Question: Analyzing, Interpreting and Capitalizing Operating Leases The Abercrombie & Fitch 10-K report contains the following footnote relating to leasing activities. This is the only information is discloses relating to its leasing activity. At January 29, the Company was committed to nonancelable lessees with remaining terms of one to 17 years. A summary of operating lease commitments under noncancelable leases follows (thousands):
Fiscal 2011 $331,151
Fiscal 2012 319,982
Fiscal 2013 303,531
Fiscal 2014 285,337
Fiscal 2015 262,586
Thereafter 1,110,598
Required: a. What lease assets and lease liabilities does Abercrombie report on its balance sheet? How do we know?
b. What effects does the lease classification have on A&F balance sheet? Over the life of the lease, what effect does this classification have on the company's net income?
c. Using a 6% discount rate that A&F fails to report a result of its off-balance-sheet lease financing.
d. What adjustments would we consider to A &F income statement corresponding to the adjustments we would make to its balance sheet in part c?
e. Indicate the direction of the effect that capitalizing these leases would have on the following financial items and ratios for A&F: return on equity (ROE), net operating profit after tax (NOPAT), net operating assets (NOA), net operating profit margin (NOPM), net operating asset turnover (NOAT), and measures of financial leverage.