Receivables, Net

Accounts Receivable Sales Arrangements

Accounts receivable sales arrangements are utilized in the normal course of business as part of our cash and liquidity management. We have facilities in the U.S., Canada and several countries in Europe that enable us to sell certain accounts receivable without recourse to third-parties on a periodic basis. The accounts receivables sold are generally short-term trade receivables with payment due dates of less than 60 days.

During 2012, we entered into an additional facility in the U.S. that enabled us to sell a designated pool of receivables on a revolving basis to a wholly-owned consolidated bankruptcy-remote limited purpose subsidiary, which in turn sold such receivables to third-party commercial paper conduit purchasers (collectively, the "Purchasers") for cash and a deferred purchase price receivable. The Purchasers' maximum cash investment in the receivables at any time was $265 and new receivables were purchased from cash collections on previously sold receivables. In September 2012, we negotiated a termination agreement with the Purchasers to repurchase the then outstanding receivables for cash and the satisfaction of the deferred purchase price. During the third quarter 2012, we had total cash outflows to the Purchasers of approximately $215, which reflects interim settlements as well as the repurchase of the remaining outstanding receivables upon termination. There were no outstanding balances associated with this facility as of September 30, 2012.

All of our arrangements involve the sale of our entire interest in groups of accounts receivables for cash. In most instances a portion of the sales proceeds are held back by the purchaser and payment is deferred until collection of the related receivables sold. Such holdbacks are not considered legal securities nor are they certificated. We report collections on such receivables as operating cash flows in the Condensed Consolidated Statements of Cash Flows because such receivables are the result of an operating activity and the associated interest rate risk is de minimis due to its short-term nature. Our risk of loss following the sales of accounts receivable is limited to the outstanding deferred purchase price receivable. These receivables are included in the caption “Other current assets” in the accompanying Condensed Consolidated Balance Sheets and were $124 and $97 at September 30, 2012 and December 31, 2011, respectively.

Under most of the arrangements, we continue to service the sold accounts receivable. When applicable, a servicing liability is recorded for the estimated fair value of the servicing. The amounts associated with the servicing liability were not material.

Of the accounts receivable sold and derecognized from our balance sheet, $678 and $815 remained uncollected as of September 30, 2012 and December 31, 2011, respectively. Accounts receivables sales were as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Accounts receivable sales	$	725		$	754		$	2,816		$	2,303
Deferred proceeds	122			93			525			290
Fees associated with sales	4			5			16			14
Estimated decrease to operating cash flows⁽¹⁾	(266		)	(35		)	(168		)	(29		)

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(1)	Represents the difference between current and prior period receivable sales adjusted for the effects of: (i) the deferred proceeds, (ii) collections prior to the end of the quarter and (iii) currency. The three months ended September 30, 2012 includes cash outflows related to our U.S. revolving facility of $215.

Sale of Finance Receivables

In September 2012, we sold our entire interest in a group of U.S. lease finance receivables from our Technology segment with a net carrying value of $341 to a third-party financial institution for cash proceeds of $314 and a beneficial interest from the purchaser of $52. The lease contracts, including associated service and supply elements, were initially sold to a wholly-owned consolidated bankruptcy-remote limited purpose subsidiary, which in turn sold the principal and interest portions of such contracts to the third-party financial institution (the “ultimate purchaser”). As of September 30, 2012, the principal value of the receivables sold and derecognized from our balance sheet was $350.

A pre-tax gain of $23 was recognized on this sale and is net of fees and expenses of approximately $2. The gain on the sale is reported in Finance Income within our Technology segment. We will continue to service the sold receivables for which we will receive a 1% servicing fee. We have concluded that the 1% servicing fee (approximately $6 over the expected life of the associated receivables) is adequate compensation and, accordingly, no servicing asset or liability was recorded.

The beneficial interest represents our right to receive future cash flows from the sold receivables, which exceed the servicing fee as well as the ultimate purchaser's initial investment and associated return on that investment. The beneficial interest was initially recognized at an estimate of fair value based on the present value of the expected future cash flows. The present value of the expected future cash flows was calculated using management's best estimate of key assumptions including credit losses, prepayment rate and an appropriate risk adjusted discount rate (all unobservable Level 3 inputs) for which we utilized annualized rates of 2.1%, 9.3% and 10.0%, respectively. These assumptions are supported by both our historical experience and anticipated trends relative to the particular portfolio of receivables sold. However, to assess the sensitivity on the fair value of the beneficial interest, we adjusted the credit loss rate, prepayment rate and discount rate assumptions individually by 10% and 20% while holding the other assumptions constant. Although the effect of multiple assumption changes was not considered in this analysis, a 10% or 20% adverse variation in any one of these three individual assumptions would each decrease the recorded beneficial interest by approximately $2 or less.

