Attached files
file | filename |
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EX-32.2 - EX-32.2 - IBM CREDIT LLC | a17-18103_1ex32d2.htm |
EX-32.1 - EX-32.1 - IBM CREDIT LLC | a17-18103_1ex32d1.htm |
EX-31.2 - EX-31.2 - IBM CREDIT LLC | a17-18103_1ex31d2.htm |
EX-31.1 - EX-31.1 - IBM CREDIT LLC | a17-18103_1ex31d1.htm |
EX-12 - EX-12 - IBM CREDIT LLC | a17-18103_1ex12.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 2017
000-55786
(Commission file number)
IBM CREDIT LLC
(Exact name of registrant as specified in its charter)
Delaware |
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22-2351962 |
(State or Other Jurisdiction of |
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(IRS employer identification number) |
Armonk, New York |
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10504 |
(Address of principal executive offices) |
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(Zip Code) |
914-765-1900
(Registrants telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer x |
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Smaller reporting company o |
(Do not check if a smaller reporting company) |
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Emerging growth company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
All of the limited liability company interests (Interests) in the registrant are held by an affiliate of the registrant. None of the Interests are publicly traded.
REDUCED DISCLOSURE FORMAT
IBM Credit LLC, an indirect, wholly owned subsidiary of International Business Machines Corporation (IBM), meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format.
Part I Financial Information
Item 1. Consolidated Financial Statements:
IBM CREDIT LLC AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
(Dollars in millions) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
| ||||
Revenue |
|
|
|
|
|
|
|
|
| ||||
Financing revenue |
|
$ |
323 |
|
$ |
335 |
|
$ |
665 |
|
$ |
686 |
|
Operating lease revenue |
|
90 |
|
128 |
|
192 |
|
255 |
| ||||
Total revenue |
|
413 |
|
463 |
|
857 |
|
942 |
| ||||
Financing cost (related party cost for the three and six months: $68 and $134 in 2017, $82 and $163 in 2016) |
|
89 |
|
92 |
|
171 |
|
183 |
| ||||
Depreciation of equipment under operating lease |
|
58 |
|
80 |
|
120 |
|
160 |
| ||||
Net margin |
|
266 |
|
291 |
|
565 |
|
598 |
| ||||
Expense and other (income) |
|
|
|
|
|
|
|
|
| ||||
Selling, general and administrative |
|
107 |
|
100 |
|
209 |
|
196 |
| ||||
Provision for credit losses |
|
6 |
|
3 |
|
8 |
|
79 |
| ||||
Other (income) and expense |
|
7 |
|
(10 |
) |
25 |
|
(11 |
) | ||||
Total expense and other (income) |
|
120 |
|
93 |
|
242 |
|
265 |
| ||||
Income from continuing operations before income taxes |
|
145 |
|
198 |
|
323 |
|
334 |
| ||||
Provision for income taxes |
|
33 |
|
63 |
|
74 |
|
105 |
| ||||
Income from continuing operations |
|
$ |
112 |
|
$ |
136 |
|
$ |
249 |
|
$ |
228 |
|
Income from discontinued operations, net of tax |
|
|
|
27 |
|
|
|
62 |
| ||||
Net income |
|
$ |
112 |
|
$ |
162 |
|
$ |
249 |
|
$ |
290 |
|
(Amounts may not add due to rounding.)
(The accompanying notes are an integral part of the financial statements.)
IBM CREDIT LLC AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
(Dollars in millions) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
| ||||
Net income |
|
$ |
112 |
|
$ |
162 |
|
$ |
249 |
|
$ |
290 |
|
Other comprehensive income/(loss), net of tax: |
|
|
|
|
|
|
|
|
| ||||
Foreign currency translation adjustments |
|
148 |
|
7 |
|
217 |
|
132 |
| ||||
Retirement-related benefit plans |
|
0 |
|
0 |
|
1 |
|
0 |
| ||||
Other comprehensive income/(loss), net of tax: |
|
148 |
|
7 |
|
218 |
|
132 |
| ||||
Total comprehensive income/(loss) |
|
$ |
260 |
|
$ |
170 |
|
$ |
467 |
|
$ |
422 |
|
(Amounts may not add due to rounding.)
(The accompanying notes are an integral part of the financial statements.)
IBM CREDIT LLC AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
|
|
At June 30, |
|
At December 31, |
| ||
(Dollars in millions) |
|
2017 |
|
2016 |
| ||
Assets: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
1,781 |
|
$ |
1,772 |
|
Financing receivables |
|
21,636 |
|
24,681 |
| ||
Equipment under operating leases - net |
|
447 |
|
506 |
| ||
Financing receivables from IBM |
|
3,693 |
|
3,513 |
| ||
Receivables purchased/participated from IBM |
|
4,371 |
|
3,897 |
| ||
Other assets |
|
2,686 |
|
910 |
| ||
Total assets |
|
$ |
34,614 |
|
$ |
35,279 |
|
|
|
|
|
|
| ||
Liabilities: |
|
|
|
|
| ||
Accounts payable to IBM |
|
$ |
1,190 |
|
$ |
2,127 |
|
Debt |
|
1,261 |
|
724 |
| ||
Debt payable to IBM |
|
27,089 |
|
26,306 |
| ||
Taxes |
|
522 |
|
669 |
| ||
Other liabilities |
|
1,244 |
|
1,750 |
| ||
Total liabilities |
|
31,306 |
|
31,577 |
| ||
Members interest: |
|
|
|
|
| ||
Prior investment from member |
|
|
|
3,912 |
| ||
Members interest |
|
3,186 |
|
|
| ||
Retained earnings |
|
112 |
|
|
| ||
Accumulated other comprehensive income/(loss) |
|
9 |
|
(209 |
) | ||
Total members interest |
|
3,308 |
|
3,703 |
| ||
Total liabilities and members interest |
|
$ |
34,614 |
|
$ |
35,279 |
|
(Amounts may not add due to rounding.)
(The accompanying notes are an integral part of the financial statements.)
