Accounts Receivable, Net

Accounts receivable, net were as follows:



	September 30, 2013			December 31, 2012
Amounts billed or billable	$	2,705		$	2,639
Unbilled amounts	395			335
Allowance for doubtful accounts	(111		)	(108		)
Accounts Receivable, Net	$	2,989		$	2,866

Unbilled amounts include amounts associated with percentage-of-completion accounting and other earned revenues not currently billable due to contractual provisions. Amounts to be invoiced in the subsequent month for current services provided are included in amounts billable, and at September 30, 2013 and December 31, 2012 were approximately $1,045 and $1,049, respectively.

We perform ongoing credit evaluations of our customers and adjust credit limits based upon customer payment history and current creditworthiness. The allowance for uncollectible accounts receivables is determined principally on the basis of past collection experience as well as consideration of current economic conditions and changes in our customer collection trends.

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. The accounts receivables sold are generally short-term trade receivables with payment due dates of less than 60 days.

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 $129 and $116 at September 30, 2013 and December 31, 2012, 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, $740 and $766 remained uncollected as of September 30, 2013 and December 31, 2012, respectively. Accounts receivables sales were as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Accounts receivable sales	$	814		$	725		$	2,587		$	2,816
Deferred proceeds	125			122			384			525
Loss on sales of accounts receivable	4			4			13			16
Estimated decrease to operating cash flows⁽¹⁾	(75		)	(266		)	(42		)	(168		)

__________________________


(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 $215 of cash outflows related to our terminated U.S. revolving facility.

Finance Receivables, Net

Sale of Finance Receivables

2013 Sales:

In September 2013, we sold our entire interest in a group of U.S. lease finance receivables with a net carrying value of $419 to a third-party financial institution for cash proceeds of $384 and a beneficial interest from the purchaser of $60. 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, 2013, the principal value of the receivables sold and derecognized from our balance sheet was $416 (sale value of approximately $456).

A pre-tax gain of $25 was recognized on this sale and is net of fees and expenses of approximately $3. 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 $7 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 $3 or less.

2012 Sales:

In 2012, we sold our entire interest in two separate portfolios of U.S. lease finance receivables with a combined net carrying value of $682 to a third-party financial institution for cash proceeds of $630 and beneficial interests from the purchaser of $101. A pre-tax gain of $44 ($23 in the third quarter 2012) was recognized on these sales and is net of additional fees and expenses of approximately $5. As of September 30, 2013, the principal value of the receivables sold and derecognized from our balance sheet was $445 (sales value of approximately $485).

Summary:

The lease portfolios sold were from our Document Technology segment and the gains on these sales are reported in Financing revenues within our Document Technology segment. 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 interests of $133, of which $58 and $75 is included in Other current assets and Other long-term assets, respectively, in the accompanying Condensed Consolidated Balance Sheets at September 30, 2013. The beneficial interests are held by a bankruptcy-remote subsidiary and therefore are not available to satisfy any of our creditor obligations. We report collections on the beneficial interests 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 2 years. Collections on the beneficial interest were $16 and $43 for the three and nine months ended September 30, 2013, respectively.

The net impact from the sales of finance receivables on operating cash flows is summarized below:



	Three Months Ended September 30,					Nine Months Ended September 30,
(in millions)	2013			2012		2013			2012
Net cash received for sales of finance receivables⁽¹⁾	$	384		$	311	$	384		$	311
Impact from prior sales of finance receivables⁽²⁾	(84		)	—		(258		)	—
Collections on beneficial interest	16			—		43			—
Estimated Increase to Operating Cash Flows	$	316		$	311	$	169		$	311

____________________________


(1)	Net of beneficial interest, fees and expenses.


(2)	Represents cash that would have been collected if we had not sold finance receivables.

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:



Allowance for Credit Losses:	United States			Canada			Europe			Other⁽³⁾			Total
Balance at December 31, 2012	$	50		$	31		$	85		$	4		$	170
Provision	2			2			9			—			13
Charge-offs	(2		)	(4		)	(15		)	—			(21		)
Recoveries and other⁽¹⁾	1			—			(3		)	—			(2		)
Balance at March 31, 2013	$	51		$	29		$	76		$	4		$	160
Provision	6			3			10			2			21
Charge-offs	(2		)	(3		)	(14		)	(1		)	(20		)
Recoveries and other⁽¹⁾	(1		)	—			2			—			1
Balance at June 30, 2013	$	54		$	29		$	74		$	5		$	162
Provision	3			3			12			1			19
Charge-offs	(3		)	(4		)	(12		)	—			(19		)
Recoveries and other⁽¹⁾	1			2			2			(1		)	4
Sale of finance receivables	(12		)	—			—			—			(12		)
Balance at September 30, 2013	$	43		$	30		$	76		$	5		$	154
Finance receivables as of September 30, 2013 collectively evaluated for impairment⁽²⁾	$	1,587		$	696		$	2,279		$	270		$	4,832

