HP
Annual Report 2014

2014

 Annual Report

3

(cid:41)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:21)(cid:19)(cid:20)(cid:24)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:68)(cid:3)(cid:71)(cid:72)(cid:428)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)

(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:43)(cid:51)(cid:17)(cid:3)(cid:50)(cid:88)(cid:85)(cid:3)(cid:70)(cid:75)(cid:68)(cid:79)(cid:79)(cid:72)(cid:81)(cid:74)(cid:72)(cid:116)(cid:3)
(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:88)(cid:81)(cid:76)(cid:87)(cid:92)(cid:116)(cid:76)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)

take our performance to the 
(cid:81)(cid:72)(cid:91)(cid:87)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:79)(cid:72)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:72)(cid:83)(cid:68)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72) 
determined not to skip a 
(cid:69)(cid:72)(cid:68)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:428)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:21)(cid:19)(cid:20)(cid:24)(cid:17)

Meg Whitman
(cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:80)(cid:68)(cid:81)(cid:15)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:40)(cid:50)

4

Dear Stockholders,
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(cid:82)(cid:88)(cid:85)(cid:3)(cid:428)(cid:89)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:87)(cid:88)(cid:85)(cid:81)(cid:68)(cid:85)(cid:82)(cid:88)(cid:81)(cid:71)(cid:3)(cid:72)(cid:427)(cid:82)(cid:85)(cid:87)(cid:17)(cid:3)(cid:41)(cid:85)(cid:82)(cid:80)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:85)(cid:82)(cid:428)(cid:87)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)
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(cid:69)(cid:88)(cid:76)(cid:79)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:79)(cid:82)(cid:81)(cid:74)(cid:16)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:92)(cid:3)(cid:79)(cid:72)(cid:68)(cid:71)(cid:72)(cid:85)(cid:86)(cid:75)(cid:76)(cid:83)(cid:17) 
(cid:55)(cid:82)(cid:3)(cid:68)(cid:70)(cid:70)(cid:72)(cid:79)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:72)(cid:86)(cid:86)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:68)(cid:81)(cid:81)(cid:82)(cid:88)(cid:81)(cid:70)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:72)(cid:83)(cid:68)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81) 
(cid:82)(cid:73)(cid:3)(cid:43)(cid:51)(cid:3)(cid:76)(cid:81)(cid:87)(cid:82)(cid:3)(cid:87)(cid:90)(cid:82)(cid:3)(cid:81)(cid:72)(cid:90)(cid:15)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:79)(cid:72)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:17)

Year in Review
(cid:44)(cid:81)(cid:3)(cid:428)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:21)(cid:19)(cid:20)(cid:23)(cid:15)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:68)(cid:69)(cid:82)(cid:88)(cid:87)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:90)(cid:72)(cid:3)(cid:80)(cid:68)(cid:71)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)
(cid:83)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)(cid:86)(cid:87)(cid:82)(cid:70)(cid:78)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:85)(cid:72)(cid:76)(cid:74)(cid:81)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:81)(cid:82)(cid:89)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:70)(cid:85)(cid:82)(cid:86)(cid:86)(cid:3)(cid:43)(cid:51)(cid:15)(cid:3)(cid:73)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:86)(cid:87)(cid:85)(cid:72)(cid:81)(cid:74)(cid:87)(cid:75)(cid:72)(cid:81)(cid:72)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)
(cid:79)(cid:72)(cid:68)(cid:71)(cid:72)(cid:85)(cid:86)(cid:75)(cid:76)(cid:83)(cid:15)(cid:3)(cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:430)(cid:82)(cid:90)(cid:3)(cid:68)(cid:69)(cid:82)(cid:89)(cid:72)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:73)(cid:82)(cid:85)(cid:87)(cid:76)(cid:428)(cid:72)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:86)(cid:75)(cid:72)(cid:72)(cid:87)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:74)(cid:85)(cid:72)(cid:90)(cid:3)(cid:81)(cid:82)(cid:81)(cid:16)(cid:42)(cid:36)(cid:36)(cid:51)(cid:3)
(cid:81)(cid:72)(cid:87)(cid:3)(cid:72)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:11)(cid:112)(cid:40)(cid:51)(cid:54)(cid:113)(cid:12)(cid:17)(cid:3)

(cid:50)(cid:81)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:69)(cid:76)(cid:74)(cid:74)(cid:72)(cid:86)(cid:87)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:76)(cid:86)(cid:75)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:86)(cid:87)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:93)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:87)(cid:85)(cid:68)(cid:77)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:92)(cid:17)(cid:3)(cid:49)(cid:72)(cid:87)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:428)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)
(cid:21)(cid:19)(cid:20)(cid:23)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:7)(cid:20)(cid:20)(cid:20)(cid:17)(cid:24)(cid:3)(cid:69)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:71)(cid:82)(cid:90)(cid:81)(cid:3)(cid:20)(cid:8)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:16)(cid:82)(cid:89)(cid:72)(cid:85)(cid:16)(cid:92)(cid:72)(cid:68)(cid:85)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:430)(cid:68)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:87)(cid:68)(cid:81)(cid:87)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:69)(cid:68)(cid:86)(cid:76)(cid:86)(cid:17)(cid:20)(cid:3)(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)
(cid:70)(cid:85)(cid:76)(cid:87)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:72)(cid:83)(cid:3)(cid:76)(cid:81)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:43)(cid:51)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:87)(cid:88)(cid:85)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:17)

(cid:58)(cid:76)(cid:87)(cid:75)(cid:3)(cid:428)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:21)(cid:19)(cid:20)(cid:23)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:430)(cid:82)(cid:90)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:20)(cid:21)(cid:17)(cid:22)(cid:3)(cid:69)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:82)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:74)(cid:68)(cid:76)(cid:81)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:72)(cid:71)(cid:72)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3)
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Separation
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Hewlett-Packard Enterprise(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:68)(cid:3)(cid:79)(cid:72)(cid:68)(cid:71)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:81)(cid:72)(cid:91)(cid:87)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)(cid:3)(cid:76)(cid:81)(cid:73)(cid:85)(cid:68)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:88)(cid:85)(cid:72)(cid:15)(cid:3)
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$12.3B
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1

 
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Accelerating Innovation
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(cid:87)(cid:82)(cid:3)(cid:69)(cid:88)(cid:76)(cid:79)(cid:71)(cid:15)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:88)(cid:80)(cid:72)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:79)(cid:82)(cid:68)(cid:71)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:75)(cid:92)(cid:69)(cid:85)(cid:76)(cid:71)(cid:3)(cid:44)(cid:55)(cid:3)(cid:72)(cid:81)(cid:89)(cid:76)(cid:85)(cid:82)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:83)(cid:68)(cid:86)(cid:87)(cid:3)(cid:73)(cid:68)(cid:79)(cid:79)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:68)(cid:81)(cid:81)(cid:82)(cid:88)(cid:81)(cid:70)(cid:72)(cid:71)(cid:3)
(cid:70)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:43)(cid:51)(cid:3)(cid:43)(cid:72)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:50)(cid:83)(cid:72)(cid:81)(cid:54)(cid:87)(cid:68)(cid:70)(cid:78)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:43)(cid:51)(cid:3)(cid:43)(cid:72)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:39)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:51)(cid:79)(cid:68)(cid:87)(cid:73)(cid:82)(cid:85)(cid:80)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:72)(cid:3)
(cid:73)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:86)(cid:87)(cid:85)(cid:72)(cid:81)(cid:74)(cid:87)(cid:75)(cid:72)(cid:81)(cid:72)(cid:71)(cid:3)(cid:43)(cid:51)(cid:3)(cid:43)(cid:72)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:40)(cid:88)(cid:70)(cid:68)(cid:79)(cid:92)(cid:83)(cid:87)(cid:88)(cid:86)(cid:17)(cid:3)

(cid:58)(cid:72)(cid:3)(cid:76)(cid:81)(cid:87)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)HP Apollo(cid:3)(cid:73)(cid:68)(cid:80)(cid:76)(cid:79)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:16)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:88)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:92)(cid:86)(cid:87)(cid:72)(cid:80)(cid:86)(cid:15)(cid:3)(cid:70)(cid:68)(cid:83)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:88)(cid:83)(cid:3)
(cid:87)(cid:82)(cid:3)(cid:73)(cid:82)(cid:88)(cid:85)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:3)(cid:85)(cid:68)(cid:70)(cid:78)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:85)(cid:86)(cid:3)(cid:90)(cid:75)(cid:76)(cid:79)(cid:72)(cid:3)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:72)(cid:86)(cid:86)(cid:3)(cid:86)(cid:83)(cid:68)(cid:70)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:81)(cid:72)(cid:85)(cid:74)(cid:92)(cid:17)(cid:3)(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:86)(cid:3)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:43)(cid:51)(cid:3)(cid:36)(cid:83)(cid:82)(cid:79)(cid:79)(cid:82)(cid:3)(cid:27)(cid:19)(cid:19)(cid:19)(cid:3)(cid:54)(cid:92)(cid:86)(cid:87)(cid:72)(cid:80)(cid:15)(cid:3)(cid:68)(cid:81)(cid:3)(cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:92)(cid:3)(cid:428)(cid:85)(cid:86)(cid:87)(cid:15)(cid:3)(cid:79)(cid:76)(cid:84)(cid:88)(cid:76)(cid:71)(cid:16)(cid:70)(cid:82)(cid:82)(cid:79)(cid:72)(cid:71)(cid:3)(cid:86)(cid:88)(cid:83)(cid:72)(cid:85)(cid:70)(cid:82)(cid:80)(cid:83)(cid:88)(cid:87)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:70)(cid:82)(cid:80)(cid:69)(cid:76)(cid:81)(cid:72)(cid:86)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)
(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:82)(cid:90)(cid:72)(cid:85)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:88)(cid:79)(cid:87)(cid:85)(cid:68)(cid:16)(cid:79)(cid:82)(cid:90)(cid:3)(cid:72)(cid:81)(cid:72)(cid:85)(cid:74)(cid:92)(cid:3)(cid:88)(cid:86)(cid:68)(cid:74)(cid:72)(cid:17)

