Leases

12 Months Ended

Oct. 03, 2021

Leases [Abstract]

Operating Leases, Lessee

LEASES

Nature of leases — We own restaurant sites and we also lease restaurant sites from third parties. Some of these owned or leased sites are leased and/or subleased to franchisees. Initial terms of our real estate leases are generally 20 years, exclusive of options to renew, which are generally exercisable at our sole discretion for 1 to 20 years. In some instances, our leases have provisions for contingent rentals based upon a percentage of defined revenues. Many of our restaurants also have rent escalation clauses and require the payment of property taxes, insurance, and maintenance costs. Variable lease costs include contingent rent, cost-of-living index adjustments, and payments for additional rent such as real estate taxes, insurance, and common area maintenance, which are excluded from the measurement of the lease liability. We also lease certain restaurant and office equipment with initial terms generally ranging from 3 to 8 years. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As lessor, our leases and subleases primarily consist of restaurants that have been leased to franchisees subsequent to refranchising transactions. The lease descriptions, terms, variable lease payments and renewal options are generally the same as the lessee leases described above. Revenues from leasing arrangements with our franchisees are presented in “Franchise rental revenues” in the accompanying consolidated statements of earnings, and the related expenses are presented in “Franchise occupancy expenses.”

Company as lessee — Leased assets and liabilities consisted of the following as of October 3, 2021 and September 27, 2020 (in thousands):

	October 3, 2021		September 27, 2020
Assets:
Operating lease ROU assets	$	934,066	$	904,548
Finance lease ROU assets (1)	1,698		2,333
Total ROU assets	$	935,764	$	906,881
Liabilities:
Current operating lease liabilities	$	150,636	$	179,000
Current finance lease liabilities (2)	894		818
Long-term operating lease liabilities	809,191		776,094
Long-term finance lease liabilities (2)	1,381		2,116
Total lease liabilities	$	962,102	$	958,028

________________________

(1)Included in “Property and equipment, net” on our consolidated balance sheets.

(2)Included in “Current maturities of long-term debt” and “Long-term debt, net of current maturities” on our consolidated balance sheets.

The following table presents the components of our lease costs in fiscal 2021 and 2020 (in thousands):

	2021		2020
Lease costs:
Finance lease cost:
Amortization of ROU assets (1)	$	807	$	767
Interest on lease liabilities (2)	89		110
Operating lease cost (3)	194,149		190,461
Short-term lease cost (3)	427		175
Variable lease cost (3)(4)	43,498		40,798
	$	238,970	$	232,311

____________________________

(1)Included in “Depreciation and amortization” in our consolidated statement of earnings.

(2)Included in “Interest expense, net” in our consolidated statement of earnings.

(3)Operating lease, short-term and variable lease costs associated with franchisees and company-operated restaurants are included in “Franchise occupancy expenses” and “Occupancy and other,” respectively, in our consolidated statement of earnings. For our closed restaurants, these costs are included in “Impairment and other (gains) charges, net” and all other costs are included in “Selling, general and administrative expenses.”

(4)Includes $38.0 million and $37.4 million in 2021 and 2020, respectively, of property taxes and common area maintenance costs which are reimbursed by sub-lessees.

The following table summarizes the components of rent expense in fiscal 2019, as accounted for under previous guidance (in thousands):

	2019
Minimum rentals	184,587
Contingent rentals	2,255
Total rent expense	186,842

The following table presents supplemental information related to leases:

	October 3, 2021		September 27, 2020
Weighted-average remaining lease term (in years):
Finance leases	2.4		3.3
Operating leases	9.0		8.3
Weighted-average discount rate:
Finance leases	3.6	%	3.5	%
Operating leases	4.1	%	4.2	%

The following table presents as of October 3, 2021, the annual maturities of our lease liabilities (in thousands):

	Finance Leases		Operating Leases
Fiscal year:
2022	$	961	$	186,717
2023	944		161,788
2024	413		128,816
2025	50		122,114
2026	25		106,582
Thereafter	27		460,138
Total future lease payments (1)	$	2,420	$	1,166,155
Less: imputed interest	(145)		(206,328)
Present value of lease liabilities	$	2,275	$	959,827
Less current portion	(894)		(150,636)
Long-term lease obligations	$	1,381	$	809,191

________________________

(1)Total future lease payments include non-cancellable commitments of $2.4 million for finance leases and $1,000.0 million for operating leases.

