LEASES

9 Months Ended

Jul. 02, 2022

Other than locations where we own the underlying property, we lease our restaurant locations as well as our corporate office under various non-cancelable real estate lease agreements that expire on various dates through 2046. We evaluate whether we control the use of the asset, which is determined by assessing whether we obtain substantially all economic benefits from the use of the asset, and whether we have the right to direct the use of the asset. If these criteria are met and we have identified a lease, we account for the contract under the requirements of ASC Topic 842.

Upon taking possession of a leased asset, we determine its classification as an operating or finance lease. All of our real estate leases are classified as operating leases. We do not have any finance leases as of July 2, 2022. Generally, our real estate leases have initial terms ranging from 10 to 25 years and typically include renewal options. Renewal options are recognized as part of the ROU assets and lease liabilities if it is reasonably certain at the date of adoption that we would exercise the options to extend the lease. Our real estate leases typically provide for fixed minimum rent payments and/or contingent rent payments based upon sales in excess of specified thresholds. When the achievement of such sales thresholds are deemed to be probable, variable lease expense is accrued in proportion to the sales recognized during the period. For operating leases that include rent holidays and rent escalation clauses, we recognize lease expense on a straight-line basis over the lease term from the date we take possession of the leased property. We record the straight-line lease expense and any contingent rent, if applicable, in occupancy expenses in the consolidated condensed statements of income.

Many of our real estate leases also require us to pay real estate taxes, common area maintenance costs and other occupancy costs (“non-lease components”) which are included in occupancy related expenses in the consolidated condensed statements of income. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As there were no explicit rates provided in our leases, we used our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

The components of lease expense in the consolidated condensed statements of income are as follows:


	13 Weeks Ended				39 Weeks Ended
	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021
	(In thousands)				(In thousands)
Operating lease expense - occupancy expenses (1)	$	2,398	$	2,899	$	7,295	$	6,836
Occupancy lease expense - general and administrative expenses	138		118		347		270
Variable lease expense	1,935		158		4,627		1,553
Total lease expense	$	4,471	$	3,175	$	12,269	$	8,659

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(1) Includes short-term leases, which are immaterial.

Supplemental cash flow information related to leases:


	39 Weeks Ended
	July 2, 2022		July 3, 2021
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows related to operating leases	$	10,508	$	6,992
Non-cash investing activities:
ROU assets obtained in exchange for new operating lease liabilities	$	24,620	$	8,712

The weighted average remaining lease terms and discount rates as of July 2, 2022 are as follows:


	Weighted Average Remaining Lease Term	Weighted Average Discount Rate
Operating leases	12.7 years	5.7	%

The annual maturities of our lease liabilities as of July 2, 2022 are as follows:


	Operating Leases
Fiscal Year Ending	(In thousands)
October 1, 2022	$	2,727
September 30, 2023	10,448
September 28, 2024	10,408
September 27, 2025	9,381
October 3, 2026	8,252
Thereafter	68,867
Total future lease commitments	110,083
Less imputed interest	(32,173)
Present value of lease liabilities	$	77,910