HP 2012 Annual Report Download - page 125

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 10: Financial Instruments (Continued)
and it is not likely that HP will be required to sell these debt securities prior to the recovery of the
amortized cost.
Contractual maturities of short-term and long-term investments in available-for-sale debt securities
at October 31, 2012 were as follows:
October 31, 2012
Estimated
Cost Fair Value
In millions
Due in less than one year ............................................ $406 $406
Due in one to five years ............................................. 3 3
Due in more than five years .......................................... 364 429
$773 $838
In fiscal 2012, HP recognized a $60 million impairment charge related to a public equity
investment as HP determined that such impairment was other than temporary. HP made its
determination primarily based on the closing prices during the quarter of impairment.
Equity securities in privately held companies include cost basis and equity method investments.
These amounted to $51 million and $48 million for the periods ended October 31, 2012 and
October 31, 2011, respectively, and are included in long-term financing receivables and other assets.
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, option contracts, interest rate swaps, and total
return swaps, to hedge certain foreign currency, interest rate and, to a lesser extent, equity 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 have any leveraged derivatives and does not use derivative
contracts for speculative purposes. 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’’). Additionally, for derivatives not designated as hedging instruments, HP categorizes those
economic hedges as other derivatives. HP recognizes all derivatives, on a gross basis, 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, or Other liabilities. HP classifies cash
flows from the derivative programs as operating activities in the Consolidated Statements of Cash
Flows.
As a result of the use of derivative instruments, HP is exposed to the risk that counterparties to
derivative contracts will fail to meet their contractual obligations. To mitigate the counterparty credit
risk, HP has a policy of only entering into contracts with carefully selected major financial institutions
based upon their credit ratings and other factors, and HP maintains dollar risk limits that correspond
to each institution’s credit rating and other factors. HP’s established policies and procedures for
mitigating credit risk on principal transactions and short-term cash include reviewing and establishing
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