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TABLE OF CONTENTS1
TABLE OF CONTENTS2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | ||
ý |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
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For the quarterly period ended: July 31, 2014 |
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Or |
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o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
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Commission file number 1-4423 |
HEWLETT-PACKARD COMPANY
(Exact name of registrant as specified in its charter)
Delaware | 94-1081436 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. employer identification no.) |
|
3000 Hanover Street, Palo Alto, California |
94304 |
|
(Address of principal executive offices) | (Zip code) | |
(650) 857-1501 (Registrant's telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No ý
The number of shares of HP common stock outstanding as of August 31, 2014 was 1,866,275,323 shares.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
INDEX
This Quarterly Report on Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 2 of Part I, contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of Hewlett-Packard Company and its consolidated subsidiaries ("HP") may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including but not limited to any projections of revenue, margins, expenses, HP's effective tax rate, net earnings, net earnings per share, cash flows, benefit plan funding, share repurchases, currency exchange rates or other financial items; any projections of the amount, timing or impact of cost savings or restructuring charges; any statements of the plans, strategies and objectives of management for future operations, including the execution of restructuring plans and any resulting revenue or cost savings or profitability improvements; any statements concerning the expected development, performance, market share or competitive performance relating to products or services; any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on HP and its financial performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include the need to address the many challenges facing HP's businesses; the competitive pressures faced by HP's businesses; risks associated with executing HP's strategy and plans for future operations; the impact of macroeconomic and geopolitical trends and events; the need to manage third-party suppliers and the distribution of HP's products and services effectively; the protection of HP's intellectual property assets, including intellectual property licensed from third parties; risks associated with HP's international operations; the development and transition of new products and services and the enhancement of existing products and services to meet customer needs and respond to emerging technological trends; the execution and performance of contracts by HP and its suppliers, customers, clients and partners; the hiring and retention of key employees; integration and other risks associated with business combination and investment transactions; the execution, timing and results of restructuring plans, including estimates and assumptions related to the cost and the anticipated benefits of implementing those plans; the resolution of pending investigations, claims and disputes; and other risks that are described herein, including but not limited to the items discussed in "Risk Factors" in Item 1A of Part II of this report and that are otherwise described or updated from time to time in HP's Securities and Exchange Commission reports. HP assumes no obligation and does not intend to update these forward-looking statements.
2
ITEM 1. Financial Statements and Supplementary Data.
3
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Consolidated Condensed Statements of Earnings
(Unaudited)
|
Three months ended July 31 |
Nine months ended July 31 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2014 | 2013 | 2014 | 2013 | |||||||||
|
In millions, except per share amounts |
||||||||||||
Net revenue: |
|||||||||||||
Products |
$ | 18,190 | $ | 17,375 | $ | 54,712 | $ | 53,103 | |||||
Services |
9,295 | 9,741 | 28,030 | 29,722 | |||||||||
Financing income |
100 | 110 | 306 | 342 | |||||||||
| | | | | | | | | | | | | |
Total net revenue |
27,585 | 27,226 | 83,048 | 83,167 | |||||||||
| | | | | | | | | | | | | |
Costs and expenses: |
|||||||||||||
Cost of products |
13,913 | 13,397 | 41,902 | 40,669 | |||||||||
Cost of services |
6,991 | 7,385 | 21,301 | 23,036 | |||||||||
Financing interest |
70 | 77 | 211 | 238 | |||||||||
Research and development |
887 | 797 | 2,571 | 2,406 | |||||||||
Selling, general and administrative |
3,388 | 3,274 | 9,989 | 9,916 | |||||||||
Amortization of intangible assets |
227 | 356 | 774 | 1,056 | |||||||||
Restructuring charges |
649 | 81 | 1,015 | 619 | |||||||||
Acquisition-related charges |
2 | 4 | 8 | 19 | |||||||||
| | | | | | | | | | | | | |
Total operating expenses |
26,127 | 25,371 | 77,771 | 77,959 | |||||||||
| | | | | | | | | | | | | |
Earnings from operations |
1,458 | 1,855 | 5,277 | 5,208 | |||||||||
| | | | | | | | | | | | | |
Interest and other, net |
(145 | ) | (146 | ) | (482 | ) | (518 | ) | |||||
| | | | | | | | | | | | | |
Earnings before taxes |
1,313 | 1,709 | 4,795 | 4,690 | |||||||||
Provision for taxes |
(328 | ) | (319 | ) | (1,112 | ) | (991 | ) | |||||
| | | | | | | | | | | | | |
Net earnings |
$ | 985 | $ | 1,390 | $ | 3,683 | $ | 3,699 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Net earnings per share: |
|||||||||||||
Basic |
$ | 0.53 | $ | 0.72 | $ | 1.95 | $ | 1.91 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Diluted |
$ | 0.52 | $ | 0.71 | $ | 1.93 | $ | 1.89 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Cash dividends declared per share |
$ | 0.32 | $ | 0.29 | $ | 0.61 | $ | 0.55 | |||||
Weighted-average shares used to compute net earnings per share: |
|||||||||||||
Basic |
1,870 | 1,929 | 1,889 | 1,939 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Diluted |
1,899 | 1,948 | 1,913 | 1,952 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
4
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Consolidated Condensed Statements of Comprehensive Income
(Unaudited)
|
Three months ended July 31 |
Nine months ended July 31 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2014 | 2013 | 2014 | 2013 | |||||||||
|
In millions |
||||||||||||
Net earnings |
$ | 985 | $ | 1,390 | $ | 3,683 | $ | 3,699 | |||||
| | | | | | | | | | | | | |
Other comprehensive income (loss) before taxes: |
|||||||||||||
Change in unrealized gains on available-for-sale securities: |
|||||||||||||
Unrealized gains arising during the period |
7 | 11 | 6 | 33 | |||||||||
Gains reclassified into earnings |
| (49 | ) | (1 | ) | (49 | ) | ||||||
| | | | | | | | | | | | | |
|
7 | (38 | ) | 5 | (16 | ) | |||||||
| | | | | | | | | | | | | |
Change in unrealized gains (losses) on cash flow hedges: |
|||||||||||||
Unrealized gains (losses) arising during the period |
134 | 116 | (105 | ) | (44 | ) | |||||||
Losses (gains) reclassified into earnings |
125 | (21 | ) | 335 | 19 | ||||||||
| | | | | | | | | | | | | |
|
259 | 95 | 230 | (25 | ) | ||||||||
| | | | | | | | | | | | | |
Change in unrealized components of defined benefit plans: |
|||||||||||||
(Losses) gains arising during the period |
(8 | ) | 30 | (119 | ) | 31 | |||||||
Amortization of actuarial loss and prior service benefit |
67 | 78 | 196 | 242 | |||||||||
Curtailments, settlements and other |
2 | 15 | 42 | 28 | |||||||||
| | | | | | | | | | | | | |
|
61 | 123 | 119 | 301 | |||||||||
| | | | | | | | | | | | | |
Change in cumulative translation adjustment |
(22 | ) | (99 | ) | (63 | ) | (157 | ) | |||||
| | | | | | | | | | | | | |
Other comprehensive income before taxes |
305 | 81 | 291 | 103 | |||||||||
(Provision) benefit for taxes |
