Mazuma Capital Partners: New Leasing Proposals Continue to Draw Heat

Mazuma Capital Partners: New Leasing Proposals Continue to Draw Heat: The lease accounting debate rages on as the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IA...

New Leasing Proposals Continue to Draw Heat

The lease accounting debate rages on as the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) pore over nearly 800 public comment letters that question proposed new leasing standards. Board officials hit the conference circuit last month to answer detractors, clarify the exposure drafts they released to the public in August 2010, and talk about adjustments they are making to the original proposals.

Among the topics continuing to grab plenty of attention is the “right-of-use” asset concept, which, if approved, would require companies to capitalize operating leases they could traditionally keep off their balance sheets, such as those for real estate and equipment. The boards are also modifying their treatment of lease-renewal options, short-term leases, and variable lease payments.

Under the original exposure draft, companies would have been required to include in their lease term (and record on the balance sheet) any renewal period they were likely to exercise. Under the new proposal, lessees would account for a renewal period only if they had “significant economic incentive to exercise” that option.
In a client advisory earlier this year, Ernst & Young said such an economic incentive might include renewal rates priced at a bargain, penalty payments for relocating, or significant installment costs expended. One possible scenario suggested by Bill Bosco, a member of the IASB working group (external subject-matter experts who provide input to the board): a company that invests millions of dollars to renovate a store may be required to account for the renewal period because it would be compelled to recover its costs by extending the lease. This adjustment to the lease term, Bosco says, pushes the standard closer to current generally accepted accounting principles.
The proposed adjustments also remove some of the complexity for companies that hold leases for less than one year; under the draft rules, those short-term leases would still be considered a rent expense and would not be placed on the balance sheet. The new exposure draft also allows companies to keep certain variable lease payments off their balance sheets.
While those moves may placate some of the criticism leveled at the new proposals, one of the most controversial, and central, aspects of the lease-accounting changes has not been modified: abandoning the use of a straight-line average rent expense over a contract’s term in favor of a system requiring companies to front-load their rent expense on the income statement by splitting it into an amortization expense and an interest expense.
This aspect of the standard, Bosco says, does not reflect the reality of most leases. “We’d rather that companies’ lease costs. . .be represented in their financial statements in a way that represents the economic effect of a lease transaction, which we think is a level, monthly lease cost,” he says.
Ultimately, the proposed standard leaves more to interpretation than current rules, says Mindy Berman, managing director at Jones Lang Lasalle, a real-estate services firm. “There are a lot of subjective evaluations and a lot of nuances that will definitely affect companies’ implementation,” she says. Berman believes finance will have to partner more closely with business units to sort through them all.
The IASB and FASB plan to release the revised exposure draft for further public comment at the beginning of 2012, and hope to have a final rule in place by the end of the year.

Source: CFO.com

Tax breaks on business equipment to be scaled back

Two generous tax breaks small-business owners received during the recession are going to shrink dramatically in 2012. That makes year-end tax planning more important than usual.

The changes affect the deductions for purchases of equipment. One is called the Section 179 deduction, named for a provision of the Internal Revenue Code. The other is called bonus depreciation. Congress approved the breaks to make it easier for small businesses to expand and hire workers. Although the economy is still slow, the breaks are being scaled back.

Ed Smith, a tax partner at the accounting and consulting firm BDO in Boston, says he's talking with clients about whether it makes sense to buy equipment before the changes take effect.

"Understand that we're not going to have this deduction in the next couple of years," he said.

The Section 179 deduction allows a small business to deduct upfront rather than depreciate the cost of equipment, such as computers, vehicles, machines in manufacturing, office furniture and sheds.

The deduction for 2011 is $500,000. In 2012, it will drop to $125,000. And in 2013, it's expected to fall to $25,000 — the amount it was back in 2002.

