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Leases (Tables)

9 Months Ended

Nov. 02, 2019

The following tables summarize our operating and finance leases and where they are presented in our Consolidated Financial Statements:

Consolidated Balance Sheet		November 2, 2019
(Dollars in Millions)	Classification	November 2, 2019
Assets
Operating leases	Operating leases	$	2,427
Finance leases	Property and equipment, net		617
Total operating and finance leases			3,044
Liabilities
Current
Operating leases	Current portion of operating leases		162
Finance leases	Current portion of finance lease and financing obligations		74
Noncurrent
Operating leases	Operating leases		2,643
Finance leases	Finance lease and financing obligations		836
Total operating and finance leases		$	3,715

Consolidated Statement of Income		Three Months Ended November 2, 2019		Nine Months Ended November 2, 2019
(Dollars in Millions)	Classification	Three Months Ended November 2, 2019		Nine Months Ended November 2, 2019
Operating leases	Selling, general, and administrative	$	79	$	236
Finance leases
Amortization of leased assets	Depreciation and amortization		18		53
Interest on lease liabilities	Interest expense, net		25		73
Total operating and finance leases		$	122	$	362

Consolidated Statement of Cash Flows		Nine Months Ended November 2, 2019
(Dollars in Millions)	Classification
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases		$	249
Operating cash flows from finance leases			73
Financing cash flows from finance leases			56

The following table summarizes future lease payments by fiscal year:

	November 2, 2019
(Dollars in Millions)	Operating Leases			Finance Leases			Total
2019	$	66		$	43		$	109
2020		311			176			487
2021		303			156			459
2022		290			139			429
2023		275			117			392
After 2023		3,660			1,765			5,425
Total lease payments		4,905			2,396			7,301
Amount representing interest		(2,100	)		(1,486	)		(3,586	)
Lease liabilities	$	2,805		$	910		$	3,715

The following table summarizes weighted-average remaining lease term and discount rates:

	November 2, 2019
Weighted-average remaining term (years)
Operating leases		20
Finance leases		17
Weighted-average discount rate
Operating leases		6	%
Finance leases		11	%

The following tables summarize our financing obligations and where they are presented in our Consolidated Financial Statements:

Consolidated Balance Sheet
(Dollars in Millions)	Classification	November 2, 2019
Assets
Financing obligations	Property and equipment, net	$	78
Liabilities
Current	Current portion of finance lease and financing obligations		36
Noncurrent	Finance lease and financing obligations		496
Total financing obligations		$	532

Consolidated Statement of Income		Three Month Ended November 2, 2019		Nine Months Ended November 2, 2019
(Dollars in Millions)	Classification	Three Month Ended November 2, 2019		Nine Months Ended November 2, 2019
Amortization of financing obligation assets	Depreciation and amortization	$	3	$	8
Interest on financing obligations	Interest expense, net		9		28
Total financing obligations		$	12	$	36

Consolidated Statement of Cash Flows		Nine Months Ended November 2, 2019
(Dollars in Millions)	Classification	Nine Months Ended November 2, 2019
Cash paid for amounts included in the measurement of financing obligations
Operating cash flows from financing obligations		$	28
Financing cash flows from financing obligations			32
Proceeds from financing obligations			11
Gain on extinguishment of debt			(9	)

The following table summarizes future financing obligation payments by fiscal year:

(Dollars in Millions)	November 2, 2019
2019	$	12
2020		71
2021		71
2022		68
2023		66
After 2023		249
Total financing obligations payments		537
Non-cash gain on future sale of property		228
Amount representing interest		(233	)
Financing obligation liability	$	532

The following table summarizes the weighted-average remaining term and discount rate for financing obligations:

	November 2, 2019
Weighted-average remaining term (years)		9
Weighted-average discount rate		7	%

The following table summarizes changes in our Consolidated Balance Sheet upon adoption of the new standard:

(Dollars in Millions)
Assets
Property and equipment, net	$	(174	)	(a)
Operating leases		2,446		(b)
Other assets		(32	)	(c)
Total assets	$	2,240

Liabilities and Shareholders' Equity
Finance lease and financing obligations	$	(237	)	(a)
Operating leases		2,771		(b)
Accrued and other liabilities		(413	)	(c)
Deferred taxes		31		(d)
Shareholders' equity		88		(d)
Total liabilities and shareholders' equity	$	2,240

(a)	The reductions are primarily due to historical failed sale-leaseback and build-to-suit arrangements where we were deemed owner for accounting purposes. In accordance with ASC 842 transition provisions, they became operating or finance leases.

(b)	The increases include land and other operating leases which were not previously recorded on our balance sheet or were previously recorded as financing obligations.

(c)	The reductions are primarily due to the reclassification of lease-related assets and liabilities such as straight-line rent and reserves for closed stores to operating lease assets and liabilities.

(d)	The cumulative effect of lease adjustments, net of the deferred tax impact, was recorded as an adjustment to retained earnings. In addition, retained earnings include a $26 million lease impairment charge.