september 2018 update sab 74 disclosure analysis for lease accounting · 2020. 4. 14. · 6...

SEPTEMBER 2018 UPDATE

SAB 74 DISCLOSURE ANALYSIS FOR LEASE ACCOUNTINGTop 100 US Public CompaniesRanked by Leasing Obligations

ASC 842 LEASE ACCOUNTING STANDARDS

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 SAB 74 Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Key Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Detailed Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Balance Sheet Impacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Income Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Cash Flow Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Early Adoption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Transition Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Practical Expedients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Implementation Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Project Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Software Evaluation And Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Policies & Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Lease Accounting Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

SAB 74 Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Additional References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Top 100 Us Companies Ranked By Leasing Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

© 2010-2018 LeaseAccelerator, Inc . All rights reserved . This document is the copyrighted work of LeaseAccelerator, Inc .

TABLE OF CONTENTS

TOP 100 US PUBLIC COMPANIES RANKED BY LEASING OBLIGATIONS SEPTEMBER 2018 UPDATE 3

EXECUTIVE SUMMARY

SAB 74 DISCLOSURESAs the implementation deadlines for ASC 842 grow closer, public filers will be required to include a discussion of the potential future impacts to their financial statements from the new lease accounting standards . SEC Staff Accounting Bulletin Topic 11 .M (SAB 74) requires SEC filers to disclose the effects of accounting standards that have been announced but not yet adopted . The guidance from the bulletin encourages registrants to consider disclosing:

• A brief description of the new standard, the date that adoption is required, and the date that the registrant plans to adopt, if earlier.

• A discussion of the methods of adoption allowed by the standard and the method expected to be utilized by the registrant, if determined.

• A discussion of the impact that adoption of the standard is expected to have on the financial statements of the registrant, unless not known or reasonably estimable. In that case, a statement to that effect may be made.

Disclosure of the potential impact of other significant matters that the registrant believes might result from the adoption of the standard (such as technical violations of debt covenant agreements, planned or intended changes in business practices, etc.) is encouraged.

In an effort to assist the industry with accelerated adoption of the new lease accounting standards, LeaseAccelerator compiled 100 examples of SAB 74 disclosures from SEC registrants over the past year . We focused on the top 100 US public companies as ranked by the total leasing obligations tabularized in the footnotes of annual filings . The source of the data was 10-Q and 10-K filings submitted between October 1st, 2017 and September 7th, 2018

4 SEPTEMBER 2018 UPDATE SAB 74 DISCLOSURE ANALYSIS FOR LEASE ACCOUNTING (ASC 842)

KEY FINDINGS

Early Adoption

With the revenue recognition standard (ASC 606) a number of companies including Alphabet, Microsoft, General Dynamics, Ford, and Raytheon were early adopters . Only two of the 100 companies analyzed, Microsoft and Target, adopted the standards early . No other companies stated their intention to early adopt .

Transition Approach

A new optional transition method was approved in July 2018 . Some companies who filed after that date referenced the new transition method in their disclosures, either stating their intention to elect the new method or stating that they were still evaluating whether or not they chose to elect the new method . As of the time of this study, 14% of the companies stated they would choose the new method, while 9% stated they were undecided .

Material Impacts to Balance Sheets

As expected, the new right-of-use assets and liabilities being added to balance sheets is expected to be the most material impact to financial statements . 83% of the Top 100 reported that there will be a material impact resulting from the transfer of most right-of-use assets and liabilities on to corporate balance sheets . Another 14% are still analyzing the potential impacts of the new standard .

Quantitative Impacts

Companies are still in the process of estimating the definitive size of their leasing portfolios under ASC 842 . Only 19% provided quantitative estimates of the material impact to the balance sheet, which ranged from $1 .3 billion to potentially $18 billion .

Limited Impacts to Income Statement and Cash Flow Statements

34% of the Top 100 reported that there would not be a material impact to their income statement from ASC 842 . Another 61% are still analyzing the impacts . 28% of the Top 100 reported there would be no impact to their cash flow statements and 63% are still analyzing the impact .

Implementation Progress

The level of information disclosed about the progress of implementation efforts has increased since the first publication of this report, but is still relatively limited by most filers . Of the companies we analyzed, only 37% stated they are evaluating, developing, or implementing new policies and controls to support the standard . Similarly, amongst the filers we reviewed, only 39% stated they are evaluating, have selected, are implementing, or have finished implementing a lease accounting software application . Only 18% indicated that a project team had been formed to address the new standard .


SAB 74 DISCLOSURE ANALYSIS FOR LEASE ACCOUNTING (ASC 842)

BALANCE SHEET IMPACTS

Balance Sheet Impacts will be Material

As expected, the most material impact to financial statements cited by most filers is the new right-of-use assets and liabilities being added to the balance sheets . 83% of the Top 100 reported that there will be a material impact resulting from the transfer of most right-of-use assets and lease liabilities onto corporate balance sheets . Another 14% are still analyzing the potential impacts of the new standard .

Bank of America and UnitedHealth Group were the only two companies in our sample set that indicated that the impact would not be material . While no other health care insurance companies were analyzed in this study, other financial institutions, such as JPMorgan ($10B) and Citigroup ($5B), did indicate that the balance sheet impact would be material, so there does not appear to be an industry-wide trend for commercial banks .

Companies are still in the process of estimating the definitive size of their leasing portfolios under ASC 842 . Only 19% provided quantitative estimates of the material impact to the balance sheet, which ranged from $1 .3 billion to potentially $18 billion .


Material Impact83%

Not Material 2%

Still Evaluating14%

Not Stated1%


Still Evaluating14%

Not Stated1%

Not Material2%

Material Impact83%


EXAMPLES OF DISCLOSURE COMMENTS RELATED TO BALANCE SHEETS

SEC REGISTRANT EXCERPT OF DISCLOSUREApple While the Company is currently evaluating the impact of adopting ASU 2016-02, based on

the lease portfolio as of June 30, 2018, the Company anticipates recording lease assets and liabilities of approximately $8 .8 billion on its Condensed Consolidated Balance Sheets, with no material impact to its Condensed Consolidated Statements of Operations . However, the ultimate impact of adopting ASU 2016-02 will depend on the Company’s lease portfolio as of the adoption date .

JPMorgan Chase & Co .

The Firm expects to recognize a lease liability and a corresponding right-of-use asset (at their present value) related to predominantly all of the $10 billion of future minimum payments required under operating leases as disclosed in Note 28 of JPMorgan Chase’s 2017 Annual Report . However, the population of contracts subject to balance sheet recognition and their initial measurement remains under evaluation; final financial statement impacts will depend on the lease portfolio at the time of adoption .

Bank of America Corp .

The effect of the adoption will depend on the lease portfolio at the time of transition and the transition options ultimately available; however, the Corporation does not expect the new accounting standard to have a material impact on its consolidated financial position, results of operations or disclosures in the Notes to the Consolidated Financial Statements .

Wal-Mart Stores Although management continues to evaluate the effect to the Company’s Condensed Consolidated Financial Statements and disclosures, management currently estimates total assets and liabilities will increase approximately $14 billion to $18 billion upon adoption, before considering deferred taxes . This estimate could change as the Company continues to progress with implementation and will also fluctuate based on the lease portfolio and discount rates as of the adoption date . Management does not expect a material impact to the Company’s Condensed Consolidated Statements of Income or Cash Flows .

INCOME STATEMENTUnder ASC 842, there is expected to be little impact to the income statement . Operating leases will be presented on the same line-item on the income statement, the same as under the current standard, ASC 840 . For finance leases, which replace capital leases under ASC 840, the interest and amortization will still be presented separately . As a result, we expect few of the remaining 61% still evaluating and the 4% that did not comment on the income statement impacts to find a material impact to the income statement .

