Leases

9 Months Ended

May 29, 2021

Note 7. Leases

The Company’s lease portfolio includes certain real estate (branch offices, customer fulfillment centers, and regional inventory centers), automobiles and other equipment. The determination of whether an arrangement is, or contains, a lease is performed at the inception of the arrangement. Operating leases are recorded on the balance sheet with operating lease assets representing the right to use the underlying asset for the lease term and lease liabilities representing the obligation to make lease payments arising from the lease. For real estate leases, the Company has elected the practical expedient which allows lease components and non-lease components, such as common area maintenance, to be grouped as a single lease component. The Company has also elected the practical expedient which allows leases with an initial term of 12 months or less to be excluded from the balance sheet.

The Company does not guarantee any residual value in its lease agreements, there are no material restrictions or covenants imposed by lease arrangements, and there are no lease transactions with related parties. Real estate leases typically include one or more options to extend the lease. The Company regularly evaluates the renewal options, and when it is reasonably certain of exercise, the Company includes the renewal period in its lease term. The automobile leases contain variable lease payments based on inception and subsequent interest rate fluctuations. For the thirteen- and thirty-nine-week periods ended May 29, 2021 and May 30, 2020, the variable lease cost was a benefit due to low current interest rates. When readily determinable, the Company uses the interest rate implicit in its leases to discount lease payments. When the implicit rate is not readily determinable, as is the case with substantially all of the real estate leases, the Company utilizes the incremental borrowing rate. The incremental borrowing rate for a lease is the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. The rate for each lease was determined using primarily the Company’s credit spread, the lease term, and currency.

In the second quarter of fiscal year 2021, the Company announced an enhanced customer support model, including a transition from the branch office network to virtual customer care hubs. This transition included the closure of 73 branch offices, all of which were under operating leases. As a result, the Company recorded an impairment charge of $14,458 for impacted operating lease assets, net of gains related to settlement of lease liabilities, which is included in Restructuring costs on the unaudited Condensed Consolidated Statements of Income for the thirty-nine weeks ended May 29, 2021. See Note 9, “Restructuring Costs” for additional information.

The components of lease cost for the thirteen- and thirty-nine-week periods ended May 29, 2021 and May 30, 2020 were as follows:


	Thirteen Weeks Ended		Thirteen Weeks Ended
	May 29, 2021		May 30, 2020
Operating lease cost	$	5,118	$	6,592
Variable lease benefit		(605)		(368)
Short-term lease cost		262		197
Finance lease cost:
Amortization of leased assets		322		333
Interest on leased liabilities		20		29
Total Lease Cost	$	5,117	$	6,783


	Thirty-Nine Weeks Ended		Thirty-Nine Weeks Ended
	May 29, 2021		May 30, 2020
Operating lease cost	$	17,984	$	18,952
Variable lease benefit		(1,626)		(459)
Short-term lease cost		665		681
Finance lease cost:
Amortization of leased assets		966		906
Interest on leased liabilities		65		84
Total Lease Cost	$	18,054	$	20,164

Supplemental balance sheet information relating to operating and finance leases is as follows:


		As of				As of
		May 29,			August 29,
	Classification	2021				2020
Assets
Operating lease assets	Operating lease assets	$	39,401	⁽²⁾	$	56,173
Finance lease assets⁽¹⁾	Property, plant and equipment, net		2,674			3,625
Total leased assets		$	42,075		$	59,798
Liabilities
Current
Operating	Current portion of operating lease liabilities	$	14,570	⁽²⁾	$	21,815
Finance	Current portion of debt including obligations under finance leases		1,291			1,262
Noncurrent
Operating	Noncurrent operating lease liabilities		26,008	⁽²⁾		34,379
Finance	Long-term debt including obligations under finance leases		1,473			2,453
Total lease liabilities		$	43,342		$	59,909

⁽¹⁾Finance lease assets are net of accumulated amortization of $2,405 and $1,439 as of May 29, 2021 and August 29, 2020, respectively.
⁽²⁾During the thirty-nine-week period ended May 29, 2021, the Company recorded an impairment charge of $14,458 for impacted operating lease assets, net of gains related to settlement of lease liabilities, in Restructuring costs on the unaudited Condensed Consolidated Statements of Income. See Note 9, “Restructuring Costs” for additional information.


	As of		As of
	May 29,		May 30,
	2021		2020
Weighted-average remaining lease term (in years)
Operating Leases	4.5		3.9
Finance Leases	2.2		3.2
Weighted-average discount rate
Operating Leases	3.5	%	3.4	%
Finance Leases	2.7	%	2.7	%

The following table sets forth supplemental cash flow information related to operating and finance leases:


	Thirty-Nine Weeks Ended		Thirty-Nine Weeks Ended
	May 29, 2021		May 30, 2020
Operating Cash Outflows from Operating Leases	$	18,742	$	18,539
Operating Cash Outflows from Finance Leases		65		84
Financing Cash Outflows from Finance Leases		967		903
Leased assets obtained in exchange for new lease liabilities:
Operating Leases	$	8,988	$	13,854
Finance Leases		16		1,973

As of May 29, 2021, future lease payments were as follows:


Fiscal Year ⁽¹⁾	Operating Leases		Finance Leases		Total
2021 (includes fiscal fourth quarter only)	$	4,550	$	344	$	4,894
2022		13,741		1,347		15,088
2023		8,522		1,021		9,543
2024		5,116		156		5,272
2025		3,236		6		3,242
Thereafter		8,621		2		8,623
Total Lease Payments		43,786		2,876		46,662
Less: Imputed Interest		3,208		112		3,320
Present Value of Lease Liabilities ⁽²⁾	$	40,578	$	2,764	$	43,342

⁽¹⁾ Future lease payments by fiscal year are based on contractual lease obligations
⁽²⁾ Includes the current portion of $14,570 for operating leases and $1,291 for finance leases