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HP Reports Fourth Quarter and Full Year 2012 Results

PALO ALTO, CA -- (Marketwire) -- 11/20/12 -- HP (NYSE: HPQ)

  • Full year fiscal 2012 non-GAAP diluted earnings per share of $4.05, within the previously provided outlook of $4.05 to $4.07
  • Full year fiscal 2012 GAAP loss per share of $6.41
  • Full year fiscal 2012 net revenue of $120.4 billion, down 5% from the prior-year period and down 4% when adjusted for the effects of currency
  • Fourth quarter non-GAAP diluted earnings per share of $1.16, down 1% from the prior-year period
  • Fourth quarter GAAP loss per share of $3.49
  • Fourth quarter net revenue of $30.0 billion, down 7% from the prior-year period and down 4% when adjusted for the effects of currency
  • Cash flow from operations of $4.1 billion, up 69% from the prior-year period
  • Returned $384 million in cash to shareholders in the form of dividends and share repurchases
  • Fourth quarter and full year fiscal 2012 results include a non-cash goodwill and intangible asset impairment charge of $8.8 billion relating to the Autonomy business within the Software segment


HP fourth quarter and full year 2012 financial performance

                      Q4FY12  Q4FY11     Y/Y       FY12    FY11      Y/Y
GAAP net revenue
 ($B)                   $30.0  $32.1        (7%)  $120.4  $127.2        (5%)
GAAP operating
 margin               (21.7%)   2.5% (24.2 pts.)  (9.2%)    7.6% (16.8 pts.)
GAAP net (loss)
 earnings ($B)         ($6.9)   $0.2             ($12.7)    $7.1
GAAP (loss) diluted
 EPS                  ($3.49)  $0.12             ($6.41)   $3.32
Non-GAAP operating
 margin                 10.4%   9.7%    0.7 pts.    9.3%   10.8%  (1.5 pts.)
Non-GAAP net
 earnings ($B)           $2.3   $2.4        (3%)    $8.0   $10.4       (23%)
Non-GAAP diluted
 EPS                    $1.16  $1.17        (1%)   $4.05   $4.88       (17%)

Information about HP's use of non-GAAP financial information is provided
under "Use of non-GAAP financial information" below.

HP today announced financial results for its fourth fiscal quarter and full fiscal year ended Oct. 31, 2012.

For the full year fiscal 2012, net revenue of $120.4 billion was down 5% from the prior-year period and down 4% when adjusted for the effects of currency.

Full-year GAAP loss per share was $6.41, down from diluted earnings per share (EPS) of $3.32 in the prior-year period. Full-year non-GAAP diluted EPS was $4.05, down 17% from the prior-year period. Full year non-GAAP earnings information excludes after tax costs of $20.7 billion, or $10.46 per diluted share, related to the impairment of goodwill and purchased intangible assets, restructuring charges, amortization of purchased intangible assets, charges relating to the wind down of non-strategic businesses and acquisition-related charges.

For the fourth quarter, net revenue of $30.0 billion was down 7% year over year and down 4% when adjusted for the effects of currency.

Fourth quarter GAAP loss per share was $3.49, down from diluted EPS of $0.12 in the prior-year period. Fourth quarter non-GAAP diluted EPS was $1.16, down 1% from the prior-year period. Fourth quarter non-GAAP earnings information excludes after-tax costs of $9.1 billion, or $4.65 per diluted share, related to the impairment of goodwill and purchased intangible assets, restructuring charges, amortization of purchased intangible assets and acquisition-related charges.

"As we discussed during our Securities Analyst Meeting last month, fiscal 2012 was the first year in a multiyear journey to turn HP around," said Meg Whitman, HP president and chief executive officer. "We're starting to see progress in key areas, such as new product releases and customer wins. We're particularly pleased that in Q4, we were able to improve our balance sheet, generating $4.1 billion in operating cash flow, and we returned $384 million to shareholders in the form of share repurchases and dividends."

Fourth Fiscal Quarter 2012 Business Group Results

  • Personal Systems revenue was down 14% year over year with a 3.5% operating margin. Commercial revenue decreased 13%, and Consumer revenue declined 16%. Total units were down 12% with both Desktops and Notebooks units down 12%.

  • Printing revenue declined 5% year over year with a 17.5% operating margin. Total hardware units were down 20% year over year. Commercial hardware units were down 15% year over year, and Consumer hardware units were down 22% year over year.

  • Services revenue declined 6% year over year with a 14.2% operating margin. Technology Services revenue was down 4% year over year, Application and Business Services revenue was down 7% year over year, and IT Outsourcing revenue declined 6% year over year.

  • Enterprise Servers, Storage and Networking (ESSN) revenue declined 9% year over year with an 8.3% operating margin. Networking revenue was up 7%, Industry Standard Servers revenue was down 7%, Business Critical Systems revenue was down 25%, and Storage revenue was down 13% year over year.

  • Software revenue grew 14% year over year with a 27.2% operating margin, including the results of Autonomy. Software revenue was driven by 9% license growth, 9% support growth, and 48% growth in services.

  • HP Financial Services revenue grew 1% year over year as a 3% increase in net portfolio assets was offset by an 11% decrease in financing volume. The business delivered a 10.8% operating margin.

Asset Management
HP generated $4.1 billion in cash flow from operations in the fourth quarter. Inventory ended the quarter at $6.3 billion, with days of inventory down 2 days year over year to 25 days. Accounts receivable of $16.4 billion was down 2 days year over year to 49 days. Accounts payable ended the quarter at $13.4 billion, up 1 day from the prior-year period to 53 days. HP's dividend payment of $0.132 per share in the fourth quarter resulted in cash usage of $260 million. HP also utilized $124 million of cash during the quarter to repurchase approximately 7.6 million shares of common stock in the open market. HP exited the quarter with $11.8 billion in gross cash.

