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Note 16 - Leases

12 Months Ended

Jul. 02, 2023

Note 16. Leases

The Company currently leases plants, warehouses, offices, store facilities, and equipment under various leases through Fiscal 2036. While most lease agreements are of a long-term nature (over a year), the Company also enters 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, the Company determines 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 the Company has 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, the Company determines if a lease should be classified as an operating or a finance lease (the Company currently has no finance leases) and recognizes a corresponding lease liability and a right-of-use asset on its 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, the Company elected a short-term lease exception policy, permitting it 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 the Company’s estimated collateralized incremental borrowing rate, based on the yield curve for the respective lease terms, as the Company generally cannot determine the interest rate implicit in the lease.

The Company recognizes expense for its 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 the Company determines: (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:

	Years Ended
	July 2, 2023			July 3, 2022
	(in thousands)
Lease costs:
Operating lease costs	$	22,208		$	19,402
Variable lease costs		24,582			21,823
Short-term lease cost		5,307			5,224
Sublease income		(988	)		(751	)
Total lease costs	$	51,109		$	45,698

	Years Ended
	July 2, 2023		July 3, 2022
	(in thousands)
Cash paid for amounts included in measurement of operating lease liabilities	$	21,020	$	16,486
Right-of-use assets obtained in exchange for new operating lease liabilities	$	12,040	$	57,494

	July 2, 2023			July 3, 2022
	(in thousands)
Weighted-average remaining lease term - operating leases (in years)		8.7			9.5
Weighted-discount rate - operating leases		4.0	%		3.9	%

Maturities of lease liabilities in accordance with ASC 842 as of July 2, 2023 and reconciliation to balance sheet are as follows (in thousands):

2024	$	20,759
2025		20,339
2026		18,409
2027		16,784
2028		15,862
Thereafter		67,096
Total Future Minimum Lease Payments		159,249
Less: Imputed Remaining Interest		26,160
Total Operating Lease Liabilities		133,089
Less: Current portion of long-term operating lease liabilities		15,759
Long-term operating lease liabilities	$	117,330