Leases

6 Months Ended

Aug. 03, 2019

The Company leases its office space and all of its retail store locations, transportation equipment and other equipment under various noncancelable operating leases. The leases have varying terms and expire at various dates through 2034. The store leases in the United States, Puerto Rico and Canada typically have initial terms of approximately 10 years. The store leases in the United Kingdom and the Republic of Ireland typically have initial terms of between 10 and 15 years. The Company's lease portfolio includes leases with fixed base rental payments, rental payments based on a percentage of retail sales over contractual amounts and others with predetermined fixed escalations of the minimum rentals based on a defined consumer price index or percentage. Generally, most of the leases require the Company to pay taxes, insurance, maintenance costs and contingent rentals based on sales. The Company evaluates renewal options and break options at lease inception and on an ongoing basis, and includes renewal options and break options that it is reasonably certain to exercise in its expected lease terms for calculations of its right-of-use assets and liabilities. Approximately 2% of the Company’s leases contain renewal options. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Under ASC 842, for store and equipment leases beginning in Fiscal 2020 and later, the Company has elected to not separate fixed lease components and non-lease components. Accordingly, the Company includes fixed rental payments, common area maintenance costs, promotional advertising costs and other fixed costs in its measurement of lease liabilities.

The Company's leases do not provide an implicit rate, so the incremental borrowing rate, based on the information available at commencement or modification date, is used in determining the present value of lease payments. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment. For operating leases that commenced prior to the date of adoption of the new lease accounting guidance, the Company used the incremental borrowing rate that corresponded to the initial lease term as of the date of adoption.

Net lease costs are included within selling and administrative expenses on the Condensed Consolidated Statements of Operations. The table below presents the components of lease cost for operating leases for the three and six months ended August 3, 2019.



	Three Months Ended		Six Months Ended
In Thousands	August 3, 2019		August 3, 2019

Operating lease cost	$44,664		$90,970
Variable lease cost	2,610		5,833
Less: Sublease income	(186	)	(314	)
Net Lease Cost	$47,088		$96,489

Note 6

Leases, Continued

The following table reconciles the maturities of undiscounted cash flows to the Company's operating lease liabilities recorded on the Condensed Consolidated Balance Sheets at August 3, 2019:



Fiscal Years	In Thousands
August 4, 2019 through February 1, 2020	$91,418
2021	175,023
2022	162,419
2023	142,601
2024	120,853
Thereafter	266,902
Total undiscounted future minimum lease payments	959,216
Less: Amounts representing interest	(146,936)
Total Present Value of Operating Lease Liabilities	$812,280

The Company's weighted-average remaining lease term and weighted-average discount rate for operating leases as of August 3, 2019 are:



	August 3, 2019

Weighted-average remaining lease term (years)	6.4 years

Weighted-average discount rate	5.2%

As of August 3, 2019, the Company has additional leases that have not yet commenced with total discounted future minimum lease payments of $10.8 million. These leases will commence during Fiscal 2020 and Fiscal 2021 with lease terms of 1 year to 11 years.

Supplemental cash flow information and non-cash activity related to the Company's operating leases are as follows:



	Three Months Ended	Six Months Ended
In Thousands	August 3, 2019	August 3, 2019

Operating cash flow information:
Cash paid for amounts included in the
measurement of operating lease liabilities	$45,892	$91,769

Non-cash activity:
Operating lease right-of-use assets obtained
in exchange for operating lease liabilities	$21,322	$34,954

Note 6

Leases, Continued

Prior Period Comparative Disclosures

Under the optional transition method, for leases that existed prior to and at the adoption of the new standard, the Company continues to present comparative prior period lease amounts in accordance with ASC 840, "Leases". As of February 2, 2019 future minimum rental commitments were:



Fiscal Years	In Thousands
2020	$183,432
2021	171,584
2022	159,155
2023	140,889
2024	119,023
Thereafter	323,638
Total Minimum Rental Commitments	$1,097,721

For leases that contain predetermined fixed escalations of the minimum rentals, the related rental expense is recognized on a straight-line basis and the cumulative expense recognized on the straight-line basis in excess of the cumulative payments is included in other long-term liabilities on the Condensed Consolidated Balance Sheets for comparative periods. The Company receives reimbursements from landlords for some leases to be used towards construction of the store the Company intends to lease.

Leasehold improvements are recorded at their gross costs including items reimbursed by landlords. The reimbursements are recorded as deferred rent and amortized as a reduction of rent expense over the initial lease term. Tenant allowances of $22.5 million and deferred rent of $48.6 million at February 2, 2019 and tenant allowances of $22.5 million and deferred rent of $47.0 million at August 4, 2018 are included in other long-term liabilities on the Condensed Consolidated Balance Sheets.