HP 2005 Annual Report Download - page 61

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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
The portfolio assets and ratios derived from the segment balance sheet for HPFS were as follows
for the following fiscal years ended October 31:
2005 2004
In millions
Portfolio assets(1) .................................................. $7,085 $7,380
Allowance for doubtful accounts ....................................... 111 213
Operating lease equipment reserve ..................................... 45 51
Total reserves ..................................................... 156 264
Net portfolio assets ................................................ $6,929 $7,116
Reserve coverage .................................................. 2.2% 3.6%
Debt to equity ratio(2) ............................................... 5.5x 5.1x
(1) Portfolio assets include financing receivables of $5.0 billion at October 31, 2005 and $5.3 billion at
October 31, 2004 and net equipment under operating leases of $1.3 billion at October 31, 2005 and
$1.4 billion at October 31, 2004, as disclosed in Note 9 of the Consolidated Financial Statements in
Item 8, which is incorporated herein by reference. Portfolio assets also include capitalized profit on
intercompany equipment transactions of approximately $400 million at both October 31, 2005 and
October 31, 2004 and intercompany leases of approximately $400 million at October 31, 2005 and
$300 million at October 31, 2004, both of which are eliminated in consolidation.
(2) HPFS debt consists of intercompany equity that is treated as debt for segment reporting purposes,
intercompany debt and debt issued directly by HPFS.
Portfolio assets at October 31, 2005 decreased 4% from October 31, 2004. The decrease resulted
primarily from collections of billed receivables, a decline in the exchange rate between the euro and the
dollar and the write-off of assets covered by specific reserves. The overall percentage of portfolio assets
reserved decreased due primarily to the write-off of assets covered by specific reserves, the release of
$40 million of reserves for aged receivables in EMEA that have since been collected and lower reserves
resulting from a stronger portfolio risk profile.
HPFS funds its operations mainly through a combination of intercompany debt and equity. The
increase in the debt to equity ratio reflects a planned increase in portfolio leverage.
Corporate Investments
For the fiscal years ended October 31
2005 2004 2003
In millions
Net revenue .......................................... $ 523 $ 449 $ 345
Loss from operations ................................... $(174) $ (179) $ (161)
Loss from operations as a % of net revenue ................... (33.3)% (39.9)% (46.7)%
In fiscal 2005, the majority of the net revenue in Corporate Investments related to network
infrastructure products, which increased 20% from fiscal 2004 as a result of continued product
enhancements, particularly in gigabit Ethernet switch products.
Expenses related to corporate development, global alliances and HP Labs increased 5% in fiscal
2005 from fiscal 2004. The increase was due to higher spending on strategic initiatives and incubation
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