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Leases
 9 Months Ended
May 31, 2022
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 determined if a contract contains a lease at the inception date of the contract. Our material operating leases consisted 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 began at the date on which the leased asset was available for our use (the “Commencement Date”) and the lease term used in the evaluation included 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 was 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 years to 30 years with one or more options to renew or extend the lease generally from one year 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 were 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.
Weighted-average lease terms and discount rates were as follows.
May 31, 2022August 25, 2021
Weighted-average remaining lease term4.74 years4.72 years
Weighted-average discount rate9.83%9.55%
Under the going concern basis of accounting, components of lease expense were as follows:
12 Weeks Ended
November 18, 2020
(in thousands)
Operating lease expense$1,120 
Variable lease expense138 
Short-term lease expense92 
Sublease expense18 
Total lease expense$1,368 
Supplemental disclosures of cash flow information related to leases were as follows:
12 Weeks Ended
November 18, 2020
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities$2,358 
Right-of-use assets obtained in exchange for lease liabilities$— 
Operating lease obligations maturities in accordance with Topic 842 as of May 31, 2022 were as follows:
(In thousands)
Less than One Year$1,665 
One to Three Years1,750 
Three to Five Years933 
Thereafter1,537 
Total lease payments5,885 
Less: imputed interest(1,315)
Present value of operating lease obligations$4,570 
Abandoned Leased Facilities - Liability for Store Closing
As of May 31, 2022 and August 25, 2021, we classified six and seven leased restaurants locations, respectively, as abandoned. Although we remain obligated under the terms of the leases for the rent and other costs that may be associated with the leases, we decided to cease operations and we have no foreseeable plans to occupy the spaces as a company restaurant in the future. The total liability represents the present value of the total amount of rent and other direct costs (such as common area costs, property taxes, and insurance allocated by the landlord) for the remaining lease term less the present value of any sublease income expected to be collected. During fiscal 2022 we settled and terminated one abandoned lease.
The liability for our abandoned leases were as follows (in thousands).
May 31, 2022August 25, 2021
Included in Operating lease liabilities$775 $1,656 
Included in Accrued expenses and other liabilities1,013 1,381 
Total$1,788 $3,037 
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 determined if a contract contains a lease at the inception date of the contract. Our material operating leases consisted 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 began at the date on which the leased asset was available for our use (the “Commencement Date”) and the lease term used in the evaluation included 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 was 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 years to 30 years with one or more options to renew or extend the lease generally from one year 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 were 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.
Weighted-average lease terms and discount rates were as follows.
May 31, 2022August 25, 2021
Weighted-average remaining lease term4.74 years4.72 years
Weighted-average discount rate9.83%9.55%
Under the going concern basis of accounting, components of lease expense were as follows:
12 Weeks Ended
November 18, 2020
(in thousands)
Operating lease expense$1,120 
Variable lease expense138 
Short-term lease expense92 
Sublease expense18 
Total lease expense$1,368 
Supplemental disclosures of cash flow information related to leases were as follows:
12 Weeks Ended
November 18, 2020
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities$2,358 
Right-of-use assets obtained in exchange for lease liabilities$— 
Operating lease obligations maturities in accordance with Topic 842 as of May 31, 2022 were as follows:
(In thousands)
Less than One Year$1,665 
One to Three Years1,750 
Three to Five Years933 
Thereafter1,537 
Total lease payments5,885 
Less: imputed interest(1,315)
Present value of operating lease obligations$4,570 
Abandoned Leased Facilities - Liability for Store Closing
As of May 31, 2022 and August 25, 2021, we classified six and seven leased restaurants locations, respectively, as abandoned. Although we remain obligated under the terms of the leases for the rent and other costs that may be associated with the leases, we decided to cease operations and we have no foreseeable plans to occupy the spaces as a company restaurant in the future. The total liability represents the present value of the total amount of rent and other direct costs (such as common area costs, property taxes, and insurance allocated by the landlord) for the remaining lease term less the present value of any sublease income expected to be collected. During fiscal 2022 we settled and terminated one abandoned lease.
The liability for our abandoned leases were as follows (in thousands).
May 31, 2022August 25, 2021
Included in Operating lease liabilities$775 $1,656 
Included in Accrued expenses and other liabilities1,013 1,381 
Total$1,788 $3,037