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2010
HP ANNUAL REPORT

Table of contents

  • Page 1
    2010 HP ANNUAL REPORT

  • Page 2
    ... was the strength of our resilient businesses such as supplies and services that helped preserve revenue and earnings. In fiscal 2010, we benefited from a technology refresh in commercial enterprises, and it was our product businesses that drove growth and margin expansion. HP ANNUAL REPORT | 2010

  • Page 3
    ... to build our portfolio throughout the year. In fact, HP had the largest and best product releases in its history in fiscal 2010, from the data center to the cloud and from PCs to printers. With Superdome 2, we added a powerful new solution for business-critical systems. HP ANNUAL REPORT | 2010

  • Page 4
    ... the technology stack into higher margin categories. vy further developing our intellectual property portfolio, we plan to differentiate HP and leverage the enormous power, scale, and breadth of our marketleading products across the data center, printing, PCs, and mobile devices. This is the key to...

  • Page 5
    .... President and Chief Executive Officer *Fiscal year 2010 non-GAAP financial information excludes $2.1 billion of adjustments on an after-tax basis, or $0.89 per diluted share, related primarily to the amortization of purchased intangible assets, restructuring charges, and acquisition-related...

  • Page 6
    ... Officer of America Online, Inc., a software company. Mr. Andreessen co-founded Netscape Communications Corporation, a software company, and served in various positions, including Chief Technology Officer and Executive Vice President of Products, from 1994 to 1999. Mr. Andreessen also is a director...

  • Page 7
    ... company, including Senior Vice President and Group Executive of the IvM Global Services division; Chief Financial Officer; President, IvM Asia Pacific; and Vice President and Controller for IvM's global operations. From 2005 to 2010, Mr. Joyce served as a director of Avago Technologies Limited...

  • Page 8
    ... 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...

  • Page 9
    ... period from to Commission file number 1-4423 HEWLETT-PACKARD COMPANY (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 3000 Hanover Street, Palo Alto, California (Address of principal executive offices) 94-1081436...

  • Page 10
    ... Accounting and Financial Disclosure ...Controls and Procedures ...Other Information ...PART III Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships...

  • Page 11
    ..., networking products and solutions, information management software and software that optimizes business technology investments; • personal computing and other access devices; and • imaging and printing-related products and services. HP was incorporated in 1947 under the laws of the State of...

  • Page 12
    .... HP Enterprise Business products, software and services help accelerate growth, minimize risk and reduce costs to optimize the business value of customers' IT investments. Companies around the globe leverage HP's infrastructure solutions to deploy next generation data centers and address business...

  • Page 13
    ... services and longer-term outsourcing contracts. These full life cycle services encompass application development, testing, modernization, system integration, maintenance and management. Applications projects open doors to new infrastructure technology outsourcing and business process outsourcing...

  • Page 14
    ... operations support systems and digital media. These solutions enable operators, media companies, and network equipment providers to drive incremental revenue, enable new business models and reduce infrastructure costs. Personal Systems Group PSG is the leading provider of personal computers (''PCs...

  • Page 15
    ... alternatives to balance unique customer cash flow, technology obsolescence and capacity needs. Corporate Investments Corporate Investments includes Hewlett-Packard Laboratories, also known as HP Labs, network infrastructure products, mobile devices associated with the Palm acquisition, and certain...

  • Page 16
    ... levels of management and IT consulting, including some systems integration work, and that typically partner with our services business on client solutions that require our unique products and services. The mix of HP's business by channel or direct sales differs substantially by business and region...

  • Page 17
    ... international nature of our business, political or economic changes or other factors could harm our future revenue, costs and expenses and financial condition,'' in Item 1A, ''Quantitative and Qualitative Disclosure about Market Risk'' in Item 7A and Note 10 to the Consolidated Financial Statements...

  • Page 18
    ... partnering with other leading technology companies will leverage our cost structure and maximize our customers' experiences. HP Labs, together with the various research and development groups within the five principal business segments, are responsible for our research and development efforts. HP...

  • Page 19
    ... to continue to adjust prices on many of our products and services to stay competitive. On a revenue basis we are the largest company offering our range of general purpose computers and personal information, imaging and printing products for industrial, scientific, business and consumer applications...

  • Page 20
    ...supplies sales and margins. Other companies also have developed and marketed new compatible cartridges for HP's laser and inkjet products, particularly in jurisdictions outside of the United States where adequate intellectual property protection may not exist. In recent years, we and our competitors...

  • Page 21
    ... competitive advantage in this business over banks and financial institutions is our ability to finance products, services and total solutions. For a discussion of risks attendant to these competitive factors, see ''Risk Factors-The competitive pressures we face could harm our revenue, gross margin...

  • Page 22
    ...Board of Directors since November 2010. Previously, Mr. Apotheker served as Chief Executive Officer of SAP AG, a software company, from June 2009 until February 2010 after having served as co-Chief Executive Officer of SAP from April 2008 to May 2009. Prior to that, Mr. Apotheker served as worldwide...

  • Page 23
    ... and Chief Strategy and Technology Officer Mr. Robison has served as Executive Vice President and Chief Strategy and Technology Officer since May 2002. Employees We had approximately 324,600 employees worldwide as of October 31, 2010. Available Information Our Annual Report on Form 10-K, Quarterly...

  • Page 24
    ... revenue and gross margin. The markets in which we do business, particularly the personal computer and printing markets, are highly competitive, and we encounter aggressive price competition for all of our products and services from numerous companies globally. Over the past several years, price...

  • Page 25
    ..., our revenue and gross margin may suffer. The process of developing new high technology products and services and enhancing existing products and services is complex, costly and uncertain, and any failure by us to anticipate customers' changing needs and emerging technological trends accurately...

