7.	Financing Receivables and Guarantees

(a) Financing Receivables Summary

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. Both the lease receivables and loan receivables consist of arrangements with, on average, terms of three years. The financed service contracts and other category includes financing receivables related to technical support and other services, as well as an insignificant amount of 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):


April 30, 2011	Lease Receivables			Loan Receivables			Financed Service Contracts & Other⁽¹⁾			Total Financing Receivables
Gross	$	2,885		$	1,373		$	2,495		$	6,753
Unearned income		(237	)		—			—			(237	)
Allowance for credit loss		(236	)		(111	)		(25	)		(372	)

Total, net	$	2,412		$	1,262		$	2,470		$	6,144

Reported as:
Current	$	1,000		$	595		$	1,245		$	2,840
Noncurrent		1,412			667			1,225			3,304

Total, net	$	2,412		$	1,262		$	2,470		$	6,144


July 31, 2010	Lease Receivables			Loan Receivables			Financed Service Contracts & Other			Total Financing Receivables
Gross	$	2,411		$	1,249		$	1,773		$	5,433
Unearned income		(215	)		—			—			(215	)
Allowance for credit loss		(207	)		(73	)		(21	)		(301	)

Total, net	$	1,989		$	1,176		$	1,752		$	4,917

Reported as:
Current	$	813		$	501		$	989		$	2,303
Noncurrent		1,176			675			763			2,614

Total, net	$	1,989		$	1,176		$	1,752		$	4,917

⁽¹⁾	As of April 30, 2011, the deferred service revenue related to financed service contracts and other was $1,996 million.

Contractual maturities of the gross lease receivables at April 30, 2011 are summarized as follows (in millions):


Fiscal Year	Amount
2011 (remaining three months)	$	373
2012		1,076
2013		740
2014		449
Thereafter		247

Total	$	2,885

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

(b) Credit Quality of Financing Receivables

The Company determines the adequacy of its allowance for credit loss by assessing the risks and losses inherent in its financing receivables that are disaggregated by portfolio segment and class. The portfolio segment is based on the type of financing transactions: lease receivables, loan receivables, and financed service contracts and other. These financing receivables are further disaggregated by class based on their risk characteristics. The two classes that the Company has identified are Established Markets and Growth Markets. The Growth Markets class consists of countries in the Company's Emerging Markets segment as well as China and India, and the Established Markets class consists of the remaining geographies in which the Company has financing receivables.

In determining the allowance for credit loss for financing receivables, the Company applies the applicable loss factors to such receivables by class. The loss factors that the Company applies to the financing receivables for a given internal credit risk rating are developed using external data as benchmarks, such as the external long-term historical loss rates and expected default rates that are published annually, most recently in February 2011, by a major third party credit-rating agency.

The internal credit risk rating for individual customers is derived by taking into consideration various customer specific factors and macroeconomic conditions. These factors include the strength of the customer's business and financial performance, the quality of the customer's banking relationships, the Company's specific historical experience with the customer, the performance and outlook of the customer's industry, the customer's legal and regulatory environment, the potential sovereign risk of the geographic locations in which the customer is operating, and independent third party evaluations. Such factors are updated regularly or when facts and circumstances indicate that an update is deemed necessary.

The Company's internal credit risk ratings applied for individual customers are categorized as 1 through 10 with the lowest credit risk rating representing the highest quality receivables in the portfolio. Credit risk ratings of 1 through 4 generally 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 and constitute a relatively small portion of the Company's financing receivables. The credit risk profile of the Company's financing receivables as of April 30, 2011 is not materially different than the credit risk profile as of July 31, 2010. Financing receivables categorized by the Company's internal credit risk rating for each portfolio segment and class as of April 30, 2011 are summarized as follows (in millions):


	ESTABLISHED MARKETS								GROWTH MARKETS								TOTAL
Internal Credit Risk Rating	Lease Receivables		Loan Receivables		Financed Service Contracts & Other		Total		Lease Receivables		Loan Receivables		Financed Service Contracts & Other		Total
1 to 4	$	1,054	$	216	$	1,549	$	2,819	$	20	$	334	$	—	$	354	$	3,173
5 to 6		1,144		163		892		2,199		91		584		2		677		2,876
7 and higher		26		1		52		79		20		75		—		95		174

Total		2,224		380		2,493		5,097		131		993		2		1,126		6,223
Residual value		288		—		—		288		5		—		—		5		293


Gross receivables, net of unearned income	$	2,512	$	380	$	2,493	$	5,385	$	136	$	993	$	2	$	1,131	$	6,516

In circumstances when collectability 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. The total of the allowances for credit loss and the deferred revenue associated with total financing receivables as of April 30, 2011 was $2,784 million, compared with a gross financing receivables balance (net of unearned income) of $6,516 million. The losses that the Company has incurred historically with respect to its financing receivables have been immaterial, consistent with the performance of an investment-grade portfolio.

If a customer's financial condition deteriorates to a risk rating of 8 or higher, all receivables due from the customer are deemed to be impaired. When evaluating lease and loan receivables and the earned portion of financed service contracts for possible impairment, the Company considers historical experience, credit quality, age of the receivable balances, and economic conditions that may affect a customer's ability to pay. The Company considers a financing receivable to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the financing agreement, including scheduled interest payments. When an individual loan receivable, lease receivable, or the earned portion of financed service contracts has been identified as being impaired, all the outstanding amounts due from the customer, including any accrued interest, are fully reserved. As of April 30, 2011, the portion of the portfolio that was deemed to be impaired was immaterial. Financing receivables are written off at the point when they are considered uncollectible. Total net write-offs of financing receivables were not material for the nine months ended April 30, 2011. The Company does not typically have any partially written-off financing receivables. During the nine months ended April 30, 2011, the Company did not modify any financing receivables.

