Note 15 - Leases and Lease Guarantees

12 Months Ended

Nov. 28, 2020

Notes to Financial Statements

Lessee, Operating and Finance Leases [Text Block]

15. Leases and Lease Guarantees

Leases

Fiscal 2020

Effective as of the beginning of fiscal 2020, we adopted ASU 2016-02, Leases (Topic 842) and all related amendments. See “Leases” under Note 2 for a discussion of our accounting policies and elections under Topic 842 as well as the impact of the adoption upon our financial statements.

Supplemental balance sheet information related to our leases as of November 28, 2020 is as follows:

Operating leases:
Right of use assets	$	116,903
Lease liabilties, short-term		27,078
Lease liabilties, long-term		111,972
Finance leases:
Right of use assets (1)	$	2,623
Lease liabilties, short-term (2)		534
Lease liabilties, long-term (3)		1,862

(1) Included in property & equipment, net in our consolidated balance sheet.

(2) Included in other current liabilites and accrued expenses in our consolidated balance sheet.

(3) Included in other long-term liabilites and accrued expenses in our consolidated balance sheet.

Our right-of-use assets under operating leases by segment as of November 28, 2020 are as follows:

Wholesale	$	10,232
Retail		90,487
Logistical services		16,184
Total right of use assets	$	116,903

The components of our lease cost for the year ended November 28, 2020 are as follows:

Operating lease cost	$	33,207
Financing lease cost:
Amortization of right-of-use assets		213
Interest on lease liabilities		49
Short-term lease cost		2,040
Variable lease cost (net of abatements received)		(605	)
Sublease income		(1,557	)
Total lease cost	$	33,347

Supplemental lease disclosures as of November 28, 2020 and for the fiscal year then ended are as follows:

	Operating			Financing
For the year ended November 28, 2020:
Cash paid for amounts included in the measurements of lease liabilities	$	35,310		$	260
Lease liabilities arising from new right-of-use assets		10,804			2,623
As of November 28, 2020:
Weighted average remaining lease terms (years)		6.2			4.3
Weighted average discount rates		4.98	%		4.43	%

Future payments under our leases and the present value of the obligations as of November 28, 2020 are as follows:

	Operating Leases		Financing Leases
Fiscal 2021	$	33,265	$	629
Fiscal 2022		30,829		629
Fiscal 2023		25,586		629
Fiscal 2024		18,732		517
Fiscal 2025		15,423		197
Thereafter		38,237		33
Total lease payments		162,072		2,634
Less: interest		23,022		238
Total lease obligations	$	139,050	$	2,396

As of November 28, 2020, we had a commitment to acquire twenty-four tractors under leases for use in our logistical services segment that are expected to commence at various times during the first half of fiscal 2021 and replace older units that will be coming off lease. These leases are expected to have annual payments totaling approximately $705 per year over seven years.

We sublease a small number of our leased locations to certain of our licensees for operation as BHF network stores. The terms of these leases generally match those of the lease we have with the lessor. Minimum future lease payments due to us under these subleases are as follows:

Fiscal 2021	$	1,276
Fiscal 2022		1,086
Fiscal 2023		769
Fiscal 2024		664
Fiscal 2025		599
Thereafter		156
Total minimum future rental income	$	4,550

We negotiated with a number of our landlords to obtain relief in the form of rent deferrals or abatements of rent as a result of the effects of COVID-19 on our business. At November 28, 2020, the unpaid rent was $990 which primarily represents rent deferred to fiscal 2021 and is included in other current liabilities and accrued expenses in our accompanying condensed consolidated balance sheet. In accordance with FASB Staff Q&A - Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic ("FASB Staff Q&A") issued in April 2020, we have elected to account for any lease concessions resulting directly from COVID-19 as if the enforceable rights and obligations for the concessions existed in the respective contracts at lease inception and as such we will not account for any concession as a lease modification. Guidance from the FASB Staff Q&A provided methods to account for rent deferrals which include the option to treat the lease as if no changes to the lease contract were made or to treat deferred payments as variable lease payments. The FASB Staff Q&A allows entities to select the most practical approach and does not require the same approach be applied consistently to all leases. As a result, we account for the deferrals as if no changes to the lease contract were made and will continue to recognize lease expense, on a straight-line basis, during the deferral period. For any abatements received, we account for those as variable rent in the period in which the abatement is granted. For the year ended November 28, 2020, we were granted abatements against rent totaling $775.

Fiscal 2019 and 2018

Prior to the adoption of Topic 842, we accounted for and reported our leases in accordance with Topic 840, Leases. In accordance with Topic 840 leases classified as operating leases were not included in our balance sheet as right of use assets or lease obligations as of November 30, 2019. During fiscal 2019 and 2018 we had no leases which were classified as capital leases.

Lease expense was $41,809 and $38,970 for 2019 and 2018, respectively. Improvement allowances received from lessors at the inception of a lease are deferred and amortized over the term of the lease. The unamortized balance of such amounts was $8,050 and at November 30, 2019, with the non-current portion of $6,799 included in other liabilities in our consolidated balance sheets and the remaining current portion included in other accrued liabilities.

Real estate rental net loss (rental income less lease costs, depreciation, insurance, and taxes), related to licensee stores and other investment real estate, was $156 and $23 in 2019 and 2018, respectively, and is reflected in other loss, net in the accompanying consolidated statements of operations.

Guarantees

As part of the strategy for our store program, we have guaranteed certain lease obligations of licensee operators. Lease guarantees range from one to three years. We were contingently liable under licensee lease obligation guarantees in the amount of $1,811 and $1,776 at November 28, 2020 and November 30, 2019, respectively.

In the event of default by an independent dealer under the guaranteed lease, we believe that the risk of loss is mitigated through a combination of options that include, but are not limited to, arranging for a replacement dealer, liquidating the collateral, and pursuing payment under the personal guarantees of the independent dealer. The proceeds of the above options are estimated to cover the maximum amount of our future payments under the guarantee obligations, net of reserves. The fair value of lease guarantees (an estimate of the cost to the Company to perform on these guarantees) at November 28, 2020 and November 30, 2019, were not material.