
7.	Financing Receivables and Operating Leases


(a)	Financing Receivables

Financing receivables primarily consist of lease receivables, loan receivables, and financed service contracts and other. Lease receivables represent sales-type and direct-financing leases resulting from the sale of the Company’s and complementary third-party products and are typically collateralized by a security interest in the underlying assets. Loan receivables represent financing arrangements related to the sale of the Company’s products and services, which may include additional funding for other costs associated with network installation and integration of the Company’s products and services. Lease receivables consist of arrangements with terms of four years on average, while loan receivables generally have terms of up to three years. The financed service contracts and other category includes financing receivables related to technical support and advanced services, as well as receivables related to financing of certain indirect costs associated with leases. 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 the Company's financing receivables is presented as follows (in millions):



July 30, 2016	Lease Receivables			Loan Receivables			Financed Service Contracts and Other			Total
Gross	$	3,272		$	2,135		$	3,370		$	8,777
Residual value	202			—			—			202
Unearned income	(174		)	—			—			(174		)
Allowance for credit loss	(230		)	(97		)	(48		)	(375		)
Total, net	$	3,070		$	2,038		$	3,322		$	8,430
Reported as:
Current	$	1,490		$	988		$	1,794		$	4,272
Noncurrent	1,580			1,050			1,528			4,158
Total, net	$	3,070		$	2,038		$	3,322		$	8,430



July 25, 2015	Lease Receivables			Loan Receivables			Financed Service Contracts and Other			Total
Gross	$	3,361		$	1,763		$	3,573		$	8,697
Residual value	224			—			—			224
Unearned income	(190		)	—			—			(190		)
Allowance for credit loss	(259		)	(87		)	(36		)	(382		)
Total, net	$	3,136		$	1,676		$	3,537		$	8,349
Reported as:
Current	$	1,468		$	856		$	2,167		$	4,491
Noncurrent	1,668			820			1,370			3,858
Total, net	$	3,136		$	1,676		$	3,537		$	8,349

As of July 30, 2016 and July 25, 2015, the deferred service revenue related to "Financed Service Contracts and Other" was $1,716 million and $1,853 million, respectively.

Future minimum lease payments to the Company on lease receivables as of July 30, 2016 are summarized as follows (in millions):



Fiscal Year	Amount
2017	$	1,565
2018	962
2019	500
2020	209
2021	36
Total	$	3,272

Actual cash collections may differ from the contractual maturities due to early customer buyouts, refinancings, or defaults.


(b)	Credit Quality of Financing Receivables

Gross receivables, excluding residual value, less unearned income categorized by the Company’s internal credit risk rating as of July 30, 2016 and July 25, 2015 are summarized as follows (in millions):



	INTERNAL CREDIT RISK RATING
July 30, 2016	1 to 4		5 to 6		7 and Higher		Total
Lease receivables	$	1,703	$	1,294	$	101	$	3,098
Loan receivables	986		967		182		2,135
Financed service contracts and other	2,077		1,271		22		3,370
Total	$	4,766	$	3,532	$	305	$	8,603



	INTERNAL CREDIT RISK RATING
July 25, 2015	1 to 4		5 to 6		7 and Higher		Total
Lease receivables	$	1,688	$	1,342	$	141	$	3,171
Loan receivables	788		823		152		1,763
Financed service contracts and other	2,133		1,389		51		3,573
Total	$	4,609	$	3,554	$	344	$	8,507

The Company determines the adequacy of its allowance for credit loss by assessing the risks and losses inherent in its financing receivables by portfolio segment. The portfolio segment is based on the types of financing offered by the Company to its customers, which consist of the following: lease receivables, loan receivables, and financed service contracts and other.

The Company’s internal credit risk ratings of 1 through 4 correspond to investment-grade ratings, while credit risk ratings of 5 and 6 correspond to non-investment grade ratings. Credit risk ratings of 7 and higher correspond to substandard ratings.

In circumstances when collectibility is not deemed reasonably assured, the associated revenue is deferred in accordance with the Company’s revenue recognition policies, and the related allowance for credit loss, if any, is included in deferred revenue. The Company also records deferred revenue associated with financing receivables when there are remaining performance obligations, as it does for financed service contracts. Total allowances for credit loss and deferred revenue as of July 30, 2016 and July 25, 2015 were $2,112 million and $2,253 million, respectively, and they were associated with total financing receivables before allowance for credit loss of $8,805 million and $8,731 million as of their respective period ends.

