HP 2012 Annual Report Download - page 78

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Our credit ratings were downgraded by Fitch Ratings Services to F2 and Aǁ in the fourth quarter
of fiscal 2012. Moody’s Investors Service subsequently downgraded our long-term debt from A3 to Baa1
in November 2012. Our credit ratings remain under negative outlook by Moody’s Investors Service.
While we do not have any rating downgrade triggers that would accelerate the maturity of a material
amount of our debt, these downgrades have increased the cost of borrowing under our credit facilities,
have reduced market capacity for our commercial paper, and may require the posting of additional
collateral under some of our derivative contracts. In addition, any further downgrade in our credit
ratings by any of the three rating agencies may further impact us in a similar manner, and, depending
on the extent of the downgrade, could have a negative impact on our liquidity and capital position. We
will rely on alternative sources of funding, including drawdowns under our credit facilities or the
issuance of debt or other securities under our existing shelf registration statement, if necessary, to
offset reductions in the market capacity for our commercial paper.
CONTRACTUAL AND OTHER OBLIGATIONS
The impact that we expect our contractual and other obligations as of October 31, 2012 to have on
our liquidity and cash flow in future periods is as follows:
Payments Due by Period
1 Year or More than
Total Less 1-3 Years 3-5 Years 5 Years
In millions
Principal payments on long-term debt(1) ......... $26,811 $5,638 $ 7,411 $5,824 $ 7,938
Interest payments on long-term debt(2) .......... 5,346 600 1,035 815 2,896
Operating lease obligations .................. 3,242 752 1,141 556 793
Purchase obligations(3) ...................... 1,632 1,131 448 53 —
Capital lease obligations .................... 354 59 251 11 33
Total .................................. $37,385 $8,180 $10,286 $7,259 $11,660
(1) Amounts represent the expected principal cash payments relating to our long-term debt and do not
include any fair value adjustments or discounts and premiums.
(2) Amounts represent the expected interest cash payments relating to our long-term debt. We have
outstanding interest rate swap agreements accounted for as fair value hedges that have the
economic effect of modifying the fixed-interest obligations associated with some of our fixed global
notes for variable rate obligations. The impact of these interest rate swaps was factored into the
calculation of the future interest payments on long-term debt.
(3) Purchase obligations include agreements to purchase goods or services that are enforceable and
legally binding on us and that specify all significant terms, including fixed or minimum quantities
to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the
transaction. These purchase obligations are related principally to inventory and other items.
Purchase obligations exclude agreements that are cancellable without penalty. Purchase obligations
also exclude open purchase orders that are routine arrangements entered into in the ordinary
course of business, as they are difficult to quantify in a meaningful way. Even though open
purchase orders are considered enforceable and legally binding, the terms generally allow us the
option to cancel, reschedule, and adjust our requirements based on our business needs prior to the
delivery of goods or performance of services.
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