Quarterly report pursuant to Section 13 or 15(d)

Leases

v3.22.2.2
Leases
 9 Months Ended
Sep. 25, 2022
Leases [Abstract]  
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 totaling 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 construction milestones are met 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 September 25, 2022, all of the Company's leases were operating.
Components of operating lease costs are included in occupancy, closed restaurant costs, restaurant pre-opening, general and administrative expense and property and equipment, net:
Thirteen Weeks Ended Thirty-Nine Weeks Ended
Lease cost: September 25, 2022 September 26, 2021 September 25, 2022 September 26, 2021
Operating lease cost $ 6,072  $ 6,388  $ 18,426  $ 19,263 
Variable lease cost 358  270  1,094  809 
$ 6,430  $ 6,658  $ 19,520  $ 20,072 
Supplemental cash flow disclosures and other lease information:
Thirty-Nine Weeks Ended
September 25, 2022 September 26, 2021
Cash paid for operating lease liabilities $ 23,377  $ 28,272 
Operating lease assets obtained (surrendered) in exchange for operating lease liabilities(a)
7,724  (1,998)
(a) The thirty-nine weeks ended September 25, 2022 includes a $7.4 million increase to operating lease assets and liabilities related to new lease commencements, a $2.8 million increase due to extending remaining lives of certain leases, partially offset by $2.5 million decrease as a result of termination of closed restaurant leases. The thirty-nine weeks ended September 26, 2021 includes a $8.9 million decrease to operating lease assets and liabilities related to the termination of five closed restaurant leases and a purchase of one existing lease, partially offset by a $6.9 million increase mainly due to extending remaining lives of certain leases.
The Company recorded $1.0 million in additional deferred lease incentives during the thirty-nine weeks ended September 25, 2022 and no deferred lease incentives during the same period last year.
Supplemental balance sheet disclosures:
Operating leases Classification September 25, 2022 December 26, 2021
Right-of-use assets Operating lease assets $ 149,036  $ 148,444 
Deferred rent payments Operating lease liability 107  447 
Current lease liabilities Operating lease liability 12,296  12,556 
12,403  13,003 
Deferred rent payments Operating lease liability, less current portion 89  152 
Non-current lease liabilities Operating lease liability, less current portion 185,354  188,583 
185,443  188,735 
Total lease liabilities $ 197,846  $ 201,738 
Weighted average remaining lease term (in years) 12.9 13.0
Weighted average discount rate 7.6  % 7.7%
Future minimum rent payments for our operating leases for the next five years as of September 25, 2022 are as follows:
Fiscal year ending:
Remainder of 2022 $ 6,696 
2023 26,603 
2024 25,960 
2025 26,075 
2026 25,095 
Thereafter 198,824 
Total minimum lease payments 309,253 
Less: imputed interest 111,407 
Present value of lease liabilities $ 197,846 
As of September 25, 2022, operating lease payments exclude approximately $3.8 million of legally binding minimum lease payments for leases signed but which we have not yet commenced payments