v3.19.3
Leases
 9 Months Ended
Sep. 30, 2019
Leases [Abstract]  
Leases LEASES
Lessor Information
Refer to Note 1 to these condensed consolidated financial statements for further information about the Company's revenue generating activities as a lessor. All of the Company's customer agreements are considered operating leases, and the Company currently does not have any sales-type or direct financing leases.
Lessee Information
As a lessee, the Company leases retail store and warehouse space for most of its Aaron's Business store-based operations, call center space and hubs for its Progressive Leasing segment, and management and information technology space for corporate functions under operating leases expiring at various times through 2033. To the extent that a leased retail store or warehouse space is vacated prior to the termination of the lease, the Company may sublease these spaces to third parties while maintaining its primary obligation as the lessee in the head lease. The Company leases transportation vehicles under operating and finance leases, most of which generally expire during the next three years. The transportation leases generally include a residual value that is guaranteed to the lessor, which ensures that the vehicles will be returned to the lessor in reasonable working condition. The Company also leases various IT equipment such as printers and computers under operating leases, most of which generally expire during the next three years. For all of its leases in which the Company is a lessee, the Company has elected to include both the lease and non-lease components as a single component and account for it as a lease.
Finance lease costs are comprised of the amortization of right-of-use assets and the interest accretion on discounted lease liabilities, which are recorded within operating expenses and interest expense, respectively, in the Company’s condensed consolidated statements of earnings. Operating lease costs are recorded on a straight-line basis within operating expenses. For stores that are related to the Company's restructuring programs as described in Note 8, operating lease costs recorded subsequent to any necessary operating lease right-of-use asset impairment charges are recognized in a pattern that is generally accelerated within restructuring expenses, net in the Company’s condensed consolidated statements of earnings. The Company’s total lease expense is comprised of the following:
 
Three Months Ended
 
Nine Months Ended
(In Thousands)
September 30, 2019
 
September 30, 2019
Finance Lease Cost:

 
 
  Amortization of Right-of-Use Assets
$
396

 
$
1,302

  Interest on Lease Liabilities
83

 
296

Total Finance Lease Cost:
479

 
1,598

 
 
 
 
Operating Lease Cost:

 
 
  Operating Lease Cost Classified within Operating Expenses1   
27,647

 
84,789

  Operating Lease Cost Classified within Restructuring Expenses, Net
881

 
2,521

  Sublease Receipts
(628
)
 
(2,399
)
Total Operating Lease Cost:
27,900

 
84,911

 
 
 
 
Total Lease Cost
$
28,379

 
$
86,509

1 Includes short-term and variable lease costs, which are not significant.
Additional information regarding the Company’s leasing activities as a lessee is as follows:
 
Nine Months Ended
(In Thousands)
September 30, 2019
Cash Paid for Amounts Included in Measurement of Lease Liabilities:

  Operating Cash Flows for Finance Leases
$
345

  Operating Cash Flows for Operating Leases
91,333

  Financing Cash Flows for Finance Leases
1,971

Total Cash Paid for Amounts Included in Measurement of Lease Liabilities
93,649

Right-of-Use Assets Obtained in Exchange for New Finance Lease Liabilities
—

Right-of-Use Assets Obtained in Exchange for New Operating Lease Liabilities, Net of Exercised Early Lease Termination Options
$
27,185


Supplemental balance sheet information related to leases is as follows:
(In Thousands)
 
Balance Sheet Classification
 
September 30, 2019
Assets
 
 
 
 
Operating Lease Assets
 
Operating Lease Right-of-Use Assets
 
$
330,508

Finance Lease Assets
 
Property, Plant and Equipment, Net
 
1,018

Total Lease Assets
 
 
 
$
331,526

 
 
 
 
 
Liabilities
 
 
 
 
Operating Lease Liabilities
 
Operating Lease Liabilities
 
$
374,443

Finance Lease Liabilities
 
Debt
 
3,192

Total Lease Liabilities
 
 
 
