Company Quick10K Filing
IBM Credit
10-Q 2020-06-30 Filed 2020-07-30
10-Q 2020-03-31 Filed 2020-05-01
10-K 2019-12-31 Filed 2020-02-28
10-Q 2019-09-30 Filed 2019-10-30
10-Q 2019-06-30 Filed 2019-08-05
10-Q 2019-03-31 Filed 2019-04-30
10-K 2018-12-31 Filed 2019-02-27
10-Q 2018-09-30 Filed 2018-11-01
10-Q 2018-06-30 Filed 2018-08-03
10-Q 2018-03-31 Filed 2018-04-25
10-K 2017-12-31 Filed 2018-03-01
10-Q 2017-09-30 Filed 2017-11-02
10-Q 2017-06-30 Filed 2017-08-03
8-K 2020-07-22 Earnings, Exhibits
8-K 2020-07-02 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2020-04-22
8-K 2020-01-23
8-K 2019-10-21
8-K 2019-07-22
8-K 2019-07-19
8-K 2019-04-18
8-K 2019-02-05
8-K 2018-11-27
8-K 2018-10-22
8-K 2018-07-23
8-K 2018-07-19
8-K 2018-04-20
8-K 2018-02-01
8-K 2018-01-30

IBMC 10Q Quarterly Report

Part I - Financial Information
Item 1. Consolidated Financial Statements:
Item 2.
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Exhibits
EX-3.2 ibmc-20200630ex32f4b1ba8.htm
EX-31.1 ibmc-20200630ex311c60dfa.htm
EX-31.2 ibmc-20200630ex3126cd808.htm
EX-32.1 ibmc-20200630ex3217f51ca.htm
EX-32.2 ibmc-20200630ex3226b1a66.htm

IBM Credit Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
40322416802017201820192020
Assets, Equity
0.50.40.30.20.10.02017201820192020
Rev, G Profit, Net Income
10.06.02.0-2.0-6.0-10.02017201820192020
Ops, Inv, Fin

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Table of Contents

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, 2020

000-55786

(Commission file number)

IBM CREDIT LLC

(Exact name of registrant as specified in its charter)

Delaware

    

22-2351962

(State or Other Jurisdiction of
Incorporation or Organization)

(IRS employer identification number)

One North Castle Drive, Armonk, New York

    

10504

(Address of principal executive offices)

(Zip Code)

914-765-1900

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

None.

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 No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes No

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

    

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

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.

Table of Contents

Index

    

Page

Part I - Financial Information:

Item 1. Consolidated Financial Statements (Unaudited):

Consolidated Income Statement for the three and six months ended June 30, 2020 and 2019

3

Consolidated Statement of Comprehensive Income for the three and six months ended June 30, 2020 and 2019

4

Consolidated Balance Sheet at June 30, 2020 and December 31, 2019

5

Consolidated Statement of Cash Flows for the six months ended June 30, 2020 and 2019

6

Consolidated Statement of Changes in Member’s Interest for the three and six months ended June 30, 2020 and 2019

7

Notes to Consolidated Financial Statements

9

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition

31

Item 4. Controls and Procedures

49

Part II - Other Information:

Item 1. Legal Proceedings

49

Item 5. Other Information

49

Item 6. Exhibits

50

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Table of Contents

Part I— Financial Information

Item 1. Consolidated Financial Statements:

IBM CREDIT LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED INCOME STATEMENT

(UNAUDITED)

Three Months Ended June 30, 

Six Months Ended June 30, 

(Dollars in millions)

    

2020

    

2019

    

2020

    

2019

Revenue

  

 

  

  

 

  

Financing revenue

$

225

$

339

$

503

$

743

Operating lease revenue

54

70

112

149

Total revenue

$

279

$

410

$

615

$

892

Financing cost (related party cost for the three and six months: $35 and $84 in 2020, $58 and $131 in 2019)

$

73

$

137

$

178

$

297

Depreciation of equipment under operating lease

28

43

59

88

Net margin

$

177

$

230

$

378

$

507

Expense and other (income)

Selling, general and administrative

$

77

$

97

$

151

$

194

Provision for/(benefit from) credit losses

27

(8)

45

(4)

Other (income) and expense

(31)

5

(51)

(13)

Total expense and other (income)

$

74

$

94

$

145

$

178

Income before income taxes

$

104

$

136

$

232

$

330

Provision for income taxes

15

23

2

173

Net income

$

89

$

113

$

231

$

156

(Amounts may not add due to rounding.)

