Leases

6 Months Ended

Jun. 30, 2020

The Company enters into operating leases both domestically and internationally, to lease certain warehouse space, office facilities, space for its brand and factory house stores and certain equipment under non-cancelable operating leases. The leases expire at various dates through 2035, excluding extensions at the Company's option, and include provisions for rental adjustments.

The Company accounts for a contract as a lease when it has the right to direct the use of the asset for a period of time while obtaining substantially all of the asset’s economic benefits. The Company determines the initial classification and measurement of its right-of-use ("ROU") assets and lease liabilities at the lease commencement date and thereafter if modified. ROU assets represent the Company’s right to control the underlying assets under lease, over the contractual term. ROU assets and lease liabilities are recognized on the unaudited consolidated balance sheets based on the present value of future minimum lease payments to be made over the lease term. ROU assets and lease liabilities are established on the unaudited consolidated balance sheets for leases with an expected term greater than one year. Short-term lease payments were not material for the quarter ended June 30, 2020.

As the rate implicit in the lease is not readily determinable, the Company uses its secured incremental borrowing rate to determine the present value of the lease payments. The Company calculates the incremental borrowing rate based on the current market yield curve and adjusts for foreign currency for international leases.

Fixed lease costs are included in the recognition of ROU assets and lease liabilities. Variable lease costs are not included in the measurement of the lease liability. These variable lease payments are recognized in the unaudited consolidated statements of operations in the period in which the obligation for those payments is incurred. Variable lease payments primarily consist of payments dependent on sales in brand and factory house stores. The Company has elected to combine lease and non-lease components in the determination of lease costs for its leases. The lease liability includes lease payments related to options to extend or renew the lease term only if the Company is reasonably certain to exercise those options.

The Company recognizes lease expense on a straight-line basis over the lease term. Included in selling, general and administrative expenses were operating lease costs of $33.9 million and $38.7 million for the three months ended June 30, 2020 and 2019, respectively, and $71.7 million and $75.8 million for the six months ended June 30, 2020 and 2019, respectively, under non-cancelable operating lease agreements. The operating lease costs include $0.6 million and $3.2 million in variable lease payments, for the three months ended June 30, 2020 and 2019, respectively, and $2.6 million and $5.4 million for the six months ended June 30, 2020 and 2019, respectively.

As a result of the impacts of COVID-19, the Company sought concessions from landlords for certain leases of brand and factory house stores in the form of rent deferrals or rent waivers. Consistent with updated guidance from the FASB in April 2020, the Company elected to account for the accounting policy of treating these concessions as though the enforceable rights and obligations to the deferrals existed in the respective contracts at lease inception and will not account for the concessions as lease modifications, unless the concession results in a substantial change in the Company's obligations. The Company's rent deferrals had no impact to rent expense during the three and six months ended June 30, 2020 and amounts deferred and payable in future periods have been included in short term lease liability on the Company's unaudited consolidated balance sheet as of June 30, 2020. The Company's rent waivers, which were recorded as a reduction of rent expense, were not material for the three and six months ended June 30, 2020.

There are no residual value guarantees that exist, and there are no restrictions or covenants imposed by leases. The Company rents or subleases excess office facilities and warehouse space to third parties. Sublease income is not material.

Supplemental balance sheet information related to leases was as follows:


	Three months ended June 30, 2020	Three months ended June 30, 2019
Weighted average remaining lease term (in years)	9.40	7.10
Weighted average discount rate	3.92	4.30

Supplemental cash flow and other information related to leases was as follows:


	Three months ended June 30,						Six months ended June 30,
(In thousands)	2020		2019		2020		2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows from operating leases	$	37,517	$	33,599	$	75,313	$	50,852
Leased assets obtained in exchange for new operating lease liabilities	$	9,994	$	26,056	$	374,893	$	30,100

Maturities of lease liabilities are as follows:


(In thousands)
2020	$	88,052
2021	183,938
2022	156,279
2023	139,553
2024	121,711
2025 and thereafter	561,369
Total lease payments	$	1,250,902
Less: Interest	210,029
Total present value of lease liabilities (1)	$	1,040,873

(1) Amounts above reflect lease liabilities associated with the Company's New York City flagship store lease, which commenced on March 1, 2020. However, refer to Note 3 for discussion of the impairment of the associated ROU lease asset.

As of June 30, 2020, the Company has additional operating lease obligations that have not yet commenced of approximately $3.0 million which are not reflected in the table above.