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Leases | 9 Months Ended
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Oct. 06, 2019
Leases [Abstract] |
Leases | Leases Adoption of FASB Accounting Standards Update ("ASU") 2016-02 On January 1, 2019, we adopted ASU 2016-02, Leases (Topic 842) ("Topic 842") along with related clarifications and improvements using the modified retrospective approach without application to prior periods. This guidance requires the recognition of liabilities for lease obligations and corresponding right-of-use assets on the balance sheet and disclosure of key information about leasing arrangements. We applied the practical expedients that do not require us to reassess existing contracts for embedded leases, to separate lease and non-lease components for our population of operating assets, or to reassess lease classification or initial direct costs. The effect of the changes made to our consolidated December 31, 2018 balance sheet as a result of the adoption of Topic 842 was as follows (in thousands):
|  | Balance at December 30, 2018 |  | Adjustments due to Topic 842 |  | Balance at December 31, 2018
Balance sheet |  |  |  |  |  |
Non-current assets |  |  |  |  |  |
Right of use assets, net |  | $ | — |  |  | $ | 478,268 |  |  | $ | 478,268 |
Prepaid expenses and other current assets |  | 27,576 |  |  | (6,592 | ) |  | 20,984 |
Current liabilities |  |  |  |  |  |
Short-term portion of lease obligations |  | 786 |  |  | 40,606 |  |  | 41,392 |
Non-current liabilities |  |  |  |  |  |
Deferred Rent |  | 75,675 |  |  | (75,675 | ) |  | — |
Long-term portion of lease obligations |  | 9,414 |  |  | 506,745 |  |  | 516,159 |
Stockholders’ equity: |  |  |  |  |  |
Retained earnings |  | $ | 376,341 |  |  | $ | (15,172 | ) |  | $ | 361,169 |
This change did not have any impact on our consolidated statement of operations or consolidated statement of cash flows. Leases The Company leases land, buildings, and equipment used in its operations under operating and finance leases. Our leases generally have remaining terms of 1-15 years, most of which include options to extend the leases for additional 5-year periods. Generally, the lease term is the minimum of the non-cancelable period of the lease or the lease term inclusive of reasonably certain renewal periods up to a term of 20 years. We determine if a contract contains a lease at inception. Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental secured borrowing rates corresponding to the maturities of the leases. We estimate this rate based on prevailing financial market conditions, comparable company and credit analysis, and management judgment. Our leases typically contain rent escalations over the lease term. We recognize 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 our 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. Some of our 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. 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. Leases are included in right-of-use assets, net, short-term portion of lease obligations, and long-term portion of lease liabilities on our condensed consolidated balance sheet as of October 6, 2019 as follows (in thousands):
|  | Finance |  | Operating |  | Total
Right of use assets, net |  | $ | 8,675 |  |  | $ | 433,026 |  |  | $ | 441,701 |
Short-term portion of lease obligations |  | 947 |  |  | 42,356 |  |  | 43,303 |
Long-term portion of lease obligations |  | 10,214 |  |  | 471,081 |  |  | 481,295 |
Total |  | $ | 11,161 |  |  | $ | 513,437 |  |  | $ | 524,598 |
We have elected the short-term lease recognition exemption for all applicable classes of underlying assets. Short-term disclosures include only those leases with a term greater than one month and 12 months or less, and expense is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less, that do not include an option to purchase the underlying asset that we are reasonably certain to exercise, are not recorded on the balance sheet. The components of lease expense, including variable lease costs primarily consisting of common area maintenance charges and real estate taxes, are included in occupancy on our condensed consolidated statement of operations as follows (in thousands):
|  | Twelve Weeks Ended |  | Forty Weeks Ended
|  | October 6, 2019 |  | October 6, 2019
Operating lease cost |  | $ | 17,298 |  |  | $ | 58,412 |
Finance lease cost: |  |  |  |
Amortization of right of use assets |  | 193 |  |  | 635 |
Interest on lease liabilities |  | 122 |  |  | 415 |
