Leases

On January 1, 2023, the Company adopted FASB Accounting Standards Codification, or ASC, Topic 842, Leases (“ASC 842”), increases transparency and comparability by the recognition of the right-of-use assets and corresponding lease liabilities on the balance sheet. As permitted by ASC 842, we elected the adoption date of January 1, 2023, which is the date of initial application. Under ASC 842, all leases are required to be recorded on the balance sheet and are classified as either operating leases or finance leases. The lease classification affects the expense recognition in the income statement. Operating lease charges are recorded entirely in operating expenses. Finance lease charges are split, where amortization of the right-of-use asset is recorded in operating expenses and an implied interest component is recorded in interest expense.

The lease liability will be equal to the present value of lease payments and the right-of-use (“ROU”) asset will be based on the lease liability, subject to adjustment such as for initial direct costs. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern.

The Company adopted the standard using the modified retrospective transition method, as permitted, on its effective date of January 1, 2019 and therefore did not adjust prior comparative periods as permitted by the codification improvements issued by FASB in July 2018. Additionally, the Company elected the package of practical expedients which permit us to not reassess (1) whether a contract is or contains a lease, (2) the classification of existing leases, and (3) whether previously capitalized costs continue to qualify as initial indirect costs. The application of the practical expedients did not have a significant impact on the measurement of the operating lease liability. Additionally, we have elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12 months or less. Furthermore, we adopted the expedient for land easements as specified in ASC 842-10-65-1(gg).

There was no material impact to our consolidated income statement (see Note 8 below for more information). The lease liabilities are based on the present value of the remaining minimum lease payments, determined under ASC 842, discounted using our secured incremental borrowing rate at the lease commencement date, using the original lease term as the tenor. As permitted under ASC 842, we elected the package of practical expedients which streamlined the assessment process.