Leases

6 Months Ended

Jun. 16, 2020

Leases [Abstract]

Leases

LeasesThe 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 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 sublessee 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 sublessee. In general, the terms of the sublease are similar to the terms of the master lease.

The components of lease cost for the twelve and twenty-four weeks ended June 16, 2020 were as follows (in thousands):

	Classification	Twelve Weeks Ended June 16, 2020		Twenty-Four Weeks Ended June 16, 2020
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	$	9,363	$	18,809
Finance lease cost:
Amortization of right of use assets	Depreciation and amortization	35		90
Interest on lease liabilities	Interest expense	6		18
Short-term lease cost	Occupancy and other operating expenses	95		167
Variable lease cost	Occupancy and other operating expenses, Occupancy and other - franchise subleases and other and Restaurant closure charges, net	334		657
Sublease income	Franchise sublease and other income	(1,690)		(3,272)
Total lease cost		$	8,143	$	16,469

The components of lease cost for the twelve and twenty-four weeks ended June 18, 2019 were as follows (in thousands):

	Classification	Twelve Weeks Ended June 18, 2019		Twenty-Four Weeks Ended June 18, 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	$	8,733	$	17,404
Finance lease cost:
Amortization of right of use assets	Depreciation and amortization	110		243
Interest on lease liabilities	Interest expense	24		51
Short-term lease cost	Occupancy and other operating expenses	77		178
Variable lease cost	Occupancy and other operating expenses, Occupancy and other - franchise subleases and other and Restaurant closure charges, net	448		838
Sublease income	Franchise sublease and other income	(1,134)		(2,136)
Total lease cost		$	8,258	$	16,578

Supplemental balance sheet information related to the Company's operating and finance leases (noting the financial statement caption each is included with) as of June 16, 2020 and December 31, 2019 was as follows (in thousands):

	June 16, 2020		December 31, 2019
Operating lease assets:
Operating lease right-of-use assets	$	253,180	$	258,278
Operating lease liabilities:
Current portion of operating lease liabilities	$	20,667	$	17,848
Operating lease liabilities, excluding current portion	256,277		257,361
Total operating lease liabilities	$	276,944	$	275,209
Finance lease assets:
Buildings under finance leases	$	441	$	871
Accumulated depreciation	(208)		(334)
Finance lease assets, net	$	233	$	537
Finance lease obligations:
Current portion of finance lease obligations and other debt	$	138	$	162
Long-term debt, finance lease obligations and other debt, excluding current portion, net	105		412
Total finance lease obligations	$	243	$	574

Weighted Average Remaining Lease Term (in years)	June 16, 2020
Operating leases	12.6
Finance leases	2.2

Weighted Average Discount Rate	June 16, 2020
Operating leases	6.58	%
Finance leases	10.46	%

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

	Twenty-Four Weeks Ended June 16, 2020		Twenty-Four Weeks Ended June 18, 2019
Cash paid for amounts in the measurement of lease liabilities:
Operating cash flows used for operating leases	$	15,749	$	14,238
Operating cash flows used for finance leases	$	18	$	51
Financing cash flows used for finance leases	$	87	$	243

The estimated future lease payments as of June 16, 2020, are as follows (in thousands):

	Finance Lease Liabilities		Operating Lease Liabilities		Operating Subleases		Net Lease Commitments
2020	$	78	$	19,768	$	(3,176)	$	16,670
2021	138		39,015		(6,247)		32,906
2022	19		40,753		(6,802)		33,970
2023	17		35,666		(6,120)		29,563
2024	16		29,936		(5,463)		24,489
Thereafter	4		251,138		(60,760)		190,382
Total lease payments	$	272	$	416,276	$	(88,568)	$	327,980
Amounts representing interest	(29)		(139,332)				(139,361)
Present value of lease obligations	$	243	$	276,944			$	188,619

During the twenty-four weeks ended June 16, 2020, the Company entered into one sale-leaseback arrangement with a third party private investor. The sale-leaseback transaction does not provide for any continuing involvement by the Company other than a normal lease where the Company intends to use the property during the lease term. The lease has been accounted for as an operating lease. The net proceeds from the transactions totaled approximately $1.4 million. Under the arrangement, the Company sold the land and building of an existing restaurant and leased it back for a term of 20 years. The sale of this property resulted in a gain of approximately $0.6 million which is included in loss on disposal of assets and adjustments to assets held for sale, net in the consolidated statements of comprehensive (loss) income.

