Note 7 Receivables, net

“Receivables, net” consisted of the following:

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December 31, ($ in millions)

2012

2011

Trade receivables

8,233

7,750

Other receivables

801

764

Allowance

(271)

(227)

 

8,763

8,287

Unbilled receivables, net:

 

 

Costs and estimated profits in excess of billings

3,955

3,503

Advance payments consumed

(1,143)

(1,017)

 

2,812

2,486

Total

11,575

10,773

“Trade receivables” in the table above includes contractual retention amounts billed to customers of $390 million and $381 million at December 31, 2012 and 2011, respectively. Management expects that the substantial majority of related contracts will be completed and the substantial majority of the billed amounts retained by the customer will be collected. Of the retention amounts outstanding at December 31, 2012, 72 percent and 19 percent are expected to be collected in 2013 and 2014, respectively. “Other receivables” in the table above consists of value added tax, claims, rental deposits and other non-trade receivables.

“Costs and estimated profits in excess of billings” in the table above represents revenues earned and recognized for contracts under the percentage-of-completion or completed contract method of accounting. Management expects that the majority of the amounts will be collected within one year of the respective balance sheet date.

The reconciliation of changes in the allowance for doubtful accounts is as follows:

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($ in millions)

2012

2011

2010

Balance at January 1,

227

215

312

Additions

155

157

119

Deductions

(113)

(131)

(216)

Exchange rate differences

2

(14)

Balance at December 31,

271

227

215

At December 31, 2012 and 2011, the gross amounts of, and doubtful debt allowance for, trade receivables (excluding those with a contractual maturity of one year or less) and other receivables (excluding tax and other receivables which are not considered to be of a financing nature) were as follows:

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December 31, 2012

December 31, 2011

($ in millions)

Trade receivables (excluding those with a contractual maturity of one year or less)

Other
receivables

Total

Trade receivables (excluding those with a contractual maturity of one year or less)

Other
receivables

Total

Recorded gross amount:

 

 

 

 

 

 

Individually evaluated for impairment

335

128

463

252

108

360

Collectively evaluated for impairment

326

87

413

282

129

411

Total

661

215

876

534

237

771

Doubtful debt allowance:

 

 

 

 

 

 

From individual impairment evaluation

(42)

(5)

(47)

(41)

(5)

(46)

From collective impairment evaluation

(11)

(11)

(9)

(9)

Total

(53)

(5)

(58)

(50)

(5)

(55)

Recorded net amount

608

210

818

484

232

716

Changes in the doubtful debt allowance for trade receivables (excluding those with a contractual maturity of one year or less) were as follows:

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($ in millions)

2012

2011

Balance at January 1,

50

37

Reversal of allowance

(7)

(13)

Additions to allowance

16

36

Amounts written off

(1)

(3)

Exchange rate differences

(5)

(7)

Balance at December 31,

53

50

Changes in the doubtful debt allowance for “Other receivables” in 2012 and 2011, were not significant.

The Company has a group-wide policy on the management of credit risk. The policy includes a credit assessment methodology to assess the creditworthiness of customers and assign to those customers a risk category on a scale from “A” (lowest likelihood of loss) to “E” (highest likelihood of loss), as shown in the following table:

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Risk category

Equivalent Standard & Poor’s rating

A

AAA to AA–

B

A+ to BBB–

C

BB+ to BB–

D

B+ to CCC–

E

CC+ to D

Third-party agencies’ ratings are considered, if available. For customers where agency ratings are not available, the customer’s most recent financial statements, payment history and other relevant information are considered in the assignment to a risk category. Customers are assessed at least annually or more frequently when information on significant changes in the customers’ financial position becomes known. In addition to the assignment to a risk category, a credit limit per customer is set.

The following table shows the credit risk profile, on a gross basis, of trade receivables (excluding those with a contractual maturity of one year or less) and other receivables (excluding tax and other receivables which are not considered to be of a financing nature) based on the internal credit risk categories which are used as a credit quality indicator:

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Risk category

December 31, 2012

December 31, 2011

($ in millions)

Trade receivables (excluding those with a contractual maturity of one year or less)

Other
receivables

Total

Trade receivables (excluding those with a contractual maturity of one year or less)

Other
receivables

Total

A

279

156

435

251

196

447

B

238

27

265

134

18

152

C

90

30

120

122

20

142

D

48

1

49

22

1

23

E

6

1

7

5

2

7

Total gross amount

661

215

876

534

237

771

The following table shows an aging analysis, on a gross basis, of trade receivables (excluding those with a contractual maturity of one year or less) and other receivables (excluding tax and other receivables which are not considered to be of a financing nature):

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Past due

 

 

December 31, 2012
($ in millions)

0–30
days

30–60
days

60–90
days

> 90 days and
not accruing
interest

> 90 days
and accruing
interest

Not due at
December 31,
2012(1)

Total

(1)

Trade receivables (excluding those with a contractual maturity of one year or less) principally represent contractual retention amounts that will become due subsequent to the completion of the respective long-term contract.

Trade receivables (excluding those with a contractual maturity of one year or less)

83

3

4

38

14

519

661

Other receivables

3

3

2

10

1

196

215

Total gross amount

86

6

6

48

15

715

876

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Past due

 

 

December 31, 2011
($ in millions)

0–30
days

30–60
days

60–90
days

> 90 days and
not accruing
interest

> 90 days
and accruing
interest

Not due at
December 31,
2011(1)

Total

Trade receivables (excluding those with a contractual maturity of one year or less)

73

6

5

49

6

395

534

Other receivables

4

1

1

15

3

213

237

Total gross amount

77

7

6

64

9

608

771