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Financing Receivables
 9 Months Ended
Sep. 30, 2017
Financing Receivables:  
Financing Receivables:

 

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

 

 

 

At September 30,

 

At December 31,

 

(Dollars in millions)

 

2017

 

2016

 

Current:

 

 

 

 

 

Net investment in sales-type and direct financing leases

 

$
3,092

 

$
2,909

 

Commercial financing receivables

 
8,563

 
9,706

 

Client loan and installment payment receivables (loans)

 
6,395

 
6,390

 

 

 

 

 

 

 

Total

 

$
18,050

 

$
19,006

 

 

 

 

 

 

 

 

 

Noncurrent:

 

 

 

 

 

Net investment in sales-type and direct financing leases

 

$
3,579

 

$
3,950

 

Client loan and installment payment receivables (loans)

 
4,879

 
5,071

 

 

 

 

 

 

 

Total

 

$
8,459

 

$
9,021

 

 

 

 

 

 

 

 

 

 

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 $567 million and $585 million at September 30, 2017 and December 31, 2016, respectively, and is reflected net of unearned income of $459 million and $513 million, and net of allowance for credit losses of $118 million and $133 million at those dates, respectively.

 

Commercial financing receivables, net of allowance for credit losses of $21 million and $28 million at September 30, 2017 and December 31, 2016, respectively, relate primarily to inventory and accounts receivable financing for dealers and remarketers of IBM and OEM products. Payment terms for inventory and accounts receivable financing generally range from 30 to 90 days.

 

Client loan and installment payment receivables (loans), net of allowance for credit losses of $215 million and $276 million at September 30, 2017 and December 31, 2016, respectively, are loans that are provided primarily to clients to finance the purchase of hardware, software and services. Payment terms on these financing arrangements are generally for terms up to seven years.

 

Client loan and installment payment financing contracts are priced independently at competitive market rates. The company has a history of enforcing the terms of these financing agreements.

 

The company utilizes certain of its financing receivables as collateral for nonrecourse borrowings. Financing receivables pledged as collateral for borrowings were $640 million and $689 million at September 30, 2017 and December 31, 2016, respectively.

 

The company did not have any financing receivables held for sale as of September 30, 2017 and December 31, 2016.

 

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 commercial financing receivables and other miscellaneous financing receivables at September 30, 2017 and December 31, 2016. The company determines its allowance for credit losses based on two portfolio segments: lease receivables and loan receivables, and further segments the portfolio into three classes: Americas, Europe/Middle East/Africa (EMEA), and Asia Pacific. This portfolio segmentation was changed from growth markets and major markets in 2017 as the company no longer manages the business under those market delineations. There was no impact to segment reporting or the company’s Consolidated Financial Statements.

 

(Dollars in millions)

 

 

 

 

 

 

 

 

 

At September 30, 2017

 

Americas

 

EMEA

 

Asia Pacific

 

Total

 

Financing receivables

 

 

 

 

 

 

 

 

 

Lease receivables

 

$
3,541

 

$
1,297

 

$
1,304

 

$
6,142

 

Loan receivables

 
6,180

 
3,120

 
2,189

 
11,489

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$
9,721

 

$
4,417

 

$
3,493

 

$
17,631

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for impairment

 

$
9,581

 

$
4,386

 

$
3,391

 

$
17,358

 

Individually evaluated for impairment

 

$
140

 

$
31

 

$
102

 

$
273

 

Allowance for credit losses

 

 

 

 

 

 

 

 

 

Beginning balance at January 1, 2017

 

 

 

 

 

 

 

 

 

Lease receivables

 

$
54

 

$
4

 

$
76

 

$
133

 

Loan receivables

 
169

 
18

 
89

 
276

 

 

 

 

 

 

 

 

 

 

 

Total

 

$
223

 

$
22

 

$
165

 

$
410

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Write-offs

 

$
(49

)

$
0

 

$
(63

)

$
(112

)

Recoveries

 
0

 
0

 
0

 
0

 

Provision

 
11

 
9

 
(4

)
16

 

Other

 
12

 
5

 
2

 
19

 

 

 

 

 

 

 

 

 

 

 

Ending balance at September 30, 2017

 

$
197

 

$
36

 

$
100

 

$
333

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease receivables

 