(cid:58)(cid:72)(cid:3)(cid:72)(cid:91)(cid:87)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)Converged Storage(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:73)(cid:82)(cid:79)(cid:76)(cid:82)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:68)(cid:3)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:16)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:83)(cid:87)(cid:76)(cid:80)(cid:76)(cid:93)(cid:72)(cid:71)(cid:15)(cid:3)(cid:68)(cid:79)(cid:79)(cid:16)(cid:430)(cid:68)(cid:86)(cid:75)(cid:3)HP 3PAR StoreServ 
system(cid:17)(cid:3)(cid:44)(cid:87)(cid:3)(cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:86)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:82)(cid:90)(cid:3)(cid:79)(cid:68)(cid:87)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:82)(cid:88)(cid:87)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:82)(cid:80)(cid:76)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:81)(cid:87)(cid:72)(cid:85)(cid:83)(cid:85)(cid:76)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:86)(cid:76)(cid:79)(cid:76)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:82)(cid:85)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:71)(cid:68)(cid:87)(cid:68)(cid:16)(cid:70)(cid:72)(cid:81)(cid:87)(cid:72)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:72)(cid:91)(cid:76)(cid:87)(cid:92)(cid:17)

(cid:44)(cid:81)(cid:3)(cid:36)(cid:88)(cid:74)(cid:88)(cid:86)(cid:87)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:68)(cid:81)(cid:81)(cid:82)(cid:88)(cid:81)(cid:70)(cid:72)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:73)(cid:82)(cid:79)(cid:76)(cid:82)(cid:3)(cid:82)(cid:73)(cid:3)HP ProLiant Gen 9 Servers(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:82)(cid:83)(cid:87)(cid:76)(cid:80)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)
(cid:73)(cid:82)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:89)(cid:72)(cid:85)(cid:74)(cid:72)(cid:81)(cid:70)(cid:72)(cid:15)(cid:3)(cid:70)(cid:79)(cid:82)(cid:88)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:82)(cid:73)(cid:87)(cid:90)(cid:68)(cid:85)(cid:72)(cid:16)(cid:71)(cid:72)(cid:428)(cid:81)(cid:72)(cid:71)(cid:3)(cid:72)(cid:81)(cid:89)(cid:76)(cid:85)(cid:82)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:3)(cid:430)(cid:72)(cid:91)(cid:76)(cid:69)(cid:79)(cid:72)(cid:15)(cid:3)(cid:86)(cid:70)(cid:68)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:88)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:85)(cid:72)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:79)(cid:76)(cid:74)(cid:81)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:111)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:74)(cid:82)(cid:68)(cid:79)(cid:86)(cid:17)(cid:3)

(cid:44)(cid:81)(cid:3)(cid:50)(cid:70)(cid:87)(cid:82)(cid:69)(cid:72)(cid:85)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:68)(cid:81)(cid:81)(cid:82)(cid:88)(cid:81)(cid:70)(cid:72)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)Blended Reality Ecosystem(cid:3)(cid:116)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:88)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
(cid:22)(cid:39)(cid:3)(cid:83)(cid:85)(cid:76)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3)(cid:75)(cid:82)(cid:90)(cid:3)(cid:90)(cid:72)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:68)(cid:70)(cid:87)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:90)(cid:82)(cid:85)(cid:79)(cid:71)(cid:3)(cid:68)(cid:85)(cid:82)(cid:88)(cid:81)(cid:71)(cid:3)(cid:88)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:428)(cid:85)(cid:86)(cid:87)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)
(cid:87)(cid:82)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:86)(cid:3)Sprout by HP(cid:15)(cid:3)(cid:68)(cid:3)(cid:428)(cid:85)(cid:86)(cid:87)(cid:16)(cid:82)(cid:73)(cid:16)(cid:76)(cid:87)(cid:86)(cid:16)(cid:78)(cid:76)(cid:81)(cid:71)(cid:3)(cid:44)(cid:80)(cid:80)(cid:72)(cid:85)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:88)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:79)(cid:68)(cid:87)(cid:73)(cid:82)(cid:85)(cid:80)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:85)(cid:72)(cid:71)(cid:72)(cid:428)(cid:81)(cid:72)(cid:86)(cid:3)
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(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92) 
(cid:81)(cid:72)(cid:87)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)

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(cid:85)(cid:72)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:86)

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The Year Ahead
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3

 
 
HP Board of Directors

Marc L. Andreessen
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:21)(cid:19)(cid:19)(cid:28)

Rajiv L. Gupta
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Shumeet Banerji
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Robert R. Bennett
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(cid:86)(cid:72)(cid:89)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:83)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:17)(cid:3)

Klaus Kleinfeld
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(cid:82)(cid:73)(cid:3)(cid:37)(cid:68)(cid:92)(cid:72)(cid:85)(cid:3)(cid:36)(cid:42)(cid:17)

Raymond J. Lane
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(cid:23)

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Ann M. Livermore
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Raymond E. Ozzie
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Gary M. Reiner
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Patricia F. Russo
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James A. Skinner
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Margaret C. Whitman
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(cid:50)(cid:427)(cid:76)(cid:70)(cid:72)(cid:85)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:54)(cid:72)(cid:83)(cid:87)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:20)(cid:20)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:80)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:19)(cid:20)(cid:20)(cid:17)(cid:3)(cid:41)(cid:85)(cid:82)(cid:80)(cid:3)(cid:48)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3)(cid:21)(cid:19)(cid:20)(cid:20)(cid:3)(cid:87)(cid:82)(cid:3)
(cid:54)(cid:72)(cid:83)(cid:87)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:20)(cid:20)(cid:15)(cid:3)(cid:48)(cid:86)(cid:17)(cid:3)(cid:58)(cid:75)(cid:76)(cid:87)(cid:80)(cid:68)(cid:81)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:16)(cid:87)(cid:76)(cid:80)(cid:72)(cid:3)
(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:76)(cid:70)(cid:3)(cid:68)(cid:71)(cid:89)(cid:76)(cid:86)(cid:82)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:46)(cid:79)(cid:72)(cid:76)(cid:81)(cid:72)(cid:85)(cid:15)(cid:3)(cid:51)(cid:72)(cid:85)(cid:78)(cid:76)(cid:81)(cid:86)(cid:15)(cid:3)(cid:38)(cid:68)(cid:88)(cid:79)(cid:428)(cid:72)(cid:79)(cid:71)(cid:3)(cid:9)(cid:3)(cid:37)(cid:92)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)
(cid:68)(cid:3)(cid:83)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:72)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:428)(cid:85)(cid:80)(cid:17)(cid:3)(cid:51)(cid:85)(cid:72)(cid:89)(cid:76)(cid:82)(cid:88)(cid:86)(cid:79)(cid:92)(cid:15)(cid:3)(cid:48)(cid:86)(cid:17)(cid:3)(cid:58)(cid:75)(cid:76)(cid:87)(cid:80)(cid:68)(cid:81)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:71)(cid:3)
(cid:68)(cid:86)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:427)(cid:76)(cid:70)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:72)(cid:37)(cid:68)(cid:92)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17)(cid:15)(cid:3)
(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:20)(cid:28)(cid:28)(cid:27)(cid:3)(cid:87)(cid:82)(cid:3)(cid:21)(cid:19)(cid:19)(cid:27)(cid:17)(cid:3)(cid:51)(cid:85)(cid:76)(cid:82)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:77)(cid:82)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:37)(cid:68)(cid:92)(cid:15)(cid:3)(cid:48)(cid:86)(cid:17)(cid:3)(cid:58)(cid:75)(cid:76)(cid:87)(cid:80)(cid:68)(cid:81)(cid:3)
(cid:75)(cid:72)(cid:79)(cid:71)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:16)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:43)(cid:68)(cid:86)(cid:69)(cid:85)(cid:82)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17)(cid:15)(cid:3)(cid:68)(cid:3)(cid:87)(cid:82)(cid:92)(cid:3)
(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:15)(cid:3)(cid:41)(cid:55)(cid:39)(cid:15)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17)(cid:15)(cid:3)(cid:68)(cid:3)(cid:430)(cid:82)(cid:85)(cid:68)(cid:79)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:15)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)
(cid:54)(cid:87)(cid:85)(cid:76)(cid:71)(cid:72)(cid:3)(cid:53)(cid:76)(cid:87)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:68)(cid:3)(cid:73)(cid:82)(cid:82)(cid:87)(cid:90)(cid:72)(cid:68)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:15)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:58)(cid:68)(cid:79)(cid:87)(cid:3)
(cid:39)(cid:76)(cid:86)(cid:81)(cid:72)(cid:92)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:15)(cid:3)(cid:68)(cid:81)(cid:3)(cid:72)(cid:81)(cid:87)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:37)(cid:68)(cid:76)(cid:81)(cid:3)
(cid:9)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:15)(cid:3)(cid:68)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:88)(cid:79)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:17)(cid:3)(cid:48)(cid:86)(cid:17)(cid:3)(cid:58)(cid:75)(cid:76)(cid:87)(cid:80)(cid:68)(cid:81)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)
(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:86)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:51)(cid:85)(cid:82)(cid:70)(cid:87)(cid:72)(cid:85)(cid:3)(cid:9)(cid:3)(cid:42)(cid:68)(cid:80)(cid:69)(cid:79)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:17)

5

Executive Team*

Martin Fink
(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:55)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)(cid:3)(cid:50)(cid:427)(cid:76)(cid:70)(cid:72)(cid:85)

(cid:45)(cid:72)(cid:427)(cid:3)(cid:55)(cid:17)(cid:3)(cid:53)(cid:76)(cid:70)(cid:70)(cid:76)
(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:38)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:79)(cid:72)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
(cid:51)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:68)(cid:79)(cid:3)(cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:50)(cid:427)(cid:76)(cid:70)(cid:72)(cid:85)

Henry Gomez
(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:48)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:50)(cid:427)(cid:76)(cid:70)(cid:72)(cid:85)

John F. Schultz
(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)
(cid:42)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:88)(cid:81)(cid:86)(cid:72)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:54)(cid:72)(cid:70)(cid:85)(cid:72)(cid:87)(cid:68)(cid:85)(cid:92)

John M. Hinshaw
(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)
(cid:55)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)

Tracy S. Keogh
(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)
(cid:43)(cid:88)(cid:80)(cid:68)(cid:81)(cid:3)(cid:53)(cid:72)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:86)

Catherine A. Lesjak
(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:50)(cid:427)(cid:76)(cid:70)(cid:72)(cid:85)

Todd R. Morgenfeld
(cid:55)(cid:85)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)
(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:39)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:87)(cid:76)(cid:70)(cid:86)

Michael G. Nefkens
(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)
(cid:40)(cid:81)(cid:87)(cid:72)(cid:85)(cid:83)(cid:85)(cid:76)(cid:86)(cid:72)(cid:3)(cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)

William L. Veghte
(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
(cid:42)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:85)(cid:15)(cid:3)(cid:40)(cid:81)(cid:87)(cid:72)(cid:85)(cid:83)(cid:85)(cid:76)(cid:86)(cid:72)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)

Dion J. Weisler
(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)
(cid:51)(cid:85)(cid:76)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:51)(cid:72)(cid:85)(cid:86)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:54)(cid:92)(cid:86)(cid:87)(cid:72)(cid:80)(cid:86)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)

Margaret C. Whitman
(cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:80)(cid:68)(cid:81)(cid:15)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:427)(cid:76)(cid:70)(cid:72)(cid:85)

Robert Youngjohns
(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)
(cid:42)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:85)(cid:15)(cid:3)(cid:43)(cid:51)(cid:3)(cid:54)(cid:82)(cid:73)(cid:87)(cid:90)(cid:68)(cid:85)(cid:72)

(cid:13)(cid:48)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:55)(cid:72)(cid:68)(cid:80)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:23)(cid:17)

6

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

(cid:2) ANNUAL  REPORT PURSUANT  TO  SECTION 13 OR  15(d) OF THE

SECURITIES EXCHANGE ACT  OF  1934

For the fiscal year ended October 31, 2014

Or

(cid:3)

TRANSITION REPORT PURSUANT  TO  SECTION 13  OR  15(d) OF  THE
SECURITIES EXCHANGE ACT OF 1934
For the transition 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
(I.R.S.  employer
identification no.)

