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Leases | 12 Months Ended
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Oct. 02, 2020
Leases [Abstract] |
Leases | LEASES: The Company has lease arrangements primarily related to real estate, vehicles and equipment, which generally have terms of one to 30 years. Finance leases primarily relate to vehicles and certain real estate. In addition, there can be leases identified in the Company's revenue contracts with customers, which generally include fixed or variable lease payments. The Company assesses whether an arrangement is a lease, or contains a lease, upon inception of the related contract. Certain of the Company's lease arrangements, primarily vehicle leases, with terms of one to 12 years, contain provisions related to residual value guarantees. The maximum potential liability to the Company under such arrangements was approximately $28.5 million at October 2, 2020 if the terminal fair value of vehicles coming off lease was zero. Consistent with past experience, management does not expect any significant payments will be required pursuant to these arrangements. No amounts have been accrued for guarantee arrangements at October 2, 2020. As a result of adopting ASC 842 on September 28, 2019 (first day of fiscal 2020), the Company recognized $416.1 million of operating lease liabilities and $558.5 million of operating lease right-of-use assets on its Consolidated Balance Sheets. Operating lease right-of-use assets represent the Company’s right to use the underlying assets for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease liabilities and operating lease right-of-use assets are recognized at the lease commencement date based on the estimated present value of the lease payments over the lease term. Deferred rent, tenant improvement allowances and prepaid rent are included in the operating lease right-of-use asset balances. Lease expense is recognized on a straight-line basis over the expected lease term. Variable lease payments, which primarily consist of leases associated with the Company's revenue contracts with customers, real estate taxes, common area maintenance charges, insurance costs and other operating expenses, are not included in the operating lease right-of-use asset or operating lease liability balances and are recognized in the period in which the expenses are incurred. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain they will be exercised or not, respectively. Options to extend lease terms that are reasonably certain of exercise are recognized as part of the operating lease right-of-use asset and operating lease liability balances. As permitted under the transition guidance upon adoption of ASC 842, the Company elected the following practical expedients: •the simplified approach to not recast comparative periods and to apply the new lease standard on a prospective basis beginning in the year of initial adoption; •the package of practical expedients to not reassess the lease determination, lease classification or initial direct costs for leases commenced prior to adoption; •the component election to not separate lease and non-lease components in all arrangements that contain a lease; and •the short-term lease recognition exemption whereby lease-related assets and liabilities are not recognized for arrangements with initial lease terms of one year or less. The Company did not elect the use of the hindsight expedient for determining the lease term. The Company is required to discount its future minimum lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. The Company uses its incremental borrowing rate as the discount rate. The Company uses a portfolio approach to determine the incremental borrowing rate based on the geographic location of the lease and the remaining lease term. The incremental borrowing rate is calculated using a base line rate plus an applicable margin. The following table summarizes the location of the operating and finance leases in the Company’s Consolidated Balance Sheets as of October 2, 2020 (in thousands), as well as the weighted average remaining lease term and weighted average discount rate:
Leases |  | Balance Sheet Location |  | October 2, 2020 |  |
Assets: |  |  |  |  |  |
Operating(1), (2) |  | Operating Lease Right-of-use Assets |  | $ | 551,394 |  |  |
Finance |  | Property and Equipment, net |  | 134,080 |  |  |
Total lease assets |  |  |  | $ | 685,474 |  |  |
Liabilities: |  |  |  |  |  |
Current |  |  |  |  |  |
Operating(2) |  | Current operating lease liabilities |  | $ | 71,810 |  |  |
Finance |  | Current maturities of long-term borrowings |  | 29,983 |  |  |
Noncurrent |  |  |  |  |  |
Operating(2) |  | Noncurrent Operating Lease Liabilities |  | 341,667 |  |  |
Finance |  | Long-term borrowings |  | 112,605 |  |  |
Total lease liabilities |  |  |  | $ | 556,065 |  |  |
Weighted average remaining lease term (in years) |  |  |  |  |  |
Operating leases |  |  |  | 8.8 |  |
Finance leases |  |  |  | 8.5 |  |
Weighted average discount rate |  |  |  |  |  |
Operating leases |  |  |  | 3.6 | % |  |
Finance leases |  |  |  | 4.2 | % |  |
(1) | Includes $193.6 million of long-term prepaid rent as of October 2, 2020.
