18. Commitments and Contingencies

Commitments

The Company’s operations are conducted in leased facilities. The Company finances the purchase of certain IT equipment and perpetual software licenses under capital lease arrangements. Following is a summary of non‑cancelable operating and capital lease commitments:


	April 30, 2018
	(In thousands)

		Operating leases		Capital leases
2019	$	4,940	$	161
2020		4,774		—
2021		3,872		—
2022		3,421		—
2023		2,278		—
Thereafter		1,914		—
	$	21,199		161
Less: amounts representing interest				—
Present value of capital lease obligations				161
Less: Current portion				(161)
Long-term portion of capital lease obligations			$	—

Rental expense under operating leases was approximately $4,011,000, $3,849,000 and $4,077,000 for the years ended April 30, 2018, 2017 and 2016, respectively.

Not included in the table above is an additional capital contribution of 209,500,000 yen (approximately $1,900,000) in or around January 2019 required under the Company’s HAPSMobile Inc. Joint Venture Agreement – refer to footnote 8 – Investments in Companies Accounted for Using the Equity Method.

Contingencies

The Company is subject to legal proceedings and claims which arise out of the ordinary course of its business. Although adverse decisions or settlements may occur, the Company, in consultation with legal counsel, believes that the final disposition of such matters will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company.

At April 30, 2018 and 2017, the Company had outstanding letters of credit totaling $6,389,000 and $1,935,000, respectively.

Contract Cost Audits

Payments to the Company on government cost reimbursable contracts are based on provisional, or estimated indirect rates, which are subject to an annual audit by the Defense Contract Audit Agency (“DCAA”). The cost audits result in the negotiation and determination of the final indirect cost rates that the Company may use for the period(s) audited. The final rates, if different from the provisional rates, may create an additional receivable or liability for the Company.

For example, during the course of its audits, the DCAA may question the Company’s incurred costs, and if the DCAA believes the Company has accounted for such costs in a manner inconsistent with the requirements under Federal Acquisition Regulations, the DCAA auditor may recommend to the Company’s administrative contracting officer to disallow such costs. Historically, the Company has not experienced material disallowed costs as a result of government audits. However, the Company can provide no assurance that the DCAA or other government audits will not result in material disallowances for incurred costs in the future.

The Company’s revenue recognition policy calls for revenue recognized on all cost reimbursable government contracts to be recorded at actual rates unless collectability is not reasonably assured. During the fiscal year ended April 30, 2017, the Company settled rates for its incurred cost claims with the DCAA for fiscal years 2011 through 2014 without payment of any consideration. At April 30, 2018, the Company had $77,000 reserved for incurred cost claim audits. At April 30, 2017, the Company had no reserves for incurred cost claim audits.