$
377,635


Most of the Company’s real estate leases contain renewal options for additional periods ranging from one to 20 years or provide for options to purchase the related property at predetermined purchase prices that do not represent bargain purchase options. The Company currently does not have any real estate leases in which it considers the renewal options to be reasonably certain of exercise, as the Company's historical experience indicates that renewal options are not reasonably certain to be exercised. Additionally, the Company's leases contain contractual renewal rental rates that are considered to be in line with market rental rates, and there are not significant economic penalties or business disruptions incurred by not exercising any renewal options.
The Company uses its incremental borrowing rate as the discount rate for its leases, as the implicit rate in the lease is not readily determinable. Below is a summary of the weighted-average discount rate and weighted-average remaining lease term for the Company’s finance and operating leases:
 
Weighted Average Discount Rate1
 
Weighted Average Remaining Lease Term (in years)
Finance Leases
5.8
%
 
1.3
Operating Leases
3.6
%
 
5.0
1 Upon adoption of ASC 842, discount rates for existing operating leases were established as of January 1, 2019.
Under the short-term lease exception provided within ASC 842, the Company does not record a lease liability or right-of-use asset for any leases that have a lease term of 12 months or less at commencement, including renewal options that the Company is reasonably certain to exercise, and do not include purchase options. Below is a summary of undiscounted finance and operating lease liabilities that have initial terms in excess of one year as of September 30, 2019. The table also includes a reconciliation of the future undiscounted cash flows to the present value of the finance and operating lease liabilities included in the condensed consolidated balance sheet.
(In Thousands)
Operating Leases
 
Finance Leases
 
Total
2019
$
27,105

 
$
561

 
$
27,666

2020
108,113

 
2,001

 
110,114

2021
85,651

 
841

 
86,492

2022
65,160

 
83

 
65,243

2023
44,363

 
—

 
44,363

Thereafter
78,980

 
—

 
78,980

Total Undiscounted Cash Flows
409,372

 
3,486

 
412,858

Less: Interest
34,929

 
294

 
35,223

Present Value of Lease Liabilities
$
374,443

 
$
3,192

 
$
377,635
Leases LEASES
Lessor Information
Refer to Note 1 to these condensed consolidated financial statements for further information about the Company's revenue generating activities as a lessor. All of the Company's customer agreements are considered operating leases, and the Company currently does not have any sales-type or direct financing leases.
Lessee Information
As a lessee, the Company leases retail store and warehouse space for most of its Aaron's Business store-based operations, call center space and hubs for its Progressive Leasing segment, and management and information technology space for corporate functions under operating leases expiring at various times through 2033. To the extent that a leased retail store or warehouse space is vacated prior to the termination of the lease, the Company may sublease these spaces to third parties while maintaining its primary obligation as the lessee in the head lease. The Company leases transportation vehicles under operating and finance leases, most of which generally expire during the next three years. The transportation leases generally include a residual value that is guaranteed to the lessor, which ensures that the vehicles will be returned to the lessor in reasonable working condition. The Company also leases various IT equipment such as printers and computers under operating leases, most of which generally expire during the next three years. For all of its leases in which the Company is a lessee, the Company has elected to include both the lease and non-lease components as a single component and account for it as a lease.
Finance lease costs are comprised of the amortization of right-of-use assets and the interest accretion on discounted lease liabilities, which are recorded within operating expenses and interest expense, respectively, in the Company’s condensed consolidated statements of earnings. Operating lease costs are recorded on a straight-line basis within operating expenses. For stores that are related to the Company's restructuring programs as described in Note 8, operating lease costs recorded subsequent to any necessary operating lease right-of-use asset impairment charges are recognized in a pattern that is generally accelerated within restructuring expenses, net in the Company’s condensed consolidated statements of earnings. The Company’s total lease expense is comprised of the following:
 
Three Months Ended
 
Nine Months Ended
(In Thousands)
September 30, 2019
 
September 30, 2019
Finance Lease Cost:

 
 
  Amortization of Right-of-Use Assets
$
396

 
$
1,302

  Interest on Lease Liabilities
83

 
296

Total Finance Lease Cost:
479

 
1,598

 
 
