Quarterly report pursuant to Section 13 or 15(d)

Leases

v3.20.1
Leases
3 Months Ended
Mar. 29, 2020
Leases [Abstract]  
Lessee, Operating Leases
Leases
The Company determines if a contract contains a lease at inception. The Company's material long-term operating lease agreements are for the land and buildings for our restaurants as well as our corporate offices. The lease term begins on the date that the Company takes possession under the lease, including the pre-opening period during construction, when in many cases the Company is not making rent payments. The initial lease terms range from 10 years to 15 years, most of which include renewal options of 10 to 15 years. The lease term is generally the minimum of the noncancelable period or the lease term including renewal options which are reasonably certain of being exercised up to a term of approximately 20 years.
Operating lease assets and liabilities are recognized at the lease commencement date for material leases with a term of greater than 12 months. Operating lease liabilities represent the present value of future minimum lease payments. Since our leases do not provide an implicit rate, our operating lease liabilities are calculated using the Company's secured incremental borrowing rate at lease commencement. We estimate this rate based on prevailing financial market conditions, comparable companies, credit analysis and management judgment. Minimum lease payments include only fixed lease components of the agreement, as well as variable rate payments that depend on an index, initially measured using the index at the lease commencement date.
Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepaid or accrued lease payments, initial direct costs and lease incentives. Lease incentives are recognized when earned and reduce our operating lease asset. They are amortized through the operating lease assets as reductions of rent expense over the lease term.
Operating lease expense is recognized on a straight-line basis over the lease term. Variable lease payments that do not depend on a rate or index, escalation in the index subsequent to the initial measurement, payments associated with non-lease components such as common area maintenance, real estate taxes and insurance, and short-term lease payments (leases with a term with 12 months or less) are expensed as incurred. Certain of the Company’s operating leases contain clauses that provide for contingent rent based on a percentage of sales greater than certain specified target amounts. These variable payments are expensed when the achievement of the specified target that triggers the contingent rent is considered probable. As of March 29, 2020, all of the Company's leases were operating.
Components of operating lease costs are included in the occupancy, general and administrative expense and property and equipment, net:
 
 
Thirteen Weeks Ended
Lease cost
 
March 29, 2020
 
March 31, 2019
Operating lease cost (a)
 
$
6,088

 
$
6,012

Variable lease cost
 
123

 
252

 
 
$
6,211

 
$
6,264

(a) Includes short-term operating lease costs which are immaterial.
Supplemental cash flow disclosures for the thirteen weeks ended March 29, 2020 and March 31, 2019, respectively:
 
Thirteen Weeks Ended
 
March 29, 2020
 
March 31, 2019
Cash paid for operating lease liabilities
6,616

 
6,286

Operating lease assets obtained in exchange for operating lease liabilities (a)
(923
)
 
168,984

(a) The thirteen weeks ended March 29, 2020 includes a $6.6 million reduction to the operating lease assets and liabilities as a result of shortening the remaining life of certain leases. The thirteen weeks ended March 31, 2019 includes the transition adjustment for the adoption of Leases (Topic 842) of $170.3 million as well as a $1.3 million reduction to the operating lease assets and liabilities as a result of shortening the remaining life of certain leases.
The Company recorded $0.2 million and $0.6 million in deferred lease incentives during the thirteen weeks ended March 29, 2020 and March 31, 2019, respectively.
Supplemental balance sheet and other lease disclosures:
Operating leases
Classification
 
March 29, 2020
 
December 29, 2019
Right-of-use assets
Operating lease assets
 
$
162,859

 
$
169,299

 
 
 
 
 
 
Current lease liabilities
Operating lease liability
 
$
10,939

 
$
10,307

Non-current lease liabilities
Operating lease liability, less current portion
 
210,120

 
214,541

Total lease liabilities
 
 
$
221,059

 
$
224,848

 
 
 
 
 
 
Weighted average remaining lease term (in years)
 
14.4

 
15.0

Weighted average discount rate
 
7.9
%
 
7.8
%

Future minimum rent payments for our operating leases for each of the next five years as of March 29, 2020 are as follows:
Fiscal year ending:
 
 
Remainder of 2020
 
$
20,766

2021
 
27,980

2022
 
27,164

2023
 
27,578

2024
 
26,411

Thereafter
 
240,383

Total minimum lease payments
 
370,282

Less: imputed interest
 
149,223

Present value of lease liabilities
 
$
221,059

As of March 29, 2020, operating lease payments exclude approximately $7.1 million of legally binding minimum lease payments for leases signed but which we have not yet taken possession.