Notes to the Consolidated Financial Statements
(Dollars in millions, except per-share data and unless otherwise indicated)
Note 4 – Receivables, Net
Finance Receivables: Finance receivables result from installment arrangements and sales-type leases arising from the marketing of our equipment. These receivables are typically collateralized by a security interest in the underlying assets. Finance receivables, net at December 31, 2007 and 2006 were as follows (in millions):
| 2007 | 2006 | |||||||
|
Gross receivables |
$ | 9,643 | $ | 9,389 | ||||
|
Unearned income |
(1,461 | ) | (1,437 | ) | ||||
|
Unguaranteed residual values |
69 | 90 | ||||||
|
Allowance for doubtful accounts |
(203 | ) | (198 | ) | ||||
|
Finance receivables, net |
8,048 | 7,844 | ||||||
|
Less: Billed portion of finance receivables, net |
(304 | ) | (273 | ) | ||||
|
Current portion of finance receivables not billed, net |
(2,693 | ) | (2,649 | ) | ||||
|
Amounts due after one year, net |
$ | 5,051 | $ | 4,922 | ||||
Contractual maturities of our gross finance receivables as of December 31, 2007 were as follows (including those already billed of $304 (in millions):
| 2008 | 2009 | 2010 | 2011 | 2012 | Thereafter | Total | ||||||
| $3,652 | $2,665 | $1,863 | $1,054 | $371 | $38 | $9,643 |
Secured Funding Arrangements
GE Secured Borrowings: We have an agreement in the U.S. (the “Loan Agreement”) under which General Electric Capital Corporation, a subsidiary of GE, provides secured funding for our customer leasing activities in the U.S. The maximum potential level of borrowing under this agreement is a function of the size of the portfolio of finance receivables generated by us that meet GE’s funding requirements and cannot exceed $5 billion.
Under this agreement, new lease originations funded by GE, were transferred to a wholly-owned consolidated subsidiary. The funds received under this agreement are recorded as secured borrowings and together with the associated lease receivables are included in our Consolidated Balance Sheet. We and GE intended for the transfers of the lease contracts to be “true sales at law” and that the wholly-owned consolidated subsidiary be bankruptcy remote and have received opinions to that effect from outside legal counsel. As a result, the transferred receivables are not available to satisfy any of our other obligations. The final funding date for the U.S. facility is December 2010. There have been no new borrowings under the Loan Agreement since December 2005.
We also had similar secured funding arrangements with GE in the U.K. and Canada. In July 2007 and December 2007, we repaid the outstanding loans under those arrangements of £293 million (U.S. $593) and Cdn. $41 million (U.S. $41) in the U.K. and Canada, respectively.
France Secured Borrowings: In October 2007, our secured warehouse financing facility in France matured and we repaid the outstanding borrowings of €331 million (U.S. $469) under this program with proceeds from an unsecured bank bridge loan due March 31, 2008.
DLL Secured Borrowings: In July 2007, we purchased De Lage Landen’s (“DLL”) 51% ownership interest in our lease financing joint venture in the Netherlands for $25 including accumulated dividends of $9. In connection with the purchase, the secured borrowings to DLL of $153 were repaid and the related finance receivables are no longer encumbered. To fund the purchase and repayment we borrowed $161 of unsecured bank debt due July 1, 2008.
The following table shows finance receivables and related secured debt as of December 31, 2007 and 2006. Although the finance receivables are consolidated assets they are generally not available to satisfy our other obligations:
| December 31, 2007 | December 31, 2006 | |||||||||||
| (in millions) |
Finance
Receivables, Net |
Secured
Debt |
Finance
Receivables, Net |
Secured
Debt |
||||||||
|
GE – U.S. |
$ | 377 | $ | 275 | $ | 941 | $ | 782 | ||||
|
GE – U.K. |
– | – | 669 | 609 | ||||||||
|
GE – Canada |
– | – | 115 | 88 | ||||||||
|
Merrill Lynch – France |
– | – | 501 | 419 | ||||||||
|
DLL – Netherlands |
– | – | 197 | 161 | ||||||||
|
Total encumbered finance receivables, net |
$ | 377 | $ | 275 | $ | 2,423 | $ | 2,059 | ||||
|
Unencumbered finance receivables, net |
7,671 | 5,421 | ||||||||||
|
Total finance receivables, net (1) |
$ | 8,048 | $ | 7,844 | ||||||||
| (1) Includes (i) billed portion of finance receivables, net, (ii) finance receivables, net and (iii) finance receivables due after one year, net as included in the Consolidated Balance Sheets as of December 31, 2007 and 2006. |
Accounts Receivable Sales Arrangement: We have a facility in Europe that enables us to sell, on an on-going basis, certain accounts receivables without recourse to a third-party. During 2007 and 2006, we sold approximately $326 and $23, respectively, of accounts receivables under this facility. Fees associated with the 2007 sales were $2. Of the amounts sold, $170 remained uncollected by the third-party as of December 31, 2007.
