Leases
The Company recognizes a right of use (“ROU”) asset and a liability for all leases whose term is more than 12 months at the lease inception date. ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term, which includes any extension the Company reasonably expects to exercise. The Company assesses whether certain service arrangements contain embedded leases where the contract conveys the right to use an asset but is not explicitly identified as a lease arrangement; examples include information technology, third-party logistics and original equipment manufacturers. The Company uses incremental borrowing rates, updated quarterly, that reflect its own external unsecured borrowing rates that are risk-adjusted to approximate secured borrowing rates over similar terms.
For certain non-real estate leases, the portfolio approach is used. The Company also has lease agreements with lease and non-lease components, which are accounted for as a single lease component.
Operating lease expense is recognized on a straight-line basis over the lease term. Operating lease assets and operating lease liabilities are reported as separate lines in the Consolidated Balance Sheets. The current portion of operating lease liabilities is reported in other accrued liabilities in the Consolidated Balance Sheets.
For finance leases, lease payments are allocated between interest expense and reduction of the liability in accordance with an amortization schedule. The corresponding asset is amortized on a straight-line basis over the lease term. Assets acquired under finance leases are reported in property, plant and equipment, net in the Consolidated Balance Sheets. The Company did not have finance leases at December 31, 2025 and 2024.
The depreciable life of leasehold improvements and other lease-related assets are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
Supplemental consolidated balance sheet information for leases at December 31, is as follows (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | Classification | | 2025 | | 2024 |
| Assets | | | | | | |
| Operating leases | | Operating lease assets | | $ | 453 | | | $ | 466 | |
| | | | | | |
| Total lease assets | | | | $ | 453 | | | $ | 466 | |
| | | | | | |
| Liabilities | | | | | | |
| Current | | | | | | |
| Operating leases | | Other accrued liabilities | | $ | 113 | | | $ | 110 | |
| | | | | | |
| Noncurrent | | | | | | |
| Operating leases | | Operating lease liabilities | | 433 | | | 418 | |
| | | | | | |
| Total lease liabilities | | | | $ | 546 | | | $ | 528 | |
Components of lease expense for the years ended December 31, are as follows (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | 2025 | | 2024 | | 2023 |
| Operating lease cost: | | | | | | |
Operating lease cost (a) | | $ | 156 | | | $ | 161 | | | $ | 172 | |
Variable lease costs (b) | | 19 | | | 22 | | | 24 | |
| Finance lease cost: | | | | | | |
| Amortization of leased assets | | — | | | — | | | 1 | |
| | | | | | |
(a)Includes short-term leases, which are immaterial.
(b)Consists primarily of additional payments for non-lease components, such as maintenance costs, payments of taxes and additional rent based on a level of the Company’s retail store sales.
Remaining lease term and discount rates for operating leases at December 31, are as follows:
| | | | | | | | | | | |
| 2025 | | 2024 |
| Weighted-average remaining lease term (years) | 7 | | 7 |
| Weighted-average discount rate | 5.4% | | 5.1% |
Supplemental cash flow information related to leases for the years ended December 31, are as follows (in millions):
| | | | | | | | | | | | | | | | | |
| 2025 | | 2024 | | 2023 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | |
| Operating cash flows from operating leases | $ | 156 | | | $ | 158 | | | $ | 162 | |
| | | | | |
| | | | | |
| | | | | |
| Right of use assets obtained in exchange for lease liabilities: | | | | | |
| Operating leases | 62 | | | 76 | | | 46 | |
| | | | | |
Maturities of operating lease liabilities at December 31, 2025, are as follows (in millions): | | | | | | | |
| | | |
| 2026 | $ | 137 | | | |
| 2027 | 113 | | | |
| 2028 | 99 | | | |
| 2029 | 80 | | | |
| 2030 | 60 | | | |
| Thereafter | 163 | | | |
| Total lease payments | 652 | | | |
| Less: imputed interest | (106) | | | |
| Present value of lease liabilities | $ | 546 | | | |