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RIGHT OF USE ASSET AND LEASE LIABILITIES
 6 Months Ended
Dec. 31, 2019
Leases [Abstract]  
RIGHT OF USE ASSET AND LEASE LIABILITIES RIGHT OF USE ASSET AND LEASE LIABILITIES

At contract inception, the Company determines whether a contract is, or contains, a lease by determining whether it conveys the right to control the use of the identified asset for a period of time. If the contract provides the Company the right to substantially all of the economic benefits from the use of the identified asset and the right to direct the use of the identified asset, the Company considers it to be, or contain, a lease. The Company leases its company-owned salons and some of its corporate facilities under operating leases. The original terms of the salon leases range from 1 to 20 years with many leases renewable for additional 5 to 10 year terms at the option of the Company. The Company also has variable lease payments that are based on sales levels. For most leases, the Company is required to pay real estate taxes and other occupancy expenses. Total rent expense includes the following:

 
For the Three Months Ended December 31,
 
For the Six Months Ended December 31,
 
2019
 
2018
 
2019
 
2018
 
(Dollars in thousands)
Minimum rent
$
16,937

 
$
28,859

 
$
36,498

 
58,774

Percentage rent based on sales
550

 
1,052

 
1,847

 
2,103

Real estate taxes and other expenses
3,008

 
4,731

 
6,414

 
9,743

 
$
20,495

 
$
34,642

 
$
44,759

 
$
70,620



The Company also leases the premises in which the majority of its franchisees operate and has entered into corresponding sublease arrangements with franchisees. These leases, generally with terms of approximately 5 years, are expected to be renewed on expiration. All additional lease costs are passed through to the franchisees. Upon adopting Topic 842, the Company now records the rental payments due from franchisees as franchise rental income and the corresponding amounts owed to landlords as franchise rent expense on the Condensed Consolidated Statement of Operations. For the three and six months ended December 31, 2019, franchise rental income was $33.6 and $65.1 million, respectively, and franchise rent expense was $33.6 and $65.1 million, respectively.

For company-owned and franchise salon operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date. The Right of Use (ROU) asset is initially and subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, less any accrued lease payments and unamortized lease incentives received, if any. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Generally, the non-lease components such as real estate taxes and other occupancy expenses are separate from rent expense within the lease and are not allocated to the lease liability.

The discount rate used to determine the present value of the lease payments is the Company's estimated collateralized incremental borrowing rate, based on the yield curve for the respective lease terms, as the interest rate implicit in the lease cannot generally be determined. The Company uses the portfolio approach in applying the discount rate based on original lease term. The weighted average remaining lease term was 6.82 years and the weighted-average discount rate was 3.95 percent for all salon operating leases as of December 31, 2019.
As of December 31, 2019, future operating lease commitments to be paid and received by the Company were as follows:
Fiscal Year
Leases for Franchise Salons
 
Leases for Company-owned Salons
 
Corporate Leases
 
Total Operating Lease Payments
 
Sublease Income To Be Received From Franchisees
 
Net Rent Commitments
Remainder of 2020
$
59,771

 
$
36,809

 
$
335

 
$
96,915

 
$
(59,771
)
 
$
37,144

2021
113,224

 
64,907

 
1,781

 
179,912

 
(113,224
)
 
66,688

2022
103,599
 
55,214

 
1,410

 
160,223

 
(103,599
)
 
56,624

2023
93,725

 
48,589

 
1,447

 
143,761

 
(93,725
)
 
50,036

2024
84,384

 
43,417

 
1,484

 
129,285

 
(84,384
)
 
44,901

Thereafter
224,482

 
111,327

 
9,339

 
345,148

 
(224,482
)
 
120,666

Total future obligations
$
679,185

 
$
360,263

 
$
15,796

 
$
1,055,244

 
$
(679,185
)
 
$
376,059

Less amounts representing interest
84,680

 
43,723

 
3,063

 
131,466

 
 
 
 
Present value of lease liabilities
$
594,505

 
316,540

 
12,733

 
923,778

 
 
 
 
Less current lease liabilities
96,249

 
59,218

 
687

 
156,154

 
 
 
 
