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Leases | 9 Months Ended
--- | ---
Sep. 29, 2019
Leases |
Leases | 4. Leases ​ The Company has significant leases that include most domestic Company-owned restaurant and commissary locations. Other domestic leases include tractor and trailer leases used by our distribution subsidiary as well as commissary equipment. Additionally, the Company leases a significant number of restaurants within the United Kingdom; these restaurants are then subleased to the franchisees. The Company’s leases have terms as follows: ​
​ | ​
​ | Average lease term
Domestic Company-owned restaurants | Five years, plus at least one renewal
United Kingdom franchise-owned restaurants | 15 years
Domestic commissary locations | 10 years, plus at least one renewal
Domestic and international tractors and trailers | Five to seven years
Domestic and international commissary and office equipment | Three to five years
​ All leases entered into prior to the adoption of ASC 842 were classified as operating leases. During the third quarter of 2019, the Company entered into new domestic tractor and trailer leases. These leases are classified as finance leases and are included in the Finance lease right-of-use assets, net, Current finance lease liabilities, and Long-term finance lease liabilities captions on the Company’s Condensed Consolidated Balance Sheet. ​ The Company determines if an arrangement is or contains a lease at contract inception and recognizes a right-of-use asset and a lease liability at the lease commencement date. Leases with an initial term of 12 months or less but greater than one month are not recorded on the balance sheet for select asset classes. The lease liability is measured at the present value of future lease payments as of the lease commencement date, or the opening balance sheet date for leases existing at adoption of Topic 842. The right-of-use asset recognized is based on the lease liability adjusted for prepaid and deferred rent and unamortized lease incentives. An operating lease right-of-use asset is amortized on a straight-line basis over the lease term and is recognized as a single lease cost against the operating lease liability. A finance lease right-of-use asset is amortized on a straight-line basis, with interest costs reported separately, over the lesser of the useful life of the leased asset or lease term. ​ Certain leases provide that the lease payments may be increased annually based on the fixed rate terms or adjustable terms such as the Consumer Price Index. Future base rent escalations that are not contractually quantifiable as of the lease commencement date are not included in our lease liability. ​ The following schedule details the total right-of-use assets and lease liabilities on the Condensed Consolidated Balance Sheet as of September 29, 2019 and the date of adoption on December 31, 2018 (in thousands): ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | September 29, | ​ | ​ | December 31,
Leases | Classification | ​ | ​ | 2019 | ​ | ​ | 2018
Assets | ​ | ​ | ​ | ​ | ​ | ​ | ​
Finance lease assets, net | Finance lease right-of-use assets, net | ​ | $ | 9,870 | ​ | $ | —
Operating lease assets, net | Operating lease right-of-use assets | ​ | ​ | 144,881 | ​ | ​ | 161,027
Operating lease assets, net | Assets held for sale | ​ | ​ | 2,336 | ​ | ​ | —
Total lease assets | ​ | ​ | $ | 157,087 | ​ | $ | 161,027
Liabilities | ​ | ​ | ​ | ​ | ​ | ​ | ​
Current finance lease liabilities | Current finance lease liabilities | ​ | $ | 1,748 | ​ | $ | —
Current operating lease liabilities | Current operating lease liabilities | ​ | ​ | 23,701 | ​ | ​ | 25,348
Noncurrent finance lease liabilities | Long-term finance lease liabilities | ​ | ​ | 8,083 | ​ | ​ | —
Noncurrent operating lease liabilities | Long-term operating lease liabilities | ​ | ​ | 121,320 | ​ | ​ | 137,511
Operating lease liabilities held for sale | Accrued expenses and other current liabilities | ​ | ​ | 2,420 | ​ | ​ | —
Total lease liabilities | ​ | ​ | $ | 157,272 | ​ | $ | 162,859
​ Lease expense for lease payments is recognized on a straight-line basis over the lease term. Lease expense is comprised of operating and finance lease costs, short-term lease costs, and variable lease costs, which are primarily comprised of common area maintenance, real estate taxes, and insurance for the Company’s real estate leases. Lease costs also include variable rent, which is primarily related to the Company’s supply chain tractor and trailer leases that are based on a rate per mile. Lease expense for the three- and nine-month periods ended September 29, 2019 are as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | Three Months Ended | ​ | ​ | Nine Months Ended
(in thousands) | ​ | ​ | September 29, 2019 | ​ | ​ | September 29, 2019
