HP 2009 Annual Report Download - page 72

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
HPFS earnings from operations as a percentage of net revenue increased by 0.5 percentage points
in fiscal 2008 from fiscal 2007 due primarily to a decrease in operating expenses as a percentage of net
revenue and increased margin on end-of lease activity, the effect of which was offset by higher bad debt
expenses and lower portfolio margins due to higher operating leases in the portfolio asset mix. The
operating expense decrease as a percentage of revenue is driven by a higher rate of increase in
revenues relative to operating expenses due to higher operating lease mix of the portfolio and
continued cost controls.
Financing Originations
For the fiscal years ended October 31
2009 2008 2007
In millions
Total financing originations ............................. $5,210 $4,872 $4,441
New financing originations, which represent the amounts of financing provided to customers for
equipment and related software and services and include intercompany activity, increased 6.9% in fiscal
2009 from fiscal 2008 and 9.7% in fiscal 2008 from fiscal 2007. The increases reflect higher financing
associated with HP product sales and services offerings resulting from improved integration and
engagement with HP’s sales efforts offset by unfavorable currency impact.
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:
2009 2008
In millions
Portfolio assets(1) ................................................. $10,017 $8,297
Allowance for doubtful accounts(2) ..................................... 108 90
Operating lease equipment reserve .................................... 71 60
Total reserves .................................................... 179 150
Net portfolio assets ................................................ $ 9,838 $8,147
Reserve coverage ................................................. 1.8% 1.8%
Debt to equity ratio(3) .............................................. 7.0x 6.5x
(1) Portfolio assets include gross financing receivables of approximately $6.1 billion and $5.1 billion at
October 31, 2009 and October 31, 2008 and net equipment under operating leases of $2.2 billion
and $1.8 billion at October 31, 2009 and October 31, 2008, as disclosed in Note 11 to the
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