Leases, Codification Topic 842

12 Months Ended

Aug. 31, 2022

We assess arrangements at inception to determine whether they contain a lease. An arrangement is considered to contain a lease if it conveys the right to control the use of an asset for a period of time in exchange for consideration. The right to control the use of an asset must include both (i) the right to obtain substantially all economic benefits associated with an identified asset and (ii) the right to direct how and for what purpose the identified asset is used. Certain service agreements may provide us with the right to use an identified asset; however, most of these arrangements are not considered to represent a lease as we do not control how and for what purpose the identified asset is used.

We lease property, plant and equipment used in our operations primarily under operating lease agreements and, to a lesser extent, under finance lease agreements. Our leases are primarily for railcars, equipment, vehicles and office space, many of which contain renewal options and escalation clauses. Renewal options are included as part of the right of use asset and liability when it is reasonably certain that we will exercise the renewal option; however, renewal options are generally not included as we are not reasonably certain to exercise such options.

After the adoption of ASC Topic 842 on September 1, 2019, right of use assets and liabilities for operating and finance leases are recognized at the lease commencement date for leases in excess of 12 months based on the present value of lease payments over the lease term. For measurement and classification of lease agreements, lease and nonlease components are grouped into a single lease component for all asset classes. Variable lease payments are excluded from measurement of right of use assets and liabilities and generally include payments for nonlease components such as maintenance costs, payments for leased assets beyond their noncancelable lease term and payments for other nonlease components such as sales tax. The discount rate used to calculate present value is our collateralized incremental borrowing rate or, if available, the rate implicit in the lease. The incremental borrowing rate is determined for each lease based primarily on its lease term. Certain lease arrangements include rental payments adjusted annually based on changes in an inflation index. Our lease arrangements generally do not contain residual value guarantees or material restrictive covenants.

Lease expense is recognized on a straight-line basis over the lease term. The components of lease expense recognized in our Consolidated Statements of Operations as of August 31, 2022, 2021 and 2020, are as follows:


	2022		2021		2020
	(Dollars in thousands)
Operating lease expense	$	71,209	$	73,489	$	71,541
Finance lease expense:
Amortization of assets	8,967		8,065		8,205
Interest on lease liabilities	1,469		938		1,060
Short-term lease expense	16,915		16,955		15,991
Variable lease expense	1,699		2,300		3,674
Total net lease expense*	$	100,259	$	101,747	$	100,471

*Income related to sublease activity is not material and has been excluded from the table above.

Supplemental balance sheet information related to operating and finance leases as of August 31, 2022 and 2021, is as follows:


	Balance Sheet Location	2022		2021
		(Dollars in thousands)
Operating leases
Assets
Operating lease right of use assets	Other assets	$	242,859	$	253,451
Liabilities
Current operating lease liabilities	Accrued expenses	$	54,702	$	56,424
Long-term operating lease liabilities	Other liabilities	194,250		200,720
Total operating lease liabilities		$	248,952	$	257,144

Finance leases
Assets
Finance lease assets	Property, plant and equipment	$	57,932	$	48,625
Liabilities
Current finance lease liabilities	Current portion of long-term debt	$	7,609	$	7,444
Long-term finance lease liabilities	Long-term debt	37,164		28,590
Total finance lease liabilities		$	44,773	$	36,034

Information related to the lease term and discount rate for operating and finance leases as of August 31, 2022 and 2021, is as follows:


	2022		2021
Weighted average remaining lease term (in years)
Operating leases	7.6		7.9
Finance leases	10.4		10.3
Weighted average discount rate
Operating leases	3.00	%	3.01	%
Finance leases	3.42	%	3.50	%

Supplemental cash flow and other information related to operating and finance leases as of August 31, 2022, 2021 and 2020, is as follows:


	2022		2021		2020
	(Dollars in thousands)
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases	$	61,750	$	71,702	$	71,003
Operating cash flows from finance leases	1,469		938		1,060
Financing cash flows from finance leases	9,171		8,235		7,949

Supplemental noncash information:
Right of use assets obtained in exchange for lease liabilities	$	54,199	$	43,991	$	56,461
Right of use asset modifications	12,887		27,664		7,333

Maturities of lease liabilities by fiscal year as of August 31, 2022, were as follows:


	August 31, 2022
	Finance Leases		Operating Leases
	(Dollars in thousands)
2023	$	8,603	$	57,894
2024	6,483		54,279
2025	5,055		42,358
2026	4,679		32,975
2027	4,477		18,471
Thereafter	27,764		79,148
Total maturities of lease liabilities	57,061		285,125
Less amounts representing interest	12,288		36,173
Present value of future minimum lease payments	44,773		248,952
Less current obligations	7,609		54,702
Long-term obligations	$	37,164	$	194,250