  • Page 26
    ..., our revenue and gross margin could suffer as we could lose time-sensitive sales, incur additional freight costs or be unable to pass on price increases to our customers. If we cannot adequately address supply issues, we might have to reengineer some products or service offerings, resulting...

  • Page 27
    ...competitors may obtain better pricing and other terms and more favorable allocations of products and components during periods of limited supply, and our ability to engage in relationships with certain OMs and suppliers could be limited. The practice employed by our PC business of purchasing product...

  • Page 28
    ... harm our revenue and financial condition and increase our costs and expenses. Our corporate headquarters, and a portion of our research and development activities, are located in California, and other critical business operations and some of our suppliers are located in California and Asia, near...

  • Page 29
    ..., business combination or investment transactions, or executive team; • the announcement of new products, services, technological innovations or acquisitions by HP or its competitors; • quarterly increases or decreases in revenue, gross margin, earnings or cash flow from operations, changes in...

  • Page 30
    ... in the United States, similar laws in other countries, and agreements with our employees, customers, suppliers and other parties, to establish and maintain intellectual property rights in the technology and products we sell, provide or otherwise use in our operations. However, any of our direct or...

  • Page 31
    ..., costs and expenses and financial condition. Sales outside the United States make up approximately 65% of our net revenue. In addition, an increasing portion of our business activity is being conducted in emerging markets, including Brazil, Russia, India and China. Our future revenue, gross margin...

  • Page 32
    ..., our revenue, gross margin and profitability could suffer. We use a variety of distribution methods to sell our products and services, including third-party resellers and distributors and both direct and indirect sales to both enterprise accounts and consumers. Successfully managing the interaction...

  • Page 33
    ... and services are delays in development or manufacturing, variations in costs, delays in customer purchases or reductions in price of existing products in anticipation of new introductions, difficulty in predicting customer demand for the new offerings and effectively managing inventory levels so...

  • Page 34
    ... of HP's Consolidated Financial Statements, we use certain estimates and assumptions based on historical experience and other factors. Our most critical accounting estimates are described in ''Management's Discussion and Analysis of Financial Condition and Results of Operations'' in this report. In...

  • Page 35
    ... sales pattern makes prediction of revenue, earnings, cash flow from operations and working capital for each financial period difficult, increases the risk of unanticipated variations in quarterly results and financial condition and places pressure on our inventory management and logistics systems...

  • Page 36
    ... in fiscal 2008 relating to our acquisition of Electronic Data Systems Corporation (''EDS''), a workforce restructuring program in fiscal 2009 relating to our product businesses and a multi-year restructuring plan in the third quarter of fiscal 2010 relating to our enterprise services business. Our...

  • Page 37
    ... key employees, engaging with employee works councils representing an acquired company's non-U.S. employees, integrating employees into HP, correctly estimating employee benefit costs and implementing restructuring programs; • coordinating and combining administrative, manufacturing, research...

  • Page 38
    ...severance pay, early retirement costs, employee benefit costs, asset impairment charges, charges from the elimination of duplicative facilities and contracts, in-process research and development charges, inventory adjustments, assumed litigation and other liabilities, legal, accounting and financial...

  • Page 39
    ... developed to meet the special requirements of our manufacturing processes. We continue to execute on our plan to reduce our real estate costs and increase our productive utilization by consolidating into several hundred HP core real estate locations worldwide. As mentioned above in Item 1. Business...

  • Page 40
    ... of our headquarters of geographic operations at October 31, 2010 were as follows: Americas Houston, United States Miami, United States Mississauga, Canada Europe, Middle East, Africa Geneva, Switzerland Asia Pacific Singapore Tokyo, Japan Product Development and Manufacturing The locations of our...

  • Page 41
    ... for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Information regarding the market prices of HP common stock and the markets for that stock may be found in the ''Quarterly Summary'' in Item 8 and on the cover page of this Annual Report on Form 10...

  • Page 42
    ...based upon historical data and are not indicative of, or intended to forecast, future performance of our common stock. $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 10/05 10/06 10/07 10/08 10/09 10/10 Hewlett-Packard Company S&P 500 10/05 10/06 S&P Information Technology 23NOV201023020973...

  • Page 43
    ...presented below. HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Selected Financial Data 2010 For the fiscal years ended October 31 2009 2008 2007 In millions, except per share amounts 2006 Net revenue ...Earnings from operations(1) Net earnings ...Net earnings per share Basic ...Diluted ...Cash dividends...

  • Page 44
    ..., networking products and solutions, information management software and software that optimizes business technology investments; • personal computing and other access devices; and • imaging and printing-related products and services. We have seven business segments for financial reporting...

  • Page 45
    ...cost structure of our Services business and the restructuring plan announced in May 2009 to structurally change and improve the effectiveness of several of our product businesses. In June 2010, we announced and started implementing a new restructuring plan that will consolidate data centers, systems...

  • Page 46
    ...2010 totaled $10.9 billion, a decrease of $2.4 billion from the October 31, 2009 balance of $13.3 billion. The decrease for fiscal 2010 was due primarily to $11.0 billion of cash used to repurchase common stock, $8.1 billion of net cash paid for business acquisitions, and $3.5 billion net investment...

  • Page 47
    ...accounting policies reflect the significant estimates and assumptions used in the preparation of the Consolidated Financial Statements. Revenue Recognition We enter into contracts to sell our products and services, and, while the majority of our sales agreements contain standard terms and conditions...

  • Page 48
    ...'') is established considering internal factors such as margin objectives, pricing practices and controls, customer segment pricing strategies and the product life cycle. Consideration is also given to market conditions such as competitor pricing strategies and industry technology life cycles. When...

