Leases

12 Months Ended

Aug. 31, 2020

Leases [Abstract]

Leases

LeasesThe Company leases certain retail stores, warehouses, distribution centers, office space, land and equipment. For leases in the United States, the initial lease term is typically 15 to 25 years, followed by additional terms containing renewal options typically at five-year intervals, and may include rent escalation clauses. Non-U.S. leases are typically for shorter terms and may include cancellation clauses or renewal options. The commencement date of all lease terms is the earlier of the date the Company becomes legally obligated to make rent payments or the date the Company has the right to control the property. The Company recognizes operating lease rent expense on a straight-line basis over the term of the lease. In addition to minimum fixed rentals, some leases provide for contingent rentals based upon a portion of sales. See note 1, summary of major accounting policies for additional information.

Supplemental balance sheet information related to leases were as follows (in millions):

	August 31, 2020
Operating Leases:
Operating lease right-of-use assets	$	21,724
Operating lease obligations - current	$	2,426
Operating lease obligations - non current	21,973
Total operating lease obligations	$	24,399
Finance Leases:
Right-of-use assets included in:
Property, plant and equipment, net	$	769
Lease obligations included in:
Accrued expenses and other liabilities	$	34
Other non-current liabilities	1,020
Total finance lease obligations	$	1,054

Supplemental income statement information related to leases were as follows (in millions):

	August 31, 2020
Operating lease cost
Fixed	$	3,332
Variable1	761
Finance lease cost
Amortization	$	40
Interest	56
Sublease income	76
Impairment of right-of-use assets2	214
Impairment of finance lease assets 2	24
Gains on sale-leaseback transactions3	308

¹Includes real estate property taxes, common area maintenance, insurance and rental payments based on sales volume.

²For the fiscal year August 31, 2020, total impairments include $177 million to Transformational Cost Management and Store Optimization programs. See note 3, exit and disposal activities.

³Recorded within selling, general and administrative expenses.

Other supplemental information were as follows (in millions):

	August 31, 2020
Cash paid for amounts included in the measurement of lease obligations
Operating cash flows from operating leases	$	3,315
Operating cash flows from finance leases	48
Financing cash flows from finance leases	51
Total	$	3,414
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases	$	2,494
Finance leases	65
Total	$	2,559

Average lease term and discount rate as of August 31, 2020 were as follows:

	August 31, 2020
Weighted average remaining lease term in years:
Operating leases	10.7
Finance leases	20.7
Weighted average discount rate
Operating leases	4.95	%
Finance leases	5.39	%

The aggregate future lease payments for operating and finance leases as of August 31, 2020 were as follows (in millions):

Fiscal year	Finance lease		Operating lease
2021	$	96	$	3,529
2022	94		3,374
2023	93		3,210
2024	93		3,049
2025	91		2,868
Later	1,230		15,559
Total undiscounted minimum lease payments	$	1,697	$	31,589
Less: Present value discount	(643)		(7,190)
Lease liability	$	1,054	$	24,399

Comparative disclosures prior to the adoption of ASC 842 Leases

On September 1, 2019, upon adoption of ASC 842 Leases, the liability for facility closings and related termination charges were transferred as an offset to right-of-of use assets . In fiscal 2019 and 2018, prior to the adoption of ASC 842 Leases, the Company recorded charges of $185 million and $129 million, respectively, for closed or relocated facilities. These charges are reported in selling, general and administrative expenses in the Consolidated Statements of Earnings.

The changes in liability for facility closings and related lease termination charges include the following (in millions):

	2019
Balance at beginning of period	$	964
Provision for present value of non-cancelable lease payments on closed facilities	90
Changes in assumptions	56
Accretion expense	39
Other - non cash1	160
Cash payments, net of sublease income	(316)
Balance at end of period	$	993

¹Primarily unfavorable lease liabilities from acquired Rite Aid stores.

