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Leases

3 Months Ended

Apr. 02, 2019

The Company leases restaurant facilities, office space and certain equipment that expire on various dates through September 2034. Lease terms for restaurants in traditional shopping centers generally include a base term of 10 years, with options to extend these leases for additional periods of five to 15 years. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.

The Company’s leases typically contain rent escalations over the lease term. The Company recognizes expense for these leases on a straight-line basis over the lease term. Additionally, tenant incentives used to fund leasehold improvements are recognized when earned and reduce the right-of-use asset related to the lease. These are amortized through the right-of-use asset as reductions of expense over the lease term.

Some of the Company’s leases include rent escalations based on inflation indexes and fair market value adjustments. Certain leases contain contingent rental provisions that include a fixed base rent plus an additional percentage of the restaurant’s sales in excess of stipulated amounts. Operating lease liabilities are calculated using the prevailing index or rate at lease commencement. Subsequent escalations in the index or rate and contingent rental payments are recognized as variable lease expenses. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company elected the practical expedient to account for lease and non-lease components as a single component for substantially all lease types.

As most of the Company’s leases do not provide an implicit rate, the Company used its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

Supplemental balance sheet information related to leases is as follows (in thousands):



Classification		April 2, 2019
Assets
Operating	Operating lease assets, net	$	218,311
Finance	Finance lease assets, net ⁽¹⁾	1,057
Total leased assets		$	219,368
Liabilities
Current lease liabilities
Operating	Current operating lease liabilities	$	21,528
Finance	Current finance lease liabilities ⁽²⁾	811
Long-term lease liabilities
Operating	Long-term operating lease liabilities	237,341
Finance	Long-term finance lease liabilities ⁽²⁾	271
Total lease liabilities		$	259,951

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(1)	The finance lease assets are included in property and equipment, net in the Consolidated Balance Sheets.


(2)	The current portion of the finance lease liabilities is included in accrued expenses and other current liabilities, and the long-term portion is included in other long-term liabilities in the Consolidated Balance Sheets.

The components of lease costs are as follows (in thousands):



Classification		April 2, 2019
Operating lease cost	Occupancy, other restaurant operating costs, and general and administrative expenses	$	10,144
Finance lease cost
Amortization of lease assets	Depreciation and amortization	171
Interest on lease liabilities	Interest expense, net	20
		10,335
Sublease income	Franchising royalties and fees, and other	(112		)
Total lease cost, net		$	10,223

Future minimum lease payments required under existing leases as of April 2, 2019 are as follows (in thousands):



	Operating Leases		Finance Leases		Total
Remainder of 2019	$	32,178	$	497	$	32,675
2020	42,686		471		43,157
2021	42,188		151		42,339
2022	42,024		23		42,047
2023	40,695		14		40,709
Thereafter	182,453		9		182,462
Total lease payments	382,224		1,165		383,389
Less: Imputed interest	123,355		83		123,438
Present value of lease liabilities	$	258,869	$	1,082	$	259,951

Operating lease payments include $92.3 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $10.7 million of legally binding minimum lease payments for leases signed but not yet commenced.

Lease term and discount rate for the first quarter ended April 2, 2019 are as follows:



	April 2, 2019
Weighted average remaining lease term (years):
Operating	9.4
Finance	2.2
Weighted average discount rate:
Operating	8.66	%
Finance	7.11	%

Supplemental disclosures of cash flow information related to leases for the first quarter ended April 2, 2019 are as follows (in thousands):



	April 2, 2019
Cash paid for lease liabilities:
Operating leases	$	10,693
Finance leases	217
	$	10,910
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases	$	3,161
Finance leases	50
	$	3,211

Leases