Leases

9 Months Ended

May 31, 2020

We lease property and equipment under operating lease arrangements, most of which relate to distribution centers and manufacturing facilities in the U.S., Mexico, and Canada. We include both the contractual term as well as any renewal option that we are reasonably certain to exercise in the determination of our lease terms. For leases with a term of greater than 12 months, we value lease liabilities and the related assets as the present value of the lease payments over the related term. We apply the short-term lease exception to leases with a term of 12 months or less and exclude such leases from our Consolidated Balance Sheets. Payments related to these short-term leases are expensed on a straight-line basis over the lease term and reflected as a component of lease cost within our Consolidated Statements of Comprehensive Income. Lease payments generally consist of fixed amounts, and variable amounts based on a market rate or an index are not material to our consolidated lease cost. We have elected to use the practical expedient present in ASC 842 to not separate lease and non-lease components for all significant underlying asset classes and instead account for them together as a single lease component in the measurement of our lease liabilities. Our leases do not contain significant terms and conditions for variable lease payments.

Generally, the rate implicit in our leases is not readily determinable. Therefore, we discount future lease payments using our estimated incremental borrowing rate at lease commencement. We determine this rate based on a credit-adjusted risk-free rate, which approximates a secured rate over the lease term. The weighted average discount rate for operating leases as of May 31, 2020 was 2.2%.

The following table presents the future undiscounted payments due on our operating lease liabilities as well as a reconciliation of those payments to our operating lease liabilities recorded as of the date presented (in millions):



Fiscal year	May 31, 2020
2020	$	4.8
2021	16.4
2022	11.9
2023	8.9
2024	6.3
Thereafter	18.4
Total undiscounted lease payments	66.7
Less: Discount due to interest	(4.1		)
Present value of lease liabilities	$	62.6

The weighted average remaining lease term for our operating leases was six years as of May 31, 2020.

Lease cost is recorded within Cost of products sold or Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income based on the primary use of the related ROU asset. The components of total lease cost were as follows for the period presented (in millions):



	Three Months Ended		Nine Months Ended
	May 31, 2020		May 31, 2020
Operating lease cost	$	4.4	$	13.7
Variable lease cost	0.6		1.8
Short-term lease cost	0.9		2.1
Total lease cost	$	5.9	$	17.6

Prior to the adoption of ASC 842, we recognized rent expense of $5.9 million and $16.8 million during the three and nine months ended May 31, 2019, respectively.

Cash paid for operating lease liabilities during the nine months ended May 31, 2020 was $14.0 million. ROU assets obtained in exchange for lease liabilities, including those obtained from recent acquisitions, during the nine months ended May 31, 2020 were $11.3 million.

We do not have material leases that have not yet commenced as of May 31, 2020 that create significant rights and obligations.

We have subleased certain properties. Lease income from these subleases is recognized in the Consolidated Statements of Comprehensive Income as it is earned and is not material to our consolidated results of operations. We do not have any other significant transactions in which we are the lessor.