HP recorded a non-cash charge for the impairment of goodwill and intangible assets within its Software segment of approximately $8.8 billion in the fourth quarter of its 2012 fiscal year. The majority of this impairment charge is linked to serious accounting improprieties, disclosure failures and outright misrepresentations at Autonomy Corporation plc that occurred prior to HP's acquisition of Autonomy and the associated impact of those improprieties, failures and misrepresentations on the expected future financial performance of the Autonomy business over the long-term. The balance of the impairment charge is linked to the recent trading value of HP stock. There will be no cash impact associated with the impairment charge.

Outlook
For the first quarter of fiscal 2013, HP estimates non-GAAP diluted EPS to be in the range of $0.68 to $0.71 and GAAP diluted EPS to be in the range of $0.34 to $0.37.

First quarter fiscal 2013 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.34 per share, related primarily to the amortization of purchased intangible assets, restructuring charges and acquisition-related charges.

For the full year fiscal 2013, HP estimates a non-GAAP diluted EPS to be in the range of $3.40 to $3.60 and GAAP diluted EPS to be in the range of $2.10 to $2.30, in line with HP's previously communicated outlook.

Full year fiscal 2013 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $1.30 per share, related primarily to the amortization of purchased intangible assets, restructuring charges and acquisition-related charges.

More information on HP's 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 FY12 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2012Q4webcast.

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, earnings per share, tax provisions, cash flows, benefit obligations, share repurchases, currency exchange rates or other financial items; any projections of the amount, timing or impact of cost savings or restructuring charges; any statements of the plans, strategies and objectives of management for future operations, including the execution of restructuring plans and any resulting cost savings or revenue or profitability improvements; any statements concerning the expected development, performance, market share or competitive performance 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 and retirement programs; the execution, timing and results of restructuring plans, including estimates and assumptions related to the cost and the anticipated benefits of implementing those plans; 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, 2011 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, 2012. 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, 2012. In particular, determining HP's actual tax balances and provisions as of October 31, 2012 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.


                  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,
                                       2012          2012          2011
                                   ------------  ------------  ------------

Net revenue                        $     29,959  $     29,669  $     32,122

Costs and expenses:(a)
  Cost of sales                          22,711        22,820        25,304
  Research and development                  909           854           829
  Selling, general and
   administrative                         3,227         3,366         3,605
  Amortization of purchased
   intangible assets                        372           476           411
  Impairment of goodwill and
   purchased intangible assets            8,847         9,188           885
  Restructuring charges                     378         1,795           179
  Acquisition-related charges                 3             3           114
                                   ------------  ------------  ------------
    Total costs and expenses             36,447        38,502        31,327
                                   ------------  ------------  ------------

(Loss) earnings from operations          (6,488)       (8,833)          795

Interest and other, net                    (188)         (224)         (401)
                                   ------------  ------------  ------------

(Loss) earnings before taxes             (6,676)       (9,057)          394

Provision (benefit) for taxes               178          (200)          155
                                   ------------  ------------  ------------

Net (loss) earnings                $     (6,854) $     (8,857) $        239
                                   ============  ============  ============

Net (loss) earnings per share:
  Basic                            $      (3.49) $      (4.49) $       0.12
  Diluted                          $      (3.49) $      (4.49) $       0.12

Cash dividends declared per share  $          -  $       0.26  $          -

Weighted-average shares used to
 compute net (loss) earnings per
 share:
  Basic                                   1,964         1,971         1,989
  Diluted                                 1,964         1,971         2,005

(a)  In connection with organizational realignments implemented in the first
     quarter of fiscal year 2012, 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,
                                                   ------------------------
                                                       2012         2011
                                                   -----------  -----------
                                                   (Unaudited)

Net revenue                                        $   120,357  $   127,245

Costs and expenses:(a)
  Cost of sales                                         92,385       97,418
  Research and development                               3,399        3,254
  Selling, general and administrative                   13,500       13,577
  Amortization of purchased intangible assets            1,784        1,607
  Impairment of goodwill and purchased intangible
   assets                                               18,035          885
  Restructuring charges                                  2,266          645
  Acquisition-related charges                               45          182
                                                   -----------  -----------
    Total costs and expenses                           131,414      117,568
                                                   -----------  -----------

(Loss) earnings from operations                        (11,057)       9,677

Interest and other, net                                   (876)        (695)
                                                   -----------  -----------

(Loss) earnings before taxes                           (11,933)       8,982

Provision for taxes                                        717        1,908
                                                   -----------  -----------

Net (loss) earnings                                $   (12,650) $     7,074
                                                   ===========  ===========

Net (loss) earnings per share:
  Basic                                            $     (6.41) $      3.38
  Diluted                                          $     (6.41) $      3.32

Cash dividends declared per share                  $      0.50  $      0.40

Weighted-average shares used to compute net (loss)
 earnings per share:
  Basic                                                  1,974        2,094
  Diluted                                                1,974        2,128

(a)  In connection with organizational realignments implemented in the first
     quarter of fiscal year 2012, 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
                        months             Three            months
                        ended    Diluted  months   Diluted  ended    Diluted
                        October earnings  ended   earnings  October earnings
                         31,       per   July 31,    per     31,       per
                         2012     share    2012     share    2011     share
                       -------- -------- -------- -------- -------- --------

GAAP net revenue       $ 29,959          $ 29,669          $ 32,122

Non-GAAP adjustments:
  WebOS device contra
   revenue, net(a)            -                 -               142
                       --------          --------          --------
Non-GAAP net revenue   $ 29,959          $ 29,669          $ 32,264
                       ========          ========          ========


GAAP net (loss)
 earnings              $(6,854) $ (3.49) $(8,857) $ (4.49) $    239 $   0.12

