HP 2005 Annual Report Download - page 48

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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Restructuring Charges
In the fourth quarter of fiscal 2005, our Board of Directors approved a restructuring plan
recommended by our chief executive officer and senior management that is designed to simplify our
structure, reduce costs and place greater focus on our customers. Under the plan, we have terminated
or expect to terminate approximately 15,300 employees through the first quarter of fiscal 2007. In the
fourth quarter of fiscal year 2005, we recorded a pre-tax restructuring charge of $1.57 billion, and we
expect to record an additional charge of $30 million in connection with this plan. Approximately 4,700
employees have left HP as of October 31, 2005 in connection with this restructuring plan including
3,200 U.S. employees who elected to take early retirement.
We estimate that our fourth quarter restructuring actions and changes we made to our U.S.
retirement programs will result in gross savings between $900 million and $1.0 billion in fiscal 2006, and
we estimate annual gross savings of approximately $2.0 billion beginning in fiscal 2007. We expect
approximately half of the cost savings to be used to offset market forces or to be reinvested in the
business to strengthen our competitiveness. We anticipate the remainder to flow through to operating
profit.
In the third quarter of fiscal 2005, our management approved a restructuring plan and recorded a
charge of $109 million related to severance and related costs associated with the termination of
approximately 1,450 employees, all of whom left HP as of October 31, 2005. Of the initial restructuring
amount, we have paid $87 million as of October 31, 2005, and we expect the remainder to be paid by
the end of fiscal 2006.
Restructuring costs in fiscal 2004 mainly reflect certain charges relating to the fiscal 2003
restructuring plan described below, which did not meet recognition requirements during fiscal 2003, as
well as changes in the original estimates for the fiscal 2003 plan and a fiscal 2002 restructuring plan.
During fiscal 2003, our management approved and implemented plans to restructure certain of its
operations. We entered into these plans with the intent of better managing our cost structure and
aligning certain of our operations with then current business conditions. In connection with these plans,
we recorded a restructuring charge of $752 million.
Restructuring liabilities of $1.2 billion at October 31, 2005 are composed primarily of the
remaining cash payments to be made for severance relating to the fiscal 2005 restructuring plan and
certain non-U.S. severance benefits and contract termination costs, including canceled facility leases, for
the other restructuring plans. We expect to make a majority of the severance payments during fiscal
2006 and to settle the non-severance obligations by the end of fiscal 2010.
For more information on our restructuring charges, see Note 7 of the Consolidated Financial
Statements in Item 8, which is incorporated herein by reference.
44