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Hewlett-Packard Company 401(k) Plan

Statements of Net Assets Available for Benefits

 

		December 31,
		2014				2013
Assets		(In thousands)
Cash		$	4,075			$	4,859
Investments, at fair value			17,363,478				16,569,462
Receivables:
Notes receivable from participants			227,914				232,776
Due from broker for securities sold			43,402				49,589
Employer contributions			33,615				34,066
Participant contributions			17,272				17,698
Interest, dividends, and other			31,389				29,115
Total receivables			353,592				363,244
Total assets			17,721,145				16,937,565
Liabilities
Due to broker for securities purchased			95,875				99,758
Administrative expenses and other payables			16,723				8,904
Total liabilities			112,598				108,662
Net assets available for benefits		$	17,608,547			$	16,828,903
See accompanying notes.

 

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Additions		(In thousands)
Investment income:
Net realized and unrealized appreciation in fair value of investments		$	1,023,234
Interest and dividends			298,930
Total investment income			1,322,164
Contributions:
Employer			237,116
Participants			600,626
Rollovers			65,506
Total contributions			903,248
Interest income on notes receivable from participants			10,263
Total additions			2,235,675
Deductions
Benefits paid directly to participants			1,421,739
Investment management fees			35,371
Administrative expenses			5,768
Total deductions			1,462,878
Net increase in net assets before plan merger			772,797
Transfer in from Microlink, LLC 401(k) Profit Sharing Plan & Trust			6,847
Net increase in net assets after plan merger			779,644
Net assets available for benefits:
Beginning of year			16,828,903
End of year		$	17,608,547
See accompanying notes.

 

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Hewlett-Packard Company 401(k) Plan

Notes to Financial Statements

December 31, 2014

 

1. Description of the Plan

The following brief description of the Hewlett-Packard Company 401(k) Plan (the Plan) provides only general information. Participants should refer to the plan document for a more complete description of the Plan’s provisions.

General

The Plan is a defined contribution plan covering employees of Hewlett-Packard Company (the Company, Employer, or HP) and designated domestic subsidiaries who are on the U.S. payroll and who are employed as regular full-time or regular part-time or limited-term employees. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA). The Plan’s trustee is Bank of New York Mellon (BNYM) and the recordkeeper is Fidelity Workplace Services LLC (Fidelity).

On October 6, 2014, HP announced plans to separate into two independent publicly traded companies: one comprising enterprise technology infrastructure, software, services and financing businesses, which will conduct business as Hewlett Packard Enterprise and one that will comprise printing and personal systems businesses, which will conduct business as HP Inc. The separation is subject to certain conditions, including, among others, obtaining final approval from HP's Board of Directors, receipt of a favorable opinion and/or rulings with respect to the nature of the transaction for federal income tax purposes and filings with the SEC. The separation is expected to be completed before December 31, 2015. Under the separation plan, HP shareholders will own shares of both Hewlett Packard Enterprise and HP Inc.  Management has not determined the impact, if any, of the separation, on the Plan.

During 2011, the Company completed its acquisition of Autonomy Corporation plc, and, indirectly, its U.S. subsidiary Microlink, LLC.  The Microlink, LLC 401(k) Profit Sharing Plan & Trust (Microlink 401(k) Plan) was merged into the Plan effective December 31, 2014.  Microlink 401(k) Plan’s net assets totaling approximately $6.9 million were transferred to the Plan and each participant who had an account balance under the Microlink 401(k) Plan became a participant of the Plan.

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1. Description of the Plan (continued)

Investments

Assets of the Plan are invested in a five-tier investment structure. Tier 1 includes ten Birth Date Funds and the Conservative Portfolio. The Birth Date Funds’ investment strategy is designed to become more conservative as participants grow older. The Conservative Portfolio’s investment strategy is designed for a participant who has a low tolerance for risk and/or a shorter time horizon for investing. Tier 2 includes six actively-managed institutional funds from the main asset classes – stocks, bonds, and short-term investments. Tier 3 includes four index funds that seek to mirror a specific market index by investing in similar equities and bonds that the index fund is benchmarked against. Tier 4 includes seven funds in the secondary or specialty asset classes, such as real-return income, commodities, and real estate, including the HP Stock Fund. Tier 5 is a self-directed Mutual Fund Brokerage Window that offers more than 8,500 brand-name mutual funds through an affiliate of Fidelity. All investments are participant-directed.

