Leases

The Company leases the majority of its retail stores. Certain of the operating leases provide for minimum annual payments that change over the life of the lease. The Company expenses rental costs that are incurred during new store construction in the period incurred.

The aggregate minimum annual lease payments are expensed on the straight-line basis over the minimum lease term. The Company recognizes a deferred rent liability for minimum step rents when the amount of rent expense exceeds the actual lease payment and it reduces the deferred rent liability when the actual lease payment exceeds the amount of straight line rent expense. Rent holidays and tenant improvement allowances for store remodels are amortized on the straight-line basis over the initial term of the lease and any option period that is reasonably assured of being exercised. Certain of the Company’s operating leases are subject to contingent rent based upon the sales volume of the store subject to the lease. Primary lease terms range from 3 to 55 years and substantially all leases provide for renewal options.

Following is a summary of future minimum lease payments and sublease income as of September 29, 2013:



	Capital Leases		Operating Leases Minimum Payments		Sublease Income
	(In thousands)
2014	$	833	$	40,752	$	4,267
2015	393		39,374		3,865
2016	35		35,451		3,703
2017	—		30,726		3,503
2018	—		28,117		3,294
Thereafter	—		155,640		14,212
Total minimum lease payments	1,261		$	330,060	$	32,844
Less amounts representing interest	75
Present value of minimum lease payments	1,186
Less current portion	772
Long-term portion	$	414

Rental expense and sublease income were as follows:



	Fiscal Year Ended
	Sept. 25, 2011		Sept. 30, 2012		Sept. 29, 2013
	(In thousands)
Minimum rentals	$	28,850	$	30,603	$	31,765
Rentals based on sales	$	16,558	$	15,792	$	15,742
Sublease income	$	5,528	$	4,608	$	4,790

The Company has a sublease with a third party (the “Sublessee”) ending in July 2023, which contains three, five year lease options, for the lease of the Company’s former headquarters building and certain former distribution facilities located in Colton, California (the “Former Facilities”). The current lease on the Former Facilities contains multiple lease options that gives the Company the right to control the property through 2038. The Sublessee assumed all lease payments and other liabilities under the lease. The Company’s lease payments on the Former Facilities are included in the “Operating leases minimum payments” and the Sublessee’s lease payments are included in “Sublease income” in the table above.