  • Page 49
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Critical estimates in valuing certain intangible assets include but are not limited to: future expected cash flows from customer contracts, customer lists, ...

  • Page 50
    ... traded options on HP common stock is a better indicator of expected volatility and future stock price trends than historical volatility. We issue performance-based restricted units (''PRUs'') representing hypothetical shares of HP common stock. Each PRU award reflects a target number of shares...

  • Page 51
    ... and capital investments we have undertaken, income from manufacturing activities in certain countries is subject to reduced tax rates, and in some cases is wholly exempt from taxes, for fiscal years through 2024. Material changes in our estimates of cash, working capital and long-term investment...

  • Page 52
    ... market prices, market comparables, and discounted cash flow projections. Financial instruments are primarily comprised of time deposits, money market funds, commercial paper, corporate and other debt securities, equity securities and other investments in common stock and common stock equivalents...

  • Page 53
    ... direction over the last several years. For fiscal 2010, changes in the weighted-average rates for the HP benefit plans would have had the following impact on our net periodic benefit cost: • A decrease of 25 basis points in the long-term rate of return would have increased our net benefit cost...

  • Page 54
    ...will adopt this new accounting standard in the first quarter of fiscal 2011. We do not expect the adoption of this standard will have a material effect on our consolidated financial statements. CONSTANT CURRENCY PRESENTATION Revenue from our international operations has historically represented, and...

  • Page 55
    ...the following fiscal years ended October 31: 2010 2009 In millions 2008 Net revenue ...Cost of sales(1) ...Gross profit ...Research and development ...Selling, general and administrative ...Amortization of purchased intangible assets Restructuring charges ...Acquisition-related charges ... $126,033...

  • Page 56
    ...higher bad debt. Corporate Investments gross margin increased in fiscal 2010 primarily as a result of the impact from the 3Com acquisition along with lower product costs for our network infrastructure products. Fiscal 2009 Total HP gross margin decreased by 0.6 percentage points in fiscal 2009. From...

  • Page 57
    ... business, which has lower gross margins. ESS gross margin decreased in fiscal 2009 due primarily to competitive pricing across each of the segment business units and product mix shifts. HP Software gross margin increased in fiscal 2009 primarily as a result of favorable support and services revenue...

  • Page 58
    .... The increase in amortization expense in fiscal 2009 was due primarily to amortization expenses related to the intangible assets purchased as part of the EDS acquisition. For more information on our amortization of purchased intangibles assets, see Note 7 to the Consolidated Financial Statements in...

  • Page 59
    ... data for the fiscal years ended October 31, 2009 and 2008 to reflect changes in HP's organizational structure that occurred at the beginning of the first quarter of fiscal 2010. We describe these changes more fully in Note 19. We have presented the business segments in this Annual Report on Form 10...

  • Page 60
    ... $ 2,518 12.0% The components of the weighted net revenue change by business unit were as follows for the following fiscal years ended October 31: 2010 2009 Percentage Points Infrastructure technology outsourcing Other ...Technology services ...Application services ...Business process outsourcing...

  • Page 61
    ... and cost controls in our technology services business, and EDS-related acquisition synergies. This was partially offset by the mix effect from the acquisition of the EDS business, which has lower gross margins. Enterprise Storage and Servers For the fiscal years ended October 31 2010 2009 2008...

  • Page 62
    ... gross margin. Gross margin in fiscal 2009 decreased due primarily to competitive pricing across each of the segment business units and product mix shifts. Operating expense as a percentage of net revenue in fiscal 2009 was generally consistent with the fiscal 2008. HP Software For the fiscal years...

  • Page 63
    ...a reduced services gross margin rate. The decrease in operating expenses as a percentage of net revenue in fiscal 2010 was due primarily to lower field selling, administrative and acquisition integration costs. HP Software net revenue decreased 15.4% (10.8% when adjusted for currency) in fiscal 2009...

  • Page 64
    .... In fiscal 2009, net revenue for consumer clients decreased 14%, while net revenue for commercial clients decreased 19%. The net revenue increase in Other PSG was related primarily to increased sales of extended warranties, support services and third-party branded options. In fiscal 2009, PSG net...

  • Page 65
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The components of the weighted net revenue change by business unit were as follows for the following fiscal years ended October 31: 2010 2009 Percentage Points ...

  • Page 66
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) HP Financial Services For the fiscal years ended October 31 2010 2009 2008 In millions Net revenue ...Earnings from operations ...Earnings from operations as a ...

  • Page 67
    ... Financial Condition and Results of Operations (Continued) asset-intensive and uses certain internal metrics to measure its performance against other financial services companies, including a segment balance sheet that is derived from our internal management reporting system. The accounting policies...

  • Page 68
    ...from operations generated by network infrastructure products. Gross margin rate in Corporate Investments for fiscal 2010 increased primarily as a result of the impact from the 3Com acquisition along with lower product costs in the sale of network infrastructure products. The earnings from operations...

  • Page 69
    ... source of liquidity; we believe that internally generated cash flows are generally sufficient to support business operations, capital expenditures and the payment of stockholder dividends, in addition to a level of discretionary investments and share repurchases. We are able to supplement this...

  • Page 70
    ...and other current assets along with increased amortization expense. Our key working capital metrics are as follows: 2010 October 31 2009 2008 Days of sales outstanding in accounts receivable ...Days of supply in inventory ...Days of purchases outstanding in accounts payable ...Cash conversion cycle...

  • Page 71
    ... levels that we establish through consideration of a number of factors, including cash flow expectations, cash requirements for operations, investment plans (including acquisitions), share repurchase activities, overall cost of capital, and targeted capital structure. Short-term debt and long-term...

