Annual report pursuant to Section 13 and 15(d)

Leases

v3.20.1
Leases
12 Months Ended
Dec. 31, 2019
Leases [Abstract]  
Leases

Note 14 – Leases

The Company adopted ASC Topic 842 as of January 1, 2019 using the optional transition method and has applied its transition provisions at the beginning of the period of adoption. As a result, the Company did not restate comparative periods. Under this transition provision, the Company has applied the legacy guidance under Accounting Standard Codification Topic 840, Leases, including its disclosure requirements in the comparative periods presented.

Under ASC Topic 842, a lease is a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The Company’s contracts determined to be or contain a lease include explicitly or implicitly identified assets where the Company has the right to substantially all of the economic benefits of the assets and has the ability to direct how and for what purpose the assets are used during the lease term. Leases are classified as either operating or financing. For operating leases, the Company has recognized a lease liability equal to the present value of the remaining lease payments, and a right of use asset equal to the lease liability, subject to certain adjustments, such as prepaid rents, initial direct costs and lease incentives received from the lessor. The Company used its incremental borrowing rate to determine the present value of the lease payments. The Company’s incremental borrowing rate is the rate of interest that it would have to borrow on a collateralized basis over a similar term on an amount equal to the lease payments in a similar economic environment.

ASC Topic 842 includes practical expedient and policy election choices. The Company elected the practical expedient transition package available in ASC Topic 842 and, as a result, did not reassess the lease classification of existing contracts or leases or the initial direct costs associated with existing leases. The Company has made an accounting policy election not to recognize right of use assets and lease liabilities for leases with a lease term of 12 months or less, including renewal options that are reasonably certain to be exercised, that also do not include an option to purchase the underlying asset that is reasonably certain of exercise. Instead, lease payments for these leases are recognized as lease cost on a straight-line basis over the lease term. Additionally, the Company has elected not to separate the accounting for lease components and non-lease components, for all leased assets.

The Company did not elect the hindsight practical expedient, and therefore the Company did not reassess its historical conclusions with regards to whether renewal option periods should be included in the terms of its leases. Given the importance of each of its restaurant locations to its operations, the Company historically concluded that it was reasonably assured of exercising all renewal periods included in its leases as failure to exercise such options would result in an economic penalty. The Company also did not elect the portfolio approach practical expedient, which permits applying the standard to a portfolio of leases with similar characteristics.

Upon adoption on January 1, 2019, the Company recognized right-of-use assets and lease liabilities for operating leases of $41.8 million and $58.9 million, respectively. The difference between the right-of-use asset and lease liability represents the net book value of deferred rent and tenant improvement allowances recognized by the Company as of December 31, 2018, which was adjusted against the right-of-use asset upon adoption of ASC Topic 842. There was no impact to the opening balance of retained earnings upon adoption.

The changes due to the adoption of ASC Topic 842 were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ASC 842

 

 

 

 

 

December 31, 2018

 

Adjustments

 

January 1, 2019

Assets

 

 

 

 

 

 

 

 

 

Operating lease right-of-use assets

 

$

 

$

41,868

 

$

41,868

Liabilities

 

 

 

 

 

 

 

 

 

Current portion of operating lease liabilities

 

$

 

$

3,212

 

$

3,212

Operating lease liability, net of current portion

 

 

 —

 

 

55,679

 

 

55,679

Deferred gift card revenue and other

 

 

947

 

 

(249)

 

 

698

Deferred rent and tenant improvement allowances

 

$

16,774

 

$

(16,774)

 

$

 

There was no impact to the Company’s consolidated statements of income and comprehensive income for the year ended December 31, 2019 compared to the year ended December 31, 2018.

The Company enters into contracts to lease office space, restaurant space and equipment with terms that expire at various dates through 2039. Under ASC Topic 842, the lease term at the lease commencement date is determined based on the non-cancellable period for which the Company has the right to use the underlying asset, together with any periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option, periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option, and periods covered by an option to extend (or not to terminate) the lease in which the exercise of the option is controlled by the lessor. The Company considered a number of factors when evaluating whether the options in its lease contracts were reasonably certain of exercise, such as length of time before option exercise, expected value of the leased asset at the end of the initial lease term, importance of the lease to overall operations, costs to negotiate a new lease, and any contractual or economic penalties.

Certain of the Company’s leases also provide for percentage rent, which are variable lease costs determined as a percentage of gross sales in excess of specified, minimum sales targets, as well as other lease costs to reimburse the lessor for real estate tax and insurance expenses, and certain non-lease components that transfer a distinct service to the Company, such as common area maintenance services. These percentage rents and other variable lease costs are not included in the calculation of lease payments when classifying a lease and in the measurement of the lease liability as they do not meet the definition of in-substance, fixed-lease payments under ASC Topic 842.

The Company subleases portions of its office and restaurant space where it does not use the entire space for its operations. For the year ended December 31, 2019, sublease income was $0.7 million, of which $0.5 million was from related party, Bagatelle NY. Refer to Note 10 and Note 11 for details on transactions with this related party.

The components of lease expense for the period were as follows (in thousands):

 

 

 

 

 

 

 

 

December 31, 

 

 

 

2019

 

Lease cost

 

 

 

 

Operating lease cost

 

$

8,494

 

Variable lease cost

 

 

3,185

 

Short-term lease cost

 

 

446

 

Sublease income

 

 

(696)

 

Total lease cost

 

$

11,429

 

 

 

 

 

 

Weighted average remaining lease term – operating leases

 

 

13 years

 

Weighted average discount rate – operating leases

 

 

8.48

%

 

Supplemental cash flow information related to leases for the period was as follows (in thousands):

 

 

 

 

 

 

 

December 31, 

 

 

2019

Cash paid for amounts included in the measurement of operating lease liabilities

 

$

8,368

Right-of-use assets obtained in exchange for operating lease obligations

 

$

43,474

 

As of December 31, 2019, maturities of the Company’s operating lease liabilities are as follows (in thousands):

 

 

 

 

 

2020

 

$

12,980

2021

 

 

12,965

2022

 

 

12,935

2023

 

 

13,225

2024

 

 

12,619

Thereafter

 

 

116,145

Total lease payments

 

 

180,869

Less: imputed interest

 

 

(78,194)

Present value of operating lease liabilities

 

$

102,675