HP 2006 Annual Report Download - page 70

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Contractual Obligations
The impact that our contractual obligations as of October 31, 2006 are expected to have on our
liquidity and cash flow in future periods was as follows:
Payments Due by Period
Less than More than
Total 1 Year 1-3 Years 3-5 Years 5 Years
In millions
Long-term debt, including capital lease obligations(1) $4,787 $2,099 $1,597 $ 19 $1,072
Operating lease obligations ................... 2,065 506 718 395 446
Purchase obligations(2) ...................... 2,777 2,052 504 198 23
Total ................................... $9,629 $4,657 $2,819 $612 $1,541
(1) Amounts represent the expected cash payments of our long-term debt and do not include any fair
value adjustments or discounts. Included in our long-term debt are approximately $52 million of
capital lease obligations that are secured by certain equipment.
(2) Purchase obligations include agreements to purchase goods or services that are enforceable and
legally binding on us and that specify all significant terms, including fixed or minimum quantities
to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the
transaction. Purchase obligations exclude agreements that are cancelable without penalty. These
purchase obligations are related principally to cost of sales, inventory and other items. Our
purchase obligation includes the settlement agreement with EMC Corporation (‘‘EMC’’) pursuant
to which we agreed to pay $325 million (the net amount of the valuation of EMC’s claims against
us less the valuation of our claims against EMC) to EMC, which we can satisfy through the
purchase for resale or internal use of complementary EMC products in equal installments of
$65 million over the next five years, of which the first installment was paid on August 29, 2005. As
of October 31, 2006, the remaining payment to EMC was $260 million. In addition, if EMC
purchases our products during the five-year period, we will be required to purchase an equivalent
amount of additional products or services from EMC of up to an aggregate of $108 million.
In November 2006, we completed our acquisition of Mercury. The aggregate purchase price was
approximately $4.8 billion, consisting of cash paid for outstanding stock, the value of vested employee
stock options and estimated direct transaction costs. The acquisition will combine Mercury’s application
management, application delivery and IT governance capabilities with our broad portfolio of
management solutions.
Funding Commitments
During fiscal 2006, we made approximately $270 million and $31 million of contributions to our
pension plans and U.S. non-qualified plan participants, respectively, and paid $67 million to cover
benefit claims for post-retirement benefit plans. In fiscal 2007, we expect to contribute approximately
$120 million to our pension plans and approximately $15 million to cover benefit payments to U.S.
non-qualified plan participants. We expect to pay approximately $80 million to cover benefit claims for
our post-retirement benefit plans. Our funding policy is to contribute cash to our pension plans so that
we meet at least the minimum contribution requirements, as established by local government and
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