HP 2007 Annual Report Download - page 84
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floating interest payments. However, we may choose not to swap fixed for floating interest payments or may terminate a
previously executed swap if we believe a larger proportion of fixed-rate debt would be beneficial. In order to hedge the fair
value of certain fixed-rate investments, we may enter into interest rate swaps that convert fixed interest returns into variable
interest returns. We may use cash flow hedges to hedge the variability of LIBOR-based interest income received on certain
variable-rate investments. We 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, 2007 and 2006, 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, 2007 and 2006. 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 $17 million at October 31, 2007 and $19 million at October 31, 2006.
Equity price risk
We are also exposed to equity price risk inherent in our portfolio of publicly-traded equity securities, which had an
estimated fair value of $9 million at October 31, 2007 and $36 million at October 31, 2006. 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 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 $3 million at October 31, 2007 and
$11 million at October 31, 2006. The aggregate cost of privately-held companies and other investments was $533 million at
October 31, 2007 and $362 million at October 31, 2006.
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