IBM CREDIT LLC AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
|
|
Six Months Ended June 30, |
| ||||
(Dollars in millions) |
|
2017 |
|
2016 |
| ||
Cash flows from operating activities: |
|
|
|
|
| ||
Net income |
|
$ |
249 |
|
$ |
290 |
|
Adjustments to reconcile net income to cash provided by operating activities |
|
|
|
|
| ||
Provision for credit losses |
|
8 |
|
79 |
| ||
Depreciation |
|
120 |
|
160 |
| ||
Deferred taxes |
|
(23 |
) |
(64 |
) | ||
Net (gain)/loss on asset sales and other |
|
202 |
|
(19 |
) | ||
Change in operating assets and liabilities |
|
|
|
|
| ||
Other assets/other liabilities |
|
(93 |
) |
(9 |
) | ||
Net cash provided by operating activities |
|
462 |
|
437 |
| ||
|
|
|
|
|
| ||
Cash flows from investing activities: |
|
|
|
|
| ||
Originations of financing receivables |
|
(5,053 |
) |
(4,983 |
) | ||
Collection of financing receivables |
|
6,130 |
|
6,937 |
| ||
Short-term financing receivables - net (1) |
|
347 |
|
639 |
| ||
Purchase of equipment under operating leases |
|
(109 |
) |
(191 |
) | ||
Proceeds from disposition of equipment under operating lease |
|
28 |
|
49 |
| ||
Other investing activities - net |
|
(1,799 |
) |
(27 |
) | ||
Net cash provided by/(used in) investing activities |
|
(455 |
) |
2,423 |
| ||
|
|
|
|
|
| ||
Cash flows from financing activities: |
|
|
|
|
| ||
Proceeds from issuance of debt from IBM |
|
4,101 |
|
3,310 |
| ||
Principal payments on debt from IBM |
|
(3,906 |
) |
(3,653 |
) | ||
Proceeds from issuance of debt |
|
753 |
|
168 |
| ||
Principal payments on debt |
|
(189 |
) |
(147 |
) | ||
Short-term borrowings from/(repayments to) IBM - net (1) |
|
99 |
|
(1,032 |
) | ||
Short-term borrowings/(repayments) - net (1) |
|
(27 |
) |
(4 |
) | ||
Net transfers (to)/from IBM |
|
(942 |
) |
(1,462 |
) | ||
Contributions from IBM |
|
80 |
|
|
| ||
Net cash used in financing activities |
|
(32 |
) |
(2,820 |
) | ||
|
|
|
|
|
| ||
Effect of exchange rate changes on cash and cash equivalents |
|
33 |
|
2 |
| ||
Net change in cash and cash equivalents |
|
9 |
|
42 |
| ||
|
|
|
|
|
| ||
Cash and cash equivalents at January 1 |
|
1,772 |
|
1,487 |
| ||
Cash and cash equivalents at June 30 |
|
$ |
1,781 |
|
$ |
1,529 |
|
(1) Short-term represents original maturities of 90 days or less.
(Amounts may not add due to rounding.)
(The accompanying notes are an integral part of the financial statements.)
IBM CREDIT LLC AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS INTEREST
(UNAUDITED)
|
|
Prior |
|
|
|
|
|
Accumulated |
|
|
| |||||
|
|
Investment |
|
|
|
|
|
Other |
|
Total |
| |||||
|
|
From |
|
Members |
|
Retained |
|
Comprehensive |
|
Members |
| |||||
(Dollars in millions) |
|
Member |
|
Interest |
|
Earnings |
|
Income/(Loss) |
|
Interest |
| |||||
Members Interest, January 1, 2017 |
|
$ |
3,912 |
|
$ |
|
|
$ |
|
|
$ |
(209 |
) |
$ |
3,703 |
|
Net income plus other comprehensive income/(loss): |
|
|
|
|
|
|
|
|
|
|
| |||||
Net income |
|
137 |
|
|
|
112 |
|
|
|
249 |
| |||||
Other comprehensive income/(loss), net of tax |
|
|
|
|
|
|
|
218 |
|
218 |
| |||||
Total comprehensive income/(loss) |
|
|
|
|
|
|
|
|
|
$ |
467 |
| ||||
Net transfers (to)/from IBM |
|
(942 |
) |
|
|
|
|
|
|
(942 |
) | |||||
Prior investment from member, March 31, 2017 |
|
3,106 |
|
|
|
|
|
|
|
|
| |||||
Transfer upon consolidation |
|
(3,106 |
) |
3,106 |
|
|
|
|
|
|
| |||||
Contributions from IBM |
|
|
|
80 |
|
|
|
|
|
80 |
| |||||
Members Interest, June 30, 2017 |
|
$ |
|
|
$ |
3,186 |
|
$ |
112 |
|
$ |
9 |
|
$ |
3,308 |
|
(Amounts may not add due to rounding.)
(The accompanying notes are an integral part of the financial statements.)
|
|
Prior |
|
|
|
|
|
Accumulated |
|
|
| |||||
|
|
Investment |
|
|
|
|
|
Other |
|
Total |
| |||||
|
|
From |
|
Members |
|
Retained |
|
Comprehensive |
|
Members |
| |||||
(Dollars in millions) |
|
Member |
|
Interest |
|
Earnings |
|
Income/(Loss) |
|
Interest |
| |||||
Members Interest, January 1, 2016 |
|
$ |
3,957 |
|
$ |
|
|
$ |
|
|
$ |
(224 |
) |
$ |
3,733 |
|
Net income plus other comprehensive income/(loss): |
|
|
|
|
|
|
|
|
|
|
| |||||
Net income |
|
290 |
|
|
|
|
|
|
|
290 |
| |||||
Other comprehensive income/(loss), net of tax |
|
|
|
|
|
|
|
132 |
|
132 |
| |||||
Total comprehensive income/(loss) |
|
|
|
|
|
|
|
|
|
$ |
422 |
| ||||
Net transfers (to)/from IBM (1) |
|
(547 |
) |
|
|
|
|
|
|
(547 |
) | |||||
Members Interest, June 30, 2016 |
|
$ |
3,699 |
|
$ |
|
|
$ |
|
|
$ |
(92 |
) |
$ |
3,607 |
|
(1) Includes $1.0 billion non-cash equity contribution from IBM (see note C, Relationship with IBM and Related Party Transactions.)
(Amounts may not add due to rounding.)
(The accompanying notes are an integral part of the financial statements.)
Notes to Consolidated Financial Statements:
1. Basis of Presentation:
The accompanying Consolidated Financial Statements and footnotes of IBM Credit LLC (IBM Credit or the company) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The financial statements and footnotes are unaudited. In the opinion of the companys management, these statements include all adjustments, which are only of a normal recurring nature, necessary to present a fair statement of the companys results of operations, financial position and cash flows.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amount of assets, liabilities, revenue, costs, expenses and other comprehensive income/(loss) that are reported in the Consolidated Financial Statements and accompanying disclosures. These estimates are based on managements best knowledge of current events, historical experience, actions that the company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results may be different from these estimates. Refer to page 37 of the companys Form 10 registration statement, filed with the Securities and Exchange Commission (SEC) on May 5, 2017, as amended on June 22, 2017 (Form 10/A), for a discussion of the companys critical accounting estimates.
