HP 2005 Annual Report Download - page 62

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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
programs. These expenses, which contributed to the majority of the loss from operations for Corporate
Investments, were offset in part by operating profit from network infrastructure product sales.
Corporate Investment’s loss from operations for fiscal 2005 decreased slightly from the prior fiscal year
due to an increase in operating profit in network infrastructure products as a result of increasing
operating margins, offset partially by an increase in operating expenses related to corporate
development, global alliances and HP Labs. The increase in gross margin was due primarily to a
favorable product mix and lower trade discounts as a percentage of net revenue for network
infrastructure products.
In fiscal 2004, the majority of the net revenue in this segment related to network infrastructure
products. Net revenue in this segment grew 27% from fiscal 2003 and was the result of continued
enhancements in the overall product portfolio, particularly in gigabit Ethernet switch products.
In fiscal 2004, expenses related to corporate development, global alliances and HP Labs increased
10% from the prior fiscal year. The increase was the result in part of increased investment in strategic
initiatives. Operating profit for the network infrastructure product group declined slightly in fiscal 2004
due mostly to increased operating expense levels, resulting from headcount growth in research and
development, sales and marketing.
LIQUIDITY AND CAPITAL RESOURCES
Our cash balances are held in numerous locations throughout the world, and substantial amounts
are held outside of the United States.
The Jobs Act, enacted on October 22, 2004, provides for a temporary 85% dividends received
deduction on certain foreign earnings repatriated during a one-year period. The deduction results in an
approximate 5.25% federal tax rate on the repatriated earnings. During the third quarter of fiscal 2005,
HP’s chief executive officer and Board of Directors approved a domestic reinvestment plan as required
by the Jobs Act to repatriate $14.5 billion in foreign earnings in fiscal 2005.
HP repatriated $7.5 billion under the Jobs Act in the third quarter and repatriated the remaining
$7.0 billion in the fourth quarter of fiscal 2005.
Foreign earnings repatriated under the Jobs Act increased liquidity in the United States, with a
corresponding reduction of liquidity in HP’s foreign subsidiaries. We utilize a variety of tax planning
and financing strategies in an effort to ensure that our worldwide cash is available in the locations in
which it is needed.
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