  • Page 72
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) at the end of fiscal 2010. Our debt-equity ratio decreased by 0.07x in fiscal 2009 due primarily to the net repayment of $2.0 billion in debt. Our weighted-...

  • Page 73
    ... principal cash payments relating to our long-term debt and do not include any fair value adjustments or discounts and premiums. Amounts represent the expected interest cash payments relating to our long-term debt. We have outstanding interest rate swap agreements accounted for as fair value hedges...

  • Page 74
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Funding Commitments In fiscal 2011, we expect to contribute approximately $817 million to our pension and post-retirement plan funding. Our funding policy is to ...

  • Page 75
    ... at October 31, 2010 and October 31, 2009, respectively. Interest rate risk We also are exposed to interest rate risk related to our debt and investment portfolios and financing receivables. We issue long-term debt in either U.S. dollars or foreign currencies based on market conditions at the time...

  • Page 76
    ... 30% adverse change in the stock prices of our publicly traded equity securities would result in a loss in the fair values of our marketable equity securities of approximately $3 million and $1 million at October 31, 2010 and 2009, respectively. The aggregate cost of privately-held companies, and...

  • Page 77
    ... Financial Statements ...Note 1: Summary of Significant Accounting Policies ...Note 2: Stock-Based Compensation ...Note 3: Net Earnings Per Share ...Note 4: Balance Sheet Details ...Note 5: Supplemental Cash Flow Information ...Note 6: Acquisitions ...Note 7: Goodwill and Purchased Intangible Assets...

  • Page 78
    ...in FASB ASC Topic 715, Compensation-Retirement Benefits). We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Hewlett-Packard Company's internal control over financial reporting as of October 31, 2010, based on criteria established...

  • Page 79
    ... Public Company Accounting Oversight Board (United States), the accompanying consolidated balance sheets of Hewlett-Packard Company and subsidiaries as of October 31, 2010 and 2009, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years...

  • Page 80
    ...internal control over financial reporting as of October 31, 2010 has been audited by Ernst & Young LLP, HP's independent registered public accounting firm, as stated in their report which appears on page 71 of this Annual Report on Form 10-K. ´ APOTHEKER /s/ LEO L´ eo Apotheker President and Chief...

  • Page 81
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Consolidated Statements of Earnings For the fiscal years ended October 31 2010 2009 2008 In millions, except per share amounts Net revenue: Products ...Services ...Financing income ...Total net revenue ...Costs and expenses: Cost of products ...Cost of ...

  • Page 82
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Consolidated Balance Sheets October 31 2010 2009 In millions, except par value ASSETS Current assets: Cash and cash equivalents Short-term investments . . Accounts receivable ...Financing receivables ...Inventory ...Other current assets ...$ 10,929 5 18,481 ...

  • Page 83
    ..., net ...Cash flows from financing activities: Issuance (repayment) of commercial paper and notes payable, Issuance of debt ...Payment of debt ...Issuance of common stock under employee stock plans ...Repurchase of common stock ...Excess tax benefit from stock-based compensation ...Dividends...

  • Page 84
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity Accumulated Additional Other Total HP NonPaid-in Retained Comprehensive Stockholders' controlling Capital Earnings (Loss) Income Equity Interests In millions, except number of shares in thousands $16,381 $21,560...

  • Page 85
    ... HP's Consolidated Financial Statements and accompanying notes. Actual results could differ materially from those estimates. Revenue Recognition Net revenue is derived primarily from the sale of products and services. The following revenue recognition policies define the manner in which HP accounts...

  • Page 86
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 1: Summary of Significant Accounting Policies (Continued) HP limits the amount of revenue recognition for delivered elements to the amount that is not contingent on the future delivery of products ...

  • Page 87
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 1: Summary of Significant Accounting Policies (Continued) HP reports revenue net of any required taxes collected from customers and remitted to government authorities, with the collected taxes ...

  • Page 88
    ...financing income, which HP recognizes at consistent rates of return over the lease term. Deferred Revenue and Related Deferred Contract Costs Deferred revenue represents amounts received in advance for product support contracts, software customer support contracts, outsourcing start-up services work...

  • Page 89
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 1: Summary of Significant Accounting Policies (Continued) Stock-Based Compensation Stock-based compensation expense for all share-based payment awards granted is determined based on the grant-date ...

  • Page 90
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 1: Summary of Significant Accounting Policies (Continued) HP monitors its investment portfolio for impairment on a periodic basis. When the carrying value of an investment in debt securities exceeds...

  • Page 91
    ... lives of assets used solely to support a customer services contract generally do not exceed the term of the customer contract. HP capitalizes certain internal and external costs incurred to acquire or create internal use software, principally related to software coding, designing system interfaces...

  • Page 92
    ... of the businesses that it acquired in fiscal 2010 in HP's consolidated results as of the respective dates of acquisition. HP allocates the purchase price of its acquisitions to the tangible assets, liabilities and intangible assets acquired, including in-process research and development (''IPR...

  • Page 93
    ... advantageous market for the asset or liability in an orderly transaction between market participants. Financial instruments are primarily comprised of time deposits, money market funds, commercial paper, corporate and other debt securities, equity securities and other investments in common stock...

  • Page 94
    ... in the Consolidated Statements of Stockholders' Equity. Note 2: Stock-Based Compensation HP's stock-based compensation plans include incentive compensation plans and an employee stock purchase plan (''ESPP''). Stock-based Compensation Expense and the Related Income Tax Benefits Total stock-based...

  • Page 95
    ... and market conditions. The actual number of shares the recipient receives is determined at the end of a three-year performance period based on results achieved versus company performance goals. Those goals are based on HP's annual cash flow from operations as a percentage of revenue and total...

