HP 2007 Annual Report Download - page 38

We make estimates and assumptions in connection with the preparation of HP’s Consolidated Financial Statements, and any
changes to those estimates and assumptions could have a material adverse effect on our results of operations.
In connection with the preparation of HP’ s Consolidated Financial Statements, we use certain estimates and assumptions
based on historical experience and other factors. Our most critical accounting estimates are described in “Management’ s
Discussion and Analysis of Financial Condition and Results of Operations” in this report. In addition, as discussed in Note 17
to the Consolidated Financial Statements, we make certain estimates under the provisions of SFAS No. 5 “Accounting for
Contingencies,” including decisions related to provisions for legal proceedings and other contingencies. While we believe
that these estimates and assumptions are reasonable under the circumstances, they are subject to significant uncertainties,
some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been
incorrect, it could have a material adverse effect on our results of operations.
Unanticipated changes in HP’s tax provisions or exposure to additional income tax liabilities could affect our profitability.
We are subject to income taxes in the United States and numerous foreign jurisdictions. Our tax liabilities are affected by
the amounts we charge for inventory, services, licenses, funding and other items in intercompany transactions. We are subject
to ongoing tax audits in various jurisdictions. Tax authorities may disagree with our intercompany charges or other matters
and assess additional taxes. We regularly assess the likely outcomes of these audits in order to determine the appropriateness
of our tax provision. However, there can be no assurance that we will accurately predict the outcomes of these audits, and the
actual outcomes of these audits could have a material impact on our net income or financial condition. In addition, our
effective tax rate in the future could be adversely affected by changes in the mix of earnings in countries with differing
statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws and the discovery of new
information in the course of our tax return preparation process. In particular, the carrying value of deferred tax assets, which
are predominantly in the United States, is dependent on our ability to generate future taxable income in the United States.
Any of these changes could affect our profitability.
Our sales cycle makes planning and inventory management difficult and future financial results less predictable.
In some of our segments, our quarterly sales often have reflected a pattern in which a disproportionate percentage of each
quarter’ s total sales occur towards the end of such quarter. This uneven sales pattern makes prediction of revenue, earnings,
cash flow from operations and working capital for each financial period difficult, increases the risk of unanticipated
variations in quarterly results and financial condition and places pressure on our inventory management and logistics
systems. If predicted demand is substantially greater than orders, there will be excess inventory. Alternatively, if orders
substantially exceed predicted demand, we may not be able to fulfill all of the orders received in the last few weeks of each
quarter. Other developments late in a quarter, such as a systems failure, component pricing movements, component shortages
or global logistics disruptions, could adversely impact inventory levels and results of operations in a manner that is
disproportionate to the number of days in the quarter affected.
We experience some seasonal trends in the sale of our products that also may produce variations in quarterly results and
financial condition. For example, sales to governments (particularly sales to the United States government) are often stronger
in the third calendar quarter, consumer sales are often stronger in the fourth calendar quarter, and many customers whose
fiscal and calendar years are the same spend their remaining capital budget authorizations in the fourth calendar quarter prior
to new budget constraints in the first calendar quarter of the following year. European sales are often weaker during the
summer months. Demand during the spring and early summer also may be adversely
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