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LEASES

3 Months Ended

Mar. 31, 2019

The Company has operating leases for retail stores, distribution centers, other leased office locations, vehicles and certain equipment with remaining lease terms of 1 year to 14 years, some of which include options to extend the leases for up to 10 years. On the Company’s Consolidated Balance Sheets as of March 31, 2019, the Company had lease liabilities of $518.7 million, of which $117.1 million are classified as current, and right-of-use assets of $401.5 million.

The Company has elected to apply the short-term lease exemption for all asset classes and excluded them from the balance sheet. Lease payments for short-term leases are recognized on a straight-line basis over the lease term. The short-term rent expense recognized during the three months ended March 31, 2019 is immaterial. The components of the Company's rent expense, which is recorded within cost of sales on the Consolidated Statements of Operations, was as follows:



	Three months ended March 31, 2019
	(in thousands)
Company-owned and franchise stores:
Operating leases	$	36,602
Variable lease costs ⁽¹⁾	21,509
Total company-owned and franchise stores	58,111
Other	2,188
Total rent expense	$	60,299

(1) Includes percent and contingent rent, landlord related taxes and common operating expenses.

The weighted average remaining lease term and weighted average discount rate were as follows:



	Three months ended March 31, 2019

Weighted average remaining lease term	4.6 years
Weighted average discount rate	10	%

Supplemental cash flow information related to leases was as follows:



	Three months ended March 31, 2019
	(in thousands)
Operating cash flow information:
Cash paid for amounts included in the measurement of operating lease liabilities	$	44,936
Right-of-use assets obtained in exchange for new operating lease liabilities	$	6,442

The Company recorded sublease revenue, within revenue on the Consolidated Statements of Operations, of $11.0 million and $11.8 million in the three months ended March 31, 2019 and 2018, respectively, relating to subleases with its franchisees, which includes rental income and other occupancy related items.

Maturities of the lease liabilities (undiscounted lease payments, as defined in Note 2 "Basis of Presentation") as of March 31, 2019 were as follows:



	Operating Leases for Company-Owned and Franchise Stores		Operating Leases for Other⁽¹⁾		Total Operating Leases			Sublease Income from Franchisees			Rent on Operating Leases, net of Sublease Revenue
	(in thousands)
2019 (remainder)	$	120,954	$	4,270	$	125,224		$	(23,783	)	$	101,441
2020	135,834		4,964		140,798			(27,829		)	112,969
2021	109,994		3,643		113,637			(22,697		)	90,940
2022	84,925		2,342		87,267			(17,882		)	69,385
2023	63,125		1,180		64,305			(13,384		)	50,921
Thereafter	136,071		6,703		142,774			(29,548		)	113,226
Total future obligations	$	650,903	$	23,102	$	674,005		$	(135,123	)	$	538,882
Less amounts representing interest					(155,295		)
Present value of lease obligations					$	518,710

(1) Includes various leases for warehouses, vehicles, and various equipment at our facility

As of March 31, 2019, leases that the Company has entered into but have not yet commenced are immaterial.

In connection with the transaction with IVC for the Manufacturing JV effective March 1, 2019, the Company leased warehouse space within the Anderson facility from the Manufacturing JV for a term of one year. The lease was accounted for as sale leaseback transaction and classified as an operating lease included in the current lease liabilities on the Consolidated Balance Sheet.

Disclosures related to periods prior to adoption of ASU 2016-02

The Company adopted ASU 2016-02 using a modified retrospective adoption method at January 1, 2019 as noted in Note 2. "Basis of Presentation." As required, the following disclosure is provided for periods prior to adoption. Minimum future rent obligations for non-cancelable operating leases, excluding optional renewal periods, were as follows for the period ending December 31, 2018 and exclude landlord related taxes, common operating expenses, and percent and contingent rent.



	Operating Leases for Company-Owned and Franchise Stores		Operating Leases for Other⁽¹⁾		Total Operating Leases		Sublease Income from Franchisees			Rent on Operating Leases, net of Sublease Revenue
	(in thousands)
2019	$	162,910	$	6,071	$	168,981	$	(29,867	)	$	139,114
2020	126,312		5,574		131,886		(23,631		)	108,255
2021	95,000		4,185		99,185		(16,782		)	82,403
2022	64,735		2,479		67,214		(10,285		)	56,929
2023	39,798		1,290		41,088		(4,717		)	36,371
Thereafter	56,200		6,703		62,903		(4,238		)	58,665
Total future obligations	$	544,955	$	26,302	$	571,257	$	(89,520	)	$	481,737

(1) Includes various leases for warehouses, vehicles, and various equipment at our facility

LEASES



	Three months ended March 31, 2019
	(in thousands)
Company-owned and franchise stores:
Operating leases	$	36,602
Variable lease costs ⁽¹⁾	21,509
Total company-owned and franchise stores	58,111
Other	2,188
Total rent expense	$	60,299

(1) Includes percent and contingent rent, landlord related taxes and common operating expenses.

The weighted average remaining lease term and weighted average discount rate were as follows:



	Three months ended March 31, 2019

Weighted average remaining lease term	4.6 years
Weighted average discount rate	10	%

Supplemental cash flow information related to leases was as follows:



	Three months ended March 31, 2019
	(in thousands)
Operating cash flow information:
Cash paid for amounts included in the measurement of operating lease liabilities	$	44,936
Right-of-use assets obtained in exchange for new operating lease liabilities	$	6,442

Maturities of the lease liabilities (undiscounted lease payments, as defined in Note 2 "Basis of Presentation") as of March 31, 2019 were as follows:



	Operating Leases for Company-Owned and Franchise Stores		Operating Leases for Other⁽¹⁾		Total Operating Leases			Sublease Income from Franchisees			Rent on Operating Leases, net of Sublease Revenue
	(in thousands)
2019 (remainder)	$	120,954	$	4,270	$	125,224		$	(23,783	)	$	101,441
2020	135,834		4,964		140,798			(27,829		)	112,969
2021	109,994		3,643		113,637			(22,697		)	90,940
2022	84,925		2,342		87,267			(17,882		)	69,385
2023	63,125		1,180		64,305			(13,384		)	50,921
Thereafter	136,071		6,703		142,774			(29,548		)	113,226
Total future obligations	$	650,903	$	23,102	$	674,005		$	(135,123	)	$	538,882
Less amounts representing interest					(155,295		)
Present value of lease obligations					$	518,710

(1) Includes various leases for warehouses, vehicles, and various equipment at our facility

As of March 31, 2019, leases that the Company has entered into but have not yet commenced are immaterial.

Disclosures related to periods prior to adoption of ASU 2016-02



	Operating Leases for Company-Owned and Franchise Stores		Operating Leases for Other⁽¹⁾		Total Operating Leases		Sublease Income from Franchisees			Rent on Operating Leases, net of Sublease Revenue
	(in thousands)
2019	$	162,910	$	6,071	$	168,981	$	(29,867	)	$	139,114
2020	126,312		5,574		131,886		(23,631		)	108,255
2021	95,000		4,185		99,185		(16,782		)	82,403
2022	64,735		2,479		67,214		(10,285		)	56,929
2023	39,798		1,290		41,088		(4,717		)	36,371
Thereafter	56,200		6,703		62,903		(4,238		)	58,665
Total future obligations	$	544,955	$	26,302	$	571,257	$	(89,520	)	$	481,737

(1) Includes various leases for warehouses, vehicles, and various equipment at our facility