HP 2009 Annual Report Download - page 98

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies (Continued)
Derivative Financial Instruments
HP uses derivative financial instruments, primarily forwards, swaps, and options, to hedge certain
foreign currency and interest rate exposures. HP also may use other derivative instruments not
designated as hedges such as forwards used to hedge foreign currency balance sheet exposures. HP
does not use derivative financial instruments for speculative purposes. See Note 10 for a full
description of HP’s derivative financial instrument activities and related accounting policies, which is
incorporated herein by reference.
Investments
HP’s investments consist principally of time deposits, money market funds, commercial paper,
corporate debt, other debt securities, and equity securities of publicly-traded and privately-held
companies.
HP classifies its investments in debt securities and its equity investments in public companies as
available-for-sale securities and carries them at fair value. HP determines fair values for investments in
public companies using quoted market prices and records a charge to Interest and other, net when the
change in fair values is determined to be an other-than-temporary change. HP carries equity
investments in privately-held companies at cost or at fair value when HP recognizes an
other-than-temporary impairment charge.
HP monitors its investment portfolio for impairment on a periodic basis. In the event that the
carrying value of an investment in debt securities exceeds its fair value and the decline in value is
determined to be an other-than-temporary decline and 1) HP does not intend to sell the debt security,
and 2) when it is not more likely than not that HP will be required to sell the debt security prior to
recovery of its amortized cost basis, HP records an impairment charge to Interest and other, net in the
amount of the credit loss and the balance, if any, to other comprehensive income.
HP determined the declines in value of certain investments to be other-than-temporary declines.
Accordingly, HP recorded impairments of approximately $24 million in fiscal 2009, $27 million in fiscal
2008 and $28 million in fiscal 2007. HP includes these impairments in Interest and other, net in the
Consolidated Statements of Earnings. Depending on market and other conditions, HP may record
additional impairments on its investment portfolio in the future.
Concentrations of Credit Risk
Financial instruments that potentially subject HP to significant concentrations of credit risk consist
principally of cash and cash equivalents, investments, accounts receivable from trade customers and
from contract manufacturers, financing receivables and derivatives.
HP maintains cash and cash equivalents, short and long-term investments, derivatives and certain
other financial instruments with various financial institutions. These financial institutions are located in
many different geographical regions and HP’s policy is designed to limit exposure with any one
institution. As part of its cash and risk management processes, HP performs periodic evaluations of the
relative credit standing of the financial institutions. HP has not sustained material credit losses from
instruments held at financial institutions. HP utilizes forward contracts and other derivative contracts to
protect against the effects of foreign currency fluctuations. Such contracts involve the risk of
non-performance by the counterparty, which could result in a material loss.
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