COMMITMENTS

12 Months Ended

Jan. 31, 2022

COMMITMENTS

COMMITMENTS

NOTE 10 – COMMITMENTS

Leases

The Company determines if a contract is or contains a lease at inception or upon modification of the contract. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset. The Company does not apply this accounting to those leases with terms of twelve (12) months or less and that do not include options to purchase the underlying assets that the Company is reasonably certain to exercise.

The Company’s operating leases primarily cover office space that expire on various dates through September 2031 and certain equipment used by the Company in the performance of its construction services contracts. Some of these equipment leases are embedded in broader agreements with subcontractors or construction equipment suppliers. The Company has no material finance leases. None of the operating leases includes significant amounts for incentives, rent holidays or price escalations. Under certain leases, the Company is obligated to pay property taxes, insurance, and maintenance costs.

Operating lease right-of-use assets and associated lease liabilities are recorded in the balance sheet at the lease commencement date based on the present value of future minimum lease payments to be made over the expected lease term. As the implicit rate is not determinable in most of the Company’s leases, management uses the Company’s incremental borrowing rate (currently LIBOR plus 1.6%) at the commencement date in determining the present value of future payments. The expected lease term includes any option to extend or to terminate the lease when it is reasonably certain the Company will exercise such option.

Operating lease expense amounts are recorded on a straight-line basis over the expected lease terms for Fiscal 2022 and Fiscal 2021 were $3.4 million and $1.8 million, respectively. Operating lease payments for Fiscal 2022 and Fiscal 2021 were $3.3 million and $2.0 million, respectively. For operating leases as of January 31, 2022, the weighted average lease term is 46 months and the weighted average discount rate is 2.5%.

The Company also uses equipment and occupies other facilities under short-term rental agreements. Rent expense amounts incurred under operating leases and short-term rental agreements (including portions of the lease expense amounts disclosed above) and included in costs of revenues were $12.0 million, $7.1 million and $4.0 million for Fiscal 2022, Fiscal 2021 and Fiscal 2020, respectively. Rent expense incurred under these types of arrangements (including portions of the lease expense amounts disclosed above) and included in selling, general and administrative expenses were $1.0 million, $0.9 million and $0.7 million for Fiscal 2022, Fiscal 2021 and Fiscal 2020, respectively.

The aggregate amounts of operating leases added during Fiscal 2022 and Fiscal 2021 were $3.5 million and $3.0 million, respectively. The following is a schedule of future minimum lease payments for the operating leases that were recognized in the consolidated balance sheet as of January 31, 2022:

Years Ending January 31,
2023	$	1,457
2024		538
2025		379
2026		277
2027		230
Thereafter		1,029
Total lease payments		3,910
Less interest portion		254
Present value of lease payments		3,656
Less current portion (included in accrued expenses)		1,367
Non-current portion (included in other noncurrent liabilities)	$	2,289

The future minimum lease payments presented above include amounts due under a long-term lease covering the primary offices and plant for TRC with the founder and current chief executive officer of TRC at an annual rate of $0.3 million with a term extending through April 30, 2022. The Company expects that the lease will be extended prior to the expiration of the current term.

Additionally, the future minimum lease payments presented above include amounts due under a new operating lease with the former president of LTI, covering the office and warehouse space occupied by SMC’s operations located in Hampton, Virginia, for an initial term extending through December 2026 at an annual lease rate of $0.1 million.

Performance Bonds and Guarantees

In the normal course of business and for certain major projects, the Company may be required to obtain surety or performance bonding, to cause the issuance of letters of credit, or to provide parent company guarantees (or some combination thereof) in order to provide performance assurances to clients on behalf of its contractor subsidiaries. As these subsidiaries are wholly-owned, any actual liability is ordinarily reflected in the financial statement account balances determined pursuant to the Company’s accounting for contracts with customers. When sufficient information about claims on guaranteed or bonded projects would be available and monetary damages or other costs or losses would be determined to be probable, the Company would record such losses. Any amounts that may be required to be paid in excess of the estimated costs to complete contracts in progress as of January 31, 2022 are not estimable.

As of January 31, 2022, the revenue value of the Company’s unsatisfied bonded performance obligations, covering all of its subsidiaries, was approximately $235.1 million. In addition, there were bonds outstanding in the aggregate amount of approximately $1.0 million covering other risks including warranty obligations related to completed activities; these bonds expire at various dates over the next twelve months. Not all of our projects require bonding.

As of January 31, 2022, the Company has also provided a financial guarantee, subject to certain terms and conditions, on behalf of GPS to an original equipment manufacturer in the amount of $3.6 million in support of business development efforts. During Fiscal 2022, the Company established a liability for the estimated loss related to this guarantee; the corresponding cost has been included in selling, general and administrative expenses for the year.

Warranties

The Company generally provides assurance-type warranties for work performed under its construction contracts. The warranties cover defects in equipment, materials, design or workmanship, and most warranty periods typically run from nine to twenty-four months after the completion of construction on a particular project. Because of the nature of the Company’s projects, including project owner inspections of the work both during construction and prior to substantial completion, the Company has not experienced material unexpected warranty costs in the past. Warranty costs are estimated based on experience with the type of work and any known risks relative to each completed project. The accruals of liabilities, which are established to cover estimated future warranty costs, are recorded as the contracted work is performed, and they are included in the amounts of accrued expenses in the consolidated balances sheets. The liability amounts may be periodically adjusted to reflect changes in the estimated size and number of expected warranty claims.

Employee Benefit Plans

The Company maintains 401(k) savings plans pursuant to which the Company makes discretionary contributions for the eligible and participating employees. The Company’s expense amounts related to these defined contribution plans were approximately $2.3 million, $1.9 million and $1.7 million for Fiscal 2022, Fiscal 2021 and Fiscal 2020, respectively. The Company also maintains nonqualified plans whereunder the payments of certain amounts of incentive compensation earned by key employees are deferred for periods of four to seven years; payments are conditioned on continuous employment.