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Leases
 6 Months Ended
Nov. 24, 2019
Leases [Abstract]  
Leases Leases

The majority of our restaurant locations, as well as our restaurant support center, are subject to a lease. We evaluate our leases at the commencement of the lease to determine the classification as an operating or finance lease. For operating leases, upon adoption of ASC 842, we recognized operating lease liabilities based on the present value of minimum lease payments over the remaining expected lease term and corresponding right-of-use assets. We recognize lease expense related to operating leases on a straight-line basis. For finance leases, we record finance lease liabilities at an amount equal to the present value of the minimum lease payments over the remaining expected lease term and corresponding right-of-use assets. Amortization expense and interest expense related to finance leases are included in depreciation and amortization and interest, net, respectively, in our consolidated statements of earnings. Sale-leasebacks are transactions through which we sell assets (such as restaurant properties) at fair value and subsequently lease them back. The resulting leases generally qualify and are accounted for as operating leases. Failed sale-leaseback transactions are generally classified as finance leases and result in retention of the “sold” assets within land, buildings and equipment with a finance lease liability equal to the amount of proceeds received recorded as a component of other liabilities on our consolidated balance sheets.

Within the provisions of certain of our leases, there are rent holidays and escalations in payments over the base lease term, as well as renewal periods. The effects of the holidays and escalations have been reflected in lease expense on a straight-line basis for operating leases over the expected lease term. The lease term commences on the date when we have the right to control the use of the leased property, which is typically before lease payments are due under the terms of the lease. Many of our leases have renewal periods totaling 5 to 20 years, exercisable at our option, and require payment of property taxes, insurance and maintenance costs in addition to the lease payments. At lease inception, we include option periods that we are reasonably assured to exercise as failure to renew the lease would impose an economic penalty. The consolidated financial statements reflect the same lease term for amortizing leasehold improvements as we use to determine finance versus operating lease classifications. Variable lease expense is generally based on sales levels and is accrued at the point in time we determine that it is probable that such sales levels will be achieved. Landlord allowances are recorded as an adjustment to the right-of-use assets. Gains and losses on sale-leaseback transactions are recognized immediately.

The components of lease expense in the consolidated statement of earnings are as follows:
 
 
Three Months Ended
 
Six Months Ended
(in millions)
 
November 24, 2019
 
November 24, 2019
Operating lease expense
 
$
98.8

 
$
196.6

Finance lease expense
 
 
 
 
Amortization of leased assets
 
2.1

 
3.6

Interest on lease liabilities
 
4.0

 
7.3

Variable lease expense
 
1.4

 
2.9

Total lease expense
 
$
106.3

 
$
210.4



The components of lease assets and liabilities on the consolidated balance sheet are as follows:
(in millions)
 
Balance Sheet Classification
 
November 24, 2019
Operating lease right-of-use assets
 
Operating lease right-of-use assets
 
$
4,029.0

Finance lease right-of-use assets
 
Land, buildings and equipment, net
 
188.0

Total lease assets, net
 
 
 
$
4,217.0

 
 
 
 
 
Operating lease liabilities - current
 
Other current liabilities
 
$
152.1

Finance lease liabilities - current
 
Other current liabilities
 
6.8

Operating lease liabilities - non-current
 
Operating lease liabilities - non-current
 
4,306.2

Finance lease liabilities - non-current
 
Other liabilities
 
320.8

Total lease liabilities
 
 
 
$
4,785.9





Supplemental cash flow information related to leases:
 
 
Six Months Ended
(in millions)
 
November 24, 2019
Cash paid for amounts included in the measurement of lease liabilities
 
 
Operating cash flows from operating leases
 
$
182.0

Operating cash flows from finance leases
 
7.3

Financing cash flows from finance leases
 
2.5

Right-of-use assets obtained in exchange for new operating lease liabilities
 
106.6

Right-of-use assets obtained in exchange for new finance lease liabilities
 
139.3



The weighted-average remaining lease terms and discount rates as of November 24, 2019 are as follows:
 
 
November 24, 2019
(in millions)
 
Weighted-Average Remaining Lease Term (Years)
 
Weighted-Average Discount Rate (1)
Operating leases
 
17.2
 
4.2
%
Finance leases
 
19.4
 
5.0
%
(1)
We cannot determine the interest rate implicit in our leases. Therefore, the discount rate represents our incremental borrowing rate and is determined based on the risk-free rate, adjusted for the risk premium attributed to our corporate credit rating for a secured or collateralized instrument.

