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HP’s Profit Falls 91%, but It Beats Expectations

PALO ALTO, CA -- (MARKET WIRE) -- Nov 21, 2011 -- HP (NYSE: HPQ)

HP today announced financial results for its fourth quarter and full fiscal year ended Oct. 31, 2011.

"HP has a great opportunity to build on our strong hardware, software, and services franchises with leading market positions, customer relationships, and intellectual property," said Meg Whitman, HP president and chief executive officer. "We need to get back to the business fundamentals in fiscal 2012, including making prudent investments in the business and driving more consistent execution."

"While FY11 proved to be a challenging year, we grew non-GAAP EPS 7% and generated $12.6 billion in cash flow from operations," said Cathie Lesjak, HP executive vice president and chief financial officer. "We're remaining cautious heading into FY12 but are focused on delivering our earnings outlook and driving shareholder value."

Earnings highlights

------------------ ------------------------------ --------------------------
                    Q4 FY11   Q4 FY10      Y/Y      FY11    FY10      Y/Y   
------------------ ------------------------------ --------------------------
GAAP net revenue                                                            
 ($B)              $   32.1  $   33.3        (3%) $127.2  $126.0         1% 
------------------ ------------------------------ --------------------------
GAAP operating                                                              
 margin                 2.5%      9.9% (7.4 pts)     7.6%    9.1% (1.5 pts) 
------------------ ------------------------------ --------------------------
GAAP net earnings                                                           
 ($B)              $    0.2  $    2.5       (91%) $  7.1  $  8.8       (19%)
------------------ ------------------------------ --------------------------
GAAP diluted EPS   $   0.12  $   1.10       (89%) $ 3.32  $ 3.69       (10%)
------------------ ------------------------------ --------------------------
Non-GAAP net                                                                
 revenue ($)       $   32.3  $   33.3        (3%) $127.4  $126.0         1% 
------------------ ------------------------------ --------------------------
Non-GAAP operating                                                          
 margin                 9.7%     12.0% (2.3 pts)    10.8%   11.4% (0.6 pts) 
------------------ ------------------------------ --------------------------
Non-GAAP net                                                                
 earnings ($B)     $    2.4  $    3.1       (23%) $ 10.4  $ 10.9        (4%)
------------------ ------------------------------ --------------------------
Non-GAAP diluted                                                            
 EPS               $   1.17  $   1.33       (12%) $ 4.88  $ 4.58         7% 
------------------ ------------------------------ --------------------------
                                                                            

Information about HP's use of non-GAAP financial information is provided under "Use of non-GAAP financial information" below. Unless otherwise specified, all revenue amounts below are calculated on a GAAP basis.

Full year fiscal 2011
GAAP net revenue for the full fiscal year 2011 was $127.2 billion, up 1% compared with the prior year or down 1% when adjusted for the effects of currency. GAAP operating profit was $9.7 billion, and GAAP diluted earnings per share (EPS) was $3.32, down 10% from the prior year.

Non-GAAP net revenue for the full fiscal year 2011 was $127.4 billion, up 1% compared with the prior year or down 1% when adjusted for the effects of currency. Non-GAAP operating profit was $13.8 billion, and non-GAAP diluted EPS was $4.88, up 7% from the prior year.

Fiscal 2011 non-GAAP net revenue includes an additional $0.2 billion of revenue resulting from the exclusion of contra revenue associated with sales incentive programs implemented in the fourth quarter in connection with the wind down of HP's webOS device business, net of fourth quarter webOS device revenue. Non-GAAP earnings and operating profit information excludes after-tax costs of $3.3 billion, or $1.56 per diluted share, related to the wind down of HP's webOS device business, impairment of goodwill and purchased intangible assets, amortization of purchased intangible assets, restructuring charges and acquisition-related charges.

Fourth fiscal quarter 2011
For the quarter, GAAP net revenue of $32.1 billion was down 3% from the prior-year period. Non-GAAP net revenue of $32.3 billion was down 3% from the prior-year period as reported and down 6% when adjusted for the effects of currency.

GAAP diluted EPS was $0.12, down 89% from the prior-year period. Non-GAAP diluted EPS was $1.17, down 12% from the prior-year period.

Fourth quarter non-GAAP net revenue includes an additional $0.2 billion of revenue resulting from the exclusion of contra revenue associated with sales incentive programs implemented in connection with the wind down of HP's webOS device business, net of webOS device revenue for the period. Fourth quarter non-GAAP earnings information excludes after-tax costs of $2.1 billion, or $1.05 per diluted share, related to the wind down of HP's webOS device business, impairment of goodwill and purchased intangible assets, amortization of purchased intangible assets, restructuring charges and acquisition-related charges.

Fourth fiscal quarter 2011 trends and regional performance
In the Americas, fourth quarter GAAP net revenue was $14.5 billion, down 4% year over year and down 5% when adjusted for the effects of currency. Non-GAAP net revenue in the Americas was $14.6 billion, down 3% year over year and down 4% when adjusted for the effects of currency.

Europe, the Middle East and Africa GAAP revenue of $11.7 billion was down 6% year over year and down 10% when adjusted for the effects of currency. GAAP revenue in Asia Pacific was $6.0 billion, representing a 3% increase year over year, and down 4% when adjusted for the effects of currency.

GAAP revenue from outside of the United States in the fourth quarter accounted for 65% of total HP revenue. BRIC countries (Brazil, Russia, India and China) generated revenue of $3.8 billion, up 9% over the year-ago period, for 12% of total HP revenue.

Revenue in HP's commercial businesses declined 2% year over year. Revenue in HP's consumer businesses, within PSG and IPG, was collectively down 9% year over year.

Fourth fiscal quarter 2011 business group results

Asset management
HP generated $2.4 billion in cash flow from operations in the fourth quarter. Inventory ended the quarter at $7.5 billion, with days of inventory up 4 days year over year to 27 days. Accounts receivable of $18.2 billion was up 1 day year over year to 51 days. Accounts payable ended the quarter at $14.8 billion, flat from the prior-year period at 52 days. HP's dividend payment of $0.12 per share in the fourth quarter resulted in cash usage of $239 million. HP also utilized $500 million of cash during the quarter to repurchase approximately 17 million shares of common stock in the open market. HP exited the quarter with $8.1 billion in gross cash.

Outlook
For the first quarter of fiscal 2012, HP estimates non-GAAP diluted EPS in the range of $0.83 to $0.86, and GAAP diluted EPS in the range of $0.61 to $0.64.

First quarter fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.22 per share, related primarily to the amortization and impairment of purchased intangibles, restructuring charges and acquisition-related charges.

