Leases

6 Months Ended

Jun. 29, 2019

LEASES

The Company leases certain distribution and warehouse facilities, office facilities, fleet vehicles, and office and warehouse equipment. The Company determines if an arrangement is a lease at inception and recognizes a financing or operating lease liability and right-of-use (“ROU”) asset in the Company’s Consolidated Balance Sheets. ROU assets and lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. For the Company’s leases that do not provide an implicit borrowing rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The lease terms may include options to extend, terminate or buy out the lease. When it is reasonably certain that the Company will exercise these options, they are included in ROU assets and the estimated lease liabilities. Leases with an initial term of 12 months or less are not recorded in the Company's Consolidated Balance Sheets. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for separately. For office and warehouse equipment leases, the Company accounts for the lease and non-lease components as a single lease component. Variable lease payments that do not depend on an index or a rate, such as insurance and property taxes, are excluded from the measurement of the lease liability and are recognized as variable lease cost when the obligation for that payment is incurred.

The following table presents the location of the ROU assets and lease liabilities in the Company’s Consolidated Balance Sheet at June 29, 2019:



Leases	Consolidated Balance Sheet Location	June 29, 2019
Assets
Operating	Other assets	$	106
Financing	Property and equipment-net⁽¹⁾	348
Total leased assets		$	454

Liabilities
Current:
Operating	Accrued expenses and other current liabilities⁽²⁾	$	27
Financing	Current portion of long-term debt	82
Noncurrent:
Operating	Other long-term liabilities⁽²⁾	105
Financing	Long-term debt	282
Total lease liabilities		$	496


(1)	Financing lease assets are recorded net of accumulated amortization of $238 million as of June 29, 2019.


(2)	Operating lease liabilities include current and noncurrent liabilities of $3 million and $15 million, respectively, related to an unfunded lease obligation on a distribution facility through 2023.

The following table presents the location of lease costs in the Company's Consolidated Statement of Comprehensive Income:



		13 Weeks Ended		26 Weeks Ended
Lease Cost	Statement of Comprehensive Income Location	June 29, 2019		June 29, 2019
Operating lease cost	Distribution, selling and administrative costs	$	7	$	14
Financing lease cost:
Amortization of leased assets	Distribution, selling and administrative costs	22		39
Interest on lease liabilities	Interest expense-net	3		6
Variable lease cost⁽¹⁾	Distribution, selling and administrative costs	2		3
Net lease cost		$	34	$	62


(1)	Includes short-term leases and sub-lease income, each of which are immaterial.

Future lease payments under lease agreements as of June 29, 2019 were as follows:



Maturity of Lease Liabilities	Operating Leases⁽¹⁾			Financing Leases			Total
Remainder of 2019	$	19		$	41		$	60
2020	36			102			138
2021	29			80			109
2022	27			57			84
2023	24			54			78
2024	4			38			42
After 2024	13			23			36
Total lease payments	152			395			547
Less amount representing interest	(19		)	(32		)	(51		)
Present value of lease liabilities	$	133		$	363		$	496


(1)	Operating lease payments include $21 million in payments, $18 million net of interest, on an unfunded lease obligation on a distribution facility through 2023.

Future minimum lease payments in effect as of December 29, 2018 under noncancelable lease arrangements, as determined prior to the adoption of Topic 842, were as follows:



Future Minimum Lease Payments⁽¹⁾	Operating Leases⁽²⁾			Financing Leases			Total
2019	$	34		$	95		$	129
2020	34			84			118
2021	30			71			101
2022	27			54			81
2023	23			43			66
After 2023	7			38			45
Total lease payments	155			385			540
Less amount representing interest	(4		)	(33		)	(37		)
Present value of minimum lease payments	$	151		$	352		$	503


(1)	Information in this table has been conformed to the current year presentation under Topic 842.


(2)	Operating lease payments include $24 million in payments, $20 million net of interest, on an unfunded lease obligation on a distribution facility through 2023.

Other information related to lease agreements for the 26 weeks ended June 29, 2019 was as follows:



	26 Weeks Ended
Cash Paid For Amounts Included In Measurement of Liabilities	June 29, 2019
Operating cash flows from operating leases	$	6
Operating cash flows from financing leases	3
Financing cash flows from financing leases	21



Lease Term and Discount Rate	June 29, 2019
Weighted-average remaining lease term (years):
Operating leases	5.87
Financing leases	5.61
Weighted-average discount rate:
Operating leases	4.6	%
Financing leases	3.6	%

Leases