(86 | ) | 8 | (123 | ) | 23 | |||||||
| | | | | | | | | | | | | |
Other comprehensive income, net of taxes |
219 | 89 | 168 | 126 | |||||||||
| | | | | | | | | | | | | |
Comprehensive income |
$ | 1,204 | $ | 1,479 | $ | 3,851 | $ | 3,825 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
5
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
|
As of | ||||||
---|---|---|---|---|---|---|---|
|
July 31, 2014 |
October 31, 2013 |
|||||
|
In millions, except par value |
||||||
|
(Unaudited) |
|
|||||
ASSETS |
|||||||
Current assets: |
|||||||
Cash and cash equivalents |
$ | 14,474 | $ | 12,163 | |||
Accounts receivable |
14,198 | 15,876 | |||||
Financing receivables |
3,130 | 3,144 | |||||
Inventory |
6,249 | 6,046 | |||||
Other current assets |
11,236 | 13,135 | |||||
| | | | | | | |
Total current assets |
49,287 | 50,364 | |||||
| | | | | | | |
Property, plant and equipment |
11,434 | 11,463 | |||||
Long-term financing receivables and other assets |
8,981 | 9,556 | |||||
Goodwill |
31,132 | 31,124 | |||||
Intangible assets |
2,336 | 3,169 | |||||
| | | | | | | |
Total assets |
$ | 103,170 | $ | 105,676 | |||
| | | | | | | |
| | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY |
|||||||
Current liabilities: |
|||||||
Notes payable and short-term borrowings |
$ | 2,705 | $ | 5,979 | |||
Accounts payable |
15,141 | 14,019 | |||||
Employee compensation and benefits |
4,038 | 4,436 | |||||
Taxes on earnings |
1,228 | 1,203 | |||||
Deferred revenue |
6,434 | 6,477 | |||||
Accrued restructuring |
828 | 901 | |||||
Other accrued liabilities |
12,102 | 12,506 | |||||
| | | | | | | |
Total current liabilities |
42,476 | 45,521 | |||||
| | | | | | | |
Long-term debt |
17,128 | 16,608 | |||||
Other liabilities |
14,664 | 15,891 | |||||
Commitments and contingencies |
|||||||
Stockholders' equity: |
|||||||
HP stockholders' equity |
|||||||
Preferred stock, $0.01 par value (300 shares authorized; none issued) |
| | |||||
Common stock, $0.01 par value (9,600 shares authorized; 1,865 and 1,908 shares issued and outstanding at July 31, 2014 and October 31, 2013, respectively) |
19 | 19 | |||||
Additional paid-in capital |
4,116 | 5,465 | |||||
Retained earnings |
27,984 | 25,563 | |||||
Accumulated other comprehensive loss |
(3,610 | ) | (3,778 | ) | |||
| | | | | | | |
Total HP stockholders' equity |
28,509 | 27,269 | |||||
Non-controlling interests |
393 | 387 | |||||
| | | | | | | |
Total stockholders' equity |
28,902 | 27,656 | |||||
| | | | | | | |
Total liabilities and stockholders' equity |
$ | 103,170 | $ | 105,676 | |||
| | | | | | | |
| | | | | | | |
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
6
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited)
|
Nine months ended July 31 |
||||||
---|---|---|---|---|---|---|---|
|
2014 | 2013 | |||||
|
In millions |
||||||
Cash flows from operating activities: |
|||||||
Net earnings |
$ | 3,683 | $ | 3,699 | |||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|||||||
Depreciation and amortization |
3,259 | 3,491 | |||||
Stock-based compensation expense |
432 | 398 | |||||
Provision for doubtful accounts |
38 | 43 | |||||
Provision for inventory |
166 | 222 | |||||
Restructuring charges |
1,015 | 619 | |||||
Deferred taxes on earnings |
(129 | ) | 542 | ||||
Excess tax benefit from stock-based compensation |
(49 | ) | (1 | ) | |||
Other, net |
65 | 343 | |||||
Changes in operating assets and liabilities (net of acquisitions): |
|||||||
Accounts receivable |
1,662 | 2,072 | |||||
Financing receivables |
340 | 568 | |||||
Inventory |
(369 | ) | (445 | ) | |||
Accounts payable |
1,196 | (70 | ) | ||||
Taxes on earnings |
292 | (520 | ) | ||||
Restructuring |
(1,050 | ) | (644 | ) | |||
Other assets and liabilities |
(919 | ) | (1,525 | ) | |||
| | | | | | | |
Net cash provided by operating activities |
9,632 | 8,792 | |||||
| | | | | | | |
Cash flows from investing activities: |
|||||||
Investment in property, plant and equipment |
(2,897 | ) | (2,280 | ) | |||
Proceeds from sale of property, plant and equipment |
702 | 507 | |||||
Purchases of available-for-sale securities and other investments |
(1,007 | ) | (793 | ) | |||
Maturities and sales of available-for-sale securities and other investments |
1,224 | 874 | |||||
Payments made in connection with business acquisitions, net of cash acquired |
(20 | ) | (167 | ) | |||
| | | | | | | |
Net cash used in investing activities |
(1,998 | ) | (1,859 | ) | |||
| | | | | | | |
Cash flows from financing activities: |
|||||||
Issuance (repayment) of commercial paper and notes payable, net |
86 | (170 | ) | ||||
Issuance of debt |
2,005 | 254 | |||||
Payment of debt |
(4,853 | ) | (3,473 | ) | |||
Issuance of common stock under employee stock plans |
243 | 279 | |||||
Repurchase of common stock |
(1,978 | ) | (1,053 | ) | |||
Excess tax benefit from stock-based compensation |
49 | 1 | |||||
Cash dividends paid |
(875 | ) | (821 | ) | |||
| | | | | | | |
Net cash used in financing activities |
(5,323 | ) | (4,983 | ) | |||
| | | | | | | |
Increase in cash and cash equivalents |
2,311 | 1,950 | |||||
Cash and cash equivalents at beginning of period |
12,163 | 11,301 | |||||
| | | | | | | |
Cash and cash equivalents at end of period |
$ | 14,474 | $ | 13,251 | |||
| | | | | | | |
| | | | | | | |
Supplemental schedule of non-cash investing and financing activities: |
|||||||
Purchase of assets under capital leases |
$ | 113 | $ | 3 |
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
7
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
In the opinion of management, the accompanying unaudited Consolidated Condensed Financial Statements of Hewlett-Packard Company and its consolidated subsidiaries ("HP") contain all adjustments, including normal recurring adjustments, necessary to present fairly HP's financial position as of July 31, 2014 and October 31, 2013, its results of operations for the three and nine months ended July 31, 2014 and 2013 and its cash flows for the nine months ended July 31, 2014 and 2013.
The results of operations for the three and nine months ended July 31, 2014 and cash flows for the nine months ended July 31, 2014 are not necessarily indicative of the results to be expected for the full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with HP's Annual Report on Form 10-K for the fiscal year ended October 31, 2013, including "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Quantitative and Qualitative Disclosures About Market Risk" and the Consolidated Financial Statements and notes thereto included in Items 7, 7A and 8, respectively, included therein.
The accompanying unaudited Consolidated Condensed Financial Statements include the accounts of HP and other subsidiaries and affiliates in which HP has a controlling financial interest. Non-controlling interests are presented as a separate component within Total stockholder's equity in the Consolidated Condensed Balance Sheets. Net earnings attributable to the non-controlling interests are eliminated within Interest and other, net in the Consolidated Condensed Statements of Earnings and are not presented separately as they were not material for any period presented. HP has eliminated all significant intercompany accounts and transactions.
Use of Estimates
The preparation of financial statements in accordance with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in HP's Consolidated Condensed Financial Statements and accompanying notes. Actual results could differ materially from those estimates.
Segment Reorganization
HP has implemented certain segment and business unit realignments in order to align its segment financial reporting more closely with its current business structure. Prior year segment and business unit financial information have been conformed to the current-year presentation. None of the changes impacts HP's previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share. See Note 16 for a further discussion of HP's segment reorganization.
Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") amended the existing accounting standards for revenue recognition. The amendments are based on the principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. HP is required to adopt the amendments in the first quarter of fiscal 2018. Early adoption is not permitted. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. HP is
8
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 1: Basis of Presentation (Continued)
currently evaluating the impact of these amendments and the transition alternatives on its Consolidated Financial Statements.
In April 2014, the FASB issued guidance which changes the criteria for identifying a discontinued operation. The guidance limits the definition of a discontinued operation to the disposal of a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has, or will have, a major effect on an entity's operations and financial results. The guidance is effective in the first quarter of fiscal 2016, with early adoption permitted for transactions that have not been reported in financial statements previously issued.
In July 2013, the FASB issued a new accounting standard requiring the presentation of certain unrecognized tax benefits as reductions to deferred tax assets rather than as liabilities in the Consolidated Balance Sheets when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. HP will be required to adopt this new standard on a prospective basis in the first quarter of fiscal 2015; however, early adoption is permitted as is retrospective application. HP expects to adopt the standard in the first fiscal quarter of 2015 on a prospective basis. Adoption of the standard is not expected to have a material effect on HP's Consolidated Financial Statements.
Note 2: Stock-Based Compensation
HP's stock-based compensation plans include HP's principal equity plans as well as various equity plans assumed through business combinations. HP's principal equity plans permit the issuance of restricted stock awards, stock options and performance-based awards.
Stock-based compensation expense and the resulting tax benefits were as follows:
|
Three months ended July 31 |
Nine months ended July 31 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2014 | 2013 | 2014 | 2013 | |||||||||
|
In millions |
||||||||||||
Stock-based compensation expense |
$ | 132 | $ | 107 | $ | 432 | $ | 398 | |||||
Income tax benefit |
(42 | ) | (36 | ) | (138 | ) | (125 | ) | |||||
| | | | | | | | | | | | | |
Stock-based compensation expense, net of tax |
$ | 90 | $ | 71 | $ | 294 | $ | 273 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Restricted Stock Awards
Restricted stock awards are non-vested stock awards that include grants of restricted stock and grants of restricted stock units. For the nine months ended July 31, 2014, HP granted only restricted stock units.
9
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 2: Stock-Based Compensation (Continued)
Non-vested restricted stock awards outstanding as of July 31, 2014 and changes during the nine months ended July 31, 2014 were as follows:
|
Nine months ended July 31, 2014 |
||||||
---|---|---|---|---|---|---|---|
|
Shares | Weighted- Average Grant Date Fair Value Per Share |
|||||
|
In thousands |
|
|||||
Outstanding at beginning of period |
32,262 | $ | 21 | ||||
Granted |
25,042 | $ | 28 | ||||
Vested |
(13,428 | ) | $ | 24 | |||
Forfeited |
(2,702 | ) | $ | 22 | |||
| | | | | | | |
Outstanding at end of period |
41,174 | $ | 24 | ||||
| | | | | | | |
| | | | | | | |
At July 31, 2014, there was $587 million of unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock awards, which HP expects to recognize over the remaining weighted-average vesting period of 1.5 years.
Stock Options
HP utilizes the Black-Scholes-Merton option pricing formula to estimate the fair value of stock options subject to service-based vesting conditions. HP estimates the fair value of stock options subject to performance-contingent vesting conditions using a combination of a Monte Carlo simulation model and a lattice model as these awards contain market conditions. The weighted-average fair value and the assumptions used to measure fair value were as follows:
|
Three months ended July 31 |
Nine months ended July 31 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2014 | 2013 | 2014 | 2013 | |||||||||
Weighted-average fair value of grants per option(1) |
$ | 7.53 | $ | 6.53 | $ | 7.44 | $ | 4.08 | |||||
Expected volatility(2) |
28 | % | 36 | % | 33 | % | 42 | % | |||||
Risk-free interest rate(3) |
1.65 | % | 1.14 | % | 1.78 | % | 0.98 | % | |||||
Expected dividend yield(4) |
1.87 | % | 2.36 | % | 2.14 | % | 3.72 | % | |||||
Expected term in months(5) |
63 | 62 | 68 | 70 |
10
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 2: Stock-Based Compensation (Continued)
Options outstanding as of July 31, 2014 and changes during the nine months ended July 31, 2014 were as follows:
|
Nine months ended July 31, 2014 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Shares | Weighted- Average Exercise Price |
Weighted- Average Remaining Contractual Term |
Aggregate Intrinsic Value |
|||||||||
|
In thousands |
|
In years |
In millions |
|||||||||
Outstanding at beginning of period |
84,042 | $ | 27 | ||||||||||
Granted |
9,363 | $ | 27 | ||||||||||
Exercised |
(8,760 | ) | $ | 18 | |||||||||
Forfeited/cancelled/expired |
(23,434 | ) | $ | 30 | |||||||||
| | | | | | | | | | | | | |
Outstanding at end of period |
61,211 | $ | 27 | 4.5 | $ | 660 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Vested and expected to vest at end of period |
57,123 | $ | 27 | 4.3 | $ | 597 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Exercisable at end of period |
30,784 | $ | 33 | 2.4 | $ | 192 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value that option holders would have realized had all option holders exercised their options on July 31, 2014. The aggregate intrinsic value is the difference between HP's closing stock price on the last trading day of the third quarter of fiscal 2014 and the exercise price, multiplied by the number of in-the-money options. Total intrinsic value of options exercised for the three and nine months ended July 31, 2014 was $60 million and $117 million, respectively.
At July 31, 2014, there was $82 million of unrecognized pre-tax stock-based compensation expense related to unvested stock options which HP expects to recognize over the remaining weighted-average vesting period of 2.1 years.
Note 3: Net Earnings Per Share
HP calculates basic net earnings per share ("EPS") using net earnings and the weighted-average number of shares outstanding during the reporting period. Diluted net EPS includes any dilutive effect of restricted stock awards, stock options and performance-based awards.
11
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 3: Net Earnings Per Share (Continued)
The reconciliations of the numerators and denominators of each of the basic and diluted net EPS calculations were as follows:
|
Three months ended July 31 |
Nine months ended July 31 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2014 | 2013 | 2014 | 2013 | |||||||||
|
In millions, except per share amounts |
||||||||||||
Numerator: |
|||||||||||||
Net earnings(1) |
$ | 985 | $ | 1,390 | $ | 3,683 | $ | 3,699 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Denominator: |
|||||||||||||
Weighted-average shares used to compute basic net EPS |
1,870 | 1,929 | 1,889 | 1,939 | |||||||||
Dilutive effect of employee stock plans |
29 | 19 | 24 | 13 | |||||||||
| | | | | | | | | | | | | |
Weighted-average shares used to compute diluted net EPS |
1,899 | 1,948 | 1,913 | 1,952 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Net earnings per share: |
|||||||||||||
Basic |
$ | 0.53 | $ | 0.72 | $ | 1.95 | $ | 1.91 | |||||
Diluted |
$ | 0.52 | $ | 0.71 | $ | 1.93 | $ | 1.89 |
HP excludes options with exercise prices that are greater than the average market price from the calculation of diluted net EPS because their effect would be anti-dilutive. As such, for the three and nine months ended July 31, 2014, HP excluded options to purchase 18 million shares and 19 million shares, respectively, from the calculation of diluted net EPS compared to 43 million shares and 52 million shares for the three and nine months ended July 31, 2013, respectively. HP also excluded options to purchase an additional 0.4 million shares and 8 million shares for the three and nine months ended July 31, 2014, respectively, from the calculation of diluted net EPS compared to an additional 8 million shares and 2 million shares for the three and nine months ended July 31, 2013, respectively, as their combined exercise price, unrecognized compensation and excess tax benefits were greater than the average market price for HP's stock in each of those periods.
