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Financing Receivables and Operating Leases | 3 Months Ended
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Oct. 29, 2016
Receivables [Abstract] |
Financing Receivables and Operating Leases | Financing Receivables and Operating Leases
(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, software, and 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 29, 2016 | Lease Receivables |  | Loan Receivables |  | Financed Service Contracts and Other |  | Total
Gross | $ | 3,202 |  |  | $ | 2,236 |  |  | $ | 4,239 |  |  | $ | 9,677 |
Residual value | 197 |  |  | — |  |  | — |  |  | 197 |
Unearned income | (163 | ) |  | — |  |  | — |  |  | (163 | )
Allowance for credit loss | (227 | ) |  | (111 | ) |  | (48 | ) |  | (386 | )
Total, net | $ | 3,009 |  |  | $ | 2,125 |  |  | $ | 4,191 |  |  | $ | 9,325 |
Reported as: |  |  |  |  |  |  |
Current | $ | 1,504 |  |  | $ | 1,021 |  |  | $ | 2,016 |  |  | $ | 4,541 |
Noncurrent | 1,505 |  |  | 1,104 |  |  | 2,175 |  |  | 4,784 |
Total, net | $ | 3,009 |  |  | $ | 2,125 |  |  | $ | 4,191 |  |  | $ | 9,325 |
July 30, 2016 | Lease Receivables |  | Loan Receivables |  | Financed Service Contracts and Other |  | Total
Gross | $ | 3,272 |  |  | $ | 2,135 |  |  | $ | 3,370 |  |  | $ | 8,777 |
Residual value | 202 |  |  | — |  |  | — |  |  | 202 |
Unearned income | (174 | ) |  | — |  |  | — |  |  | (174 | )
Allowance for credit loss | (230 | ) |  | (97 | ) |  | (48 | ) |  | (375 | )
Total, net | $ | 3,070 |  |  | $ | 2,038 |  |  | $ | 3,322 |  |  | $ | 8,430 |
Reported as: |  |  |  |  |  |  |
Current | $ | 1,490 |  |  | $ | 988 |  |  | $ | 1,794 |  |  | $ | 4,272 |
Noncurrent | 1,580 |  |  | 1,050 |  |  | 1,528 |  |  | 4,158 |
Total, net | $ | 3,070 |  |  | $ | 2,038 |  |  | $ | 3,322 |  |  | $ | 8,430 |
As of October 29, 2016 and July 30, 2016, the deferred service revenue related to "Financed Service Contracts and Other" was $2,371 million and $1,716 million, respectively. Future minimum lease payments to the Company on lease receivables as of October 29, 2016 are summarized as follows (in millions):
Fiscal Year | Amount
2017 (remaining nine months) | $ | 1,222 |
2018 | 1,066 |
2019 | 587 |
2020 | 260 |
2021 | 65 |
Thereafter | 2 |
Total | $ | 3,202 |
Actual cash collections may differ from the contractual maturities due to early customer buyouts, refinancings, or defaults.
(b) | Credit Quality of Financing Receivables
Gross receivables, excluding residual value, less unearned income categorized by the Company’s internal credit risk rating as of October 29, 2016 and July 30, 2016 are summarized as follows (in millions):
| INTERNAL CREDIT RISK RATING
October 29, 2016 | 1 to 4 |  | 5 to 6 |  | 7 and Higher |  | Total
Lease receivables | $ | 1,652 |  |  | $ | 1,293 |  |  | $ | 94 |  |  | $ | 3,039 |
Loan receivables | 1,081 |  |  | 976 |  |  | 179 |  |  | 2,236 |
Financed service contracts and other | 2,898 |  |  | 1,313 |  |  | 28 |  |  | 4,239 |
Total | $ | 5,631 |  |  | $ | 3,582 |  |  | $ | 301 |  |  | $ | 9,514 |
| INTERNAL CREDIT RISK RATING
July 30, 2016 | 1 to 4 |  | 5 to 6 |  | 7 and Higher |  | Total
Lease receivables | $ | 1,703 |  |  | $ | 1,294 |  |  | $ | 101 |  |  | $ | 3,098 |
Loan receivables | 986 |  |  | 967 |  |  | 182 |  |  | 2,135 |
Financed service contracts and other | 2,077 |  |  | 1,271 |  |  | 22 |  |  | 3,370 |
Total | $ | 4,766 |  |  | $ | 3,532 |  |  | $ | 305 |  |  | $ | 8,603 |
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 29, 2016 and July 30, 2016 were $2,779 million and $2,112 million, respectively, and they were associated with total financing receivables before allowance for credit loss of $9,711 million and $8,805 million as of their respective period ends. The following tables present the aging analysis of gross receivables, excluding residual value and less unearned income as of October 29, 2016 and July 30, 2016 (in millions):
| DAYS PAST DUE (INCLUDES BILLED AND UNBILLED) |  |  |  |  |  |  |  |
