| Lease Commitments |
13. Lease Commitments
The Company’s leases primarily consist of stores, distribution facilities and office space under operating and finance leases that will expire principally during the next 30 years. The leases typically include renewal options at five year intervals and escalation clauses. Lease renewals are only included in the lease liability to the extent that they are reasonably assured of being exercised. The Company’s leases typically provide for contingent rentals based on a percentage of gross sales. Contingent rentals are not included in the lease liability, and they are recognized as variable lease cost when incurred.
The following is a schedule of the Company’s future lease payments:
|
|
|
(in thousands) |
|
|
Fiscal Year |
|
Operating
Leases |
|
|
Finance
Leases |
|
|
2020 |
|
|
435,535 |
|
|
|
6,057 |
|
|
2021 |
|
|
419,251 |
|
|
|
6,841 |
|
|
2022 |
|
|
402,649 |
|
|
|
7,513 |
|
|
2023 |
|
|
381,618 |
|
|
|
7,589 |
|
|
2024 |
|
|
344,272 |
|
|
|
7,417 |
|
|
Thereafter |
|
|
1,324,733 |
|
|
|
38,651 |
|
|
Total future minimum lease payments |
|
|
3,308,058 |
|
|
|
74,068 |
|
|
Amount representing interest |
|
|
(683,873 |
) |
|
|
(23,938 |
) |
|
Total lease liabilities |
|
|
2,624,185 |
|
|
|
50,130 |
|
|
Less: current portion of lease liabilities |
|
|
(302,185 |
) |
|
|
(3,577 |
) |
|
Total long term lease liabilities |
|
$ |
2,322,000 |
|
|
$ |
46,553 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate |
|
|
5.4 |
% |
|
|
7.0 |
% |
|
Weighted average remaining lease term (years) |
|
|
8.6 |
|
|
|
12.1 |
|
The above schedule excludes approximately $373.2 million for 51 stores that the Company has committed to open or relocate but has not yet taken possession of the space.
The following is a schedule of net lease costs for Fiscal 2019:
|
|
|
(in thousands) |
|
|
|
|
Fiscal Year Ended |
|
|
|
|
February 1, 2020 |
|
|
Finance lease cost: |
|
|
|
|
|
Amortization of finance lease asset (a) |
|
$ |
4,027 |
|
|
Interest on lease liabilities (b) |
|
|
2,770 |
|
|
Operating lease cost (c) |
|
|
414,174 |
|
|
Variable lease cost (c) |
|
|
155,210 |
|
|
Total lease cost |
|
|
576,181 |
|
|
Less all rental income(d) |
|
|
(5,029 |
) |
|
Total net rent expense (e) |
|
$ |
571,152 |
|
|
|
(a) |
Included in the line item “Depreciation and amortization” in the Company’s Consolidated Statements of Income. |
|
|
(b) |
Included in the line item “Interest expense” in the Company’s Consolidated Statements of Income. |
|
|
(c) |
Includes real estate taxes, common area maintenance, insurance and percentage rent. Included in the line item “Selling, general and administrative expenses” in the Company’s Consolidated Statements of Income. |
|
|
(d) |
Included in the line item “Other revenue” in the Company’s Consolidated Statements of Income. |
|
|
(e) |
Excludes an immaterial amount of short-term lease cost. |
Supplemental cash flow disclosures related to leases are as follows:
|
|
|
(in thousands) |
|
|
|
|
Fiscal Year Ended |
|
|
|
|
February 1, 2020 |
|
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
Cash payments arising from operating lease liabilities (a) |
|
$ |
401,575 |
|
|
Cash payments for the principal portion of finance lease liabilities (b) |
|
$ |
2,932 |
|
|
Cash payments for the interest portion of finance lease liabilities (a) |
|
$ |
2,770 |
|
|
Supplemental non-cash information: |
|
|
|
|
|
Operating lease liabilities arising from obtaining right-of-use assets |
|
$ |
690,827 |
|
|
|
(a) |
Included within operating activities in the Company’s Consolidated Statements of Cash Flows. |
|
|
(b) |
Included within financing activities in the Company’s Consolidated Statements of Cash Flows. |
The following is a schedule of net rent expense for the periods indicated under Accounting Standards Codification (ASC) 840, “Leases.” Prior periods have not been adjusted for adoption of ASU 2016-02:
|
|
|
(in thousands) |
|
|
|
|
Year Ended |
|
|
|
|
February 2,
2019 |
|
|
February 3,
2018
(53 Weeks) |
|
|
Rent expense: |
|
|
|
|
|
|
|
|
|
Minimum rental payments |
|
$ |
364,637 |
|
|
$ |
340,979 |
|
|
Contingent rental payments |
|
|
6,047 |
|
|
|
4,734 |
|
|
Straight-line rent expense |
|
|
8,469 |
|
|
|
7,543 |
|
|
Lease incentives amortization |
|
|
(34,827 |
) |
|
|
(32,618 |
) |
|
Amortization of purchased lease rights |
|
|
844 |
|
|
|
499 |
|
|
Total rent expense(a) |
|
|
345,170 |
|
|
|
321,137 |
|
|
Less all rental income(b) |
|
|
(6,164 |
) |
|
|
(6,846 |
) |
|
Total net rent expense |
|
$ |
339,006 |
|
|
$ |
314,291 |
|
|
(a) |
Included in the line item “Selling, general and administrative expenses” in the Company’s Consolidated Statements of Income. |
|
(b) |
Included in the line item “Other revenue” in the Company’s Consolidated Statements of Income. |
As previously disclosed in the Company’s Fiscal 2018 Form 10-K and under the previous lease accounting standard, future minimum lease payments due under non-cancelable operating leases as of February 2, 2019 would have been as follows:
|
|
|
(in thousands) |
|
|
Fiscal Year |
|
Operating
Leases |
|
|
Capital
Leases |
|
|
2019 |
|
$ |
383,877 |
|
|
$ |
5,414 |
|
|
2020 |
|
|
405,370 |
|
|
|
5,120 |
|
|
2021 |
|
|
387,140 |
|
|
|
5,597 |
|
|
2022 |
|
|
369,068 |
|
|
|
5,725 |
|
|
2023 |
|
|
346,175 |
|
|
|
6,291 |
|
|
Thereafter |
|
|
1,475,301 |
|
|
|
15,849 |
|
|
Total minimum lease payments |
|
|
3,366,931 |
|
|
|
43,996 |
|
|
Amount representing interest |
|
|
— |
|
|
|
(11,290 |
) |
|
Total future minimum lease payments |
|
$ |
3,366,931 |
|
|
$ |
32,706 |
|
The above schedule included $278.9 million related to options to extend lease terms that were reasonably assured of being exercised and $622.4 million of minimum lease payments for 76 stores that the Company had committed to open or relocate.
|