NAV » Topics » Off-Balance Sheet Arrangements

This excerpt taken from the NAV 10-K filed Dec 30, 2008.

Off-Balance Sheet Arrangements

We enter into various arrangements not recognized in our consolidated balance sheets that have or could have an effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources. The principal off-balance sheet arrangements that we enter into are guarantees and sales of receivables. The following discussions address each of these items for the Company:

This excerpt taken from the NAV 10-K filed May 29, 2008.

Off-Balance Sheet Arrangements

We enter into various arrangements not recognized in our consolidated balance sheets that have or could have an effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources. The principal off-balance sheet arrangements that we enter into are guarantees and sales of receivables. The following discussions address each of these items for the company:

This excerpt taken from the NAV 8-K filed Mar 6, 2008.
Off-Balance Sheet Arrangements
 
We enter into various arrangements not recognized in our consolidated balance sheets that have or could have an effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources. The principal off-balance sheet arrangements that we enter into are guarantees, sales of receivables, derivative instruments, and variable interest entities.
 
In accordance with the definition under SEC rules, the following may qualify as off-balance sheet arrangements:
 
  •  any obligation under certain guarantees or contracts
 
  •  a retained or contingent interest in assets transferred to a non-consolidated entity or similar entity or similar arrangement that serves as credit, liquidity, or market risk support to that entity for such assets (sale of receivables)
 
  •  any obligation under certain derivative instruments
 
  •  any obligation under a material variable interest held by the registrant in a non-consolidated entity that provides financing, liquidity, market risk, or credit risk support to the registrant, or engages in leasing, hedging, or research and development services with registrant.
 
The following discussions address each of the above items for the company:
 
Guarantees
 
We have provided guarantees to third parties that could obligate us to make future payments if the responsible party fails to perform under its contractual obligations. We have recognized liabilities in the consolidated balance sheets for guarantees that meet the recognition and measurement provisions of FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of the Indebtedness of Others.
 
We have issued residual value guarantees in connection with various leases. The estimated amount of the guarantees is recorded as a liability as of October 31, 2006. Our guarantees are contingent upon the fair value of the leased assets at the end of the lease term. The excess of the guaranteed lease residual value over the fair value of the residual represents the amount of our exposure.
 
At October 31, 2006, one of our foreign subsidiaries is contingently liable for the residual values of $20 million of retail customers’ contracts and $37 million of retail leases that are financed by a third party. These amounts approximate the estimated future resale market value of the collateral underlying those contracts and leases. As of October 31, 2006, we have recorded accruals totaling $5 million and $13 million for potential losses on the retail customers’ contracts and retail leases, respectively.
 
In addition, we enter into various guarantees for purchase commitments, credit guarantees, and contract cancellation fees with various expiration dates. In the ordinary course of business, we also provide routine indemnifications and other guarantees whose terms range in duration and often are not explicitly defined, which we do not believe will have a material impact on our results of operations, financial condition, or cash flows.


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Sales of Receivables
 
We securitize and sell retail notes and finance leases. We transfer these notes and finance leases to a trust or a conduit, which then issues asset-backed securities to investors. In addition, securitizations include sales of wholesale notes receivables, retail accounts receivables, and finance and operating lease receivables.
 
Some of our retail notes and finance lease securitization arrangements do not qualify for sales accounting treatment under FASB Statement No. 140. As a result, the receivables and associated borrowings are included on the consolidated balance sheet and no gain or loss is recognized for these transactions. The total amount of receivables that collateralize these borrowings was $3.8 billion and $3.2 billion at October 31, 2006 and 2005, respectively. At this time, none of our retail note and finance lease securitizations qualify for sale accounting under FASB Statement No. 140.
 
We also sold wholesale note receivables, which qualify for sale treatment under FASB Statement No. 140 and, therefore, the receivables and associated liabilities are removed from the consolidated balance sheet and the gains and losses are recorded in our revenues. In total, proceeds from the sale of finance receivables amounted to $8.2 billion, $8.7 billion, and $6.7 billion in 2006, 2005, and 2004, respectively.
 