HP expects full year fiscal 2012 non-GAAP diluted EPS of at least $4.00 and GAAP diluted EPS of approximately $3.20.

Full year fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.80 per share, related primarily to the amortization and impairment of purchased intangibles, restructuring charges and acquisition-related charges.

In order to more effectively manage HP as one company and align its guidance policy with its long-term objective of delivering profitable growth, HP will only be providing a quarterly and annual earnings per share outlook. The company believes that earnings per share is a better indicator of successful execution across its various business levers. HP remains committed to high levels of disclosure and transparency, including general commentary on its expectations relating to future revenue and business segment performance, and will continue to provide detailed segment-level financial performance data for completed fiscal periods.

More information on HP's quarterly earnings, including additional financial analysis and an earnings overview presentation, is available on HP's Investor Relations website at www.hp.com/investor/home.

HP's Q4 FY11 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2011q4webcast.

About HP
HP creates new possibilities for technology to have a meaningful impact on people, businesses, governments and society. The world's largest technology company, HP brings together a portfolio that spans printing, personal computing, software, services and IT infrastructure to solve customer problems. More information about HP is available at http://www.hp.com.

Use of non-GAAP financial information
To supplement HP's consolidated condensed financial statements presented on a GAAP basis, HP provides non-GAAP net revenue, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share, gross cash and free cash flow. HP also provides forecasts of non-GAAP diluted earnings per share. A reconciliation of the adjustments to GAAP results for this quarter and prior periods is included in the tables below. In addition, an explanation of the ways in which HP management uses these non-GAAP measures to evaluate its business, the substance behind HP management's decision to use these non-GAAP measures, the material limitations associated with the use of these non-GAAP measures, the manner in which HP management compensates for those limitations, and the substantive reasons why HP management believes that these non-GAAP measures provide useful information to investors is included under "Use of Non-GAAP Financial Measures" after the tables below. This additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for revenue, operating profit, operating margin, net earnings, diluted earnings per share, cash and cash equivalents or cash flow from operations prepared in accordance with GAAP.

Forward-looking statements
This news release contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of HP may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including but not limited to any projections of revenue, margins, expenses, earnings, tax provisions, cash flows, benefit obligations, share repurchases, currency exchange rates, the impact of acquisitions or other financial items; any statements of the plans, strategies and objectives of management for future operations, including the execution of cost reduction programs and restructuring and integration plans; any statements concerning the expected development, performance or market share relating to products or services; any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on HP and its financial performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include the impact of macroeconomic and geopolitical trends and events; the competitive pressures faced by HP's businesses; the development and transition of new products and services and the enhancement of existing products and services to meet customer needs and respond to emerging technological trends; the execution and performance of contracts by HP and its suppliers, customers and partners; the protection of HP's intellectual property assets, including intellectual property licensed from third parties; integration and other risks associated with business combination and investment transactions; the hiring and retention of key employees; assumptions related to pension and other post-retirement costs; expectations and assumptions relating to the execution and timing of restructuring and integration plans; the possibility that the expected benefits of business combination transactions may not materialize as expected; the resolution of pending investigations, claims and disputes; and other risks that are described in HP's Annual Report on Form 10-K for the fiscal year ended October 31, 2010 and HP's other filings with the Securities and Exchange Commission, including HP's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2011. As in prior periods, the financial information set forth in this release, including tax-related items, reflects estimates based on information available at this time. While HP believes these estimates to be meaningful, these amounts could differ materially from actual reported amounts in HP's Form 10-K for the fiscal year ended October 31, 2011. In particular, determining HP's actual tax balances and provisions as of October 31, 2011 requires extensive internal and external review of tax data (including consolidating and reviewing the tax provisions of numerous domestic and foreign entities), which is being completed in the ordinary course of preparing HP's Form 10-K. HP assumes no obligation and does not intend to update these forward-looking statements.

© 2011 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice. HP shall not be liable for technical or editorial errors or omissions contained herein.

                                                                            
                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                  
               CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS                
                                (Unaudited)                                 
                   (In millions except per share amounts)                   
                                                                            
                                              Three months ended            
                                   ---------------------------------------- 
                                    October 31,    July 31,     October 31, 
                                       2011          2011          2010     
                                   ------------  ------------  ------------ 
                                                                            
Net revenue                        $     32,122  $     31,189  $     33,278 
                                                                            
Costs and Expenses:(a)                                                      
  Cost of sales                          25,332        23,929        24,995 
  Research and development                  829           812           814 
  Selling, general and                                                      
   administrative                         3,577         3,402         3,464 
  Amortization of purchased                                                 
   intangible assets                        411           358           424 
  Restructuring charges                     179           150           235 
  Acquisition-related charges               114            18            51 
  Impairment of goodwill and                                                
   purchased intangible assets              885             -             - 
                                   ------------  ------------  ------------ 
    Total costs and expenses             31,327        28,669        29,983 
                                   ------------  ------------  ------------ 
                                                                            
Earnings from operations                    795         2,520         3,295 
                                                                            
Interest and other, net                    (401)         (121)          (81)
                                   ------------  ------------  ------------ 
                                                                            
Earnings before taxes                       394         2,399         3,214 
                                                                            
Provision for taxes                         155           473           676 
                                   ------------  ------------  ------------ 
                                                                            
Net earnings                       $        239  $      1,926  $      2,538 
                                   ============  ============  ============ 
                                                                            
Net earnings per share:                                                     
  Basic                            $       0.12  $       0.94  $       1.13 
  Diluted                          $       0.12  $       0.93  $       1.10 
                                                                            
                                                                            
Cash dividends declared per share  $          -  $       0.24  $          - 
                                                                            
Weighted-average shares used to                                             
 compute net earnings per share:                                            
  Basic                                   1,989         2,054         2,249 
  Diluted                                 2,005         2,080         2,297 
                                                                            
                                                                            
(a) In connection with organizational realignments implemented in the first 
    quarter of fiscal 2011, certain costs previously reported as Cost of    
    Sales have been reclassified as Selling, General and Administrative     
    expenses to better align those costs with the functional areas that     
    benefit from those expenditures.                                        
                                                                            
                                                                            



                                                                            
                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                  
               CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS                
                   (In millions except per share amounts)                   
                                                                            
                                                                            
                                                     Twelve months ended    
                                                         October 31,        
                                                 -------------------------- 
                                                     2011          2010     
                                                 ------------  ------------ 
                                                  (Unaudited)               
                                                                            
