Leases

6 Months Ended

Mar. 10, 2021

Leases [Abstract]

Leases

Leases

Under the going concern basis of accounting, we accounted for our operating leases as described below. Under the liquidation basis of accounting, we value the operating lease right-of-use assets at zero, since we do not expect to receive cash proceeds or other consideration for the right-of-use assets.

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.

At the inception of a new lease, we recognized 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”) were recognized prior to the achievement of a specified target, provided that the achievement of the target was considered probable. Most of our lease agreements include renewal periods at our option. We included the rent holiday periods and scheduled rent increases in our calculation of straight-line rent expense.

Lease cost for operating leases was recognized on a straight-line basis and included the amortization of the right-of-use asset and interest expense related to the operating lease liability. We used the reasonably certain lease term in our calculation of straight-line rent expense. We expensed rent from commencement date through restaurant open date as opening expense. Once a restaurant opened for business, we recorded 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 was recorded to provision for asset impairments

and store closings. Rental expense for lease properties that were subsequently subleased to franchisees or other third parties was recorded as other income.

We made judgments regarding the reasonably certain lease term for each property lease, which impacted the classification and accounting for a lease as a finance lease or an operating lease, the rent holiday and/or escalations in payments that were taken into consideration when calculating straight-line rent, and the term over which leasehold improvements for each restaurant were 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 our estimated collateralized incremental borrowing rate, based on the yield curve for the respective lease terms, we generally cannot determine the interest rate implicit in the lease.

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 practical expedient that allows us to not separate non-lease components from lease components in regard to all property leases where we are the lessors.

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

Operating Leases	Balance Sheet Classification	March 10, 2021		August 26, 2020
		(Liquidation Basis)		(Going Concern Basis)
		(in thousands)
Right-of-use assets	Operating lease right-of-use assets	$	—	$	16,756
Current lease liabilities	Operating lease liabilities-current	N/A		$	3,903
Non-current lease liabilities	Operating lease liabilities-noncurrent	N/A		17,797
Total lease liabilities		$	15,705	$	21,700

See the Lease Liabilities section of Note 3. Net Assets in Liquidation for further discussion of our lease liabilities.

Weighted-average lease terms and discount rates were as follows:

	March 10, 2021	August 26, 2020
Weighted-average remaining lease term	6.33 years	5.73 years
Weighted-average discount rate	9.77%	9.57%

Under the going concern basis of accounting, components of lease expense were as follows:

	12 Weeks Ended		12 Weeks Ended		28 Weeks Ended
	March 11, 2020		November 18, 2020		March 11, 2020
	(in thousands)
Operating lease expense	$	1,874	$	1,120	$	4,412
Variable lease expense	257		138		553
Short-term lease expense	62		92		125
Sublease expense	161		18		161
Total lease expense	$	2,354	$	1,368	$	5,251

Under the going concern basis of accounting, operating lease income was included in other income on our consolidated statements of operations and was comprised of:

	12 Weeks Ended		12 Weeks Ended		28 Weeks Ended
	March 11, 2020		November 18, 2020		March 11, 2020
	(in thousands)
Operating lease income	$	213	$	62	$	503
Sublease income	114		18		286
Variable lease income	33		5		109
Total lease income	$	360	$	85	$	898

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

	12 Weeks Ended		12 Weeks Ended		28 Weeks Ended
	March 11, 2020		November 18, 2020		March 11, 2020
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities	$	2,431	$	2,358	$	5,282
Right-of-use assets obtained in exchange for lease liabilities	$	903	$	—	$	903

Operating lease obligations maturities in accordance with Topic 842 as of March 10, 2021 were as follows:

	(in thousands)
Remainder of FY 2021	$	1,997
FY 2022	3,307
FY 2023	3,345
FY 2024	2,535
FY 2025	3,349
Thereafter	7,105
Total lease payments	21,638
Less: imputed interest	(5,933)
Present value of operating lease obligations	$	15,705

Leases

Leases

Under the going concern basis of accounting, we accounted for our operating leases as described below. Under the liquidation basis of accounting, we value the operating lease right-of-use assets at zero, since we do not expect to receive cash proceeds or other consideration for the right-of-use assets.

