Does Batteries Plus Bulbs separate lease components from non-lease components in its lease agreements?
Batteries_Plus_Bulbs Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company follows ASU 2016-02, Leases (Topic 842), which requires leases to be recognized on the balance sheet. When applicable, leases with an original term of 12 months or less are not recognized in the Company's consolidated balance sheets, and the lease expense related to these short-term leases is
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2024 and 2023 (Dollars in thousands, except per share amounts)
recognized over the lease term. In 2024 and 2023, the Company did not have any short-term leases. The Company aggregates lease and non-lease components, which includes fixed common-area maintenance costs, when these components are not specifically identified in the lease or monthly billing. When these components are identifiable, the Company excludes these variable non-lease components for the purpose of calculating the ROU assets and liabilities. These variable lease payments are expensed as incurred.
Source: Item 21 — Financial Statements (FDD pages 79–80)
What This Means (2025 FDD)
According to Batteries Plus Bulbs's 2025 Franchise Disclosure Document, the company's policy on separating lease and non-lease components depends on whether these components are specifically identified in the lease or monthly billing. Batteries Plus Bulbs aggregates lease and non-lease components, including fixed common-area maintenance costs, when these components are not specifically identified. However, when these components are identifiable, Batteries Plus Bulbs excludes the variable non-lease components when calculating right-of-use (ROU) assets and liabilities, and these variable lease payments are expensed as incurred.
For a prospective Batteries Plus Bulbs franchisee, this means that the way lease expenses are handled can vary depending on the specifics of the lease agreement for their store location. If the lease clearly itemizes different components like rent, common area maintenance, and other charges, Batteries Plus Bulbs will separate these for accounting purposes. This separation can affect how the franchisee's financial statements reflect lease obligations and expenses.
However, if the lease does not clearly break out these components, Batteries Plus Bulbs will combine them. This could simplify the accounting process but might also make it harder for the franchisee to understand exactly what they are paying for each component. It's important for franchisees to carefully review their lease agreements and understand how different costs are classified and treated for accounting purposes. Franchisees should also seek clarification from Batteries Plus Bulbs regarding any unclear aspects of their lease agreements to ensure accurate financial reporting and management.
In summary, Batteries Plus Bulbs's approach to lease components depends on the clarity of the lease agreement. Franchisees should pay close attention to how their leases are structured and how costs are itemized to ensure they understand their financial obligations and how they will be accounted for.