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| Leases |
Note B - Leases
The Company determines if an arrangement is a lease at inception of the arrangement. To the extent that it can be determined that an arrangement represents a
lease, it is classified as either an operating lease or a finance lease. The Company does not currently have any finance leases. The Company capitalizes operating leases on the Condensed Consolidated Balance Sheets through a right of use
asset and a corresponding lease liability. Right of use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the
lease. Short-term leases that have an initial term of one year or less are not capitalized. The Company does not presently have any short-term leases.
Operating lease right of use assets and liabilities are recognized at the commencement date of an arrangement based on the present value of
lease payments over the lease term. In addition to the present value of lease payments, the operating lease right of use asset also includes any lease payments made to the lessor prior to lease commencement less any lease incentives and
initial direct costs incurred. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.
Nature of Leases
The Company leases certain office space, restaurant space, and information technology equipment under non-cancelable leases to support its
operations. A more detailed description of significant lease types is included below.
Office Agreements
The Company rents office space from third parties for its corporate location. Office agreements are typically structured with non-cancelable
terms of to 10
years. The Company has concluded that its office agreements represent operating leases with a lease term that equals the primary non-cancelable contract term. Upon completion of the primary term, both parties have substantive rights to
terminate the lease. As a result, enforceable rights and obligations do not exist under the rental agreement subsequent to the primary term.
Restaurant Space Agreements
The Company subleases some of its restaurant space to a third party. The Company’s sublease has terms that end in 2025. The sublease
agreement is noncancelable through the end of the term and both parties have substantive rights to terminate the lease when the term is complete. Sublease agreements are not capitalized and are recorded as rental income in the period that
rent is received.
Information Technology Equipment
The Company rents information technology equipment, primarily printers and copiers, from a third party for its corporate office location.
Information technology equipment agreements are typically structured with non-cancelable terms of to five years. The Company has concluded that its information technology equipment commitments are operating leases.
Discount Rate
Leases typically do not provide an implicit interest rate. Accordingly, the Company is required to use its incremental borrowing rate in
determining the present value of lease payments based on the information available at the lease commencement date. The Company’s incremental borrowing rate reflects the estimated rate of interest that it would pay to borrow on a
collateralized basis over a similar term for an amount equal to the lease payments in a similar economic environment. The Company uses the implicit rate in the limited circumstances in which that rate is readily determinable.
Lease Guarantees
The Company has guaranteed the financial responsibilities of certain franchised store leases. These guaranteed leases are not considered
operating leases because the Company does not have the right to control the underlying asset. If the franchisee abandons the lease and fails to meet the lease’s financial obligations, the lessor may assign the lease to the Company for the
remainder of the term. If the Company does not expect to assign the abandoned lease to a new franchisee within 12 months, the lease will be considered an operating lease and a right-of-use asset, and lease liability will be recognized.
Practical Expedients and Accounting Policy Elections
Certain lease agreements include lease and non-lease components. For all existing asset classes with multiple component types, the Company
has utilized the practical expedient that exempts it from separating lease components from non-lease components. Accordingly, the Company accounts for the lease and non-lease components in an arrangement as a single lease component.
In addition, for all existing asset classes, the Company has made an accounting policy election not to apply the lease recognition requirements to short-term
leases (that is, a lease that, at commencement, have a lease term of 12 months or less and does not include an option to purchase the underlying asset that the Company is reasonably certain to exercise). Accordingly, we recognize lease
payments related to our short-term leases in our income statements on a straight-line basis over the lease term which has not changed from our prior recognition. To the extent that there are variable lease payments, we recognize those
payments in our income statements in the period in which the obligation for those payments is incurred.
The components of total lease expense for the three and six months ended December 24, 2023 and December 25, 2022, the majority of which is
included in general and administrative expense in the accompanying Condensed Consolidated Statements of Income, are as follows (in thousands):
Weighted average remaining lease term and weighted average discount rate for operating leases are as follows:
Operating lease liabilities with enforceable contract terms that are greater than one year mature as follows (in thousands):
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