$
77

 

$
6

 

$
35

 

$
118

 

Loan receivables

 

$
120

 

$
29

 

$
65

 

$
215

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for impairment

 

$
66

 

$
12

 

$
6

 

$
85

 

Individually evaluated for impairment

 

$
131

 

$
23

 

$
94

 

$
248

 

 

(Dollars in millions)

 

 

 

 

 

 

 

 

 

At December 31, 2016:*

 

Americas

 

EMEA

 

Asia Pacific

 

Total

 

Financing receivables:

 

 

 

 

 

 

 

 

 

Lease receivables

 

$

3,830

 

$
1,171

 

$
1,335

 

$
6,336

 

Loan receivables

 
6,185

 
3,309

 
2,243

 
11,737

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

10,015

 

$
4,480

 

$
3,578

 

$
18,073

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for impairment

 

$

9,847

 

$
4,460

 

$
3,419

 

$
17,726

 

Individually evaluated for impairment

 

$

168

 

$
20

 

$
159

 

$
347

 

Allowance for credit losses

 

 

 

 

 

 

 

 

 

Beginning balance at January 1, 2016

 

 

 

 

 

 

 

 

 

Lease receivables

 

$

52

 

$
17

 

$
143

 

$
213

 

Loan receivables

 
122

 
55

 
200

 
377

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

175

 

$
72

 

$
343

 

$
590

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Write-offs

 

$

(36

)

$
(48

)

$
(154

)

$
(237

)

Recoveries

 
2

 
0

 
0

 
2

 

Provision

 
65

 
(1

)
(6

)
58

 

Other

 
17

 
(1

)
(18

)
(3

)

 

 

 

 

 

 

 

 

 

 

Ending balance at December 31, 2016

 

$

223

 

$
22

 

$
165

 

$
410

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease receivables

 

$

54

 

$
4

 

$
76

 

$
133

 

Loan receivables

 

$

169

 

$
18

 

$
89

 

$
276

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for impairment

 

$

62

 

$
13

 

$
15

 

$
90

 

Individually evaluated for impairment

 

$

161

 

$
9

 

$
150

 

$
320

 

 

* Reclassified to conform to 2017 presentation.

 

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

 

The following table presents the recorded investment in financing receivables which were on non-accrual status at September 30, 2017 and December 31, 2016.

 

 

 

At September 30,

 

At December 31,

 

(Dollars in millions)

 

2017

 

2016*

 

Americas

 

$
25

 

$
23

 

EMEA

 
0

 
2

 

Asia Pacific

 
4

 
14

 

 

 

 

 

 

 

Total lease receivables

 

$
30

 

$
40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$
79

 

$
128

 

EMEA

 
53

 
5

 

Asia Pacific

 
10

 
12

 

 

 

 

 

 

 

Total loan receivables

 

$
142

 

$
145

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total receivables

 

$
172

 

$
185

 

 

 

 

 

 

 

 

 

 

* Reclassified to conform to 2017 presentation.

 

Impaired Receivables

 

The company considers any receivable with an individually evaluated reserve as an impaired receivable. Depending on the level of impairment, receivables will also be placed on non-accrual status.

 

The following tables present impaired receivables. This presentation includes both loan and lease receivables.

 

 

 

At September 30, 2017

 

At December 31, 2016*

 

 

 

Recorded

 

Related

 

Recorded

 

Related

 

(Dollars in millions)

 

Investment

 

Allowance

 

Investment

 

Allowance

 

Americas

 

$
140

 

$
131

 

$
168

 

$
161

 

EMEA

 
31

 
23

 
20

 
9

 

Asia Pacific

 
102

 
94

 
159

 
150

 

 

 

 

 

 

 

 

 

 

 

Total

 

$
273

 

$
248

 

$
347

 

$
320

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Reclassified to conform to 2017 presentation.

