Quarterly report pursuant to Section 13 or 15(d)

Leases

v3.22.1
Leases
 3 Months Ended
Mar. 31, 2022
Leases [Abstract]  
Leases LeasesOn January 1, 2022, we adopted ASU 2016-02. Results for reporting periods beginning on or after January 1, 2022 are presented under Accounting Standards Codification Topic 842 ("ASC 842"). Prior period amounts were not revised and continue to be reported in accordance with ASC Topic 840, the accounting standard then in effect.
Upon transition, on January 1, 2022, we recorded the following increases (decreases) to the respective line items on the Condensed Consolidated Balance Sheet:

(in thousands) Adjustment as of January 1, 2022
Prepaid expenses $ (773)
Operating right-of-use asset, net 57,385 
Finance right-of-use asset, net 855
Deferred rent (900)
Short-term operating lease liability 9,457 
Short-term finance lease liability 143 
Long-term operating lease liability 49,149 
Long-term finance lease liability 712 

The Company currently leases all of its corporate-owned restaurants, corporate offices, and certain equipment. The Company evaluates contracts entered into to determine whether the contract involves the use of property or equipment and evaluates whether it controls the use of the asset, which is determined by assessing whether all economic benefits from the use of the asset is obtained, and whether the Company has the right to direct the use of the asset. Once the Company has identified a lease, the lease is accounted for under the requirements of ASC 842.

Upon the possession of a leased asset, the Company determines its classification as an operating or finance lease. The Company's real estate leases are classified as operating leases, and the Company's equipment leases are classified as finance leases. Generally, the real estate leases have initial terms ranging from 10 years 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 the Company would exercise the options to extend the lease. The real estate leases typically provide for fixed minimum rent payments or variable rent payments based on a percentage of monthly sales or annual changes to the Consumer Price Index. Fixed minimum rent payments are recognized on a straight-line basis over the lease term from the date the Company takes possession of the leased property. Lease expense incurred before a corporate-owned store opens is recorded in pre-opening costs in the Condensed Consolidated Statements of Operations. Once a corporate-owned store opens, the straight-line lease expense is recorded in occupancy and related expenses in the Condensed Consolidated Statements of Operations. Many of the leases also require the Company to pay real estate taxes, common area maintenance costs and other occupancy costs which are included in occupancy and related expenses in the Condensed Consolidated Statements of Operations.

A summary of finance and operating lease right-of-use assets and liabilities as of March 31, 2022 is as follows:

(in thousands) Classification March 31, 2022
Operating leases Operating right-of-use asset, net $ 55,918 
Finance leases Property & equipment, net 803 
Total right-of-use assets $ 56,721 
Operating leases:
Short-term operating lease liability $ 9,562 
Long-term operating lease liability 46,834 
Finance leases:
Short-term borrowings, including finance leases 139 
Long-term borrowings, including finance leases 680 
Total lease liabilities $ 57,215 

The components of lease expense for the three months ended March 31, 2022 is as follows:
(in thousands) Classification March 31, 2022
Operating lease cost Occupancy and related expenses
Pre-opening costs		 $ 3,251 
Finance lease cost:
   Amortization of right-of-use assets Depreciation and amortization expense 52
   Interest on lease liabilities Interest expense 12
Less: Sublease income Occupancy and related expenses (47)
Total lease cost $ 3,268 

The maturity of the Company's operating and finance lease liabilities as of March 31, 2022 is as follows:

(in thousands) Operating Leases Finance Leases
04/01/2022 - 12/31/2022 $ 9,632  $ 141 
01/01/2023 - 12/31/2023 12,609  160 
01/01/2024 - 12/31/2024 10,879  144 
01/01/2025 - 12/31/2025 9,375  130 
01/01/2026 - 12/31/2026 7,560  120 
Thereafter 22,247  295 
Total undiscounted lease payments 72,302  990 
Less: present value adjustment 15,972  171 
Total net lease liabilities $ 56,330  $ 819 

As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company gives consideration to its recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating its incremental borrowing rates. A summary of lease terms and discount rates for finance and operating leases is as follows:

