Leases

6 Months Ended

Jun. 26, 2019

Leases [Abstract]

Lessee and Lessor Disclosure [Text Block]

Leases

Lessee

We lease certain real estate and equipment for our restaurants and support facilities. At contract inception, we determine whether a contract is, or contains, a lease by determining whether it conveys the right to control the use of the identified asset for a period of time. We recognize a lease liability and an ROU asset at the lease commencement date.

For operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date. For finance leases, the lease liability is initially measured in the same manner and date as for operating leases, and is subsequently measured at amortized cost using the effective interest method.

Operating lease ROU assets are initially and subsequently measured throughout the lease term at the carrying amount of the lease liability adjusted for initial direct costs, prepayments, accrued payments and lease incentives, if any. Lease cost is recognized on a straight-line basis over the lease term. Finance lease ROU assets are initially measured at cost and subsequently amortized on a straight-line basis over the lesser of the useful life or the lease term. ROU assets are assessed for impairment using the long-lived assets impairment guidance.

The new lease guidance provides practical expedients and accounting elections for our ongoing accounting after adoption. We elected the practical expedient to not separate nonlease components (such as common area maintenance) from lease components in regard to all leases and the portfolio approach in applying the discount rate to our leases.

Key estimates and judgments include how we determine (1) lease payments, (2) lease term and (3) the discount rate used to discount the unpaid lease payments to present value.

We have certain lease agreements structured with both a fixed base rent and a contingent rent based on a percentage of sales over contractual levels, others with only contingent rent based on a percentage of sales and some with a fixed base rent adjusted periodically for inflation or changes in fair market value of the underlying real estate. Contingent rent is recognized as sales occur. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The exercise of lease renewal options is at our sole discretion, except in certain sublease situations in which we have determined that it is reasonably certain that one or more options will be exercised, including where the exercise of a sublease option compels us to exercise the renewal option of the underlying master lease. Renewal option periods are included in the measurement of lease ROU asset and lease liability where the exercise is reasonably certain to occur. Initial terms of real estate leases generally range from 10 to 20 years, exclusive of options to renew, which are typically for five year periods. Leases of equipment consist primarily of restaurant equipment, computer equipment and vehicles. Initial terms of equipment leases generally range from three to five years.

The discount rate used to determine the present value of the lease payments is our estimated collateralized incremental borrowing rate, based on the yield curve for the respective lease terms, as we generally cannot determine the interest rate implicit in the lease.

Lessor

We lease or sublease certain restaurant properties to our franchisees and occasionally to third parties. The lease descriptions, terms, variable lease payments and renewal options are the same as the lessee leases described above. Similar to our lessee accounting, we elected the lessor practical expedient to not separate nonlease components from lease components in regard to all leases.

The components of lease costs were as follows:

		Quarter Ended			Two Quarters Ended
	Classification	June 26, 2019			June 26, 2019
		(In thousands)
Lease costs
Finance lease costs:
Amortization of right-of-use assets	Depreciation and amortization	$	885		$	1,881
Interest on lease liabilities	Interest expense, net	1,318			2,834
Operating lease costs:
Operating lease costs - company	Occupancy	2,476			4,979
Operating lease costs - franchise	Costs of franchise and license revenue	3,611			7,076
Operating lease costs - general and administrative	General and administrative expenses	27			53
Variable lease costs:
Variable lease costs - company	Occupancy	1,812			3,668
Variable lease costs - franchise	Costs of franchise and license revenue	1,512			2,938
Variable lease costs - general and administrative	General and administrative expenses	5			10
Variable lease costs - closed stores	Restructuring charges and exit costs	—			55
Sublease income	Franchise and license revenue	(6,249		)	(12,008		)
Total lease costs		$	5,397		$	11,486

Lease terms and discount rates were as follows:

	June 26, 2019
Weighted-average remaining lease term (in years)
Finance leases	9.0
Operating leases	9.5
Weighted-average discount rate
Finance leases	24.3	%
Operating leases	6.4	%

The components of lease income were as follows:

		Quarter Ended		Two Quarters Ended
	Classification	June 26, 2019		June 26, 2019
		(In thousands)
Lease income
Operating lease income - franchise	Franchise and license revenue	$	5,846	$	11,271
Operating lease income - closed stores	Restructuring and exist costs	66		132
Variable lease income - franchise	Franchise and license revenue	2,280		4,400
Variable lease income - closed stores	Restructuring charges and exit costs	12		24
Total lease income		$	8,204	$	15,827

Cash and supplemental noncash amounts were as follows:

	Quarter Ended		Two Quarters Ended
	June 26, 2019		June 26, 2019
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	1,318	$	2,834
Operating cash flows from operating leases	6,441		12,752
Financing cash flows from finance leases	752		1,547
Right-of-use assets obtained in exchange for new finance lease liabilities	305		305
Right-of-use assets obtained in exchange for new operating lease liabilities	22,481		27,531

Maturities of lease liabilities and receipts in accordance with Topic 842 as of June 26, 2019 were as follows:

	Lease Liabilities				Lease Receipts
	Finance		Operating		Operating
	(In thousands)
Remainder of 2019	$	3,554	$	12,440	$	13,070
2020	6,625		22,390		24,202
2021	6,101		19,576		22,100
2022	5,836		17,309		19,961
2023	5,149		14,536		17,012
Thereafter	29,974		82,149		105,310
Total undiscounted cash flows	57,239		168,400		$	201,655
Less: interest	34,118		44,033
Present value of lease liabilities	23,121		124,367
Less: current lease liabilities	2,651		16,999
Long-term lease liabilities	$	20,470	$	107,368

Maturities of lease liabilities in accordance with Topic 840 as of December 26, 2018 were as follows:

	Commitments				Lease Receipts
	Capital		Operating		Operating
	(In thousands)
2019	$	9,271	$	23,504	$	21,001
2020	8,664		20,161		18,493
2021	8,010		17,316		16,573
2022	7,320		14,646		14,887
2023	6,451		11,881		12,932
Thereafter	33,670		49,004		65,273
Total	73,386		$	136,512	$	149,159
Less imputed interest	42,795
Present value of capital lease obligations	$	30,591