 

 

 

 

 

 

 

Interest

 

 

 

Average

 

Interest

 

Income

 

(Dollars in millions)

 

Recorded

 

Income

 

Recognized on

 

For the three months ended September 30, 2017:

 

Investment

 

Recognized

 

Cash Basis

 

Americas

 

$
156

 

$
0

 

$

—

 

EMEA

 
31

 
0

 

—

 

Asia Pacific

 
101

 
0

 

—

 

 

 

 

 

 

 

 

 

Total

 

$
288

 

$
0

 

$

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

 

 

Average

 

Interest

 

Income

 

(Dollars in millions)

 

Recorded

 

Income

 

Recognized on

 

For the three months ended September 30, 2016:*

 

Investment

 

Recognized

 

Cash Basis

 

Americas

 

$
182

 

$
0

 

$

—

 

EMEA

 
61

 
0

 

—

 

Asia Pacific

 
302

 
0

 

—

 

 

 

 

 

 

 

 

 

Total

 

$
545

 

$
0

 

$

—

 

 

 

 

 

 

 

 

 

 

 

 

 

* Reclassified to conform to 2017 presentation.

 

 

 

 

 

 

 

Interest

 

 

 

Average

 

Interest

 

Income

 

(Dollars in millions)

 

Recorded

 

Income

 

Recognized on

 

For the nine months ended September 30, 2017:

 

Investment

 

Recognized

 

Cash Basis

 

Americas

 

$
165

 

$
0

 

$

—

 

EMEA

 
27

 
0

 

—

 

Asia Pacific

 
131

 
0

 

—

 

 

 

 

 

 

 

 

 

Total

 

$
323

 

$
0

 

$

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

 

 

Average

 

Interest

 

Income

 

(Dollars in millions)

 

Recorded

 

Income

 

Recognized on

 

For the nine months ended September 30, 2016:*

 

Investment

 

Recognized

 

Cash Basis

 

Americas

 

$
158

 

$
0

 

$

—

 

EMEA

 
65

 
0

 

—

 

Asia Pacific

 
322

 
0

 

—

 

 

 

 

 

 

 

 

 

Total

 

$
545

 

$
0

 

$

—

 

 

 

 

 

 

 

 

 

 

 

 

 

* Reclassified to conform to 2017 presentation.

 

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. The company uses information provided by Moody’s, where available, as one of many inputs in its determination of customer credit ratings.

 

The following tables present the net recorded investment for each class of receivables, by credit quality indicator, at September 30, 2017 and December 31, 2016. Receivables with a credit quality indicator ranging from Aaa to Baa3 are considered investment grade. All others are considered non-investment grade. The credit quality indicators do not reflect mitigation actions that the company takes to transfer credit risk to third parties.

 

 

 

Lease Receivables

 

Loan Receivables

 

(Dollars in millions)

 

 

 

 

 

Asia

 

 

 

 

 

Asia

 

At September 30, 2017:

 

Americas

 

EMEA

 

Pacific

 

Americas

 

EMEA

 

Pacific

 

Credit Ratings:

 

 

 

 

 

 

 

 

 

 

 

 

 

Aaa – Aa3

 

$
358

 

$
52

 

$
56

 

$
626

 

$
124

 

$
94

 

A1 – A3

 
715

 
126

 
543

 
1,251

 
302

 
908

 

Baa1 – Baa3

 
807

 
404

 
329

 
1,412

 
968

 
550

 

Ba1 – Ba2

 
762

 
415

 
172

 
1,333

 
993

 
289

 

Ba3 – B1

 
421

 
197

 
86

 
736

 
473

 
143

 

B2 – B3

 
345

 
83

 
69

 
604

 
200

 
116

 

Caa – D

 
56

 
13

 
15

 
98

 
31

 
25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$
3,465

 

$
1,290

 

$
1,269

 

$
6,059

 

$
3,091

 

$
2,124

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At September 30, 2017, the industries which made up Global Financing’s receivables portfolio consisted of: Financial (33 percent), Government (14 percent), Manufacturing (14 percent), Services (13 percent), Retail (8 percent), Communications (7 percent), Healthcare (6 percent) and Other (5 percent).

