iMedia Brands, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Leases

Leases

9 Months Ended

Nov. 02, 2019

Adoption of Leases, Topic 842

On February 3, 2019, the Company adopted ASU No. 2016-02, "Leases", and all related amendments using the "Comparatives Under 840 Option" transition approach. Under this transition approach, comparative prior periods, including disclosures, were not restated. The Company elected the transition package of practical expedients which, among other things, allowed the Company to carry forward historical lease classification. The Company chose not to elect the hindsight practical expedient. The adoption of the standard did not have an impact on the Company's condensed consolidated statements of operations and there was no adjustment to its retained earnings opening balance sheet. The Company does not expect the adoption of the new standard to have a material impact on the Company's operating results on an ongoing basis.

The most significant impact of the new leases standard was the recognition of right-of-use assets and lease liabilities for operating leases, while the Company's accounting for finance leases remained substantially unchanged. On February 3, 2019, the adoption of the new standard resulted in the recognition of a right-of-use asset of $1,474,000 and a lease liability of $1,407,000, and a reduction to prepaid expenses and other of $67,000.

The Company leases certain property and equipment, such as transmission and production equipment, satellite transponder and office equipment. The Company determines if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease right-of-use assets are recognized at commencement date based on the present value of lease payments over the lease term. As the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Some of the Company's leases include options to extend the term, which is only included in the lease liability and right-of-use assets calculation when it is reasonably certain the Company will exercise that option. As of November 2, 2019, the lease liability and right-of-use assets did not include any lease extension options.

The Company has lease agreements with lease and non-lease components, and has elected to account for these as a single lease component. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

The components of lease expense were as follows:



	For the Three-Month		For the Nine-Month
	Period Ended		Period Ended
	November 2, 2019		November 2, 2019
Operating lease cost	$	240,000	$	763,000
Short-term lease cost	16,000		126,000
Variable lease cost (a)	21,000		71,000

(a) Includes variable costs of finance leases.

For the three and nine-month periods ended November 2, 2019, finance lease costs included amortization of right-of-use assets of $24,000 and $48,000 and interest on lease liabilities of $2,000 and $5,000.

The Company obtained $188,000 and $180,000 right-of-use assets in exchange for finance and operating leases, respectively, during the nine-month period ended November 2, 2019. Supplemental cash flow information related to leases were as follows:



	For the Nine-Month
	Period Ended
	November 2, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases	$	769,000
Operating cash flows used for finance leases	5,000
Financing cash flows used for finance leases	46,000

The weighted average remaining lease term and weighted average discount rates related to leases were as follows:



		November 2, 2019
Weighted average remaining lease term:
Operating leases		1.1 years
Finance leases		2.1 years
Weighted average discount rate:
Operating leases		5.5%
Finance leases		5.3%

Supplemental balance sheet information related to leases is as follows:



Leases	Classification	November 2, 2019
Assets
Operating lease right-of-use assets	Other assets	$	927,000
Finance lease right-of-use assets	Property and equipment, net	167,000
Total lease right-of-use assets		$	1,094,000
Operating lease liabilities
Current portion of operating lease liabilities	Current portion of operating lease liabilities	$	836,000
Operating lease liabilities, excluding current portion	Other long term liabilities	28,000
Total operating lease liabilities		864,000
Finance lease liabilities
Current portion of finance lease liabilities	Current liabilities: Accrued liabilities	87,000
Finance lease liabilities, excluding current portion	Other long term liabilities	83,000
Total finance lease liabilities		170,000
Total lease liabilities		$	1,034,000

Future maturities of lease liabilities as of November 2, 2019 are as follows:



Fiscal year	Operating Leases			Finance Leases			Total
2019	$	237,000		$	27,000		$	264,000
2020	628,000			85,000			713,000
2021	11,000			60,000			71,000
2022	11,000			8,000			19,000
2023	3,000			—			3,000
Thereafter	—			—			—
Total lease payments	890,000			180,000			1,070,000
Less imputed interest	(26,000		)	(10,000		)	(36,000		)
Total lease liabilities	$	864,000		$	170,000		$	1,034,000

As of November 2, 2019, the Company had no operating and finance leases that had not yet commenced.

Disclosures Related to Periods Prior to Adoption of Leases, Topic 842

Future minimum lease payments for assets under capital and operating leases at February 2, 2019 are as follows:



Future Minimum Lease Payments:	Capital Leases			Operating Leases

2019	$	13,000		$	1,005,000
2020	8,000			604,000
2021	8,000			—
2022	2,000			—
2023 and thereafter	—			—
Total minimum lease payments	31,000			$	1,609,000
Less: Amounts representing interest	(2,000		)
	29,000
Less: Current portion	(12,000		)
Long-term capital lease obligation	$	17,000