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Financing/Leasing has become an increasingly important and effective tool for many businesses in:
Verigy aims to provide our customers with a TOTAL SOLUTION. As such, a full suite of leasing and financing solutions are available, through our panel of global partners. | ||||||||
Capital Lease/Finance Lease
Operating Lease/Fair Market Value (FMV) Lease
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Leasing provides many benefits over purchase of equipment. Learn why so many companies lease their equipment -- and the additional value of leasing through Verigy’s panel of financial services partners. I. Competitive Edge Leasing helps you stay on the leading edge of technology. By leasing rather than buying your equipment, you pay for the equipment only as long as it is useful to you. You are able to acquire the latest technology without the risk of ownership. You can easily return, upgrade or add to your equipment to stay ahead of the competition. You have the flexibility to respond quickly to new opportunities. Leasing reduces the risks of equipment obsolescence and the costly expense of disposing of your equipment when you are ready to move on. Leasing gives you the flexibility to maintain that competitive edge. II. Lower Cost of Ownership With leasing, you can afford a more complete solution while paying little or no upfront costs. You pay only for the use of the equipment allowing you to realize considerable savings compared to an outright purchase. By paying for equipment over time, you are hedging against inflation. You acquire equipment at today's prices and pay for it with tomorrow's cheaper dollars. Financing also helps you reduce the costs associated with the disposal of your equipment. Leasing provides an overall lower life-cycle cost of ownership with minimal upfront costs, payments over time for only the useful life of the equipment and avoidance of the end-of-life costs of disposal. III. Flexibility Leasing represents flexibility to meet your business needs in several different ways. First, different payment structures can be tailored to fit your specific needs and better match expenses to revenue streams. Secondly, your lease can be structured to include software and services and modified to include additions and upgrades as your business needs change. With flexible end-of-term options such as extend month-to-month, purchase or return, you can respond more quickly to your changing capacity needs without the burden of owning underutilized equipment. A lease program can be designed to address your unique business requirements - cash flow, ROA improvements, asset utilization, or simple convenience. Leasing provides you the flexibility to stay ahead of the technology curve and ahead of the competition. IV. Shareholder Value Unlock shareholder value by leasing your equipment rather than buying it! With little or no upfront costs, leasing conserves working capital and preserves liquidity and lines of credit for other operational expenses. Return on Assets (ROA) and Return on Invested Capital (ROIC) improve when equipment is kept off the balance sheet. Operating leases may qualify for additional tax benefits as payments can be deductible as operating expenses. V. Cash Management Budgeting is simplified with leased equipment since payments are fixed for the contract term. In addition to the equipment, you can also incorporate the costs of installation, taxes, maintenance and support into the lease agreement. Leasing makes it easier to match expenses with revenue stream and allows you to pay over time with today's dollars. Leasing conserves working capital for other important investments. VI. Expert Support When you finance through one of Verigy’s financing partners, you get a team of financial specialists experienced in financing for the high-technology industries to help you meet both your current and future needs. | ||||||||
Add-On A transaction to add related equipment (usually equipment upgrades) to an existing lease. The lease term for the add-on is set so that it expires co-terminously with (on the same date as) the original transaction. Advance Payments Payments made by the lessee at the inception of a leasing transaction. Amortization A breakdown of periodic loan payments into two components: a principal portion and an interest portion. APR Annual Percentage Rate. The effective rate taking into account compounding and other fees. The nominal rate of interest for a specified period (usually one year). The APR can be calculated given the term of the lease agreement, the monthly rate factor, the future value and present value. Bargain Purchase Option An option given to the lessee to purchase the equipment on lease at a price that is far lower than the expected fair market value so that, at the inception of the lease, it is reasonable to assume that the lessee will definitely purchase the equipment on the option date. Purchase options are subject to local legislation and accounting rules. Capital Lease A lease that meets at least one of the criteria outlined in paragraph 7 of FASB 13 and, therefore, must be treated essentially as a loan for book accounting purposes. The four criteria are:
Certificate of Delivery and Acceptance A document that is signed by the lessee to acknowledge that the equipment to be leased has been delivered and is acceptable. Many lease agreements state that the actual lease term commences once this document has been signed. Compensating Balances The amount of funds that a bank requires a borrower to keep on deposit during the term of a loan. The amount of this non-interest earning deposit is typically based upon some percentage of the loan and effectively increases the borrower's interest cost. Conditional Sales Contract The Seller sells the asset and transfers possession to the Purchaser, but retains title to the asset until the Purchaser has fully paid for it. In other words, a contract for a sale where the customer pays for his purchase in installment payments rather than all at once. Cost of Capital The weighted-average cost of funds that a firm secures from both debt and equity sources