Net revenue                                      $    127,245  $    126,033 
                                                                            
Costs and expenses:(a)                                                      
  Cost of sales                                        97,529        95,956 
  Research and development                              3,254         2,959 
  Selling, general and administrative                  13,466        12,718 
  Amortization of purchased intangible assets           1,607         1,484 
  Restructuring charges                                   645         1,144 
  Acquisition-related charges                             182           293 
  Impairment of goodwill and purchased                                      
   intangible assets                                      885             - 
                                                 ------------  ------------ 
    Total costs and expenses                          117,568       114,554 
                                                 ------------  ------------ 
                                                                            
Earnings from operations                                9,677        11,479 
                                                                            
Interest and other, net                                  (695)         (505)
                                                 ------------  ------------ 
                                                                            
Earnings before taxes                                   8,982        10,974 
                                                                            
Provision for taxes                                     1,908         2,213 
                                                 ------------  ------------ 
                                                                            
Net earnings                                     $      7,074  $      8,761 
                                                 ============  ============ 
                                                                            
Net earnings per share:                                                     
  Basic                                          $       3.38  $       3.78 
  Diluted                                        $       3.32  $       3.69 
                                                                            
                                                                            
Cash dividends declared per share                $       0.40  $       0.32 
                                                                            
Weighted-average shares used to compute net                                 
 earnings per share:                                                        
  Basic                                                 2,094         2,319 
  Diluted                                               2,128         2,372 
                                                                            
                                                                            
(a) In connection with organizational realignments implemented in the first 
    quarter of fiscal 2011, certain costs previously reported as Cost of    
    Sales have been reclassified as Selling, General and Administrative     
    expenses to better align those costs with the functional areas that     
    benefit from those expenditures.                                        
                                                                            
                                                                            



                                                                            
                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                  
  ADJUSTMENTS TO GAAP NET REVENUE, NET EARNINGS, EARNINGS FROM OPERATIONS,  
                  OPERATING MARGIN AND EARNINGS PER SHARE                   
                                (Unaudited)                                 
                   (In millions except per share amounts)                   
                                                                            
                                                                            
                  Three               Three               Three             
                  months              months              months            
                  ended               ended               ended             
                 October   Diluted     July    Diluted   October   Diluted  
                   31,     earnings    31,     earnings    31,     earnings 
                   2011   per share    2011   per share    2010   per share 
                 -------  ---------  -------  ---------  -------  --------- 
                                                                            
GAAP net revenue $32,122             $31,189             $33,278            
                                                                            
Non GAAP                                                                    
 adjustment:                                                                
  WebOS device                                                              
   contra                                                                   
   revenue,                                                                 
   net(a)            142                   -                   -            
                 -------             -------             -------            
Non GAAP net                                                                
 revenue         $32,264             $31,189             $33,278            
                 =======             =======             =======            
                                                                            
                                                                            
GAAP net                                                                    
 earnings        $   239  $    0.12  $ 1,926  $    0.93  $ 2,538  $    1.10 
                                                                            
Non-GAAP                                                                    
 adjustments:                                                               
  Amortization                                                              
   of purchased                                                             
   intangible                                                               
   assets            411       0.20      358       0.17      424       0.19 
  Restructuring                                                             
   charges           179       0.09      150       0.07      235       0.10 
  Acquisition-                                                              
   related                                                                  
   charges in                                                               
   earnings from                                                            
   operations        114       0.06       18       0.01       51       0.02 
  Impairment of                                                             
   goodwill and                                                             
   purchased                                                                
   intangible                                                               
   assets(b)         885       0.44        -          -        -          - 
  Wind down of                                                              
   the WebOS                                                                
   device                                                                   
   business(c)       755       0.38        -          -        -          - 
  Acquisition-                                                              
   related                                                                  
   charges in                                                               
   interest and                                                             
   other, net(d)     276       0.14        -          -        -          - 
  Adjustments                                                               
   for taxes        (509)     (0.26)    (170)     (0.08)    (184)     (0.08)
                 -------  ---------  -------  ---------  -------  --------- 
Non-GAAP net                                                                
 earnings        $ 2,350  $    1.17  $ 2,282  $    1.10  $ 3,064  $    1.33 
                 =======  =========  =======  =========  =======  ========= 
                                                                            
                                                                            
GAAP earnings                                                               
 from operations $   795             $ 2,520             $ 3,295            
                                                                            
Non-GAAP                                                                    
 adjustments:                                                               
  Amortization                                                              
   of purchased                                                             
   intangible                                                               
   assets            411                 358                 424            
  Restructuring                                                             
   charges           179                 150                 235            
  Acquisition-                                                              
   related                                                                  
   charges in                                                               
   earnings from                                                            
   operations        114                  18                  51            
  Impairment of                                                             
   goodwill and                                                             
   purchased                                                                
   intangible                                                               
   assets(b)         885                   -                   -            
  Wind down of                                                              
   the WebOS                                                                
   device                                                                   
   business(c)       755                   -                   -            
                 -------             -------             -------            
Non-GAAP                                                                    
 earnings from                                                              
 operations      $ 3,139             $ 3,046             $ 4,005            
                 =======             =======             =======            
                                                                            
GAAP operating                                                              
 margin                2%                  8%                 10%           
Non-GAAP                                                                    
 adjustments           8%                  2%                  2%           
                 -------             -------             -------            
                                                                            
Non-GAAP                                                                    
 operating                                                                  
 margin               10%                 10%                 12%           
                 =======             =======             =======            
                                                                            
                                                                            
(a) Includes contra revenue primarily associated with sales incentive       
    programs to wind down the webOS device business, net of current quarter 
    webOS device revenue.                                                   
                                                                            
(b) Includes impairment charges to goodwill and purchased intangible assets 
    associated with the acquisition of Palm Inc. on July 1,2010 recorded as 
    a result of the decision announced on August 18,2011 to wind down the   
    webOS device business.                                                  
                                                                            
(c) Includes primarily expenses for supplier-related obligations and contra 
    revenue associated with sales incentive programs related to winding down
    the webOS device business.                                              
                                                                            
(d) Includes primarily the cost of the British pound options bought to limit
    foreign exchange rate risk in connection with the Autonomy acquisition. 
                                                                            
                                                                            



                                                                            
                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                  
  ADJUSTMENTS TO GAAP NET REVENUE, NET EARNINGS, EARNINGS FROM OPERATIONS,  
                  OPERATING MARGIN AND EARNINGS PER SHARE                   
                                (Unaudited)                                 
                   (In millions except per share amounts)                   
                                                                            
                                                                            
                            Twelve                    Twelve                
                            months                    months                
                            ended       Diluted       ended       Diluted   
                         October 31,    earnings   October 31,    earnings  
                             2011      per share       2010      per share  
                         -----------  -----------  -----------  ----------- 
                                                                            