Bonus depreciation allows small businesses to take a deduction for equipment expenses beyond the amount allowed under Section 179. For 2011, the bonus depreciation is 100 percent. The maximum that can be deducted under the two deductions combined is $2 million. In 2012, bonus depreciation drops to 50 percent.

Under normal depreciation rules, the cost of equipment is deducted over a number of years according to a formula set by the IRS. So the Section 179 and bonus depreciation provisions have given small businesses accelerated tax savings.

You can learn more about the deductions in IRS Publication 946, "How to Depreciate Property." It goes into detail about the deductions and the regulations that govern how they can be taken. For example, the Section 179 deduction can't be used for your new heating and air conditioning unit. But that equipment can be depreciated.

It's also a good idea to discuss your plans with an accountant or tax attorney.

Changes in the tax law shouldn't be the biggest reason for buying equipment. Deductions aren't worth it if you're wasting your money on something your business doesn't need. But if you've been debating whether to buy tablet computers for your employees or install manufacturing equipment in 2011 or in 2012, it might make sense to move the purchase into this year. If you can get a better price than you would next year, that's another reason to buy now.

A big caveat: The equipment has to be up and running by Dec. 31. You can't order a new server or drill press this year, have it delivered in January and still take the deduction. You have to be able to use it — which means it needs to be installed — by the end of the year. However, it's OK if you don't pay for the equipment until next year, or if you're going to take several years to pay it off.

Something else to think about is whether you want to take advantage of these deductions now. You're not required to use Section 179 and bonus depreciation. In fact, you need to elect to take a Section 179 deduction when you file IRS Form 4562, "Depreciation and Amortization."

Depending on what your profits look like this year, and what they're likely to be in the coming years, you might prefer to use regular depreciation. So you might want to postpone your purchase until next year.

Smith says the money owners will save on their taxes from Section 179 and bonus depreciation can help them pay for the equipment they've bought. But using these deductions will eliminate any tax savings you would have had from depreciating equipment over time. Smith points out that when equipment is depreciated under regular rules, the tax savings from that can be used to cover principal payments if the equipment was financed. And the interest on financing is deductible.

Again, it's a good idea to consult a tax professional to decide which approach makes the most sense for your business.

Source Modesto Bee www.modbee.com

Medical equipment leasing holds steady

It may come as a surprise in the current economy, but prospects for medical equipment leasing are looking good – and not just compared to other vertical markets.

And those figures aren’t small. The U.S. Bureau of Economic Analysis estimates that businesses invested about $81.6 billion in health care equipment in the year 2010. With approximately 62 percent of all U.S. health care equipment being financed, that brings the health care equipment finance marketplace to an estimated $506 billion in 2010, according to the Bureau, as reported by the Equipment Leasing and Finance Association (ELFA).

According to a 2011 survey by the Independent Equipment Company together with ELFA, medical equipment has been rated – for the sixth year in a row – as the type of equipment finance companies anticipate to have the greatest total dollar amount of new business volume.

Recent statistics bear this out; ELFA has found that member companies financed for medical imaging and electronic devices increased from 4.4 percent in 2009 to 4.5 percent in 2010.

This is not a decades-long trend, according to Global Industry Analysts (GIA). The research firm notes that medical equipment lease financing in the United States had been relatively low until five or six years ago, due to lack of awareness about leasing, reduction in reimbursements, and heavy regulations influencing physician referrals. But recently, note the researchers, health care institutions have come to see leasing medical equipment as an affordable and quick solution that saves working capital, provides options for purchasing the equipment, and facilitates upgrades to new technology.

IT is the “it” product

While medical equipment leasing has been stable, the software arena has experienced tremendous growth, particularly with the added interest in electronic medical records (EMR). “Every year over the past three years, medical leasing in IT has almost doubled,” explains French. “The tax incentive is definitely driving the market. It’s a phenomenon.”

