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LEASES | 3 Months Ended
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Mar. 31, 2021
Leases [Abstract] |
LEASES | LEASES Nature of Leases We currently lease all of our domestic Company-operated Shacks, our home office and certain equipment under various non-cancelable lease agreements that expire on various dates through 2037. We evaluate contracts entered into to determine whether the contract involves the use of property or equipment, which is either explicitly or implicitly identified in the contract. We evaluate whether we control the use of the asset, which is determined by assessing whether we obtain substantially all economic benefits from the use of the asset, and whether we have the right to direct the use of the asset. If these criteria are met and we have identified a lease, we account for the contract under the requirements of Accounting Standards Codification Topic 842 ("ASC 842"). Upon the possession of a leased asset, we determine its classification as an operating or finance lease. Our real estate leases are classified as operating leases and most of our equipment leases are classified as finance leases. Generally, our real estate leases have initial terms ranging from 10 to 15 years and typically include two five-year renewal options. Renewal options are generally not recognized as part of the right-of-use assets and lease liabilities as it is not reasonably certain at commencement date that we would exercise the options to extend the lease. Our real estate leases typically provide for fixed minimum rent payments and/or contingent rent payments based upon sales in excess of specified thresholds. When the achievement of such sales thresholds are deemed to be probable, contingent rent is accrued in proportion to the sales recognized during the period. Fixed minimum rent payments are recognized on a straight-line basis over the lease term from the date we take possession of the leased property. Lease expense incurred before a Shack opens is recorded in Pre-opening costs on the Condensed Consolidated Statements of Income (Loss). Once a domestic Company-operated Shack opens, we record the straight-line lease expense and any contingent rent, if applicable, in Occupancy and related expenses on the Condensed Consolidated Statements of Income (Loss). Many of our leases also require us to pay real estate taxes, common area maintenance costs and other occupancy costs which are included in Occupancy and related expenses on the Condensed Consolidated Statements of Income (Loss). As there are no explicit rates provided in our leases, we use our incremental borrowing rate in determining the present value of future lease payments. The discount rate used to measure the lease liability is derived from the average of the yield curves obtained from using the notching method and the recovery rate method. The most significant assumption in calculating the incremental borrowing rate is our credit rating and is subject to judgment. We determined our credit rating based on a comparison of the financial information of SSE Holdings to other public companies and then used their respective credit ratings to develop our own. We expend cash for leasehold improvements to build out and equip our leased premises. Generally, a portion of the leasehold improvements and building costs are reimbursed by our landlords as landlord incentives pursuant to agreed-upon terms in our lease agreements. If obtained, landlord incentives usually take the form of cash, full or partial credits against our future minimum or contingent rents otherwise payable by us, or a combination thereof. In most cases, landlord incentives are received after we take possession of the property, as we meet required milestones during the construction of the property. We include these amounts in the measurement of the initial operating lease liability, which are also reflected as a reduction to the initial measurement of the right-of-use asset. A summary of finance and operating lease right-of-use assets and liabilities as of March 31, 2021 and December 30, 2020 is as follows:
| Classification | March 31 2021 |  | December 30 2020
Finance leases | Property and equipment, net | $ | 6,315 |  |  | $ | 5,409 |
Operating leases | Operating lease assets | 312,087 |  |  | 306,317 |
Total right-of-use assets |  | $ | 318,402 |  |  | $ | 311,726 |
Finance leases: |  |  |  |
| Other current liabilities | $ | 2,445 |  |  | $ | 1,998 |
| Other long-term liabilities | 4,056 |  |  | 3,586 |
Operating leases: |  |  |  |
| Operating lease liabilities, current | 37,275 |  |  | 35,657 |
| Long-term operating lease liabilities | 349,670 |  |  | 343,736 |
Total lease liabilities |  | $ | 393,446 |  |  | $ | 384,977 |
The components of lease expense for the thirteen weeks ended March 31, 2021 and March 25, 2020 was as follows:
|  |  | Thirteen Weeks Ended |  |
|  | Classification | March 31 2021 |  | March 25 2020 |  |  |  |
Finance lease cost: |  |  |  |  |  |  |  |
| Amortization of right-of-use assets | Depreciation expense | $ | 613 |  |  | $ | 577 |  |  |  |  |
| Interest on lease liabilities | Interest expense | 54 |  |  | 55 |  |  |  |  |
