HP Reports Third Quarter 2009 Results

EDS acquisition

HP completed its acquisition of Electronic Data Systems Corporation on August 26, 2008. Results of, and comparisons to, the three and nine months ended July 31, 2008 do not include the results of operations of EDS for those prior periods.

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, acquisition synergies, currency exchange rates or other financial items; any statements of the plans, strategies, and objectives of management for future operations, including 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 macroeconomic and geopolitical trends and events; execution and performance of contracts by HP and its suppliers, customers and partners; the challenge of managing asset levels, including inventory; the difficulty of aligning expense levels with revenue changes; assumptions related to pension and other post-retirement costs; expectations and assumptions relating to the execution and timing of cost reduction programs and 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, 2008 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 April 30, 2009. 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 Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2009. In particular, determining HP’s actual tax balances and provisions as of July 31, 2009 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-Q. HP assumes no obligation and does not intend to update these forward-looking statements.

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© 2009 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
	July 31, 2009			April 30, 2009			July 31, 2008

Net revenue	$	27,451		$	27,351		$	28,032

Costs and expenses^(a):
Cost of sales		20,936			20,919			21,197		^(c)
Research and development		667			716			895
Selling, general and administrative		2,874			2,880			3,193		^(c)
Amortization of purchased intangible assets		379			380			213
Restructuring charges		362			94			5
Acquisition-related charges		59			75			-
Total costs and expenses		25,277			25,064			25,503

Earnings from operations		2,174			2,287			2,529

Interest and other, net		(177	)		(180	)		23

Earnings before taxes		1,997			2,107			2,552

Provision for taxes ^(b)		355			391			525

Net earnings	$	1,642		$	1,716		$	2,027

Net earnings per share:
Basic	$	0.69		$	0.72		$	0.82
Diluted	$	0.67		$	0.70		$	0.80


Cash dividends declared per share	$	0.16		$	-		$	0.16

Weighted-average shares used to compute net earnings per share:
Basic		2,382			2,394			2,459
Diluted		2,436			2,438			2,533

(a) Stock-based compensation expense included under SFAS 123(R) was as follows:
Cost of sales	$	41		$	48		$	34
Research and development		12			18			16
Selling, general and administrative		94			109			90
Acquisition-related charges		3			16			-
Total costs and expenses	$	150		$	191		$	140

(b) Tax benefit from stock-based compensation	$	(51	)	$	(59	)	$	(38	)

(c) For the prior year reporting periods presented, certain pursuit-related costs previously reported as Cost of sales have been realigned retroactively to Selling, general and administrative expenses due to organizational realignments.


HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In millions except per share amounts)



	Nine months ended
	July 31, 2009			July 31, 2008

Net revenue	$	83,602		$	84,761

Costs and expenses ^(a) :
Cost of sales		63,924			63,846		^(c)
Research and development		2,115			2,701
Selling, general and administrative		8,647			9,820		^(c)
Amortization of purchased intangible assets		1,171			630
In-process research and development charges		6			13
Restructuring charges		602			19
Acquisition-related charges		182			-
Total costs and expenses		76,647			77,029

Earnings from operations		6,955			7,732

Interest and other, net		(589	)		98

Earnings before taxes		6,366			7,830

Provision for taxes ^(b)		1,154			1,613

Net earnings	$	5,212		$	6,217

Net earnings per share:
Basic	$	2.18		$	2.49
Diluted	$	2.13		$	2.41


Cash dividends declared per share	$	0.32		$	0.32

Weighted-average shares used to compute net earnings per share:
Basic		2,395			2,497
Diluted		2,442			2,577

(a) Stock-based compensation expense included under SFAS 123(R) was as follows:
Cost of sales	$	141		$	106
Research and development		47			55
Selling, general and administrative		288			288
Acquisition-related charges		25			-
Total costs and expenses	$	501		$	449

(b) Tax benefit from stock-based compensation	$	(158	)	$	(130	)

(c) For the prior year reporting periods presented, certain pursuit-related costs previously reported as Cost of sales have been realigned retroactively to Selling, general and administrative expenses due to organizational realignments.


HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS,
OPERATING MARGIN AND EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)


	Three months ended July 31, 2009			Diluted earnings per share			Three months ended April 30, 2009			Diluted earnings per share			Three months ended July 31, 2008			Diluted earnings per share

GAAP net earnings	$	1,642		$	0.67		$	1,716		$	0.70		$	2,027		$	0.80

Non-GAAP adjustments:
Amortization of purchased intangible assets		379			0.16			380			0.16			213			0.08
Restructuring charges		362			0.15			94			0.04			5			-
Acquisition-related charges		59			0.03			75			0.03			-			-
Adjustments for taxes		(232	)		(0.10	)		(167	)		(0.07	)		(57	)		(0.02	)

Non-GAAP net earnings	$	2,210		$	0.91		$	2,098		$	0.86		$	2,188		$	0.86


GAAP earnings from operations	$	2,174					$	2,287					$	2,529

Non-GAAP adjustments:
Amortization of purchased intangible assets		379						380						213
Restructuring charges		362						94						5
Acquisition-related charges		59						75						-
Non-GAAP earnings
from operations	$	2,974					$	2,836					$	2,747

GAAP operating margin		8	%					8	%					9	%
Non-GAAP adjustments		3	%					2	%					1	%

Non-GAAP operating margin		11	%					10	%					10	%


HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS,
OPERATING MARGIN AND EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)


	Nine months ended July 31, 2009			Diluted earnings per share			Nine months ended July 31, 2008			Diluted earnings per share

GAAP net earnings	$	5,212		$	2.13		$	6,217		$	2.41

Non-GAAP adjustments:
Amortization of purchased intangible assets		1,171			0.48			630			0.24
In-process research and development charges		6			-			13			0.01
Restructuring charges		602			0.25			19			0.01
Acquisition-related charges		182			0.08			-			-
Adjustments for taxes		(580	)		(0.24	)		(171	)		(0.07	)

Non-GAAP net earnings	$	6,593		$	2.70		$	6,708		$	2.60


GAAP earnings from operations	$	6,955					$	7,732

Non-GAAP adjustments:
Amortization of purchased intangible assets		1,171						630
In-process research and development charges		6						13
Restructuring charges		602						19
Acquisition-related charges		182						-
Non-GAAP earnings from operations	$	8,916					$	8,394

GAAP operating margin		8	%					9	%
Non-GAAP adjustments		3	%					1	%

Non-GAAP operating margin		11	%					10	%


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


	July 31, 2009		October 31, 2008
	(unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	13,521	$	10,153
Short-term investments		66		93
Accounts receivable		14,735		16,928
Financing receivables		2,532		2,314
Inventory		5,850		7,879
Other current assets		12,138		14,361

Total current assets		48,842		51,728

Property, plant and equipment		11,194		10,838

Long-term financing receivables and other assets		10,857		10,468

Goodwill and purchased intangible assets		40,179		40,297

Total assets	$	111,072	$	113,331


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Notes payable and short-term borrowings	$	3,288	$	10,176
Accounts payable		12,778		14,917
Employee compensation and benefits		3,596		4,159
Taxes on earnings		786		869
Deferred revenue		6,458		6,287
Other accrued liabilities		14,904		16,531

Total current liabilities		41,810		52,939

Long-term debt		13,892		7,676
Other liabilities		13,835		13,774

Stockholders' equity		41,535		38,942

Total liabilities and stockholders' equity	$	111,072	$	113,331


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


	Three months ended July 31, 2009			Nine months ended July 31, 2009

Cash flows from operating activities:
Net earnings	$	1,642		$	5,212
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		1,179			3,546
Stock-based compensation expense		150			501
Provision for bad debt and inventory		114			462
In-process research and development charges		-			6
Restructuring charges		362			602
Deferred taxes on earnings		220			272
Excess tax benefit from stock-based compensation		(39	)		(67	)
Other, net		2			(1	)

Changes in assets and liabilities:
Accounts and financing receivables		(141	)		1,635
Inventory		(144	)		1,843
Accounts payable		1,278			(2,228	)
Taxes on earnings		(289	)		691
Restructuring		(296	)		(844	)
Other assets and liabilities		(182	)		(1,684	)
Net cash provided by operating activities		3,856			9,946

Cash flows from investing activities:
Investment in property, plant and equipment		(1,091	)		(2,749	)
Proceeds from sale of property, plant and equipment		151			401
Purchases of available-for-sale securities and other investments		(50	)		(105	)
Maturities and sales of available-for-sale securities and other investments		-			103
Payments made in connection with business acquisitions, net		-			(348	)
Net cash used in investing activities		(990	)		(2,698	)

