HP 2011 Annual Report Download

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Table of contents

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  • Page 9
    ... on the last sale price of common stock on April 30, 2011. The number of shares of HP common stock outstanding as of November 30, 2011 was 1,984,033,497 shares. DOCUMENTS INCORPORATED BY REFERENCE DOCUMENT DESCRIPTION Portions of the Registrant's proxy statement related to its 2012 Annual Meeting of...

  • 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
    ... financial items; any statements of the plans, strategies and objectives of management for future operations, including execution of restructuring and integration plans; any statements concerning the expected development, performance or market share relating to products or services; any statements...

  • Page 12
    ... Enterprise Servers, Storage and Networking (''ESSN''), HP Software, HP Financial Services (''HPFS'') and Corporate Investments. In each of the past three fiscal years, notebooks, desktops and printing supplies each accounted for more than 10% of our consolidated net revenue. In fiscal 2010 and 2011...

  • Page 13
    ...and consulting services, as well as warranty support across HP's product lines. HP specializes in keeping technology running with mission critical services, converged infrastructure services, networking services, data center transformation services and infrastructure services for storage, server and...

  • Page 14
    ... software and virtualization technologies, StoreOnce data deduplication solutions, tape drives and tape libraries. These offerings enable customers to optimize their existing storage systems, build new virtualization solutions and plan their transition to cloud computing. Networking. Our switch...

  • Page 15
    ... segment net revenue, gross margin and loss from operations as a result of contra revenue associated with sales incentive programs and expenses related to supplier-related obligations and inventory write downs. Sales, Marketing and Distribution We manage our business and report our financial results...

  • Page 16
    ..., servers, storage, networking, software and support offerings. Enterprise Sales manages our direct distribution activities for commercial products and go-to-market activities with systems integrators and ISVs. Enterprise Sales also is responsible for driving HP's horizontal and vertical solutions...

  • Page 17
    ... to our research and development activities, see ''Risk Factors- If we cannot successfully execute on our strategy and continue to develop, manufacture and market products, services and solutions that meet customer requirements for innovation and quality, our revenue and gross margin may suffer...

  • Page 18
    ... competition in all areas of our business activity. We compete primarily on the basis of technology, performance, price, quality, reliability, brand, reputation, distribution, range of products and services, ease of use of our products, account relationships, customer training, service and support...

  • Page 19
    ... our supplies sales and margins. Other companies also have developed and marketed new compatible cartridges for HP's laser and inkjet products, particularly outside of the United States where intellectual property protection is inadequate or ineffective. In recent years, we and our competitors have...

  • Page 20
    ...and leverage scale advantages in everything from brand to procurement leverage. HP Software. The areas in which HP Software operates are fueled by rapidly changing customer requirements and technologies. We market enterprise IT management software in competition with IBM, CA, Inc., BMC Software, Inc...

  • Page 21
    ... Vice President and General Manager of HP's Enterprise Servers, Storage and Networking segment since May 2009 and of HP's Technology Services business unit since June 2011. Previously, Mr. Donatelli served as President of the storage division of EMC Corporation, an information technology company...

  • Page 22
    ...46; Executive Vice President, Information Management Mr. Lynch has served as Executive Vice President, Information Management since November 2011. Since 1996, Mr. Lynch has served as Chief Executive Officer of Autonomy Corporation plc, an information management company that HP acquired in 2011. John...

  • Page 23
    ...and Governance Committee) and code of ethics entitled ''Standards of Business Conduct'' also are available at that same location on our website. Stockholders may request free copies of these documents from: Hewlett-Packard Company Attention: Investor Relations 3000 Hanover Street Palo Alto, CA 94304...

  • Page 24
    ...business, and our competitors may target our key market segments. We compete primarily on the basis of technology, performance, price, quality, reliability, brand, reputation, distribution, range of products and services, ease of use of our products, account relationships, customer training, service...

  • Page 25
    ... with HP's supplies business. Other companies have also developed and marketed new compatible cartridges for HP's LaserJet and inkjet products, particularly in jurisdictions outside of the United States where adequate intellectual property protection may not exist. If we cannot successfully execute...

  • Page 26
    ... in decreased revenue, gross margin, earnings or growth rates and difficulty managing inventory levels. In addition, sustained uncertainty about current global economic conditions may adversely affect demand for our products and services. Economic weakness and uncertainty also make it more difficult...

  • Page 27
    ..., 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 28
    ..., profitability and financial condition could suffer. In late July 2011, Thailand began experiencing severe flooding that has caused widespread damage to the local manufacturing industry. HP obtains disk drive components used in its PCs, servers and storage devices from suppliers with operations in...

