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Financing Receivables and Guarantees | 12 Months Ended
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Jul. 28, 2012
Financing Receivables and Guarantees | 7. Financing Receivables and Guarantees (a) Financing Receivables Financing receivables primarily consist of lease receivables, loan receivables, and financed service contracts and other. Lease receivables represent sales-type and direct-financing leases resulting from the sale of the Company’s and complementary third-party products and are typically collateralized by a security interest in the underlying assets. Loan receivables represent financing arrangements related to the sale of the Company’s products and services, which may include additional funding for other costs associated with network installation and integration of the Company’s products and services. Lease receivables consist of arrangements with terms of four years on average, while loan receivables generally have terms of up to three years. The financed service contracts and other category includes financing receivables related to technical support and advanced services, as well as receivables related to financing of certain indirect costs associated with leases. Revenue related to the technical support services is typically deferred and included in deferred service revenue and is recognized ratably over the period during which the related services are to be performed, which typically ranges from one to three years. A summary of the Company’s financing receivables is presented as follows (in millions):
July 28, 2012 |  | Lease Receivables |  |  | Loan Receivables |  |  | Financed Service Contracts and Other |  |  | Total Financing Receivables |
Gross |  | $ | 3,429 |  |  | $ | 1,796 |  |  | $ | 2,651 |  |  | $ | 7,876 |
Unearned income |  |  | (250 | ) |  |  | — |  |  |  | — |  |  |  | (250 | )
Allowance for credit loss |  |  | (247 | ) |  |  | (122 | ) |  |  | (11 | ) |  |  | (380 | )
Total, net |  | $ | 2,932 |  |  | $ | 1,674 |  |  | $ | 2,640 |  |  | $ | 7,246 |
Reported as: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current |  | $ | 1,200 |  |  | $ | 968 |  |  | $ | 1,493 |  |  | $ | 3,661 |
Noncurrent |  |  | 1,732 |  |  |  | 706 |  |  |  | 1,147 |  |  |  | 3,585 |
Total, net |  | $ | 2,932 |  |  | $ | 1,674 |  |  | $ | 2,640 |  |  | $ | 7,246 |
July 30, 2011 |  | Lease Receivables |  |  | Loan Receivables |  |  | Financed Service Contracts and Other |  |  | Total Financing Receivables |
Gross |  | $ | 3,111 |  |  | $ | 1,468 |  |  | $ | 2,637 |  |  | $ | 7,216 |
Unearned income |  |  | (250 | ) |  |  | — |  |  |  | — |  |  |  | (250 | )
Allowance for credit loss |  |  | (237 | ) |  |  | (103 | ) |  |  | (27 | ) |  |  | (367 | )
Total, net |  | $ | 2,624 |  |  | $ | 1,365 |  |  | $ | 2,610 |  |  | $ | 6,599 |
Reported as: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current |  | $ | 1,087 |  |  | $ | 673 |  |  | $ | 1,351 |  |  | $ | 3,111 |
Noncurrent |  |  | 1,537 |  |  |  | 692 |  |  |  | 1,259 |  |  |  | 3,488 |
Total, net |  | $ | 2,624 |  |  | $ | 1,365 |  |  | $ | 2,610 |  |  | $ | 6,599 |
As of July 28, 2012 and July 30, 2011, the deferred service revenue related to the financed service contracts and other was $1,838 million and $2,044 million, respectively. Contractual maturities of the gross lease receivables at July 28, 2012 are summarized as follows (in millions):
Fiscal Year |  | Amount |
2013 |  | $ | 1,401 |
2014 |  |  | 1,055 |
2015 |  |  | 619 |
2016 |  |  | 276 |
2017 |  |  | 77 |
Thereafter |  |  | 1 |
Total |  | $ | 3,429 |
Actual cash collections may differ from the contractual maturities due to early customer buyouts, refinancings, or defaults. (b) Credit Quality of Financing Receivables Financing receivables categorized by the Company’s internal credit risk rating as of July 28, 2012 and July 30, 2011 are summarized as follows (in millions):
