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Leases
 9 Months Ended
Sep. 29, 2019
Leases [Abstract]  
Leases Leases

The Company’s determination of whether an arrangement contains a lease is based on an evaluation of whether the arrangement conveys the right to use and control specific property or equipment. The Company leases restaurant and office facilities and certain equipment under operating leases primarily having initial terms expiring between one and 20 years. Restaurant facility leases generally have renewal periods totaling five to 20 years, exercisable at the option of the Company. Contingent rentals represent payment of variable lease obligations based on a percentage of gross revenues, as defined by the terms of the applicable lease agreement for certain restaurant facility leases. The Company also has certain leases, which reset periodically based on a specified index. Such leases are recorded using the index that existed at lease commencement. Subsequent changes in the index are recorded as variable rental payments. Variable rental payments are expensed as incurred in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income and future variable rent obligations are not included within the lease liabilities on its Consolidated Balance Sheet. The depreciable life of lease assets and leasehold improvements are limited by the expected lease term. None of the Company’s leases contain any material residual value guarantees or material restrictive covenants.

For restaurant facility leases executed subsequent to the adoption of ASU No. 2016-02, the Company accounts for fixed lease and non-lease components as a single lease component. Additionally, for certain equipment leases, the Company applies a portfolio approach to account for the lease assets and liabilities. Leases with an initial term of 12 months or less are not recorded on its Consolidated Balance Sheet, they are recognized on a straight-line basis over the lease term within Other restaurant operating expense in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income.

The following table includes a detail of lease assets and liabilities included on the Company’s Consolidated Balance Sheet as of the period indicated:
(dollars in thousands)
CONSOLIDATED BALANCE SHEET CLASSIFICATION
 
SEPTEMBER 29, 2019
Operating lease right-of-use assets
Operating lease right-of-use assets
 
$
1,262,449

Finance lease right-of-use assets (1)
Property, fixtures and equipment, net
 
2,419

Total lease assets, net
 
 
$
1,264,868

 
 
 
 
Current operating lease liabilities (2)
Accrued and other current liabilities
 
$
170,849

Current finance lease liabilities
Current portion of long-term debt
 
1,498

Non-current operating lease liabilities
Non-current operating lease liabilities
 
1,273,904

Non-current finance lease liabilities
Long-term debt, net
 
1,204

Total lease liabilities
 
 
$
1,447,455

________________
(1)
Net of accumulated amortization of $1.0 million.
(2)
Excludes accrued contingent percentage rent.

Following is a summary of expenses and income related to leases recognized in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income for the periods indicated:
 
CONSOLIDATED INCOME STATEMENT CLASSIFICATION
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
 
SEPTEMBER 29, 2019
 
SEPTEMBER 29, 2019
Operating leases (1)
Other restaurant operating
 
$
45,948

 
$
136,260

Variable lease cost
Other restaurant operating
 
933

 
2,498

Finance leases
 
 
 
 
 
Amortization of leased assets
Depreciation and amortization
 
365

 
1,049

Interest on lease liabilities
Interest expense, net
 
64

 
209

Sublease revenue (2)
Franchise and other revenues
 
(1,747
)
 
(4,853
)
Lease costs, net (3)
 
 
$
45,563

 
$
135,163

________________
(1)
Excludes rent expense for office facilities and Company-owned closed or subleased properties for the thirteen and thirty-nine weeks ended September 29, 2019 of $3.8 million and $11.0 million, respectively, which is included in General and administrative expense and certain supply chain related rent expense of $0.3 million and $0.9 million, respectively, which is included in Cost of sales.
(2)
Excludes rental income from Company-owned properties for the thirteen and thirty-nine weeks ended September 29, 2019 of $0.4 million and $1.8 million, respectively.
(3)
During the thirteen and thirty-nine weeks ended September 30, 2018, the Company recorded rent expense of $45.8 million and $138.8 million, respectively, including variable rent expense of $1.1 million and $3.4 million, respectively, and sublease revenue of $1.6 million and $4.7 million, respectively.
As of September 29, 2019, future minimum lease payments and sublease revenues under non-cancelable leases are as follows:
(dollars in thousands)
OPERATING LEASES
 