94304
(Zip code)

Registrant’s telephone number, including area  code: (650)  857-1501

Securities registered pursuant to Section  12(b)  of the  Act:

Title of each class

Name of  each exchange on which registered

Common stock, par value $0.01 per share

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate  by check mark if the registrant is a well-known seasoned  issuer as defined in Rule 405 of the Securities Act. Yes (cid:2) No (cid:3)

Indicate  by check mark if the registrant is not required to file reports  pursuant to Section 13 or Section 15(d) of the Act.

Yes (cid:3) No (cid:2)

Indicate  by check mark whether the registrant (1) has filed all  reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or  for such shorter period that the registrant was required to file such reports),
and (2) has been  subject to such filing requirements for the past  90 days. Yes (cid:2) No (cid:3)

Indicate  by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter  period that the registrant was required to  submit  and  post such files). Yes (cid:2) No (cid:3)

Indicate  by check mark if disclosure of delinquent filers  pursuant to Item 405 of Regulation S-K is not contained herein, and  will

not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. (cid:3)

Indicate  by check mark whether the registrant is a large  accelerated filer, an accelerated filer,  a  non-accelerated  filer, or a smaller
reporting company. See the definitions of ‘‘large accelerated  filer,’’  ‘‘accelerated filer’’ and ‘‘smaller reporting company’’ in Rule 12b-2 of
the Exchange Act. (Check one):
Large accelerated filer (cid:2)

Smaller  reporting  company (cid:3)

Accelerated filer (cid:3)

Non-accelerated  filer (cid:3)
(Do not check if a smaller
reporting  company)

Indicate  by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:3) No (cid:2)

The  aggregate market value of the registrant’s common stock held by non-affiliates was $61,031,111,812 based on the last sale

price of  common  stock on April 30, 2014.

The  number of shares of HP common stock outstanding as of  November 30, 2014 was 1,834,081,993 shares.

DOCUMENT  DESCRIPTION

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the  Registrant’s proxy statement related to its 2014 Annual  Meeting of Stockholders to be filed
pursuant to Regulation 14A within 120 days after Registrant’s  fiscal year end of October 31, 2014 are incorporated
by reference into Part III of this Report.

10-K PART

III

Hewlett-Packard Company

Form 10-K

For the Fiscal Year Ended October 31, 2014

Table of Contents

PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder  Matters and  Issuer

Item 6.
Item 7.

Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial  Condition  and Results of

Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A. Quantitative and Qualitative  Disclosures about Market Risk . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary  Data . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Changes in and Disagreements with Accountants on Accounting and  Financial
Item 9.

Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

Item 10. Directors, Executive Officers  and  Corporate  Governance . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related
Item 12.

Item 13.
Item 14.

Item 15.

Stockholder  Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions,  and Director Independence . . . . . .
Principal Accounting Fees and  Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART IV
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

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18
36
37
38
38

39
41

42
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80

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171

172
172

172
173
173

174

Forward-Looking Statements

This  Annual Report on Form 10-K, including ‘‘Management’s Discussion and  Analysis of Financial
Condition and Results of Operations’’  in Item  7, contains forward-looking statements that involve  risks,
uncertainties and assumptions. If the risks or uncertainties ever materialize  or  the assumptions  prove
incorrect, the results of Hewlett-Packard  Company  and its consolidated subsidiaries (‘‘HP’’) may  differ
materially from those expressed or implied  by  such forward-looking statements and assumptions. All
statements other than statements of historical fact  are  statements that could be deemed  forward-looking
statements,  including  but  not  limited  to  any  projections  of  revenue,  margins,  expenses,  effective  tax  rates,  net
earnings, net earnings per share, cash flows, benefit  plan funding, share  repurchases, currency  exchange  rates
or other financial items; any projections  of the amount, timing  or impact of cost savings  or restructuring
charges; any statements of the plans, strategies and  objectives of management  for future operations,
including  the  previously  announced  separation  transaction  and  the  future  performances  of  the  post-
separation companies if the separation is  completed, as well as  the execution of  restructuring plans and any
resulting cost savings or revenue or profitability improvements; any statements concerning  the expected
development, performance, market share or competitive performance  relating to products or services; any
statements regarding current or future macroeconomic trends or events and  the impact  of those trends and
events  on HP and its financial performance; any statements regarding  pending investigations, claims  or
disputes; any statements of expectation  or  belief; and any statements  of  assumptions underlying any  of the
foregoing. Risks, uncertainties and assumptions include the need  to address the many  challenges  facing HP’s
businesses; the competitive pressures faced by HP’s businesses; risks  associated with  executing HP’s strategy,
including the planned separation transaction; the  impact of  macroeconomic and geopolitical trends  and
events; the need to manage third-party  suppliers  and the distribution of HP’s  products and  the delivery of
HP’s services effectively; the protection  of HP’s  intellectual  property assets, including intellectual property
licensed from third parties; risks associated with HP’s  international  operations; the development  and
transition of new products and services and the enhancement of existing products  and services  to meet
customer needs and respond to emerging  technological trends; the execution and performance of contracts
by HP and its suppliers, customers, clients  and partners; the  hiring  and retention  of key employees;
integration and other risks associated with business  combination and investment  transactions;  the execution,
timing and results of the separation transaction or  restructuring plans, including estimates and  assumptions
related to the cost (including any possible disruption of HP’s business) and  the anticipated benefits  of
implementing the separation transaction  and  restructuring plans; the resolution of  pending investigations,
claims and disputes; and other risks that  are described herein, including but  not  limited to the items
discussed in ‘‘Risk Factors’’ in Item 1A of Part  I of this report and that are otherwise described or updated
from time to time in HP’s Securities and Exchange Commission reports. HP  assumes no obligation  and
does  not intend to update these forward-looking  statements.

ITEM 1. Business.

PART I

We  are a leading global provider of products, technologies, software, solutions and services to

individual consumers, small- and medium-sized  businesses (‘‘SMBs’’) and large enterprises,  including
customers in the government, health  and  education  sectors.  Our offerings span the following:

• personal computing and other access devices;

• imaging- and printing-related products and services;

• enterprise information technology  (‘‘IT’’) infrastructure, including enterprise server and storage

technology, networking products and solutions, technology  support and maintenance;

• multi-vendor customer services, including technology consulting,  outsourcing and support services

across infrastructure, applications and business process  domains;  and

3

• IT management software, application testing  and delivery software, information management

solutions, big data analytics, security  intelligence and risk management solutions.

HP was incorporated in 1947 under the laws of  the state of California as  the successor to a
partnership founded in 1939 by William R. Hewlett and  David  Packard. Effective in May 1998, we
changed our state of incorporation from California to Delaware.

October 2014 Announcement of HP Separation Transaction

On October 6, 2014, we announced plans  to  separate into two independent  publicly-traded
companies: one comprising our enterprise  technology infrastructure, software, services and financing
businesses,  which  will  conduct  business  as  Hewlett-Packard  Enterprise  and  one  that  will  comprise  our
printing  and  personal  systems  businesses,  which  will  conduct  business  as  HP  Inc.  The  separation  is
subject to certain conditions, including,  among others, obtaining  final  approval  from HP’s Board of
Directors,  receipt  of  a  favorable  opinion  and/or  rulings  with  respect  to  the  tax-free  nature  of  the
transaction  for  federal  income  tax  purposes  and  the  effectiveness  of  a  Form 10  filing  with  the  SEC.  The
separation  is  expected  to  be  completed  by  the  end  of  fiscal  2015.  Under  the  separation  plan,  HP
shareholders will own shares of both Hewlett-Packard Enterprise and HP Inc.  The following  chart
provides  an  overview  of  the  planned  separation  and  segment  revenues  of  the  respective  businesses
based on HP’s fiscal 2014 results, excluding Corporate Investments  and intercompany  eliminations.

Hewlett-Packard Enterprise

HP Inc.

Revenue Mix
(based on
fiscal 2014 results)

Enterprise Group

Enterprise Services

Software

Financial Services

48%

39%

7%

6%

Personal Systems

Printing

60%

40%

Financial Metrics

•  Segment Revenue: $57.6B

•  Segment Revenue: $57.3B

5DEC201423560915

HP Products and Services; Segment  Information

We  offer one of the IT industry’s broadest  portfolios of products  and services  that  bring together
infrastructure, software, and services  through innovation to enable our customers to create  value and
solve  business  problems.  As  consumers  and  enterprises  shift  the  way  technology  is  created,  delivered,
consumed and paid for, they are demanding a foundation that will support much greater agility, lower
cost, facilitate quicker time-to-market, and  provide a higher  degree  of accessibility by end-users to that
technology. We design our solutions to provide that foundation, particularly in the areas of  security,
cloud, mobility and big data, by leveraging the breadth of our offerings and the strengths  and
capabilities of our individual business units.

Our operations are organized into seven  business  segments: Personal Systems; Printing; the

Enterprise Group (‘‘EG’’); Enterprise  Services (‘‘ES’’);  Software; HP  Financial Services  (‘‘HPFS’’); and
Corporate Investments. In each of the  past three  fiscal years, notebook personal  computers (‘‘PCs’’),
printing supplies, infrastructure technology outsourcing services, desktop PCs and industry standard
servers each accounted for more than 10%  of our consolidated  net revenue.

The Personal Systems segment and the  Printing  segment are structured beneath a broader Printing
and  Personal  Systems  Group  (‘‘PPS’’).  While  PPS  is  not  a  reportable  segment,  we  may  provide  financial

4

data aggregating the Personal Systems and Printing segments to provide a supplementary view of its
business.

