Leases

9 Months Ended

Dec. 28, 2019

The Company leases retail stores, office space and warehouse space under operating lease agreements that expire at various dates through September 2043. The Company’s leases generally have terms of up to 10 years, generally require a fixed annual rent and may require the payment of additional rent if store sales exceed a negotiated amount. Although most of the Company’s equipment is owned, the Company has limited equipment leases that expire on various dates through February 2024. The Company acts as sublessor in certain leasing arrangements, primarily related to closed stores under its Retail Fleet Optimization Plan, as defined in Note 10. Fixed sublease payments received are recognized on a straight-line basis over the sublease term. The Company determines the sublease term based on the date it provides possession to the subtenant through the expiration date of the sublease.

The Company recognizes operating lease right-of-use assets and lease liabilities at lease commencement date, based on the present value of fixed lease payments over the expected lease term. The Company uses its incremental borrowing rates to determine the present value of fixed lease payments based on the information available at the lease commencement date, as the rate implicit in the lease is not readily determinable for the Company’s leases. The Company’s incremental borrowing rates are based on the term of the leases, the economic environment of the leases, and reflect the rate it would pay to borrow on a secured basis. Certain leases include one or more renewal options, generally for the same period as the initial term of the lease. The exercise of lease renewal options is generally at the Company’s sole discretion and as such, the Company typically determines that exercise of these renewal options is not reasonably certain. As a result, the Company generally does not include the renewal option period in the expected lease term and the associated lease payments are not included in the measurement of the operating lease right-of-use asset and lease liability. Certain leases also contain termination options with an associated penalty. Generally, the Company is reasonably certain not to exercise these options and as such, they are not included in the determination of the expected lease term. The Company recognizes operating lease expense on a straight-line basis over the lease term.

Leases with an initial lease term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for its short-term leases on a straight-line basis over the lease term.

The Company’s leases generally provide for payments of non-lease components, such as common area maintenance, real estate taxes and other costs associated with the leased property. The Company accounts for lease and non-lease components of its real estate leases together as a single lease component and, as such, includes fixed payments of non-lease components in the measurement of the operating lease right-of-use assets and lease liabilities for its real estate leases. Variable lease payments, such as percentage rentals based on location sales, periodic adjustments for inflation, reimbursement of real estate taxes, any variable common area maintenance and any other variable costs associated with the leased property are expensed as incurred as variable lease costs and are not recorded on the balance sheet. The Company’s lease agreements do not contain any material residual value guarantees or material restrictions or covenants.

The following table presents the Company’s supplemental balance sheet information related to leases (in millions):

Balance Sheet Location

December 28,
2019

Assets

Operating leases

Operating lease right-of-use assets

1,665

Liabilities

Current:

Operating leases

Short-term portion of operating lease liabilities

406

Non-current:

Operating leases

Long-term portion of operating lease liabilities

1,751

The components of net lease costs for the three and nine months ended December 28, 2019 were as follows (in millions):


		December 28, 2019
	Statement of Operations and Comprehensive Income Location	Three Months Ended		Nine Months Ended
Operating lease cost	Selling, general and administrative expenses	$	114	$	338
Short-term lease cost	Selling, general and administrative expenses	5		18
Variable lease cost	Selling, general and administrative expenses	39		118
Sublease income	Selling, general and administrative expenses	(2)		(5)
Total lease cost		$	156	$	469

The following table presents the Company’s supplemental cash flow information related to leases (in millions):


	Nine Months Ended
	December 28, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in operating leases		$	372
Non-cash transactions:
Lease assets obtained in exchange for new lease liabilities		$	270

The following tables summarizes the weighted average remaining lease term and weighted average discount rate related to the Company’s operating lease right-of-use assets and lease liabilities recorded on the balance sheet as of December 28, 2019:


	December 28, 2019
Operating leases:
Weighted average remaining lease term (years)		6.3
Weighted average discount rate		3.0	%

At December 28, 2019, the future minimum lease payments under the terms of these noncancelable operating lease agreements are as follows (in millions):


	December 28, 2019
Remainder of Fiscal 2020	$	127
Fiscal 2021	484
Fiscal 2022	425
Fiscal 2023	356
Fiscal 2024	301
Thereafter	707
Total lease payments	2,400
Less: interest	(243)
Total lease liabilities	$	2,157

At December 28, 2019, the future minimum sublease income under the terms of these noncancelable operating lease agreements are as follows (in millions):


	December 28, 2019
Remainder of Fiscal 2020	$	1
Fiscal 2021	6
Fiscal 2022	5
Fiscal 2023	5
Fiscal 2024	4
Thereafter	16
Total sublease income	$	37

Additionally, the Company had approximately $94 million of future payment obligations related to executed lease agreements for which the related lease has not yet commenced as of December 28, 2019.