Finance lease: | ​ | ​ | ​ | ​ | ​ | ​
Amortization of right-of-use assets | ​ | $ | 333 | ​ | $ | 333
Interest on lease liabilities | ​ | ​ | 108 | ​ | ​ | 108
Operating lease: | ​ | ​ | ​ | ​ | ​ | ​
Operating lease cost | ​ | ​ | 10,402 | ​ | ​ | 31,816
Short-term lease cost | ​ | ​ | 679 | ​ | ​ | 2,308
Variable lease cost | ​ | ​ | 2,203 | ​ | ​ | 6,945
Total lease costs | ​ | $ | 13,725 | ​ | $ | 41,510
Sublease income | ​ | ​ | (2,613) | ​ | ​ | (7,778)
Total lease costs, net of sublease income | ​ | $ | 11,112 | ​ | $ | 33,732
​ Future minimum lease payments and sublease income under contractually-obligated leases as of September 29, 2019 were as follows (in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Fiscal Year | ​ | Finance Lease Costs | ​ | Operating Lease Costs | ​ | Expected Sublease Income
Remainder of 2019 | ​ | $ | 579 | ​ | $ | 7,027 | ​ | $ | 2,195
2020 | ​ | ​ | 2,315 | ​ | ​ | 35,946 | ​ | ​ | 8,772
2021 | ​ | ​ | 2,315 | ​ | ​ | 31,420 | ​ | ​ | 8,419
2022 | ​ | ​ | 2,315 | ​ | ​ | 26,005 | ​ | ​ | 8,073
2023 | ​ | ​ | 2,315 | ​ | ​ | 20,345 | ​ | ​ | 7,782
Thereafter | ​ | ​ | 1,605 | ​ | ​ | 72,167 | ​ | ​ | 47,687
Total future minimum lease payments | ​ | ​ | 11,444 | ​ | ​ | 192,910 | ​ | ​ | 82,928
Less imputed interest | ​ | ​ | (1,613) | ​ | ​ | (45,469) | ​ | ​ | —
Less lease liabilities held for sale (1) | ​ | ​ | — | ​ | ​ | (2,420) | ​ | ​ | —
Total present value of Lease Liabilities | ​ | $ | 9,831 | ​ | $ | 145,021 | ​ | $ | 82,928
(1) | Operating lease liabilities of $2.4 million are separately reported in the Company’s Condensed Consolidated Balance Sheets under the caption “Accrued expenses and other current liabilities”.
Future minimum lease payments and sublease income under contractually-obligated leases as of December 30, 2018 were as follows (in thousands):
​ | ​ | ​ | ​ | ​ | ​ | ​
Fiscal Year | ​ | Operating Lease Costs | ​ | Expected Sublease Income
2019 | ​ | $ | 40,834 | ​ | $ | 8,079
2020 | ​ | ​ | 36,631 | ​ | ​ | 8,061
2021 | ​ | ​ | 31,159 | ​ | ​ | 7,818
2022 | ​ | ​ | 25,188 | ​ | ​ | 7,462
2023 | ​ | ​ | 18,694 | ​ | ​ | 7,182
Thereafter | ​ | ​ | 57,304 | ​ | ​ | 42,518
Total future minimum lease payments | ​ | $ | 209,810 | ​ | $ | 81,120
​ Lessor Operating Leases We sublease certain retail space to our franchisees in the United Kingdom which are primarily operating leases. At September 29, 2019, we leased and subleased approximately 370 Papa John’s restaurants to franchisees in the United Kingdom. The initial lease terms on the franchised sites in the United Kingdom are generally 15 years. The Company has the option to negotiate an extension toward the end of the lease term at the landlord’s discretion. Rental income, primarily derived from properties leased and subleased to franchisees in the United Kingdom, is recognized on a straight-line basis over the respective operating lease terms, in accordance with Topic 842, similar to previous guidance. Lease Guarantees As a result of assigning our interest in obligations under property leases as a condition of the refranchising of certain restaurants, we are contingently liable for payment of approximately 103 domestic leases. These leases have varying terms, the latest of which expires in 2033. As of September 29, 2019, the estimated maximum amount of undiscounted payments the Company could be required to make in the event of nonpayment by the primary lessees was $14.8 million. This contingent liability is not included in the Condensed Consolidated Balance Sheet or future minimum lease obligation. The fair value of the guarantee is not material. ​ There were no leases recorded between related parties. ​ Supplemental Cash Flow & Other Information ​ Supplemental cash flow information related to leases for the periods reported is as follows: ​
​ | ​ | ​
​ | ​ | Nine Months Ended
(in thousands, except for weighted-average amounts) | ​ | September 29, 2019
Cash paid for amounts included in the measurement of lease liabilities: | ​ | ​
Operating cash flows from finance leases | $ | 108
Financing cash flows from finance leases | ​ | 371
Operating cash flows from operating leases | ​ | 30,342
Right-of-use assets obtained in exchange for new finance lease liabilities | ​ | 10,203
Right-of-use assets obtained in exchange for new operating lease liabilities | ​ | 13,335
Cash received from sublease income | ​ | 7,196
​ | ​ | ​
Weighted-average remaining lease term (in years): | ​ | ​
Finance leases | ​ | 5.03
Operating leases | ​ | 6.98
Weighted-average discount rate: | ​ | ​
Finance leases | ​ | 6.40%
Operating leases | ​ | 6.93%
​

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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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