Interview with Ingemar Lanevi, Treasurer, NetApp
Transcript: Are you concerned about IFRS and having to capitalize leases? |
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Interviewer: What I find interesting about what you’re saying is that your whole strategy regarding leasing does not really include the accounting treatment.
So, as we move, in the next couple of years, from FAS 13, to IFRS, where everything’s going to come onto the balance sheet, I don’t think you’re concerned about that, because you don’t do it just because it’s an operating cost.
Ingemar Lanevi: Correct. So, personally, I don’t care about the accounting treatment per se, because again, I look at it purely from an economics point of view. This is a cash flow analysis that I do based on pure economics, what generates the most value to the shareholder.
Now, I’m sure that I have people in my own company that would disagree with me, that the accounting is more important than anything else, and the fact that we can keep an FMV lease off balance sheet has some perceived value to them.
Personally, I’m not sure that that’s the case at all. Because to your point, even if I have to put it on my balance sheet, I still get the same kind of cash flow benefit that I just described.
So, even if I have to take my; the example where I have a three-year 0 percent financing deal, again, why wouldn’t I be willing to put it on my balance sheet for three years and have it bleed off?
Because, again, I still pay no financing charge on that money. It’s free money.
And, again, I know enough about the whole leasing business that, again, there’s nothing “free” about it, obviously. It’s a blind discount offered by the manufacturer to the financing company. That’s how they get to where they need to be.
So I need to decide in the purchase scenario: So, how much effort do I need to expend to be able to beat the crap out of the manufacturer (pardon the French); the manufacturer to get him to give me the additional 8 percent discount that is roughly the cost of funds or the three-year deal to get to the same point at the end of the day on a discounted cash flow basis.
I’m saying, if they’re offering it to me without even asking for it, it ain’t worth it. It’s not worth the effort of going back and trying to beat up the manufacturer to get that 8 percent discount.
Let them give it to the financing source and then take advantage of it through the fact that I get to spread my payments over the next three years. It makes more sense to me.
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