Quarterly report pursuant to Section 13 or 15(d)

Leases

v3.20.2
Leases
9 Months Ended
Sep. 30, 2020
Leases [Abstract]  
Leases

(4)

LEASES

The Company determines if an arrangement is a lease at inception, and, if a lease, what type of lease it is. The Company regularly enters into non-cancellable operating leases for automobiles, retail stores, and real estate leases for offices, showrooms and distribution facilities. Most leases have fixed rental payments. Leases for retail stores typically have initial terms ranging from 5 to 10 years. Other real estate or facility leases may have initial lease terms of up to 20 years. These leases are included within operating lease right-of-use (“ROU”) assets and liabilities on the Company’s condensed consolidated balance sheet as of September 30, 2020. The predominant asset for most real estate leases is the right to occupy the space which the Company has determined is the single lease component. Many of the Company’s real estate leases include options to extend or to terminate the lease that are not reasonably certain at the time of determining the expected lease term. In addition, the Company’s real estate leases may also require additional payments for real estate taxes and other occupancy-related costs. The Company considers renewal options and other occupancy-related costs which it considers as non-lease components. Percentage rent expense, which is specified in the lease agreement, is owed when sales at individual retail store locations exceed a base amount. Percentage rent expense is recognized in the condensed consolidated financial statements when incurred. Rent expense for leases having rent holidays, landlord incentives or scheduled rent increases is recorded on a straight-line basis over the earlier of the beginning of the lease term or when the Company takes possession or control of the leased premises. The amount of the excess straight-line rent expense over scheduled payments is recorded as an operating lease liability. Operating lease ROU assets and operating lease liabilities are recognized based upon the present value of the future lease payments over the lease term at the commencement date. Most of the Company’s leases do not provide an implicit borrowing rate. Therefore, the Company uses an estimated incremental borrowing rate based upon a combination of market-based factors, such as market quoted forward yield curves and Company specific factors, such as lease size and duration. The incremental borrowing rate is then used at the commencement date of the lease to determine the present value of future lease payments. The operating lease ROU asset also includes lease payments made and lease incentives and initial direct costs incurred. Lease expense for fixed lease payments is recognized on a straight-line basis over the lease term. As of September 30, 2020 and December 31, 2019, current liabilities related to operating leases were $196.8 million and $191.1 million.

Operating lease cost and other information (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine months ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Fixed lease cost

 

$

68,059

 

 

$

63,724

 

 

$

194,714

 

 

$

180,324

 

Variable lease cost

 

 

1,141

 

 

 

1,219

 

 

 

2,152

 

 

 

10,157

 

Operating cash flows used for leases

 

 

61,630

 

 

 

67,744

 

 

 

188,540

 

 

 

192,066

 

Noncash right-of-use assets recorded for lease liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For January 1 adoption of Topic 842

 

 

 

 

 

 

 

 

 

 

 

1,035,062

 

In exchange for new lease liabilities during the period

 

 

45,327

 

 

 

74,500

 

 

 

177,379

 

 

 

114,542

 

Weighted-average remaining lease term

 

4.41 years

 

 

4.70 year

 

 

4.41 years

 

 

4.70 year

 

Weighted-average discount rate

 

 

4.02

%

 

 

4.24

%

 

 

4.02

%

 

 

4.24

%

 

The maturities of lease liabilities were as follows (in thousands):

 

 

 

September 30, 2020

 

2020 remaining months

 

$

65,136

 

2021

 

 

240,845

 

2022

 

 

208,271

 

2023

 

 

184,152

 

2024

 

 

170,395

 

Thereafter

 

 

515,258

 

Total lease payments

 

 

1,384,057

 

Less: Imputed interest

 

 

(182,713

)

 

 

$

1,201,344

 

 

 

 

 

 

As of September 30, 2020, the Company has additional operating leases, primarily for new retail stores, that have not yet commenced which will generate additional right-of-use assets of $15.7 million. These operating leases will commence in 2020 and 2021 with lease terms ranging from 2 year to 10 years.