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Atthetimeofrevenuerecognition,werecordareserveagainstrevenueforestimatedfutureproductreturns.Suchestimatesarebasedonhistorical
experienceandareimmaterialinallperiodspresented.
Vehiclesalestocustomerswitharesidualvalueguarantee
Weofferresalevalueguaranteesorsimilarbuy-backtermstoallcustomerswhopurchasevehiclesandwhofinancetheirvehiclethroughoneofour
specifiedcommercialbankingpartners.Underthisprogram,customershavetheoptionofsellingtheirvehiclebacktousduringtheguaranteeperiodforapre-
determinedresalevalue.Guaranteeperiodsgenerallyrangefrom36to39months.Althoughwereceivefullpaymentforthevehiclesalespriceatthetimeof
delivery,wearerequiredtoaccountforthesetransactionsasoperatingleases.Theamountofsaleproceedsequaltotheresidualvalueguaranteeisdeferreduntil
theguaranteeexpiresorisexercised.Theremainingsaleproceedsaredeferredandrecognizedonastraightlinebasisoverthestatedguaranteeperiod.The
guaranteeperiodexpiresattheearlieroftheendoftheguaranteeperiodorthepay-offoftheinitialloan.Wecapitalizethecostofthesevehiclestoleasedvehicles
onourConsolidatedBalanceSheetsanddepreciatetheirvalue,lesssalvagevalue,tocostofautomotiverevenueoverthesameperiod.
Incaseswhencustomerretainsownershipofthevehicleattheendoftheguaranteeperiod,theresalevalueguaranteeliabilityandanyremainingdeferred
revenuebalancesrelatedtothevehiclearesettledtoautomotiverevenueandthenetbookvalueoftheleasedvehicleisexpensedtocostsofautomotive
revenue.Incaseswhencustomersreturnthevehiclebacktousduringtheguaranteeperiod,wepurchasethevehicleformthecustomerinanamountequaltothe
resalevalueguaranteeandsettleanyremainingdeferredbalancestoautomotiverevenueandwereclassifythenetbookvalueofthevehicleonourbalancesheetto
pre-ownedvehicleinventory.AsofDecember31,2015,$136.8millionofguaranteesareexercisablebycustomerswithinthenexttwelvemonths.
Vehiclesalestoleasingpartnerswitharesidualvalueguarantee
Inthefourthquarterof2014,wealsobeganofferingresidualvalueguaranteesinconnectionwithautomobilesalestocertainbankleasingpartners.Aswe
haveguaranteedthevalueofthesevehiclesandasthevehiclesareleasedtoend-customers,weaccountforthesetransactionsasinterestbearingcollateralized
borrowingsasrequiredunderASC840-Leases.Underthisprogram,cashisreceivedforthefullpriceofthevehicleandisrecordedwithinresalevalueguarantee
forthelong-termportionanddeferredrevenueforthecurrentportion.Weaccretethedeferredrevenueamounttoautomotiverevenueonastraightlinebasisover
theguaranteeperiodandaccrueinterestexpensebasedonourborrowingrate.WecapitalizevehiclesunderthisprogramtoleasedvehiclesonourConsolidated
BalanceSheetsandwerecorddepreciationfromthesevehiclestocostofautomotiverevenuesduringtheperiodthevehicleisunderaleasearrangement.Cash
receivedforthesevehicles,netofrevenuerecognizedduringtheperiod,isclassifiedascollateralizedleaseborrowingswithincashflowsfromfinancingactivities
inourConsolidatedStatementsofCashFlows.
Attheendoftheleaseterm,wesettleourliabilityincashbyeitherpurchasingthevehiclefromtheleasingpartnerfortheresidualvalueguaranteeamount,
orpayingashortfalltotheguaranteeamounttheleasingpartnermayrealizeonthesaleofthevehicle.Anyremainingbalanceswithindeferredrevenueandresale
valueguaranteewillbesettledtoautomotiverevenue.Incaseswherethebankretainsownershipofthevehicleaftertheendofourguaranteeperiod,weexpense
thenetvalueoftheleasedvehicletocostsofautomotiverevenue.Themaximumcashwecouldberequiredtopayunderthisprogram,shouldwedecideto
repurchaseallvehiclesis$348.2millionatDecember31,2015.
AsofDecember31,2015andDecember31,2014,wehad$527.5millionand$16.7millionofsuchborrowingsrecordedintheresalevalueguarantee
liabilityand$120.5millionand$3.9millionrecordedindeferredrevenueliability.
Atleastannually,weassesstheestimatedmarketvaluesofvehiclesunderourresalevalueguaranteeprogramtodetermineifwehavesustainedalosson
anyofthesecontracts.Asweaccumulatemoredatarelatedtotheresalevaluesofourvehiclesorasmarketconditionschange,theremaybesignificantchangesto
theirestimatedvalues.
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