  • Page 96
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 2: Stock-Based Compensation (Continued) the release of the restrictions. Such awards generally vest one to three years from the date of grant. During that period, ownership of the shares cannot be ...

  • Page 97
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 2: Stock-Based Compensation (Continued) Non-vested PRUs as of October 31, 2010 and 2009 and changes during fiscal 2010 and 2009 were as follows: 2010 2009 Shares in thousands Outstanding Target ...

  • Page 98
    ... their options on October 31, 2010 and 2009. The aggregate intrinsic value is the difference between HP's closing stock price on the last trading day of fiscal 2010 and fiscal 2009 and the exercise price, multiplied by the number of in-the-money options. Total intrinsic value of options exercised in...

  • Page 99
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 2: Stock-Based Compensation (Continued) Information about options outstanding at October 31, 2010 was as follows: Options Outstanding WeightedWeightedAverage Average Remaining Exercise Shares ...

  • Page 100
    ... to certain income limits, to purchase shares of HP's common stock. The ESPP expired in November 2010. For purchases made on or before April 30, 2009, employees purchased stock pursuant to the ESPP semi-annually at a price equal to 85% of the fair market value on the purchase date, and HP recognized...

  • Page 101
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 2: Stock-Based Compensation (Continued) The ESPP activity as of October 31 during each fiscal year was as follows: 2010 2009 2008 In millions, except weighted-average purchase price per share ...

  • Page 102
    ... purchase an additional 2 million shares, 2 million shares and 28 million shares in fiscal years 2010, 2009 and 2008, respectively, whose combined exercise price, unamortized fair value and excess tax benefits were greater in each of those periods than the average market price for HP's common stock...

  • Page 103
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 4: Balance Sheet Details Balance sheet details were as follows for the following fiscal years ended October 31: Accounts and Financing Receivables 2010 2009 In millions Accounts receivable ......

  • Page 104
    ..., 2010 HP sold land and buildings for approximately $415 million realizing a gain of approximately $280 million. The sale is part of the company's multi-year program to consolidate real estate locations worldwide to reduce real estate costs. Long-Term Financing Receivables and Other Assets 2010 2009...

  • Page 105
    ...Statements of Cash Flows was as follows for the following fiscal years ended October 31: 2010 2009 In millions 2008 Cash paid for income taxes, net ...Cash paid for interest ...Non-cash investing and financing activities: Issuance of common stock and stock awards assumed in acquisitions ...Purchase...

  • Page 106
    ... acquisition of Palm, a provider of smartphones powered by the Palm webOS mobile operating system. HP reports the financial results of the Palm business in the Corporate Investments segment. The aggregate purchase price was $1.8 billion, which included cash paid for common stock, vested-in-the-money...

  • Page 107
    ... 22, 2010, HP completed the acquisition of ArcSight, a security and compliance management company. HP reports the financial results of the ArcSight business in the HP Software segment. The aggregate purchase price was $1.7 billion, which included cash paid for common stock, vested-in-the-money stock...

  • Page 108
    ... 2009 and changes in the carrying amount of goodwill during the fiscal year ended October 31, 2010 and 2009 are as follows: Enterprise Storage and Servers Imaging Personal and Systems Printing Group Group In millions HP Financial Services Services HP Software Corporate Investments Total Balance...

  • Page 109
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 7: Goodwill and Purchased Intangible Assets (Continued) goodwill increased approximately $255 million as a result of currency translation related to certain of EDS's foreign subsidiaries whose ...

  • Page 110
    ... services business, which includes its infrastructure technology outsourcing, business process outsourcing and application services business units. The multi-year restructuring program includes plans to consolidate commercial data centers, tools and applications. The total expected cost of the plan...

  • Page 111
    ... 2009 Restructuring Plan In May 2009, HP's management approved and initiated a restructuring plan to structurally change and improve the effectiveness of the Imaging and Printing Group (''IPG''), the Personal Systems Group (''PSG''), and Enterprise Storage and Servers (''ESS'') businesses. The total...

  • Page 112
    ... costs and to date adjustments $ 64 $ 88 Balance, October 31, 2009 Fiscal 2010 acquisitions . . Fiscal 2010 ES Plan: Severance ...Infrastructure ...Total ES Plan ...Fiscal 2009 Plan ...Fiscal 2008 HP/EDS Plan: Severance ...Infrastructure ...Total HP/EDS Plan ...Total restructuring plans Cash...

  • Page 113
    ... methodologies HP uses to measure its financial assets and liabilities at fair value. Cash Equivalents and Investments: HP holds time deposits, money market funds, commercial paper, other debt securities primarily consisting of corporate and foreign government notes and bonds, and common stock and...

  • Page 114
    ... Using Total Total Level 1 Level 2 Level 3 Balance Level 1 Level 2 Level 3 Balance In millions Assets Time deposits ...Commercial paper ...Money market funds ...Marketable equity securities ...Foreign bonds ...Corporate bonds and other debt securities Derivatives: Interest rate contracts ...Foreign...

  • Page 115
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 9: Fair Value (Continued) investment securities classified as available-for-sale with changes in fair value recorded in other comprehensive income (''OCI''). Fair Value Measured Using Significant ...

  • Page 116
    ... Gain Loss Value Cost In millions October 31, 2009 Gross Gross Estimated Unrealized Unrealized Fair Gain Loss Value Cost Cash Equivalents Time deposits ...$6,590 Commercial paper ...- Money market funds ...971 Total cash equivalents ...Available-for-Sale Investments Debt securities: Time deposits...

