Leases

3 Months Ended

Mar. 29, 2020

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 and initial direct costs and is adjusted by favorable lease assets and unfavorable lease liabilities. Variable lease components represent amounts that are contractually fixed percentage of sales 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.

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 months ended March 29, 2020 and March 31, 2019 are as follows:



		Three Months Ended			Three Months Ended
Lease cost	Classification	March 29, 2020			March 31, 2019
Operating lease cost (1)	Restaurant rent expense	$	25,471		$	18,294
Operating lease cost	General and administrative	98			74
Variable lease cost	Restaurant rent expense	4,105			3,800
Sublease income	Restaurant rent expense	(122		)	(178		)
Finance lease cost:
Amortization of right-of-use assets	Depreciation and amortization	445			476
Interest on lease liabilities	Interest expense	46			71
Total lease cost		$	30,043		$	22,537


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

Other Information

Supplemental cash flow information related to leases for the three months ended March 29, 2020 and March 31, 2019 are as follows:



	Three Months Ended
	March 29, 2020			March 31, 2019
Gain (loss) on sale-leaseback transactions	$	(244	)	$	93
Lease assets and liabilities resulting from lease modifications and new leases	$	16,759		$	15,952
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	24,733		$	17,366
Operating cash flows from finance leases	$	46		$	71
Financing cash flows from finance leases	$	567		$	476

Leases

Lease Cost

The components and classification of lease expense for the three months ended March 29, 2020 and March 31, 2019 are as follows:



		Three Months Ended			Three Months Ended
Lease cost	Classification	March 29, 2020			March 31, 2019
Operating lease cost (1)	Restaurant rent expense	$	25,471		$	18,294
Operating lease cost	General and administrative	98			74
Variable lease cost	Restaurant rent expense	4,105			3,800
Sublease income	Restaurant rent expense	(122		)	(178		)
Finance lease cost:
Amortization of right-of-use assets	Depreciation and amortization	445			476
Interest on lease liabilities	Interest expense	46			71
Total lease cost		$	30,043		$	22,537


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

Other Information

Supplemental cash flow information related to leases for the three months ended March 29, 2020 and March 31, 2019 are as follows:



	Three Months Ended
	March 29, 2020			March 31, 2019
Gain (loss) on sale-leaseback transactions	$	(244	)	$	93
Lease assets and liabilities resulting from lease modifications and new leases	$	16,759		$	15,952
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	24,733		$	17,366
Operating cash flows from finance leases	$	46		$	71
Financing cash flows from finance leases	$	567		$	476