The following tables present the aging analysis of gross receivables, excluding residual value and less unearned income as of July 30, 2016 and July 25, 2015 (in millions):



	DAYS PAST DUE (INCLUDES BILLED AND UNBILLED)
July 30, 2016	31 - 60		61 - 90		91+		Total Past Due		Current		Total		Nonaccrual Financing Receivables		Impaired Financing Receivables
Lease receivables	$	111	$	25	$	251	$	387	$	2,711	$	3,098	$	60	$	60
Loan receivables	30		9		37		76		2,059		2,135		42		42
Financed service contracts and other	213		152		565		930		2,440		3,370		30		10
Total	$	354	$	186	$	853	$	1,393	$	7,210	$	8,603	$	132	$	112



	DAYS PAST DUE (INCLUDES BILLED AND UNBILLED)
July 25, 2015	31 - 60		61 - 90		91+		Total Past Due		Current		Total		Nonaccrual Financing Receivables		Impaired Financing Receivables
Lease receivables	$	90	$	27	$	185	$	302	$	2,869	$	3,171	$	73	$	73
Loan receivables	21		3		25		49		1,714		1,763		32		32
Financed service contracts and other	396		152		414		962		2,611		3,573		29		9
Total	$	507	$	182	$	624	$	1,313	$	7,194	$	8,507	$	134	$	114

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. The balances of either unbilled or current financing receivables included in the category of 91 days plus past due for financing receivables were $670 million and $496 million as of July 30, 2016 and July 25, 2015, respectively.

As of July 30, 2016, the Company had financing receivables of $144 million, net of unbilled or current receivables, that were in the category of 91 days plus past due but remained on accrual status as they are well secured and in the process of collection. Such balance was $70 million as of July 25, 2015.


(c)	Allowance for Credit Loss Rollforward

The allowances for credit loss and the related financing receivables are summarized as follows (in millions):



	CREDIT LOSS ALLOWANCES
	Lease Receivables			Loan Receivables			Financed Service Contracts and Other			Total
Allowance for credit loss as of July 25, 2015	$	259		$	87		$	36		$	382
Provisions	(13		)	13			17			17
Recoveries (write-offs), net	(10		)	—			(5		)	(15		)
Foreign exchange and other	(6		)	(3		)	—			(9		)
Allowance for credit loss as of July 30, 2016	$	230		$	97		$	48		$	375



	CREDIT LOSS ALLOWANCES
	Lease Receivables			Loan Receivables			Financed Service Contracts and Other			Total
Allowance for credit loss as of July 26, 2014	$	233		$	98		$	18		$	349
Provisions	45			(8		)	20			57
Recoveries (write-offs), net	(7		)	1			(1		)	(7		)
Foreign exchange and other	(12		)	(4		)	(1		)	(17		)
Allowance for credit loss as of July 25, 2015	$	259		$	87		$	36		$	382



	CREDIT LOSS ALLOWANCES
	Lease Receivables			Loan Receivables			Financed Service Contracts and Other			Total
Allowance for credit loss as of July 27, 2013	$	238		$	86		$	20		$	344
Provisions	4			9			1			14
Recoveries (write-offs), net	(11		)	5			(3		)	(9		)
Foreign exchange and other	2			(2		)	—			—
Allowance for credit loss as of July 26, 2014	$	233		$	98		$	18		$	349


(d)	Operating Leases

The Company provides financing of certain equipment through operating leases, and the amounts are included in property and equipment in the Consolidated Balance Sheets. Amounts relating to equipment on operating lease assets and the associated accumulated depreciation are summarized as follows (in millions):



	July 30, 2016			July 25, 2015
Operating lease assets	$	296		$	372
Accumulated depreciation	(161		)	(205		)
Operating lease assets, net	$	135		$	167

Minimum future rentals on noncancelable operating leases as of July 30, 2016 are summarized as follows (in millions):



Fiscal Year	Amount
2017	$	199
2018	138
2019	47
2020	8
2021	4
Thereafter	2
Total	$	398