Non-GAAP adjustments:
  Amortization of
   purchased intangible
   assets                   372     0.19      476     0.25      411     0.20
  Impairment of
   goodwill and
   purchased intangible
   assets(b)              8,847     4.51    9,188     4.66      885     0.44
  Restructuring charges     378     0.19    1,795     0.91      179     0.09
  Acquisition-related
   charges in earnings
   from operations            3        -        3        -      114     0.06
  Wind down of the
   webOs device
   business(c)                -        -        -        -      755     0.38
  Wind down of non-
   strategic
   businesses(d)              -        -      108     0.05        -        -
  Acquisition-related
   charges in interest
   and other, net(e)          -        -        -        -      276     0.14
  Adjustments for
   taxes(f)               (465)   (0.24)    (740)   (0.38)    (509)   (0.26)
                       -------- -------- -------- -------- -------- --------
Non-GAAP net earnings  $  2,281 $   1.16 $  1,973 $   1.00 $  2,350 $   1.17
                       ======== ======== ======== ======== ======== ========


GAAP (loss) earnings
 from operations       $(6,488)          $(8,833)          $    795

Non-GAAP adjustments:
  Amortization of
   purchased intangible
   assets                   372               476               411
  Impairment of
   goodwill and
   purchased intangible
   assets(b)              8,847             9,188               885
  Restructuring charges     378             1,795               179
  Acquisition-related
   charges in earnings
   from operations            3                 3               114
  Wind down of the
   webOs device
   business(c)                -                 -               755
  Wind down of non-
   strategic
   businesses(d)              -               108                 -
                       --------          --------          --------
Non-GAAP earnings from
 operations            $  3,112          $  2,737          $  3,139
                       ========          ========          ========

GAAP operating margin     (22%)             (30%)                2%
Non-GAAP adjustments        32%               39%                8%
                       --------          --------          --------
Non-GAAP operating
 margin                     10%                9%               10%
                       ========          ========          ========

(a)  Includes contra revenue primarily associated with sales incentive
     programs to wind down the webOS device business, net of webOS device
     revenue.

(b)  For the period ended October 31, 2012, represents a goodwill and
     intangible asset impairment charge of $8.8 billion associated with the
     Autonomy reporting unit within the Software segment. For the period
     ended July 31, 2012, represents a goodwill impairment charge of $8.0
     billion associated with the Services segment and an intangible asset
     impairment charge of $1.2 billion associated with the "Compaq" trade
     name within the Personal Systems segment (formerly known as the
     Personal Systems Group segment). For the period ended October 31, 2011,
     includes impairment charges to goodwill and purchased intangible assets
     associated with the acquisition of Palm, Inc. on July 1, 2010 recorded
     as result of the decision announced on August 18, 2011 to wind down the
     webOS device business.

(c)  Includes primarily expenses and adjustments for supplier-related
     obligations and contra revenue associated with sales incentive programs
     related to winding down the webOS device business.

(d)  Represents primarily contract-related charges, including inventory
     write-downs, related to winding down certain retail publishing business
     activities within the Printing segment (formerly known as the Imaging
     and Printing Group Segment).

(e)  Includes primarily the cost of the British pound options bought to
     limit foreign exchange rate risk in connection with the Autonomy
     acquisition.

(f)  For the periods ended October 31, 2012 and July 31, 2012, adjustments
     for taxes is net of valuation allowances of $0.5 billion and $0.8
     billion provided for certain deferred tax assets, respectively.



                  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                 ended
                                   October    Diluted    October    Diluted
                                    31,      earnings     31,      earnings
                                    2012     per share    2011     per share
                                 ---------- ---------- ---------- ----------

GAAP net revenue                 $  120,357            $  127,245

Non-GAAP adjustments:
  WebOS device contra revenue,
   net(a)                                 -                   142
                                 ----------            ----------
Non-GAAP net revenue             $  120,357            $  127,387
                                 ==========            ==========


GAAP net (loss) earnings         $ (12,650) $   (6.41) $    7,074 $     3.32

Non-GAAP adjustments:
  Amortization of purchased
   intangible assets                  1,784       0.90      1,607       0.75
  Impairment of goodwill and
   purchased intangible
   assets(b)                         18,035       9.14        885       0.42
  Restructuring charges               2,266       1.15        645       0.30
  Acquisition-related charges in
   earnings from operations              45       0.02        182       0.09
  Wind down of the webOs device
   business(c)                         (36)     (0.02)        755       0.35
  Wind down of non-strategic
   businesses(d)                        108       0.05          -          -
  Acquisition-related charges in
   interest and other, net(e)             -          -        276       0.13
  Adjustments for taxes(f)          (1,517)     (0.78)    (1,045)     (0.48)
                                 ---------- ---------- ---------- ----------
Non-GAAP net earnings            $    8,035 $     4.05 $   10,379 $     4.88
                                 ========== ========== ========== ==========


GAAP (loss) earnings from
 operations                      $ (11,057)            $    9,677

Non-GAAP adjustments:
  Amortization of purchased
   intangible assets                  1,784                 1,607
  Impairment of goodwill and
   purchased intangible
   assets(b)                         18,035                   885
  Restructuring charges               2,266                   645
  Acquisition-related charges in
   earnings from operations              45                   182
  Wind down of the webOs device
   business(c)                         (36)                   755
  Wind down of non-strategic
   businesses(d)                        108                     -
                                 ----------            ----------
Non-GAAP earnings from
 operations                      $   11,145            $   13,751
                                 ==========            ==========

GAAP operating margin                  (9%)                    8%
Non-GAAP adjustments                    18%                    3%
                                 ----------            ----------
Non-GAAP operating margin                9%                   11%
                                 ==========            ==========

(a)  Includes contra revenue primarily associated with sales incentive
     programs to wind down the webOS device business, net of the webOS
     device revenue.

