Leases

12 Months Ended

Oct. 02, 2022

Leases [Abstract]

Leases

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 2, 2022 and October 3, 2021 (in thousands):

	October 2, 2022		October 3, 2021
Assets:
Operating lease ROU assets	$	1,332,135	$	934,066
Finance lease ROU assets (1)	854		1,698
Total ROU assets	$	1,332,989	$	935,764
Liabilities:
Current operating lease liabilities	$	171,311	$	150,636
Current finance lease liabilities (2)	896		894
Long-term operating lease liabilities	1,165,097		809,191
Long-term finance lease liabilities (2)	435		1,381
Total lease liabilities	$	1,337,739	$	962,102

________________________

(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 2022, 2021, and 2020 (in thousands):

	2022		2021		2020
Lease costs:
Finance lease cost:
Amortization of ROU assets (1)	$	827	$	807	$	767
Interest on lease liabilities (2)	67		89		110
Operating lease cost (3)	218,837		194,149		190,461
Short-term lease cost (3)	824		427		175
Variable lease cost (3)(4)	48,872		43,498		40,798
	$	269,427	$	238,970	$	232,311

____________________________

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

(2)Included in “Interest expense, net” in our consolidated statements 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 statements of earnings. For our closed restaurants, these costs are included in “Other operating expense (income), net” and all other costs are included in “Selling, general and administrative expenses.”

(4)Includes $38.2 million, $38.0 million, and $37.4 million in 2022, 2021, and 2020, respectively, of property taxes and common area maintenance costs which are reimbursed by sub-lessees.

The following table presents supplemental information related to leases:

	October 2, 2022		October 3, 2021
Weighted-average remaining lease term (in years):
Finance leases	1.5		2.4
Operating leases	10.0		9.0
Weighted-average discount rate:
Finance leases	3.8	%	3.6	%
Operating leases	4.6	%	4.1	%

The following table presents as of October 2, 2022, the annual maturities of our lease liabilities (in thousands):

	Finance Leases		Operating Leases
Fiscal year:
2023	$	932	$	231,670
2024	372		196,702
2025	40		191,507
2026	27		174,068
2027	14		159,219
Thereafter	13		758,184
Total future lease payments (1)	$	1,398	$	1,711,350
Less: imputed interest	(67)		(374,942)
Present value of lease liabilities	$	1,331	$	1,336,408
Less current portion	(896)		(171,311)
Long-term lease obligations	$	435	$	1,165,097

________________________

(1)Total future lease payments include non-cancellable commitments of $1.4 million for finance leases and $1,366.5 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):

	2022		2021
Buildings	$	1,342	$	1,342
Equipment	5,559		5,869
Less accumulated amortization	(6,047)		(5,513)
	$	854	$	1,698

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

	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	218,605	$	218,570
Operating cash flows from financing leases	$	67	$	89
Financing cash flows from financing leases	$	907	$	829
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	$	221,466	$	186,621
Right-of-use assets obtained in exchange for new financing lease obligations	$	45	$	184

Sale and leaseback transactions — In fiscal 2022, we sold four restaurant properties in sale and leaseback transactions for net proceeds of $10.8 million and recorded total losses of $0.2 million. The leases have been accounted for as operating leases and contain initial terms of 16 years and 20 years.

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 “Other operating expenses (income), net” in our consolidated statement of earnings.

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

	2022						2021
	Owned Properties		Leased Properties		Total		Owned Properties		Leased Properties		Total
Operating lease income - franchise	$	19,221	$	212,552	$	231,773	$	20,132	$	218,028	$	238,160
Variable lease income - franchise	12,418		96,002		108,420		12,363		96,111		108,474
Amortization of favorable and unfavorable lease contracts, net	—		198		198		—		—		—
Franchise rental revenues	$	31,639	$	308,752	$	340,391	$	32,495	$	314,139	$	346,634
Operating lease income - closed restaurants and other (1)	$	60	$	6,347	$	6,407	$	—	$	6,027	$	6,027

________________________

(1)Primarily relates to closed restaurant properties included in “Other operating expense (income), net” in our consolidated statements of earnings.

