Leases

12 Months Ended

Oct. 31, 2020

Leases [Abstract]

Leases

5. Leases

Effective November 1, 2019, we adopted Accounting Standards Codification Topic 842, "Leases" (ASC Topic 842), which requires leases to be recognized on the balance sheet. We recognize a right-of-use (ROU) asset and lease liability for each operating and finance lease with a contractual term greater than 12 months at the time of lease inception. We include ROU assets and lease liabilities for leases that exist within other contracts. Leases with an original term of 12 months or less are not recognized on the balance sheet, and the rent expense related to those short-term leases is recognized over the lease term. We do not account for lease and non-lease (e.g. common area maintenance) components of contracts separately for any underlying asset class.

We lease certain manufacturing plants, warehouses, office space, vehicles and equipment under finance and operating leases. Lease commencement occurs on the date we take possession or control of the property or equipment. Original terms for our real estate-related leases are generally between five and twenty years. Original terms for equipment-related leases, primarily manufacturing equipment and vehicles, are generally between one and ten years. Some of our leases also include rental escalation clauses. Renewal options are included in the determination of lease payments when management determines the options are reasonably certain of exercise, considering financial performance, strategic importance and/or invested capital.

If readily determinable, the rate implicit in the lease is used to discount lease payments to present value; however, substantially all of our leases do not provide a readily determinable implicit rate. When the implicit rate is not determinable, our estimated incremental borrowing rate is utilized, determined on a collateralized basis, to discount lease payments based on information available at lease commencement.

Total lease costs recorded include fixed operating lease costs and variable lease costs. Most of our real estate leases require we pay certain expenses, such as common area maintenance costs, of which the fixed portion is included in operating lease costs. We recognize operating lease costs on a straight-line basis over the lease term. In addition to the above costs, variable lease costs are recognized when probable and are not included in determining the present value of our lease liability.

The ROU asset is measured at the initial amount of the lease liability (calculated as the present value of lease payments over the term of the lease) adjusted for lease payments made at or before the lease commencement date and initial direct costs. For operating leases, ROU assets are reduced over the lease term by the recognized straight-line lease expense less the amount of accretion of the lease liability determined using the effective interest method. For finance leases, ROU assets are amortized on a straight-line basis over the shorter of the useful life of the leased asset or the lease term. Interest expense on each finance lease liability is recognized utilizing the effective interest method. ROU assets are tested for impairment in the same manner as

long-lived assets. Additionally, we monitor for events or changes in circumstances that may require a reassessment of one of our leases and determine if a remeasurement is required.

The table below presents the lease-related assets and liabilities recorded on the balance sheet at October 31, 2020 (in thousands):

Leases	Classification	October 31, 2020
Assets
Operating lease assets	Operating lease right-of-use assets	$	51,824
Finance lease assets	Property, plant and equipment (less accumulated depreciation of $1,089)	15,609
Total lease assets		$	67,433
Liabilities
Current
Operating	Current operating lease liabilities	$	7,459
Finance	Current maturities of long-term debt	962
Noncurrent
Operating	Noncurrent operating lease liabilities	44,873
Finance	Long-term debt	14,236
Total lease liabilities		$	67,530

The table below presents the components for the year ended October 31, 2020 (in thousands):

Components of lease costs	Year Ended October 31, 2020
Operating lease cost	$	8,866
Finance lease cost
Amortization of leased assets	1,181
Interest on lease liabilities	557
Variable lease costs	748
Total lease cost	$	8,316

The table below presents supplemental cash flow information related to leases for the year ended October 31, 2020 (in thousands):

Supplemental Cash Flow Information	Year Ended October 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Finance leases - financing cash flows	$	1,092
Finance leases - operating cash flows	$	557
Operating leases - operating cash flows	$	8,681
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	$	19,559
Finance Leases	$	398

The table below presents the weighted average remaining lease terms and weighted average discount rates for the Company's leases as of October 31, 2020:

	Year Ended October 31, 2020
Weighted average remaining lease term (in years)
Operating leases	7.8
Financing leases	15.25
Weighted average discount rate
Operating leases	3.52	%
Financing leases	3.62	%

The table below presents the maturity of the lease liabilities as of October 31, 2020 (in thousands):

	Operating Leases		Finance Leases
2021	$	9,191	$	1,496
2022	8,754		1,449
2023	8,340		1,350
2024	7,581		1,247
2025	6,166		1,188
Thereafter	19,941		12,768
Total lease payments	59,973		19,498
Less: present value discount	7,641		4,300
Total lease liabilities	$	52,332	$	15,198

As a result of the adoption of ASC Topic 842, we are required to present future minimum lease payments for operating and financing obligations having initial or remaining non-cancelable lease terms in excess of one year. These future minimum lease payments were previously disclosed in our 2019 Annual Report on Form 10-K and accounted for under previous lease guidance. Commitments as of October 31, 2019 were as follows (in thousands):

	Operating Leases		Finance Leases
2020	$	9,121	$	1,020
2021	6,981		810
2022	6,012		815
2023	5,506		973
2024	4,699		713
Thereafter	15,220		11,392
Total	$	47,539	$	15,723
Less: amount representing interest			5,064
Present value of minimum lease payments			$	10,659

Leases

5. Leases

Effective November 1, 2019, we adopted Accounting Standards Codification Topic 842, "Leases" (ASC Topic 842), which requires leases to be recognized on the balance sheet. We recognize a right-of-use (ROU) asset and lease liability for each operating and finance lease with a contractual term greater than 12 months at the time of lease inception. We include ROU assets and lease liabilities for leases that exist within other contracts. Leases with an original term of 12 months or less are not recognized on the balance sheet, and the rent expense related to those short-term leases is recognized over the lease term. We do not account for lease and non-lease (e.g. common area maintenance) components of contracts separately for any underlying asset class.

