HP 2005 Annual Report Download - page 43

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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
period. The salary growth assumptions reflect our long-term actual experience and future and
near-term outlook. Long-term return on plan assets is determined based on historical portfolio results
and management’s expectation of the future economic environment, as well as target asset allocations.
Our medical cost trend assumptions are developed based on historical cost data, the near-term outlook
and an assessment of likely long-term trends. Actual results that differ from our assumptions are
accumulated and are generally amortized over the estimated future working life of the plan
participants.
Our major assumptions vary by plan and the weighted average rates used are set forth in Note 15
to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference. Each
assumption has different sensitivity characteristics, and, in general, changes, if any, have moved in the
same direction over the last several years. For fiscal 2005, a change in the weighted average rates would
have had the following impact on our net periodic benefit cost:
• a decrease of 25 basis points in the long-term rate of return would have increased our net
benefit cost by approximately $24 million;
• a decrease of 25 basis points in the discount rate would have increased our net benefit cost by
approximately $50 million; and
• an increase of 25 basis points in the future compensation rate would have increased our net
benefit cost by approximately $38 million.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 of the Consolidated Financial Statements in Item 8 for a full description of recent
accounting pronouncements, including the expected dates of adoption and estimated effects on results
of operations and financial condition, which is incorporated herein by reference.
39