Note 13 - Leases

3 Months Ended

Feb. 28, 2022

Notes to Financial Statements

Leases [Text Block]

13) Leases

The Company determines if an arrangement is a lease at inception of a contract. The nature of the Company’s leases at this time is shop machinery and office equipment, mainly copiers, with terms of 12 to 60 months. Operating and finance leases are included in other assets as lease right-of-use (“ROU”) assets on the Consolidated Balance Sheets while current lease liabilities are included as accrued expenses. The long-term portions of lease liabilities are shown as long-term liabilities on the 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. ROU assets and liabilities are recognized at the commencement date based on the present value payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company generally uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease expense for lease payments is recognized on a straight-line basis over the lease term while finance lease ROU assets are amortized on a straight line basis and interest expense is recorded over the lease term.

The Company has copier lease agreements with lease and non-lease components and has elected the practical expedient not to separate lease and non-lease components for this asset class. The Company has also elected not to recognize lease liabilities and ROU assets for leases with an initial term of twelve months or less. The Company recognizes variable costs that depend on usage in profit or loss as they are incurred.

The components of operating leases on the Condensed Consolidated Balance Sheets at February 28, 2022 and November 30, 2021 were as follows:

	February 28, 2022		November 30, 2021
Operating lease right-of-use assets (in other assets)	$	44,639		47,794
Current portion of operating lease liabilities (in accrued expenses)	$	13,027		12,863
Long-term portion of operating lease liabilities		31,612		34,931
Total operating lease liabilities	$	44,639		47,794

The Company recorded $4,843 of operating lease costs in the three months ended February 28, 2022, which included variable costs tied to usage, compared to $6,080 for the three months ended February 28, 2021. The Company’s operating leases carry a weighted average lease term of 46 months and have a weighted average discount rate of 4.88%

Future maturities of operating lease liabilities are as follows:

Years Ending November 30,
2022	11,186
2023	12,345
2024	11,162
2025	9,532
2026	4,764
Total lease payments	48,989
Less imputed interest	(4,350	)
Total operating lease liabilities	44,639

The components of finance leases on the Consolidated Balance Sheets on February 28, 2022 and November 30, 2021 were as follows:

	February 28, 2022		November 30, 2021
Finance lease right-of-use assets (net of amortization in other assets)	$	174,526	$	190,667
Current portion of finance lease liabilities (accrued expenses)	$	49,169	$	48,591
Long-term portion of finance lease liabilities		129,864		142,386
Total finance lease liabilities	$	179,033	$	190,977

Future maturities of finance lease liabilities as of November 30, 2022 are as follows:

Year Ending November 30,
2022	$	42,485
2023		56,646
2024		68,029
2025		14,203
2026		12,619
Total lease payments		193,982
Less imputed interest		(14,949	)
Total finance lease liabilities	$	179,033

The weighted average lease term of the Company’s finance leases are 39 months while the weighted average rate of finance leases is 4.77%. The Company incurred $16,142 of amortization expense from ROU assets related to finance leases in the first three months ending February 28, 2022 compared to $0 for the same period in 2021.

On March 3, 2022, the Company entered into a finance lease agreement for the lease of three robotic weld systems. The terms of the lease agreement are payments of approximately $5,068 per month for 60 months with a bargain purchase option of $30,590 at the end of the lease.

The Company expects delivery of a Lift King lift truck in April of fiscal 2022, with monthly payments beginning upon receipt of approximately $1,627 for 60 months with a $1.0 bargain purchase option at the end of the lease.