FINANCE LEASES
 
SUBLEASE REVENUES
Year 1 (1)
$
178,221

 
$
1,558

 
$
(6,126
)
Year 2
191,533

 
1,051

 
(6,239
)
Year 3
186,926

 
331

 
(6,039
)
Year 4
183,602

 
4

 
(5,980
)
Year 5
177,890

 
4

 
(5,871
)
Thereafter
1,729,022

 
2

 
(64,988
)
Total minimum lease payments (receipts) (2)
$
2,647,194

 
$
2,950

 
$
(95,243
)
Less: Interest
(1,202,441
)
 
(248
)
 
 
Present value of future lease payments
$
1,444,753

 
$
2,702

 
 
____________________
(1)
Net of operating lease prepaid rent of $14.7 million.
(2)
Includes $1.0 billion related to options to extend operating lease terms and excludes $116.3 million of signed operating leases that have not yet commenced.

The following table is a summary of the weighted-average remaining lease terms and weighted-average discount rates of the Company’s leases as of the period indicated:
 
SEPTEMBER 29, 2019
Weighted-average remaining lease term (1):
 
Operating leases
14.6 years

Finance leases
2.1 years

Weighted-average discount rate (2):
 
Operating leases
8.56
%
Finance leases
9.07
%
____________________
(1)
Includes lease renewal options that are reasonably certain of exercise.
(2)
Based on the Company’s incremental borrowing rate at lease commencement.

The following table is a summary of other impacts to the Company’s Consolidated Financial Statements related to its leases for the period indicated:
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 29, 2019
Cash flows from operating activities:
 
Cash paid for amounts included in the measurement of operating lease liabilities
$
143,630



Properties Leased to Third Parties - The Company leases certain owned land and buildings to third parties, generally related to closed or refranchised restaurants. The following table is a summary of assets leased to third parties as of the period indicated:
(dollars in thousands)
SEPTEMBER 29, 2019
Land
$
10,585

 
 
Buildings and building improvements
$
12,823

Less: accumulated depreciation
(6,239
)
Buildings and building improvements, net
$
6,584
Leases Leases

The Company’s determination of whether an arrangement contains a lease is based on an evaluation of whether the arrangement conveys the right to use and control specific property or equipment. The Company leases restaurant and office facilities and certain equipment under operating leases primarily having initial terms expiring between one and 20 years. Restaurant facility leases generally have renewal periods totaling five to 20 years, exercisable at the option of the Company. Contingent rentals represent payment of variable lease obligations based on a percentage of gross revenues, as defined by the terms of the applicable lease agreement for certain restaurant facility leases. The Company also has certain leases, which reset periodically based on a specified index. Such leases are recorded using the index that existed at lease commencement. Subsequent changes in the index are recorded as variable rental payments. Variable rental payments are expensed as incurred in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income and future variable rent obligations are not included within the lease liabilities on its Consolidated Balance Sheet. The depreciable life of lease assets and leasehold improvements are limited by the expected lease term. None of the Company’s leases contain any material residual value guarantees or material restrictive covenants.

For restaurant facility leases executed subsequent to the adoption of ASU No. 2016-02, the Company accounts for fixed lease and non-lease components as a single lease component. Additionally, for certain equipment leases, the Company applies a portfolio approach to account for the lease assets and liabilities. Leases with an initial term of 12 months or less are not recorded on its Consolidated Balance Sheet, they are recognized on a straight-line basis over the lease term within Other restaurant operating expense in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income.

The following table includes a detail of lease assets and liabilities included on the Company’s Consolidated Balance Sheet as of the period indicated:
(dollars in thousands)
CONSOLIDATED BALANCE SHEET CLASSIFICATION
 
SEPTEMBER 29, 2019
Operating lease right-of-use assets
Operating lease right-of-use assets
 
$
1,262,449

Finance lease right-of-use assets (1)
Property, fixtures and equipment, net
 
2,419

Total lease assets, net
 
 
$
1,264,868

 
 
 
 