During the twenty-four weeks ended June 18, 2019, the Company entered into three sale-leaseback arrangements with third party private investors, with two arrangements occurring during the first quarter of 2019 and one during the second quarter of 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 building 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, net in the consolidated statements of comprehensive (loss) income. The assets sold were included in assets held for sale as of January 1, 2019.

During the twelve weeks ended June 16, 2020, following the sale of a company-operated restaurant to a franchisee, the related lease was assigned to the franchisee. The Company is a guarantor on the lease which has a remaining term of 19 years, expiring in 2039, and remaining lease payments total approximately $1.6 million. The Company would remain a guarantor of the lease in the event the lease is extended for any established renewal periods. As of June 16, 2020, the Company does not anticipate any material defaults under the forgoing lease, and therefore, no liability has been provided.

During the twelve weeks ended June 16, 2020, in response to the COVID-19 pandemic, the Company negotiated temporary deferrals of certain rent payments until future periods. As permitted by recent FASB staff guidance, the Company has elected to not evaluate whether these concessions are considered lease modifications and has adopted a policy to not account for these concessions as lease modifications. As such, the Company has continued to account for the related lease liabilities and right-of-use assets using the rights and obligations of the existing leases and has included $1.3 million related to temporary rent payment deferrals in accounts payable in the consolidated balance sheet as of June 16, 2020. The Company expects to repay these deferrals during the third quarter of fiscal year 2020.

Leases

LeasesThe 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 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 sublessee 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 sublessee. In general, the terms of the sublease are similar to the terms of the master lease.

The components of lease cost for the twelve and twenty-four weeks ended June 16, 2020 were as follows (in thousands):

	Classification	Twelve Weeks Ended June 16, 2020		Twenty-Four Weeks Ended June 16, 2020
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	$	9,363	$	18,809
Finance lease cost:
Amortization of right of use assets	Depreciation and amortization	35		90
Interest on lease liabilities	Interest expense	6		18
Short-term lease cost	Occupancy and other operating expenses	95		167
Variable lease cost	Occupancy and other operating expenses, Occupancy and other - franchise subleases and other and Restaurant closure charges, net	334		657
Sublease income	Franchise sublease and other income	(1,690)		(3,272)
Total lease cost		$	8,143	$	16,469

The components of lease cost for the twelve and twenty-four weeks ended June 18, 2019 were as follows (in thousands):

	Classification	Twelve Weeks Ended June 18, 2019		Twenty-Four Weeks Ended June 18, 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	$	8,733	$	17,404
Finance lease cost:
Amortization of right of use assets	Depreciation and amortization	110		243
Interest on lease liabilities	Interest expense	24		51
Short-term lease cost	Occupancy and other operating expenses	77		178
Variable lease cost	Occupancy and other operating expenses, Occupancy and other - franchise subleases and other and Restaurant closure charges, net	448		838
Sublease income	Franchise sublease and other income	(1,134)		(2,136)
Total lease cost		$	8,258	$	16,578

Supplemental balance sheet information related to the Company's operating and finance leases (noting the financial statement caption each is included with) as of June 16, 2020 and December 31, 2019 was as follows (in thousands):

