Xerox 2011 Annual Report Download - page 74

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The following table is a rollforward of the allowance for doubtful finance receivables as well as the related investment in finance receivables:
United States Canada Europe Other(3) Total
Allowance for Credit Losses:
Balance at December 31, 2009 $ 99 $ 33 $ 87 $ 3 $ 222
Provision 47 22 59 — 128
Charge-offs (58) (23) (59) — (140)
Recoveries and other(1) 3 5 (6) — 2
Balance at December 31, 2010 91 37 81 3 212
Provision 15 11 74 — 100
Charge-offs (31) (17) (59) (1) (108)
Recoveries and other(1) — 2 (5) — (3)
Balance at December 31, 2011 $ 75 $ 33 $ 91 $ 2 $ 201
Finance Receivables Collectively Evaluated for Impairment:
December 31, 2010(2) $ 3,177 $ 872 $ 2,706 $ 66 $ 6,821
December 31, 2011(2) $ 2,993 $ 825 $ 2,630 $ 108 $ 6,556
(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 $7 and $11, and the allowance for credit losses of $201 and $212 at December 31, 2011 and 2010, respectively.
(3) Includes developing market countries and smaller units.
In the U.S. and Canada, customers are further evaluated or segregated by
class based on industry sector. The primary customer classes are Finance
& Other Services, Government & Education; Graphic Arts; Industrial;
Healthcare and Other. In Europe, customers are further grouped by class
based on the country or region of the customer. The primary customer
classes include the U.K./Ireland, France and the following European regions
– Central, Nordic and Southern. These groupings or classes are used to
understand the nature and extent of our exposure to credit risk arising
from finance receivables.
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 with 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 evaluation 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%.
Notes to the Consolidated
Financial Statements
(in millions, except per-share data and where otherwise noted)