The trend is expected to continue. GIA anticipates that medical IT equipment leasing and rentals will reach $56 billion by 2017. Interestingly, GIA notes that Europe is the single largest regional market for medical equipment rental and leasing worldwide, with the practice being particularly popular in Germany, France, and the United Kingdom. The United States is next in line in market share.

Read entire article: http://www.dotmed.com/news/story/16907

Chairman Ben S. Bernanke

Economic Outlook and Recent Monetary Policy Actions

Before the Joint Economic Committee, U.S. Congress, Washington, D.C.

October 4, 2011

Chairman Casey, Vice Chairman Brady, and other members of the Committee, I appreciate this opportunity to discuss the economic outlook and recent monetary policy actions.
It has been three years since the beginning of the most intense phase of the financial crisis in the late summer and fall of 2008, and more than two years since the economic recovery began in June 2009. There have been some positive developments: The functioning of financial markets and the banking system in the United States has improved significantly. Manufacturing production in the United States has risen nearly 15 percent since its trough, driven substantially by growth in exports; indeed, the U.S. trade deficit has been notably lower recently than it was before the crisis, reflecting in part the improved competitiveness of U.S. goods and services. Business investment in equipment and software has continued to expand, and productivity gains in some industries have been impressive. Nevertheless, it is clear that, overall, the recovery from the crisis has been much less robust than we had hoped. Recent revisions of government economic data show the recession as having been even deeper, and the recovery weaker, than previously estimated; indeed, by the second quarter of this year--the latest quarter for which official estimates are available--aggregate output in the United States still had not returned to the level that it had attained before the crisis. Slow economic growth has in turn led to slow rates of increase in jobs and household incomes.
The pattern of sluggish growth was particularly evident in the first half of this year, with real gross domestic product (GDP) estimated to have increased at an average annual rate of less than 1 percent. Some of this weakness can be attributed to temporary factors. Notably, earlier this year, political unrest in the Middle East and North Africa, strong growth in emerging market economies, and other developments contributed to significant increases in the prices of oil and other commodities, which damped consumer purchasing power and spending; and the disaster in Japan disrupted global supply chains and production, particularly in the automobile industry. With commodity prices having come off their highs and manufacturers' problems with supply chains well along toward resolution, growth in the second half of the year seems likely to be more rapid than in the first half.
However, the incoming data suggest that other, more persistent factors also continue to restrain the pace of recovery. Consequently, the Federal Open Market Committee (FOMC) now expects a somewhat slower pace of economic growth over coming quarters than it did at the time of the June meeting, when Committee participants most recently submitted economic forecasts.
Consumer behavior has both reflected and contributed to the slow pace of recovery. Households have been very cautious in their spending decisions, as declines in house prices and in the values of financial assets have reduced household wealth, and many families continue to struggle with high debt burdens or reduced access to credit. Probably the most significant factor depressing consumer confidence, however, has been the poor performance of the job market. Over the summer, private payrolls rose by only about 100,000 jobs per month on average--half of the rate posted earlier in the year.¹ Meanwhile, state and local governments have continued to shed jobs, as they have been doing for more than two years. With these weak gains in employment, the unemployment rate has held close to 9 percent since early this year. Moreover, recent indicators, including new claims for unemployment insurance and surveys of hiring plans, point to the likelihood of more sluggish job growth in the period ahead.
Other sectors of the economy are also contributing to the slower-than-expected rate of expansion. The housing sector has been a significant driver of recovery from most recessions in the United States since World War II. This time, however, a number of factors--including the overhang of distressed and foreclosed properties, tight credit conditions for builders and potential homebuyers, and the large number of "underwater" mortgages (on which homeowners owe more than their homes are worth)--have left the rate of new home construction at only about one-third of its average level in recent decades.
In the financial sphere, as I noted, banking and financial conditions in the United States have improved significantly since the depths of the crisis. Nonetheless, financial stresses persist. Credit remains tight for many households, small businesses, and residential and commercial builders, in part because weaker balance sheets and income prospects have increased the perceived credit risk of many potential borrowers. We have also recently seen bouts of elevated volatility and risk aversion in financial markets, partly in reaction to fiscal concerns both here and abroad. Domestically, the controversy during the summer regarding the raising of the federal debt ceiling and the downgrade of the U.S. long-term credit rating by one of the major rating agencies contributed to the financial turbulence that occurred around that time. Outside the United States, concerns about sovereign debt in Greece and other euro-zone countries, as well as about the sovereign debt exposures of the European banking system, have been a significant source of stress in global financial markets. European leaders are strongly committed to addressing these issues, but the need to obtain agreement among a large number of countries to put in place necessary backstops and to address the sources of the fiscal problems has slowed the process of finding solutions. It is difficult to judge how much these financial strains have affected U.S. economic activity thus far, but there seems little doubt that they have hurt household and business confidence, and that they pose ongoing risks to growth.
