Leases

12 Months Ended

Dec. 28, 2019

Leases:

The Company leases the majority of its retail store locations, two distribution sites, its Merchandise Innovation Center, and certain equipment under various non-cancellable operating leases. The leases have varying terms and expire at various dates through 2037. Store leases typically have initial terms of between 10 and 15 years, with two to four optional renewal periods of five years each. The exercise of lease renewal options is at our sole discretion. The Company has included lease renewal options in the lease term for calculations of its right-of-use assets and liabilities when it is reasonably certain that the Company plans to renew these leases. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company accounts for lease components (e.g., fixed payments including rent, real estate taxes, and insurance costs) together with non-lease components (e.g., fixed payment common-area maintenance) as a single component for all classes of underlying assets. Certain lease agreements require variable payments based upon actual costs of common-area maintenance, real estate taxes, and insurance. Further, certain lease agreements require variable payments based upon store sales above agreed-upon sales levels for the year and others require payments adjusted periodically for inflation. As substantially all of our leases do not provide an implicit rate, we estimate our collateralized incremental borrowing rate based upon a synthetic credit rating and yield curve analysis at commencement or modification date in determining the present value of lease payments.

The Company has elected not to recognize leases with an original term of one year or less on the balance sheet. Short-term lease cost during the periods presented was immaterial.

In addition to the operating lease right-of-use assets presented on the Consolidated Balance Sheets, assets, net of accumulated amortization, under finance leases of $30.9 million are recorded within the Property and equipment, net line on the Consolidated Balance Sheets as of December 28, 2019.

The following table summarizes the Company’s classification of lease cost (in thousands):

Fiscal Year Ended

Statement of Income Location

December 28, 2019

Finance lease cost:

Amortization of lease assets

Depreciation and amortization

4,281

Interest on lease liabilities

Interest expense, net

1,629

Operating lease cost

Selling, general and administrative expenses

353,961

Variable lease cost

Selling, general and administrative expenses

73,768

Net lease cost

433,639

The following table summarizes the future maturities of the Company’s lease liabilities (in thousands):


	Operating Leases ^(a)		Finance Leases		Total
2020	$	369,079	$	5,663	$	374,742
2021	350,527		5,723		356,250
2022	326,908		4,601		331,509
2023	301,783		3,409		305,192
2024	268,255		3,424		271,679
After 2024	1,169,671		21,818		1,191,489
Total lease payments	2,786,223		44,638		2,830,861
Less: Interest	(507,962)		(10,213)		(518,175)
Present value of lease liabilities	$	2,278,261	$	34,425	$	2,312,686

^(a) Operating lease payments exclude $212.8 million of legally binding minimum lease payments for leases signed, but not yet commenced.

The following table summarizes the Company’s lease term and discount rate:


	December 28, 2019
Weighted-average remaining lease term (years):
Finance leases	10.0
Operating leases	9.0
Weighted-average discount rate:
Finance leases	5.1	%
Operating leases	4.3	%

The following table summarizes the other information related to the Company’s lease liabilities (in thousands):


	Fiscal Year Ended
	December 28, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Financing cash flows from finance leases	$	3,709
Operating cash flows from finance leases	1,629
Operating cash flows from operating leases	360,580

The Company adopted new lease accounting guidance in the first quarter of fiscal 2019, as discussed in Note 1 and Note 14 to the Consolidated Financial Statements, and as required, the following disclosure is provided for periods prior to adoption. As of December 29, 2018 future minimum payments, by year and in the aggregate, under leases with initial or remaining terms of one year or more consisted of the following (in thousands):


	Capital Leases		Operating Leases
2019	$	5,215	$	344,836
2020	5,234		328,589
2021	5,294		306,572
2022	4,172		284,327
2023	2,980		260,518
Thereafter	20,169		1,175,972
Total minimum lease payments	43,064		$	2,700,814
Amount representing interest	(10,148)
Present value of minimum lease payments	32,916
Less: current portion	(3,646)
Long-term capital lease obligations	$	29,270

Total rent expense was approximately $342.2 million and $319.5 million for fiscal 2018 and 2017, respectively. Total contingent rent expense was insignificant for fiscal 2018 and 2017.