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Financing Receivables | 3 Months Ended
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Oct. 24, 2020
Receivables [Abstract] |
Financing Receivables | Financing Receivables (a)Financing Receivables Financing receivables primarily consist of lease receivables, loan receivables, and financed service contracts. Lease receivables represent sales-type leases resulting from the sale of Cisco’s and complementary third-party products and are typically collateralized by a security interest in the underlying assets. Lease receivables consist of arrangements with terms of four years on average. Loan receivables represent financing arrangements related to the sale of our hardware, software, and services, which may include additional funding for other costs associated with network installation and integration of our products and services. Loan receivables have terms of three years on average. Financed service contracts include financing receivables related to technical support and advanced services. 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 our financing receivables is presented as follows (in millions):
October 24, 2020 | Lease Receivables |  | Loan Receivables |  | Financed Service Contracts |  | Total
Gross | $ | 2,063 |  |  | $ | 5,954 |  |  | $ | 2,744 |  |  | $ | 10,761 |
Residual value | 119 |  |  | — |  |  | — |  |  | 119 |
Unearned income | (105) |  |  | — |  |  | — |  |  | (105) |
Allowance for credit loss | (46) |  |  | (101) |  |  | (7) |  |  | (154) |
Total, net | $ | 2,031 |  |  | $ | 5,853 |  |  | $ | 2,737 |  |  | $ | 10,621 |
Reported as: |  |  |  |  |  |  |
Current | $ | 936 |  |  | $ | 2,733 |  |  | $ | 1,436 |  |  | $ | 5,105 |
Noncurrent | 1,095 |  |  | 3,120 |  |  | 1,301 |  |  | 5,516 |
Total, net | $ | 2,031 |  |  | $ | 5,853 |  |  | $ | 2,737 |  |  | $ | 10,621 |
July 25, 2020 | Lease Receivables |  | Loan Receivables |  | Financed Service Contracts |  | Total
Gross | $ | 2,127 |  |  | $ | 5,937 |  |  | $ | 2,830 |  |  | $ | 10,894 |
Residual value | 123 |  |  | — |  |  | — |  |  | 123 |
Unearned income | (114) |  |  | — |  |  | — |  |  | (114) |
Allowance for credit loss | (48) |  |  | (81) |  |  | (9) |  |  | (138) |
Total, net | $ | 2,088 |  |  | $ | 5,856 |  |  | $ | 2,821 |  |  | $ | 10,765 |
Reported as: |  |  |  |  |  |  |
Current | $ | 918 |  |  | $ | 2,692 |  |  | $ | 1,441 |  |  | $ | 5,051 |
Noncurrent | 1,170 |  |  | 3,164 |  |  | 1,380 |  |  | 5,714 |
Total, net | $ | 2,088 |  |  | $ | 5,856 |  |  | $ | 2,821 |  |  | $ | 10,765 |
(b)Credit Quality of Financing Receivables Gross financing receivables(1) categorized by our internal credit risk rating by period of origination as of October 24, 2020 are summarized as follows (in millions):
|  |  | Fiscal Year |  | Three Months Ended |  |
Internal Credit Risk Rating | Prior |  | July 29, 2017 |  | July 28, 2018 |  | July 27, 2019 |  | July 25, 2020 |  | October 24, 2020 |  | Total
Lease Receivables: |  |  |  |  |  |  |  |  |  |  |  |  |
1 to 4 | $ | 17 |  |  | $ | 60 |  |  | $ | 166 |  |  | $ | 263 |  |  | $ | 389 |  |  | $ | 25 |  |  | $ | 920 |
5 to 6 | 17 |  |  | 65 |  |  | 151 |  |  | 300 |  |  | 389 |  |  | 54 |  |  | 976 |
7 and Higher | 4 |  |  | 3 |  |  | 9 |  |  | 21 |  |  | 21 |  |  | 4 |  |  | 62 |
Total Lease Receivables | $ | 38 |  |  | $ | 128 |  |  | $ | 326 |  |  | $ | 584 |  |  | $ | 799 |  |  | $ | 83 |  |  | $ | 1,958 |
Loan Receivables: |  |  |  |  |  |  |  |  |  |  |  |  |
1 to 4 | $ | 30 |  |  | $ | 170 |  |  | $ | 458 |  |  | $ | 858 |  |  | $ | 1,430 |  |  | $ | 793 |  |  | $ | 3,739 |
5 to 6 | 16 |  |  | 87 |  |  | 174 |  |  | 456 |  |  | 887 |  |  | 441 |  |  | 2,061 |
7 and Higher | 3 |  |  | 3 |  |  | 9 |  |  | 72 |  |  | 62 |  |  | 5 |  |  | 154 |
Total Loan Receivables | $ | 49 |  |  | $ | 260 |  |  | $ | 641 |  |  | $ | 1,386 |  |  | $ | 2,379 |  |  | $ | 1,239 |  |  | $ | 5,954 |
Financed Service Contracts: |  |  |  |  |  |  |  |  |  |  |  |  |
1 to 4 | $ | 4 |  |  | $ | 56 |  |  | $ | 88 |  |  | $ | 246 |  |  | $ | 555 |  |  | $ | 634 |  |  | $ | 1,583 |
5 to 6 | 2 |  |  | 36 |  |  | 73 |  |  | 285 |  |  | 465 |  |  | 267 |  |  | 1,128 |
