Note 9 - Leases

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Lessee, Operating Leases and Finance Leases [Text Block]

9. Leases

The Company leases its buildings and manufacturing facilities under operating leases. As of December 31, 2021, the Company had real estate leases in Bedford, Massachusetts, Franklin, Massachusetts, Sarasota, Florida, Warsaw, Indiana and Padova, Italy. The current term of the Bedford lease extends to 2022 with several lease renewal options into 2038, and the current term of the Padova lease extends to 2032, with a right to terminate at the Company’s option in 2026 without penalty.

As a result of the acquisition of Parcus Medical and Arthrosurface, the Company acquired operating and finance leases for corporate offices, manufacturing and warehouse facilities and machineries. The operating leases consist of one real estate lease in Franklin, Massachusetts (Franklin lease) and two real estate leases in Sarasota, Florida (Sarasota lease). The current term of the Franklin lease extends to 2023, and the current term of the Sarasota lease extends to 2024 which may be extended by mutual agreement of the parties. The finance leases include equipment utilized in the Company’s manufacturing facility in Sarasota, Florida.

The significant assumptions in recognizing the right-of-use asset and lease liability are as follows:

Incremental borrowing rate. The Company derives its incremental borrowing rate from information available at the lease commencement date in determining the present value of lease payments. The incremental borrowing rate represents a collateralized rate of interest the Company would have to pay to borrow over a similar term an amount equal to the lease payments in a similar economic environment. The Company’s lease agreements do not provide implicit rates. As the Company did not have any external borrowings at the transition date with comparable terms to its lease agreements, the Company estimated its incremental borrowing rate based on its credit quality, line of credit agreement and by comparing interest rates available in the market for similar borrowings, and adjusting this amount based on the impact of collateral over the term of the lease. The weighted average discount rate at December 31, 2021 is 4.1% and 4.9% for operating leases and finance leases, respectively.

Lease term. The lease term begins at the lease commencement date and is determined on that date based on the non-cancelable term of the lease together with periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option, or periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option.

The components of lease expense and other information are as follows: 

	Years Ended December 31
	2021		2020		2019
Finance lease amortization of right-of-use assets	$	143	$	185	$	-
Interest on finance lease liabilities		19		25		-
Finance lease expense		162		210		-
Operating lease expense		2,468		2,383		2,087
Short-term lease expense		2		-		6
Variable lease expense		319		264		216
Total lease expense	$	2,951	$	2,857	$	2,309

	Years Ended December 31
	2021			2020
Weighted Average Remaining Lease Term (in years)
Operating leases		15.3			15.6
Financing leases		2.3			3.2
Weighted Average Discount Rate
Operating leases		4.1	%		4.1	%
Financing leases		4.9	%		5.0	%
Other information
Operating cash flows from operating leases	$	2,392		$	2,340
Operating cash flows from financing leases	$	136		$	162

Future commitments due under these lease agreements as of December 31, 2021 are as follows:

Years ended December 31,	Operating Leases			Financing Leases			Total
2022	$	2,368		$	132		$	2,500
2023		2,147			132			2,279
2024		2,053			44			2,097
2025		1,918			-			1,918
2026		1,578			-			1,578
Thereafter		17,871			-			17,871
Present value adjustment		(7,169	)		(14	)		(7,183	)
Present value of lease payments		20,766			294			21,060
Less current portion included in accrued expenses and other current liabilities		(1,526	)		(188	)		(1,714	)
Total lease liabilities	$	19,240		$	106		$	19,346