Leases

8 Months Ended

Sep. 10, 2019

Leases [Abstract]

Leases, Finance

Leases

The Company's material leases consist of restaurant locations and its executive offices with expiration dates through 2044. In general, the leases have remaining terms of 1-20 years, most of which include options to extend the leases for additional five-year periods. The lease term is generally the minimum noncancelable period of the lease. The Company does not include option periods unless the Company determines that it is reasonably certain of exercising the option at inception or when a triggering event occurs.

The Company determines if an arrangement is a lease at inception. The right-of-use assets and lease liabilities are recognized at the lease commencement date. In determining the Company’s right-of-use assets and lease liabilities, the Company applies a discount rate to the lease payments within each lease agreement. As most of the Company’s lease agreements do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The right-of-use asset also includes any lease payments made and is reduced by lease incentives, initial direct costs incurred and impairment of operating lease right-of-use assets and adjusted by favorable lease assets and unfavorable lease liabilities.

Some of the Company's lease agreements contain rent escalation clauses (including adjustments based on changes in indexes), rent holidays, capital improvement funding or other lease concessions. The Company recognizes rental expense on a straight-line basis based on fixed components of a lease arrangement and the Company amortizes this expense over the term of the lease beginning with the date of initial possession. Variable lease components represent amounts that are not fixed in nature and are recognized in expense as incurred.

The Company has subleased certain properties to other third parties where the Company remains primarily liable to the landlord for the performance of all obligations in the event that the sub-lessee does not perform its obligations under the lease. As a result of the sublease arrangements, future rental commitments under operating leases will be offset by sublease amounts to be paid by the sub-lessee. In general, the terms of the sublease are similar to the terms of the master lease.

The components of lease cost were as follows (in thousands):

	Classification	12 Weeks Ended September 10, 2019			36 Weeks Ended September 10, 2019
Operating lease cost	Occupancy and other operating expenses, Occupancy and other - franchise subleases and other, Pre-opening costs, Restaurant closure charges, net and General and administrative	$	8,792		$	26,196
Finance lease cost:
Amortization of right of use assets	Depreciation and amortization	86			329
Interest on lease liabilities	Interest expense	21			72
Short-term lease cost	Occupancy and other operating expenses	53			231
Variable lease cost	Occupancy and other operating expenses, Occupancy and other - franchise subleases and other and Restaurant closure charges, net	444			1,282
Sublease income	Franchise sublease and other income	(1,125		)	(3,261		)
Total lease cost		$	8,271		$	24,849

Supplemental balance sheet information related to the Company's operating and finance leases (noting the financial statement caption each is included with) as of September 10, 2019 and January 1, 2019 was as follows (in thousands):

	September 10, 2019			January 1, 2019
Operating lease assets:
Operating lease right-of-use assets	$	232,935		$	—
Operating lease liabilities:
Current portion of operating lease liabilities	$	18,800		$	—
Operating lease liabilities, excluding current portion	231,002			—
Total operating lease liabilities	$	249,802		$	—
Finance lease assets:
Buildings under finance leases	$	1,062		$	3,370
Accumulated depreciation	(329		)	(2,193		)
Finance lease asset, net	$	733		$	1,177
Finance lease obligations:
Current portion of finance lease obligations, other debt and deemed landlord financing liabilities	$	307		$	510
Long-term debt, finance lease obligations, other debt and deemed landlord      financing liabilities, excluding current portion, net	493			757
Total finance lease obligations	$	800		$	1,267

Weighted Average Remaining Lease Term (in years)	September 10, 2019
Operating leases	11.7
Finance leases	3.5

Weighted Average Discount Rate	September 10, 2019
Operating leases	6.85	%
Finance leases	10.40	%

Supplemental cash flow information related to leases was as follows (in thousands):

	Thirty-Six Weeks Ended September 10, 2019
Cash paid for amounts in the measurement of lease liabilities:
Operating cash flows used for operating leases	$	22,617
Operating cash flows used for finance leases	$	72
Financing cash flows used for finance leases	$	353

The estimated future lease payments as of September 10, 2019, are as follows (in thousands):