The Plan includes an employee stock ownership plan feature (the ESOP) within the meaning of Section 4975(e)(7) of the Internal Revenue Code of 1986, as amended (the Code). The ESOP is maintained as part of the Plan and is designed to invest primarily in the Company’s common stock. The purpose of the ESOP is to permit eligible participants the option of having dividends on the Company’s common stock re-invested in the Plan or paid directly to them in cash.

If a participant’s account currently has more than 20% invested in the HP Stock Fund, the participant will not be forced to reduce his or her holdings; however, the investment election for ongoing contributions and loan repayments will be limited to a maximum of 20% in the HP Stock Fund, and any percentage above the 20% limit for ongoing contributions will automatically be directed to the appropriate Birth Date Fund based generally on the year the participant was born. In addition, future requested exchanges into the HP Stock Fund will be blocked if the requested change will cause the participant to exceed the 20% limit or if the participant is already at or above the 20% limit. Finally, if the participant chooses to rebalance his or her portfolio, the respective holdings in the HP Stock Fund will be limited to a maximum of 20% regardless of the current investments in the HP Stock Fund.

Contributions

As soon as administratively feasible, employees are automatically enrolled in the Plan at a 3% contribution rate in the Birth Date Fund based generally on the year the employee was born.

Participants may annually contribute, up to 50% of their eligible compensation, as defined by the Plan. Contributions are subject to annual limits specified under the Code. The annual limit was $17,500 for 2014. Participants who are age 50 or older by the end of the plan year can contribute an additional $5,500 above the annual limit. Contributions can be made as whole or fractional percentages of eligible compensation. Employees can choose pretax contributions, after-tax Roth 401(k) contributions, or a combination of the two. Both types of contributions are eligible for the Company matching contributions. Catch-up contributions are not eligible for the Company matching contributions. 

 

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1. Description of the Plan (continued)

The Plan also accepts rollover contributions of amounts representing distributions from other qualified defined benefit or defined contribution plans, including amounts from a Roth deferred account, as described in Section 402A(e)(1) of the Code, to the extent the rollover is permitted under Section 402(c) of the Code.

The Company matching contribution is a fixed contribution equal to 100% of the first 4% of eligible earnings a participant contributes each pay period. The Company matching contribution is funded after the end of the fiscal quarter.

In order to receive a Company matching contribution for a fiscal quarter, a participant must be employed on the last day of such fiscal quarter or have terminated employment during such fiscal quarter as a result of such participant’s death, termination under a Company-approved severance program, or in connection with a sale or divestiture by the Company of the business unit in which the participant was employed. For Company matching contributions on behalf of a participant who terminated employment under the 2012 U.S. Enhanced Early Retirement Program or the 2014 U.S. Phased Retirement Program, a participant was also eligible for a Company matching contribution for the fiscal quarter in which the participant terminated.

Vesting

Participants are fully vested at all times with regard to their contributions and earnings thereon.

In general, participants are subject to a three-year cliff vesting schedule with regard to Company matching contributions, and earnings thereon, after which time they will become 100% vested in their Company matching contributions, and earnings thereon. In addition, a participant becomes 100% vested in their Company matching contributions, and earnings thereon, at attainment of age 65, death before termination of employment, or becoming eligible for disability benefits under the Company’s long-term disability program. Participants are also fully vested in their Company matching contributions, and earnings thereon, if they terminate employment in connection with a sale or divestiture by the Company of the business unit in which the participant had been employed. Additionally, participants were fully vested in their Company matching contributions, and earnings thereon, if they terminated employment under the 2012 U.S. Enhanced Early Retirement Program or the 2014 U.S. Phased Retirement Program.

 

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1. Description of the Plan (continued)

Participant Accounts

Each participant’s account is credited with the participant’s contributions, applicable Company matching contributions, and plan earnings, and is charged with an allocation of administrative expenses. Plan earnings are allocated to each participant’s account based on the ratio of the participant’s account balance and share of net earnings or losses of their respective elected investment options. Allocations are determined in accordance with the provisions of the plan document. The benefit to which a participant is entitled is the benefit that can be provided from the vested portion of the participant’s account.

