Leases

12 Months Ended

Jan. 02, 2022

Leases [Abstract]

Leases

Leases

The Company has various lease agreements related to real estate, vehicles and equipment. Its operating leases include real estate (buildings and ground), vehicles and equipment. Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future lease payments over the term. The operating lease right-of-use asset also includes accrued lease expense resulting from the straight-line accounting under prior accounting methods, which is now being amortized over the remaining life of the lease.

The Company is the lessee on a number of ground leases and multiple building leases, which were classified as operating leases under ASC 840. As the Company elected the package of practical expedients, the Company was not required to reassess the classification of these existing leases and as such, these leases continue to be accounted for as operating leases. In the event the Company modifies the existing leases or enters into new ground or building leases in the future, such leases may be classified as finance leases.

The Company’s finance leases relate primarily to vehicles and equipment. The lease payments are largely fixed in nature. The Company is generally obligated for the cost of property taxes, insurance and common area maintenance relating to its leases, which are variable in nature. The Company determines the variable payments based on invoiced amounts from lessors. The Company has elected to not apply the recognition requirements to leases of 12 months or less. These leases will be expensed on a straight-line basis, and no operating lease liability will be recorded.

The Company included the following amounts related to operating and finance lease assets and liabilities within the Consolidated Balance Sheets:

		As of
		January 2, 2022		January 3, 2021
Assets	Classification
Operating lease	Operating lease right of use asset, net	$	435,168	$	399,688
Finance lease	Property and equipment, net	19,298		23,556
Total leased assets		$	454,466	$	423,244
Liabilities
Current
Operating lease	Current operating lease liabilities	$	50,359	$	45,675
Finance lease	Current portion of long-term debt	1,583		6,245
Noncurrent
Operating lease	Noncurrent operating lease liabilities	415,208		376,099
Finance lease	Long-term debt, less current portion	22,890		19,979
Total leased liabilities		$	490,040	$	447,998

The Company has long-term contractual obligations primarily in the form of lease obligations related to Company-operated restaurants and franchised restaurants. Interest expense associated with the finance lease obligations is computed using the incremental borrowing rate at the time the lease is entered into and is based on the amount of the outstanding lease obligation.

The weighted-average remaining lease term and weighted-average discount rate for operating and finance leases were as follows:

	As of
	January 2, 2022		January 3, 2021
Weighted average remaining lease term:
Operating lease	11.6 years		11.1 years
Finance lease	13.8 years		12.0 years
Weighted average discount rate:
Operating lease	6.65	%	6.94	%
Finance lease	7.13	%	7.13	%

Lease costs were as follows:

		Fiscal Years Ended
		January 2, 2022		January 3, 2021		December 29, 2019
Lease cost	Classification
Operating lease cost	Selling, general and administrative expense	$	2,481	$	3,127	$	2,816
Operating lease cost	Operating expenses	85,429		70,855		45,732
Short-term lease cost	Operating expenses	2,513		2,867		1,850
Variable lease costs	Operating expenses	16,414		9,195		13,161
Sublease income	Royalties and other revenues	(386)		(506)		(480)
Finance lease cost:
Amortization of right-of-use assets	Depreciation and amortization expense	$	3,217	$	2,587	$	2,469
Interest on lease liabilities	Interest expense, net	2,002		2,040		1,915

Supplemental disclosures of cash flow information related to leases were as follows:

	Fiscal Years Ended
	January 2, 2022		January 3, 2021		December 29, 2019
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	91,967	$	78,465	$	59,227
Operating cash flows for finance leases	1,916		1,781		1,914
Financing cash flows for finance leases	4,901		3,694		1,290
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases	$	95,284	$	74,979	$	135,163
Finance leases	2,328		7,500		5,062

A majority of the leases include options to extend the lease. If the Company is reasonably certain to exercise an option to extend a lease, the extension period is included as part of the right-of-use asset and the lease liability. Some of the leases include an option to early terminate the lease. Leases with an early termination option generally involve a termination payment. For the fiscal years ending January 2, 2022, January 3, 2021, and December 29, 2019 the Company recorded lease termination costs of $0.6 million, $4.4 million and $2.6 million, respectively. Correspondingly, the right-of-use assets were reduced by $0.6 million, $4.4 million and $2.6 million, respectively.

The Company’s leases do not contain restrictions or covenants that restrict the Company from incurring other financial obligations. The Company also does not provide any residual value guarantees for the leases or have any significant leases that have yet to be commenced.

At the inception of the contract, management determines if the contract is or contains a lease. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The incremental borrowing rate (“IBR”) reflects a fully secured rate based on the credit rating taking into consideration the repayment timing of the lease and any impacts due to the economic environment in which the lease operates. The estimate of the incremental borrowing rate reflects considerations such as market rates for the outstanding debt, interpolations of rates for leases with terms that differ from the outstanding debt, and market rates for debt of companies with similar credit ratings.

Future lease commitments to be paid by the Company as of January 2, 2022 were as follows:

Fiscal year	Operating Leases		Finance Leases
2022	$	80,268	$	3,275
2023	67,952		2,728
2024	63,907		2,588
2025	58,440		2,605
2026	56,505		2,824
Thereafter	395,510		25,846
Total lease payments	722,582		39,866
Less: interest	(257,015)		(15,393)
Present value of lease liabilities	$	465,567	$	24,473

In December 2021, the Company completed a sale-leaseback transaction whereby it disposed of the land at four real estate properties for proceeds of $11.1 million. The Company subsequently leased back the properties, which are accounted for as operating leases. The Company recognized a gain on sale of $8.7 million, which is included in Other (income)/expenses, net on the Consolidated Statement of Operations.