GAAP net revenue         $   127,245               $   126,033              
                                                                            
Non GAAP adjustment:                                                        
  WebOS device contra                                                       
   revenue, net(a)               142                         -              
                         -----------               -----------              
Non GAAP net revenue     $   127,387               $   126,033              
                         ===========               ===========              
                                                                            
                                                                            
GAAP net earnings        $     7,074  $      3.32  $     8,761  $      3.69 
                                                                            
Non-GAAP adjustments:                                                       
  Amortization of                                                           
   purchased intangible                                                     
   assets                      1,607         0.75        1,484         0.63 
  Restructuring charges          645         0.30        1,144         0.48 
  Acquisition-related                                                       
   charges in earnings                                                      
   from operations               182         0.09          293         0.12 
  Impairment of goodwill                                                    
   and purchased                                                            
   intangible assets(b)          885         0.42            -            - 
  Wind down of the WebOS                                                    
   device business(c)            755         0.35            -            - 
  Acquisition-related                                                       
   charges in interest                                                      
   and other, net(d)             276         0.13            -            - 
  Adjustments for taxes       (1,045)       (0.48)        (816)       (0.34)
                         -----------  -----------  -----------  ----------- 
Non-GAAP net earnings    $    10,379  $      4.88  $    10,866  $      4.58 
                         ===========  ===========  ===========  =========== 
                                                                            
                                                                            
GAAP earnings from                                                          
 operations              $     9,677               $    11,479              
                                                                            
Non-GAAP adjustments:                                                       
  Amortization of                                                           
   purchased intangible                                                     
   assets                      1,607                     1,484              
  Restructuring charges          645                     1,144              
  Acquisition-related                                                       
   charges in earnings                                                      
   from operations               182                       293              
  Impairment of goodwill                                                    
   and purchased                                                            
   intangible assets(b)          885                         -              
  Wind down of the WebOS                                                    
   device business(c)            755                         -              
                         -----------               -----------              
Non-GAAP earnings from                                                      
 operations              $    13,751               $    14,400              
                         ===========               ===========              
                                                                            
GAAP operating margin              8%                        9%             
Non-GAAP adjustments               3%                        2%             
                         -----------               -----------              
                                                                            
Non-GAAP operating                                                          
 margin                           11%                       11%             
                         ===========               ===========              
                                                                            
                                                                            
(a) Includes contra revenue primarily associated with sales incentive       
    programs to wind down the webOS device business, net of current quarter 
    webOS device revenue.                                                   
                                                                            
(b) Includes impairment charges to goodwill and purchased intangible assets 
    associated with the acquisition of Palm Inc. on July 1,2010 recorded as 
    a result of the decision announced on August 18,2011 to wind down the   
    webOS device business.                                                  
                                                                            
(c) Includes primarily expenses for supplier-related obligations and contra 
    revenue associated with sales incentive programs related to winding down
    the webOS device business.                                              
                                                                            
(d) Includes primarily the cost of the British pound options bought to limit
    foreign exchange rate risk in connection with the Autonomy acquisition. 
                                                                            
                                                                            



                                                                            
                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                  
                    CONSOLIDATED CONDENSED BALANCE SHEETS                   
                                (In millions)                               
                                                                            
                                                                            
                                                  October 31,   October 31, 
                                                      2011          2010    
                                                 ------------- -------------
                                                  (unaudited)               
ASSETS                                                                      
                                                                            
Current assets:                                                             
  Cash and cash equivalents                      $       8,043 $      10,929
  Accounts receivable                                   18,224        18,481
  Financing receivables                                  3,162         2,986
  Inventory                                              7,490         6,466
  Other current assets                                  14,102        15,322
                                                 ------------- -------------
                                                                            
    Total current assets                                51,021        54,184
                                                 ------------- -------------
                                                                            
Property, plant and equipment                           12,292        11,763
                                                                            
Long-term financing receivables and other assets        10,755        12,225
                                                                            
Goodwill and purchased intangible assets                55,449        46,331
                                                 ------------- -------------
                                                                            
Total assets                                     $     129,517 $     124,503
                                                 ============= =============
                                                                            
                                                                            
LIABILITIES AND STOCKHOLDERS' EQUITY                                        
                                                                            
Current liabilities:                                                        
  Notes payable and short-term borrowings        $       8,083 $       7,046
  Accounts payable                                      14,750        14,365
  Employee compensation and benefits                     3,999         4,256
  Taxes on earnings                                      1,048           802
  Deferred revenue                                       7,449         6,727
  Other accrued liabilities                             15,113        16,207
                                                 ------------- -------------
                                                                            
    Total current liabilities                           50,442        49,403
                                                 ------------- -------------
                                                                            
Long-term debt                                          22,551        15,258
                                                                            
Other liabilities                                       17,520        19,061
                                                                            
Stockholders' equity:                                                       
  HP stockholders' equity                               38,625        40,449
  Non-controlling interests                                379           332
                                                 ------------- -------------
                                                                            
    Total stockholders' equity                          39,004        40,781
                                                 ------------- -------------
                                                                            
Total liabilities and stockholders' equity       $     129,517 $     124,503
                                                 ============= =============
                                                                            
                                                                            
                                                                            
                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                  
              CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS               
                                (Unaudited)                                 
                               (In millions)                                
                                                                            
                                                                            
                                                Three months  Twelve months 
                                                   ended          ended     
                                                October 31,    October 31,  
                                                    2011           2011     
                                               -------------  ------------- 
                                                                            
Cash flows from operating activities:                                       
  Net earnings                                 $         239  $       7,074 
  Adjustments to reconcile net earnings to net                              
   cash provided by operating activities:                                   
    Depreciation and amortization                      1,262          4,984 
    Impairment of goodwill and purchased                                    
     intangible assets                                   885            885 
    Stock-based compensation expense                     210            685 
    Provision for bad debt and inventory                  90            298 
    Restructuring charges                                179            645 
    Deferred taxes on earnings                          (638)           166 
    Excess tax benefit from stock-based                                     
     compensation                                         (3)          (163)
    Other, net                                           156            (46)
                                                                            
    Changes in assets and liabilities:                                      
      Accounts and financing receivables                  (7)          (227)
      Inventory                                         (113)        (1,252)
      Accounts payable                                   153            275 
      Taxes on earnings                                  359            610 
      Restructuring                                     (252)        (1,002)
      Other assets and liabilities                      (120)          (293)
                                               -------------  ------------- 
        Net cash provided by operating                                      
         activities                                    2,400         12,639 
                                               -------------  ------------- 
                                                                            