in order to fund its assets. The use of a firm's cost of capital is essential in making accurate capital budgeting and project investment decisions. Coterminous Two or more leases that are linked so that both will terminate at the same time. Depreciation A means for a firm to recover the cost of a purchased asset, over time, through periodic deductions or offsets to income. Depreciation is used in both a financial reporting and tax content, and is considered a tax benefit because the depreciation deductions cause a reduction in taxable income, thereby lowering the firm's tax liability. Types of Depreciation include Straight Line, Sum of Years Digits, Declining Balance, Double Declining Balance. Discount Rate A certain interest rate that is used to bring a series of future cash flows to their present value in order to state them in current, or today's, dollars. Use of a discount rate removes the time value of money from future cash flows. Equipment Schedule A document incorporated by reference into the lease agreement that describes in detail the equipment being leased. The schedule may state the lease term, commencement date, repayment schedule and location of the equipment. End-of-Term Options Options stated in the lease agreement that give the lessee flexibility in its treatment of the leased equipment at the end of the lease term. Common end-of-term options include purchasing the equipment, renewing the lease or returning the equipment to the lessor. Purchase options are subject to local legislation and accounting rules. Estimated Useful Life The period during which an asset is expected to be useful in trade or business:
The price for which property can be sold in an "arms length" transaction; that is, between informed, unrelated, and willing parties, each of which is acting rationally and in its own best interest. Financial Accounting Standards Board The rule-making body that establishes financial reporting guidelines. FASB 13 Statement number 13 of the Financial Accounting Standards Board (FASB) establishes standards for lessees' and lessors' accounting and reporting for leases. This includes the characterization of a lease as an operating lease or capital lease for the lessee's purposes. A company's assets, liabilities and net income will differ depending on how it chooses to structure its leases. The provisions of FASB 13 derive from the view that a lease that transfers substantially all of the benefits and risks of ownership should be accounted for as the acquisition of an asset and the incurrence of an obligation by the lessee (a capital lease) and as a sale or financing by the lessor. Other leases should be accounted for as the rental of property (operating leases). Finance Lease A lease used to finance the purchase of equipment; not a true lease. Finance leases are generally considered to be capital leases from an accounting perspective and non-tax leases from a tax perspective. Fixed Purchase Option An option given to the lessee to purchase the leased equipment from the lessor on the option date for a guaranteed price. Both the date and the price must be determined at the inception of the lease. Purchase options are subject to local legislation and accounting rules. Full Payout Lease A lease in which the total of the lease payments allows the lessor to recover the entire cost of the equipment including financing, overhead, and a reasonable rate of return, with little or no dependence on a residual value. Incremental Borrowing Rate The rate that, at the inception of the lease, the lessee would have incurred to borrow over a similar term the funds necessary to purchase the leased asset. Lease A contract through which an owner of equipment (the lessor) conveys the right to use its equipment to another party (the lessee) for a specified period of time (the lease term) for specified periodic payments. Lease Payment The amount owed per period (typically, monthly) from lessee to lessor. Lease payment is calculated by multiplying the lease rate factor by the amount to finance. Lease Rate Factor A Percentage that, when multiplied by the Amount to Finance produces the Rental Payment. Lease rate factor is not equivalent to the interest rate or yield. Lease Schedule A schedule to a Master Lease agreement describing the leased equipment, rentals and other terms applicable to the equipment. Lessee The party in a lease agreement who is obligated to pay the rentals to the lessor and is entitled to use and possess the leased equipment during the lease term. Lessor The party to a lease agreement who has legal or tax title to the equipment (in the case of a true tax lease), grants the lessee the right to use the equipment for the lease term and is entitled to receive the rental payments. Master Lease A continuing lease arrangement that allows a lessee to add equipment from time to in a new lease schedule executed by the parties. The original lease contract terms and conditions apply to all subsequent schedules. Net Present Value The total discounted value of all of the cash inflows and outflows from a project or investment. Off-Balance Sheet Financing Any form of financing, such as an Operating Lease, that, for financial reporting purposes, is not required to be reported on a firm's balance sheet. Operating Budget A budget that lists the amount of non-capital goods and services a firm is authorized by management to expend during the operating period. Operating Lease From a financial reporting perspective, a lease that has the characteristics of a usage agreement. Such a lease is not required to be shown on the balance sheet of the lessee. The term is also used to refer to leases in which the lessor has taken a significant residual position in the lease pricing and therefore must salvage the equipment for a certain value at the end of the lease term in order to earn its rate of return. A lease which is treated as a true lease (as opposed to a loan) for book accounting purposes. As defined in FASB 13, an operating lease must have all of the following characteristics:
