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Financing Receivables:
 3 Months Ended
Mar. 31, 2012
Financing Receivables:  
Financing Receivables:

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

 

 

 

At March 31,

 

At December 31,

 

(Dollars in millions)

 

2012

 

2011

 

Current:

 

 

 

 

 

Net investment in sales-type and direct financing leases

 

$

3,819

 

$

3,765

 

Commercial financing receivables

 

5,476

 

7,095

 

Client loan receivables

 

4,822

 

5,195

 

Installment payment receivables

 

1,045

 

846

 

Total

 

$

15,160

 

$

16,901

 

Noncurrent:

 

 

 

 

 

Net investment in sales-type and direct financing leases

 

$

5,293

 

$

5,406

 

Commercial financing receivables

 

 

7

 

 

34

 

Client loan receivables

 

4,912

 

4,925

 

Installment payment receivables

 

337

 

410

 

Total

 

$

10,549

 

$

10,776

 

 

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 $730 million and $745 million at March 31, 2012 and December 31, 2011, respectively, and is reflected net of unearned income of $732 million and $733 million and net of the allowance for credit losses of $117 million and $118 million at those dates, respectively.

 

Commercial financing receivables, net of allowance for credit losses of $39 million and $53 million at March 31, 2012 and December 31, 2011, respectively, 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, net of allowance for credit losses of $150 million and $126 million at March 31, 2012 and December 31, 2011, respectively, are loans that are provided by Global Financing primarily to clients to finance the purchase of IBM and non-IBM software and services. Separate contractual relationships on these financing arrangements are for terms ranging generally from one to seven years.

 

Installment payment receivables, net of allowance for credit losses of $33 million and $51 million at March 31, 2012 and December 31, 2011, respectively, are loans that are provided primarily to clients to finance IBM and non-IBM hardware, software and services ranging generally from one to three years.

 

Client loan receivables and installment payment receivables financing contracts are 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 $373 million and $324 million at March 31, 2012 and December 31, 2011, respectively.

 

The company did not have any financing receivables held for sale as of March 31, 2012 and December 31, 2011.

 

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 March 31, 2012 and December 31, 2011. 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 2011 Annual Report beginning on page 85.

 

(Dollars in millions)

 

Major

 

Growth

 

 

 

At March 31, 2012

 

Markets

 

Markets

 

Total

 

Financing receivables:

 

 

 

 

 

 

 

Lease Receivables

 

$

6,446

 

$

1,949

 

$

8,396

 

Loan Receivables

 

8,609

 

2,726

 

11,335

 

Ending balance

 

$

15,055

 

$

4,675

 

$

19,730

 

Collectively evaluated for impairment

 

$

14,901

 

$

4,564

 

$

19,465

 

Individually evaluated for impairment

 

$

155

 

$

111

 

$

266

 

Allowance for credit losses:

 

 

 

 

 

 

 

Beginning balance at January 1, 2012

 

 

 

 

 

 

 

Lease Receivables

 

$

79

 

$

40

 

$

118

 

Loan Receivables

 

125

 

64

 

189

 

Total

 

$

203

 

$

104

 

$

307

 

Write-offs

 

(2

)

0

 

(2

)

Provision

 

(2

)

5

 

3

 

Other

 

2

 

1

 

3

 

Ending balance at March 31, 2012

 

$

202

 

$

109

 

$

311

 

Lease Receivables

 

$

74

 

$

43

 

$

117

 

Loan Receivables

 

$

128

 

$

66

 

$

194

 

Collectively evaluated for impairment

 

$

92

 

$

18

 

$

109

 

Individually evaluated for impairment

 

$

110

 

$

91

 

$

202

 

 

(Dollars in millions)

 

Major

 

Growth

 

 

 

At December 31, 2011

 

Markets

 

Markets

 

Total

 

Financing receivables:

 

 

 

 

 

 

 

Lease receivables

 

$

6,510

 

$

1,921

 

$

8,430

 

