Lease Commitments

9 Months Ended

Sep. 29, 2018

Lease Commitments

Capital Leases

We have entered into certain long-term, non-cancelable capital leases for real estate, along with certain logistics equipment and vehicles. The real estate leases contain customary extension option periods and annual fixed rent escalations. As of September 29, 2018, the acquisition value and net book value of all assets under capital leases was $166.5 million and $143.7 million, respectively.

At September 29, 2018, our total commitments under capital leases recorded in the Unaudited Condensed Consolidated Balance Sheets within “capital leases - short term” and “capital leases - long term” were as follows:



(In thousands)	Principal^[1]		Interest
2018	$	2,118	$	3,523
2019	7,498		13,802
2020	6,749		13,425
2021	4,389		13,127
2022	3,620		12,921
Thereafter	128,859		182,788
Total	$	153,233	$	239,586

^{_____________________________}

^[1]Our principal amounts include negative amortization. Negative amortization occurs for us on some of our real estate leases because of the structure of the lease payments where the cash payment is applied to both interest and principal and wherein a calculated interest rate results in interest exceeding principal. The remaining amount of interest owed is added to the principal, resulting in the principal payment appearing as a negative.

In the case of certain of our real estate capital leases, negative amortization may occur because of a required allocation between land and building. Under the capital lease rules of the current lease accounting standard, ASC 840 (Leases), the lease payment is bifurcated between land and building, if certain conditions are met. In these cases, the portion of the payment attributed to the building is capitalized at the lesser of net present value or fair market value, and the interest rate is thus determined as the previously unknown variable; while the portion of the rental payment attributed to land is treated as rental expense.

Sale-Leaseback Transactions

On January 10, 2018, we completed sale-leaseback transactions on four distribution centers. We sold these properties for gross proceeds of $110.0 million. As a result of the sale-leaseback transactions, we recognized capital lease assets and obligations totaling $95.1 million on these properties, and a total deferred gain of $83.9 million, which will be amortized over the lives of the applicable leases, in accordance with U.S. GAAP. These capital lease obligations are reflected in the capital lease table above.