CASH FLOW STATEMENT63% of companies are still evaluating the impact to the cash flow statement and 28% have stated that there will be no impact to the cash flow statement .


EARLY ADOPTIONWith the revenue recognition standard (ASC 606) a number of companies including Alphabet, Microsoft, General Dynamics, Ford, and Raytheon were early adopters . The lease accounting standard has very few early adopters thus far . Only two of the 100 companies analyzed, Microsoft and Target, have early adopted .

TRANSITION METHODWith other recent accounting changes, such as revenue recognition, much of the focus for SAB 74 disclosures was on the transition approach being adopted . However, until recently, only a modified retrospective approach was allowed under ASC 842 . The modified retrospective method would have required companies to not only transition at the date of adoption, but also provide reports of their lease data under ASC 842 from the earliest comparative period to the effective date . For example, companies who will adopt on January 1, 2019 would have been required to report their lease data from January 1, 2017 to January 1, 2019 under both ASC 840 and ASC 842 .

However, in July 2018, FASB voted to approve a simpler transition method that eliminates the need for comparative reporting . 14% of companies stated their intention to elect this approach . 9% were still evaluating the approach . However, no companies stated that they would not select the alternate approach . We anticipate that as the next round of disclosures are released, the number of companies selecting the modified transition method will increase, as the approach reduces the implementation burden for corporate accounting organizations .

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OPTIONAL TRANSITION METHOD


EXAMPLES OF DISCLOSURE COMMENTS RELATED TO THE NEW TRANSITION METHOD

SEC REGISTRANT EXCERPT OF DISCLOSUREHewlett Packard Enterprise

The Company is required to adopt the guidance in the first quarter of fiscal 2020 and early adoption is permitted . In addition, the FASB provided a practical expedient transition method to adopt the new lease requirements by allowing companies to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption that would enable the Company to not provide comparative period financial statements . Instead, the Company would apply the transition provisions at its effective date . The Company is currently evaluating the timing and the impact of these amendments on its Condensed Consolidated Financial Statements .

Tractor Supply This guidance is required to be applied, at the Company’s election, either using a (1) modified retrospective approach for all leases existing at, or entered into after, the beginning of the earliest comparative period presented, or (2) cumulative-effect approach for all leases existing at, or entered into, after the effective date . The Company expects to apply the guidance using the cumulative-effect approach, thereby applying the new guidance at the effective date, without adjusting the comparative periods and, if necessary, recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption .

Andeavor Under this optional transition method, we would recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption . We expect to elect the optional transition method .

Michaels Cos . In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements” which provided an additional transition option that allows companies to continue applying the guidance under the current lease standard in the comparative periods presented in the consolidated financial statements . Companies that elect this option would record a cumulative-effect adjustment to the opening balance of retained earnings on the date of adoption . We are in the process of determining which transition method to apply .


PRACTICAL EXPEDIENTSAmongst our sample set, 13% of companies indicated an intention to elect some or all of the practical expedients available under ASC 842, while another 13% were still evaluating all of the available practical expedients . However, most did not provide any commentary .

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PRACTICAL EXPEDIENTS

EXAMPLES OF DISCLOSURE COMMENTS RELATED TO PRACTICAL EXPEDIENTS

SEC REGISTRANT EXCERPT OF DISCLOSURETarget The modified retrospective approach provides a method for recording existing leases at adoption

and in comparative periods that approximates the results of a full retrospective approach . In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification . We also elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements . In addition, we elected the hindsight practical expedient to determine the lease term for existing leases . Our election of the hindsight practical expedient resulted in the shortening of lease terms for certain existing leases and the useful lives of corresponding leasehold improvements . In our application of hindsight, we evaluated the performance of the leased stores and the associated markets in relation to our overall real estate strategies, which resulted in the determination that most renewal options would not be reasonably certain in determining the expected lease term .


CenturyLink The modified retrospective approach includes a number of optional practical expedients that we may elect to apply . On January 25, 2018, the FASB issued ASU 2018-01, “Leases: Land Easement Practical Expedient for Transition to ASU 2016-02” (“ASU 2018-01”) . ASU 2018-01 permits reporting companies to elect to forego reassessments of land easements that exist or expire before the entity’s adoption of ASU 2016-02 and that were not previously accounted for as leases . We plan to adopt ASU 2018-01 at the same time we adopt ASU 2016-02 . On July 30, 2018, the FASB issued ASU 2018-11, “Leases: Targeted Improvements” . (“ASU 2018-11”) provides entities with an additional (and optional) transition method to adopt the new leases standard . Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption . We have not yet determined whether we will use the newly permitted adoption method .

DaVita The Company expects to adopt this ASU on January 1, 2019 and is currently planning on electing the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs . The Company continues to evaluate the transition options and other practical expedients available under the guidance as well as the effect that the implementation of this guidance will have on its consolidated financial statements, related disclosures and controls, and ongoing business policies and processes .

IMPLEMENTATION PROGRESSThe level of information disclosed about the progress of implementation efforts is still relatively limited by most filers . A significant work effort will be required to comply with the new lease accounting standards by most companies with portfolios in excess of $100M . Changes will be required for accounting systems, business processes, and financial controls . A cross-functional project team will need to be formed consisting of stakeholders that use the leased assets such as Real Estate, IT, and Operations as well as corporate functions that administer the leases such as Procurement, Corporate Treasury, and Accounts Payable .

The project team will need to devise a strategy for identifying all of the leasing contracts across the enterprise, including categories such as real estate, IT, fleet, material handling, and other industry-specific assets . Once the population of leases is identified, the contracts for each will need to be identified in order to abstract the data necessary for accounting . Most companies will implement a new software application designed to perform the specialized lease accounting required for ASC 842 . Once selected, the software application will need to be tested for functionality, integrated with other financial systems, and rolled out with training to end users .


EXAMPLES OF DISCLOSURE COMMENTS RELATED TO IMPLEMENTATION

SEC REGISTRANT EXCERPT OF DISCLOSUREAutoZone The Company established a cross-functional implementation team to evaluate and identify the

impact of ASU 2016-02 on the Company’s financial position, results of operations and cash flows . Based on the preliminary work completed, the Company has concluded its assessment on its leasing arrangements, evaluated the impact of applying the practical expedients and accounting policy elections and is currently working on implementing software to meet the reporting requirements of this standard . The Company is also in the process of identifying changes to its business processes and controls to support adoption of the new standard . The team is continuing to understand the full analysis of the adoption, but is unable to quantify the impact at this time . The Company anticipates the adoption of this new standard to result in a significant increase in lease-related assets and liabilities on the Company’s consolidated balance sheets . The impact on the Company’s consolidated statements of income is currently being evaluated . As the impact of this standard is non-cash in nature, the Company does not anticipate its adoption to have an impact on the Company’s consolidated statement of cash flows .

O’Reilly Automotive

The Company has established a task force, composed of multiple functional groups inside of the Company, which is currently in the process of evaluating critical components of this new guidance and the potential impact of the guidance on the Company’s financial position, results of operations and cash flows . Based on the preliminary work completed, the Company is considering the potential implications of the new standard on determining the discount rate to be used in valuing new and existing leases, the treatment of existing favorable and unfavorable lease agreements acquired in connection with previous acquisitions, procedural and operational changes that may be necessary to comply with the provisions of the guidance and all applicable financial statement disclosures required by the new guidance, all of which are areas that could potentially be impacted by adoption of the guidance . At this time, the task force has not completed its full evaluation; however, the Company believes the adoption of the new guidance will have a material impact on the total assets and total liabilities reported on the Company’s consolidated balance sheets .

