Operating Leases (Notes)

12 Months Ended

Dec. 31, 2020

Leases of Lessee Disclosure [Text Block]

Leases

During the first quarter 2019, the Company adopted ASU No. 2016-02, “Leases (Topic 842),” which requires leases with durations greater than twelve months to be recognized on the balance sheet. The Company adopted the standard using the modified retrospective approach with an effective date as of January 1, 2019. Upon adoption the Company recorded $194,100 of right-of-use asset and $209,000 of lease liabilities.

The Company elected the package of three practical expedients. As such, the Company did not reassess whether expired or existing contracts are or contain a lease and did not need to reassess the lease classifications or reassess the initial direct costs associated with expired or existing leases. The Company did not elect the hindsight practical expedient or the land easement practical expedient, neither of which are applicable to the Company. In addition, the Company has elected to take the practical expedient to not separate lease and non-lease components for all asset classes.

The Company leases office space, sample production space, warehouses, showrooms, storage and retail stores under operating leases. The Company’s portfolio of leases is primarily related to real estate. Because most of its leases do not provide a readily determinable implicit rate, the Company estimated its incremental borrowing rate to discount the lease payments based on information available at lease commencement.

Certain of the leases for the Company’s retail store facilities provide for variable lease payments based on future sales volumes at the leased location, which are not measurable at the inception of the lease and are therefore not included in the measurement of the right-of-use assets and lease liabilities. Under ASC 842, these variable lease costs are expensed as incurred.

As a result of the effects of the COVID-19 pandemic, during the third quarter of 2020, the Company executed amendments to certain leases in its existing operating lease portfolio, which included changes to rental payments either to be fully or partially based on the future sales volumes at the leased location. The Company considered these concessions in accordance with the FASB Staff Q&A—Topic 842 and Topic 840: Accounting For Lease Concessions Related to the Effects of the COVID-19 Pandemic (the “Lease Modification Q&A”), and determined that the concessions resulted in the total payments required by the modified contract being substantially the same as or less than total payments required by the original contract consistent with how they would be accounted for as though enforceable rights and obligations for those concessions existed in the original

contract. Consequently, the Company elected to account for these concessions as if they were contemplated in the enforceable rights and obligations of the existing contract. Please see Note S for further information.

The Company made payments amounting to $12,064 for COVID-19 lease amendments during the year ended December 31, 2020, which are included in variable lease costs.

Lease right-of-use assets, along with other long-lived assets, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Due to the impact of the COVID-19 pandemic on the Company’s operations and the decline in the retail real estate market, the Company identified indicators of impairment for long-lived assets at certain of its retail stores. For such stores, the Company performed a recoverability test, comparing estimated undiscounted cash flows to the carrying value of the related long-lived assets. When the carrying value was more than the estimated undiscounted cash flows, the Company wrote the assets down to their fair value. Fair values of the long-lived assets were estimated using an income approach based on management’s forecast of future cash flows derived from continued retail operations and the fair values of individual operating lease assets were determined using estimated market rental rates. Significant estimates are used in determining future cash flows of each store over its remaining lease term, including the Company's expectations of future projected cash flows. An impairment loss is recorded if the carrying amount of the long-lived asset group exceeds its fair value. As a result, the Company recorded impairment charges of $22,183 related to store lease right-of-use assets for the year ended December 31, 2020. The impairment charges were recorded in operating expenses in the Retail segment.

Lease Position

The table below presents the lease-related assets and liabilities recorded on the balance sheet as of December 31, 2020:


	Classification on the Balance Sheet	December 31, 2020			December 31, 2019
Assets
Noncurrent (1) (2)	Operating lease right-of-use asset	$	101,379		$	155,700

Liabilities
Current	Operating leases - current portion	$	34,257		$	38,624
Noncurrent	Operating leases - long-term portion	98,592			133,172
Total operating lease liabilities		$	132,849		$	171,796

Weighted-average remaining lease term		5.0 years			5.5 years
Weighted-average discount rate		4.3		%	4.4		%

(1) During the year ended December 31, 2020, the Company recorded pre-tax impairment charges related to the right-of-use assets of $22,183.

(2) During the third quarter of 2019, the Company recorded a pre-tax charge related to the right-of-use asset of $1,883.

Lease Costs

The table below presents certain information related to lease costs for the years ended December 31, 2020 and 2019:


	Years Ended December 31,
	2020		2019
Operating lease cost	$	42,368	$	48,387
Variable lease cost (1)	13,412		172
Short-term lease cost	238		239
Less: sublease income	562		644
Total lease cost	$	55,456	$	48,154

(1) The Company has incurred lease modification expenses of $12,064, which have been included in variable lease costs for the year ended December 31, 2020.

Other Information

The table below presents supplemental cash flow information related to leases for the years ended December 31, 2020 and 2019:


	Years Ended December 31,
	2020		2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows used for operating leases	$	43,582	$	46,324


	Years Ended December 31,
	2020		2019
Noncash transactions:
Right-of-use asset obtained in exchange for new operating lease liabilities	$	2,746	$	—
Right-of-use asset amortization expense	$	38,228	$	36,170

Undiscounted Cash Flows

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the lease liabilities recorded on the balance sheet as of December 31, 2020:


2021	$	39,700
2022	30,905
2023	22,407
2024	18,128
2025	14,794
Thereafter	21,955
Total minimum lease payments	147,889
Less: interest	15,040
Present value of lease liabilities	$	132,849

A majority of the retail store leases provide for contingent rental payments if gross sales exceed certain targets. In addition, many of the leases contain rent escalation clauses to compensate for increases in operating costs and real estate taxes. Rent expense for the years ended December 31, 2020, 2019 and 2018 was approximately $49,619, $61,283 and $58,332, respectively. Included in such amounts are contingent rents of $46, $138 and $516 in 2020, 2019 and 2018, respectively.

Rent expense is calculated by amortizing total base rental payments (net of any rental abatements, construction allowances and other rental concessions), on a straight-line basis, over the lease term.