HP 2012 Annual Report Download - page 133

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 11: Financing Receivables and Operating Leases (Continued)
circumstances, such as when the delinquency is deemed to be of an administrative nature, accounts may
still accrue interest when they reach 90 days past due. A write-off or specific reserve is generally
recorded when an account reaches 180 days past due. Total financing receivables on non-accrual status
were $225 million and $157 million at October 31, 2012 and 2011, respectively. Total financing
receivables greater than 90 days past due and still accruing interest were $113 million and $71 million
at October 31, 2012 and 2011, respectively.
Note 12: Guarantees
Guarantees and Indemnifications
In the ordinary course of business, HP may provide certain clients with subsidiary performance
guarantees and/or financial performance guarantees, which may be backed by standby letters of credit
or surety bonds. In general, HP would be liable for the amounts of these guarantees in the event that
the nonperformance of HP or HP’s subsidiaries permits termination of the related contract by the
client, the likelihood of which HP believes is remote. HP believes that the company is in compliance
with the performance obligations under all material service contracts for which there is a performance
guarantee.
HP has certain service contracts supported by client financing or securitization arrangements.
Under specific circumstances involving nonperformance resulting in service contract termination or
failure to comply with terms under the financing arrangement, HP would be required to acquire certain
assets. HP considers the possibility of its failure to comply to be remote and the asset amounts involved
to be immaterial.
In the ordinary course of business, HP enters into contractual arrangements under which HP may
agree to indemnify the third party to such arrangement from any losses incurred relating to the services
they perform on behalf of HP or for losses arising from certain events as defined within the particular
contract, which may include, for example, litigation or claims relating to past performance. Such
indemnification obligations may not be subject to maximum loss clauses. Historically, payments made
related to these indemnifications have been immaterial.
Warranty
HP provides for the estimated cost of product warranties at the time it recognizes revenue. HP
engages in extensive product quality programs and processes, including actively monitoring and
evaluating the quality of its component suppliers; however, product warranty terms offered to
customers, ongoing product failure rates, material usage and service delivery costs incurred in
correcting a product failure, as well as specific product class failures outside of HP’s baseline
experience, affect the estimated warranty obligation. If actual product failure rates, repair rates or any
other post sales support costs differ from these estimates, revisions to the estimated warranty liability
would be required.
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