

Note 10	Leases

The Company leases all of its retail locations, a manufacturing facility, and certain office locations, distribution centers and equipment. At contract inception, leases are evaluated and classified as either operating or finance leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company's leases that are classified as operating leases have lease terms and renewal options as follows:



	Lease Term	Renewal Options
Retail stores	5-10 years	Approximately 45% have options of varying periods
Manufacturing facility	8 years	None
Office facilities and distribution centers	10-15 years	5-20 years
Equipment	1 - 6 years	None

As further discussed in Note 2 to the condensed consolidated financial statements, during the first quarter of 2019, the Company adopted ASC 842 using the modified retrospective transition method. Prior period financial information in the condensed consolidated financial statements has not been adjusted and is presented in compliance with ASC 840. The Company elected the package of practical expedients and the expedient to account for lease and non-lease components as a single component for the entire population of operating lease assets. The Company did not elect the hindsight practical expedient to reevaluate the lease term of existing contracts.

Lease right-of-use assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. The majority of the Company’s leases do not provide an implicit rate and therefore, the Company uses an incremental borrowing rate based on information available at the commencement date to determine the present value of future payments. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Variable lease payments are expensed as incurred.

The following is a summary of lease assets and liabilities on the condensed consolidated balance sheet at May 4, 2019:



($ thousands)	May 4, 2019
Lease Classification
Lease right-of-use assets	$	735,282
Current lease obligations	(136,005		)
Noncurrent lease obligations	(662,750		)
Net balance sheet impact	$	(63,473	)

The weighted-average lease term and discount rate as of May 4, 2019 were as follows:



	May 4, 2019
Weighted-average remaining lease term (in years)	7.1
Weighted-average discount rate	4.1	%

As of May 4, 2019, the Company has entered into lease commitments for seven retail locations for which the leases have not yet commenced. The Company anticipates that the leases for five retail locations will begin in the next two fiscal quarters. Upon commencement, right-of-use assets and lease liabilities of approximately $4.1 million will be recorded on the condensed consolidated balance sheets. Leases for two retail locations are expected to begin in the next fiscal year, resulting in right-of-use assets and lease liabilities of approximately $2.9 million.

The components of lease expense for the thirteen weeks ended May 4, 2019 were as follows:



	Thirteen Weeks Ended
($ thousands)	May 4, 2019
Operating lease expense	$	46,461
Variable lease expense	12,184
Short-term lease expense	1,115
Sublease income	(73		)
Total lease expense	$	59,687

Future minimum rent payments under noncancelable leases with an initial term of one year or more at May 4, 2019 were as follows:



($ thousands)
Remainder of 2019	$	135,036
2020	159,990
2021	135,705
2022	113,185
2023	94,496
2024	73,946
Thereafter	168,164
Total minimum lease payments⁽¹⁾	$	880,522
Less imputed interest	(81,767		)
Present value of lease obligations	$	798,755

^{(1) Minimum lease payments have not been reduced by minimum sublease rental income of}^{$0.5 million}^{due in the future under noncancelable sublease agreements.}

Supplemental cash flow information related to leases is as follows:



	Thirteen Weeks Ended
($ thousands)	May 4, 2019
Cash paid for lease liabilities	$	46,511
Cash received from sublease income	73