Analyzing and Interpreting Restructuring Costs and Effects Hewlett-Packard, Inc., reports the following footnote disclosure (excerpted) in its 2010 10-K relating to its restructuring programs.

Fiscal 2010 Acquisitions: On July 1, 2010, HP completed the acquisition of Palm and initiated a plan to restructure the operations of Palm, including severance for Palm employees, contract cancellation costs and other items.

The total expected cost of the plan is $46 million.

On April 12, 2010, HP completed the acquisition of 3Com. In connection with the acquisition, HP's management approved and initiated a plan to restructure the operation of 3Com, including severance costs and costs to vacate duplicative facilities.

The total expected cost of the plan is $42 million.

In fiscal 2010, HP recorded restructuring charges of approximately $18 million.

Fiscal 2010 ES Restructuring Plan: On June 1, 2010, HP's management announced a plan to restructure its enterprise services business. The total expected cost of the plan that will be recorded as restructuring charges is approximately $1.0 billion, including severance costs to eliminate approximately 9,000 positions and infrastructure charges. For fiscal 2010, a restructuring charge of $650 million was recorded primarily related to severance costs. As of October 31, 2010, approximately 2,100 positions have been eliminated.

Fiscal 2009 Restructuring Plan: In May 2009, HP's management approved and initiated a restructuring plan to structurally change and improve the effectiveness of several businesses. The total expected cost of the plan is $292 million in severance-related costs associated with the planned elimination of approximately 5,000 positions. As of October 31, 2010, approximately 4,200 positions had been eliminated.

Fiscal 2008 HP/EDS Restructuring Plan: In accordance with the acquisition of EDS on August 26, 2008, HP's management approved and initiated a restructuring plan to combine and align HP's services businesses, eliminate duplicative overhead functions and consolidate and vacate duplicative facilities. The restructuring plan is expected to be implemented over four years at a total expected cost of $3.4 billion.

The adjustments to the accrued restructuring expenses related to all of HP's restructuring plans described above for the twelve months ended October 31, 2010 were as follows:

(in millions)	Balance October 31, 2009	Fiscal year 2010 charges (reversals)	Cash payments	Non-cash settlements & other adjustments	Balance October 31, 2010
Fiscal 2010 acquisitions	$ --	$ 64	$ (20)	$ --	$ 44
Fiscal 2010 ES Plan:
Severance	--	630	(55)	45	620
Infrastructure	--	20	(6)	(10)	4
Total 2010 ES Plan	--	650	(61)	35	624
Fiscal 2009 Plan	248	(5)	(177)	(9)	57
Fiscal 2008 HP/EDS Plan:
Severance	747	236	(873)	(35)	75
Infrastructure	419	193	(185)	(19)	408
Total 2008 HP/EDS Plan	1,166	429	(1,058)	(54)	483
Total restructuring plan	$ 1,414	$ 1,138	$ (1,316)	$ (28)	$ 1,208

(a) Which of the following in NOT an example of a common non-cash charge associated with corporate restructuring activities?

A) Inventory revaluations

B) Fixed-asset write-downs

C) Impairment charges on intangible assets

D) Severance paid to employees

(b) Using the financial statement effects template, show the effects on financial statements of the (1) 2010 restructuring charge of $1,138 million, and (2) 2010 cash payment of $1,316 million.

Use negative signs with your answers, when appropriate.

	Balance Sheet (in $ millions)
Transaction	Cash Asset	+	Noncash Assets	=	Liabilities	+	Contributed Capital	+	Earned Capital
(1)	Answer		Answer		Answer		Answer		Answer
(2)	Answer		Answer		Answer		Answer		Answer

Income Statement
Revenue	-	Expenses	=	Net Income
Answer		Answer		Answer
Answer		Answer		Answer

(c) Assume that instead of accurately estimating the anticipated restructuring charge in 2010, the company overestimated them by $30 million.

(1) How would this overestimation affect financial statements in 2010?

A) Understates the expense and overstates pretax income by $30 million. The restructuring liability on the 2010 balance sheet will be overstated by $30 million.

B) Overstates the expense and understates pretax income by $30 million. The restructuring liability on the 2010 balance sheet will be overstated by $30 million.

C) Overstates the expense and understates pretax income by $30 million. The restructuring liability on the 2010 balance sheet will be understated by $30 million.

D) Understates the expense and understates pretax income by $30 million. The restructuring liability on the 2010 balance sheet will be overstated by $30 million.

(2) How would this overestimation affect financial statements in 2011 when severance costs are paid in cash?

A) The cash paid out in 2011 will be less than the 2010 accrual. Any excess (the $30 million) would reduce expense (increase profit) in 2011.

B) The cash paid out in 2011 will be more than the 2010 accrual. Any excess (the $30 million) would increase expense (decrease profit) in 2011.

C) The overestimation from 2010 will have no effect on the 2011 balance sheet or income statement.

D) The cash paid out in 2011 will be less than the 2010 accrual. Any excess (the $30 million) would increase expense (decrease profit) in 2011.