Leases

12 Months Ended

Aug. 26, 2020

Leases [Abstract]

Leases

Leases

Lessee

We determine if a contract contains a lease at the inception date of the contract. Our material operating leases consist of restaurant locations and administrative facilities ("Property Leases"). U.S. GAAP requires that our leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the date on which the leased asset is available for our use (the “Commencement Date”) and the lease term used in the evaluation includes the non-cancellable period for which we have the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option would result in an economic penalty (the "Reasonably Certain Lease Term"). Our lease agreements generally contain a primary term of five to 30 years with one or more options to renew or extend the lease generally from one to five years each. In addition to leases for our restaurant locations and administrative facilities, we also lease vehicles and administrative equipment under operating leases. As of August 26, 2020, we did not have any finance leases.

At the inception of a new lease, we recognize an operating lease liability and a corresponding right of use asset, which are calculated as the present value of the total fixed lease payments over the reasonably certain lease term using discount rates as of the effective date.

Property lease agreements may include rent holidays, rent escalation clauses and contingent rent provisions based on a percentage of sales in excess of specified levels. Contingent rental expenses (“variable lease cost”) are recognized prior to the achievement of a specified target, provided that the achievement of the target is considered probable. Most of our lease agreements include renewal periods at our option. We include the rent holiday periods and scheduled rent increases in our calculation of straight-line rent expense.

Lease cost for operating leases is recognized on a straight-line basis and includes the amortization of the right-of-use asset and interest expense related to the operating lease liability. We use the reasonably certain lease term in our calculation of straight-line rent expense. We expense rent from commencement date through restaurant open date as opening expense. Once a restaurant opens for business, we record straight-line rent expense plus any additional variable contingent rent expense (such as common area maintenance, insurance and property tax costs) to the extent it is due under the lease agreement as occupancy expense for our restaurants and selling, general and administrative expense for our corporate office and support facilities. The interest expense related to the lease liability for abandoned leases is recorded to provision for asset impairments and store

closings. Rental expense for lease properties that are subsequently subleased to franchisees or other third parties is recorded as other income.

We make judgments regarding the reasonably certain lease term for each property lease, which can impact the classification and accounting for a lease as a finance lease or an operating lease, the rent holiday and/or escalations in payments that are taken into consideration when calculating straight-line rent, and the term over which leasehold improvements for each restaurant are amortized. These judgments may produce materially different amounts of depreciation, amortization and rent expense than would be reported if different assumed lease terms were used.

The discount rate used to determine the present value of the lease payments is the Company’s estimated collateralized incremental borrowing rate, based on the yield curve for the respective lease terms, as the Company generally cannot determine the interest rate implicit in the lease.

During the fiscal year ended August 26, 2020, we entered into six sale and leaseback transactions with unaffiliated third parties. The lease terms ranged between 9 months and 12 months and there are no renewal or purchase options at the end of the lease term. Gross sales proceeds were $19.3 million and we recognized $11.1 million net gain on disposition of property and equipment for the sales and leaseback transactions. We have elected the short-term lease recognition exemption for all of our leases that allows us to not recognize right-of-use assets and related liabilities for leases with an initial term of 12 months or less and that do not include an option to purchase the underlying asset that we are reasonably certain to exercise (see Note 1. Nature of Operations and Significant Accounting Policies). As such, no right-of-use assets or lease liabilities were added to our consolidated balance sheet as a result of the sale and short-term leaseback transactions.

Lessor

We occasionally lease or sublease certain restaurant properties to our franchisees or to third parties. The lease descriptions, terms, variable lease payments and renewal options are generally similar to our lessee leases described above. Similar to our lessee accounting, we elected the lessor practical expedient that allows us to not separate non-lease components from lease components in regard to all property leases where we are the lessor. As of August 26, 2020, we did not have any sales-type or direct financing leases.