During the second quarter of 2017, certain non-U.S. affiliates of IBM Credit became subsidiaries of the company, which are now reported on a consolidated basis. The company filed a Form 8-K on July 25, 2017 (Form 8-K) to present the change in its financial statements and notes filed in the Form 10/A from a combined basis to a consolidated basis of presentation. There was no change to the amounts presented in the Consolidated Financial Statements and notes other than those required for the consolidated presentation format.
The historical presentation of the Consolidated Financial Statements for the company is based on the financing activities of IBMs Global Financing (IGF) segment. The IGF segment operates two primary activities: IBM Credits financing businesses and IBMs remanufacturing and remarketing business. In 2016, the company divested its remanufacturing and remarketing business in the U.S. to IBM. For additional information, see note L, Discontinued Operations, in the Form 8-K, and note 10, Discontinued Operations, in this Form 10-Q. For periods prior to 2017, account balances not discretely identified with IBM Credit were attributed based on the methodology described in note C, Relationship with IBM and Related Party Transactions, note I, Taxes, and note J, Retirement-Related Benefits, in the Form 8-K. During 2016, in connection with IGFs separation of certain assets and liabilities related to IBM Credits financing businesses, Client Financing and Commercial Financing, from IBMs other businesses in the majority of countries where IGF operates, certain impaired receivables and related allowances were retained by IBM due to IBMs ongoing collection efforts. Accordingly, these impaired receivables and related provisions were historically part of the IBM Credit business and are included in the Consolidated Financial Statements in 2016, but are excluded as of December 31, 2016 and in all periods in 2017. For additional information, see note E, Financing Receivables, Receivables Purchased/Participated from IBM, in the Form 8-K. The Consolidated Financial Statements of IBM Credit include all the accounts of IBM Credit and its global subsidiaries. As such, as of June 30, 2017, all account balances included in the Consolidated Financial Statements are discretely identifiable.
Income tax expense is based on reported income before income taxes. Whereas the majority of non-U.S. entities are separate legal tax filers, the companys U.S. federal and certain state and foreign operations will continue to be included in various IBM consolidated tax returns. In such cases, the income taxes for these entities are calculated using a separate return method modified to apply the benefits-for-loss approach, which is consistent with the companys Tax Sharing Agreement with IBM. Under this approach, the provision for income taxes is computed as if the company filed tax returns on a separate tax return basis and is then adjusted, as necessary, to reflect IBMs reimbursement for any tax benefits generated by the company.
Interim results are not necessarily indicative of financial results for a full year. The information included in this Form 10-Q should be read in conjunction with the Consolidated Financial Statements included in the Form 8-K.
Within the financial statements and tables presented, certain columns and rows may not add due to the use of rounded numbers for disclosure purposes. Percentages presented are calculated from the underlying whole-dollar amounts.
Notes to Consolidated Financial Statements (continued)
2. Accounting Changes:
New Standards to be Implemented
In June 2016, the Financial Accounting Standards Board (FASB) issued guidance for credit impairment based on an expected loss model rather than an incurred loss model. The guidance requires the consideration of all available relevant information when estimating expected credit losses, including past events, current conditions and forecasts and their implications for expected credit losses. The guidance is effective January 1, 2020, with a one-year early adoption permitted. The company is currently evaluating the impact of the new guidance.
In February 2016, the FASB issued guidance that changes the accounting for leases. The guidance requires lessees to recognize right-of-use assets and lease liabilities for most leases in the Consolidated Statement of Financial Position. The guidance makes some changes to lessor accounting, including the elimination of the use of third-party residual value guarantee insurance in the capital lease test, and overall aligns with the new revenue recognition guidance. The guidance also requires qualitative and quantitative disclosures to assess the amount, timing and uncertainty of cash flows arising from leases. The company will adopt the guidance as of the effective date of January 1, 2019. A cross-functional implementation team has been established which is evaluating the lease portfolio, system, process and policy change requirements. The company is currently evaluating the impact of the new guidance.
The FASB issued guidance on the recognition of revenue from contracts with customers in May 2014 with amendments in 2015 and 2016. Revenue recognition will depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The company will adopt the guidance on January 1, 2018 and apply the cumulative catch-up transition method. The guidance is not expected to have a material impact on the consolidated financial results.
Given the scope of work required to implement the recognition and disclosure requirements under the new standard, the company began its assessment process in 2014 and has since made significant progress, including identification of changes to policy, processes, systems and controls. This also includes the assessment of data availability and presentation necessary to meet the additional disclosure requirements of the guidance in the Notes to Consolidated Financial Statements.
3. Financial Instruments:
Fair Value Measurements
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
Accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Under this guidance, the company is required to classify certain assets and liabilities based on the following fair value hierarchy:
· Level 1Quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at the measurement date;
· Level 2Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and
· Level 3Unobservable inputs for the asset or liability.
The guidance requires the use of observable market data if such data is available without undue cost and effort.
When available the company uses unadjusted quoted market prices in active markets to measure the fair value and classifies such items as Level 1. If quoted market prices are not available, fair value is based upon internally developed models that use current market-based or independently sourced market parameters such as interest rates and currency rates. Items valued using internally generated models are classified according to the lowest level input or value driver that is significant to the valuation.
Notes to Consolidated Financial Statements (continued)
The determination of fair value considers various factors including interest rate yield curves and time value underlying the financial instruments. For derivatives and debt securities, the company uses a discounted cash flow analysis using discount rates commensurate with the duration of the instrument.
In determining the fair value of financial instruments, the company considers certain market valuation adjustments to the base valuations calculated using the methodologies described below for several parameters that market participants would consider in determining fair value:
· Counterparty credit risk adjustments are applied to financial instruments, taking into account the actual credit risk of a counterparty as observed in the credit default swap market to determine the true fair value of such an instrument.
· Credit risk adjustments are applied to reflect the companys own credit risk when valuing all liabilities measured at fair value. The methodology is consistent with that applied in developing counterparty credit risk adjustments, but incorporates the companys own credit risk as observed in the credit default swap market.
As an example, the fair value of derivatives is derived utilizing a discounted cash flow model that uses observable market inputs such as known notional value amounts, yield curves, spot and forward exchange rates as well as discount rates. These inputs relate to liquid, heavily traded currencies with active markets which are available for the full term of the derivative.
Certain financial assets are measured at fair value on a nonrecurring basis. These assets include equity method investments that are recognized at fair value at the measurement date to the extent that they are deemed to be other-than-temporarily impaired. Certain assets that are measured at fair value on a recurring basis can be subject to nonrecurring fair value measurements. These assets include available-for-sale equity investments that are deemed to be other-than-temporarily impaired. In the event of an other-than-temporary impairment of a financial investment, fair value is measured using a model described above. The company had no equity method investments or available-for-sale equity investments as of June 30, 2017 and December 31, 2016.
Accounting guidance permits the measurement of eligible financial assets, financial liabilities and firm commitments at fair value, on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards. This election is irrevocable. The company has not applied the fair value option to any eligible assets or liabilities.
