LEASES

12 Months Ended

Jan. 31, 2021

LEASESThe Company leases approximately 1,730 Company-operated free-standing retail store locations across more than 35 countries, generally with initial lease terms of three to ten years. The Company also leases warehouses, distribution centers, showrooms, office space and a factory in Ethiopia, generally with initial lease terms of ten to 20 years, as well as certain equipment and other assets, generally with initial lease terms of one to five 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 Company’s Consolidated Balance Sheet.

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

In conjunction with the Australia acquisition in May 2019, the Company acquired an office building and warehouse owned by Gazal. Prior to the acquisition, Gazal had entered into an agreement with a third party to sell the building and as such, the building was classified as held for sale and recorded at its fair value less estimated costs to sell on the acquisition date. Please see Note 3, “Acquisitions and Divestitures,” for further discussion. In June 2019, the Company completed the sale of the office building and warehouse for $59.4 million, incurring costs of $1.0 million, and leased back the building without an option to repurchase. No gain or loss was recognized on the transaction. The lease is classified as an operating lease with an initial lease term of five years and includes three options to renew for a period of five years each. Exercise of these renewal options is not reasonably certain and as a result, the Company recognized an operating lease right-of-use asset and operating lease liability based on the initial term of the lease.

The components of the net lease cost were as follows:



(In millions)	Line Item in the Company’s Consolidated Statements of Operations	2020		2019
Finance lease cost:
Amortization of right-of-use-assets	SG&A expenses (depreciation and amortization)	$	5.2	$	5.3
Interest on lease liabilities	Interest expense	0.4		0.5
Total finance lease cost		5.6		5.8
Operating lease cost	SG&A expenses	477.8		459.5
Short-term lease cost	SG&A expenses	28.9		25.9
Variable lease cost	SG&A expenses	71.7		143.8
Less: sublease income	SG&A expenses	(1.3)		(0.4)
Total net lease cost		$	582.7	$	634.6

The Company has sought concessions from landlords for certain of its stores affected by temporary closures as a result of the COVID-19 pandemic in the form of rent deferrals or rent abatements. Consistent with updated guidance issued by the FASB in April 2020, the Company elected to treat COVID-19 related rent concessions as though enforceable rights and obligations for those concessions existed in the original contract. As such, rent abatements negotiated with landlords are recorded as a reduction to variable lease expense included in SG&A expenses in the Company’s Consolidated Statements of Operations. The Company recorded $50.3 million of rent abatements during 2020. Rent deferrals have no impact to lease expense and amounts

deferred and payable in future periods are included in the current portion of operating lease liabilities in the Company’s Consolidated Balance Sheet.

Supplemental balance sheet information related to leases was as follows:


(In millions)	Line Item in the Company’s Consolidated Balance Sheets	2020		2019
Right-of-use assets:
Operating lease	Operating lease right-of-use assets	$	1,564.8	$	1,675.8
Finance lease	Property, plant and equipment, net	11.4		12.6
		$	1,576.2	$	1,688.4
Current lease liabilities:
Operating lease	Current portion of operating lease liabilities	$	421.4	$	363.5
Finance lease	Accrued expenses	5.3		4.6
		$	426.7	$	368.1
Other lease liabilities:
Operating lease	Long-term portion of operating lease liabilities	$	1,430.7	$	1,532.0
Finance lease	Other liabilities	7.9		9.9
		$	1,438.6	$	1,541.9

Operating lease right-of-use assets with a carrying amount of $138.7 million were written down to a fair value of $110.5 million during 2020 primarily as a result of the adverse impacts of the COVID-19 pandemic on the financial performance of certain of the Company's retail stores and the shift in consumer buying trends from brick and mortar retail stores to digital channels. The $28.2 million of impairment charges were included in SG&A expenses in the Company’s Consolidated Statement of Operations. Please see Note 11, “Fair Value Measurements,” for further discussion of the noncash impairment charges related to the Company’s operating lease right-of-use assets.

Supplemental cash flow information related to leases was as follows:



(In millions)	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	396.1	$	472.8
Operating cash flows from finance leases	0.4		0.5
Financing cash flows from finance leases	5.5		5.5
Non-cash transactions:
Right-of-use assets obtained in exchange for new operating lease liabilities	247.3		441.3
Right-of-use assets obtained in exchange for new finance lease liabilities	4.0		3.6

The following summarizes the weighted average remaining lease terms and weighted average discount rates related to the Company’s right-of-use assets and lease liabilities recorded on the balance sheet:



	2020		2019
Weighted average remaining lease term (years):
Operating leases	6.53		6.84
Finance leases	3.98		4.37
Weighted average discount rate:
Operating leases	4.10	%	4.25	%
Finance leases	2.77	%	3.11	%

At January 31, 2021, the maturities of the Company’s lease liabilities were as follows:


(In millions)	Finance Leases		Operating Leases		Total
2021	$	5.6	$	487.0	$	492.6
2022	3.5		386.2		389.7
2023	2.0		293.1		295.1
2024	0.9		228.7		229.6
2025	0.4		180.0		180.4
Thereafter	1.9		554.7		556.6
Total lease payments	$	14.3	$	2,129.7	$	2,144.0
Less: Interest	(1.1)		(277.6)		(278.7)
Total lease liabilities	$	13.2	$	1,852.1	$	1,865.3

Disclosures Related to Periods Prior to Adoption of the New Lease Accounting Guidance

The Company adopted the update to accounting guidance related to leases in 2019 using the modified retrospective approach applied as of the period of adoption with a cumulative-effect adjustment to opening retained earnings and as such, prior periods have not been restated. As a result, disclosures related to periods prior to adoption are presented under the previous accounting guidance.

Rent expense was as follows:


(In millions)	2018
Minimum	$	465.3
Percentage and other	128.6
Less: Sublease rental income	(1.4)
Total	$	592.5