When does Hydrodog include variable payments in future lease payments?

According to Hydrodog's 2025 Franchise Disclosure Document, variable payments are included in future lease payments when those payments depend on an index or a rate. This policy is part of how Hydrodog recognizes and measures its leases in accordance with ASC 842 Leases. Hydrodog determines if an arrangement is a lease at the start of a contract and when the terms of an existing contract change. At the beginning of each lease, Hydrodog recognizes a lease liability and a right of use (ROU) asset. The lease liability is based on the present value of the contract's future lease payments.

For a prospective Hydrodog franchisee, this means that if your lease payments fluctuate based on a recognized index (like the Consumer Price Index) or a specified interest rate, those potential changes will be factored into the initial calculation of your lease liability. This can affect the overall financial assessment of the lease and how it is reported on Hydrodog's financial statements. The discount rate used to calculate the present value of these payments is either the implicit rate in the lease, if readily determinable, or Hydrodog's incremental borrowing rate.

Hydrodog's incremental borrowing rate is the interest rate it would have to pay to borrow an equivalent amount on a collateralized basis under similar terms and economic conditions. Furthermore, Hydrodog has chosen not to recognize ROU assets and lease liabilities for short-term leases with a term of 12 months or less at the beginning of the lease, provided these leases do not include an option to purchase the underlying asset that Hydrodog is reasonably certain to exercise. Lease costs for these short-term leases are recognized on a straight-line basis over the lease term. When contracts contain both lease and non-lease components, Hydrodog accounts for them as a single lease component.