(The accompanying notes are an integral part of the financial statements.)

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Consolidated Financial Statements — (continued)

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)

    

2020

    

2019

    

2020

    

2019

Net income

$

89

$

113

$

231

$

156

Other comprehensive income/(loss), before tax:

Foreign currency translation

36

16

(120)

20

Retirement-related benefit plans (1)

1

0

2

0

Other comprehensive income/(loss), before tax

37

17

(118)

20

Income tax (expense)/benefit related to items of other comprehensive income

14

2

(3)

5

Other comprehensive income/(loss), net of tax

$

52

$

19

$

(121)

$

25

Total comprehensive income/(loss)

$

141

$

132

$

109

$

181

(1)Amounts presented relate to multiple-employer plans.

(Amounts may not add due to rounding.)

(The accompanying notes are an integral part of the financial statements.)

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Consolidated Financial Statements — (continued)

IBM CREDIT LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

At June 30, 

At December 31, 

(Dollars in millions)

    

2020

    

2019

Assets:

 

  

  

Cash and cash equivalents

$

1,717

$

1,687

Financing receivables

 

14,084

17,365

(net of allowances of $182 in 2020 and $148 in 2019)

Equipment under operating leases

154

212

(net of accumulated depreciation of $216 in 2020 and $238 in 2019)

Financing receivables from IBM

 

3,735

3,870

Receivables purchased/participated from IBM

 

4,362

4,359

(net of allowances of $22 in 2020 and $8 in 2019)

Other receivables from IBM

792

513

Other assets

 

544

406

Total assets

$

25,389

$

28,412

Liabilities:

Accounts payable

$

404

$

434

Accounts payable to IBM

931

336

Debt

 

6,557

7,150

Debt payable to IBM

 

14,308

16,945

Taxes

 

600

637

Other liabilities

 

245

224

Total liabilities

$

23,046

$

25,726

Member’s interest:

 

Member's interest

2,496

2,601

Retained earnings

116

Accumulated other comprehensive income/(loss)

 

(153)

(31)

Total member's interest

$

2,343

$

2,686

Total liabilities and member’s interest

$

25,389

$

28,412

(Amounts may not add due to rounding.)

(The accompanying notes are an integral part of the financial statements.)

5

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Consolidated Financial Statements — (continued)

IBM CREDIT LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

Six Months Ended June 30, 

(Dollars in millions)

    

2020

    

2019

    

Cash flows from operating activities:

 

  

 

  

 

Net income

$

231

$

156

Adjustments to reconcile net income to cash provided by operating activities:

 

 

Provision for/(benefit from) credit losses

 

45

 

(4)

Depreciation

 

59

 

88

Deferred taxes

 

(49)

 

27

Net (gain)/loss on asset sales and other

 

(55)

 

(44)

Change in operating assets and liabilities:

 

 

Other assets/other liabilities

 

(117)

 

(198)

Net cash provided by operating activities

$

115

$

26

Cash flows from investing activities:

 

 

Originations of financing receivables

$

(5,914)

$

(6,872)

Collection of financing receivables

 

7,202

 

7,446

Proceeds from sales of financing receivables

715

Short-term financing receivables - net (1)

 

1,575

 

4,884

Purchase of equipment under operating leases

 

(23)

 

(29)

Proceeds from disposition of equipment under operating lease

 

38

 

32

Other receivables from IBM - net

(296)

1,697

Other investing activities - net

 

42

 

39

Net cash provided by investing activities

$

3,339

$

7,197

Cash flows from financing activities:

 

 

Proceeds from issuance of debt from IBM

$

3,801

$

5,858

Principal payments on debt from IBM

 

(4,534)

 

(5,903)

Proceeds from issuance of debt

 

