Finance Assets

Finance Receivables

Finance receivables are comprised of sales-type lease receivables and unsecured revolving loan receivables. Sales-type leases are generally due in monthly, quarterly or semi-annual installments over periods ranging from three to five years. Loan receivables arise primarily from financing services offered to our customers for postage and related supplies. Loan receivables are generally due each month; however, customers may rollover outstanding balances.

Finance receivables at March 31, 2012 and December 31, 2011 consisted of the following:



	March 31, 2012
	North America			International			Total
Sales-type lease receivables
Gross finance receivables	$	1,692,255		$	459,242		$	2,151,497
Unguaranteed residual values	173,542			21,062			194,604
Unearned income	(337,164		)	(104,739		)	(441,903		)
Allowance for credit losses	(24,914		)	(11,035		)	(35,949		)
Net investment in sales-type lease receivables	1,503,719			364,530			1,868,249
Loan receivables
Loan receivables	415,425			41,296			456,721
Allowance for credit losses	(17,411		)	(1,042		)	(18,453		)
Net investment in loan receivables	398,014			40,254			438,268
Net investment in finance receivables	$	1,901,733		$	404,784		$	2,306,517

	December 31, 2011
	North America			International			Total
Sales-type lease receivables
Gross finance receivables	$	1,727,653		$	460,101		$	2,187,754
Unguaranteed residual values	185,450			20,443			205,893
Unearned income	(348,286		)	(102,618		)	(450,904		)
Allowance for credit losses	(28,661		)	(12,039		)	(40,700		)
Net investment in sales-type lease receivables	1,536,156			365,887			1,902,043
Loan Receivables
Loan receivables	436,631			40,937			477,568
Allowance for credit losses	(20,272		)	(2,458		)	(22,730		)
Net investment in loan receivables	416,359			38,479			454,838
Net investment in finance receivables	$	1,952,515		$	404,366		$	2,356,881

Allowance for Credit Losses and Aging of Receivables

We estimate our finance receivable risks and provide allowances for credit losses accordingly. We establish credit approval limits based on the credit quality of the customer and the type of equipment financed. We believe that our concentration of credit risk is limited because of our large number of customers, small account balances for most of our customers and customer geographic and industry diversification.

Our policy is to discontinue revenue recognition for lease receivables that are more than 120 days past due and for unsecured loan receivables that are more than 90 days past due. We resume revenue recognition when customer payments reduce the account balance aging to 60 days or less past due. We evaluate the adequacy of the allowance for credit losses based on historical loss experience, the nature and volume of our portfolios, adverse situations that may affect a customer's ability to pay and prevailing economic conditions, and make adjustments to the reserves as necessary. This evaluation is inherently subjective and actual results may differ significantly from estimated reserves.

We maintain a program for U.S. borrowers in our North America loan portfolio who are experiencing financial difficulties, but are able to make reduced payments over an extended period of time. Upon acceptance into the program, the borrower’s credit line is closed, interest accrual is suspended, the borrower’s minimum required payment is reduced and the account is re-aged and classified as current. There is generally no forgiveness of debt or reduction of balances owed. The loans in the program are considered to be troubled debt restructurings because of the concessions granted to the borrower. At March 31, 2012 and December 31, 2011, loans in this program had a balance of $6 million and $7 million, respectively.

The allowance for credit losses for these modified loans is determined by the difference between cash flows expected to be received from the borrower discounted at the original effective rate and the carrying value of the loan. The allowance for credit losses related to such loans was $2 million at March 31, 2012 and December 31, 2011 and is included in the allowance for credit losses of North America loans in the table below. Management believes that the allowance for credit losses is adequate for these loans and all other loans in the portfolio. Write-offs of loans in the program totaled approximately $1 million for the previous twelve months.

Activity in the allowance for credit losses for finance receivables for the three months ended March 31, 2012 was as follows:



	Sales-type Lease Receivables						Loan Receivables
	North America			International			North America			International			Total
Balance at January 1, 2012	$	28,661		$	12,039		$	20,272		$	2,458		$	63,430
Amounts charged to expense	(1,330		)	572			283			(958		)	(1,433		)
Accounts written off	(2,417		)	(1,576		)	(3,144		)	(458		)	(7,595		)
Balance at March 31, 2012	$	24,914		$	11,035		$	17,411		$	1,042		$	54,402

The aging of finance receivables at March 31, 2012 and December 31, 2011 was as follows:



