Pitney Bowes 2012 Annual Report Download - page 40

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22
We invest our pension plan assets in a variety of investment securities in accordance with our strategic asset allocation policy. The
allocations of our U.S. and U.K. pension plan assets at December 31, 2012 and target allocations for 2013 are as follows:
U.S. Pension Plan U.K. Pension Plan
Allocation of plan
assets at
December 31,
2012
2013 Target
allocation
Allocation of plan
assets at
December 31,
2012
2013 Target
allocation
Equity securities 29% 28% 63% 65%
Fixed income 61% 62% 36% 35%
Real estate 4% 2% —% —%
Private equity 6% 8% —% —%
Cash —% —% 1% —%
Total 100% 100% 100% 100%
Investment securities are exposed to various risks such as interest rate, market and credit risks, which could cause a change in the value
of such investment securities. Such a change could have a material impact on our future results.
Residual value of leased assets
We provide lease financing for our products primarily through sales-type leases. Equipment residual values are determined at inception
of the lease using estimates of equipment fair value at the end of the lease term. Residual value estimates impact the determination of
whether a lease is classified as an operating lease or sales-type lease. Estimates of future equipment fair value are based primarily on
our historical experience. We also consider forecasted supply and demand for our various products, product retirement and future product
launch plans, end of lease customer behavior, regulatory changes, remanufacturing strategies, used equipment markets, if any, competition
and technological changes.
We evaluate residual values on an annual basis or as changes to the above considerations occur and declines in estimated residual values
considered "other-than-temporary" are recognized immediately. Estimated increases in future residual values are not recognized until
the equipment is remarketed. If the actual residual value of lease assets were 10% lower than management's current estimates, pre-tax
income would be lower by $17 million.
Allowances for doubtful accounts and credit losses
We estimate our credit risk for accounts and finance receivables and provide allowances for estimated losses. We believe that our 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. We continuously monitor collections and payments from our customers and evaluate the adequacy of the
applicable allowance based on historical loss experience, past due status, adverse situations that may affect a customer's ability to pay
and prevailing economic conditions. We make adjustments to the reserves as deemed necessary. This evaluation is inherently subjective
and actual results may differ significantly from estimated reserves.
Total allowance for credit losses as a percentage of finance receivables was 1.8% and 2.6% at December 31, 2012 and 2011, respectively.
Holding all other assumptions constant, a 0.25% increase or decrease in the allowance rate at December 31, 2012 would have changed
the 2012 provision by approximately $6 million.
The allowance for doubtful accounts as a percentage of trade receivables was 2.7% and 3.4% at December 31, 2012 and 2011, respectively.
Holding all other assumptions constant, a 0.25% increase or decrease in the allowance rate at December 31, 2012 would have changed
the 2012 provision by approximately $2 million.
Accounting for income taxes
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Our annual tax rate is based on our income, statutory tax
rates, tax reserve changes and tax planning opportunities available to us in the various jurisdictions in which we operate. Significant
judgment is required in determining our annual tax rate and in evaluating our tax positions.
We regularly assess the likelihood of tax adjustments in each of the tax jurisdictions in which we have operations and account for the
related financial statement implications. Tax reserves have been established which we believe to be appropriate given the possibility of
tax adjustments. Determining the appropriate level of tax reserves requires us to exercise judgment regarding the uncertain application
of tax laws. The amount of reserves is adjusted when information becomes available or when an event occurs indicating a change in the