(b)  For the period ended October 31, 2012, represents a goodwill and
     intangible asset impairment charge of $8.8 billion associated with the
     Autonomy reporting unit within the Software segment, a goodwill
     impairment charge of $8.0 billion associated with the Services segment
     and an intangible asset impairment charge of $1.2 billion associated
     with the "Compaq" trade name within the Personal Systems segment. For
     the period ended October 31, 2011, includes impairment charges to
     goodwill and purchased intangible assets associated with the
     acquisition of Palm, Inc. on July 1, 2010 recorded as result of the
     decision announced on August 18, 2011 to wind down the webOS device
     business.

(c)  Includes primarily expenses and adjustments for supplier-related
     obligations and contra revenue associated with sales incentive programs
     related to winding down the webOS device business.

(d)  Represents primarily contract-related charges, including inventory
     write-downs, related to winding down certain retail publishing business
     activities within the Printing segment.

(e)  Includes primarily the cost of the British pound options bought to
     limit foreign exchange rate risk in connection with the Autonomy
     acquisition.

(f)  For the period ended October 31, 2012, adjustments for taxes is net of
     valuation allowances of $1.3 billion provided for certain deferred tax
     assets.



                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
                    CONSOLIDATED CONDENSED BALANCE SHEETS
                                (In millions)


                                                    October 31,  October 31,
                                                        2012         2011
                                                    -----------  -----------
                                                    (Unaudited)
ASSETS

Current assets:
  Cash and cash equivalents                         $    11,301  $     8,043
  Accounts receivable                                    16,407       18,224
  Financing receivables                                   3,252        3,162
  Inventory                                               6,317        7,490
  Other current assets                                   13,360       14,102
                                                    -----------  -----------

    Total current assets                                 50,637       51,021
                                                    -----------  -----------

Property, plant and equipment                            11,954       12,292

Long-term financing receivables and other assets         10,593       10,755

Goodwill and purchased intangible assets                 35,584       55,449
                                                    -----------  -----------

Total assets                                        $   108,768  $   129,517
                                                    ===========  ===========


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Notes payable and short-term borrowings           $     6,647  $     8,083
  Accounts payable                                       13,350       14,750
  Employee compensation and benefits                      4,058        3,999
  Taxes on earnings                                         846        1,048
  Deferred revenue                                        7,494        7,449
  Other accrued liabilities                              14,271       15,113
                                                    -----------  -----------

    Total current liabilities                            46,666       50,442
                                                    -----------  -----------

Long-term debt                                           21,789       22,551

Other liabilities                                        17,480       17,520

Stockholders' equity:
  HP stockholders' equity                                22,436       38,625
  Non-controlling interests                                 397          379
                                                    -----------  -----------

    Total stockholders' equity                           22,833       39,004
                                                    -----------  -----------

Total liabilities and stockholders' equity          $   108,768  $   129,517
                                                    ===========  ===========



                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
              CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                (Unaudited)
                               (In millions)


                                              Three months    Twelve months
                                                  ended           ended
                                               October 31,     October 31,
                                                  2012            2012
                                             --------------  --------------
Cash flows from operating activities:
  Net loss                                   $       (6,854) $      (12,650)
  Adjustments to reconcile net earnings to
   net cash provided by operating
   activities:
    Depreciation and amortization                     1,201           5,095
    Impairment of goodwill and purchased
     intangible assets                                8,847          18,035
    Stock-based compensation expense                    141             635
    Provision for bad debt and inventory                165             419
    Restructuring charges                               378           2,266
    Deferred taxes on earnings                          (21)           (711)
    Excess tax benefit from stock-based
     compensation                                         -             (12)
    Other, net                                          (65)            265

    Changes in operating assets and
     liabilities:
      Accounts and financing receivables             (1,166)          1,269
      Inventory                                         892             890
      Accounts payable                                  782          (1,414)
      Taxes on earnings                                (280)           (320)
      Restructuring                                    (368)           (840)
      Other assets and liabilities                      407          (2,356)
                                             --------------  --------------
        Net cash provided by operating
         activities                                   4,059          10,571
                                             --------------  --------------

Cash flows from investing activities:
    Investment in property, plant and
     equipment                                         (873)         (3,706)
    Proceeds from sale of property, plant
     and equipment                                      296             617
    Purchases of available-for-sale
     securities and other investments                  (179)           (972)
    Maturities and sales of available-for-
     sale securities and other investments              146             662
    Payments made in connection with
     business acquisitions, net of cash
     acquired                                             -            (141)
    Proceeds from business divestiture, net               -              87
                                             --------------  --------------
        Net cash used in investing
         activities                                    (610)         (3,453)
                                             --------------  --------------

Cash flows from financing activities:
    Repayment of commercial paper and notes
     payable, net                                      (222)         (2,775)
    Issuance of debt                                     54           5,154
    Payment of debt                                  (1,111)         (4,333)
    Issuance of common stock under employee
     stock plans                                          6             716
    Repurchase of common stock                         (124)         (1,619)
    Excess tax benefit from stock-based
     compensation                                         -              12
    Cash dividends paid                                (260)         (1,015)
                                             --------------  --------------
        Net cash used in financing
         activities                                  (1,657)         (3,860)
                                             --------------  --------------

Increase in cash and cash equivalents                 1,792           3,258
Cash and cash equivalents at beginning of
 period                                               9,509           8,043
                                             --------------  --------------
Cash and cash equivalents at end of period   $       11,301  $       11,301
                                             ==============  ==============



                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
                            SEGMENT INFORMATION
                                (Unaudited)
                               (In millions)

                                                Three months ended
                                      -------------------------------------
                                      October 31,    July 31,   October 31,
                                          2012         2012         2011
                                      -----------  -----------  -----------

Net revenue:(a)

