GE Capital Global Holdings LLC NT
GE Capital Global Holdings LLC NT — GE Capital — Technical Presentation (June 2013)
25 slides from GE Capital Global Holdings LLC NT's technical presentation, Jun 19, 2013
Slide 1: FASB-IASB Lease Project Update
FASB-IASB Lease Project Update Interpreting latest revised proposal as conclusion nears Wednesday, June 19th at 2PM EDT Dial-in Info: 1-855-235-8283 Conference ID 76111778 Thanks for joining us! The webinar will begin shortly Intended use for participants at event
Slide 2: Today's Speakers
FASB-IASB Lease Project Update Interpreting latest revised proposal as conclusion nears Wednesday, June 19th at 2PM EDT Today’s Speakers: Jeannine Flower Co-Chair GE Capital Lease Project GE Capital Ralph Petta Chief Operating Officer ELFA Intended use for participants at event
Slide 3: Disclaimer
Disclaimer • The views expressed in this presentation are our own and do not represent the positions of the General Electric Company or its Affiliates and Subsidiaries or ELFA. • This summary material is based on publicly available information. Such information is subject to change without notice, m
Slide 4: Agenda
Agenda • Leasing: revised proposals • ELFA perspectives • Buzz on the streets 4 Intended use for participants on Webinar GE Capital Webinar Insight Series June 19, 2013
Slide 5: What aspect of leasing is set to change?
What aspect of leasing is set to change? Proposals change US GAAP/IFRS accounting rules only Bankruptcy law remains unchanged, risks and rewards of ownership model under Art. 2A UCC True lease vs Art. 9 UCC Tax Legal -Lease or Sale secured loan -UCC Article 2A -True lease or Debt -Revenue Rulings
Slide 6: Project timeline
Project timeline • Projected started in 2006 • Issues included significant off balance sheet liabilities/structuring and perceived insufficient financial information for users • FASB-IASB convergence effort; nearly identical set of accounting rules to replace SFAS 13/IAS 17 • Comment period deadline
Slide 7: Transition
Transition • Apply requirements to all leases in force • Adjust equity at the beginning of the earliest comparative period presented • Modified retrospective approach could be used as an alternative to a full retrospective approach • For FASB ASC 840 capital/IAS 17 finance leases, the lessee would b
Slide 8: Leasing: revised proposals
Leasing: revised proposals 8 Intended use for participants on Webinar GE Capital Webinar Insight Series June 19, 2013
Slide 9: FASB-IASB Lease project headlines
FASB-IASB Lease project headlines • Short-term leases with maximum term of 12 months or less permitted to remain off-balance sheet with straight-line expense over lease term • All other leases recognized on balance sheet • Definition of a lease is modified; an important change in scoping • New lease
Slide 10: Lessee accounting model evolution
Lessee accounting model evolution Today As proposed “Risk & Rewards” Models “Right of Use” Model Operating Capital lease rental lease (*) Balance Sheet: Asset Liability Asset Liability leased property Obligation under Right of use asset Obligation to make under capital lease capital lease (“ROU”) le
Slide 11: Does arrangement contain a lease?
Does arrangement contain a lease? Definition has not changed; meaning of “control” has changed Identified asset + Right to control the use • Can be explicit or implicit • Direct the use, ability to make decisions that significantly affect • Right of substitution must be the benefits received practic
Slide 12: Does the lease include multiple elements?
Does the lease include multiple elements? • Lease and non-lease (services, supplies, etc.) components required to be bifurcated - Lessors would allocate payments in accordance with revenue recognition standard (separate criteria). - Lessees would allocate consideration based on observable standalone
Slide 13: Lease classification
Lease classification • Lease classification impact on lessee and lessor accounting models: Type A Type B Lessee expense Interest expense (liability) Straight-line lease expense, consisting of: profile: - Plus - - Interest expense on liability Amortization expense (ROU asset) - Amortization expense,
Slide 14: Lease classification: Lessee profile
Lease classification: Lessee profile Lessee Balance Sheet Profile Lessee Expense Profile Type A vs Type B Equipment / Type A Total Expense Profile ROU Asset Lease Liability Day 1 End Yr1 End Yr2 End Yr3 End Yr4 End Yr5 Type A - Equipment Type B - Property OR Property / Type B ROU Asset Lease Liabili
Slide 15: Measurement: Lease Term and Lease Payments
Measurement Lease Term Lease Payments Non-cancellable period Fixed payments less lease incentives Options that have a significant Purchase or termination options, if economic incentive(*) to exercise included in the lease term - Renewal options Lease term Variable payments that are in-subs
Slide 16: Leases – other considerations
Leases – other considerations • Sale and leaseback transactions – Sale and leaseback vs financing – Consider proposed revenue recognition guidance – Substantially all of the remaining benefits • Sublease arrangements – Two lease transactions – Gross up presentation as lessee and lessor with differen
Slide 17: Recap: What lessee needs to consider for capitalization
Recap: What lessee needs to consider for capitalization 1 power & benefits Does arrangement contain a lease? criterion (identified asset + right to control use) 2 If bundled contract, can non-lease component be bifurcated based on observable “standalone price”? 3 Drives P&L Determine lease classific
Slide 18: ELFA Perspective
ELFA Perspective 18 Intended use for participants on Webinar GE Capital Webinar Insight Series June 19, 2013
Slide 19: ELFA's Objectives
ELFA Perspective ELFA’s Objectives • Serve the interests of members/industry • Maintain “high ground” positions: support capitalization • Help get the accounting “right” by working with the Boards and staff - Provide industry information - Provide commentary on issues identified 19 Intended use for
Slide 20: ELFA Perspective: Overview Concerns
ELFA Perspective Overview Concerns • Right-of-use approach no improvement over current US GAAP: will not result in more decision-useful information • Minor changes to current GAAP would have met the objective of capitalizing operating leases for analysts • Unnecessary complexity • Obscure true econo
Slide 21: ELFA Perspective: Specific Concerns
ELFA Perspective Specific Concerns: Outstanding Issues • Two lease classification --front-end loaded lease costs for equipment transactions --straight line for real estate leases • Classification based on subjective criteria: how much of the leased item is consumed over the lease term • Lessee accou
Slide 22: ELFA is actively engaged in the project
ELFA Perspective ELFA is actively engaged in the project • Monitoring progress • Identifying and analyzing advocacy issues • Influencing the outcome through - Meeting and Communicating with the Boards and staff - Coalitions with international leasing trade associations, real estate industry, and US
Slide 23: Buzz on the Street
Buzz on the Street 23 Intended use for participants on Webinar GE Capital Webinar Insight Series June 19, 2013
Slide 24: Buzz on the Street
Buzz on the Street Economic benefits of equipment leasing/financing remain… • cash flow match use benefit • tax benefits • risk management • flexibility • 100% financing But, INPUT is Critical !!!!! And, it Matters… • Comment deadline: September 13, 2013 • Resources and comment letter guidance : htt
Slide 25: Questions?
Questions? Jeannine Flower Ralph Petta Co-Chair GE Capital Lease Project Chief Operating Officer GE Capital ELFA Intended use for participants at event