A summary of our net revenue, earnings from operations and  assets for our segments  along with a

description  of  our  fiscal  2014  organizational  realignments  can  be  found  in  Note  2  to  the  Consolidated
Financial Statements in Item 8, which is  incorporated herein by reference. A discussion of factors
potentially affecting our operations is set forth  in ‘‘Risk Factors’’ in Item  1A, which is incorporated
herein by reference.

Printing and Personal Systems Group

The mission of PPS is to leverage the respective  strengths of the  Personal Systems segment and
the Printing segment by creating a unified business that is customer-focused and poised to capitalize  on
rapidly shifting industry trends. Each  of  the business segments within PPS is  described in  detail below.

Personal Systems

Personal Systems provides commercial PCs, consumer PCs, workstations,  thin  client PCs, tablets,
retail  point-of-sale  (‘‘POS’’)  systems,  calculators  and  other  related  accessories,  software,  support  and
services for the commercial and consumer markets. We  group  commercial notebooks, commercial
desktops, commercial tablets, workstations and thin clients  into commercial clients  and consumer
notebooks, consumer desktops and consumer tablets into consumer  clients when  describing
performance in these markets. Both  commercial and  consumer PCs and tablets are  based
predominately on the Microsoft Windows operating system and use  processors from  Intel Corporation
(‘‘Intel’’) and Advanced Micro Devices,  Inc. (‘‘AMD’’).  Personal  Systems  also maintains a multi-
operating  system,  multi-architecture  strategy  using  the  Google  Chrome  and  Android  operating  systems
for notebooks and tablets, respectively.

Commercial  PCs. Commercial PCs are optimized for use  by  customers including  enterprise  and

SMB customers, and for connectivity,  reliability  and  manageability in networked environments.
Commercial PCs include the HP ProBook and HP  EliteBook lines of notebooks  and hybrids
(detachable tablets), the HP Pro and  HP Elite lines of business desktops  and all-in-ones, retail POS
systems, HP Thin Clients, HP ElitePad and HP Pro Tablet  PCs.  Commercial  PCs also include
workstations that are designed and optimized  for  high-performance and  demanding application
environments including Z desktop workstations,  Z  all-in-ones and  Z mobile  workstations.

Consumer  PCs. Consumer PCs include the HP Spectre, HP ENVY, HP Pavilion, HP

Chromebook, HP Split and HP Slate  series of  multi-media consumer notebooks,  consumer tablets,
hybrids and desktops, including the TouchSmart line of touch-enabled notebooks and all-in-one
desktops.

Printing

Printing provides consumer and commercial printer hardware,  supplies, media,  software and
services, as well as scanning devices. Printing is also focused on imaging  solutions  in the commercial
markets. These solutions range from  managed print services to areas such as industrial  applications,
outdoor signage and the graphic arts  business. HP groups LaserJet, large format printers and
commercial  inkjet  printers  into  Commercial  Hardware  and  consumer  and  SMB  inkjet  printers  into
Consumer  Hardware  when  describing  performance  in  these  markets.

LaserJet and Enterprise Solutions. LaserJet and Enterprise Solutions delivers LaserJet and
enterprise products, services and solutions  to  the SMB and enterprise segments  including LaserJet
printers and supplies (toner), Officejet  Pro X  inkjet enterprise  products and supplies,  multi-function
devices, scanners, web-connected hardware, managed services, and enterprise software solutions such as

5

Web  Jetadmin. Managed Print Services provides printing equipment, supplies, support, workflow
optimization and security features for  SMB and enterprise customers around the  world, utilizing
proprietary HP tools and fleet management  solutions,  as well as  third-party software.

Inkjet and Printing Solutions.

Inkjet and Printing Solutions deliver consumer  and  SMB inkjet

solutions (hardware, supplies, media,  and  web-connected hardware and services) and  include single-
function and all-in-one inkjet printers. Ongoing initiatives and programs,  such as  Ink in  the Office and
Ink  Advantage, and newer initiatives,  such  as Instant  Ink, are intended to provide  innovative printing
solutions to consumers and SMBs. Our Ink in the  Office initiative is focused on  providing high value
inkjet printing solutions to SMBs through  our Officejet Premium and Officejet Pro inkjet portfolios.
Our Ink Advantage program aims to  provide savings  on the overall cost of printing in emerging
markets. Instant Ink is an ink replacement service that allows customers to pay a  monthly fee to print a
specified number of pages per month.

Graphics  Solutions. Graphics Solutions deliver large format  printers (Designjet, Large Format

Production and Scitex Industrial), specialty printing, digital press solutions (Indigo and Inkjet
Webpress),  supplies  and  services  to  print  service  providers  and  design  and rendering  customers.  The
solutions cover a wide range of printing applications  such as technical design, photos, sign and display,
direct  mail,  marketing  collateral,  labels  and packaging,  and  publishing.

Software  and Web Services. Software and Web Services delivers a suite of offerings, including
photo-storage and  printing offerings (such as Snapfish),  document storage, entertainment services,
web-connected printing, and PC back-up  and related services.

Enterprise  Group

EG provides a broad portfolio of enterprise technology  infrastructure solutions for a variety of

operating environments that address a wide range  of  customer challenges, including the need to
increase agility and accelerate innovation in order to drive revenue,  manage  risk and lower  costs. HP
Helion, our enterprise technology infrastructure  portfolio  of servers, storage, networking and
technology services combined with HP’s cloud  services  and software, allows customers to adopt a
holistic approach to building a technology  infrastructure  that supports their current business and
consumer demands and next generation  applications and web  services. HP’s Converged Systems
portfolio (servers, storage and networking) simplifies  IT  through quick deployment, intuitive
management and system-level support.  Optimized  for key workloads such as virtualization, cloud and
big data, these complete, integrated solutions enable organizations of all sizes to efficiently utilize IT
staffing resources and deploy applications  faster.

Industry  Standard  Servers.

Industry Standard Servers offers a range of products  from entry-level

servers through premium ProLiant servers, which run primarily  Windows,  Linux  and virtualization
platforms from software providers such as Microsoft Corporation (‘‘Microsoft’’) and VMware,  Inc.
(‘‘VMware’’), and open source software from  other major vendors while leveraging x86 processors  from
Intel and AMD. The business spans a range  of server product lines, including microservers,  towers,
traditional rack, density-optimized rack  and blades, solutions for large,  distributed computing companies
who buy and deploy nodes at a massive scale.  Industry Standard  Servers also offers HP Moonshot
servers operating on ARM, AMD and  Intel Atom-based processors which offer  reduced  cost, space,
energy and complexity compared to traditional servers.

Business Critical Systems. Business Critical Systems delivers our  mission-critical systems through a

portfolio of HP Integrity servers based  on  the Intel Itanium  processor that run  the HP-UX and
OpenVMS operating systems, as well as  HP Integrity  NonStop solutions  and  mission-critical
x86 ProLiant servers.

6

Storage. Our storage offerings include platforms for enterprise and SMB environments. Our
flagship product is the 3PAR StoreServ Storage Platform, which is designed for virtualization, cloud and
IT-as-a-service. Traditional Storage solutions include tape, storage  networking and legacy  external disk
products such as EVA and XP. Converged Storage  solutions include  3PAR StoreServ,  StoreOnce and
StoreVirtual products. These offerings enable customers  to optimize their  existing storage systems, build
new virtualization solutions and facilitate their transition  to cloud computing.

Networking. Our networking offerings include switches, routers, wireless local area network
(‘‘WLAN’’) and network management  products that deliver open, scalable, secure, agile  and consistent
solutions that span the data center, campus and  branch environments and deliver software-defined
networking  and  unified  communications  capabilities.  Our  unified  wired  and  wireless  networking
offerings include both WLAN access points, controllers and switches. Our networking solutions are
based on our FlexNetwork architecture,  which is  designed to enable simplified server virtualization,
unified communications and multi-media application delivery  for  the enterprise. Software-defined
networking provides an end-to-end solution to automate the network from data center to campus  and
branch.

Technology Services. Technology Services provides support services and technology consulting,

focused on cloud, mobility and big data  and  provides IT organizations with advice, design,
implementation,  migration  and  optimization  of  EG’s  platforms:  servers,  storage,  networking  and
converged infrastructure. Support services offerings  span various levels of customer support needs and
include:  HP Foundation Care, our portfolio of  reactive hardware and software support services; HP
Proactive Care, which combines remote support technology  for real-time  monitoring with  rapid access
to our technical experts; HP Datacenter Care, a comprehensive  and flexible capacity  end-to-end
support for HP and multi-vendor systems that enables customers  to  build, operate or consume IT in
traditional, cloud or hybrid cloud environments; and Lifecycle Event services, which are event-based
services offering our technology expertise and  consulting for each  phase of the technology life cycle.
These services are available in the form  of  service contracts, pre-packaged offerings (HP Care Pack
services) or on a customized basis.

Enterprise  Services

ES provides technology consulting, outsourcing and support services across infrastructure,
applications and business process domains. ES delivers to our  clients by leveraging investments in
consulting and support professionals, infrastructure  technology, applications, standardized
methodologies  and  global  supply  and  delivery.  ES  also  creates  opportunities  to  sell  additional  hardware
and  software by offering solutions that  encompass  both  products and services.

Infrastructure Technology Outsourcing.

Infrastructure Technology Outsourcing delivers

comprehensive services that streamline and optimize our  clients’ technology infrastructure to efficiently
enhance performance, reduce costs, mitigate  risk  and  enable business change. These services encompass
the management of data centers, IT security,  cloud computing, workplace technology, networks, unified
communications and enterprise service  management. We also offer a set  of managed services that
provide a cross-section of our broader infrastructure  services for  smaller, discrete engagements.

Application  and  Business  Services. Application and Business Services helps our  clients develop,
revitalize and manage their applications  and  information assets. This full application life cycle approach
encompasses application development,  testing, modernization, system integration, maintenance and
management for both packaged and  custom-built applications and cloud  offerings. The  Application and
Business Services portfolio also includes intellectual property-based  industry solutions, along with
technologies and related services all of  which  help  clients better manage their critical industry processes
for customer relationship management, finance  and  administration, human resources, payroll and
document  processing.

7

Software

Software provides IT management, application  testing and delivery, information management, big
data analytics, security intelligence and risk management solutions  for businesses and enterprises of all
sizes. Our software offerings include  licenses,  support, professional  services and software-as-a-service
(‘‘SaaS’’). Described below are our global  business capabilities within  Software.

Application Delivery Management which is part of HP’s IT management offerings, provides  software

that enables organizations to deliver  high performance applications by automating and testing the
processes required to ensure the quality and scalability of desktop, web, mobile and cloud-based
applications.