Rental expense prior to the adoption of ASC 842 Leases, which includes common area maintenance, insurance and taxes, where appropriate, was as follows (in millions):

	2019		2018
Minimum rentals	$	3,622	$	3,447
Contingent rentals	74		68
Less: sublease rental income	(66)		(67)
	$	3,631	$	3,448

Leases

LeasesThe Company leases certain retail stores, warehouses, distribution centers, office space, land and equipment. For leases in the United States, the initial lease term is typically 15 to 25 years, followed by additional terms containing renewal options typically at five-year intervals, and may include rent escalation clauses. Non-U.S. leases are typically for shorter terms and may include cancellation clauses or renewal options. The commencement date of all lease terms is the earlier of the date the Company becomes legally obligated to make rent payments or the date the Company has the right to control the property. The Company recognizes operating lease rent expense on a straight-line basis over the term of the lease. In addition to minimum fixed rentals, some leases provide for contingent rentals based upon a portion of sales. See note 1, summary of major accounting policies for additional information.

Supplemental balance sheet information related to leases were as follows (in millions):

	August 31, 2020
Operating Leases:
Operating lease right-of-use assets	$	21,724
Operating lease obligations - current	$	2,426
Operating lease obligations - non current	21,973
Total operating lease obligations	$	24,399
Finance Leases:
Right-of-use assets included in:
Property, plant and equipment, net	$	769
Lease obligations included in:
Accrued expenses and other liabilities	$	34
Other non-current liabilities	1,020
Total finance lease obligations	$	1,054

Supplemental income statement information related to leases were as follows (in millions):

	August 31, 2020
Operating lease cost
Fixed	$	3,332
Variable1	761
Finance lease cost
Amortization	$	40
Interest	56
Sublease income	76
Impairment of right-of-use assets2	214
Impairment of finance lease assets 2	24
Gains on sale-leaseback transactions3	308

¹Includes real estate property taxes, common area maintenance, insurance and rental payments based on sales volume.

²For the fiscal year August 31, 2020, total impairments include $177 million to Transformational Cost Management and Store Optimization programs. See note 3, exit and disposal activities.

³Recorded within selling, general and administrative expenses.

Other supplemental information were as follows (in millions):

	August 31, 2020
Cash paid for amounts included in the measurement of lease obligations
Operating cash flows from operating leases	$	3,315
Operating cash flows from finance leases	48
Financing cash flows from finance leases	51
Total	$	3,414
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases	$	2,494
Finance leases	65
Total	$	2,559

Average lease term and discount rate as of August 31, 2020 were as follows:

	August 31, 2020
Weighted average remaining lease term in years:
Operating leases	10.7
Finance leases	20.7
Weighted average discount rate
Operating leases	4.95	%
Finance leases	5.39	%

The aggregate future lease payments for operating and finance leases as of August 31, 2020 were as follows (in millions):

Fiscal year	Finance lease		Operating lease
2021	$	96	$	3,529
2022	94		3,374
2023	93		3,210
2024	93		3,049
2025	91		2,868
Later	1,230		15,559
Total undiscounted minimum lease payments	$	1,697	$	31,589
Less: Present value discount	(643)		(7,190)
Lease liability	$	1,054	$	24,399

Comparative disclosures prior to the adoption of ASC 842 Leases

On September 1, 2019, upon adoption of ASC 842 Leases, the liability for facility closings and related termination charges were transferred as an offset to right-of-of use assets . In fiscal 2019 and 2018, prior to the adoption of ASC 842 Leases, the Company recorded charges of $185 million and $129 million, respectively, for closed or relocated facilities. These charges are reported in selling, general and administrative expenses in the Consolidated Statements of Earnings.

The changes in liability for facility closings and related lease termination charges include the following (in millions):

	2019
Balance at beginning of period	$	964
Provision for present value of non-cancelable lease payments on closed facilities	90
Changes in assumptions	56
Accretion expense	39
Other - non cash1	160
Cash payments, net of sublease income	(316)
Balance at end of period	$	993

¹Primarily unfavorable lease liabilities from acquired Rite Aid stores.

Rental expense prior to the adoption of ASC 842 Leases, which includes common area maintenance, insurance and taxes, where appropriate, was as follows (in millions):

	2019		2018
Minimum rentals	$	3,622	$	3,447
Contingent rentals	74		68
Less: sublease rental income	(66)		(67)
	$	3,631	$	3,448