Kroger The adoption of this ASU will result in a significant increase to our Consolidated Balance Sheets for lease liabilities and right-of-use assets, and we are currently evaluating the other effects of adoption of this ASU on our Consolidated Financial Statements . This evaluation process includes reviewing all forms of leases, performing a completeness assessment over the lease population, analyzing the practical expedients and assessing opportunities to make certain changes to our lease accounting information technology system in order to determine the best implementation strategy . We believe our current off-balance sheet leasing commitments are reflected in our investment grade debt rating .

Ulta Beauty The Company will adopt the new standard in fiscal 2019 . The Company’s ability to adopt depends on system readiness, including software procured from third-party providers, and completing an analysis of information necessary to quantify the financial statement impact . The Company formed a project team to review the current accounting policies and practices and assess the effect of the standard on the consolidated financial statements . The team completed a preliminary assessment of the potential impact of adopting ASU 2016-02 on the consolidated financial statements . The adoption of ASU 2016-02 will have a material impact on the Company’s consolidated financial position, but the Company is not able to quantify the difference at this time . The Company does not believe adoption of this standard will have a material impact on the Company’s consolidated results of operations or cash flows .


PROJECT TEAMAmongst our sample set, only 18% indicated that a project team had been formed to address the new standard . Leadership of the lease accounting project typically sits within the finance or accounting team . However, unlike many other accounting change projects, there is a need for a cross-functional enterprise team to address the leasing standards .

A significant amount of business process transformation and data collection will be required from both the users of leased assets and the corporate functions that support the leasing program . The users of leased assets span almost every function in the business, including Corporate IT, Real Estate, Fleet, and Operations . The organizations that touch leases throughout their lifecycle include Legal and Procurement, Treasury and Tax, and Accounts Payable and Receivables

EXAMPLES OF DISCLOSURE COMMENTS RELATED TO PROJECT TEAMS

SEC REGISTRANT EXCERPT OF DISCLOSUREDollar General The Company formed a project team to assess and implement the standard, which has completed

its internal evaluation of existing contractual arrangements for embedded leases . The project team is also testing computations in the Company’s lease administration system, integrating interfaces between the lease administration system and the enterprise resource planning systems, identifying and implementing new processes and controls to ensure compliance, and is in the process of evaluating and documenting the Company’s accounting conclusions related to the new standard . As a result of the efforts of this project team, the Company has identified its store leases as the area in which it would most likely be affected by the new guidance .

Estée Lauder The Company currently has an implementation team in place that is performing a comprehensive evaluation of the impact of the adoption of this guidance, which includes assessing the Company’s lease portfolio, potential implementation of new systems to meet reporting requirements, the impact to business processes and internal controls over financial reporting and the related disclosure requirements .

J .C . Penney We have developed a project team to analyze the impacts of the new standard on our current accounting policies and internal controls and the changes required to be made by our leasing software provider .

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PROJECT TEAM


SOFTWARE EVALUATION AND SELECTIONSimilarly, amongst the filers we reviewed only 39% referenced their efforts to implement a lease accounting software application . Historically, most companies have performed lease accounting and financial reporting under the current standards using a collection of spreadsheets . Although ASC 842 does not require the use of any specific software application, we believe that most companies with leasing portfolios in excess of $50M will elect to purchase new technology .

Since the introduction of ASC 842, a number of commercial, off-the-shelf software packages have been released to the market specifically designed to support the new lease accounting requirements . These applications feature dedicated leasing subledgers that track all the necessary journal entries, accounting engines to perform multiple set-of-book reporting, and algorithms to automatically classify contracts as operating or finance leases .

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SOFTWARE EVALUATION & SELECTION

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EXAMPLES OF DISCLOSURE COMMENTS RELATED TO SOFTWARE IMPLEMENTATION

SEC REGISTRANT EXCERPT OF DISCLOSUREFedEx Additionally, we are implementing an enterprise-wide lease management system to assist in

the accounting and are evaluating additional changes to our processes and internal controls to ensure we meet the standard’s reporting and disclosure requirements .

General Electric Additionally, we are implementing an enterprise-wide lease management system to support the ongoing accounting requirements . Development and testing of our selected systems solution is ongoing . We are working closely with the software system developer as the timely readiness of the lease software system is critical to ensure an efficient and effective adoption of the standard .

Dollar Tree Additionally, the Company is implementing lease accounting software to assist in the quantification of the expected impact on the consolidated balance sheets and to facilitate the calculations of the related accounting entries and disclosures .

Verizon We have established a cross-functional coordinated team to implement the standard update . We are in the process of determining the scope of impact, data gathering, assessing and staging, designing and building a new system solution, and assessing the practical expedients and policy elections offered by the standard .


POLICIES AND CONTROLSOf the companies we analyzed, only 37% are evaluating, are implementing, or have already established new policies and controls to support the standard . With leases representing a significant set of assets and liabilities on the balance sheet, many companies may adopt additional best practices to ensure that leasing portfolios are being optimized .

Accounting organizations will need to ensure that they maintain complete, accurate, and up-to-date records of all leases across the business not only at commencement of the contract, but also throughout the term of the agreement . New business processes will need to be put in place to ensure all the necessary data required for accounting is collected at the start of the lease . Controls will be required to ensure that any contractual updates or business plan changes resulting in a modification or reassessment are relayed to the accounting organization .

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CHANGES TO POLICIES & CONTROLS

EXAMPLES OF DISCLOSURE COMMENTS RELATED TO POLICIES AND CONTROLS

SEC REGISTRANT EXCERPT OF DISCLOSUREChipotle We are assessing the impact of the standard to our accounting policies, processes,

disclosures, and internal control over financial reporting and we are implementing necessary upgrades to our existing lease system .

EOG Resources EOG is continuing its assessment of ASU 2016-02 by implementing its project plan, evaluating certain operational and corporate policies and processes, further defining its population of leases and reviewing numerous contracts .

Dow DuPont The Company is currently implementing software solutions, enhancing accounting systems and updating business processes and controls related to leases . Collectively, these activities are expected to facilitate the Company’s ability to meet the new accounting and disclosure requirements upon adoption in the first quarter of 2019 .


LEASE ACCOUNTING CHANGE

EXAMPLES OF STANDARD DISCLOSURE COMMENTS ON ASC 842

SEC REGISTRANT EXCERPT OF DISCLOSURECapital One Financial

This guidance is effective for us on January 1, 2019, with early adoption permitted, using the modified retrospective method of adoption . We plan to adopt the standard on the effective date . We are currently in the process of reviewing lease contracts, reviewing other contracts for potential embedded leases, implementing a new lease accounting and administration software solution, establishing new processes and internal controls and evaluating the impact of various accounting policy elections . Upon adoption, we expect to record a right of use asset and a corresponding lease liability for our operating leases where we are the lessee . The potential impact on our consolidated financial statements is largely based on the present value of future minimum lease payments, the amount of which will depend upon the population of leases in effect at the date of adoption . Future minimum lease payments totaled $2 .7 billion as of December 31, 2017, as disclosed in “Note 8—Premises, Equipment and Lease Commitments” of our 2017 Form 10-K . We do not expect material changes to the recognition of operating lease expense in our consolidated statements of income .