Total finance lease cost |  | 315 |  |  | 1,050 |
Variable lease cost |  | 6,653 |  |  | 22,186 |
Total |  | $ | 24,267 |  |  | $ | 81,648 |
Maturities of our lease liabilities as of October 6, 2019 were as follows (in thousands):
| Finance Leases |  | Operating Leases |  | Total
Remainder of 2019 | $ | 280 |  |  | $ | 12,997 |  |  | $ | 13,277 |
2020 | 1,396 |  |  | 78,135 |  |  | 79,531 |
2021 | 1,437 |  |  | 77,392 |  |  | 78,829 |
2022 | 1,283 |  |  | 74,865 |  |  | 76,148 |
2023 | 1,220 |  |  | 72,339 |  |  | 73,559 |
Thereafter | 8,824 |  |  | 451,232 |  |  | 460,056 |
Total future lease liability | 14,440 |  |  | 766,960 |  |  | 781,400 |
Less imputed interest | 3,279 |  |  | 253,523 |  |  | 256,802 |
Fair value of lease liability | $ | 11,161 |  |  | $ | 513,437 |  |  | $ | 524,598 |
As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting guidance, maturities of lease liabilities were as follows as of December 30, 2018 (in thousands):
|  | Capital Leases |  | Operating Leases
2019 |  | $ | 1,234 |  |  | $ | 80,367 |
2020 |  | 1,242 |  |  | 76,936 |
2021 |  | 1,240 |  |  | 70,419 |
2022 |  | 1,063 |  |  | 61,649 |
2023 |  | 1,019 |  |  | 54,121 |
Thereafter |  | 7,552 |  |  | 206,879 |
Total |  | 13,350 |  |  | $ | 550,371 |
Less amount representing interest |  | (3,150 | ) |  |  |
Present value of future minimum lease payments |  | 10,200 |  |  |  |
Less current portion |  | (786 | ) |  |  |
Long-term capital lease obligations |  | $ | 9,414 |  |  |  |
Supplemental cash flow information related to leases is as follows:
|  | Forty Weeks Ended
|  | October 6, 2019
Cash paid for amounts included in the measurement of lease liabilities (in thousands): |  | $ | 60 |
Right of use assets obtained in exchange for operating lease obligations following the adoption of Topic 842 (in thousands): |  | $ | 10 |
Right of use assets obtained in exchange for finance lease obligations following the adoption of Topic 842 (in thousands): |  | $ | 2 |
Other information related to operating leases as follows: |  |
Weighted average remaining lease term |  | 11 years |
Weighted average discount rate |  | 7.33 | %
Other information related to financing leases as follows: |  |
Weighted average remaining lease term |  | 12 years |
Weighted average discount rate |  | 4.71 | %
Leases | Leases Adoption of FASB Accounting Standards Update ("ASU") 2016-02 On January 1, 2019, we adopted ASU 2016-02, Leases (Topic 842) ("Topic 842") along with related clarifications and improvements using the modified retrospective approach without application to prior periods. This guidance requires the recognition of liabilities for lease obligations and corresponding right-of-use assets on the balance sheet and disclosure of key information about leasing arrangements. We applied the practical expedients that do not require us to reassess existing contracts for embedded leases, to separate lease and non-lease components for our population of operating assets, or to reassess lease classification or initial direct costs. The effect of the changes made to our consolidated December 31, 2018 balance sheet as a result of the adoption of Topic 842 was as follows (in thousands):
|  | Balance at December 30, 2018 |  | Adjustments due to Topic 842 |  | Balance at December 31, 2018
Balance sheet |  |  |  |  |  |
Non-current assets |  |  |  |  |  |
Right of use assets, net |  | $ | — |  |  | $ | 478,268 |  |  | $ | 478,268 |
Prepaid expenses and other current assets |  | 27,576 |  |  | (6,592 | ) |  | 20,984 |
Current liabilities |  |  |  |  |  |
Short-term portion of lease obligations |  | 786 |  |  | 40,606 |  |  | 41,392 |
Non-current liabilities |  |  |  |  |  |
Deferred Rent |  | 75,675 |  |  | (75,675 | ) |  | — |
Long-term portion of lease obligations |  | 9,414 |  |  | 506,745 |  |  | 516,159 |
Stockholders’ equity: |  |  |  |  |  |
Retained earnings |  | $ | 376,341 |  |  | $ | (15,172 | ) |  | $ | 361,169 |
