The Company leases real estate for its regional sales offices, a research and development facility, and offices located at its international subsidiaries and branch locations. In addition, the Company leases an automobile fleet in the United States. The Company has also identified warehouse leases within certain third-party distribution center service contracts. All other leases are insignificant to the Company’s consolidated financial statements. To determine if a contract contains a lease, the Company assesses its contracts and determines if there is an identified asset for which the Company has obtained the right to control, as defined in ASC 842.

The Company records right-of-use assets and lease liabilities on its consolidated balance sheets for leases with an expected term greater than one year. The lease term includes the committed lease term, also taking into account early termination and renewal options that management is reasonably certain to exercise. For leases that do not have a readily determinable implicit rate, the Company uses its estimated secured incremental borrowing rate based on the information available at the lease commencement date to determine the present value of lease payments. The Company’s estimated secured incremental borrowing rate is determined using a portfolio approach based on the rate of interest the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. The Company uses the unsecured borrowing rate and risk-adjusts that rate to approximate a collateralized rate in the currency of the lease. As of August 31, 2021 and 2022, finance leases were not significant and all leases recorded on the Company’s consolidated balances sheets were operating leases. Residual value guarantees, restrictions, covenants, sublease income, net gains or losses from sale and leaseback transactions, and transactions with related parties associated with leases are also not significant. The Company has made the accounting policy election to use certain ongoing practical expedients made available by ASC 842 to: (i) not separate lease components from nonlease components for real estate – office buildings, machinery and equipment, lab equipment, office equipment, furniture and fixtures, and IT equipment; and (ii) exclude leases with an initial term of 12 months or less (“short-term” leases) from the consolidated balance sheets and will recognize related lease payments in the consolidated statements of operations on a straight-line basis over the lease term. However, the Company had no significant short-term leases as of August 31, 2022. The Company obtained additional right-of-use assets of $2.2 million in exchange for lease obligations related to renewals of existing leases during fiscal year 2022.

The Company recorded $2.0 million and $2.1 million in lease expense during the fiscal years ended August 31, 2022 and 2021, respectively. This lease expense was included in selling, general and administrative expenses. The Company recorded $0.3 million of lease expense classified within cost of products sold for the fiscal year ended August 31, 2022, and $0.6 million for the fiscal year ended August 31, 2021. During the fiscal year ended August 31, 2022 and 2021, the Company paid cash of $2.1 million and $2.0 million related to lease liabilities, respectively. Variable lease expense under the Company’s lease agreements was not significant for both the fiscal years ended August 31, 2022 and 2021. As of August 31, 2022, the weighted-average remaining lease term was 6.5 years and the weighted-average discount rate was 3.1% for the Company’s operating leases. As of August 31, 2021, the weighted-average remaining lease term was 6.7 years and the weighted-average discount rate was 2.8% for the Company’s operating leases. The Company had approximately $1.2 million of leases that commenced after August 31, 2022 that created rights and obligations to the Company. These leases are not included in the following schedules.

Right-of-use assets and lease liabilities consisted of the following (in thousands):


	August 31,		August 31,
	2022		2021
Assets:
Operating lease right-of-use assets	$	7,559	$	8,824

Liabilities:
Current operating lease liabilities⁽¹⁾		1,703		1,903
Long-term operating lease liabilities		5,999		7,062
Total operating lease liabilities	$	7,702	$	8,965

(1)Current operating lease liabilities are classified in accrued liabilities on the Company’s consolidated balance sheets.

The Company’s maturities of its operating lease liabilities, including early termination and renewal options that management is reasonably certain to exercise, are as follows as of August 31, 2022 (in thousands):


	Operating
	Leases
Fiscal year 2023		1,918
Fiscal year 2024		1,656
Fiscal year 2025		1,077
Fiscal year 2026		939
Fiscal year 2027		770
Thereafter		2,230
Total undiscounted future cash flows	$	8,590
Less: Interest		(888)
Present value of lease liabilities	$	7,702