Perimeter Solutions, SA Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

LEASES

LEASES

12 Months Ended

Dec. 31, 2022

In adopting Topic 842, the Company has elected to adopt the optional “Comparatives Under ASC 840” approach which requires an adoption date of January 1, 2022 and does not require dual period reporting. The Company elected the ‘package of practical expedients’, which permit it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected to apply the short-term lease exception for lease arrangements with a lease term of 12 months or less at commencement. The Company has lease agreements with lease and non-lease components, which are generally accounted for as a single lease component. Lease terms used to compute the present value of lease payments do not include any option to extend, renew, or terminate the lease that the Company is not reasonably certain to exercise upon the lease inception. Accordingly, operating lease right-of-use assets and liabilities do not include leases with a lease term of 12 months or less.

The Company leases certain manufacturing facilities, real estate, vehicles, and field equipment. Such leases, some of which are noncancellable and, in many cases, include renewals, expire at various dates. Such options to renew are included in the lease term when it is reasonably certain that the option will be exercised. The Company’s lease agreements typically do not contain any significant residual value guarantees or restrictive covenants, and payments within certain lease agreements are adjusted periodically for changes in an index or rate. The Company does not currently sublease any of its ROU assets.

The Company determines if an arrangement is an operating lease or a finance lease at inception. ROU assets and lease liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. Operating 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. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Operating lease expenses are recognized on a straight-line basis over the lease term. Variable lease payments, which cannot be determined at the lease commencement date, are not included in ROU assets or lease liabilities and are expensed as incurred. There were no identified finance leases as of December 31, 2022.

As most leases do not have readily determinable implicit rates, the Company estimated the incremental borrowing rates for its future lease payments based on prevailing financial market conditions at the later of date of adoption or lease commencement, credit analysis of comparable companies and management judgments to determine the present values of its lease payments. The Company also applied the portfolio approach to account for leases with similar terms. At December 31, 2022, the weighted-average remaining lease term of operating leases was approximately 7 years and the weighted-average discount rate applied was 5.7%.

The following table presents assets and liabilities for leases as of December 31, 2022 (in thousands):


	Amount
Assets
Operating lease right-of-use assets	$	18,582

Liabilities
Operating lease liabilities:
Current (included in accrued expenses and other current liabilities)	$	3,541
Non-current	15,484
Total lease liabilities	$	19,025

Lease cost for the year ended December 31, 2022 are as follows (in thousands):


	Amount
Operating lease cost (1)	$	5,390




Reported in:
Cost of goods sold	$	4,897
Selling, general and administrative expense	493
Total lease cost	$	5,390

(1)Operating lease cost does not include short-term leases or variable costs, all of which are immaterial.

Rent expense for operating leases for the 2021 Successor Period, 2021 Predecessor Period and 2020 Predecessor Period was $0.5 million, $2.9 million and $3.2 million, respectively, of which $0.5 million, $2.5 million and $2.9 million, respectively, was presented in cost of goods sold and $0.0 million, $0.4 million and $0.3 million, respectively, was presented in selling, general, and administrative in the consolidated statements of operations and comprehensive income (loss).

Supplemental cash flow information related to leases for the year ended December 31, 2022 are as follows (in thousands):


	Amount
Cash paid for amounts included in the measurement of operating lease liabilities
Operating cash flows for operating leases	$	5,072
ROU assets obtained in exchange for new operating lease obligations
Non-cash investing and financing activity for operating leases	$	4,380

As of December 31, 2022, the estimated future minimum payment obligations for non-cancelable operating leases are as follows (in thousands):


Years Ending December 31,	Amount
2023	$	4,519
2024	3,570
2025	3,418
2026	3,181
2027	2,301
Thereafter	6,724
Total lease payments	23,713
Less: imputed interest	(4,688)
Present value of operating lease liabilities	$	19,025

As of December 31, 2021, the estimated future minimum payment obligations for non-cancelable operating leases

were as follows (in thousands):


Years Ending December 31,	Amount
2022	$	4,026
2023	3,155
2024	2,387
2025	2,063
2026	1,954
Thereafter	3,102
Total	$	16,687