Commitments and Contingencies

Lease Commitments

The Company is obligated under operating leases for its bakery-cafes, fresh dough facilities and trucks, and support centers. Lease terms for its trucks are generally for five to seven years. The reasonably assured lease term for most bakery-cafe and support center leases is the initial non-cancelable lease term plus one renewal option period, which generally equates to an aggregate of 15 years. The reasonably assured lease term for most fresh dough facility leases is the initial non-cancelable lease term plus one to two renewal periods, which generally equates to an aggregate of 20 years. Lease terms generally require the Company to pay a proportionate share of real estate taxes, insurance, common area, and other operating costs. Certain bakery-cafe leases provide for contingent rental (i.e., percentage rent) payments based on sales in excess of specified amounts, scheduled rent increases during the lease terms, and/or rental payments commencing at a date other than the date of initial occupancy.

Aggregate minimum requirements under non-cancelable operating leases, excluding contingent payments and income from subleases, as of December 27, 2016, were as follows (in thousands):



Fiscal Years
2017		2018	2019	2020	2021	Thereafter	Total
$	157,659	152,397	144,192	133,532	122,524	601,572	$	1,311,876

Rental expense under operating leases was approximately $142.6 million, $146.6 million, and $138.0 million in fiscal 2016, fiscal 2015, and fiscal 2014, respectively, which included contingent (i.e., percentage rent) expense of $2.3 million, $2.0 million, and $1.5 million, respectively.

The Company complies with lease obligations at the end of a lease as it relates to tangible long-lived assets, in accordance with the accounting guidance for asset retirement obligations. The liability as of December 27, 2016 and December 29, 2015 was $20.4 million and $19.5 million, respectively, and is included in other long-term liabilities in the Consolidated Balance Sheets.

In connection with the Company’s relocation of its St. Louis, Missouri support center in fiscal 2010, it simultaneously entered into a capital lease for certain personal property and purchased municipal industrial revenue bonds of a similar amount from St. Louis County, Missouri. As of December 27, 2016 and December 29, 2015, the Company held industrial revenue bonds and had recorded a capital lease of $0.7 million and $0.9 million in the Consolidated Balance Sheets, respectively.

The following table summarizes sale-leaseback transactions for the periods indicated (dollars in thousands):



	For the fiscal year ended
	December 27, 2016		December 29, 2015		December 30, 2014
Number of bakery-cafes sold and leased back	3		4		6
Proceeds from sale-leaseback transactions	$	8,940	$	10,095	$	12,900

The leases have been classified as either capital or operating leases, depending on the substance of the transaction, and have initial terms of 15 years, with renewal options of up to 20 years. The Company realized gains on these sales totaling $0.1 million, $0.4 million, and $0.3 million during fiscal 2016, fiscal 2015, and fiscal 2014, respectively, which have been deferred and are being recognized on a straight-line basis over the reasonably assured lease term for the leases.

Lease Guarantees

As of December 27, 2016, the Company has guaranteed the operating leases of 98 franchisee locations, which the Company accounted for in accordance with the accounting requirements for guarantees. These guarantees are primarily a result of the Company's sales of Company-owned bakery-cafes to franchisees, pursuant to which the Company exercised its right to assign the lease for the bakery-cafe but remain liable to the landlord for the remaining lease term in the event of a default by the assignee. These guarantees expire on various dates from July 15, 2020 to February 28, 2049, with a maximum potential amount of future rental payments of approximately $294.8 million as of December 27, 2016. The obligation from these leases will decrease over time as these operating leases expire. The Company has not recorded a liability for these guarantees because the fair value of these lease guarantees was determined by the Company to be insignificant individually, and in the aggregate, based on an analysis of the facts and circumstances of each such lease and each such assignee’s performance, and the Company did not believe it was probable that it would be required to perform under any guarantees at the time the guarantees were issued. The Company has not had to make any payments related to any of these guaranteed leases. Applicable assignees continue to have primary liability for these operating leases. As of December 27, 2016, future commitments under these leases were as follows (in thousands):