  • Page 29
    ... financial results, stock price and reputation. The revenue and profitability of our operations have historically varied, which makes our future financial results less predictable. Our revenue, gross margin and profit vary among our products and services, customer groups and geographic markets and...

  • Page 30
    ...stock price performance or executive team; • the announcement of new or planned products, services, technological innovations, acquisitions, divestitures or other significant transactions by HP or its competitors; • quarterly increases or decreases in revenue, gross margin, earnings or cash flow...

  • 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
    ... outside of the United States and margins on sales of products that include components obtained from suppliers located outside of the United States. We use a combination of forward contracts and options designated as cash flow hedges to protect against foreign currency exchange rate risks. The...

  • Page 33
    ... performance and software features and functionality; frequent introduction of new products; short product life cycles; and continual improvement in product price characteristics relative to product performance. To maintain our competitive position in these markets, we must successfully develop and...

  • Page 34
    ... in the current products and services of HP and portfolios acquired through mergers and acquisitions that we must manage. In addition, it may be difficult to ensure performance of new customer contracts in accordance with our revenue, margin and cost estimates and to achieve operational efficiencies...

  • Page 35
    ... 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 36
    ... 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 37
    ..., including cash and share-based compensation. Our share-based incentive awards include stock options, restricted stock units and performance-based restricted units, some of which contain conditions relating to HP's stock price performance and HP's long-term financial performance that make the...

  • Page 38
    ... in order to address customer uncertainty), minimizing sales force attrition and coordinating sales, marketing and distribution efforts; • consolidating and rationalizing corporate IT infrastructure, which may include multiple legacy systems from various acquisitions and integrating software code...

  • Page 39
    ... facilities and contracts, in-process research and development charges, inventory adjustments, assumed litigation and other liabilities, legal, accounting and financial advisory fees, and required payments to executive officers and key employees under retention plans. Moreover, HP has incurred...

  • Page 40
    ... for the conduct of our business. As of October 31, 2011, HP core data centers, manufacturing plants, research and development facilities, and warehouse operations occupied 27 million square feet. We own 53% of our data center, manufacturing, research and development, and warehouse space and lease...

  • Page 41
    ... of our headquarters of geographic operations at October 31, 2011 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 42
    ... 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 43
    ... cumulative total stockholder return assuming the investment of $100 on the date specified (and the reinvestment of dividends thereafter) in each of HP common stock, the S&P 500 Index, and the S&P Information Technology Index.(1) The comparisons in the graph below are based upon historical data and...

  • Page 44
    ... data presented below. HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Selected Financial Data 2011 For the fiscal years ended October 31 2010 2009 2008 In millions, except per share amounts 2007 Net revenue ...Earnings from operations(1) ...Net earnings ...Net earnings per share Basic ...Diluted ...Cash...

  • Page 45
    ... for financial reporting purposes: the Personal Systems Group (''PSG''), Services, the Imaging and Printing Group (''IPG''), Enterprise Servers, Storage and Networking (''ESSN''), HP Software, HP Financial Services (''HPFS'') and Corporate Investments. Our strategy and operations are currently...

  • Page 46
    ... market trends, such as cloud computing, unstructured data, data center consolidation and automation, digitization, analytics and IT security. We are also creating innovative new products and developing new channels to connect with our customers. In addition, we have been making focused investments...

  • Page 47
    .... Management believes the following critical 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...

  • Page 48
    ... market conditions such as competitor pricing strategies and industry technology life cycles. When determining ESP, we apply management judgment to establish margin objectives and pricing strategies and to evaluate market conditions and product life cycles. We may modify or develop new go-to-market...

  • Page 49
    ... and averaged approximately 3.2% of annual net product revenue. Business Combinations We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired, including in-process research and development (''IPR&D''), based on their...

  • Page 50
    ...of a reporting unit or an indefinite-lived purchased intangible asset is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted...

  • Page 51
    ...shares that may be issued to the award recipient. We determine the actual number of shares the recipient receives at the end of a three-year performance period based on results achieved versus goals based on our annual cash flow from operations as a percentage of revenue and total shareholder return...

  • Page 52
    ... cash, working capital and long-term investment requirements in the various jurisdictions in which we do business could impact our effective tax rate. We are subject to income taxes in the United States and approximately 80 foreign countries, and we are subject to routine corporate income tax audits...

