Leases

12 Months Ended

Dec. 30, 2023

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 as of 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 as of 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, the associated payments 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 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. As of December 30, 2023, lease agreements included residual value guarantees of up to $238 million that could potentially come due in future periods. For leases which we believe amounts will be owed under these guarantees we have included the probable residual value guarantee within the lease payments to measure the right-of-use assets and lease liabilities.

During 2022, the Company entered into new lease agreements for four distribution facilities that were previously classified as operating leases. As a result of terminating the original leases, the Company recognized a charge of $9 million, which was recorded in distribution, selling and administrative costs. These new leases are classified as financing leases, were measured using our incremental borrowing rate and are included in our right of use assets and lease liabilities in the Consolidated Balance Sheets. Rental payments are calculated at the applicable reference rate plus a margin.

The following table presents the location of the ROU assets and lease liabilities in the Company’s Consolidated Balance Sheets:


Leases	Consolidated Balance Sheet Location	December 30, 2023		December 31, 2022
Assets
Operating	Other assets	$	290	$	265
Financing	Property and equipment-net(1)	450		395
Total leased assets		$	740	$	660
Liabilities
Current:
Operating	Accrued expenses and other current liabilities	$	43	$	36
Financing	Current portion of long-term debt	95		92
Noncurrent:
Operating	Other long-term liabilities	265		246
Financing	Long-term debt	367		354
Total lease liabilities		$	770	$	728

(1)Financing lease assets are recorded net of accumulated amortization of $297 million and $263 million as of December 30, 2023 and December 31, 2022, respectively.

The following table presents the location of lease costs in fiscal years 2023, 2022 and 2021 in the Company’s Consolidated Statements of Comprehensive Income:


Lease Cost	Statements of Comprehensive Income Location	2023		2022		2021
Operating lease cost	Distribution, selling and administrative costs	$	59	$	69	$	58
Financing lease cost:
Amortization of leased assets	Distribution, selling and administrative costs	86		70		73
Interest on lease liabilities	Interest expense-net	22		11		10
Short-term lease cost	Distribution, selling and administrative costs	2		2		1
Variable lease cost	Distribution, selling and administrative costs	12		10		11
Net lease cost		$	181	$	162	$	153

Future lease payments under lease agreements as of December 30, 2023 were as follows:


Maturity of Lease Liabilities	Operating Leases		Financing Lease Obligation		Total
2024	$	62	$	113	$	175
2025	63		104		167
2026	57		94		151
2027	50		81		131
2028	39		56		95
After 2028	130		81		211
Total lease payments	401		529		930
Less amount representing interest	(93)		(67)		(160)
Present value of lease liabilities	$	308	$	462	$	770

Other information related to lease agreements for fiscal years 2023, 2022 and 2021 was as follows:


Cash Paid For Amounts Included In Measurement of Liabilities	2023		2022		2021
Operating cash flows from operating leases	$	62	$	56	$	55
Operating cash flows from financing leases	21		11		10
Financing cash flows from financing leases	111		73		87


Lease Term and Discount Rate	December 30, 2023		December 31, 2022		January 1, 2022
Weighted-average remaining lease term (years):
Operating leases	7.57		8.32		8.30
Financing leases	7.03		6.36		5.74
Weighted-average discount rate:
Operating leases	6.5	%	6.5	%	6.1	%
Financing leases	4.2	%	4.1	%	3.2	%

Finance leases