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Financing Receivables
 6 Months Ended
Jun. 30, 2011
Financing Receivables  
Financing Receivables

5. Financing Receivables: The following table presents financing receivables, net of allowances for credit losses, including residual values.

 

 

 

At June 30,

 

At December 31,

 

(Dollars in millions)

 

2011

 

2010

 

Current:

 

 

 

 

 

Net investment in sales-type and direct financing leases

 

$

3,958

 

$

3,945

 

Commercial financing receivables

 

5,198

 

6,777

 

Client loan receivables

 

4,719

 

4,718

 

Installment payment receivables

 

840

 

816

 

Total

 

$

14,715

 

$

16,257

 

Noncurrent:

 

 

 

 

 

Net investment in sales-type and direct financing leases

 

$

5,369

 

$

5,384

 

Commercial financing receivables

 

41

 

43

 

Client loan receivables

 

4,612

 

4,734

 

Installment payment receivables

 

399

 

388

 

Total

 

$

10,422

 

$

10,548

 

 

Net investment in sales-type and direct financing leases relates principally to the company’s systems products and are for terms ranging generally from two to six years. Net investment in sales-type and direct financing leases includes unguaranteed residual values of $792 million and $871 million at June 30, 2011 and December 31, 2010, respectively, and is reflected net of unearned income of $785 million and $816 million and net of the allowance for credit losses of $111 million and $126 million at those dates, respectively.

 

Commercial financing receivables relate primarily to inventory and accounts receivable financing for dealers and remarketers of IBM and non-IBM products. Payment terms for inventory and accounts receivable financing generally range from 30 to 90 days.

 

Client loan receivables are loans that are provided by Global Financing primarily to clients to finance the purchase of software and services. Separate contractual relationships on these financing arrangements are for terms ranging generally from two to seven years. Each financing contract is priced independently at competitive market rates. The company has a history of enforcing the terms of these separate financing agreements.

 

The company utilizes certain of its financing receivables as collateral for non-recourse borrowings. Financing receivables pledged as collateral for borrowings were $282 million and $302 million at June 30, 2011 and December 31, 2010, respectively.

 

The company did not have any financing receivables held for sale as of June 30, 2011 and December 31, 2010.

 

Financing Receivables by Portfolio Segment

 

The following tables present financing receivables on a gross basis excluding the allowance for credit losses and residual value, by portfolio segment and by class, excluding current commercial financing receivables and other miscellaneous current financing receivables at June 30, 2011 and December 31, 2010. The company determines its allowance for credit losses based on two portfolio segments: lease receivables and loan receivables, and further segments the portfolio via two classes: major markets and growth markets. For additional information on the company’s accounting policies for the allowance for credit losses, see the company’s 2010 Annual Report beginning on page 77.

 

(Dollars in millions)
At June 30, 2011

 

Major
Markets

 

Growth
Markets

 

Total

 

Financing receivables:

 

 

 

 

 

 

 

Lease receivables

 

$

6,543

 

$

2,043

 

$

8,586

 

Loan receivables

 

8,717

 

2,090

 

10,807

 

Ending balance

 

$

15,260

 

$

4,133

 

$

19,393

 

Collectively evaluated for impairment

 

$

14,931

 

$

4,017

 

$

18,948

 

Individually evaluated for impairment

 

$

329

 

$

116

 

$

445

 

 

 

 

 

 

 

 

 

Allowance for credit losses:

 

 

 

 

 

 

 

Lease receivables

 

$

84

 

$

42

 

$

126

 

Loan receivables

 

150

 

76

 

226

 

Beginning balance at January 1, 2011

 

$

234

 

$

119

 

$

353

 

Charge-offs

 

(53

)

(12

)

(65

)

Provision

 

(8

)

(3

)

(11

)

Other

 

10

 

2

 

12

 

Lease receivables

 

68

 

43

 

111

 

Loan receivables

 

116

 

62

 

178

 

Ending balance at June 30, 2011

 

$

184

 

$

105

 

$

289

 

Collectively evaluated for impairment

 

$

48

 

$

12

 

$

60

 

Individually evaluated for impairment

 

$

136

 

$

93

 

$

229

 

 

(Dollars in millions)
At December 31, 2010

 

Major
Markets

 

Growth
Markets

 

Total

 

Financing receivables:

 

 

 

 

 

 

 

Lease receivables

 

$

6,562

 

$

1,983

 

$

8,545

 

Loan receivables

 

