Leases

12 Months Ended

May 31, 2020

Leases [Abstract]

Leases

Leases

Operating Leases

The Company has entered into various non-cancellable operating lease agreements for manufacturing and distribution facilities, vehicles, equipment and office space. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. Landec leases land, facilities, and equipment under operating lease agreements with various terms and conditions, which expire at various dates through fiscal year 2040. Certain of these leases have renewal options.

Finance Leases

On September 3, 2015, Lifecore leased an 80,950 square foot building in Chaska, MN, two miles from its current facility. The initial term of the lease is seven years with two five-year renewal options. The lease contains a buyout option at any time after year seven with the purchase price equal to the mortgage balance on the lessor’s loan secured by the building. Gross assets recorded under finance leases, included in Property and equipment, net, were $3.8 million as of both May 31, 2020 and May 26, 2019. Accumulated amortization associated with finance leases was $0.5 million and $0.4 million as of May 31, 2020 and May 26, 2019, respectively. The monthly lease payment was initially $34,000 and increases by 2.4% per year. Lifecore and the lessor made capital improvements prior to occupancy and thus the lease did not become effective until January 1, 2016. Lifecore is currently using the building for warehousing and final packaging.

The components of lease cost were as follows:

	Year Ended
(In thousands, except term and discount rate)	May 31, 2020
Finance lease cost:
Amortization of leased assets	$	116
Interest on lease liabilities	358
Operating lease cost	6,343
Variable lease cost and other	1,951
Total lease cost	$	8,768
Weighted-average remaining lease term:
Operating leases	11.06
Finance leases	2.60
Weighted-average discount rate:
Operating leases	5.24%
Finance leases	10.00%

The Company’s leases have original lease periods ending between 2021 and 2040. The Company’s maturity analysis of operating and finance lease liabilities as of May 31, 2020 are as follows:

(in thousands)	Operating Leases		Finance Leases		Total
Fiscal year 2021	$	5,615	$	455	$	6,070
Fiscal year 2022	4,500		466		4,966
Fiscal year 2023	3,809		3,497		7,306
Fiscal year 2024	3,137		9		3,146
Fiscal year 2025	2,501		2		2,503
Thereafter	17,721		—		17,721
Total lease payments	37,283		4,429		41,712
Less: interest	(10,043)		(868)		(10,911)
Present value of lease liabilities	27,240		3,561		30,801
Less: current obligation of lease liabilities	(4,298)		(125)		(4,423)
Total long-term lease liabilities	$	22,942	$	3,436	$	26,378

The future minimum annual lease payments required under the Company’s existing operating lease agreements as of May 26, 2019 prior to the adoption of ASC 842 were as follows:

(in thousands)	Operating Leases
Fiscal year 2020	$	5,056
Fiscal year 2021	4,044
Fiscal year 2022	3,589
Fiscal year 2023	3,350
Fiscal year 2024	3,047
Thereafter	9,335
Total	$	28,421

Rent expense for operating leases, including month to month arrangements was $7.3 million and $6.1 million for the fiscal years 2019 and 2018, respectively, and is recorded in Selling, general, and administrative expenses.

The future minimum annual lease payments required under the Company’s existing capital lease agreements as of May 26, 2019, prior to the adoption of ASC 842 were as follows:

(in thousands)	Capital Leases
Fiscal year 2020	$	486
Fiscal year 2021	489
Fiscal year 2022	460
Fiscal year 2023	3,490
Fiscal year 2024	—
Thereafter	—
Total minimum lease payment	4,925
Less: amounts representing interest and taxes	(1,291)
Total	3,634
Less: current portion included in other accrued liabilities	(102)
Long-term capital lease obligation	$	3,532

Supplemental cash flow information related to leases are as follows:

	Year Ended
(in thousands)	May 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$7,853
Operating cash flows from finance leases	328
Financing cash flows from finance leases	118
Lease liabilities arising from obtaining right-of-use assets:
Operating leases	$3,752

Leases

Leases

Operating Leases

The Company has entered into various non-cancellable operating lease agreements for manufacturing and distribution facilities, vehicles, equipment and office space. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. Landec leases land, facilities, and equipment under operating lease agreements with various terms and conditions, which expire at various dates through fiscal year 2040. Certain of these leases have renewal options.