The following tables present the companys financial assets and financial liabilities that are measured at fair value on a recurring basis at June 30, 2017 and December 31, 2016.
(Dollars in millions) |
|
|
|
|
|
|
|
|
| ||||
At June 30, 2017 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
| ||||
Cash equivalents (1) |
|
|
|
|
|
|
|
|
| ||||
Time deposits and certificates of deposit |
|
$ |
|
|
$ |
1,066 |
|
$ |
|
|
$ |
1,066 |
|
Money market funds |
|
198 |
|
|
|
|
|
198 |
| ||||
Total |
|
198 |
|
1,066 |
|
|
|
1,264 |
| ||||
Derivative assets (2) |
|
|
|
|
|
|
|
|
| ||||
Foreign exchange contracts |
|
|
|
2 |
|
|
|
2 |
| ||||
Total |
|
|
|
2 |
|
|
|
2 |
| ||||
Total assets |
|
$ |
198 |
|
$ |
1,068 |
|
$ |
|
|
$ |
1,266 |
|
(1) Included within cash and cash equivalents in the Consolidated Statement of Financial Position.
(2) The gross balance of derivative assets contained within other assets in the Consolidated Statement of Financial Position at June 30, 2017 is $2 million.
Notes to Consolidated Financial Statements (continued)
(Dollars in millions) |
|
|
|
|
|
|
|
|
| ||||
At December 31, 2016 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
| ||||
Cash equivalents (1) |
|
|
|
|
|
|
|
|
| ||||
Time deposits and certificates of deposit |
|
$ |
|
|
$ |
1,019 |
|
$ |
|
|
$ |
1,019 |
|
Money market funds |
|
100 |
|
|
|
|
|
100 |
| ||||
Total |
|
100 |
|
1,019 |
|
|
|
1,119 |
| ||||
Derivative assets (2) |
|
|
|
|
|
|
|
|
| ||||
Foreign exchange contracts with IBM |
|
|
|
115 |
|
|
|
115 |
| ||||
Total |
|
|
|
115 |
|
|
|
115 |
(4) | ||||
Total assets |
|
$ |
100 |
|
$ |
1,134 |
|
$ |
|
|
$ |
1,234 |
(4) |
Liabilities: |
|
|
|
|
|
|
|
|
| ||||
Derivative liabilities (3) |
|
|
|
|
|
|
|
|
| ||||
Foreign exchange contracts with IBM |
|
$ |
|
|
$ |
50 |
|
$ |
|
|
$ |
50 |
|
Foreign exchange contracts |
|
|
|
47 |
|
|
|
47 |
| ||||
Total liabilities |
|
$ |
|
|
$ |
97 |
|
$ |
|
|
$ |
97 |
(4) |
(1) Included within cash and cash equivalents in the Consolidated Statement of Financial Position.
(2) The gross balance of derivative assets contained within other assets in the Consolidated Statement of Financial Position at December 31, 2016 is $115 million.
(3) The gross balance of derivative liabilities contained within other liabilities in the Consolidated Statement of Financial Position at December 31, 2016 is $97 million.
(4) If derivative exposures covered by a qualifying master netting agreement had been netted in the Consolidated Statement of Financial Position, the total derivative asset and liability positions would each have been reduced by $17 million.
There were no transfers between Levels 1, 2 and 3 for the six months ended June 30, 2017 and the year ended December 31, 2016.
Financial Assets and Liabilities Not Measured at Fair Value
Short-Term Receivables and Payables
Short-term financing receivables are financial assets with carrying values that approximate fair value. Accounts payable, other accrued expenses and short-term debt (including debt payable to IBM) are financial liabilities with carrying values that approximate fair value. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy, except for short-term debt, which would be classified as Level 2.
Long-Term Receivables
Fair values are based on discounted future cash flows using current interest rates offered for similar loans to clients with similar credit ratings for the same remaining maturities. At June 30, 2017 and December 31, 2016, the difference between the carrying amount and estimated fair value for long-term receivables was immaterial. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy.
Long-Term Debt
Fair value of publicly traded long-term debt is based on quoted market prices for the identical liability when traded as an asset in an active market. For other long-term debt, which includes debt payable to IBM, for which a quoted market price is not available, an expected present value technique that uses rates currently available to the company for debt with similar terms and remaining maturities is used to estimate fair value. The carrying amount of long-term debt (third-party as well as debt payable to IBM) was $11,293 million and $10,505 million and the estimated fair value is $11,368 million and $10,760 million at June 30, 2017 and December 31, 2016, respectively. If measured at fair value in the financial statements, long-term debt (including the current portion) would be classified as Level 2 in the fair value hierarchy.
Notes to Consolidated Financial Statements (continued)
Derivative Financial Instruments
The company operates in multiple currencies and is a lender in the global markets and borrower from IBM. In the normal course of business, the company may be exposed to the impact of interest rate changes and foreign currency fluctuations. The company limits its exposure to core market risks by following established risk management policies and procedures, and through the use of match funding from IBM. The terms of the debt payable to IBM are set by the company to substantially match the term and currency of the underlying financing assets. The company may also choose to mitigate any remaining exposure relating to interest rate changes and foreign currency fluctuations through the use of interest rate or foreign currency derivatives.
Derivative assets and liabilities are recorded in other assets and other liabilities on the Consolidated Statement of Financial Position and presented on a gross basis. The notional amounts of the derivative instruments do not necessarily represent amounts exchanged by the parties and are not necessarily a direct measure of the financial exposure. The company also enters into master netting agreements with certain counterparties that allow for netting of exposures in the event of default or breach. However, in the Consolidated Statement of Financial Position, the company does not offset derivative assets against liabilities in master netting arrangements.
Foreign Exchange Risk
The company enters into foreign currency derivatives contracts to manage foreign currency exposures associated with the companys funding from IBM and third parties.
At June 30, 2017, the total notional amount and fair value amount of the foreign exchange derivative contracts was $114 million and $2 million (in an asset position), respectively. The weighted-average maturity of these derivatives was 11 months. These derivatives were not designated as hedges for accounting purposes; however, these derivatives represent economic hedges which provided an economic offset to the underlying foreign currency exposure. The gains and losses recognized on economic hedges are recorded in other (income) and expense in the Consolidated Statement of Earnings, and the associated cash flows are included in other investing activities-net, in the Consolidated Statement of Cash Flows. The gains associated with these derivatives were $20 million for the three months ended June 30, 2017. The losses associated with these derivatives were $19 million for the six months ended June 30, 2017.
At December 31, 2016, the total notional amount and fair value amount of the foreign exchange forward contracts was $753 million and $47 million (in a liability position), respectively. The weighted-average maturity of these derivatives was less than 2 months. There was no derivative instrument activity during the three and six months ended June 30, 2016.
