LEASES

The Company primarily leases retail store space, certain distribution and warehouse facilities, office space, equipment and other non-real estate assets. The Company determines if an arrangement is a lease at inception and begins recording lease activity at the commencement date, which is generally the date on which the Company takes possession of or controls the physical use of the asset. Right-of-use assets and lease liabilities are recognized based on the present value of lease payments over the lease term with lease expense recognized on a straight-line basis. The Company's incremental borrowing rates, which are based on the information available at commencement date, are used to determine the present value of future lease payments unless the implicit rate is readily determinable. As of and for the three and six months ended May 24, 2020, finance leases were not a material component of the Company's lease portfolio. Lease agreements may contain rent escalation clauses, renewal or termination options, rent holidays or certain landlord incentives, including tenant improvement allowances. Right-of-use assets include amounts for scheduled rent increases and are reduced by the amount of lease incentives. The lease term includes the non-cancelable period of the lease and may include options to extend or terminate the lease when it is reasonably certain the Company will exercise the option. Certain lease agreements include variable lease payments, which are based on a percent of retail sales over specified levels or adjust periodically for inflation.

Lease expense is recognized in SG&A within the Company's consolidated statements of operations, based on the underlying nature of the leased asset. For the three and six months ended May 24, 2020, lease expense primarily consisted of operating lease costs of $71.3 million and $158.4 million, respectively, including $5.7 million and $27.5 million, respectively, primarily related to variable lease costs and an immaterial amount of short-term lease costs.

Amounts of future undiscounted cash flows related to operating lease payments over the lease term are as follows and are reconciled to the present value of the operating lease liabilities as recorded on the Company's consolidated balance sheets.



	May 24, 2020
	(Dollars in thousands)
2020	$	127,984
2021	225,422
2022	191,968
2023	154,678
2024	125,629
Thereafter	304,856
Total undiscounted future cash flows related to lease payments	1,130,537
Less: Interest	73,232
Present value of lease liabilities	$	1,057,305

The following table includes the weighted average remaining lease terms, in years, and the weighted average discount rate used to calculate the present value of operating lease liabilities:



	May 24, 2020
Weighted-average remaining lease term (years)	6.1
Weighted-average discount rate	2.30	%

The table below includes supplemental cash and non-cash information related to operating leases:



	May 24, 2020
Cash paid for amounts included in the measurement of lease liabilities:	(Dollars in thousands)
Operating cash outflows from operating leases	$	115,826
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities⁽¹⁾	$	70,335

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(1)	Excludes the amount initially capitalized in conjunction with the adoption of Topic 842.

Amounts of minimum future annual commitments under non-cancelable operating leases and lease financing obligations in accordance with Topic 840 were as follows:



	November 24, 2019
	(Dollars in thousands)
2020	$	234,092
2021	203,483
2022	174,536
2023	140,278
2024	111,176
Thereafter	284,114
Total undiscounted future cash flows related to lease payments	$	1,147,679