 

 

 

Lease Receivables

 

Loan Receivables

 

(Dollars in millions)

 

 

 

 

 

Asia

 

 

 

 

 

Asia

 

At December 31, 2016:*

 

Americas

 

EMEA

 

Pacific

 

Americas

 

EMEA

 

Pacific

 

Credit Ratings:

 

 

 

 

 

 

 

 

 

 

 

 

 

Aaa – Aa3

 

$
447

 

$
51

 

$
53

 

$
712

 

$
143

 

$
90

 

A1 – A3

 
782

 
113

 
486

 
1,246

 
318

 
832

 

Baa1 – Baa3

 
772

 
366

 
330

 
1,230

 
1,032

 
565

 

Ba1 – Ba2

 
822

 
350

 
185

 
1,309

 
987

 
316

 

Ba3 – B1

 
574

 
208

 
106

 
914

 
585

 
182

 

B2 – B3

 
297

 
71

 
84

 
472

 
201

 
143

 

Caa – D

 
83

 
9

 
15

 
133

 
25

 
25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$
3,776

 

$
1,167

 

$
1,259

 

$
6,016

 

$
3,291

 

$
2,154

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Reclassified to conform to 2017 presentation.

 

At December 31, 2016, the industries which made up Global Financing’s receivables portfolio consisted of: Financial (34 percent), Government (14 percent), Manufacturing (13 percent), Services (12 percent), Retail (8 percent), Communications (7 percent), Healthcare (6 percent) and Other (6 percent).

 

Past Due Financing Receivables

 

 

 

 

 

Fully

 

<90 Days

 

 

 

Recorded

 

 

 

Total

 

Reserved

 

or Unbilled

 

Total

 

Investment

 

(Dollars in millions)

 

Past Due

 

Financing

 

Financing

 

Financing

 

> 90 Days and

 

At September 30, 2017:

 

> 90 days (1)

 

Receivables

 

Receivables

 

Receivables

 

Accruing (2)

 

Americas

 

$
28

 

$
51

 

$
3,463

 

$
3,541

 

$
255

 

EMEA

 
9

 
4

 
1,283

 
1,297

 
15

 

Asia Pacific

 
5

 
32

 
1,266

 
1,304

 
19

 

 

 

 

 

 

 

 

 

 

 

 

 

Total lease receivables

 

$
42

 

$
87

 

$
6,012

 

$
6,142

 

$
290

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$
43

 

$
80

 

$
6,057

 

$
6,180

 

$
401

 

EMEA

 
26

 
19

 
3,076

 
3,120

 
46

 

Asia Pacific

 
6

 
61

 
2,122

 
2,189

 
9

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loan receivables

 

$
75

 

$
160

 

$
11,255

 

$
11,489

 

$
456

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$
117

 

$
247

 

$
17,267

 

$
17,631

 

$
746

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Only the portion of a finance ing receivable which is greater than 90 days past due, excluding amounts that are fully reserved.

(2)

At a contract level, which includes total billed and unbilled amounts for aged financing receivables greater than 90 days.

 

 

 

 

 

Fully

 

<90 Days

 

 

 

Recorded

 

 

 

Total

 

Reserved

 

or Unbilled

 

Total

 

Investment

 

(Dollars in millions)

 

Past Due

 

Financing

 

Financing

 

Financing

 

> 90 Days and

 

At December 31, 2016:*

 

> 90 days (1)

 

Receivables

 

Receivables

 

Receivables

 

Accruing (2)

 

Americas

 

$
17

 

$
20

 

$
3,793

 

$
3,830

 

$
66

 

EMEA

 
2

 
10

 
1,159

 
1,171

 
6

 

Asia Pacific

 
12

 
59

 
1,264

 
1,335

 
40

 

 

 

 

 

 

 

 

 

 

 

 

 

Total lease receivables

 

$
31

 

$
89

 

$
6,216

 

$
6,336

 

$
111

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

$
19

 

$
90

 

$
6,075

 

$
6,185

 

$
80

 

EMEA

 
5

 
5

 
3,299

 
3,309

 
15

 

Asia Pacific

 
6

 
87

 
2,150

 
2,243

 
46

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loan receivables

 

$
31

 

$
182

 

$
11,524

 

$
11,737

 

$
141

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$
62

 

$
271

 

$
17,740

 

$
18,073

 

$
253

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Only the portion of a financing receivable which is greater than 90 days past due, excluding amounts that are fully reserved.

(2)

At a contract level, which includes total billed and unbilled amounts for aged financing receivables greater than 90 days.

*      Reclassified to conform to 2017 presentation.

 

Troubled Debt Restructurings

 

The company did not have any significant troubled debt restructurings during the nine months ended September 30, 2017 or for the year ended December 31, 2016.