HP 2007 Annual Report Download - page 121
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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 9: Financial Instruments (Continued)
A summary of the carrying values and balance sheet classification of all investments in debt and equity securities was as
follows for the following fiscal years ended October 31:
2007 2006
In millions
Available-for-sale debt securities ......................................................................................................................... $152 $22
Short-term investments ...................................................................................................................................... 152 22
Available-for-sale debt securities ......................................................................................................................... 129 20
Available-for-sale equity securities ...................................................................................................................... 9 36
Equity securities in privately-held companies and other investments .................................................................. 533 362
Included in long-term financing receivables and other assets............................................................................... 671 418
Total investments.................................................................................................................................................. $823 $440
Equity securities in privately-held companies include cost basis and equity method investments. Other investments
consist primarily of marketable trading securities held to generate returns that HP expects to offset changes in certain
liabilities related to deferred compensation arrangements. HP includes gains or losses from changes in fair value of these
securities, offset by losses or gains on the related liabilities, in interest and other, net, in HP’ s Consolidated Statements of
Earnings. The gains or losses associated with these securities are not material for both fiscal years 2007 and 2006.
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, swaps and options, to hedge certain foreign currency and interest rate 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 use derivative contracts for
speculative purposes. HP applies hedge accounting based upon the criteria established by SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities” (“SFAS 133”), whereby 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”). HP recognizes all derivatives 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, and other liabilities. HP classifies cash
flows from the derivative programs as cash flows from operating activities in the Consolidated Statement of Cash Flows.
Fair Value Hedges
HP may enter into fair value hedges to reduce the exposure of its debt portfolio to both interest rate risk and foreign
currency exchange rate risk. HP issues long-term debt in either U.S. dollars or foreign currencies based on market conditions
at the time of financing. HP may then use interest rate or cross currency swaps to modify the market risk exposures in
connection with the debt to achieve primarily U.S. dollar LIBOR-based floating interest expense and to manage exposure to
changes in foreign currency exchange rates. The swap transactions generally involve the exchange of fixed for
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