The following table presents as of October 2, 2022, future minimum rental receipts for non-cancellable leases and subleases (in thousands):

	October 2, 2022
Fiscal year:
2023	$	243,929
2024	217,567
2025	225,542
2026	211,507
2027	204,685
Thereafter	879,829
Total minimum rental receipts	$	1,983,059

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

	October 2, 2022		October 3, 2021
Land	$	75,967	$	89,791
Buildings	771,567		782,450
Equipment	2,750		223
	850,284		872,464
Less accumulated depreciation	(663,109)		(657,030)
	$	187,175	$	215,434

Leases

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 2, 2022 and October 3, 2021 (in thousands):

	October 2, 2022		October 3, 2021
Assets:
Operating lease ROU assets	$	1,332,135	$	934,066
Finance lease ROU assets (1)	854		1,698
Total ROU assets	$	1,332,989	$	935,764
Liabilities:
Current operating lease liabilities	$	171,311	$	150,636
Current finance lease liabilities (2)	896		894
Long-term operating lease liabilities	1,165,097		809,191
Long-term finance lease liabilities (2)	435		1,381
Total lease liabilities	$	1,337,739	$	962,102

________________________

(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 2022, 2021, and 2020 (in thousands):

	2022		2021		2020
Lease costs:
Finance lease cost:
Amortization of ROU assets (1)	$	827	$	807	$	767
Interest on lease liabilities (2)	67		89		110
Operating lease cost (3)	218,837		194,149		190,461
Short-term lease cost (3)	824		427		175
Variable lease cost (3)(4)	48,872		43,498		40,798
	$	269,427	$	238,970	$	232,311

____________________________

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

(2)Included in “Interest expense, net” in our consolidated statements 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 statements of earnings. For our closed restaurants, these costs are included in “Other operating expense (income), net” and all other costs are included in “Selling, general and administrative expenses.”

(4)Includes $38.2 million, $38.0 million, and $37.4 million in 2022, 2021, and 2020, respectively, of property taxes and common area maintenance costs which are reimbursed by sub-lessees.

The following table presents supplemental information related to leases:

	October 2, 2022		October 3, 2021
Weighted-average remaining lease term (in years):
Finance leases	1.5		2.4
Operating leases	10.0		9.0
Weighted-average discount rate:
Finance leases	3.8	%	3.6	%
Operating leases	4.6	%	4.1	%

The following table presents as of October 2, 2022, the annual maturities of our lease liabilities (in thousands):

	Finance Leases		Operating Leases
Fiscal year:
2023	$	932	$	231,670
2024	372		196,702
2025	40		191,507
2026	27		174,068
2027	14		159,219
Thereafter	13		758,184
Total future lease payments (1)	$	1,398	$	1,711,350
Less: imputed interest	(67)		(374,942)
Present value of lease liabilities	$	1,331	$	1,336,408
Less current portion	(896)		(171,311)
Long-term lease obligations	$	435	$	1,165,097

________________________

(1)Total future lease payments include non-cancellable commitments of $1.4 million for finance leases and $1,366.5 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):

	2022		2021
Buildings	$	1,342	$	1,342
Equipment	5,559		5,869
Less accumulated amortization	(6,047)		(5,513)
	$	854	$	1,698

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

	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	218,605	$	218,570
Operating cash flows from financing leases	$	67	$	89
Financing cash flows from financing leases	$	907	$	829
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	$	221,466	$	186,621
Right-of-use assets obtained in exchange for new financing lease obligations	$	45	$	184

Sale and leaseback transactions — In fiscal 2022, we sold four restaurant properties in sale and leaseback transactions for net proceeds of $10.8 million and recorded total losses of $0.2 million. The leases have been accounted for as operating leases and contain initial terms of 16 years and 20 years.

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 “Other operating expenses (income), net” in our consolidated statement of earnings.

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

	2022						2021
	Owned Properties		Leased Properties		Total		Owned Properties		Leased Properties		Total
Operating lease income - franchise	$	19,221	$	212,552	$	231,773	$	20,132	$	218,028	$	238,160
Variable lease income - franchise	12,418		96,002		108,420		12,363		96,111		108,474
Amortization of favorable and unfavorable lease contracts, net	—		198		198		—		—		—
Franchise rental revenues	$	31,639	$	308,752	$	340,391	$	32,495	$	314,139	$	346,634
Operating lease income - closed restaurants and other (1)	$	60	$	6,347	$	6,407	$	—	$	6,027	$	6,027

________________________

(1)Primarily relates to closed restaurant properties included in “Other operating expense (income), net” in our consolidated statements of earnings.

