Leases

12 Months Ended

Jun. 30, 2021

5. Leases

Our operating leases are primarily for corporate offices, distribution facilities, vehicles, and equipment. We determine if an arrangement is a lease at its inception by evaluating whether the arrangement conveys the right to use an identified asset and whether we obtain substantially all of the economic benefits from and have the ability to direct the use of the asset. Our lease agreements generally do not contain any material residual value guarantees or material restrictive covenants.

Beginning July 1, 2019, operating lease right-of-use assets and corresponding operating lease liabilities are recognized in our consolidated balance sheets at lease commencement date based on the present value of lease payments over the lease term. Operating lease expense for operating lease assets is recognized on a straight-line basis over the lease term. As most of our leases do not provide an implicit rate, we use our collateralized incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. We use the implicit rate if it is readily determinable.

Our lease agreements contain lease components and non-lease components. For all asset classes, we have elected to account for both of these components as a single lease component. We also, from time to time, sublease portions of our real estate property, resulting in sublease income. Sublease income and the related assets and cash flows are not material to the consolidated financial statements at or for the fiscal years ended June 30, 2021 and 2020.

We also have elected to apply a practical expedient for short-term leases whereby we do not recognize a lease liability and right-of-use asset for leases with a term of less than 12 months. Short-term lease expense recognized in fiscal 2021 and 2020 was not material. In addition, upon adoption of the new lease standard, we elected the package of three practical expedients permitted under the transition guidance, which include the carry forward of our leases without reassessing 1) whether any contracts are leases or contain leases, 2) lease classification and 3) initial direct costs.

Our leases have remaining lease terms from less than 1 year up to approximately 21 years. Our lease terms may include options to extend or terminate the lease when it is reasonably certain and there is a significant economic incentive to exercise that option.

The following table summarizes the components of lease cost:



(in millions)	2021		2020
Operating lease cost	$	119	$	134

Finance lease cost	16		13



Variable lease cost	24		17

Total lease cost	$	159	$	164

Variable lease cost primarily includes payments for property taxes, maintenance and insurance. Our rental expense relating to operating leases was $153 million in fiscal 2019.

The following table summarizes supplemental balance sheet and other information related to leases at June 30:


(in millions)	2021			2020
Operating Leases
Operating lease right-of-use assets	$	460		$	426

Current portion of operating lease liabilities	105			104
Long-term operating lease liabilities	374			341
Total operating lease liabilities	479			445

Finance Leases
Finance lease right-of-use assets	63			33

Current portion of finance lease liabilities	19			9
Long-term finance lease liabilities	45			25
Total finance lease liabilities	$	64		$	34

Weighted-average remaining lease term (years)
Operating leases	6.5 years			6.4 years
Finance leases	4.2 years			4.3 years

Weighted-average discount rate
Operating leases	2.9		%	2.9		%
Finance leases	1.5		%	2.4		%

Operating leases are included in other assets, other accrued liabilities, and deferred income taxes and other liabilities in our consolidated balance sheet. Finance leases are included in property and equipment, net, current portion of long-term obligations and other short-term borrowings, and long-term obligations, less current portion in our consolidated balance sheet.

The following tables summarizes supplemental cash flow information related to leases:



(in millions)	2021		2020
Cash paid for lease liabilities:
Operating cash flows paid for operating leases	$	115	$	125

Financing cash flows paid for finance leases	15		7
Non-cash right-of-use assets obtained in exchange for lease obligations:
New operating leases	138		150
New finance leases	45		40
Amended lease standard adoption impact as of July 1, 2019 (1)	—		400

(1)Includes the effect of $22 million from reclassifying deferred rent as an offset to the lease right-of-use asset in accordance with the transition guidance.

Future lease payments under non-cancellable leases as of June 30, 2021 were as follows:


(in millions)	Operating Leases		Finance Leases		Total

2022	$	116	$	20	$	136
2023	93		20		113
2024	72		14		86
2025	65		8		73
2026	50		3		53
Thereafter	141		5		146
Total future lease payments	537		70		607
Less: leases not yet commenced (1)	3		—		3
Less: imputed interest	55		6		61
Total lease liabilities	$	479	$	64	$	543

(1)As of June 30, 2021, we had certain leases that were executed but did not have control of the underlying assets; therefore, the lease liabilities and right-of-use assets are not recorded in the consolidated balance sheet.