Three Months Ended
March 31, 2022
Weighted-average remaining lease term
Operating leases 6.6 years
Finance leases 6.6 years
Weighted-average discount rate
Operating leases 6.0  %
Finance leases 6.0  %
Leases LeasesOn January 1, 2022, we adopted ASU 2016-02. Results for reporting periods beginning on or after January 1, 2022 are presented under Accounting Standards Codification Topic 842 ("ASC 842"). Prior period amounts were not revised and continue to be reported in accordance with ASC Topic 840, the accounting standard then in effect.
Upon transition, on January 1, 2022, we recorded the following increases (decreases) to the respective line items on the Condensed Consolidated Balance Sheet:

(in thousands) Adjustment as of January 1, 2022
Prepaid expenses $ (773)
Operating right-of-use asset, net 57,385 
Finance right-of-use asset, net 855
Deferred rent (900)
Short-term operating lease liability 9,457 
Short-term finance lease liability 143 
Long-term operating lease liability 49,149 
Long-term finance lease liability 712 

The Company currently leases all of its corporate-owned restaurants, corporate offices, and certain equipment. The Company evaluates contracts entered into to determine whether the contract involves the use of property or equipment and evaluates whether it controls the use of the asset, which is determined by assessing whether all economic benefits from the use of the asset is obtained, and whether the Company has the right to direct the use of the asset. Once the Company has identified a lease, the lease is accounted for under the requirements of ASC 842.

Upon the possession of a leased asset, the Company determines its classification as an operating or finance lease. The Company's real estate leases are classified as operating leases, and the Company's equipment leases are classified as finance leases. Generally, the real estate leases have initial terms ranging from 10 years 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 the Company would exercise the options to extend the lease. The real estate leases typically provide for fixed minimum rent payments or variable rent payments based on a percentage of monthly sales or annual changes to the Consumer Price Index. Fixed minimum rent payments are recognized on a straight-line basis over the lease term from the date the Company takes possession of the leased property. Lease expense incurred before a corporate-owned store opens is recorded in pre-opening costs in the Condensed Consolidated Statements of Operations. Once a corporate-owned store opens, the straight-line lease expense is recorded in occupancy and related expenses in the Condensed Consolidated Statements of Operations. Many of the leases also require the Company to pay real estate taxes, common area maintenance costs and other occupancy costs which are included in occupancy and related expenses in the Condensed Consolidated Statements of Operations.

A summary of finance and operating lease right-of-use assets and liabilities as of March 31, 2022 is as follows:

(in thousands) Classification March 31, 2022
Operating leases Operating right-of-use asset, net $ 55,918 
Finance leases Property & equipment, net 803 
Total right-of-use assets $ 56,721 
Operating leases:
Short-term operating lease liability $ 9,562 
Long-term operating lease liability 46,834 
Finance leases:
Short-term borrowings, including finance leases 139 
Long-term borrowings, including finance leases 680 
Total lease liabilities $ 57,215 

The components of lease expense for the three months ended March 31, 2022 is as follows:
(in thousands) Classification March 31, 2022
Operating lease cost Occupancy and related expenses
Pre-opening costs		 $ 3,251 
Finance lease cost:
   Amortization of right-of-use assets Depreciation and amortization expense 52
   Interest on lease liabilities Interest expense 12
Less: Sublease income Occupancy and related expenses (47)
Total lease cost $ 3,268 

The maturity of the Company's operating and finance lease liabilities as of March 31, 2022 is as follows:

(in thousands) Operating Leases Finance Leases
04/01/2022 - 12/31/2022 $ 9,632  $ 141 
01/01/2023 - 12/31/2023 12,609  160 
01/01/2024 - 12/31/2024 10,879  144 
01/01/2025 - 12/31/2025 9,375  130 
01/01/2026 - 12/31/2026 7,560  120 
Thereafter 22,247  295 
Total undiscounted lease payments 72,302  990 
Less: present value adjustment 15,972  171 
Total net lease liabilities $ 56,330  $ 819 

As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company gives consideration to its recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating its incremental borrowing rates. A summary of lease terms and discount rates for finance and operating leases is as follows:

Three Months Ended
March 31, 2022
Weighted-average remaining lease term
Operating leases 6.6 years
Finance leases 6.6 years
Weighted-average discount rate
Operating leases 6.0  %
Finance leases 6.0  %