Leases

6 Months Ended

Jan. 31, 2020

Leases of Lessee Disclosure [Text Block]

NOTE 4 – Leases

The Company has both lessee and lessor arrangements. The Company determines whether a contract is or contains a lease at the inception of the contract or at any subsequent modification. A contract will be deemed to be or contain a lease if the contract conveys the right to control and direct the use of identified property, plant, or equipment for a period of time in exchange for consideration. The Company generally must also have the right to obtain substantially all of the economic benefits from the use of the property, plant, and equipment. Depending on the terms, leases are classified as either operating or finance leases if the Company is the lessee, or as operating, sales-type, or direct financing leases if the Company is the lessor. Certain of the Company’s lessee and lessor leases have renewal options to extend the leases for additional periods at the Company’s discretion.

Leases - Lessee

The Company leases certain facilities and certain equipment under non-cancelable capital and operating leases, which are recorded as right-of-use assets and lease liabilities. Certain leases provide the Company with either a right of first refusal to acquire or an option to purchase a facility at fair value. Certain leases also contain escalation clauses and renewal option clauses calling for increased rents. Where a lease contains an escalation clause or a concession, such as a rent holiday or tenant improvement allowance, the Company includes these items in the determination of the right-of-use asset and the lease liabilities. The effects of these escalation clauses or concessions have been reflected in lease expense on a straight-line basis over the expected lease term and any variable lease payments subsequent to establishing the lease liability are expensed as incurred. The lease term commences on the date when the Company has the right to control the use of the leased property, which is typically before lease payments are due under the terms of the lease. Certain of the Company’s leases have renewal periods up to 40 years, exercisable at the Company’s option, and generally require the Company to pay property taxes, insurance and maintenance costs, in addition to the lease payments. At lease inception, the Company includes all renewals or option periods that are reasonably certain to exercise when determining the expected lease term, as failure to renew the lease would impose an economic penalty.

Operating lease assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the expected lease term. To determine the present value of lease payments not yet paid, the Company estimates incremental borrowing rates based on the information available at lease commencement date, as rates are not implicitly stated in the Company’s leases.

Components of lease expense for the six months ended January 31, 2020 were as follows:



		Six Months Ended January 31,
(In thousands)		2020
Operating lease expense		$	15,682
Finance lease expense:
	Amortization of right-of-use assets	312
	Interest on finance lease liabilities	14
Short-term lease expense		3,292
Variable lease expense		819
Total lease expense		$	20,119

The components of right-of-use assets and lease liabilities on the consolidated balance sheet are as follows (in thousands):



Lease Asset and Liabilities	Balance Sheet Classification (In thousands)	January 31, 2020
Operating lease right-of-use assets	Operating lease right-of-use assets	$	104,360
Finance lease right-of-use assets	Property and equipment, net	1,406
Total lease assets, net		$	105,766

Operating lease liabilities - current	Current portion of operating lease liabilities	$	23,314
Finance lease liabilities - current	Current portion of revolving loan facility and finance lease liabilities	615
Operating lease liabilities - non-current	Operating lease liabilities, net of current portion	81,906
Finance lease liabilities - non-current	Long-term debt, revolving loan facility and finance lease liabilities, net of discount	800
Total lease liabilities		$	106,635

The weighted-average remaining lease terms and discount rates as of January 31, 2020 are as follows:



(in thousands)	Weighted-Average Remaining Lease Term (in years)	Weighted-Average Discount Rate⁽¹⁾
Operating leases	9.30	2.99	%
Finance leases	2.30	1.73	%


(1)	The Company cannot determine the interest rate implicit in the Company’s leases. Therefore, the discount rate represents the Company’s incremental borrowing rate and is determined based on the risk-free rate, adjusted for the risk premium attributed to the Company’s corporate credit rating for a secured or collateralized instrument.

Supplemental cash flow information related to leases as of January 31, 2020 are as follows:



(in thousands)		Six Months Ended January 31, 2020
Cash paid for amounts included in the measurement of lease liabilities
	Operating cash flows related to operating leases	$	14,797
	Operating cash flows related to finance leases	14
	Financing cash flows related to finance leases	312
Right-of-use assets obtained in exchange for new operating lease liabilities		13,601
Right-of-use assets obtained in exchange for new finance lease liabilities		—

The annual maturities of the Company’s lease liabilities as of January 31, 2020 are as follows:



Fiscal year (In thousands)	Finance leases			Operating leases
2020 (remaining six months)	$	318		$	13,636
2021	619			22,806
2022	505			17,891
2023	—			14,892
2024	—			10,549
Thereafter	—			43,919
Total future lease commitments	$	1,442		$	123,693
Less: imputed interest	(27		)	(18,474		)
Present value of lease liabilities	$	1,415		$	105,219

Leases - Lessor

The Company’s lessor arrangements include certain facilities and various land locations, of which each qualifies as an operating lease. Certain leases also contain escalation clauses and renewal option clauses calling for increased rents. Where a lease contains an escalation clause or a concession, such as a rent holiday or tenant improvement allowance, the Company includes these items in the determination of the straight-line rental income. The effects of these escalation clauses or concessions have been reflected in lease payments receivable on a straight-line basis over the expected lease term and any variable lease income subsequent to establishing the receivable will be recognized as incurred.

Future lease payments receivable under operating leases with terms greater than one year as of January 31, 2020 are as follows:



Fiscal year (In thousands)	Operating leases
2020 (remaining six months)	$	2,989
2021	6,398
2022	5,691
2023	4,842
2024	4,904
Thereafter	21,888
Total future lease payments receivable	$	46,712

The cost of the leased space was $57.7 million as of January 31, 2020. The accumulated depreciation associated with the leased assets was $0.1 million as of January 31, 2020. Both the leased assets and accumulated depreciation are included in Property and equipment, net on the consolidated balance sheet.