Live Nation Entertainment

To assess the impact of the standard, the Company has dedicated certain of its personnel to lead the implementation effort . These personnel reviewed the amended guidance and subsequent clarifications and attended multiple training sessions in order to understand the potential impact the new standard could have on the Company’s financial position and results of operations . The Company has formed a cross-functional steering committee including members from its major divisions . The Company is in the process of implementing third-party lease accounting software to record, analyze and calculate the financial statement and disclosure impacts . The Company will finalize its conclusions in 2018 and ensure that it can produce the data necessary for the required disclosures along with assessing changes to internal controls and processes that may be required to comply with the new lease accounting and disclosure requirements . The Company will adopt this standard on January 1, 2019 and is currently evaluating the impact that this guidance will have on its financial position and results of operations .

Hertz Global Holdings

The Company intends to avail itself of the allowable practical expedients for existing or expired contracts of lessees and lessors wherein the Company would not be required to reassess whether such contracts contain leases, the lease classification or the initial direct costs . Additionally, with respect to its real estate leases, the Company intends to avail itself of the practical expedient for lessees which allows it to elect an accounting policy by class of underlying asset to combine lease and non-lease components . The Company does not intend to utilize the practical expedient which allows the use of hindsight by lessees and lessors in determining the lease term and in assessing impairment of its ROU assets . The Company is in the process of evaluating whether to avail itself of other allowable practicable expedients during transition…The Company plans to adopt the new transition method which allows the application of the standard at the adoption date, January 1, 2019, and will recognize a cumulative-effect adjustment to the opening balances of retained earnings in the period of adoption . . . Adoption of Topic 842 will result in a material increase in the Company’s lease-related assets and liabilities on its balance sheet, primarily for leases of rental locations and other assets . Additionally, adoption of this guidance will impact the statement of cash flows with respect to the presentation of the Company’s operating activities, but is not expected to impact its presentation of investing or financing activities . Adoption of Topic 842 is not expected to have a material impact on the Company’s results of operations . The Company has reached conclusions on key accounting assessments related to its leases which includes an accounting policy election to not recognize ROU assets or lease liabilities for short-term leases (i .e . those with a term of 12 months or less) . The Company is performing an analysis of its lease portfolio to ensure proper application of the new guidance including implementation of internal controls over financial reporting .


EXCERPT FROM TOPIC 11: MISCELLANEOUS DISCLOSUREhttps://www .sec .gov/interps/account/sabcodet11 .htm#M

M . Disclosure Of The Impact That Recently Issued Accounting Standards Will Have On The Financial Statements Of The Registrant When Adopted In A Future Period

Facts: An accounting standard has been issued5 that does not require adoption until some future date . A registrant is required to include financial statements in filings with the Commission after the issuance of the standard but before it is adopted by the registrant .

Question 2: Does the staff have a view on the types of disclosure that would be meaningful and appropriate when a new accounting standard has been issued but not yet adopted by the registrant?

Interpretive Response: The staff believes that the registrant should evaluate each new accounting standard to determine the appropriate disclosure and recognizes that the level of information available to the registrant will differ with respect to various standards and from one registrant to another . The objectives of the disclosure should be to (1) notify the reader of the disclosure documents that a standard has been issued which the registrant will be required to adopt in the future and (2) assist the reader in assessing the significance of the impact that the standard will have on the financial statements of the registrant when adopted . The staff understands that the registrant will only be able to disclose information that is known .

The following disclosures should generally be considered by the registrant:

• A brief description of the new standard, the date that adoption is required and the date that the registrant plans to adopt, if earlier .

• A discussion of the methods of adoption allowed by the standard and the method expected to be utilized by the registrant, if determined .

• A discussion of the impact that adoption of the standard is expected to have on the financial statements of the registrant, unless not known or reasonably estimable . In that case, a statement to that effect may be made .

Disclosure of the potential impact of other significant matters that the registrant believes might result from the adoption of the standard (such as technical violations of debt covenant agreements, planned or intended changes in business practices, etc .) is encouraged .


SAB 74 DISCLOSURES - GENERALMFA, “Reminder: SEC SAB 74 Disclosures and Controls for New Accounting Standards,” http://www .mfa cpa .com/en/Our%20Insights/2017/07/Reminder%20SEC%20SAB%2074%20Disclosures%20and%20Controls%20for%20New%20Accounting%20Standards .aspx

PwC, “Recently issued accounting standards Governance considerations,” https://www .pwc .com/us/en/cfodirect/assets/pdf/in-the-loop/sab-74-new-accounting-standards .pdf

SAB 74 DISCLOSURES FOR LEASE ACCOUNTINGKPMG, “ASC 842, Leases – Transition Disclosures,” https://frv .kpmg .us/reference-library/2017/02/asc-842-leases-transition-disclosures .html

RSM, “SAB 74 disclosures for new standard on lease accounting,” http://rsmus .com/our-insights/newsletters/financial-reporting-insights/sab-74-disclosures-for-new-standard-on-lease-accounting .html

FASB – Updated Guidance on ASC 842FASB, “Proposed Accounting Standards Update,” http://www .fasb .org/jsp/FASB/Document_C/DocumentPage?cid=1176169751791&acceptedDisclaimer=true

Thomson Reuters, “Easier Method for Completing Transition to Lease Standard Moves Forward,” https://tax .thomsonreuters .com/media-resources/news-media-resources/checkpoint-news/daily-newsstand/ easier-method-for-completing-transition-to-lease-standard-moves-forward/

ADDITIONAL REFERENCES


RANK COMPANY SELECTED DISCLOSURE EXCERPTS1 Walgreens

Boots AllianceThe Company will adopt this ASU on September 1, 2019 (fiscal 2020) . The Company has begun evaluating and planning for adoption and implementation of this ASU, including implementing a new global lease accounting system, evaluating practical expedient and accounting policy elections, and assessing the overall financial statement impact . This ASU will have a material impact on the Company’s financial position . The impact on the Company’s results of operations is being evaluated . The impact of this ASU is non-cash in nature and will not affect the Company’s cash flows . .

2 CVS Health The Company believes that the new standard will have a material impact on its consolidated balance sheet . The Company intends to adopt the new standard on a modified retrospective basis . The Company has a cross-functional project team focused on the implementation of the new accounting standard . The project involves among other things the implementation of new leasing systems capable of producing the data to prepare the required accounting and disclosures under the new accounting standard . The Company expects to complete this project during the fourth quarter of 2018 . The Company is still evaluating the effect that implementation of this standard will have on the Company’s consolidated results of operations, cash flows, financial position and related disclosures .

3 AT&T Upon initial evaluation, we believe the key change upon adoption will be the balance sheet recognition . The income statement recognition of lease expense appears similar to our current methodology . We are continuing to evaluate the magnitude and other potential impacts to our financial statements .

4 Amazon .com We plan to adopt this ASU beginning in Q1 2019 . We are continuing to evaluate the impact and expect the ASU will have a material impact on our consolidated financial statements, primarily to the consolidated balance sheets and related disclosures .

5 Verizon Communications

The effective date of this standard is January 1, 2019, at which time Verizon plans to adopt the standard using the modified retrospective approach with a cumulative-effect adjustment to opening retained earnings recorded at the beginning of the period of adoption . Therefore, upon adoption, Verizon will recognize and measure leases without revising comparative period information or disclosure . The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply . Verizon’s current operating lease portfolio is primarily comprised of network, real estate, and equipment leases . Upon adoption of this standard, we expect to recognize a right of use asset and liability related to substantially all operating lease arrangements . We have established a cross-functional coordinated team to implement the standard update . We are in the process of determining the scope of impact, data gathering, assessing and staging, designing and building a new system solution, and assessing the practical expedients and policy elections offered by the standard . We are also evaluating our processes and internal controls to meet the standard update’s accounting, reporting and disclosure requirements . Although we have not yet completed our evaluation of the standard update, or quantified its impact, we expect its adoption to have a significant impact on our condensed consolidated balance sheet due to the recognition of the right of use asset and liability for our operating leases .

