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Note 13 - Leases

6 Months Ended

Jan. 01, 2023

The Company currently leases plants, warehouses, offices, store facilities, and equipment under various leases through fiscal 2036. Most lease agreements are of a long-term nature (over a year), although the Company does also enter into short-term leases, primarily for seasonal needs. Lease agreements may contain renewal options and rent escalation clauses and require the Company to pay real estate taxes, insurance, common area maintenance and operating expenses applicable to the leased properties. The Company accounts for its leases in accordance with ASC 842.

At contract inception, we determine whether a contract is, or contains, a lease by determining whether it conveys the right to control the use of the identified asset for a period of time, by assessing whether we have the right to obtain substantially all of the economic benefits from use of the identified asset and the right to direct the use of the identified asset.

At the lease commencement date, we determine if a lease should be classified as an operating or a finance lease (we currently have no finance leases) and recognize a corresponding lease liability and a right-of-use asset on our Balance Sheet. The lease liability is initially and subsequently measured as the present value of the remaining fixed minimum rental payments (including base rent and fixed common area maintenance) using discount rates as of the commencement date. Variable payments (including most utilities, real estate taxes, insurance and variable common area maintenance) are expensed as incurred. Further, we elected a short-term lease exception policy, permitting us to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less) and an accounting policy to account for lease and non-lease components as a single component for certain classes of assets. The right-of-use asset is initially and subsequently measured at the carrying amount of the lease liability adjusted for any prepaid or accrued lease payments, remaining balance of lease incentives received, unamortized initial direct costs, or impairment charges relating to the right-of-use asset. Right-of-use assets are assessed for impairment using the long-lived assets impairment guidance. The discount rate used to determine the present value of lease payments is our estimated collateralized incremental borrowing rate, based on the yield curve for the respective lease terms, as we generally cannot determine the interest rate implicit in the lease.

We recognize expense for our operating leases on a straight-line basis over the lease term. As these leases expire, it can be expected that in the normal course of business they will be renewed or replaced. Renewal option periods are included in the measurement of lease liability, where the exercise is reasonably certain to occur. Key estimates and judgments in accounting for leases include how we determine: (1) lease payments, (2) lease term, and (3) the discount rate used in calculating the lease liability.

Additional information related to our leases is as follows:

	Three Months Ended						Six Months Ended
	January 1, 2023			December 26, 2021			January 1, 2023			December 26, 2021
	(in thousands)
Lease costs:
Operating lease costs	$	5,606		$	5,101		$	10,953		$	9,064
Variable lease costs		6,603			5,745			12,454			10,875
Short-term lease cost		2,889			2,916			4,454			4,497
Sublease income		(241	)		(175	)		(484	)		(357	)
Total lease costs	$	14,857		$	13,587		$	27,377		$	24,079

Cash paid for amounts included in measurement of operating lease liabilities							$	9,851		$	7,309
Right-of-use assets obtained in exchange for new operating lease liabilities							$	10,521		$	55,433

	January 1, 2023
	(in thousands)
Weighted-average remaining lease term - operating leases (in years)		9.1
Weighted-discount rate - operating leases		3.9	%

Maturities of lease liabilities in accordance with ASC 842 as of January 1, 2023 and reconciliation to balance sheet are as follows (in thousands):

Remainder of 2023	$	9,358
2024		22,235
2025		19,946
2026		18,006
2027		16,376
Thereafter		82,497
Total Future Minimum Lease Payments		168,418
Less: Imputed Remaining Interest		28,404
Total Operating Lease Liabilities		140,014
Less: Current portion of long-term operating lease liabilities		15,289
Long-term operating lease liabilities	$	124,725