Leases

3 Months Ended

Sep. 26, 2019

Leases

Note 3—Leases

On June 28, 2019 we adopted ASU

No. 2016-02,

Leases (“Topic 842”)

using the alternative transition method under ASU

No. 2018-11,

which permits application of the new guidance at the beginning of the period of adoption, with comparative periods continuing to be reported under Topic 840. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification. We did not elect the practical expedients regarding hindsight or land easements. See Note

14 – “Recent Accounting Pronouncements” for additional information.

Upon adoption of the new standard, we recognized operating lease

right-of-use

assets and liabilities on our Consolidated Balance Sheet of $5,361 and $5,320 respectively. We utilized a portfolio approach to establish discount rates for leases that are similar. Discount rates

ranging

from 4.2% to 5.8% were used when determining the present value of future lease payments. All of our existing lessee arrangements currently classified as operating leases will continue to be classified as operating leases, and the pattern of lease expense recognition will be unchanged. The adoption of Topic 842 did not materially impact our consolidated net earnings and had no impact on cash flows.

Description of Leases

We lease equipment used in the transportation of goods in our warehouses, as well as a limited number of automobiles and a small warehouse near our Bainbridge,

Georgia

facility. Our leases generally do not contain

non-lease

components

and do not contain any explicit guarantees of residual value. Our leases for warehouse transportation equipment generally require the equipment to be returned to the lessor in good working order

We determine if an arrangement is a lease at inception and analyze the lease to determine if it is operating or finance. Operating lease

right-of-use

assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease

right-of-use

assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental collateralized borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Implicit rates are used when readily determinable. None of our leases currently contain options to extend the term. In the event of an option to extend the term of a lease, the lease term used in measuring the liability would include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the respective lease term. Our leases have remaining terms of

years

ASU

No. 2016-02

allows for the election as an accounting policy to not apply lease recognition requirements to short term leases, defined as leases with an initial term of 12 months or less.

We have

elected to use this policy, and as such, leases with an initial term of 12 months or less are not recorded in the

Consolidated Balance Sheet. We have

also made the policy election to not separate lease and

non-lease

components

for all leases

The following table provides supplemental information related to operating lease

right-of-use

assets and liabilities:


	September 26, 2019		Affected Line Item in Condensed Consolidated Balance Sheet
Assets
Operating lease right-of-use assets	$	5,170	Operating lease right-of-use assets

Total lease right-of-use assets	$	5,170

Liabilities
Current:
Operating leases	$	1,390	Other accrued expenses
Noncurrent:
Operating leases		3,774	Long-term operating lease liabilities

Total lease liabilities	$	5,164

The following tables summarize the Company’s total lease costs and other information arising from operating lease transactions:


	For the Quarter ended September 26, 2019
Operating lease costs ( a )	$	374
Variable lease costs ( b )		16

Total Lease Cost	$	390

(

)

Includes short-term leases which are immaterial

(

)

Variable lease costs consist of sales tax

Supplemental cash flow and other information related to leases was as follows:


	For the Quarter ended September 26, 2019
Operating cash flows information:
Cash paid for amounts included in measurements for lease liabilities	$	365
Non-cash activity:
Right - of - use assets obtained in exchange for new operating lease obligations	$	152


	For the Quarter ended September 26, 2019
Weighted Average Remaining Lease Term (in years)		4.0
Weighted Average Discount Rate		4.5	%

Maturities of operating lease liabilities as of September 26, 2019 are as follows:


Fiscal year ending
June 25, 2020 (excluding the quarter ended September 26, 2019)	$	1,206
June 24, 2021		1,439
June 30, 2022		1,312
June 29, 2023		1,064
June 27, 2024		469
Thereafter		132

Total lease payment		5,622
Less imputed interest		(458	)

Present value of operating lease liabilities	$	5,164

Disclosures related to periods prior to adoption

As the Company has not recast prior year information for its adoption of Topic 842, the following presents its future minimum lease payments for operating leases under Topic 840 on June 27, 2019:


Fiscal year ending
June 25, 2020	$	1,715
June 24, 2021		1,540
June 30, 2022		1,392
June 29, 2023		1,109
June 27, 2024		464
Thereafter		133

	$	6,353

Lessor Accounting

We lease office space in our four-story office building located in Elgin, Illinois. As a lessor, we retain substantially all of the risks and benefits of ownership of the investment property and under Topic 842 we continue to account for all of our leases as operating leases. Lease agreements may include options to renew. We accrue fixed lease income on a

straight-line

basis over the terms of the leases. There is generally no variable lease consideration and an immaterial amount of

non-lease

components such as recurring utility and storage fees. Leases between related parties are immaterial.

Leasing revenue is as follows:


	For the Quarter Ended September 26, 2019
Gross leasing revenue from operating leases	$	543

The future minimum, undiscounted fixed lease consideration under

non-cancelable

tenant operating leases for each of the next five years and thereafter is presented below and is materially consistent with our previous accounting under Topic 840.


Fiscal year ending
June 25, 2020 (excluding the quarter ended September 26, 2019)	$	1,641
June 24, 2021		1,949
June 30, 2022		1,717
June 29, 2023		1,737
June 27, 2024		1,756
Thereafter		2,467

	$	11,267