Big Data provides a full suite of software designed to help organizations store, explore, govern,
protect and serve information and insights that fundamentally improve the outcomes  of businesses and
the environment, while managing risk  and  meeting legal obligations. The group’s suite includes  HP
Vertica, the leading analytics platform  for machine, structured and semi-structured data, HP IDOL, a
unique  analytics platform for human  information  from Autonomy, as well as market leading solutions
for archiving, data protection, eDiscovery,  information  governance and Enterprise Content
Management.

Enterprise  Security software is designed to disrupt fraud, hackers and cyber criminals by  scanning
software and  websites for security vulnerabilities, improving network defenses and providing real-time
warning of threats as they emerge.

IT Operations Management which is part of HP’s IT management offerings, provides software

required to automate routine IT tasks  and to pinpoint IT problems when they occur, helping
enterprises to reduce operational costs  and improve the reliability of applications running in a
traditional, cloud or hybrid environment.

Marketing  Optimization focuses on delivering solutions that help businesses engage audiences, reach

new customer segments and markets and deliver  compelling content across channels. The  group
provides solutions for augmented reality,  contact  center analytics, customer communications
management and digital experience management.

Software’s big data platform, HAVEn, provides unique assets for processing and  understanding
machine and  sensor data, business data  and unstructured human information. A growing ecosystem of
customers, partners and developers use  this platform to build big data driven analytic  applications.
Software also leverages HAVEn’s unique analytic assets  to  deliver market-leading,  purpose-built
solutions for a variety of markets, including application testing and delivery,  big data analytics and
applications, IT operations management, marketing optimization and enterprise security. These
solutions are designed for businesses and enterprises of  all sizes, and are available via  on-premises,
SaaS and hybrid delivery models. Software’s  HAVEn big  data platform and purpose-built applications
are augmented by support and professional  services in order to provide an end-to-end solution  to
customers.

HP Financial Services

HPFS provides flexible investment solutions, such as leasing, financing, utility  programs and asset

management  services,  for  customers  to  enable  the  creation  of  unique  technology  deployment  models
and acquisition of complete IT solutions, including hardware, software and services  from HP and
others. Providing flexible services and capabilities that  support the entire IT lifecycle, HPFS partners
with customers globally to help build investment strategies that enhance their business agility and
support  their  business  transformation.  HPFS  offers  a  wide  selection  of  investment  solution  capabilities
for large enterprise customers and channel partners, along with an array of  financial options to SMBs,
educational and governmental entities.

8

Corporate  Investments

Corporate Investments includes HP Labs and certain cloud-related business incubation projects

among others.

Sales, Marketing and Distribution

We  manage our business and report  our financial results  based on the business segments  described

above. Our customers are organized by  consumer and commercial  groups, and  purchases  of HP
products, solutions and services may be fulfilled directly by HP  or  indirectly through a  variety of
partners,  including:

• retailers that sell our products to the public through  their own physical or  Internet stores;

• resellers that sell our products and services, frequently with their  own value-added products or

services, to targeted customer groups;

• distribution partners that supply our solutions to resellers;

• original equipment manufacturers  (‘‘OEMs’’) that integrate our  products  and services with their

own products and services, and sell the integrated solution;

• independent software vendors that  provide their clients with specialized software  products and

often assist us in selling our products  and services to clients purchasing  their products;

• systems integrators that provide expertise in  designing and  implementing custom IT  solutions
and often partner with us to extend their  expertise or influence the  sale of our products and
services;  and

• advisory firms that provide various levels of management and IT  consulting, including  some
systems integration work, and typically partner with us on  client solutions that require our
unique products and services.

The mix of our business conducted by  direct sales or channel  differs substantially by business and

region. We believe that customer buying  patterns  and different regional market conditions require us to
tailor our sales, marketing and distribution efforts accordingly. We  are  focused  on driving the  depth
and breadth of our coverage, in addition to identifying efficiencies and productivity  gains, in both  our
direct and indirect businesses. While each  of our business  segments manages the  execution  of its  own
go-to-market and distribution strategy,  our  business  segments  also  collaborate to ensure  strategic and
process alignment where appropriate.  For  example, we typically assign an  account manager,  generally
from EG or ES, to manage relationships across our business with  large enterprise customers. The
account manager is supported by a team of  specialists with product and services  expertise. For other
customers and for consumers, PPS typically manages direct online sales  as well  as channel relationships
with retailers, while our business segments collaborate  to  manage relationships  with commercial
resellers targeting SMBs where appropriate.

Manufacturing and Materials

We  utilize a significant number of outsourced manufacturers (‘‘OMs’’) around  the world to

manufacture HP-designed products. The use of OMs is intended  to  generate cost efficiencies  and
reduce time to market for HP-designed  products. We use multiple  OMs to maintain flexibility  in our
supply  chain  and  manufacturing  processes.  In  some  circumstances,  third-party  OEMs produce  products
that we purchase and resell under the HP brand. In addition  to  our use of OMs, we currently
manufacture a limited number of finished products from components  and subassemblies that we
acquire from a wide range of vendors.

9

We  utilize two primary methods of fulfilling demand for products: building products to order and

configuring products to order. We build products  to  order to maximize  manufacturing  and logistics
efficiencies by producing high volumes of  basic product configurations. Alternatively, configuring
products to order enables units to match  a customer’s  particular hardware and software  customization
requirements. Our inventory management and distribution practices in both  building products to order
and configuring products to order seek to minimize  inventory holding periods  by  taking delivery of the
inventory and manufacturing shortly  before  the sale  or distribution of products to our customers.

We  purchase materials, supplies and  product subassemblies  from  a substantial number  of  vendors.

For most of our products, we have existing  alternate sources of supply or such alternate  sources  of
supply are readily  available. However, we do rely on  sole  sources  for  laser printer engines, LaserJet
supplies, certain customized parts and  parts for  products with short life cycles (although some of these
sources  have operations in multiple locations in the event of a disruption). We  are dependent upon
Intel and AMD as suppliers of x86 processors and Microsoft for various software products; however,
we believe that disruptions with these suppliers  would result  in industry-wide dislocations  and therefore
would not disproportionately disadvantage us relative to our competitors. See ‘‘Risk Factors—We
depend  on third-party suppliers, and our financial  results could suffer  if we fail  to  manage  suppliers
properly,’’ in Item 1A, which is incorporated herein by reference.

Like other participants in the IT industry, we ordinarily acquire materials and components through

a combination of blanket and scheduled purchase orders to support our  demand  requirements for
periods averaging 90 to 120 days. From time to time,  we may experience  significant price  volatility  or
supply constraints for certain components that are  not  available  from multiple  sources.  Frequently, we
are able to obtain scarce components for somewhat higher prices on the open  market,  which may have
an impact on our gross margin but does not  generally disrupt  production.  We  also may acquire
component inventory in anticipation  of  supply constraints or enter  into longer-term pricing
commitments with vendors to improve  the priority,  price and  availability of supply. See ‘‘Risk Factors—
We  depend on third-party suppliers,  and  our  financial results could  suffer  if  we fail to manage suppliers
properly,’’ in Item 1A, which is incorporated herein by reference.

International

Our products and services are available worldwide.  We  believe this geographic  diversity allows us
to meet demand on a worldwide basis for  both  consumer and enterprise customers, draws on  business
and technical expertise from a worldwide  workforce,  provides stability to  our operations, provides
revenue streams that may offset geographic economic trends and offers us an  opportunity to access  new
markets for maturing products. In addition, we believe  that future  growth is dependent in  part on our
ability to develop products and sales models that target developing countries. In this regard,  we believe
that our broad geographic presence gives us a solid base on which  to  build such  future growth.

A summary of our domestic and international net  revenue and net  property,  plant  and equipment
is set forth in Note 2 to the Consolidated Financial Statements in Item 8,  which is  incorporated herein
by reference. Approximately 65% of  our  overall  net revenue in fiscal  2014 came from  outside the
United  States  (‘‘U.S.’’).

For a  discussion of risks attendant to HP’s international  operations,  see ‘‘Risk Factors—Due  to  the

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  11 to the Consolidated Financial Statements in
Item 8, which are incorporated herein  by reference.

10

Research and Development

Innovation is a key element of our culture. Our  development efforts are focused on designing and
developing products, services and solutions that anticipate  customers’ changing needs and  desires, and
emerging technological trends. Our efforts also are focused on  identifying the  areas where we believe
we can make a unique contribution and  the areas where 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 our business

segments, are responsible for our research and development  efforts. HP  Labs is part of our Corporate
Investments  segment.

Expenditures for research and development were  $3.4 billion  in fiscal 2014,  $3.1 billion in fiscal
2013 and $3.4 billion in fiscal 2012. We  anticipate that we  will continue to have significant research and
development expenditures in the future  to support the  design and development of innovative,
high-quality products and services to  maintain  and  enhance our competitive position.

For a  discussion of risks attendant 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,’’ in  Item 1A,  which is incorporated herein by reference.

Patents

Our general policy has been to seek patent protection  for  those inventions likely to be

incorporated into our products and services  or where  obtaining such proprietary rights  will improve  our
competitive position. At October 31,  2014, our worldwide patent portfolio included over 34,000 patents,
which  represents a decrease over the number  of  patents in our portfolio at the end  of  fiscal 2013 and
fiscal 2012. This decrease is attributable, in part, to the sale of  a  portfolio of mobile  computing
intellectual  property  (‘‘IP’’)  in  January  2014.

Patents generally have a term of twenty years from the  date they  are  filed. As our  patent  portfolio
has been built over time, the remaining terms  of the individual patents across our patent portfolio vary.
We  believe that our patents and patent  applications are  important  for  maintaining  the competitive
differentiation of our products and services, enhancing our freedom  of action to sell our products and
services in markets in which we choose to participate, and maximizing our return on  research  and
development investments. No single patent is in itself  essential to HP  as a whole or to any of HP’s
business  segments.

In addition to developing our patent  portfolio, we license  IP  from  third  parties as we deem

appropriate. We have also granted and continue to grant  to  others licenses,  and other rights, under  our
patents when we consider these arrangements to be in  our interest.  These license arrangements include
a number of cross-licenses with third parties.

For a  discussion of risks attendant to IP rights, see ‘‘Risk  Factors—Our  revenue, cost  of sales,  and

expenses may suffer if we cannot continue to license or enforce  the IP  rights on  which our business
depends or if third parties assert that we  violate their IP  rights,’’ in Item  1A, which  is incorporated
herein by reference.

Backlog

We  believe that backlog is not a meaningful indicator  of future  business  prospects due to our
diverse products and services portfolio, including the large volume of products delivered from  finished
goods or channel partner inventories and the shortening of product life  cycles.  Therefore,  we believe
that backlog information is not material to an understanding  of  our overall business.