A payment stream in which the lease payment is due at the beginning of each period (e.g., month, quarter) during the lease. Payments in Arrears A payment stream in which the lease payment is due at the end of each period (e.g., month, quarter) during the lease. Present Value The discounted value of a payment or stream of payments to be received in the future, taking into consideration a specific interest or discount rate. Present value represents a series of future cash flows expressed in today's dollars. Purchase Option An option given to the lessee to purchase the equipment from the lessor, usually as of a specified date. Purchase options are subject to local legislation and accounting rules. Residual Value The value, either actual or expected, leased equipment has at the end, or termination, of the lease. The book value that the lessor depreciates a piece of equipment down to during the lease term, typically based on an estimate of the future value, less a safety margin. ROA: Return on Assets A common measure of profitability based upon the amount of assets invested; ROA is equal to the ratio of NET INCOME to TOTAL ASSETS. ROE: Return on Equity A measure of profitability related to the amount of invested equity. ROE is equal to the ratio of NET INCOME to OWNERS' EQUITY. Sale-leaseback (SLB) A transaction that involves the sale of EXISTING equipment to a leasing company and a subsequent lease of the same equipment back to the original owner, who continues to use the equipment. Step-up or Step-down A feature of a lease that contains a payment stream that either increases (step-up) or decreases (step-down) in amount over the term of the lease. Tax Lease A generic term for a lease, in which the lessor takes on the risks of ownership and, as the owner, is entitled to the benefits of ownership, including tax benefits. True Lease Another term for a tax lease where, for IRS purposes, the lessor qualifies for the tax benefits of ownership and the lessee is allowed to claim the entire amount of the lease rental as a tax deduction. Useful Life The period of time during which an asset will have economic value and be usable. The useful life of an asset is sometimes called the economic life of the asset. To qualify as an operating lease, the property must have a remaining useful life of 25 percent of the original estimated useful life of the leased property at the end of the lease term, and at least a life of one year. Upgrade An option that allows the lessee to add equipment to an existing piece of equipment in order to increase efficiency or capacity; or, to trade in leased equipment for a newer, more advanced model during the lease term. Yield The rate of return to the lessor in a lease investment. | ||||||||
What is the difference between an Operating Lease compared to a Capital or Finance Lease? Operating Leases offer the lowest monthly payment and the entire payment amount can be treated off-balance sheet and deducted as a business expense. An operating lease is generally used when products go through rapid technological changes and technological obsolescence is a concern, or when additional test capacity is acquired without using any capital expenditure budget. At the end of an Operating Lease, several return, renewal or buyout options are available. A Capital or Finance lease is typically a full-payout or low-residual lease where the asset is capitalized on the balance sheet. This is a good option particularly for those wishing to own the equipment. At the end of a Capital or Finance lease, title is transferred to the lessee at the end of the term, upon the payment of a nominal fee. Consult your accountant or tax representative to determine the proper classification of lease. What kind of term structures do you offer? Most of our partners offer leases with fixed terms starting from 24 months to 60 months, although shorter-termed leases may also be considered upon request. Can I bundle software license or support services with my hardware lease? Yes, software and services can be bundled, or included, in the total amount of the lease as well as maintenance, shipping and other expenses to enable you to have one single monthly payment for all your hardware, software and services needs. Are there additional start-up payments added to a finance agreement? Our leasing partners usually do not require down payments for qualified credit customers. However, on occasions, a down payment, loan origination fee or security deposit may be required, which may be a way to lock in a lower rate. Does Verigy include upgrades to the equipment in the lease agreement? Our financing partners’ lease agreements encourage upgrades throughout the contract term. We can easily set up your agreement to roll to new technology when it becomes available. We do not charge penalties for upgrades. Who is responsible for the insurance, maintenance and the payment of property taxes? The lessee is responsible for maintaining the equipment and providing proper insurance. The expense of service and maintenance can be added to the initial lease. Are buyout options available at the end of the lease or rental term? Several options are available at the end of term, depending on the lease structure. You can 1) buy out the equipment at fair market value; 2) extend the lease month to month at the same rate you have been paying; or, 3) extend the lease for a fixed term with a reduction in your lease payment. You can also return the equipment with no further obligation. Purchase options are subject to local legislation and accounting rules. How can I impact my taxes? Operating leases may meet the tax criteria to be considered "off-balance sheet" and payments can be considered deductible operating expenses. Please consult your accountant for specific guidelines. What will it cost to terminate the lease or rental agreement? All lease agreements have a minimum non-cancellable contract term. If you are uncertain about your future requirements for the leased equipment, please work with your financing sales representative to ensure tailor-made solutions. | ||||||||
For more information, kindly contact your Verigy Account Manager or the Verigy Financial & Remarketing Solutions (FRS) team members directly:
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