Leases

Signet occupies certain properties and holds machinery and vehicles under operating leases. Signet determines if an arrangement is a lease at the agreement’s inception. Certain operating leases include predetermined rent increases, which are charged to store occupancy costs within cost of sales on a straight-line basis over the lease term, including any construction period or other rental holiday. Other amounts paid under operating leases, such as taxes and common area maintenance, are charged to selling, general and administrative expenses as incurred. Premiums paid to acquire short-term leasehold properties and inducements to enter into a lease are recognized on a straight-line basis over the lease term. In addition, certain leases provide for contingent rent based on a percentage of sales in excess of a predetermined level. Further, certain leases provide for variable rent increases based on indexes specified within the lease agreement. As the contingent rent and variable increases are not measurable at inception, the amounts are excluded from minimum rent and the calculation of the operating lease liability. These amounts are included in variable lease cost and included in the determination of total lease cost when it is probable that the expense has been incurred and the amount is reasonably estimable. Operating leases are included in operating lease right-of-use (“ROU”) assets and current and non-current operating lease liabilities in the Company’s condensed consolidated balance sheets.

ROU 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 ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, Signet uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. Lease terms, which include the period of the lease that can not be canceled, may also include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The operating lease ROU asset may also include initial direct costs, prepaid and/or accrued lease payments and the unamortized balance of lease incentives received. ROU assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of the assets may not be recoverable in accordance with the Company’s long-lived asset impairment assessment policy.

Weighted average lease term and discount rate were as follows:



	May 4, 2019
Weighted average remaining lease term (in years)	7.3
Weighted average discount rate	5.5	%

Total lease costs for operating leases are as follows:



	13 weeks ended
(in millions)	May 4, 2019
Operating lease cost	$	114.4
Short-term lease cost	7.8
Variable lease cost	26.6
Sublease income	(0.7		)
Total lease cost	$	148.1

Payments arising from operating lease activity and variable and short-term lease payments not included within the operating lease liability are included as operating activities on the Company’s condensed consolidated statement of cash flows. Operating lease payments representing costs to ready an asset for its intended use are represented within investing activities within the Company’s condensed consolidated statements of cash flows.

Supplemental cash flow information related to leases was as follows:



	13 weeks ended
(in millions)	May 4, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	118.0
Operating lease right-of-use assets obtained in exchange for lease obligations	6.5

The future minimum operating lease payments for operating leases having initial or non-cancelable terms in excess of one year are as follows:



(in millions)	May 4, 2019
Remainder of Fiscal 2020	$	342.2
Fiscal 2021	416.0
Fiscal 2022	364.0
Fiscal 2023	311.7
Fiscal 2024	245.3
Thereafter	726.1
Total lease payments	$	2,405.3
Less: Imputed interest	(457.0		)
Present value of lease liabilities	$	1,948.3