Variable Interest Entities
 
In the normal course of business, we have interactions with certain VIEs in which we have a significant interest, but for which we are not the primary beneficiary. These VIEs are similar in purpose, nature, and date of involvement. The nature of our involvement with these entities is to engage in supply agreements and to provide product development support. Our initial involvement with these VIEs dates prior to April 1999. The maximum loss exposure relating to these non-consolidated VIEs is not material to our financial position, results of operations, or cash flows.


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Off-Balance Sheet Arrangements
 
We enter into various arrangements not recognized in our consolidated balance sheets that have or could have an effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources. The principal off-balance sheet arrangements that we enter into are guarantees, sales of receivables, derivative instruments, and variable interest entities.
 
In accordance with the definition under SEC rules, the following may qualify as off-balance sheet arrangements:
 
  •  any obligation under certain guarantees or contracts
 
  •  a retained or contingent interest in assets transferred to a non-consolidated entity or similar entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets (sale of receivables)
 
  •  any obligations under certain derivative instruments
 
  •  any obligation under a material variable interest held by the registrant in a non-consolidated entity that provides financing, liquidity, market risk or credit risk support to the registrant, or engages in leasing, hedging or research and development services with registrant.
 
The following discussions address each of the above items for the company.
 
Guarantees
 
We have provided guarantees to third parties that could obligate us to make future payments if the responsible party fails to perform under its contractual obligations. We have recognized liabilities in the consolidated balance sheets for guarantees that meet the recognition and measurement provisions of FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of the Indebtedness of Others.
 
We have issued residual value guarantees in connection with various leases. The estimated amount of the guarantees is recorded as a liability as of October 31, 2005. Our guarantees are contingent upon the fair value of the leased assets at the end of the lease term. The excess of the guaranteed lease residual value over the fair value of the residual represents the amount of our exposure.
 
At October 31, 2005, one of our foreign subsidiaries is contingently liable for the residual values of $20 million of retail customers’ contracts and $26 million of retail leases that are financed by a third party. These amounts approximate the estimated future resale market value of the collateral underlying those contracts and leases. As of October 31, 2005, we have recorded accruals totaling $6 million and $11 million for potential losses on the retail customers’ contracts and retail leases, respectively.
 
In addition, we enter into various guarantees for purchase commitments, credit guarantees and contract cancellation fees with various expiration dates. In the ordinary course of business, we also provide routine indemnifications and other guarantees whose terms range in duration and often are not explicitly defined, which we do not believe will have a material impact on our results of operations, financial condition or cash flows.
 
Sales of Receivables
 
We securitize and sell retail notes and finance leases. We transfer these notes and finance leases to a trust, which then issues asset-backed securities to investors. In addition, securitizations include sales of wholesale notes receivables, retail accounts receivables, and finance and operating lease receivables.


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Some of our retail notes and finance lease securitization arrangements do not qualify for sales accounting treatment under FASB Statement No. 140. As a result, the receivables and associated borrowings are included on the balance sheet and no gain or loss is recognized for these transactions. The amount of receivables that collateralize these borrowings were $3.2 billion and $2.9 billion at October 31, 2005 and 2004, respectively.
 
We also sold wholesale note receivables, which qualify for sale treatment under FASB Statement No. 140 and, therefore, the receivables and associated liabilities are removed from the balance sheet and the gains and losses are recorded in our revenues. The sales of these off-balance sheet receivables were $1.4 billion and $1.1 billion in 2005 and 2004, respectively. In total, proceeds from the sale of finance receivables amounted to $8.7 billion, $6.7 billion, and $5.2 billion in 2005, 2004, and 2003, respectively.
 
Variable Interest Entities
 
In the normal course of business we have interactions with certain VIEs in which we have a significant interest, but for which we are not the primary beneficiary. These VIEs are similar in purpose, nature and date of involvement. The nature of our involvement with these entities is to engage in supply agreements and to provide product development support. Our initial involvement with these VIEs dates prior to April 1999. The maximum loss exposure relating to these non-consolidated VIEs is not material to our financial position, results of operations, or cash flows.


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