Note 10—Leases

We lease property and equipment under operating lease arrangements, most of which relate to distribution centers and manufacturing facilities in the U.S., Honduras, El Salvador, and Mexico. We also lease machinery and equipment in the U.S. under finance lease arrangements. 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 Condensed Consolidated Balance Sheet. 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 Condensed Consolidated Statements of Operations. Our operating lease agreements for buildings generally include provisions for the payment of our proportional share of operating costs, property taxes, and other variable payments. These incremental payments are excluded from our calculation of operating lease liabilities and right of use assets. 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.

Generally, the rate implicit in our operating 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 was 4.3% and 4.1% as of September 2021 and September 2020, respectively. We discount our finance lease payments based on the rate implicit and stated in the lease. The weighted average discount rate for finance leases was 5.8% and 5.1% as of September 2021 and September 2020, respectively.

The following table presents the future undiscounted payments due on our operating and finance lease liabilities as well as a reconciliation of those payments to our operating and finance lease liabilities, recorded as of  September 2021 (in thousands):

As of  September 2021, we have entered into certain operating leases that have not yet commenced, but the annual fixed lease payments are not significant.

Our Ceiba Textiles manufacturing facility is leased under an operating lease arrangement with a Honduran company, of which we own 31% of the outstanding capital stock of the lessor at  September 2021. During 2021 and 2020 we paid approximately $1.8 million and $1.3 million, respectively, in lease payments under this arrangement.

As of September 2021 and September 2020, we had $45.3 million and $54.6 million, respectively, of operating lease ROU assets which were reflected within Operating lease assets in our Consolidated Balance Sheet, and $26.7 million and $23.6 million, respectively, of finance lease ROU assets, which were reflected within Property, plant, and equipment, net in our Consolidated Balance Sheet.

The weighted average remaining lease terms for our operating leases and finance leases were approximately 7 years and 3 years, respectively, as of  September 2021 and September 2020.

The components of total lease expense were as follows for the period ended September 2021 (in thousands):

Cash outflows for operating lease payments were $11.0 million during both 2021 and 2020. Cash outflows for interest payments on finance leases were $1.2 million and $0.7 million during 2021 and 2020, respectively. These outflows are classified within net cash provided by operating activities on the Consolidated Statement of Cash Flows. Cash outflows for finance lease payments during 2021 and 2020 were $7.0 million and $4.0 million, respectively, and are classified within net cash used in financing activities on the Consolidated Statement of Cash Flows.

During the quarter ended June 2020, in response to the COVID-19 pandemic, the Company entered into certain lease arrangements deferring approximately $1.7 million of operating lease payments and approximately $1.7 million of finance lease payments. The operating lease deferrals were paid over the next 12 months while finance lease deferrals will be repaid at the end of each lease.

ROU assets obtained in exchange for operating lease liabilities during 2021 and 2020 were $1.2 million and $22.7 million, respectively. ROU assets obtained in exchange for finance lease liabilities during 2021 and 2020 were $12.3 and $5.0 million, respectively.

We do not have significant leasing transactions in which we are the lessor.