Off balance sheet refers to items that are effectively assets or liabilities of a company but do not appear on the company's balance sheet.
Operating lease - Classifying a lease as an operating lease provides a company
with the opportunity to utilize the leased asset and assume a contractual obligation to pay the lessor during a specific period of time without having to report the asset and, more importantly, the liability.
Take-or-pay contract - This is an agreement between a buyer and seller in which
the buyer will still pay some amount even if the product or service is not provided. Companies use take-or-pay contracts to ensure that their vendor makes the materials, such as raw materials, that they need to sustain operations available to them. In the event that a company does not purchase the material from the vendor, the company will have to pay some amount to the vendor. This provides a company with the ability to acquire the use of an asset without having to record it as an asset and a liability. These arrangements are common in the natural-gas, chemical, paper and metal industry.
Throughput arrangements - Natural-gas companies use throughput
arrangements with pipelines or processors to ensure distribution or processing. The effects are the same as take-or-pay contracts.
Commodity-linked bonds - Natural-resource companies may also finance
inventory purchases through commodity-indexed debt where interest and/or principal repayments are a function of the price of the underling commodity.
The sale of accounts receivables - A company may sell its receivables to an
unrelated third party to reduce its debt and improve its financial position. Most sales of receivables provide the buyer with a limited recourse to the seller. However, the recourse provision is generally well above the expected loss ratio on the receivables (allowance for doubtful accounts). The potential liability associated with the buyer- recourse provision is not displayed on the balance sheet.