|  | INTERNAL CREDIT RISK RATING |  |  |  |  |  |  |  |  |  |
July 28, 2012 |  | 1 to 4 |  |  | 5 to 6 |  |  | 7 and Higher |  |  | Total |  |  | Residual Value |  |  | Gross Receivables, Net of Unearned Income |
Lease receivables |  | $ | 1,532 |  |  | $ | 1,342 |  |  | $ | 31 |  |  | $ | 2,905 |  |  | $ | 274 |  |  | $ | 3,179 |
Loan receivables |  |  | 831 |  |  |  | 921 |  |  |  | 44 |  |  |  | 1,796 |  |  |  | — |  |  |  | 1,796 |
Financed service contracts and other |  |  | 1,552 |  |  |  | 1,030 |  |  |  | 69 |  |  |  | 2,651 |  |  |  | — |  |  |  | 2,651 |
Total |  | $ | 3,915 |  |  | $ | 3,293 |  |  | $ | 144 |  |  | $ | 7,352 |  |  | $ | 274 |  |  | $ | 7,626 |
|  | INTERNAL CREDIT RISK RATING |  |  |  |  |  |  |  |  |  |
July 30, 2011 |  | 1 to 4 |  |  | 5 to 6 |  |  | 7 and Higher |  |  | Total |  |  | Residual Value |  |  | Gross Receivables, Net of Unearned Income |
Lease receivables |  | $ | 1,249 |  |  | $ | 1,275 |  |  | $ | 41 |  |  | $ | 2,565 |  |  | $ | 296 |  |  | $ | 2,861 |
Loan receivables |  |  | 662 |  |  |  | 767 |  |  |  | 39 |  |  |  | 1,468 |  |  |  | — |  |  |  | 1,468 |
Financed service contracts and other |  |  | 1,623 |  |  |  | 958 |  |  |  | 56 |  |  |  | 2,637 |  |  |  | — |  |  |  | 2,637 |
Total |  | $ | 3,534 |  |  | $ | 3,000 |  |  | $ | 136 |  |  | $ | 6,670 |  |  | $ | 296 |  |  | $ | 6,966 |
The Company determines the adequacy of its allowance for credit loss by assessing the risks and losses inherent in its financing receivables by portfolio segment. The portfolio segment is based on the types of financing offered by the Company to its customers: lease receivables, loan receivables, and financed service contracts and other. Effective in the second quarter of fiscal 2012, the Company combined its financing receivables into a single class as the two prior classes, Established Markets and Growth Markets, now exhibit similar risk characteristics as reflected by the Company’s historical losses. The Company has reclassified applicable financing receivables data for the prior periods presented to conform to the current year’s presentation. In addition, effective in the second quarter of fiscal 2012, the Company also refined its methodology for calculating its allowance for financing receivables as discussed in Note 2. The Company’s internal credit risk ratings of 1 through 4 correspond to investment-grade ratings, while credit risk ratings of 5 and 6 correspond to non-investment grade ratings. Credit risk ratings of 7 and higher correspond to substandard ratings and constitute a relatively small portion of the Company’s financing receivables. In circumstances when collectability is not deemed reasonably assured, the associated revenue is deferred in accordance with the Company’s revenue recognition policies, and the related allowance for credit loss, if any, is included in deferred revenue. The Company also records deferred revenue associated with financing receivables when there are remaining performance obligations, as it does for financed service contracts. Total allowances for credit loss and deferred revenue as of July 28, 2012 and July 30, 2011 were $2,387 million and $2,793 million, respectively, and they were associated with financing receivables (net of unearned income) of $7,626 million and $6,966 million as of their respective period ends. The losses that the Company has incurred historically, including in the periods presented with respect to its financing receivables, have been immaterial and consistent with the performance of an investment-grade portfolio. The Company did not modify any financing receivables during the periods presented. The following tables present the aging analysis of financing receivables as of July 28, 2012 and July 30, 2011 (in millions):
|  | DAYS PAST DUE (INCLUDES BILLED AND UNBILLED) |  |  |  |  |  |  |  |  |  |  |  |  |
