Note 8 - Commitments and Contingencies

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

8. Commitments and Contingencies

Leases

We conduct the majority of our operations in leased facilities, all of which are accounted for as operating leases, as they do not meet the criteria for finance leases. Our principal worldwide executive, distribution, and manufacturing operations are located in five leased facilities with square footage totaling 109,354 in Burlington, Massachusetts. All five Burlington leases expire in December 2030. In addition, our European operations are headquartered at a 16,470 square foot leased facility located in Sulzbach, Germany under a lease which expires in August 2023. This lease contains two five-year renewal options. We also lease a 2,258 square foot facility in Hereford, England which houses our United Kingdom sales and distribution business. In connection with our acquisition of the Artegraft biologic graft business, we assumed a 16,732 square foot lease in North Brunswick, New Jersey, which expires in October 2029. We also have smaller long-term leased sales, marketing and other facilities located in Arizona, Japan, Canada, Australia, Singapore and China, and short-term leases in Italy, Spain and Illinois. Our lease in Canada contains a five-year renewal option exercisable in February 2023. Our leases in Germany and Australia are subject to periodic rent increases based on increases in the consumer price index as measured each September and May, respectively, with such increases applicable to the subsequent twelve months of lease payments. None of our noncancelable lease payments include non-lease components such as maintenance contracts; we generally reimburse the landlord for direct operating costs associated with the leased space. None of our leases have variable payments. We have no subleases, and there are no residual value guarantees associated with, or restrictive covenants imposed by, any of our leases. There were no assets held under capital leases at December 31, 2020.

We also lease automobiles under operating leases in the U.S. as well as certain other countries. The terms of these leases are generally three years, with older vehicles replaced by newer vehicles from time to time.

As discussed above under Recent Accounting Pronouncements, on January 1, 2019 we adopted the provisions of ASU No. 2016-02, Leases (Topic 842), subsequently amended by ASU 2018-11, Leases (Topic 842): Targeted Improvements. Under the new guidance, we are required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

Our most significant judgment involved in determining the amounts to initially record as lease liabilities and right-of-use assets was the selection of a discount rate; because we had no debt at that time we had no incremental borrowing rate to reference. We therefore estimated an incremental borrowing rate using quotes from potential lenders as the primary inputs, augmented by other available information. The resulting rate selected was 5.25%. We determined that it was appropriate to apply this single rate to our portfolio of leases worldwide, as the lease terms and conditions were substantially similar, and because we believe our subsidiaries would be unable to obtain borrowings on their own without a commitment of parent company support. During 2020 we assumed a building lease in connection with our acquisition of Artegraft biologic graft business, for which we referenced the associated debt agreement entered into for that transaction, in establishing a discount rate.

Additional information with respect to our leases is as follows:

	Year ended			Year ended
	December 31,			December 31,
	2020			2019
	(in thousands)			(in thousands)
Lease cost
Operating lease cost	$	1,912		$	1,756
Short-term lease cost		192			291
Total lease cost	$	2,104		$	2,047
Other information
Cash paid for amounts included in the measurement of operating lease liabilities	$	2,404		$	1,858
Right-of-use assets obtained in exchange for new operating lease liabilities	$	2,770		$	10,571
Weighted average remaining lease term - operating leases (years)		7.8			8.3
Weighted average discount rate - operating leases		5.02	%		5.25	%

At December 31, 2020, the minimum noncancelable operating lease rental commitments with initial or remaining terms of more than one year are as follows:

Year ending December 31,
2021	$	2,763
2022		2,447
2023		2,064
2024		1,866
2025		1,916
Thereafter		9,920
Adjustment to net present value as of December 31, 2020		(4,230	)
Minimum noncancelable lease liability	$	16,746

Purchase Commitments

As part of our normal course of business, we have commitments to purchase $5.2 million of inventory through 2021. These purchases are to be used in the normal course of business and do not represent excess commitments or loss contracts.