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Note 6 - Leases | 12 Months Ended
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Jan. 31, 2023
Notes to Financial Statements |
Lessee, Operating and Finance Leases [Text Block] | Note 6 - Leases The Company accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheet. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities short-term, and operating lease liabilities long-term in the Company's consolidated balance sheets. Finance leases are included in property, plant and equipment, current maturities of long-term debt, and long-term debt less current maturities in the Company's consolidated balance sheets. ROU 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 calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the ROU asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the ROU asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the ROU asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred. ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment. In calculating the ROU asset and lease liability, the Company elects to combine lease and non-lease components. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election, and recognizes rent expense on a straight-line basis over the lease term. Operating Leases. In August 2020, the Company entered into a new lease in Abu Dhabi for land upon which the Company has built a production facility. The annual payments are approximately 1.2 million U.A.E. Dirhams (approximately $0.3 million at January 31, 2023), inclusive of rent and common charges, with escalation clauses in the agreement. Rent payments were deferred until August 2022 and have now commenced. The lease expires in August 2050. In March and December 2022, the Company served Notices of Termination to its lessor for the Company's lease of the land and buildings in Fujairah in the U.A.E. The Company served the Notices of Termination in connection with the Company's intended relocation to a different facility in Abu Dhabi. The Company vacated portions of the leased space in December 2022 and is expected to vacate the remaining space in April 2023. The first Notice of Termination required that the Company pay an additional amount equal to three months' rent after that termination to enable the lessor to prepare the assets for lease by another party. As a result of the termination, the Company has recognized adjustments to the amounts recorded in the consolidated financial statements as of January 31, 2023. The termination resulted in decreases of $0.4 million, $6.0 million and $5.5 million to operating lease liability short-term, operating lease liability long-term and operating lease right-of-use asset, respectively, in the consolidated balance sheets as of January 31, 2023. The termination also resulted in a decrease in rent expense of $1.1 million in the consolidated statement of operations for the year ended January 31, 2023. Finance Leases. In 2019, the Company obtained two finance leases for a total of CAD 1.1 million (approximately $0.8 million at the prevailing exchange rates on the transaction dates) to finance vehicle equipment. The interest rates for these finance leases were 8.0% per annum with monthly principal and interest payments of less than $0.1 million. These leases mature in August 2023. The Company has several significant operating lease agreements, with lease terms of one to 30 years, which consist of real estate, vehicles and office equipment leases. These leases do not require any contingent rental payments, impose any financial restrictions or contain any residual value guarantees. Certain of the Company’s leases include renewal options and escalation clauses; renewal options have not been included in the calculation of the lease liabilities and ROU assets as the Company is not reasonably certain to exercise the options. Variable expenses generally represent the Company’s share of the landlord’s operating expenses. The Company does not have any arrangements where it acts as a lessor, other than one sub-lease arrangement. At January 31, 2023, the Company had total operating lease liabilities of $5.2 million and operating ROU assets of $4.5 million, which are reflected in the consolidated balance sheet. At January 31, 2023, the Company also had finance lease liabilities of $0.2 million included in current maturities of long-term debt and long-term debt less current maturities, and finance ROU assets of $0.5 million which were included in property plant and equipment, net of accumulated depreciation in the consolidated balance sheet. Supplemental balance sheet information related to leases follows (in thousands):
Operating and Finance leases: |  | January 31, 2023 |  |  | January 31, 2022 |
