HP 2006 Annual Report Download - page 71

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
funding and taxing authorities. We expect to use contributions made to the post-retirement plans
primarily for the payment of retiree health claims incurred during the fiscal year.
We will make a significant cash payment associated with our fiscal 2006 bonus programs. The
bonus programs are designed to reward our employees upon achievement of annual performance
objectives. Bonuses are calculated based on a formula, with targets that are set at the beginning of each
fiscal year. Both the formula and the targets are approved by our Board of Directors.
In fiscal 2006, we substantially outperformed against our targets which will result in a bonus payout
during the first quarter of fiscal 2007 that will be significantly larger than prior years, resulting in a
corresponding reduction in cash flow from operations in that quarter. This bonus was accrued and
expensed, as earned, throughout fiscal 2006.
Also reducing our cash flow from operation in fiscal 2007 will be significant payments associated
with our restructuring plans. As a result of our approved restructuring plans, we expect future cash
expenditures of approximately $640 million. The majority of this amount is recorded on our
Consolidated Balance Sheet at October 31, 2006. We expect to make cash payments of approximately
$549 million in fiscal 2007 and the remaining amount of approximately $91 million over the next five
fiscal years.
Pending Acquisitions
In December 2006, we agreed to acquire Knightsbridge Solutions Holdings Corporation, a privately
held services company specializing in the information management areas of business intelligence, data
warehousing, data integration and information quality. The transaction is subject to certain closing
conditions and is expected to be completed during our first quarter of fiscal 2007.
Also in December 2006, we agreed to acquire Bitfone Corporation, a privately held global software
and services company that develops software solutions for mobile device management for the wireless
industry. The transaction is subject to certain closing conditions and is expected to be completed by
February 2007.
Off-Balance Sheet Arrangements
As part of our ongoing business, we do not participate in transactions that generate material
relationships with unconsolidated entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities (‘‘SPEs’’), which would have been established for the
purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited
purposes. As of October 31, 2006, we are not involved in any material unconsolidated SPEs.
Indemnifications
In the ordinary course of business, we enter into contractual arrangements under which we may
agree to indemnify the third-party to such arrangement from any losses incurred relating to the services
they perform on behalf of us or for losses arising from certain events as defined within the particular
contract, which may include, for example, litigation or claims relating to past performance. Such
indemnification obligations may not be subject to maximum loss clauses. Historically, payments we have
made related to these indemnifications have been immaterial.
67