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Leases
9 Months Ended
Sep. 30, 2019
Leases [Abstract]  
Leases

2.

Leases

 

We lease office space, distribution centers, land, vehicles and equipment. Lease agreements with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.   

 

Certain lease agreements include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more. The exercise of lease renewal options is at our sole discretion. Some agreements also include options to purchase the leased property. The estimated life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.  

 

Certain of our lease agreements include rental payments adjusted periodically for inflation.  Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

 

Significant Leases Accounting Policy

 

We determine if a contract or arrangement is, or contains, a lease at inception.  Balances related to operating leases are included in other assets, other current liabilities, and other liabilities in our consolidated balance sheet.  Balances related to financing leases are included in property and equipment, current portion of long-term debt, and long-term debt in our consolidated balance sheet.  ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.  

 

Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.  As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.  We use the implicit rate when readily determinable.  The operating lease ROU asset includes any prepaid lease payments and additional direct costs and excludes lease incentives.  Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.  

 

The following table provides information about the financial statement classification of our lease balances reported within the consolidated balance sheets as of September 30, 2019 and January 1, 2019 (in thousands):

 

Leases

Classification

 

September 30,

2019

 

 

January 1,

2019

 

Assets

 

 

 

 

 

 

 

 

 

Operating lease assets

Other assets

 

$

78,621

 

 

$

65,922

 

Finance lease assets

Property and equipment(a)

 

 

1,178

 

 

 

1,693

 

Total lease assets

 

 

$

79,799

 

 

$

67,615

 

Liabilities

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

   Operating lease liabilities

Accrued expenses and other current liabilities

 

$

19,502

 

 

$

15,788

 

   Finance lease liabilities

Current portion of long-term debt

 

 

1,143

 

 

 

1,399

 

Non-current

 

 

 

 

 

 

 

 

 

   Operating lease liabilities

Other liabilities

 

 

64,018

 

 

 

54,724

 

   Finance lease liabilities

Long-term debt

 

 

670

 

 

 

1,521

 

Total lease liabilities

 

 

$

85,333

 

 

$

73,432

 

 

 

 

 

 

 

 

 

 

 

(a)

Recorded net of accumulated amortization of $515,000 as of September 30, 2019 and there is no accumulated amortization as of January 1, 2019.

The following table provides information about the financial statement classification of our lease expenses reported within the consolidated statement of operations for the three and nine months ended September 30, 2019 (in thousands):

 

Lease cost

Classification

 

Three months ended

September 30, 2019

 

 

Nine months ended

September 30, 2019

 

Operating lease cost (a) (b)

Selling and administrative expenses

 

$

5,197

 

 

$

14,965

 

Finance lease cost

 

 

 

 

 

 

 

 

 

   Amortization of leased

     assets

Selling and administrative expenses

 

 

171

 

 

 

515

 

   Interest on lease liabilities

Interest expense, net

 

 

22

 

 

 

72

 

Total lease cost

 

 

$

5,390

 

 

$

15,552

 

 

 

 

 

 

 

 

 

 

 

(a)

Includes immaterial amounts recorded to cost of goods sold.

(b)

Excludes short-term and variable lease costs, which are immaterial.

 

Future minimum lease payments under non-cancelable leases as of September 30, 2019 are as follows (in thousands):

 

 

 

Operating leases

 

 

Finance leases

 

 

Total

 

Remainder of 2019

 

$

6,008

 

 

$

310

 

 

$

6,318

 

2020

 

 

21,144

 

 

 

1,150

 

 

 

22,294

 

2021

 

 

17,812

 

 

 

432

 

 

 

18,244

 

2022

 

 

14,470

 

 

 

—

 

 

 

14,470

 

2023

 

 

8,984

 

 

 

—

 

 

 

8,984

 

After 2023

 

 

25,486

 

 

 

—

 

 

 

25,486

 

Total lease payments

 

 

93,904

 

 

 

1,892

 

 

 

95,796

 

Less:  Interest

 

 

(10,384

)

 

 

(79

)

 

 

(10,463

)

Present value of lease liabilities

 

$

83,520

 

 

$

1,813

 

 

$

85,333

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease payments include $13.4 million related to options to extend lease terms that are reasonably certain of being exercised.

 

The following table provides information about the remaining lease terms and discount rates applied as of September 30, 2019:

 

 

 

September 30, 2019

 

Weighted average remaining lease term (years)

 

 

 

 

   Operating leases

 

 

6.19

 

   Finance leases

 

 

1.69

 

Weighted average discount rate (%)

 

 

 

 

   Operating leases

 

 

3.65

 

   Finance leases

 

 

4.85

 

 

The following table provides other information related to leases for the nine months ended September 30, 2019 (in thousands):

 

 

 

Nine months ended

September 30, 2019

 

Cash paid for amounts included in the measurement of lease

   liabilities:

 

 

 

 

   Operating cash flows from operating leases

 

$

14,527

 

Leased assets obtained in exchange for new operating lease liabilities

 

 

5,901

 

 

Operating Leases pre-Topic 842 adoption:

 

We have non-cancelable operating leases with third parties, primarily for administrative and distribution center space and computer equipment.  Our facilities leases generally provide for periodic rent increases and many contain escalation clauses and renewal options.  We recognize rent expense on a straight-line basis over the lease term.  Rental expense for these third-party operating leases was $20,114,000, $19,126,000 and $14,444,000 in 2018, 2017 and 2016, respectively, and is included in selling and administrative expenses.

 

Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 2018 are as follows (in thousands):

 

Years Ending December 31,

 

 

 

 

2019

 

$

21,499

 

2020

 

 

15,580

 

2021

 

 

12,121

 

2022

 

 

9,150

 

2023

 

 

6,296

 

Thereafter

 

 

7,238

 

Total minimum lease payments

 

$

71,884

 

 

Amounts in the table above exclude approximately $1.6 million in 2019 in non-cancellable rental income.