  • Page 53
    ... 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 54
    ... Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Cash Equivalents and Investments: We hold time deposits, money market funds, commercial paper, other debt securities primarily consisting of corporate and foreign government notes and bonds, and common...

  • Page 55
    ... the year-over-year percentage change in revenue on an as-reported basis. RESULTS OF OPERATIONS The following discussion compares the historical results of operations on a GAAP basis for the fiscal years ended October 31, 2011, 2010, and 2009. Unless otherwise noted, all comparative performance data...

  • Page 56
    ... years ended October 31: 2011(1) 2010(2) In millions 2009(2) Net revenue ...$127,245 Cost of sales(3) ...97,529 Gross profit ...Research and development ...Selling, general and administrative ...Amortization of purchased intangible assets Impairment of goodwill and purchased intangibles assets...

  • Page 57
    ... net revenue change were as follows for the following fiscal years ended October 31: 2011 2010(1) Percentage Points Enterprise Servers, Storage and Networking HP Financial Services ...HP Software ...Services ...Imaging and Printing Group ...Corporate Investments/Other ...Personal Systems Group...

  • Page 58
    ... in expenses for supplier-related obligations, sales incentive programs and inventory write downs. Fiscal 2010 In fiscal 2010, total HP gross margin increased by 0.3 percentage points. The increase was a result of an increased mix in networking products and rate increase in Services, the effect of...

  • Page 59
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) HP Software gross margin increased in fiscal 2010 primarily as a result of a higher license and support mix, the effect of which was partially offset by a ...

  • Page 60
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) For more information on our amortization of purchased intangibles assets, see Note 7 to the Consolidated Financial Statements in Item 8, which is incorporated ...

  • Page 61
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) comprised of the $265 million net cost of British pound options bought to limit foreign exchange rate risk. The increase was also as a result of higher interest ...

  • Page 62
    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 PSG business unit were as follows for the following fiscal years ended October 31: 2011 2010 Percentage ...

  • Page 63
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Services For fiscal years ended October 31 2011 2010 2009 In millions Net revenue ...Earnings from operations ...Earnings from operations as a % of net revenue ...

  • Page 64
    ... enterprise services business, delivery efficiencies and cost controls in our technology services business, as well as EDS-related acquisition synergies. Imaging and Printing Group For the fiscal years ended October 31 2011 2010 2009 In millions Net revenue ...Earnings from operations ...Earnings...

  • Page 65
    ... solutions and strong demand from public and private cloud customers. HP Networking net revenue increased by 51% due largely to our acquisition of 3Com in April 2010, strong market demand for our core data center products and the impact of our continued investments in sales coverage. Storage...

  • Page 66
    ... by acquisitions. The gross margin increase in fiscal 2010 was due primarily to lower product costs and strong volume, the effect of which was partially offset by a product mix shift resulting from the strength in ISS. HP Software For the fiscal years ended October 31 2011 2010 2009 In millions Net...

  • Page 67
    ...by 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 Financial Services For the fiscal years ended October 31 2011 2010 2009 In millions...

  • Page 68
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Financing Originations For the fiscal years ended October 31 2011 2010 2009 In millions Total financing originations ... $6,765 $5,987 $5,210 New financing ...

  • Page 69
    ... devices. Business intelligence solutions revenue declined mainly due to lower revenue from consulting services. Corporate Investments reported a higher loss from operations in fiscal 2011 due primarily to $755 million of expenses for supplier-related obligations and sales incentive programs related...

  • Page 70
    ... cash flow metrics from our consolidated statements of cash flow: For the fiscal years ended October 31 2011 2010 2009 In millions Net cash provided by operating activities ...Net cash used in investing activities ...Net cash used in financing activities ...Net (decrease) increase in cash and cash...

  • Page 71
    ... higher revenues in the fourth quarter and higher payments for account payable activities, the impact of which was partially offset by the increase in net earnings. Our key working capital metrics are as follows: 2011 October 31 2010 2009 Days of sales outstanding in accounts receivable ...Days of...

  • Page 72
    ...Note 15 to the Consolidated Financial Statements in Item 8, which are incorporated herein by reference. CAPITAL RESOURCES Debt Levels For the fiscal years ended October 31 2011 2010 2009 In millions, except interest rates and ratios Short-term debt ...Long-term debt ...Debt-equity ratio ...Weighted...

  • Page 73
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) of $3.0 billion of U.S Dollar Global Notes and a $4 billion net increase in commercial paper at the end of fiscal 2010. Our weighted-average interest rate ...