  Personal Systems                    $     8,705  $     8,620  $    10,118
  Printing                                  6,080        6,017        6,419
                                      -----------  -----------  -----------
    Total Printing and Personal
     Systems Group(b)                      14,785       14,637       16,537
  Services                                  8,711        8,754        9,227
  Enterprise Servers, Storage and
   Networking                               5,119        5,143        5,601
  Software                                  1,171          973        1,023
  HP Financial Services                       966          935          952
  Corporate Investments                        13           19         (131)
                                      -----------  -----------  -----------
    Total segments                         30,765       30,461       33,209
  Eliminations of intersegment net
   revenue and other                         (806)        (792)      (1,087)
                                      -----------  -----------  -----------

    Total HP consolidated net revenue $    29,959  $    29,669  $    32,122
                                      ===========  ===========  ===========

Earnings before taxes:(a)

  Personal Systems                    $       309  $       409  $       578
  Printing                                  1,067          949          793
                                      -----------  -----------  -----------
  Total Printing and Personal Systems
   Group(b)                                 1,376        1,358        1,371
  Services                                  1,234          959        1,210
  Enterprise Servers, Storage and
   Networking                                 423          562          717
  Software                                    318          175          284
  HP Financial Services                       104           97           98
  Corporate Investments                       (83)         (58)        (908)
                                      -----------  -----------  -----------
    Total segment earnings from
     operations                             3,372        3,093        2,772

  Corporate and unallocated costs and
   eliminations                              (120)        (314)        (196)
  Unallocated costs related to stock-
   based compensation expense                (140)        (150)        (192)
  Amortization of purchased intangible
   assets                                    (372)        (476)        (411)
  Impairment of goodwill and purchased
   intangible assets                       (8,847)      (9,188)        (885)
  Restructuring charges                      (378)      (1,795)        (179)
  Acquisition-related charges                  (3)          (3)        (114)
  Interest and other, net                    (188)        (224)        (401)
                                      -----------  -----------  -----------

    Total HP consolidated (loss)
     earnings before taxes            $    (6,676) $    (9,057) $       394
                                      ===========  ===========  ===========

(a)  Certain fiscal 2012 organizational reclassifications have been
     reflected retroactively to provide improved visibility and
     comparability. For each of the quarters in fiscal year 2011, the
     reclassifications resulted in the transfer of revenue and operating
     profit among the Services, Printing, Enterprise Servers, Storage and
     Networking, Software and Corporate Investments financial reporting
     segments. Reclassifications between segments included the transfer of
     the Indigo Scitex support and the LaserJet and enterprise solutions
     trade support businesses from Services to Printing, the transfer of the
     business intelligence services business from Corporate Investments to
     Services, the transfer of the information management services business
     from Software to Services, and the transfer of the TippingPoint
     business from Enterprise Servers, Storage and Networking to Software.
     There was no impact on the previously reported financial results for
     the Personal Systems and HP Financial Services segments.

(b)  As part of a realignment of the structure of HP's business in fiscal
     2012, the Personal Systems segment and the Printing segment have been
     structured beneath a newly formed Printing and Personal Systems Group.
     While the Printing and Personal Systems Group is not a financial
     reporting segment, HP provides financial data aggregating the segments
     within it in order to provide a supplementary view of its business.



                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
                            SEGMENT INFORMATION
                               (In millions)

                                                      Twelve months ended
                                                          October 31,
                                                   ------------------------
                                                       2012         2011
                                                   -----------  -----------
                                                   (Unaudited)
Net revenue:(a)

  Personal Systems                                 $    35,650  $    39,574
  Printing                                              24,487       26,176
                                                   -----------  -----------
    Total Printing and Personal Systems Group(b)        60,137       65,750
  Services                                              34,922       35,702
  Enterprise Servers, Storage and Networking            20,491       22,064
  Software                                               4,060        3,367
  HP Financial Services                                  3,819        3,596
  Corporate Investments                                    108          208
                                                   -----------  -----------
    Total Segments                                     123,537      130,687
  Eliminations of intersegment net revenue and
   other                                                (3,180)      (3,442)
                                                   -----------  -----------

    Total HP consolidated net revenue              $   120,357  $   127,245
                                                   ===========  ===========

Earnings before taxes:(a)

  Personal Systems                                 $     1,706  $     2,350
  Printing                                               3,585        3,927
                                                   -----------  -----------
    Total Printing and Personal Systems Group(b)         5,291        6,277
  Services                                               4,095        5,203
  Enterprise Servers, Storage and Networking             2,132        2,997
  Software                                                 827          722
  HP Financial Services                                    388          348
  Corporate Investments                                   (238)      (1,619)
                                                   -----------  -----------
    Total segment earnings from operations              12,495       13,928

  Corporate and unallocated costs and eliminations        (790)        (314)
  Unallocated costs related to stock-based
   compensation expense                                   (632)        (618)
  Amortization of purchased intangible assets           (1,784)      (1,607)
  Impairment of goodwill and purchased intangible
   assets                                              (18,035)        (885)
  Restructuring charges                                 (2,266)        (645)
  Acquisition-related charges                              (45)        (182)
  Interest and other, net                                 (876)        (695)
                                                   -----------  -----------

    Total HP consolidated (loss) earnings before
     taxes                                         $   (11,933) $     8,982
                                                   ===========  ===========

(a)  Certain fiscal 2012 organizational reclassifications have been
     reflected retroactively to provide improved visibility and
     comparability. For each of the quarters in fiscal year 2011, the
     reclassifications resulted in the transfer of revenue and operating
     profit among the Services, Printing, Enterprise Servers, Storage and
     Networking, Software and Corporate Investments financial reporting
     segments. Reclassifications between segments included the transfer of
     the Indigo Scitex support and the LaserJet and enterprise solutions
     trade support businesses from Services to Printing, the transfer of the
     business intelligence services business from Corporate Investments to
     Services, the transfer of the information management services business
     from Software to Services, and the transfer of the TippingPoint
     business from Enterprise Servers, Storage and Networking to Software.
     There was no impact on the previously reported financial results for
     the Personal Systems and HP Financial Services segments.

