BurgerFi International, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Leases

Leases

12 Months Ended

Jan. 02, 2023

The Company has entered into various lease agreements. For the years ended January 2, 2023 and December 31, 2021, rent expense was approximately $16.2 million and $5.2 million, respectively. The Company’s lease agreements expire on various dates through 2032 and have renewal options.

On January 1, 2022, the Company 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, the Company recorded the following increases (decreases) to the respective line items on the Condensed Consolidated Balance Sheet:


(in thousands)	Adjustment as of January 2, 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

A summary of finance and operating lease right-of-use assets and liabilities as of January 2, 2023 is as follows:


(in thousands)	Classification	Year Ended January 2, 2023
Operating leases	Operating right-of-use asset, net	$	45,741
Finance leases	Property & equipment, net	852
Total right-of-use assets		$	46,593

Operating leases:
	Short-term operating lease liability	$	9,924
	Long-term operating lease liability	40,748
Finance leases:
	Short-term borrowings, including finance leases	150
	Long-term borrowings, including finance leases	783
Total lease liabilities		$	51,604

The components of lease expense for the year ended January 2, 2023 is as follows:


(in thousands)	Classification	Year Ended January 2, 2023
Operating lease cost	Occupancy and related expenses Pre-opening costs Store closure costs	$	12,969
Operating lease impairment	Asset impairment	3,846

Finance lease cost:
Amortization of right-of-use assets	Depreciation and amortization expense	258
Interest on lease liabilities	Interest expense	63

Less: Sublease income	Occupancy and related expenses	(194)
Total lease cost		$	16,942

The maturity of the Company's operating and finance lease liabilities as of January 2, 2023 is as follows:


(in thousands)	Operating Leases		Finance Leases
2023	$	12,653	$	200
2024	11,040		184
2025	9,544		170
2026	7,728		159
2027	6,318		152
2028 and thereafter	13,442		253
Total undiscounted lease payments	60,726		1,118
Less: present value adjustment	(10,054)		(185)
Total net lease liabilities	$	50,672	$	933

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 of the lease 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:


	Year Ended January 2, 2023

Weighted-average remaining lease term (in years):
Operating leases	6.02 years
Finance leases	6.30 years
Weighted-average discount rate:
Operating leases	6.0	%
Finance leases	6.1	%