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Leases

12 Months Ended

Oct. 31, 2022

17. Leases

The impact of applying ASC 842 effective as of November 1, 2019, to the Company’s consolidated statements of operations and cash flows was not significant. The major impacts to the balance sheet at the effective date were 1) the addition of $65.7 million in operating lease assets and $69.6 million of operating lease liabilities, 2) the removal of approximately $3.7 million and $1.2 million of deferred rent and other long-term obligations, respectively, and 3) a cumulative-effect adjustment for the adoption of ASC 842 of $0.9 million was recorded to retained earnings, which relates to the gain previously recognized in accordance with ASC 840 on its sale and operating leaseback of the Temecula facility.

ASC 842 made changes to sale-leaseback accounting to result in the recognition of the gain on the transaction at the time of the sale instead of recognizing over the leaseback period, when the transaction is deemed to be a sale instead of a financing arrangement. ASC 842 further changes the assessment of sale accounting from a transfer of risk and rewards assessment to a transfer of control assessment.

The standard provides a number of optional practical expedients and policy elections in transition. We have elected to apply the package of practical expedients under which we will not reassess under the standard our prior conclusions about lease classification and initial direct costs. We have elected the short-term lease recognition exemption for all leases that qualify (under one year term), meaning we will recognize expense on a straight-line basis and will not include the recognition of a right-of-use asset or lease liability. We will account for lease and non-lease components as a single-lease component for all leases.

We lease property and equipment under finance and operating leases. For leases with terms greater than 12 months, we record the related asset and obligation at the present value of lease payments over the term. Many of our leases

include rental escalation clauses, renewal options and/or termination options that are factored into our determination of lease payments when appropriate.

Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. When available, we use the rate implicit in the lease to discount lease payments to present value; however, most of our leases do not provide a readily determinable implicit rate. We estimated our incremental borrowing rate based upon a synthetic credit rating and yield curve analysis. As a result, the incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments.

We lease certain property, plant and equipment, including office facilities, under operating leases. The lease term consists of the noncancellable period of the lease and the periods covered by options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. The Company's lease agreements do not contain any residual value guarantees.

Lease Position

The following table presents the lease-related assets and liabilities recorded on the balance sheet as of October 31, 2022 and 2021 (in thousands):


		October 31,		October 31,
		2022		2021

Assets
Non-current assets:
Operating lease assets	Operating lease right-of-use assets	$	54,518	$	59,842
Finance lease assets	Property, plant and equipment, net		5,721		6,907
		$	60,239	$	66,749
Liabilities
Current liabilities:
Operating	Current portion of operating leases	$	6,925	$	6,817
Finance	Current portion of long-term obligations and finance leases		1,574		1,587
Long-term obligations
Operating	Long-term operating leases, less current portion		52,140		57,561
Finance	Long-term obligations and finance leases, less current portion		4,447		5,553
		$	65,086	$	71,518


Weighted-average remaining lease term:	Fiscal 2022		Fiscal 2021
Operating leases	9.3 years		10.1 years
Finance leases	6.9 years		7.1 years

Weighted-average discount rate:
Operating leases	2.87	%	2.80	%
Finance leases	3.62	%	3.20	%

Lease Costs

The following table presents certain information related to the lease costs for finance and operating leases for the year ended October 31, 2022 and 2021 (in thousands):


	Year ended		Year ended
	October 31, 2022		October 31, 2021
Amortization of financing lease assets	$	1,756	$	1,799
Operating lease cost		8,733		9,152
Short-term lease cost		2,483		2,981
Sublease income		(30)		(704)
Variable lease cost		133		275
Interest on financing lease liabilities		213		235
Total lease cost	$	13,288	$	13,738

Other Information

The following table presents supplemental cash flow information related to the leases for the year ended October 31, 2022 and 2021 (in thousands):


	Year ended		Year ended
Cash paid for amounts included in the measurement of lease liabilities	October 31, 2022		October 31, 2021
Operating cash flows for operating leases	$	7,012	$	7,200
Financing cash flows for finance leases		1,683		1,672
Operating cash flows for finance leases		213		235

The total right-of-use assets obtained in exchange for new operating leases for the year ended October 31, 2022 and 2021 was $1.0 million and $1.0 million.

Undiscounted Cash Flows

The following table reconciles the undiscounted cash flows for each of the first five years and total remaining years to the finance lease liabilities and operating lease liabilities recorded on the balance sheet as of October 31, 2022 (in thousands):


	Operating		Finance
	Leases		Leases
2023	$	8,494	$	1,778
2024		8,311		1,280
2025		7,212		786
2026		6,737		495
2027		6,348		371
Thereafter		30,411		2,162
Total lease payments		67,513		6,872
Less: imputed interest		8,448		851
Total lease liability	$	59,065	$	6,021