HP 2013 Annual Report Download - page 130

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 10: Financing Receivables and Operating Leases (Continued)
As of October 31, 2013, scheduled maturities of HP’s minimum lease payments receivable were as
follows for the following fiscal years ended October 31:
2014 2015 2016 2017 Thereafter Total
In millions
Scheduled maturities of minimum lease payments
receivable ................................. $3,490 $2,022 $1,237 $555 $201 $7,505
Credit Quality Indicators
Due to the homogenous nature of its leasing transactions, HP manages its financing receivables on
an aggregate basis when assessing and monitoring credit risk. Credit risk is generally diversified due to
the large number of entities comprising HP’s customer base and their dispersion across many different
industries and geographical regions. HP evaluates the credit quality of an obligor at lease inception and
monitors that credit quality over the term of a transaction. HP assigns risk ratings to each lease based
on the creditworthiness of the obligor and other variables that augment or mitigate the inherent credit
risk of a particular transaction. Such variables include the underlying value and liquidity of the
collateral, the essential use of the equipment, the term of the lease, and the inclusion of guarantees,
letters of credit, security deposits or other credit enhancements.
The credit risk profile of gross financing receivables, based on internally assigned ratings, was as
follows:
October 31, October 31,
2013 2012
In millions
Risk Rating
Low ....................................................... $3,948 $4,461
Moderate ................................................... 3,084 3,151
High ....................................................... 121 81
Total ....................................................... $7,153 $7,693
Accounts rated low risk typically have the equivalent of a Standard & Poor’s rating of BBBǁ or
higher, while accounts rated moderate risk generally have the equivalent of BB+ or lower. HP classifies
accounts as high risk when it considers the financing receivable to be impaired or when management
believes that there is a near-term risk of impairment.
Allowance for Doubtful Accounts for Financing Receivables
The allowance for doubtful accounts is comprised of a general reserve and a specific reserve. HP
maintains general reserve percentages on a regional basis and bases such percentages on several
factors, including consideration of historical credit losses and portfolio delinquencies, trends in the
overall weighted-average risk rating of the portfolio, current economic conditions and information
derived from competitive benchmarking. HP excludes accounts evaluated as part of the specific reserve
from the general reserve analysis. HP establishes a specific reserve for leases with identified exposures,
such as customer defaults, bankruptcy or other events, that make it unlikely that HP will recover its
investment in the lease. For individually evaluated receivables, HP determines the expected cash flow
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