  • Page 74
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Standard & Poor's Ratings Services downgraded our short-term and long term ratings on November 30, 2011, and Fitch Ratings Services downgraded our long term ...

  • Page 75
    ... requirements, as established by local government, funding and taxing authorities. Funding for the years following 2012 would be based on the then current market conditions, actuarial estimates and plan funding status. See Note 16 to the Consolidated Financial Statements in Item 8, which is...

  • Page 76
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) HP has revolving trade receivables-based facilities permitting it to sell certain trade receivables to third parties on both a non-recourse and a partial ...

  • Page 77
    ... business, we are exposed to foreign currency exchange rate, interest rate and equity price risks that could impact our financial position and results of operations. Our risk management strategy with respect to these three market risks may include the use of derivative financial instruments. We use...

  • Page 78
    ...-rate debt would be beneficial. In order to hedge the fair value of certain fixed-rate investments, we may enter into interest rate swaps that convert fixed interest returns into variable interest returns. We may use cash flow hedges to hedge the variability of LIBOR-based interest income received...

  • Page 79
    ... 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 80
    ... of Hewlett-Packard Company and subsidiaries as of October 31, 2011 and 2010, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended October 31, 2011. Our audits also included the financial statement schedule listed...

  • Page 81
    ... Public Company Accounting Oversight Board (United States), the accompanying consolidated balance sheets of Hewlett-Packard Company and subsidiaries as of October 31, 2011 and 2010, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years...

  • Page 82
    ... public accounting firm, as stated in their report which appears on page 73 of this Annual Report on Form 10-K. /s/ MARGARET C. WHITMAN Margaret C. Whitman President and Chief Executive Officer December 14, 2011 /s/ CATHERINE A. LESJAK Catherine A. Lesjak Executive Vice President and Chief Financial...

  • Page 83
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Consolidated Statements of Earnings For the fiscal years ended October 31 2011 2010 2009 In millions, except per share amounts Net revenue: Products ...Services ...Financing income ...Total net revenue ...Costs and expenses: Cost of products ...Cost of ...

  • Page 84
    ...term financing receivables and other assets Goodwill ...Purchased intangible assets ... Total assets ...LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and short-term borrowings ...Accounts payable ...Employee compensation and benefits ...Taxes on earnings ...Deferred revenue...

  • Page 85
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Consolidated Statements of Cash Flows For the fiscal years ended October 31 2011 2010 2009 In millions Cash flows from operating activities: Net earnings ...Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and ...

  • Page 86
    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 $14,012 $24,971...

  • Page 87
    ... those costs with the functional areas that benefit from those expenditures. HP has made certain segment and business unit realignments in order to optimize its operating structure. Reclassifications of prior year financial information have been made to conform to the current year presentation. None...

  • Page 88
    ... pricing strategies and the product life cycle. Consideration is also given to market conditions such as competitor pricing strategies and industry technology life cycles. In instances when revenue is derived from sales of third-party vendor services, revenue is recorded on a gross basis when HP...

  • Page 89
    ...the relationship of actual labor costs incurred to date to the estimated total contract labor costs, with estimates regularly revised during the life of the contract. HP recognizes revenue on certain design and build (design, development and/or construction of software and/or systems) projects using...

  • Page 90
    ...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, consulting and integration projects, product sales...

  • Page 91
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 1: Summary of Significant Accounting Policies (Continued) monetary assets and liabilities and at historical exchange rates for nonmonetary assets and liabilities. Net revenue, cost of sales and ...

  • Page 92
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 1: Summary of Significant Accounting Policies (Continued) HP maintains cash and cash equivalents, short- and long-term investments, derivatives and certain other financial instruments with various ...

  • Page 93
    ... 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 and installation...

  • Page 94
    ... 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 95
    ...related accounting policies. 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 Related Income Tax Benefits Total stock-based compensation expense before income...

  • Page 96
    ... 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 97
    ... Notes to Consolidated Financial Statements (Continued) Note 2: Stock-Based Compensation (Continued) satisfaction of both service and market conditions prior to the expiration of the awards in order for them to vest. Under the principal equity plans, HP granted certain employees cash-settled awards...

  • Page 98
    ... to Consolidated Financial Statements (Continued) Note 2: Stock-Based Compensation (Continued) (4) HP uses historic volatility for PRU awards, as implied volatility cannot be used when simulating multivariate prices for companies in the S&P 500. Non-vested PRUs as of October 31, 2011 and 2010 and...