	Sales-type Lease Receivables				Loan Receivables
	North America		International		North America		International		Total
March 31, 2012
< 31 days past due	$	1,604,761	$	432,790	$	394,913	$	39,346	$	2,471,810
> 30 days and < 61 days	35,892		10,495		10,542		970		57,899
> 60 days and < 91 days	25,941		6,238		4,318		509		37,006
> 90 days and < 121 days	7,530		3,756		2,732		151		14,169
> 120 days	18,131		5,963		2,920		320		27,334
Total	$	1,692,255	$	459,242	$	415,425	$	41,296	$	2,608,218
Past due amounts > 90 days
Still accruing interest	$	7,530	$	3,756	$	—	$	—	$	11,286
Not accruing interest	18,131		5,963		5,652		471		30,217
Total	$	25,661	$	9,719	$	5,652	$	471	$	41,503



	Sales-type Lease Receivables				Loan Receivables
	North America		International		North America		International		Total
December 31, 2011
< 31 days past due	$	1,641,706	$	434,811	$	414,434	$	38,841	$	2,529,792
> 30 days and < 61 days	41,018		10,152		12,399		1,066		64,635
> 60 days and < 91 days	24,309		5,666		4,362		425		34,762
> 90 days and < 121 days	4,912		3,207		2,328		186		10,633
> 120 days	15,708		6,265		3,108		419		25,500
Total	$	1,727,653	$	460,101	$	436,631	$	40,937	$	2,665,322
Past due amounts > 90 days
Still accruing interest	$	4,912	$	3,207	$	—	$	—	$	8,119
Not accruing interest	15,708		6,265		5,436		605		28,014
Total	$	20,620	$	9,472	$	5,436	$	605	$	36,133

Credit Quality

The extension of credit and management of credit lines to new and existing customers uses a combination of an automated credit score, where available, and a detailed manual review of the customer’s financial condition and, when applicable, the customer’s payment history. Once credit is granted, the payment performance of the customer is managed through automated collections processes and is supplemented with direct follow up should an account become delinquent. We have robust automated collections and extensive portfolio management processes. The portfolio management processes ensure that our global strategy is executed, collection resources are allocated appropriately and enhanced tools and processes are implemented as needed.

We use a third party to score the majority of the North American portfolio on a quarterly basis using a commercial credit score. We do not use a third party to score our International portfolios because the cost to do so is prohibitive, it is a localized process and there is no single credit score model that covers all countries.

The table below shows the North American portfolio at March 31, 2012 and December 31, 2011 by relative risk class (low, medium, high) based on the relative scores of the accounts within each class. The relative scores are determined based on a number of factors, including the company type, ownership structure, payment history and financial information. A fourth class is shown for accounts that are not scored. Absence of a score is not indicative of the credit quality of the account. The degree of risk, as defined by the third party, refers to the relative risk that an account in the next 12 month period may become delinquent.


•	Low risk accounts are companies with very good credit scores and are considered to approximate the top 30% of all commercial borrowers.


•	Medium risk accounts are companies with average to good credit scores and are considered to approximate the middle 40% of all commercial borrowers.


•	High risk accounts are companies with poor credit scores, are delinquent or are at risk of becoming delinquent and are considered to approximate the bottom 30% of all commercial borrowers.



	March 31, 2012		December 31, 2011
Sales-type lease receivables
Risk Level
Low	$	1,037,825	$	1,096,676
Medium	504,349		473,394
High	55,059		58,177
Not Scored	95,022		99,406
Total	$	1,692,255	$	1,727,653
Loan receivables
Risk Level
Low	$	253,803	$	269,547
Medium	136,881		115,490
High	18,965		21,081
Not Scored	5,776		30,513
Total	$	415,425	$	436,631

Although the relative score of accounts within each class is used as a factor in determining a customer credit limit, it is not indicative of our actual history of losses due to the business essential nature of our products and services. The aging schedule included above, showing approximately 1.6% of the portfolio as greater than 90 days past due, and the roll-forward schedule of the allowance for credit losses, showing the actual losses for the three months ended March 31, 2012 are more representative of the potential loss performance of our portfolio than relative risk based on scores, as defined by the third party.

Leveraged Leases

Our investment in leveraged lease assets consisted of the following:



	March 31, 2012			December 31, 2011
Rental receivables	$	95,737		$	810,306
Unguaranteed residual values	14,104			13,784
Principal and interest on non-recourse loans	(67,713		)	(606,708		)
Unearned income	(9,151		)	(79,111		)
Investment in leveraged leases	32,977			138,271
Less: deferred taxes related to leveraged leases	(21,233		)	(101,255		)
Net investment in leveraged leases	$	11,744		$	37,016

The following is a summary of the components of income from leveraged leases:



	Three Months Ended March 31,
	2012		2011
Pre-tax leveraged lease income	$	793	$	1,536
Income tax effect	19		(82		)
Income from leveraged leases	$	812	$	1,454

During the quarter, we completed a sale of non-U.S. leveraged lease assets to the lessee for cash. The investment in the leveraged lease at the date of sale was $109 million and an after-tax gain of $13 million was recognized. The effects of the sale are not included in the table above.