Supplemental balance sheet information related to our leases was as follows:

Operating Leases	Classification	August 26, 2020
		(In thousands)
Right-of-use assets	Operating lease right-of-use assets	$	16,756
Current lease liabilities	Operating lease liabilities - current	$	3,903
Non-current lease liabilities	Operating lease liabilities - non-current	17,797
Total lease liabilities		$	21,700

Weighted-average lease terms and discount rates at August 26, 2020 were as follows:

Weighted-average remaining lease term	5.73 years
Weighted-average discount rate	9.57%

Components of lease expense were as follows:

	52 Weeks Ended
	August 26, 2020
	(In thousands)
Operating lease expense	$	7,700
Variable lease expense	933
Short-term lease expense	247
Sublease expense	412
Total lease expense	$	9,292

Operating lease income is included in other income on our consolidated statements of operations and was comprised of:

	52 Weeks Ended
	August 26, 2020
	(In thousands)
Operating lease income	$	734
Sublease income	412
Variable lease income	136
Total lease income	$	1,282

Supplemental disclosures of cash flow information related to leases were as follows:

	52 Weeks Ended
	August 26, 2020
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities	$	9,958
Right-of-use assets obtained in exchange for lease liabilities	$	1,868

Operating lease obligations maturities in accordance with Topic 842 as of August 26, 2020 were as follows:

	(In thousands)
FY 2021	$	5,804
FY 2022	4,357
FY 2023	4,782
FY 2024	3,136
FY 2025	4,021
Thereafter	7,324
Total lease payments	29,424
Less: imputed interest	(7,724)
Present value of operating lease obligations	$	21,700

The operating lease obligation and rent expense tables above include amounts related to two leases with related parties, which are further described at "Note 19. Related Parties".

Annual future minimum lease payments under non-cancelable operating leases with terms in excess of one year as of August 28, 2019 in accordance with the previous lease accounting standard (ASC 840) are as follows:

Fiscal Year Ending:	(In thousands)
August 26, 2020	$	8,841
August 25, 2021	7,155
August 31, 2022	5,643
August 30, 2023	4,410
August 28, 2024	3,768
Thereafter	10,312
Total minimum lease payments	$	40,129

Leases

Leases

Lessee

We determine if a contract contains a lease at the inception date of the contract. Our material operating leases consist of restaurant locations and administrative facilities ("Property Leases"). U.S. GAAP requires that our leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the date on which the leased asset is available for our use (the “Commencement Date”) and the lease term used in the evaluation includes the non-cancellable period for which we have the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option would result in an economic penalty (the "Reasonably Certain Lease Term"). Our lease agreements generally contain a primary term of five to 30 years with one or more options to renew or extend the lease generally from one to five years each. In addition to leases for our restaurant locations and administrative facilities, we also lease vehicles and administrative equipment under operating leases. As of August 26, 2020, we did not have any finance leases.

At the inception of a new lease, we recognize an operating lease liability and a corresponding right of use asset, which are calculated as the present value of the total fixed lease payments over the reasonably certain lease term using discount rates as of the effective date.

Property lease agreements may include rent holidays, rent escalation clauses and contingent rent provisions based on a percentage of sales in excess of specified levels. Contingent rental expenses (“variable lease cost”) are recognized prior to the achievement of a specified target, provided that the achievement of the target is considered probable. Most of our lease agreements include renewal periods at our option. We include the rent holiday periods and scheduled rent increases in our calculation of straight-line rent expense.

Lease cost for operating leases is recognized on a straight-line basis and includes the amortization of the right-of-use asset and interest expense related to the operating lease liability. We use the reasonably certain lease term in our calculation of straight-line rent expense. We expense rent from commencement date through restaurant open date as opening expense. Once a restaurant opens for business, we record straight-line rent expense plus any additional variable contingent rent expense (such as common area maintenance, insurance and property tax costs) to the extent it is due under the lease agreement as occupancy expense for our restaurants and selling, general and administrative expense for our corporate office and support facilities. The interest expense related to the lease liability for abandoned leases is recorded to provision for asset impairments and store

closings. Rental expense for lease properties that are subsequently subleased to franchisees or other third parties is recorded as other income.

