Operating Leases

3 Months Ended

Feb. 01, 2020

Note 7 Operating Leases

The Company leases the property for several Prestige retail sales centers from various unrelated entities under operating lease agreements expiring through December 2020. The Company also leases certain equipment under unrelated operating leases. These leases have varying renewal options.

On November 3, 2019, the Company adopted ASC Topic 842 using the modified retrospective method applied to leases that were in place as of November 3, 2019. Results for reporting periods beginning after November 3, 2019 are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 840.

The Company elected the package of practical expedients permitted under the transition guidance, which allows for the historical lease classification to be carried forward, the Company’s assessments on whether a contract is or contains a lease, and the Company’s initial direct costs for any leases that exist prior to adoption of the new standard. The Company also elected the short-term lease recognition exemption for all leases that qualify.

To determine the present value of minimum future lease payments for operating leases at November 3, 2019, the Company was required to estimate a rate of interest that it would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment (the “incremental borrowing rate” or “IBR”). The Company determined the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options and certain lease-specific circumstances. For the reference rate, the Company used mortgage interest rates for similar terms.

Right of use assets are included as a non-current asset in the amount of $740,505, net of amortization in the unaudited condensed consolidated Balance Sheet as of February 1, 2020.

Minimum rental payments under operating leases are recognized on a straight-line basis over the term of the lease. Individual components of the total lease cost incurred by the Company totaled $49,904 during the three months ended February 1, 2020.

The amount of future minimum lease payments under operating are as follows:


	Operating Lease
Undiscounted future minimum lease payments:
2020 (9 Months Remaining)		43,897
2021		63,117
2022		68,401
2023		74,322
2024		80,955
Thereafter		543,361

Total		874,053

Amount representing imputed interest		(63,173	)

Total operating lease liability		810,880

Current portion of operating lease liability		(16,269	)

Operating lease liability, non-current		794,611