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Leases
12 Months Ended
Dec. 31, 2019
Leases  
Leases

3. Leases

The Company leases corporate offices, a distribution center, billboards and certain equipment. As all franchisees are independently owned and operated, there are no leases recognized for any offices used by the Company’s franchisees. The leases have remaining lease terms ranging from less than a year up to 14, some of which include one or more options to renew, with renewal terms that can extend the lease term from one to 20 years depending on the lease. Of these renewal options, the Company determined that none are reasonably certain to be exercised. All the Company’s material leases are classified as operating leases.

The Company has a lease for its corporate headquarters office building (the “Master Lease”) that expires in 2028. The Company may, at its option, extend the Master Lease for two renewal periods of 10 years. Under the terms of the Master Lease, the Company pays an annual base rent, which escalates 3% each year, including the first optional renewal period. The second optional renewal period resets to fair market rental value, and the rent escalates 3% each year until expiration. The Company pays for insurance, property taxes and operating expenses of the leased space. The Master Lease is the Company’s only significant lease.

The Company acts as the lessor for four sublease agreements on its corporate headquarters, consisting solely of operating leases, each of which include a renewal option for the lessee to extend the length of the lease. Renewal options for two of the sublease agreements are contingent upon renewal of the corporate headquarters lease, which is not reasonably certain to be exercised in 2028. As such, the Company determined these sublease renewal options are not reasonably certain to be exercised. Renewal options for the remaining two sublease agreements have already been exercised and will expire before the end of the corporate headquarters lease in 2028.

The Company has made an accounting policy election not to recognize right-of-use assets and lease liabilities that arise from any of its short-term leases. All leases with a term of 12 months or less at commencement, for which the Company is not reasonably certain to exercise available renewal options that would extend the lease term past 12 months, will be recognized on a straight-line basis over the lease term.

The Company used its Senior Secured Credit Facility interest rate to extrapolate a rate for each of its leases to calculate the present value of the lease liability and right-of-use asset. A summary of the Company’s lease cost is as follows (in thousands, except for weighted-averages):

Year Ended December 31, 2019

Lease Cost

Operating lease cost (a)

$

12,259

Sublease income

(1,508)

Short-term lease cost (b)

6,495

Total lease cost

$

17,246

Other information

Cash paid for amounts included in the measurement of lease liabilities

Operating cash outflows from operating leases

$

8,507

Weighted-average remaining lease term in years - operating leases

8.4

Weighted-average discount rate - operating leases

6.3

%

(a)Includes approximately $3.7 million of taxes, insurance and maintenance.
(b)Includes expenses associated with short-term leases of billboard advertisements and is included in “Marketing Funds expenses” on the Consolidated Statements of Income.

Maturities under non-cancellable leases as of December 31, 2019 were as follows (in thousands):

Rent Payments

Sublease Receipts

Total Cash Outflows

Year ending December 31:

2020

    

$

8,756

$

(888)

$

7,868

2021

9,010

(775)

8,235

2022

9,002

(804)

8,198

2023

9,173

(822)

8,351

2024

9,439

(785)

8,654

Thereafter

34,235

(597)

33,638

Total lease payments

$

79,615

$

(4,671)

$

74,944

Less: imputed interest

18,554

Present value of lease liabilities

$

61,061

As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting, maturities under non-cancellable leases as of December 31, 2018 were as follows (in thousands):

Rent Payments

Sublease Receipts

Total Cash Outflows

Year ending December 31:

2019

    

$

9,402

$

(1,087)

$

8,315

2020

9,601

(873)

8,728

2021

9,341

(775)

8,566

2022

9,011

(804)

8,207

2023

9,169

(827)

8,342

Thereafter

43,556

(1,382)

42,174

Total lease payments

$

90,080

$

(5,748)

$

84,332