419

 

500

Principal payments on debt

 

(674)

 

(431)

Short-term borrowings from/(repayments to) IBM - net (1)

 

(1,723)

 

(4,914)

Short-term borrowings/(repayments) - net (1)

 

(293)

 

(1,486)

Distributions to IBM

(411)

(942)

Net cash used in financing activities

$

(3,415)

$

(7,318)

Effect of exchange rate changes on cash and cash equivalents

$

(9)

$

0

Net change in cash and cash equivalents

$

30

$

(96)

Cash and cash equivalents at January 1

 

1,687

 

1,828

Cash and cash equivalents at June 30

$

1,717

$

1,732

(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.)

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Consolidated Financial Statements — (continued)

IBM CREDIT LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CHANGES IN MEMBER'S INTEREST

(UNAUDITED)

Accumulated

Other

Total

Member's

Retained

Comprehensive

Member’s

(Dollars in millions)

    

Interest

    

Earnings

    

Income/(Loss)

    

Interest

Member’s Interest, April 1, 2020

$

2,601

$

48

$

(204)

$

2,445

Net income plus other comprehensive income/(loss):

 

  

  

  

  

Net income

 

89

89

Other comprehensive income/(loss), net of tax

 

52

52

Total comprehensive income/(loss)

 

  

  

  

$

141

Contributions from IBM

Distributions to IBM

(105)

(137)

(242)

Member’s Interest, June 30, 2020

$

2,496

$

$

(153)

$

2,343

(Amounts may not add due to rounding.)

(The accompanying notes are an integral part of the financial statements.)

Accumulated

Other

Total

Member's

Retained

Comprehensive

Member’s

(Dollars in millions)

    

Interest

    

Earnings

    

Income/(Loss)

    

Interest

Member’s Interest, April 1, 2019

$

3,191

$

$

(27)

$

3,164

Net income plus other comprehensive income/(loss):

 

Net income

 

113

113

Other comprehensive income/(loss), net of tax

 

19

19

Total comprehensive income/(loss)

 

$

132

Contributions from IBM

Distributions to IBM

(459)

(113)

(572)

Member’s Interest, June 30, 2019

$

2,733

$

$

(8)

$

2,724

(Amounts may not add due to rounding.)

(The accompanying notes are an integral part of the financial statements.)

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Consolidated Financial Statements — (continued)

IBM CREDIT LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CHANGES IN MEMBER'S INTEREST – (CONTINUED)

(UNAUDITED)

Accumulated

Other

Total

Member's

Retained

Comprehensive

Member’s

(Dollars in millions)

Interest

    

Earnings

    

Income/(Loss)

    

Interest

Member’s Interest, January 1, 2020

$

2,601

$

116

$

(31)

$

2,686

Cumulative effect of change in accounting principle (1)

(41)

(41)

Net income plus other comprehensive income/(loss):

  

  

  

  

Net income

 

231

  

231

Other comprehensive income/(loss), net of tax

 

  

  

(121)

(121)

Total comprehensive income/(loss)

 

  

  

  

$

109

Contributions from IBM

 

Distributions to IBM

(105)

(306)

(411)

Member’s Interest, June 30, 2020

$

2,496

$

$

(153)

$

2,343

(1) Reflects the adoption of the FASB guidance on current expected credit losses. Refer to note 2, "Accounting Changes."

(Amounts may not add due to rounding.)

(The accompanying notes are an integral part of the financial statements.)

Accumulated

Other

Total

Member's

Retained

Comprehensive

Member’s

(Dollars in millions)

    

Interest

    

Earnings

    

Income/(Loss)

    

Interest

Member’s Interest, January 1, 2019

$

3,216

$

238

$

(33)

$

3,420

Net income plus other comprehensive income/(loss):

 

Net income

 

156

156

Other comprehensive income/(loss), net of tax

 

25

25

Total comprehensive income/(loss)

 

$

181

Contributions from IBM (1)

64

64

Distributions to IBM

(547)

(395)

(942)

Member’s Interest, June 30, 2019

$

2,733

$

$

(8)

$

2,724

(1) In accordance with the previously executed Tax Sharing Agreement, $64 million was settled through a non-cash contribution. Refer to note 14, "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.)

