HP 2012 Annual Report Download - page 33

Russia, India and China. Our future revenue, gross margin, expenses and financial condition could
suffer due to a variety of international factors, including:
• ongoing instability or changes in a country’s or region’s economic or political conditions,
including inflation, recession, interest rate fluctuations and actual or anticipated military or
political conflicts;
• longer collection cycles and financial instability among customers;
• trade regulations and procedures and actions affecting production, pricing and marketing of
products;
• local labor conditions and regulations, including local labor issues faced by specific HP suppliers
and OMs;
• 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 increase our cost of doing business in certain
jurisdictions, prevent us from shipping products to particular countries or markets, affect our
ability to obtain favorable terms for components, increase our operating costs 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, limitations on shipping and receiving capacity, and other 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 approximately 65% of our sales are from countries outside of the United States, other
currencies, including the euro, the British pound, Chinese yuan renminbi and the Japanese yen, can
have an impact on HP’s results (expressed in U.S. dollars). In particular, the uncertainty with respect to
the ability of certain European countries to continue to service their sovereign debt obligations and the
related European financial restructuring efforts may cause the value of the euro to fluctuate. Currency
variations also contribute to variations in sales of products and services in impacted jurisdictions. For
example, in the event that one or more European countries were to replace the euro with another
currency, HP sales into such countries, or into Europe generally, would likely be adversely affected
until stable exchange rates are established. Accordingly, fluctuations in foreign currency rates, most
notably the strengthening of the dollar against the euro, could adversely affect our revenue growth in
future periods. 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. The effectiveness of our hedges depends on our ability to accurately forecast future cash flows,
which is particularly difficult during periods of uncertain demand for our products and services and
highly volatile exchange rates. As a result, we could incur significant losses from our hedging activities
if our forecasts are incorrect. In addition, our hedging activities may be ineffective or may not offset
any or more than a portion of the adverse financial impact resulting from currency variations. Gains or
25