  • Page 117
    ... 13 570 $625 Included in long-term financing receivables and other assets ...Total investments ... Equity securities in privately held companies include cost basis and equity method investments. Other investments include marketable trading securities held to generate returns that HP expects to 109

  • Page 118
    ... hedges as other derivatives. HP recognizes all derivatives, on a gross basis, in the Consolidated Balance Sheets at fair value and reports them in Other current assets, Long-term financing receivables and other assets, Other accrued liabilities, or Other liabilities. HP classifies cash flows...

  • Page 119
    ... balance sheet exposures. HP also uses total return swaps and, to a lesser extent, interest rate swaps, based on the equity and fixed income indices, to hedge its executive deferred compensation plan liability. For derivative instruments not designated as hedging instruments, HP recognizes changes...

  • Page 120
    ..., cash flow and net investment hedges was not material in fiscal years 2010, 2009 and 2008. Fair Value of Derivative Instruments in the Consolidated Balance Sheets As discussed in Note 9, HP estimates the fair values of derivatives primarily based on pricing models using current market rates and...

  • Page 121
    ... value hedging relationship for fiscal years ended October 31, 2010 and October 31, 2009 was as follows: Derivative Instrument Gain (Loss) Recognized in Income on Derivative and Related Hedged Item Location 2010 Hedged Item Location 2010 In millions In millions Interest rate contracts ...Interest...

  • Page 122
    ... from Accumulated OCI Into Income (Effective Portion) Location 2009 In millions Net revenue Cost of products Other operating expenses Interest and other, net Net revenue $475 142 (4) (4) 9 $618 Total cash flow hedges ...Net investment hedges: Foreign exchange contracts ...(1) $ (169) Interest and...

  • Page 123
    ...that date. The estimated fair value of the debt is based primarily on quoted market prices, as well as borrowing rates currently available to HP for bank loans with similar terms and maturities. Note 11: Financing Receivables and Operating Leases Financing receivables represent sales-type and direct...

  • Page 124
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 11: Financing Receivables and Operating Leases (Continued) included in financing receivables and long-term financing receivables and other assets, were as follows for the following fiscal years ...

  • Page 125
    ... revenue. HP engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers; however, product warranty terms offered to customers, ongoing product failure rates, material usage and service delivery costs incurred...

  • Page 126
    ... 31, 2010 and 2009, respectively. Long-Term Debt Long-term debt was as follows for the following fiscal years ended October 31: 2010 2009 In millions U.S. Dollar Global Notes 2002 Shelf Registration Statement: $500 issued at discount to par at a price of 99.505% in June 2002 at 6.5%, due July 2012...

  • Page 127
    ..., including capital lease obligations, at 0.59%-8.63%, due in calendar year 2010-2024 ...Fair value adjustment related to hedged debt ...Less: current portion ...Total long-term debt ... 1,130 315 1,445 845 669 (2,216) $15,258 As disclosed in Note 9 to the Consolidated Financial Statements, HP uses...

  • Page 128
    ... adjustment related to hedged debt of $669 million, a premium on debt issuance of $45 million, and a discount on debt issuance of $17 million) were as follows at October 31, 2010: 2011 2012 2013 2014 2015 In millions Thereafter Total Aggregate future maturities of debt outstanding including capital...

  • Page 129
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 14: Taxes on Earnings The domestic and foreign components of earnings were as follows for the following fiscal years ended October 31: 2010 2009 In millions 2008 U.S...Non-U.S... $ 4,027 6,947 $10,...

  • Page 130
    ...-profit in inventory . Intercompany transactions-excluding inventory Fixed assets ...Warranty ...Employee and retiree benefits ...Accounts receivable allowance ...Capitalized research and development ...Purchased intangible assets ...Restructuring ...Equity investments ...Deferred revenue...

  • Page 131
    ... statutory income tax rate and HP's effective tax rate were as follows for the following fiscal years ended October 31: 2010 2009 2008 U.S. federal statutory income tax rate ...State income taxes, net of federal tax benefit ...Lower rates in other jurisdictions, net ...Research and development...

  • Page 132
    ... 31, 2009. The retroactive income tax benefit of $45 million was recorded in HP's financial statements in the fourth quarter of fiscal 2008. As a result of certain employment actions and capital investments HP has undertaken, income from manufacturing and services in certain countries is subject...

  • Page 133
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 14: Taxes on Earnings (Continued) The total amount of gross unrecognized tax benefits was $2.1 billion as of October 31, 2010. A reconciliation of unrecognized tax benefits is as follows: Balance at...

  • Page 134
    ... At the same time, HP received an RAR from the IRS for its fiscal 2002 tax year that proposed no change in HP's tax liability for that year. In addition to the proposed deficiency for fiscal 2003, the IRS's adjustments for both years, if sustained, would reduce tax refund claims HP has filed for net...

  • Page 135
    ...' Equity Dividends The stockholders of HP common stock are entitled to receive dividends when and as declared by HP's Board of Directors. Dividends are paid quarterly. Dividends declared were $0.32 per common share in each of fiscal 2010, 2009 and 2008. Stock Repurchase Program HP's share repurchase...

  • Page 136
    ...net of taxes, were as follows for the following fiscal years ended October 31: 2010 2009 In millions 2008 Net unrealized gain (loss) on available-for-sale securities Net unrealized (loss) gain on cash flow hedges ...Cumulative translation adjustment ...Unrealized components of defined benefit plans...

  • Page 137
    ... Benefit Plans HP sponsors a number of defined benefit pension plans worldwide, of which the most significant are in the United States. Both the HP Retirement Plan (the ''Retirement Plan''), a traditional defined benefit pension plan based on pay and years of service, and the HP Company Cash Account...

  • Page 138
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 16: Retirement and Post-Retirement Benefit Plans (Continued) benefit obligations for the U.S. defined benefit plans combined with the DPSP is as follows for the following fiscal years ended October ...

