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Financing and Trade Receivables | 9 Months Ended
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Sep. 30, 2022
Credit Loss [Abstract] |
Financing and Trade Receivables | FINANCING AND TRADE RECEIVABLES The Company’s financing receivables are comprised of commercial purchase security agreements with the Company’s end customers (“PSAs”) and commercial loans to the Company’s franchisees (“Franchisee Notes”). Financing receivables are generally secured by the underlying tools and equipment financed. PSAs are installment sales contracts originated between the franchisee and technicians or independent shop owners which enable these customers to purchase tools and equipment on an extended-term payment plan. PSA payment terms are generally up to five years. Upon origination, the Company assumes the PSA by crediting the franchisee’s trade accounts receivable. As a result, originations of PSAs are non-cash transactions. The Company records PSAs at amortized cost. Franchisee Notes have payment terms of up to 10 years and include financing to fund business startup costs including: (i) installment loans to franchisees used generally to finance inventory, equipment, and franchise fees; and (ii) lines of credit to finance working capital, including additional purchases of inventory. Revenues associated with the Company’s interest income related to financing receivables are recognized to approximate a constant effective yield over the contract term. Accrued interest is included in Accounts receivable less allowance for credit losses and is insignificant as of September 30, 2022 and December 31, 2021. Product sales to franchisees and the related financing income is included in Cash flows from operating activities in the accompanying Consolidated Condensed Statements of Cash Flows. The components of financing receivables with payments due in less than twelve months that are recorded in Accounts receivable less allowance for credit losses on the Consolidated Condensed Balance Sheets were as follows:
($ in millions) | September 30, 2022 |  | December 31, 2021
Gross current financing receivables: |  |  |
PSAs | $ | 96.1 |  |  | $ | 98.4 |
Franchisee Notes | 15.8 |  |  | 15.5 |
Current financing receivables, gross | $ | 111.9 |  |  | $ | 113.9 |
Allowance for credit losses: |  |  |
PSAs | $ | 14.5 |  |  | $ | 16.9 |
Franchisee Notes | 6.1 |  |  | 6.5 |
Total allowance for credit losses | 20.6 |  |  | 23.4 |
Total current financing receivables, net | $ | 91.3 |  |  | $ | 90.5 |
Net current financing receivables: |  |  |
PSAs, net | $ | 81.6 |  |  | $ | 81.5 |
Franchisee Notes, net | 9.7 |  |  | 9.0 |
Total current financing receivables, net | $ | 91.3 |  |  | $ | 90.5 |
The components of financing receivables with payments due beyond one year were as follows:
($ in millions) | September 30, 2022 |  | December 31, 2021
Gross long-term financing receivables: |  |  |
PSAs | $ | 223.0 |  |  | $ | 219.7 |
Franchisee Notes | 63.5 |  |  | 64.5 |
Long-term financing receivables, gross | $ | 286.5 |  |  | $ | 284.2 |
Allowance for credit losses: |  |  |
PSAs | $ | 31.8 |  |  | $ | 37.2 |
Franchisee Notes | 5.5 |  |  | 5.3 |
Total allowance for credit losses | 37.3 |  |  | 42.5 |
Total long-term financing receivables, net | $ | 249.2 |  |  | $ | 241.7 |
Net long-term financing receivables: |  |  |
PSAs, net | $ | 191.2 |  |  | $ | 182.5 |
Franchisee Notes, net | 58.0 |  |  | 59.2 |
Total long-term financing receivables, net | $ | 249.2 |  |  | $ | 241.7 |
Net deferred origination costs were insignificant as of September 30, 2022 and December 31, 2021. As of September 30, 2022 and December 31, 2021, we had a net unamortized discount on our financing receivables of $16.7 million. It is the Company’s general practice to not engage in contract or loan modifications of existing arrangements for troubled debt restructurings. In limited instances, the Company may modify certain impaired receivables with customers in bankruptcy or other legal proceedings, or in the event of significant natural disasters. Restructured financing receivables as of September 30, 2022 and December 31, 2021 were insignificant. Credit score and distributor tenure are the primary indicators of credit quality for the Company’s financing receivables. Depending on the contract, payments for financing receivables are due on a monthly or weekly basis. Weekly payments are converted into a monthly equivalent for purposes of calculating delinquency. Delinquencies are assessed at the end of each month following the monthly equivalent due date and are considered delinquent once past due. The amortized cost basis of PSAs and Franchisee Notes by origination year as of September 30, 2022, is as follows:
($ in millions) | 2022 |  | 2021 |  | 2020 |  | 2019 |  | 2018 |  | Prior |  | Total
PSAs |  |  |  |  |  |  |  |  |  |  |  |  |
Credit Score: |  |  |  |  |  |  |  |  |  |  |  |  |
Less than 400 | $ | 12.7 |  |  | $ | 9.8 |  |  | $ | 4.9 |  |  | $ | 2.7 |  |  | $ | 0.8 |  |  | $ | 0.2 |  |  | $ | 31.1 |
400-599 | 20.0 |  |  | 14.6 |  |  | 8.4 |  |  | 4.1 |  |  | 1.5 |  |  | 0.6 |  |  | 49.2 |
600-799 | 41.1 |  |  | 30.4 |  |  | 16.0 |  |  | 7.7 |  |  | 2.7 |  |  | 0.9 |  |  | 98.8 |
800+ | 65.6 |  |  | 40.5 |  |  | 20.8 |  |  | 9.4 |  |  | 3.0 |  |  | 0.7 |  |  | 140.0 |