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.

At the inception of a new lease, we recognized 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”) were recognized prior to the achievement of a specified target, provided that the achievement of the target was considered probable. Most of our lease agreements include renewal periods at our option. We included the rent holiday periods and scheduled rent increases in our calculation of straight-line rent expense.

Lease cost for operating leases was recognized on a straight-line basis and included the amortization of the right-of-use asset and interest expense related to the operating lease liability. We used the reasonably certain lease term in our calculation of straight-line rent expense. We expensed rent from commencement date through restaurant open date as opening expense. Once a restaurant opened for business, we recorded 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 was recorded to provision for asset impairments

and store closings. Rental expense for lease properties that were subsequently subleased to franchisees or other third parties was recorded as other income.

We made judgments regarding the reasonably certain lease term for each property lease, which impacted the classification and accounting for a lease as a finance lease or an operating lease, the rent holiday and/or escalations in payments that were taken into consideration when calculating straight-line rent, and the term over which leasehold improvements for each restaurant were 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 our estimated collateralized incremental borrowing rate, based on the yield curve for the respective lease terms, we generally cannot determine the interest rate implicit in the lease.

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 practical expedient that allows us to not separate non-lease components from lease components in regard to all property leases where we are the lessors.

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

Operating Leases	Balance Sheet Classification	March 10, 2021		August 26, 2020
		(Liquidation Basis)		(Going Concern Basis)
		(in thousands)
Right-of-use assets	Operating lease right-of-use assets	$	—	$	16,756
Current lease liabilities	Operating lease liabilities-current	N/A		$	3,903
Non-current lease liabilities	Operating lease liabilities-noncurrent	N/A		17,797
Total lease liabilities		$	15,705	$	21,700

See the Lease Liabilities section of Note 3. Net Assets in Liquidation for further discussion of our lease liabilities.

Weighted-average lease terms and discount rates were as follows:

	March 10, 2021	August 26, 2020
Weighted-average remaining lease term	6.33 years	5.73 years
Weighted-average discount rate	9.77%	9.57%

Under the going concern basis of accounting, components of lease expense were as follows:

	12 Weeks Ended		12 Weeks Ended		28 Weeks Ended
	March 11, 2020		November 18, 2020		March 11, 2020
	(in thousands)
Operating lease expense	$	1,874	$	1,120	$	4,412
Variable lease expense	257		138		553
Short-term lease expense	62		92		125
Sublease expense	161		18		161
Total lease expense	$	2,354	$	1,368	$	5,251

Under the going concern basis of accounting, operating lease income was included in other income on our consolidated statements of operations and was comprised of:

	12 Weeks Ended		12 Weeks Ended		28 Weeks Ended
	March 11, 2020		November 18, 2020		March 11, 2020
	(in thousands)
Operating lease income	$	213	$	62	$	503
Sublease income	114		18		286
Variable lease income	33		5		109
Total lease income	$	360	$	85	$	898

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

	12 Weeks Ended		12 Weeks Ended		28 Weeks Ended
	March 11, 2020		November 18, 2020		March 11, 2020
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities	$	2,431	$	2,358	$	5,282
Right-of-use assets obtained in exchange for lease liabilities	$	903	$	—	$	903

Operating lease obligations maturities in accordance with Topic 842 as of March 10, 2021 were as follows:

	(in thousands)
Remainder of FY 2021	$	1,997
FY 2022	3,307
FY 2023	3,345
FY 2024	2,535
FY 2025	3,349
Thereafter	7,105
Total lease payments	21,638
Less: imputed interest	(5,933)
Present value of operating lease obligations	$	15,705