TOP 100 US COMPANIES RANKED BY LEASING OBLIGATIONS


RANK COMPANY SELECTED DISCLOSURE EXCERPTS

6 FedEx Based on our lease portfolio, we currently anticipate recognizing a lease liability and related right-of-use asset on our balance sheet in excess of $13 billion, with an immaterial impact on our income statement compared to the current lease accounting model . However, the ultimate impact of the standard will depend on the company’s lease portfolio as of the adoption date . We are currently accumulating all of the necessary information required to properly account for the leases under the new standard . Additionally, we are implementing an enterprise-wide lease management system to assist in the accounting and are evaluating additional changes to our processes and internal controls to ensure we meet the standard’s reporting and disclosure requirements . These changes will be effective June 1, 2019 (fiscal 2020) .

7 United Continental Holdings

We have not finalized our assessment but believe this standard will have a significant impact on our consolidated balance sheets . The standard is not expected to have a material impact on the Company’s results of operations or cash flows . The primary effect of adopting the new standard will be to record assets and obligations for our operating leases .

8 Delta Air Lines We have not completed our assessment, but the adoption of this standard will have a significant impact on our Consolidated Balance Sheets . However, we do not expect the adoption to have a material impact on the recognition, measurement or presentation of lease expenses within the Condensed Consolidated Statements of Operations and Comprehensive Income (“income statement”) or the Condensed Consolidated Statements of Cash Flows (“cash flows statement”) . Information about our undiscounted future lease payments and the timing of those payments is in Note 7, “Lease Obligations,” in our Form 10-K . .

9 Wal-Mart Stores The Company will adopt this ASU and related amendments on February 1, 2019 and expects to elect certain practical expedients permitted under the transition guidance . Additionally, the Company will elect the optional transition method that allows for a cumulative-effect adjustment in the period of adoption and will not restate prior periods . Management is implementing new lease systems in connection with the adoption of this ASU; however, these systems are still being developed to comply with the new ASU . Although management continues to evaluate the effect to the Company’s Condensed Consolidated Financial Statements and disclosures, management currently estimates total assets and liabilities will increase approximately $14 billion to $18 billion upon adoption, before considering deferred taxes . This estimate could change as the Company continues to progress with implementation and will also fluctuate based on the lease portfolio and discount rates as of the adoption date . Management does not expect a material impact to the Company’s Condensed Consolidated Statements of Income or Cash Flows .

10 Bank of America Corp .

The Corporation is in the process of reviewing its existing lease portfolios, including certain service contracts for embedded leases, to evaluate the impact of the standard on its consolidated financial statements, as well as the impact to regulatory capital and risk-weighted assets . The effect of the adoption will depend on the lease portfolio at the time of transition and the transition options ultimately available; however, the Corporation does not expect the new accounting standard to have a material impact on its consolidated financial position, results of operations or disclosures in the Notes to the Consolidated Financial Statements .



11 McDonald’s The Company will adopt the new standard effective January 1, 2019 . At transition, the Company will recognize and measure leases using the required modified retrospective approach . The Company anticipates ASU 2016-02 will have a material impact on the consolidated balance sheet due to the significance of the Company’s operating lease portfolio . The Company will elect an optional practical expedient to retain the current classification of leases, and, therefore, anticipates a minimal initial impact on the consolidated statement of income . The impact of ASU 2016-02 is non-cash in nature; therefore, it will not affect the Company’s cash flows .

12 American Airlines Group

We will adopt the New Lease Standard effective January 1, 2019 . We are currently evaluating how the adoption of the New Lease Standard will impact our consolidated financial statements . Interpretations are on-going and could have a material impact on our implementation . Currently, we expect that the adoption of the New Lease Standard will have a material impact on our consolidated balance sheet due to the recognition of right-of-use assets and lease liabilities principally for certain leases currently accounted for as operating leases . .

13 Crown Castle International

This guidance is effective for the Company as of January 1, 2019 . This guidance is required to be applied, at the Company’s election, either using a (1) modified retrospective approach for all leases existing at, or entered into after, the beginning of the earliest comparative period presented, or (2) cumulative-effect approach for all leases existing at, or entered into, after the effective date . The Company expects to apply the guidance using the cumulative-effect approach, thereby applying the new guidance at the effective date, without adjusting the comparative periods and, if necessary, recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption . Although early adoption is permitted, the Company will not adopt the new guidance prior to January 1, 2019 . With regard to the application of this guidance to the Towers segment, the Company expects that (1) its Towers lessee arrangements will continue to be classified as operating leases under the new guidance; (2) this guidance will have a material impact on its condensed consolidated balance sheet due to the addition of right-of-use assets and lease liabilities for lessee arrangements (which primarily consist of ground leases under the Company’s towers); and (3) there will not be a material impact to its condensed consolidated statement of operations and condensed consolidated statement of cash flows . The Company is in the process of updating certain of its existing information technology systems to integrate the new guidance requirement with respect to its Tower segment . With regard to the application of this guidance to the Fiber segment, the Company (1) has established and is progressing through the various steps of a cross-functional project plan to assess the impact of the standard; (2) expects this guidance to have a material impact on its condensed consolidated balance sheet due to the addition of right-of-use assets and lease liabilities for lessee arrangements (which primarily consist of fiber-related leases); and (3) continues to assess additional impacts to its condensed consolidated financial statements, including the condensed consolidated statement of operations and the condensed consolidated statement of cash flows .

14 American Tower The Company (i) has established a multidisciplinary team to assess and implement the guidance, (ii) expects the guidance to have a material impact on its consolidated balance sheets due to the recording of right of use assets and lease liabilities for leases in which it is a lessee and which it currently treats as operating leases and (iii) continues to evaluate the impact of the new guidance .


RANK COMPANY SELECTED DISCLOSURE EXCERPTS15 JPMorgan Chase

& Co .The Firm is in the process of its implementation which includes evaluating its leasing activities and certain contracts for embedded leases, implementing a new lease accounting software solution for its real estate leases, and updating processes and internal controls for its leasing activities . As a lessee, the Firm is developing its estimate of the right-of-use asset and lease liability, which is based on the present value of lease payments . The Firm expects to recognize a lease liability and a corresponding right-of-use asset (at their present value) related to predominantly all of the $10 billion of future minimum payments required under operating leases as disclosed in Note 28 of JPMorgan Chase’s 2017 Annual Report . However, the population of contracts subject to balance sheet recognition and their initial measurement remains under evaluation; final financial statement impacts will depend on the lease portfolio at the time of adoption . The Firm does not expect material changes to the recognition of operating lease expense in its Consolidated statements of income . The Firm plans to adopt the new lease guidance on January 1, 2019 and elect the available practical expedients, which will not require it to reassess whether an existing contract contains a lease or whether classification or unamortized initial lease costs would be different under the new lease guidance . .

16 Apple The Company will adopt ASU 2016-02 in its first quarter of 2020 utilizing the modified retrospective transition method . While the Company is currently evaluating the impact of adopting ASU 2016-02, based on the lease portfolio as of June 30, 2018, the Company anticipates recording lease assets and liabilities of approximately $8 .8 billion on its Condensed Consolidated Balance Sheets, with no material impact to its Condensed Consolidated Statements of Operations . However, the ultimate impact of adopting ASU 2016-02 will depend on the Company’s lease portfolio as of the adoption date .

