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Leases

9 Months Ended

Dec. 28, 2019

8. Leases

The Company does not own any real estate. Instead, most of its retail store locations are occupied under operating leases. The store leases generally have a base lease term of five or 10 years, with one or more renewal periods of five years, on average, exercisable at the Company’s option. The Company is generally responsible for the payment of property taxes and insurance, utilities and common area maintenance fees. Some leases also require additional payments based on percentage of sales. Lease terms include the non-cancellable portion of the underlying leases along with any reasonably certain lease periods associated with available renewal periods, termination options and purchase options.

Operating and finance lease liabilities are recognized at the lease commencement date based on the present value of the fixed lease payments using the Company's incremental borrowing rates for its population of leases. Related operating and finance lease ROU assets are recognized based on the initial present value of the fixed lease payments, reduced by cash payments received from landlords as lease incentives, plus any prepaid rent and other direct costs from executing the leases. Amortization of both operating and finance lease ROU assets is performed on a straight-line basis and recorded as part of rent expense in selling, general and administrative expenses on the condensed consolidated statements of operations. The interest expense amortization component of the finance lease liabilities is recorded within interest expense on the condensed consolidated statements of operations. ROU assets are tested for impairment in the same manner as long-lived assets.

Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Variable lease payments are recognized as lease expense as they are incurred.

ROU assets and lease liabilities as of December 28, 2019 consist of the following:


	Balance Sheet Classification	December 28, 2019 (in thousands)
Assets
Finance lease assets	Right-of-use assets, net	$	7,523
Operating lease assets	Right-of-use assets, net		160,559
Total lease assets		$	168,082

Liabilities
Current
Finance	Short-term lease liabilities	$	674
Operating	Short-term lease liabilities		33,461
Total short-term lease liabilities		$	34,135

Non-Current
Finance	Long-term lease liabilities	$	6,232
Operating	Long-term lease liabilities		146,558
Total long-term lease liabilities		$	152,790
Total lease liabilities		$	186,925

Total lease costs for the thirteen and thirty-nine weeks ended December 28, 2019 were:


		Thirteen Weeks Ended		Thirty-Nine Weeks Ended
(in thousands)	Statement of Operations Classification	December 28, 2019		December 28, 2019
Finance lease cost
Amortization of right-of-use assets	Cost of goods sold	$	178	$	535
Interest on lease liabilities	Interest expense, net		178		551
Total finance lease cost		$	356	$	1,086

Operating lease cost	Cost of goods sold	$	10,116	$	29,541
Operating lease cost	Selling, general and administrative expenses		422		1,275
Short-term lease cost	Selling, general and administrative expenses		932		2,092
Variable lease cost	Selling, general and administrative expenses		758		1,909
Sublease income	Cost of goods sold		(22)		(22)
Total lease cost		$	12,562	$	35,881

The following table summarizes future lease payments as of December 28, 2019:


	Operating Leases		Finance Leases
Fiscal Year	(in thousands)		(in thousands)
2020	$	10,952	$	336
2021		44,353		1,346
2022		38,944		1,359
2023		34,463		1,305
2024		27,912		1,280
Thereafter		76,569		4,261
Total		233,193		9,887
Less: Imputed interest		(53,174)		(2,981)
Present value of net lease payments	$	180,019	$	6,906

Prior to the Company’s adoption of ASC 842, its future minimum operating lease commitments as of March 30, 2019 under ASC 840 were (in thousands):


Fiscal Year	Total
2020	$	37,877
2021		36,352
2022		31,732
2023		26,649
2024		20,536
Thereafter		44,061
Total	$	197,207

The following table includes supplemental lease information:


	Thirty-Nine Weeks Ended
Supplemental Cash Flow Information (dollars in thousands)	December 28, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	30,583
Operating cash flows from finance leases		551
Financing cash flows from finance leases		461
	$	31,595
Lease liabilities arising from new right-of-use assets
Operating leases	$	33,646
Finance leases	$	—

Weighted average remaining lease term (in years)
Operating leases		6.4
Finance leases		10.6

Weighted average discount rate
Operating leases		6.3	%
Finance leases		10.2	%