Big Companies’ Big Lease Obligations: Drilling Down into the $1 Trillion

A definitive picture of the full potential impact of the newly minted U.S. accounting rules on leases won’t be seen for about a year.

At that time, public companies will have collected comparative data on what they will have to report as if the Feb. 25 standard of the Financial Accounting Standards Board had been in place. [The rules are effective for registrants in 2019.]

However, existing obligations from reported data in footnotes to 10-K annual filings to the Securities and Exchange Commission signal the amounts of what companies will have to start reporting under the term “operating lease —liabilities” (and “operating lease assets”) in the front of the financial statements—on the balance sheet—for the first time ever.

And the numbers for individual household-name companies, as collected in a recent report by the management software firm Lease Accelerator Inc., are big. Very big.

“North of $1 Trillion.”

FASB’s staff found that the total future cash obligations, undiscounted, from off-balance sheet operating leases are somewhere “north of $1 trillion,” as FASB Vice Chairman James Kroeker put it to me in a Feb. 25 interview.

Breaking the numbers down by company provides some interesting insights into which sectors are likely to be affected the most by the new FASB standard.

The roster of Fortune 500 companies with huge leasing obligations—in the tens of billions of dollars for individual enterprises—is headed by giant drug store chains; telecoms; a biggest-box store and other retailers; a certain fast-food chain that started small in Chicago; airlines; banks; and a well-known air–and–truck package delivery company (not DHL, which has its home in Germany). 

Here’s the list of the top 20 companies, ranked by their total operating lease obligations:
Top 20 Off Balance Sheet Leases

What exactly constitutes a lease (and not simply a service component, subject to non-leases guidance) may have some bearing on what exactly gets reported on the new line item for operating lease liabilities. As CPAs who specialize in lease accounting said at a December conference in Washington, there will be a much more important focus, going forward, on the definition of a lease.

Such defining will matter a whole lot more in 2019. At that time, leases aren’t simply going to be listed in footnotes deep in the financial statements. They’ll be out front, the easier for even casual investors to see. 

*Footnote: To its credit, Lease Accelerator Inc., in its copyrighted January report, “Who is Most Impacted by the New Lease Accounting Standards?” includes these words just before its listing of Fortune 500 companies ranked by size of operating lease obligations: “Full transparency—Lease Accelerator markets ‘Equipment Lease Management’ software, one benefit of which is helping companies comply with the new lease accounting standards. As a result, we benefit from greater awareness of the new standards.” 

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