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Read Page 148 in the link I gave.

"Accounting Policy
Finance receivables consist of receivables in relation to sales-type leases. We perform ongoing credit evaluations of our customers’ financial condition. We periodically review whether an allowance for credit losses is needed by considering factors such as historical payment experience, credit quality, the aging of the finance receivables balances, expected lifetime losses, and current economic conditions that may affect a customer’s ability to pay."


Bold is mine, again.

I think that is the clearest explanation; you might to re-parse the definition for sales-type leases (already above, from p. 143), too, if you think there's something amiss or misleading.

Seems to me they are trying to differentiate, honestly, between the backlog, the deferred revenue, and the contracted lease-to-own sales, while also measuring the credit risk on those deals for sizing the credit-risk allowances for bad debt?
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https://www.sec.gov/ix?doc=/Archives/edgar/data/937966/00009...

Net cash provided by (used in) operating activities
The net cash provided by operating activities in 2019 increased by €203.7 million compared to 2018 primarily due to the introduction of down payments from our customers for EUV and prepayments from our customers, partially offset by growth in our working capital. This growth is seen in the combined increase in Accounts receivable and Finance receivables of €350.3 million due to an increase in sales for EUV, skewed towards the end of the year, an increase in Inventories of €404.7 million in line with the ongoing ramp of EUV, an increase in Other assets of €199.1 million mainly a result of supporting the growth of our business through advanced payments to Carl Zeiss SMT GmbH, and an increase in Current tax assets and liabilities of €202.6 million driven by an increase in prepaid tax positions. Cash provided from operating activities includes the sale of Accounts receivable through a factoring arrangement totaling €1.3 billion.


(On Page 71 of the 20-F filing from February.)

Accounting policy - Revenue from lessor agreements
We classify a lease as a sales-type when the lease meets any of the following criteria at lease commencement:
• The lease transfers ownership of the underlying asset to the lessee by the end of the lease term;
• The lease grants the lessee an option to purchase the underlying asset, that the lessee is reasonably certain to exercise;
• The lease term is for the major part of the remaining economic life of the underlying asset. However, if the commencement date falls at or near the end of the economic life of the underlying asset, this criterion shall not be used for purposes of classifying the lease;
• The present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all of the fair value of the underlying asset; or
• The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.
Leases where substantially all the risks and rewards incidental to ownership of an asset are transferred to the lessee are classified as sales-type lease arrangements. If we have offered the customer a sales-type lease arrangement, revenue is recognized at commencement of the lease term. The difference between the gross finance receivable and the present value of the minimum lease payments is initially recognized as unearned interest and presented as a deduction to the gross finance receivable. Interest income is recognized in the Consolidated Statements of Operations over the term of the lease contract using the effective interest method.
Leases whereby all the risks and rewards incidental to ownership are not transferred to the lessee are classified as operating lease arrangements. If we have offered the customer an operating lease arrangement, the system is included in property, plant and equipment upon commencement of the lease. Revenue from operating lease arrangements is recognized in the Consolidated Statements of Operations on a straight-line basis over the term of the lease contract.


(On page 143, bold is mine.)
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Thank you Robert!

My understanding from the excerpts you posted is that Finance receivables are similar to AR but are classified differently because of how ASML is structuring the new down payment system they have introduced for EUV system sales. For example, if a customer is buying a new €150M EUV system and puts down a €50M down payment, the remaining €100M due to complete the purchase of this system is called a 'Finance receivable.' This is compared to a purchase under a non-down-payment system where a customer commits to buying a system but does not have to put up a down payment. In the latter case, the value of the committed but unpaid value of the system is classified as 'Accounts receivables.' Is this correct?
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No. of Recommendations: 1
Read Page 148 in the link I gave.

"Accounting Policy
Finance receivables consist of receivables in relation to sales-type leases. We perform ongoing credit evaluations of our customers’ financial condition. We periodically review whether an allowance for credit losses is needed by considering factors such as historical payment experience, credit quality, the aging of the finance receivables balances, expected lifetime losses, and current economic conditions that may affect a customer’s ability to pay."


Bold is mine, again.

I think that is the clearest explanation; you might to re-parse the definition for sales-type leases (already above, from p. 143), too, if you think there's something amiss or misleading.

Seems to me they are trying to differentiate, honestly, between the backlog, the deferred revenue, and the contracted lease-to-own sales, while also measuring the credit risk on those deals for sizing the credit-risk allowances for bad debt?
Print the post Back To Top