HP 2008 Annual Report Download - page 31

portfolios than others and may therefore experience significant operating profit volatility on a quarterly
basis. In addition, newer geographic markets may be relatively less profitable due to investments
associated with entering those markets and local pricing pressures, and we may have difficulty
establishing and maintaining the operating infrastructure necessary to support the high growth rate
associated with some of those markets. Market trends, competitive pressures, commoditization of
products, seasonal rebates, increased component or shipping costs, regulatory impacts and other factors
may result in reductions in revenue or pressure on gross margins of certain segments in a given period,
which may necessitate adjustments to our operations.
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,
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