Operating lease cost | Occupancy and related expenses Pre-opening costs General and administrative expenses | 12,330 |  |  | 10,742 |  |  |  |  |
Short-term lease cost | Occupancy and related expenses | 82 |  |  | 124 |  |  |  |  |
Variable lease cost | Occupancy and related expenses Pre-opening costs General and administrative expenses | 2,851 |  |  | 3,730 |  |  |  |  |
Total lease cost |  | $ | 15,930 |  |  | $ | 15,228 |  |  |  |  |
As of March 31, 2021, future minimum lease payments for finance and operating leases consisted of the following:
| Finance Leases |  | Operating Leases
2021 | $ | 2,023 |  |  | $ | 35,013 |
2022 | 2,183 |  |  | 53,111 |
2023 | 1,326 |  |  | 56,121 |
2024 | 689 |  |  | 55,896 |
2025 | 438 |  |  | 54,853 |
Thereafter | 289 |  |  | 246,023 |
Total minimum payments | 6,948 |  |  | 501,017 |
Less: imputed interest | 447 |  |  | 114,072 |
Total lease liabilities | $ | 6,501 |  |  | $ | 386,945 |
As of March 31, 2021 we had additional operating lease commitments of $55,964 for non-cancelable leases without a possession date, which will begin to commence in 2021. These lease commitments are consistent with the leases that we have executed thus far. A summary of lease terms and discount rates for finance and operating leases as of March 31, 2021 and December 30, 2020 is as follows:
|  | March 31 2021 |  | December 30 2020 |  |
Weighted-average remaining lease term (years): |  |  |  |  |
| Finance leases | 5.5 |  | 5.2 |  |
| Operating leases | 9.6 |  | 9.7 |  |
Weighted-average discount rate: |  |  |  |  |
| Finance leases | 3.5 | % |  | 3.6 | % |  |
| Operating leases | 3.9 | % |  | 4.2 | % |  |
Supplemental cash flow information related to leases for the thirteen weeks ended March 31, 2021 and March 25, 2020 is as follows:
|  | Thirteen Weeks Ended |  |
|  | March 31 2021 |  | March 25 2020 |  |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |  |
| Operating cash flows from finance leases | 54 |  |  | $ | 55 |  |  |
| Operating cash flows from operating leases | 11,825 |  |  | 11,329 |  |  |
| Financing cash flows from finance leases | 602 |  |  | 559 |  |  |
Right-of-use assets obtained in exchange for lease obligations: |  |  |  |  |
| Finance leases | 1,518 |  |  | 716 |  |  |
| Operating leases | 11,095 |  |  | 28,035 |  |  |
LEASES | LEASES Nature of Leases We currently lease all of our domestic Company-operated Shacks, our home office and certain equipment under various non-cancelable lease agreements that expire on various dates through 2037. We evaluate contracts entered into to determine whether the contract involves the use of property or equipment, which is either explicitly or implicitly identified in the contract. We evaluate whether we control the use of the asset, which is determined by assessing whether we obtain substantially all economic benefits from the use of the asset, and whether we have the right to direct the use of the asset. If these criteria are met and we have identified a lease, we account for the contract under the requirements of Accounting Standards Codification Topic 842 ("ASC 842"). Upon the possession of a leased asset, we determine its classification as an operating or finance lease. Our real estate leases are classified as operating leases and most of our equipment leases are classified as finance leases. Generally, our real estate leases have initial terms ranging from 10 to 15 years and typically include two five-year renewal options. Renewal options are generally not recognized as part of the right-of-use assets and lease liabilities as it is not reasonably certain at commencement date that we would exercise the options to extend the lease. Our real estate leases typically provide for fixed minimum rent payments and/or contingent rent payments based upon sales in excess of specified thresholds. When the achievement of such sales thresholds are deemed to be probable, contingent rent is accrued in proportion to the sales recognized during the period. Fixed minimum rent payments are recognized on a straight-line basis over the lease term from the date we take possession of the leased property. Lease expense incurred before a Shack opens is recorded in Pre-opening costs on the Condensed Consolidated Statements of Income (Loss). Once a domestic Company-operated Shack opens, we record the straight-line lease expense and any contingent rent, if applicable, in Occupancy and related expenses on the Condensed Consolidated Statements of Income (Loss). Many of our leases also require us to pay real estate taxes, common area maintenance costs and other occupancy costs which are included in Occupancy and related expenses on the Condensed Consolidated Statements of Income (Loss). As there are no explicit rates provided in our leases, we use our incremental borrowing rate in determining the present value of future lease payments. The discount rate used to measure the lease liability is derived from the average of the yield curves obtained from using the notching method and the recovery rate method. The most significant assumption in calculating the incremental borrowing rate is our credit rating and is subject to judgment. We determined our credit rating based on a comparison