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Financing Receivables And Guarantees | 3 Months Ended
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Oct. 26, 2013
Financing Receivables And Guarantees [Abstract] |
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):
October 26, 2013 | Lease Receivables |  | Loan Receivables |  | Financed Service Contracts and Other |  | Total Financing Receivables
Gross | $ | 3,813 |  |  | $ | 1,808 |  |  | $ | 3,018 |  |  | $ | 8,639 |
Unearned income | (264 | ) |  | — |  |  | — |  |  | (264 | )
Allowance for credit loss | (237 | ) |  | (93 | ) |  | (20 | ) |  | (350 | )
Total, net | $ | 3,312 |  |  | $ | 1,715 |  |  | $ | 2,998 |  |  | $ | 8,025 |
Reported as: |  |  |  |  |  |  |
Current | $ | 1,463 |  |  | $ | 951 |  |  | $ | 1,718 |  |  | $ | 4,132 |
Noncurrent | 1,849 |  |  | 764 |  |  | 1,280 |  |  | 3,893 |
Total, net | $ | 3,312 |  |  | $ | 1,715 |  |  | $ | 2,998 |  |  | $ | 8,025 |
July 27, 2013 | Lease Receivables |  | Loan Receivables |  | Financed Service Contracts and Other |  | Total Financing Receivables
Gross | $ | 3,780 |  |  | $ | 1,649 |  |  | $ | 3,136 |  |  | $ | 8,565 |
Unearned income | (273 | ) |  | — |  |  | — |  |  | (273 | )
Allowance for credit loss | (238 | ) |  | (86 | ) |  | (20 | ) |  | (344 | )
Total, net | $ | 3,269 |  |  | $ | 1,563 |  |  | $ | 3,116 |  |  | $ | 7,948 |
Reported as: |  |  |  |  |  |  |
Current | $ | 1,418 |  |  | $ | 898 |  |  | $ | 1,721 |  |  | $ | 4,037 |
Noncurrent | 1,851 |  |  | 665 |  |  | 1,395 |  |  | 3,911 |
Total, net | $ | 3,269 |  |  | $ | 1,563 |  |  | $ | 3,116 |  |  | $ | 7,948 |
As of October 26, 2013 and July 27, 2013, the deferred service revenue related to the financed service contracts and other was $1,881 million and $2,036 million, respectively. Contractual maturities of the gross lease receivables at October 26, 2013 are summarized as follows (in millions):
Fiscal Year |  | Amount
2014 (remaining nine months) |  | $ | 1,338 |
2015 |  | 1,251 |
2016 |  | 746 |
2017 |  | 364 |
2018 |  | 109 |
Thereafter |  | 5 |
Total |  | $ | 3,813 |
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 October 26, 2013 and July 27, 2013 are summarized as follows (in millions):
| INTERNAL CREDIT RISK RATING |  |  |  |  |  |
October 26, 2013 | 1 to 4 |  | 5 to 6 |  | 7 and Higher |  | Total |  | Residual Value |  | Gross Receivables, Net of Unearned Income
Lease receivables | $ | 1,695 |  |  | $ | 1,498 |  |  | $ | 104 |  |  | $ | 3,297 |  |  | $ | 252 |  |  | $ | 3,549 |
Loan receivables | 981 |  |  | 777 |  |  | 50 |  |  | 1,808 |  |  | — |  |  | 1,808 |
Financed service contracts and other | 1,792 |  |  | 1,110 |  |  | 116 |  |  | 3,018 |  |  | — |  |  | 3,018 |
Total | $ | 4,468 |  |  | $ | 3,385 |  |  | $ | 270 |  |  | $ | 8,123 |  |  | $ | 252 |  |  | $ | 8,375 |
| INTERNAL CREDIT RISK RATING |  |  |  |  |  |
July 27, 2013 | 1 to 4 |  | 5 to 6 |  | 7 and Higher |  | Total |  | Residual Value |  | Gross Receivables, Net of Unearned Income
Lease receivables | $ | 1,681 |  |  | $ | 1,482 |  |  | $ | 93 |  |  | $ | 3,256 |  |  | $ | 251 |  |  | $ | 3,507 |
Loan receivables | 842 |  |  | 777 |  |  | 30 |  |  | 1,649 |  |  | — |  |  | 1,649 |
Financed service contracts and other | 1,876 |  |  | 1,141 |  |  | 119 |  |  | 3,136 |  |  | — |  |  | 3,136 |
Total | $ | 4,399 |  |  | $ | 3,400 |  |  | $ | 242 |  |  | $ | 8,041 |  |  | $ | 251 |  |  | $ | 8,292 |
