Note 15 - Leases

3 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

Note 15. Leases

The Company leases an 85,000 square foot facility at 7050 Winnetka Avenue North, Brooklyn Park, Minnesota consisting of corporate offices, manufacturing, and warehouse space. The lease term is ten years and two months, ending on February 28, 2025, and is renewable. The renewal options have not been included within the lease term because it is not reasonably certain that the Company will exercise either option.

The Company indirectly leases an approximately 318,000 square foot manufacturing facility in Tijuana, Mexico that operates as a Maquiladora. The lease term commenced in March 2022 and is seven years, of which five years are mandatory2. The lease contains written options to renew for two additional consecutive periods of five years each. The lease calls for monthly rental payments of $162,000, increasing 2% annually. The renewal options have not been included within the lease term because it is not reasonably certain that the Company will exercise either option.

The Company leases a 105,000 square foot warehouse in Brooklyn Park, Minnesota. The lease term commenced in March 2022 and is five years ending on February 28, 2027, with rent payments increasing annually. The lease includes an option to extend the lease for an additional five years. The renewal option has not been included within the lease term because it is not reasonably certain that the Company will exercise the option.

Nestor Cables leases an approximately 25,000 square foot manufacturing facility in Oulu, Finland, which is utilized for the operations of Nestor Cables. The original lease term ended on October 31, 2022, but auto renews indefinitely until terminated with two years written notice. It is not reasonably certain that the Company will not exercise the termination option. The lease calls for monthly rental payments of approximately €40,000. Rent is increased each year on January 1st based upon the cost-of-living index published by the Finnish government.

Nestor Cables leases an approximately 49,000 square foot manufacturing facility in Tabasalu, Estonia, which is utilized for the operations of Nestor Cables Baltics. Additionally, the lease grants Nestor Cables the option to lease an expansion facility that is to be constructed no later than December 2024. The expansion facility will be constructed on the same premises as the existing facility. Nestor exercised the option to lease the expansion and the lease term of the existing facility became 10 years.

The lease calls for monthly rental payments of approximately €20,400 until April 2024 and €25,000 afterwards. Rent is increased each year on May 1st based upon the cost-of-living index published by the Estonian government and capped at 5%.

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 the Company is reasonably certain to exercise. The Company’s leases do not contain any material residual value guarantees or material restrictive covenants. Operating lease expense included within cost of goods sold and selling, general and administrative expense was as follows for the three months ended:

Operating lease expense within:	Three Months Ended December 31,
(in thousands)	2023		2022
Cost of sales	$	1,057	$	1,368
Selling, general and administrative		77		203
Total lease expense	$	1,134	$	1,571

Future maturities of lease liabilities were as follows as of December 31, 2023 (in thousands):

FY2024(Remaining)	$	2,967
FY2025		3,965
FY2026		3,261
FY2027		1,590
FY2028		402
Thereafter		2,932
Total lease payments		15,117
Less: Interest		(1,334	)
Present value of lease liabilities	$	13,784

The weighted average term and weighted average discount rate for the Company’s leases as of December 31, 2023, were 4.94 years and 3.79%, respectively, compared to 3.79 years and 3.22%, respectively, as of December 31, 2022. For the three months ended December 31, 2023, the operating cash outflows from the Company’s leases was $1,042,000 compared to $946,000 for the three months ended December 31, 2022.