HP 2005 Annual Report Download - page 87

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies (Continued)
in fiscal 2005. HP repatriated $7.5 billion under the Jobs Act in the third quarter of fiscal 2005 and the
remaining $7.0 billion in the fourth quarter of fiscal 2005. See further discussion of the Jobs Act in
Note 12, which is incorporated herein by reference.
In December 2004, the FASB issued SFAS 123R, which replaced SFAS 123 and superseded
APB 25. SFAS 123R requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based on their grant date fair values and
requires that such recognition begin in the first interim or annual period after June 15, 2005, with early
adoption encouraged. In April 2005, the Securities and Exchange Commission (the ‘‘SEC’’) postponed
the effective date of SFAS 123R until the issuer’s first fiscal year beginning after June 15, 2005. HP will
adopt SFAS 123R in the first quarter of fiscal 2006.
Under SFAS 123R, the pro forma disclosures previously permitted no longer will be an alternative
to financial statement recognition. HP will apply the Black-Scholes valuation model in determining the
fair value of share-based payments to employees, which will then be amortized on a straight-line basis
over the requisite service period. HP will apply the modified prospective method, which requires that
compensation expense be recorded for all unvested stock options and restricted stock upon adoption of
SFAS 123R.
In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (‘‘SAB 107’’) regarding the
SEC’s interpretation of SFAS 123R and the valuation of share-based payments for public companies.
HP is evaluating the requirements of SFAS 123R and SAB 107 and expects that the adoption of
SFAS 123R on November 1, 2005 will have a material impact on HP’s consolidated results of
operations and earnings per share beginning in the first quarter of fiscal 2006.
The adoption of the following recent accounting pronouncements did not have a material impact
on HP’s results of operations and financial condition:
• SFAS No. 151, ‘‘Inventory Costs—An Amendment of ARB No. 43, Chapter 4,’’
• SFAS No. 153, ‘‘Exchanges of Nonmonetary Assets—An Amendment of APB Opinion No. 29,’’
and
• FASB Interpretations No. 47, ‘‘Accounting for Conditional Asset Retirement Obligations, an
interpretation of FASB Statement No. 143.’’
In May 2005, the FASB issued SFAS No. 154, ‘‘Accounting Changes and Error Corrections’’
(‘‘SFAS 154’’), which replaces APB Opinion No. 20 ‘‘Accounting Changes’’ and SFAS No. 3, ‘‘Reporting
Accounting Changes in Interim Financial Statements—An Amendment of APB Opinion No. 28.’’
SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error
corrections. It establishes retrospective application, or the latest practicable date, as the required
method for reporting a change in accounting principle and the reporting of a correction of an error.
SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005 and is required to be adopted by HP in the first quarter of fiscal 2007. HP is
currently evaluating the effect that the adoption of SFAS 154 will have on its consolidated results of
operations and financial condition but does not expect it to have a material impact.
In June 2005, the FASB issued FSP FAS 143-1, ‘‘Accounting for Electronic Equipment Waste
Obligations’’ (‘‘FSP 143-1’’), which provides guidance on the accounting for certain obligations
associated with the Waste Electrical and Electronic Equipment Directive (the ‘‘Directive’’), adopted by
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