LEASES

9 Months Ended

Jul. 02, 2021

Adoption of Topic 842

At the beginning of fiscal year 2020, the Company adopted ASU 2016-02 and all subsequent ASUs that modified accounting standards Topic 842 using a modified retrospective adoption method, in which right-of-use ("ROU") assets and lease liabilities are recognized in the condensed consolidated balance sheets. Under the effective date transition method, financial results reported in periods prior to fiscal year 2020 are unchanged. The Company also elected the package of practical expedients permitted under the standard, which does not require reassessment of prior conclusions related to contracts containing a lease, lease classification and initial direct lease costs. As an ongoing accounting policy election, the Company will exclude short-term leases (terms of 12 months or less) from the balance sheet presentation and will account for non-lease and lease components in a contract as a single lease component for most asset classes. All leases in which the Company is the lessee are classified as operating leases, and the Company does not have any finance leases or sublease agreements. Additionally, the Company does not have any leases in which it is the lessor.

The adoption of the new standard had a significant impact on the Company's condensed consolidated balance sheet in fiscal year 2020 due to the initial recognition of approximately $41 million of lease liabilities with corresponding ROU assets for operating leases. The new standard did not have a significant impact on the condensed consolidated statements of operations or cash flows, and did not impact our debt covenant compliance under our current credit agreements.

The Company determines if an arrangement is a lease at inception. The Company leases certain facilities and machinery and equipment under long-term, non-cancelable operating leases. As of July 2, 2021, the Company had approximately 200 leases, with remaining terms ranging from less than one year to 18 years. Some of the leases contain variable payment terms, such as payments based on fluctuations in the Consumer Price Index (CPI). Some leases also contain options to extend or terminate the lease. To the extent the Company is reasonably certain to exercise these options, they have been considered in the calculation of the ROU assets and lease liabilities. Under current lease agreements, there are no residual value guarantees or restrictive lease covenants. In calculating the ROU assets and lease liabilities, several assumptions and judgments were made by the Company, including whether a contract is or contains a lease under the new definition, and the determination of the discount rate, which is assumed to be the incremental borrowing rate. The incremental borrowing rate is derived from information available to the Company at the lease commencement date based on lease length and location.

The components of lease expense recognized in the accompanying Condensed Consolidated Statements of Operations for the three and nine months ended July 2, 2021 and June 26, 2020 were as follows:


	Three months ended				Nine months ended
	July 2, 2021		June 26, 2020		July 2, 2021		June 26, 2020
Lease Cost
Operating lease costs	$	2,107	$	1,792	$	6,184	$	5,355
Short-term lease costs	403		478		1,206		1,435
Variable lease costs	46		42		138		129
Total lease cost	$	2,556	$	2,312	$	7,528	$	6,919

Included in the amounts in the table above were rent expense to related parties of $262 and $778 for the three and nine months ended July 2, 2021, respectively, and $246 and $739 for the three and nine months ended June 26, 2020, respectively.

As of July 2, 2021, the Company did not have any finance leases. There were no significant new leases entered into during the quarter ended July 2, 2021. Supplemental balance sheet, cash flow, and other information related to operating leases was as follows:


	Nine months ended
	July 2, 2021			June 26, 2020
Operating leases:

Operating lease ROU assets	$	43,741		$	37,669

Current operating lease liabilities	5,281			5,900
Non-current operating lease liabilities	39,382			32,474
Total operating lease liabilities	$	44,663		$	38,374

Weighted average remaining lease term (in years)	13.24			10.50

Weighted average discount rate	3.15		%	2.86		%

Cash paid for amounts included in the measurement of lease liabilities	$	5,680		$	4,726

Future minimum rental commitments under non-cancelable operating leases with an initial lease term in excess of one year at July 2, 2021 were as follows:


Year	Related parties included in total		Total
Remainder of 2021	$	289	$	2,428
2022	193		6,631
2023	—		5,825
2024	—		5,263
2025	—		3,927
Thereafter	—		32,563
Total undiscounted lease payments	482		56,637
Less: Imputed interest	(2)		(11,974)
Total net lease liability	$	480	$	44,663

During the second quarter of fiscal 2021, the Company amended its agreement with the landlord on an existing leased facility. Payments under the amended agreement are expected to begin in fiscal year 2022 and go through June 2039, and total estimated rental payments, not included in the amounts above, will be approximately $14 million over the course of the lease as amended. As of July 2, 2021, the Company did not have any other additional significant operating lease commitments that have not yet commenced.