In the November issue of Chain Store Age (page 28), leasing specialist Bill Bosco discussed what is being called the biggest threat to retailers’ earnings: the Financial Accounting Standards Board’s (FASB) proposed new rules for lease accounting.
According to Bosco and other experts, the new rules will essentially turn operating leases into capital leases for accounting purposes, wreaking havoc on retailers’ bottom lines.
As an example, for Walgreens, which operates more than 8,000 locations, the potential impact of the new rule could increase the cumulative lease cost on its balance sheet by $2.6 billion or more. Pre-tax earnings could drop by 50% in the first year under the proposed rule change.
The rules are nothing more than a proposal at this point. Changes can still be made, but only if retailers become vocal. It is critical, urges Bosco, for all retailers to become informed about the proposed changes and then to send in comments to FASB. The deadline to write a comment letter to FASB is Dec. 15, 2010.
Click here for a link to comment letter guidelines.