12
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Balance sheet details were as follows:
Accounts Receivable, Net
|
As of | ||||||
---|---|---|---|---|---|---|---|
|
July 31, 2014 |
October 31, 2013 |
|||||
|
In millions |
||||||
Accounts receivable |
$ | 14,451 | $ | 16,208 | |||
Allowance for doubtful accounts |
(253 | ) | (332 | ) | |||
| | | | | | | |
|
$ | 14,198 | $ | 15,876 | |||
| | | | | | | |
| | | | | | | |
|
Nine months ended July 31, 2014 |
|||
---|---|---|---|---|
|
In millions |
|||
Allowance for doubtful accountsaccounts receivable: |
||||
Balance at beginning of period |
$ | 332 | ||
Provision for doubtful accounts |
14 | |||
Deductions, net of recoveries |
(93 | ) | ||
| | | | |
Balance at end of period |
$ | 253 | ||
| | | | |
| | | | |
HP has third-party revolving short-term financing arrangements intended to facilitate the working capital requirements of certain customers. In the second quarter of fiscal 2014, HP expanded its financing arrangements, adding $1.6 billion of capacity. These financing arrangements, which in certain cases provide for partial recourse, result in a transfer of HP's trade receivables and collection risk to third parties. Transferred trade receivables are generally derecognized upon transfer to a third party. At July 31, 2014 and October 31, 2013, $449 million and $171 million, respectively, of transferred trade receivables had not been collected from the third parties.
For the arrangements involving an element of recourse, the recourse obligation is measured using market data from similar transactions and reported as a current liability in the Consolidated Condensed Balance Sheets.
Trade receivables sold and cash received under these facilities was as follows:
|
Three months ended July 31 |
||||||
---|---|---|---|---|---|---|---|
|
2014 | 2013 | |||||
|
In millions |
||||||
Trade receivables sold |
$ | 2,903 | $ | 1,130 | |||
Cash receipts |
$ | 2,922 | $ | 995 |
13
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 4: Balance Sheet Details (Continued)
|
Nine months ended July 31 |
||||||
---|---|---|---|---|---|---|---|
|
2014 | 2013 | |||||
|
In millions |
||||||
Trade receivables sold |
$ | 6,853 | $ | 3,784 | |||
Cash receipts |
$ | 6,575 | $ | 3,510 |
The aggregate maximum, utilized and available program capacity under these arrangements were as follows:
|
As of | ||||||
---|---|---|---|---|---|---|---|
|
July 31, 2014 |
October 31, 2013 |
|||||
|
In millions |
||||||
Non-recourse arrangements: |
|||||||
Maximum program capacity |
$ | 1,122 | $ | 764 | |||
Utilized capacity(1) |
(692 | ) | (314 | ) | |||
| | | | | | | |
Available capacity |
$ | 430 | $ | 450 | |||
| | | | | | | |
Partial-recourse arrangements: |
|||||||
Maximum program capacity |
$ | 1,964 | $ | 631 | |||
Utilized capacity(1) |
(1,408 | ) | (454 | ) | |||
| | | | | | | |
Available capacity |
$ | 556 | $ | 177 | |||
| | | | | | | |
Total arrangements: |
|||||||
Maximum program capacity |
$ | 3,086 | $ | 1,395 | |||
Utilized capacity(1) |
(2,100 | ) | (768 | ) | |||
| | | | | | | |
Available capacity |
$ | 986 | $ | 627 | |||
| | | | | | | |
| | | | | | | |
|
As of | ||||||
---|---|---|---|---|---|---|---|
|
July 31, 2014 |
October 31, 2013 |
|||||
|
In millions |
||||||
Non-recourse arrangements |
$ | 62 | $ | 52 | |||
Partial-recourse arrangements |
387 | 119 | |||||
| | | | | | | |
Total arrangements |
$ | 449 | $ | 171 | |||
| | | | | | | |
| | | | | | | |
14
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 4: Balance Sheet Details (Continued)
Inventory
|
As of | ||||||
---|---|---|---|---|---|---|---|
|
July 31, 2014 |
October 31, 2013 |
|||||
|
In millions |
||||||
Finished goods |
$ | 3,991 | $ | 3,847 | |||
Purchased parts and fabricated assemblies |
2,258 | 2,199 | |||||
| | | | | | | |
|
$ | 6,249 | $ | 6,046 | |||
| | | | | | | |
| | | | | | | |
Property, Plant and Equipment
|
As of | ||||||
---|---|---|---|---|---|---|---|
|
July 31, 2014 |
October 31, 2013 |
|||||
|
In millions |
||||||
Land |
$ | 552 | $ | 626 | |||
Buildings and leasehold improvements |
8,976 | 8,942 | |||||
Machinery and equipment, including equipment held for lease |
17,205 | 16,565 | |||||
| | | | | | | |
|
26,733 | 26,133 | |||||
| | | | | | | |
Accumulated depreciation |
(15,299 | ) | (14,670 | ) | |||
| | | | | | | |
|
$ | 11,434 | $ | 11,463 | |||
| | | | | | | |
| | | | | | | |
For the nine months ended July 31, 2014, the change in gross property, plant and equipment was due primarily to purchases of $2,936 million, which were partially offset by sales and retirements totaling $2,267 million. Accumulated depreciation associated with the assets sold and retired was $1,816 million.
Other Liabilities
|
As of | ||||||
---|---|---|---|---|---|---|---|
|
July 31, 2014 |
October 31, 2013 |
|||||
|
In millions |
||||||
Pension, post-retirement, and post-employment liabilities |
$ | 4,653 | $ | 5,098 | |||
Long-term deferred revenue |
3,865 | 3,907 | |||||
Deferred tax liabilitylong-term |
1,228 | 2,668 | |||||
Other long-term liabilities |
4,918 | 4,218 | |||||
| | | | | | | |
|
$ | 14,664 | $ | 15,891 | |||
| | | | | | | |
| | | | | | | |
15
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 5: Goodwill and Intangible Assets
Goodwill
Goodwill allocated to HP's reportable segments as of July 31, 2014 and changes in the carrying amount of goodwill during the nine months ended July 31, 2014 are as follows:
|
Personal Systems |
Printing | Enterprise Group |
Enterprise Services(2) |
Software | HP Financial Services |
Corporate Investments |
Total | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
In millions |
||||||||||||||||||||||||
Balance at beginning of period(1) |
$ | 2,588 | $ | 2,591 | $ | 16,864 | $ | 97 | $ | 8,840 | $ | 144 | $ | | $ | 31,124 | |||||||||
Goodwill acquired during the period |
| | | | 12 | | | 12 | |||||||||||||||||
Goodwill adjustments |
| | (6 | ) | 2 | | | | (4 | ) | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at end of period(1) |
$ | 2,588 | $ | 2,591 | $ | 16,858 | $ | 99 | $ | 8,852 | $ | 144 | $ | | $ | 31,132 | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Effective at the beginning of its first quarter of fiscal 2014, HP implemented certain organizational changes to align its segment financial reporting more closely with its current business structure. As a result of the organizational realignments, which are described in detail in Note 16, goodwill has been reclassified to the respective segments as of the beginning of the period using a relative fair value approach.
Goodwill is tested for impairment at the reporting unit level. At the beginning of its first quarter of fiscal 2014, HP made a change to its reporting units. In connection with continued operational synergies and interdependencies between the Enterprise Servers, Storage and Networking reporting unit and the Technology Services ("TS") reporting unit within the Enterprise Group ("EG") segment, HP combined these reporting units to create the EG reporting unit. As of July 31, 2014, HP's reporting units are consistent with the reportable segments identified in Note 16, except for ES, which includes two reporting units: MphasiS Limited; and the remainder of ES.
