Accounts Receivable, Net

3 Months Ended

Mar. 31, 2015

Accounts receivable, net were as follows:



	March 31, 2015			December 31, 2014
Amounts billed or billable	$	2,473		$	2,421
Unbilled amounts	330			318
Allowance for doubtful accounts	(82		)	(87		)
Accounts Receivable, Net	$	2,721		$	2,652

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 March 31, 2015 and December 31, 2014 were approximately $933 and $945, 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 receivable 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 receivable 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 receivable 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 $63 and $73 at March 31, 2015 and December 31, 2014, 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, $563 and $580 remained uncollected as of March 31, 2015 and December 31, 2014, respectively.

Accounts receivable sales were as follows:



	Three Months Ended March 31,
	2015		2014
Accounts receivable sales	$	602	$	822
Deferred proceeds	62		124
Loss on sales of accounts receivable	3		4
Estimated increase to operating cash flows⁽¹⁾	17		11

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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.

Finance Receivables, Net

Sale of Finance Receivables

In 2013 and 2012, we transferred our entire interest in certain groups of lease finance receivables to third-party entities for cash proceeds and beneficial interests. The transfers were accounted for as sales with derecognition of the associated lease receivables. There were no finance receivable transfers in the three months ended March 31, 2015 or the year ending December 31, 2014. We continue to service the sold receivables and record servicing fee income over the expected life of the associated receivables.

The following is a summary of our prior sales activity - there were no sales in 2015 or 2014:



	Year Ended December 31,
	2013		2012
Net carrying value (NCV) sold	$	676	$	682
Allowance included in NCV	17		18
Cash proceeds received	635		630
Beneficial interests received	86		101
Pre-tax gain on sales	40		44
Net fees and expenses	5		5

The principal value of finance receivables derecognized from our balance sheet was $450 and $549 (sales value of approximately $487 and $596) at March 31, 2015 and December 31, 2014, respectively.

Summary

The lease portfolios transferred and sold were all from our Document Technology segment, and the gains on these sales were reported in Financing revenues within the 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, which were $66 and $77 at March 31, 2015 and December 31, 2014, respectively, and are included in Other current assets and Other long-term assets in the accompanying Condensed Consolidated Balance Sheets. Beneficial interests of $56 and $64 at March 31, 2015 and December 31, 2014, respectively, are held by bankruptcy-remote subsidiaries 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 their weighted average lives of less than 2 years.

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



	Three Months Ended March 31,
	2015			2014
Impact from prior sales of finance receivables⁽¹⁾	$	(105	)	$	(149	)
Collections on beneficial interest	18			26
Estimated Decrease to Operating Cash Flows	$	(87	)	$	(123	)

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(1) Represents cash that would have been collected had we 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, 2014	$	41		$	20		$	58		$	12		$	131
Provision	2			1			5			3			11
Charge-offs	—			(3		)	(1		)	(1		)	(5		)
Recoveries and other⁽¹⁾	—			—			(6		)	—			(6		)
Balance at March 31, 2015	$	43		$	18		$	56		$	14		$	131
Finance receivables as of March 31, 2015 collectively evaluated for impairment⁽²⁾	$	1,711		$	386		$	1,606		$	416		$	4,119

Balance at December 31, 2013	$	45		$	22		$	81		$	6		$	154
Provision	3			2			7			3			15
Charge-offs	(1		)	(4		)	(5		)	(2		)	(12		)
Recoveries and other⁽¹⁾	1			—			—			—			1
Balance at March 31, 2014	$	48		$	20		$	83		$	7		$	158
Finance receivables as of March 31, 2014 collectively evaluated for impairment⁽²⁾	$	1,676		$	402		$	2,242		$	316		$	4,636

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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 $0 and $1, and the allowance for credit losses of $131 and $158 at March 31, 2015 and 2014, 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:



	March 31, 2015								December 31, 2014
	Investment Grade		Non-investment Grade		Substandard		Total Finance Receivables		Investment Grade		Non-investment Grade		Substandard		Total Finance Receivables
Finance and other services	$	194	$	165	$	58	$	417	$	195	$	159	$	55	$	409
Government and education	567		11		3		581		589		13		3		605
Graphic arts	144		82		86		312		148		79		90		317
Industrial	91		42		18		151		92		41		18		151
Healthcare	86		26		15		127		84		26		14		124
Other	52		44		27		123		55		38		29		122
Total United States	1,134		370		207		1,711		1,163		356		209		1,728
Finance and other services	52		31		11		94		54		31		12		97
Government and education	66		8		2		76		76		8		2		86
Graphic arts	51		42		29		122		58		49		36		143
Industrial	24		12		4		40		24		13		4		41
Other	33		18		3		54		34		19		4		57
Total Canada	226		111		49		386		246		120		58		424
France	221		208		108		537		253		234		129		616
U.K./Ireland	238		94		2		334		255		101		6		362
Central⁽¹⁾	185		247		31		463		230		278		30		538
Southern⁽²⁾	44		120		44		208		60		148		36		244
Nordics⁽³⁾	21		42		1		64		25		49		1		75
Total Europe	709		711		186		1,606		823		810		202		1,835
Other	196		168		52		416		195		163		40		398
Total	$	2,265	$	1,360	$	494	$	4,119	$	2,427	$	1,449	$	509	$	4,385

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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:



	March 31, 2015
	Current		31-90 Days Past Due		>90 Days Past Due		Total Billed		Unbilled		Total Finance Receivables		>90 Days and Accruing
Finance and other services	$	8	$	2	$	1	$	11	$	406	$	417	$	11
Government and education	15		4		3		22		559		581		28
Graphic arts	13		2		1		16		296		312		8
Industrial	4		1		1		6		145		151		7
Healthcare	3		1		1		5		122		127		5
Other	3		1		—		4		119		123		4
Total United States	46		11		7		64		1,647		1,711		63
Canada	10		2		1		13		373		386		13
France	—		1		2		3		534		537		28
U.K./Ireland	2		1		—		3		331		334		—
Central⁽¹⁾	5		2		—		7		456		463		8
Southern⁽²⁾	15		2		3		20		188		208		12
Nordics⁽³⁾	1		—		—		1		63		64		4
Total Europe	23		6		5		34		1,572		1,606		52
Other	12		1		1		14		402		416		—
Total	$	91	$	20	$	14	$	125	$	3,994	$	4,119	$	128

	December 31, 2014
	Current		31-90 Days Past Due		>90 Days Past Due		Total Billed		Unbilled		Total Finance Receivables		>90 Days and Accruing
Finance and other services	$	7	$	2	$	1	$	10	$	399	$	409	$	13
Government and education	14		4		3		21		584		605		25
Graphic arts	12		1		1		14		303		317		6
Industrial	4		1		1		6		145		151		9
Healthcare	3		1		—		4		120		124		5
Other	3		1		—		4		118		122		6
Total United States	43		10		6		59		1,669		1,728		64
Canada	9		2		1		12		412		424		17
France	—		1		2		3		613		616		35
U.K./Ireland	1		—		—		1		361		362		1
Central⁽¹⁾	2		2		1		5		533		538		15
Southern⁽²⁾	14		4		4		22		222		244		17
Nordics⁽³⁾	1		—		—		1		74		75		2
Total Europe	18		7		7		32		1,803		1,835		70
Other	13		1		—		14		384		398		—
Total	$	83	$	20	$	14	$	117	$	4,268	$	4,385	$	151

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


(2)	Italy, Greece, Spain and Portugal.


(3)	Sweden, Norway, Denmark and Finland.

- Definition

The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses.

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