 
 
Operating Lease Cost:

 
 
  Operating Lease Cost Classified within Operating Expenses1   
27,647

 
84,789

  Operating Lease Cost Classified within Restructuring Expenses, Net
881

 
2,521

  Sublease Receipts
(628
)
 
(2,399
)
Total Operating Lease Cost:
27,900

 
84,911

 
 
 
 
Total Lease Cost
$
28,379

 
$
86,509

1 Includes short-term and variable lease costs, which are not significant.
Additional information regarding the Company’s leasing activities as a lessee is as follows:
 
Nine Months Ended
(In Thousands)
September 30, 2019
Cash Paid for Amounts Included in Measurement of Lease Liabilities:

  Operating Cash Flows for Finance Leases
$
345

  Operating Cash Flows for Operating Leases
91,333

  Financing Cash Flows for Finance Leases
1,971

Total Cash Paid for Amounts Included in Measurement of Lease Liabilities
93,649

Right-of-Use Assets Obtained in Exchange for New Finance Lease Liabilities
—

Right-of-Use Assets Obtained in Exchange for New Operating Lease Liabilities, Net of Exercised Early Lease Termination Options
$
27,185


Supplemental balance sheet information related to leases is as follows:
(In Thousands)
 
Balance Sheet Classification
 
September 30, 2019
Assets
 
 
 
 
Operating Lease Assets
 
Operating Lease Right-of-Use Assets
 
$
330,508

Finance Lease Assets
 
Property, Plant and Equipment, Net
 
1,018

Total Lease Assets
 
 
 
$
331,526

 
 
 
 
 
Liabilities
 
 
 
 
Operating Lease Liabilities
 
Operating Lease Liabilities
 
$
374,443

Finance Lease Liabilities
 
Debt
 
3,192

Total Lease Liabilities
 
 
 
$
377,635


Most of the Company’s real estate leases contain renewal options for additional periods ranging from one to 20 years or provide for options to purchase the related property at predetermined purchase prices that do not represent bargain purchase options. The Company currently does not have any real estate leases in which it considers the renewal options to be reasonably certain of exercise, as the Company's historical experience indicates that renewal options are not reasonably certain to be exercised. Additionally, the Company's leases contain contractual renewal rental rates that are considered to be in line with market rental rates, and there are not significant economic penalties or business disruptions incurred by not exercising any renewal options.
The Company uses its incremental borrowing rate as the discount rate for its leases, as the implicit rate in the lease is not readily determinable. Below is a summary of the weighted-average discount rate and weighted-average remaining lease term for the Company’s finance and operating leases:
 
Weighted Average Discount Rate1
 
Weighted Average Remaining Lease Term (in years)
Finance Leases
5.8
%
 
1.3
Operating Leases
3.6
%
 
5.0
1 Upon adoption of ASC 842, discount rates for existing operating leases were established as of January 1, 2019.
Under the short-term lease exception provided within ASC 842, the Company does not record a lease liability or right-of-use asset for any leases that have a lease term of 12 months or less at commencement, including renewal options that the Company is reasonably certain to exercise, and do not include purchase options. Below is a summary of undiscounted finance and operating lease liabilities that have initial terms in excess of one year as of September 30, 2019. The table also includes a reconciliation of the future undiscounted cash flows to the present value of the finance and operating lease liabilities included in the condensed consolidated balance sheet.
(In Thousands)
Operating Leases
 
Finance Leases
 
Total
2019
$
27,105

 
$
561

 
$
27,666

2020
108,113

 
2,001

 
110,114

2021
85,651

 
841

 
86,492

2022
65,160

 
83

 
65,243

2023
44,363

 
—

 
44,363

Thereafter
78,980

 
—

 
78,980

Total Undiscounted Cash Flows
409,372

 
3,486

 
412,858

Less: Interest
34,929

 
294

 
35,223

Present Value of Lease Liabilities
$
374,443

 
$
3,192

 
$
377,635