Company leases retail stores, as well as distribution facilities, offices and equipment, under agreements expiring at various dates through 2041. The leases provide for original lease terms that generally range from 10 to 15 years and most leases provide for a series of five year renewal options, often at increased rents, the exercise of which is at the Company's sole discretion. In recognizing the lease right-of-use assets and lease liabilities, the Company utilizes the lease term for which it is reasonably certain to use the underlying asset, including consideration of options to extend or terminate the lease. Certain leases provide for contingent rents (which are based upon store sales exceeding stipulated amounts and are immaterial for the three months ended June 1, 2019 and June 2, 2018), scheduled rent increases and renewal options. The Company is obligated under a majority of the leases to pay for taxes, insurance and common area maintenance charges.

Companies are required to use the rate implicit in the lease whenever that rate is readily determinable and if the interest rate is not readily determinable, then a lessee may use its incremental borrowing rate. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. The Company determined discount rates based on the rates of its unsecured borrowings, which are then adjusted for the appropriate lease term and effects of full collateralization. In determining the Company's operating lease assets and operating lease liabilities, the Company applied these incremental borrowing rates to the minimum lease payments within each lease agreement.

The components of total lease cost for the three months ended June 1, 2019, were as follows.

(in thousands)	Statement of Operations Location	Three months ended June 1, 2019
Operating lease cost	Cost of sales and SG&A	$	143,900
Finance lease cost:
Depreciation of property	SG&A	648
Interest on lease liabilities	Interest expense, net	2,222
Variable lease cost	Cost of sales and SG&A	47,895
Sublease income	SG&A	(278		)
Total lease cost		$	194,387

As of June 1, 2019, assets and liabilities related to the Company's operating and finance leases are as follows:

(in thousands)	Consolidated Balance Sheet Location	June 1, 2019
Assets
Operating leases	Operating lease assets	$	1,990,963
Finance leases	Property and equipment, net	71,231
Total Lease assets		$	2,062,194
Liabilities
Current:
Operating leases	Current operating lease liabilities	$	410,417
Finance leases	Accrued expenses and other current liabilities	1,511
Noncurrent:
Operating leases	Operating lease liabilities	1,775,081
Finance leases	Other liabilities	103,581
Total lease liabilities		$	2,290,590

As of June 1, 2019, the Company's lease liabilities mature as follows:

(in thousands)	Operating Leases			Finance Leases
Fiscal Year:
Remainder of 2019	$	390,167		$	7,811
2020	548,353			10,469
2021	450,764			10,434
2022	352,797			10,407
2023	259,691			10,524
Thereafter	642,185			259,584
Total lease payments	$	2,643,957		$	309,229
Less imputed interest	(458,459		)	(204,137		)
Present value of lease liabilities	$	2,185,498		$	105,092

The Company's lease terms and discount rates are as follows:

	June 1, 2019
Weighted-average remaining lease term (in years)
Operating leases	6.0
Finance leases	26.4
Weighted-average discount rate
Operating leases	6.1	%
Finance leases	8.9	%

Other information for the Company's leases is as follows:

(in thousands)	Three months ended June 1, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	166,514
Operating cash flows from finance leases	2,580
Operating lease assets obtained in exchange for new operating lease liabilities	109,647

At the beginning of fiscal 2019, the Company adopted ASU2016-02, and as required, the following disclosure is provided for periods prior to adoption. As of March 2, 2019, future minimum lease payments under non-cancelable operating leases were as follows:

(in thousands)	Operating Leases
Fiscal Year:
2019	609,613
2020	534,055
2021	434,908
2022	334,587
2023	241,863
Thereafter	616,170
Total future minimum lease payments	2,771,196

As of March 2, 2019, the capital lease obligations were approximately $3.8 million for which the current and long-term portions were included within accrued expenses and other current liabilities and other liabilities, respectively, in the consolidated balance sheet. Monthly minimum lease payments are accounted for as principal and interest payments. The minimum capital lease payments, including interest, by fiscal year were: $0.9 million in fiscal 2019; $0.8 million in fiscal 2020; $0.7 million in fiscal 2021; $0.6 million in fiscal 2022; $0.6 million in fiscal 2023; and $1.0 million thereafter.

The Company has financing obligations, related to two sale/leaseback agreements, which approximated the discounted fair value of the minimum lease payments, had a residual fair value at the end of the lease term and are being amortized over the term of the respective agreements, including option periods, of 32 and 37 years. As of March 2, 2019, the sale/leaseback financing obligations were approximately $101.7 million, for which the current and long-term portions were included within accrued expenses and other current liabilities and other liabilities, respectively, in the consolidated balance sheet. Monthly lease payments are accounted for as principal and interest payments (at approximate annual interest rates of 7.2% and 10.6%). These sale/leaseback financing obligations, excluding the residual fair value at the end of the lease term, mature as follows: $0.8 million in fiscal 2019; $0.9 million in fiscal 2020; $0.9 million in fiscal 2021; $1.0 million in fiscal 2022; $1.0 million in fiscal 2023; and $75.4 million thereafter.

