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      Executive Summary of the Leases Project

      February 2019

      The FASB version of the Leases project is expected to be issued within the next 2 weeks. The following is a brief summary of the proposed changes and transition plan for Lessee Accounting:
      1. Timeline & Transition
      2. Lease Classifications
      3. Lease Term & Billed Leases
      4. Variable Rents
      5. Estimated Payments & Short Term Leases
      6. Sale Leaseback Purchase Options

      1. Timeline and Transition

      • IASB issued their version 1/13/16
      • FASB version to be issued by the months end, Feb 2016
      • Transition year for public companies is 2019 with comparative statements required – BS 2018 and 2019, P&L 2017, 2018, 2019
      • Transition year for private companies is 2020
      • Transition – FASB – book all operating lease going forward with reliefs available like not having to apply new definitions/changes to existing leases. IASB more complex.

      2. Lease Classifications

      • Capitalize all leases @ the PV of lease payments
      • FASB – maintain 2 lease model for Operating Leases and Finance Leases. Classification tests virtually the same as current GAAP with 90% and 75% bright lines still used to aid in judgement. The lease liability is a non-debt operating liability. The P&L cost is the straight line rent expense
      • IASB – all leases are Finance Leases

      The lease liability is a non-debt operating liability. The P&L cost is the straight line rent expense.

      3. Lease Term and Billed Leases

      • Lease term = substantially the same as current GAAP definition, include renewals/POs only if reasonably certain of exercise.
      • Gross/bundled billed leases – both lessees and lessor separate lease and non-lease components – non-lease components accounted for on cash basis.

      4. Variable Rents

      • Variable rents based on a rate (i.e., Libor) or an index (i.e., CPI) are booked based on spot rates with adjustments booked when the rate changes contractual lease payments (FASB requires adjustments only when the lease is modified or other lessee actions cause the lease to be rebooked like incurring significant leasehold improvement costs making a renewal compelling).
      • Variable rents based on usage or lessee performance (e.g., sales) not booked unless a tool to avoid capitalization (disguised minimum lease payment).

      FASB requires adjustments only when the lease is modified or other lessee actions cause the lease to be rebooked.

      5. Estimated Payments and Short Term Leases

      • Estimated payments under residual guarantees are booked with review and adjustment at each reporting date.
      • Short-term leases (12 months or less) – can elect to use operating lease method. For IASB only there is a small item exemption ($5,000 cost or less)
      • IDC includes only costs directly attributable to negotiating and arranging a lease that would not have been incurred if the lease had not been obtained. Excludes overhead allocations but can include sales staff commissions.

      6. Sale Leaseback Purchase Options

      • Sale leaseback with a PO not a sale unless PO is at FMV and asset is not specialized. For fixed POs, the transaction is accounted for as a loan for both lessee and lessor.

      Article reprinted with permission from Bill Bosco

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        Greg J Paulk
        President, New-Com, Inc.
      • “The equipment was customized to meet our client’s expectations in regards to absolute minimum tolerances required in the manufacturing of impellers, turbines, rotors and other components of high performance rotating equipment for the aerospace industry. Many lenders could not get comfortable with this type of modified equipment but CG Commercial spent the time to understand it along with our business history and our high profile clients. CG Commercial successfully funded our transaction with a very competitive rate after solving some existing lien problems we had with past lenders.

        Based upon CG Commercial’s expertise and execution of this transaction we have engaged them again to provide financing for our upcoming capex needs. We value our partnership with CG Commercial.”

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        Dave Z
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      • “I have been with CEMEX for the past four years and have initiated over 100 lease transactions on behalf of CEMEX, Inc. and its subsidiaries. There have always been challenges in closing transactions especially when initiating a new relationship.

        I would like to commend you for the ease and speed with which you set up the relationship and your teams’s no-nonsense approach taken within your funding process. I appreciate having a trusted partner who can provide the capacity and competitive rates that we demand over many years to come.”

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        Charmaine S
        Leasing Manager, CEMEX Corporation
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        CG successfully worked with us in understanding our reviewed financials. In our experience, many lenders and banks shy away from a transaction unless they are financing a company with audited financials. We are exited about continuing our relationship and look forward to working with CG on our future needs as a preferred lease provider.”

         

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        John Z
        Controller, Flanagan Brothers, Inc.
      • “I am writing this letter to thank you for your work on the equipment finance transaction your team put together for my company. You spent the time assessing our needs and proposed a competitive financing solution for our recycling processing equipment, which resulted in an additional revenue stream for us.


        Consultants Group provided a timely credit approval after understanding that the equipment was not new, and promptly turned around closing documentation, which resulted in funding that met our operational goals, including:

        • Being able to move rapidly through the funding process
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        • Taking the time to understand the assets and achieving an advance amount of 100% of the invoice amount for used assets

        I look forward to a long and rewarding partnership.”

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        Russell B
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      • “I wanted to take a moment to thank CG Commercial for your work with our organization over the past year. It is nice to be able to have a trusted and professional finance team to turn to when the hospital has a project. CG provides an annual lease line of credit for our organization that has been both cost effective and efficient. In fact, you have insured our various vendors have been paid in a timely manner and provided an easy flow of paperwork.

        I am excited about continuing our relationship and look forward to working with you on projects in the future. I would also not hesitate to recommend CG Commercial Finance to anybody who was looking for equipment financing.”

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        Bill Y
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        CG successfully worked with us in understanding our U.S. entity’s unaudited financials. In our experience, many lenders and banks shy away from a transaction unless they are financing a company with audited financials.

        We are excited about continuing our relationship and look forward to working with CG on our future needs as a preferred Bendix lease provider.””

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        Brian G
        Indirect Purchasing Manager, Bendix Commercial Vehicle Systems, LLC
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        I would recommend other companies in need of assistance with financing to reach Jon and CG Commercial.”

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