HP 2005 Annual Report Download - page 30

• consolidating and rationalizing corporate IT infrastructure, which may include multiple legacy
systems from various acquisitions and integrating software code;
• minimizing the diversion of management attention from ongoing business concerns;
• persuading employees that business cultures are compatible, maintaining employee morale and
retaining key employees, integrating employees into HP, correctly estimating employee benefit
costs and implementing restructuring programs;
• coordinating and combining administrative, manufacturing, research and development and other
operations, subsidiaries, facilities and relationships with third parties in accordance with local
laws and other obligations while maintaining adequate standards, controls and procedures;
• achieving savings from supply chain integration; and
• managing integration issues shortly after or pending the completion of other independent
transactions.
We evaluate and enter into significant extraordinary transactions on an ongoing basis. We may not
fully realize all of the anticipated benefits of any transaction, and the timeframe for achieving benefits
of a transaction may depend partially upon the actions of employees, suppliers or other third parties. In
addition, the pricing and other terms of our contracts for extraordinary transactions require us to make
estimates and assumptions at the time we enter into these contracts, and, during the course of our due
diligence, we may not identify all of the factors necessary to estimate our costs accurately. Any
increased or unexpected costs, unanticipated delays or failure to achieve contractual obligations could
make these agreements less profitable or unprofitable.
Managing extraordinary transactions requires varying levels of management resources, which may
divert our attention from other business operations. These extraordinary transactions also have resulted
and in the future may result in significant costs and expenses and charges to earnings, including those
related to severance pay, early retirement costs, employee benefit costs, asset impairment charges,
charges from the elimination of duplicative facilities and contracts, in-process research and
development charges, inventory adjustments, assumed litigation and other liabilities, legal, accounting
and financial advisory fees, and required payments to executive officers and key employees under
retention plans. Moreover, HP has incurred and will incur additional depreciation and amortization
expense over the useful lives of certain assets acquired in connection with extraordinary transactions,
and, to the extent that the value of goodwill or intangible assets with indefinite lives acquired in
connection with an extraordinary transaction becomes impaired, we may be required to incur additional
material charges relating to the impairment of those assets. In order to complete an acquisition, we
may issue common stock, potentially creating dilution for existing stockholders, or borrow, affecting our
financial condition and potentially our credit ratings. Any prior or future downgrades in our credit
rating associated with an acquisition could adversely affect our ability to borrow and result in more
restrictive borrowing terms. In addition, HP’s effective tax rate on an ongoing basis is uncertain, and
extraordinary transactions could impact our effective tax rate. We also may experience risks relating to
the challenges and costs of closing an extraordinary transaction and the risk that an announced
extraordinary transaction may not close. As a result, any completed, pending or future transactions may
contribute to financial results that differ from the investment community’s expectations in a given
quarter.
Unforeseen environmental costs could impact our future net earnings.
Some of our operations use substances regulated under various federal, state and international
laws governing the environment, including laws governing the discharge of pollutants into the air and
water, the management and disposal of hazardous substances and wastes and the cleanup of
contaminated sites. Many of our products are subject to various federal, state and international laws
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