Leases (Notes)

6 Months Ended

Jan. 31, 2020

Leases

The Company leases certain manufacturing facilities, warehouses and office space, computer equipment, and vehicles accounted for as operating leases. Lease terms typically range from one year to fifteen years. As of January 31, 2020, the Company did not have any finance leases.

The Company determines whether an arrangement contains a lease at contract inception. The contract is considered to contain a lease if it provides the Company with the right to direct the use of and the right to obtain substantially all of the economic benefits from an identified asset in exchange for consideration. The Company recognizes a right-of-use (“ROU”) asset and a lease liability at the lease commencement date based on the present value of the future lease payments over the expected lease term. Additionally, the ROU asset includes any lease payments made on or before the commencement date, initial direct costs incurred, and is reduced by any lease incentives received.

Some of the Company’s leases include options to extend the lease agreement. The exercise of an extension is at the Company’s sole discretion. The majority of renewal options are not included in the calculation of ROU assets and liabilities as they are not reasonably certain to be exercised. Some of the Company's lease agreements include rental payments that are adjusted periodically for inflation or the change in an index or rate, which are considered to be variable lease payments. Due to the nature of the Company’s variable lease payments, they are generally excluded from the initial measurement of the ROU asset and lease liability and are recognized in the period in which the obligation for those payments is incurred. The Company has lease agreements that include both lease and non-lease components, which the Company has elected to account for as a single lease component. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Generally, the discount rate implicit within the Company’s leases cannot be readily determined, and therefore the Company uses its incremental borrowing rate to determine the present value of the future lease payments. The incremental borrowing rate is estimated based on the sovereign credit rating for the countries in which the Company has its largest operations, adjusted for several factors, such as internal credit spread, lease terms and other market information available at the lease commencement date.

Operating leases are reflected in “Operating lease assets,” “Current operating lease liabilities,” and “Long-term operating lease liabilities” on the Company's condensed consolidated balance sheets.

Short-term lease expense, variable lease expenses, and sublease income was immaterial to the condensed consolidated statements of income for the three and six months ended January 31, 2020.

The following table summarizes lease expense recognized for the three and six months ended January 31, 2020:



		Three months ended		Six months ended
	Condensed Consolidated Statements of Income Location	January 31, 2020		January 31, 2020
Operating lease cost	Cost of goods sold	$	2,092	$	4,962
Operating lease cost	Selling, general, and administrative expenses	2,182		4,716

The following table summarizes the maturity of the Company's lease liabilities as of January 31, 2020:



Years ended July 31,	Operating Leases
Remainder of 2020	$	8,426
2021	15,780
2022	12,797
2023	9,427
2024	5,580
Thereafter	3,268
Total lease payments	$	55,278
Less interest	(3,384		)
Present value of lease liabilities	$	51,894

The weighted average remaining lease terms and discount rates for the Company's operating leases as of January 31, 2020 were as follows:



	January 31, 2020
Weighted average remaining lease term (in years)	3.9
Weighted average discount rate	3.4	%

Supplemental cash flow information related to the Company's operating leases for the six months ended January 31, 2020, were as follows:



	Six months ended
	January 31, 2020
Operating cash outflows from operating leases	$	8,216
Operating lease assets obtained in exchange for new operating lease liabilities	10,637

Operating lease assets obtained in exchange for new operating lease liabilities include $9,769 of operating lease assets related to leases that commenced on August 1, 2019, which were included in the adoption impact of the new lease accounting standard.

The following table summarizes future minimum lease payments under operating leases as of July 31, 2019:



Years ended July 31,	Operating Leases
2020	$	18,450
2021	16,132
2022	13,439
2023	10,065
2024	5,656
Thereafter	3,502
Total lease payments	$	67,244