Note 3 – Leases

Description of Leases

We lease warehouse space, equipment used in the transportation of goods in our warehouses, a limited number of automobiles and semi-trailers and a small office space. Our leases generally do not contain any explicit guarantees of residual value and, with the exception of the lease for our warehousing and distribution center in Huntley, IL, generally do not contain non-lease components. Our leases for warehouse transportation equipment generally require the equipment to be returned to the lessor in good working order.

Through a review of our contracts, 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. With the exception of our warehouse leases, none of our other 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 up to 6.3 years.

It is our accounting policy not to apply lease recognition requirements to short-term leases, defined as leases with an initial term of 12 months or less. As such, leases with an initial term of 12 months or less are not recorded in the Consolidated Balance Sheets. 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 25, 2025		June 26, 2025		September 26, 2024		Affected Line Item in Consolidated Balance Sheets
Assets
Operating lease right-of-use assets	$	27,187	$	27,824	$	28,034	Operating lease right-of-use assets
Total lease right-of-use assets	$	27,187	$	27,824	$	28,034

Liabilities
Current:
Operating leases	$	4,805	$	4,515	$	3,383	Other accrued expenses
Noncurrent:
Operating leases		23,497		24,224		25,167	Long-term operating lease liabilities
Total lease liabilities	$	28,302	$	28,739	$	28,550

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


	For the Quarter Ended
	September 25, 2025		September 26, 2024
Operating lease costs (a)	$	1,900	$	1,742
Variable lease costs (b)		348		172
Total lease cost	$	2,248	$	1,914

(a)

Includes short-term leases which are immaterial.

(b)

Variable lease costs consist of property taxes, sales tax and insurance.

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


	For the Quarter Ended
	September 25, 2025		September 26, 2024
Operating cash flows information:
Cash paid for amounts included in measurements for lease liabilities	$	1,493	$	1,073

Non-cash activity:
Right-of-use assets obtained in exchange for new operating lease obligations	$	577	$	1,714


	September 25, 2025			June 26, 2025			September 26, 2024
Weighted average remaining lease term (in years)		5.4			5.7			6.3
Weighted average discount rate		6.7	%		6.7	%		6.8	%

Maturities of operating lease liabilities as of September 25, 2025 are as follows:


Fiscal Year Ending
June 25, 2026 (excluding the quarter ended September 25, 2025)	$	4,916
June 24, 2027		6,432
June 29, 2028		6,286
June 28, 2029		5,367
June 27, 2030		4,493
June 26, 2031		4,036
Thereafter		2,348
Total lease payments		33,878
Less imputed interest		(5,576	)
Present value of operating lease liabilities	$	28,302

Lessor Accounting

We lease office space in our four-story office building located in Elgin, IL. As a lessor, we retain substantially all of the risks and benefits of ownership of the investment property. Under Topic 842: Leases, 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 25, 2025		September 26, 2024
Lease income related to lease payments	$	230	$	479

The future minimum, undiscounted fixed cash flows under non-cancelable tenant operating leases for each of the next five years and thereafter are as follows:


Fiscal Year Ending
June 25, 2026 (excluding the quarter ended September 25, 2025)	$	916
June 24, 2027		1,225
June 29, 2028		639
June 28, 2029		560
June 27, 2030		544
June 26, 2031		556
Thereafter		1,887
	$	6,327