HP 2015 Annual Report Download - page 103

Table of Contents
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HP establishes an allowance for doubtful accounts for accounts receivable. HP records a specific reserve for individual accounts when HP becomes aware
of specific customer circumstances, such as in the case of a bankruptcy filing or deterioration in the customer's operating results or financial position. If there
are additional changes in circumstances related to the specific customer, HP further adjusts estimates of the recoverability of receivables. HP maintains bad
debt reserves for all other customers based on a variety of factors, including the use of third-party credit risk models that generate quantitative measures of
default probabilities based on market factors, the financial condition of customers, the length of time receivables are past due, trends in the weighted-average
risk rating for the portfolio, macroeconomic conditions, information derived from competitive benchmarking, significant one-time events and historical
experience. The past due or delinquency status of a receivable is based on the contractual payment terms of the receivable.
HP has third-party short-term financing arrangements intended to facilitate the working capital requirements of certain customers. These financing
arrangements, which in certain cases provide for partial recourse, result in the transfer of HP's trade receivables to a third party. HP reflects amounts transferred
to, but not yet collected from, the third party in accounts receivable in the Consolidated Balance Sheets. For arrangements involving an element of recourse,
the fair value of the recourse obligation is measured using market data from similar transactions and reported as a current liability in the Consolidated
Balance Sheets.
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Financial instruments that potentially subject HP to significant concentrations of credit risk consist principally of cash and cash equivalents,
investments, receivables from trade customers and contract manufacturers, financing receivables and derivatives.
HP maintains cash and cash equivalents, investments, derivatives and certain other financial instruments with various financial institutions. These
financial institutions are located in many different geographic regions, and HP's policy is designed to limit exposure from any particular institution. As part
of its risk management processes, HP performs periodic evaluations of the relative credit standing of these financial institutions. HP has not sustained material
credit losses from instruments held at these financial institutions. HP utilizes derivative contracts to protect against the effects of foreign currency and interest
rate exposures. Such contracts involve the risk of non-performance by the counterparty, which could result in a material loss.
HP sells a significant portion of its products through third-party distributors and resellers and, as a result, maintains individually significant receivable
balances with these parties. If the financial condition or operations of these distributors' and resellers' aggregated business deteriorates substantially, HP's
operating results could be adversely affected. The ten largest distributor and reseller receivable balances, which were concentrated primarily in North America
and Europe, collectively represented 18% and 20% of gross accounts receivable as of October 31, 2015 and 2014, respectively. No single customer accounts
for more than 10% of gross accounts receivable. Credit risk with respect to other accounts receivable and financing receivables is generally diversified due to
the large number of entities comprising HP's customer base and their dispersion across many different industries and geographic regions. HP performs
ongoing credit evaluations of the financial condition of its third-party distributors,
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Source: HP INC, 10-K, December 16, 2015 Powered by Morningstar® Document Research℠
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