HP 2011 Annual Report Download - page 68

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
2011 2010 2009
In millions
Total financing originations ................................ $6,765 $5,987 $5,210
New financing originations, which represent the amount of financing provided to customers for
equipment and related software and services, including intercompany activity, increased 13.0% and
14.9% in fiscal 2011 and fiscal 2010, respectively. The increases reflect higher financing associated with
HP product sales and services offerings resulting from improved integration and engagement with HP’s
sales efforts 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:
2011 2010
In millions
Portfolio assets(1) ................................................. $12,699 $11,418
Allowance for doubtful accounts(2) .................................... 130 140
Operating lease equipment reserve .................................... 84 83
Total reserves ................................................... 214 223
Net portfolio assets ............................................... $12,485 $11,195
Reserve coverage ................................................ 1.7% 2.0%
Debt to equity ratio(3) ............................................. 7.0x 7.0x
(1) Portfolio assets include gross financing receivables of approximately $7.3 billion and $6.7 billion at
October 31, 2011 and October 31, 2010, respectively, and net equipment under operating leases of
$2.7 billion and $2.5 billion at October 31, 2011 and October 31, 2010, respectively, as disclosed in
Note 11 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 $1.0 billion and $0.8 billion at October 31, 2011 and October 31, 2010,
respectively, and intercompany leases of approximately $1.7 billion and $1.3 billion at October 31,
2011 and October 31, 2010, respectively, both of which are eliminated in consolidation.
(2) Allowance for doubtful accounts includes both the short-term and the long-term portions of the
allowance on financing receivables.
(3) 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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