Leases

9 Months Ended

Jun. 30, 2020

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the facts and circumstances present. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. At the lease commencement date, operating and finance lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable and, as such, the Company uses its incremental borrowing rate to discount the lease liabilities, which is the rate incurred to borrow on a collateralized basis over a similar term in a similar economic environment. Certain adjustments to the ROU asset may be required for items such as incentives received. The Company does not recognize on the balance sheet leases with terms of one year or less.

The Company has operating leases that are primarily comprised of buildings, office equipment, distribution center equipment, and vehicles. Some of the Company's leases include options to extend or early terminate the lease, which are included in the lease term when it is reasonably certain to exercise and there is a significant economic incentive to exercise that option. Certain lease agreements contain provisions for future rent increases. Lease payments included in the measurement of the lease liability comprise fixed payments. The Company combines lease and non-lease components as a single component. Operating lease cost is recognized over the expected lease term on a straight-line basis. Variable lease payments, which are primarily comprised of maintenance, taxes, and other payments based on usage, are recognized when the expense is incurred. The Company's leases do not contain residual value guarantees.

The following illustrates the components of lease cost for the periods presented:


(in thousands)	Three months ended June 30, 2020		Nine months ended June 30, 2020
Operating lease cost	$	28,725	$	89,432
Short-term lease cost	1,051		3,842
Variable lease cost	4,297		12,841
Total lease cost	$	34,073	$	106,115

The Company recorded rental expense of $27.7 million and $81.5 million in the three and nine months ended June 30, 2019, respectively.

The following summarizes balance sheet information related to operating leases:


(in thousands, except for lease term and discount rate)	June 30, 2020
Right of use assets
Other assets	$	479,704

Lease liabilities
Accrued expenses and other	$	97,147
Other long-term liabilities	424,348
Total lease liabilities	$	521,495

Weighted-average remaining lease term	6.84 years
Weighted-average discount rate	3.68%

Other cash flow information related to operating leases is as follows:


(in thousands)	Nine months ended June 30, 2020
Cash paid for amounts included in the measurement of lease liabilities
Operating lease cash payments	$	87,128

Right-of-use assets obtained in exchange for lease liabilities
New operating leases	$	50,765
Leases recognized upon adoption of ASC 842	$	526,281

Future minimum rental payments under noncancellable operating leases were as follows:


Payments Due by Fiscal Year (in thousands)	As of June 30, 2020
2020	$	31,000
2021	117,929
2022	113,148
2023	102,772
2024	94,333
Thereafter	469,165
Total future undiscounted lease payments	928,347
Less: Future payments for leases that have not yet commenced ¹	(301,756)
Less: Imputed interest	(105,096)
Total lease liabilities	$	521,495

¹ The Company has certain leases that it has executed for which it does not control the underlying assets; therefore, lease liabilities and ROU assets were not recorded on the Company's Consolidated Balance Sheet as of June 30, 2020. These future commitments primarily relate to the Company's new general corporate and administrative office.

As previously disclosed in the Company's fiscal 2019 Annual Report on Form 10-K under the prior accounting guidance, the future minimum rental payments under noncancellable operating leases and financing obligations as of September 30, 2019 were as follows:


Payments Due by Fiscal Year (in thousands)	Operating Leases		Financing Obligations ¹		Total
2020	$	94,958	$	22,468	$	117,426
2021	84,002		29,790		113,792
2022	72,224		36,914		109,138
2023	63,507		35,950		99,457
2024	56,377		35,276		91,653
Thereafter	177,267		270,410		447,677
Total minimum lease payments	$	548,335	$	430,808	$	979,143

¹ Represents the portion of future minimum lease payments related to facility leases where the Company was determined to be the accounting owner (see Note 1 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019 for a more detailed description of the Company's accounting for leases prior to the adoption of ASC 842). These payments were recognized as reductions to the financing obligation and as interest expense and excluded the future non-cash termination of the financing obligation.