Notes Receivable from Participants

The Plan offers two types of loans, which are general-purpose loans and primary residence loans. The repayment period for a general-purpose loan may not exceed five years, and the repayment period for a primary residence loan may not exceed 15 years.

Participants may borrow from their accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50% of their vested account balances. Loans are secured by the participant’s vested account and bear interest at a fixed rate equal to the prevailing prime rate plus 1%. Principal and interest are paid ratably through payroll deductions. Participant loans are classified as notes receivable from participants on the Statements of Net Assets Available for Benefits and are valued at their unpaid principal balance, plus accrued but unpaid interest. Interest income on notes receivable from participants is recorded when it is earned. Related fees are recorded as administrative expenses and are recorded when they are incurred. No allowance for credit losses has been recorded as of December 31, 2014 or 2013. Participants can continue to repay their loans post-termination, as long as they have not taken a distribution from their account.

Forfeitures

If a participant terminates employment before becoming fully vested in their Company matching contributions, the nonvested Company matching contributions (and earnings thereon) are forfeited at the earlier of the date the participant receives a distribution or incurs a five-year break-in-service. Forfeited balances are restored if the participant returns to an eligible status within five years of termination and repays any amount previously distributed. Forfeited balances of terminated participants’ nonvested accounts are used to reduce future Company matching contributions, restore previously forfeited balances, or pay eligible Plan expenses.

Unallocated forfeiture balances as of December 31, 2014 and 2013, were approximately $3 million and $4 million, respectively, and forfeitures used to reduce Company matching contributions for 2014 were approximately $16 million. 

 

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1. Description of the Plan (continued)

Payment of Benefits

On termination, death, or retirement, participants may elect to receive a lump-sum amount equal to the vested value of their accounts. Lump-sum payments may be made in cash or shares of stock for distribution from the HP Stock Fund. Hardship withdrawals and in-service withdrawals are permitted if certain criteria are met. Participants may also, at any time, withdraw all or part of their rollover accounts.  Effective July 1, 2015, a separation of Hewlett Packard Enterprise from the Company will not be deemed a distributable event.

Administrative Expenses and Investment Management Fees

Certain expenses of the Plan for administrative services are paid directly by the Plan, except to the extent the Company chooses to pay such expenses. Each participant is charged a fixed amount of $34 per year for recordkeeping services. Certain investment management fees related to investment options are paid directly to the Plan’s investment managers and are reported separately on the Statement of Changes in Net Assets Available for Benefits.

Plan Termination

Although it has not expressed any intent to do so, the Company has the right to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event that the Plan is terminated, participants would become 100% vested in their accounts.

2. Summary of Significant Accounting Policies

Basis of Accounting

The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP).

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates that affect the amounts reported in the financial statements and accompanying notes and supplemental schedule. Actual results could differ from those estimates.

 

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2. Summary of Significant Accounting Policies (continued)

Investment Valuation and Income Recognition

The Plan’s investments are stated at fair value. See Note 4 for discussion on fair value measurements.

In the normal course of business, the Plan may enter into derivative contracts (derivatives). Derivatives are either exchange-traded or over-the-counter (OTC) contracts. Exchange-traded derivatives are standard contracts traded on a regulated exchange. OTC contracts are private contracts negotiated between counterparties. The Plan has entered into derivatives that include foreign currency forward contracts, option contracts, futures contracts, and interest rate and credit default swaps contracts. See Note 5 for discussion of the Plan’s use of derivatives.

Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded as earned. Dividends are recorded on the ex-dividend date. Net appreciation (depreciation) in the fair value of investments includes the Plan’s gains and losses on investments bought and sold, as well as held during the year.

Securities Financing

Repurchase agreements are recorded as collateralized financing transactions. The Plan receives collateral with a market value equal to or in excess of the principal amount loaned under the resale agreements. On a daily basis, the Plan manages its risk by calculating the market value of each position and comparing it to the contract amounts, with any difference to be settled by the counterparty. Repurchase agreements are presented gross in the Plan’s Statements of Net Assets Available for Benefits.

