HP 2005 Annual Report Download - page 95

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 6: Goodwill and Purchased Intangible Assets (Continued)
Based on the results of its annual impairment tests, HP determined that no impairment of the
Compaq trade name existed as of August 1, 2005 or August 1, 2004. However, future impairment tests
could result in a charge to earnings. HP will continue to evaluate the purchased intangible asset with
an indefinite life on an annual basis as of the beginning of its fourth fiscal quarter and whenever events
and changes in circumstances indicate that there may be a potential impairment.
The finite-lived purchased intangible assets consist of customer contracts, customer lists and
distribution agreements, which have weighted average useful lives of approximately eight years, and
developed and core technology, patents and product trademarks, which have weighted average useful
lives of approximately six years.
Estimated future amortization expense related to finite-lived purchased intangible assets at
October 31, 2005 is as follows:
Fiscal year: In millions
2006 ......................................................... $ 543
2007 ......................................................... 476
2008 ......................................................... 412
2009 ......................................................... 334
2010 ......................................................... 235
Thereafter ..................................................... 167
Total ......................................................... $2,167
Note 7: Restructuring Charges
Fiscal 2005 Restructuring Plans
In the fourth quarter of fiscal 2005, HP’s Board of Directors approved a restructuring plan
recommended by its chief executive officer and senior management that was designed to simplify HP’s
structure, reduce costs and place greater focus on its customers. Under the plan, approximately 15,300
employees left or are expected to leave HP through the first quarter of fiscal 2007. In the fourth
quarter of fiscal year 2005, HP recorded a pre-tax restructuring charge of $1.57 billion, and HP expects
to record an additional charge of $30 million in connection with this plan.
The fourth quarter charge includes approximately $400 million related to employee severance and
other benefits associated with early retirement of 3,200 U.S. employees, who left HP by October 31,
2005. The majority of these costs will be funded by HP’s pension plan assets. The remaining charges of
approximately $1.2 billion, which include approximately $100 million of non-cash stock compensation,
are related to severance and other benefits for 11,700 employees. Pursuant to the plan, approximately
4,700 employees left HP as of October 31, 2005, and the remaining 10,200 employees, as well as an
additional 400 employees, for which the accrual criteria have not been met as of October 31, 2005, are
expected to leave through the first quarter of fiscal 2007. HP expects to pay out the majority of the
costs relating to severance and other employee benefits during fiscal 2006.
In the third quarter of fiscal 2005, HP’s management approved a restructuring plan and HP
recorded restructuring charges 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, HP had paid $87 million as of October 31, 2005, and HP expects to pay
the remainder by the end of fiscal 2006.
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