LEASES
At the inception of our contracts, we determine if the contract is or contains a lease. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at commencement. For leases that do not have a readily determinable implicit rate, we use a discount rate based on our incremental borrowing rate, which is determined considering factors such as the lease term, our credit rating and the economic environment of the location of the lease as of the commencement date.
We account for non-lease components separately from lease components. These costs often relate to the payments for a proportionate share of real estate taxes, insurance, common area maintenance and other operating costs in addition to base rent. We also generally do not recognize ROU assets and liabilities for leases with an initial term of 12 months or less. Lease costs associated with leases of less than 12 months were $7.7 million, $5.9 million and $7.0 million for the years ended June 30, 2025, 2024 and 2023, respectively.
As a lessee, we have various operating lease agreements primarily related to real estate, vehicles and office and plant equipment. Our real estate leases, which are comprised primarily of manufacturing, warehousing, office and administration facilities, represent a majority of our lease liability. Our lease payments are largely fixed. Any variable lease payments, including utilities, common area maintenance and repairs and maintenance, are expensed during the period incurred. Variable lease costs were immaterial for the years ended June 30, 2025, 2024 and 2023. A majority of our real estate leases include options to extend the lease and options to early terminate the lease. Leases with an early termination option generally involve a termination payment. We review all options to extend, terminate, or purchase the ROU assets at the inception of the lease and account for these options when they are reasonably certain of being exercised. Our lease agreements generally do not contain any material residual value guarantees or materially restrictive covenants. We have signed a material lease agreement related to the Company's future innovation center in Germany. The lease has not yet commenced as the facility has yet to be constructed and the Company does not have the right to use the property until the future handover date. We do not have any material lease transactions with related parties.
Operating lease expense is recognized on a straight-line basis over the lease term and is included in operating expense on our consolidated statements of income. Operating lease cost was $24.3 million, $22.3 million and $22.0 million in 2025, 2024 and 2023, respectively.
The following table sets forth supplemental balance sheet information related to our operating leases:
| | | | | | | | | | | | | | | | | |
| Year Ended June 30 | 2025 | | 2024 | | 2023 |
| Weighted average remaining lease term | 9.6 years | | 8.6 years | | 8.0 years |
| Weighted average discount rate | 4.6 | % | | 4.3 | % | | 3.8 | % |
The following table sets forth supplemental cash flow information related to our operating leases:
| | | | | | | | | | | | | | | | | |
Year Ended June 30
(in thousands) | 2025 | | 2024 | | 2023 |
| Operating cash outflows from operating leases | $ | 16,650 | | | $ | 16,360 | | | $ | 15,040 | |
| ROU assets obtained in exchange for new operating lease liabilities | $ | 11,754 | | | $ | 17,640 | | | $ | 8,066 | |
The following table sets forth the maturities of our operating lease liabilities and reconciles the respective undiscounted payments to the operating lease liabilities in the consolidated balance sheet as of June 30, 2025:
| | | | | | | | |
| Year Ended June 30 (in thousands) | | |
| 2026 | | $ | 14,116 | |
| 2027 | | 10,279 | |
| 2028 | | 6,909 | |
| 2029 | | 4,149 | |
| 2030 | | 2,843 | |
| Thereafter | | 14,542 | |
| Total undiscounted operating lease payments | | $ | 52,838 | |
| Less: discount to net present value | | 7,243 | |
| Total operating lease liabilities | | $ | 45,595 | |