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, which consist of the following: lease receivables, loan receivables, and financed service contracts and other. 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. In circumstances when collectibility 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 October 26, 2013 and July 27, 2013 were $2,289 million and $2,453 million, respectively, and they were associated with financing receivables (net of unearned income) of $8,375 million and $8,292 million as of their respective period ends. The Company did not modify any financing receivables during the periods presented. The following tables present the aging analysis of financing receivables as of October 26, 2013 and July 27, 2013 (in millions):
| DAYS PAST DUE (INCLUDES BILLED AND UNBILLED) |  |  |  |  |  |  |  |
October 26, 2013 | 31-60 |  | 61-90 |  | 91+ |  | Total Past Due |  | Current |  | Gross Receivables, Net of Unearned Income |  | Nonaccrual Financing Receivables |  | Impaired Financing Receivables
Lease receivables | $ | 135 |  |  | $ | 60 |  |  | $ | 148 |  |  | $ | 343 |  |  | $ | 3,206 |  |  | $ | 3,549 |  |  | $ | 28 |  |  | $ | 24 |
Loan receivables | 28 |  |  | 2 |  |  | 16 |  |  | 46 |  |  | 1,762 |  |  | 1,808 |  |  | 7 |  |  | 17 |
Financed service contracts and other | 85 |  |  | 41 |  |  | 277 |  |  | 403 |  |  | 2,615 |  |  | 3,018 |  |  | 12 |  |  | 11 |
Total | $ | 248 |  |  | $ | 103 |  |  | $ | 441 |  |  | $ | 792 |  |  | $ | 7,583 |  |  | $ | 8,375 |  |  | $ | 47 |  |  | $ | 52 |
| DAYS PAST DUE (INCLUDES BILLED AND UNBILLED) |  |  |  |  |  |  |  |
July 27, 2013 | 31-60 |  | 61-90 |  | 91+ |  | Total Past Due |  | Current |  | Gross Receivables, Net of Unearned Income |  | Nonaccrual Financing Receivables |  | Impaired Financing Receivables
Lease receivables | $ | 85 |  |  | $ | 48 |  |  | $ | 124 |  |  | $ | 257 |  |  | $ | 3,250 |  |  | $ | 3,507 |  |  | $ | 27 |  |  | $ | 22 |
Loan receivables | 6 |  |  | 3 |  |  | 11 |  |  | 20 |  |  | 1,629 |  |  | 1,649 |  |  | 11 |  |  | 9 |
Financed service contracts and other | 75 |  |  | 48 |  |  | 392 |  |  | 515 |  |  | 2,621 |  |  | 3,136 |  |  | 18 |  |  | 11 |
Total | $ | 166 |  |  | $ | 99 |  |  | $ | 527 |  |  | $ | 792 |  |  | $ | 7,500 |  |  | $ | 8,292 |  |  | $ | 56 |  |  | $ | 42 |
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 are 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 financing receivables were $320 million and $406 million as of October 26, 2013 and July 27, 2013, respectively. As of October 26, 2013, the Company had financing receivables of $92 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 $87 million as of July 27, 2013. 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
Three Months Ended October 26, 2013 | Lease Receivables |  | Loan Receivables |  | Financed Service Contracts and Other |  | Total
Allowance for credit loss as of July 27, 2013 | $ | 238 |  |  | $ | 86 |  |  | $ | 20 |  |  | $ | 344 |
Provisions | (3 | ) |  | 6 |  |  | — |  |  | 3 |
Foreign exchange and other | 2 |  |  | 1 |  |  | — |  |  | 3 |
Allowance for credit loss as of October 26, 2013 | $ | 237 |  |  | $ | 93 |  |  | $ | 20 |  |  | $ | 350 |
Gross receivables as of October 26, 2013, net of unearned income | $ | 3,549 |  |  | $ | 1,808 |  |  | $ | 3,018 |  |  | $ | 8,375 |
| CREDIT LOSS ALLOWANCES
Three Months Ended October 27, 2012 | Lease Receivables |  | Loan Receivables |  | Financed Service Contracts and Other |  | Total
Allowance for credit loss as of July 28, 2012 | $ | 247 |  |  | $ | 122 |  |  | $ | 11 |  |  | $ | 380 |
Provisions | (2 | ) |  | (10 | ) |  | 1 |  |  | (11 | )
