Leases

9 Months Ended

Oct. 31, 2020

Leases

5. Leases

5. Leases

We lease real property, equipment and certain automobiles. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.

The Company determines if a contract contains a lease at inception. US GAAP requires that the Company’s leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option would result in an economic penalty. All of the Company’s real estate leases are classified as operating leases.

Most of our real estate leases include one or more options to renew, with renewal terms that generally can extend the lease term for an additional four to five years. The exercise of lease renewal options is at the Company’s discretion. The Company evaluates renewal options at lease inception and on an ongoing basis, and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities. Lease agreements generally do not require material variable lease payments, residual value guarantees or restrictive covenants.

Leases recorded on the consolidated balance sheet consist of the following (in $000’s):

	Classification	October 31, 2020		January 31, 2020
Assets
Operating lease assets	Operating lease right-of-use assets	$	2,266	$	2,244
Liabilities
Current
Operating	Current portion of operating lease liabilities		925		835
Noncurrent
Operating	Long-term portion of operating lease liabilities		1,326		1,414
Total Lease Obligations		$	2,251	$	2,249

Lease cost

The components of lease expense are included on the unaudited condensed consolidated statement of income as follows (in 000’s):

	Three Months Ended October 31, 2020		Nine Months Ended October 31, 2020
Operating lease cost	$	288	$	868
Short-term lease cost	$	52	$	355