July 28, 2012 |  | 31-60 |  |  | 61-90 |  |  | 91+ |  |  | Total Past Due |  |  | Current |  |  | Gross Receivables, Net of Unearned Income |  |  | Non-Accrual Financing Receivables |  |  | Impaired Financing Receivables |
Lease receivables |  | $ | 151 |  |  | $ | 69 |  |  | $ | 173 |  |  | $ | 393 |  |  | $ | 2,786 |  |  | $ | 3,179 |  |  | $ | 23 |  |  | $ | 14 |
Loan receivables |  |  | 10 |  |  |  | 8 |  |  |  | 11 |  |  |  | 29 |  |  |  | 1,767 |  |  |  | 1,796 |  |  |  | 4 |  |  |  | 4 |
Financed service contracts and other |  |  | 89 |  |  |  | 68 |  |  |  | 392 |  |  |  | 549 |  |  |  | 2,102 |  |  |  | 2,651 |  |  |  | 18 |  |  |  | 10 |
Total |  | $ | 250 |  |  | $ | 145 |  |  | $ | 576 |  |  | $ | 971 |  |  | $ | 6,655 |  |  | $ | 7,626 |  |  | $ | 45 |  |  | $ | 28 |
|  | DAYS PAST DUE (INCLUDES BILLED AND UNBILLED) |  |  |  |  |  |  |  |  |  |  |  |  |
July 30, 2011 |  | 31-60 |  |  | 61-90 |  |  | 91+ |  |  | Total Past Due |  |  | Current |  |  | Gross Receivables, Net of Unearned Income |  |  | Non-Accrual Financing Receivables |  |  | Impaired Financing Receivables |
Lease receivables |  | $ | 89 |  |  | $ | 35 |  |  | $ | 152 |  |  | $ | 276 |  |  | $ | 2,585 |  |  | $ | 2,861 |  |  | $ | 34 |  |  | $ | 24 |
Loan receivables |  |  | 8 |  |  |  | 7 |  |  |  | 21 |  |  |  | 36 |  |  |  | 1,432 |  |  |  | 1,468 |  |  |  | 4 |  |  |  | 4 |
Financed service contracts and other |  |  | 68 |  |  |  | 33 |  |  |  | 265 |  |  |  | 366 |  |  |  | 2,271 |  |  |  | 2,637 |  |  |  | 17 |  |  |  | 6 |
Total |  | $ | 165 |  |  | $ | 75 |  |  | $ | 438 |  |  | $ | 678 |  |  | $ | 6,288 |  |  | $ | 6,966 |  |  | $ | 55 |  |  | $ | 34 |
Past due financing receivables are those that are 31 days or more past due according to their contractual payment terms. The data in the preceding tables is presented by contract and the aging classification of each contract is based on the oldest outstanding receivable, and therefore past due amounts also include unbilled and current receivables within the same contract. The preceding aging tables exclude pending adjustments on billed tax assessment in certain international markets. The balances of either unbilled or current financing receivables included in the category of 91 days plus past due for lease receivables, loan receivables, and financed service contracts and other were, respectively, $139 million, $3 million, and $313 million as of July 28, 2012; and were, respectively, $116 million, $15 million, and $230 million as of July 30, 2011. As of July 28, 2012, the Company had financing receivables of $109 million, net of unbilled or current receivables from the same contract, that were in the category for 91 days plus past due but remained on accrual status. Such balance was $50 million as of July 30, 2011. A financing receivable may be placed on nonaccrual status earlier if, in management’s opinion, a timely collection of the full principal and interest becomes uncertain. (c) Allowance for Credit Loss Rollforward The allowances for credit loss and the related financing receivables are summarized as follows (in millions):
|  | CREDIT LOSS ALLOWANCES |
|  | Lease Receivables |  |  | Loan Receivables |  |  | Financed Service Contracts and Other |  |  | Total |
Allowance for credit loss as of July 30, 2011 |  | $ | 237 |  |  | $ | 103 |  |  | $ | 27 |  |  | $ | 367 |
Provisions |  |  | 22 |  |  |  | 22 |  |  |  | (13 | ) |  |  | 31 |
Write-offs net of recoveries |  |  | (2 | ) |  |  | — |  |  |  | (1 | ) |  |  | (3 | )
Foreign exchange and other |  |  | (10 | ) |  |  | (3 | ) |  |  | (2 | ) |  |  | (15 | )
Allowance for credit loss as of July 28, 2012 |  | $ | 247 |  |  | $ | 122 |  |  | $ | 11 |  |  | $ | 380 |
Gross receivables as of July 28, 2012, net of unearned income |  | $ | 3,179 |  |  | $ | 1,796 |  |  | $ | 2,651 |  |  | $ | 7,626 |
|  | CREDIT LOSS ALLOWANCES |
