HP 2006 Annual Report Download - page 32

financial condition and potentially our credit ratings. Any prior or future downgrades in our credit
rating associated with an acquisition could adversely affect our ability to borrow and result in more
restrictive borrowing terms. In addition, HP’s effective tax rate on an ongoing basis is uncertain, and
extraordinary transactions could impact our effective tax rate. We also may experience risks relating to
the challenges and costs of closing an extraordinary transaction and the risk that an announced
extraordinary transaction may not close. As a result, any completed, pending or future transactions may
contribute to financial results that differ from the investment community’s expectations in a given
quarter.
We cannot predict the outcome of various regulatory inquiries and stockholder derivative action lawsuits
arising out of the processes employed in the investigation into leaks of HP confidential information to
members of the media, and we may be named in additional regulatory inquiries and stockholder litigation,
all of which could result in significant legal and other expenses.
The Attorney General of the State of California, the Committee on Energy and Commerce of the
U.S. House of Representatives, the United States Attorney’s Office for the Northern District of
California, the Division of Enforcement of the SEC and the Federal Communications Commission are
all conducting or have conducted inquiries or investigations relating to the processes employed in the
investigation into leaks of HP confidential information to members of the media. Four stockholder
derivative lawsuits also have been filed in California (all of which have been consolidated into a single
lawsuit) and two in Delaware purportedly on behalf of HP stockholders seeking to recover damages
and to obtain specified injunctive relief stemming from the activities of the leak investigations. Other
regulatory inquiries or investigations may be commenced by other U.S. federal, state or foreign
regulatory agencies, and we may in the future be subject to additional litigation or other proceedings
arising in relation to these matters. The period of time necessary to resolve these regulatory inquiries
and investigations and stockholder lawsuits is uncertain, and the expense of responding to these
inquiries and defending such litigation may be significant. In addition, we may be obligated to
indemnify (and advance legal expenses to) former or current directors, officers or employees in
accordance with the terms of our certificate of incorporation, bylaws, other applicable agreements, and
Delaware law. Further, if we enter into settlement agreements or are subject to an adverse finding
resulting from any of these inquiries, we could be required to pay fines or penalties or have other
remedies imposed upon us.
We have entered into an agreement with the California Attorney General to resolve civil claims
relating to the leak investigation. Under the terms of the agreement, which includes an injunction, we
have agreed to pay a total of $14.5 million and to implement and maintain for five years a series of
measures designed to ensure that HP’s corporate investigations are conducted in accordance with
California law and the company’s high ethical standards. If we fail to implement and maintain these
measures as required under the agreement, we could be subject to civil or criminal penalties.
Unforeseen environmental costs could impact our future net earnings.
Some of our operations use substances regulated under various federal, state and international
laws governing the environment, including laws governing the discharge of pollutants into the air and
water, the management and disposal of hazardous substances and wastes and the cleanup of
contaminated sites. Many of our products are subject to various federal, state and international laws
governing chemical substances in products, including laws regulating the manufacture and distribution
of chemical substances and laws restricting the presence of certain substances in electronics products.
We could incur substantial costs, including cleanup costs, fines and civil or criminal sanctions, third-
party property damage or personal injury claims, or our products could be enjoined from entering
certain jurisdictions, if we were to violate or become liable under environmental laws or if our products
become non-compliant with environmental laws. We also face increasing complexity in our product
28