Leases

9 Months Ended

Oct. 31, 2020

Leases

Leases

6.    Leases: In the ordinary course of business, we enter into real estate lease agreements for retail, food and beverage, office and warehouse/distribution space, as well as leases for certain equipment. Our leases have varying terms and expirations and may have provisions to extend, renew or terminate the lease agreement at our discretion, among other provisions. Our real estate lease terms are typically for a period of ten years or less and typically require monthly rent payments with specified rent escalations periodically during the lease term. Our real estate leases usually provide for payments of our pro rata share of real estate taxes, insurance and other operating expenses applicable to the property, and certain of our leases require payment of sales taxes on rental payments. Also, our retail and restaurant leases often provide for contingent rent payments based on sales if certain sales thresholds are achieved. For many of our real estate lease agreements, we obtain lease incentives from the landlord for tenant improvement or other allowances. Our lease agreements do not include any material residual value guarantees or material restrictive financial covenants.

Substantially all of our leases are classified as long-term operating leases. Operating lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The significant judgments in calculating the present value of lease obligations include determining the lease term and lease payment amounts, which are dependent upon our assessment of the likelihood of exercising any renewal or termination options that are at our discretion, as well as the discount rate applied to the future lease payments. The operating lease asset at commencement represents the amount of the operating lease liability reduced for any lease incentives, including tenant improvement allowances. Lease expense for operating leases is generally recognized on a straight-line basis over the lease term. Variable rental payments for real estate taxes, sales taxes, insurance, other operating expenses and contingent rent based on a percentage of net sales or adjusted periodically for inflation are not included in lease expense used to calculate the present value of lease obligations recognized in our consolidated balance sheet, but instead are recognized as incurred.

We account for the underlying operating lease at the individual lease level. Typically, we do not include any renewal or termination options at our discretion in the underlying lease term at the time of lease commencement as the probability of exercise is not reasonably certain. The lease guidance requires us to discount future lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, our estimated incremental borrowing rate. As our leases do not provide an implicit rate, we use an estimated incremental borrowing rate based on information available at commencement date. Our estimated incremental borrowing rate for a lease is the rate of interest we would have to pay on a collateralized basis over the lease term to borrow an amount equal to the lease payments.

During the First Quarter of Fiscal 2020, the FASB provided for an optional practical expedient that simplifies how a lessee accounts for rent concessions that are a direct consequence of the COVID-19 pandemic. The practical expedient only applies if a lease is modified to allow for a rental concession and (1) the revised consideration is substantially the same as, or less than, the original consideration in the lease agreement, (2) the reduction in lease payments relates to payments due on or before June 30, 2021, and (3) no other substantive changes have been made

to the terms of the leases. The practical expedient provides that, if the above conditions are met for the lease agreement, the lessee is not required to assess whether the eligible rent concessions are lease modifications. We have elected to apply the practical expedient for all eligible lease modifications resulting in the rent concession being recorded as an adjustment to variable lease payments and recognized in our statement of operations in that period. The amounts of concessions recognized in our consolidated statement of operations pursuant to this practical expedient in the First Nine Months of Fiscal 2020 was $2 million. For leases that do not meet the criteria for the practical expedient, we account for the amendment and concession as a lease modification requiring lease remeasurement with the concession recognized over the remaining term of the lease agreement.

Substantially all lease expense is included in SG&A in our consolidated statements of operations. For the Third Quarter of Fiscal 2020 operating lease expense, which includes amounts used in determining the operating lease liability and operating lease asset, was $16 million and variable lease expense was $5 million, resulting in total lease expense of $21 million compared to $24 million of total lease expense in the Third Quarter of Fiscal 2019. For the First Nine Months of Fiscal 2020, operating lease expense was $48 million and variable lease expense was $21 million resulting in total lease expense of $70 million, compared to $74 million of total lease expense in the First Nine Months of Fiscal 2019. As of October 31, 2020, the weighted-average remaining operating lease term was 6.1 years and the weighted-average discount rate for operating leases was 4.3%. Cash paid for lease amounts included in the measurement of operating lease liabilities in the First Nine Months of Fiscal 2020 was $41 million, while cash paid for lease amounts included in the measurement of operating lease liabilities in the First Nine Months of Fiscal 2019 was $53 million.

As of October 31, 2020, the stated lease liability payments for the fiscal years specified below were as follows (in thousands):

	Operating lease
Remainder of 2020	$	26,194
2021		66,935
2022		62,875
2023		56,178
2024		44,489
2025		31,624
After 2025		62,849
Total lease payments	$	351,144
Less: Difference between discounted and undiscounted lease payments		43,335
Present value of lease liabilities	$	307,809