We make judgments regarding the reasonably certain lease term for each property lease, which can impact the classification and accounting for a lease as a finance lease or an operating lease, the rent holiday and/or escalations in payments that are taken into consideration when calculating straight-line rent, and the term over which leasehold improvements for each restaurant are amortized. These judgments may produce materially different amounts of depreciation, amortization and rent expense than would be reported if different assumed lease terms were used.

The discount rate used to determine the present value of the lease payments is the Company’s estimated collateralized incremental borrowing rate, based on the yield curve for the respective lease terms, as the Company generally cannot determine the interest rate implicit in the lease.

During the fiscal year ended August 26, 2020, we entered into six sale and leaseback transactions with unaffiliated third parties. The lease terms ranged between 9 months and 12 months and there are no renewal or purchase options at the end of the lease term. Gross sales proceeds were $19.3 million and we recognized $11.1 million net gain on disposition of property and equipment for the sales and leaseback transactions. We have elected the short-term lease recognition exemption for all of our leases that allows us to not recognize right-of-use assets and related liabilities for leases with an initial term of 12 months or less and that do not include an option to purchase the underlying asset that we are reasonably certain to exercise (see Note 1. Nature of Operations and Significant Accounting Policies). As such, no right-of-use assets or lease liabilities were added to our consolidated balance sheet as a result of the sale and short-term leaseback transactions.

Lessor

We occasionally lease or sublease certain restaurant properties to our franchisees or to third parties. The lease descriptions, terms, variable lease payments and renewal options are generally similar to our lessee leases described above. Similar to our lessee accounting, we elected the lessor practical expedient that allows us to not separate non-lease components from lease components in regard to all property leases where we are the lessor. As of August 26, 2020, we did not have any sales-type or direct financing leases.

Supplemental balance sheet information related to our leases was as follows:

Operating Leases	Classification	August 26, 2020
		(In thousands)
Right-of-use assets	Operating lease right-of-use assets	$	16,756
Current lease liabilities	Operating lease liabilities - current	$	3,903
Non-current lease liabilities	Operating lease liabilities - non-current	17,797
Total lease liabilities		$	21,700

Weighted-average lease terms and discount rates at August 26, 2020 were as follows:

Weighted-average remaining lease term	5.73 years
Weighted-average discount rate	9.57%

Components of lease expense were as follows:

	52 Weeks Ended
	August 26, 2020
	(In thousands)
Operating lease expense	$	7,700
Variable lease expense	933
Short-term lease expense	247
Sublease expense	412
Total lease expense	$	9,292

Operating lease income is included in other income on our consolidated statements of operations and was comprised of:

	52 Weeks Ended
	August 26, 2020
	(In thousands)
Operating lease income	$	734
Sublease income	412
Variable lease income	136
Total lease income	$	1,282

Supplemental disclosures of cash flow information related to leases were as follows:

	52 Weeks Ended
	August 26, 2020
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities	$	9,958
Right-of-use assets obtained in exchange for lease liabilities	$	1,868

Operating lease obligations maturities in accordance with Topic 842 as of August 26, 2020 were as follows:

	(In thousands)
FY 2021	$	5,804
FY 2022	4,357
FY 2023	4,782
FY 2024	3,136
FY 2025	4,021
Thereafter	7,324
Total lease payments	29,424
Less: imputed interest	(7,724)
Present value of operating lease obligations	$	21,700

The operating lease obligation and rent expense tables above include amounts related to two leases with related parties, which are further described at "Note 19. Related Parties".

Annual future minimum lease payments under non-cancelable operating leases with terms in excess of one year as of August 28, 2019 in accordance with the previous lease accounting standard (ASC 840) are as follows:

Fiscal Year Ending:	(In thousands)
August 26, 2020	$	8,841
August 25, 2021	7,155
August 31, 2022	5,643
August 30, 2023	4,410
August 28, 2024	3,768
Thereafter	10,312
Total minimum lease payments	$	40,129