(b)  As part of a realignment of the structure of HP's business in fiscal
     2012, the Personal Systems segment and the Printing segment have been
     structured beneath a newly formed Printing and Personal Systems Group.
     While the Printing and Personal Systems Group is not a financial
     reporting segment, HP provides financial data aggregating the segments
     within it in order to provide a supplementary view of its business.



                 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
                    SEGMENT / BUSINESS UNIT INFORMATION
                                (Unaudited)
                               (In millions)

                                                              Growth rate
                                Three months ended                (%)
                      -------------------------------------  -------------
                      October 31,   July 31,    October 31,
                          2012         2012         2011      Q/Q     Y/Y
                      -----------  -----------  -----------  -----   -----
Net revenue:(a)

 Printing and Personal
  Systems Group(b)
  Personal Systems
   Notebooks          $     4,572  $     4,416  $     5,390      4%    (15%)
   Desktops                 3,369        3,486        3,946     (3%)   (15%)
   Workstations               550          526          593      5%     (7%)
   Other                      214          192          189     11%     13%
                      -----------  -----------  -----------
    Total Personal
     Systems                8,705        8,620       10,118      1%    (14%)
                      -----------  -----------  -----------

  Printing
   Supplies                 4,007        4,005        4,041      0%     (1%)
   Commercial Hardware      1,482        1,445        1,694      3%    (13%)
   Consumer Hardware          591          567          684      4%    (14%)
                      -----------  -----------  -----------
    Total Printing          6,080        6,017        6,419      1%     (5%)
                      -----------  -----------  -----------
     Total Printing
      and Personal
      Systems Group        14,785       14,637       16,537      1%    (11%)
                      -----------  -----------  -----------

 Services
   Infrastructure
    Technology
    Outsourcing             3,657        3,665        3,895      0%     (6%)
   Technology Services      2,629        2,634        2,728      0%     (4%)
   Application and
    Business
    Services(c)             2,425        2,455        2,604     (1%)    (7%)
                      -----------  -----------  -----------
    Total Services          8,711        8,754        9,227      0%     (6%)
                      -----------  -----------  -----------

 Enterprise Servers,
  Storage and
  Networking
   Industry Standard
    Servers                 3,137        3,187        3,384     (2%)    (7%)
   Storage                    946          924        1,088      2%    (13%)
   Business Critical
    Systems                   401          385          535      4%    (25%)
   Networking                 635          647          594     (2%)     7%
                      -----------  -----------  -----------
    Total Enterprise
     Servers, Storage
     and Networking         5,119        5,143        5,601      0%     (9%)
                      -----------  -----------  -----------

 Software                   1,171          973        1,023     20%     14%
                      -----------  -----------  -----------

 HP Financial Services        966          935          952      3%      1%
                      -----------  -----------  -----------

 Corporate Investments         13           19         (131)   (32%)  (110%)
                      -----------  -----------  -----------
  Total segments           30,765       30,461       33,209      1%     (7%)
                      -----------  -----------  -----------

 Elimination of
  intersegment net
  revenue and other          (806)        (792)      (1,087)     2%    (26%)
                      -----------  -----------  -----------

  Total HP
   consolidated net
   revenue            $    29,959  $    29,669  $    32,122      1%     (7%)
                      ===========  ===========  ===========

(a)  Certain fiscal 2012 organizational reclassifications have been
     reflected retroactively to provide improved visibility and
     comparability. For each of the quarters in fiscal year 2011, the
     reclassifications resulted in the transfer of revenue and operating
     profit among the Services, Printing, Enterprise Servers, Storage and
     Networking, Software and Corporate Investments financial reporting
     segments. Reclassifications between segments included the transfer of
     the Indigo Scitex support and the LaserJet and enterprise solutions
     trade support businesses from Services to Printing, the transfer of the
     business intelligence services business from Corporate Investments to
     Services, the transfer of the information management services business
     from Software to Services, and the transfer of the TippingPoint
     business from Enterprise Servers, Storage and Networking to Software.
     There was no impact on the previously reported financial results for
     the Personal Systems and HP Financial Services segments.

(b)  As part of a realignment of the structure of HP's business in fiscal
     2012, the Personal Systems segment and the Printing segment have been
     structured beneath a newly formed Printing and Personal Systems Group.
     While the Printing and Personal Systems Group is not a financial
     reporting segment, HP provides financial data aggregating the segments
     within it in order to provide a supplementary view of its business.

(c)  The former Application Services, Business Process Outsourcing and Other
     Services business units were consolidated into a new Application and
     Business Services business unit in fiscal 2012.



                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
                    SEGMENT / BUSINESS UNIT INFORMATION
                               (In millions)

                                                      Twelve months ended
                                                          October 31,
                                                   ------------------------
                                                       2012         2011
                                                   -----------  -----------
                                                   (Unaudited)
Net revenue:(a)

  Printing and Personal Systems Group(b)
    Personal Systems
      Notebooks                                    $    18,830  $    21,319
      Desktops                                          13,888       15,260
      Workstations                                       2,148        2,216
      Other                                                784          779
                                                   -----------  -----------
        Total Personal Systems                          35,650       39,574
                                                   -----------  -----------

    Printing
      Supplies                                          16,151       17,154
      Commercial Hardware                                5,895        6,183
      Consumer Hardware                                  2,441        2,839
                                                   -----------  -----------
        Total Printing                                  24,487       26,176
                                                   -----------  -----------
          Total Printing and Personal Systems Group     60,137       65,750
                                                   -----------  -----------