HP evaluates the recoverability of goodwill as of the beginning of its fourth fiscal quarter and whenever events or changes in circumstances indicate there may be a potential impairment.
16
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 5: Goodwill and Intangible Assets (Continued)
Intangible Assets
HP's intangible assets are composed of:
|
As of July 31, 2014 | As of October 31, 2013 | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Gross | Accumulated Amortization |
Accumulated Impairment Loss |
Net | Gross | Accumulated Amortization |
Accumulated Impairment Loss |
Net | |||||||||||||||||
|
In millions |
||||||||||||||||||||||||
Customer contracts, customer lists and distribution agreements |
$ | 5,302 | $ | (3,106 | ) | $ | (856 | ) | $ | 1,340 | $ | 5,321 | $ | (2,709 | ) | $ | (856 | ) | $ | 1,756 | |||||
Developed and core technology and patents |
4,305 | (1,291 | ) | (2,138 | ) | 876 | 5,331 | (1,966 | ) | (2,138 | ) | 1,227 | |||||||||||||
Trade name and trade marks |
1,723 | (270 | ) | (1,336 | ) | 117 | 1,730 | (211 | ) | (1,336 | ) | 183 | |||||||||||||
In-process research and development |
3 | | | 3 | 3 | | | 3 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total intangible assets |
$ | 11,333 | $ | (4,667 | ) | $ | (4,330 | ) | $ | 2,336 | $ | 12,385 | $ | (4,886 | ) | $ | (4,330 | ) | $ | 3,169 | |||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
During the first nine months of fiscal 2014, $752 million of intangible assets became fully amortized and have been eliminated from gross intangible assets and accumulated amortization. HP also eliminated gross intangible assets and accumulated amortization related to the sale of a portfolio of intellectual property in the first quarter of fiscal 2014.
Estimated future amortization expense related to finite-lived intangible assets at July 31, 2014 is as follows:
Fiscal year:
|
In millions | |||
---|---|---|---|---|
2014 (remaining 3 months) |
$ | 226 | ||
2015 |
865 | |||
2016 |
646 | |||
2017 |
238 | |||
2018 |
146 | |||
2019 |
110 | |||
Thereafter |
102 | |||
| | | | |
Total |
$ | 2,333 | ||
| | | | |
| | | | |
17
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Summary of Restructuring Plans
HP's restructuring activities summarized by plan were as follows:
|
|
Three months ended July 31, 2014 Charges |
Nine months ended July 31, 2014 | |
As of July 31, 2014 | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Balance, October 31, 2013 |
Charges | Cash Payments |
Other Adjustments and Non-Cash Settlements |
Balance, July 31, 2014 |
Total Costs Incurred to Date |
Total Expected Costs to Be Incurred |
||||||||||||||||||
|
In millions |
||||||||||||||||||||||||
Fiscal 2012 Plan |
|||||||||||||||||||||||||
Severance and EER |
$ | 945 | $ | 562 | $ | 817 | $ | (861 | ) | $ | (12 | ) | $ | 889 | $ | 3,853 | $ | 4,000 | |||||||
Infrastructure and other |
40 | 86 | 195 | (138 | ) | | 97 | 442 | 500 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total 2012 Plan |
985 | 648 | 1,012 | (999 | ) | (12 | ) | 986 | 4,295 | 4,500 | |||||||||||||||
Other Plans: |
|||||||||||||||||||||||||
Severance |
10 | | | (3 | ) | | 7 | 2,629 | 2,629 | ||||||||||||||||
Infrastructure |
122 | 1 | 3 | (48 | ) | | 77 | 1,442 | 1,443 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total Other Plans |
132 | 1 | 3 | (51 | ) | | 84 | 4,071 | 4,072 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total restructuring plans |
$ | 1,117 | $ | 649 | $ | 1,015 | $ | (1,050 | ) | $ | (12 | ) | $ | 1,070 | $ | 8,366 | $ | 8,572 | |||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
In Balance Sheets: |
|||||||||||||||||||||||||
Accrued restructuring |
$ | 901 | $ | 828 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Other liabilities |
$ | 216 | $ | 242 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Fiscal 2012 Restructuring Plan
On May 23, 2012, HP adopted a multi-year restructuring plan (the "2012 Plan") designed to simplify business processes, accelerate innovation and deliver better results for customers, employees and stockholders. As of April 30, 2014, HP estimated that it would eliminate approximately 34,000 positions in connection with the 2012 Plan through fiscal 2014, with a portion of those employees exiting the company as part of voluntary enhanced early retirement ("EER") programs in the United States and in certain other countries. As of April 30, 2014, HP estimated that it would recognize approximately $4.0 billion in aggregate charges in connection with the 2012 Plan.
In May 2014, HP increased the previously estimated 34,000 positions to be eliminated under the 2012 Plan by an additional 11,000 to 16,000 as HP continues to optimize the workforce and reengineer business processes to be more competitive and meet its objectives. HP estimates it will recognize an additional charge of approximately $500 million based on the low-end of the estimated headcount increase. As a result, as of July 31, 2014, HP estimated that it will eliminate approximately 45,000 to 50,000 positions in connection with the 2012 Plan, including those employees who have exited the company as part of voluntary EER programs in the United States and in certain other countries. HP expects a total of 41,000 positions to be eliminated by the end of fiscal 2014, with the remainder to be eliminated in fiscal 2015. As of July 31, 2014, HP estimated that it would recognize approximately $4.5 billion in aggregate charges in connection with the 2012 Plan based on the low-end of the estimated headcount reduction. HP expects to record these charges through the end of HP's fiscal 2014
18
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 6: Restructuring Charges (Continued)
as the accounting recognition criteria are met. HP expects to incur costs of approximately $4.0 billion related to workforce reductions and approximately $500 million related to infrastructure, including data center and real estate consolidation, and other items. As of July 31, 2014, HP had eliminated approximately 36,000 positions for which a severance payment has been or will be made as part of the 2012 Plan. The severance- and infrastructure-related cash payments associated with the 2012 Plan are expected to be paid out through fiscal 2021.
Other Plans
Restructuring plans initiated by HP in fiscal 2008 and 2010 were substantially completed as of July 31, 2014. Severance- and infrastructure-related cash payments associated with the other plans are expected to be paid out through fiscal 2019.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.
Fair Value Hierarchy
HP uses valuation techniques that are based upon observable and unobservable inputs. Observable or market inputs reflect market data obtained from independent sources, while unobservable inputs reflect HP's assumptions about market participant assumptions based on the best information available. Assets and liabilities are classified in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement:
Level 1Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2Quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3Unobservable inputs for the asset or liability.
The fair value hierarchy gives the highest priority to observable inputs and lowest priority to unobservable inputs.