Cash flows from investing activities:                                       
    Investment in property, plant and                                       
     equipment                                        (1,385)        (4,539)
    Proceeds from sale of property, plant and                               
     equipment                                           217            999 
    Purchases of available-for-sale securities                              
     and other investments                               (96)           (96)
    Maturities and sales of available-for-sale                              
     securities and other investments                      9             68 
    Payments made in connection with business                               
     acquisitions, net of cash acquired              (10,211)       (10,480)
    Proceeds from business divestiture, net                -             89 
                                               -------------  ------------- 
        Net cash used in investing activities        (11,466)       (13,959)
                                               -------------  ------------- 
                                                                            
Cash flows from financing activities:                                       
    Issuance (repayment) of commercial paper                                
     and notes payable, net                              262         (1,270)
    Issuance of debt                                   4,644         11,942 
    Payment of debt                                      (65)        (2,336)
    Issuance of common stock under employee                                 
     stock plans                                          51            896 
    Repurchase of common stock                          (500)       (10,117)
    Excess tax benefit from stock-based                                     
     compensation                                          3            163 
    Dividends                                           (239)          (844)
                                               -------------  ------------- 
        Net cash provided by (used in)                                      
         financing activities                          4,156         (1,566)
                                               -------------  ------------- 
                                                                            
Decrease in cash and cash equivalents                 (4,910)        (2,886)
Cash and cash equivalents at beginning of                                   
 period                                               12,953         10,929 
                                               -------------  ------------- 
Cash and cash equivalents at end of period     $       8,043  $       8,043 
                                               =============  ============= 
                                                                            
                                                                            



                                                                            
                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                  
                            SEGMENT INFORMATION                             
                                (Unaudited)                                 
                               (In millions)                                
                                                                            
                                              Three months ended            
                                   ---------------------------------------- 
                                    October 31,    July 31,     October 31, 
                                       2011          2011          2010     
                                   ------------  ------------  ------------ 
                                                                            
Net revenue:(a)                                                             
                                                                            
  Services                         $      9,281  $      9,089  $      9,125 
  Enterprise Servers, Storage and                                           
   Networking                             5,655         5,396         5,888 
  HP Software                               976           780           763 
  Personal Systems Group                 10,118         9,592        10,283 
  Imaging and Printing Group              6,321         6,087         6,995 
  HP Financial Services                     952           932           809 
  Corporate Investments                     (94)          266           135 
                                   ------------  ------------  ------------ 
    Total Segments                       33,209        32,142        33,998 
  Eliminations of intersegment net                                          
   revenue and other                     (1,087)         (953)         (720)
                                   ------------  ------------  ------------ 
                                                                            
    Total HP Consolidated Net                                               
     Revenue                       $     32,122  $     31,189  $     33,278 
                                   ============  ============  ============ 
                                                                            
Earnings from operations:(a)                                                
                                                                            
  Services                         $      1,188  $      1,225  $      1,500 
  Enterprise Servers, Storage and                                           
   Networking                               733           699           888 
  HP Software                               270           151           261 
  Personal Systems Group                    578           567           568 
  Imaging and Printing Group                808           892         1,220 
  HP Financial Services                      98            88            73 
  Corporate Investments                    (903)         (332)         (157)
                                   ------------  ------------  ------------ 
    Total Segments                        2,772         3,290         4,353 
                                                                            
  Corporate and unallocated costs                                           
   and eliminations                        (196)         (114)         (239)
  Unallocated costs related to                                              
   stock-based compensation                                                 
   expense                                 (192)         (130)         (109)
  Amortization of purchased                                                 
   intangible assets                       (411)         (358)         (424)
  Restructuring charges                    (179)         (150)         (235)
  Acquisition-related charges              (114)          (18)          (51)
  Impairment of goodwill and                                                
   purchased intangible assets             (885)            -             - 
  Interest and other, net                  (401)         (121)          (81)
                                   ------------  ------------  ------------ 
                                                                            
Total HP Consolidated Earnings                                              
 Before Taxes                      $        394  $      2,399  $      3,214 
                                   ============  ============  ============ 
                                                                            
                                                                            
(a) Certain fiscal 2011 organizational reclassifications have been reflected
    retroactively to provide improved visibility and comparability. For each
    of the quarters in fiscal year 2010, the reclassifications resulted in  
    the transfer of revenue and operating profit among the Enterprise       
    Servers, Storage and Networking, Services, HP Software and Corporate    
    Investments financial reporting segments. Reclassifications between     
    segments included the transfer of the networking business from Corporate
    Investments to Enterprise Servers, Storage and Networking, the transfer 
    of the communications and media solutions business from HP Software to  
    Services, and the transfer of the business intelligence business from HP
    Software to Corporate Investments. There was no impact on the previously
    reported financial results for the Personal Systems Group, HP Financial 
    Services and Imaging and Printing Group segments.                       
                                                                            
                                                                            



                                                                            
                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                  
                            SEGMENT INFORMATION                             
                                (Unaudited)                                 
                               (In millions)                                
                                                                            
                                                      Twelve months ended   
                                                          October 31,       
                                                   ------------------------ 
                                                       2011         2010    
                                                   -----------  ----------- 
                                                                            
Net revenue:(a)                                                             
                                                                            
  Services                                         $    35,954  $    35,529 
  Enterprise Servers, Storage and Networking            22,241       20,356 
  HP Software                                            3,217        2,729 
  Personal Systems Group                                39,574       40,741 
  Imaging and Printing Group                            25,783       25,764 
  HP Financial Services                                  3,596        3,047 
  Corporate Investments                                    322          346 
                                                   -----------  ----------- 
    Total Segments                                     130,687      128,512 
  Eliminations of intersegment net revenue and                              
   other                                                (3,442)      (2,479)
                                                   -----------  ----------- 
                                                                            
    Total HP Consolidated Net Revenue              $   127,245  $   126,033 
                                                   ===========  =========== 
                                                                            
Earnings from operations:(a)                                                
                                                                            
  Services                                         $     5,149  $     5,661 
  Enterprise Servers, Storage and Networking             3,026        2,825 
  HP Software                                              698          782 
  Personal Systems Group                                 2,350        2,032 
  Imaging and Printing Group                             3,973        4,412 
  HP Financial Services                                    348          281 
  Corporate Investments                                 (1,616)        (366)
                                                   -----------  ----------- 
    Total Segments                                      13,928       15,627 
                                                                            
  Corporate and unallocated costs and eliminations        (314)        (614)
  Unallocated costs related to stock-based                                  
   compensation expense                                   (618)        (613)
  Amortization of purchased intangible assets           (1,607)      (1,484)
  Restructuring charges                                   (645)      (1,144)
  Acquisition-related charges                             (182)        (293)
  Impairment of goodwill and purchased intangible                           
   assets                                                 (885)           - 
  Interest and other, net                                 (695)        (505)
                                                   -----------  ----------- 
                                                                            
