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Leases
12 Months Ended
Dec. 31, 2019
Leases [Abstract]  
Leases

 

(9)Leases

Effective January 1, 2019, we adopted the FASB ASU No. 2016-02 — “Leases” (Topic 842) using the effective date transition method.  This approach provides a method for recording existing leases at adoption without restating comparative periods.  We elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification.  In addition, we made an accounting policy election not to separate non-lease components from lease components for all existing classes of underlying assets with the exception of land and buildings.  We also made an accounting policy election to not record right of use (“ROU”) assets and lease liabilities for leases with an initial term of twelve months or less on our consolidated balance sheet.

Adoption of the new standard resulted in the recording of net operating lease ROU assets and lease liabilities of $65,922,000 and $70,512,000, respectively, as of January 1, 2019.  The difference between the additional lease assets and lease liabilities reflected existing accrued and prepaid rent balances that were reclassified to the operating lease ROU asset at January 1, 2019.  The standard did not materially impact our consolidated net earnings and had no impact on cash flows.  

We lease office space, distribution centers, land, vehicles and equipment. 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.

The following table provides information about the financial statement classification of our lease balances reported within the consolidated balance sheets as of December 31, 2019 and January 1, 2019 (in thousands):

 

Leases

Classification

 

December 31,

2019

 

 

January 1,

2019

 

Assets

 

 

 

 

 

 

 

 

 

Operating lease assets

Other assets

 

$

74,684

 

 

$

65,922

 

Finance lease assets

Property and equipment(a)

 

 

3,297

 

 

 

1,693

 

Total lease assets

 

 

$

77,981

 

 

$

67,615

 

Liabilities

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

   Operating lease liabilities

Accrued expenses and other current liabilities

 

$

19,648

 

 

$

15,788

 

   Finance lease liabilities

Current portion of long-term debt

 

 

1,691

 

 

 

1,395

 

Non-current

 

 

 

 

 

 

 

 

 

   Operating lease liabilities

Other liabilities

 

 

60,285

 

 

 

54,724

 

   Finance lease liabilities

Long-term debt

 

 

2,131

 

 

 

1,525

 

Total lease liabilities

 

 

$

83,755

 

 

$

73,432

 

 

(a)

Recorded net of accumulated amortization of $861,000 as of December 31, 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 year ended December 31, 2019 (in thousands):

 

Lease cost

Classification

 

Year ended

December 31, 2019

 

Operating lease cost (a) (b)

Selling and administrative expenses

 

$

21,393

 

Finance lease cost

 

 

 

 

 

   Amortization of leased

     assets

Selling and administrative expenses

 

 

861

 

   Interest on lease liabilities

Interest expense, net

 

 

110

 

Total lease cost

 

 

$

22,364

 

 

(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 December 31, 2019 are as follows (in thousands):

 

 

 

Operating leases

 

 

Finance leases

 

 

Total

 

2020

 

$

22,234

 

 

$

1,795

 

 

$

24,029

 

2021

 

 

18,279

 

 

 

1,076

 

 

 

19,355

 

2022

 

 

14,767

 

 

 

645

 

 

 

15,412

 

2023

 

 

9,220

 

 

 

449

 

 

 

9,669

 

2024

 

 

5,653

 

 

 

45

 

 

 

5,698

 

After 2024

 

 

19,559

 

 

 

 

 

 

19,559

 

Total lease payments

 

 

89,712

 

 

 

4,010

 

 

 

93,722

 

Less:  Interest

 

 

(9,779

)

 

 

(188

)

 

 

(9,967

)

Present value of lease liabilities

 

$

79,933

 

 

$

3,822

 

 

$

83,755

 

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 December 31, 2019:

 

 

 

December 31, 2019

 

Weighted average remaining lease term (years)

 

 

 

 

   Operating leases

 

 

6.03

 

   Finance leases

 

 

2.92

 

Weighted average discount rate (%)

 

 

 

 

   Operating leases

 

 

3.62

 

   Finance leases

 

 

3.65

 

The following table provides other information related to leases for the year ended December 31, 2019 (in thousands):

 

 

 

December 31, 2019

 

Cash paid for amounts included in the measurement of lease

   liabilities:

 

 

 

 

   Operating cash flows from operating leases

 

$

20,928

 

Leased assets obtained in exchange for new operating lease liabilities(a)

 

 

10,460

 

 

(a)

Excludes operating lease assets acquired as part of the PCM acquisition of $17,951,000.

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 and $19,126,000 in 2018 and 2017, respectively, and is included in selling and administrative expenses in the accompanying consolidated statements of operations.

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