  • Page 99
    ... value is the difference between HP's closing stock price on the last trading day of fiscal 2011 and fiscal 2010 and the exercise price, multiplied by the number of in-the-money options. Total intrinsic value of options exercised in fiscal 2011, 2010 and 2009 was $0.7 billion, $1.3 billion and...

  • Page 100
    ... Financial Statements (Continued) Note 2: Stock-Based Compensation (Continued) Information about options outstanding at October 31, 2011 was as follows: Options Outstanding WeightedWeightedAverage Average Remaining Exercise Shares Contractual Price Outstanding Life Per Share In thousands In years...

  • Page 101
    ... shares of HP's common stock. Purchases made prior to fiscal year 2011 were made under the Hewlett-Packard Company 2000 Employee Stock Purchase Plan (the ''2000 ESPP''), which expired in November 2010. For purchases made on October 31, 2011, employees purchased stock under the 2011 ESPP at a price...

  • Page 102
    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: 2011 2010 2009 In millions, except weighted-average purchase price per share ...

  • Page 103
    ...to purchase an additional 1 million shares, 2 million shares and 2 million shares in fiscal years 2011, 2010 and 2009, 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 104
    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 2011 2010 In millions Accounts receivable ......

  • Page 105
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 4: Balance Sheet Details (Continued) Other Current Assets 2011 2010 In millions Deferred tax assets-short-term ...Value-added taxes receivable from various governments . Supplier and other ...

  • Page 106
    ... cash flow information to the Consolidated Statements of Cash Flows was as follows for the following fiscal years ended October 31: 2011 2010 In millions 2009 Cash paid for income taxes, net ...Cash paid for interest ...Non-cash investing and financing activities: Issuance of common stock and stock...

  • Page 107
    ... intangible assets on a straight-line basis over an estimated weighted-average life of 8.8 years. Acquisitions in prior years In fiscal 2010, HP completed eleven acquisitions. Total fair value of purchase consideration for the acquisitions was $9.4 billion, which includes cash paid for common stock...

  • Page 108
    ... during the fiscal years ended October 31, 2011 and 2010 are as follows: Enterprise Imaging Servers, and Storage HP Printing and HP Financial Corporate Group Networking Software Services Investments In millions Personal Systems Group Services Total Balance at October 31, 2009 . . $2,487 $16,829...

  • Page 109
    ... 2011 Accumulated Amortization 2010 Accumulated Amortization Gross Net Gross In millions Net Customer contracts, customer lists and distribution agreements ...Developed and core technology and patents ...Product trademarks ...Total amortizable purchased intangible assets ...IPR&D ...Compaq trade...

  • Page 110
    ... and developed and core technology, patents and product trademarks, which have weighted-average useful lives of 7 years. Estimated future amortization expense related to finite-lived purchased intangible assets at October 31, 2011 is as follows: Fiscal year: In millions 2012 ...2013 ...2014 ...2015...

  • Page 111
    ...-term portion in Other liabilities in the Consolidated Balance Sheets. Fiscal 2010 Acquisitions In connection with the acquisitions of Palm and 3Com in fiscal 2010, HP's management approved and initiated plans to restructure the operations of the acquired companies, including severance for employees...

  • Page 112
    ... Consolidated Balance Sheets. Note 9: Fair Value HP determines fair value based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market...

  • 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 ...Money market funds ...Marketable equity securities ...Foreign bonds ...Corporate bonds and other debt securities Derivatives: Interest rate contracts ...Foreign exchange contracts...

  • Page 115
    ... Gross Gross Estimated Unrealized Unrealized Fair Gain Loss Value Cost In millions October 31, 2010 Gross Gross Estimated Unrealized Unrealized Fair Gain Loss Value Cost Cash Equivalents Time deposits ...$5,112 Money market funds ...236 Total cash equivalents ...Available-for-Sale Investments Debt...

  • Page 116
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 10: Financial Instruments (Continued) recognized an insignificant impairment charge associated with debt securities. In fiscal years 2010 and 2009, HP recognized an impairment charge of $12 million ...

  • Page 117
    ... 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 118
    ... hedges in the same financial statement line item as the changes in value of the hedged item. During fiscal years 2011, 2010 and 2009, HP did not discontinue any cash flow hedge for which it was probable that a forecasted transaction would not occur. Net Investment Hedges HP uses forward contracts...

  • Page 119
    ... Liabilities Notional Assets Other Assets Liabilities Liabilities In millions Gross Notional(1) Derivatives designated as hedging instruments Fair value hedges: Interest rate contracts ...Cash flow hedges: Foreign exchange contracts Net investment hedges: Foreign exchange contracts Total...