Benefit Payments

Benefit payments are recorded when paid.

 

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3. Investments

The fair value of individual investments that represent 5% or more of the fair value of the Plan’s net assets were as follows:

		December 31,
		2014				2013
		(In thousands)
Vanguard Primecap Adm Fund		$	1,100,292			$	995,731
Blackrock Russell 1000 Index Fund			1,990,206				1,814,207

For the year ended December 31, 2014, the Plan’s investments (including investments purchased, sold, as well as held during the year) appreciated (depreciated) in fair value as follows:

		(In thousands)
Mutual funds		$	162,635
Common collective trust funds			281,212
Partnership interest			7,285
Exchange-traded funds			(829	)
HP Common Stock			216,550
Common and preferred stock			328,809
Corporate debt			1,585
Foreign obligations			(904	)
U.S. government securities			18,588
State and municipal bond funds			4,456
Self-directed brokerage accounts			4,623
Derivatives			(776	)
Total net realized and unrealized appreciation in the fair value of investments		$	1,023,234

 

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4. Fair Value Measurements

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

Valuation techniques used by the Plan are based upon observable and unobservable inputs. Observable or market inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Plan’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 of input that is significant to the fair value measurement:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 – Quoted 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 3 – Unobservable inputs for the asset or liability.

The fair value hierarchy gives the highest priority to observable inputs and lowest priority to unobservable inputs.

Valuation Techniques

The following is a description of the valuation techniques used to measure fair value. There were no changes in the techniques used to measure fair value during the year ended December 31, 2014.

Common collective trusts, open-ended mutual funds, money market funds, pooled separate accounts and partnership interest: Valued at the net asset value (NAV) established by the fund’s sponsor on the last business day of the plan year, based on the fair value of the assets underlying the funds. There are no redemption restrictions or future commitments on these investments.

Close-ended mutual funds, exchange-traded funds, and common and preferred stocks: Valued at the closing price reported on the active market on which the individual securities are traded.

Corporate debt, U.S. government securities, and foreign obligations: Valued using quoted market prices that are traded in less active markets or quoted market prices for similar instruments.

 

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Hewlett-Packard Company 401(k) Plan

Notes to Financial Statements (continued)

 

4. Fair Value Measurements (continued)

Derivative instruments: Listed derivatives, such as futures and exchange-traded options, are valued at the closing prices reported on the active market on which the derivative trades. OTC derivative contracts are privately negotiated contracts with counterparties, including forwards, credit default swaps, and total return swaps. The fair value for OTC derivative contracts is estimated using industry standard valuation models. These models project future cash flows and discount the future amounts to present fair value using market-based observable inputs, including spot and forward prices for foreign currencies, commodities, equities and interest rates, volatility of the underlying credit spreads, interest rate curves and the credit risk of the Plan and the counterparty.

Repurchase agreements: Valued at contract value plus accrued interest, as specified in the respective agreements.

The methods described above may produce a fair value estimate that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation techniques are appropriate and consistent with other market participants, the use of different techniques or assumptions to estimate fair value could result in a different fair value measurement at the reporting date.

The Plan does not hold any assets or liabilities classified as Level 3 as of December 31, 2014 and 2013. The Plan does not hold any assets or liabilities that are measured on a nonrecurring basis as of December 31, 2014 and 2013.

In May 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-07, “Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)”, which amends ASC 820, Fair Value Measurement.  This ASU removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share as a practical expedient.  ASU 2015-07 is effective for interim and annual reporting periods beginning after December 15, 2015, and will be applied retrospectively to all periods presented.  Plan management is currently evaluating the effect that the provisions of ASU 2015-07 will have on the Plan’s financial statements.

