Leases

6 Months Ended

Feb. 29, 2020

Note 7. Leases

The Company's lease portfolio includes certain real estate (branch offices and customer fulfillment centers), automobiles, and other equipment. The determination of whether an arrangement is, or contains, a lease is performed at the inception of the arrangement. Operating leases are recorded on the balance sheet with operating lease assets representing the right to use the underlying asset for the lease term and lease liabilities representing the obligation to make lease payments arising from the lease. For real estate leases, the Company has elected the practical expedient which allows lease components and non-lease components, such as common area maintenance, to be grouped as a single lease component. The Company has also elected the practical expedient which allows leases with an initial term of twelve months or less to be excluded from the balance sheet.

The Company does not guarantee any residual value in its lease agreements, there are no material restrictions or covenants imposed by lease arrangements, and there are no lease transactions with related parties. Real estate leases typically include one or more options to extend the lease. The Company regularly evaluates the renewal options, and when it is reasonably certain of exercise, the Company includes the renewal period in its lease term. The automobile leases contain variable lease payments based on inception and subsequent interest rate fluctuations. For the thirteen and twenty-six-week periods ended February 29, 2020, the variable lease cost was insignificant. When readily determinable, the Company uses the interest rate implicit in its leases to discount lease payments. When the implicit rate is not readily determinable, as is the case with substantially all of the real estate leases, the Company utilizes the incremental borrowing rate. The incremental borrowing rate for a lease is the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. The rate for each lease was determined using primarily the Company’s credit spread, the lease term, and currency.

The components of lease cost for the thirteen and twenty-six weeks ended February 29, 2020 were as follows:


	Thirteen Weeks Ended		Twenty-Six Weeks Ended
	February 29, 2020		February 29, 2020
	(Dollars in thousands)
Operating lease cost	$	6,188	$	12,360
Short-term lease cost		220		484
Finance lease cost:
Amortization of leased assets		311		573
Interest on leased liabilities		30		55
Total Lease Cost	$	6,749	$	13,472

Supplemental balance sheet information relating to operating and finance leases is as follows:


		February 29,			August 31,
	Classification	2020			2019
Assets		(Dollars in thousands)
Operating lease assets	Operating lease assets	$	60,064	$	-
Finance lease assets⁽¹⁾	Property, plant, and equipment, net		4,280		2,958
Total leased assets		$	64,344	$	2,958
Liabilities
Current
Operating	Current portion of operating lease liabilities	$	21,587	$	-
Finance	Current portion of long-term debt including obligations under finance leases		1,244		765
Noncurrent
Operating	Noncurrent operating lease liabilities		38,119		-
Finance	Long-term debt including obligations under finance leases		3,104		2,206
Total lease liabilities		$	64,054	$	2,971
⁽¹⁾Finance lease assets are net of accumulated amortization of $793 and $1,398 as of February 29, 2020 and August 31, 2019.


	February 29,
	2020
Weighted average remaining lease term (years)
Operating Leases	4.0
Finance Leases	3.4
Weighted average discount rate
Operating Leases	3.5	%
Finance Leases	2.6	%

The following sets forth supplemental cash flow information related to operating and finance leases:


	Twenty-Six Weeks Ended
	February 29, 2020
	(Dollars in thousands)
Operating Cash Outflows from Operating Leases	$	12,188
Operating Cash Outflows from Finance Leases		55
Financing Cash Outflows from Finance Leases		504
Leased assets obtained in exchange for new lease liabilities:
Operating Leases	$	9,817
Finance Leases		1,973

As of February 29, 2020, future lease payments were as follows:


Fiscal Year (Dollars in thousands)	Operating Leases		Finance Leases		Total
2020 (excluding six months)	$	12,804	$	687	$	13,491
2021		22,176		1,375		23,551
2022		13,883		1,344		15,227
2023		7,485		1,018		8,503
2024		5,110		152		5,262
Thereafter		7,274		3		7,277
Total Lease Payments		68,732		4,579		73,311
Less: Imputed Interest		9,026		231		9,257
Present Value of Lease Liabilities ⁽¹⁾	$	59,706	$	4,348	$	64,054

⁽¹⁾ Includes the current portion of $21,587 for operating leases and $1,244 for finance leases

As of February 29, 2020, the Company's future lease obligations which have not yet commenced are immaterial.

Prior Period Disclosures

As a result of the adoption of ASC 842, Leases, on September 1, 2019, the Company is required to present future minimum lease payments for operating and finance lease obligations having initial or remaining non-cancelable lease terms in excess of one year. These future minimum lease payments were previously disclosed in the Company’s 2019 Annual Report on Form 10-K and accounted for under previous lease guidance. Commitments as of August 31, 2019 were as follows:


	August 31, 2019
Fiscal Year	Operating Leases		Capitalized Lease Obligations
2020	$	22,463	$	792
2021		18,022		812
2022		9,923		781
2023		5,184		604
2024		4,083		106
Thereafter		6,023		-
Total minimum lease payments	$	65,698	$	3,095
Less: interest				124
Present value of minimum lease payments			$	2,971
Less: current maturities				765
Present value of minimum lease payments less current maturities			$	2,206