19
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 7: Fair Value (Continued)
The following table presents HP's assets and liabilities that are measured at fair value on a recurring basis:
|
As of July 31, 2014 | As of October 31, 2013 | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Fair Value Measured Using |
|
Fair Value Measured Using |
|
|||||||||||||||||||||
|
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
|
In millions |
||||||||||||||||||||||||
Assets |
|||||||||||||||||||||||||
Time deposits |
$ | | $ | 2,645 | $ | | $ | 2,645 | $ | | $ | 2,221 | $ | | $ | 2,221 | |||||||||
Money market funds |
8,731 | | | 8,731 | 6,819 | | | 6,819 | |||||||||||||||||
Mutual funds |
| 305 | | 305 | | 313 | | 313 | |||||||||||||||||
Marketable equity securities |
14 | 4 | | 18 | 10 | 5 | | 15 | |||||||||||||||||
Foreign bonds |
9 | 386 | | 395 | 9 | 387 | | 396 | |||||||||||||||||
Other debt securities |
| 2 | 47 | 49 | | 2 | 47 | 49 | |||||||||||||||||
Derivatives: |
|||||||||||||||||||||||||
Interest rate contracts |
| 91 | | 91 | | 156 | | 156 | |||||||||||||||||
Foreign exchange contracts |
| 354 | | 354 | | 284 | 3 | 287 | |||||||||||||||||
Other derivatives |
| 2 | | 2 | | 9 | | 9 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total assets |
$ | 8,754 | $ | 3,789 | $ | 47 | $ | 12,590 | $ | 6,838 | $ | 3,377 | $ | 50 | $ | 10,265 | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities |
|||||||||||||||||||||||||
Derivatives: |
|||||||||||||||||||||||||
Interest rate contracts |
$ | | $ | 105 | $ | | $ | 105 | $ | | $ | 107 | $ | | $ | 107 | |||||||||
Foreign exchange contracts |
| 348 | 4 | 352 | | 547 | 2 | 549 | |||||||||||||||||
Other derivatives |
| 7 | | 7 | | | | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total liabilities |
$ | | $ | 460 | $ | 4 | $ | 464 | $ | | $ | 654 | $ | 2 | $ | 656 | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
For the nine months ended July 31, 2014, there were no transfers between levels within the fair value hierarchy.
Valuation Techniques
Cash Equivalents and Investments: HP holds time deposits, money market funds, mutual funds, other debt securities primarily consisting of corporate and foreign government notes and bonds, and common stock and equivalents. HP values cash equivalents and equity investments using quoted market prices, alternative pricing sources, including net asset value, or models utilizing market observable inputs. The fair value of debt instruments was based on quoted market prices or model-driven valuations using inputs primarily derived from or corroborated by observable market data, and, in certain instances, internally developed valuation models that utilize assumptions which cannot be corroborated with observable market data.
Derivative Instruments: HP uses forward contracts, interest rate and total return swaps and option contracts to hedge certain foreign currency and interest rate exposures. When prices in active markets are not available for the identical asset or liability, HP uses industry standard valuation models
20
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 7: Fair Value (Continued)
to measure fair value. Where applicable, these models project future cash flows and discount the future amounts to present value using market-based observable inputs, including interest rate curves, HP and counterparty credit risk, foreign exchange rates, and forward and spot prices for currencies and interest rates. See Note 8 for a further discussion of HP's use of derivative instruments.
Other Fair Value Disclosures
Short- and Long-Term Debt: HP estimates the fair value of its debt primarily using an expected present value technique, which is based on observable market inputs using interest rates currently available to companies of similar credit standing for similar terms and remaining maturities, and considering its own credit risk. The portion of HP's debt that is hedged is reflected in the Consolidated Condensed Balance Sheets as an amount equal to the debt's carrying amount and a fair value adjustment representing changes in the fair value of the hedged debt obligations arising from movements in benchmark interest rates. The estimated fair value of HP's short- and long-term debt was approximately $20.3 billion at July 31, 2014, compared to its carrying amount of $19.8 billion at that date. The estimated fair value of HP's short- and long-term debt was approximately $22.7 billion at October 31, 2013, compared to its carrying amount of $22.6 billion at that date. If measured at fair value in the Consolidated Condensed Balance Sheets, short- and long-term debt would be classified in Level 2 of the fair value hierarchy.
Other Financial Instruments: For the balance of HP's financial instruments, primarily accounts receivable, accounts payable and financial liabilities included in other accrued liabilities, the carrying amounts approximate fair value due to their short maturities. If measured at fair value in the Consolidated Condensed Balance Sheets, these other financial instruments would be classified in Level 2 or Level 3 of the fair value hierarchy.
Non-Marketable Equity Investments and Non-Financial Assets: HP's non-marketable equity investments and non-financial assets, such as intangible assets, goodwill and property, plant and equipment, are recorded at fair value in the period an impairment charge is recognized.
21
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Cash Equivalents and Available-for-Sale Investments
Cash equivalents and available-for-sale investments were as follows:
|
As of July 31, 2014 | As of October 31, 2013 | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Cost | Gross Unrealized Gain |
Gross Unrealized Loss |
Fair Value |
Cost | Gross Unrealized Gain |
Gross Unrealized Loss |
Fair Value |
|||||||||||||||||
|
In millions |
||||||||||||||||||||||||
Cash Equivalents |
|||||||||||||||||||||||||
Time deposits |
$ | 2,540 | $ | | $ | | $ | 2,540 | $ | 2,207 | $ | | $ | | $ | 2,207 | |||||||||
Money market funds |
8,731 | | | 8,731 | 6,819 | | | 6,819 | |||||||||||||||||
Mutual funds |
143 | | | 143 | 13 | | | 13 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total cash equivalents |
11,414 | | | 11,414 | 9,039 | | | 9,039 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Available-for-Sale Investments |
|||||||||||||||||||||||||
Debt securities: |
|||||||||||||||||||||||||
Time deposits |
105 | | | 105 | 14 | | | 14 | |||||||||||||||||
Foreign bonds |
305 | 90 | | 395 | 310 | 86 | | 396 | |||||||||||||||||
Other debt securities |
63 | | (14 | ) | 49 | 64 | | (15 | ) | 49 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total debt securities |
473 | 90 | (14 | ) | 549 | 388 | 86 | (15 | ) | 459 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Equity securities: |
|||||||||||||||||||||||||
Mutual funds |
162 | | | 162 | 300 | | | 300 | |||||||||||||||||
Equity securities in public companies |
8 | 6 | | 14 | 5 | 6 | | 11 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total equity securities |
170 | 6 | | 176 | 305 | 6 | | 311 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total available-for-sale investments |
643 | 96 | (14 | ) | 725 | 693 | 92 | (15 | ) | 770 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total cash equivalents and available-for-sale investments |
$ | 12,057 | $ | 96 | $ | (14 | ) | $ | 12,139 | $ | 9,732 | $ | 92 | $ | (15 | ) | $ | 9,809 | |||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
All highly liquid investments with original maturities of three months or less at the date of acquisition are considered cash equivalents. As of July 31, 2014 and October 31, 2013, the carrying value of cash equivalents approximated fair value due to the short period of time to maturity. Time deposits were primarily issued by institutions outside the United States as of July 31, 2014 and October 31, 2013. The estimated fair value of the available-for-sale investments may not be representative of values that will be realized in the future.
22
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 8: Financial Instruments (Continued)
Contractual maturities of short- and long-term investments in available-for-sale debt securities were as follows:
|
As of July 31, 2014 |
||||||
---|---|---|---|---|---|---|---|
|
Cost | Fair Value |
|||||
|
In millions |
||||||
Due in one year |
$ | 83 | $ | 83 | |||
Due in one to five years |
9 | 9 | |||||
Due in more than five years |
381 | 457 | |||||
| | | | | | | |
|
$ | 473 | $ | 549 | |||
| | | | | | | |
| | | | | | | |
Equity securities in privately held companies include cost basis and equity method investments and are included in Long-term financing receivables and other assets in the Consolidated Condensed Balance Sheets. These amounted to $97 million and $50 million at July 31, 2014 and October 31, 2013, respectively.