We lease certain manufacturing plants, warehouses, office space, vehicles and equipment under finance and operating leases. Lease commencement occurs on the date we take possession or control of the property or equipment. Original terms for our real estate-related leases are generally between five and twenty years. Original terms for equipment-related leases, primarily manufacturing equipment and vehicles, are generally between one and ten years. Some of our leases also include rental escalation clauses. Renewal options are included in the determination of lease payments when management determines the options are reasonably certain of exercise, considering financial performance, strategic importance and/or invested capital.

If readily determinable, the rate implicit in the lease is used to discount lease payments to present value; however, substantially all of our leases do not provide a readily determinable implicit rate. When the implicit rate is not determinable, our estimated incremental borrowing rate is utilized, determined on a collateralized basis, to discount lease payments based on information available at lease commencement.

Total lease costs recorded include fixed operating lease costs and variable lease costs. Most of our real estate leases require we pay certain expenses, such as common area maintenance costs, of which the fixed portion is included in operating lease costs. We recognize operating lease costs on a straight-line basis over the lease term. In addition to the above costs, variable lease costs are recognized when probable and are not included in determining the present value of our lease liability.

The ROU asset is measured at the initial amount of the lease liability (calculated as the present value of lease payments over the term of the lease) adjusted for lease payments made at or before the lease commencement date and initial direct costs. For operating leases, ROU assets are reduced over the lease term by the recognized straight-line lease expense less the amount of accretion of the lease liability determined using the effective interest method. For finance leases, ROU assets are amortized on a straight-line basis over the shorter of the useful life of the leased asset or the lease term. Interest expense on each finance lease liability is recognized utilizing the effective interest method. ROU assets are tested for impairment in the same manner as

long-lived assets. Additionally, we monitor for events or changes in circumstances that may require a reassessment of one of our leases and determine if a remeasurement is required.

The table below presents the lease-related assets and liabilities recorded on the balance sheet at October 31, 2020 (in thousands):

Leases	Classification	October 31, 2020
Assets
Operating lease assets	Operating lease right-of-use assets	$	51,824
Finance lease assets	Property, plant and equipment (less accumulated depreciation of $1,089)	15,609
Total lease assets		$	67,433
Liabilities
Current
Operating	Current operating lease liabilities	$	7,459
Finance	Current maturities of long-term debt	962
Noncurrent
Operating	Noncurrent operating lease liabilities	44,873
Finance	Long-term debt	14,236
Total lease liabilities		$	67,530

The table below presents the components for the year ended October 31, 2020 (in thousands):

Components of lease costs	Year Ended October 31, 2020
Operating lease cost	$	8,866
Finance lease cost
Amortization of leased assets	1,181
Interest on lease liabilities	557
Variable lease costs	748
Total lease cost	$	8,316

The table below presents supplemental cash flow information related to leases for the year ended October 31, 2020 (in thousands):

Supplemental Cash Flow Information	Year Ended October 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Finance leases - financing cash flows	$	1,092
Finance leases - operating cash flows	$	557
Operating leases - operating cash flows	$	8,681
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	$	19,559
Finance Leases	$	398

The table below presents the weighted average remaining lease terms and weighted average discount rates for the Company's leases as of October 31, 2020:

	Year Ended October 31, 2020
Weighted average remaining lease term (in years)
Operating leases	7.8
Financing leases	15.25
Weighted average discount rate
Operating leases	3.52	%
Financing leases	3.62	%

The table below presents the maturity of the lease liabilities as of October 31, 2020 (in thousands):

	Operating Leases		Finance Leases
2021	$	9,191	$	1,496
2022	8,754		1,449
2023	8,340		1,350
2024	7,581		1,247
2025	6,166		1,188
Thereafter	19,941		12,768
Total lease payments	59,973		19,498
Less: present value discount	7,641		4,300
Total lease liabilities	$	52,332	$	15,198

As a result of the adoption of ASC Topic 842, we are required to present future minimum lease payments for operating and financing obligations having initial or remaining non-cancelable lease terms in excess of one year. These future minimum lease payments were previously disclosed in our 2019 Annual Report on Form 10-K and accounted for under previous lease guidance. Commitments as of October 31, 2019 were as follows (in thousands):

	Operating Leases		Finance Leases
2020	$	9,121	$	1,020
2021	6,981		810
2022	6,012		815
2023	5,506		973
2024	4,699		713
Thereafter	15,220		11,392
Total	$	47,539	$	15,723
Less: amount representing interest			5,064
Present value of minimum lease payments			$	10,659