HP 2006 Annual Report Download - page 63

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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Financing Originations
For the fiscal years ended October 31
2006 2005 2004
In millions
Total financing originations .............................. $3,994 $4,136 $3,852
New financing originations, which represent the amounts of financing provided to customers for
equipment and related software and services, and include intercompany activity, decreased 3% in fiscal
2006 from fiscal 2005. The decrease reflects lower financing associated with HP product sales.
Financing originations increased 7% in fiscal 2005 from fiscal 2004 due to higher financing of HP
product sales and a favorable currency impact.
Portfolio Assets and Ratios
HPFS maintains a strategy to generate a competitive return on equity by effectively leveraging its
portfolio against the risks associated with interest rates and credit. The HPFS business model is asset-
intensive and uses certain internal metrics to measure its performance against other financial services
companies, including a segment balance sheet that is derived from our internal management reporting
system. The accounting policies used to derive these amounts are substantially the same as those used
by the consolidated company. However, certain intercompany loans and accounts that are reflected in
the segment balances are eliminated in our Consolidated Financial Statements.
The portfolio assets and ratios derived from the segment balance sheet for HPFS were as follows
for the following fiscal years ended October 31:
2006 2005
In millions
Portfolio assets(1) .................................................. $7,345 $7,085
Allowance for doubtful accounts ....................................... 80 111
Operating lease equipment reserve ..................................... 42 45
Total reserves ..................................................... 122 156
Net portfolio assets ................................................ $7,223 $6,929
Reserve coverage .................................................. 1.7% 2.2%
Debt to equity ratio(2) ............................................... 6.0x 5.5x
(1) Portfolio assets include financing receivables of approximately $4.9 billion at October 31, 2006 and
$5.0 billion at October 31, 2005 and net equipment under operating leases of $1.5 billion at
October 31, 2006 and $1.3 billion at October 31, 2005, as disclosed in Note 10 to 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, 2006 and October 31, 2005, and intercompany leases of approximately
$500 million at October 31, 2006 and $400 million at October 31, 2005, 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.
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