Financing Receivables

6 Months Ended

Jan. 23, 2021

(a)Financing Receivables

Financing receivables primarily consist of lease receivables, loan receivables, and financed service contracts. Lease receivables represent sales-type leases resulting from the sale of Cisco’s and complementary third-party products and are typically collateralized by a security interest in the underlying assets. Lease receivables consist of arrangements with terms of four years on average. Loan receivables represent financing arrangements related to the sale of our hardware, software, and services, which may include additional funding for other costs associated with network installation and integration of our products and services. Loan receivables have terms of three years on average. Financed service contracts include financing receivables related to technical support and advanced services. 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 year to three years.

A summary of our financing receivables is presented as follows (in millions):


January 23, 2021	Lease Receivables		Loan Receivables		Financed Service Contracts		Total
Gross	$	1,865	$	5,817	$	2,575	$	10,257
Residual value	115		—		—		115
Unearned income	(97)		—		—		(97)
Allowance for credit loss	(43)		(96)		(9)		(148)
Total, net	$	1,840	$	5,721	$	2,566	$	10,127
Reported as:
Current	$	868	$	2,746	$	1,413	$	5,027
Noncurrent	972		2,975		1,153		5,100
Total, net	$	1,840	$	5,721	$	2,566	$	10,127


July 25, 2020	Lease Receivables		Loan Receivables		Financed Service Contracts		Total
Gross	$	2,127	$	5,937	$	2,830	$	10,894
Residual value	123		—		—		123
Unearned income	(114)		—		—		(114)
Allowance for credit loss	(48)		(81)		(9)		(138)
Total, net	$	2,088	$	5,856	$	2,821	$	10,765
Reported as:
Current	$	918	$	2,692	$	1,441	$	5,051
Noncurrent	1,170		3,164		1,380		5,714
Total, net	$	2,088	$	5,856	$	2,821	$	10,765

(b)Credit Quality of Financing Receivables

Gross financing receivables(1) categorized by our internal credit risk rating by period of origination as of January 23, 2021 are summarized as follows (in millions):


			Fiscal Year								Six Months Ended
Internal Credit Risk Rating	Prior		July 29, 2017		July 28, 2018		July 27, 2019		July 25, 2020		January 23, 2021		Total
Lease Receivables:
1 to 4	$	10	$	49	$	153	$	248	$	331	$	16	$	807
5 to 6	15		48		121		270		360		98		912
7 and Higher	3		2		6		14		20		4		49
Total Lease Receivables	$	28	$	99	$	280	$	532	$	711	$	118	$	1,768

Loan Receivables:
1 to 4	$	16	$	141	$	387	$	774	$	1,302	$	1,053	$	3,673
5 to 6	5		60		145		362		745		672		1,989
7 and Higher	2		3		8		65		58		19		155
Total Loan Receivables	$	23	$	204	$	540	$	1,201	$	2,105	$	1,744	$	5,817

Financed Service Contracts:
1 to 4	$	2	$	49	$	51	$	213	$	455	$	742	$	1,512
5 to 6	1		21		57		235		412		305		1,031
7 and Higher	—		—		2		15		12		3		32
Total Financed Service Contracts	$	3	$	70	$	110	$	463	$	879	$	1,050	$	2,575

Total	$	54	$	373	$	930	$	2,196	$	3,695	$	2,912	$	10,160

(1) Lease receivables calculated as gross lease receivables, excluding residual value, less unearned income

The following table summarizes our gross receivables categorized by our internal credit risk rating as of July 25, 2020 and was not restated to reflect the impact of adoption of the accounting standards update on Credit Losses on Financial Instruments:


	INTERNAL CREDIT RISK RATING
July 25, 2020	1 to 4		5 to 6		7 and Higher		Total
Lease receivables	$	992	$	952	$	69	$	2,013
Loan receivables	3,808		1,961		168		5,937
Financed service contracts	1,645		1,153		32		2,830
Total	$	6,445	$	4,066	$	269	$	10,780

The following tables present the aging analysis of gross receivables as of January 23, 2021 and July 25, 2020 (in millions):


	DAYS PAST DUE (INCLUDES BILLED AND UNBILLED)
January 23, 2021	31-60		61-90		91+		Total Past Due		Current		Total		120+ Still Accruing		Nonaccrual Financing Receivables		Impaired Financing Receivables
Lease receivables	$	68	$	13	$	83	$	164	$	1,604	$	1,768	$	2	$	33	$	33
Loan receivables	109		30		73		212		5,605		5,817		15		50		50
Financed service contracts	40		11		101		152		2,423		2,575		31		4		4
Total	$	217	$	54	$	257	$	528	$	9,632	$	10,160	$	48	$	87	$	87


	DAYS PAST DUE (INCLUDES BILLED AND UNBILLED)
July 25, 2020	31-60		61-90		91+		Total Past Due		Current		Total		Nonaccrual Financing Receivables		Impaired Financing Receivables
Lease receivables	$	29	$	47	$	48	$	124	$	1,889	$	2,013	$	43	$	43
Loan receivables	129		78		78		285		5,652		5,937		65		65
Financed service contracts	69		75		124		268		2,562		2,830		4		4
Total	$	227	$	200	$	250	$	677	$	10,103	$	10,780	$	112	$	112

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.

As of July 25, 2020, we had financing receivables of $67 million, net of unbilled or current receivables, that were greater than 120 days plus past due but remained on accrual status as they are well secured and in the process of collection.

(c)Allowance for Credit Loss Rollforward

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


Three months ended January 23, 2021	CREDIT LOSS ALLOWANCES
	Lease Receivables		Loan Receivables		Financed Service Contracts		Total
Allowance for credit loss as of October 24, 2020	$	46	$	101	$	7	$	154
Provisions (benefits)	(4)		(6)		2		(8)
Other	1		1		—		2
Allowance for credit loss as of January 23, 2021	$	43	$	96	$	9	$	148


Six months ended January 23, 2021	CREDIT LOSS ALLOWANCES
	Lease Receivables		Loan Receivables		Financed Service Contracts		Total
Allowance for credit loss as of July 25, 2020	$	48	$	81	$	9	$	138
Provisions (benefits)	(7)		(3)		1		(9)
Other	2		18		(1)		19
Allowance for credit loss as of January 23, 2021	$	43	$	96	$	9	$	148


Three months ended January 25, 2020	CREDIT LOSS ALLOWANCES
	Lease Receivables		Loan Receivables		Financed Service Contracts		Total
Allowance for credit loss as of October 26, 2019	$	43	$	81	$	9	$	133
Provisions (benefits)	(1)		15		—		14
Recoveries (write-offs), net	(1)		(1)		—		(2)
Foreign exchange and other	1		—		(1)		—
Allowance for credit loss as of January 25, 2020	$	42	$	95	$	8	$	145


Six months ended January 25, 2020	CREDIT LOSS ALLOWANCES
	Lease Receivables		Loan Receivables		Financed Service Contracts		Total
Allowance for credit loss as of July 27, 2019	$	46	$	71	$	9	$	126
Provisions (benefits)	(4)		42		—		38
Recoveries (write-offs), net	(1)		(17)		—		(18)
Foreign exchange and other	1		(1)		(1)		(1)
Allowance for credit loss as of January 25, 2020	$	42	$	95	$	8	$	145