COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2022

COMMITMENTS AND CONTINGENCIES.

COMMITMENTS AND CONTINGENCIES

7.          COMMITMENTS AND CONTINGENCIES

Leasing Activities

The Company leases certain equipment and facilities under long-term non-cancellable operating and finance lease agreements.  The leases expire at various dates through 2027.  Certain of the lease agreements contain renewal options.  For those leases that have renewal options, the Company included these renewal periods in the lease term if the Company determined it was reasonably certain to exercise the renewal option. Lease payments during such renewal periods were also considered in the calculation of right-of-use assets and lease obligations.

Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease obligations represent the Company’s obligation to make lease payments arising from the lease. Lease obligations are recognized at the commencement date based on the present value of lease payments over the lease term. Right-of-use assets are recognized at the commencement date as the initial measurement of the lease liability, plus payments made prior to lease commencement and any initial direct costs. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Expense is recognized on a straight-line basis over the lease term for operating leases. For finance leases, expense is recognized as the expense from straight-line amortization of the right-of-use asset plus the periodic interest expense from the lease obligation. Short-term leases have a lease term of twelve months or less.  The Company recognizes short-term leases on a straight-line basis and does not record a related right-of-use asset or lease obligation for such contracts.

Right-of-use assets related to finance leases are included as a component of property, plant and equipment, net on the condensed consolidated balance sheets.

A maturity analysis of the undiscounted cash flows of operating lease obligations is as follows:

	Operating Lease Obligation
Remaining lease payments to be paid during the year ended December 31,
2022	$	96
2023		323
2024		274
2025		239
2026		87
Thereafter		1
Total lease payments		1,020
Less imputed interest		(76)
Lease obligation at September 30, 2022	$	944

The lease cost and certain other information during the three and nine months ended September 30, 2022 and 2021 were as follows:

	Three Months Ended				Nine Months Ended
	September 30				September 30
	2022		2021		2022		2021
Lease Cost
Finance lease cost:
Amortization of right-of-use assets	$	4	$	5	$	14	$	16
Interest on lease obligation		—		—		1		1
Total finance lease cost		4		5		15		17
Total long-term operating lease cost		95		107		300		320
Total short-term operating lease cost		141		116		424		362
Total lease cost	$	240	$	228	$	739	$	699
Other Information
Cash paid for amounts included in the measurement of lease obligation:
Operating cash flows from operating leases	$	95	$	107	$	301	$	320
Financing cash flows from finance leases		4		5		15		16
Right-of-use assets obtained in exchange for new operating lease obligations		67		6		135		6

The weighted average remaining lease term for operating leases at September 30, 2022 was 3.3 years.  The weighted average remaining lease term for operating leases and finance leases at December 31, 2021 was 3.9 years and 0.7 years, respectively. The weighted average discount rate for operating leases at September 30, 2022 was 3.1%. The weighted average discount rate for operating leases and finance leases at December 31, 2021 was 3.1% and 4.0%, respectively. The Company’s subsidiary in the United Kingdom leased facilities used for manufacturing and office space from a related party with related lease costs during the three months ended September 30, 2022 and 2021 of $50 and $59, respectively, and related lease costs during the nine months ended September 30, 2022 and 2021 of $158 and $172, respectively. The Company’s French subsidiary leased a fleet of vehicles from a related party with related lease costs of $38 and $27 during the three months ended September 30, 2022 and 2021, respectively, and related lease costs of $109 and $83 during the nine months ended September 30, 2022 and 2021, respectively.

Other Commitments

At September 30, 2022 and December 31, 2021, the Company had commitments of approximately $5,616 and $5,052, respectively, for construction and acquisition of property, plant and equipment. The Company migrated its enterprise resource planning (ERP) system to a multi-tenant cloud environment in 2021 and is continuing to implement additional modules such as enterprise performance management, human capital management, data analytics and the use of artificial intelligence.  During the implementation of these modules we are conducting an examination of historical information to confirm accuracy of information being migrated to our new systems.  Any adjustments identified and recorded as a result of the examination are not expected to have a material adverse effect on the consolidated financial position or results of operations of the Company. Related to the continuing implementation project, at September 30, 2022 and December 31, 2021, the Company had commitments of approximately $2,874 and $3,751, respectively, in software license fees payable in installments through 2025.

Contingencies

The Company has entered into arrangements with third-party lenders where it has agreed, in the event of default by a distributor within the independent distributor network, to repurchase from the third-party lender Company products repossessed from the independent distributor customer. These arrangements are typically subject to a maximum repurchase amount. The maximum amount of collateral that the Company could be required to purchase was approximately $72,863 at September 30, 2022, and $47,883 at December 31, 2021. The increase during 2022 is due to increases in sales and supply chain issues that delay payment until all parts and components are received. The Company’s risk under these arrangements is mitigated by the value of the products that would be repurchased as part of the transaction. The Company considered the fair value at inception of its commitment under these arrangements and concluded that there is no probable loss associated with these potential repurchase obligations and thus no associated liability was recognized at September 30, 2022 or December 31, 2021.

The Company is, from time to time, a party to litigation arising in the normal course of its business. Litigation is subject to various inherent uncertainties, and it is possible that some of such matters could be resolved unfavorably to the Company, which could result in substantial damages against the Company. The Company establishes accruals for matters that are probable and reasonably estimable and maintains product liability and other insurance that management believes to be adequate. Management believes that any liability that may ultimately result from the resolution of any such matters in excess of available insurance coverage and accruals will not have a material adverse effect on the consolidated financial position or results of operations of the Company.