|  | Lease Receivables |  |  | Loan Receivables |  |  | Financed Service Contracts and Other |  |  | Total |
Allowance for credit loss as of July 31, 2010 |  | $ | 207 |  |  | $ | 73 |  |  | $ | 21 |  |  | $ | 301 |
Provisions |  |  | 31 |  |  |  | 43 |  |  |  | 8 |  |  |  | 82 |
Write-offs net of recoveries |  |  | (13 | ) |  |  | (18 | ) |  |  | (2 | ) |  |  | (33 | )
Foreign exchange and other |  |  | 12 |  |  |  | 5 |  |  |  | — |  |  |  | 17 |
Allowance for credit loss as of July 30, 2011 |  | $ | 237 |  |  | $ | 103 |  |  | $ | 27 |  |  | $ | 367 |
Gross receivables as of July 30, 2011, net of unearned income |  | $ | 2,861 |  |  | $ | 1,468 |  |  | $ | 2,637 |  |  | $ | 6,966 |
Financing receivables that were individually evaluated for impairment during the fiscal years presented were not material and therefore are not presented separately in the preceding table. (d) Financing Guarantees In the ordinary course of business, the Company provides financing guarantees for various third-party financing arrangements extended to channel partners and end-user customers. Payments under these financing guarantee arrangements were not material for the periods presented. Channel Partner Financing Guarantees The Company facilitates arrangements for third-party financing extended to channel partners, consisting of revolving short-term financing, generally with payment terms ranging from 60 to 90 days. These financing arrangements facilitate the working capital requirements of the channel partners, and, in some cases, the Company guarantees a portion of these arrangements. The volume of channel partner financing was $21.3 billion, $18.2 billion and $17.2 billion for fiscal 2012, 2011, and 2010, respectively. The balance of the channel partner financing subject to guarantees was $1.2 billion and $1.4 billion as of July 28, 2012 and July 30, 2011, respectively. End-User Financing Guarantees The Company also provides financing guarantees for third-party financing arrangements extended to end-user customers related to leases and loans, which typically have terms of up to three years. The volume of financing provided by third parties for leases and loans for which the Company had provided guarantees was $227 million for fiscal 2012, $247 million for fiscal 2011 and $180 million for fiscal 2010. Financing Guarantee Summary The aggregate amounts of financing guarantees outstanding at July 28, 2012 and July 30, 2011, representing the total maximum potential future payments under financing arrangements with third parties along with the related deferred revenue, are summarized in the following table (in millions):
|  | July 28, 2012 |  |  | July 30, 2011 |
Maximum potential future payments relating to financing guarantees: |  |  |  |  |  |  |  |
Channel partner |  | $ | 277 |  |  | $ | 336 |
End user |  |  | 232 |  |  |  | 277 |
Total |  | $ | 509 |  |  | $ | 613 |
Deferred revenue associated with financing guarantees: |  |  |  |  |  |  |  |
Channel partner |  | $ | (193 | ) |  | $ | (248 | )
End user |  |  | (200 | ) |  |  | (248 | )
Total |  | $ | (393 | ) |  | $ | (496 | )
Maximum potential future payments relating to financing guarantees, net of associated deferred revenue |  | $ | 116 |  |  | $ | 117 |

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- Definition The entire disclosure for financing receivables. Examples of financing receivables include, but are not limited to, loans, trade accounts receivables, notes receivable, credit cards, and receivables relating to a lessor's right(s) to payment(s) from a lease other than an operating lease that is recognized as assets. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -URI http://asc.fasb.org/subtopic&trid=2196772 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 55 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=6951925&loc=SL6953791-111525 + Details
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