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Our latest look at operating lease expenses is available on the Calcbench Research page. For financial analysts or anyone else following the telecom, consumer, or utilities sector, you may want to take a close look.

Those three sectors have the highest average leasing liability currently off the balance sheet—which a new accounting standard, going into effect in 2018, will put on the balance sheet, for the first time ever. Some companies, and the investors who follow them, may be in for a jolting experience.

And for those of you following companies in other sectors, don’t worry. The new standard will probably be a jolting experience for you, too.

The standard is known by a few names: ASU 2016-02, ASC 842, or its plain old English language name, “Leases.” It goes into effect for reporting periods ending on or after Dec. 15, 2018, so companies have less than 18 months left to (1) calculate the effect of the new standard on their financial reporting; (2) make any adjustments to internal controls, financial processes, or debt covenants as necessary; and (3) communicate to investors about what’s going on.

Right now, operating lease expenses are only reported in the footnotes. Companies typically disclose leasing costs in each of their next five fiscal years, plus all other “future years,” with a total exposure summed up at the bottom.

Calcbench can track those footnote disclosures in our Interactive Disclosure database, and we do. So our latest research report (intimidatingly titled “Operating Leases: What Lies Beneath”) examined what companies are reporting in the footnotes about leasing costs. Some quick facts:

  • 379 firms in the S&P 500 reported nearly $400 billion in off-balance sheet leasing costs in 2016, for an average of just over $1 billion per firm;
  • 1,649 firms not in the S&P 500 reported $190 billion in leasing costs, for an average of $115.6 million per firm;
  • The four companies with the largest total leasing liabilities were AT&T ($23.1 billion), Walgreens-Boots Alliance ($22.8 billion), CVS Health ($18.1 billion), and Verizon ($14.4 billion).

We also compared those off-balance sheet leasing liabilities to liabilities already listed on the balance sheet—and yes, for more than a few companies, complying with ASC 842 will cause their total liabilities to balloon. Potbelly Corp.’s total liabilities would increase by 469 percent, Chipotle Mexican Grill’s by 367 percent. Our research report has a list of the 25 firms facing the biggest spikes in total liabilities.

The report also has two specific examples of how companies are reporting their lease liabilities now, and how that’s likely to change come December 2018.

We’ll be following the leasing standard closely in coming months, including the disclosures companies make about how their implementation plans are proceeding. For now, you can get the full report— or any of our other insightful reports on financial reporting issues—on our Research page.


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