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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 company’s management, these statements include all adjustments, which are only of a normal recurring nature, necessary to present a fair statement of the company’s 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 management’s 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.

Member’s interest in the Consolidated Balance Sheet represents the accumulation of the company’s net income over time and contributions from IBM and distributions to IBM. Distributions by the company to IBM are considered first to be a return of profit as reflected in retained earnings in the Consolidated Balance Sheet. Any amount distributed to IBM in excess of the company’s available balance in retained earnings is considered a return of a portion of Member’s interest as reflected in the Consolidated Balance Sheet.

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 company’s U.S. federal and certain state and foreign operations are 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 company’s 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 IBM’s reimbursement for any tax benefits generated by the company.

The amount of restricted cash included in the Consolidated Balance Sheet and Consolidated Statement of Cash Flows is immaterial for the periods presented.

All significant intracompany transactions between IBM Credit’s businesses have been eliminated. All significant intercompany transactions between IBM Credit and IBM have been included in these Consolidated Financial Statements.

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 company’s 2019 Form 10-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.

9

Table of Contents

Notes to Consolidated Financial Statements — (continued)

2.  Accounting Changes:

New Standards to be Implemented

Any current pending standards to be implemented are either not applicable or not material to the company.

Standards Implemented

Reference Rate Reform

Standard/Description–Issuance date: March 2020. This guidance provides optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships, and other transactions that reference London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued, subject to meeting certain criteria.

Effective Date and Adoption Considerations–The guidance is effective as of March 12, 2020 through December 31, 2022.

Effect on Financial Statements or Other Significant Matters–The company made a policy election in the first quarter of 2020 to adopt the practical expedient which allows for the continuation of fair value hedge accounting for interest rate derivative contracts upon the transition from LIBOR to Secured Overnight Financing Rate (SOFR) or another reference rate alternative, without any impact to the Consolidated Income Statement. The company is continuing to evaluate the potential impact of the replacement of the LIBOR benchmark on its interest rate risk management activities.

Financial Instruments-Credit Losses

Standard/DescriptionIssuance date: June 2016, with amendments in 2018, 2019 and 2020. This changes the guidance for credit losses based on an expected loss model rather than an incurred loss model. It 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. It also expands the scope of financial instruments subject to impairment, including off-balance sheet commitments and residual value.

Effective Date and Adoption ConsiderationsThe guidance was effective January 1, 2020, with one-year early adoption permitted. The company adopted the guidance as of the effective date using the transition methodology whereby prior comparative periods were not retrospectively presented in the Consolidated Financial Statements.

Effect on Financial Statements or Other Significant MattersAt January 1, 2020, an increase in the allowance for credit losses of $56 million was recorded for financing receivables (inclusive of its related off-balance sheet commitments). Additionally, net deferred taxes were reduced by $16 million in the Consolidated Balance Sheet, resulting in a cumulative-effect net decrease to retained earnings of $41 million. Refer to note 6, “Financing Receivables, Receivables Purchased/Participated from IBM,” and note 9, “Commitments,” for additional information.

3. Segments:

The company’s operations consist of two business segments: Client Financing and Commercial Financing. The segments represent components of the company for which separate financial information is available that is utilized on a regular basis by the chief operating decision maker in determining how to allocate resources and evaluate performance. The company is organized on the basis of its financing offerings. The company’s reportable segments are business units that offer different financing solutions based upon clients’ needs.

Client Financing provides leases and loan financing to end-user clients, acquires installment payment plans offered to end-user clients by IBM, and acquires participation interests in IBM financing receivables for which the company assumes the IBM client’s credit risk from IBM. End-user clients are primarily IBM clients that elect to finance their acquisition of IBM’s hardware, software, and services, as well as Original Equipment Manufacturer (OEM) IT hardware, software and services, to meet their total solution requirements. In addition, the company provides loans to IBM,

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Notes to Consolidated Financial Statements — (continued)

primarily in support of IBM’s Global Technology Services segment’s acquisition of IT assets, which IBM uses in external, revenue-producing services contracts.