17 TJX We plan to adopt this standard in the first quarter of the fiscal year ending February 1, 2020 (“fiscal 2020”) using the optional transition method under ASU 2018-11 . The Company is in the process of implementing a new lease accounting system and has established a cross-functional team to implement the updated lease guidance . This team is in the process of evaluating our lease portfolio to assess the impact this standard will have on our Consolidated Financial Statements and Notes thereto . The Company expects this standard to have a material impact on its statement of financial condition as it will record a significant asset and liability associated with its nearly 4,200 leased locations . We plan to implement the transition package of three practical expedients permitted within the standard, which among other things, allows for the carryforward of historical lease classifications . We expect to make an accounting policy election that will keep leases with a term of 12 months or less off the balance sheet and result in recognizing those lease payments on a straight-line basis over the lease term . As our leases do not provide an implicit rate, we plan to use our incremental borrowing rate based on information available at commencement date to determine the present value of future payments . The Company has determined that the initial lease term will not differ under the new standard versus current accounting practice, and therefore the income statement impact of the new standard is not expected to be material .


RANK COMPANY SELECTED DISCLOSURE EXCERPTS18 Dollar General The Company formed a project team to assess and implement the standard,

which has completed its internal evaluation of existing contractual arrangements for embedded leases . The project team is also testing computations in the Company’s lease administration system, integrating interfaces between the lease administration system and the enterprise resource planning systems, identifying and implementing new processes and controls to ensure compliance, and is in the process of evaluating and documenting the Company’s accounting conclusions related to the new standard . As a result of the efforts of this project team, the Company has identified its store leases as the area in which it would most likely be affected by the new guidance . The Company’s assessment of the impact that adoption of this guidance will have on its consolidated financial statements is ongoing, and the Company anticipates a material impact because it is party to a significant number of lease contracts for its stores .

19 Alphabet Based on our current portfolio of leases, approximately $8 billion of lease assets and liabilities would be recognized on our balance sheet, primarily relating to real estate . We are in the process of implementing changes to our systems and processes in conjunction with our review of lease agreements . We will adopt Topic 842 effective January 1, 2019 and expect to elect certain available transitional practical expedients .

20 Starbucks The guidance will be effective for us at the beginning of our first quarter of fiscal 2020, with optional practical expedients . Early adoption is permitted . We are currently evaluating the impact this guidance will have on our consolidated financial statements and the method of adoption . We expect this adoption will result in a material increase in the assets and liabilities on our consolidated balance sheets but will likely have an insignificant impact on our consolidated statements of earnings . In preparation for the adoption of the guidance, we are in the process of implementing controls and key system changes to enable the preparation of financial information . .

21 Berkshire Hathaway

We are currently evaluating the effect this standard will have on our Consolidated Financial Statements .

22 Kroger The adoption of this ASU will result in a material increase to the Company’s Consolidated Balance Sheets for lease liabilities and right-of-use assets, and the Company is currently evaluating the other effects of adoption of this ASU on the Company’s Consolidated Financial Statements . This evaluation process includes reviewing all forms of leases, performing a completeness assessment over the lease population, analyzing the practical expedients and assessing opportunities to make certain changes to the Company’s lease accounting information technology system in order to determine the best implementation strategy .

23 Dollar Tree The Company will adopt the standard in the first quarter of fiscal 2019 . The Company has engaged a third party to assist in its preparation for implementation and its evaluation of the impact of the new pronouncement on its consolidated financial statements . The Company continues to assess the effect the implementation will have on its existing accounting policies and the consolidated financial statements and expects the adoption of this pronouncement to result in a material increase in the assets and liabilities on its consolidated balance sheets, with an immaterial impact on its consolidated income statements and consolidated statements of cash flows . Additionally, the Company is implementing lease accounting software to assist in the quantification of the expected impact on the consolidated balance sheets and to facilitate the calculations of the related accounting entries and disclosures . The Company is also evaluating additional changes to its processes and internal controls to ensure it is compliant with the reporting and disclosure requirements of the standard . As of February 3, 2018, the Company had $7 .4 billion in undiscounted future minimum operating lease commitments .


RANK COMPANY SELECTED DISCLOSURE EXCERPTS24 Home Depot We are evaluating and planning for the adoption and implementation of

ASU No . 2016-02 . We believe that ASU No . 2016-02 will have a material impact on our financial position, as a result of the requirement to recognize right-of-use assets and lease liabilities on our consolidated balance sheets . The impact to our results of operations is being evaluated, and we do not believe there will be a material impact to our cash flows upon adoption of ASU No . 2016-02 . .

25 Albertsons Cos . The Company plans to adopt this guidance in the first quarter of fiscal 2019 . The adoption of this ASU will result in the recognition of significant right-of-use assets and lease liabilities in the Company’s Consolidated Balance Sheets . The Company’s assessment is ongoing, including the assessment of other potential impacts of this pronouncement on the Consolidated Financial Statements and disclosures .

26 Wells Fargo We expect to adopt the guidance in first quarter 2019 using an optional transition method with a cumulative effect adjustment to retained earnings without restating 2018 and 2017 financial statements for comparable amounts . The calculation of our operating lease right-of-use assets and liabilities, for approximately 7,000 leases, are expected to be $5 billion and $5 .5 billion, respectively, and will continue to be refined as we complete our implementation process . We do not expect material changes to the timing of expense recognition on our operating leases or the recognition and measurement of our lessor accounting . While the increase to our consolidated total assets related to operating lease right-of-use assets will increase our risk-weighted assets and decrease our capital ratios, we do not expect these changes to be material .

27 International Business Machines

There are certain practical expedients that can be elected which the company is currently evaluating for application . The guidance is effective January 1, 2019 and early adoption is permitted . The company will adopt the guidance as of the effective date . A cross-functional implementation team has been established which is evaluating the lease portfolio, system, process and policy change requirements . The company has made progress in gathering the necessary data elements for the lease population and a system provider has been selected, with system configuration and implementation underway . The company is currently evaluating the impact of the new guidance on its consolidated financial results and expects it will have a material impact on the Consolidated Statement of Financial Position . The company is currently planning on electing the package of practical expedients not to reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs and is evaluating the other practical expedients available under the guidance . The company’s operating lease commitments, as a lessee, were $6 .6 billion at December 31, 2017 . From a lessor perspective, in 2017, the use of third-party residual value guarantee insurance resulted in the company recognizing $452 million of sales-type lease revenue that would otherwise have been recognized over the lease period as operating lease revenue . Further, due to changes in lease termination guidance, when equipment is returned to the company prior to the end of the lease term, the carrying amounts of lease receivables, which remain outstanding relating to that equipment and still expected to be collected, will be reclassified to loan receivables . The amount that would have been reclassified from lease receivables to loan receivables in 2017, under the application of this new guidance, would have been approximately $450 million . The company continues to assess the potential impacts of the guidance, including changes resulting from the pending accounting standard updates to be issued by the FASB, normal and ongoing business dynamics or potential changes in contracting terms, and as a result, preliminary conclusions are subject to change .


RANK COMPANY SELECTED DISCLOSURE EXCERPTS28 Gap We are assessing the impact of this ASU on our Consolidated Financial Statements,

but it will result in a material increase in our long-term assets and liabilities . We are also assessing our method of adoption . We will adopt the ASU beginning in the first quarter of fiscal 2019 .

29 Citigroup The guidance is effective beginning January 1, 2019 . The Company estimates that upon adoption, its Consolidated Balance Sheet will have an approximate $5 billion increase in assets and liabilities . Additionally, the Company estimates an approximate $140 million increase in retained earnings due to the cumulative effect of recognizing previously deferred gains on sale/leaseback transactions .