Assets recorded under finance leases are included in property and equipment, and consisted of the following at each fiscal year-end (in thousands):

	2021	2020
Buildings	1,342	1,342
Equipment	5,869	5,631
Less accumulated amortization	(5,513)	(4,640)
	1,698	2,333

The following table includes supplemental cash flow and non-cash information related to our lessee leases (in thousands):

	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	218,570	$	190,303
Operating cash flows from financing leases	$	89	$	110
Financing cash flows from financing leases	$	829	$	785
Supplemental noncash information on lease liabilities arising from obtaining right-of-use assets:
Right-of-use assets obtained in exchange for new operating lease obligations	$	186,621	$	181,532
Right-of-use assets obtained in exchange for new financing lease obligations	$	184	$	132

Sale and leaseback transactions — In fiscal 2021, we sold two restaurant properties in sale and leaseback transactions for net proceeds of $3.9 million and recorded total gains of less than $0.1 million. The leases have been accounted for as operating leases and contain an initial term of 20 years.

In fiscal 2020, we completed two sale and leaseback transactions of our restaurant properties with one occurring during the first quarter of 2020 and the other occurring during the third quarter of 2020. In the first quarter of 2020, we completed a sale leaseback transaction of a multi-tenant commercial property in Los Angeles, California and leased back the parcel on which a company-operated restaurant is located. The Company received net proceeds of $17.4 million and recognized a $0.2 million loss on the sale. The initial term on the lease is 20 years and the lease has been accounted for as an operating lease. Under the other arrangement, we received net proceeds of $2.4 million on a restaurant property sold and recognized a loss of less than $0.1 million on the sale. The initial term of the lease is 17 years and has been accounted for as an operating lease.

In fiscal 2020, we also completed the sale of one of our corporate office buildings as we moved forward with our previously announced consolidation of our headquarters. We entered into a lease with the buyer to leaseback the property for up to 18 months with an option to terminate earlier without penalty, upon providing a 90-day notice. The net proceeds received on the sale were $20.6 million and the lease has been accounted for as an operating lease. A gain on the sale of $10.8 million was recognized and is presented within “Impairment and other (gains) charges, net” in our consolidated statement of earnings.

Company as lessor — The following table presents rental income (in thousands):

	2021						2020
	Owned Properties		Leased Properties		Total		Owned Properties		Leased Properties		Total
Operating lease income - franchise	$	20,132	$	218,028	$	238,160	$	19,785	$	216,015	$	235,800
Variable lease income - franchise	12,363		96,111		108,474		9,960		74,887		84,847
Franchise rental revenues	$	32,495	$	314,139	$	346,634	$	29,745	$	290,902	$	320,647
Operating lease income - closed restaurants and other (1)	$	—	$	6,027	$	6,027	$	—	$	6,370	$	6,370

________________________

(1)Primarily relates to closed restaurant properties included in “Impairment and other (gains) charges, net” in our consolidated statement of earnings.

The following table presents as of October 3, 2021, future minimum rental receipts for non-cancellable leases and subleases (in thousands):

	October 3, 2021
Fiscal year:
2022	$	238,021
2023	231,342
2024	205,740
2025	214,526
2026	199,906
Thereafter	939,239
Total minimum rental receipts	$	2,028,774

Assets held for lease and included in property and equipment consisted of the following at each fiscal year-end (in thousands):

	October 3, 2021		September 27, 2020
Land	$	89,791	$	88,187
Buildings	782,450		801,730
Equipment	223		589
	872,464		890,506
Less accumulated depreciation	(657,030)		(650,812)
	$	215,434	$	239,694