Foreign exchange and other | 3 |  |  | 2 |  |  | — |  |  | 5 |
Allowance for credit loss as of October 27, 2012 | $ | 248 |  |  | $ | 114 |  |  | $ | 12 |  |  | $ | 374 |
Gross receivables as of October 27, 2012, net of unearned income | $ | 3,340 |  |  | $ | 1,816 |  |  | $ | 2,639 |  |  | $ | 7,795 |
The Company assesses the allowance for credit loss related to financing receivables on either an individual or a collective basis. The Company considers various factors in evaluating lease and loan receivables and the earned portion of financed service contracts for possible impairment on an individual basis. These factors include the Company’s historical experience, credit quality and age of the receivable balances, and economic conditions that may affect a customer’s ability to pay. When the evaluation indicates that it is probable that all amounts due pursuant to the contractual terms of the financing agreement, including scheduled interest payments, are unable to be collected, the financing receivable is considered impaired. All such outstanding amounts, including any accrued interest, will be assessed and fully reserved at the customer level. The Company’s internal credit risk ratings are categorized as 1 through 10, with the lowest credit risk rating representing the highest quality financing receivables. Typically, the Company also considers receivables with a risk rating of 8 or higher to be impaired and will include them in the individual assessment for allowance. These balances, as of October 26, 2013 and July 27, 2013, are presented under “(b) Credit Quality of Financing Receivables” above. The Company evaluates the remainder of its financing receivables portfolio for impairment on a collective basis and records an allowance for credit loss at the portfolio segment level. When evaluating the financing receivables on a collective basis, the Company uses expected default frequency rates published by a major third-party credit-rating agency as well as its own historical loss rate in the event of default, while also systematically giving effect to economic conditions, concentration of risk, and correlation.
(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 $6.3 billion and $5.6 billion for the three months ended October 26, 2013 and October 27, 2012, respectively. The balance of the channel partner financing subject to guarantees was $1.4 billion as of each October 26, 2013 and July 27, 2013. 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 as to which the Company had provided guarantees was $25 million and $44 million for the three months ended October 26, 2013 and October 27, 2012, respectively. Financing Guarantee Summary The aggregate amounts of financing guarantees outstanding at October 26, 2013 and July 27, 2013, 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):
| October 26, 2013 |  | July 27, 2013
Maximum potential future payments relating to financing guarantees: |  |  |
Channel partner | $ | 483 |  |  | $ | 438 |
End user | 223 |  |  | 237 |
Total | $ | 706 |  |  | $ | 675 |
Deferred revenue associated with financing guarantees: |  |  |
Channel partner | $ | (232 | ) |  | $ | (225 | )
End user | (189 | ) |  | (191 | )
Total | $ | (421 | ) |  | $ | (416 | )
Maximum potential future payments relating to financing guarantees, net of associated deferred revenue | $ | 285 |  |  | $ | 259 |

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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=32702940&loc=SL6953791-111525 + Details
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