HP 2010 Annual Report Download - page 76
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expense. The swap transactions generally involve the exchange of fixed for 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, 2010 and 2009, 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, 2010 and 2009. 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, investment instruments and financing receivables, net of interest rate swap positions, of
$28 million at October 31, 2010 and $33 million at October 31, 2009.
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, 2010 and $5 million at
October 31, 2009. We monitor our equity investments for impairment on a periodic basis. 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 approximately $3 million and $1 million at October 31,
2010 and 2009, respectively. The aggregate cost of privately-held companies, and other investments was
$163 million at October 31, 2010 and $142 million at October 31, 2009.
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