Total HP Consolidated Earnings Before Taxes        $     8,982  $    10,974 
                                                   ===========  =========== 
                                                                            
                                                                            
(a) Certain fiscal 2011 organizational reclassifications have been reflected
    retroactively to provide improved visibility and comparability. For each
    of the quarters in fiscal year 2010, the reclassifications resulted in  
    the transfer of revenue and operating profit among the Enterprise       
    Servers, Storage and Networking, Services, HP Software and Corporate    
    Investments financial reporting segments. Reclassifications between     
    segments included the transfer of the networking business from Corporate
    Investments to Enterprise Servers, Storage and Networking, the transfer 
    of the communications and media solutions business from HP Software to  
    Services, and the transfer of the business intelligence business from HP
    Software to Corporate Investments. There was no impact on the previously
    reported financial results for the Personal Systems Group, HP Financial 
    Services and Imaging and Printing Group segments.                       
                                                                            
                                                                            



                                                                            
                 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                   
                    SEGMENT / BUSINESS UNIT INFORMATION                     
                                (Unaudited)                                 
                               (In millions)                                
                                                                            
                                                              Growth rate   
                                    Three months ended            (%)       
                               ----------------------------  -------------  
                                October             October                 
                                 31,     July 31,    31,                    
                                 2011      2011      2010     Q/Q     Y/Y   
                               --------  --------  --------  -----   -----  
                                                                            
Net revenue:(a)                                                             
                                                                            
  Services                                                                  
    Infrastructure Technology                                               
     Outsourcing               $  3,886  $  3,884  $  3,851      0%      1% 
    Technology Services           2,810     2,754     2,733      2%      3% 
    Application Services          1,798     1,698     1,763      6%      2% 
    Business Process                                                        
     Outsourcing                    683       658       695      4%     (2%)
    Other                           104        95        83      9%     25% 
                               --------  --------  --------                 
      Total Services              9,281     9,089     9,125      2%      2% 
                               --------  --------  --------                 
                                                                            
  Enterprise Servers, Storage                                               
   and Networking                                                           
    Industry Standard Servers     3,384     3,302     3,530      2%     (4%)
    Storage                       1,088       976     1,044     11%      4% 
    Business Critical Systems       535       459       695     17%    (23%)
    HP Networking(b)                648       659       619     (2%)     5% 
                               --------  --------  --------                 
      Total Enterprise                                                      
       Servers, Storage and                                                 
       Networking                 5,655     5,396     5,888      5%     (4%)
                               --------  --------  --------                 
                                                                            
  HP Software(c)                    976       780       763     25%     28% 
                               --------  --------  --------                 
                                                                            
  Personal Systems Group(d)                                                 
    Notebooks                     5,390     5,082     5,623      6%     (4%)
    Desktops                      3,946     3,777     3,928      4%      0% 
    Workstations                    593       547       529      8%     12% 
    Other                           189       186       203      2%     (7%)
                               --------  --------  --------                 
      Total Personal Systems                                                
       Group                     10,118     9,592    10,283      5%     (2%)
                               --------  --------  --------                 
                                                                            
  Imaging and Printing Group                                                
    Supplies                      4,041     4,143     4,707     (2%)   (14%)
    Commercial Hardware           1,596     1,292     1,541     24%      4% 
    Consumer Hardware               684       652       747      5%     (8%)
                               --------  --------  --------                 
      Total Imaging and                                                     
       Printing Group             6,321     6,087     6,995      4%    (10%)
                               --------  --------  --------                 
                                                                            
  HP Financial Services             952       932       809      2%     18% 
                               --------  --------  --------                 
                                                                            
  Corporate Investments             (94)      266       135   (135%)  (170%)
                               --------  --------  --------                 
    Total Segments               33,209    32,142    33,998      3%     (2%)
                               --------  --------  --------                 
                                                                            
Eliminations of intersegment                                                
 net revenue and other           (1,087)     (953)     (720)    14%     51% 
                               --------  --------  --------                 
                                                                            
    Total HP Consolidated Net                                               
     Revenue                   $ 32,122  $ 31,189  $ 33,278      3%     (3%)
                               ========  ========  ========                 
                                                                            
                                                                            
(a) Certain fiscal 2011 organizational reclassifications have been reflected
    retroactively to provide improved visibility and comparability. For each
    of the quarters in fiscal year 2010, the reclassifications resulted in  
    the transfer of revenue among the Enterprise Servers, Storage and       
    Networking, Services, HP Software and Corporate Investments financial   
    reporting segments. Reclassifications between segments included the     
    transfer of the networking business from Corporate Investments to       
    Enterprise Servers, Storage and Networking, the transfer of the         
    communications and media solutions business from HP Software to         
    Services, and the transfer of the business intelligence business from HP
    Software to Corporate Investments. In addition, revenue was transferred 
    among the business units within the Services and Personal Systems Group 
    segments. There was no impact on the previously reported financial      
    results for the HP Financial Services and Imaging and Printing Group    
    segments or for the business units within the Imaging and Printing Group
    segment.                                                                
                                                                            
(b) The networking business was added to the Enterprise Servers, Storage and
    Networking segment in fiscal 2011.                                      
                                                                            
(c) The Business Technology Optimization and Other Software business units  
    were consolidated into a single business unit within the HP Software    
    segment in fiscal 2011.                                                 
                                                                            
(d) The Handhelds business unit, which includes devices that run on Windows 
    Mobile software, was reclassified into the Other business unit within   
    the Personal Systems Group in fiscal 2011.                              
                                                                            
                                                                            



                                                                            
                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                  
                    SEGMENT / BUSINESS UNIT INFORMATION                     
                                (Unaudited)                                 
                               (In millions)                                
                                                                            
                                                      Twelve months ended   
                                                          October 31,       
                                                   ------------------------ 
                                                       2011         2010    
                                                   -----------  ----------- 
                                                                            
Net revenue:(a)                                                             
                                                                            
  Services                                                                  
    Infrastructure Technology Outsourcing          $    15,189  $    14,942 
    Technology Services                                 10,879       10,627 
    Application Services                                 6,852        6,792 
    Business Process Outsourcing                         2,672        2,872 
    Other                                                  362          296 
                                                   -----------  ----------- 
      Total Services                                    35,954       35,529 
                                                   -----------  ----------- 
                                                                            
