HP 2012 Annual Report Download - page 132

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 11: Financing Receivables and Operating Leases (Continued)
The credit risk profile of the gross financing receivables, based on internally assigned ratings, was
as follows for the following fiscal years ended October 31:
Risk Rating 2012 2011
In millions
Low ........................................................... $4,461 $4,261
Moderate ........................................................ 3,151 2,989
High ........................................................... 81 57
Total ........................................................... $7,693 $7,307
Accounts rated low risk typically have the equivalent of a Standard & Poor’s rating of BBBǁ or
higher, while accounts rated moderate risk would generally be the equivalent of BB+ or lower. HP
closely monitors accounts rated high risk and, based upon an impairment analysis, may establish
specific reserves against a portion of these leases.
The allowance for doubtful accounts balance is comprised of a general reserve, which is
determined based on a percentage of the financing receivables balance, and a specific reserve, which is
established for certain leases with identified exposures, such as customer default, bankruptcy or other
events, that make it unlikely that HP will recover its investment in the lease. The general reserve
percentages are maintained on a regional basis and are based on several factors, which include
consideration of historical credit losses and portfolio delinquencies, trends in the overall weighted-
average risk rating of the portfolio, and information derived from competitive benchmarking.
The allowance for doubtful accounts and the related financing receivables were as follows for the
following fiscal years ended October 31:
Allowance for doubtful accounts 2012
In millions
Balance, beginning of period .............................................. $130
Additions to allowance ................................................... 42
Deductions, net of recoveries .............................................. (23)
Balance, end of period ................................................... $149
2012 2011
In millions
Allowance for financing receivables individually evaluated for loss ............... $ 45 $ 35
Allowance for financing receivables collectively evaluated for loss ............... 104 95
Total ......................................................... $ 149 $ 130
Gross financing receivables individually evaluated for loss ..................... $ 338 $ 228
Gross financing receivables collectively evaluated for loss ..................... 7,355 7,079
Total ......................................................... $7,693 $7,307
Accounts are generally put on non-accrual status (cessation of interest accrual) when they reach
90 days past due. The non-accrual status may not impact a customer’s risk rating. In certain
124