Note 6 - Leases

9 Months Ended

Jan. 25, 2020

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

6. LEASES

The Company leases two manufacturing facilities, warehouse and office space (“real estate”), and machinery and other equipment, including delivery vehicles, under non-cancellable operating lease agreements. These leases expire at various dates through 2030. In February 2016, the Financial Accounting Standards Board issued ASU 2016-02, “Leases” (the “lease standard”). The lease standard requires lessees to recognize a right-to-use asset and a lease liability for virtually all leases (other than leases meeting the definition of a short-term lease). The new guidance is effective for fiscal years after December 15, 2018 and interim periods beginning the following fiscal year. The Company adopted the new lease standard as of April 28, 2019 using the modified retrospective method and has elected to adopt the available practical expedient as accounting policy on the initial adoption of the lease standard. Upon adoption of the lease standard on April 28, 2019, the Company recorded a right-of-use asset for operating leases and lease liabilities of $55.5 million. The adoption of the lease standard did not change previously reported condensed consolidated statements of income, did not result in a cumulative effect adjustment to retained earnings in the period of adoption and did not impact cash flows.

The Company has used the following policies and assumptions in evaluating its population of leases:

● Determining a lease – The Company assesses contracts at inception to determine whether an arrangement is or includes a lease which conveys the Company’s right to control the use of an identified asset for a period of time in exchange for consideration. Operating lease right-of-use assets and associated liabilities are recognized at the commencement date and initially measured at the present value of the lease payments over the defined lease term.

● Allocating lease and non-lease components – The Company has elected the practical expedient to not separate lease and non-lease components for certain classes of underlying assets, including certain equipment and vehicle lease agreements which generally have the lease and associated non-lease components accounted for as a single lease component. Additionally, real estate lease agreements with lease and non-lease components are generally accounted for separately where applicable.

● Discount rate – The Company calculates the discount rate based on the Company’s incremental borrowing rate using the contractual lease term.

● Lease term – The Company does not recognize leases with an original contractual term of less than 12 months on the balance sheet. Lease expense for these short term leases is expensed on a straight-line basis over the lease term.

● Rent increases or escalation clauses – Certain leases contain scheduled rent increases or escalation clauses. The Company assesses each contract individually and calculates variable payments based on the terms of the individual agreement.

● Renewal options and / or purchase options – Certain leases include renewal options to extend the lease term and / or purchase options to purchase the leased asset. The Company assesses these options using a threshold of reasonably certain, which is a high threshold and, therefore, the majority of the Company’s leases do not include renewal periods or purchase options in the measurement of the right-of-use asset and the associated lease liability.

● Option to terminate – Certain leases include the option to terminate the lease prior to its scheduled expiration. This allows a contractually bound party to terminate its obligation under the lease contract, typically in return for an agreed upon financial consideration. The terms and conditions of the termination options vary by contract; such options are not included in the measurement of the right-to-use assets and associated lease liability.

The Company’s weighted average remaining lease term was 3.75 years and weighted average discount rate was 3.38% as of January 25, 2020. The following is a summary of future minimum lease payments and related liabilities for all non-cancelable operating leases as of January 25, 2020 (In thousands):

Remainder of Fiscal 2020 (4th quarter 2020)	$	3,599
Fiscal 2021		20,318
Fiscal 2022		10,690
Fiscal 2023		8,398
Fiscal 2024		5,005
Thereafter		2,084
Total minimum lease payments including interest		50,094
Less: Amounts representing interest		(2,609	)
Present value of minimum lease payments		47,485
Less: Current portion of lease liabilities		(13,754	)
Non-Current portion of operating lease liabilities	$	33,731

Lease expense for the three and nine months ended January 25, 2020 was $4.0 million and $10.7 million for operating leases and $.5 million and $1.5 million for short-term leases, respectively. Net cash provided by operations was impacted by $10.8 million for operating leases for the nine months ended January 25, 2020.

Our minimum lease payments under non-cancelable operating leases as of April 27, 2019 were as follows (In thousands):

Fiscal 2020	$	16,105
Fiscal 2021		12,084
Fiscal 2022		9,894
Fiscal 2023		7,741
Fiscal 2024		4,510
Thereafter		1,703
Total minimum lease payments including interest	$	52,037