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

__________________


(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 $1 and $3, and the allowance for credit losses of $154 and $177 at September 30, 2013 and 2012, 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 and 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, 2013								December 31, 2012
	Investment Grade		Non-investment Grade		Substandard		Total Finance Receivables		Investment Grade		Non-investment Grade		Substandard		Total Finance Receivables
Finance and other services	$	182	$	75	$	35	$	292	$	252	$	147	$	59	$	458
Government and education	666		7		5		678		750		15		4		769
Graphic arts	118		58		100		276		92		90		137		319
Industrial	93		20		15		128		115		31		17		163
Healthcare	77		17		16		110		109		37		14		160
Other	53		21		29		103		70		39		34		143
Total United States	1,189		198		200		1,587		1,388		359		265		2,012
Finance and other services	128		102		31		261		151		116		40		307
Government and education	99		10		2		111		117		10		2		129
Graphic arts	34		32		23		89		37		34		30		101
Industrial	61		39		18		118		66		40		29		135
Other	67		39		11		117		75		43		11		129
Total Canada	389		222		85		696		446		243		112		801
France	268		299		117		684		274		294		134		702
U.K./Ireland	194		159		43		396		215		155		50		420
Central⁽¹⁾	285		407		45		737		315		445		56		816
Southern⁽²⁾	120		191		59		370		139		230		73		442
Nordics⁽³⁾	46		43		3		92		49		36		9		94
Total Europe	913		1,099		267		2,279		992		1,160		322		2,474
Other	215		51		4		270		148		39		7		194
Total	$	2,706	$	1,570	$	556	$	4,832	$	2,974	$	1,801	$	706	$	5,481

_____________________________


(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, 2013
	Current		31-90 Days Past Due		>90 Days Past Due		Total Billed		Unbilled		Total Finance Receivables		>90 Days and Accruing
Finance and other services	$	9	$	2	$	1	$	12	$	280	$	292	$	16
Government and education	21		4		3		28		650		678		27
Graphic arts	14		2		1		17		259		276		10
Industrial	4		1		1		6		122		128		6
Healthcare	3		1		1		5		105		110		5
Other	3		1		—		4		99		103		5
Total United States	54		11		7		72		1,515		1,587		69
Canada	2		3		3		8		688		696		31
France	1		—		—		1		683		684		34
U.K./Ireland	2		2		2		6		390		396		4
Central⁽¹⁾	5		2		4		11		726		737		25
Southern⁽²⁾	19		8		13		40		330		370		65
Nordics⁽³⁾	2		—		—		2		90		92		—
Total Europe	29		12		19		60		2,219		2,279		128
Other	6		1		—		7		263		270		—
Total	$	91	$	27	$	29	$	147	$	4,685	$	4,832	$	228

	December 31, 2012
	Current		31-90 Days Past Due		>90 Days Past Due		Total Billed		Unbilled		Total Finance Receivables		>90 Days and Accruing
Finance and other services	$	12	$	3	$	2	$	17	$	441	$	458	$	18
Government and education	21		5		3		29		740		769		42
Graphic arts	16		1		1		18		301		319		12
Industrial	5		2		1		8		155		163		6
Healthcare	6		2		1		9		151		160		9
Other	5		1		1		7		136		143		6
Total United States	65		14		9		88		1,924		2,012		93
Canada	2		3		2		7		794		801		30
France	—		5		1		6		696		702		22
U.K./Ireland	2		—		2		4		416		420		2
Central⁽¹⁾	3		2		4		9		807		816		30
Southern⁽²⁾	20		8		14		42		400		442		72
Nordics⁽³⁾	1		—		—		1		93		94		—
Total Europe	26		15		21		62		2,412		2,474		126
Other	2		1		—		3		191		194		—
Total	$	95	$	33	$	32	$	160	$	5,321	$	5,481	$	249

_____________________________


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


(2)	Italy, Greece, Spain and Portugal.


(3)	Sweden, Norway, Denmark and Finland.