S&P 500 Firms Carrying $500B+ On-Balance Sheet Lease Liabilities

LeaseAccelerator introduced a new report analyzing the financial reports and disclosures of S&P 500 companies that have adopted the new lease accounting standards.

Reporting a collective total of $503 billion in operating lease liabilities and $69 billion in finance lease liabilities on their balance sheets, 395 S&P 500 companies transitioned to ASC 842 in the first six months after the initial effective date. The analysis was based upon interim financial reports (SEC Form 10-Q filings) issued between January 1 and June 14, 2019. Certain data was sourced from Calcbench.

Key findings related to ASC 842 leases from the interim Form 10-Q financial statements and related disclosures of the 395 S&P 500 companies include:

  • Early Adopters: Six companies adopted before December 15, 2018. Four of these companies adopted in their fiscal 2018 fourth quarter.
  • Balance Sheet Presentation: 190 companies added new line items on their balance sheet as one or more of the following line item descriptions: ROU assets, current operating lease liabilities and/or long-term operating lease liabilities.
  • Footnotes: 354 companies (90%) included a separate “leasing” footnote with required new disclosures such as discount rate and lease term. The remainder were either not material or included required disclosures in another footnote such as the policies footnote.
  • Total Debt: Operating lease liabilities represent 11% of total debt (excluding the financial sector) as of their most recent interim Form 10-Q period.
  • Total Equity: Operating lease liabilities represent 10% of total equity (excluding the financial sector) as of their most recent interim Form 10-Q period.
  • Term: The mean of the weighted-average remaining lease term for operating leases was 10.4 years and the median was 7.7 years.
  • Discount Rate: The mean of the weighted-average discount rate was 4.2% and the median was 4.0%.

“The transition to what many experts consider to be the biggest accounting change ever is a significant accomplishment for the industry. ASC 842 has been a massive project at most companies with thousands of hours invested to collect data, deploy systems, and design processes and controls,” said Michael Keeler, CEO of LeaseAccelerator. “Although 395 companies have submitted their first interim statement, most only got there with brute force, spreadsheets, and an army of consultants performing manual tasks. The real challenge starts now on ‘day two’ as companies transition to more scalable, efficient, and sustainable approaches to long-term operational success by automating the leasing lifecycle.”

Keeler added, “If your monthly close process is manual, slow, and people-intensive, you’ve got another project phase ahead of you.”

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