HP 2005 Annual Report Download - page 68

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
of October 31, 2005, the remaining payment to EMC is $260 million. In addition, if EMC
purchases HP products during the five-year period, HP will be required to purchase an equivalent
amount of additional products or services from EMC of up to an aggregate of $108 million.
On November 1, 2005, HP acquired substantially all of the assets of Scitex Vision Ltd., a market
leader in super-wide digital imaging, for $230 million in cash. This acquisition is expected to expand
HP’s leadership in printing into the industrial wide-format market.
On September 19, 2005, HP announced it signed a definitive agreement to acquire Peregrine
Systems, Inc. (‘‘Peregrine’’) in a cash merger for $26.08 per share, representing an aggregate equity
value of $425 million. The acquisition of Peregrine, completed during the first quarter of fiscal 2006, is
intended to add key asset and service management components to the HP OpenView portfolio, a
distributed management software suite for business operations and IT.
Funding commitments
During fiscal 2005, we made contributions of approximately $1.7 billion to our pension plans. We
paid approximately $60 million to cover claims cost for the HP post-retirement benefit plans. In fiscal
2006, HP expects to contribute approximately $245 million to its pension plans and approximately
$40 million to cover benefit payments to U.S. non-qualified plan participants. HP expects to pay
approximately $80 million to cover benefit claims for HP’s post-retirement benefit plans. HP’s funding
policy is to contribute cash to HP’s pension plans so that HP meets at least the minimum contribution
requirements, as established by local government and funding and taxing authorities. HP expects to use
contributions made to the post-retirement plans primarily for the payment of retiree health claims
incurred during the fiscal year.
We expect to make significant cash outlays associated with the company’s bonus and restructuring
plans during fiscal 2006. As a result of our approved restructuring plans, we expect future cash
expenditures of approximately $1.2 billion, exclusive of approximately $400 million that will be funded
through the pension plan assets for the costs associated with the early retirement of 3,200 U.S.
employees, primarily for employee severance and other employee benefits and facilities costs. Of this
amount, we recorded $1.19 billion on our Consolidated Balance Sheet at October 31, 2005, and we
intend to expense $30 million in future periods as we incur the costs or we meet the requirements to
record the costs as a liability. We expect to make cash payments of approximately $1.0 billion in fiscal
2006 and approximately $200 million over the next five fiscal years.
Off-Balance Sheet Arrangements
As part of our ongoing business, we do not participate in transactions that generate relationships
with unconsolidated entities or financial partnerships, such as entities often referred to as structured
finance or special purpose entities (‘‘SPEs’’), which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of
October 31, 2005, we are not involved in any material unconsolidated SPEs.
Indemnifications
In the ordinary course of business, HP enters into contractual arrangements under which HP may
agree to indemnify the third party to such arrangement from any losses incurred relating to the services
they perform on behalf of HP or for losses arising from certain events as defined within the particular
contract, which may include, for example, litigation or claims relating to past performance. Such
indemnification obligations may not be subject to maximum loss clauses. Historically, payments HP has
made related to these indemnifications have been immaterial.
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