Another factor likely to weigh on the U.S. recovery is the increasing drag being exerted by the government sector. Notably, state and local governments continue to tighten their belts by cutting spending and employment in the face of ongoing budgetary pressures, while the future course of federal fiscal policies remains quite uncertain.
To be sure, fiscal policymakers face a complex situation. I would submit that, in setting tax and spending policies for now and the future, policymakers should consider at least four key objectives. One crucial objective is to achieve long-run fiscal sustainability. The federal budget is clearly not on a sustainable path at present. The Joint Select Committee on Deficit Reduction, formed as part of the Budget Control Act, is charged with achieving $1.5 trillion in additional deficit reduction over the next 10 years on top of the spending caps enacted this summer. Accomplishing that goal would be a substantial step; however, more will be needed to achieve fiscal sustainability.
A second important objective is to avoid fiscal actions that could impede the ongoing economic recovery. These first two objectives are certainly not incompatible, as putting in place a credible plan for reducing future deficits over the longer term does not preclude attending to the implications of fiscal choices for the recovery in the near term. Third, fiscal policy should aim to promote long-term growth and economic opportunity. As a nation, we need to think carefully about how federal spending priorities and the design of the tax code affect the productivity and vitality of our economy in the longer term. Fourth, there is evident need to improve the process for making long-term budget decisions, to create greater predictability and clarity, while avoiding disruptions to the financial markets and the economy. In sum, the nation faces difficult and fundamental fiscal choices, which cannot be safely or responsibly postponed.
Returning to the discussion of the economic outlook, let me turn now to the prospects for inflation. Prices of many commodities, notably oil, increased sharply earlier this year, as I noted, leading to higher retail gasoline and food prices. In addition, producers of other goods and services were able to pass through some of their higher input costs to their customers. Separately, the global supply disruptions associated with the disaster in Japan put upward pressure on prices of motor vehicles. As a result of these influences, inflation picked up during the first half of this year; over that period, the price index for personal consumption expenditures rose at an annual rate of about 3-1/2 percent, compared with an average of less than 1-1/2 percent over the preceding two years.
As the FOMC anticipated, however, inflation has begun to moderate as these transitory influences wane. In particular, the prices of oil and many other commodities have either leveled off or have come down from their highs, and the step-up in automobile production has started to reduce pressures on the prices of cars and light trucks. Importantly, the higher rate of inflation experienced so far this year does not appear to have become ingrained in the economy. Longer-term inflation expectations have remained stable according to surveys of households and economic forecasters, and the five-year-forward measure of inflation compensation derived from yields on nominal and inflation-protected Treasury securities suggests that inflation expectations among investors may have moved lower recently. In addition to the stability of longer-term inflation expectations, the substantial amount of resource slack in U.S. labor and product markets should continue to restrain inflationary pressures.
In view of the deterioration in the economic outlook over the summer and the subdued inflation picture over the medium run, the FOMC has taken several steps recently to provide additional policy accommodation. At the August meeting, the Committee provided greater clarity about its outlook for the level of short-term interest rates by noting that economic conditions were likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013. And at our meeting in September, the Committee announced that it intends to increase the average maturity of the securities in the Federal Reserve's portfolio. Specifically, it intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less, leaving the size of our balance sheet approximately unchanged. This maturity extension program should put downward pressure on longer-term interest rates and help make broader financial conditions more supportive of economic growth than they would otherwise have been.
The Committee also announced in September that it will begin reinvesting principal payments on its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities rather than in longer-term Treasury securities. By helping to support mortgage markets, this action too should contribute to a stronger economic recovery. The Committee will continue to closely monitor economic developments and is prepared to take further action as appropriate to promote a stronger economic recovery in a context of price stability.
Monetary policy can be a powerful tool, but it is not a panacea for the problems currently faced by the U.S. economy. Fostering healthy growth and job creation is a shared responsibility of all economic policymakers, in close cooperation with the private sector. Fiscal policy is of critical importance, as I have noted today, but a wide range of other policies--pertaining to labor markets, housing, trade, taxation, and regulation, for example--also have important roles to play. For our part, we at the Federal Reserve will continue to work to help create an environment that provides the greatest possible economic opportunity for all Americans.