Finance Leases, Lessee

LEASES

Nature of leases — We own restaurant sites and we also lease restaurant sites from third parties. Some of these owned or leased sites are leased and/or subleased to franchisees. Initial terms of our real estate leases are generally 20 years, exclusive of options to renew, which are generally exercisable at our sole discretion for 1 to 20 years. In some instances, our leases have provisions for contingent rentals based upon a percentage of defined revenues. Many of our restaurants also have rent escalation clauses and require the payment of property taxes, insurance, and maintenance costs. Variable lease costs include contingent rent, cost-of-living index adjustments, and payments for additional rent such as real estate taxes, insurance, and common area maintenance, which are excluded from the measurement of the lease liability. We also lease certain restaurant and office equipment with initial terms generally ranging from 3 to 8 years. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As lessor, our leases and subleases primarily consist of restaurants that have been leased to franchisees subsequent to refranchising transactions. The lease descriptions, terms, variable lease payments and renewal options are generally the same as the lessee leases described above. Revenues from leasing arrangements with our franchisees are presented in “Franchise rental revenues” in the accompanying consolidated statements of earnings, and the related expenses are presented in “Franchise occupancy expenses.”

Company as lessee — Leased assets and liabilities consisted of the following as of October 3, 2021 and September 27, 2020 (in thousands):

	October 3, 2021		September 27, 2020
Assets:
Operating lease ROU assets	$	934,066	$	904,548
Finance lease ROU assets (1)	1,698		2,333
Total ROU assets	$	935,764	$	906,881
Liabilities:
Current operating lease liabilities	$	150,636	$	179,000
Current finance lease liabilities (2)	894		818
Long-term operating lease liabilities	809,191		776,094
Long-term finance lease liabilities (2)	1,381		2,116
Total lease liabilities	$	962,102	$	958,028

________________________

(1)Included in “Property and equipment, net” on our consolidated balance sheets.

(2)Included in “Current maturities of long-term debt” and “Long-term debt, net of current maturities” on our consolidated balance sheets.

The following table presents the components of our lease costs in fiscal 2021 and 2020 (in thousands):

	2021		2020
Lease costs:
Finance lease cost:
Amortization of ROU assets (1)	$	807	$	767
Interest on lease liabilities (2)	89		110
Operating lease cost (3)	194,149		190,461
Short-term lease cost (3)	427		175
Variable lease cost (3)(4)	43,498		40,798
	$	238,970	$	232,311

____________________________

(1)Included in “Depreciation and amortization” in our consolidated statement of earnings.

(2)Included in “Interest expense, net” in our consolidated statement of earnings.

(3)Operating lease, short-term and variable lease costs associated with franchisees and company-operated restaurants are included in “Franchise occupancy expenses” and “Occupancy and other,” respectively, in our consolidated statement of earnings. For our closed restaurants, these costs are included in “Impairment and other (gains) charges, net” and all other costs are included in “Selling, general and administrative expenses.”

(4)Includes $38.0 million and $37.4 million in 2021 and 2020, respectively, of property taxes and common area maintenance costs which are reimbursed by sub-lessees.

The following table summarizes the components of rent expense in fiscal 2019, as accounted for under previous guidance (in thousands):

	2019
Minimum rentals	184,587
Contingent rentals	2,255
Total rent expense	186,842

The following table presents supplemental information related to leases:

	October 3, 2021		September 27, 2020
Weighted-average remaining lease term (in years):
Finance leases	2.4		3.3
Operating leases	9.0		8.3
Weighted-average discount rate:
Finance leases	3.6	%	3.5	%
Operating leases	4.1	%	4.2	%

The following table presents as of October 3, 2021, the annual maturities of our lease liabilities (in thousands):

	Finance Leases		Operating Leases
Fiscal year:
2022	$	961	$	186,717
2023	944		161,788
2024	413		128,816
2025	50		122,114
2026	25		106,582
Thereafter	27		460,138
Total future lease payments (1)	$	2,420	$	1,166,155
Less: imputed interest	(145)		(206,328)
Present value of lease liabilities	$	2,275	$	959,827
Less current portion	(894)		(150,636)
Long-term lease obligations	$	1,381	$	809,191

________________________

(1)Total future lease payments include non-cancellable commitments of $2.4 million for finance leases and $1,000.0 million for operating leases.

