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LEASES (Tables)

12 Months Ended

Jun. 24, 2020

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 adjustment related to the prepaid rent.


–	Intangibles, net adjustment related to the favorable lease asset position.


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

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, and Note 13 - Accrued and Other Liabilities at June 26, 2019 for further details.

⁽²⁾

Operating lease assets represent the capitalization of operating lease 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 the impairment of 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 $68.6 million related to the elimination of the deferred gain on sale leaseback transactions as described in ⁽⁵⁾below, partially offset by $3.5 million related to the impact of adopting ASC 842 and recording the operating lease assets and liabilities.


⁽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 upon date of adoption.

⁽⁵⁾

Deferred gain on sale leaseback transactions balance of $255.3 million, 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 ASC 842 adoption into Retained earnings as required by ASC 842 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:



	June 24, 2020
	Finance Leases⁽¹⁾		Operating Leases⁽²⁾		Total Leases
Lease assets	$	81.6	$	1,054.6	$	1,136.2

Current lease liabilities	12.2		117.3		129.5
Long-term lease liabilities	89.9		1,061.6		1,151.5
Total lease liabilities	$	102.1	$	1,178.9	$	1,281.0


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



	Fifty-Two Week Period Ended June 24, 2020
Operating lease cost	$	162.8
Finance lease amortization	20.9
Finance lease interest	4.6
Short-term lease cost	1.4
Variable lease cost	57.7
Sublease (income)	(4.6		)
Total lease costs, net	$	242.8

Consolidated Statement of Cash Flows Disclosure of Lease Amounts

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



	Fifty-Two Week Period Ended June 24, 2020
Cash flows from operating activities
Cash paid related to lease liabilities
Operating leases	$	159.6
Finance leases	4.6
Cash flows from financing activities
Cash paid related to lease liabilities
Finance leases	17.8
Non-cash lease assets obtained in exchange for lease liabilities
Operating leases⁽¹⁾	224.0
Finance leases⁽¹⁾	73.2

⁽¹⁾

New lease assets obtained, net of lease liabilities primarily related to the new and assumed operating and finance leases from the Chili’s restaurant acquisition. Refer to Note 3 - Chili's Restaurant Acquisition and “Significant Changes in Leases in the Period” section below for more information.

Weighted Average Lease Term and Discount Rate

Other information related to leases is as follows:



	June 24, 2020
	Finance Leases		Operating Leases
Weighted average remaining lease term	9.4 years		11.5 years
Weighted average discount rate	5.9	%	5.7	%

Lease Maturity Analysis - Fiscal 2020 (ASC 842)

Finance leases and Operating leases total future lease payments represent the contractual obligations due under the contract, including cancelable option periods where we are reasonably assured to exercise the options. As of June 24, 2020, accounted for and presented under ASC 842 guidance, the discounted future minimum lease payments on finance and operating leases, as well as sublease income were as follows:



	June 24, 2020
Fiscal Year	Finance Leases		Operating Leases		Sublease (Income)
2021	$	17.8	$	179.4	$	(3.4	)
2022	22.0		167.4		(3.3		)
2023	20.3		155.6		(2.6		)
2024	10.3		145.4		(1.9		)
2025	10.6		135.4		(1.9		)
Thereafter	53.6		854.2		(4.8		)
Total future lease payments⁽¹⁾	134.6		1,637.4		$	(17.9	)
Less: Imputed interest	32.5		458.5
Present value of lease liability	$	102.1	$	1,178.9

⁽¹⁾

Total future lease payments as of June 24, 2020 included non-cancelable lease commitments of $113.4 million for finance leases, and $1,083.4 million for operating leases.

Lease Maturity Analysis - Fiscal 2019 (ASC 840)

As of June 26, 2019, as previously disclosed in our fiscal 2019 Form 10-K under Legacy GAAP, undiscounted future minimum lease payments that represent the contractual obligations due under the contract, including cancelable option periods where we are reasonably assured to exercise the options, 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.