HP 2005 Annual Report Download - page 67

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
HP’s credit risk is evaluated by three independent rating agencies based upon publicly available
information as well as information obtained in our ongoing discussions with them. Standard & Poor’s
Rating Services, Moody’s Investor Service and Fitch Ratings currently rate our senior unsecured long
term debt A-, A3 and A and our short-term debt A-1, Prime-1, and F1, respectively. We do not have
any rating downgrade triggers that would accelerate the maturity of a material amount of our debt.
However, a downgrade in our credit rating would increase the cost of borrowings under our credit
facilities. Also, a downgrade in our credit rating could limit or, in the case of a significant downgrade,
preclude our ability to issue commercial paper under our current programs. If we were so limited or
precluded from borrowing, we would seek alternative sources of funding, including the issuance of
notes under our existing shelf registration statement and our Euro Medium-Term Note Programme or
our credit facilities.
We have revolving trade receivables-based facilities permitting us to sell certain trade receivables
to third parties on a non-recourse basis. The aggregate maximum capacity under these programs was
approximately $1.2 billion as of October 31, 2005. The facility with the largest volume is one that is
subject to a maximum amount of 525 million euros, or approximately $630 million (the ‘‘Euro
Program’’). Trade receivables of approximately $7.9 billion were sold during fiscal 2005, including
approximately $5.4 billion under the Euro Program. Fees associated with these facilities do not
generally differ materially from the cash discounts offered to customers under other alternative prompt
payment programs. As of October 31, 2005, there was approximately $571 million available under these
programs, of which $357 million relates to the Euro Program.
Contractual Obligations
The impact that our contractual obligations as of October 31, 2005 are expected to have on our
liquidity and cash flow in future periods is as follows:
Payments Due by Period
Less than More than
Total 1 Year 1-3 Years 3-5 Years 5 Years
In millions
Long-term debt, including capital lease obligations(1) . . $4,817 $1,167 $2,569 $ 19 $1,062
Operating lease obligations ................... 2,028 541 749 460 278
Purchase obligations(2) ...................... 2,092 1,417 430 212 33
Total ................................... $8,937 $3,125 $3,748 $691 $1,373
(1) Amounts represent the expected cash payments of our long-term debt and do not include any fair
value adjustments or discounts. Included in our long-term debt are approximately $39 million of
capital lease obligations that are secured by certain equipment.
(2) Purchase obligations include agreements to purchase goods or services that are enforceable and
legally binding on HP and that specify all significant terms, including fixed or minimum quantities
to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the
transaction. Purchase obligations exclude agreements that are cancelable without penalty. These
purchase obligations are related principally to cost of sales, inventory and other items. Our
purchase obligation includes the settlement agreement with EMC Corporation (‘‘EMC’’) pursuant
to which HP agreed to pay $325 million (the net amount of the valuation of EMC’s claims against
HP less the valuation of HP’s claims against EMC) to EMC, which HP can satisfy through the
purchase for resale or internal use of complementary EMC products in equal installments of
$65 million over the next five years, of which the first installment was paid on August 29, 2005. As
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