  • Page 139
    ... Ownership Plan and, as a result, participants in the HP Stock Fund may receive dividends in cash or may reinvest such dividends into the HP Stock Fund. HP paid approximately $7 million, $8 million, and $9 million in dividends for the HP common shares held by the HP Stock Fund in fiscal 2010, 2009...

  • Page 140
    ...U.S. Defined Benefit Plans 2010 2009 2008 Non-U.S. Defined Benefit Plans 2010 2009 2008 Post-Retirement Benefit Plans 2010 2009 2008 Discount rate ...5.9% 8.0% 6.4% 5.0% 6.0% 5.2% 5.4% 8.2% 6.2% Average increase in compensation levels ...2.0% 2.0% 3.7% 2.5% 2.6% 3.3% - - - Expected long-term return...

  • Page 141
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 16: Retirement and Post-Retirement Benefit Plans (Continued) The medical cost and related assumptions used to calculate the net post-retirement benefit cost for the following fiscal years ended ...

  • Page 142
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 16: Retirement and Post-Retirement Benefit Plans (Continued) Funded Status The funded status of the defined benefit and post-retirement benefit plans was as follows for the following fiscal years ...

  • Page 143
    ...average assumptions used to calculate the benefit obligation disclosed as of the 2010 and 2009 fiscal close were as follows: U.S. Defined Benefit Plans 2010 2009 Non-U.S. Defined Benefit Plans 2010 2009 Post-Retirement Benefit Plans 2010 2009 Discount rate ...Average increase in compensation levels...

  • Page 144
    ... Post-Retirement Benefit Plans Level 1 Level 2 Level 3 Total Asset Category: Equity securities U.S...Non-U.S...Debt securities Corporate ...Government(1) ...Alternative Investments Private Equities(2) ...Hybrids ...Hedge Funds ...Real Estate Funds ...Insurance Group Annuity Contracts Cash and Cash...

  • Page 145
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 16: Retirement and Post-Retirement Benefit Plans (Continued) Changes in fair value measurements of Level 3 investments during the year ended October 31, 2010, were as follows: U.S. Defined Benefit ...

  • Page 146
    ... Plans 2010 Plan Assets Target Allocation 2010 2009 Post-Retirement Benefit Plans 2010 Plan Assets Target Allocation 2010 2009 Asset Category Public equity securities ...Private equity securities ...Real estate and other ...Equity related investments ...Public debt securities ...Cash ...Total...

  • Page 147
    ... COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 16: Retirement and Post-Retirement Benefit Plans (Continued) Expected asset class returns reflect the current yield on U.S. government bonds and risk premiums for each asset class. Because HP's investment policy...

  • Page 148
    ..., claims, investigations and proceedings, including those identified below, consisting of intellectual property, commercial, securities, employment, employee benefits and environmental matters that arise in the ordinary course of business. HP records a provision for a liability when management...

  • Page 149
    ... devices are expected to implement similar legislation to enable them to extend existing levy schemes, while some other EU member countries are expected to limit the scope of levy schemes and applicability in the digital hardware environment. HP, other companies and various industry associations...

  • Page 150
    ...the associated financial impact on HP, including the number of units impacted, the amount of levies imposed and the ability of HP to recover such amounts through increased prices, remains uncertain. Skold, et al. v. Intel Corporation and Hewlett-Packard Company is a lawsuit in which HP was joined on...

  • Page 151
    ...a consumer class action filed against HP on June 6, 2007 in the United States District Court for the Central District of California alleging that HP employs a technology in its LaserJet color printers whereby the printing process shuts down prematurely, thus preventing customers from using the toner...

  • Page 152
    ...New York and has been consolidated for pretrial purposes with the Cunningham and Steavens cases. India Directorate of Revenue Intelligence Proceedings. As described below, Hewlett-Packard India Sales Private Ltd (''HPI''), a subsidiary of HP, and certain current and former HP employees have received...

  • Page 153
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 18: Litigation and Contingencies (Continued) cause notice to HPI and three current HPI employees alleging that HP failed to pay customs duties on the appropriate value of recovery CDs containing ...

  • Page 154
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 18: Litigation and Contingencies (Continued) members of the HP Board of Directors in which the plaintiffs are seeking to recover certain compensation paid by HP to the defendants and other damages: ...

  • Page 155
    ... consolidated the four California cases under the caption In re Hewlett-Packard Company Derivative Litigation. The consolidated complaint filed on November 19, 2006, also seeks to recover damages in connection with sales of HP stock alleged to have been made by certain current and former HP officers...

  • Page 156
    ... infrastructure, including enterprise storage and server technology, networking products and solutions, information management software and software that optimizes business technology investments; personal computing and other access devices; and imaging and printing-related products and services. HP...

  • Page 157
    ... as mission critical services, converged infrastructure services, networking services, data center transformation services and infrastructure services, as well as warranty support across HP's product lines. Applications services help clients revitalize and manage their applications assets through...

  • Page 158
    ... and commercial printer hardware, printing supplies, printing media and scanning devices. IPG is also focused on imaging solutions in the commercial markets. These solutions range from managed print services solutions to addressing new growth opportunities in commercial printing and capturing...

  • Page 159
    ... flexible alternatives to balance unique customer cash flow, technology obsolescence and capacity needs. • Corporate Investments includes HP Labs, network infrastructure products, mobile devices associated with the Palm acquisition, and certain business incubation projects. Revenue in this segment...

  • Page 160
    ... ...Total HP consolidated net revenue ...Earnings before taxes: Total segment earnings from operations ...Corporate and unallocated costs and eliminations ...Unallocated costs related to certain stock-based compensation expense ...Amortization of purchased intangible assets ...Acquisition-related...

