HP 2005 Annual Report Download - page 99

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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 8: Financial Instruments (Continued)
$27 million and $4 million, respectively, in fiscal 2004. Gross realized gains and losses totaled
$36 million and $8 million, respectively, in fiscal 2003. The specific identification method is used to
account for gains and losses on available-for-sale securities.
A summary of the carrying values and balance sheet classification of all investments in debt and
equity securities was as follows for the following fiscal years ended October 31:
2005 2004
In millions
Available-for-sale debt securities ......................................... $ 18 $311
Short-term investments ............................................... 18 311
Available-for-sale debt securities ......................................... 18 22
Available-for-sale equity securities ........................................ 64 70
Equity securities in privately-held companies and other investments ................ 353 388
Included in long-term financing receivables and other assets .................... 435 480
Total investments ..................................................... $453 $791
Other investments consist primarily of marketable securities held to generate returns that HP
expects to offset changes in certain liabilities related to deferred compensation arrangements. HP
includes gains or losses from changes in fair value of these securities, offset by losses or gains on the
related liabilities, in interest and other, net, in HP’s Consolidated Statements of Earnings.
Derivative Financial Instruments
HP is a global company that is exposed to foreign currency exchange rate fluctuations and interest
rate changes in the normal course of its business. As part of its risk management strategy, HP uses
derivative instruments, primarily forward contracts, swaps and options, to hedge certain foreign
currency and interest rate exposures. HP’s objective is to offset gains and losses resulting from these
exposures with losses and gains on the derivative contracts used to hedge them, thereby reducing
volatility of earnings or protecting fair values of assets and liabilities. HP does not use derivative
contracts for speculative purposes. HP applies hedge accounting based upon the criteria established by
SFAS No. 133, ‘‘Accounting for Derivative Instruments and Hedging Activities,’’ whereby HP designates
its derivatives as fair value hedges, cash flow hedges or hedges of the foreign currency exposure of a
net investment in a foreign operation (‘‘net investment hedges’’). HP recognizes all derivatives in the
Consolidated Balance Sheets at fair value and reports them in other current assets, long-term financing
receivables and other assets, other accrued liabilities, and other liabilities. HP classifies cash flows from
the derivative programs as cash flows from operating activities in the Consolidated Statement of Cash
Flows.
Fair Value Hedges
HP enters into fair value hedges to reduce the exposure of its debt portfolio to both interest rate
risk and foreign currency exchange rate risk. HP issues long-term debt in either U.S. dollars or foreign
currencies based on market conditions at the time of financing. HP may then use interest rate or cross
currency swaps to modify the market risk exposures in connection with the debt to achieve primarily
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