IBM 2012 Annual Report Download - page 101

100 Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies
100
($ in millions)
At December 31, 2011:
Major
Markets
Growth
Markets To ta l
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
To t a l $ 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 evalu-
ated 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 calculated by apply-
ing 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 December 31, 2012
and 2011.
($ in millions)
At December 31: 2012 2011
Major markets $ 27 $ 46
Growth markets 21 20
Total lease receivables $ 47 $ 66
Major markets $ 67 $ 75
Growth markets 25 24
Total loan receivables $ 92 $ 99
Total receivables $139 $165
Impaired Loans
The company considers any loan with an individually evaluated
reserve as an impaired loan. Depending on the level of impairment,
loans will also be placed on a non-accrual status. The following
tables present impaired client loan receivables at December 31, 2012
and 2011.
($ in millions)
At December 31, 2012:
Recorded
Investment
Related
Allowance
Major markets $ 88 $ 77
Growth markets 72 65
To t a l $160 $143
($ in millions)
At December 31, 2011:
Recorded
Investment
Related
Allowance
Major markets $110 $ 70
Growth markets 62 53
To t a l $172 $123
($ in millions)
For the year ended December 31, 2012:
Average
Recorded
Investment
Interest
Income
Recognized
Interest
Income
Recognized
on Cash
Basis
Major markets $ 90 $0 $0
Growth markets 65 0 0
To t a l $156 $0 $0
($ in millions)
For the year ended December 31, 2011:
Average
Recorded
Investment
Interest
Income
Recognized
Interest
Income
Recognized
on Cash
Basis
Major markets $142 $2 $0
Growth markets 90 0 0
To t a l $232 $3 $0
Credit Quality Indicators
The company’s credit quality indicators are based on rating agency
data, publicly available information and information provided by
customers, and 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
on the following page. Moody’s does not provide credit ratings to
the company on its customers.
The tables present the gross recorded investment for each class
of receivables, by credit quality indicator, at December 31, 2012 and
2011. 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 may take to transfer credit risk
to third parties.