Leases (Tables)

3 Months Ended

Mar. 28, 2020

Schedule of Lease Type and Classification On Balance Sheet



In thousands		As of March 28, 2020		As of December 28, 2019
Type	Classification
	ASSETS
Finance	Property and equipment, net ^(a)	$	26,716	$	28,128
Operating	Right of use assets^(b)	343,731		348,090
	Total leased assets	370,447		376,218
	LIABILITIES
	Current Liabilities:
Finance	Current maturities of long-term debt and finance lease obligations	$	3,531	$	3,259
Operating	Current operating lease obligations ^(c)	60,014		51,937
	Other non-current liabilities:
Finance	Long-term debt and finance lease obligations, less current portion and debt discount	30,364		30,037
Operating	Non-current operating lease obligations	331,234		331,769
	Total lease liabilities	$	425,143	$	417,002
As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the net present value of minimum lease payments. We used the incremental borrowing rate on December 30, 2018, for operating leases that commenced prior to that date.

_________

(a) Finance lease assets are recorded net of accumulated amortization of $9.4 million and $8.3 million as of March 28, 2020 and December 28, 2019, respectively.

(b) TIA of $35.5 million and $35.2 million are treated as reductions of lease payments used to measure ROU assets as of March 28, 2020 and December 28, 2019, respectively. Deferred rent of $15.7 million and $15.0 million are treated as reductions of lease payments used to measure ROU assets as of March 28, 2020 and December 28, 2019, respectively.

(c) Current operating lease liabilities are measured net of TIA receivables of $4.6 million and $5.9 million as of March 28, 2020 and December 28, 2019, respectively

Schedule of Lease Cost



In thousands	As of March 28, 2020			As of March 30, 2019
Operating lease cost
Fixed lease cost ^(a)	$	19,312		$	18,163
Variable lease cost ^(b)	6,810			6,466
Sublease income^(c)	(591		)	(962		)

Finance lease cost
Amortization of finance lease assets	1,156			978

Interest expense, net:
Interest on finance lease liabilities	872			890

Net lease cost	$	27,559		$	25,535
(a) Includes short-term leases, which are immaterial.
(b) Includes costs for insurance, real estate taxes and common area maintenance expenses, which are variable as well as lease costs above minimum thresholds for Fred Meyer stores and lease costs for Military stores.
(c) Income from sub-leasing of stores includes rental income from operating lease properties to ophthalmologists and optometrists who are independent contractors.

Schedule of Lease Terms and Discount Rate



Lease Term and Discount Rate	As of March 28, 2020		As of December 28, 2019
Weighted average remaining lease term (months)
Operating leases	81		82
Finance leases	87		88
Weighted average discount rate ^(a)
Operating leases	4.6	%	4.6	%
Finance leases ^(b)	12.7	%	13.1	%
(a) The discount rate used to determine the lease assets and lease liabilities was derived upon considering (i) incremental borrowing rates on our long-term debt; (ii) fixed rates we pay on our interest rate swaps; (iii) LIBOR margins for issuers of similar credit rating; and (iv) effect of collateralization. As a majority of our leases are five-year and 10-year leases, we determined a lease discount rate for such tenors and determined this discount rate is reasonable for leases that were entered into during the period.
(b) The discount rate on finance leases is higher than operating leases because the present value of minimum lease payments was higher than the fair value of leased properties for certain leases entered into prior to adoption of ASC 842. The discount rate differential for those leases is not material to our results of operations.

Schedule of Operating Lease Cash Flows



In thousands	As of March 28, 2020		As of March 30, 2019
Other Information	As of March 28, 2020		As of March 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows - operating leases	$	15,269	$	18,146

Schedule of Maturity for Operating Lease Liabilities

The following table summarizes the maturity of our lease liabilities as of March 28, 2020:



In thousands	Operating Leases ^(a)		Finance Leases^(b)
Fiscal Year	Operating Leases ^(a)		Finance Leases^(b)
2020	$	56,224	$	5,319
2021	77,307		7,280
2022	69,631		7,215
2023	62,360		6,241
2024	55,206		4,673
Thereafter	138,152		16,460
Total lease liabilities	458,880		47,188
Less: Interest	67,632		13,293
Present value of lease liabilities^(c)	$	391,248	$	33,895
(a) Operating lease payments include $69.8 million related to options to extend lease terms that are reasonably certain of being exercised.
(b) Finance lease payments include $1.7 million related to options to extend lease terms that are reasonably certain of being exercised.
(c) The present value of lease liabilities excludes $21.0 million of legally binding minimum lease payments for leases signed but not yet commenced.

Schedule of Maturity for Finance Lease Liabilities

The following table summarizes the maturity of our lease liabilities as of March 28, 2020:



In thousands	Operating Leases ^(a)		Finance Leases^(b)
Fiscal Year	Operating Leases ^(a)		Finance Leases^(b)
2020	$	56,224	$	5,319
2021	77,307		7,280
2022	69,631		7,215
2023	62,360		6,241
2024	55,206		4,673
Thereafter	138,152		16,460
Total lease liabilities	458,880		47,188
Less: Interest	67,632		13,293
Present value of lease liabilities^(c)	$	391,248	$	33,895
(a) Operating lease payments include $69.8 million related to options to extend lease terms that are reasonably certain of being exercised.
(b) Finance lease payments include $1.7 million related to options to extend lease terms that are reasonably certain of being exercised.
(c) The present value of lease liabilities excludes $21.0 million of legally binding minimum lease payments for leases signed but not yet commenced.