Penumbra (PEN), a medical device maker, is understating its future lease liabilities— and total liabilities— offering investors an incomplete picture of its future financial obligations. In its latest 10-K, Penumbra says it has more than $200.4 million in future undiscounted operating lease liabilities. This understates Penumbra’s true liability since the company doesn’t count leases not yet commenced. The additional liabilities— which are buried in the footnotes— significantly understate the company’s future liabilities:

“The table above excludes the estimated future minimum lease payment for the 620 Roseville Parkway Lease due to uncertainty around when the 620 Roseville Parkway Lease will commence and payments will be due. The total estimated lease payments over the thirteen year lease term is approximately $20.6 million.”

On an undiscounted basis the not yet commenced leases are 10.2% of the company’s total future lease obligations and 7% of the company’s total liabilities.

Under an accounting loophole, companies can omit from the balance sheet leases that haven’t started as well as corporate offices under construction or build-to-suit arrangements. It’s seemingly inconsistent with FASB’s guidance on the topic which states if a lease is legally binding— as Penumbra acknowledges— Topic 842 (ASU 2016-02) makes clear it must be accounted for on the balance sheet:

“A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability)...”

Penumbra isn’t the only company using the loophole to make its balance sheet look stronger. We recently documented billions of dollars in future operating lease liabilities being excluded from corporate balance sheets.

Last year, we revealed how Penumbra understates its future lease liabilities by inflating its operating lease discount rate. Penumbra used a 6.16% discount rate whereas the company’s medical device peers use an average discount rate of 2.7%.

In its latest annual report, Penumbra disclosed it now uses a 4.92% discount rate, more than 20% below last year’s rate.