Leases

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Leases

LEASES

Lessor Information

Refer to Note 1 to these condensed consolidated financial statements for further information about the Company's revenue generating activities as a lessor. All of the Company's customer agreements are considered operating leases, and the Company currently does not have any sales-type or direct financing leases.

Lessee Information

As a lessee, the Company leases retail store and warehouse space for most of its Aaron's Business store-based operations, call center space and hubs for its Progressive Leasing segment, and management and information technology space for corporate functions under operating leases expiring at various times through 2033. To the extent that a leased retail store or warehouse space is vacated prior to the termination of the lease, the Company may sublease these spaces to third parties while maintaining its primary obligation as the lessee in the head lease. The Company leases transportation vehicles under operating and finance leases, most of which generally expire during the next three years. The transportation leases generally include a residual value that is guaranteed to the lessor, which ensures that the vehicles will be returned to the lessor in reasonable working condition. The Company also leases various IT equipment such as printers and computers under operating leases, most of which generally expire during the next three years. For all of its leases in which the Company is a lessee, the Company has elected to include both the lease and non-lease components as a single component and account for it as a lease.

Finance lease costs are comprised of the amortization of right-of-use assets and the interest accretion on discounted lease liabilities, which are recorded within operating expenses and interest expense, respectively, in the Company’s condensed consolidated statements of earnings. Operating lease costs are recorded on a straight-line basis within operating expenses. For stores that are related to the Company's restructuring programs as described in Note 8, operating lease costs recorded subsequent to any necessary operating lease right-of-use asset impairment charges are recognized in a pattern that is generally accelerated within restructuring expenses, net in the Company’s condensed consolidated statements of earnings. The Company’s total lease expense is comprised of the following:

	Three Months Ended			Nine Months Ended
(In Thousands)	September 30, 2019			September 30, 2019
Finance Lease Cost:
Amortization of Right-of-Use Assets	$	396		$	1,302
Interest on Lease Liabilities	83			296
Total Finance Lease Cost:	479			1,598
Operating Lease Cost:
Operating Lease Cost Classified within Operating Expenses1	27,647			84,789
Operating Lease Cost Classified within Restructuring Expenses, Net	881			2,521
Sublease Receipts	(628		)	(2,399		)
Total Operating Lease Cost:	27,900			84,911
Total Lease Cost	$	28,379		$	86,509

¹ Includes short-term and variable lease costs, which are not significant.

Additional information regarding the Company’s leasing activities as a lessee is as follows:

	Nine Months Ended
(In Thousands)	September 30, 2019
Cash Paid for Amounts Included in Measurement of Lease Liabilities:
Operating Cash Flows for Finance Leases	$	345
Operating Cash Flows for Operating Leases	91,333
Financing Cash Flows for Finance Leases	1,971
Total Cash Paid for Amounts Included in Measurement of Lease Liabilities	93,649
Right-of-Use Assets Obtained in Exchange for New Finance Lease Liabilities	—
Right-of-Use Assets Obtained in Exchange for New Operating Lease Liabilities, Net of Exercised Early Lease Termination Options	$	27,185

Supplemental balance sheet information related to leases is as follows:

(In Thousands)	Balance Sheet Classification	September 30, 2019
Assets
Operating Lease Assets	Operating Lease Right-of-Use Assets	$	330,508
Finance Lease Assets	Property, Plant and Equipment, Net	1,018
Total Lease Assets		$	331,526
Liabilities
Operating Lease Liabilities	Operating Lease Liabilities	$	374,443
Finance Lease Liabilities	Debt	3,192
Total Lease Liabilities		$	377,635

Most of the Company’s real estate leases contain renewal options for additional periods ranging from one to 20 years or provide for options to purchase the related property at predetermined purchase prices that do not represent bargain purchase options. The Company currently does not have any real estate leases in which it considers the renewal options to be reasonably certain of exercise, as the Company's historical experience indicates that renewal options are not reasonably certain to be exercised. Additionally, the Company's leases contain contractual renewal rental rates that are considered to be in line with market rental rates, and there are not significant economic penalties or business disruptions incurred by not exercising any renewal options.

The Company uses its incremental borrowing rate as the discount rate for its leases, as the implicit rate in the lease is not readily determinable. Below is a summary of the weighted-average discount rate and weighted-average remaining lease term for the Company’s finance and operating leases:

	Weighted Average Discount Rate1		Weighted Average Remaining Lease Term (in years)
Finance Leases	5.8	%	1.3
Operating Leases	3.6	%	5.0

¹ Upon adoption of ASC 842, discount rates for existing operating leases were established as of January 1, 2019.

Under the short-term lease exception provided within ASC 842, the Company does not record a lease liability or right-of-use asset for any leases that have a lease term of 12 months or less at commencement, including renewal options that the Company is reasonably certain to exercise, and do not include purchase options. Below is a summary of undiscounted finance and operating lease liabilities that have initial terms in excess of one year as of September 30, 2019. The table also includes a reconciliation of the future undiscounted cash flows to the present value of the finance and operating lease liabilities included in the condensed consolidated balance sheet.

(In Thousands)	Operating Leases		Finance Leases		Total
2019	$	27,105	$	561	$	27,666
2020	108,113		2,001		110,114
2021	85,651		841		86,492
2022	65,160		83		65,243
2023	44,363		—		44,363
Thereafter	78,980		—		78,980
Total Undiscounted Cash Flows	409,372		3,486		412,858
Less: Interest	34,929		294		35,223
Present Value of Lease Liabilities	$	374,443	$	3,192	$	377,635

Leases

LEASES

Lessor Information

Refer to Note 1 to these condensed consolidated financial statements for further information about the Company's revenue generating activities as a lessor. All of the Company's customer agreements are considered operating leases, and the Company currently does not have any sales-type or direct financing leases.