Fiscal Years
2017		2018	2019	2020	2021	Thereafter	Total
$	15,027	15,454	15,646	15,781	15,924	216,924	$	294,756

Employee Commitments

The Company has executed confidential and proprietary information and non-competition agreements (“non-compete agreements”) with certain employees. These non-compete agreements contain a provision whereby employees would be due a certain number of weeks of their salary if their employment was terminated by the Company as specified in the non-compete agreement. The Company has not recorded a liability for these amounts potentially due employees. Rather, the Company will record a liability for these amounts when an amount becomes due to an employee in accordance with the appropriate authoritative literature. As of December 27, 2016, the total amount potentially owed employees under these non-compete agreements was $24.2 million.

Legal Proceedings

On July 2, 2014, a purported class action lawsuit was filed against one of the Company's subsidiaries by Jason Lofstedt, a former employee of one of the Company's subsidiaries. The lawsuit was filed in the California Superior Court, County of Riverside. The complaint alleges, among other things, violations of the California Labor Code, failure to pay overtime, failure to provide meal and rest periods, and violations of California's Unfair Competition Law. The complaint seeks, among other relief, collective and class certification of the lawsuit, unspecified damages, costs and expenses, including attorneys’ fees, and such other relief as the Court might find just and proper. In addition, several other purported class action lawsuits based on similar claims and seeking similar relief were filed against the subsidiary: on October 30, 2015 in the California Superior Court, County of San Bernardino by Jazmin Dabney, a former subsidiary employee; on November 3, 2015 in the United States District Court, Eastern District of California by Clara Manchester, a former subsidiary employee; and on November 30, 2015 in the California Superior Court, County of Yolo by Tanner Maginnis, a current subsidiary assistant manager. On May 6, 2016, the parties of all four pending cases reached a Memorandum of Understanding For Three Settlement Classes regarding the class action lawsuits. Under the terms of the agreement, we agreed to pay an immaterial amount to purported class members, plaintiffs' attorneys' fees, Private Attorney General Act payments, and costs of administering the settlement. The Memorandum of Agreement contains no admission of wrongdoing. The terms and conditions of the parties’ settlement agreement have received preliminary approval from California Superior Courts. The Company maintained an appropriate accrual in accrued expenses for this settlement in the Company's Consolidated Balance Sheets as of December 27, 2016.

On June 26, 2016, a purported class action lawsuit was filed against the Company by Jacqueline Friscia, an employee of one of the Company’s subsidiaries. The lawsuit was filed in the United States District Court for the District of New Jersey. The complaint alleges, among other things, violations of the Fair Labor Standards Act and the New Jersey Wage and Hour Law on behalf of the plaintiff and all similarly situated non-exempt assistant managers. The complaint seeks, among other relief, collective and class certification of the lawsuit, unspecified damages, costs and expenses, including attorneys’ fees, and such other relief as the Court might find just and proper. The Company has retained counsel to represent it in this matter and believes that it has meritorious defenses to the allegations asserted in the case.

In addition to the legal matters described above, the Company is subject to various legal proceedings, claims, and litigation that arise in the ordinary course of its business. Defending lawsuits requires significant management attention and financial resources and the outcome of any litigation, including the matter described above, is inherently uncertain. The Company believes accruals for these matters are adequately provided for in its consolidated financial statements. The Company does not believe the ultimate resolution of these actions will have a material adverse effect on its consolidated financial statements. However, a significant increase in the number of these claims, or one or more successful claims under which the Company incurs greater liabilities than is currently anticipated, could materially and adversely affect its consolidated financial statements.

Other

The Company is subject to on-going federal and state income tax audits and sales and use tax audits. The Company does not believe the ultimate resolution of these actions will have a material adverse effect on its consolidated financial statements. However, a significant increase in the number of these audits, or one or more audits under which the Company incurs greater liabilities than is currently anticipated, could materially and adversely affect its consolidated financial statements. The Company believes accruals for these matters are adequately provided for in its consolidated financial statements.