HP 2006 Annual Report Download - page 29

assumptions are not realized and we experience delays, or if other unforeseen events occur, our
business and results of operations could be adversely affected.
In order to be successful, we must attract, retain and motivate key employees, and failure to do so could
seriously harm us.
In order to be successful, we must attract, retain and motivate executives and other key employees,
including those in managerial, technical, sales, marketing and IT support positions. We also must keep
employees focused on HP’s strategies and goals, which may be more difficult due to uncertainty
surrounding the workforce reduction efforts and the pension and retiree medical benefit plan changes
announced in July 2005. Hiring and retaining qualified executives, engineers, skilled solutions providers
in the IT support business and qualified sales representatives are critical to our future, and competition
for experienced employees in the IT industry can be intense. The failure to hire or loss of key
employees could have a significant impact on our operations.
Cost reduction efforts associated with our share-based payment awards and other compensation and benefit
programs could adversely affect our ability to attract and retain employees.
We have historically used stock options and other forms of share-based payment awards as key
components of our total rewards employee compensation program in order to align employees’
interests with the interests of our stockholders, encourage employee retention and provide competitive
compensation and benefit packages. HP began recording charges to earnings for stock-based
compensation expense in the first quarter of fiscal 2006 in accordance with Statement of Financial
Accounting Standards No. 123 (revised 2004), ‘‘Share-Based Payment’’. As a result, we will incur
increased compensation costs associated with our stock-based compensation programs. Moreover,
difficulties relating to obtaining stockholder approval of equity compensation plans could make it
harder or more expensive for us to grant share-based payment awards to employees in the future. Like
other companies, HP has reviewed its equity compensation strategy in light of the current regulatory
and competitive environment and has decided to reduce the total number of options granted to
employees and the number of employees who receive share-based payment awards. Due to this change
in our stock-based compensation strategy, combined with the pension and other benefit plan changes
undertaken to reduce costs and our increasing reliance on variable pay, we may find it difficult to
attract, retain and motivate employees, and any such difficulty could materially adversely affect our
business.
HP’s stock price has historically fluctuated and may continue to fluctuate, which may make future prices of
HP’s stock difficult to predict.
HP’s stock price, like that of other technology companies, can be volatile. Some of the factors that
can affect our stock price are:
• speculation in the press or investment community about, or actual changes in, our executive
team, strategic position, business, organizational structure, operations, financial condition,
financial reporting and results, effectiveness of cost cutting efforts, prospects or extraordinary
transactions;
• the announcement of new products, services, technological innovations or acquisitions by HP or
competitors; and
• quarterly increases or decreases in revenue, gross margin or earnings, changes in estimates by
the investment community or guidance provided by HP, and variations between actual and
estimated financial results.
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