The following table presents the aging analysis of financing receivables by portfolio segment and class as of April 30, 2011 (in millions):


ESTABLISHED MARKETS	31-60 Days Past Due ⁽¹⁾		61-90 Days Past Due ⁽¹⁾		Greater than 90 Days Past Due ^{(1) (2)}		Total Past Due		Current		Total Financing Receivables		Non-Accrual Financing Receivables		Impaired Financing Receivables
Lease receivables	$	89	$	40	$	117	$	246	$	2,266	$	2,512	$	12	$	8
Loan receivables		2		1		6		9		371		380		1		1
Financed service contracts & other		93		33		238		364		2,129		2,493		9		7

Total Established Markets	$	184	$	74	$	361	$	619	$	4,766	$	5,385	$	22	$	16


GROWTH MARKETS
Lease receivables	$	4	$	1	$	12	$	17	$	119	$	136	$	18	$	18
Loan receivables		150		11		50		211		782		993		9		9
Financed service contracts & other		—		—		—		—		2		2		—		—

Total Growth Markets	$	154	$	12	$	62	$	228	$	903	$	1,131	$	27	$	27

Total	$	338	$	86	$	423	$	847	$	5,669	$	6,516	$	49	$	43

⁽¹⁾

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 table 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.

⁽²⁾	The balance of either unbilled or current financing receivables included in the greater-than-90 days past due category for lease receivables, loan receivables, and financed service contracts and other was $96 million, $46 million, and $214 million as of April 30, 2011, respectively.

The aging profile of the Company's financing receivables as of April 30, 2011 is not materially different than that of July 31, 2010. The Company does not accrue interest on financing receivables that are more than 90 days past due unless either the receivable has not been collected due to administrative reasons or the receivable is well secured. The Company also does not accrue interest on financing receivables that are considered impaired. As of April 30, 2011, the Company had financing receivables of $57 million, net of unbilled or current receivables from the same contract, that were in the greater than 90 days past due category but remained on accrual status. Financing receivables may be placed on non-accrual status earlier if, in management's opinion, a timely collection of the full principal and interest becomes uncertain. After a financing receivable has been categorized as non-accrual, interest will be recognized when cash is received. Any previously earned but uncollected interest income on such financing receivables is reversed and charged against earnings. A financing receivable may be returned to accrual status after all of the customer's delinquent balances of principal and interest have been settled and the customer remains current for an appropriate period.

(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
Three Months Ended April 30, 2011	Lease Receivables			Loan Receivables			Financed Service Contracts & Other			Total
Allowance for credit loss as of January 29, 2011	$	233		$	84		$	27		$	344
Provisions		3			26			(2	)		27
Write-offs, net		(5	)		(2	)		(1	)		(8	)
Foreign exchange and other		5			3			1			9


Allowance for credit loss as of April 30, 2011	$	236		$	111		$	25		$	372


Nine Months Ended April 30, 2011	Lease Receivables			Loan Receivables			Financed Service Contracts & Other			Total
Allowance for credit loss as of July 31, 2010	$	207		$	73		$	21		$	301
Provisions		24			35			5			64
Write-offs, net		(6	)		(2	)		(2	)		(10	)
Foreign exchange and other		11			5			1			17


Allowance for credit loss as of April 30, 2011	$	236		$	111		$	25		$	372

Gross receivables as of April 30, 2011, net of unearned income	$	2,648		$	1,373		$	2,495		$	6,516

The Company's write-offs associated with financing receivables for fiscal 2010 and 2009 were not material. Financing receivables that were individually evaluated for impairment during the three and nine months ended April 30, 2011 were not material and therefore are not presented separately in the preceding table.

(d) Financing Guarantees

In the ordinary course of business, the Company provides financing guarantees that are for various third-party financing arrangements extended to channel partners and end-user customers.

Channel Partner Financing Guarantees

The Company facilitates arrangements for third-party financing extended to channel partners, consisting of revolving short-term financing, generally with payment terms ranging from 60 to 90 days. These financing arrangements facilitate the working capital requirements of the channel partners, and, in some cases, the Company guarantees a portion of these arrangements. The volume of channel partner financing was $4.4 billion for each of the three months ended April 30, 2011 and May 1, 2010, and $13.4 billion and $12.3 billion for the nine months ended April 30, 2011 and May 1, 2010, respectively. The balance of the channel partner financing subject to guarantees was $1.3 billion and $1.4 billion as of April 30, 2011 and July 31, 2010, respectively. For the periods presented, payments under these guarantee arrangements were not material.

End-User Financing Guarantees

The Company also provides financing guarantees for third-party financing arrangements extended to end-user customers related to leases and loans that typically have terms of up to three years. The volume of financing provided by third parties for leases and loans on which the Company has provided guarantees was $371 million and $215 million for the three months ended April 30, 2011 and May 1, 2010, respectively, and $932 million and $625 million for the nine months ended April 30, 2011 and May 1, 2010, respectively. For the periods presented, payments under these guarantee arrangements were not material.

Financing Guarantee Summary

The aggregate amount of financing guarantees outstanding at April 30, 2011 and July 31, 2010, representing the total maximum potential future payments under financing arrangements with third parties, and the related deferred revenue are summarized in the following table (in millions):


	April 30, 2011			July 31, 2010
Maximum potential future payments relating to financing guarantees:
Channel partner	$	314		$	448
End user		276			304

Total	$	590		$	752

Deferred revenue associated with financing guarantees:
Channel partner	$	(216	)	$	(277	)
End user		(244	)		(272	)

Total	$	(460	)	$	(549	)

Maximum potential future payments relating to financing guarantees, net of associated deferred revenue	$	130		$	203