 

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4. Fair Value Measurements (continued)

The following tables set forth the Plan’s assets and liabilities at fair value as of December 31, 2014 and 2013, by level, within the fair value hierarchy: 

		As of December 31, 2014 (In thousands)
		Level 1				Level 2				Total
Assets
Mutual funds:
Growth funds		$	1,622,540			$	51,329			$	1,673,869
Fixed-income funds			337,065				359,374				696,439
Total mutual funds			1,959,605				410,703				2,370,308
Self-directed brokerage accounts:
Mutual funds:
Index funds			48,702				-				48,702
Growth funds			122,467				-				122,467
Fixed-income funds			141,639				-				141,639
Value funds			66,847				-				66,847
Industry-specific funds			68,358				-				68,358
Other funds			43,057				-				43,057
Total self-directed brokerage accounts			491,070				-				491,070
Common collective trusts:
Index funds			-				3,582,431				3,582,431
Growth funds			-				451,034				451,034
Total common collective trusts			-				4,033,465				4,033,465
Exchange-traded funds - Growth funds			5,176				-				5,176
HP common stock			684,236				-				684,236
Short-term investments			-				755,785				755,785
Foreign obligations			-				43,788				43,788
Pooled separate accounts			-				6,847				6,847

 

 

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4. Fair Value Measurements (continued)

		As of December 31, 2014 (In thousands)
		Level 1				Level 2				Total
Common and preferred stocks:
Basic materials		$	175,182			$	-			$	175,182
Communications			823,985				-				823,985
Consumer goods			1,983,297				-				1,983,297
Diversified			8,675				-				8,675
Energy			377,217				-				377,217
Financial			1,598,721				-				1,598,721
Industrial			700,512				-				700,512
Technology			582,342				-				582,342
Utilities			120,509				-				120,509
Total common and preferred stocks			6,370,440				-				6,370,440
Corporate debt:
Basic materials			-				38,724				38,724
Communications			-				209,883				209,883
Consumer goods			-				228,710				228,710
Energy			-				115,959				115,959
Financial			-				320,978				320,978
Industrial			-				88,720				88,720
Technology			-				31,907				31,907
Utilities			-				26,574				26,574
Total corporate debt			-				1,061,455				1,061,455
U.S. government securities:
Federal			-				1,490,821				1,490,821
Municipal			-				43,645				43,645
Total U.S. government securities			-				1,534,466				1,534,466
Derivative assets			207				11,232				11,439
Total assets		$	9,510,734			$	7,857,741			$	17,368,475
Liabilities
Derivative liabilities		$	489			$	4,508			$	4,997
Total liabilities		$	489			$	4,508			$	4,997

 

 

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4. Fair Value Measurements (continued)

		As of December 31, 2013 (In thousands)
		Level 1				Level 2				Total
Assets
Mutual funds:
Growth funds		$	1,523,864			$	46,438			$	1,570,302
Fixed-income funds			332,190				346,655				678,845
Other funds			85,233				-				85,233
Total mutual funds			1,941,287				393,093				2,334,380
Self-directed brokerage accounts:
Mutual funds:
Index funds			32,815				-				32,815
Growth funds			121,381				-				121,381
Fixed-income funds			126,321				-				126,321
Value funds			60,265				-				60,265
Industry-specific funds			45,002				-				45,002
Other funds			30,218				-				30,218
Total self-directed brokerage accounts			416,002				-				416,002
Common collective trusts:
Index funds			-				3,411,678				3,411,678
Growth funds			-				463,045				463,045
Total common collective trusts			-				3,874,723				3,874,723
Partnership interest - Energy			-				88,443				88,443
Exchange-traded funds - Growth funds			40,551				-				40,551
HP common stock			523,810				-				523,810
Repurchase agreements			-				50,700				50,700
Short-term investments			-				782,799				782,799
Foreign obligations			-				28,071				28,071

 

 

 

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4. Fair Value Measurements (continued)

		As of December 31, 2013 (In thousands)
		Level 1				Level 2				Total
Common and preferred stocks:
Basic materials		$	193,336			$	-			$	193,336
Communications			812,793				-				812,793
Consumer goods			1,767,137				-				1,767,137
Diversified			13,785				-				13,785
Energy			422,747				-				422,747
Financial			1,442,857				-				1,442,857
Industrial			738,275				-				738,275
Technology			501,683				-				501,683
Utilities			89,878				-				89,878
Total common and preferred stocks			5,982,491				-				5,982,491
Corporate debt:
Basic materials			-				41,327				41,327
Communications			-				185,787				185,787
Consumer goods			-				199,578				199,578
Energy			-				116,085				116,085
Financial			-				310,359				310,359
Industrial			-				85,665				85,665
Technology			-				33,699				33,699
Utilities			-				19,434				19,434
Total corporate debt			-				991,934				991,934
U.S. government securities:
Federal			-				1,412,017				1,412,017
Municipal			-				44,322				44,322
Total U.S. government securities			-				1,456,339				1,456,339
Derivative assets			1,926				2,653				4,579
Total assets		$	8,906,067			$	7,668,755			$	16,574,822
Liabilities
Derivative liabilities		$	2,282			$	3,078			$	5,360
Total liabilities		$	2,282			$	3,078			$	5,360

