LEASES

The Company leases approximately 1,750 Company-operated freestanding retail store locations across more than 35 countries, generally with initial lease terms of 3 to 10 years. The Company also leases warehouses, distribution centers, showrooms, office space, and a factory in Ethiopia, generally with initial lease terms of 10 to 20 years, as well as certain equipment and other assets, generally with initial lease terms of 1 to 5 years.

Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the present value of fixed lease payments over the expected lease term. The Company uses its incremental borrowing rates to determine the present value of fixed lease payments based on the information available at the lease commencement date, as the rate implicit in the lease is not readily determinable for the Company's leases. The Company's incremental borrowing rates are based on the term of the lease, the economic environment of the lease, and the effect of collateralization. Certain leases include one or more renewal options, generally for the same period as the initial term of the lease. The exercise of lease renewal options is generally at the Company’s sole discretion and as such, the Company typically determines that exercise of these renewal options is not reasonably certain. As a result, the Company does not include the renewal option period in the expected lease term and the associated lease payments are not included in the measurement of the right-of-use asset and lease liability. Certain leases also contain termination options with an associated penalty. Generally, the Company is reasonably certain not to exercise these options and as such, they are not included in the determination of the expected lease term. The Company recognizes operating lease expense on a straight-line basis over the lease term.

Leases with an initial lease term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

Leases generally provide for payments of nonlease components, such as common area maintenance, real estate taxes and other costs associated with the leased property. For lease agreements entered into or modified after February 3, 2019, the Company accounts for lease components and nonlease components together as a single lease component and, as such, includes fixed payments of nonlease components in the measurement of the right-of-use assets and lease liabilities. Variable lease payments, such as percentage rentals based on location sales, periodic adjustments for inflation, reimbursement of real estate taxes, any variable common area maintenance and any other variable costs associated with the leased property are expensed as incurred as variable lease costs and are not recorded on the balance sheet.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictions or covenants.

The components of the net lease cost for the thirteen weeks ended May 5, 2019 were as follows:



		Thirteen Weeks Ended
(In millions)	Line Item in the Company’s Consolidated Income Statement	5/5/19
Finance lease cost:
Amortization of right-of-use-assets	SG&A expenses (depreciation and amortization)	$	1.3
Interest on lease liabilities	Interest expense	0.1
Total finance lease cost		1.4
Operating lease cost	SG&A expenses	112.9
Short-term lease cost	SG&A expenses	3.5
Variable lease cost	SG&A expenses	30.3
Less: sublease income	SG&A expenses	(0.1		)
Total net lease cost		$	148.0

Supplemental balance sheet information related to leases as of May 5, 2019 was as follows:



(In millions)	Line Item in the Company’s Consolidated Balance Sheet	5/5/19
Right-of-use assets:
Operating lease	Operating lease right-of-use assets	$	1,606.0
Finance lease	Property, plant and equipment, net	14.6
		$	1,620.6
Current lease liabilities:
Operating lease	Current portion of operating lease liabilities	$	334.3
Finance lease	Accrued expenses	4.7
		$	339.0
Other lease liabilities:
Operating lease	Long-term portion of operating lease liabilities	$	1,499.4
Finance lease	Other liabilities	11.0
		$	1,510.4

Supplemental cash flow information related to leases for the thirteen weeks ended May 5, 2019 was as follows:



	Thirteen Weeks Ended
(In millions)	5/5/19
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	116.0
Operating cash flows from finance leases	0.1
Financing cash flows from finance leases	1.5
Non-cash transactions:
Right-of-use assets obtained in exchange for new operating lease liabilities	85.1
Right-of-use assets obtained in exchange for new finance lease liabilities	0.9

The following summarizes the weighted average remaining lease term and weighted average discount rate related to the Company’s right-of-use assets and lease liabilities recorded on the balance sheet as of May 5, 2019:



	5/5/19
Weighted average remaining lease term (years):
Operating leases	7.12
Finance leases	4.60
Weighted average discount rate:
Operating leases	5.48	%
Finance leases	3.89	%

At May 5, 2019, the maturities of the Company’s lease liabilities were as follows:



(In millions)	Finance Leases			Operating Leases			Total
Remainder of 2019	$	3.9		$	301.7		$	305.6
2020	4.5			386.7			391.2
2021	3.9			332.1			336.0
2022	1.9			267.2			269.1
2023	0.6			200.1			200.7
Thereafter	2.5			684.5			687.0
Total lease payments	$	17.3		$	2,172.3		$	2,189.6
Less: Interest	(1.6		)	(338.6		)	(340.2		)
Total lease liabilities	$	15.7		$	1,833.7		$	1,849.4

The Company’s future lease payment obligations related to leases that were entered into, but did not commence as of May 5, 2019, were immaterial.