Finance Receivables, Net

9 Months Ended

Sep. 30, 2016

Financing Receivable, Net [Abstract]

Accounts Receivable, Net

Accounts receivable, net were as follows:



	September 30, 2016			December 31, 2015
Amounts billed or billable	$	2,180		$	2,110
Unbilled amounts	360			289
Allowance for doubtful accounts	(74		)	(80		)
Accounts Receivable, Net	$	2,466		$	2,319

Unbilled receivables include receivables 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, 2016 and December 31, 2015 were approximately $843 and $849, 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 to third parties certain accounts receivable without recourse. 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 is 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 Other current assets in the accompanying Condensed Consolidated Balance Sheets and were $55 and $61 at September 30, 2016 and December 31, 2015, 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, $540 and $660 remained uncollected as of September 30, 2016 and December 31, 2015, respectively.

Accounts receivable sales were as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Accounts receivable sales	$	591		$	551		$	1,919		$	1,739
Deferred proceeds	54			67			184			186
Loss on sales of accounts receivable	4			3			12			9
Estimated decrease to operating cash flows⁽¹⁾	(60		)	(31		)	(114		)	(45		)

__________________________


(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 $107 and $238 (sales value of approximately $115 and $256) at September 30, 2016 and December 31, 2015, respectively.

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 $26 and $38 at September 30, 2016 and December 31, 2015, respectively, and are included in Other current assets and Other long-term assets in the accompanying Condensed Consolidated Balance Sheets. Beneficial interests of $16 and $30 at September 30, 2016 and December 31, 2015, 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,
	2016			2015			2016			2015
Impact from prior sales of finance receivables⁽¹⁾	$	(41	)	$	(79	)	$	(151	)	$	(273	)
Collections on beneficial interest	6			12			24			45
Estimated decrease to operating cash flows	$	(35	)	$	(67	)	$	(127	)	$	(228	)

____________________________

(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⁽²⁾			Total
Balance at December 31, 2015⁽¹⁾	$	54		$	17		$	45		$	2		$	118
Provision	4			1			5			—			10
Charge-offs	(2		)	(2		)	(2		)	—			(6		)
Recoveries and other⁽³⁾	1			2			1			—			4
Balance at March 31, 2016	$	57		$	18		$	49		$	2		$	126
Provision	—			1			7			—			8
Charge-offs	(3		)	(2		)	(3		)	—			(8		)
Recoveries and other⁽³⁾	—			1			(2		)	—			(1		)
Balance at June 30, 2016	$	54		$	18		$	51		$	2		$	125
Provision	3			1			5			—			9
Charge-offs	(1		)	(2		)	(3		)	—			(6		)
Recoveries and other⁽³⁾	1			—			—			—			1
Balance at September 30, 2016	$	57		$	17		$	53		$	2		$	129
Finance receivables as of September 30, 2016 collectively evaluated for impairment ⁽⁴⁾	$	2,139		$	377		$	1,382		$	66		$	3,964

Balance at December 31, 2014⁽¹⁾	$	51		$	20		$	58		$	2		$	131
Provision	4			1			5			1			11
Charge-offs	—			(3		)	(1		)	(1		)	(5		)
Recoveries and other⁽³⁾	—			—			(6		)	—			(6		)
Balance at March 31, 2015	$	55		$	18		$	56		$	2		$	131
Provision	3			1			6			—			10
Charge-offs	(3		)	(2		)	(5		)	—			(10		)
Recoveries and other⁽³⁾	(1		)	1			3			—			3
Balance at June 30, 2015	$	54		$	18		$	60		$	2		$	134
Provision	2			1			6			—			9
Charge-offs	—			(3		)	(1		)	—			(4		)
Recoveries and other⁽³⁾	—			—			(1		)	—			(1		)
Balance at September 30, 2015	$	56		$	16		$	64		$	2		$	138
Finance receivables as of September 30, 2015 collectively evaluated for impairment ^(1),(4)	$	2,142		$	366		$	1,562		$	67		$	4,137

__________________


(1)	In the first quarter 2016, as a result of an internal reorganization, a U.S. leasing unit previously classified in Other was reclassified to the U.S. Prior year amounts have been revised to conform to current year presentation.


(2)	Includes developing market countries and smaller units.


(3)	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.


