HP 2005 Annual Report Download - page 70
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choose not to swap fixed for floating interest payments or may terminate a previously executed swap if
the fixed rate liability is offset with fixed rate assets. In order to hedge the fair value of certain
fixed-rate investments, HP may enter into interest rate swaps that convert fixed interest returns into
variable interest returns. HP may use cash flow hedges to hedge the variability of LIBOR-based interest
income received on certain variable-rate investments. HP may also enter into interest rate swaps that
convert variable rate interest returns into fixed-rate interest returns.
We have performed sensitivity analyses as of October 31, 2005 and 2004, using a modeling
technique that measures the change in the fair values arising from a hypothetical 10% adverse
movement in the levels of interest rates across the entire yield curve, with all other variables held
constant. The analyses cover our debt, investment instruments, financing receivables and interest rate
swaps. The analyses use actual maturities for the debt, investments and interest rate swaps and
approximate maturities for financing receivables. The discount rates we used were based on the market
interest rates in effect at October 31, 2005 and 2004. The sensitivity analyses indicated that a
hypothetical 10% adverse movement in interest rates would result in a loss in the fair values of our
debt and investment instruments and financing receivables, net of interest rate swap positions, of
$4 million at October 31, 2005 and $2 million at October 31, 2004.
Equity price risk
We also are exposed to equity price risk inherent in our portfolio of publicly-traded equity
securities, which had an estimated fair value of $64 million at October 31, 2005 and $70 million at
October 31, 2004. We monitor our equity investments for impairment on a periodic basis. In the event
that the carrying value of the equity investment exceeds its fair value, and we determine the decline in
value to be other than temporary, we reduce the carrying value to its current fair value. Generally, we
do not attempt to reduce or eliminate our market exposure on these equity securities. However, we
may use derivative transactions to hedge certain positions from time to time. We do not purchase our
equity securities with the intent to use them for trading or speculative purposes. A hypothetical 30%
adverse change in the stock prices of our publicly-traded equity securities would result in a loss in the
fair values of our marketable equity securities of $19 million at October 31, 2005 and $21 million at
October 31, 2004. The aggregate cost of privately-held companies and other investments is $353 million
at October 31, 2005 and $388 million at October 31, 2004.
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