11

Seasonality

General economic conditions have an impact on  our business and financial results. From  time to

time, the markets in which we sell our  products and services experience  weak  economic conditions  that
may negatively affect sales. We experience some seasonal trends in  the sale  of our  products and
services.  For  example,  European  sales  are  often  weaker  in  the  summer  months  and  consumer  sales  are
often stronger in the fourth calendar quarter.  Demand during the spring  and early summer months also
may be adversely impacted by market anticipation of seasonal trends.  See ‘‘Risk  Factors—Our sales
cycle makes planning and inventory management difficult and future financial  results less predictable,’’
in Item 1A, which is incorporated herein by reference.

Competition

We  encounter strong 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, security, availability of application software  and internet infrastructure offerings.

The markets for each of our business  segments are characterized by  strong competition among
major corporations with long-established positions  and a  large number  of new and rapidly growing
firms. Most product life cycles are short, and to remain competitive we  must  develop  new products and
services, periodically enhance our existing  products and services and compete effectively on the basis of
the factors listed above. In addition,  we compete with many  of  our current and potential partners,
including OEMs that design, manufacture and often  market  their products under their own brand
names. Our successful management of these  competitive partner relationships will  be  critical  to  our
future success. Moreover, we anticipate that  we will have to continue to adjust prices  on many of  our
products and services to stay competitive.

We  have a broad technology portfolio spanning personal computing and  other access devices,
imaging and printing-related products  and  services, enterprise IT infrastructure  products and solutions,
multi-vendor customer services and IT management software  and solutions. We  are the leader or
among the leaders in each of our business segments.

The competitive environments in which each segment operates  are described  below:

Personal Systems. The markets in which Personal Systems operates are  highly  competitive and are

characterized  by  price  competition  and  inventory  obsolescence.  The  decline  in  the  PC  market  and  the
ongoing shift among customers to mobility products has further intensified  competition in  the PC
market. Our primary competitors are Lenovo  Group Limited (‘‘Lenovo’’), Dell Inc. (‘‘Dell’’), Acer Inc.,
ASUSTeK Computer Inc., Apple Inc.,  Toshiba Corporation  and Samsung Electronics Co., Ltd.
(‘‘Samsung’’). In particular regions, we also experience competition from local companies and  from
generically-branded or ‘‘white box’’ manufacturers.  Our competitive advantages  include our  broad
product portfolio, our innovation and research and development capabilities, our brand  and
procurement leverage, our ability to cross-sell our  portfolio of offerings, our extensive service and
support offerings and the accessibility  of  our products through  a broad-based  distribution strategy from
retail and commercial channels to direct sales.

Printing. The markets for printer hardware and associated supplies  are highly competitive.

Printing’s key customer segments each  face competitive market pressures  in pricing and  the
introduction of new products. Our primary competitors include Canon U.S.A., Inc., Lexmark
International,  Inc.,  Xerox  Corporation  Ltd.,  Seiko  Epson  Corporation,  The  Ricoh  Company  Ltd.,
Samsung and Brother Industries, Ltd. In addition,  independent suppliers  offer refill and
remanufactured alternatives for HP original inkjet  and  toner supplies, which are  often  available for
lower prices but generally offer lower print quality  and reliability. Other competitors also have

12

developed and marketed new compatible  cartridges for HP’s  laser and inkjet products,  particularly
outside  of  the  U.S.  where  IP  protection  is  inadequate  or  ineffective.  Our  competitive  advantages
include our comprehensive solutions for the  home, office and publishing environments, our innovation
and research and development capabilities, our brand, and the accessibility  of our  products through  a
broad-based distribution strategy from  retail and commercial channels to direct  sales.

Enterprise  Group. EG operates in the highly competitive enterprise  technology infrastructure
market that is characterized by rapid  and  ongoing technological innovation and price  competition. Our
primary competitors include technology  vendors  such as International Business Machines Corporation
(‘‘IBM’’), Dell, EMC Corporation (‘‘EMC’’),  Cisco Systems, Inc. (‘‘Cisco’’), Lenovo, Oracle
Corporation (‘‘Oracle’’), Fujitsu Limited  (‘‘Fujitsu’’), Inspur, Huawei  Technologies  Co. Ltd.,
NetApp, Inc., Hitachi Ltd., Juniper Networks, Inc., Arista Networks,  Inc.,  Extreme  Networks, Inc.,
Brocade Communications Systems, Inc., VMware,  Microsoft,  Google  Inc., Rackspace Inc.,  and
Amazon.com, Inc. (‘‘Amazon’’). In certain regions, we also experience competition from local
companies and from generically-branded or  ‘‘white-box’’ manufacturers. Our strategy  is to deliver
superior  products,  high-value  technology  support  services  and  differentiated  integrated  solutions  that
combine our infrastructure, software  and  services capabilities.  Our competitive  advantages  include our
broad  end-to-end  solutions  portfolio,  supported  by  our  strong  IP  portfolio  and  research  and
development capabilities, coupled with our global  reach  and  partner  ecosystem.

Enterprise  Services. ES competes in the IT services, consulting and  integration, infrastructure
technology outsourcing, business process  outsourcing and application service markets. Our  primary
competitors include IBM Global Services,  Computer Sciences Corporation, systems integration firms
such as Accenture plc. and offshore companies such as Fujitsu  and India-based competitors  Wipro
Limited, Infosys Limited and Tata Consultancy Services  Ltd. We also compete with other traditional
hardware providers, such as Dell, which  are  increasingly offering services to support their products, new
players in emerging areas like cloud such  as  Amazon, and smaller  local  players. Many  of our
competitors offer a wide range of global services, and some  of our competitors enjoy  significant brand
recognition. ES teams with many companies to offer services, and those  arrangements allow us to
extend our reach and augment our capabilities. Our  competitive advantages include our deep
technology expertise, especially in complex multi-country, multi-vendor and/or  multi-language
environments, differentiated IP, our strong track record  of  collaboration with  clients and partners, and
the combination of our expertise in infrastructure management  with skilled global  resources  on
platforms from SAP AG (‘‘SAP’’), Oracle and Microsoft, among others.

Software. The markets in which Software operates are fueled by rapidly changing customer

requirements and technologies. We design  and develop enterprise IT management  software in
competition with IBM, CA Technologies, Inc.,  VMware, BMC Software, Inc. and others. Our big data
solutions, which include data analytics,  information  governance and digital  marketing  offerings
incorporating both structured and unstructured data, compete with products from  companies like
Adobe Systems Inc., IBM, EMC, Open Text Corporation, Oracle and  Symantec Corporation. We also
deliver enterprise security/risk intelligence solutions  that compete with  products from  EMC,  IBM, Cisco
and Intel. As customers are becoming increasingly comfortable with  newer delivery  mechanisms such as
SaaS, we are facing competition from smaller, less  traditional competitors, particularly for customers
with smaller IT organizations. Our differentiation lies in the  breadth and  depth of our software and
services portfolio and the scope of our  market coverage.

HP Financial Services.

In our financing solution business, our competitors  are captive financing

companies, mainly IBM Global Financing, as  well as banks  and  other financial  institutions. We believe
our  competitive advantage in this business  over banks  and other financial institutions is our ability to
deliver flexible investment solutions and expertise that help customers and partners create unique
technology deployments based on specific  business  needs.

13

For a  discussion of risks attendant to these competitive factors, see  ‘‘Risk Factors—Competitive

pressures could harm our revenue, gross margin  and prospects,’’ in Item 1A, which is incorporated
herein by reference.

Environment

Our operations are subject to regulation  under various federal,  state, local and  foreign laws

concerning the environment, including  laws addressing  the discharge of pollutants  into  the air and
water, the management and disposal of  hazardous  substances and wastes, and  the cleanup of
contaminated sites. We could incur substantial costs,  including  cleanup costs, fines and  civil or criminal
sanctions, and third-party damage or personal  injury claims,  if we were to violate or become liable
under environmental laws.

Many of our products are subject to various  federal,  state, local  and foreign laws governing

chemical substances in products and their safe use, including  laws regulating the manufacture  and
distribution of chemical substances and laws restricting the presence  of  certain substances  in electronics
products. Some of our products also are,  or  may  in the future be, subject to requirements applicable to
their energy consumption. In addition,  we face increasing  complexity  in our product design and
procurement operations as we adjust  to  new and future requirements relating to the  chemical and
materials composition of our products, their safe use, and  their  energy efficiency,  including
requirements relating to climate change.  We are  also subject  to  legislation in an increasing number of
jurisdictions that makes producers of electrical  goods, including  computers and  printers,  financially
responsible for specified collection, recycling,  treatment and disposal of past and  future covered
products (sometimes referred to as ‘‘product take-back  legislation’’). In  the event our products become
non-compliant with these laws, our products could be restricted from entering certain jurisdictions and
we could face other sanctions, including fines.

Our operations and ultimately our products are expected  to become increasingly subject  to  federal,

state, local and foreign laws, regulations and international treaties  relating to climate change. As these
laws, regulations, treaties and similar  initiatives  and programs are adopted and implemented throughout
the world, we will be required to comply or potentially  face market access limitations or other
sanctions, including fines. However, we  believe  that technology will be fundamental to finding  solutions
to achieve compliance with and manage  those requirements,  and we are collaborating with  industry,
business groups and governments to find  and  promote ways  that HP technology  can be used to address
climate change and to facilitate compliance with related  laws, regulations and treaties.

We  are committed to maintaining compliance with  all environmental laws applicable to our
operations, products and services and to reducing our environmental impact across all aspects of  our
business. We meet this commitment with a  comprehensive environmental, health and  safety policy,
strict environmental management of  our operations and  worldwide environmental programs and
services.

A liability for environmental remediation and other environmental costs is accrued when  we

consider it probable that a liability has  been  incurred and the amount of  loss can be reasonably
estimated. Environmental costs and accruals are presently not material to our operations, cash flows  or
financial position. Although there is no assurance that  existing or future environmental laws applicable
to our operations or products will not have a material adverse effect  on our operations, cash  flows  or
financial condition, we do not currently anticipate material capital  expenditures for environmental
control facilities.

For a  discussion of risks attendant to these environmental factors,  see ‘‘Risk  Factors—Unforeseen
environmental costs could adversely affect  our  business  and  results of operations,’’ in Item  1A, which is
incorporated herein by reference. In addition,  for a  discussion of our environmental  contingencies see

14

Note 15 to the Consolidated Financial Statements in Item 8, which  is also  incorporated herein by
reference.