Assets recorded under finance leases are included in property and equipment, and consisted of the following at each fiscal year-end (in thousands):

	2021	2020
Buildings	1,342	1,342
Equipment	5,869	5,631
Less accumulated amortization	(5,513)	(4,640)
	1,698	2,333

The following table includes supplemental cash flow and non-cash information related to our lessee leases (in thousands):

	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	218,570	$	190,303
Operating cash flows from financing leases	$	89	$	110
Financing cash flows from financing leases	$	829	$	785
Supplemental noncash information on lease liabilities arising from obtaining right-of-use assets:
Right-of-use assets obtained in exchange for new operating lease obligations	$	186,621	$	181,532
Right-of-use assets obtained in exchange for new financing lease obligations	$	184	$	132

Sale and leaseback transactions — In fiscal 2021, we sold two restaurant properties in sale and leaseback transactions for net proceeds of $3.9 million and recorded total gains of less than $0.1 million. The leases have been accounted for as operating leases and contain an initial term of 20 years.

In fiscal 2020, we completed two sale and leaseback transactions of our restaurant properties with one occurring during the first quarter of 2020 and the other occurring during the third quarter of 2020. In the first quarter of 2020, we completed a sale leaseback transaction of a multi-tenant commercial property in Los Angeles, California and leased back the parcel on which a company-operated restaurant is located. The Company received net proceeds of $17.4 million and recognized a $0.2 million loss on the sale. The initial term on the lease is 20 years and the lease has been accounted for as an operating lease. Under the other arrangement, we received net proceeds of $2.4 million on a restaurant property sold and recognized a loss of less than $0.1 million on the sale. The initial term of the lease is 17 years and has been accounted for as an operating lease.

In fiscal 2020, we also completed the sale of one of our corporate office buildings as we moved forward with our previously announced consolidation of our headquarters. We entered into a lease with the buyer to leaseback the property for up to 18 months with an option to terminate earlier without penalty, upon providing a 90-day notice. The net proceeds received on the sale were $20.6 million and the lease has been accounted for as an operating lease. A gain on the sale of $10.8 million was recognized and is presented within “Impairment and other (gains) charges, net” in our consolidated statement of earnings.

Company as lessor — The following table presents rental income (in thousands):

	2021						2020
	Owned Properties		Leased Properties		Total		Owned Properties		Leased Properties		Total
Operating lease income - franchise	$	20,132	$	218,028	$	238,160	$	19,785	$	216,015	$	235,800
Variable lease income - franchise	12,363		96,111		108,474		9,960		74,887		84,847
Franchise rental revenues	$	32,495	$	314,139	$	346,634	$	29,745	$	290,902	$	320,647
Operating lease income - closed restaurants and other (1)	$	—	$	6,027	$	6,027	$	—	$	6,370	$	6,370

________________________

(1)Primarily relates to closed restaurant properties included in “Impairment and other (gains) charges, net” in our consolidated statement of earnings.

The following table presents as of October 3, 2021, future minimum rental receipts for non-cancellable leases and subleases (in thousands):

	October 3, 2021
Fiscal year:
2022	$	238,021
2023	231,342
2024	205,740
2025	214,526
2026	199,906
Thereafter	939,239
Total minimum rental receipts	$	2,028,774

Assets held for lease and included in property and equipment consisted of the following at each fiscal year-end (in thousands):

	October 3, 2021		September 27, 2020
Land	$	89,791	$	88,187
Buildings	782,450		801,730
Equipment	223		589
	872,464		890,506
Less accumulated depreciation	(657,030)		(650,812)
	$	215,434	$	239,694

