Question 4 Not complete Marked out of 19.00 P Flag question 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. , o The total expected cost of the plan is $42 million. In fiscal 2010, HP recorded restructuring charges of approximately $18 million. 2006 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 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. 2010. ar 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: Fiscal year Non-cash Balance 2010 charges settlements Balance (in millions) October 31, 2009 (reversals) Cash payments & other adjustments October 31, 2010 ) , Fiscal 2010 acquisitions S- $ 64 $ (20) S. S 44 S Fiscal 2010 ES Plan: Severance 630 (55) 45 620 Infrastructure 20 (6) (10) 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) S (28) $ 1,208 4 (a) Which of the following in NOT an example of a common non-cash charge associated with corporate restructuring activities? Olnventory revaluations Fixed-asset write-downs Olmpairment charges on intangible assets OSeverance 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) Income Statement Transaction Cash Asset + Noncash Assets = Liabilities + Contributed Capital + Earned Capital Revenue Expenses = Net Income (1) (2) (C) Assume that instead of accurately estimating the anticipated restructuring charge in 2010, the company overestimated them by S30 million. (1) How would this overestimation affect financial statements in 2010? OUnderstates the expense and overstates pretax income by $30 million. The restructuring liability on the 2010 balance sheet will be overstated by $30 million. OOverstates the expense and understates pretax income by $30 million. The restructuring fiability on the 2010 balance sheet will be overstated by $30 million. OOverstates the expense and understates pretax income by $30 million. The restructuring liability on the 2010 balance sheet will be understated by $30 million. OUnderstates 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? OThe cash paid out in 2011 will be less than the 2010 accrual. Any excess (the $30 million) would reduce expense (increase profit) in 2011. OThe cash paid out in 2011 will be more than the 2010 accrual. Any excess (the $30 million) would increase expense (decrease profit) in 2011. The overestimation from 2010 will have no effect on the 2011 balance sheet or income statement. OThe cash paid out in 2011 will be less than the 2010 accrual. Any excess (the $30 million) would increase expense (decrease profit) in 2011