(2) | Includes the write-down of certain rental properties from disposal by abandonment and the write-off of certain right-of-use assets related to client contracts that were reassessed due to the impact of COVID-19 during fiscal 2020 (see Note 1).
The following table summarizes the location of lease related costs in the Consolidated Statements of (Loss) Income for the fiscal year ended October 2, 2020 (in thousands):
|  |  |  | Fiscal Year Ended |  |
Lease Cost |  | Income Statement Location |  | October 2, 2020 |  |
Operating lease cost(1): |  |  |  |  |  |
Fixed lease costs |  | Cost of services provided |  | $ | 121,434 |  |  |
Variable lease costs(2) |  | Cost of services provided |  | 392,700 |  |  |
Short-term lease costs |  | Cost of services provided |  | 59,865 |  |  |
Finance lease cost(3): |  |  |  |  |  |
Amortization of right-of-use-assets |  | Depreciation and amortization |  | 30,542 |  |  |
Interest on lease liabilities |  | Interest and Other Financing Costs, net |  | 5,319 |  |  |
Net lease cost |  |  |  | $ | 609,860 |  |  |
(1) | Excludes sublease income, which is immaterial.
(2) | Includes $375.0 million of costs related to leases associated with revenue contracts with customers for fiscal 2020. These costs represent the rent the Company pays its clients to operate at their locations, typically based on a percentage of sales. Variable lease costs during fiscal 2020 were impacted by COVID-19.
(3) | Excludes variable lease costs, which are immaterial.
Rental expense for all operating leases was $860.6 million and $187.5 million for fiscal 2019 and fiscal 2018, respectively. The increase from fiscal 2018 to fiscal 2019 is due to the Company's adoption of ASC 606 due to leases in the Company's revenue contracts with customers. Supplemental cash flow information related to leases for the period reported is as follows (in thousands):
|  | Fiscal Year Ended |  |
|  | October 2, 2020 |  |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |
Operating cash flows from operating leases(1) |  | $ | 144,792 |  |  |
Operating cash flows from finance leases |  | 5,341 |  |  |
Financing cash flows from finance leases |  | 34,674 |  |  |
Lease assets obtained in exchange for lease obligations: |  |  |  |
Operating leases |  | $ | 90,533 |  |  |
Finance leases |  | 29,317 |  |  |
(1) | Excludes cash paid for variable and short-term lease costs of $414.0 million and $59.9 million, respectively, that are not included within the measurement of lease liabilities.
Future minimum lease payments under non-cancelable leases as of October 2, 2020 are as follows (in thousands):
| Operating leases |  | Finance leases |  | Total
2021 | $ | 85,005 |  |  | $ | 31,290 |  |  | 116,295 |
2022 | 68,500 |  |  | 25,467 |  |  | 93,967 |
2023 | 55,331 |  |  | 19,741 |  |  | 75,072 |
2024 | 45,581 |  |  | 17,117 |  |  | 62,698 |
2025 | 37,409 |  |  | 14,551 |  |  | 51,960 |
Thereafter | 184,776 |  |  | 49,163 |  |  | 233,939 |
Total future minimum lease payments | $ | 476,602 |  |  | $ | 157,329 |  |  | $ | 633,931 |
Less: Interest | (63,125) |  |  | (14,741) |  |  | (77,866) |
Present value of lease liabilities | $ | 413,477 |  |  | $ | 142,588 |  |  | $ | 556,065 |
Following is a schedule of the future minimum rental and similar commitments under all non-cancelable operating leases as of September 27, 2019 (in thousands):
2020 | $ | 101,061 |
2021 | 74,908 |
2022 | 56,765 |
2023 | 43,795 |
2024 | 36,215 |
2025-Thereafter | 214,818 |
Total minimum rental obligations | $ | 527,562 |
Leases | LEASES: The Company has lease arrangements primarily related to real estate, vehicles and equipment, which generally have terms of one to 30 years. Finance leases primarily relate to vehicles and certain real estate. In addition, there can be leases identified in the Company's revenue contracts with customers, which generally include fixed or variable lease payments. The Company assesses whether an arrangement is a lease, or contains a lease, upon inception of the related contract. Certain of the Company's lease arrangements, primarily vehicle leases, with terms of one to 12 years, contain provisions related to residual value guarantees. The maximum potential liability to the Company under such arrangements was approximately $28.5 million at October 2, 