Operating Leases, Lessor

LEASES

Nature of leases — We own restaurant sites and we also lease restaurant sites from third parties. Some of these owned or leased sites are leased and/or subleased to franchisees. Initial terms of our real estate leases are generally 20 years, exclusive of options to renew, which are generally exercisable at our sole discretion for 1 to 20 years. In some instances, our leases have provisions for contingent rentals based upon a percentage of defined revenues. Many of our restaurants also have rent escalation clauses and require the payment of property taxes, insurance, and maintenance costs. Variable lease costs include contingent rent, cost-of-living index adjustments, and payments for additional rent such as real estate taxes, insurance, and common area maintenance, which are excluded from the measurement of the lease liability. We also lease certain restaurant and office equipment with initial terms generally ranging from 3 to 8 years. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As lessor, our leases and subleases primarily consist of restaurants that have been leased to franchisees subsequent to refranchising transactions. The lease descriptions, terms, variable lease payments and renewal options are generally the same as the lessee leases described above. Revenues from leasing arrangements with our franchisees are presented in “Franchise rental revenues” in the accompanying consolidated statements of earnings, and the related expenses are presented in “Franchise occupancy expenses.”

Company as lessee — Leased assets and liabilities consisted of the following as of October 3, 2021 and September 27, 2020 (in thousands):

	October 3, 2021		September 27, 2020
Assets:
Operating lease ROU assets	$	934,066	$	904,548
Finance lease ROU assets (1)	1,698		2,333
Total ROU assets	$	935,764	$	906,881
Liabilities:
Current operating lease liabilities	$	150,636	$	179,000
Current finance lease liabilities (2)	894		818
Long-term operating lease liabilities	809,191		776,094
Long-term finance lease liabilities (2)	1,381		2,116
Total lease liabilities	$	962,102	$	958,028

________________________

(1)Included in “Property and equipment, net” on our consolidated balance sheets.

(2)Included in “Current maturities of long-term debt” and “Long-term debt, net of current maturities” on our consolidated balance sheets.

The following table presents the components of our lease costs in fiscal 2021 and 2020 (in thousands):

	2021		2020
Lease costs:
Finance lease cost:
Amortization of ROU assets (1)	$	807	$	767
Interest on lease liabilities (2)	89		110
Operating lease cost (3)	194,149		190,461
Short-term lease cost (3)	427		175
Variable lease cost (3)(4)	43,498		40,798
	$	238,970	$	232,311

____________________________

(1)Included in “Depreciation and amortization” in our consolidated statement of earnings.

(2)Included in “Interest expense, net” in our consolidated statement of earnings.

(3)Operating lease, short-term and variable lease costs associated with franchisees and company-operated restaurants are included in “Franchise occupancy expenses” and “Occupancy and other,” respectively, in our consolidated statement of earnings. For our closed restaurants, these costs are included in “Impairment and other (gains) charges, net” and all other costs are included in “Selling, general and administrative expenses.”

(4)Includes $38.0 million and $37.4 million in 2021 and 2020, respectively, of property taxes and common area maintenance costs which are reimbursed by sub-lessees.

The following table summarizes the components of rent expense in fiscal 2019, as accounted for under previous guidance (in thousands):

	2019
Minimum rentals	184,587
Contingent rentals	2,255
Total rent expense	186,842

The following table presents supplemental information related to leases:

	October 3, 2021		September 27, 2020
Weighted-average remaining lease term (in years):
Finance leases	2.4		3.3
Operating leases	9.0		8.3
Weighted-average discount rate:
Finance leases	3.6	%	3.5	%
Operating leases	4.1	%	4.2	%

The following table presents as of October 3, 2021, the annual maturities of our lease liabilities (in thousands):

	Finance Leases		Operating Leases
Fiscal year:
2022	$	961	$	186,717
2023	944		161,788
2024	413		128,816
2025	50		122,114
2026	25		106,582
Thereafter	27		460,138
Total future lease payments (1)	$	2,420	$	1,166,155
Less: imputed interest	(145)		(206,328)
Present value of lease liabilities	$	2,275	$	959,827
Less current portion	(894)		(150,636)
Long-term lease obligations	$	1,381	$	809,191

________________________

(1)Total future lease payments include non-cancellable commitments of $2.4 million for finance leases and $1,000.0 million for operating leases.