Cash flows from financing activities:
Repayment of commercial paper and notes payable, net		(2,417	)		(6,866	)
Issuance of debt		2,000			6,778
Payment of debt		(1,071	)		(1,181	)
Issuance of common stock under employee stock plans		443			936
Repurchase of common stock		(999	)		(3,038	)
Excess tax benefit from stock-based compensation		39			67
Dividends		(191	)		(576	)
Net cash used in financing activities		(2,196	)		(3,880	)

Increase in cash and cash equivalents		670			3,368
Cash and cash equivalents at beginning of period		12,851			10,153
Cash and cash equivalents at end of period	$	13,521		$	13,521


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

		Three months ended
		July 31, 2009			April 30, 2009			July 31, 2008 ^(a)

Net revenue:

	Services ^(b)	$	8,470		$	8,488		$	4,386
	Enterprise Storage and Servers		3,660			3,456			4,741
	HP Software		847			880			1,086
	Technology Solutions Group		12,977			12,824			10,213
	Personal Systems Group		8,432			8,191			10,254
	Imaging and Printing Group		5,660			5,916			7,041
	HP Financial Services		670			641			680
	Corporate Investments		193			188			271
	Total Segments		27,932			27,760			28,459
	Eliminations of intersegment net revenue and other		(481	)		(409	)		(427	)

	Total HP Consolidated	$	27,451		$	27,351		$	28,032

Earnings from operations:

	Services ^(b)	$	1,289		$	1,172		$	567
	Enterprise Storage and Servers		356			250			544
	HP Software		153			157			135
	Technology Solutions Group		1,798			1,579			1,246
	Personal Systems Group		386			374			587
	Imaging and Printing Group		960			1,074			1,042
	HP Financial Services		53			46			51
	Corporate Investments		(10	)		(19	)		26
	Total Segments		3,187			3,054			2,952

	Corporate and unallocated costs and eliminations		(81	)		(62	)		(85	)
	Unallocated costs related to stock-based compensation expense		(132	)		(156	)		(120	)
	Amortization of purchased intangible assets		(379	)		(380	)		(213	)
	Restructuring charges		(362	)		(94	)		(5	)
	Acquisition-related charges		(59	)		(75	)		-
	Interest and other, net		(177	)		(180	)		23

Total HP Consolidated Earnings Before Taxes		$	1,997		$	2,107		$	2,552


(a) Certain fiscal 2009 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2008, the reclassifications resulted in the transfer of revenue and operating profit among the Services, HP Software and Imaging and Printing Group financial reporting segments. In addition, certain previously allocated costs were reclassified to unallocated costs related to stock-based compensation expense. There was no impact on the previously reported financial results for the Enterprise Storage and Servers, Personal Systems Group, HP Financial Services and Corporate Investments segments.

(b) Includes the results of EDS which was acquired on August 26, 2008.


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

		Nine months ended
		July 31, 2009			July 31, 2008 ^(a)

Net revenue:

	Services ^(b)	$	25,704		$	12,700
	Enterprise Storage and Servers		11,064			14,341
	HP Software		2,605			3,072
	Technology Solutions Group		39,373			30,113
	Personal Systems Group		25,410			31,116
	Imaging and Printing Group		17,557			22,042
	HP Financial Services		1,947			2,007
	Corporate Investments		577			719
	Total Segments		84,864			85,997
	Eliminations of intersegment net revenue and other		(1,262	)		(1,236	)

	Total HP Consolidated	$	83,602		$	84,761

Earnings from operations:

	Services ^(b)	$	3,584		$	1,573
	Enterprise Storage and Servers		1,011			1,872
	HP Software		450			288
	Technology Solutions Group		5,045			3,733
	Personal Systems Group		1,195			1,759
	Imaging and Printing Group		3,139			3,404
	HP Financial Services		140			141
	Corporate Investments		(48	)		40
	Total Segments		9,471			9,077

	Corporate and unallocated costs and eliminations		(119	)		(308	)
	Unallocated costs related to stock-based compensation expense		(436	)		(375	)
	Amortization of purchased intangible assets		(1,171	)		(630	)
	In-process research and development charges		(6	)		(13	)
	Restructuring charges		(602	)		(19	)
	Acquisition-related charges		(182	)		-
	Interest and other, net		(589	)		98

Total HP Consolidated Earnings Before Taxes		$	6,366		$	7,830


(a) Certain fiscal 2009 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2008, the reclassifications resulted in the transfer of revenue and operating profit among the Services, HP Software and Imaging and Printing Group financial reporting segments. In addition, certain previously allocated costs were reclassified to unallocated costs related to stock-based compensation expense. There was no impact on the previously reported financial results for the Enterprise Storage and Servers, Personal Systems Group, HP Financial Services and Corporate Investments segments.

