LEASES (Notes)

9 Months Ended

Oct. 31, 2021

As Lessee

The Company, as lessee, leases certain of its dealership locations, office space, equipment and vehicles under operating and financing classified leasing arrangements. The Company has elected to not record leases with a lease term at commencement of 12 months or less on the consolidated balance sheet; these leases are expensed on a straight-line basis over the lease term. Many real estate lease agreements require the Company to pay the real estate taxes on the properties during the lease term and require that the Company maintain property insurance on each of the leased premises. These payments are deemed to be variable lease payments as the amounts may change during the term of the lease. Certain leases include renewal options that can extend the lease term for periods of one to ten years. Most real estate leases grant the Company a right of first refusal or other options to purchase the real estate, generally at fair market value, either during the lease term or at its conclusion. In most cases, the Company has not included these renewal and purchase options within the measurement of the right-of-use asset and lease liability. Most often, the Company cannot readily determine the interest rate implicit in the lease and thus applies its incremental borrowing rate to capitalize the right-of-use asset and lease liability. The Company estimates its incremental borrowing rate by incorporating considerations of lease term, asset class and lease currency and geographical market. The Company's lease agreements do not contain any material non-lease components, residual value guarantees or material restrictive covenants.

The Company subleases a small number of real estate assets to third-parties, primarily dealership locations for which it has ceased operations. All sublease arrangements are classified as operating leases.

The components of lease expense were as follows:


		Three Months Ended October 31,				Nine Months Ended October 31,
	Classification	2021		2020		2021		2020
		(in thousands)				(in thousands)
Finance lease cost:
Amortization of leased assets	Operating expenses	$	227	$	395	$	915	$	1,176
Interest on lease liabilities	Other interest expense	49		108		201		351
Operating lease cost	Operating expenses and rental and other cost of revenue	3,632		4,541		11,132		13,329
Short-term lease cost	Operating expenses	66		81		198		270
Variable lease cost	Operating expenses	502		739		1,755		2,109
Sublease income	Interest and other income	(226)		(136)		(643)		(419)
		$	4,250	$	5,728	$	13,558	$	16,816

Right-of-use lease assets and lease liabilities consist of the following:


	Classification	October 31, 2021		January 31, 2021
		(in thousands)
Assets
Operating lease assets	Operating lease assets	$	59,950	$	74,445
Finance lease assets(a)	Property and equipment, net of accumulated depreciation	5,856		12,426
Total leased assets		$	65,806	$	86,871
Liabilities
Current
Operating	Current operating lease liabilities	$	9,922	$	11,772
Finance	Accrued expenses and other	4,078		9,823
Noncurrent
Operating	Operating lease liabilities	59,264		73,567
Finance	Other long-term liabilities	1,692		2,911
Total lease liabilities		$	74,956	$	98,073

(a)Finance lease assets are recorded net of accumulated amortization of $1.7 million as of October 31, 2021 and $3.0 million as of January 31, 2021.

Maturities of lease liabilities as of October 31, 2021 are as follows:


	Operating		Finance
	Leases		Leases		Total
Fiscal Year Ended January 31,	(in thousands)
2022 (remainder)	$	3,546	$	3,562	$	7,108
2023	13,480		845		14,325
2024	12,591		520		13,111
2025	11,978		439		12,417
2026	11,822		301		12,123
2027	11,091		270		11,361
Thereafter	19,933		572		20,505
Total lease payments	84,441		6,509		90,950
Less: Interest	15,255		739		15,994
Present value of lease liabilities	$	69,186	$	5,770	$	74,956

The weighted-average lease term and discount rate as of October 31, 2021 are as follows:


	October 31, 2021
Weighted-average remaining lease term (years):
Operating leases	6.7
Financing leases	2.3
Weighted-average discount rate:
Operating leases	6.1	%
Financing leases	5.7	%

As Lessor

The Company rents equipment to customers, primarily in the Construction segment, on a short-term basis. Our rental arrangements generally do not include minimum, noncancellable periods as the lessee is entitled to cancel the arrangement at any time. Most often, our rental arrangements extend for periods ranging from a few days to a few months. We maintain a fleet of dedicated rental assets within our Construction segment and, within all segments, we may also provide short-term rentals of certain equipment inventory assets. Some rental arrangements may include rent-to-purchase options whereby customers are given a period of time to exercise an option to purchase the related equipment at an established price with any rental payments paid applied to reduce the purchase price.

All of the Company's leasing arrangements as lessor are classified as operating leases. Rental revenue is recognized on a straight-line basis over the rental period. Rental revenue includes amounts charged for loss and damage insurance on rented equipment. In most cases, our rental arrangements include non-lease components, including delivery and pick-up services. The Company accounts for these non-lease components separate from the rental arrangement and recognizes the revenue associated with these components when the service is performed. The Company has elected to exclude from rental revenue all sales, value added and other taxes collected from our customers concurrent with our rental activities. Rental billings most often occur on a monthly basis and may be billed in advance or in arrears, thus creating unbilled rental receivables or deferred rental revenue amounts. The Company manages the residual value risk of its rented assets by (i) monitoring the quality, aging and anticipated retail market value of our rental fleet assets to determine the optimal period to remove an asset from the rental fleet, (ii) maintaining the quality of our assets through on-site parts and service support and (iii) requiring physical damage insurance of our lessee customers. We primarily dispose of our rental assets through the sale of the asset by our retail sales force.

Revenue generated from leasing activities is disclosed, by segment, in Note 3. The following is the balance of our dedicated rental fleet assets, included in Property and equipment, net of accumulated depreciation in the condensed consolidated balance sheet, of our Construction segment as of October 31, 2021 and January 31, 2021:


	October 31, 2021		January 31, 2021
	(in thousands)
Rental fleet equipment	$	81,676	$	77,530
Less accumulated depreciation	28,744		28,916
	$	52,932	$	48,614