Total PSAs | $ | 139.4 |  |  | $ | 95.3 |  |  | $ | 50.1 |  |  | $ | 23.9 |  |  | $ | 8.0 |  |  | $ | 2.4 |  |  | $ | 319.1 |
Franchisee Notes |  |  |  |  |  |  |  |  |  |  |  |  |
Active distributors | $ | 18.7 |  |  | $ | 23.8 |  |  | $ | 9.1 |  |  | $ | 8.4 |  |  | $ | 4.5 |  |  | $ | 4.5 |  |  | $ | 69.0 |
Separated distributors | 0.1 |  |  | 0.6 |  |  | 1.6 |  |  | 2.6 |  |  | 1.3 |  |  | 4.1 |  |  | 10.3 |
Total Franchisee Notes | $ | 18.8 |  |  | $ | 24.4 |  |  | $ | 10.7 |  |  | $ | 11.0 |  |  | $ | 5.8 |  |  | $ | 8.6 |  |  | $ | 79.3 |
Past Due PSAs are considered past due when a contractual payment has not been made. If a customer is making payments on its account, interest will continue to accrue. The table below sets forth the aging of the Company’s PSA balances as of:
($ in millions) |  | 30-59 days past due |  | 60-90 days past due |  | Greater than 90 days past due |  | Total past due |  | Total not considered past due |  | Total |  | Greater than 90 days past due and accruing interest
September 30, 2022 |  | $ | 3.4 |  |  | $ | 1.7 |  |  | $ | 6.4 |  |  | $ | 11.5 |  |  | $ | 307.6 |  |  | $ | 319.1 |  |  | $ | 6.4 |
December 31, 2021 |  | 3.3 |  |  | 1.7 |  |  | 6.5 |  |  | 11.5 |  |  | 306.6 |  |  | 318.1 |  |  | 6.5 |
Franchisee Notes are considered past due when payments have not been made for 21 days after the due date. Past due Franchisee Notes (where the franchisee had not yet separated) were insignificant as of September 30, 2022 and December 31, 2021. Uncollectable Status PSAs are deemed uncollectable and written off when they are both contractually delinquent and no payment has been received for 180 days. Franchisee Notes are deemed uncollectable and written off after a distributor separates and no payments have been received for one year. The Company stops accruing interest and other fees associated with financing receivables when (i) a customer is placed in uncollectable status and repossession efforts have begun; (ii) upon receipt of notification of bankruptcy; (iii) upon notification of the death of a customer; or (iv) other instances in which management concludes collectability is not reasonably assured. Allowance for Credit Losses Related to Financing Receivables The Company calculates the allowance for credit losses considering several factors, including the aging of its financing receivables, historical credit loss and portfolio delinquency experience and current economic conditions. The Company also evaluates financing receivables with identified exposures, such as customer defaults, bankruptcy or other events that make it unlikely it will recover the amounts owed to it. In calculating such reserves, the Company evaluates expected cash flows, including estimated proceeds from disposition of collateral, and calculates an estimate of the potential loss and the probability of loss. When a loss is considered probable on an individual financing receivable, a specific reserve is recorded. The following is a rollforward of the PSAs and Franchisee Notes components of the Company’s allowance for credit losses related to financing receivables as of:
| September 30, 2022 |  | December 31, 2021
($ in millions) | PSAs |  | Franchisee Notes |  | Total |  | PSAs |  | Franchisee Notes |  | Total
Allowance for credit losses, beginning of year | $ | 54.1 |  |  | $ | 11.8 |  |  | $ | 65.9 |  |  | $ | 54.3 |  |  | $ | 12.5 |  |  | $ | 66.8 |
Provision for credit losses | 14.4 |  |  | 3.5 |  |  | 17.9 |  |  | 24.9 |  |  | 4.2 |  |  | 29.1 |
Write-offs | (23.9) |  |  | (3.8) |  |  | (27.7) |  |  | (27.5) |  |  | (5.6) |  |  | (33.1) |
Recoveries of amounts previously charged off | 1.7 |  |  | 0.1 |  |  | 1.8 |  |  | 2.4 |  |  | 0.7 |  |  | 3.1 |
Allowance for credit losses, end of period | $ | 46.3 |  |  | $ | 11.6 |  |  | $ | 57.9 |  |  | $ | 54.1 |  |  | $ | 11.8 |  |  | $ | 65.9 |
The ending balance as of September 30, 2022 of $57.9 million is included in the Consolidated Condensed Balance Sheets in Accounts receivable, less allowance for credit losses and Long-term financing receivables less allowance for credit losses in the amounts of $20.6 million and $37.3 million, respectively. The ending balance as of December 31, 2021 of $65.9 million is included in the Consolidated Condensed Balance Sheets in Accounts receivable less allowance for credit losses and Long-term financing receivables less allowance for credit losses in the amounts of $23.4 million and $42.5 million, respectively. Allowance for Credit Losses Related to Trade Accounts Receivables The following is a rollforward of the allowance for credit losses related to the Company’s trade accounts receivables (excluding financing receivables) and the Company’s trade accounts receivable cost basis as of:
($ in millions) | September 30, 2022 |  | December 31, 2021 |  |
Cost basis of trade accounts receivable | $ | 433.6 |  |  | $ | 406.3 |  |  |
Allowance for credit losses balance, beginning of year | 15.5 |  |  | 18.1 |  |  |
Provision for credit losses | 3.3 |  |  | 7.7 |  |  |
Write-offs | (3.9) |  |  | (10.2) |  |  |
Reclassification to held for sale | (0.3) |  |  | — |  |  |
Foreign currency and other | (0.9) |  |  | (0.1) |  |  |
Allowance for credit losses balance, end of period | 13.7 |  |  | 15.5 |  |  |
Net trade accounts receivable balance | $ | 419.9 |  |  | $ | 390.8 |  |  |

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