The foreign exchange forward contracts with IBM that were executed in late 2016 expired in early 2017 and were not replaced. There were no derivatives with IBM outstanding at June 30, 2017. There was no derivative instrument activity during the three months ended June 30, 2017. The net losses associated with these derivatives with IBM were $222 million for the six months ended June 30, 2017 and are included in other (income) and expense in the Consolidated Statement of Earnings, and the associated cash flows are included in other investing activitiesnet, in the Consolidated Statement of Cash Flows.
At December 31, 2016, the total notional amount of the foreign exchange forward contracts with IBM was $10.6 billion. At December 31, 2016, the fair value of certain foreign exchange forward contracts with IBM were in an aggregate gross asset position of $115 million and certain foreign exchange forward contracts with IBM were in an aggregate gross liability position of $50 million. These exposures were reduced by $17 million due to master netting arrangements with IBM. The weighted average maturity of these derivatives was less than 1 month. There was no derivative instrument activity with IBM during the three and six months ended June 30, 2016.
4. Financing Receivables, Receivables Purchased/Participated from IBM:
Financing receivables consist of Client Financing leases, loans, installment payment plans and participated receivables to end-user clients as well as loans to IBM for terms up to seven years. Assets financed are primarily IT products and services where IBM and the company have experience. Client Financing arrangements are priced to achieve a market yield. Financing receivables also include Commercial Financing, which generally consists of working capital financing to suppliers, distributors and resellers of IBM and OEM IT products and services. Payment terms for working capital financing receivables generally range from 30 to 90 days.
Notes to Consolidated Financial Statements (continued)
The company purchases interests in certain of IBMs trade accounts receivable at a discount, for which the company assumes the credit risk with IBMs client. These receivables are primarily for IT related products and services, which are due within 30 days, and IBM performs all servicing under these arrangements. These receivables are included within the Commercial Financing segment. In addition, beginning in 2016, the company began participating receivables from IBM for certain long-term financing receivables generated from IBMs Total Solution Offerings in certain countries as well as for certain government contracts. These receivables are included in the Client Financing segment. The company carries the credit risk of IBMs clients for all purchased and participated receivables from IBM.
Investment in direct financing leases
|
|
At June 30, |
|
At December 31, |
| ||
(Dollars in millions) |
|
2017 |
|
2016 |
| ||
Gross lease payments receivable |
|
$ |
5,156 |
|
$ |
5,985 |
|
Estimated residual value |
|
554 |
|
602 |
| ||
Deferred initial direct costs |
|
51 |
|
56 |
| ||
Unearned income |
|
(380 |
) |
(453 |
) | ||
Allowance for credit losses |
|
(86 |
) |
(95 |
) | ||
Net investment in direct financing leases |
|
$ |
5,296 |
|
$ |
6,094 |
|
Client Financing loans and installment payment receivables
|
|
At June 30, |
|
At December 31, |
| ||
(Dollars in millions) |
|
2017 |
|
2016 |
| ||
Gross loan payments receivable |
|
$ |
8,954 |
|
$ |
9,697 |
|
Deferred initial direct costs |
|
73 |
|
67 |
| ||
Unearned income |
|
(461 |
) |
(489 |
) | ||
Allowance for credit losses |
|
(116 |
) |
(125 |
) | ||
Net Client Financing loans and installment payment receivables |
|
$ |
8,450 |
|
$ |
9,150 |
|
Commercial Financing receivables
|
|
At June 30, |
|
At December 31, |
| ||
(Dollars in millions) |
|
2017 |
|
2016 |
| ||
Commercial financing receivables |
|
$ |
7,909 |
|
$ |
9,458 |
|
Allowance for credit losses |
|
(19 |
) |
(21 |
) | ||
Net Commercial Financing receivables |
|
$ |
7,890 |
|
$ |
9,436 |
|
Purchased and participated receivables from IBM
|
|
At June 30, |
|
At December 31, |
| ||
(Dollars in millions) |
|
2017 |
|
2016 |
| ||
Short-term purchased receivables from IBM |
|
$ |
1,235 |
|
$ |
1,496 |
|
Allowance for credit losses on purchased receivables |
|
(24 |
) |
(22 |
) | ||
Long-term participated receivables from IBM |
|
3,177 |
|
2,436 |
| ||
Allowance for credit losses on participated receivables |
|
(17 |
) |
(13 |
) | ||
Net purchased and participated receivables from IBM |
|
$ |
4,371 |
|
$ |
3,897 |
|
The company utilizes certain of its financing receivables as collateral for nonrecourse borrowings. Financing receivables pledged as collateral for borrowings were $737 million and $689 million at June 30, 2017 and December 31, 2016, respectively.
The company did not have any financing receivables held for sale as of June 30, 2017 and December 31, 2016.
Notes to Consolidated Financial Statements (continued)
Financing Receivables by Portfolio Segment
The following tables present Client 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 June 30, 2017 and December 31, 2016. Commercial Financing receivables and purchased receivables from IBM are excluded from the presentation of financing receivables by portfolio segment as they are short term in nature and the current estimated risk of loss and resulting impact to the companys financing results are not material. The company determines its allowance for credit losses based on three portfolio segments: lease receivables, loan receivables and participated receivables from IBM, and further segments the portfolio into three classes: Americas, Europe, Middle East and Africa (EMEA) and Asia Pacific.