  Services
      Infrastructure Technology Outsourcing             14,692       15,224
      Technology Services                               10,463       10,542
      Application and Business Services(c)               9,767        9,936
                                                   -----------  -----------
        Total Services                                  34,922       35,702
                                                   -----------  -----------

  Enterprise Servers, Storage and Networking
      Industry Standard Servers                         12,582       13,521
      Storage                                            3,815        4,056
      Business Critical Systems                          1,612        2,095
      Networking                                         2,482        2,392
                                                   -----------  -----------
        Total Enterprise Servers, Storage and
         Networking                                     20,491       22,064
                                                   -----------  -----------

  Software                                               4,060        3,367
                                                   -----------  -----------

  HP Financial Services                                  3,819        3,596
                                                   -----------  -----------

  Corporate Investments                                    108          208
                                                   -----------  -----------
    Total segments                                     123,537      130,687
                                                   -----------  -----------

  Elimination of intersegment net revenue and other     (3,180)      (3,442)
                                                   -----------  -----------

    Total HP consolidated net revenue              $   120,357  $   127,245
                                                   ===========  ===========

(a)  Certain fiscal 2012 organizational reclassifications have been
     reflected retroactively to provide improved visibility and
     comparability. For each of the quarters in fiscal year 2011, the
     reclassifications resulted in the transfer of revenue and operating
     profit among the Services, Printing, Enterprise Servers, Storage and
     Networking, Software and Corporate Investments financial reporting
     segments. Reclassifications between segments included the transfer of
     the Indigo Scitex support and the LaserJet and enterprise solutions
     trade support businesses from Services to Printing, the transfer of the
     business intelligence services business from Corporate Investments to
     Services, the transfer of the information management services business
     from Software to Services, and the transfer of the TippingPoint
     business from Enterprise Servers, Storage and Networking to Software.
     There was no impact on the previously reported financial results for
     the Personal Systems and HP Financial Services segments.

(b)  As part of a realignment of the structure of HP's business in fiscal
     2012, the Personal Systems segment and the Printing segment have been
     structured beneath a newly formed Printing and Personal Systems Group.
     While the Printing and Personal Systems Group is not a financial
     reporting segment, HP provides financial data aggregating the segments
     within it in order to provide a supplementary view of its business.

(c)  The former Application Services, Business Process Outsourcing and Other
     Services business units were consolidated into a new Application and
     Business Services business unit in fiscal 2012.



                  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,
                                           2012          Q/Q         Y/Y
                                       -----------   ----------  ----------

Non-GAAP operating margin:(a)
  Personal Systems                             3.5%    (1.2 pts)   (2.2 pts)
  Printing                                    17.5%     1.7 pts     5.1 pts
    Printing and Personal Systems
     Group(b)                                  9.3%           -     1.0 pts

  Services                                    14.2%     3.2 pts     1.1 pts
  Enterprise Servers, Storage and
   Networking                                  8.3%    (2.6 pts)   (4.5 pts)
  Software                                    27.2%     9.2 pts    (0.6 pts)
  HP Financial Services                       10.8%     0.4 pts     0.5 pts
  Corporate Investments                     (638.5%) (280.6 pts)  752.4 pts
    Total segments                            11.0%     0.9 pts     0.4 pts

    Total HP consolidated non-GAAP
     operating margin                         10.4%     1.2 pts     0.7 pts

(a)  Certain fiscal 2012 organizational reclassifications have been
     reflected retroactively to provide improved visibility and
     comparability. For each of the quarters in fiscal year 2011, the
     reclassifications resulted in the transfer of revenue and operating
     profit among the Services, Printing, Enterprise Servers, Storage and
     Networking, Software and Corporate Investments financial reporting
     segments. Reclassifications between segments included the transfer of
     the Indigo Scitex support and the LaserJet and enterprise solutions
     trade support businesses from Services to Printing, the transfer of the
     business intelligence services business from Corporate Investments to
     Services, the transfer of the information management services business
     from Software to Services, and the transfer of the TippingPoint
     business from Enterprise Servers, Storage and Networking to Software.
     There was no impact on the previously reported financial results for
     the Personal Systems and HP Financial Services segments.

(b)  As part of a realignment of the structure of HP's business in fiscal
     2012, the Personal Systems segment and the Printing segment have been
     structured beneath a newly formed Printing and Personal Systems Group.
     While the Printing and Personal Systems Group is not a financial
     reporting segment, HP provides financial data aggregating the segments
     within it in order to provide a supplementary view of its business.



                  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,
                                           2012         2012         2011
                                       -----------  -----------  -----------

Numerator:
  GAAP net (loss) earnings             $    (6,854) $    (8,857) $       239
                                       ===========  ===========  ===========
  Non-GAAP net earnings                $     2,281  $     1,973  $     2,350
                                       ===========  ===========  ===========

Denominator:
  Weighted-average shares used to
   compute basic net (loss) earnings
   per share and diluted net (loss) per
   share                                     1,964        1,971        1,989
  Dilutive effect of employee stock
   plans                                         3            4           16
                                       -----------  -----------  -----------
    Weighted-average shares used to
     compute diluted net earnings per
     share                                   1,967        1,975        2,005
                                       ===========  ===========  ===========

GAAP net (loss) earnings per share:
  Basic                                $     (3.49) $     (4.49) $      0.12
  Diluted(a)                           $     (3.49) $     (4.49) $      0.12

Non-GAAP net earnings per share:
  Basic                                $      1.16  $      1.00  $      1.18
  Diluted(b)                           $      1.16  $      1.00  $      1.17



(a)  GAAP diluted net earnings per share reflects any dilutive effect of
     outstanding stock options, performance-based restricted units,
     restricted stock units and restricted stock, but that effect is
     excluded when calculating GAAP diluted net (loss) per share because it
     would be anti-dilutive.

