HP 2013 Annual Report Download - page 124

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 9: Financial Instruments (Continued)
related to cash and cash equivalents was approximately $148 million in fiscal 2013, $155 million in fiscal
2012 and $167 million in fiscal 2011. Time deposits were primarily issued by institutions outside the
United States as of October 31, 2013 and October 31, 2012. The estimated fair values of the
available-for-sale investments may not be representative of actual values that will be realized in the
future.
The gross unrealized loss as of October 31, 2013 and October 31, 2012 was due primarily to
decline in the fair value of a debt security of $15 million and $17 million, respectively, that has been in
a continuous loss position for more than twelve months. HP does not intend to sell this debt security,
and it is not likely that HP will be required to sell this debt security prior to the recovery of the
amortized cost.
Contractual maturities of short-term and long-term investments in available-for-sale debt securities
were as follows:
October 31, 2013
Cost Fair Value
In millions
Due in one to five years ............................................. $ 16 $ 16
Due in more than five years .......................................... 372 443
$388 $459
Equity securities in privately held companies include cost basis and equity method investments.
These amounted to $50 million and $51 million at October 31, 2013 and October 31, 2012, respectively,
and are included in long-term financing receivables and other assets.
Derivative Financial Instruments
HP is a global company 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. HP classifies cash flows from the derivative programs as
operating activities in the Consolidated Statements of Cash Flows.
As a result of its use of derivative instruments, HP is exposed to the risk that its counterparties
will fail to meet their contractual obligations. To mitigate this 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
include reviewing and establishing limits for credit exposure and periodically re-assessing the
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