Leases Leases (Notes)

6 Months Ended

Jun. 30, 2019

Leases

We lease space for all of our Core U.S. and Mexico stores under operating leases expiring at various times through 2024. Most of our store leases are five year leases and contain renewal options for additional periods ranging from three to five years at rental rates adjusted according to agreed-upon formulas. We evaluate all leases to determine if it is likely that we will exercise future renewal options and in most cases we are not reasonably certain of exercise due to competing market rental rates and lack of significant penalty or business disruption incurred by not exercising the renewal options. We have elected not to use the short-term lease exemption for our real estate leases. Therefore, we include month-to-month leases in operating lease right-of-use assets and operating lease liabilities on our condensed consolidated balance sheet. In certain store sales, we enter into lease assignment agreements with the buyer, but remain as the primary obligor under the original lease for the remaining active term. These assignments are therefore classified as subleases and the original lease is included in our operating lease right-of-use assets and operating lease liabilities on our condensed consolidated balance sheet.

We lease vehicles for all of our Core U.S. stores under operating leases with lease terms expiring twelve months after the start date of the lease. We classify these leases as short-term and have elected the short-term lease exemption for our vehicle leases, and have therefore excluded them from our operating lease right-of-use assets within our condensed consolidated balance sheet. We also lease vehicles for all of our Mexico stores which have terms expiring at various times through 2022 with rental rates adjusted periodically for inflation. Finally, we have a minimal number of equipment leases, primarily related to temporary storage and certain back office technology hardware assets.

For all of the leases described above, we have elected to use the practical expedient not to separate the lease and non-lease components and account for these as a single component. We have also elected the practical expedients that remove the requirement to reassess whether expired or existing contracts contain leases and the requirement to reassess the lease classification for any existing leases prior to the adoption date.

Operating lease right-of-use assets and operating lease liabilities are discounted using our incremental borrowing rate, since the implicit rate is not readily determinable. We do not currently have any financing leases.

Operating lease costs are recorded on a straight-line basis within other store expenses in our condensed consolidated statements of operations.

Total operating lease costs by expense type:



	Three Months Ended			Six Months Ended
(in thousands)	June 30, 2019			June 30, 2019
Operating lease cost included in other store expenses⁽¹⁾	$	38,232		$	74,785
Operating lease cost included in other (gains) and charges	5,111			7,252
Sublease receipts	(1,818		)	(3,494		)
Total operating lease charges	$	41,525		$	78,543

⁽¹⁾Includes short-term lease costs, which are not significant.

Supplemental cash flow information related to leases:



	Six Months Ended
(in thousands)	June 30, 2019
Cash paid for amounts included in measurement of operating lease liabilities	$	61,333
Cash paid for short-term operating leases not included in operating lease liabilities	14,451
Right-of-use assets obtained in exchange for new operating lease liabilities	10,540

Weighted-average discount rate and weighted-average remaining lease term:



(in thousands)	June 30, 2019
Weighted-average discount rate⁽¹⁾	8.0	%
Weighted-average remaining lease term (in years)	3

⁽¹⁾January 1, 2019 incremental borrowing rate was used for leases in existence at the time of adoption of ASU 2016-02.

Reconciliation of undiscounted operating lease liabilities to the present value operating lease liabilities at June 30, 2019:



(In thousands)	Operating Leases
2019	$	61,288
2020	104,264
2021	72,264
2022	43,637
2023	19,536
Thereafter	5,893
Total undiscounted operating lease liabilities	306,882
Less: Interest	(35,247		)
Total present value of operating lease liabilities	$	271,635

In accordance with ASC 840, future minimum rental payments for operating leases with remaining lease terms in excess of one year, at December 31, 2018:



(In thousands)	Operating Leases
2019	$	145,345
2020	116,785
2021	80,362
2022	47,417
2023	16,460
Thereafter	2,280
Total future minimum rental payments	408,649