Note D - Leases

12 Months Ended

Dec. 31, 2024

Notes to Financial Statements

Lessee, Operating and Finance Leases [Text Block]

NOTE D— Leases

The Company leases space under non-cancellable operating leases for manufacturing facilities, research and development offices and certain storage facilities and apartments. These leases do not contain contingent rent provisions. The Company also leases certain machinery, office equipment and a vehicle under operating leases. The Company determines if an arrangement is or contains a lease at contract inception. Many of its leases include both lease (e.g. fixed payments including rent, taxes, and insurance costs) and non-lease components (e.g. common-area or other maintenance costs) which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and non-lease components for all leases. Several of the leases include one or more options to renew which have been assessed and either included or excluded from the calculation of the lease liability of the ROU asset based on management’s intentions and individual fact patterns. Several warehouses and apartments have non-cancellable lease terms of less than one-year and therefore, the Company has elected the practical expedient to exclude these short-term leases from its ROU asset and lease liabilities.

On October 7, 2024, Prime World International Holdings Ltd. (“Prime World”), a wholly owned subsidiary of Applied Optoelectronics, Inc., entered into a Land and Building Lease Agreement (the “Lease Agreement”) with San Ho Enterprise Co., Ltd. (the “Lessor”), under which Prime World will lease approximately 3,537 square meters of two adjoining parcels of land, in New Taipei City. The lease also includes a building on these parcels, totaling approximately 3,406 square meters. The lease term is for fifteen years, commencing on December 1, 2024, and ending on November 30, 2039. A two-month renovation period from October 1 to November 30, 2024, will precede the lease term, during which no rent will be charged by the Lessor. During the lease term, the monthly rent will increase by three percent (3%) every three years. 

As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Based on the applicable lease terms and current economic environment, the Company applies a location approach for determining the incremental borrowing rate.

Lease expense is included under general and administrative expenses and was $1.4 million, $1.2 million, and $1.2 million, respectively, for the years ended December 31, 2024, 2023 and 2022, respectively. The Components of lease expense were as follows for the periods indicated (in thousands):

	Year ended December 31,		Year ended December 31,
	2024		2023
Operating lease expense	$	1,282	$	1,146
Financing lease expense		-		27
Short Term lease expense		112		22
Total lease expense	$	1,394	$	1,195

Maturities of lease liabilities are as follows for the future one-year periods ending December 31, (in thousands):

	Operating			Total
2025	$	1,697		$	1,697
2026		1,498			1,498
2027		1,501			1,501
2028		1,514			1,514
2029		923			923
2030 and thereafter		5,131			5,131
Total lease payments	$	12,264		$	12,264
Less imputed interest		(1,843	)		(1,843	)
Present value	$	10,421		$	10,421

The weighted average remaining lease term and discount rate for operating leases were as follows for the periods indicated:

	December 31,			December 31,
	2024			2023
Weighted Average Remaining Lease Term (Years) - operating leases		10.81			5.10
Weighted Average Remaining Lease Term (Years) - financing leases		—			—
Weighted Average Discount Rate - operating leases		3.11	%		3.30	%
Weighted Average Discount Rate - financing leases		—			—

Supplemental cash flow information related to operating leases was as follows for the periods indicated (in thousands):

	Year ended December 31,		Year ended December 31,
	2024		2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,286	$	1,250
Operating cash flows from financing lease		-		2
Financing cash flows from financing lease		-		63
Right-of-use assets obtained in exchange for new operating lease liabilities	$	5,934	$	-