	Finance Lease Liabilities			Operating Lease Liabilities			Operating Subleases			Net Lease Commitments
2019	$	134		$	9,233		$	(1,750	)	$	7,617
2020	335			37,214			(3,531		)	34,018
2021	200			36,188			(3,635		)	32,753
2022	79			34,837			(3,623		)	31,293
2023	79			32,473			(3,449		)	29,103
Thereafter	132			221,957			(27,293		)	194,796
Total lease payments	$	959		$	371,902		$	(43,281	)	$	329,580
Amounts representing interest	(159		)	(122,100		)				(122,259		)
Present value of lease obligations	$	800		$	249,802					$	207,321

Rental commitments and sublease rental receipts as of January 1, 2019, under finance and operating leases having an initial non-cancelable term of one year or more are shown in the following table (in thousands):

	Finance Lease and Deemed Landlord Financing Liabilities			Operating Leases		Operating Subleases			Net Lease Commitments
2019	$	3,561		$	33,951	$	(2,564	)	$	34,948
2020	3,317			32,071		(2,403		)	32,985
2021	3,186			30,794		(2,409		)	31,571
2022	3,056			29,362		(2,392		)	30,026
2023	3,123			26,414		(2,274		)	27,263
Thereafter	34,071			153,675		(16,844		)	170,902
Total lease payments	$	50,314		$	306,267	$	(28,886	)	$	327,695
Imputed interest	(29,003		)
Present value of payments	$	21,311

As of September 10, 2019, we have legally binding lease payments related to restaurant leases that have not yet commenced of $15.7 million.

During the thirty-six weeks ended September 10, 2019, the Company entered into three sale leaseback arrangements with third party private investors, with two arrangements occurring during the first quarter 2019 and one during the second quarter 2019. These sale-leaseback transactions do not provide for any continuing involvement by the Company other than normal leases where the Company intends to use the property during the lease term. The leases have been accounted for as operating leases. The net proceeds from the transactions totaled approximately $12.7 million. Under two of the arrangements, the Company sold the land and buildings related to restaurants constructed during 2018 and leased them back for a term of 20 years. Under one of the arrangements, the Company sold the land related to a restaurant constructed during 2018 and leased it back for a term of 20 years. The sale of these properties resulted in a loss of approximately $0.2 million which is included in loss on disposal of assets and adjustments to assets held for sale, net in the consolidated statements of comprehensive income. The assets sold were included in assets held for sale as of January 1, 201

Leases, Operating

Leases

The Company's material leases consist of restaurant locations and its executive offices with expiration dates through 2044. In general, the leases have remaining terms of 1-20 years, most of which include options to extend the leases for additional five-year periods. The lease term is generally the minimum noncancelable period of the lease. The Company does not include option periods unless the Company determines that it is reasonably certain of exercising the option at inception or when a triggering event occurs.

The Company determines if an arrangement is a lease at inception. The right-of-use assets and lease liabilities are recognized at the lease commencement date. In determining the Company’s right-of-use assets and lease liabilities, the Company applies a discount rate to the lease payments within each lease agreement. As most of the Company’s lease agreements do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The right-of-use asset also includes any lease payments made and is reduced by lease incentives, initial direct costs incurred and impairment of operating lease right-of-use assets and adjusted by favorable lease assets and unfavorable lease liabilities.

Some of the Company's lease agreements contain rent escalation clauses (including adjustments based on changes in indexes), rent holidays, capital improvement funding or other lease concessions. The Company recognizes rental expense on a straight-line basis based on fixed components of a lease arrangement and the Company amortizes this expense over the term of the lease beginning with the date of initial possession. Variable lease components represent amounts that are not fixed in nature and are recognized in expense as incurred.

The Company has subleased certain properties to other third parties where the Company remains primarily liable to the landlord for the performance of all obligations in the event that the sub-lessee does not perform its obligations under the lease. As a result of the sublease arrangements, future rental commitments under operating leases will be offset by sublease amounts to be paid by the sub-lessee. In general, the terms of the sublease are similar to the terms of the master lease.

