HP 2006 Annual Report Download - page 119

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 13: Taxes on Earnings (Continued)
American Jobs Creation Act of 2004—Repatriation of Foreign Earnings
The American Jobs Creation Act of 2004 (‘‘the Jobs Act’’), enacted on October 22, 2004, provided
for a temporary 85% dividends received deduction on certain foreign earnings repatriated during a
one-year period. The deduction resulted in an approximate 5.25% federal tax rate on the repatriated
earnings. During the third quarter of fiscal 2005, HP’s CEO 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 recorded tax expense in fiscal 2005 of $792 million related to this $14.5 billion dividend under
the Jobs Act. The additional tax expense consists of federal taxes of $744 million, state taxes, net of
federal benefits, of $73 million, and a net tax benefit of $25 million related to an adjustment of
deferred tax liabilities on both repatriated and unrepatriated foreign earnings.
Note 14: Stockholders’ Equity
Dividends
The stockholders of HP common stock are entitled to receive dividends when and as declared by
HP’s Board of Directors. Dividends are paid quarterly. Dividends were $0.32 per common share in
each of fiscal 2006, 2005 and 2004.
Stock Repurchase Program
HP’s share repurchase program authorizes both open market and private repurchase transactions.
In fiscal 2006, HP completed share repurchases of approximately 188 million shares. Approximately
190 million shares were settled for $6.1 billion, which included 2 million shares repurchased in
transactions that were executed in fiscal 2005 but settled in fiscal 2006. In fiscal 2005, HP completed
share repurchases of approximately 150 million shares, of which approximately 148 million shares were
settled for $3.5 billion. In fiscal 2004, HP completed share repurchases of approximately 172 million
shares for $3.3 billion. Shares repurchased and settled in fiscal 2006 were all open market repurchases.
Shares repurchased and settled in fiscal 2005 included open market repurchases of 37 million shares for
$1.0 billion and 111 million shares for $2.5 billion from the David and Lucile Packard Foundation (the
‘‘Packard Foundation’’). Shares repurchased and settled in fiscal 2004 included open market
repurchases of 66 million shares for $1.3 billion, 72 million shares for $1.3 billion under an accelerated
share repurchase program with an investment bank (the ‘‘Accelerated Purchase’’) and 34 million shares
for $679 million from the Packard Foundation.
In addition to the above transactions, HP entered into a prepaid variable share purchase program
(‘‘PVSPP’’) with a third-party investment bank during the first quarter of 2006 and prepaid $1.7 billion
in exchange for the right to receive a variable number of shares of its common stock weekly over a one
year period beginning in the second quarter of fiscal 2006 and ending during the second quarter of
fiscal 2007. HP recorded the payment as a prepaid stock repurchase in the stockholders’ equity section
of its Consolidated Balance Sheet, and the payment was included in the cash flows from financing
activities in the Consolidated Statement of Cash Flows. In connection with this program, the investment
bank has purchased and will continue to trade shares of HP’s common stock in the open market over
time. The prepaid funds will be expended ratably over the term of the program.
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