  Enterprise Servers, Storage and Networking                                
    Industry Standard Servers                           13,521       12,574 
    Storage                                              4,056        3,785 
    Business Critical Systems                            2,095        2,292 
    HP Networking(b)                                     2,569        1,705 
                                                   -----------  ----------- 
      Total Enterprise Servers, Storage and                                 
       Networking                                       22,241       20,356 
                                                   -----------  ----------- 
                                                                            
  HP Software(c)                                         3,217        2,729 
                                                   -----------  ----------- 
                                                                            
  Personal Systems Group(d)                                                 
    Notebooks                                           21,319       22,602 
    Desktops                                            15,260       15,519 
    Workstations                                         2,216        1,786 
    Other                                                  779          834 
                                                   -----------  ----------- 
      Total Personal Systems Group                      39,574       40,741 
                                                   -----------  ----------- 
                                                                            
  Imaging and Printing Group                                                
    Supplies                                            17,154       17,249 
    Commercial Hardware                                  5,790        5,569 
    Consumer Hardware                                    2,839        2,946 
                                                   -----------  ----------- 
      Total Imaging and Printing Group                  25,783       25,764 
                                                   -----------  ----------- 
                                                                            
  HP Financial Services                                  3,596        3,047 
                                                   -----------  ----------- 
                                                                            
  Corporate Investments                                    322          346 
                                                   -----------  ----------- 
    Total Segments                                     130,687      128,512 
                                                   -----------  ----------- 
                                                                            
  Eliminations of intersegment net revenue and                              
   other                                                (3,442)      (2,479)
                                                   -----------  ----------- 
                                                                            
    Total HP Consolidated Net Revenue              $   127,245  $   126,033 
                                                   ===========  =========== 
                                                                            
                                                                            
(a) Certain fiscal 2011 organizational reclassifications have been reflected
    retroactively to provide improved visibility and comparability. For each
    of the quarters in fiscal year 2010, the reclassifications resulted in  
    the transfer of revenue among the Enterprise Servers, Storage and       
    Networking, Services, HP Software and Corporate Investments financial   
    reporting segments. Reclassifications between segments included the     
    transfer of the networking business from Corporate Investments to       
    Enterprise Servers, Storage and Networking, the transfer of the         
    communications and media solutions business from HP Software to         
    Services, and the transfer of the business intelligence business from HP
    Software to Corporate Investments. In addition, revenue was transferred 
    among the business units within the Services and Personal Systems Group 
    segments. There was no impact on the previously reported financial      
    results for the HP Financial Services and Imaging and Printing Group    
    segments or for the business units within the Imaging and Printing Group
    segment.                                                                
                                                                            
(b) The networking business was added to the Enterprise Servers, Storage and
    Networking segment in fiscal 2011.                                      
                                                                            
(c) The Business Technology Optimization and Other Software business units  
    were consolidated into a single business unit within the HP Software    
    segment in fiscal 2011.                                                 
                                                                            
(d) The Handhelds business unit, which includes devices that run on Windows 
    Mobile software, was reclassified into the Other business unit within   
    the Personal Systems Group in fiscal 2011.                              
                                                                            
                                                                            



                                                                            
                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                  
               SEGMENT NON-GAAP OPERATING MARGIN SUMMARY DATA               
                                (Unaudited)                                 
                               (In millions)                                
                                                                            
                                      Three months     Change in Operating  
                                          ended           Margin (pts)      
                                      ------------   ---------------------- 
                                      October 31,                           
                                          2011           Y/Y         Q/Q    
                                      ------------   ----------  ---------- 
                                                                            
Non-GAAP Operating Margin:(a)                                               
  Services                                    12.8%    (3.6 pts)   (0.7 pts)
  Enterprise Servers, Storage and                                           
   Networking                                 13.0%    (2.1 pts)    0.0 pts 
  HP Software                                 27.7%    (6.5 pts)    8.3 pts 
  Personal Systems Group                       5.7%     0.2 pts    (0.2 pts)
  Imaging and Printing Group                  12.8%    (4.6 pts)   (1.9 pts)
  HP Financial Services                       10.3%     1.3 pts     0.9 pts 
  Corporate Investments                     (308.3%) (192.0 pts) (183.5 pts)
    Total Segments                            10.6%    (2.2 pts)    0.4 pts 
                                                                            
    Total HP Consolidated Non-GAAP                                          
     Operating Margin                          9.7%    (2.3 pts)   (0.1 pts)
                                                                            
                                                                            
(a) Certain fiscal 2011 organizational reclassifications have been reflected
    retroactively to provide improved visibility and comparability. For each
    of the quarters in fiscal year 2010, the reclassifications resulted in  
    the transfer of revenue and operating profit among the Enterprise       
    Servers, Storage and Networking, Services, HP Software and Corporate    
    Investments financial reporting segments.  Reclassifications between    
    segments included the transfer of the networking business from Corporate
    Investments to Enterprise Servers, Storage and Networking, the transfer 
    of the communications and media solutions business from HP Software to  
    Services, and the transfer of the business intelligence business from HP
    Software to Corporate Investments.  There was no impact on the          
    previously reported financial results for the Personal Systems Group, HP
    Financial Services and Imaging and Printing Group segments.             
                                                                            
                                                                            



                                                                            
                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                  
                    CALCULATION OF NET EARNINGS PER SHARE                   
                                 (Unaudited)                                
                   (In millions except per share amounts)                   
                                                                            
                                                 Three months ended         
                                       -------------------------------------
                                       October 31,    July 31,   October 31,
                                           2011         2011         2010   
                                       -----------  -----------  -----------
                                                                            
Numerator:                                                                  
                                                                            
  GAAP net earnings                    $       239  $     1,926  $     2,538
                                       ===========  ===========  ===========
                                                                            
  Non-GAAP net earnings                $     2,350  $     2,282  $     3,064
                                       ===========  ===========  ===========
                                                                            
Denominator:                                                                
  Weighted-average shares used to                                           
   compute basic EPS                         1,989        2,054        2,249
  Dilutive effect of employee stock                                         
   plans                                        16           26           48
                                       -----------  -----------  -----------
  Weighted-average shares used to                                           
   compute diluted EPS                       2,005        2,080        2,297
                                       ===========  ===========  ===========
                                                                            
GAAP net earnings per share:                                                
  Basic(a)                             $      0.12  $      0.94  $      1.13
  Diluted(c)                           $      0.12  $      0.93  $      1.10
                                                                            
Non-GAAP net earnings per share:                                            
  Basic(b)                             $      1.18  $      1.11  $      1.36
  Diluted(c)                           $      1.17  $      1.10  $      1.33
                                                                            
                                                                            
(a) GAAP basic earnings per share were calculated based on GAAP net earnings
    and the weighted-average number of shares outstanding during the        
    reporting period.                                                       
                                                                            