Commercial Financing provides working capital financing for suppliers, distributors and resellers of IBM and OEM IT products and services. The segment’s performance reflects the wind down of OEM IT Commercial Financing operations which began in the second quarter of 2019.

The segment’s pre-tax income includes an allocation of interest expense and selling, general and administrative (SG&A) expense by the company to each of its operating segments. Interest expense is allocated based on the average assets in each segment. SG&A expense is allocated based on a measurable financial driver, such as net margin.

IBM Credit and its consolidated subsidiaries are reported by the company’s parent, IBM, as part of IBM’s Global Financing segment, which also includes IBM’s remanufacturing and remarketing business.

SEGMENT INFORMATION

Client

Commercial

Total

(Dollars in millions)

    

Financing

    

Financing

    

Segments

For the three months ended June 30, 2020:

Total revenue

 

$

244

 

$

35

 

$

279

Pre-tax income

 

86

 

18

 

104

Depreciation of equipment under operating lease

 

28

 

 

28

Interest expense

 

63

 

9

 

72

Provision for/(benefit from) credit losses

 

27

 

(1)

 

27

For the three months ended June 30, 2019:

Total revenue

 

$

292

 

$

118

 

$

410

Pre-tax income

 

96

 

40

 

136

Depreciation of equipment under operating lease

 

43

 

 

43

Interest expense

 

96

 

39

 

135

Provision for/(benefit from) credit losses

 

(5)

 

(3)

 

(8)

(Amounts may not add due to rounding.)

SEGMENT INFORMATION

Client

Commercial

Total

(Dollars in millions)

    

Financing

    

Financing

    

Segments

For the six months ended June 30, 2020:

Total revenue

 

$

522

$

93

 

$

615

Pre-tax income

 

182

50

 

232

Depreciation of equipment under operating lease

 

59

 

59

Interest expense

 

145

21

 

166

Provision for/(benefit from) credit losses

 

45

0

 

45

For the six months ended June 30, 2019:

Total revenue

 

$

614

$

278

$

892

Pre-tax income

 

213

116

330

Depreciation of equipment under operating lease

 

88

88

Interest expense

 

193

92

285

Provision for/(benefit from) credit losses

 

(6)

2

(4)

(Amounts may not add due to rounding.)

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Notes to Consolidated Financial Statements — (continued)

4. Divestiture:

In the first quarter of 2019, IBM sold certain commercial financing capabilities and assigned a number of its commercial financing contracts, excluding related receivables which were collected as they became due in the normal course of business, to a third party and recorded a pre-tax gain of $16 million.

5. Financial Assets and Liabilities:

Fair Value Measurements

Fair value is defined 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. The company classifies certain assets and liabilities based on the following fair value hierarchy:

Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at the measurement date;
Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and
Level 3—Unobservable inputs for the asset or liability.

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.

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 company’s 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 company’s own credit risk as observed in the credit default swap market.

The company holds investments in time deposits and certificates of deposit that are designated as available-for-sale. The primary objective of the company’s cash and debt investment portfolio is to maintain principal by investing in very liquid and highly rated investment grade securities.

Available-for-sale securities are measured for impairment on a recurring basis by comparing the security’s fair value with its amortized cost basis. Effective January 1, 2020 with the adoption of the new standard on credit losses, if the fair value of the security falls below its amortized cost basis, the change in fair value is recognized in the period the impairment is identified when the loss is due to credit factors. The change in fair value due to non-credit factors is recorded in other comprehensive income when the company does not intend to sell and has the ability to hold the investment. The company’s standard practice is to hold all of its debt security investments classified as available-for-sale until maturity. There were no impairments for credit losses or non-credit impairments for the three and six months ended

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Notes to Consolidated Financial Statements — (continued)

June 30, 2020. Prior to the adoption of the new standard, available-for-sale securities were measured for impairment using an other-than-temporary impairment model. No impairment was recorded for the three and six months ended June 30, 2019.

The following table presents the company’s financial assets and financial liabilities that are measured at fair value on a recurring basis at June 30, 2020 and December 31, 2019.