Summary of Significant Accounting Policies (Policies)

9 Months Ended

Jun. 30, 2019

Recently Adopted Accounting Pronouncements

In the third quarter of fiscal 2019, we adopted the Financial Accounting Standards Board (“FASB”) issued guidance on the accounting for hedging relationships. The new guidance eliminates the requirement to separately measure and report hedge ineffectiveness, expands permissible cash flow hedges on contractually specified components, and simplifies hedge documentation and effectiveness assessments. The adoption of the new guidance did not have a material impact to our financial statements. The presentation and disclosure requirements are being applied prospectively. See Note 4, Derivative Instruments for further discussion.

In the first quarter of fiscal 2019, we adopted the new guidance on the accounting for income tax effects of intercompany sales or transfers of assets other than inventory. The guidance requires entities to recognize the income tax impact of an intra-entity sale or transfer of an asset other than inventory when the sale or transfer occurs, rather than when the asset has been sold to an outside party. The primary impact of the adoption was an increase to deferred income taxes, net of $227.6 million and a corresponding cumulative adjustment to opening retained earnings at the beginning of fiscal 2019.

In the first quarter of fiscal 2019, we adopted the new guidance on revenue recognition utilizing the modified retrospective method, which primarily changed the accounting method and classification of revenue recognition related to unredeemed stored value cards, referred to as stored value card breakage. Under this new guidance, expected breakage amounts must be recognized proportionately in earnings as redemptions occur. Previously, stored value card breakage was recorded to interest income and other, net utilizing the remote method. Starting in the first quarter of 2019, stored value card breakage was recorded in the revenue lines where stored value cards may be redeemed—primarily company-operated and licensed store revenues. The cumulative impact to retained earnings as of October 1, 2018 was $268.0 million.

Impact of adoption on our consolidated balance sheet at September 30, 2018:



(in millions)	As reported Sep 30, 2018		Revenue Recognition Adoption Impact			Adjusted Oct 1, 2018
Deferred income taxes, net	$	134.7	$	(11.0	)	$	123.7
Current liabilities:
Stored value card liability and current portion of deferred revenue	1,642.9		(422.0		)	1,220.9
Deferred revenue	6,775.7		64.0			6,839.7
Other long-term liabilities	1,430.5		79.0			1,509.5
Shareholders' equity:
Retained earnings	1,457.4		268.0			1,725.4

Due to the adoption, we began classifying stored value card liabilities as current and long-term deferred revenue.

See Note 2, Revenue Recognition, for further discussion of classification of impacts of the adoption.

Recent Accounting Pronouncements Not Yet Adopted

In February 2018, the FASB issued guidance on the reclassification of certain tax effects from accumulated other comprehensive income (“AOCI”). The guidance permits entities to reclassify the stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from AOCI to retained earnings. The guidance will be effective at the beginning of our first quarter of fiscal 2020 but permits adoption in an earlier period. The guidance may be applied in the period of adoption or retrospectively to each period in which the effect of the change related to the Tax Act was recognized. We do not expect a material impact upon adoption of this guidance.

In February 2016, the FASB issued guidance on the recognition and measurement of leases. Under the new guidance, lessees are required to recognize a lease liability, which represents the discounted obligation to make future minimum lease payments, and a corresponding right-of-use asset on the balance sheet for most leases. The guidance retains the current accounting for lessors and does not make significant changes to the recognition, measurement or presentation of expenses and cash flows by a lessee. Enhanced disclosures will also be required to give financial statement users the ability to assess the amount, timing and uncertainty of cash flows arising from leases. We will be applying the guidance, as permitted by the alternative method issued by the FASB, at the beginning of our first quarter of fiscal 2020, with optional practical expedients. In preparation for the adoption of the guidance, we are in the process of implementing controls and key system changes to enable the preparation of financial information. We expect this adoption will result in a right-of-use asset and lease liability in the range of approximately $8 billion to $10 billion on our condensed consolidated balance sheets but will likely have an insignificant impact on our condensed consolidated statements of earnings.