  • Page 120
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 10: Financial Instruments (Continued) The before-tax effect of derivative instruments in cash flow and net investment hedging relationships for fiscal years 2011 and 2010 were as follows: Gain (Loss...

  • Page 121
    ...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 122
    ... years ended October 31: 2012 2013 2014 2015 Thereafter Total Scheduled maturities of minimum lease payments receivable ... $3,518 $2,256 $1,257 $517 $173 $7,721 Equipment leased to customers under operating leases was $4.0 billion at October 31, 2011 and $3.5 billion at October 31, 2010...

  • Page 123
    ...to Consolidated Financial Statements (Continued) Note 11: Financing Receivables and Operating Leases (Continued) The credit risk profile of the gross financing receivables, based on internally assigned ratings, was as follows for the following fiscal years ended October 31: Risk Rating 2011 2010 In...

  • Page 124
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 11: Financing Receivables and Operating Leases (Continued) administrative nature, accounts may still accrue interest when they reach 90 days past due. A write-off or specific reserve is generally ...

  • Page 125
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 12: Guarantees (Continued) The changes in HP's aggregate product warranty liabilities were as follows for the following fiscal years ended October 31: 2011 2010 In millions Product warranty ...

  • Page 126
    ...to Consolidated Financial Statements (Continued) Note 13: Borrowings (Continued) Long-Term Debt Long-term debt was as follows for the following fiscal years ended October 31: 2011 2010 In millions U.S. Dollar Global Notes 2002 Shelf Registration Statement: $500 issued at discount to par at a price...

  • Page 127
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 13: Borrowings (Continued) 2011 2010 In millions 2009 Shelf Registration Statement: $750 issued at par in May 2009 at three-month USD LIBOR plus 1.05%, paid May 2011 ...$1,000 issued at discount to...

  • Page 128
    ...-2024 ...Fair value adjustment related to hedged debt ...Less: current portion ...Total long-term debt ... 1,120 315 1,435 836 543 (4,345) $22,551 1,130 315 1,445 845 669 (2,216) $15,258 As disclosed in Note 10 to the Consolidated Financial Statements, HP uses interest rate swaps to mitigate the...

  • Page 129
    ... adjustment related to hedged debt of $543 million, a premium on debt issuance of $35 million, and a discount on debt issuance of $21 million) were as follows at October 31, 2011: 2012 2013 2014 2015 2016 In millions Thereafter Total Aggregate future maturities of debt outstanding including capital...

  • 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
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 14: Taxes on Earnings (Continued) The breakdown between current and long-term deferred tax assets and deferred tax liabilities was as follows for the following fiscal years ended October 31: 2011 ...

  • Page 132
    ... income tax rate and HP's effective tax rate were as follows for the following fiscal years ended October 31: 2011 2010 2009 U.S. federal statutory income tax rate ...State income taxes, net of federal tax benefit ...Lower rates in other jurisdictions, net ...Research and development credit...

  • 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, 2011. A reconciliation of unrecognized tax benefits is as follows: Balance at...

  • Page 134
    ... and it determines that it is advantageous for business operations, tax or cash management reasons. Note 15: Stockholders' 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...

  • Page 135
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 15: Stockholders' Equity (Continued) 3 million shares repurchased in transactions that were executed in fiscal 2009 but settled in fiscal 2010. In fiscal 2009, HP completed share repurchases of ...

  • Page 136
    ... 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 Pension Plan (the ''Cash Account Pension Plan''), under which benefits are accrued pursuant to...

  • Page 137
    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 are as follows for the following fiscal years ended October...

  • Page 138
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 16: Retirement and Post-Retirement Benefit Plans (Continued) reform legislation is not expected to affect the cost of HP's retiree welfare programs because the subsidy offered by HP to retiree ...

  • Page 139
    ... the Consolidated Statements of Earnings was as follows for the following fiscal years ended October 31: U.S. Defined Benefit Plans 2011 2010 2009 Non-U.S. Defined Benefit Plans 2011 2010 2009 In millions Post-Retirement Benefit Plans 2011 2010 2009 Service cost ...Interest cost ...Expected return...

  • Page 140
    ...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 ended October 31: U.S. Defined Benefit Plans 2011...

  • Page 141
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 16: Retirement and Post-Retirement Benefit Plans (Continued) The net amounts recognized for HP's defined benefit and post-retirement benefit plans in HP's Consolidated Balance Sheets as of October ...

