Leases Leases

9 Months Ended

May 31, 2020

Note 15. Leases

The Company adopted ASC 842 on September 1, 2019 using a modified retrospective approach and as a result did not adjust prior periods. See Note 1, “Basis of Presentation” for further discussion of the adoption.

As of May 31, 2020, the Company had operating leases for real estate, vehicles, manufacturing equipment, IT equipment and office equipment. The Company did not have any financing leases during the three and nine months ended May 31, 2020. Our real estate leases are generally for office, warehouse and manufacturing facilities typically ranging in term from 3 to 15 years and may contain renewal options for periods up to 5 years at our discretion. Our equipment leases are generally for vehicles, manufacturing and IT equipment typically ranging in term from 3 to 7 years and may contain renewal options for periods up to one year at our discretion. Our leases generally contain payments that are primarily fixed; however, certain lease arrangements contain variable payments, which are expensed as incurred and not included in the measurement of ROU assets and lease liabilities. These amounts include payments affected by changes in the Consumer Price Index and executory costs (such as real estate taxes, utilities and common-area maintenance), which are based on usage or performance. In addition, our leases generally do not include material residual value guarantees or material restrictive covenants.

We determine if an arrangement contains a lease in whole or in part at the inception of the contract and identify classification of the lease as financing or operating. ROU assets represent our right to use an underlying asset for the lease term while lease liabilities represent our obligation to make lease payments arising from the lease. We account for the underlying operating lease asset at the individual lease level. Operating leases are recorded as operating lease ROU assets in “Other long-term assets” and operating lease liabilities in “Other current liabilities” and “Other long-term liabilities” of the Condensed Consolidated Balance Sheets.

All leases greater than 12 months result in recognition of a ROU asset and a liability at the lease commencement date and are recorded at the present value of the future minimum lease payments over the lease term. The lease term is equal to the initial term at commencement plus any renewal or extension options that the Company is reasonably certain will be exercised. ROU assets at the date of commencement are equal to the amount of the initial lease liability, the initial direct costs incurred by the Company and any prepaid lease payments less any incentives received. Lease expense for operating leases is recognized on a straight-line basis over the lease term or remaining useful life. As most of our leases do not provide the information required to determine the implicit rate, we utilize a consolidated group incremental borrowing rate for all leases as the Company has centralized treasury operations. The incremental borrowing rate is derived through a combination of inputs such as the Company's credit rating, impact of collaborated borrowing capabilities and lease term.

The Company considers contract modifications when there is a change to the contractual terms, scope of the lease or the consideration given. In the event the right to use an additional asset is granted and the lease payments associated with the additional asset are commensurate with the ROU asset’s standalone price, the modification is accounted for as a separate contract and the original contract remains unchanged. In the event that a single lease is modified, the Company reassesses the classification of the modified lease as of the effective date of the modification based on the modified terms and accounts for initial direct costs, lease incentives and any other payments made to or by the Company in connection with the modification in the same manner that items would be accounted for in connection with a new lease. If there is an additional ROU asset included, the lease term is extended or reduced, or the consideration is the only change in the contract, the Company reallocates the remaining consideration in the contract and remeasures the lease liability using a discount rate determined at the effective date of the modification. The remeasured lease liability for the modified lease is an adjustment to the corresponding ROU asset and does not impact the Condensed Consolidated Statements of Operations. In the event of a full or partial termination, the carrying value of the ROU asset decreases on a basis proportionate to the full or partial termination and any difference between the reduction in the lease liability and the proportionate reduction of the ROU asset is recognized as a gain or loss at the effective date of the modification.

The Company elected not to recognize leases with the duration of less than one-year on its balance sheet and continues to expense such leases on a straight-line basis over the lease term.

The components of lease expense for the three and nine months ended May 31, 2020 were as follows (in thousands):



	Three Months Ended May 31, 2020		Nine Months Ended May 31, 2020
Lease Cost:
Operating lease cost	$	3,818	$	11,966
Short-term lease cost	343		1,108
Variable lease cost	447		1,480

Supplemental cash flow and other information related to leases were as follows (in thousands):



	Nine Months Ended May 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	11,908

Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases	4,773

Supplemental balance sheet information related to leases were as follows (in thousands):



	May 31, 2020
Operating leases:
Other long-term assets	$	50,911

Other current liabilities	12,203
Other long-term liabilities	39,939
Total operating lease liabilities	$	52,142

Weighted Average Remaining Lease Term (in years):
Operating leases	7.6 years

Weighted Average Discount Rate:
Operating leases	4.36		%

A summary of the future minimum lease payments due under operating leases with terms of more than one year at May 31, 2020 is as follows (in thousands):



	Operating Leases
2020 (excluding the nine months ended May 31, 2020)	$	3,910
2021	13,268
2022	9,454
2023	7,480
2024	5,955
Thereafter	21,862
Total minimum lease payments	61,928
Less imputed interest	(9,786		)
Present value of net minimum lease payments	$	52,142

A summary of the future minimum lease payments due under operating leases with terms of more than one year at August 31, 2019 is as follows (in thousands):



	Operating Leases
2020	$	15,792
2021	12,266
2022	10,111
2023	6,865
2024	5,177
Thereafter	21,620
Present value of net minimum lease payments	$	71,831