Leases

The Company has operating leases on real property, equipment, and automobiles that expire at various dates. The Company determines if an arrangement is a lease at inception and assesses classification of the lease at commencement. All of the Company’s leases are classified as operating leases, as a lessee. The Company uses the implicit rate when readily determinable, or the incremental borrowing rate. Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments using company specific credit spreads. The Company’s lease terms include options to extend or terminate the lease only when it is reasonably certain that we will exercise that option. Lease expense for our operating leases is recognized on a straight-line basis over the lease term.

The Company has an operating lease for its corporate office, manufacturing and distribution facility located in Torrance, CA, currently with a remaining lease term through April 30, 2025. The Company leases equipment under a 5-year operating lease arrangement. The Company has the option of buying the assets at the end of the lease period at a price that does not result in the Company being reasonably certain of exercising the option. In addition, the Company leases trucks, automobiles, and forklifts under operating leases that include certain fleet management and maintenance services. Certain of the leases contain renewal or purchase options and require payment for property taxes and insurance. Tenant improvements are capitalized and depreciated over the remaining life of the applicable lease, and related tenant allowances are recorded as a reduction to the ROU asset.

In accordance with ASC 842, quantitative information regarding our leases is as follows:



	Three-Months Ended
	4/30/2020			4/30/2019
	(in thousands)
Operating lease cost	$	1,440		$	1,380
Short-term lease cost	36			54
Short-term sublease income	(10		)	(10		)
Variable lease cost (1)	455			448
Total lease cost	$	1,921		$	1,872

Other operating leases information:
Cash paid for amounts included in the measurement of lease liabilities	$	662,000		$	1,291,000
Right-of-use assets obtained in exchange for new lease liabilities	$	270,000		394,000
Weighted-average remaining lease term (years)	4.7			5.7
Weighted-average discount rate	6.4		%	6.4		%

(1) Subsequent to the issuance of the Company’s condensed consolidated financial statements as of April 30, 2019, management identified an immaterial correction related to the disclosure of certain variable lease payments. Variable lease expense for the three-months ended April 30, 2019 did not previously include $448,000 of variable lease payments for property taxes, insurance and common area maintenance related to triple net leases. Management corrected the disclosure related to variable lease expense in the table above for the three-months ended April 30, 2019 and, except for this change, the correction had no impact upon the Company’s condensed consolidated financial statements

Minimum future lease payments for operating leases in effect as of April 30, 2020, are as follows:



	Operating Lease
	(in thousands)
Remaining of 2021	$	4,414
2022	5,708
2023	5,275
2024	5,214
2025	5,370
Thereafter	1,350
Remaining balance of lease payments	$	27,331

Short-term lease liabilities	$	4,527
Long-term lease liabilities	18,854
Total lease liabilities	$	23,381

Difference between undiscounted cash flows and discounted cash flows	$	3,950