HP 2006 Annual Report Download - page 24

• managing a geographically dispersed workforce;
• changes in the regulatory or legal environment;
• differing technology standards or customer requirements;
• import, export or other business licensing requirements or requirements relating to making
foreign direct investments, which could affect our ability to obtain favorable terms for
components or lead to penalties or restrictions;
• difficulties associated with repatriating cash generated or held abroad in a tax-efficient manner
and changes in tax laws; and
• fluctuations in freight costs and disruptions in the transportation and shipping infrastructure at
important geographic points of exit and entry for our products and shipments.
The factors described above also could disrupt our product and component manufacturing and key
suppliers located outside of the United States. For example, we rely on manufacturers in Taiwan for the
production of notebook computers and other suppliers in Asia for product assembly and manufacture.
As more than 60% of our sales are from countries outside of the United States, other currencies,
particularly the euro and the Japanese yen, can have an impact on HP’s results (expressed in U.S.
dollars). Currency variations also contribute to variations in sales of products and services in impacted
jurisdictions. In addition, currency variations can adversely affect margins on sales of our products in
countries outside of the United States and margins on sales of products that include components
obtained from suppliers located outside of the United States. We use a combination of forward
contracts and options designated as cash flow hedges to protect against foreign currency exchange rate
risks. Such hedging activities may be ineffective or may not offset more than a portion of the adverse
financial impact resulting from currency variations. Gains or losses associated with hedging activities
also may impact our revenue and to a lesser extent our cost of sales and financial condition.
In many foreign countries, particularly in those with developing economies, it is common to engage
in business practices that are prohibited by laws and regulations applicable to us, such as the Foreign
Corrupt Practices Act. Although we implement policies and procedures designed to ensure compliance
with these laws, our employees, contractors and agents, as well as those companies to which we
outsource certain of our business operations, may take actions in violation of our policies. Any such
violation, even if prohibited by our policies, could have a material adverse effect on our business.
Business disruptions could seriously harm our future revenue and financial condition and increase our costs
and expenses.
Our worldwide operations could be subject to earthquakes, power shortages, telecommunications
failures, water shortages, tsunamis, floods, hurricanes, typhoons, fires, extreme weather conditions,
medical epidemics and other natural or manmade disasters or business interruptions, for which we are
predominantly self-insured. The occurrence of any of these business disruptions could seriously harm
our revenue and financial condition and increase our costs and expenses. Our corporate headquarters,
and a portion of our research and development activities, are located in California, and other critical
business operations and some of our suppliers are located in California and Asia, near major
earthquake faults. The ultimate impact on us, our significant suppliers and our general infrastructure of
being located near major earthquake faults is unknown, but our revenue, profitability and financial
condition could suffer in the event of a major earthquake or other natural disaster. In addition, some
areas, including California and parts of the East Coast, Southwest and Midwest of the United States,
have previously experienced, and may experience in the future, major power shortages and blackouts.
These blackouts could cause disruptions to our operations or the operations of our suppliers,
distributors and resellers, or customers. Moreover, our planned consolidation of all of our worldwide IT
data centers into six centers located in the southern U.S. could increase the impact on us of a natural
disaster or other business disruption occurring in that geographic area.
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