Loan receivables

 

9,077

 

2,552

 

11,629

 

Ending balance

 

$

15,587

 

$

4,472

 

$

20,060

 

Collectively evaluated for impairment

 

$

15,321

 

$

4,370

 

$

19,692

 

Individually evaluated for impairment

 

$

266

 

$

102

 

$

368

 

Allowance for credit losses:

 

 

 

 

 

 

 

Beginning balance at January 1, 2011

 

 

 

 

 

 

 

Lease receivables

 

$

84

 

$

42

 

$

126

 

Loan receivables

 

150

 

76

 

226

 

Total

 

$

234

 

$

119

 

$

353

 

Write-offs

 

(68

)

(16

)

(84

)

Provision

 

39

 

5

 

44

 

Other

 

(1

)

(4

)

(5

)

Ending balance at December 31, 2011

 

$

203

 

$

104

 

$

307

 

Lease receivables

 

$

79

 

$

40

 

$

118

 

Loan receivables

 

$

125

 

$

64

 

$

189

 

Collectively evaluated for impairment

 

$

82

 

$

15

 

$

96

 

Individually evaluated for impairment

 

$

122

 

$

89

 

$

211

 

 

When determining 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 determined 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 are on non-accrual status at March 31, 2012 and December 31, 2011.

 

 

 

At March 31,

 

At December 31,

 

(Dollars in millions)

 

2012

 

2011

 

Major markets

 

$

27

 

$

46

 

Growth markets

 

21

 

20

 

Total lease receivables

 

$

48

 

$

66

 

 

 

 

 

 

 

Major markets

 

$

50

 

$

75

 

Growth markets

 

22

 

24

 

Total loan receivables

 

$

71

 

$

99

 

 

 

 

 

 

 

Total receivables

 

$

119

 

$

165

 

 

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 March 31, 2012

 

At December 31, 2011

 

 

 

Recorded

 

Related

 

Recorded

 

Related

 

(Dollars in millions)

 

Investment

 

Allowance

 

Investment

 

Allowance

 

Major markets

 

$

86

 

$

72

 

$

110

 

$

70

 

Growth markets

 

66

 

53

 

62

 

53

 

Total

 

$

151

 

$

125

 

$

172

 

$

123

 

 

 

 

 

 

 

 

Interest

 

 

 

Average

 

Interest

 

Income

 

(Dollars in millions)

 

Recorded

 

Income

 

Recognized on

 

For the three months ended March 31, 2012:

 

Investment

 

Recognized*

 

Cash Basis

 

Major markets

 

$

98

 

$

0

 

$

0

 

Growth markets

 

64

 

0

 

0

 

Total

 

$

162

 

$

0

 

$

0

 

 

 

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

 

 

 

 

 

 

 

Interest

 

 

 

Average

 

Interest

 

Income

 

(Dollars in millions)

 

Recorded

 

Income

 

Recognized on

 

For the three months ended March 31, 2011:

 

Investment

 

Recognized*

 

Cash Basis

 

Major markets

 

$

176

 

$

0

 

$

0

 

Growth markets

 

134

 

0

 

0

 

Total

 

$

310

 

$

1

 

$

0

 

 

 

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

 

Credit Quality Indicators

 

The company’s credit quality indicators which are based on rating agency data, publicly available information and information provided by customers, 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 does not provide credit ratings to the company on its customers.

 

The tables below present the gross recorded investment for each class of receivables, by credit quality indicator, at March 31, 2012 and December 31, 2011. 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 March 31, 2012:

 

Markets

 

Markets

 

Markets

 

Markets

 

Credit Rating:

 

 

 

 

 

 

 

 

 

Aaa – Aa3

 

$

576

 

$

96

 

$

769

 

$

135

 

A1 – A3

 

1,478

 

290

 

1,974

 

405

 

Baal – Baa3

 

2,214

 

727

 

2,956

 

1,017

 

Bal – Ba2

 

1,263

 

433

 

1,687

 

605

 

Ba3 – B1

 

561

 

287

 

750

 

402

 

B2 – B3

 

288

 

98

 

385

 

137

 

Caa – D

 

66

 

18

 

88

 

26

 

Total

 

$

6,446

 

$

1,949

 

$

8,609

 

$

2,726

 

 

At March 31, 2012, the industries which made up Global Financing’s receivables portfolio consist of: Financial (40 percent), Government (15 percent), Manufacturing (13 percent), Retail (9 percent), Services (7 percent), Communications (5 percent) and Other (11 percent).