(b) Includes the results of EDS which was acquired on August 26, 2008.


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

	Three months ended
	July 31, 2009			April 30, 2009			July 31, 2008 ^(a)

Net revenue:

Infrastructure technology outsourcing	$	3,932		$	3,785		$	1,393
Technology services		2,404			2,441			2,614
Application services		1,384			1,502			336
Business process outsourcing		711			709			43
Other		39			51			-
Services ^(b)		8,470			8,488			4,386
Industry standard servers		2,262			1,988			2,874
Storage		820			818			1,038
Business critical systems		578			650			829
Enterprise Storage and Servers		3,660			3,456			4,741
Business technology optimization		563			568			718
Other		284			312			368
HP Software		847			880			1,086
Technology Solutions Group		12,977			12,824			10,213
Notebooks		4,802			4,697			5,350
Desktops		3,090			2,967			4,163
Workstations		299			287			463
Handhelds		32			47			90
Other		209			193			188
Personal Systems Group		8,432			8,191			10,254
Supplies		3,949			4,103			4,527
Commercial hardware		1,085			1,193			1,718
Consumer hardware		626			620			796
Imaging and Printing Group		5,660			5,916			7,041
HP Financial Services		670			641			680
Corporate Investments		193			188			271
Total Segments		27,932			27,760			28,459

Eliminations of intersegment net revenue and other		(481	)		(409	)		(427	)

Total HP Consolidated	$	27,451		$	27,351		$	28,032


(a) Certain fiscal 2009 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2008, the reclassifications resulted in the transfer of revenue among the Services, HP Software and Imaging and Printing Group financial reporting segments. In addition, revenue was transferred among the business units within the Services, HP Software, Imaging and Printing Group, and Personal Systems Group segments. There was no impact on the previously reported financial results for the Enterprise Storage and Servers, HP Financial Services and Corporate Investments segments.

(b) Includes the results of EDS, which was acquired on August 26, 2008. The businesses included in the former consulting and integration business unit were divided among the application services and technology services business units and the HP software segment. The businesses included in the former outsourcing services business unit were divided among the infrastructure technology outsourcing and business process outsourcing business units. The infrastructure technology outsourcing, application services and business process outsourcing business units were added with the technology services business unit, and these four business units now comprise the Services segment.


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

	Nine months ended
	July 31, 2009			July 31, 2008 ^(a)

Net revenue:

Infrastructure technology outsourcing	$	11,620		$	3,957
Technology services		7,296			7,640
Application services		4,478			984
Business process outsourcing		2,163			119
Other		147			-
Services ^(b)		25,704			12,700
Industry standard servers		6,572			8,680
Storage		2,551			3,058
Business critical systems		1,941			2,603
Enterprise Storage and Servers		11,064			14,341
Business technology optimization		1,725			2,006
Other		880			1,066
HP Software		2,605			3,072
Technology Solutions Group		39,373			30,113
Notebooks		14,406			16,387
Desktops		9,360			12,494
Workstations		919			1,415
Handhelds		136			281
Other		589			539
Personal Systems Group		25,410			31,116
Supplies		12,102			13,664
Commercial hardware		3,517			5,576
Consumer hardware		1,938			2,802
Imaging and Printing Group		17,557			22,042
HP Financial Services		1,947			2,007
Corporate Investments		577			719
Total Segments		84,864			85,997

Eliminations of intersegment net revenue and other		(1,262	)		(1,236	)

Total HP Consolidated	$	83,602		$	84,761


(a) Certain fiscal 2009 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2008, the reclassifications resulted in the transfer of revenue among the Services, HP Software and Imaging and Printing Group financial reporting segments. In addition, revenue was transferred among the business units within the Services, HP Software, Imaging and Printing Group, and Personal Systems Group segments. There was no impact on the previously reported financial results for the Enterprise Storage and Servers, HP Financial Services and Corporate Investments segments.

(b) Includes the results of EDS, which was acquired on August 26, 2008. The businesses included in the former consulting and integration business unit were divided among the application services and technology services business units and the HP software segment. The businesses included in the former outsourcing services business unit were divided among the infrastructure technology outsourcing and business process outsourcing business units. The infrastructure technology outsourcing, application services and business process outsourcing business units were added with the technology services business unit, and these four business units now comprise the Services segment.


HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)


	Three months ended
	July 31, 2009		April 30, 2009		July 31, 2008

Numerator:
Net earnings	$	1,642	$	1,716	$	2,027
Adjustment for interest expense on zero-coupon subordinated convertible notes, net of taxes		-		-		-

Net earnings, adjusted	$	1,642	$	1,716	$	2,027

Denominator:
Weighted-average shares used to compute basic EPS		2,382		2,394		2,459
Effect of dilutive securities:
Dilution from employee stock plans		54		44		74
Zero-coupon subordinated convertible notes		-		-		-
Dilutive potential common shares		54		44		74

Weighted-average shares used to compute diluted EPS		2,436		2,438		2,533

Net earnings per share:
Basic ^(a)	$	0.69	$	0.72	$	0.82
Diluted ^(b)	$	0.67	$	0.70	$	0.80


(a) HP's basic earnings per share was calculated based on net earnings and the weighted-average number of shares outstanding during the reporting period.

(b) The diluted earnings per share included additional dilution from potential issuance of common stock, such as stock issuable pursuant to exercise of stock options and vesting of restricted stock units, except when such issuances would be anti-dilutive.


HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)


	Nine months ended
	July 31, 2009		July 31, 2008

Numerator:
Net earnings	$	5,212	$	6,217
Adjustment for interest expense on zero-coupon subordinated convertible notes, net of taxes		-		3

Net earnings, adjusted	$	5,212	$	6,220

Denominator:

Weighted-average shares used to compute basic EPS		2,395		2,497
Effect of dilutive securities:
Dilution from employee stock plans		47		76
Zero-coupon subordinated convertible notes		-		4
Dilutive potential common shares		47		80

Weighted-average shares used to compute diluted EPS		2,442		2,577

Net earnings per share:
Basic ^(a)	$	2.18	$	2.49
Diluted ^(b)	$	2.13	$	2.41


(a) HP's basic earnings per share was calculated based on net earnings and the weighted-average number of shares outstanding during the reporting period.

(b) The diluted earnings per share included additional dilution from potential issuance of common stock, such as stock issuable pursuant to exercise of stock options, vesting of restricted stock units and conversion of debt, except when such issuances would be anti-dilutive.


HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NON-GAAP NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)




	Three months ended
	July 31, 2009		April 30, 2009		July 31, 2008

Numerator:
Non-GAAP net earnings	$	2,210	$	2,098	$	2,188
Adjustment for interest expense on zero-coupon subordinated convertible notes, net of taxes		-		-		-

Non-GAAP net earnings, adjusted	$	2,210	$	2,098	$	2,188

Denominator:
Weighted-average shares used to compute basic EPS		2,382		2,394		2,459
Effect of dilutive securities:
Dilution from employee stock plans		54		44		74
Zero-coupon subordinated convertible notes		-		-		-
Dilutive potential common shares		54		44		74

Weighted-average shares used to compute diluted EPS		2,436		2,438		2,533

Non-GAAP net earnings per share:
Basic ^(a)	$	0.93	$	0.88	$	0.89
Diluted ^(b)	$	0.91	$	0.86	$	0.86


(a) HP's basic earnings per share was calculated based on net earnings and the weighted-average number of shares outstanding during the reporting period.

(b) The diluted earnings per share included additional dilution from potential issuance of common stock, such as stock issuable pursuant to exercise of stock options and vesting of restricted stock units, except when such issuances would be anti-dilutive.


HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NON-GAAP NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)




	Nine months ended
	July 31, 2009		July 31, 2008

Numerator:
Non-GAAP net earnings	$	6,593	$	6,708
Adjustment for interest expense on zero-coupon subordinated convertible notes, net of taxes		-		3

Non-GAAP net earnings, adjusted	$	6,593	$	6,711

Denominator:
Weighted-average shares used to compute basic EPS		2,395		2,497
Effect of dilutive securities:
Dilution from employee stock plans		47		76
Zero-coupon subordinated convertible notes		-		4
Dilutive potential common shares		47		80

Weighted-average shares used to compute diluted EPS		2,442		2,577

Non-GAAP net earnings per share:
Basic ^(a)	$	2.75	$	2.69
Diluted ^(b)	$	2.70	$	2.60


(a) HP's basic earnings per share was calculated based on net earnings and the weighted-average number of shares outstanding during the reporting period.

(b) The diluted earnings per share included additional dilution from potential issuance of common stock, such as stock issuable pursuant to exercise of stock options, vesting of restricted stock units and conversion of debt, except when such issuances would be anti-dilutive.

Use of Non-GAAP Financial Measures

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