The annual maturities of our lease liabilities as of November 24, 2019 are as follows:
(in millions)
 
 
 
 
Fiscal Year
 
Operating Leases
 
Finance Leases
Six months ended May 31, 2020
 
$
185.4

 
$
11.5

2021
 
377.9

 
24.9

2022
 
379.9

 
25.1

2023
 
384.0

 
25.6

2024
 
386.4

 
25.9

2025
 
390.9

 
26.1

Thereafter
 
4,448.2

 
391.3

Total future lease commitments (1)
 
$
6,552.7

 
$
530.4

Less imputed interest
 
(2,094.4
)
 
(202.8
)
Present value of lease liabilities (2)
 
$
4,458.3

 
$
327.6

(1)
Of the $6.55 billion of total future operating lease commitments and $530.4 million of total future finance lease commitments, $2.99 billion and $307.0 million, respectively, are noncancelable.
(2)
Excludes approximately $182.7 million of net present value of lease payments related to 36 real estate leases signed, but not yet commenced.

The annual future lease commitments under capital lease and financing lease obligations and noncancelable operating leases, including those related to restaurants reported as discontinued operations, for each of the five fiscal years subsequent to May 26, 2019 and thereafter is as follows:
(in millions)
 
 
 
 
 
 
Fiscal Year
 
Capital
 
Financing
 
Operating
2020
 
$
8.9

 
$
12.2

 
$
372.9

2021
 
8.9

 
12.4

 
355.0

2022
 
8.8

 
12.6

 
326.7

2023
 
8.9

 
12.8

 
299.8

2024
 
8.7

 
13.0

 
262.7

Thereafter
 
81.4

 
128.0

 
1,434.0

Total future lease commitments
 
$
125.6

 
$
191.0

 
$
3,051.1

Less imputed interest (at 6.5%), (various)
 
(41.6
)
 
(99.7
)
 
 
Present value of future lease commitments
 
$
84.0

 
$
91.3

 
 
Less current maturities
 
(4.1
)
 
(2.7
)
 
 
Obligations under capital and financing leases, net of current maturities
 
$
79.9

 
$
88.6

 
 
Leases Leases

The majority of our restaurant locations, as well as our restaurant support center, are subject to a lease. We evaluate our leases at the commencement of the lease to determine the classification as an operating or finance lease. For operating leases, upon adoption of ASC 842, we recognized operating lease liabilities based on the present value of minimum lease payments over the remaining expected lease term and corresponding right-of-use assets. We recognize lease expense related to operating leases on a straight-line basis. For finance leases, we record finance lease liabilities at an amount equal to the present value of the minimum lease payments over the remaining expected lease term and corresponding right-of-use assets. Amortization expense and interest expense related to finance leases are included in depreciation and amortization and interest, net, respectively, in our consolidated statements of earnings. Sale-leasebacks are transactions through which we sell assets (such as restaurant properties) at fair value and subsequently lease them back. The resulting leases generally qualify and are accounted for as operating leases. Failed sale-leaseback transactions are generally classified as finance leases and result in retention of the “sold” assets within land, buildings and equipment with a finance lease liability equal to the amount of proceeds received recorded as a component of other liabilities on our consolidated balance sheets.

Within the provisions of certain of our leases, there are rent holidays and escalations in payments over the base lease term, as well as renewal periods. The effects of the holidays and escalations have been reflected in lease expense on a straight-line basis for operating leases over the expected lease term. The lease term commences on the date when we have the right to control the use of the leased property, which is typically before lease payments are due under the terms of the lease. Many of our leases have renewal periods totaling 5 to 20 years, exercisable at our option, and require payment of property taxes, insurance and maintenance costs in addition to the lease payments. At lease inception, we include option periods that we are reasonably assured to exercise as failure to renew the lease would impose an economic penalty. The consolidated financial statements reflect the same lease term for amortizing leasehold improvements as we use to determine finance versus operating lease classifications. Variable lease expense is generally based on sales levels and is accrued at the point in time we determine that it is probable that such sales levels will be achieved. Landlord allowances are recorded as an adjustment to the right-of-use assets. Gains and losses on sale-leaseback transactions are recognized immediately.