This change did not have any impact on our consolidated statement of operations or consolidated statement of cash flows. Leases The Company leases land, buildings, and equipment used in its operations under operating and finance leases. Our leases generally have remaining terms of 1-15 years, most of which include options to extend the leases for additional 5-year periods. Generally, the lease term is the minimum of the non-cancelable period of the lease or the lease term inclusive of reasonably certain renewal periods up to a term of 20 years. We determine if a contract contains a lease at inception. Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental secured borrowing rates corresponding to the maturities of the leases. We estimate this rate based on prevailing financial market conditions, comparable company and credit analysis, and management judgment. Our leases typically contain rent escalations over the lease term. We recognize 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 our 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. Some of our 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. 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. Leases are included in right-of-use assets, net, short-term portion of lease obligations, and long-term portion of lease liabilities on our condensed consolidated balance sheet as of October 6, 2019 as follows (in thousands):
|  | Finance |  | Operating |  | Total
Right of use assets, net |  | $ | 8,675 |  |  | $ | 433,026 |  |  | $ | 441,701 |
Short-term portion of lease obligations |  | 947 |  |  | 42,356 |  |  | 43,303 |
Long-term portion of lease obligations |  | 10,214 |  |  | 471,081 |  |  | 481,295 |
Total |  | $ | 11,161 |  |  | $ | 513,437 |  |  | $ | 524,598 |
We have elected the short-term lease recognition exemption for all applicable classes of underlying assets. Short-term disclosures include only those leases with a term greater than one month and 12 months or less, and expense is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less, that do not include an option to purchase the underlying asset that we are reasonably certain to exercise, are not recorded on the balance sheet. The components of lease expense, including variable lease costs primarily consisting of common area maintenance charges and real estate taxes, are included in occupancy on our condensed consolidated statement of operations as follows (in thousands):
|  | Twelve Weeks Ended |  | Forty Weeks Ended
|  | October 6, 2019 |  | October 6, 2019
Operating lease cost |  | $ | 17,298 |  |  | $ | 58,412 |
Finance lease cost: |  |  |  |
Amortization of right of use assets |  | 193 |  |  | 635 |
Interest on lease liabilities |  | 122 |  |  | 415 |
Total finance lease cost |  | 315 |  |  | 1,050 |
Variable lease cost |  | 6,653 |  |  | 22,186 |
Total |  | $ | 24,267 |  |  | $ | 81,648 |
Maturities of our lease liabilities as of October 6, 2019 were as follows (in thousands):
| Finance Leases |  | Operating Leases |  | Total
Remainder of 2019 | $ | 280 |  |  | $ | 12,997 |  |  | $ | 13,277 |
2020 | 1,396 |  |  | 78,135 |  |  | 79,531 |
2021 | 1,437 |  |  | 77,392 |  |  | 78,829 |
2022 | 1,283 |  |  | 74,865 |  |  | 76,148 |
2023 | 1,220 |  |  | 72,339 |  |  | 73,559 |
Thereafter | 8,824 |  |  | 451,232 |  |  | 460,056 |
Total future lease liability | 14,440 |  |  | 766,960 |  |  | 781,400 |
Less imputed interest | 3,279 |  |  | 253,523 |  |  | 256,802 |
Fair value of lease liability | $ | 11,161 |  |  | $ | 513,437 |  |  | $ | 524,598 |
As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting guidance, maturities of lease liabilities were as follows as of December 30, 2018 (in thousands):
|  | Capital Leases |  | Operating Leases
2019 |  | $ | 1,234 |  |  | $ | 80,367 |
2020 |  | 1,242 |  |  | 76,936 |
2021 |  | 1,240 |  |  | 70,419 |
2022 |  | 1,063 |  |  | 61,649 |
2023 |  | 1,019 |  |  | 54,121 |
Thereafter |  | 7,552 |  |  | 206,879 |
Total |  | 13,350 |  |  | $ | 550,371 |
Less amount representing interest |  | (3,150 | ) |  |  |
Present value of future minimum lease payments |  | 10,200 |  |  |  |
Less current portion |  | (786 | ) |  |  |
Long-term capital lease obligations |  | $ | 9,414 |  |  |  |
Supplemental cash flow information related to leases is as follows:
|  | Forty Weeks Ended
|  | October 6, 2019
Cash paid for amounts included in the measurement of lease liabilities (in thousands): |  | $ | 60 |
Right of use assets obtained in exchange for operating lease obligations following the adoption of Topic 842 (in thousands): |  | $ | 10 |
Right of use assets obtained in exchange for finance lease obligations following the adoption of Topic 842 (in thousands): |  | $ | 2 |
Other information related to operating leases as follows: |  |
Weighted average remaining lease term |  | 11 years |
Weighted average discount rate |  | 7.33 | %
Other information related to financing leases as follows: |  |
Weighted average remaining lease term |  | 12 years |
Weighted average discount rate |  | 4.71 | %

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