(Dollars in millions) |
|
|
|
|
|
|
|
|
| ||||
At June 30, 2017: |
|
Americas |
|
EMEA |
|
Asia Pacific |
|
Total |
| ||||
Financing receivables |
|
|
|
|
|
|
|
|
| ||||
Lease receivables |
|
$ |
3,201 |
|
$ |
670 |
|
$ |
956 |
|
$ |
4,827 |
|
Loan receivables |
|
5,546 |
|
2,000 |
|
1,019 |
|
8,566 |
| ||||
Participated receivables from IBM |
|
475 |
|
1,338 |
|
1,364 |
|
3,177 |
| ||||
Ending balance |
|
$ |
9,222 |
|
$ |
4,008 |
|
$ |
3,340 |
|
$ |
16,570 |
|
Collectively evaluated for impairment |
|
$ |
9,117 |
|
$ |
3,997 |
|
$ |
3,306 |
|
$ |
16,419 |
|
Individually evaluated for impairment |
|
$ |
106 |
|
$ |
11 |
|
$ |
34 |
|
$ |
151 |
|
|
|
|
|
|
|
|
|
|
| ||||
Allowance for credit losses |
|
|
|
|
|
|
|
|
| ||||
Beginning balance at January 1, 2017 |
|
|
|
|
|
|
|
|
| ||||
Lease receivables |
|
$ |
38 |
|
$ |
2 |
|
$ |
55 |
|
$ |
95 |
|
Loan receivables |
|
113 |
|
11 |
|
0 |
|
125 |
| ||||
Participated receivables from IBM |
|
8 |
|
3 |
|
2 |
|
13 |
| ||||
Total |
|
$ |
160 |
|
$ |
16 |
|
$ |
58 |
|
$ |
233 |
|
Write-offs |
|
$ |
(3 |
) |
$ |
0 |
|
$ |
(17 |
) |
$ |
(20 |
) |
Recoveries |
|
0 |
|
|
|
|
|
0 |
| ||||
Provision for credit losses |
|
10 |
|
6 |
|
(6 |
) |
10 |
| ||||
Foreign currency translation adjustment |
|
(0 |
) |
2 |
|
2 |
|
4 |
| ||||
Other |
|
(1 |
) |
(6 |
) |
(3 |
) |
(10 |
) | ||||
Ending balance at June 30, 2017 |
|
$ |
166 |
|
17 |
|
$ |
34 |
|
$ |
218 |
| |
Lease receivables |
|
$ |
51 |
|
$ |
4 |
|
$ |
31 |
|
$ |
86 |
|
Loan receivables |
|
$ |
103 |
|
$ |
12 |
|
$ |
1 |
|
$ |
116 |
|
Participated receivables from IBM |
|
$ |
13 |
|
$ |
1 |
|
$ |
3 |
|
$ |
17 |
|
|
|
|
|
|
|
|
|
|
| ||||
Collectively evaluated for impairment |
|
$ |
71 |
|
$ |
10 |
|
$ |
4 |
|
$ |
84 |
|
Individually evaluated for impairment |
|
$ |
96 |
|
$ |
7 |
|
$ |
31 |
|
$ |
134 |
|
Write-offs of lease receivables and loan receivables were $16 million and $4 million, respectively, during the first six months of 2017. Provisions for credit losses recorded for lease receivables, loan receivables and participated receivables from IBM were $3 million, $3 million and $4 million, respectively, during the first six months of 2017.
Notes to Consolidated Financial Statements (continued)
(Dollars in millions) |
|
|
|
|
|
|
|
|
| ||||
At December 31, 2016: |
|
Americas |
|
EMEA |
|
Asia Pacific |
|
Total |
| ||||
Financing receivables |
|
|
|
|
|
|
|
|
| ||||
Lease receivables |
|
$ |
3,693 |
|
$ |
798 |
|
$ |
1,098 |
|
$ |
5,588 |
|
Loan receivables |
|
5,678 |
|
2,284 |
|
1,313 |
|
9,275 |
| ||||
Participated receivables from IBM |
|
479 |
|
1,061 |
|
896 |
|
2,436 |
| ||||
Ending balance |
|
$ |
9,850 |
|
$ |
4,142 |
|
$ |
3,307 |
|
$ |
17,299 |
|
Collectively evaluated for impairment |
|
$ |
9,755 |
|
$ |
4,132 |
|
$ |
3,251 |
|
$ |
17,139 |
|
Individually evaluated for impairment |
|
$ |
95 |
|
$ |
10 |
|
$ |
55 |
|
$ |
160 |
|
|
|
|
|
|
|
|
|
|
| ||||
Allowance for credit losses |
|
|
|
|
|
|
|
|
| ||||
Beginning balance at January 1, 2016 |
|
|
|
|
|
|
|
|
| ||||
Lease receivables |
|
$ |
52 |
|
$ |
16 |
|
$ |
143 |
|
$ |
211 |
|
Loan receivables |
|
122 |
|
51 |
|
200 |
|
373 |
| ||||
Participated receivables from IBM (1) |
|
|
|
|
|
|
|
|
| ||||
Total |
|
$ |
174 |
|
$ |
68 |
|
$ |
343 |
|
$ |
584 |
|
Write-offs |
|
$ |
(13 |
) |
$ |
(19 |
) |
$ |
(79 |
) |
$ |
(111 |
) |
Recoveries |
|
2 |
|
0 |
|
|
|
2 |
| ||||
Provision for credit losses |
|
69 |
|
4 |
|
(16 |
) |
57 |
| ||||
Foreign currency translation adjustment |
|
14 |
|
0 |
|
(17 |
) |
(3 |
) | ||||
Other |
|
(86 |
) |
(37 |
) |
(174 |
) |
(297 |
) | ||||
Ending balance at December 31, 2016 |
|
$ |
160 |
|
$ |
16 |
|
$ |
58 |
|
$ |
233 |
|
Lease receivables |
|
$ |
38 |
|
$ |
2 |
|
$ |
55 |
|
$ |
95 |
|
Loan receivables |
|
$ |
113 |
|
$ |
11 |
|
$ |
0 |
|
$ |
125 |
|
Participated receivables from IBM |
|
$ |
8 |
|
$ |
3 |
|
$ |
2 |
|
$ |
13 |
|
|
|
|
|
|
|
|
|
|
| ||||
Collectively evaluated for impairment |
|
$ |
71 |
|
$ |
13 |
|
$ |
7 |
|
$ |
91 |
|
Individually evaluated for impairment |
|
$ |
88 |
|
$ |
3 |
|
$ |
50 |
|
$ |
142 |
|
(1) Beginning in 2016, the company began participating receivables from IBM for certain long-term financing receivables generated from IBMs Total Solution Offerings in certain countries as well as for certain government contracts.
Write-offs of lease receivables and loan receivables were $78 million and $33 million, respectively, in 2016. Provisions for credit losses recorded for lease receivables, loan receivables and participated receivables from IBM were $11 million, $34 million and $13 million, respectively, in 2016. The amount reported in Other, in the table above, which is primarily loans, reflects the reduction in allowance for credit losses in 2016 associated with certain impaired receivables that were retained by IBM due to IBMs ongoing collection efforts. For additional information, see note 1, Basis of 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 June 30, 2017 and December 31, 2016, respectively. Financing receivables from IBM are short term receivables that the company considers collectable and without third party risk, as such, these receivables are not included in the non-accrual status reported.
Notes to Consolidated Financial Statements (continued)
|
|
At June 30, |
|
At December 31, |
| ||
(Dollars in millions) |
|
2017 |
|
2016 |
| ||
Lease receivables |
|
|
|
|
| ||
Americas |
|
$ |
14 |
|
$ |
15 |
|
EMEA |
|
2 |
|
2 |
| ||
Asia Pacific |
|
7 |
|
11 |
| ||
Total lease receivables |
|
$ |
23 |
|
$ |
28 |
|
|
|
|
|
|
| ||
Loan receivables |
|
|
|
|
| ||
Americas |
|
$ |
88 |
|
$ |
87 |
|
EMEA |
|
50 |
|
5 |
| ||
Asia Pacific |
|
2 |
|
1 |
| ||
Total loan receivables |
|
$ |
141 |
|
$ |
93 |
|
Total receivables on non-accrual |
|
$ |
164 |
|
$ |
121 |
|
There were no participated receivables from IBM on non-accrual at June 30, 2017 and December 31, 2016.
