As discussed in Note 7 – Recent Accounting Pronouncements, the Company adopted ASC Topic 842, Leases, as of the first day of fiscal year 2019, December 31, 2018, electing the optional transition method to apply the standard as of the effective date. Accordingly, financial information for periods prior to the first day of fiscal year 2019 has not been adjusted to reflect the effects of Topic 842, and the Company recorded a cumulative-effect adjustment to opening retained earnings for the impairment of an abandoned ROU asset at the effective date for a restaurant that was previously impaired and the remaining lease payments were accounted for under ASC Topic 420, Exit or Disposal Obligations. Additionally, the adoption of Topic 842 had a material impact on the Company’s assets and liabilities as a result of the recognition of operating lease ROU assets and lease liabilities on its Condensed Consolidated Balance Sheets. The adoption of Topic 842 did not have a material effect on the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) and Condensed Consolidated Statements of Cash Flows.

Topic 842 provided a number of optional practical expedients in transition. The Company elected the package of practical expedients, which permits the Company to not reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected the practical expedient that permits the Company to not assess whether existing or expired land easements that were not previously accounted for as leases under Topic 840 are now considered leases under Topic 842. The Company also elected the practical expedient to account for lease and non-lease components as a single component for certain classes of underlying assets, specifically real property. Additionally, the Company elected a short-term lease exception policy, permitting it to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less). The Company did not elect the use-of-hindsight practical expedient which would have permitted a reassessment of lease terms for existing leases.

As of the date of adoption, the Company was party to 30 separate operating leases for real estate on which it operates its restaurants and has its corporate office space. During the nine-month period ended September 29, 2019, the Company entered into two additional leases for new restaurant locations, and the associated commencement date for one of these leases was also during the first nine months of 2019. The Company also entered into one equipment lease during the first nine months of 2019.

The effects of the changes made to the Company’s Condensed Consolidated Balance Sheet as of December 31, 2018 for the adoption of Topic 842 were as follows:

	December 30,		Adjustments Due to the Adoption			December 31,
	2018		of Topic 842			2018
Assets
Noncurrent assets:
Other assets	$	5,557	$	(149	)	$	5,408
Right-of-use lease assets		-		70,666			70,666
Deferred income taxes		539		434			973
Liabilities and stockholders' equity
Current liabilities:
Current portion of lease liabilities		-		3,707			3,707
Long-term liabilities:
Long-term lease liabilities		-		75,489			75,489
Other long-term liabilities		6,995		(6,988	)		7
Stockholders' equity:
Retained earnings		17,528		(1,257	)		16,271

The Company through its subsidiaries has land only, building only, and land and building leases for a number of its restaurants and its corporate office that are recorded as operating leases. The Company determines if an arrangement meets the definition of a lease at inception, at which time it also performs an analysis to determine whether the lease qualifies as operating or financing. Operating leases are included in operating lease ROU assets and operating lease current and long-term liabilities on the Company’s Condensed Consolidated Balance Sheets. Lease expense for operating leases is generally recognized on a straight-line basis over the lease term, and is included in other operating expenses (for restaurant properties) or general and administrative expense (for corporate office space) on the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). The Company presents both the change in ROU assets and lease liabilities as a single line item in the Company’s Condensed Consolidated Statement of Cash Flows as the change in “Lease right-of-use assets and liabilities.” The Company does not currently have any arrangements that are classified as financing leases.

Most of the Company’s leases have rent escalation clauses and some have rent holiday and contingent rent provisions. Terms for these leases are generally for 15 to 20 years and, in many cases, the leases provide for one or more five‑year renewal options. As stated, the rent expense under these leases is recognized on a straight‑line basis over an expected lease term, including cancelable option periods when it is reasonably assured that such option periods will be exercised because failure to do so would result in a significant economic penalty, and these periods are recognized as a part of the ROU asset and related lease liability. The Company begins recognizing rent expense on the date that it or its subsidiaries become legally obligated under the lease and takes possession of or is given control of the leased property. Rent expense incurred during the construction period for a leased restaurant location is included in pre‑opening expense. Contingent rent expense is generally based upon sales levels and is typically accrued when it is deemed probable that it will be payable. These costs are disclosed as variable lease costs. Any tenant improvement allowances received from landlords under operating leases are recorded as a reduction to the related ROU asset. The same lease term that is used to calculate the lease liabilities is also used for assessing leases for finance or operating lease accounting. Many of the Company’s leases require payments for property taxes, insurance, maintenance and certain other costs. The variable portion of these payments are not included as a component of the Company’s ROU assets and lease liabilities. Rather, variable payments, other than those dependent on an index or rate, are expensed as incurred and are disclosed as variable lease costs.

Certain of the Company’s leases include both lease (i.e. fixed payments including rent) and non-lease components (e.g., common-area maintenance, marketing, and other miscellaneous fixed costs) which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and non-lease components for real estate leases. The Company is also a party to leases which have a non-cancelable lease term of less than one year with no option to purchase the underlying asset and, therefore, it has elected to exclude these short-term leases from its ROU assets and lease liabilities.

For our existing operating leases that commenced prior to the adoption of Topic 842, we made an accounting policy election to use the incremental borrowing rate for our leases considering the remaining lease term and remaining minimum rental payments during transition in establishing our lease liabilities. For new leases entered into after the adoption of Topic 842, we will use an incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The right-of-use asset also includes any lease payments made on or before the commencement date of the lease, less any lease incentives received. As the rate implicit in the lease is not readily determinable in the Company’s leases, it uses an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The incremental borrowing rates used are estimated based on what the Company would be required to pay for a collateralized loan over a similar term. Additionally, based on the applicable lease terms and the current economic environment, the Company applies a portfolio approach for determining the incremental borrowing rate for its real estate leases.

	Quarter Ended		Nine Months Ended
	September 29,		September 29,
	2019		2019
Operating lease cost	$	2,265	$	6,724
Variable lease cost		724		1,859
Short-term lease cost		39		122
Total lease cost	$	3,028	$	8,705

Supplemental cash flow information and non-cash activity related to the Company’s operating leases are as follows:

	Quarter Ended		Nine Months Ended
	September 29,		September 29,
	2019		2019
Operating cash flow information:
Cash paid for amounts included in the measurement of lease liabilities	$	2,046	$	6,224
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations		-		3,768

Weighted-average remaining lease term and discount rate for the Company’s operating leases are as follows as of the period indicated:

Maturities of lease liabilities by fiscal year for the Company’s operating leases are as follows:

	September 29,
	2019
2019 ⁽¹⁾	$	2,121
2020		8,936
2021		9,142
2022		9,302
2023		9,327
2024 and thereafter		93,640
Total minimum lease payments		132,468
Less: Imputed interest ⁽²⁾		51,351
Present value of lease liabilities	$	81,117
⁽¹⁾ Excluding the nine months ended September 29, 2019
⁽²⁾ Amount necessary to reduce net minimum lease payments to present value calculated using our incremental borrowing rates, which are consistent with the lease terms at adoption date (for those leases in existence as of the adoption date of Topic 842) or lease inception (for those leases entered into after the adoption date).

As previously disclosed in the 2018 Annual Report and under the previous lease accounting standard, minimum lease payments under non-cancelable operating leases (including renewal options and those restaurants reported as discontinued operations) were expected to be as follows:

	December 30,
	2018
2019	$	7,800
2020		8,084
2021		7,832
2022		7,974
2023		8,006
2024 and thereafter		78,302
Total minimum lease payments	$	117,998