The components of lease cost were as follows (in thousands):

	Classification	12 Weeks Ended September 10, 2019			36 Weeks Ended September 10, 2019
Operating lease cost	Occupancy and other operating expenses, Occupancy and other - franchise subleases and other, Pre-opening costs, Restaurant closure charges, net and General and administrative	$	8,792		$	26,196
Finance lease cost:
Amortization of right of use assets	Depreciation and amortization	86			329
Interest on lease liabilities	Interest expense	21			72
Short-term lease cost	Occupancy and other operating expenses	53			231
Variable lease cost	Occupancy and other operating expenses, Occupancy and other - franchise subleases and other and Restaurant closure charges, net	444			1,282
Sublease income	Franchise sublease and other income	(1,125		)	(3,261		)
Total lease cost		$	8,271		$	24,849

Supplemental balance sheet information related to the Company's operating and finance leases (noting the financial statement caption each is included with) as of September 10, 2019 and January 1, 2019 was as follows (in thousands):

	September 10, 2019			January 1, 2019
Operating lease assets:
Operating lease right-of-use assets	$	232,935		$	—
Operating lease liabilities:
Current portion of operating lease liabilities	$	18,800		$	—
Operating lease liabilities, excluding current portion	231,002			—
Total operating lease liabilities	$	249,802		$	—
Finance lease assets:
Buildings under finance leases	$	1,062		$	3,370
Accumulated depreciation	(329		)	(2,193		)
Finance lease asset, net	$	733		$	1,177
Finance lease obligations:
Current portion of finance lease obligations, other debt and deemed landlord financing liabilities	$	307		$	510
Long-term debt, finance lease obligations, other debt and deemed landlord      financing liabilities, excluding current portion, net	493			757
Total finance lease obligations	$	800		$	1,267

Weighted Average Remaining Lease Term (in years)	September 10, 2019
Operating leases	11.7
Finance leases	3.5

Weighted Average Discount Rate	September 10, 2019
Operating leases	6.85	%
Finance leases	10.40	%

Supplemental cash flow information related to leases was as follows (in thousands):

	Thirty-Six Weeks Ended September 10, 2019
Cash paid for amounts in the measurement of lease liabilities:
Operating cash flows used for operating leases	$	22,617
Operating cash flows used for finance leases	$	72
Financing cash flows used for finance leases	$	353

The estimated future lease payments as of September 10, 2019, are as follows (in thousands):

	Finance Lease Liabilities			Operating Lease Liabilities			Operating Subleases			Net Lease Commitments
2019	$	134		$	9,233		$	(1,750	)	$	7,617
2020	335			37,214			(3,531		)	34,018
2021	200			36,188			(3,635		)	32,753
2022	79			34,837			(3,623		)	31,293
2023	79			32,473			(3,449		)	29,103
Thereafter	132			221,957			(27,293		)	194,796
Total lease payments	$	959		$	371,902		$	(43,281	)	$	329,580
Amounts representing interest	(159		)	(122,100		)				(122,259		)
Present value of lease obligations	$	800		$	249,802					$	207,321

Rental commitments and sublease rental receipts as of January 1, 2019, under finance and operating leases having an initial non-cancelable term of one year or more are shown in the following table (in thousands):

	Finance Lease and Deemed Landlord Financing Liabilities			Operating Leases		Operating Subleases			Net Lease Commitments
2019	$	3,561		$	33,951	$	(2,564	)	$	34,948
2020	3,317			32,071		(2,403		)	32,985
2021	3,186			30,794		(2,409		)	31,571
2022	3,056			29,362		(2,392		)	30,026
2023	3,123			26,414		(2,274		)	27,263
Thereafter	34,071			153,675		(16,844		)	170,902
Total lease payments	$	50,314		$	306,267	$	(28,886	)	$	327,695
Imputed interest	(29,003		)
Present value of payments	$	21,311

As of September 10, 2019, we have legally binding lease payments related to restaurant leases that have not yet commenced of $15.7 million.

During the thirty-six weeks ended September 10, 2019, the Company entered into three sale leaseback arrangements with third party private investors, with two arrangements occurring during the first quarter 2019 and one during the second quarter 2019. These sale-leaseback transactions do not provide for any continuing involvement by the Company other than normal leases where the Company intends to use the property during the lease term. The leases have been accounted for as operating leases. The net proceeds from the transactions totaled approximately $12.7 million. Under two of the arrangements, the Company sold the land and buildings related to restaurants constructed during 2018 and leased them back for a term of 20 years. Under one of the arrangements, the Company sold the land related to a restaurant constructed during 2018 and leased it back for a term of 20 years. The sale of these properties resulted in a loss of approximately $0.2 million which is included in loss on disposal of assets and adjustments to assets held for sale, net in the consolidated statements of comprehensive income. The assets sold were included in assets held for sale as of January 1, 201