The ultimate purchaser has no recourse to our other assets for the failure of customers to pay principal and interest when due beyond our beneficial interest of which $19 and $33 is included in “Other current assets” and “Other long-term assets”, respectively, in the accompanying Condensed Consolidated Balance Sheets at September 30, 2012. The beneficial interest is held by the bankruptcy-remote subsidiary and therefore is not available to satisfy any of our creditor obligations. We will report collections on the beneficial interest as operating cash flows in the Condensed Consolidated Statements of Cash Flows because such beneficial interests are the result of an operating activity and the associated interest rate risk is de minimis considering it has a weighted average life of less than two years.

Finance Receivables – Allowance for Credit Losses and Credit Quality

Finance receivables include sales-type leases, direct financing leases and installment loans. Our finance receivable portfolios are primarily in the U.S., Canada and Europe. We generally establish customer credit limits and estimate the allowance for credit losses on a country or geographic basis. Our policy and methodology used to establish our allowance for doubtful accounts has been consistently applied over all periods presented.

The following table is a rollforward of the allowance for doubtful finance receivables as well as the related investment in finance receivables:



	United States			Canada			Europe			Other⁽³⁾			Total
Allowance for Credit Losses:
Balance at December 31, 2011	$	75		$	33		$	91		$	2		$	201
Provision	2			1			12			—			15
Charge-offs	(4		)	(3		)	(12		)	—			(19		)
Recoveries and other⁽¹⁾	1			2			2			1			6
Balance at March 31, 2012	74			33			93			3			203
Provision	3			2			11			1			17
Charge-offs	(5		)	(4		)	(15		)	—			(24		)
Recoveries and other⁽¹⁾	1			—			(6		)	(1		)	(6		)
Balance at June 30, 2012	$	73		$	31		$	83		$	3		$	190
Provision	3			3			9			—			15
Charge-offs	(8		)	(5		)	(11		)	—			(24		)
Recoveries and other⁽¹⁾	—			2			3			—			5
Sale of finance receivables	(9		)	—			—			—			(9		)
Balance at September 30, 2012	$	59		$	31		$	84		$	3		$	177
Finance receivables as of September 30, 2012 collectively evaluated for impairment⁽²⁾	$	2,384		$	811		$	2,466		$	168		$	5,829

Allowance for Credit Losses:
Balance at December 31, 2010	$	91		$	37		$	81		$	3		$	212
Provision	7			4			11			—			22
Charge-offs	(10		)	(5		)	(8		)	—			(23		)
Recoveries and other⁽¹⁾	(1		)	2			3			—			4
Balance at March 31, 2011	87			38			87			3			215
Provision	1			3			14			—			18
Charge-offs	(6		)	(5		)	(11		)	—			(22		)
Recoveries and other⁽¹⁾	(1		)	—			(1		)	—			(2		)
Balance at June 30, 2011	$	81		$	36		$	89		$	3		$	209
Provision	4			1			18			—			23
Charge-offs	(7		)	(3		)	(19		)	—			(29		)
Recoveries and other⁽¹⁾	1			(1		)	(5		)	—			(5		)
Balance at September 30, 2011	$	79		$	33		$	83		$	3		$	198
Finance receivables as of September 30, 2011 collectively evaluated for impairment⁽²⁾	$	2,943		$	793		$	2,714		$	95		$	6,545

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(1)	Includes the impacts of foreign currency translation and adjustments to reserves necessary to reflect events of non-payment such as customer accommodations and contract terminations.


(2)	Total Finance receivables exclude residual values of $3 and $8, and the allowance for credit losses of $177 and $198 at September 30, 2012 and 2011, respectively.


(3)	Includes developing market countries and smaller units.

We evaluate our customers based on the following credit quality indicators:

•

Investment grade: This rating includes accounts with excellent to good business credit, asset quality and the capacity to meet financial obligations. These customers are less susceptible to adverse effects due to shifts in economic conditions or changes in circumstance. The rating generally equates to a Standard & Poors (S&P) rating of BBB- or better. Loss rates in this category are normally minimal at less than 1%.

•

Non-investment grade: This rating includes accounts with average credit risk that are more susceptible to loss in the event of adverse business or economic conditions. This rating generally equates to a BB S&P rating. Although we experience higher loss rates associated with this customer class, we believe the risk is somewhat mitigated by the fact that our leases are fairly well dispersed across a large and diverse customer base. In addition, the higher loss rates are largely offset by the higher rates of return we obtain on such leases. Loss rates in this category are generally in the range of 2% to 4%.

•

Substandard: This rating includes accounts that have marginal credit risk such that the customer’s ability to make repayment is impaired or may likely become impaired. We use numerous strategies to mitigate risk including higher rates of interest, prepayments, personal guarantees, etc. Accounts in this category include customers who were downgraded during the term of the lease from investment and non-investment grade status when the lease was originated. Accordingly, there is a distinct possibility for a loss of principal and interest or customer default. The loss rates in this category are around 10%.