30 Lowe’s This transition election permits entities to change the date of initial application of the standard to the beginning of the year of adoption and to recognize the effects of applying Topic 842 as a cumulative-effect adjustment to the opening balance of retained earnings . The Company expects to elect this transition approach and recognize the cumulative impact of adoption in the opening balance of retained earnings to beginning fiscal year 2019 . The Company is currently evaluating the impact of adopting Topic 842 on its consolidated financial statements but expects the ASU to have a material impact on its consolidated balance sheet, as a result of the requirement to recognize right-of-use assets and lease liabilities for operating leases .

31 EOG Resources EOG is continuing its assessment of ASU 2016-02 by implementing its project plan, evaluating certain operational and corporate policies and processes, further defining its population of leases and reviewing numerous contracts . EOG plans to elect the package of practical expedients within ASU 2016-02 that allows an entity to not reassess prior to the effective date (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases, or (iii) initial direct costs for any existing leases . Additionally, EOG plans to elect the practical expedient under ASU 2018-01 and not evaluate existing or expired land easements not previously accounted for as leases prior to the effective date . EOG does not intend to early-adopt ASU 2016-02 and other related ASUs and has not determined which transition method it will use .

32 Microsoft We elected to early adopt the standard effective July 1, 2017 concurrent with our adoption of the new standard related to revenue recognition . We elected the available practical expedients and implemented internal controls and key system functionality to enable the preparation of financial information on adoption . The standard had a material impact in our consolidated balance sheets, but did not have an impact in our consolidated income statements . The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged . Adoption of the standard required us to restate certain previously reported results, including the recognition of additional ROU assets and lease liabilities for operating leases . Refer to Impacts to Previously Reported Results below for the impact of adoption of the standard in our consolidated financial statements .

33 Morgan Stanley Currently, we plan to adopt this accounting update as of the effective date, January 1, 2019 . Based upon our current population of leases, we expect the right of use asset and corresponding lease liability to be less than 1% of our total assets .


RANK COMPANY SELECTED DISCLOSURE EXCERPTS34 L Brands The Company is currently evaluating the impacts that this standard will have on its

Consolidated Statements of Income and Comprehensive Income, Balance Sheets and Statements of Cash Flows . The Company currently expects that most of its operating lease commitments will be recognized as operating lease liabilities and right-of-use assets upon adoption of the standard . Thus, the Company expects adoption will result in a material increase to the assets and liabilities on the Consolidated Balance Sheet . The Company will adopt the standard in the first quarter of 2019 and apply the standard prospectively as of the adoption date . .

35 Kohl’s AApproximately 5% of our store leases and all of our land leases are not currently recorded on our balance sheet . Recording right-of-use assets and lease liabilities for these and other non-store leases is expected to have a material impact on our balance sheet . We are also evaluating the impact that recording right-of-use assets and lease liabilities will have on our income statement and the financial statement impact that the standard will have on leases, which are currently recorded on our balance sheet .

36 Penske Automotive Group

We intend to adopt this ASU on January 1, 2019 . The amendments from this update are to be applied using a modified retrospective approach . We have a significant amount of leases for property and equipment that are classified as operating leases under current lease accounting guidance . The adoption of this ASU will result in a significant increase to our consolidated balance sheets for lease liabilities and right-of-use assets . We believe our current off-balance sheet leasing commitments are reflected in our credit rating . We are currently evaluating the other impacts the adoption of this accounting standard update will have on our consolidated financial statements . We are also in the process of evaluating and documenting any changes in controls and procedures that may be necessary as part of the adoption .

37 Foot Locker The Company does not expect to adopt this ASU until required and is evaluating the effect of this guidance . The Company has historically presented a non-GAAP measure to adjust its balance sheet to present operating leases as if they were capital leases . Based upon that analysis and preliminary evaluation of the standard, we estimate the adoption will result in the addition of $3 billion to $4 billion of assets and liabilities to our consolidated balance sheet, with no significant change to our consolidated statements of operations or cash flows .

38 Facebook This guidance will be effective for us in the first quarter of 2019 on a modified retrospective basis and early adoption is permitted . We will adopt the new standard effective January 1, 2019 . We have selected a lease accounting system, and our implementation of it is substantially complete . Our evaluation of the use of optional practical expedients is pending upon the issuance of the ASU related to comparative reporting at adoption . While we continue to evaluate the effect of adopting this guidance on our consolidated financial statements and related disclosures, we expect our operating leases, as disclosed in Note 8 — Commitments and Contingencies, will be subject to the new standard . We will recognize right-of-use assets and operating lease liabilities on our consolidated balance sheets upon adoption, which will increase our total assets and liabilities .


RANK COMPANY SELECTED DISCLOSURE EXCERPTS39 CenturyLink Upon adoption of ASU 2016-02, we are required to recognize and measure leases at

the beginning of the earliest period presented in our consolidated financial statements using a modified retrospective approach . The modified retrospective approach includes a number of optional practical expedients that we may elect to apply . On January 25, 2018, the FASB issued ASU 2018-01, “Leases: Land Easement Practical Expedient for Transition to ASU 2016-02” (“ASU 2018-01”) . ASU 2018-01 permits reporting companies to elect to forego reassessments of land easements that exist or expire before the entity’s adoption of ASU 2016-02 and that were not previously accounted for as leases . We plan to adopt ASU 2018-01 at the same time we adopt ASU 2016-02 . On July 30, 2018, the FASB issued ASU 2018-11, “Leases: Targeted Improvements” . (“ASU 2018-11”) provides entities with an additional (and optional) transition method to adopt the new leases standard . Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption . We have not yet determined whether we will use the newly permitted adoption method . We are in the process of implementing a new lease administration and accounting system . We plan to adopt ASU 2016-02 and ASU 2018-01 effective January 1, 2019 . The adoption of ASU 2016-02 will result in our recognition of right of use assets and lease liabilities that we have not previously recorded . Although we believe it is premature as of the date of this report to provide any estimate of the impact of adopting ASU 2016-02, we do expect that it will have a material impact on our consolidated financial statements . Additionally, upon implementing ASU 2016-02, accounting for the failed-sale-leaseback transaction described in Note 3—Sale of Data Centers and Colocation Business will no longer be applicable based on our facts and circumstances, and the real estate assets and corresponding financing obligation described therein will be derecognized from our consolidated financial statements .

40 Rite Aid The Company believes that the new standard will have a material impact on its financial position . The Company is currently evaluating the impact this standard implementation will have on its results of operations and cash flows

41 Exxon Mobil Effective January 1, 2019, ExxonMobil will adopt the Financial Accounting Standards Board’s standard, Leases . The standard requires all leases with an initial term greater than one year be recorded on the balance sheet as an asset and a lease liability . The Corporation is gathering and evaluating data and recently acquired a system to facilitate implementation . We are progressing an assessment of the magnitude of the effect on the Corporation’s financial statements .



42 Target We adopted ASU No . 2016-02—Leases (Topic 842), as of February 4, 2018, using the modified retrospective approach . The modified retrospective approach provides a method for recording existing leases at adoption and in comparative periods that approximates the results of a full retrospective approach . In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification . We also elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements . In addition, we elected the hindsight practical expedient to determine the lease term for existing leases . Our election of the hindsight practical expedient resulted in the shortening of lease terms for certain existing leases and the useful lives of corresponding leasehold improvements . In our application of hindsight, we evaluated the performance of the leased stores and the associated markets in relation to our overall real estate strategies, which resulted in the determination that most renewal options would not be reasonably certain in determining the expected lease term . Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of approximately $1 .3 billion and $1 .4 billion, respectively, as of February 4, 2018 . The difference between the additional lease assets and lease liabilities, net of the deferred tax impact, was recorded as an adjustment to retained earnings . The standard did not materially impact our consolidated net earnings and had no impact on cash flows

43 iHeartMedia The Company is currently evaluating the impact of the provisions of this new standard on its consolidated financial statements .