 

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4. Fair Value Measurements (continued)

Transfers Between Levels

The availability of observable market data is monitored to assess the appropriate classification of assets and liabilities within the fair value hierarchy. Changes in economic conditions, changes in observability of significant inputs, or changes in model-based valuation techniques may require the transfer of an asset or liability between levels of the fair value hierarchy. In such instances, the transfer is reported at the beginning of the reporting period. For the year ended December 31, 2014, there were no transfers between levels.

5. Derivative Financial Instruments

The Plan may enter into derivatives to implement the Plan’s asset allocation and investment strategies. All derivatives are included in investments on the Statements of Net Assets Available for Benefits. Certain risks may arise upon entering into a derivative, including, but not limited to, the risk of nonperformance by the Plan or the counterparty. If the derivatives are used to hedge a position, or exposure of the Plan, while the derivative is outstanding, the Plan gives up a portion of the opportunity to profit from favorable market movements in the hedged item or limits a portion of the exposure to losses from unfavorable market movements in the underlying. In the Statements of Net Assets Available for Benefits, the Plan does not offset derivative assets against liabilities where the Plan has a legal right of setoff under a master netting agreement nor does it offset investments at fair value, or other payables for collateral deposits recognized upon payment or receipt of cash collateral against the fair value of the related derivative instruments.

Foreign currency forward contracts may be utilized to hedge a portion of the currency exposure resulting from investments denominated in foreign currencies.

Futures contracts may be used to increase or decrease the exposure to a position.

Swap agreements may be used to exchange or swap investment cash flows, assets, or market-linked returns at specified future intervals with counterparties. Interest rate and credit default swap agreements may be used to manage exposure to interest rate risk and credit risk.

Option contracts may be utilized to hedge exposure to interest rate or market risks.

 

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5. Derivative Financial Instruments (continued)

The fair value and gross notional amounts of derivative instruments included in the Statements of Net Assets Available for Benefits were as follows: 

		December 31, 2014
		Assets				Liabilities				Notional
		(In thousands)
Forward contracts		$	6,648			$	2,495			$	541,210
Futures contracts			207				489				661,000
Interest rate swaps			3,685				1,517				116,889
Credit default swaps			677				108				51,975
Option contracts			222				388				64,500
		$	11,439			$	4,997			$	1,435,574

 

		December 31, 2013
		Assets				Liabilities				Notional
		(In thousands)
Forward contracts		$	2,438			$	1,570			$	438,282
Futures contracts			1,510				2,282				1,661,300
Interest rate swaps			430				-				15,115
Credit default swaps			171				1,038				22,793
Option contracts			30				470				1,375,800
		$	4,579			$	5,360			$	3,513,290

 

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The effects of derivatives on the net realized and unrealized appreciation (depreciation) for the year ended December 31, 2014, presented in thousands, were as follows:

Futures contracts		$	(1,939	)
Options contracts			56
Forward contracts			(286	)
Interest rate and credit default swaps			1,393
Total		$	(776	)

6. Master Netting Agreements

The Plan has executed master netting agreements to mitigate credit exposure to counterparties by permitting the Plan to net certain amounts due from the Plan to a counterparty against amounts due to the Plan from the same counterparty under certain conditions.