Finance Leases

On September 3, 2015, Lifecore leased an 80,950 square foot building in Chaska, MN, two miles from its current facility. The initial term of the lease is seven years with two five-year renewal options. The lease contains a buyout option at any time after year seven with the purchase price equal to the mortgage balance on the lessor’s loan secured by the building. Gross assets recorded under finance leases, included in Property and equipment, net, were $3.8 million as of both May 31, 2020 and May 26, 2019. Accumulated amortization associated with finance leases was $0.5 million and $0.4 million as of May 31, 2020 and May 26, 2019, respectively. The monthly lease payment was initially $34,000 and increases by 2.4% per year. Lifecore and the lessor made capital improvements prior to occupancy and thus the lease did not become effective until January 1, 2016. Lifecore is currently using the building for warehousing and final packaging.

The components of lease cost were as follows:

	Year Ended
(In thousands, except term and discount rate)	May 31, 2020
Finance lease cost:
Amortization of leased assets	$	116
Interest on lease liabilities	358
Operating lease cost	6,343
Variable lease cost and other	1,951
Total lease cost	$	8,768
Weighted-average remaining lease term:
Operating leases	11.06
Finance leases	2.60
Weighted-average discount rate:
Operating leases	5.24%
Finance leases	10.00%

The Company’s leases have original lease periods ending between 2021 and 2040. The Company’s maturity analysis of operating and finance lease liabilities as of May 31, 2020 are as follows:

(in thousands)	Operating Leases		Finance Leases		Total
Fiscal year 2021	$	5,615	$	455	$	6,070
Fiscal year 2022	4,500		466		4,966
Fiscal year 2023	3,809		3,497		7,306
Fiscal year 2024	3,137		9		3,146
Fiscal year 2025	2,501		2		2,503
Thereafter	17,721		—		17,721
Total lease payments	37,283		4,429		41,712
Less: interest	(10,043)		(868)		(10,911)
Present value of lease liabilities	27,240		3,561		30,801
Less: current obligation of lease liabilities	(4,298)		(125)		(4,423)
Total long-term lease liabilities	$	22,942	$	3,436	$	26,378

The future minimum annual lease payments required under the Company’s existing operating lease agreements as of May 26, 2019 prior to the adoption of ASC 842 were as follows:

(in thousands)	Operating Leases
Fiscal year 2020	$	5,056
Fiscal year 2021	4,044
Fiscal year 2022	3,589
Fiscal year 2023	3,350
Fiscal year 2024	3,047
Thereafter	9,335
Total	$	28,421

Rent expense for operating leases, including month to month arrangements was $7.3 million and $6.1 million for the fiscal years 2019 and 2018, respectively, and is recorded in Selling, general, and administrative expenses.

The future minimum annual lease payments required under the Company’s existing capital lease agreements as of May 26, 2019, prior to the adoption of ASC 842 were as follows:

(in thousands)	Capital Leases
Fiscal year 2020	$	486
Fiscal year 2021	489
Fiscal year 2022	460
Fiscal year 2023	3,490
Fiscal year 2024	—
Thereafter	—
Total minimum lease payment	4,925
Less: amounts representing interest and taxes	(1,291)
Total	3,634
Less: current portion included in other accrued liabilities	(102)
Long-term capital lease obligation	$	3,532

Supplemental cash flow information related to leases are as follows:

	Year Ended
(in thousands)	May 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$7,853
Operating cash flows from finance leases	328
Financing cash flows from finance leases	118
Lease liabilities arising from obtaining right-of-use assets:
Operating leases	$3,752