(b)  Non-GAAP diluted net earnings per share reflects 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,
                                                    ------------------------
                                                        2012         2011
                                                    -----------  -----------


Numerator:
  GAAP net (loss) earnings                          $   (12,650) $     7,074
                                                    ===========  ===========
  Non-GAAP net earnings                             $     8,035  $    10,379
                                                    ===========  ===========

Denominator:
  Weighted-average shares used to compute basic net
   (loss) earnings per share and diluted net (loss)
   per share                                              1,974        2,094
  Dilutive effect of employee stock plans                    10           34
                                                    -----------  -----------
    Weighted-average shares used to compute diluted
     net earnings per share                               1,984        2,128
                                                    ===========  ===========

GAAP net (loss) earnings per share:
  Basic                                             $     (6.41) $      3.38
  Diluted(a)                                        $     (6.41) $      3.32

Non-GAAP net earnings per share:
  Basic                                             $      4.07  $      4.96
  Diluted(b)                                        $      4.05  $      4.88



(a)  GAAP diluted net earnings per share reflects any dilutive effect of
     outstanding stock options, performance-based restricted units,
     restricted stock units and restricted stock, but that effect is
     excluded when calculating GAAP diluted net (loss) per share because it
     would be anti-dilutive.

(b)  Non-GAAP diluted net earnings per share reflects 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:

  • In the fourth quarter of fiscal 2011, HP announced that it would wind down its webOS device business. Non-GAAP net revenue reported in the fourth quarter of fiscal 2011 reflects the elimination of contra revenue associated with sales incentive programs implemented in connection with the wind down of that business, net of webOS device revenue for the period. Because the winding down of HP businesses is inconsistent in amount and frequency, HP believes that eliminating these amounts for purposes of calculating non-GAAP net revenue facilitates a more meaningful evaluation of HP's current operating performance and comparisons to HP's past and future operating performance.

  • In the third quarter of fiscal 2012, HP decided to wind down certain retail publishing business activities. Non-GAAP operating profit reported in the third quarter of fiscal 2012 reflects the elimination of certain contract-related charges, including inventory write-downs, in connection with the wind down of that business. Because the winding down of HP businesses is inconsistent in amount and frequency, HP believes that eliminating these amounts for purposes of calculating non-GAAP operating profit facilitates a more meaningful evaluation of HP's current operating performance and comparisons to HP's past and future operating performance.

  • Goodwill is the excess of the purchase price of acquired companies over the estimated fair value of the tangible and intangible assets acquired and liabilities assumed. Purchased intangible assets consist primarily of customer contracts, customer lists, distribution agreements, technology patents, and products, trademarks and trade names purchased in connection with acquisitions. In the fourth quarter of fiscal 2012, HP recorded a non-cash charge for the impairment of goodwill and intangible assets associated with the acquisition of Autonomy Corporation plc. The charge relates to serious accounting improprieties, disclosure failures and outright misrepresentations at Autonomy that occurred prior to HP's acquisition of Autonomy and the trading value of HP stock during the period preceding the recording of the charge. In the third quarter of fiscal 2012, HP recorded an impairment charge for the goodwill associated with its Services segment following an impairment review driven by, among other things, the trading value of HP stock during the period preceding the recording of the charge, market conditions and business trends within that segment. In addition, in that same quarter, HP recorded an impairment charge related to the intangible asset associated with the "Compaq" trade name acquired in 2002 in conjunction with a change in branding strategy. In the fourth quarter of fiscal 2011, HP recorded impairment charges to goodwill and certain intangible assets associated with the acquisition of Palm Inc. The charges relate to HP's decision to wind-down the webOS device business. Impairment charges are inconsistent in amount and frequency. HP excludes these charges for purposes of calculating these non-GAAP measures to facilitate a more meaningful evaluation of HP's current operating performance and comparisons to HP's past and future operating performance.

  • HP incurs charges relating to the amortization of purchased intangibles. HP also incurs charges relating to the amortization of amounts assigned to intangible assets to be used in research and development projects. All of those charges are included in HP's GAAP presentation of earnings from operations, operating margin, net earnings and net earnings per share. Such charges are inconsistent in amount and frequency and are significantly impacted by the timing and magnitude of HP's acquisitions. Consequently, HP excludes these charges for purposes of calculating these non-GAAP measures to facilitate a more meaningful evaluation of HP's current operating performance and comparisons to HP's past and future operating performance.

  • Restructuring charges consist of costs associated with a formal restructuring plan and are primarily related to (i) employee termination costs and benefits, and (ii) costs to vacate duplicative facilities. HP excludes these restructuring costs (and any reversals of charges recorded in prior periods) for purposes of calculating these non-GAAP measures because it believes that these historical costs do not reflect expected future operating expenses and do not contribute to a meaningful evaluation of HP's current operating performance or comparisons to HP's past and future operating performance.

  • HP incurs costs related to its acquisitions, most of which are treated as non-capitalized expenses. Because non-capitalized, acquisition-related expenses are inconsistent in amount and frequency and are significantly impacted by the timing and nature of HP's acquisitions, HP believes that eliminating the non-capitalized expenses for purposes of calculating these non-GAAP measures facilitates a more meaningful evaluation of HP's current operating performance and comparisons to HP's past and future operating performance.

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:

  • Items such as amortization of purchased intangible assets, though not directly affecting HP's cash position, represent the loss in value of intangible assets over time. The expense associated with this loss in value is not included in non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings and non-GAAP diluted earnings per share and therefore does not reflect the full economic effect of the loss in value of those intangible assets.

  • Items such as restructuring charges that are excluded from non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings and non-GAAP diluted earnings per share can have a material impact on cash flows and earnings per share.

  • HP may not be able to liquidate immediately the long-term investments included in gross cash, which may limit the usefulness of gross cash as a liquidity measure.

  • Other companies may calculate 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 differently than HP does, limiting the usefulness of those measures for comparative purposes.

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.

© 2012 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.

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