Assets recorded under finance leases are included in property and equipment, and consisted of the following at each fiscal year-end (in thousands):

	2021	2020
Buildings	1,342	1,342
Equipment	5,869	5,631
Less accumulated amortization	(5,513)	(4,640)
	1,698	2,333

The following table includes supplemental cash flow and non-cash information related to our lessee leases (in thousands):

	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	218,570	$	190,303
Operating cash flows from financing leases	$	89	$	110
Financing cash flows from financing leases	$	829	$	785
Supplemental noncash information on lease liabilities arising from obtaining right-of-use assets:
Right-of-use assets obtained in exchange for new operating lease obligations	$	186,621	$	181,532
Right-of-use assets obtained in exchange for new financing lease obligations	$	184	$	132

Sale and leaseback transactions — In fiscal 2021, we sold two restaurant properties in sale and leaseback transactions for net proceeds of $3.9 million and recorded total gains of less than $0.1 million. The leases have been accounted for as operating leases and contain an initial term of 20 years.

In fiscal 2020, we completed two sale and leaseback transactions of our restaurant properties with one occurring during the first quarter of 2020 and the other occurring during the third quarter of 2020. In the first quarter of 2020, we completed a sale leaseback transaction of a multi-tenant commercial property in Los Angeles, California and leased back the parcel on which a company-operated restaurant is located. The Company received net proceeds of $17.4 million and recognized a $0.2 million loss on the sale. The initial term on the lease is 20 years and the lease has been accounted for as an operating lease. Under the other arrangement, we received net proceeds of $2.4 million on a restaurant property sold and recognized a loss of less than $0.1 million on the sale. The initial term of the lease is 17 years and has been accounted for as an operating lease.

In fiscal 2020, we also completed the sale of one of our corporate office buildings as we moved forward with our previously announced consolidation of our headquarters. We entered into a lease with the buyer to leaseback the property for up to 18 months with an option to terminate earlier without penalty, upon providing a 90-day notice. The net proceeds received on the sale were $20.6 million and the lease has been accounted for as an operating lease. A gain on the sale of $10.8 million was recognized and is presented within “Impairment and other (gains) charges, net” in our consolidated statement of earnings.

Company as lessor — The following table presents rental income (in thousands):

	2021						2020
	Owned Properties		Leased Properties		Total		Owned Properties		Leased Properties		Total
Operating lease income - franchise	$	20,132	$	218,028	$	238,160	$	19,785	$	216,015	$	235,800
Variable lease income - franchise	12,363		96,111		108,474		9,960		74,887		84,847
Franchise rental revenues	$	32,495	$	314,139	$	346,634	$	29,745	$	290,902	$	320,647
Operating lease income - closed restaurants and other (1)	$	—	$	6,027	$	6,027	$	—	$	6,370	$	6,370

________________________

(1)Primarily relates to closed restaurant properties included in “Impairment and other (gains) charges, net” in our consolidated statement of earnings.

The following table presents as of October 3, 2021, future minimum rental receipts for non-cancellable leases and subleases (in thousands):

	October 3, 2021
Fiscal year:
2022	$	238,021
2023	231,342
2024	205,740
2025	214,526
2026	199,906
Thereafter	939,239
Total minimum rental receipts	$	2,028,774

Assets held for lease and included in property and equipment consisted of the following at each fiscal year-end (in thousands):

	October 3, 2021		September 27, 2020
Land	$	89,791	$	88,187
Buildings	782,450		801,730
Equipment	223		589
	872,464		890,506
Less accumulated depreciation	(657,030)		(650,812)
	$	215,434	$	239,694