  • Page 142
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 16: Retirement and Post-Retirement Benefit Plans (Continued) Defined benefit plans with projected benefit obligations exceeding the fair value of plan assets were as follows: U.S. Defined Non-U.S. ...

  • Page 143
    ... Non-U.S. Defined Benefit Plans Level 1 Level 2 Level 3 In millions Total 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...

  • Page 144
    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, 2011, were as follows: U.S. Defined Benefit ...

  • 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
    ... plan's forecasted liabilities and liquidity needs. HP invests a portion of the U.S. defined benefit plan assets and post-retirement benefit plan assets in private market securities such as venture capital funds to provide diversification and higher expected returns. Outside the United States, asset...

  • 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
    ... 31, 2010. The related depreciation is included in depreciation expense. Future annual minimum lease payments, sublease rental income commitments and capital lease commitments at October 31, 2011 were as follows: 2012 2013 2014 2015 2016 In millions Thereafter Total Minimum lease payments ...Less...

  • Page 149
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 18: Litigation and Contingencies HP is involved in lawsuits, claims, investigations and proceedings, including those identified below, consisting of intellectual property, commercial, securities, ...

  • Page 150
    ... of these matters and 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...

  • Page 151
    ... on plaintiffs' motion is currently scheduled for March 2, 2012. Inkjet Printer Litigation. As described below, HP is involved in several lawsuits claiming breach of express and implied warranty, unjust enrichment, deceptive advertising and unfair business practices where the plaintiffs have alleged...

  • Page 152
    ... of New York claiming that current and former EDS employees allegedly involved in installing and/or maintaining computer software and hardware were misclassified as exempt employees. Another purported collective action, Steavens, et al. v. Electronic Data Systems Corporation, which was filed on...

  • Page 153
    ... 12, 2011, the court denied plaintiff's motion for conditional class certification. 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 show cause...

  • Page 154
    .... Russia GPO and Related Investigations. The German Public Prosecutor's Office (''German PPO'') has been conducting an investigation into allegations that current and former employees of HP engaged in bribery, embezzlement and tax evasion relating to a transaction between Hewlett-Packard ISE GmbH in...

  • Page 155
    ...and Chief Executive Officer Mark Hurd, and HP's acquisition of 3PAR Inc. The lawsuit also alleges violations of Section 14(a) of the Exchange Act in connection with HP's 2010 and 2011 proxy statements. • Richard Gammel v. Hewlett-Packard Company, et al., is a putative securities class action filed...

  • Page 156
    ... access devices; multi-vendor customer services, including infrastructure technology and business process outsourcing, technology support and maintenance, application development and support services and consulting and integration services; imaging and printing-related products and services; and...

  • Page 157
    ...well as warranty support across HP's product lines. Applications Services helps clients revitalize and manage their applications assets through flexible, project-based consulting services and longer-term outsourcing contracts. These full life cycle services encompass application development, testing...

  • Page 158
    ... risks. • HP Financial Services supports and enhances HP's global product and services solutions, providing a broad range of value-added financial life cycle management services. HPFS enables HP's worldwide customers to acquire complete IT solutions, including hardware, software and services. HPFS...

  • Page 159
    ... HP technology to third parties. Segment Data HP derives the results of the business segments directly from its internal management reporting system. The accounting policies HP uses to derive business segment results are substantially the same as those the consolidated company uses. Management...

  • Page 160
    ... fiscal years ended October 31: 2011 Total Net Revenue Earnings (Loss) from Operations 2010(1) 2009(1) 2011 2010(1) 2009(1) In millions Personal Systems Group ...Services ...Imaging and Printing Group . . Enterprise Servers, Storage and Networking(2) ...HP Software(3) ...HP Financial Services...

  • Page 161
    ... benefiting from the assets. Total assets by segment and the reconciliation of segment assets to HP consolidated total assets were as follows at October 31: 2011 2010 In millions 2009 Personal Systems Group ...Services ...Imaging and Printing Group ...Enterprise Servers, Storage and Networking HP...

  • Page 162
    ... represents the customer location. For each of the years ended October 31, 2011, 2010 and 2009, 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 163
    ... Technology Outsourcing Technology Services ...Application Services ...Business Process Outsourcing ...Other ... Services ...Supplies ...Commercial Hardware ...Consumer Hardware ...Imaging and Printing Group ...Industry Standard Servers . Storage(3) ...Business Critical Systems . HP Networking...

  • Page 164
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) Note 19: Segment Information (Continued) within Services and within PSG. In addition, net revenue reported for the Infrastructure Technology Outsourcing business unit and eliminations of inter-segment ...