2020 if the terminal fair value of vehicles coming off lease was zero. Consistent with past experience, management does not expect any significant payments will be required pursuant to these arrangements. No amounts have been accrued for guarantee arrangements at October 2, 2020. As a result of adopting ASC 842 on September 28, 2019 (first day of fiscal 2020), the Company recognized $416.1 million of operating lease liabilities and $558.5 million of operating lease right-of-use assets on its Consolidated Balance Sheets. Operating lease right-of-use assets represent the Company’s right to use the underlying assets for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease liabilities and operating lease right-of-use assets are recognized at the lease commencement date based on the estimated present value of the lease payments over the lease term. Deferred rent, tenant improvement allowances and prepaid rent are included in the operating lease right-of-use asset balances. Lease expense is recognized on a straight-line basis over the expected lease term. Variable lease payments, which primarily consist of leases associated with the Company's revenue contracts with customers, real estate taxes, common area maintenance charges, insurance costs and other operating expenses, are not included in the operating lease right-of-use asset or operating lease liability balances and are recognized in the period in which the expenses are incurred. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain they will be exercised or not, respectively. Options to extend lease terms that are reasonably certain of exercise are recognized as part of the operating lease right-of-use asset and operating lease liability balances. As permitted under the transition guidance upon adoption of ASC 842, the Company elected the following practical expedients: •the simplified approach to not recast comparative periods and to apply the new lease standard on a prospective basis beginning in the year of initial adoption; •the package of practical expedients to not reassess the lease determination, lease classification or initial direct costs for leases commenced prior to adoption; •the component election to not separate lease and non-lease components in all arrangements that contain a lease; and •the short-term lease recognition exemption whereby lease-related assets and liabilities are not recognized for arrangements with initial lease terms of one year or less. The Company did not elect the use of the hindsight expedient for determining the lease term. The Company is required to discount its future minimum lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. The Company uses its incremental borrowing rate as the discount rate. The Company uses a portfolio approach to determine the incremental borrowing rate based on the geographic location of the lease and the remaining lease term. The incremental borrowing rate is calculated using a base line rate plus an applicable margin. The following table summarizes the location of the operating and finance leases in the Company’s Consolidated Balance Sheets as of October 2, 2020 (in thousands), as well as the weighted average remaining lease term and weighted average discount rate:
Leases |  | Balance Sheet Location |  | October 2, 2020 |  |
Assets: |  |  |  |  |  |
Operating(1), (2) |  | Operating Lease Right-of-use Assets |  | $ | 551,394 |  |  |
Finance |  | Property and Equipment, net |  | 134,080 |  |  |
Total lease assets |  |  |  | $ | 685,474 |  |  |
Liabilities: |  |  |  |  |  |
Current |  |  |  |  |  |
Operating(2) |  | Current operating lease liabilities |  | $ | 71,810 |  |  |
Finance |  | Current maturities of long-term borrowings |  | 29,983 |  |  |
Noncurrent |  |  |  |  |  |
Operating(2) |  | Noncurrent Operating Lease Liabilities |  | 341,667 |  |  |
Finance |  | Long-term borrowings |  | 112,605 |  |  |
Total lease liabilities |  |  |  | $ | 556,065 |  |  |
Weighted average remaining lease term (in years) |  |  |  |  |  |
Operating leases |  |  |  | 8.8 |  |
Finance leases |  |  |  | 8.5 |  |
Weighted average discount rate |  |  |  |  |  |
Operating leases |  |  |  | 3.6 | % |  |
Finance leases |  |  |  | 4.2 | % |  |
(1) | Includes $193.6 million of long-term prepaid rent as of October 2, 2020.
