Leases | 4. Leases We lease certain property and equipment used in our operations. Some of our store leases include additional rental payments based on a percentage of sales over contractual levels or payments that are adjusted periodically for inflation. Our typical store lease has an initial term of 20 to 25 years and four to eight five-year renewal options. Lease assets represent our right to use an underlying asset for the lease term. Lease assets are recognized at commencement date based on the value of the lease liability and are adjusted for any lease payments made to the lessor at or before commencement date, minus any lease incentives received and any initial direct costs incurred by the lessee. Lease liabilities represent our contractual obligation to make lease payments. At the commencement date, the lease liabilities equal the present value of minimum lease payments over the lease term. As the implicit interest rate is not readily identifiable in our leases, we estimate our collateralized borrowing rate to calculate the present value of lease payments. Leases with a term of 12 months or less are excluded from the balance; we recognize lease expense for these leases on a straight-line basis over the lease term. We combine lease and non-lease components for new and modified leases. We have 607 full size Sephora shop-in-shops within our Kohl's stores as of the end of the first quarter of 2023. We plan on opening at least 250 of the full size shops in 2023. Due to the investments we are making in the shop-in-shops, we reassessed our lease term when construction began as these assets will have significant economic value to us when the lease term becomes exercisable. The impact of these assessments resulted in additional lease term, additional lease assets and liabilities, and, in some cases, changes to the classification. The following tables summarize our operating and finance leases and where they are presented in our Consolidated Financial Statements: Consolidated Balance Sheets (Dollars in Millions) Classification April 29, January 28, April 30, Assets Operating leases Operating leases $ 2,368 $ 2,304 $ 2,224 Finance leases Property and equipment, net 1,950 2,033 1,883 Total operating and finance leases 4,318 4,337 4,107 Liabilities Current Operating leases Current portion of operating leases 111 111 127 Finance leases Current portion of finance leases and financing obligations 76 76 82 Noncurrent Operating leases Operating leases 2,634 2,578 2,474 Finance leases Finance leases and financing obligations 2,271 2,344 2,140 Total operating and finance leases $ 5,092 $ 5,109 $ 4,823 Consolidated Statement of Operations Quarter Ended (Dollars in Millions) Classification April 29, 2023 April 30, 2022 Operating leases Selling, general, and administrative $ 67 $ 69 Finance leases Amortization of leased assets Depreciation and amortization 32 29 Interest on leased assets Interest expense, net 36 32 Total operating and finance leases $ 135 $ 130 Consolidated Statement of Cash Flows Quarter Ended (Dollars in Millions) April 29, 2023 April 30, 2022 Cash paid for amounts included in the measurement of leased liabilities Operating cash flows from operating leases $ 69 $ 70 Operating cash flows from finance leases 35 30 Financing cash flows from finance leases 21 22 The following table summarizes future lease payments by fiscal year: April 29, 2023 (Dollars in Millions) Operating Leases Finance Leases Total 2023 $ 193 $ 159 $ 352 2024 253 208 461 2025 245 202 447 2026 238 201 439 2027 237 202 439 After 2027 3,672 3,439 7,111 Total lease payments $ 4,838 $ 4,411 $ 9,249 Amount representing interest ( 2,093 ) ( 2,064 ) ( 4,157 ) Lease liabilities $ 2,745 $ 2,347 $ 5,092 The following table summarizes weighted-average remaining lease term and discount rate: April 29, 2023 January 28, 2023 Weighted-average remaining term (years) Operating leases 20 20 Finance leases 20 20 Weighted-average discount rate Operating leases 6 % 6 % Finance leases 6 % 6 % Other lease information is as follows: Quarter Ended (Dollars in Millions) April 29, 2023 April 30, 2022 Property and equipment acquired (disposed) through exchange of: Finance lease liabilities $( 56 ) $ 472 Operating lease liabilities 74 11 Financing Obligations The following tables summarize our financing obligations and where they are presented in our Consolidated Financial Statements: Consolidated Balance Sheets (Dollars in Millions) Classification April 29, January 28, April 30, Assets Financing obligations Property and equipment, net $ 47 $ 49 $ 53 Liabilities Current Current portion of finance leases and financing obligations 17 18 26 Noncurrent Finance leases and financing obligations 439 442 444 Total financing obligations $ 456 $ 460 $ 470 Consolidated Statement of Operations Quarter Ended (Dollars in Millions) Classification April 29, 2023 April 30, 2022 Amortization of financing obligation assets Depreciation and amortization 2 2 Interest on financing obligations Interest expense, net 16 12 Total financing obligations $ 18 $ 14 Consolidated Statement of Cash Flows Quarter Ended (Dollars in Millions) April 29, 2023 April 30, 2022 Cash paid for and proceeds from amounts included in the measurement of financing obligations Operating cash flows from financing obligations $ 16 $ 12 Financing cash flows from financing obligations 4 7 Proceeds from financing obligations 5 4 The following table summarizes future financing obligation payments by fiscal year: April 29, 2023 (Dollars in Millions) Financing Obligations 2023 $ 58 2024 77 2025 75 2026 74 2027 71 After 2027 931 Total lease payments $ 1,286 Non-cash gain on future sale of property 157 Amount representing interest ( 987 ) Financing obligation liability $ 456 The following table summarizes the weighted-average remaining term and discount rate for financing obligations: April 29, 2023 January 28, 2023 Weighted-average remaining term (years) 14 13 Weighted-average discount rate 14 % 14 % |