44 Comcast For a lessee, the recognition, measurement and presentation of expenses and cash flows arising from a lease do not significantly change from previous guidance . For a lessor, the accounting applied is also largely unchanged from previous guidance . The updated guidance is effective for us as of January 1, 2019 and early adoption is permitted . We are currently in the process of determining the impact that the updated accounting guidance will have on our consolidated financial statements .

45 Nike The new guidance will require the Company to continue to classify leases as either operating or financing, with classification affecting the pattern of expense recognition in the income statement . The Company will adopt the standard on June 1, 2019 . The ASU is required to be applied using a modified retrospective approach at the beginning of the earliest period presented, with optional practical expedients . The Company continues to assess the effect the guidance will have on its existing accounting policies and the Consolidated Financial Statements and expects there will be an increase in assets and liabilities on the Consolidated Balance Sheets at adoption due to the recording of right-of-use assets and corresponding lease liabilities, which may be material . Refer to Note 15 — Commitments and Contingencies for information about the Company’s lease obligations .


RANK COMPANY SELECTED DISCLOSURE EXCERPTS46 General Electric We expect the FASB to issue new guidance that provides companies with the option

to apply the provisions of the new leasing standard on January 1, 2019, without adjusting the comparative periods presented by recognizing a cumulative-effect adjustment to the opening balance of retained earnings . We are currently in the process of accumulating and evaluating all the necessary information required to properly account for our lease portfolio under the new standard . Additionally, we are implementing an enterprise-wide lease management system to support the ongoing accounting requirements . Development and testing of our selected systems solution is ongoing . We are working closely with the software system developer as the timely readiness of the lease software system is critical to ensure an efficient and effective adoption of the standard . We are evaluating additional changes to our processes and internal controls to ensure we meet the standard’s reporting and disclosure requirements . While we continue to evaluate the effect of the standard on our consolidated financial statements, the adoption of the ASU will result in the recognition of a right of use asset and related liability with an estimated immaterial effect to our retained earnings .

47 Hewlett Packard Enterprise

The Company is required to adopt the guidance in the first quarter of fiscal 2020 and early adoption is permitted . In addition, the FASB provided a practical expedient transition method to adopt the new lease requirements by allowing companies to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption that would enable the Company to not provide comparative period financial statements . Instead, the Company would apply the transition provisions at its effective date . The Company is currently evaluating the timing and the impact of these amendments on its Condensed Consolidated Financial Statements .

48 Chipotle Mexican Grill

We will adopt the requirements of the new lease standard effective January 1, 2019, and the pronouncement requires a modified retrospective adoption method . We plan to elect the transition package of three practical expedients permitted within the standard, which among other things, allows the carryforward of historical lease classifications, and we are further evaluating other optional practical expedients and policy elections . We are assessing the impact of the standard to our accounting policies, processes, disclosures, and internal control over financial reporting and we are implementing necessary upgrades to our existing lease system . The adoption of ASU 2016-02 will have a significant impact on our consolidated balance sheet because we will record material assets and obligations for current operating leases . We are still assessing the expected impact on our consolidated statements of income and cash flows .

49 Dick’s Sporting Goods

The Company is currently in the process of upgrading our existing lease management technology solution to facilitate adoption of these ASU’s in fiscal 2019 . We are also currently evaluating the impact of the adoption of these ASU’s on the Company’s Consolidated Financial Statements with anticipation that they will result in significant lease assets and related liabilities as all of the Company’s retail locations and the majority of our supply chain facilities are currently categorized as operating leases . We do not anticipate that the adoption of these ASU’s will have a significant impact on the Company’s Consolidated Statement of Income . .


RANK COMPANY SELECTED DISCLOSURE EXCERPTS50 TravelCenters of

AmericaTo address implementation of ASU 2016-02 and evaluate its impact on our consolidated financial statements, we have developed a project plan to evaluate our leases, lease classifications and related internal controls . We believe the adoption of this update will have a material impact on our consolidated balance sheets due to the recognition of the lease rights and obligations as assets and liabilities . While the adoption of this standard will have no effect on the cash we pay under our lease agreements, we expect amounts within our statements of operations and comprehensive loss will change materially .

51 Ross Stores ASU 2016-02 is effective for the Company’s annual and interim reporting periods beginning in fiscal 2019 . The Company is currently working on the adoption, and evaluating the effect adoption of this new guidance will have on its consolidated financial statements . Due to the substantial number of leases that it has, the Company believes this ASU will increase assets and liabilities by a material amount on its consolidated balance sheet . The Company’s current undiscounted minimum commitments under noncancelable operating leases is approximately $3 .8 billion . The Company does not believe adoption of this ASU will have a significant impact to its consolidated statements of earnings, stockholders’ equity, and cash flows .

52 Publix Super Markets

While the Company is still evaluating the ASU, the Company expects the adoption of the ASU to have a material effect on the Company’s financial condition due to the recognition of approximately $3 billion of lease rights and obligations as assets and liabilities on the consolidated balance sheets . The Company does not expect the adoption of the ASU to have a material effect on the Company’s results of operations . The adoption of the ASU will have no effect on the Company’s cash flows .

53 Macy’s The new standard is effective for the Company on February 3, 2019 and is to be adopted utilizing a modified retrospective approach that allows for transition at the beginning of the earliest comparative period presented in the financial statements or in the period of adoption, with certain practical expedients available . The Company has not yet decided upon a transition method . The Company expects that the new lease standard will have a material impact on the Company’s consolidated financial statements . While the Company is continuing to assess the effects of adoption, the Company currently believes the most significant changes relate to the recognition of new ROU assets and lease liabilities on the consolidated balance sheets for real property and personal property operating leases as well as changes to the timing of recognition of certain real estate asset sale gains in the consolidated statements of income due to application of the new sale-leaseback guidance and ASU No . 2017-05, Other Income - Gains and Losses from the Derecognition of NonFinancial Assets (Subtopic 610-20) . The Company expects that substantially all of its operating lease commitments will be subject to the new guidance and will be recognized as operating lease liabilities and ROU assets upon adoption . A significant change in leasing activity between the date of this report and adoption is not expected .

54 Walt Disney The Company is currently assessing the impact of the new guidance on its financial statements . The standard can be adopted either as of the effective date without restating prior periods or retrospectively by restating prior periods . The guidance is effective at the beginning of the Company’s 2020 fiscal year (with early adoption permitted) . As of September 30, 2017, the Company had an estimated $3 .3 billion in undiscounted future minimum lease commitments .


RANK COMPANY SELECTED DISCLOSURE EXCERPTS55 Dow DuPont The Company has a cross-functional team in place to evaluate and implement the

new guidance . The team continues to review existing lease arrangements and has engaged third parties to assist with the collection of lease data . The impact of applying the practical expedients and accounting policy elections has been evaluated and the Company is in the process of documenting the related considerations and decisions . The Company is currently implementing software solutions, enhancing accounting systems and updating business processes and controls related to leases . Collectively, these activities are expected to facilitate the Company’s ability to meet the new accounting and disclosure requirements upon adoption in the first quarter of 2019 . The Company is working to quantify the impact and anticipates that the adoption of the new standard will result in a material increase in lease-related assets and liabilities in the consolidated balance sheets .

56 Estée Lauder Fiscal 2020 first quarter, with early adoption permitted using either of the modified retrosp

september 2018 update sab 74 disclosure analysis for lease accounting · 2020. 4. 14. · 6...

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