(b) Non-GAAP basic earnings per share were calculated based on non-GAAP net 
    earnings and the weighted-average number of shares outstanding during   
    the reporting period.                                                   
                                                                            
(c) Diluted net earnings per share included any dilutive effect of          
    outstanding stock options, performance-based restricted units,          
    restricted stock units and restricted stock.                            
                                                                            
                                                                            



                                                                            
                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                  
                    CALCULATION OF NET EARNINGS PER SHARE                   
                                 (Unaudited)                                
                   (In millions except per share amounts)                   
                                                                            
                                                        Twelve months ended 
                                                            October 31,     
                                                      ----------------------
                                                                            
                                                         2011        2010   
                                                      ----------  ----------
                                                                            
Numerator:                                                                  
  GAAP net earnings                                   $    7,074  $    8,761
                                                      ==========  ==========
                                                                            
  Non-GAAP net earnings                               $   10,379  $   10,866
                                                      ==========  ==========
                                                                            
Denominator:                                                                
  Weighted-average shares used to compute basic EPS        2,094       2,319
  Dilutive effect of employee stock plans                     34          53
                                                      ----------  ----------
  Weighted-average shares used to compute diluted EPS      2,128       2,372
                                                      ==========  ==========
                                                                            
GAAP net earnings per share:                                                
  Basic(a)                                            $     3.38  $     3.78
  Diluted(c)                                          $     3.32  $     3.69
                                                                            
Non-GAAP net earnings per share:                                            
  Basic(b)                                            $     4.96  $     4.69
  Diluted(c)                                          $     4.88  $     4.58
                                                                            
                                                                            
(a) GAAP basic earnings per share were calculated based on GAAP net earnings
    and the weighted-average number of shares outstanding during the        
    reporting period.                                                       
                                                                            
(b) Non-GAAP basic earnings per share were calculated based on non-GAAP net 
    earnings and the weighted-average number of shares outstanding during   
    the reporting period.                                                   
                                                                            
(c) Diluted net earnings per share included any dilutive effect of          
    outstanding stock options, performance-based restricted units,          
    restricted stock units and restricted stock.                            
                                                                            

Use of Non-GAAP Financial Measures

To supplement HP's consolidated condensed financial statements presented on a GAAP basis, HP provides non-GAAP net revenue, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share, gross cash and free cash flow. HP also provides forecasts of non-GAAP diluted earnings per share. These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The GAAP measure most directly comparable to non-GAAP net revenue is net revenue. The GAAP measure most directly comparable to non-GAAP operating profit is earnings from operations. The GAAP measure most directly comparable to non-GAAP operating margin is operating margin. The GAAP measure most directly comparable to non-GAAP net earnings is net earnings. The GAAP measure most directly comparable to non-GAAP diluted earnings per share is diluted net earnings per share. The GAAP measure most directly comparable to gross cash is cash and cash equivalents. The GAAP measure most directly comparable to free cash flow is cash flow from operations. Reconciliations of each of these non-GAAP financial measures to GAAP information are included in the tables above.

Use and Economic Substance of Non-GAAP Financial Measures Used by HP

Non-GAAP net revenue reflects the elimination of contra revenue associated with sales incentive programs implemented in the fourth fiscal quarter of 2011 in connection with the wind down of HP's webOS device business, net of webOS device revenue for the period. Non-GAAP operating profit and non-GAAP operating margin are defined to exclude the effects of any restructuring charges, charges relating to the impairment of goodwill and purchased intangible assets, charges relating to the amortization of purchased intangible assets, and acquisition-related charges recorded during the relevant period. Non-GAAP net earnings and non-GAAP diluted earnings per share consist of net earnings or diluted net earnings per share excluding those same charges. In addition, non-GAAP net earnings and non-GAAP diluted earnings per share are adjusted by the amount of additional taxes or tax benefit associated with each non-GAAP item. HP's management uses these non-GAAP financial measures for purposes of evaluating HP's historical and prospective financial performance, as well as HP's performance relative to its competitors. HP's management also uses these non-GAAP measures to further its own understanding of HP's segment operating performance. HP believes that excluding those items mentioned above from these non-GAAP financial measures allows HP management to better understand HP's consolidated financial performance in relationship to the operating results of HP's segments, as management does not believe that the excluded items are reflective of ongoing operating results. More specifically, HP's management excludes each of those items mentioned above for the following reasons:

Gross cash is a non-GAAP measure that is defined as cash and cash equivalents plus short-term investments and certain long-term investments that may be liquidated within 90 days pursuant to the terms of existing put options or similar rights. Free cash flow is defined as cash flow from operations less net capital expenditures. HP's management uses gross cash and free cash flow for the purpose of determining the amount of cash available for investment in HP's businesses, funding strategic acquisitions, repurchasing stock and other purposes. HP's management also uses gross cash and free cash flow for the purposes of evaluating HP's historical and prospective liquidity, as well as to further its own understanding of HP's segment operating results. Because gross cash includes liquid assets that are not included in GAAP cash and cash equivalents, HP believes that gross cash provides a more accurate and complete assessment of HP's liquidity and segment operating results. Because free cash flow includes the effect of capital expenditures that are not reflected in GAAP cash flow from operations, HP believes that free cash flow provides a more accurate and complete assessment of HP's liquidity and capital resources.

Material Limitations Associated with Use of Non-GAAP Financial Measures

These non-GAAP financial measures may have limitations as analytical tools, and these measures should not be considered in isolation or as a substitute for analysis of HP's results as reported under GAAP. Some of the limitations in relying on these non-GAAP financial measures are:

Compensation for Limitations Associated with Use of Non-GAAP Financial Measures

HP compensates for the limitations on its use of non-GAAP net revenue, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share, gross cash and free cash flow by relying primarily on its GAAP results and using non-GAAP financial measures only supplementally. HP also provides robust and detailed reconciliations of each non-GAAP financial measure to its most directly comparable GAAP measure within this press release and in other written materials that include these non-GAAP financial measures, and HP encourages investors to review carefully those reconciliations.

Usefulness of Non-GAAP Financial Measures to Investors

HP believes that providing non-GAAP net revenue, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share, gross cash and free cash flow to investors in addition to the related GAAP measures provides investors with greater transparency to the information used by HP's management in its financial and operational decision-making and allows investors to see HP's results "through the eyes" of management. HP further believes that providing this information better enables HP's investors to understand HP's operating performance and to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance. Disclosure of these non-GAAP financial measures also facilitates comparisons of HP's operating performance with the performance of other companies in HP's industry that supplement their GAAP results with non-GAAP financial measures that are calculated in a similar manner.

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