(4)	Total Finance receivables exclude the allowance for credit losses of $129 and $138 at September 30, 2016 and 2015, respectively.

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 approximately 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, 2016								December 31, 2015⁽⁴⁾
	Investment Grade		Non-investment Grade		Substandard		Total Finance Receivables		Investment Grade		Non-investment Grade		Substandard		Total Finance Receivables
Finance and other services	$	178	$	336	$	94	$	608	$	195	$	285	$	91	$	571
Government and education	553		57		6		616		575		48		7		630
Graphic arts	133		117		98		348		145		92		127		364
Industrial	83		73		25		181		89		62		22		173
Healthcare	77		49		16		142		90		46		19		155
Other	90		102		52		244		121		107		53		281
Total United States	1,114		734		291		2,139		1,215		640		319		2,174
Finance and other services	57		41		10		108		55		35		9		99
Government and education	55		6		1		62		59		7		2		68
Graphic arts	42		38		22		102		45		35		21		101
Industrial	23		13		3		39		23		12		3		38
Other	35		25		6		66		33		23		3		59
Total Canada	212		123		42		377		215		112		38		365
France	192		237		60		489		203		207		101		511
U.K./Ireland	190		73		1		264		235		91		3		329
Central⁽¹⁾	199		162		24		385		206		186		25		417
Southern⁽²⁾	42		134		14		190		36		138		17		191
Nordics⁽³⁾	28		25		1		54		24		35		2		61
Total Europe	651		631		100		1,382		704		657		148		1,509
Other	41		22		3		66		41		16		1		58
Total	$	2,018	$	1,510	$	436	$	3,964	$	2,175	$	1,425	$	506	$	4,106

_____________________________


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


(2)	Italy, Greece, Spain and Portugal.


(3)	Sweden, Norway, Denmark and Finland.


(4)	In the first quarter 2016, as a result of an internal reorganization, a U.S. leasing unit previously classified in Other was reclassified to the U.S. Prior year amounts have been reclassified to conform to current year presentation.

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, 2016
	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	$	2	$	2	$	16	$	592	$	608	$	11
Government and education	17		1		3		21		595		616		23
Graphic arts	14		1		—		15		333		348		5
Industrial	4		1		1		6		175		181		5
Healthcare	3		1		1		5		137		142		5
Other	10		1		1		12		232		244		6
Total United States	60		7		8		75		2,064		2,139		55
Canada	3		—		—		3		374		377		9
France	4		—		—		4		485		489		28
U.K./Ireland	3		1		—		4		260		264		1
Central⁽¹⁾	2		1		2		5		380		385		12
Southern⁽²⁾	7		2		2		11		179		190		8
Nordics⁽³⁾	1		—		—		1		53		54		3
Total Europe	17		4		4		25		1,357		1,382		52
Other	3		—		—		3		63		66		—
Total	$	83	$	11	$	12	$	106	$	3,858	$	3,964	$	116

	December 31, 2015⁽⁴⁾
	Current		31-90 Days Past Due		>90 Days Past Due		Total Billed		Unbilled		Total Finance Receivables		>90 Days and Accruing
Finance and other services	$	10	$	2	$	2	$	14	$	557	$	571	$	14
Government and education	12		1		4		17		613		630		37
Graphic arts	12		2		1		15		349		364		8
Industrial	5		1		1		7		166		173		7
Healthcare	4		1		1		6		149		155		9
Other	14		2		2		18		263		281		7
Total United States	57		9		11		77		2,097		2,174		82
Canada	3		—		—		3		362		365		9
France	—		—		—		—		511		511		25
U.K./Ireland	1		—		—		1		328		329		1
Central⁽¹⁾	3		1		1		5		412		417		7
Southern⁽²⁾	8		2		3		13		178		191		10
Nordics⁽³⁾	1		—		—		1		60		61		4
Total Europe	13		3		4		20		1,489		1,509		47
Other	1		1		—		2		56		58		—
Total	$	74	$	13	$	15	$	102	$	4,004	$	4,106	$	138

_____________________________


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


(2)	Italy, Greece, Spain and Portugal.


(3)	Sweden, Norway, Denmark and Finland.


(4)	In the first quarter 2016, as a result of an internal reorganization, a U.S. leasing unit previously classified in Other was reclassified to the U.S. Prior year amounts have been reclassified to conform to current year presentation.

- 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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