We lease property and equipment under operating lease arrangements, most of which relate to distribution centers, manufacturing facilities, and offices. 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 as the present value of the lease payments over the related term. Related assets are equal to the calculated lease liabilities adjusted for incentives and other items as prescribed by ASC Topic 842, Leases (“ASC 842”). 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.

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 are reflected as a component of lease cost within our Consolidated Statements of Comprehensive Income.

Generally, the rates implicit in our leases are 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 was 4.3% as of August 31, 2026 and 2025.

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	August 31, 2026
2027	$	32.3
2028	28.3
2029	23.5
2030	20.8
2031	11.6
Thereafter	6.8
Total undiscounted lease payments	123.3
Less: Discount due to interest	(11.8)
Present value of lease liabilities	$	111.5

Lease cost is recorded within Cost of products sold, and may be capitalized into inventory as manufacturing overhead, or Selling, distribution, and administrative expenses in the Consolidated Statements of Comprehensive Income based on the primary use of the related right of use (“ROU”) asset. The components of total lease cost were as follows during the periods presented (in millions):

Cash paid for operating lease liabilities during the year ended August 31, 2026, 2025, and 2024 was $29.9 million, $26.4 million, and $22.9 million, respectively. ROU assets obtained in exchange for lease liabilities during the year ended August 31, 2026 and 2025 were $31.6 million and $52.5 million, respectively. ROU assets obtained in fiscal 2025 included $24.2 million from the acquisition of QSC.

We have entered into an agreement to expand our office space in the U.S. that has not commenced as of August 31, 2026. This lease has an estimated term of eleven years and estimated gross payments of approximately $20.0 million. We expect the lease to commence during fiscal 2027. We have no other significant leases that have not yet commenced as of August 31, 2026 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.

During fiscal 2026, we discontinued the use of a leased facility. Accordingly, we assessed the recoverability of this asset using an undiscounted cash flow model and concluded that the carrying values of the asset was not fully recoverable, which triggered an impairment test for this asset. Our impairment test indicated that the carrying value exceeded its fair value, which resulted in an impairment charge of $3.1 million. This amount is included within Special charges on the Consolidated Statements of Comprehensive Income and relates to our AIS segment.