Time for Stimulus

Peter Diamond, who won the 2010 Nobel prize in economics but ultimately abandoned a bid to serve on the Federal Reserve, talks with WSJ's Kelly Evans about why he supports "Operation Twist," and why more fiscal stimulus is need to fix the U.S. jobs problem.


http://http://online.wsj.com/video/diamond-we-need-stimulus-now/B5170210-C45C-486A-85F3-D3F7BCF527EE.html

Survey: US Capital-Equipment Financing Strengthened In August

Equipment Leasing and Finance Association survey shows rising loan and leasing activity for capital equipment

--Choppy month-to-month activity attributed to concerns about U.S. economy

--Delinquent loans and leases down from a year ago

  

Financing volume for business equipment grew 33% in August from a year earlier, easing concerns, at least temporarily, that spending on capital equipment is weakening.

Respondents to the Equipment Leasing and Finance Association's monthly survey said they financed $5.7 billion of new equipment last month, compared with $4.3 billion in the year-earlier period. August's volume was flat with July. From January through August, survey respondents provided financing for $43.9 billion of equipment purchases, up 25% from the same period in 2010.

The recovery in the $521-billion-a-year commercial leasing and financing industry from its 2009 doldrums appeared to regain some momentum last month after activity plunged in July following a spike in June. The finance association attributed the recent choppiness to increasing uncertainty about the performance of the U.S. economy.

"It is clear from less-quantitative reporting that equipment-finance executives still believe the storm clouds hovering over our economy have not yet dissipated," said William Sutton, president of the Washington-based association. "Current and future business performance will continue to ebb and flow."

Nevertheless, credit-quality metrics measured in the survey showed across-the-board improvement last month. Credit standards eased in August as the approval rate for loans and leases rose to 77.6% in August from 76.3% in July. Of the companies participating in the survey, more than 60% reported that they submitted more transactions for approval during August, up from 59% in July.

Loans and leases past due by more than 30 days amounted to 2.5% of survey respondents' net receivables in August, down from 4.3% a year earlier and down from 2.7% in July. Loan charge-offs amounted to 0.6% of respondents' net receivables last month, down from 1.3% in August 2010 and down from 0.7% in July.

Survey respondents continued to cite construction, trucking and printing as the industry sectors within their loan portfolios that are underperforming.

The 25 respondents to the Washington association's survey included banks Wells Fargo & Co. (WFC), Bank of America Corp. (BAC) and Fifth Third Bancorp (FITB); independent financing companies including CIT Group Inc. (CIT); and finance units for manufacturers Caterpillar Inc. (CAT), Deere & Co. (DE), Volvo Group, and Dell Inc. (DELL)