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LEASES (Tables)

3 Months Ended

Sep. 25, 2019

Financial Statement Impact of ASC 842 Adoption

The table below reflects the balance sheet adoption impact related to ASC 842 as an adjustment at June 27, 2019, the first day of fiscal 2020 (condensed, unaudited):



	Legacy GAAP		ASC 842 Cumulative Adjustments			ASC 842
	June 26, 2019					June 27, 2019
ASSETS
Current assets⁽¹⁾	$	177.0	$	0.3		$	177.3
Other assets
Operating lease assets⁽²⁾	—		1,034.3			1,034.3
Deferred income taxes, net⁽³⁾	112.0		(65.1		)	46.9
Intangibles, net⁽¹⁾	22.3		(4.1		)	18.2
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities
Operating lease liabilities⁽⁴⁾	—		110.8			110.8
Other accrued liabilities⁽¹⁾⁽⁵⁾	141.1		(38.3		)	102.8
Long-term operating lease liabilities, less current portion⁽⁴⁾	—		1,044.9			1,044.9
Deferred gain on sale leaseback transactions⁽⁵⁾	255.3		(255.3		)	—
Other liabilities⁽¹⁾	153.0		(92.6		)	60.4
Retained earnings	2,771.2		195.9			2,967.1


⁽¹⁾	The following prior lease balances were reclassified into Operating lease assets upon adoption of ASC 842:


–	Current assets included the prepaid rent adjustment.


–	Intangibles, net included the favorable lease asset position adjustment.


–	Other accrued liabilities and Other liabilities balances related to the current and long-term portions of straight-line rent balances, unfavorable lease liability positions, exit-related lease accruals, and landlord contributions adjustments.

Additionally, Other accrued liabilities included $19.3 million of deferred gain on sale leaseback transactions that was eliminated as a cumulative effect adjustment to Retained earnings upon adoption, refer to ⁽⁵⁾ below for more details. Refer to Note 10 - Accrued and Other Liabilities for June 26, 2019 balance details.

⁽²⁾

Operating lease assets represents the capitalization of operating lease right-of-use assets equal to the amount of recognized operating lease liability as described in ⁽⁴⁾below, adjusted by the net carrying amounts described in ⁽¹⁾ above, and $15.5 million related to certain operating lease assets for restaurant facilities previously fully impaired under our long-lived asset impairment policy that were recorded to Retained earnings.


⁽³⁾	Deferred income taxes, net was reduced by $3.5 million related to the impact of adopting ASC 842 and recording the operating lease assets and liabilities, and $68.6 million related to the elimination of the deferred gain on sale leaseback transactions as described in ⁽⁵⁾below.


⁽⁴⁾	Operating lease liabilities, both current and long-term, represents the liabilities based on the present value of the lease payments, consisting of fixed costs and certain rent escalations, using our incremental borrowing rate applicable to the lease term.

⁽⁵⁾

Deferred gain on sale leaseback transactions balance of $255.3 million and the related short-term deferred gain balance recorded within Other accrued liabilities of $19.3 million, and the associated Deferred income taxes, net of $68.6 million as described in ⁽³⁾ above, were eliminated upon adoption into Retained earnings as required by the new lease accounting standard using the alternative transition method. No further gain will be amortized to Other gains and charges in the Consolidated Statements of Comprehensive Income effective fiscal 2020.

Consolidated Balance Sheet Disclosure of Lease Amounts

The following table includes a detail of lease asset and liabilities included in the Consolidated Balance Sheets (Unaudited):



	September 25, 2019
	Finance Leases⁽¹⁾		Operating Leases⁽²⁾		Total Leases
Lease assets	$	67.0	$	1,192.3	$	1,259.3

Current lease liabilities	10.2		119.2		129.4
Long-term lease liabilities	73.6		1,189.1		1,262.7
Total lease liabilities	$	83.8	$	1,308.3	$	1,392.1


⁽¹⁾	Finance lease assets are recorded in Property and equipment, at cost, and the related current and long-term lease liabilities are recorded within Other accrued liabilities and Long-term debt and finance leases, less current installments, respectively.