Leases

Leases

The Company leases retail stores, as well as distribution facilities, offices and equipment, under agreements expiring at various dates through 2041. The leases provide for original lease terms that generally range from 10 to 15 years and most leases provide for a series of five year renewal options, often at increased rents, the exercise of which is at the Company's sole discretion. In recognizing the lease right-of-use assets and lease liabilities, the Company utilizes the lease term for which it is reasonably certain to use the underlying asset, including consideration of options to extend or terminate the lease. Certain leases provide for contingent rents (which are based upon store sales exceeding stipulated amounts and are immaterial for the three months ended June 1, 2019 and June 2, 2018), scheduled rent increases and renewal options. The Company is obligated under a majority of the leases to pay for taxes, insurance and common area maintenance charges.

Companies are required to use the rate implicit in the lease whenever that rate is readily determinable and if the interest rate is not readily determinable, then a lessee may use its incremental borrowing rate. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. The Company determined discount rates based on the rates of its unsecured borrowings, which are then adjusted for the appropriate lease term and effects of full collateralization. In determining the Company's operating lease assets and operating lease liabilities, the Company applied these incremental borrowing rates to the minimum lease payments within each lease agreement.

The components of total lease cost for the three months ended June 1, 2019, were as follows.

(in thousands)	Statement of Operations Location	Three months ended June 1, 2019
Operating lease cost	Cost of sales and SG&A	$	143,900
Finance lease cost:
Depreciation of property	SG&A	648
Interest on lease liabilities	Interest expense, net	2,222
Variable lease cost	Cost of sales and SG&A	47,895
Sublease income	SG&A	(278		)
Total lease cost		$	194,387

As of June 1, 2019, assets and liabilities related to the Company's operating and finance leases are as follows:

(in thousands)	Consolidated Balance Sheet Location	June 1, 2019
Assets
Operating leases	Operating lease assets	$	1,990,963
Finance leases	Property and equipment, net	71,231
Total Lease assets		$	2,062,194
Liabilities
Current:
Operating leases	Current operating lease liabilities	$	410,417
Finance leases	Accrued expenses and other current liabilities	1,511
Noncurrent:
Operating leases	Operating lease liabilities	1,775,081
Finance leases	Other liabilities	103,581
Total lease liabilities		$	2,290,590

As of June 1, 2019, the Company's lease liabilities mature as follows:

(in thousands)	Operating Leases			Finance Leases
Fiscal Year:
Remainder of 2019	$	390,167		$	7,811
2020	548,353			10,469
2021	450,764			10,434
2022	352,797			10,407
2023	259,691			10,524
Thereafter	642,185			259,584
Total lease payments	$	2,643,957		$	309,229
Less imputed interest	(458,459		)	(204,137		)
Present value of lease liabilities	$	2,185,498		$	105,092

The Company's lease terms and discount rates are as follows:

	June 1, 2019
Weighted-average remaining lease term (in years)
Operating leases	6.0
Finance leases	26.4
Weighted-average discount rate
Operating leases	6.1	%
Finance leases	8.9	%

Other information for the Company's leases is as follows:

(in thousands)	Three months ended June 1, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	166,514
Operating cash flows from finance leases	2,580
Operating lease assets obtained in exchange for new operating lease liabilities	109,647

At the beginning of fiscal 2019, the Company adopted ASU2016-02, and as required, the following disclosure is provided for periods prior to adoption. As of March 2, 2019, future minimum lease payments under non-cancelable operating leases were as follows:

(in thousands)	Operating Leases
Fiscal Year:
2019	609,613
2020	534,055
2021	434,908
2022	334,587
2023	241,863
Thereafter	616,170
Total future minimum lease payments	2,771,196

As of March 2, 2019, the capital lease obligations were approximately $3.8 million for which the current and long-term portions were included within accrued expenses and other current liabilities and other liabilities, respectively, in the consolidated balance sheet. Monthly minimum lease payments are accounted for as principal and interest payments. The minimum capital lease payments, including interest, by fiscal year were: $0.9 million in fiscal 2019; $0.8 million in fiscal 2020; $0.7 million in fiscal 2021; $0.6 million in fiscal 2022; $0.6 million in fiscal 2023; and $1.0 million thereafter.

The Company has financing obligations, related to two sale/leaseback agreements, which approximated the discounted fair value of the minimum lease payments, had a residual fair value at the end of the lease term and are being amortized over the term of the respective agreements, including option periods, of 32 and 37 years. As of March 2, 2019, the sale/leaseback financing obligations were approximately $101.7 million, for which the current and long-term portions were included within accrued expenses and other current liabilities and other liabilities, respectively, in the consolidated balance sheet. Monthly lease payments are accounted for as principal and interest payments (at approximate annual interest rates of 7.2% and 10.6%). These sale/leaseback financing obligations, excluding the residual fair value at the end of the lease term, mature as follows: $0.8 million in fiscal 2019; $0.9 million in fiscal 2020; $0.9 million in fiscal 2021; $1.0 million in fiscal 2022; $1.0 million in fiscal 2023; and $75.4 million thereafter.