Quarterly report pursuant to Section 13 or 15(d)

Commitments and Contingencies

Commitments and Contingencies
3 Months Ended
May 01, 2022
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies COMMITMENTS AND CONTINGENCIES
The Company leases its office, warehouse facilities and retail showrooms under operating lease agreements which expire at various dates through January 2033. The Company determines if a contract contains a lease at inception based on our right to control the use of an identified asset and our right to obtain substantially all of the economic benefits from the use of that identified asset. Certain operating leases have renewal options and rent escalation clauses. We assess these options to determine if we are reasonably certain of exercising these options based on all relevant economic and financial factors. Any options that meet these criteria are included in the lease term at lease commencement.
Lease right-of-use assets represent the right to use an underlying asset pursuant to the lease for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Lease right-of-use assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our incremental borrowing rate generally applicable to the location of the lease right-of-use asset, unless an implicit rate is readily determinable. We combine lease and certain non-lease components for our showroom real estate leases in determining the lease payments subject to the initial present value calculation. Lease right-of-use assets include upfront lease payments and exclude lease incentives, where applicable. Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised.
Lease expense for operating leases consists of both fixed and variable components. Expense related to fixed lease payments are recognized on a straight-line basis over the lease term. Variable lease payments are generally expensed as incurred, where applicable, and include certain index-based changes in rent, certain non-lease components, such as maintenance and other services provided by the lessor, and other charges included in the lease. Leases with an initial term of twelve months or less are not recorded on the balance sheet. In addition, certain of our equipment lease agreements include variable lease payments, which are based on the usage of the underlying asset. The variable portion of payments are not included in the initial measurement of the asset or lease liability due to uncertainty of the payment amount and are recorded as lease expense in the period incurred.
ASC 842 requires companies to use the rate implicit in the lease whenever that rate is readily determinable and if the interest rate is not readily determinable, then a lessee may use its incremental borrowing rate. Most of our leases do not have an interest rate implicit in the lease. As a result, for purposes of measuring our ROU asset and lease liability, we determined our incremental borrowing rate by computing the rate of interest that we would have to pay to (i) borrow on a collateralized basis (ii) over a similar term (iii) at an amount equal to the total lease payments and (iv) in a similar economic environment. We determine incremental borrowing rates as of the first day of each fiscal year and analyze changes in interest rates and the Company's credit profile to determine if the rates need to be updated during the fiscal year. In the case that an interest rate is implicit in a lease, we will use that rate as the discount rate for that lease. The lease term for all of our lease arrangements include the noncancelable period of the lease plus, if applicable, any additional periods covered by an option to extend the lease that is reasonably certain to be exercised by the Company. Our leases generally do not include termination options for either party to the lease or restrictive financial or other covenants. Some of our leases contain variable lease payments based on a Consumer Price Index or percentage of sales, which are excluded from the measurement of the lease liability.
The Company’s lease terms and rates are as follows:
  May 1,
Weighted average remaining lease term (in years)
Operating Leases 7.2
Weighted average discount rate
Operating Leases 3.97  %
During the thirteen weeks ended May 1, 2022 and May 2, 2021, the Company recognized operating lease expense of $5.3 million and $3.5 million, respectively. In addition, during the thirteen weeks ended May 1, 2022 and May 2, 2021, we recognized $2.7 million and $2.3 million, respectively, for index-based changes in rent, maintenance, real estate taxes, insurance and other charges included in the lease as well as rental expenses related to short term leases.
We did not recognize any impairment charges associated with showroom-level ROU assets during the thirteen weeks ended May 1, 2022 or May 2, 2021.
The following table discloses the location and amount of our operating lease costs within our condensed consolidated balance sheets:
(amounts in thousands) Balance sheet location May 1,
Operating leases Operating lease right-of-use assets (non-current) $ 107,930 
Operating leases Current operating lease liabilities $ 17,530 
Operating leases Operating lease liability, long term 103,480 
Total lease liabilities   $ 121,010 
The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under noncancelable leases with terms of more than one year to the total lease liabilities recognized on the condensed consolidated balance sheet as of May 1, 2022 in thousands:
(amounts in thousands)
Remainder 2023 $ 16,571 
2024 21,582 
2025 20,310 
2026 18,187 
2027 15,739 
Thereafter 48,498 
Total undiscounted future minimum lease payments 140,887 
Less: imputed interest (19,877)
Total present value of lease obligations 121,010 
Less: current operating lease liability (17,530)
Operating lease liability- long term $ 103,480 
Supplemental Cash Flow information and non-cash activity related to our operating leases is as follows (in thousands):
(amounts in thousands) For the thirteen weeks ended May 1, 2022 For the thirteen weeks ended May 2, 2021
Operating cash flow information:  
Amounts paid on operating lease liabilities $ 4,062  $ 3,400 
Non-cash activities
Right-of-use assets obtained in exchange for lease obligations $ 12,513  $ 94,275 
Severance Contingency
The Company has various employment agreements with its senior level executives. A number of these agreements have severance provisions, ranging from 12 to 18 months of salary, in the event those employees are terminated without cause. The total amount of exposure to the Company under these agreements was $5.6 million at May 1, 2022 if all executives with employment agreements were terminated without cause and the full amount of severance was payable.
Legal Contingency
The Company is involved in various legal proceedings in the ordinary course of business. Management cannot presently predict the outcome of these matters, although management believes, based in part on the advice of counsel, that the ultimate resolution of these matters will not have a materially adverse effect on the Company’s condensed consolidated financial position, results of operations or cash flows.