⁽²⁾

Operating lease assets are recorded in Operating lease assets, and the related current and long-term lease liabilities are recorded within Operating lease liabilities and Long-term operating lease liabilities, less current portion, respectively.

Consolidated Statement of Comprehensive Income Disclosure of Lease Amounts

The components of lease expense, including variable lease costs primarily consisting of rent based on a percentage of sales, common area maintenance charges and real estate taxes, and short-term lease expenses for leases with lease terms less than twelve months are included in Consolidated Statements of Comprehensive Income (Unaudited) as follows:



	Thirteen Week Period Ended September 25, 2019
Operating lease cost	$	37.3
Finance lease amortization	2.7
Finance lease interest	0.9
Short-term lease cost	0.2
Variable lease cost	13.3
Sublease (income)	(1.2		)
Total lease costs, net	$	53.2

Consolidated Statement of Cash Flows Disclosure of Lease Amounts

Supplemental cash flow information related to leases recorded in the Consolidated Statements of Cash Flows (Unaudited) is as follows:



	Thirteen Week Period Ended September 25, 2019
Cash flows from operating activities
Cash paid for amounts included in the measurement of lease liabilities
Operating leases	$	40.3
Finance leases	0.9
Cash flows from financing activities
Cash paid for amounts included in the measurement of lease liabilities
Finance leases	2.4
Non-cash lease assets obtained in exchange for new lease liabilities
Operating leases	187.1
Finance leases	37.7

Weighted Average Lease Term and Discount Rate

Other information related to leases is as follows:



	September 25, 2019
	Finance Leases		Operating Leases
Weighted average remaining lease term	11.3 years		12.1 years
Weighted average discount rate	5.4	%	4.3	%

Lease Maturity Analysis

As of September 25, 2019, accounted for and presented under ASC 842 guidance, the future minimum lease payments on finance and operating leases, as well as sublease income were as follows:



	September 25, 2019
Fiscal Year	Finance Leases		Operating Leases		Sublease Income
Remainder of 2020	$	10.9	$	127.7	$	(3.5	)
2021	13.1		170.0		(4.6		)
2022	11.5		161.4		(4.5		)
2023	10.1		150.6		(3.5		)
2024	9.5		140.8		(2.5		)
Thereafter	58.4		969.6		(8.5		)
Total minimum lease payments	113.5		1,720.1		$	(27.1	)
Less: Imputed interest	29.7		411.8
Present value of lease liability	$	83.8	$	1,308.3

Fiscal 2019 Future Minimum Lease Payments

As of June 26, 2019, as previously disclosed in our fiscal 2019 Form 10-K under Legacy GAAP, undiscounted future minimum lease payments on both capital and operating leases were as follows:



	June 26, 2019
Fiscal Year	Capital Leases			Operating Leases⁽²⁾
2020	$	12.3		$	156.8
2021	10.1			154.5
2022	8.2			148.6
2023	6.7			137.7
2024	6.0			127.6
Thereafter	17.4			771.7
Total minimum lease payments⁽¹⁾	60.7			$	1,496.9
Imputed interest (average rate of 6.18%)	(12.3		)
Present value of minimum lease payments	48.4
Less current capital lease obligations	(9.7		)
Long-term capital lease obligations	$	38.7


⁽¹⁾	Total minimum lease payments were not reduced by minimum sublease rentals to be received in the future under non-cancelable subleases. The total of undiscounted future sublease rentals was approximately $22.0 million and $14.6 million for capital and operating subleases, respectively, as of June 26, 2019.

⁽²⁾

Operating lease expenses for the fifty-two weeks ended June 26, 2019, recorded under Legacy GAAP, totaled $158.6 million, which included $141.7 million for straight-lined minimum rent, $3.3 million for contingent rent, and $13.6 million of other rent-related expenses.