Accounting for Leases

12 Months Ended

Feb. 03, 2019

Note E: Accounting for Leases

Operating Leases

We lease store locations, distribution and manufacturing facilities, corporate facilities, customer care centers and certain equipment for our U.S. and foreign operations for original terms generally ranging from 5 to 22 years. Certain leases contain renewal options for periods up to 20 years. The rental payments for our store leases are typically structured as either: minimum rent; rent based on a percentage of store sales; minimum rent plus additional rent based on a percentage of store sales; or rent based on a percentage of store sales if a specified store sales threshold or contractual obligation of the landlord has not been met. Contingent rental payments, including rental payments that are based on a percentage of sales, cannot be predicted with certainty at the onset of the lease term. Accordingly, such contingent rental payments are recorded as incurred each period and are excluded from our calculation of deferred rent liability.

Total rent expense for all operating leases was as follows:

In thousands	Fiscal 2018 (53 Weeks)			Fiscal 2017 (52 Weeks)			Fiscal 2016 (52 Weeks)
Rent expense	$	271,522		$	263,409		$	251,066
Contingent rent expense		26,414			24,918			26,980
Rent expense before deferred lease incentive income		297,936			288,327			278,046
Deferred lease incentive income		(26,189	)		(25,293	)		(25,298	)
Less: sublease rental income		(522	)		(578	)		(558	)
Total rent expense 1	$	271,225		$	262,456		$	252,190

1	Excludes all other occupancy-related costs including depreciation, common area maintenance, property taxes and utilities.

The aggregate

contractual

future minimum annual cash rental payments under non-cancellable operating leases in effect at February 3, 2019 were as follows:

In thousands	Lease Commitments 1
Fiscal 2019	$	292,387
Fiscal 2020		262,429
Fiscal 2021		225,755
Fiscal 2022		190,263
Fiscal 2023		160,308
Thereafter		559,802
Total	$	1,690,944

Projected cash payments include only those amounts that are fixed and determinable as of the reporting date and are not necessarily representative of future expected rent expense. We currently pay rent for certain store locations based on a percentage of store sales. As future store sales cannot be predicted with certainty, projected payments for these locations are based on minimum rent, which is generally higher than rent based on a percentage of store sales. We incur other lease obligation expenses, such as common area maintenance and other executory costs, which are not fixed in nature and are thus not included in the future projected cash payments reflected above. In addition, projected cash payments do not include any benefit from deferred lease incentive income, which is reflected within “Total rent expense” above.

Memphis-Based Distribution Facility

In fiscal 2015,we entered into an agreement with a partnership comprised of the estate of W. Howard Lester, our former Chairman of the Board and Chief Executive Officer, and the estate of James A. McMahan, a former Director Emeritus and significant stockholder and two unrelated parties to lease a distribution facility in Memphis, Tennessee through July 2017. In fiscal 2017, we exercised the first of two one-year extensions available under the lease to extend the term through July 2018. Subsequently, in fiscal 2017, we amended the lease to further extend the term through July 2020. The amended lease provides for two additional one-year renewal options. We made annual rental payments of approximately

$1,689,000, $1,629,000, and $1,599,000 plus applicable taxes, insurance and maintenance expenses in fiscal 2018, fiscal 2017 and fiscal 2016, respectively.