9,087

 

1,993

 

11,080

 

Ending balance

 

$

15,650

 

$

3,975

 

$

19,625

 

Collectively evaluated for impairment

 

$

15,199

 

$

3,794

 

$

18,993

 

Individually evaluated for impairment

 

$

451

 

$

181

 

$

632

 

 

 

 

 

 

 

 

 

Allowance for credit losses:

 

 

 

 

 

 

 

Lease receivables*

 

$

84

 

$

42

 

$

126

 

Loan receivables*

 

150

 

76

 

226

 

Ending balance at December 31, 2010

 

$

234

 

$

119

 

$

353

 

Collectively evaluated for impairment

 

$

60

 

$

11

 

$

71

 

Individually evaluated for impairment

 

$

174

 

$

108

 

$

282

 

 

 

* Reclassified to conform with 2011 presentation.

 

When calculating the allowances, financing receivables are evaluated either on an individual or a collective basis. For individually evaluated receivables, the company determines the expected cash flow for the receivable and calculates an estimate of the potential loss and the probability of loss. For those accounts in which the loss is probable, the company records a specific reserve. In addition, the company records an unallocated reserve that is calculated by applying a reserve rate to its different portfolios, excluding accounts that have been specifically reserved. This reserve rate is based upon credit rating, probability of default, term, characteristics (lease/loan) and loss history.

 

Financing Receivables on Non-Accrual Status

 

Certain receivables for which the company has recorded a specific reserve may also be placed on non-accrual status. Non-accrual assets are those receivables with specific reserves and other accounts for which it is likely that the company will be unable to collect all amounts due according to original terms of the lease or loan agreement. Income recognition is discontinued on these receivables.

 

The following table presents the recorded investment in financing receivables which were on non-accrual status at June 30, 2011 and December 31, 2010.

 

(Dollars in millions)

 

At June 30,
2011

 

At December 31,
2010

 

Major markets

 

$

50

 

$

69

 

Growth markets

 

24

 

33

 

Total lease receivables

 

$

73

 

$

101

 

 

 

 

 

 

 

Major markets

 

$

73

 

$

141

 

Growth markets

 

21

 

123

 

Total loan receivables

 

$

94

 

$

264

 

 

 

 

 

 

 

Total receivables

 

$

168

 

$

366

 

 

Impaired Loans

 

The company considers any loan with an individually evaluated reserve as an impaired loan. Depending on the level of impairment, loans will also be placed on non-accrual status (see section “Financing Receivables on Non-Accrual Status”).

 

The following tables present impaired client loan receivables at June 30, 2011 and December 31, 2010.

 

 

 

At June 30, 2011

 

At December 31, 2010

 

(Dollars in millions)

 

Recorded
Investment

 

Related
Allowance

 

Recorded
Investment

 

Related
Allowance

 

Major markets

 

$

139

 

$

83

 

$

196

 

$

119

 

Growth markets

 

62

 

55

 

132

 

68

 

Total

 

$

201

 

$

139

 

$

328

 

$

187

 

 

(Dollars in millions)

 

Average
Recorded

 

Interest
Income

 

Interest
Income
Recognized on

 

For the three months ended June 30, 2011:

 

Investment

 

Recognized*

 

Cash Basis

 

Major markets

 

$

147

 

$

1

 

$

0

 

Growth markets

 

99

 

0

 

0

 

Total

 

$

246

 

$

1

 

$

0

 

 

 

* Impaired loans are placed on non-accrual status, depending on the level of impairment.

 

(Dollars in millions)

 

Average
Recorded

 

Interest
Income

 

Interest
Income
Recognized on

 

For the six months ended June 30, 2011:

 

Investment

 

Recognized*

 

Cash Basis

 

Major markets

 

$

163

 

$

1

 

$

0

 

Growth markets

 

110

 

0

 

0

 

Total

 

$

273

 

$

2

 

$

0

 

 

 

* Impaired loans are placed on non-accrual status, depending on the level of impairment.

 

Credit Quality Indicators

 

The company’s credit quality indicators are based on rating agency data, publicly available information and information provided by the companies, and are reviewed periodically based on the relative level of risk. The resulting indicators are a numerical rating system that maps to Moody’s Investors Service credit ratings as shown below. Moody’s has not provided to the company a credit rating on its clients.

 

The tables below present the gross recorded investment for each class of receivables, by credit quality indicator, at June 30, 2011 and December 31, 2010. Receivables with a credit quality indicator ranging from Aaa to Baa3 are considered investment grade. All others are considered non-investment grade.