Leases

Leases

The Company has various lease agreements related to real estate, vehicles and equipment. Its operating leases include real estate (buildings and ground), vehicles and equipment. Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future lease payments over the term. The operating lease right-of-use asset also includes accrued lease expense resulting from the straight-line accounting under prior accounting methods, which is now being amortized over the remaining life of the lease.

The Company is the lessee on a number of ground leases and multiple building leases, which were classified as operating leases under ASC 840. As the Company elected the package of practical expedients, the Company was not required to reassess the classification of these existing leases and as such, these leases continue to be accounted for as operating leases. In the event the Company modifies the existing leases or enters into new ground or building leases in the future, such leases may be classified as finance leases.

The Company’s finance leases relate primarily to vehicles and equipment. The lease payments are largely fixed in nature. The Company is generally obligated for the cost of property taxes, insurance and common area maintenance relating to its leases, which are variable in nature. The Company determines the variable payments based on invoiced amounts from lessors. The Company has elected to not apply the recognition requirements to leases of 12 months or less. These leases will be expensed on a straight-line basis, and no operating lease liability will be recorded.

The Company included the following amounts related to operating and finance lease assets and liabilities within the Consolidated Balance Sheets:

		As of
		January 2, 2022		January 3, 2021
Assets	Classification
Operating lease	Operating lease right of use asset, net	$	435,168	$	399,688
Finance lease	Property and equipment, net	19,298		23,556
Total leased assets		$	454,466	$	423,244
Liabilities
Current
Operating lease	Current operating lease liabilities	$	50,359	$	45,675
Finance lease	Current portion of long-term debt	1,583		6,245
Noncurrent
Operating lease	Noncurrent operating lease liabilities	415,208		376,099
Finance lease	Long-term debt, less current portion	22,890		19,979
Total leased liabilities		$	490,040	$	447,998

The Company has long-term contractual obligations primarily in the form of lease obligations related to Company-operated restaurants and franchised restaurants. Interest expense associated with the finance lease obligations is computed using the incremental borrowing rate at the time the lease is entered into and is based on the amount of the outstanding lease obligation.

The weighted-average remaining lease term and weighted-average discount rate for operating and finance leases were as follows:

	As of
	January 2, 2022		January 3, 2021
Weighted average remaining lease term:
Operating lease	11.6 years		11.1 years
Finance lease	13.8 years		12.0 years
Weighted average discount rate:
Operating lease	6.65	%	6.94	%
Finance lease	7.13	%	7.13	%

Lease costs were as follows:

		Fiscal Years Ended
		January 2, 2022		January 3, 2021		December 29, 2019
Lease cost	Classification
Operating lease cost	Selling, general and administrative expense	$	2,481	$	3,127	$	2,816
Operating lease cost	Operating expenses	85,429		70,855		45,732
Short-term lease cost	Operating expenses	2,513		2,867		1,850
Variable lease costs	Operating expenses	16,414		9,195		13,161
Sublease income	Royalties and other revenues	(386)		(506)		(480)
Finance lease cost:
Amortization of right-of-use assets	Depreciation and amortization expense	$	3,217	$	2,587	$	2,469
Interest on lease liabilities	Interest expense, net	2,002		2,040		1,915

Supplemental disclosures of cash flow information related to leases were as follows:

	Fiscal Years Ended
	January 2, 2022		January 3, 2021		December 29, 2019
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	91,967	$	78,465	$	59,227
Operating cash flows for finance leases	1,916		1,781		1,914
Financing cash flows for finance leases	4,901		3,694		1,290
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases	$	95,284	$	74,979	$	135,163
Finance leases	2,328		7,500		5,062

A majority of the leases include options to extend the lease. If the Company is reasonably certain to exercise an option to extend a lease, the extension period is included as part of the right-of-use asset and the lease liability. Some of the leases include an option to early terminate the lease. Leases with an early termination option generally involve a termination payment. For the fiscal years ending January 2, 2022, January 3, 2021, and December 29, 2019 the Company recorded lease termination costs of $0.6 million, $4.4 million and $2.6 million, respectively. Correspondingly, the right-of-use assets were reduced by $0.6 million, $4.4 million and $2.6 million, respectively.

The Company’s leases do not contain restrictions or covenants that restrict the Company from incurring other financial obligations. The Company also does not provide any residual value guarantees for the leases or have any significant leases that have yet to be commenced.

At the inception of the contract, management determines if the contract is or contains a lease. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The incremental borrowing rate (“IBR”) reflects a fully secured rate based on the credit rating taking into consideration the repayment timing of the lease and any impacts due to the economic environment in which the lease operates. The estimate of the incremental borrowing rate reflects considerations such as market rates for the outstanding debt, interpolations of rates for leases with terms that differ from the outstanding debt, and market rates for debt of companies with similar credit ratings.

Future lease commitments to be paid by the Company as of January 2, 2022 were as follows:

Fiscal year	Operating Leases		Finance Leases
2022	$	80,268	$	3,275
2023	67,952		2,728
2024	63,907		2,588
2025	58,440		2,605
2026	56,505		2,824
Thereafter	395,510		25,846
Total lease payments	722,582		39,866
Less: interest	(257,015)		(15,393)
Present value of lease liabilities	$	465,567	$	24,473

In December 2021, the Company completed a sale-leaseback transaction whereby it disposed of the land at four real estate properties for proceeds of $11.1 million. The Company subsequently leased back the properties, which are accounted for as operating leases. The Company recognized a gain on sale of $8.7 million, which is included in Other (income)/expenses, net on the Consolidated Statement of Operations.