As of December 31, 2014 and 2013, information related to the potential effect of the Plan’s master netting agreements, included in the Statements of Net Assets Available for Benefits, presented in thousands, was as follows:

		Gross				Gross								Gross Amounts Not Offset
		Amount				Amount				Net Amount				Financial				Financial				Net
(In thousands)		Recognized				Offset				Presented				Instruments				Collateral				Amount
December 31, 2014
Derivative assets		$	11,439			$	-			$	11,439			$	3,599			$	1,420			$	6,420
Derivative liabilities			4,997				-				4,997				3,599				1,256				142
December 31, 2013
Derivative assets		$	4,579			$	-			$	4,579			$	1,785			$	-			$	2,794
Derivative liabilities			5,360				-				5,360				1,785				1,258				2,317
Repurchase agreements			50,700				-				50,700				-				-				50,700

 

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7. Income Tax Status

The Plan received a determination letter from the Internal Revenue Service (IRS) dated November 26, 2014, stating that the Plan is qualified under Section 401(a) of the Code, and, therefore, the related trust is exempt from taxation. Subsequent to this determination by the IRS, the Plan was amended. The Plan is required to operate in conformity with the Code to maintain its qualified status. The plan sponsor has indicated that it will take the necessary steps, if any, to maintain the tax qualified status of the Plan.

Plan management evaluates any uncertain tax positions taken by the Plan. The financial statement effects of a tax position are recognized when the position is more likely than not, based on the technical merits, to be sustained upon examination by the IRS. The plan administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2014, there are no uncertain positions taken or expected to be taken. The Plan has recognized no interest or penalties related to uncertain tax positions. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The plan administrator believes it is no longer subject to income tax examinations for years prior to 2011.

8. Related-Party Transactions

The Plan engages in certain transactions involving the Company, BNYM (the trustee), and affiliates of Fidelity, which are parties-in-interest under the provisions of ERISA. These transactions involve the purchase and sale of the Company’s common stock and debt, the payment of trustee fees to BNYM, and investments in money market and mutual funds and a self-directed brokerage feature managed by affiliates of Fidelity.

At December 31, 2014 and 2013, the Plan held approximately 17 and 19 million shares, respectively, of common stock of the Company, with fair values of approximately $684.2 and $523.8 million, respectively. During 2014, the Plan made purchases of $17.1 million and sales of $73.2 million of the Company’s common stock. During the year ended December 31, 2014, the Plan recorded dividend income of $10.6 million from the Company’s common stock. Additionally, at December 31, 2014 and 2013, the Plan held $0 and approximately $3.7 million, respectively,  of the Company’s corporate debt.

Trustee and recordkeeping fees paid to BNYM and affiliates of Fidelity were not significant for the year ended December 31, 2014. As of December 31, 2014 and 2013, the Plan held investments issued by affiliates of Fidelity totaling $178.3 and $145.7 million, respectively. 

 

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9. Risk and Uncertainties

Investment securities are exposed to various risks, such as interest rate, market risks, and credit risks. Due to the level of risk associated with certain investment securities held by the Plan, it is at least reasonably possible that changes in fair value may occur and that such changes could materially affect participants’ account balances and the amounts reported in the Statements of Net Assets Available for Benefits.

10. Reconciliation of Financial Statements to the Form 5500

A reconciliation of net assets available for benefits per the financial statements to the Form 5500 as of December 31, 2014 and 2013, was as follows:

		December 31,
		2014				2013
		(In thousands)
Net assets available for benefits per the financial statements		$	17,608,547			$	16,828,903
Benefits payable to participants at year-end			(5,770	)			(4,422	)
Net assets available for benefits per Form 5500		$	17,602,777			$	16,824,481

A reconciliation of benefits paid to participants per the financial statements to benefits paid to participants per the Form 5500 for the year ended December 31, 2014, was as follows:

		(In thousands)
Benefits paid to participants per financial statements		$	1,421,739
Add: Benefits payable to participants at December 31, 2014			5,770
Less: Benefits payable to participants at December 31, 2013			(4,422	)
Total benefits paid to participants per the Form 5500		$	1,423,087

Amounts allocated to withdrawing participants are recorded on the Form 5500 for benefit payments that have been processed and approved for payment prior to year-end, but not paid as of that date.

 

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Hewlett-Packard Company 401(k) Plan EIN: 94-1081436 PN: 004 Schedule H, Line 4i - Schedule of Assets (Held at End of Year) (continued) December 31, 2014
(a)		(b) Identity of Issue, Borrower, Lessor, or Similar Party		(c) Description of Investment, Including Maturity Date, Rate of Interest, Collateral, and Par or Maturity Value						(e) Current Value