PRESENTATION SUMMARY: CONSULTING SERVICES INCLUDING CAPITAL EQUIPMENT LEASING INTRODUCTION FOR BY: Year June-2003
PowerLease Solutions Products Menu of Financing Products: 1. Fair Market Value Leases (Non-Compliance-Capital Lease) 2. Fair Market Value Leases (In Compliance-Off Balance Sheet) 3. Synthetic Leases (In Compliance-Off Balance Sheet) 4. ENERGY SALES AGREEMENTS (In-Compliance-Post Enron option)
PowerLease Solutions Criteria OPERATING LEASE CRITERIOR continued FAS-13 OPERATING LEASES: If none of the following four criteria is present at the inception of a lease, it s classified, by default, as an operating lease. 1). Ownership of the property is transferred to the Lessee by end of lease term 2). The lease contains a bargain purchase option 3). The lease term exceeds 75% of the economic useful life of the property 4). The present value of the committed rents exceed 90% of the property s original cost
PowerLease Solutions Options END OF LEASE TERM OPTIONS True Lease (IRS Guideline Leases) The traditional end of lease options are Purchase the equipment for its then Fair Market Value Renew the Lease based on its Fair Market Value Return the equipment pursuant to the terms of the Lease contract Lessor is treated as Tax owner of Equipment. Lessee expenses the rentals as operating expense Off-Balance Sheet (FAS 13) treatment
PowerLease Solutions SYNTHETIC LEASE STRUCTURE: Finance up to 100% of equipment cost Lease terms up to 120 Mos (Longer if requested) Off Balance Sheet treatment for Lessee A fixed pre-determined Purchase Price takes the guess work out of end of term negotiations with Lessor. Tax Benefits belong to Lessee Fixed payments during the Lease repayment period
PowerLease Solutions Power Sale Agreements/Post Enron: Finance up to 100% of equipment cost PSA terms up to 120 Mos (Longer if required) Off Balance Sheet treatment for Client (FAS 13 compliance) No mention of a Purchase Price at end of term (Avoid property transfers at nominal pre-negotiated bargains) Tax Benefits belong to ESCO May include fixed minimum capacity payments (minimum threshold amount)
PowerLease Solutions Products WHY SELECT POWER SALE TYPE OF AGREEMENT? Preserves the integrity of a Fee for Services agreement vs. capital equipment acquisition Conserves customer bank credit lines for more traditional uses Allows for the ESCO to manage the energy assets Manages a positive and more efficient impact on the P&L statement
POWER SALE AGREEMENTS RELATIONSHIP FLOW CHART TIER ONE EQUIPMENT SUPPLIERS PowerLease SOLUTIONS Funding Source for monetized take or pay minimum threshold Payment for equip. to VENDOR' designated Distributor Client remits payments to $$$Lock Box EQUIPMENT DISTRIBUTOR/ SELLER OF ELECTRICITY AND THERMAL ENERGY Long Term O&M service Agreement with the ESCO The Client
Accounting Changes: BUSINESS CONCERNS Business failures and alleged accounting frauds have created a heightened concern of off-balance sheet financings, particular focus on the use of Special Purpose Entities and related party transactions Public, press, investor and regulatory outcry forced quick actions by FASB. REACTION - Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others FASB Interpretation # 46 - Consolidation of Variable Interest Entities FOOTNOTE FASB has stated that neither Interpretation was meant to change Lease Accounting.
Accounting Changes: Summary of Guarantee Interpretation Heretofore, many contingencies, including residual value guarantees under synthetic leases, were neither footnoted nor properly recorded in the financial statements Exposure Draft requires that the fair value of any guarantee be recorded. FASB has stated that such fair value should represent the market price to provide such guarantee between a willing buyer and willing seller including a profit element. Difficulty exists because generally no external market exists to provide guidance as to what the fair market value of a guarantee is worth; will develop with practice. Accounting entry Debit - Deferred rents Credit - Liability
Accounting Changes: Summary of Variable Interest Entity Interpretation For accounting consolidation purposes, entities may be classified as a Variable Interest Entity (VIE) Variable Interests represent an entity s exposure to the economic risks and potential rewards from a Variable Interest Entity s assets and activities. Variable interests are the rights and obligations that convey economic gains or losses from the changes in the values of a VIE s assets and liabilities.
Accounting Changes: Summary of Variable Interest Entity Interpretation The FASB reasoned that an entity with the majority of the risks or rewards of a VIE is in the same position as the parent in a parentsubsidiary relationship. (1) A VIE with non-recourse debt matched against specific assets creates a silo VIE. Primary Beneficiary of a VIE is that entity which holds the majority of a VIE s variable interests and therefore should consolidate the VIE or silo. There can be only one Primary Beneficiary for each VIE or VIE silo. (1) KPMG s defining issues document No. 03-3
Range of Options Put in place a new structure to preserve off-balance sheet treatment under the new rules True tax lease or leveraged lease substantive third party lessor takes significant risk to the asset New synthetic lease structure newly developed transaction structure preserves off-b/s treatment with economics similar to current synthetic lease deals
PowerLease Solutions Products Lease Questions Contact Patrick F. McCort 7 Lisa Drive Brick, NJ 08724 732-785-0448 Business w/ voice 732-600-4687 (CELL) Website Address... http://www.powerleasesolutions.com Email Address patrick.mccort@comcast.net patrick.mccort@powerleasesolutions.com