Leases

The Company utilizes land and buildings in its operations under various lease agreements. The Company does not consider any one of these individual leases material to the Company's operations. Initial lease terms are generally for twenty years and, in many cases, provide for renewal options and in most cases rent escalations. The exercise of such renewal options are generally at the Company’s sole discretion. The Company evaluates renewal options at lease commencement to determine if such options are reasonably certain to be exercised based on economic factors. Certain leases also require contingent rent, determined as a percentage of sales as defined by the terms of the applicable lease agreement. For most locations, the Company is obligated for occupancy related costs including payment of property taxes, insurance and utilities.

The right-of-use (“ROU”) lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make payments in exchange for that right of use. As the rate implicit within our leases is not readily determinable, the Company uses its incremental borrowing rate which considers the Company's debt issuances and lease term in determining the present value of future payments. The ROU asset is also reduced by lease incentives, initial direct costs and adjusted by favorable lease assets and unfavorable lease liabilities. Variable lease components represent amounts that are fixed in nature and are recognized in expense as incurred. Leases with an initial term of 12 months or less are not recorded on the balance sheet and are recognized as lease expense on a straight-line basis over the lease term. The Company does not account for lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) separately from the non-lease components.

As of June 30, 2019, the Company had additional leases that have not yet commenced of $9.7 million. These leases will commence during the remainder of fiscal 2019 or in 2020 with lease terms of 5 years to 20 years.

In addition, the Company utilizes certain restaurant equipment under various finance lease agreements with initial terms of generally eight years. The Company does not consider any one of these individual leases material to the Company's operations.

For certain leases where rent escalates based upon a change in a financial index, such as the Consumer Price Index, the difference between the rate at lease inception and the subsequent fluctuations in that rate are included in variable lease costs. Additionally, because the Company has elected to not separate lease and non-lease components, in limited instances, variable costs also include payments to the landlord for common area maintenance, real estate taxes, insurance and other operating expenses. Lease expense is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred.

Lease Cost

The components and classification of lease expense for the three and six months ended June 30, 2019 are as follows:



		Three Months Ended			Six Months Ended
Lease cost	Classification	June 30, 2019			June 30, 2019
Operating lease cost (1)	Restaurant rent expense	$	22,543		$	40,837
Operating lease cost	General and administrative	148			222
Variable lease cost	Restaurant rent expense	4,290			8,090
Sublease income	Restaurant rent expense	(143		)	(321		)
Finance lease cost:
Amortization of right-of-use assets	Depreciation and amortization	523			999
Interest on lease liabilities	Interest expense	64			135
Total lease cost		$	27,425		$	49,962


(1)	Includes short-term leases which are not material.

Lease Position

Supplemental balance sheet information related to leases was as follows as of June 30, 2019:



		As of
Leases	Classification	June 30, 2019
Assets
Operating leases	Operating right-of-use assets, net	$	785,000
Finance leases	Property and equipment, net	2,904
Total leased assets		$	787,904

Liabilities
Current
Operating leases	Current portion of operating lease liabilities	$	39,715
Finance leases	Current portion of long-term debt and finance lease liabilities	2,261
Long-term
Operating leases	Operating lease liabilities	777,054
Finance leases	Long-term debt and finance lease liabilities, net	1,393
Total lease liabilities		$	820,423

Weighted Average Remaining Lease Term
Operating leases		14.5 years
Finance leases		1.9 years

Weighted Average Discount Rate
Operating leases		7.0		%
Finance leases		8.0		%

Other Information

Supplemental cash flow information related to leases for the six months ended June 30, 2019 are as follows:



	Six Months Ended
	June 30, 2019
Gain on sale-leaseback transactions	$	105
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	36,006
Operating cash flows from finance leases	$	135
Financing cash flows from finance leases	$	981

Future minimum lease payments under noncancelable lease at June 30, 2019 are as follows:



Fiscal year ending:	Operating Leases			Finance Leases
December 29, 2019	$	47,846		$	1,244
January 3, 2021	93,769			1,755
January 2, 2022	92,202			583
January 1, 2023	91,415			240
December 31, 2023	90,493			68
Thereafter	907,550			129
Total minimum lease payments	1,323,275			4,019
Less: imputed interest	(506,506		)	(365		)
Present value of lease liabilities	816,769			3,654
Less: current portion	(39,715		)	(2,261		)
Total long-term lease liabilities	$	777,054		$	1,393

Disclosures Related to Periods Prior to Adoption of the New Lease Standard

As previously disclosed in the Company's 2018 Annual Report on Form 10-K and under the previous lease accounting standard, the maturities of lease liabilities at December 30, 2018 were as follows:



Fiscal year ending:	Operating Leases		Capital Leases
December 29, 2019	$	73,304	$	2,180
January 3, 2021	71,764		1,454
January 2, 2022	70,607		345
January 1, 2023	70,160		190
December 31, 2023	69,221		68
Thereafter	640,793		129
Total minimum lease payments	$	995,849	4,366
Less amount representing interest			(425		)
Total obligations under capital leases			3,941
Less current portion			(1,948		)
Long-term obligations under capital leases			$	1,993