The following table presents as of October 2, 2022, future minimum rental receipts for non-cancellable leases and subleases (in thousands):

	October 2, 2022
Fiscal year:
2023	$	243,929
2024	217,567
2025	225,542
2026	211,507
2027	204,685
Thereafter	879,829
Total minimum rental receipts	$	1,983,059

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

	October 2, 2022		October 3, 2021
Land	$	75,967	$	89,791
Buildings	771,567		782,450
Equipment	2,750		223
	850,284		872,464
Less accumulated depreciation	(663,109)		(657,030)
	$	187,175	$	215,434

Leases

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 2, 2022 and October 3, 2021 (in thousands):

	October 2, 2022		October 3, 2021
Assets:
Operating lease ROU assets	$	1,332,135	$	934,066
Finance lease ROU assets (1)	854		1,698
Total ROU assets	$	1,332,989	$	935,764
Liabilities:
Current operating lease liabilities	$	171,311	$	150,636
Current finance lease liabilities (2)	896		894
Long-term operating lease liabilities	1,165,097		809,191
Long-term finance lease liabilities (2)	435		1,381
Total lease liabilities	$	1,337,739	$	962,102

________________________

(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 2022, 2021, and 2020 (in thousands):

	2022		2021		2020
Lease costs:
Finance lease cost:
Amortization of ROU assets (1)	$	827	$	807	$	767
Interest on lease liabilities (2)	67		89		110
Operating lease cost (3)	218,837		194,149		190,461
Short-term lease cost (3)	824		427		175
Variable lease cost (3)(4)	48,872		43,498		40,798
	$	269,427	$	238,970	$	232,311

____________________________

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

(2)Included in “Interest expense, net” in our consolidated statements 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 statements of earnings. For our closed restaurants, these costs are included in “Other operating expense (income), net” and all other costs are included in “Selling, general and administrative expenses.”

(4)Includes $38.2 million, $38.0 million, and $37.4 million in 2022, 2021, and 2020, respectively, of property taxes and common area maintenance costs which are reimbursed by sub-lessees.

The following table presents supplemental information related to leases:

	October 2, 2022		October 3, 2021
Weighted-average remaining lease term (in years):
Finance leases	1.5		2.4
Operating leases	10.0		9.0
Weighted-average discount rate:
Finance leases	3.8	%	3.6	%
Operating leases	4.6	%	4.1	%

The following table presents as of October 2, 2022, the annual maturities of our lease liabilities (in thousands):

	Finance Leases		Operating Leases
Fiscal year:
2023	$	932	$	231,670
2024	372		196,702
2025	40		191,507
2026	27		174,068
2027	14		159,219
Thereafter	13		758,184
Total future lease payments (1)	$	1,398	$	1,711,350
Less: imputed interest	(67)		(374,942)
Present value of lease liabilities	$	1,331	$	1,336,408
Less current portion	(896)		(171,311)
Long-term lease obligations	$	435	$	1,165,097

________________________

(1)Total future lease payments include non-cancellable commitments of $1.4 million for finance leases and $1,366.5 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):

	2022		2021
Buildings	$	1,342	$	1,342
Equipment	5,559		5,869
Less accumulated amortization	(6,047)		(5,513)
	$	854	$	1,698

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

	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	218,605	$	218,570
Operating cash flows from financing leases	$	67	$	89
Financing cash flows from financing leases	$	907	$	829
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	$	221,466	$	186,621
Right-of-use assets obtained in exchange for new financing lease obligations	$	45	$	184

Sale and leaseback transactions — In fiscal 2022, we sold four restaurant properties in sale and leaseback transactions for net proceeds of $10.8 million and recorded total losses of $0.2 million. The leases have been accounted for as operating leases and contain initial terms of 16 years and 20 years.

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 “Other operating expenses (income), net” in our consolidated statement of earnings.

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

	2022						2021
	Owned Properties		Leased Properties		Total		Owned Properties		Leased Properties		Total
Operating lease income - franchise	$	19,221	$	212,552	$	231,773	$	20,132	$	218,028	$	238,160
Variable lease income - franchise	12,418		96,002		108,420		12,363		96,111		108,474
Amortization of favorable and unfavorable lease contracts, net	—		198		198		—		—		—
Franchise rental revenues	$	31,639	$	308,752	$	340,391	$	32,495	$	314,139	$	346,634
Operating lease income - closed restaurants and other (1)	$	60	$	6,347	$	6,407	$	—	$	6,027	$	6,027

________________________

(1)Primarily relates to closed restaurant properties included in “Other operating expense (income), net” in our consolidated statements of earnings.

The following table presents as of October 2, 2022, future minimum rental receipts for non-cancellable leases and subleases (in thousands):

	October 2, 2022
Fiscal year:
2023	$	243,929
2024	217,567
2025	225,542
2026	211,507
2027	204,685
Thereafter	879,829
Total minimum rental receipts	$	1,983,059

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

	October 2, 2022		October 3, 2021
Land	$	75,967	$	89,791
Buildings	771,567		782,450
Equipment	2,750		223
	850,284		872,464
Less accumulated depreciation	(663,109)		(657,030)
	$	187,175	$	215,434