 

 

 

Lease Receivables

 

Loan Receivables

 

(Dollars in millions)

 

Major

 

Growth

 

Major

 

Growth

 

At June 30, 2011:

 

Markets

 

Markets

 

Markets

 

Markets

 

Credit Rating:

 

 

 

 

 

 

 

 

 

Aaa – Aa3

 

$

910

 

$

153

 

$

1,213

 

$

157

 

A1 – A3

 

1,306

 

198

 

1,740

 

202

 

Baal – Baa3

 

2,413

 

866

 

3,215

 

886

 

Bal – Ba2

 

979

 

446

 

1,305

 

456

 

Ba3 – B1

 

557

 

259

 

742

 

265

 

B2 – B3

 

247

 

98

 

329

 

100

 

Caa – D

 

131

 

23

 

174

 

23

 

Total

 

$

6,543

 

$

2,043

 

$

8,717

 

$

2,090

 

 

At June 30, 2011, the industries which made up Global Financing’s receivables portfolio consist of: Financial (37 percent), Government (16 percent), Manufacturing (13 percent), Retail (9 percent), Services (8 percent), Communications (5 percent) and Other (12 percent).

 

 

 

Lease Receivables*

 

Loan Receivables*

 

(Dollars in millions)

 

Major

 

Growth

 

Major

 

Growth

 

At December 31, 2010:

 

Markets

 

Markets

 

Markets

 

Markets

 

Credit Rating:

 

 

 

 

 

 

 

 

 

Aaa – Aa3

 

$

794

 

$

173

 

$

1,100

 

$

173

 

A1 – A3

 

1,463

 

182

 

2,026

 

183

 

Baal – Baa3

 

2,494

 

837

 

3,453

 

841

 

Bal – Ba2

 

899

 

403

 

1,245

 

405

 

Ba3 – B1

 

518

 

242

 

718

 

243

 

B2 – B3

 

230

 

93

 

318

 

94

 

Caa – D

 

164

 

54

 

227

 

54

 

Total

 

$

6,562

 

$

1,983

 

$

9,087

 

$

1,993

 

 

 

* Reclassified to conform with 2011 presentation.

 

At December 31, 2010, the industries which make up Global Financing’s receivables portfolio consist of:  Financial (36 percent), Government (16 percent), Manufacturing (14 percent), Retail (9 percent), Services (8 percent), Communications (5 percent) and Other (12 percent).

 

Past Due Financing Receivables

 

The company views receivables as past due when payment has not been received after 90 days, measured from billing date.

 

(Dollars in millions)

 

Total
Past Due

 

 

 

Total
Financing

 

Recorded
Investment
> 90 Days

 

At June 30, 2011:

 

> 90 days*

 

Current

 

Receivables

 

and Accruing

 

Major markets

 

$

15

 

$

6,528

 

$

6,543

 

$

12

 

Growth markets

 

12

 

2,031

 

2,043

 

7

 

Total lease receivables

 

$

26

 

$

8,560

 

$

8,586

 

$

20

 

 

 

 

 

 

 

 

 

 

 

Major markets

 

$

17

 

$

8,700

 

$

8,717

 

$

14

 

Growth markets

 

15

 

2,075

 

2,090

 

14

 

Total loan receivables

 

$

32

 

$

10,775

 

$

10,807

 

$

28

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

58

 

$

19,334

 

$

19,393

 

$

48

 

 

 

* Does not include accounts that are fully reserved.

 

(Dollars in millions)

 

Total
Past Due

 

 

 

Total
Financing

 

Recorded
Investment
> 90 Days

 

At December 31, 2010:

 

> 90 days*

 

Current

 

Receivables

 

and Accruing

 

Major markets

 

$

10

 

$

6,552

 

$

6,562

 

$

5

 

Growth markets

 

13

 

1,970

 

1,983

 

5

 

Total lease receivables

 

$

22

 

$

8,523

 

$

8,545

 

$

10

 

 

 

 

 

 

 

 

 

 

 

Major markets

 

$

11

 

$

9,076

 

$

9,087

 

$

4

 

Growth markets

 

32

 

1,961

 

1,993

 

17

 

Total loan receivables

 

$

43

 

$

11,037

 

$

11,080

 

$

21

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

65

 

$

19,560

 

$

19,625

 

$

31

 

 

 

* Does not include accounts that are fully reserved.