Leases

6 Months Ended

Aug. 03, 2019

TJX is committed under long-term leases related to its continuing operations for the rental of real estate and certain service contracts containing embedded leases, all of which are operating leases. Real estate leases represent virtually all of our store locations as well as some of our distribution centers and office space. Most of TJX’s leases in the U.S. and Canada are store operating leases with ten-year terms and options to extend for one or more five-year periods. Leases in Europe generally have an initial term of ten to fifteen years and leases in Australia generally have an initial lease term of primarily seven to ten years, some of which have options to extend. Many of the Company's leases have options to terminate prior to the lease expiration date. The exercise of both lease renewal and termination options is at our sole discretion and is not reasonably certain at lease commencement. The Company has deemed that major store renovations provide an economic disincentive to terminate the lease and when these renovations occur the Company reassesses the lease term to determine if the next lease option is reasonably certain of being exercised.

While the overwhelming majority of leases have fixed payment schedules, some leases have variable lease payments based on market indices adjusted periodically for inflation, or include rental payments based on a percentage of retail sales over contractual levels. In addition, for real estate leases, TJX is generally required to pay insurance, real estate taxes and other operating expenses including common area maintenance based on proportionate share of premises, and some of these costs are based on a market index, primarily in Canada. For leases with these variable payments based on a market index, the current lease payment amount is used in the calculation of the operating lease liability and corresponding operating lease assets included on the Consolidated Balance Sheets. The operating lease ROU assets also includes any lease payments made in advance of the assets use and is reduced by lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Supplemental balance sheet information related to leases as of August 3, 2019 is as follows:



	August 3, 2019
Weighted-average remaining lease term (years)	7.3
Weighted-average discount rate	3.0	%

The following table is a summary of the Company’s components of net lease cost for the thirteen weeks and twenty-six weeks ended August 3, 2019:



		Thirteen Weeks Ended		Twenty-Six Weeks Ended
In thousands	Classification	August 3, 2019		August 3, 2019
Operating lease cost	Cost of sales, including buying and occupancy costs	$	434,931	$	865,262
Variable and short term lease cost	Cost of sales, including buying and occupancy costs	286,149		567,655
Total lease cost		$	721,080	$	1,432,917

Supplemental cash flow information related to leases for the twenty-six weeks ended August 3, 2019 is as follows:



	Twenty-Six Weeks Ended
In thousands	August 3, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases	$	846,211
Lease liabilities arising from obtaining right of use assets	$	993,979

The following table summarizes the maturity of lease liabilities under operating leases as of August 3, 2019:



In thousands	August 3, 2019
Fiscal year 2020 (remaining 6 months)	$	866,641
2021	1,704,141
2022	1,562,414
2023	1,399,075
2024	1,210,569
Later years	3,400,328
Total lease payments^(a)	10,143,168
Less: imputed interest^(b)	1,046,581
Total lease liabilities^(c)	$	9,096,587


(a)	Operating lease payments exclude legally binding minimum lease payments for leases signed but not yet commenced and include options to extend lease terms that are now deemed reasonably certain of being exercised according to our Lease Accounting Policy.


(b)	Calculated using the incremental borrowing rate for each lease.


(c)	Total lease liabilities are broken out on the Consolidated Balance Sheets between Current portion of operating lease liabilities and Long-term operating lease liabilities.

The following table represents the gross minimum rental commitments under noncancelable leases, as disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 2019:



In thousands	February 2, 2019
Fiscal year 2020	$	1,676,700
2021	1,603,378
2022	1,441,444
2023	1,253,420
2024	1,042,184
Later years	2,774,845
Total lease payments	$	9,791,971