For Noodles & Company, under what classifications are the operating lease costs categorized?
Noodles_Company Franchise · 2025 FDDAnswer from 2025 FDD Document
d in the model included a 4.41% risk-free interest rate; 0.25 years expected life; expected volatility of 77.4%; and a zero percent dividend yield. The weighted average fair value per share at grant date was $0.26. In 2024, the Company recognized $43,000 of compensation expense related to the ESPP.
12. Leases
The Company leases restaurant facilities, office space and certain equipment that expire on various dates through September 2043. Lease terms for restaurants in traditional shopping centers generally include a base term of 10 years, with options to extend these leases for additional periods of five to 15 years.
The Company's leases typically contain rent escalations over the lease term. The Company recognizes 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 the 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. Total rent expense for operating leases for 2024, 2023 and 2022 was approximately $39.4 million, $39.2 million and $38.5 million, respectively.
Some of the Company's 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. Lease expense associated with rent escalation and contingent rental provisions is not material and is included within operating lease cost. 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.
The Company elected the practical expedient to account for lease and non-lease components as a single component for substantially all lease types.
As most of the Company's leases do not provide an implicit rate, the Company used its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
Changes in the market trend of the trade area affected certain of our restaurant oper
Source: Item 22 — CONTRACTS (FDD pages 98–99)
What This Means (2025 FDD)
According to the 2025 Noodles & Company Franchise Disclosure Document, operating lease costs are classified within several categories. Total rent expense for operating leases in 2024, 2023, and 2022 was approximately $39.4 million, $39.2 million, and $38.5 million, respectively. These costs are expensed on a straight-line basis over the lease term. Additionally, tenant incentives used to fund leasehold improvements are recognized when earned and reduce the right-of-use asset related to the lease, which are then amortized as reductions of expense over the lease term.
Some leases include rent escalations based on inflation indexes and fair market value adjustments. Certain leases also contain contingent rental provisions, which include a fixed base rent plus a percentage of the restaurant's sales exceeding stipulated amounts. Lease expenses associated with rent escalation and contingent rental provisions are included within operating lease cost. Operating lease liabilities are calculated using the prevailing index or rate at lease commencement, with subsequent escalations and contingent rental payments recognized as variable lease expenses.
Furthermore, changes in market trends can affect restaurant operating results and the underlying asset values of the restaurant lease. Noodles & Company recorded right-of-use asset impairment charges, reducing the carrying value of operating lease assets to their estimated fair value by $1.7 million, $1.6 million, and $0.2 million in 2024, 2023, and 2022, respectively. The sublease income is recorded in "Franchising royalties and fees, and other" and the offsetting lease expense has been recorded in "Restaurant impairments, closure costs and asset disposals" in the Consolidated Statement of Operations.