Current operating lease liabilities (2)
Accrued and other current liabilities
 
$
170,849

Current finance lease liabilities
Current portion of long-term debt
 
1,498

Non-current operating lease liabilities
Non-current operating lease liabilities
 
1,273,904

Non-current finance lease liabilities
Long-term debt, net
 
1,204

Total lease liabilities
 
 
$
1,447,455

________________
(1)
Net of accumulated amortization of $1.0 million.
(2)
Excludes accrued contingent percentage rent.

Following is a summary of expenses and income related to leases recognized in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income for the periods indicated:
 
CONSOLIDATED INCOME STATEMENT CLASSIFICATION
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
 
SEPTEMBER 29, 2019
 
SEPTEMBER 29, 2019
Operating leases (1)
Other restaurant operating
 
$
45,948

 
$
136,260

Variable lease cost
Other restaurant operating
 
933

 
2,498

Finance leases
 
 
 
 
 
Amortization of leased assets
Depreciation and amortization
 
365

 
1,049

Interest on lease liabilities
Interest expense, net
 
64

 
209

Sublease revenue (2)
Franchise and other revenues
 
(1,747
)
 
(4,853
)
Lease costs, net (3)
 
 
$
45,563

 
$
135,163

________________
(1)
Excludes rent expense for office facilities and Company-owned closed or subleased properties for the thirteen and thirty-nine weeks ended September 29, 2019 of $3.8 million and $11.0 million, respectively, which is included in General and administrative expense and certain supply chain related rent expense of $0.3 million and $0.9 million, respectively, which is included in Cost of sales.
(2)
Excludes rental income from Company-owned properties for the thirteen and thirty-nine weeks ended September 29, 2019 of $0.4 million and $1.8 million, respectively.
(3)
During the thirteen and thirty-nine weeks ended September 30, 2018, the Company recorded rent expense of $45.8 million and $138.8 million, respectively, including variable rent expense of $1.1 million and $3.4 million, respectively, and sublease revenue of $1.6 million and $4.7 million, respectively.
As of September 29, 2019, future minimum lease payments and sublease revenues under non-cancelable leases are as follows:
(dollars in thousands)
OPERATING LEASES
 
FINANCE LEASES
 
SUBLEASE REVENUES
Year 1 (1)
$
178,221

 
$
1,558

 
$
(6,126
)
Year 2
191,533

 
1,051

 
(6,239
)
Year 3
186,926

 
331

 
(6,039
)
Year 4
183,602

 
4

 
(5,980
)
Year 5
177,890

 
4

 
(5,871
)
Thereafter
1,729,022

 
2

 
(64,988
)
Total minimum lease payments (receipts) (2)
$
2,647,194

 
$
2,950

 
$
(95,243
)
Less: Interest
(1,202,441
)
 
(248
)
 
 
Present value of future lease payments
$
1,444,753

 
$
2,702

 
 
____________________
(1)
Net of operating lease prepaid rent of $14.7 million.
(2)
Includes $1.0 billion related to options to extend operating lease terms and excludes $116.3 million of signed operating leases that have not yet commenced.

The following table is a summary of the weighted-average remaining lease terms and weighted-average discount rates of the Company’s leases as of the period indicated:
 
SEPTEMBER 29, 2019
Weighted-average remaining lease term (1):
 
Operating leases
14.6 years

Finance leases
2.1 years

Weighted-average discount rate (2):
 
Operating leases
8.56
%
Finance leases
9.07
%
____________________
(1)
Includes lease renewal options that are reasonably certain of exercise.
(2)
Based on the Company’s incremental borrowing rate at lease commencement.

The following table is a summary of other impacts to the Company’s Consolidated Financial Statements related to its leases for the period indicated:
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 29, 2019
Cash flows from operating activities:
 
Cash paid for amounts included in the measurement of operating lease liabilities
$
143,630



Properties Leased to Third Parties - The Company leases certain owned land and buildings to third parties, generally related to closed or refranchised restaurants. The following table is a summary of assets leased to third parties as of the period indicated:
(dollars in thousands)
SEPTEMBER 29, 2019
Land
$
10,585

 
 
Buildings and building improvements
$
12,823

Less: accumulated depreciation
(6,239
)
Buildings and building improvements, net
$
6,584