Impaired Receivables
The company considers any receivable with an individually evaluated reserve as an impaired receivable based on current information and events. Depending on the level of impairment, receivables will also be placed on non-accrual status.
The following tables present impaired receivables.
|
|
At June 30, 2017 |
|
At December 31, 2016 |
| ||||||||
(Dollars in millions) |
|
Recorded |
|
Related |
|
Recorded |
|
Related |
| ||||
Americas |
|
$ |
106 |
|
$ |
96 |
|
$ |
95 |
|
$ |
88 |
|
EMEA |
|
11 |
|
7 |
|
10 |
|
3 |
| ||||
Asia Pacific |
|
34 |
|
31 |
|
55 |
|
50 |
| ||||
Total |
|
$ |
151 |
|
$ |
134 |
|
$ |
160 |
|
$ |
142 |
|
|
|
|
|
|
|
Interest |
| |||
|
|
Average |
|
Interest |
|
Income |
| |||
(Dollars in millions) |
|
Recorded |
|
Income |
|
Recognized on |
| |||
For the three months ended June 30, 2017: |
|
Investment |
|
Recognized |
|
Cash Basis |
| |||
Americas |
|
$ |
108 |
|
$ |
0 |
|
$ |
|
|
EMEA |
|
10 |
|
0 |
|
|
| |||
Asia Pacific |
|
44 |
|
0 |
|
|
| |||
Total |
|
$ |
161 |
|
$ |
0 |
|
$ |
|
|
|
|
|
|
|
|
Interest |
| |||
|
|
Average |
|
Interest |
|
Income |
| |||
(Dollars in millions) |
|
Recorded |
|
Income |
|
Recognized on |
| |||
For the three months ended June 30, 2016: |
|
Investment |
|
Recognized |
|
Cash Basis |
| |||
Americas |
|
$ |
148 |
|
$ |
0 |
|
$ |
|
|
EMEA |
|
66 |
|
0 |
|
|
| |||
Asia Pacific |
|
294 |
|
0 |
|
|
| |||
Total |
|
$ |
508 |
|
$ |
0 |
|
$ |
|
|
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
Interest |
| |||
|
|
Average |
|
Interest |
|
Income |
| |||
(Dollars in millions) |
|
Recorded |
|
Income |
|
Recognized on |
| |||
For the six months ended June 30, 2017: |
|
Investment |
|
Recognized |
|
Cash Basis |
| |||
Americas |
|
$ |
103 |
|
$ |
0 |
|
$ |
|
|
EMEA |
|
10 |
|
0 |
|
|
| |||
Asia Pacific |
|
48 |
|
0 |
|
|
| |||
Total |
|
$ |
161 |
|
$ |
0 |
|
$ |
|
|
|
|
|
|
|
|
Interest |
| |||
|
|
Average |
|
Interest |
|
Income |
| |||
(Dollars in millions) |
|
Recorded |
|
Income |
|
Recognized on |
| |||
For the six months ended June 30, 2016: |
|
Investment |
|
Recognized |
|
Cash Basis |
| |||
Americas |
|
$ |
139 |
|
$ |
0 |
|
$ |
|
|
EMEA |
|
64 |
|
0 |
|
|
| |||
Asia Pacific |
|
302 |
|
0 |
|
|
| |||
Total |
|
$ |
505 |
|
$ |
0 |
|
$ |
|
|
Credit Quality Indicators
The companys credit quality indicators, which are based on rating agency data, publicly available information and information provided by customers, as well as other information, are reviewed periodically based on the relative level of risk. The resulting indicators are a numerical rating system that maps to Moodys Investors Service credit ratings as shown below. The company uses information provided by Moodys, 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 June 30, 2017 and December 31, 2016. Receivables with a credit quality indicator ranging from Aaa to Baa3 are considered investment grade. At June 30, 2017, 55% of the portfolio was investment grade as compared to 54% at December 31, 2016. All other credit quality indicators are considered non-investment grade. In certain circumstances, the company may mitigate credit risk through arrangements with third parties, including credit insurance, financial guarantees, or nonrecourse borrowings. The credit quality indicators do not reflect these mitigation actions.
Notes to Consolidated Financial Statements (continued)
|
|
Lease Receivables |
|
Loan Receivables |
|
Participated Receivables with IBM |
| |||||||||||||||||||||
(Dollars in millions) |
|
|
|
|
|
Asia |
|
|
|
|
|
Asia |
|
|
|
|
|
Asia |
| |||||||||
At June 30, 2017: |
|
Americas |
|
EMEA |
|
Pacific |
|
Americas |
|
EMEA |
|
Pacific |
|
Americas |
|
EMEA |
|
Pacific |
| |||||||||
Credit Ratings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Aaa Aa3 |
|
$ |
303 |
|
$ |
29 |
|
$ |
45 |
|
$ |
524 |
|
$ |
87 |
|
$ |
49 |
|
$ |
45 |
|
$ |
59 |
|
$ |
66 |
|
A1 A3 |
|
691 |
|
59 |
|
405 |
|
1,194 |
|
176 |
|
447 |
|
101 |
|
119 |
|
597 |
| |||||||||
Baa1 Baa3 |
|
693 |
|
199 |
|
244 |
|
1,198 |
|
594 |
|
269 |
|
102 |
|
399 |
|
359 |
| |||||||||
Ba1 Ba2 |
|
671 |
|
215 |
|
135 |
|
1,159 |
|
642 |
|
149 |
|
99 |
|
432 |
|
199 |
| |||||||||
Ba3 B1 |
|
453 |
|
111 |
|
48 |
|
782 |
|
332 |
|
52 |
|
66 |
|
223 |
|
70 |
| |||||||||
B2 B3 |
|
289 |
|
46 |
|
39 |
|
500 |
|
136 |
|
43 |
|
42 |
|
92 |
|
57 |
| |||||||||
Caa D |
|
51 |
|
6 |
|
9 |
|
87 |
|
19 |
|
10 |
|
7 |
|
13 |
|
14 |
| |||||||||
Total |
|
$ |
3,150 |
|
$ |
666 |
|
$ |
925 |
|
$ |
5,444 |
|
$ |
1,988 |
|
$ |
1,019 |
|
$ |
463 |
|
$ |
1,336 |
|
$ |
1,361 |
|
|
|
Lease Receivables |
|
Loan Receivables |
|
Participated Receivables with IBM |
| |||||||||||||||||||||
