Hidden Lease Liabilities?

Was trying to calculate the net debt figure for enterprise value but was confused by the Lease Liabilities line item. I read that the ASU 842 and IFRS 16 require companies to recognized lease liabilities. However, I don’t see the Lease liability line item under CheckPoint (CHKP) balance sheet in their 20F even though I saw that they recognized lease liabilities of 30.7m in their notes. Can the lease liabilities item be hidden under “Other Liabilities”?

I’m still very new to financial analysis so any help would be greatly appreciated! Thanks

Yes, unfer new GAAP, the distinction between operating and finance leases was removed. Now, all leases are finance leases, recorded as ‘rights of use assets’ and ‘rights of use liabiliries’.

If the amount is small as you suggest, it might well be included in ‘other’ and disclosed in footnotes. So the $30.7mn is probably correct. You can confirm by checkung on the asset side, the number should be consistent.

Though you also have to be careful with your EBITDA if you add leases to net debt. This is because rights of use assets are accounted for just like finance leases. This means the annual cost is split between a finance charge and a capital depreciation. So part of the depreciation is actually cash, so you need to make sure your EBITDA is consistent with your net debt. If you do EBITDA = EBIT + D/A from CF statement, you might be understating EBITDA.

Though if the amoubts are small, it wont move the dial, but if you’re running comps you want to be diligent.

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Thanks for the reminder! Yup, I’m actually doing comps for my analysis but I realized the 10-Q (for CheckPoint) doesn’t provide footnotes for ‘Other liabilities’. Do you think I should just exclude it since it might not be material or try to source it from the earlier 10-K?

I don’t think this is accurate. Under GAAP there are still operating leases liabilities separate from capitalized/financial lease liabilities. Operating lease liabilities do not have any interest expense associated with them since the lease payments remain in the operating expense section of the income statement. For this reason, I do not recommend including operating lease liabilities as debt in your EV calculations.

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Oh right, my bad. I’m aware that there’s a separation between operating and finance lease under GAAP but I misread capital lease as lease (I assumed it was Operating + Financial Lease) for the constituent of Net Debt. Wouldn’t had remember the interest-bearing debt part until u mention it. Thanks!

Not sure what GAAP you are referring to:

Of course older accounts will still show operating leases, but not anymore. Under US GAAP, the rule is ASC 842 I believe.

Also on your EV point, you’ll want to be very, very careful. The important thing is to compare apple for apples: so when doing comps say, you dont want to use an EBITDA multiple of a largely freehold estate, then apply it to a leasehold estate. Thats why normally you’d compare both EBITDA and EBITDAR multiples to avoid the issue.

The issue becomes more technical on opco - propco structures, where a shareholder is both landlord and tenant. It is a well known technique to increase leverage but also redu e tax. In those cases, you need to be very precise as to the perimeter for the EV.