HP 2012 Annual Report Download - page 72

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
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:
2012 2011
In millions
Portfolio assets(1) ................................................. $13,054 $12,699
Allowance for doubtful accounts(2) .................................... 149 130
Operating lease equipment reserve .................................... 81 84
Total reserves ................................................... 230 214
Net portfolio assets ............................................... $12,824 $12,485
Reserve coverage ................................................ 1.8% 1.7%
Debt to equity ratio(3) ............................................. 7.0x 7.0x
(1) Portfolio assets include gross financing receivables of approximately $7.7 billion and $7.3 billion at
October 31, 2012 and October 31, 2011, respectively, and net equipment under operating leases of
$2.4 billion and $2.7 billion at October 31, 2012 and October 31, 2011, 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 $0.9 billion and $1.0 billion at October 31, 2012 and October 31, 2011,
respectively, and intercompany leases of approximately $2.1 billion and $1.7 billion at October 31,
2012 and October 31, 2011, 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. At October 31, 2012 and 2011, debt allocated
to HPFS totalled $11.3 billion and $10.8 billion, respectively. The allocated intercompany debt to
equity ratio above is comparable to that of other similar financing companies.
At October 31, 2012 and 2011, HPFS cash balances were approximately $700 million and
$500 million, respectively.
Net portfolio assets at October 31, 2012 increased 2.7% from October 31, 2011. The increase
resulted from higher levels of new financing originations in fiscal 2012, the effect of which was partially
offset by an unfavorable currency impact. The overall percentage of portfolio asset reserves increased
as a percentage of the portfolio assets.
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