7 and Higher | — |  |  | — |  |  | 3 |  |  | 16 |  |  | 13 |  |  | 1 |  |  | 33 |
Total Financed Service Contracts | $ | 6 |  |  | $ | 92 |  |  | $ | 164 |  |  | $ | 547 |  |  | $ | 1,033 |  |  | $ | 902 |  |  | $ | 2,744 |
(1) Lease receivables calculated as gross lease receivables, excluding residual value, less unearned income The following table summarizes our gross receivables categorized by our internal credit risk rating as of July 25, 2020 and was not restated to reflect the impact of adoption of the accounting standards update on Credit Losses on Financial Instruments:
| INTERNAL CREDIT RISK RATING
July 25, 2020 | 1 to 4 |  | 5 to 6 |  | 7 and Higher |  | Total
Lease receivables | $ | 992 |  |  | $ | 952 |  |  | $ | 69 |  |  | $ | 2,013 |
Loan receivables | 3,808 |  |  | 1,961 |  |  | 168 |  |  | 5,937 |
Financed service contracts | 1,645 |  |  | 1,153 |  |  | 32 |  |  | 2,830 |
Total | $ | 6,445 |  |  | $ | 4,066 |  |  | $ | 269 |  |  | $ | 10,780 |
The following tables present the aging analysis of gross receivables as of October 24, 2020 and July 25, 2020 (in millions):
| DAYS PAST DUE (INCLUDES BILLED AND UNBILLED) |  |  |  |  |  |  |  |  |  |
October 24, 2020 | 31-60 |  | 61-90 |  | 91+ |  | Total Past Due |  | Current |  | Total |  | 120+ Still Accruing |  | Nonaccrual Financing Receivables |  | Impaired Financing Receivables
Lease receivables | $ | 45 |  |  | $ | 21 |  |  | $ | 103 |  |  | $ | 169 |  |  | $ | 1,789 |  |  | $ | 1,958 |  |  | $ | 4 |  |  | $ | 39 |  |  | $ | 39 |
Loan receivables | 113 |  |  | 32 |  |  | 80 |  |  | 225 |  |  | 5,729 |  |  | 5,954 |  |  | 10 |  |  | 54 |  |  | 54 |
Financed service contracts | 77 |  |  | 34 |  |  | 182 |  |  | 293 |  |  | 2,451 |  |  | 2,744 |  |  | 33 |  |  | 4 |  |  | 4 |
Total | $ | 235 |  |  | $ | 87 |  |  | $ | 365 |  |  | $ | 687 |  |  | $ | 9,969 |  |  | $ | 10,656 |  |  | $ | 47 |  |  | $ | 97 |  |  | $ | 97 |
| DAYS PAST DUE (INCLUDES BILLED AND UNBILLED) |  |  |  |  |  |  |  |
July 25, 2020 | 31-60 |  | 61-90 |  | 91+ |  | Total Past Due |  | Current |  | Total |  | Nonaccrual Financing Receivables |  | Impaired Financing Receivables
Lease receivables | $ | 29 |  |  | $ | 47 |  |  | $ | 48 |  |  | $ | 124 |  |  | $ | 1,889 |  |  | $ | 2,013 |  |  | $ | 43 |  |  | $ | 43 |
Loan receivables | 129 |  |  | 78 |  |  | 78 |  |  | 285 |  |  | 5,652 |  |  | 5,937 |  |  | 65 |  |  | 65 |
Financed service contracts | 69 |  |  | 75 |  |  | 124 |  |  | 268 |  |  | 2,562 |  |  | 2,830 |  |  | 4 |  |  | 4 |
Total | $ | 227 |  |  | $ | 200 |  |  | $ | 250 |  |  | $ | 677 |  |  | $ | 10,103 |  |  | $ | 10,780 |  |  | $ | 112 |  |  | $ | 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. As of July 25, 2020, we had financing receivables of $67 million, net of unbilled or current receivables, that were greater than 120 days plus past due but remained on accrual status as they are well secured and in the process of collection. (c)Allowance for Credit Loss Rollforward The allowances for credit loss and the related financing receivables are summarized as follows (in millions):
Three months ended October 24, 2020 | CREDIT LOSS ALLOWANCES
| Lease Receivables |  | Loan Receivables |  | Financed Service Contracts |  | Total
Allowance for credit loss as of July 25, 2020 | $ | 48 |  |  | $ | 81 |  |  | $ | 9 |  |  | $ | 138 |
Provisions (benefits) | (3) |  |  | 3 |  |  | (1) |  |  | (1) |
Other | 1 |  |  | 17 |  |  | (1) |  |  | 17 |
Allowance for credit loss as of October 24, 2020 | $ | 46 |  |  | $ | 101 |  |  | $ | 7 |  |  | $ | 154 |
Three months ended October 26, 2019 | CREDIT LOSS ALLOWANCES
| Lease Receivables |  | Loan Receivables |  | Financed Service Contracts |  | Total
Allowance for credit loss as of July 27, 2019 | $ | 46 |  |  | $ | 71 |  |  | $ | 9 |  |  | $ | 126 |
Provisions (benefits) | (3) |  |  | 27 |  |  | — |  |  | 24 |
Recoveries (write-offs), net | — |  |  | (16) |  |  | — |  |  | (16) |
Foreign exchange and other | — |  |  | (1) |  |  | — |  |  | (1) |
Allowance for credit loss as of October 26, 2019 | $ | 43 |  |  | $ | 81 |  |  | $ | 9 |  |  | $ | 133 |

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