Accounting & Finance Leadership Forum

Transcription

1 Accounting & Finance Leadership Forum July 12, 2012 Matthew G. Thompson, Jr.

2 Brief CSC Leasing Overview Private, 25-year old, Richmond-based equipment leasing company Specialize in leasing technology ( anything with a chip ), medical and other types of equipment, and furniture Will originate $25-30 million in hardware leases in 2012, and work with all forms and sizes of companies Only offer operating leases no capital leases

3 Thank You Accounting Regulators FASB and IASB are set to release the latest lease accounting exposure draft in Q Still uncertainty about the terms and the potential impact of the new standard: Will terms such as insignificant portion of or insignificant relative to change equipment lease terms Will company balance sheets be meaningfully impacted? How much time and money will be spent explaining the changes to investors and lenders?

4 Our Clients Lease Equipment To: Avoid significant capital outlays Develop alternative sources of financing Avoid owning assets that have a high level of technological obsolescence Maintain flexibility with regard to managing equipment assets Minimize balance sheet exposure

5 How Might New Rules Change Lessor Behavior or Lease Terms? Leases will still be offered but the lease might not be labeled an operating or a capital lease Lessors will still be able to structure the lease to suit their business model regardless of accounting standards Lessors may be asked to provide more pricing information

6 Conclusion The greater impact of the standard may be with small to medium-sized companies who do not have audited/reviewed financials and have not had to disclose lease details in financial notes Companies who desire to use the latest technology or need alternative sources of capital will continue to lease CSC will adjust to the new standards and will continue to offer competitive leasing solutions

7 Accounting & Finance Leadership Forum July 12, 2012 David Wilkins Senior Vice President Wood Thornton Vice President

8 CBRE Financial Consulting Group Task Force on Lease Accounting Changes

9 Highlights From Update FASB & IASB agree to compromise Front-Loaded Expense Approach Straight-Line Approach Exposure Draft re-issued by YE 2012 New Standard issued late 2013 with 2016 (or 2017) effective date P&L impact should not be materially different for most leases

10 Anticipated Impact In The Following Areas: Balance Sheet Systems Personnel/Physical Space Own vs. Lease Financial Metrics (competitors) COMPANIES NEED TO DEVELOP STRATEGIES SOONER THAN LATER!

11 Balance Sheet All Leases to be capitalized Maximum term 12 months no change Straight-Line Approach similar to current accounting requirements (most leases) Front-Loaded Approach lease is a form of financing, if: Lease term accounts for the major part of the economic life of the underlying asset; or PV of fixed lease payments accounts for substantially all of the fair value of the asset. Similar ring to SFAS 13 bright lines

12 Systems Communication between Departments Who hosts the leases (HR, CFO, Real Estate Department) Personnel changes Abstracts of leases for quick data mining PV all leases at the beginning Assess lease administration process/system

13 Personnel/Physical Space Shift in CRE Strategies Office space per worker Telework Hoteling Workplace design advancements Technology advancements Paperless office

14 Align CRE with business strategy Single tenants consider ownership Long-term leases/ground leases Possibility of more condominium structures in multi-tenant buildings Sale-leaseback market Own vs. Lease Analysis

15 Financial Metrics $1.3 Trillion impact to Balance Sheets Assimilation period with: Bankers Accountants/Auditors Financial Analysts Your company vs. competitors Transition rules still in question go-live Re-issue of historical years

16 IS THERE ANYTHING WE SHOULD BE DOING TODAY?

17 Existing leases Identify location & any missing documents Consider lease abstracts if none exist Proactive Measures Assess capabilities of lease administration system Develop financial templates to properly determine amounts to be reported in financial statements (tracking effective borrowing rate) Playbooks diagram & develop standardized procedures/forms for the exchange of information between key stakeholders Review existing debt covenants for clauses that exempt the impact of future changes to US GAAP

18 Preliminarily assess in the financial statement impact to your company and industry peers Initiate discussions with external auditors Explore future CRE strategies Importance of and reasons for negotiating options; renewal, termination, etc. Evaluate lease vs. own Proactive Measures Implementation or upgrade of lease administration system GET YOUR PROCESSES IN PLACE TODAY!

19 Professional Profile David Wilkins With more than a decade of experience in the business, David is well versed in all aspects of commercial real estate offering comprehensive services for owners, occupiers and developers of real estate. David focuses on developing and implementing creative real estate strategies for a wide array of customers including national corporations, regional companies and locally owned businesses. David has experience as a single point-of-contact providing complete transaction management and consulting services for his customers. His commitment to the customer ensures smooth transition between project phases.

20 Professional Profile Wood Thornton Mr. Thornton specializes in representation of office and industrial tenants and buyers. He partners with his clients to evaluate their space needs and to help them uncover opportunities for significant savings. Mr. Thornton s clients range from companies with a single office seeking advice on an existing lease renewal to Fortune 100 companies seeking strategic consulting and real estate services for their operations. He is a member of CBRE s Global Law Firm s Practice Group which provides qualified solutions to the real estate issues facing law firms today. Mr. Thornton began his business career as a corporate attorney. He spent the last decade of his legal career with Troutman Sanders LLP, where he was a member of Troutman s Mergers and Acquisitions and Business Venture Team. Mr. Thornton s practice focused on mergers and acquisitions, corporate and partnership structuring, and private equity financings. In addition, his legal work included real estate development structuring and transactions, commercial leases, and investment sales.

21 About CBRE Americas Business Activity 2011 Offices 195* Employees 20,700** Total Transaction Value Property Sales Value Property Leasing Value $92.4 Billion $45 Billion $46.8 Billion Property & Corporate Facilities Under Management/Leasing 1.6 Billion SF * includes affiliate offices ** excludes approximately 1,700 affiliate employees