NOTE 6- LEASES

Clearfield leases a 71,000 square foot facility at 7050 Winnetka Avenue North, Brooklyn Park, Minnesota consisting of our corporate offices, manufacturing and warehouse space.  The lease term is ten years and two months and commenced on January 1, 2015.  On June 30, 2019, the Company amended its lease to add 14,000 square feet to this facility, with the lease term for the additional space coterminous with the original lease.  Upon proper notice and payment of a termination fee of approximately $249,000, the Company has a one-time option to terminate the lease effective as of the last day of the eighth year of the term after the Company commenced paying base rent. The renewal and termination options have not been included within the lease term because it is not reasonably certain that we will exercise either option.

On October 9, 2020, the Company entered into an indirect lease arrangement for its existing 46,000 square foot manufacturing facility in Tijuana, Mexico. The Company had previously been leasing this facility on a month to month basis after its three-year lease expired on July 31, 2020. The new lease term is three years. This lease contains an option to renew and rent payments that increase annually based on U.S. inflation for the preceding 12 months.

On February 12, 2020, the Company entered into an indirect lease arrangement for an additional 52,000 square foot manufacturing facility in Tijuana, Mexico. The lease term is approximately 42 months and commenced on February 12, 2020. The lease contains written options to renew for two additional consecutive periods of three years each.

In July 2021, the Company entered into an indirect lease arrangement for an approximately 318,000 square foot manufacturing facility that is currently being constructed in Tijuana, Mexico. The lease term is for 7 years of which 5 years are mandatory, commencing March 1^st, 2022. The lease contains written options to renew for two additional consecutive periods of 5 years each. We expect to begin transitioning the current Mexico manufacturing operations into the newly leased facility in the second quarter of fiscal 2022. The lease calls for monthly rental payments of $162,232, increasing 2% annually. Upon lease commencement, we will recognize an additional right of use asset and associated lease liability of approximately $9,432,000. As this lease has not yet commenced as of September 30, 2021, the future payments under this agreement are not included in the future lease payments schedule below.

Right-of-use lease assets and lease liabilities are recognized as of the commencement date based on the present value of the remaining lease payments over the lease term which includes renewal periods we are reasonably certain to exercise. Our leases do not contain any material residual value guarantees or material restrictive covenants.

Operating lease expense included within cost of sales and selling, general and administrative expense was as follows for the year ended September 30, 2021 and 2020:

Our future lease obligations for leases that have commenced were as follows as of September 30, 2021:

As of September 30, 2021, the weighted average term and weighted average discount rate for our leases were 3.09 years and 3.41%, respectively. As of September 30, 2020, the weighted average term and weighted average discount rate for our leases were 3.99 years and 3.48%, respectively. For the year ended September 30, 2021 and 2020, the operating cash outflows from our leases were $1,289,982 and $812,107, respectively.