Credit quality indicators are updated at least annually and the credit quality of any given customer can change during the life of the portfolio. Details about our finance receivables portfolio based on industry and credit quality indicators are as follows:



	September 30, 2012
	Investment Grade		Non-investment Grade		Substandard		Total Finance Receivables
Finance and Other Services	$	301	$	235	$	96	$	632
Government and Education	762		17		2		781
Graphic Arts	94		117		175		386
Industrial	134		65		20		219
Healthcare	108		38		23		169
Other	86		66		45		197
Total United States	1,485		538		361		2,384
Finance and Other Services	152		115		43		310
Government and Education	118		9		3		130
Graphic Arts	38		35		36		109
Industrial	64		40		29		133
Other	77		41		11		129
Total Canada	449		240		122		811
France	271		275		134		680
U.K./Ireland	218		155		53		426
Central⁽¹⁾	274		453		75		802
Southern⁽²⁾	163		228		73		464
Nordics⁽³⁾	52		38		4		94
Total Europe	978		1,149		339		2,466
Other	125		38		5		168
Total	$	3,037	$	1,965	$	827	$	5,829



	December 31, 2011
	Investment Grade		Non-investment Grade		Substandard		Total Finance Receivables
Finance and Other Services	$	349	$	380	$	160	$	889
Government and Education	821		20		4		845
Graphic Arts	126		200		172		498
Industrial	180		83		32		295
Healthcare	130		42		28		200
Other	97		93		76		266
Total United States	1,703		818		472		2,993
Finance and Other Services	153		118		51		322
Government and Education	121		9		4		134
Graphic Arts	36		39		35		110
Industrial	56		41		34		131
Other	74		42		12		128
Total Canada	440		249		136		825
France	246		354		92		692
U.K./Ireland	201		162		54		417
Central⁽¹⁾	330		494		57		881
Southern⁽²⁾	219		256		63		538
Nordics⁽³⁾	60		39		3		102
Total Europe	1,056		1,305		269		2,630
Other	75		26		7		108
Total	$	3,274	$	2,398	$	884	$	6,556

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(1)	Switzerland, Germany, Austria, Belgium and Holland.


(2)	Italy, Greece, Spain and Portugal.


(3)	Sweden, Norway, Denmark and Finland.

The aging of our billed finance receivables is based upon the number of days an invoice is past due and is as follows:



	September 30, 2012
	Current		31-90 Days Past Due		>90 Days Past Due		Total Billed Finance Receivables		Unbilled Finance Receivables		Total Finance Receivables		Finance Receivables >90 Days and Accruing
Finance and Other Services	$	20	$	4	$	2	$	26	$	606	$	632	$	18
Government and Education	24		4		3		31		750		781		35
Graphic Arts	21		2		1		24		362		386		11
Industrial	9		2		1		12		207		219		9
Healthcare	7		2		—		9		160		169		6
Other	8		1		1		10		187		197		7
Total United States	89		15		8		112		2,272		2,384		86
Canada	5		3		1		9		802		811		29
France	4		—		—		4		676		680		32
U.K./Ireland	4		1		3		8		418		426		5
Central⁽¹⁾	6		2		3		11		791		802		40
Southern⁽²⁾	25		11		12		48		416		464		68
Nordics⁽³⁾	2		—		—		2		92		94		—
Total Europe	41		14		18		73		2,393		2,466		145
Other	3		1		—		4		164		168		—
Total	$	138	$	33	$	27	$	198	$	5,631	$	5,829	$	260

	December 31, 2011
	Current		31-90 Days Past Due		>90 Days Past Due		Total Billed Finance Receivables		Unbilled Finance Receivables		Total Finance Receivables		Finance Receivables >90 Days and Accruing
Finance and Other Services	$	18	$	4	$	1	$	23	$	866	$	889	$	15
Government and Education	21		5		2		28		817		845		29
Graphic Arts	16		2		1		19		479		498		7
Industrial	7		2		1		10		285		295		6
Healthcare	5		2		—		7		193		200		5
Other	8		1		—		9		257		266		4
Total United States	75		16		5		96		2,897		2,993		66
Canada	3		2		1		6		819		825		27
France	1		1		1		3		689		692		16
U.K./Ireland	3		2		3		8		409		417		4
Central⁽¹⁾	7		2		3		12		869		881		46
Southern⁽²⁾	31		4		13		48		490		538		82
Nordics⁽³⁾	1		—		—		1		101		102		—
Total Europe	43		9		20		72		2,558		2,630		148
Other	2		1		—		3		105		108		—
Total	$	123	$	28	$	26	$	177	$	6,379	$	6,556	$	241

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(1)	Switzerland, Germany, Austria, Belgium and Holland.


(2)	Italy, Greece, Spain and Portugal.


(3)	Sweden, Norway, Denmark and Finland.