of the financial information of SSE Holdings to other public companies and then used their respective credit ratings to develop our own. We expend cash for leasehold improvements to build out and equip our leased premises. Generally, a portion of the leasehold improvements and building costs are reimbursed by our landlords as landlord incentives pursuant to agreed-upon terms in our lease agreements. If obtained, landlord incentives usually take the form of cash, full or partial credits against our future minimum or contingent rents otherwise payable by us, or a combination thereof. In most cases, landlord incentives are received after we take possession of the property, as we meet required milestones during the construction of the property. We include these amounts in the measurement of the initial operating lease liability, which are also reflected as a reduction to the initial measurement of the right-of-use asset. A summary of finance and operating lease right-of-use assets and liabilities as of March 31, 2021 and December 30, 2020 is as follows:
| Classification | March 31 2021 |  | December 30 2020
Finance leases | Property and equipment, net | $ | 6,315 |  |  | $ | 5,409 |
Operating leases | Operating lease assets | 312,087 |  |  | 306,317 |
Total right-of-use assets |  | $ | 318,402 |  |  | $ | 311,726 |
Finance leases: |  |  |  |
| Other current liabilities | $ | 2,445 |  |  | $ | 1,998 |
| Other long-term liabilities | 4,056 |  |  | 3,586 |
Operating leases: |  |  |  |
| Operating lease liabilities, current | 37,275 |  |  | 35,657 |
| Long-term operating lease liabilities | 349,670 |  |  | 343,736 |
Total lease liabilities |  | $ | 393,446 |  |  | $ | 384,977 |
The components of lease expense for the thirteen weeks ended March 31, 2021 and March 25, 2020 was as follows:
|  |  | Thirteen Weeks Ended |  |
|  | Classification | March 31 2021 |  | March 25 2020 |  |  |  |
Finance lease cost: |  |  |  |  |  |  |  |
| Amortization of right-of-use assets | Depreciation expense | $ | 613 |  |  | $ | 577 |  |  |  |  |
| Interest on lease liabilities | Interest expense | 54 |  |  | 55 |  |  |  |  |
Operating lease cost | Occupancy and related expenses Pre-opening costs General and administrative expenses | 12,330 |  |  | 10,742 |  |  |  |  |
Short-term lease cost | Occupancy and related expenses | 82 |  |  | 124 |  |  |  |  |
Variable lease cost | Occupancy and related expenses Pre-opening costs General and administrative expenses | 2,851 |  |  | 3,730 |  |  |  |  |
Total lease cost |  | $ | 15,930 |  |  | $ | 15,228 |  |  |  |  |
As of March 31, 2021, future minimum lease payments for finance and operating leases consisted of the following:
| Finance Leases |  | Operating Leases
2021 | $ | 2,023 |  |  | $ | 35,013 |
2022 | 2,183 |  |  | 53,111 |
2023 | 1,326 |  |  | 56,121 |
2024 | 689 |  |  | 55,896 |
2025 | 438 |  |  | 54,853 |
Thereafter | 289 |  |  | 246,023 |
Total minimum payments | 6,948 |  |  | 501,017 |
Less: imputed interest | 447 |  |  | 114,072 |
Total lease liabilities | $ | 6,501 |  |  | $ | 386,945 |
As of March 31, 2021 we had additional operating lease commitments of $55,964 for non-cancelable leases without a possession date, which will begin to commence in 2021. These lease commitments are consistent with the leases that we have executed thus far. A summary of lease terms and discount rates for finance and operating leases as of March 31, 2021 and December 30, 2020 is as follows:
|  | March 31 2021 |  | December 30 2020 |  |
Weighted-average remaining lease term (years): |  |  |  |  |
| Finance leases | 5.5 |  | 5.2 |  |
| Operating leases | 9.6 |  | 9.7 |  |
Weighted-average discount rate: |  |  |  |  |
| Finance leases | 3.5 | % |  | 3.6 | % |  |
| Operating leases | 3.9 | % |  | 4.2 | % |  |
Supplemental cash flow information related to leases for the thirteen weeks ended March 31, 2021 and March 25, 2020 is as follows:
|  | Thirteen Weeks Ended |  |
|  | March 31 2021 |  | March 25 2020 |  |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |  |
| Operating cash flows from finance leases | 54 |  |  | $ | 55 |  |  |
| Operating cash flows from operating leases | 11,825 |  |  | 11,329 |  |  |
| Financing cash flows from finance leases | 602 |  |  | 559 |  |  |
Right-of-use assets obtained in exchange for lease obligations: |  |  |  |  |
| Finance leases | 1,518 |  |  | 716 |  |  |
| Operating leases | 11,095 |  |  | 28,035 |  |  |

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- Definition The entire disclosure for finance leases of lessee. Includes, but is not limited to, description of lessee's finance lease and maturity analysis of finance lease liability. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 842 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=77888251 + Details
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- Definition The entire disclosure for operating leases of lessee. Includes, but is not limited to, description of operating lease and maturity analysis of operating lease liability. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 842 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=77888251 + Details
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