HP 2005 Annual Report Download - page 64

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
2005 Compared to 2004
Operating Activities
Net cash provided by operating activities increased by 58% during fiscal 2005. Our cash position
benefited primarily from our improved cash conversion cycle, which decreased 9 days compared to
fiscal 2004 due primarily to improved effectiveness in accounts receivable collection efforts and
improved inventory management. Our cash flow from operations also benefited from delayed payments
for restructuring costs and company bonuses. These benefits were offset partially by higher pension
contributions.
Investing Activities
Net cash used in investing activities decreased by 28% during fiscal 2005 due primarily to lower
cash paid for acquisitions and reduced expenditures for property, plant and equipment.
Financing Activities
Net cash used in financing activities increased by 21% during fiscal 2005 as compared to fiscal
2004. The increase was due primarily to the maturity of our debt and increased repurchases of our
common stock. These cash payments were offset partially by increased proceeds from the issuance of
common stock related to our employee stock plans.
We repaid $1.8 billion of debt during fiscal 2005 compared to $0.3 billion during fiscal 2004
primarily due to the maturity of the $1.5 billion U.S. Dollar Global Notes and the $0.3 billion
Medium-Term Notes assumed from the Compaq acquisition. Also, proceeds from the issuance of
common stock under employee plans were $1.2 billion in fiscal 2005 compared to $0.6 billion in fiscal
2004, mainly because higher overall market prices during fiscal 2005 led to increased exercises of
employee stock options.
We repurchase shares of our common stock under an ongoing program to manage the dilution
created by shares issued under employee stock plans as well as to repurchase shares opportunistically.
This program authorizes repurchases in the open market or in private transactions. We completed share
repurchases of approximately 150 million shares, of which 148 million shares were settled for
$3.5 billion in fiscal 2005, as compared to repurchases and settlements of approximately 172 million
shares for $3.3 billion in fiscal 2004. In addition, in November 2004, we paid $51 million in connection
with the completion of the fiscal 2004 accelerated share repurchase program. We intend to continue to
repurchase shares as a means to manage dilution from the issuance of shares under employee benefit
plans and to repurchase shares opportunistically. During fiscal 2005, the Board of Directors of HP
authorized an additional $4.0 billion for future repurchases of HP’s outstanding shares of common
stock. As of October 31, 2005, we had remaining authorization of approximately $3.4 billion for future
share repurchases.
2004 Compared to 2003
Operating Activities
Net cash provided by operating activities declined by 16% during fiscal 2004. Although our cash
position benefited from higher earnings, lower payments for restructuring actions and decreased
pension and other post-retirement contributions, these improvements were not sufficient to offset the
increase in the cash conversion cycle, which rose to 31 days in fiscal 2004 from 21 days in fiscal 2003.
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