Lessee Information

As a lessee, the Company leases retail store and warehouse space for most of its Aaron's Business store-based operations, call center space and hubs for its Progressive Leasing segment, and management and information technology space for corporate functions under operating leases expiring at various times through 2033. To the extent that a leased retail store or warehouse space is vacated prior to the termination of the lease, the Company may sublease these spaces to third parties while maintaining its primary obligation as the lessee in the head lease. The Company leases transportation vehicles under operating and finance leases, most of which generally expire during the next three years. The transportation leases generally include a residual value that is guaranteed to the lessor, which ensures that the vehicles will be returned to the lessor in reasonable working condition. The Company also leases various IT equipment such as printers and computers under operating leases, most of which generally expire during the next three years. For all of its leases in which the Company is a lessee, the Company has elected to include both the lease and non-lease components as a single component and account for it as a lease.

Finance lease costs are comprised of the amortization of right-of-use assets and the interest accretion on discounted lease liabilities, which are recorded within operating expenses and interest expense, respectively, in the Company’s condensed consolidated statements of earnings. Operating lease costs are recorded on a straight-line basis within operating expenses. For stores that are related to the Company's restructuring programs as described in Note 8, operating lease costs recorded subsequent to any necessary operating lease right-of-use asset impairment charges are recognized in a pattern that is generally accelerated within restructuring expenses, net in the Company’s condensed consolidated statements of earnings. The Company’s total lease expense is comprised of the following:

	Three Months Ended			Nine Months Ended
(In Thousands)	September 30, 2019			September 30, 2019
Finance Lease Cost:
Amortization of Right-of-Use Assets	$	396		$	1,302
Interest on Lease Liabilities	83			296
Total Finance Lease Cost:	479			1,598
Operating Lease Cost:
Operating Lease Cost Classified within Operating Expenses1	27,647			84,789
Operating Lease Cost Classified within Restructuring Expenses, Net	881			2,521
Sublease Receipts	(628		)	(2,399		)
Total Operating Lease Cost:	27,900			84,911
Total Lease Cost	$	28,379		$	86,509

¹ Includes short-term and variable lease costs, which are not significant.

Additional information regarding the Company’s leasing activities as a lessee is as follows:

	Nine Months Ended
(In Thousands)	September 30, 2019
Cash Paid for Amounts Included in Measurement of Lease Liabilities:
Operating Cash Flows for Finance Leases	$	345
Operating Cash Flows for Operating Leases	91,333
Financing Cash Flows for Finance Leases	1,971
Total Cash Paid for Amounts Included in Measurement of Lease Liabilities	93,649
Right-of-Use Assets Obtained in Exchange for New Finance Lease Liabilities	—
Right-of-Use Assets Obtained in Exchange for New Operating Lease Liabilities, Net of Exercised Early Lease Termination Options	$	27,185

Supplemental balance sheet information related to leases is as follows:

(In Thousands)	Balance Sheet Classification	September 30, 2019
Assets
Operating Lease Assets	Operating Lease Right-of-Use Assets	$	330,508
Finance Lease Assets	Property, Plant and Equipment, Net	1,018
Total Lease Assets		$	331,526
Liabilities
Operating Lease Liabilities	Operating Lease Liabilities	$	374,443
Finance Lease Liabilities	Debt	3,192
Total Lease Liabilities		$	377,635

Most of the Company’s real estate leases contain renewal options for additional periods ranging from one to 20 years or provide for options to purchase the related property at predetermined purchase prices that do not represent bargain purchase options. The Company currently does not have any real estate leases in which it considers the renewal options to be reasonably certain of exercise, as the Company's historical experience indicates that renewal options are not reasonably certain to be exercised. Additionally, the Company's leases contain contractual renewal rental rates that are considered to be in line with market rental rates, and there are not significant economic penalties or business disruptions incurred by not exercising any renewal options.

The Company uses its incremental borrowing rate as the discount rate for its leases, as the implicit rate in the lease is not readily determinable. Below is a summary of the weighted-average discount rate and weighted-average remaining lease term for the Company’s finance and operating leases:

	Weighted Average Discount Rate1		Weighted Average Remaining Lease Term (in years)
Finance Leases	5.8	%	1.3
Operating Leases	3.6	%	5.0

¹ Upon adoption of ASC 842, discount rates for existing operating leases were established as of January 1, 2019.

Under the short-term lease exception provided within ASC 842, the Company does not record a lease liability or right-of-use asset for any leases that have a lease term of 12 months or less at commencement, including renewal options that the Company is reasonably certain to exercise, and do not include purchase options. Below is a summary of undiscounted finance and operating lease liabilities that have initial terms in excess of one year as of September 30, 2019. The table also includes a reconciliation of the future undiscounted cash flows to the present value of the finance and operating lease liabilities included in the condensed consolidated balance sheet.

(In Thousands)	Operating Leases		Finance Leases		Total
2019	$	27,105	$	561	$	27,666
2020	108,113		2,001		110,114
2021	85,651		841		86,492
2022	65,160		83		65,243
2023	44,363		—		44,363
Thereafter	78,980		—		78,980
Total Undiscounted Cash Flows	409,372		3,486		412,858
Less: Interest	34,929		294		35,223
Present Value of Lease Liabilities	$	374,443	$	3,192	$	377,635