How are operating leases treated on Pump It Up's consolidated balance sheets?
Pump_It_Up Franchise · 2025 FDDAnswer from 2025 FDD Document
Operating leases are included in operating lease right-of-use (ROU) assets and operating lease liabilities on the consolidated balance sheets. Finance leases, if any, are included in property and equipment and finance lease liabilities on the consolidated balance sheets. There were no finance leases at December 31, 2024 and 2023. ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease.
ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of leases do not provide an implicit rate, the Company uses a risk-free rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
The Company has elected to recognize payments for short-term leases with a lease term of 12 months or less as expense as incurred and these leases are not included as lease liabilities or right of use assets on the consolidated balance sheets.
The Company has elected not to separate nonlease components from lease components and instead accounts for each separate lease component and the nonlease component as a single lease component. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Source: Item 23 — RECEIPTS (FDD pages 60–225)
What This Means (2025 FDD)
According to Pump It Up's 2025 Franchise Disclosure Document, operating leases are recognized on the company's consolidated balance sheets. Specifically, they are included as operating lease right-of-use (ROU) assets and as operating lease liabilities. The ROU assets represent Pump It Up's right to use an underlying asset for the lease term, while the lease liabilities represent the company's obligation to make lease payments arising from the lease.
The FDD states that ROU assets and liabilities are recognized at the lease commencement date. This recognition is based on the present value of lease payments over the lease term. Because most of Pump It Up's leases do not provide an implicit rate, the company uses a risk-free rate based on available information at the commencement date to determine the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The lease terms may include options to extend or terminate the lease when it is reasonably certain that Pump It Up will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
However, Pump It Up has elected to recognize payments for short-term leases with a lease term of 12 months or less as an expense as incurred. These short-term leases are not included as lease liabilities or right-of-use assets on the consolidated balance sheets. Additionally, Pump It Up has elected not to separate nonlease components from lease components, accounting for each separate lease component and any nonlease component as a single lease component. The company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.