HP 2008 Annual Report Download - page 78

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Funding Commitments
During fiscal 2008, we made approximately $170 million of contributions to non-U.S. pension
plans, paid $6 million to cover benefit payments to U.S. non-qualified plan participants, and paid
$50 million to cover benefit claims under post-retirement benefit plans. In addition, we used
$25 million of cash to fund the distribution and subsequent transfer of accrued pension benefits from
the U.S. Excess Benefit Plan to the U.S. Executive Deferred Compensation Plan for the terminated
vested plan participants. In fiscal 2009, we expect to contribute approximately $360 million to our
pension plans and approximately $35 million to cover benefit payments to U.S. non-qualified plan
participants. We also expect to pay approximately $70 million to cover benefit claims for our
post-retirement benefit plans in fiscal 2009. 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, funding and taxing authorities. We expect to use contributions made to the post-retirement
benefit 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 2008 bonus programs. We have
implemented bonus programs that are designed to reward our employees upon achievement of annual
performance objectives. We calculate bonuses based on a formula, with performance relative to targets,
year over year improvements and market conditions that are set at the beginning of each fiscal year.
Our Board of Directors approves the final bonus payments. We accrued and expensed this bonus, as it
was earned, throughout fiscal 2008.
In connection with the acquisition of EDS, we implemented a restructuring program to streamline
our services business and to better align the structure and efficiency of that business with the operating
model that we have successfully implemented in recent years. The restructuring program will be
implemented over the next four years and will include changes to our workforce as well as cost savings
from corporate overhead functions, such as real estate, IT and procurement. As part of the
restructuring program, we expect to eliminate approximately 24,700 positions, with nearly half of the
eliminations occurring in the United States. As a result of our approved restructuring plans, we expect
future cash expenditures of approximately $2.1 billion. We expect to make cash payments of
approximately $1.3 billion in fiscal 2009 and the majority of the remaining amount through 2012.
Subsequent Acquisitions
For subsequent acquisitions, see Note 6 to the Consolidated Financial Statements in Item 8, which
is incorporated herein by reference.
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, 2008, we are not involved in any material unconsolidated SPEs.
Guarantees and Indemnifications
In the ordinary course of business, we may provide certain clients, principally governmental
entities, with subsidiary performance guarantees and/or financial performance guarantees, which may be
backed by standby letters of credit or surety bonds. In general, we would be liable for the amounts of
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