Derivative 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 the fair value of assets and liabilities. HP does not have any leveraged derivatives and does not use derivative contracts for speculative purposes. HP may designate its derivative contracts 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 derivative instruments at fair value in the Consolidated Condensed Balance Sheets. HP classifies cash flows from its derivative programs as operating activities in the Consolidated Condensed 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 counterparty credit risk, HP has a policy of only entering into contracts with carefully selected major financial institutions based on 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 creditworthiness of counterparties. Master netting agreements mitigate credit exposure to counterparties by permitting HP to net amounts due from HP to a counterparty against amounts due to HP from the same counterparty under certain conditions.
23
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 8: Financial Instruments (Continued)
To further mitigate credit exposure to counterparties, HP has collateral security agreements that allow HP to hold collateral from, or require HP to post collateral to, counterparties when aggregate derivative fair values exceed contractually established thresholds which are generally based on the credit ratings of HP and its counterparties. If HP's or the counterparty's credit rating falls below a specified credit rating, either party has the right to request full collateralization of the derivatives' net liability position. Collateral is generally posted within two business days. The fair value of derivatives with credit contingent features in a net liability position was $66 million and $207 million at July 31, 2014 and October 31, 2013, respectively, all of which were fully collateralized within two business days.
Under HP's derivative contracts, the counterparty can terminate all outstanding trades following a covered change of control event affecting HP that results in the surviving entity being rated below a specified credit rating. This credit contingent provision did not affect HP's financial position as of July 31, 2014 and October 31, 2013.
Fair Value Hedges
HP issues long-term debt in U.S. dollars based on market conditions at the time of financing. HP may enter into fair value hedges, such as interest rate swaps, to reduce the exposure of its debt portfolio to changes in fair value resulting from changes in interest rates by achieving a primarily U.S. dollar LIBOR-based floating interest expense. The swap transactions generally involve principal and interest obligations for U.S. dollar-denominated amounts. Alternatively, HP may choose not to swap fixed for floating interest payments or may terminate a previously executed swap if it believes a larger proportion of fixed-rate debt would be beneficial.
When investing in fixed-rate instruments, HP may enter into interest rate swaps that convert the fixed interest payments into variable interest payments and may designate these swaps as fair value hedges.
For derivative instruments that are designated and qualify as fair value hedges, HP recognizes the change in fair value on the derivative instrument, as well as the offsetting change in fair value on the hedged item, in Interest and other, net in the Consolidated Condensed Statements of Earnings in the period of change.
Cash Flow Hedges
HP uses a combination of forward contracts and option contracts designated as cash flow hedges to protect against the foreign currency exchange rate risks inherent in its forecasted net revenue and, to a lesser extent, cost of sales, operating expenses, and intercompany loans denominated in currencies other than the U.S. dollar. HP's foreign currency cash flow hedges mature generally within twelve months; however, certain leasing revenue-related forward contracts and intercompany loan forward contracts extend for the duration of the lease or loan term, which can be up to five years.
For derivative instruments that are designated and qualify as cash flow hedges, HP initially records changes in fair value for the effective portion of the derivative instrument in Accumulated other comprehensive loss as a separate component of stockholders' equity in the Consolidated Condensed Balance Sheets and subsequently reclassifies these amounts into earnings in the period during which the hedged transaction is recognized in earnings. HP reports the effective portion of its cash flow
24
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 8: Financial Instruments (Continued)
hedges in the same financial statement line item as changes in the fair value of the hedged item. During the three and nine months ended July 31, 2014, and three months ended July 31, 2013, HP did not discontinue any cash flow hedge for which it was probable that a forecasted transaction would not occur. During the nine months ended July 31, 2013 there was no significant impact to results of operations as a result of discontinued cash flow hedges.
Net Investment Hedges
HP uses forward contracts designated as net investment hedges to hedge net investments in certain foreign subsidiaries whose functional currency is the local currency. As these derivative instruments are designated as net investment hedges, HP records the effective portion of the derivative instrument together with changes in the fair value of the hedged items in Cumulative translation adjustment as a separate component of stockholders' equity in the Consolidated Condensed Balance Sheets.
Other Derivatives
Other derivatives not designated as hedging instruments consist primarily of forward contracts used to hedge foreign currency-denominated balance sheet exposures. HP also uses total return swaps and, to a lesser extent, interest rate swaps, based on equity or fixed income indices, to hedge its executive deferred compensation plan liability.
For derivative instruments not designated as hedging instruments, HP recognizes changes in fair value in earnings in the period of change. HP recognizes changes in fair value on foreign currency forward contracts used to hedge balance sheet exposures in Interest and other, net in the Consolidated Condensed Statements of Earnings in the same period as the remeasurement gain or loss of the related foreign currency-denominated assets and liabilities. HP recognizes the change in fair value on total return swaps and interest rate swaps in Interest and other, net in the same period as the gain or loss from changes in the amount owed to participants in the executive deferred compensation plan.
Hedge Effectiveness
For interest rate swaps designated as fair value hedges, HP measures effectiveness by offsetting the change in fair value of the hedged instrument with the change in fair value of the derivative. For foreign currency options and forward contracts designated as cash flow or net investment hedges, HP measures effectiveness by comparing the cumulative change in the hedge contract with the cumulative change in the hedged item, both of which are based on forward rates. HP recognizes any ineffective portion of the hedge in the Consolidated Condensed Statements of Earnings in the same period in which ineffectiveness occurs. Amounts excluded from the assessment of effectiveness are recognized in the Consolidated Condensed Statements of Earnings in the period they arise.
25
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 8: Financial Instruments (Continued)
Fair Value of Derivative Instruments in the Consolidated Condensed Balance Sheets
The gross notional and fair value of derivative instruments in the Consolidated Condensed Balance Sheets were as follows:
|
As of July 31, 2014 | As of October 31, 2013 | |||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Gross Notional(1) |
Other Current Assets |
Long-Term Financing Receivables and Other Assets |
Other Accrued Liabilities |
Long-Term Other Liabilities |
Gross Notional(1) |
Other Current Assets |
Long-Term Financing Receivables and Other Assets |
Other Accrued Liabilities |
Long-Term Other Liabilities |
|||||||||||||||||||||
|
In millions |
||||||||||||||||||||||||||||||
Derivatives designated as hedging instruments |
|||||||||||||||||||||||||||||||
Fair value hedges: |
|||||||||||||||||||||||||||||||
Interest rate contracts |
$ | 9,800 | $ | | $ | 91 | $ | | $ | 105 | $ | 11,100 | $ | 31 | $ | 125 | $ | | $ | 107 | |||||||||||