Long-term lease liabilities
$
498,256

 
$
257,322

 
$
12,046

 
$
767,624

 
 
 
 
RIGHT OF USE ASSET AND LEASE LIABILITIES RIGHT OF USE ASSET AND LEASE LIABILITIES

At contract inception, the Company determines whether a contract is, or contains, a lease by determining whether it conveys the right to control the use of the identified asset for a period of time. If the contract provides the Company the right to substantially all of the economic benefits from the use of the identified asset and the right to direct the use of the identified asset, the Company considers it to be, or contain, a lease. The Company leases its company-owned salons and some of its corporate facilities under operating leases. The original terms of the salon leases range from 1 to 20 years with many leases renewable for additional 5 to 10 year terms at the option of the Company. The Company also has variable lease payments that are based on sales levels. For most leases, the Company is required to pay real estate taxes and other occupancy expenses. Total rent expense includes the following:

 
For the Three Months Ended December 31,
 
For the Six Months Ended December 31,
 
2019
 
2018
 
2019
 
2018
 
(Dollars in thousands)
Minimum rent
$
16,937

 
$
28,859

 
$
36,498

 
58,774

Percentage rent based on sales
550

 
1,052

 
1,847

 
2,103

Real estate taxes and other expenses
3,008

 
4,731

 
6,414

 
9,743

 
$
20,495

 
$
34,642

 
$
44,759

 
$
70,620



The Company also leases the premises in which the majority of its franchisees operate and has entered into corresponding sublease arrangements with franchisees. These leases, generally with terms of approximately 5 years, are expected to be renewed on expiration. All additional lease costs are passed through to the franchisees. Upon adopting Topic 842, the Company now records the rental payments due from franchisees as franchise rental income and the corresponding amounts owed to landlords as franchise rent expense on the Condensed Consolidated Statement of Operations. For the three and six months ended December 31, 2019, franchise rental income was $33.6 and $65.1 million, respectively, and franchise rent expense was $33.6 and $65.1 million, respectively.

For company-owned and franchise salon operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date. The Right of Use (ROU) asset is initially and subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, less any accrued lease payments and unamortized lease incentives received, if any. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Generally, the non-lease components such as real estate taxes and other occupancy expenses are separate from rent expense within the lease and are not allocated to the lease liability.

The discount rate used to determine the present value of the lease payments is the Company's estimated collateralized incremental borrowing rate, based on the yield curve for the respective lease terms, as the interest rate implicit in the lease cannot generally be determined. The Company uses the portfolio approach in applying the discount rate based on original lease term. The weighted average remaining lease term was 6.82 years and the weighted-average discount rate was 3.95 percent for all salon operating leases as of December 31, 2019.
As of December 31, 2019, future operating lease commitments to be paid and received by the Company were as follows:
Fiscal Year
Leases for Franchise Salons
 
Leases for Company-owned Salons
 
Corporate Leases
 
Total Operating Lease Payments
 
Sublease Income To Be Received From Franchisees
 
Net Rent Commitments
Remainder of 2020
$
59,771

 
$
36,809

 
$
335

 
$
96,915

 
$
(59,771
)
 
$
37,144

2021
113,224

 
64,907

 
1,781

 
179,912

 
(113,224
)
 
66,688

2022
103,599
 
55,214

 
1,410

 
160,223

 
(103,599
)
 
56,624

2023
93,725

 
48,589

 
1,447

 
143,761

 
(93,725
)
 
50,036

2024
84,384

 
43,417

 
1,484

 
129,285

 
(84,384
)
 
44,901

Thereafter
224,482

 
111,327

 
9,339

 
345,148

 
(224,482
)
 
120,666

Total future obligations
$
679,185

 
$
360,263

 
$
15,796

 
$
1,055,244

 
$
(679,185
)
 
$
376,059

Less amounts representing interest
84,680

 
43,723

 
3,063

 
131,466

 
 
 
 
Present value of lease liabilities
$
594,505

 
316,540

 
12,733

 
923,778

 
 
 
 
Less current lease liabilities
96,249

 
59,218

 
687

 
156,154

 
 
 
 
Long-term lease liabilities
$
498,256

 
$
257,322

 
$
12,046

 
$
767,624