HP 2006 Annual Report Download - page 46

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
same direction over the last several years. For fiscal 2006, changes in the weighted average rates would
have had the following impact on our net periodic benefit cost:
• a decrease of 25 basis points in the long-term rate of return would have increased our net
benefit cost by approximately $31 million;
• a decrease of 25 basis points in the discount rate would have increased our net benefit cost by
approximately $49 million; and
• an increase of 25 basis points in the future compensation rate would have increased our net
benefit cost by approximately $27 million.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 to the Consolidated Financial Statements in Item 8 for a full description of recent
accounting pronouncements, including the expected dates of adoption and estimated effects on results
of operations and financial condition, which is incorporated herein by reference.
RESULTS OF OPERATIONS
Results of operations in dollars and as a percentage of net revenue were as follows for the
following fiscal years ended October 31:
2006 2005(2) 2004(2)
In millions
Net revenue .......................... $91,658 100.0% $86,696 100.0% $79,905 100.0%
Cost of sales(1) ........................ 69,427 75.7% 66,440 76.6% 60,811 76.1%
Gross profit .......................... 22,231 24.3% 20,256 23.4% 19,094 23.9%
Research and development ............... 3,591 3.9% 3,490 4.0% 3,563 4.5%
Selling, general and administrative .......... 11,266 12.3% 11,184 13.0% 10,496 13.1%
Pension curtailment ..................... — — (199) (0.2)% — —
Restructuring charges ................... 158 0.2% 1,684 1.9% 114 0.1%
Amortization of purchased intangible assets . . . 604 0.7% 622 0.7% 603 0.8%
In-process research and development charges . . 52 — 2 — 37 —
Acquisition-related charges ............... — — — — 54 0.1%
Earnings from operations ................ 6,560 7.2% 3,473 4.0% 4,227 5.3%
Interest and other, net .................. 606 0.6% 189 0.2% 35 —
Gains (losses) on investments ............. 25 — (13) — 4 —
Dispute settlement ..................... — — (106) (0.1)% (70) (0.1)%
Earnings before taxes ................... 7,191 7.8% 3,543 4.1% 4,196 5.2%
Provision for taxes ..................... 993 1.0% 1,145 1.3% 699 0.8%
Net earnings .......................... $ 6,198 6.8% $ 2,398 2.8% $ 3,497 4.4%
(1) Cost of products, cost of services and financing interest.
(2) Certain reclassifications have been made to prior year amounts in order to conform to the current
year presentation.
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