Leases

12 Months Ended

May 28, 2023

Leases [Abstract]

Leases

Leases

Operating Leases

The Company has entered into various non-cancellable operating lease agreements for manufacturing and distribution facilities, 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. The Company leases facilities and equipment under operating lease agreements with various terms and conditions, which expire at various dates through fiscal year 2033. 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 was seven years with two five-year renewal options. In December 2022, Lifecore exercised one of the options to renew the lease for an additional five years. The lease contains a buyout option at any time during the renewal period 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 $3.9 million and $3.8 million as of May 28, 2023 and May 29, 2022, respectively. Accumulated amortization associated with finance leases was $0.8 million and $0.7 million as of May 28, 2023 and May 29, 2022, 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			Year Ended
(In thousands, except term and discount rate)	May 28, 2023			May 29, 2022
Finance lease cost:
Amortization of leased assets	$	119		$	113
Interest on lease liabilities	351			335
Operating lease cost	1,286			1,046
Variable lease cost and other	600			406
Sublease income	(53)			(90)
Total lease cost	$	2,303		$	1,810
Weighted-average remaining lease term:
Operating leases	7.69			8.54
Finance leases	4.57			0.59
Weighted-average discount rate:
Operating leases	4.60		%	4.61		%
Finance leases	11.40		%	10.01		%

The Company’s leases have original lease periods ending between 2023 and 2033. The Company’s maturity analysis of operating and finance lease liabilities as of May 28, 2023 are as follows:

(in thousands)	Operating Leases		Finance Leases		Total
2024	$	1,467	$	492	$	1,959
2025	1,217		496		1,713
2026	1,228		505		1,733
2027	1,234		517		1,751
2028	1,145		2,874		4,019
Thereafter	2,647		—		2,647
Total lease payments	8,938		4,884		13,822
Less: interest	(1,296)		(1,547)		(2,843)
Present value of lease liabilities	7,642		3,337		10,979
Less: current obligation of lease liabilities	(1,147)		(123)		(1,270)
Total long-term lease liabilities	$	6,495	$	3,214	$	9,709

Supplemental cash flow information related to leases are as follows:

	Year Ended		Year Ended
(in thousands)	May 28, 2023		May 29, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	2,067	$	1,578
Operating cash flows from finance leases	351		335
Financing cash flows from finance leases	96		129
Lease liabilities arising from obtaining right-of-use assets:
Operating leases	$	83	$	37

During May 2021 we entered into a transportation management, warehousing, and transportation services agreement with Castellini Company, LLC to outsource Curation Foods’ fresh packaged salads and vegetables logistics management, including transportation, warehousing and distribution. In connection with this arrangement, during the fiscal year ended May 30, 2021 the Company recorded a $1.7 million impairment of our operating lease right-of-use assets related to certain vehicle leases, which is included in Loss from discontinued operations within the Consolidated Statements of Operations.

As disclosed in Note 13 - Restructuring Costs, impairments of our operating lease right-of-use assets were recorded in Restructuring cost in the accompanying Consolidated Statements of Operations for the years ended May 28, 2023 and May 29, 2022. During the years ended May 28, 2023 and May 29, 2022, the Company recorded impairments related to the Curation Foods Santa Maria office lease of $0.6 million and $1.6 million, respectively, and our Curation Foods Los Angeles, California office lease of $0.1 million and $0.4 million, respectively.

Leases

Leases

Operating Leases

The Company has entered into various non-cancellable operating lease agreements for manufacturing and distribution facilities, 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. The Company leases facilities and equipment under operating lease agreements with various terms and conditions, which expire at various dates through fiscal year 2033. 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 was seven years with two five-year renewal options. In December 2022, Lifecore exercised one of the options to renew the lease for an additional five years. The lease contains a buyout option at any time during the renewal period 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 $3.9 million and $3.8 million as of May 28, 2023 and May 29, 2022, respectively. Accumulated amortization associated with finance leases was $0.8 million and $0.7 million as of May 28, 2023 and May 29, 2022, 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			Year Ended
(In thousands, except term and discount rate)	May 28, 2023			May 29, 2022
Finance lease cost:
Amortization of leased assets	$	119		$	113
Interest on lease liabilities	351			335
Operating lease cost	1,286			1,046
Variable lease cost and other	600			406
Sublease income	(53)			(90)
Total lease cost	$	2,303		$	1,810
Weighted-average remaining lease term:
Operating leases	7.69			8.54
Finance leases	4.57			0.59
Weighted-average discount rate:
Operating leases	4.60		%	4.61		%
Finance leases	11.40		%	10.01		%

The Company’s leases have original lease periods ending between 2023 and 2033. The Company’s maturity analysis of operating and finance lease liabilities as of May 28, 2023 are as follows:

(in thousands)	Operating Leases		Finance Leases		Total
2024	$	1,467	$	492	$	1,959
2025	1,217		496		1,713
2026	1,228		505		1,733
2027	1,234		517		1,751
2028	1,145		2,874		4,019
Thereafter	2,647		—		2,647
Total lease payments	8,938		4,884		13,822
Less: interest	(1,296)		(1,547)		(2,843)
Present value of lease liabilities	7,642		3,337		10,979
Less: current obligation of lease liabilities	(1,147)		(123)		(1,270)
Total long-term lease liabilities	$	6,495	$	3,214	$	9,709

Supplemental cash flow information related to leases are as follows:

	Year Ended		Year Ended
(in thousands)	May 28, 2023		May 29, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	2,067	$	1,578
Operating cash flows from finance leases	351		335
Financing cash flows from finance leases	96		129
Lease liabilities arising from obtaining right-of-use assets:
Operating leases	$	83	$	37

During May 2021 we entered into a transportation management, warehousing, and transportation services agreement with Castellini Company, LLC to outsource Curation Foods’ fresh packaged salads and vegetables logistics management, including transportation, warehousing and distribution. In connection with this arrangement, during the fiscal year ended May 30, 2021 the Company recorded a $1.7 million impairment of our operating lease right-of-use assets related to certain vehicle leases, which is included in Loss from discontinued operations within the Consolidated Statements of Operations.

As disclosed in Note 13 - Restructuring Costs, impairments of our operating lease right-of-use assets were recorded in Restructuring cost in the accompanying Consolidated Statements of Operations for the years ended May 28, 2023 and May 29, 2022. During the years ended May 28, 2023 and May 29, 2022, the Company recorded impairments related to the Curation Foods Santa Maria office lease of $0.6 million and $1.6 million, respectively, and our Curation Foods Los Angeles, California office lease of $0.1 million and $0.4 million, respectively.