Accounts Receivable, Net

9 Months Ended

Sep. 30, 2015

Accounts receivable, net were as follows:



	September 30, 2015			December 31, 2014
Amounts billed or billable	$	2,399		$	2,421
Unbilled amounts	294			318
Allowance for doubtful accounts	(81		)	(87		)
Accounts Receivable, Net	$	2,612		$	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 September 30, 2015 and December 31, 2014 were approximately $875 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 $68 and $73 at September 30, 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, $516 and $580 remained uncollected as of September 30, 2015 and December 31, 2014, respectively.

Accounts receivable sales were as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Accounts receivable sales	$	551		$	696		$	1,739		$	2,244
Deferred proceeds	67			94			186			314
Loss on sales of accounts receivable	3			4			9			12
Estimated decrease to operating cash flows⁽¹⁾	(31		)	(22		)	(45		)	(42		)

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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 have been no transfers of finance receivables since the year ended December 31, 2013. 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.



	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

The principal value of finance receivables derecognized from our balance sheet was $301 and $549 (sales value of approximately $323 and $596) at September 30, 2015 and December 31, 2014, respectively.

Summary

The lease portfolios transferred and sold were from 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, which were $46 and $77 at September 30, 2015 and December 31, 2014, respectively, and are included in the caption Other current assets and Other long-term assets in the accompanying Condensed Consolidated Balance Sheets. Beneficial interests of $37 and $64 at September 30, 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 September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Impact from prior sales of finance receivables⁽¹⁾	$	(79	)	$	(125	)	$	(273	)	$	(411	)
Collections on beneficial interest	12			23			45			74
Estimated Decrease to Operating Cash Flows	$	(67	)	$	(102	)	$	(228	)	$	(337	)

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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
Provision	1			1			6			2			10
Charge-offs	(1		)	(2		)	(5		)	(2		)	(10		)
Recoveries and other⁽¹⁾	(1		)	1			3			—			3
Balance at June 30, 2015	$	42		$	18		$	60		$	14		$	134
Provision	1			1			6			1			9
Charge-offs	—			(3		)	(1		)	—			(4		)
Recoveries and other⁽¹⁾	—			—			(1		)	—			(1		)
Balance at September 30, 2015	$	43		$	16		$	64		$	15		$	138
Finance receivables as of September 30, 2015 collectively evaluated for impairment⁽²⁾	$	1,744		$	366		$	1,562		$	465		$	4,137

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
Provision	1			2			11			1			15
Charge-offs	—			(4		)	(8		)	1			(11		)
Recoveries and other⁽¹⁾	—			2			—			—			2
Balance at June 30, 2014	$	49		$	20		$	86		$	9		$	164
Provision	(1		)	2			7			2			10
Charge-offs	(2		)	(2		)	(7		)	(1		)	(12		)
Recoveries and other⁽¹⁾	1			1			(6		)	(1		)	(5		)
Balance at September 30, 2014	$	47		$	21		$	80		$	9		$	157
Finance receivables as of September 30, 2014 collectively evaluated for impairment⁽²⁾	$	1,699		$	404		$	1,952		$	363		$	4,418

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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 the allowance for credit losses of $138 and $157 at September 30, 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:



	September 30, 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	$	192	$	178	$	58	$	428	$	195	$	159	$	55	$	409
Government and education	556		12		3		571		589		13		3		605
Graphic arts	142		87		120		349		148		79		90		317
Industrial	86		44		17		147		92		41		18		151
Healthcare	83		25		14		122		84		26		14		124
Other	53		48		26		127		55		38		29		122
Total United States	1,112		394		238		1,744		1,163		356		209		1,728
Finance and other services	55		33		10		98		54		31		12		97
Government and education	60		7		2		69		76		8		2		86
Graphic arts	47		36		23		106		58		49		36		143
Industrial	23		12		3		38		24		13		4		41
Other	32		20		3		55		34		19		4		57
Total Canada	217		108		41		366		246		120		58		424
France	194		253		82		529		253		234		129		616
U.K./Ireland	240		95		2		337		255		101		6		362
Central⁽¹⁾	213		195		29		437		230		278		30		538
Southern⁽²⁾	40		128		29		197		60		148		36		244
Nordics⁽³⁾	24		38		—		62		25		49		1		75
Total Europe	711		709		142		1,562		823		810		202		1,835
Other	170		229		66		465		195		163		40		398
Total	$	2,210	$	1,440	$	487	$	4,137	$	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:



	September 30, 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	$	2	$	12	$	416	$	428	$	14
Government and education	16		4		4		24		547		571		32
Graphic arts	12		2		1		15		334		349		9
Industrial	3		1		1		5		142		147		9
Healthcare	4		1		1		6		116		122		6
Other	3		1		—		4		123		127		7
Total United States	46		11		9		66		1,678		1,744		77
Canada	8		2		1		11		355		366		9
France	—		—		—		—		529		529		32
U.K./Ireland	3		1		—		4		333		337		1
Central⁽¹⁾	3		1		2		6		431		437		9
Southern⁽²⁾	11		3		3		17		180		197		11
Nordics⁽³⁾	—		—		1		1		61		62		6
Total Europe	17		5		6		28		1,534		1,562		59
Other	15		2		—		17		448		465		—
Total	$	86	$	20	$	16	$	122	$	4,015	$	4,137	$	145

	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.