	June 16, 2020		December 31, 2019
Operating lease assets:
Operating lease right-of-use assets	$	253,180	$	258,278
Operating lease liabilities:
Current portion of operating lease liabilities	$	20,667	$	17,848
Operating lease liabilities, excluding current portion	256,277		257,361
Total operating lease liabilities	$	276,944	$	275,209
Finance lease assets:
Buildings under finance leases	$	441	$	871
Accumulated depreciation	(208)		(334)
Finance lease assets, net	$	233	$	537
Finance lease obligations:
Current portion of finance lease obligations and other debt	$	138	$	162
Long-term debt, finance lease obligations and other debt, excluding current portion, net	105		412
Total finance lease obligations	$	243	$	574

Weighted Average Remaining Lease Term (in years)	June 16, 2020
Operating leases	12.6
Finance leases	2.2

Weighted Average Discount Rate	June 16, 2020
Operating leases	6.58	%
Finance leases	10.46	%

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

	Twenty-Four Weeks Ended June 16, 2020		Twenty-Four Weeks Ended June 18, 2019
Cash paid for amounts in the measurement of lease liabilities:
Operating cash flows used for operating leases	$	15,749	$	14,238
Operating cash flows used for finance leases	$	18	$	51
Financing cash flows used for finance leases	$	87	$	243

The estimated future lease payments as of June 16, 2020, are as follows (in thousands):

	Finance Lease Liabilities		Operating Lease Liabilities		Operating Subleases		Net Lease Commitments
2020	$	78	$	19,768	$	(3,176)	$	16,670
2021	138		39,015		(6,247)		32,906
2022	19		40,753		(6,802)		33,970
2023	17		35,666		(6,120)		29,563
2024	16		29,936		(5,463)		24,489
Thereafter	4		251,138		(60,760)		190,382
Total lease payments	$	272	$	416,276	$	(88,568)	$	327,980
Amounts representing interest	(29)		(139,332)				(139,361)
Present value of lease obligations	$	243	$	276,944			$	188,619

During the twenty-four weeks ended June 16, 2020, the Company entered into one sale-leaseback arrangement with a third party private investor. The sale-leaseback transaction does not provide for any continuing involvement by the Company other than a normal lease where the Company intends to use the property during the lease term. The lease has been accounted for as an operating lease. The net proceeds from the transactions totaled approximately $1.4 million. Under the arrangement, the Company sold the land and building of an existing restaurant and leased it back for a term of 20 years. The sale of this property resulted in a gain of approximately $0.6 million which is included in loss on disposal of assets and adjustments to assets held for sale, net in the consolidated statements of comprehensive (loss) income.

During the twenty-four weeks ended June 18, 2019, the Company entered into three sale-leaseback arrangements with third party private investors, with two arrangements occurring during the first quarter of 2019 and one during the second quarter of 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 building 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, net in the consolidated statements of comprehensive (loss) income. The assets sold were included in assets held for sale as of January 1, 2019.

During the twelve weeks ended June 16, 2020, following the sale of a company-operated restaurant to a franchisee, the related lease was assigned to the franchisee. The Company is a guarantor on the lease which has a remaining term of 19 years, expiring in 2039, and remaining lease payments total approximately $1.6 million. The Company would remain a guarantor of the lease in the event the lease is extended for any established renewal periods. As of June 16, 2020, the Company does not anticipate any material defaults under the forgoing lease, and therefore, no liability has been provided.

During the twelve weeks ended June 16, 2020, in response to the COVID-19 pandemic, the Company negotiated temporary deferrals of certain rent payments until future periods. As permitted by recent FASB staff guidance, the Company has elected to not evaluate whether these concessions are considered lease modifications and has adopted a policy to not account for these concessions as lease modifications. As such, the Company has continued to account for the related lease liabilities and right-of-use assets using the rights and obligations of the existing leases and has included $1.3 million related to temporary rent payment deferrals in accounts payable in the consolidated balance sheet as of June 16, 2020. The Company expects to repay these deferrals during the third quarter of fiscal year 2020.