Cash flow hedges: |
|||||||||||||||||||||||||||||||
Foreign exchange contracts |
20,041 | 183 | 35 | 168 | 84 | 22,463 | 79 | 40 | 341 | 80 | |||||||||||||||||||||
Net investment hedges: |
|||||||||||||||||||||||||||||||
Foreign exchange contracts |
1,938 | 25 | 30 | 15 | 16 | 1,920 | 30 | 40 | 20 | 12 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total derivatives designated as hedging instruments |
31,779 | 208 | 156 | 183 | 205 | 35,483 | 140 | 205 | 361 | 199 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives not designated as hedging instruments |
|||||||||||||||||||||||||||||||
Foreign exchange contracts |
15,272 | 61 | 20 | 49 | 20 | 16,048 | 72 | 26 | 76 | 20 | |||||||||||||||||||||
Other derivatives |
348 | 1 | 1 | 7 | | 344 | 8 | 1 | | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total derivatives not designated as hedging instruments |
15,620 | 62 | 21 | 56 | 20 | 16,392 | 80 | 27 | 76 | 20 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total derivatives |
$ | 47,399 | $ | 270 | $ | 177 | $ | 239 | $ | 225 | $ | 51,875 | $ | 220 | $ | 232 | $ | 437 | $ | 219 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Offsetting of Derivative Instruments
HP recognizes all derivatives on a gross basis in the Consolidated Condensed Balance Sheets. HP does not offset the fair value of its derivative instruments against the fair value of cash collateral posted under its collateral security agreements. As of July 31, 2014 and October 31, 2013, information
26
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 8: Financial Instruments (Continued)
related to the potential effect of HP's master netting agreements and collateral security agreements was as follows:
|
As of July 31, 2014 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
In the Consolidated Condensed Balance Sheets | |
|||||||||||||||||
|
(i) |
(ii) |
(iii) = (i)-(ii) |
(iv) |
(v) |
(vi) = (iii)-(iv)-(v) |
|||||||||||||
|
|
|
|
Gross Amounts Not Offset |
|
||||||||||||||
|
Gross Amount Recognized |
Gross Amount Offset |
Net Amount Presented |
Derivatives | Financial Collateral |
Net Amount | |||||||||||||
|
In millions |
||||||||||||||||||
Derivative assets |
$ | 447 | $ | | $ | 447 | $ | 303 | $ | 48 | $ | 96 | |||||||
Derivative liabilities |
$ | 464 | $ | | $ | 464 | $ | 303 | $ | 92 | (1) | $ | 69 |
|
As of October 31, 2013 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
In the Consolidated Condensed Balance Sheets | |
|||||||||||||||||
|
(i) |
(ii) |
(iii) = (i)-(ii) |
(iv) |
(v) |
(vi) = (iii)-(iv)-(v) |
|||||||||||||
|
|
|
|
Gross Amounts Not Offset |
|
||||||||||||||
|
Gross Amount Recognized |
Gross Amount Offset |
Net Amount Presented |
Derivatives | Financial Collateral |
Net Amount | |||||||||||||
|
In millions |
||||||||||||||||||
Derivative assets |
$ | 452 | $ | | $ | 452 | $ | 372 | $ | 30 | $ | 50 | |||||||
Derivative liabilities |
$ | 656 | $ | | $ | 656 | $ | 372 | $ | 283 | (1) | $ | 1 |
27
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 8: Financial Instruments (Continued)
Effect of Derivative Instruments on the Consolidated Condensed Statements of Earnings
The pre-tax effect of derivative instruments and related hedged items in fair value hedging relationships for the three and nine months ended July 31, 2014 and 2013 were as follows:
|
Gain (Loss) Recognized in Earnings on Derivative and Related Hedged Item | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Derivative Instrument
|
Location | Three months ended July 31, 2014 |
Nine months ended July 31, 2014 |
Hedged Item | Location | Three months ended July 31, 2014 |
Nine months ended July 31, 2014 |
||||||||||||
|
|
In millions |
|
|
In millions |
||||||||||||||
Interest rate contracts |
Interest and other, net | $ | (17 | ) | $ | (63 | ) | Fixed-rate debt |
Interest and other, net |
$ | 17 | $ | 63 |
|
Gain (Loss) Recognized in Earnings on Derivative and Related Hedged Item | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Derivative Instrument
|
Location | Three months ended July 31, 2013 |
Nine months ended July 31, 2013 |
Hedged Item | Location | Three months ended July 31, 2013 |
Nine months ended July 31, 2013 |
||||||||||||
|
|
In millions |
|
|
In millions |
||||||||||||||
Interest rate contracts |
Interest and other, net | $ | (229 | ) | $ | (300 | ) | Fixed-rate debt | Interest and other, net | $ | 230 | $ | 300 |
The pre-tax effect of derivative instruments in cash flow and net investment hedging relationships for the three and nine months ended July 31, 2014 was as follows:
|
Gain (Loss) Recognized in Other Comprehensive Income ("OCI") on Derivatives (Effective Portion) |
Gain (Loss) Reclassified from Accumulated OCI Into Earnings (Effective Portion) |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Three months ended July 31, 2014 |
Nine months ended July 31, 2014 |
Location | Three months ended July 31, 2014 |
Nine months ended July 31, 2014 |
||||||||||
|
In millions |
|
In millions |
||||||||||||
Cash flow hedges: |
|||||||||||||||
Foreign exchange contracts |
$ | 155 | $ | 19 | Net revenue | $ | (103 | ) | $ | (229 | ) | ||||
Foreign exchange contracts |
(6 | ) | (84 | ) | Cost of products | (12 | ) | (56 | ) | ||||||
Foreign exchange contracts |
3 | 14 | Other operating expenses | | (7 | ) | |||||||||
Foreign exchange contracts |
(18 | ) | (54 | ) | Interest and other, net | (10 | ) | (43 | ) | ||||||
| | | | | | | | | | | | | | | |
Total cash flow hedges |
$ | 134 | $ | (105 | ) | $ | (125 | ) | $ | (335 | ) | ||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Net investment hedges: |
|||||||||||||||
Foreign exchange contracts |
$ | (7 | ) | $ | (8 | ) | Interest and other, net | $ | | $ | | ||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
28
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 8: Financial Instruments (Continued)
The pre-tax effect of derivative instruments in cash flow and net investment hedging relationships for the three and nine months ended July 31, 2013 was as follows:
|
Gain (Loss) Recognized in OCI on Derivatives (Effective Portion) |
Gain (Loss) Reclassified from Accumulated OCI Into Earnings (Effective Portion) |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Three months ended July 31, 2013 |
Nine months ended July 31, 2013 |
Location | Three months ended July 31, 2013 |
Nine months ended July 31, 2013 |
||||||||||
|
In millions |
|
In millions |
||||||||||||
Cash flow hedges: |
|||||||||||||||
Foreign exchange contracts |
$ | 139 | $ | 146 | Net revenue | $ | 88 | $ | 77 | ||||||
Foreign exchange contracts |
(11 | ) | (180 | ) | Cost of products | (77 | ) | (107 | ) | ||||||
Foreign exchange contracts |
(28 | ) | (17 | ) | Other operating expenses | 1 | 6 | ||||||||
Foreign exchange contracts |
16 | 7 | Interest and other, net | 9 | 5 | ||||||||||
| | | | | | | | | | | | | | | |
Total cash flow hedges |
$ | 116 | $ | (44 | ) | $ | 21 | $ | (19 | ) | |||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Net investment hedges: |
|||||||||||||||
Foreign exchange contracts |
$ | 81 | $ | 64 | Interest and other, net | $ | | $ | | ||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
As of July 31, 2014 and 2013, no portion of a hedging instrument's gain or loss was excluded from the assessment of effectiveness for fair value, cash flow or net investment hedges. Hedge ineffectiveness for fair value, cash flow and net investment hedges was not material in the three and nine months ended July 31, 2014 and 2013.
As of July 31, 2014, HP expects to reclassify an estimated net accumulated other comprehensive loss of approximately $21 million, net of taxes, to earnings in the next twelve months associated with cash flow hedges along with the earnings effects of the related forecasted transactions.
The pre-tax effect of derivative instruments not designated as hedging instruments on the Consolidated Condensed Statements of Earnings for the three and nine months ended July 31, 2014 and 2013 was as follows:
|
Gain (Loss) Recognized in Earnings on Derivatives | ||||||||
---|---|---|---|---|---|---|---|---|---|
|
Location | Three months ended July 31, 2014 |
Nine months ended July 31, 2014 |
||||||
|
|
In millions |
|||||||
Foreign exchange contracts |
Interest and other, net | $ | 1 | $ | 8 | ||||
Other derivatives |
Interest and other, net | (5 | ) | (13 | ) | ||||
| | | | | | | | | |
Total |
$ | (4 | ) | $ | (5 | ) | |||