The components of lease expense in the consolidated statement of earnings are as follows:
 
 
Three Months Ended
 
Six Months Ended
(in millions)
 
November 24, 2019
 
November 24, 2019
Operating lease expense
 
$
98.8

 
$
196.6

Finance lease expense
 
 
 
 
Amortization of leased assets
 
2.1

 
3.6

Interest on lease liabilities
 
4.0

 
7.3

Variable lease expense
 
1.4

 
2.9

Total lease expense
 
$
106.3

 
$
210.4



The components of lease assets and liabilities on the consolidated balance sheet are as follows:
(in millions)
 
Balance Sheet Classification
 
November 24, 2019
Operating lease right-of-use assets
 
Operating lease right-of-use assets
 
$
4,029.0

Finance lease right-of-use assets
 
Land, buildings and equipment, net
 
188.0

Total lease assets, net
 
 
 
$
4,217.0

 
 
 
 
 
Operating lease liabilities - current
 
Other current liabilities
 
$
152.1

Finance lease liabilities - current
 
Other current liabilities
 
6.8

Operating lease liabilities - non-current
 
Operating lease liabilities - non-current
 
4,306.2

Finance lease liabilities - non-current
 
Other liabilities
 
320.8

Total lease liabilities
 
 
 
$
4,785.9





Supplemental cash flow information related to leases:
 
 
Six Months Ended
(in millions)
 
November 24, 2019
Cash paid for amounts included in the measurement of lease liabilities
 
 
Operating cash flows from operating leases
 
$
182.0

Operating cash flows from finance leases
 
7.3

Financing cash flows from finance leases
 
2.5

Right-of-use assets obtained in exchange for new operating lease liabilities
 
106.6

Right-of-use assets obtained in exchange for new finance lease liabilities
 
139.3



The weighted-average remaining lease terms and discount rates as of November 24, 2019 are as follows:
 
 
November 24, 2019
(in millions)
 
Weighted-Average Remaining Lease Term (Years)
 
Weighted-Average Discount Rate (1)
Operating leases
 
17.2
 
4.2
%
Finance leases
 
19.4
 
5.0
%
(1)
We cannot determine the interest rate implicit in our leases. Therefore, the discount rate represents our incremental borrowing rate and is determined based on the risk-free rate, adjusted for the risk premium attributed to our corporate credit rating for a secured or collateralized instrument.

The annual maturities of our lease liabilities as of November 24, 2019 are as follows:
(in millions)
 
 
 
 
Fiscal Year
 
Operating Leases
 
Finance Leases
Six months ended May 31, 2020
 
$
185.4

 
$
11.5

2021
 
377.9

 
24.9

2022
 
379.9

 
25.1

2023
 
384.0

 
25.6

2024
 
386.4

 
25.9

2025
 
390.9

 
26.1

Thereafter
 
4,448.2

 
391.3

Total future lease commitments (1)
 
$
6,552.7

 
$
530.4

Less imputed interest
 
(2,094.4
)
 
(202.8
)
Present value of lease liabilities (2)
 
$
4,458.3

 
$
327.6

(1)
Of the $6.55 billion of total future operating lease commitments and $530.4 million of total future finance lease commitments, $2.99 billion and $307.0 million, respectively, are noncancelable.
(2)
Excludes approximately $182.7 million of net present value of lease payments related to 36 real estate leases signed, but not yet commenced.

The annual future lease commitments under capital lease and financing lease obligations and noncancelable operating leases, including those related to restaurants reported as discontinued operations, for each of the five fiscal years subsequent to May 26, 2019 and thereafter is as follows:
(in millions)
 
 
 
 
 
 
Fiscal Year
 
Capital
 
Financing
 
Operating
2020
 
$
8.9

 
$
12.2

 
$
372.9

2021
 
8.9

 
12.4

 
355.0

2022
 
8.8

 
12.6

 
326.7

2023
 
8.9

 
12.8

 
299.8

2024
 
8.7

 
13.0

 
262.7

Thereafter
 
81.4

 
128.0

 
1,434.0

Total future lease commitments
 
$
125.6

 
$
191.0

 
$
3,051.1

Less imputed interest (at 6.5%), (various)
 
(41.6
)
 
(99.7
)
 
 
Present value of future lease commitments
 
$
84.0

 
$
91.3

 
 
Less current maturities
 
(4.1
)
 
(2.7
)
 
 
Obligations under capital and financing leases, net of current maturities
 
$
79.9

 
$
88.6