  • Page 161
    ... represents the customer location. For each of the years ended October 31, 2010, 2009 and 2008, other than the United States, no country represented more than 10% of HP's total consolidated net revenue. HP reports revenue net of sales taxes, use taxes and value-added taxes directly imposed by...

  • Page 162
    ... years ended October 31: 2010 2009(3) In millions 2008(3) Net revenue: Infrastructure technology outsourcing ...Technology services ...Application services ...Business process outsourcing ...Other ...Services(1) ...Industry standard servers ...Storage ...Business critical systems ...Enterprise...

  • Page 163
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Quarterly Summary (Unaudited) (In millions, except per share amounts) Three-month periods ended in fiscal 2010 January 31 April 30 July 31 October 31 Net revenue ...Cost of sales(1) ...Research and development ...Selling, general and administrative ......

  • Page 164
    ... termination'' (as defined in the Agreement) of her employment with HP during the term of the Agreement, Ms. Lesjak will receive (i) a cash severance benefit under the Hewlett-Packard Company Severance Plan for Executive Officers calculated by multiplying by two the sum of (A) her annual base salary...

  • Page 165
    ... the term of the Agreement and within 12 months after a ''change in control'' of HP (as defined in the Hewlett-Packard Company Amended and Restated 2004 Stock Incentive Plan), Ms Lesjak will receive the same benefits described in the preceding paragraph except that (i) the pro-rata annual cash bonus...

  • Page 166
    ...as of the date hereof are incorporated by reference from Part I, Item 1, above. The following information is included in HP's Proxy Statement related to its 2011 Annual Meeting of Stockholders to be filed within 120 days after HP's fiscal year end of October 31, 2010 (the ''Proxy Statement'') and is...

  • Page 167
    ... under ''Corporate Governance Principles and Board Matters-Director Independence.'' ITEM 14. Principal Accountant Fees and Services. Information regarding principal auditor fees and services is set forth under ''Principal Accountant Fees and Services'' in the Proxy Statement, which information is...

  • Page 168
    ... Public Accounting Firm ...Management's Report on Internal Control Over Financial Reporting Consolidated Statements of Earnings ...Consolidated Balance Sheets ...Consolidated Statements of Cash Flows ...Consolidated Statements of Stockholders' Equity ...Notes to Consolidated Financial Statements...

  • Page 169
    ... II HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Valuation and Qualifying Accounts For the fiscal years ended October 31 2010 2009 2008 In millions Allowance for doubtful accounts-accounts receivable: Balance, beginning of period ...Increase in allowance from acquisitions ...Addition of bad debt...

  • Page 170
    ...report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: December 15, 2010 HEWLETT-PACKARD COMPANY By: /s/ CATHERINE A. LESJAK Catherine A. Lesjak Executive Vice President and Chief Financial Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person...

  • Page 171
    Signature Title(s) Date /s/ RAJIV L. GUPTA Rajiv L. Gupta /s/ JOHN ...Director December 15, 2010 Director December 15, 2010 Director December 15, 2010 Director December 15, 2010 Director December 15, 2010 Director December 15, 2010 Director December 15, 2010 Director December 15, 2010...

  • Page 172
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES EXHIBIT INDEX Exhibit Number Exhibit Description Form Incorporated by Reference File No. Exhibit(s) Filing Date 3(a) Registrant's Certificate of Incorporation. 10-Q 001-04423 3(a) June 12, 1998 3(b) Registrant's Amendment to the Certificate 10-Q 001-04423 ...

  • Page 173
    ... Stock Option Plan for Non-Employee Directors, effective September 3, 2001.* 10(l) Compaq Computer Corporation 1998 Former Nonemployee Replacement Option Plan.* 10(m) Registrant's Excess Benefit Retirement Plan, amended and restated as of January 1, 2006.* 10(n) Hewlett-Packard Company Cash Account...

  • Page 174
    ... File No. Exhibit(s) Filing Date 10(s) Employment Agreement, dated July 11, 2005, between Registrant and Randall D. Mott.* 10(t) Registrant's Amended and Restated Severance Plan for Executive Officers.* 10(u) Form letter to participants in the Registrant's Pay-for-Results Plan for fiscal year...

  • Page 175
    ... by Reference File No. Exhibit(s) Filing Date 10(g)(g) Form of Long-Term Performance Cash Award Agreement for Registrant's 2004 Stock Incentive Plan and Registrant's 2000 Stock Plan, as amended.* 10(h)(h) Amendment One to the Long-Term Performance Cash Award Agreement for the 2004 Program.* 10...

  • Page 176
    ...File No. Exhibit(s) Filing Date 10(y)(y) Form of Stock Notification and Award Agreement for awards of restricted stock.* 10(z)(z) Form of Restricted Stock Unit Agreement for Registrant's 2004 Stock Incentive Plan.* 10(a)(a)(a) First Amendment to the Hewlett-Packard Company Excess Benefit Retirement...

  • Page 177
    ... to long-term debt not filed herewith as to which the total amount of securities authorized thereunder does not exceed 10 percent of the total assets of the registrant and its subsidiaries on a consolidated basis and (2) any omitted schedules to any material plan of acquisition, disposition or...

  • Page 178

  • Page 179
    ... 1Q 2008 2009 2010 FY10 REVENUE BY SEGMENT 33.6 30.8 31.2 30.8 30.7 28.5 28.3 28.0 28.8 27.4 27.6 20% 32% 28% 33.3 Personal Systems Group Imaging and Printing Group 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 15% 3% 2% Enterprise Storage and Servers HP Financial Services and Other CASH FLOW $ in...

  • Page 180
    ... 1 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice. This document is provided for informational purposes only. The only warranties for HP products and services are set forth in the express warranty statements accompanying such products...