Note 12. Leases

We lease facilities and various equipment to manufacture products and provide employee collaboration space and tools. These are all classified as operating leases and have initial lease terms ranging from one to five years. These operating leases do not contain material residual value guarantees or material restrictive covenants. Our lease in Sioux Falls, South Dakota has a purchase option. We do not have any financing leases.

We determine if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Right-of-use assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As we are generally not able to determine the rate implicit in our leases, we use the incremental borrowing rate based on the information available at the commencement date in determining the present value of future lease payments. The operating lease right-of-use asset includes any prepaid lease payments and initial direct costs and excludes any lease incentives and impairments. Some of our leases include options to extend the term, which is only included in the right-of-use assets and lease liability calculation when it is reasonably certain that we will exercise that option. We have lease agreements with lease and non-lease components, and we have elected to account for all asset classes as a single lease component. Our operating leases also typically require payment of real estate taxes, insurance, and common area maintenance. These components comprise the majority of our variable lease cost and are excluded from the present value of our lease obligations. In instances where they are fixed, they are included due to our election to combine lease and non-lease components. Our total variable lease costs are immaterial.

Operating lease cost is recognized on a straight-line basis over the lease term, and short-term lease cost is recognized when paid. During fiscal 2020, the operating lease cost included in cost of sales and operating expenses in the consolidated statements of operations was $2,325 and $1,116, respectively. Operating lease cost includes short-term leases, which are immaterial.

As of May 2, 2020, the weighted average remaining lease term and discount rate related to operating leases was 5.0 years and 3.4%.

Supplemental unaudited cash flow information related to operating leases include:



	Fiscal Year 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	3,340

Future minimum operating lease payments as of, and subsequent to, May 2, 2020 under ASC 842 are as follows:



	Operating Leases⁽¹⁾
Fiscal years ending
2021	$	2,675
2022	1,984
2023	1,209
2024	1,085
2025	931
Thereafter	1,467
Total lease payments	9,351
Less imputed interest	(780		)
Total lease liabilities	$	8,571

(1) Includes $3,879 to extend the term of the lease for our Sioux Falls, South Dakota manufacturing facility.