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Leases

12 Months Ended

Dec. 28, 2021

The Company leases restaurant facilities, office space and certain equipment that expire on various dates through September 2037. 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.

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. Total rent expense for operating leases for 2021, 2020 and 2019 was approximately $39.1 million, $39.9 million and $40.8 million, respectively.

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. Lease expense associated with rent escalation and contingent rental provisions is not material and is included within operating lease cost. 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.

During 2020, the onset of the COVID-19 pandemic impacted the Company’s business significantly, including temporary closures of our dining rooms starting in March 2020. During the second and third quarters of 2020, we were able to negotiate with the majority of our landlords to obtain rent abatements or defer rent amounts due during the second quarter, and in some cases, the periods of the respective lease terms were extended earlier than as proscribed in the lease as part of the rent concessions. In the case where the lease term was extended, we remeasured the remaining consideration in the contract. The total rent that was deferred for lease amendments that has been executed through December 29, 2020 was $4.4 million and $0.3 million was recognized as a reduction to lease expense in fiscal 2020. In addition, the COVID-19 pandemic has had an impact to the

underlying asset values for certain of our restaurants. The Company recorded right-of-use asset impairment charges on one restaurant in 2021 and four restaurants in 2020 which reduced the carrying value of operating lease assets to their respective estimated fair value by $0.1 million and $0.5 million, respectively.

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


Classification		2021		2020
Assets
Operating	Operating lease assets, net	$	188,440	$	195,618
Finance	Property and equipment	6,394		7,822
Total leased assets		$	194,834	$	203,440
Liabilities
Current lease liabilities
Operating	Current operating lease liabilities	$	26,617	$	26,094
Finance	Accrued expenses and other current liabilities	1,956		1,800
Long-term lease liabilities
Operating	Long-term operating lease liabilities	200,243		210,454
Finance	Other long-term liabilities	4,654		6,056
Total lease liabilities		$	233,470	$	244,404

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


		Year Ended		Year Ended
Classification		December 28, 2021		December 29, 2020
Operating lease cost	Occupancy, other restaurant operating costs, general and administrative expenses, and pre-opening costs	$	39,075	$	39,870
	Closure costs, loss on disposals and other	1,598		1,309
Finance lease cost
Amortization of lease assets	Depreciation and amortization	2,128		1,142
Interest on lease liabilities	Interest expense, net	487		163
		43,288		42,484
Sublease income	Franchising royalties and fees, and other	(1,832)		(1,266)
Total lease cost, net		$	41,456	$	41,218

Future minimum lease payments required under existing leases as of December 28, 2021 are as follows (in thousands):


	Operating Leases		Finance Leases		Total
2022	$	42,403	$	2,475	$	44,878
2023	42,392		2,100		44,492
2024	40,606		1,898		42,504
2025	39,017		808		39,825
2026	35,690		15		35,705
Thereafter	108,861		21		108,882
Total lease payments	308,969		7,317		316,286
Less: Imputed interest	82,109		707		82,816
Present value of lease liabilities	$	226,860	$	6,610	$	233,470

Operating lease payments include $111.4 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $1.9 million of legally binding minimum lease payments for leases signed but not yet commenced.

Lease term and discount rate are as follows:


	December 28, 2021		December 29, 2020
Weighted average remaining lease term (years):
Operating	8.1		8.5
Finance	3.4		4.2
Weighted average discount rate:
Operating	8.2	%	8.6	%
Finance	6.5	%	6.8	%

Supplemental disclosures of cash flow information related to leases are as follows (in thousands):


Cash paid for lease liabilities:	2021		2020
Operating leases	$	42,231	$	39,864
Finance leases	2,413		1,240
	$	44,644	$	41,104
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases	$	15,642	$	8,310
Finance leases	701		8,291
	$	16,343	$	16,601

Leases