Executive  Officers

The following are our current executive  officers:

Martin Fink; age 50; Executive Vice  President  and Chief Technology Officer

Mr. Fink has served as Executive Vice  President, Chief Technology Officer  and Director  of HP
Labs since November 2012. Prior to that,  he served  as Senior Vice  President and General  Manager of
the Business Critical Systems and Converged Application Systems  from April  2005 to October  2012.
During  his almost 30 year career at HP,  Mr. Fink has worked in a wide  range of roles across HP. He
also serves as a director of Hortonworks,  Inc.

Henry Gomez; age 51; Executive Vice  President, Chief Marketing and Communications Officer

Mr. Gomez has served as Executive Vice President  and  Chief Marketing and Communications
Officer since August 2013. Previously,  he served as Chief Communications Officer and Executive Vice
President from January 2012 to July  2013. Prior to that,  he ran HSG Communications, a  consulting
business that  he founded in September  2008. He also  served  on the  leadership team of Ms. Whitman’s
gubernatorial campaign from February  2009 to November 2010. For most of the previous decade,  he
worked at eBay Inc. in a variety of roles  including Senior  Vice President for  Corporate
Communications and President of Skype. From  September 2011 to September 2013 he served as  a
director  of  BJ’s  Restaurants, Inc.

John M. Hinshaw; age 44; Executive  Vice  President, Technology and Operations

Mr. Hinshaw has served as Executive Vice President, Technology and Operations  since November

2011. Previously, Mr. Hinshaw served  as  Vice President and General Manager  of  Information Solutions
at The Boeing Company, an aerospace company, from January  2011 to October 2011 and  as Global
Chief Information Officer for Boeing  from June 2007  to  December 2010. He also serves as  a director
of Bank of New York Mellon.

Abdo George Kadifa; age 55; Executive Vice President, Strategic  Relationships

Mr. Kadifa has served as Executive Vice President, Strategic  Relationships  since May  2014.

Previously, Mr. Kadifa served as Executive Vice President, Software  from  May 2012 to May  2014. Prior
to that, he served as a director of Silver Lake,  a private  equity firm, from June 2007  to  May 2012.

Tracy  S. Keogh; age 53; Executive Vice President,  Human Resources

Ms. Keogh has served as Executive Vice President, Human Resources  since  April 2011.  Previously,

Ms. Keogh served as Senior Vice President of Human Resources at Hewitt Associates,  a provider of
human resources consulting services,  from May 2007 until March  2011.

Catherine A. Lesjak; age 55; Executive Vice President  and  Chief Financial Officer

Ms. Lesjak has served as Executive Vice President and  Chief Financial  Officer since  January 2007.
Ms. Lesjak served as interim Chief Executive Officer from  August 2010 until November  2010. She also
serves as a director of SunPower Corporation.

15

Todd R. Morgenfeld; age 42; Treasurer and Senior Vice  President,  Corporate Development and

Corporate  Analytics

Mr. Morgenfeld has served as Treasurer and Senior Vice President, Corporate Development and

Corporate Analytics since November  2013. Previously,  Mr. Morgenfeld served as Senior  Vice  President,
HP Mobility, supporting our strategy  of  providing  integrated solutions for the  rapidly changing
information technology landscape, from June 2013  to  October 2013.  Prior  to  that,  Mr.  Morgenfeld
served in several roles at Silver Lake, a  private  equity firm,  from 2004  until May  2013, most  recently
serving as a director.

Michael G. Nefkens; age 45; Executive  Vice President, Enterprise  Services

Mr. Nefkens has served as Executive Vice President, Enterprise  Services since December 2012.
Previously, he served in that role in an  acting capacity since August  2012. Prior to that, Mr. Nefkens
served as Senior Vice President and  General Manager  of Enterprise  Services in the  EMEA region from
November 2009 to August 2012, after having served in client-facing roles  for some of Enterprise
Services’ largest clients since joining  the business  in 2001. He also serves  as a director of Riverbed
Technology, Inc.

Jeff T. Ricci; age 53; Senior Vice President,  Controller and Principal  Accounting  Officer

Mr. Ricci has served as Senior Vice President, Controller and Principal Accounting Officer since
April 2014. Previously, Mr. Ricci served  as Controller  and  Principal Accounting Officer on an interim
basis from November 2013 to April 2014.  Prior to that, Mr. Ricci served as Vice President of Finance
for  our  Technology  and  Operations  organization  from  May  2012  to  November  2013.  Mr. Ricci  served  as
Vice President of Finance for Global  Accounts and HP Financial Services  from March 2011 to May
2012 and Vice President of Finance for  HP Software from March  2009 to March 2011.  Prior  to  joining
HP, Mr. Ricci served as Senior Vice  President of Finance  for BEA  Systems,  Inc., an enterprise software
company, from 2000 until June 2008.

John F. Schultz; age 50; Executive Vice  President, General Counsel  and  Secretary

Mr. Schultz has served as Executive Vice  President, General Counsel  and Secretary since April

2012. Previously, he served as Deputy General Counsel for Litigation, Investigations and  Global
Functions from September 2008 to April 2012.  From March  2005 to September 2008,  Mr.  Schultz was  a
partner in the litigation practice at Morgan,  Lewis  &  Bockius LLP, where, among other clients,  he
supported HP as external counsel on a variety of litigation and regulatory matters.

William L. Veghte; age 47; Executive  Vice President and  General Manager, Enterprise  Group

Mr. Veghte has served as Executive Vice  President and General Manager  of  the Enterprise  Group

since August 2013. Previously, he served as Chief Operating  Officer from May 2012 to August  2013.
Prior to that, Mr. Veghte served as Executive Vice  President of HP Software  from May  2010 to May
2012. Prior to joining HP, Mr. Veghte  served as  Senior Vice President  of the Windows  business  group
at Microsoft Corporation, a software company, from  February  2008 until  January 2010.

Dion  J. Weisler; age 47; Executive Vice President,  Printing and Personal  Systems  Group

Mr. Weisler has served as Executive  Vice President of the Printing  and Personal Systems Group
since June 2013. Previously, he served  as Senior Vice  President and Managing Director, Printing  and
Personal Systems, Asia Pacific and Japan  from January 2012 to June  2013. Prior  to  joining HP,  he was
Vice President and Chief Operating Officer  of the Product and Mobile Internet Digital Home Groups
at Lenovo Group Ltd., a technology company, from January  2008 to December 2011.

16

Margaret  C.  Whitman;  age  58;  Chairman,  President  and  Chief  Executive  Officer

Ms. Whitman has served as Chairman since  July 2014,  President and Chief  Executive Officer since
September 2011 and as a member of  our  Board  of  Directors  since  January 2011.  From March 2011  to
September 2011, Ms. Whitman served as a part-time strategic  advisor to Kleiner Perkins Caufield &
Byers, a private equity firm. Previously, Ms. Whitman served as President and Chief Executive Officer
of eBay  Inc., from 1998 to March 2008.  Prior to joining eBay, Ms. Whitman held executive-level
positions  at  Hasbro  Inc.,  FTD,  Inc.,  The  Stride  Rite  Corporation,  The  Walt  Disney  Company,  and
Bain & Company. Ms. Whitman also  serves  as a director of The Procter &  Gamble Company and is a
former  director  of  Zipcar,  Inc.

Robert Youngjohns; age 63; Executive Vice President  and General Manager, HP Software

Mr. Youngjohns has served as Executive  Vice President and  General Manager of HP  Software
since May 2014. Previously, Mr. Youngjohns served  as Senior  Vice President  and General Manager of
the HP Autonomy /Information Management business unit,  within HP Software from  September 2012
to May 2014. Prior to joining HP, he  was  President of Microsoft North America from September 2007
to September 2012 and was President  and  Chief  Executive Officer of Callidus Software from August
2005 to September 2007. Prior to that, he  spent 10 years at Sun Microsystems, where he had  a variety
of leadership positions in sales and general  management both regionally and globally.

Employees

We  had approximately 302,000 employees worldwide  as of October 31, 2014.

Available  Information

Our Annual Report on Form 10-K, Quarterly Reports on Form  10-Q, Current  Reports on
Form 8-K and amendments to reports  filed or  furnished pursuant to Sections 13(a) and 15(d) of the
Securities Exchange Act of 1934, as amended, are available  on our website at
http://www.hp.com/investor/home, as soon  as reasonably  practicable  after  HP electronically files such
reports with, or furnishes those reports to, the Securities and  Exchange Commission. HP’s Corporate
Governance Guidelines, Board of Directors’ committee charters (including the charters of the Audit
Committee,  Finance  and  Investment  Committee,  HR  and  Compensation  Committee,  Technology
Committee, and Nominating, Governance  and Social Responsibility  Committee) and  code  of ethics
entitled ‘‘Standards of Business Conduct’’  are also  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
http://www.hp.com/investor/informationrequest

Additional  Information

Microsoft(cid:4) and Windows(cid:4) are U.S.-registered trademarks of Microsoft  Corporation. Intel(cid:4),
Itanium(cid:4) , Intel(cid:4)AtomTM, and  Intel(cid:4) Itanium(cid:4) are trademarks of Intel Corporation  in the United
States and other countries. AMD is a trademark  of Advanced Micro  Devices, Inc. ARM(cid:4) is a
registered trademark of ARM Limited.  UNIX(cid:4) is a registered trademark of The Open Group.

17

ITEM 1A. Risk Factors.

The following discussion of risk factors contains forward-looking statements. These risk  factors may

be important for understanding any statement  in this Form  10-K  or elsewhere. The following
information should be read in conjunction with Part  II, Item 7,  ‘‘Management’s Discussion and Analysis
of Financial Condition and Results of  Operation’’ and  the Consolidated Financial  Statements and
related notes in Part II, Item 8, ‘‘Financial Statements and Supplemental Data’’ of this Form 10-K.

Because of the following factors, as well as other variables affecting our results of operations, past

financial performance may not be a reliable indicator of  future performance, and historical  trends
should not be used to anticipate results  or  trends in future periods.

If we are unsuccessful at addressing our  business challenges, our business and results of operations may be
adversely affected and our ability to invest in  and  grow our business could be  limited.

