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Leases

3 Months Ended

Dec. 27, 2019

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 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 eight years, contain provisions related to residual value guarantees. The maximum potential liability to the Company under such arrangements was approximately $25.9 million at December 27, 2019 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 December 27, 2019.

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 Condensed 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. Operating lease right-of-use lease assets include adjustments for deferred rent, tenant improvement allowances and prepaid rent. Lease expense is recognized on a straight-line basis over the expected lease term.

Variable lease payments, which primarily consist of leases associated with our 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 nonlease 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 Condensed Consolidated Balance Sheets as of December 27, 2019 (in thousands), as well as the weighted average remaining lease term and weighted average discount rate:



Leases	Balance Sheet Location	December 27, 2019
Assets:
Operating	Operating Lease Right-of-use Assets	$	561,872
Finance	Property and Equipment, net	134,539
Total lease assets		$	696,411
Liabilities:
Current
Operating	Current operating lease liabilities	$	75,751
Finance	Current maturities of long-term borrowings	30,928
Noncurrent
Operating	Noncurrent Operating Lease Liabilities	345,500
Finance	Long-term borrowings	111,624
Total lease liabilities		$	563,803

Weighted average remaining lease term (in years)
Operating leases		9.1
Finance leases		8.5
Weighted average discount rate
Operating leases		3.6		%
Finance leases		4.1		%

The following table summarizes the location of lease related costs in the Condensed Consolidated Statements of Income for the three months ended December 27, 2019 (in thousands):



		Three Months Ended
Lease Cost	Income Statement Location	December 27, 2019
Operating lease cost¹:
Fixed lease costs	Cost of services provided	$	29,529
Variable lease costs²	Cost of services provided	196,625
Short-term lease costs	Cost of services provided	21,330
Finance lease cost³:
Amortization of right-of-use-assets	Depreciation and amortization	7,087
Interest on lease liabilities	Interest and Other Financing Costs, net	1,291
Net lease cost		$	255,862



(1)	Excludes sublease income, which is immaterial.
(2)	Includes $193.6 million of costs related to leases associated with revenue contracts with customers. These costs represent the rent the Company pays its clients to operate at their locations, typically based on a percentage of sales.
(3)	Excludes variable lease costs, which are immaterial.

Supplemental cash flow information related to leases for the period reported is as follows (in thousands):



	Three Months Ended
	December 27, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	245,284
Operating cash flows from finance leases	1,270
Financing cash flows from finance leases	8,613
Right-of-use lease assets obtained in exchange for lease obligations:
Operating leases	$	23,768
Finance leases	1,722

Future minimum lease payments under non-cancelable leases as of December 27, 2019 are as follows (in thousands):



	Operating leases			Finance leases			Total
Remainder of 2020	$	68,984		$	18,818		$	87,802
2021	76,092			35,769			111,861
2022	58,588			19,827			78,415
2023	46,282			16,558			62,840
2024	38,567			14,042			52,609
Thereafter	213,448			52,396			265,844
Total future minimum lease payments	501,961			157,410			659,371
Less: Interest	(80,710		)	(14,858		)	(95,568		)
Present value of lease liabilities	$	421,251		$	142,552		$	563,803

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