COMMITMENTS AND CONTINGENCIES

12 Months Ended

Jan. 03, 2021

Commitments and Contingencies

Commitments and Contingencies

(9) COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases most of its Company-owned restaurants and office facilities under non-cancelable operating leases with remaining minimum terms ranging from one to 20 years. These lease agreements generally contain base rent escalations that are either fixed pursuant to the lease agreement or based on the consumer price index. The

Company is also required to pay contingent rentals on certain of its leases in amounts between 3% and 8% of gross sales above a minimum threshold. Beginning in fiscal 2019, the Company adopted ASC 842 – Leases. Under this standard, the Company determined if an arrangement is a lease at inception. Operating leases are included in ROU assets, current portion of operating lease liabilities, and operating lease liabilities in the Company’s consolidated balance sheets. ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at the commencement date.

Beginning in the second quarter of 2020, the Company negotiated rent concession with several of its landlords due to the economic disruption to its business during the COVID-19 pandemic. The Company accounted for these lease concessions related to the effects of the COVID-19 pandemic in accordance with the lease modification accounting guidance in Topic 842, Leases. Pursuant to such guidance, the Company remeasured the modified leases using the revised terms as of the modification dates. Adjustments were made to reflect the remeasured liability with the offset to the ROU asset.

Lease expense for lease payments is recognized on a straight-line basis over the lease term and is included in operating expenses and general and administrative expenses on the statement of operations. The components of lease expense for the period presented is as follows:


	Year Ended
(in thousands)		January 3, 2021			December 29, 2019
Operating lease cost		$	9,227		$	4,261
Short-term lease cost			423			123
Variable lease cost			933			31
Sublease income			(177)			(248)
Total lease cost			10,406			4,167


		Year Ended			Year Ended
(in thousands)		January 3, 2021			December 29, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		$	7,589		$	4,424
Right-of-use assets obtained in exchange for new operating lease liabilities			51,682			18,458
Weighted-average remaining lease term of operating leases (in years)			10.25			9.56
Weighted-average discount rate of operating leases			5.27	%		5.56	%

Future maturities of our lease liabilities, as of January 3, 2021, are as follows:


(in thousands)
Fiscal Year
2021		$	9,674
2022			9,978
2023			9,617
2024			8,608
2025			8,254
Thereafter			45,130
Total operating lease obligations			91,261
Less imputed interest			(21,971)
Total		$	69,290

Litigation

As of the date of this filing, there are three potentially material litigation matters involving the Company.

Graham v. Famous Dave’s of America, Inc., has been ongoing since January 2019. It revolves around claims under Maryland wage and hour law and the U.S. Fair Labor Standards Act. After reviewing all the evidence during discovery, the Company believes there is some liability on its part, but is in the midst of determining that total exposure. The Company is open to settlement talks with the Plaintiff if the economics seem appropriate.

Zia Properties v. Famous Dave’s of America, Inc. is a breach of contract case revolving around the Colorado Springs, Co lease. The Company exited the property at the end of the lease in August 2020. The Landlord claims, pursuant to the lease, that the Company was required to make certain repairs before exiting. The Company disagrees with all the claims in the complaint and will vigorously defend.

Additionally, in the normal course of business, the Company is involved in a number of litigation matters that are incidental to the operation of the business. These matters generally include, among other things, matters with regard to employment and general business-related issues. The Company currently believes that the resolution of any of these pending matters will not have a material adverse effect on its financial position or liquidity, but an adverse decision in more than one of the matters could be material to its consolidated results of operations.