Note 10: Financing Receivables and Operating Leases

        Financing receivables represent sales-type and direct-financing leases resulting from the placement of HP and third-party products. These receivables typically have terms from two to five years and are usually collateralized by a security interest in the underlying assets. Financing receivables also include billed receivables from operating leases. The components of financing receivables, which are included in Financing receivables, net and Long-term financing receivables and other assets in the accompanying Consolidated Balance Sheets, were as follows:

  October 31,
  October 31,
  In millions

Minimum lease payments receivable

  $ 7,505   $ 8,133  

Unguaranteed residual value

    252     248  

Unearned income

    (604 )   (688 )

Financing receivables, gross

    7,153     7,693  

Allowance for doubtful accounts

    (131 )   (149 )

Financing receivables, net

    7,022     7,544  

Less current portion

    (3,144 )   (3,252 )

Amounts due after one year, net

  $ 3,878   $ 4,292  

        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  

        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,
  In millions

Risk Rating



  $ 3,948   $ 4,461  


    3,084     3,151  


    121     81  


  $ 7,153   $ 7,693  

        Accounts rated low risk typically have the equivalent of a Standard & Poor's rating of BBB- 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.

        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 for the receivable, which includes consideration of estimated proceeds from disposition of the collateral, and calculates an estimate of the potential loss and the probability of loss. For those accounts where a loss is probable, HP records a specific reserve. HP generally records a write-off or specific reserve when an account reaches 180 days past due, or sooner if HP determines that the account is not collectible.

        The allowance for doubtful accounts for financing receivables was as follows:

  For the fiscal years
ended October 31
  2013   2012   2011  
  In millions

Balance at beginning of year

  $ 149   $ 130   $ 140  

Provision for doubtful accounts

    38     42     58  

Deductions, net of recoveries

    (56 )   (23 )   (68 )

Balance at end of year

  $ 131   $ 149   $ 130  

        The allowance and related gross financing receivables collectively and individually evaluated for loss were as follows:

  October 31,
  October 31,
  In millions

Allowance for financing receivables collectively evaluated for loss

  $ 95   $ 104  

Allowance for financing receivables individually evaluated for loss

    36     45  


  $ 131   $ 149  

Gross financing receivables collectively evaluated for loss

  $ 6,773   $ 7,355  

Gross financing receivables individually evaluated for loss

    380     338  


  $ 7,153   $ 7,693  

        HP considers a financing receivable to be past due when the minimum payment is not received by the contractually specified due date. HP generally places financing receivables on non-accrual status (suspension of interest accrual) and considers such receivables to be non-performing at the earlier of the time at which full payment of principal and interest becomes doubtful or the receivable becomes contractually 90 days past due. Subsequently, HP may recognize revenue on non-accrual financing receivables as payments are received (i.e., on a cash basis) if HP deems the recorded financing receivable to be fully collectible; however, if there is doubt regarding the ultimate collectability of the recorded financing receivable, HP applies all cash receipts to reduce the carrying amount of the financing receivable (i.e., the cost recovery method). In certain circumstances, such as when HP deems a delinquency to be of an administrative nature, financing receivables may accrue interest after they reach 90 days past due. The non-accrual status of a financing receivable may not impact a customer's risk rating. After all of a customer's delinquent principal and interest balances are settled, HP may return the related financing receivable to accrual status.

        The following table summarizes the aging and non-accrual status of gross financing receivables:

  October 31,
  October 31,
  In millions



Current 1-30 days

  $ 217   $ 216  

Past due 31-60 days

    50     53  

Past due 61-90 days

    15     13  

Past due >90 days

    46     51  

Unbilled sales-type and direct-financing lease receivables

    6,825     7,360  

Total gross financing receivables

  $ 7,153   $ 7,693  

Gross financing receivables on non-accrual status(2)

  $ 199   $ 225  

Gross financing receivables 90 days past due and still accruing interest(2)

  $ 181   $ 113  

Includes billed operating lease receivables and billed sales-type and direct-financing lease receivables.

Includes billed operating lease receivables and billed and unbilled sales-type and direct-financing lease receivables.

        Operating lease assets included in machinery and equipment were as follows:

  October 31,
  October 31,
  In millions

Equipment leased to customers

  $ 3,822   $ 3,865  

Accumulated depreciation

    (1,452 )   (1,499 )

Operating lease assets, net

  $ 2,370   $ 2,366  

        As of October 31, 2013, minimum future rentals on non-cancelable operating leases related to leased equipment were as follows for the following fiscal years ended October 31:

  2014   2015   2016   2017   Thereafter   Total  
  In millions

Minimum future rentals on non-cancelable operating leases

  $ 1,212   $ 759   $ 346   $ 93   $ 28   $ 2,438