  • Page 165
    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Quarterly Summary (Unaudited) (In millions, except per share amounts) Three-month periods ended in fiscal 2011 January 31 April 30 July 31 October 31 Net revenue ...Cost of sales(1) ...Research and development ...Selling, general and administrative ......

  • Page 166
    ... within four business days prior to the filing of this report. On December 11, 2011, the HR and Compensation Committee (the ''Committee'') of the HP Board of Directors amended and restated the Hewlett-Packard Company Severance Plan for Executive Officers (the ''Severance Plan''). The amendments...

  • Page 167
    ... Proxy Statement related to its 2012 Annual Meeting of Stockholders to be filed within 120 days after HP's fiscal year end of October 31, 2011 (the ''Proxy Statement'') and is incorporated herein by reference: • Information regarding directors of HP who are standing for reelection and any persons...

  • Page 168
    ... 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 169
    ... of Cash Flows ...Consolidated Statements of Stockholders' Equity ...Notes to Consolidated Financial Statements ...Quarterly Summary ...2. Financial Statement Schedules: ...72 74 75 76 77 78 79 157 Schedule II-Valuation and Qualifying Accounts for the three fiscal years ended October 31, 2011. All...

  • Page 170
    ... II HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Valuation and Qualifying Accounts For the fiscal years ended October 31 2011 2010 2009 In millions Allowance for doubtful accounts-accounts receivable: Balance, beginning of period ...Increase in allowance from acquisitions ...Addition of bad debt...

  • Page 171
    ...report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: December 14, 2011 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 172
    ... Date /s/ RAJIV L. GUPTA Rajiv L. Gupta /s/ JOHN H. HAMMERGREN John H. Hammergren /s/ RAYMOND J. LANE Raymond J. Lane /s/ ANN M. LIVERMORE Ann M. Livermore /s/ GARY M. REINER Gary M. Reiner /s/ PATRICIA F. RUSSO Patricia F. Russo Director December 14, 2011 Director December 14, 2011 Executive...

  • Page 173
    ...3, 2009, 4.50% Global Note due March 1, 2013 and 5.50% Global Note due March 1, 2018. 4(h) Form of Registrant's 6.125% Global Note due March 1, 2014 and form of related Officers' Certificate. 10-Q 10-Q 8-K 001-04423 001-04423 001-04423 3(a) 3(b) 3.1 June 12, 1998 March 16, 2001 November 17, 2011...

  • Page 174
    Exhibit Number Exhibit Description Form File No. Incorporated by Reference Exhibit(s) Filing Date 4(i) Form of Registrant's Floating Rate Global Note due February 24, 2011, 4.250% Global Note due February 24, 2012 and 4.750% Global Note due June 2, 2014 and form of related Officers' ...

  • Page 175
    ... Benefit Retirement Plan, amended and restated as of January 1, 2006.* 10(g) Hewlett-Packard Company Cash Account Restoration Plan, amended and restated as of January 1, 2005.* 10(h) Registrant's 2005 Pay-for-Results Plan, as amended.*‡ 10(i) Registrant's 2005 Executive Deferred Compensation Plan...

  • Page 176
    ... Number Exhibit Description Form File No. Incorporated by Reference Exhibit(s) Filing Date 10(o) Form letter regarding severance offset for restricted stock and restricted units.* 10(p) Form of Restricted Stock Agreement for Registrant's 2004 Stock Incentive Plan, Registrant's 2000 Stock Plan...

  • Page 177
    ... and Award Agreement for awards of restricted stock.* 10(m)(m) Form of Restricted Stock Unit Agreement for Registrant's 2004 Stock Incentive Plan.* 10(n)(n) First Amendment to the HewlettPackard Company Excess Benefit Retirement Plan.* 10-Q 001-04423 10(o)(o) March 10, 2008 10-Q 001...

  • Page 178
    ...-qualified stock options.* 10(w)(w) Form of Agreement Regarding Confidential Information and Proprietary Developments (California-new hires).* 10(x)(x) Form of Agreement Regarding Confidential Information and Proprietary Developments (California-current employees).* 10(y)(y) Letter Agreement, dated...

  • Page 179
    ...'s Severance Plan for Executive Officers, as amended and restated.*‡ 11 None. 12 Statement of Computation of Ratio of Earnings to Fixed Charges.‡ 13-14 None. 16 None. 18 None. 21 Subsidiaries of the Registrant as of October 31, 2011.‡ 22 None. 23 Consent of Independent Registered Public...

  • Page 180
    ... respect 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...

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