(2) | Includes the write-down of certain rental properties from disposal by abandonment and the write-off of certain right-of-use assets related to client contracts that were reassessed due to the impact of COVID-19 during fiscal 2020 (see Note 1).
The following table summarizes the location of lease related costs in the Consolidated Statements of (Loss) Income for the fiscal year ended October 2, 2020 (in thousands):
|  |  |  | Fiscal Year Ended |  |
Lease Cost |  | Income Statement Location |  | October 2, 2020 |  |
Operating lease cost(1): |  |  |  |  |  |
Fixed lease costs |  | Cost of services provided |  | $ | 121,434 |  |  |
Variable lease costs(2) |  | Cost of services provided |  | 392,700 |  |  |
Short-term lease costs |  | Cost of services provided |  | 59,865 |  |  |
Finance lease cost(3): |  |  |  |  |  |
Amortization of right-of-use-assets |  | Depreciation and amortization |  | 30,542 |  |  |
Interest on lease liabilities |  | Interest and Other Financing Costs, net |  | 5,319 |  |  |
Net lease cost |  |  |  | $ | 609,860 |  |  |
(1) | Excludes sublease income, which is immaterial.
(2) | Includes $375.0 million of costs related to leases associated with revenue contracts with customers for fiscal 2020. These costs represent the rent the Company pays its clients to operate at their locations, typically based on a percentage of sales. Variable lease costs during fiscal 2020 were impacted by COVID-19.
(3) | Excludes variable lease costs, which are immaterial.
Rental expense for all operating leases was $860.6 million and $187.5 million for fiscal 2019 and fiscal 2018, respectively. The increase from fiscal 2018 to fiscal 2019 is due to the Company's adoption of ASC 606 due to leases in the Company's revenue contracts with customers. Supplemental cash flow information related to leases for the period reported is as follows (in thousands):
|  | Fiscal Year Ended |  |
|  | October 2, 2020 |  |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |
Operating cash flows from operating leases(1) |  | $ | 144,792 |  |  |
Operating cash flows from finance leases |  | 5,341 |  |  |
Financing cash flows from finance leases |  | 34,674 |  |  |
Lease assets obtained in exchange for lease obligations: |  |  |  |
Operating leases |  | $ | 90,533 |  |  |
Finance leases |  | 29,317 |  |  |
(1) | Excludes cash paid for variable and short-term lease costs of $414.0 million and $59.9 million, respectively, that are not included within the measurement of lease liabilities.
Future minimum lease payments under non-cancelable leases as of October 2, 2020 are as follows (in thousands):
| Operating leases |  | Finance leases |  | Total
2021 | $ | 85,005 |  |  | $ | 31,290 |  |  | 116,295 |
2022 | 68,500 |  |  | 25,467 |  |  | 93,967 |
2023 | 55,331 |  |  | 19,741 |  |  | 75,072 |
2024 | 45,581 |  |  | 17,117 |  |  | 62,698 |
2025 | 37,409 |  |  | 14,551 |  |  | 51,960 |
Thereafter | 184,776 |  |  | 49,163 |  |  | 233,939 |
Total future minimum lease payments | $ | 476,602 |  |  | $ | 157,329 |  |  | $ | 633,931 |
Less: Interest | (63,125) |  |  | (14,741) |  |  | (77,866) |
Present value of lease liabilities | $ | 413,477 |  |  | $ | 142,588 |  |  | $ | 556,065 |
Following is a schedule of the future minimum rental and similar commitments under all non-cancelable operating leases as of September 27, 2019 (in thousands):
2020 | $ | 101,061 |
2021 | 74,908 |
2022 | 56,765 |
2023 | 43,795 |
2024 | 36,215 |
2025-Thereafter | 214,818 |
Total minimum rental obligations | $ | 527,562 |

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