 

 

 

Lease Receivables

 

Loan Receivables

 

(Dollars in millions)

 

Major

 

Growth

 

Major

 

Growth

 

At December 31, 2011:

 

Markets

 

Markets

 

Markets

 

Markets

 

Credit Rating:

 

 

 

 

 

 

 

 

 

Aaa – Aa3

 

$

697

 

$

139

 

$

971

 

$

185

 

A1 – A3

 

1,459

 

306

 

2,034

 

407

 

Baal – Baa3

 

2,334

 

654

 

3,255

 

869

 

Bal – Ba2

 

1,118

 

457

 

1,559

 

607

 

Ba3 – B1

 

534

 

252

 

744

 

335

 

B2 – B3

 

260

 

97

 

362

 

129

 

Caa – D

 

108

 

15

 

151

 

20

 

Total

 

$

6,510

 

$

1,921

 

$

9,077

 

$

2,552

 

 

At December 31, 2011, the industries which make up Global Financing’s receivables portfolio consist of:  Financial (39 percent), Government (15 percent), Manufacturing (13 percent), Retail (9 percent), Services (7 percent), Communications (6 percent) and Other (11 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.

 

 

 

 

 

 

 

 

 

Recorded

 

 

 

Total

 

 

 

Total

 

Investment

 

(Dollars in millions)

 

Past Due

 

 

 

Financing

 

> 90 Days

 

At March 31, 2012:

 

> 90 days*

 

Current

 

Receivables

 

and Accruing

 

Major markets

 

$

9

 

$

6,438

 

$

6,446

 

$

6

 

Growth markets

 

10

 

1,939

 

1,949

 

7

 

Total lease receivables

 

$

19

 

$

8,377

 

$

8,396

 

$

13

 

 

 

 

 

 

 

 

 

 

 

Major markets

 

$

25

 

$

8,583

 

$

8,609

 

$

7

 

Growth markets

 

23

 

2,703

 

2,726

 

20

 

Total loan receivables

 

$

48

 

$

11,287

 

$

11,335

 

$

27

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

66

 

$

19,664

 

$

19,730

 

$

40

 

 

 

* Does not include accounts that are fully reserved.

 

 

 

 

 

 

 

 

 

Recorded

 

 

 

Total

 

 

 

Total

 

Investment

 

(Dollars in millions)

 

Past Due

 

 

 

Financing

 

> 90 Days

 

At December 31, 2011:

 

> 90 days*

 

Current

 

Receivables

 

and Accruing

 

Major markets

 

$

6

 

$

6,504

 

$

6,510

 

$

6

 

Growth markets

 

9

 

1,911

 

1,921

 

6

 

Total lease receivables

 

$

16

 

$

8,415

 

$

8,430

 

$

12

 

 

 

 

 

 

 

 

 

 

 

Major markets

 

$

23

 

$

9,054

 

$

9,077

 

$

7

 

Growth markets

 

22

 

2,530

 

2,552

 

19

 

Total loan receivables

 

$

46

 

$

11,584

 

$

11,629

 

$

26

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

62

 

$

19,998

 

$

20,060

 

$

38

 

 

 

* Does not include accounts that are fully reserved.

 

Troubled Debt Restructurings

 

The company assessed all restructurings that occurred on or after January 1, 2011 and determined that there were no troubled debt restructurings for the year ended December 31, 2011 and the three months ended March 31, 2012.