October 29, 2016 | 31-60 |  | 61-90 |  | 91+ |  | Total Past Due |  | Current |  | Total |  | Nonaccrual Financing Receivables |  | Impaired Financing Receivables
Lease receivables | $ | 86 |  |  | $ | 70 |  |  | $ | 249 |  |  | $ | 405 |  |  | $ | 2,634 |  |  | $ | 3,039 |  |  | $ | 55 |  |  | $ | 55 |
Loan receivables | 25 |  |  | 23 |  |  | 95 |  |  | 143 |  |  | 2,093 |  |  | 2,236 |  |  | 42 |  |  | 42 |
Financed service contracts and other | 317 |  |  | 338 |  |  | 367 |  |  | 1,022 |  |  | 3,217 |  |  | 4,239 |  |  | 29 |  |  | 9 |
Total | $ | 428 |  |  | $ | 431 |  |  | $ | 711 |  |  | $ | 1,570 |  |  | $ | 7,944 |  |  | $ | 9,514 |  |  | $ | 126 |  |  | $ | 106 |
| DAYS PAST DUE (INCLUDES BILLED AND UNBILLED) |  |  |  |  |  |  |  |
July 30, 2016 | 31-60 |  | 61-90 |  | 91+ |  | Total Past Due |  | Current |  | Total |  | Nonaccrual Financing Receivables |  | Impaired Financing Receivables
Lease receivables | $ | 111 |  |  | $ | 25 |  |  | $ | 251 |  |  | $ | 387 |  |  | $ | 2,711 |  |  | $ | 3,098 |  |  | $ | 60 |  |  | $ | 60 |
Loan receivables | 30 |  |  | 9 |  |  | 37 |  |  | 76 |  |  | 2,059 |  |  | 2,135 |  |  | 42 |  |  | 42 |
Financed service contracts and other | 213 |  |  | 152 |  |  | 565 |  |  | 930 |  |  | 2,440 |  |  | 3,370 |  |  | 30 |  |  | 10 |
Total | $ | 354 |  |  | $ | 186 |  |  | $ | 853 |  |  | $ | 1,393 |  |  | $ | 7,210 |  |  | $ | 8,603 |  |  | $ | 132 |  |  | $ | 112 |
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 balances of either unbilled or current financing receivables included in the category of 91 days plus past due for financing receivables were $436 million and $670 million as of October 29, 2016 and July 30, 2016, respectively. As of October 29, 2016, the Company had financing receivables of $236 million, net of unbilled or current receivables, that were in the category of 91 days plus past due but remained on accrual status as they are well secured and in the process of collection. Such balance was $144 million as of July 30, 2016.
(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, 2016 | $ | 230 |  |  | $ | 97 |  |  | $ | 48 |  |  | $ | 375 |
Provisions | (4 | ) |  | 12 |  |  | — |  |  | 8 |
Foreign exchange and other | 1 |  |  | 2 |  |  | — |  |  | 3 |
Allowance for credit loss as of October 29, 2016 | $ | 227 |  |  | $ | 111 |  |  | $ | 48 |  |  | $ | 386 |
| CREDIT LOSS ALLOWANCES
| Lease Receivables |  | Loan Receivables |  | Financed Service Contracts and Other |  | Total
Allowance for credit loss as of July 25, 2015 | $ | 259 |  |  | $ | 87 |  |  | $ | 36 |  |  | $ | 382 |
Provisions | — |  |  | 4 |  |  | — |  |  | 4 |
Recoveries (write-offs), net | (4 | ) |  | — |  |  | (3 | ) |  | (7 | )
Foreign exchange and other | — |  |  | (1 | ) |  | — |  |  | (1 | )
Allowance for credit loss as of October 24, 2015 | $ | 255 |  |  | $ | 90 |  |  | $ | 33 |  |  | $ | 378 |
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 29, 2016 and July 30, 2016, 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) | Operating Leases
The Company provides financing of certain equipment through operating leases, and the amounts are included in property and equipment in the Consolidated Balance Sheets. Amounts relating to equipment on operating lease assets and the associated accumulated depreciation are summarized as follows (in millions):
| October 29, 2016 |  | July 30, 2016
Operating lease assets | $ | 301 |  |  | $ | 296 |
Accumulated depreciation | (168 | ) |  | (161 | )
Operating lease assets, net | $ | 133 |  |  | $ | 135 |
Minimum future rentals on noncancelable operating leases as of October 29, 2016 are summarized as follows (in millions):
Fiscal Year | Amount
2017 (remaining nine months) | $ | 179 |
2018 | 142 |
2019 | 53 |
2020 | 8 |
2021 | 4 |
Thereafter | 1 |
Total | $ | 387 |

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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 -Section 55 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=32702940&loc=SL6953791-111525 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=66008989&loc=d3e4975-111524 + Details
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