Finance leases assets: |  |  |  |  |  |  |  |
Property and Equipment - gross |  | $ | 1,161 |  |  | $ | 1,221 |
Accumulated depreciation and amortization |  |  | (700 | ) |  |  | (490 | )
Property and Equipment - net |  | $ | 461 |  |  | $ | 731 |
Finance lease liabilities: |  |  |  |  |  |  |  |
Finance lease liability short-term |  | $ | 164 |  |  | $ | 357 |
Finance lease liability long-term |  |  | - |  |  |  | 173 |
Total finance lease liabilities |  | $ | 164 |  |  | $ | 530 |
Operating lease assets: |  |  |  |  |  |  |  |
Operating lease ROU assets |  | $ | 4,527 |  |  | $ | 11,213 |
Operating lease liabilities: |  |  |  |  |  |  |  |
Operating lease liability short-term |  | $ | 912 |  |  | $ | 1,496 |
Operating lease liability long-term |  |  | 4,252 |  |  |  | 11,270 |
Total operating lease liabilities |  | $ | 5,164 |  |  | $ | 12,766 |
Total lease costs consist of the following (in thousands):
Lease costs | Consolidated Statements of Operations Classification |  | Three Months Ended January 31, 2023 |  |  | Year Ended January 31, 2023 |  |  | Year Ended January 31, 2022 |
Finance Lease Costs |  |  |  |  |  |  |  |  |  |  |  |  |
Amortization of ROU assets | Cost of sales |  | $ | 53 |  |  | $ | 233 |  |  | $ | 214 |
Interest on lease liabilities | Interest expense |  |  | 22 |  |  |  | 28 |  |  |  | 69 |
Operating lease costs | Cost of sales, SG&A expenses |  |  | 610 |  |  |  | 1,388 |  |  |  | 2,570 |
Short-term lease costs (1) | Cost of sales, SG&A expenses |  |  | 24 |  |  |  | 421 |  |  |  | 398 |
Sub-lease income | SG&A expenses |  |  | (20 | ) |  |  | (81 | ) |  |  | (81 | )
Total Lease costs |  | $ | 689 |  |  | $ | 1,989 |  |  | $ | 3,170 |
(1) Includes variable lease costs, which are immaterial Supplemental cash flow information related to leases is as follows (in thousands):
|  | Year Ended January 31, |
|  | 2023 |  |  | 2022 |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |  |  |  |  |
Financing cash flows from finance leases |  | $ | 338 |  |  | $ | 375 |
Operating cash flows from finance leases |  |  | 28 |  |  |  | 69 |
Operating cash flows from operating leases |  |  | 1,839 |  |  |  | 3,097 |
ROU Assets obtained in exchange for new lease obligations: |  |  |  |  |  |  |  |
Operating leases liabilities |  | $ | 143 |  |  | $ | 121 |
Weighted-average lease terms discount rates are as follows:
|  | January 31, 2023 |  |  | January 31, 2022 |
Weighted-average remaining lease terms (in years): |  |  |  |  |  |  |  |
Finance leases |  |  | 0.5 |  |  |  | 1.5 |
Operating leases |  | 19.6 |  |  |  | 13.5 |
Weighted-average discount rates: |  |  |  |  |  |  |  |
Finance leases |  |  | 12.0 | % |  |  | 9.1 | %
Operating leases |  |  | 8.2 | % |  |  | 7.4 | %
On January 31, 2023, future minimum annual rental commitments under non-cancelable lease obligations were as follows (in thousands):
Year: |  | Operating Leases |  |  | Finance Leases |
For the year ended January 31, 2024 |  | $ | 1,533 |  |  | $ | 168 |
For the year ended January 31, 2025 |  |  | 650 |  |  |  | - |
For the year ended January 31, 2026 |  |  | 443 |  |  |  | - |
For the year ended January 31, 2027 |  |  | 442 |  |  |  | - |
For the year ended January 31, 2028 |  |  | 404 |  |  |  | - |
Thereafter |  |  | 7,523 |  |  |  | - |
Total lease payments |  |  | 10,995 |  |  |  | 168 |
Less: amount representing interest |  |  | (5,831 | ) |  |  | (4 | )
Total lease liabilities at January 31, 2023 |  | $ | 5,164 |  |  | $ | 164 |
Rental expense for operating leases was $1.7 million and $3.0 million for the years ended January 31, 2023 and 2022, respectively. The Company has several significant operating lease agreements as follows:
| • | Office space of approximately 31,650 square feet in Niles, IL is leased until October 2023.
| • | Production facilities and office space of approximately 139,000 square feet in Lebanon, Tennessee is leased until December 31, 2035.
| • | Five acres of land in Louisiana is leased through March 2027.
| • | Twenty acres of land in Canada leased through December 2022 which was extended to April 2023.
| • | Nine acres of land in the Kingdom of Saudi Arabia is leased through April 2030.
| • | Production facilities in the U.A.E. of approximately 80,200 square feet on approximately 107,600 square feet of land is leased until June 2030.
| • | Office space of approximately 21,500 square feet and land for production facilities of approximately 423,000 square feet in the U.A.E. is leased until July 2032.
| • | Production facilities in the U.A.E. of approximately 78,100 square feet is leased until December 2032.
| • | Approximately fourteen acres of land in the U.A.E. is leased through August 2050.

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