(Dollars in millions) |
|
|
|
|
|
Asia |
|
|
|
|
|
Asia |
|
|
|
|
|
Asia |
| |||||||||
At December 31, 2016: |
|
Americas |
|
EMEA |
|
Pacific |
|
Americas |
|
EMEA |
|
Pacific |
|
Americas |
|
EMEA |
|
Pacific |
| |||||||||
Credit Ratings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Aaa Aa3 |
|
$ |
432 |
|
$ |
35 |
|
$ |
44 |
|
$ |
658 |
|
$ |
99 |
|
$ |
55 |
|
$ |
56 |
|
$ |
46 |
|
$ |
38 |
|
A1 A3 |
|
757 |
|
77 |
|
403 |
|
1,152 |
|
220 |
|
507 |
|
97 |
|
102 |
|
345 |
| |||||||||
Baa1 Baa3 |
|
747 |
|
250 |
|
273 |
|
1,137 |
|
713 |
|
344 |
|
96 |
|
332 |
|
234 |
| |||||||||
Ba1 Ba2 |
|
796 |
|
239 |
|
153 |
|
1,211 |
|
682 |
|
193 |
|
102 |
|
317 |
|
131 |
| |||||||||
Ba3 B1 |
|
555 |
|
141 |
|
88 |
|
845 |
|
404 |
|
111 |
|
71 |
|
188 |
|
76 |
| |||||||||
B2 B3 |
|
287 |
|
48 |
|
69 |
|
437 |
|
139 |
|
87 |
|
37 |
|
64 |
|
60 |
| |||||||||
Caa D |
|
81 |
|
6 |
|
12 |
|
123 |
|
17 |
|
15 |
|
10 |
|
8 |
|
10 |
| |||||||||
Total |
|
$ |
3,655 |
|
$ |
796 |
|
$ |
1,042 |
|
$ |
5,565 |
|
$ |
2,273 |
|
$ |
1,313 |
|
$ |
471 |
|
$ |
1,058 |
|
$ |
894 |
|
Past Due Financing Receivables
The company considers financing receivables past due when any installment is over 90 days past due. The following table summarizes receivables by aging category, where fully reserved receivables are excluded. The past due aging categories represent only the portion of a financing receivable which is past due. Current financing receivables represent the total financing receivables less past due greater than 90 days, excluding fully reserved receivables. Past due financing receivables greater than 90 days and accruing represents the total billed and unbilled value at a contract level for receivables with outstanding installments greater than 90 days past due. Participated receivables from IBM are collected monthly and do not begin aging until 90 days. Amounts collected from IBM in excess of amounts past due over 90 days are returned to IBM. Amounts returned to IBM during the periods reported were not material.
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
Recorded |
| ||||||
|
|
Total |
|
Total |
|
Total |
|
Current |
|
Total |
|
Investment |
| ||||||
(Dollars in millions) |
|
Past Due |
|
Past Due |
|
Past Due |
|
Financing |
|
Financing |
|
> 90 days and |
| ||||||
At June 30, 2017 |
|
31-60 days (1) |
|
61-90 days (1) |
|
> 90 days (1) |
|
Receivables |
|
Receivables |
|
accruing (2) |
| ||||||
Lease receivables |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Americas |
|
$ |
10 |
|
$ |
8 |
|
$ |
14 |
|
$ |
3,164 |
|
$ |
3,201 |
|
$ |
98 |
|
EMEA |
|
3 |
|
2 |
|
4 |
|
665 |
|
670 |
|
9 |
| ||||||
Asia Pacific |
|
0 |
|
0 |
|
6 |
|
919 |
|
956 |
|
7 |
| ||||||
Total lease receivables |
|
$ |
13 |
|
$ |
11 |
|
$ |
24 |
|
$ |
4,747 |
|
$ |
4,827 |
|
$ |
115 |
|
Loan receivables |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Americas |
|
$ |
20 |
|
$ |
11 |
|
$ |
27 |
|
$ |
5,492 |
|
$ |
5,546 |
|
$ |
136 |
|
EMEA |
|
10 |
|
7 |
|
12 |
|
1,983 |
|
2,000 |
|
28 |
| ||||||
Asia Pacific |
|
0 |
|
0 |
|
2 |
|
1,020 |
|
1,019 |
|
6 |
| ||||||
Total loan receivables |
|
$ |
30 |
|
$ |
18 |
|
$ |
42 |
|
$ |
8,495 |
|
$ |
8,566 |
|
$ |
170 |
|
Participated receivables with IBM |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Americas |
|
$ |
N/A |
|
$ |
N/A |
|
$ |
4 |
|
$ |
471 |
|
$ |
475 |
|
$ |
|
|
EMEA |
|
N/A |
|
N/A |
|
1 |
|
1,337 |
|
1,338 |
|
|
| ||||||
Asia Pacific |
|
N/A |
|
N/A |
|
0 |
|
1,364 |
|
1,364 |
|
|
| ||||||
Total participated receivables with IBM |
|
$ |
N/A |
|
$ |
N/A |
|
$ |
5 |
|
$ |
3,172 |
|
$ |
3,177 |
|
$ |
|
|
Total receivables |
|
$ |
43 |
|
$ |
28 |
|
$ |
71 |
|
$ |
16,414 |
|
$ |
16,570 |
|
$ |
285 |
|
N/A - Not applicable
(1) Only the portion of a financing receivable which is past due the stated number of days, 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.
|
|
|
|
|
|
|
|
|
|
|
|
Recorded |
| ||||||
|
|
Total |
|
Total |
|
Total |
|
Current |
|
Total |
|
Investment |
| ||||||
(Dollars in millions) |
|
Past Due |
|
Past Due |
|
Past Due |
|
Financing |
|
Financing |
|
> 90 days and |
| ||||||
At December 31, 2016 |
|
31-60 days (1) |
|
61-90 days (1) |
|
> 90 days (1) |
|
Receivables |
|
Receivables |
|
accruing (2) |
| ||||||
Lease receivables |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Americas |
|
$ |
9 |
|
$ |
4 |
|
$ |
8 |
|
$ |
3,666 |
|
$ |
3,693 |
|
$ |
37 |
|
EMEA |
|
3 |
|
2 |
|
2 |
|
790 |
|
798 |
|
6 |
| ||||||
Asia Pacific |
|
1 |
|
1 |
|
11 |
|
1,041 |
|
1,098 |
|
37 |
| ||||||
Total lease receivables |
|
$ |
13 |
|
$ |
7 |
|
$ |
20 |
|
$ |
5,497 |
|
$ |
5,588 |
|
$ |
80 |
|
Loan receivables |
|
|
|
|
|
|
|