We  are in the process of addressing many challenges facing our  business.  One  set of challenges
relates to dynamic and accelerating market trends, such  as the decline in  the PC  market, the  growth of
multi-architecture devices running competing operating systems, the market shift towards tablets within
mobility, the market shift to cloud-related  infrastructure, software, and services,  and the  growth in
software-as-a-service business models.  Another set of challenges relates  to  changes in the competitive
landscape. Our major competitors are  expanding their product and service offerings  with integrated
products and solutions; our business-specific competitors  are exerting  increased competitive  pressure  in
targeted areas and are going after new  markets;  our emerging competitors are  introducing new
technologies and business models; and our alliance partners in some businesses  are increasingly
becoming our competitors in others.  A  third set of challenges relates to business model and
go-to-market execution. In addition, we  are facing a series of significant  macroeconomic challenges,
including  weakness  across  many  geographic  regions,  particularly  in  the  United  States,  Central  Eastern
Europe and Russia, and certain countries  and  businesses in  Asia. We may experience delays  in the
anticipated timing of activities related  to  these efforts and higher than expected or unanticipated
execution costs. In addition, we are vulnerable to increased risks associated with these efforts given our
large portfolio of businesses, the broad range of  geographic regions in which we  and our customers and
partners operate, and the integration of  acquired businesses. If we  do not succeed in  these  efforts, or if
these efforts are more costly or time-consuming than expected, our  business and results  of operations
may be adversely affected, which could limit our ability to invest in  and grow our business.

In May 2012, we announced a company-wide restructuring plan. The restructuring plan includes

both voluntary early retirement programs and  non-voluntary workforce reductions. Significant risks
associated with these actions that may  impair our ability to achieve  anticipated cost  reductions or  that
may otherwise harm our business include  delays in implementation  of  anticipated  workforce  reductions
in highly regulated locations outside  of the  United States, particularly in Europe and Asia, decreases in
employee morale and the failure to meet operational  targets due to the loss of employees.  In addition,
our  ability to achieve the anticipated  cost savings  and other benefits from these actions  within the
expected time frame is subject to many estimates and assumptions. These estimates and assumptions
are subject to significant economic, competitive and other uncertainties, some of which are beyond our
control. If these estimates and assumptions are  incorrect, if  we experience delays, or if other
unforeseen events occur, our business  and  financial results could be adversely  affected.

Competitive pressures could harm our revenue,  gross margin and prospects.

We  encounter aggressive competition from numerous  and  varied competitors in  all  areas of our
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 and support,

18

security, availability of application software, and internet infrastructure offerings.  If our products,
services, support and cost structure do not enable  us  to  compete successfully  based on any  of  those
criteria, our results of operations and prospects  could be harmed.

We  have a large portfolio of businesses  and  must allocate resources across all of those  businesses

while competing with companies that  have much smaller portfolios or specialize in one  or more of
these product lines. As a result, we may  invest less in certain  areas of our businesses than our
competitors do, and these competitors  may have greater financial, technical and marketing resources
available to them than our businesses  that compete against them.  Industry consolidation also  may affect
competition by creating larger, more  homogeneous and potentially stronger competitors in  the markets
in which we compete, and our competitors  also may affect our business  by  entering into exclusive
arrangements with existing or potential customers  or suppliers.

Companies with whom we have alliances in some  areas may  be  competitors  in other areas. In

addition, companies with whom we have  alliances  also may acquire or form alliances with  our
competitors, which could reduce their business  with us. If we are unable to  effectively manage these
complicated relationships with alliance  partners, our cash flows  and results of operations could be
adversely  affected.

We  face aggressive price competition  for our products  and services and,  as a result,  we may have
to continue lowering the prices of many of our products and  services to stay  competitive, while at the
same time trying to maintain or improve revenue and gross margin. In addition,  competitors who have
a greater presence in some of the lower-cost markets in which we compete may  be  able to offer lower
prices than we are able to offer. Our cash flows, results  of operations and  financial condition  may be
adversely affected by these and other industry-wide pricing  pressures.

Because our business model is based  on providing innovative and high-quality  products, we may
spend a proportionately greater amount on research  and development  than some of our competitors. If
we cannot proportionately decrease our cost structure on  a timely basis  in response to competitive price
pressures, our gross margin and, therefore,  our  profitability could be adversely affected. In addition,  if
our  pricing and other factors are not  sufficiently  competitive,  or if there  is an adverse reaction  to  our
product  decisions, we may lose market share in certain  areas, which  could  adversely affect  our revenue
and prospects.

Even if we are able to maintain or increase market share for a particular product,  revenue could

decline  because the product is in a maturing  industry  or market segment or  contains technology that is
becoming obsolete. For example, our  Storage business unit is experiencing the effects of a  market
transition towards converged products  and solutions,  which has  led  to  a decline in  demand for  our
traditional storage products. In addition, the  performance of our  Business Critical Systems business unit
has been affected by the decline in demand for UNIX servers and concerns about the  development of
new versions of software to support our Itanium-based products.  Revenue and  margins also  could
decline  due to increased competition  from other types of products. For  example, growing demand for
an increasing array of mobile computing  devices  and the  development of cloud-based solutions has
reduced demand for some of our existing  hardware products. In addition, refill  and remanufactured
alternatives for some of HP’s LaserJet  toner  and  inkjet cartridges  compete with  our  printing supplies
business.

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.

Our long-term strategy is focused on leveraging our portfolio of hardware, software and services as

we adapt to a changing and hybrid model of IT delivery and consumption driven by the growing
adoption of cloud computing and increased demand  for integrated  IT solutions. To successfully execute

19

on this strategy, we need to continue  evolving our focus towards the  delivery of integrated IT solutions
for our  customers and to continue to  invest  and expand into cloud computing, security,  big data and
mobility. Any failure to successfully execute this strategy, including  any failure to invest sufficiently  in
strategic growth areas, could adversely  affect our business, results of  operation and financial results.

The process of developing new high-technology  products, software, services and solutions and

enhancing existing hardware and software  products,  services and solutions  is complex,  costly and
uncertain, and any failure by us to anticipate customers’  changing needs and emerging  technological
trends  accurately could significantly harm  our market share  and  results of operations. For example, as
the transition to an environment characterized by cloud-based computing  and software being delivered
as a service progresses, we must continue to successfully develop and  deploy cloud-based solutions for
our  customers. We must make long-term investments,  develop or obtain, and  protect, appropriate
intellectual property, and commit significant research and development  and other  resources  before
knowing whether our predictions will accurately reflect customer  demand for our  products, services  and
solutions. In addition, after we develop a  product, we must be able to manufacture appropriate volumes
quickly while also managing costs and  preserving margins.  To accomplish  this, we must accurately
forecast volumes, mixes of products and configurations that  meet  customer requirements, and  we may
not succeed at doing so within a given product’s  life cycle or at all.  Any  delay in the development,
production or marketing of a new product, service  or solution could result in  us  not  being  among  the
first to market, which could further harm  our competitive position.

In the course of conducting our business,  we must adequately address  quality issues associated with

our  products, services and solutions,  including defects in our  engineering, design  and manufacturing
processes and unsatisfactory performance  under service contracts, as well as defects  in third-party
components included in our products  and  unsatisfactory performance or even malicious acts by third-
party contractors or subcontractors or the  employees  of  those  contractors or subcontractors. In order to
address quality issues, we work extensively with our  customers and suppliers and engage in  product
testing to determine the causes of problems  and to develop and implement appropriate solutions.
However, the products, services and solutions that  we offer are complex, and our  regular testing and
quality control efforts may not be effective in  controlling or detecting all  quality  issues  or errata,
particularly with respect to faulty components manufactured by third-parties. If we are unable to
determine the cause, find an appropriate solution or  offer a temporary  fix (or ‘‘patch’’) to address
quality issues with our products, we may  delay  shipment to customers,  which would  delay revenue
recognition and could adversely affect  our revenue and  reported results.  Addressing quality issues can
be expensive and may result in additional  warranty,  replacement  and  other  costs, adversely  affecting
our  profits. If new or existing customers  have  difficulty operating our products  or are dissatisfied with
our  services or solutions, our results of  operations could  be  adversely affected,  and we could face
possible claims if we fail to meet our customers’  expectations. In addition, quality issues can impair our
relationships with new or existing customers and adversely  affect our brand  and reputation, which
could, in turn, adversely affect our results  of  operations.

Our plan to separate into two independent publicly-traded companies is subject to various risks and
uncertainties  and  may  not  be  completed  in  accordance  with  the  expected  plans  or  anticipated  timeline,  or  at
all,  and  will  involve  significant  time  and  expense,  which  could  disrupt  or  adversely  affect  our  business.

On  October 6,  2014,  we  announced  plans  to  separate  into  two  independent  publicly-traded
companies. The separation, which is currently targeted to be completed by  the end of fiscal 2015, is
subject to approval by our Board of Directors  of the final terms of the separation and market,
regulatory  and  certain  other  conditions.  Unanticipated  developments,  including  changes  in  the
competitive conditions of Hewlett-Packard Enterprise’s and HP Inc.’s respective markets, possible
delays in obtaining various tax opinions or rulings, regulatory  approvals or clearances,  the uncertainty
of  the  financial  markets  and  challenges  in  executing  the  separation,  could  delay  or  prevent  the

20

completion  of  the  proposed  separation,  or  cause  the  proposed  separation  to  occur  on  terms  or
conditions  that  are  different  or  less  favorable  than  expected.

We  have  established  a  Separation  Management  Office  tasked  with  driving  the  separation  process.
We  expect that the process of completing the proposed  separation will be time-consuming and involve
significant  costs  and  expenses,  which  may  be  significantly  higher  than  what  we  currently  anticipate  and
may  not  yield  a  discernible  benefit  if  the  separation  is  not  completed.  Executing  the  proposed
separation  will  require  significant  time  and  attention  from  our  senior  management  and  employees,
which  could adversely affect our business, financial results  and results of operations. We may  also
experience  increased  difficulties  in  attracting,  retaining  and  motivating  employees  during  the  pendency
of  the  separation  and  following  its  completion,  which  could  harm  our  businesses.

The  separation  may  not  achieve  some  or  all  of  the  anticipated  benefits.

We  may  not  realize  some  or  all  of  the  anticipated  strategic,  financial,  operational,  marketing  or

other  benefits  from  the  separation.  As  independent  publicly-traded  companies,  Hewlett-Packard
Enterprise and HP Inc. will be smaller,  less diversified  companies with  a narrower  business  focus and
may  be  more  vulnerable  to  changing  market  conditions,  which  could  materially  and  adversely  affect
their  respective  business,  financial  condition  and  results  of  operations.  Further,  there  can  be  no
assurance that the  combined value of the common  stock  of  the two publicly-traded companies will  be
equal  to  or  greater  than  what  the  value  of  our  common  stock  would  have  been  had  the  proposed
separation not occurred.

The proposed separation may result in  disruptions  to, and negatively impact our relationships  with, our
customers  and  other  business  partners.

Uncertainty  related  to  the  proposed  separation  may  lead  customers  and  other  parties  with  which

we currently do business or may do business  in the future to terminate or  attempt to negotiate  changes
in  existing  business  relationships,  or  consider  entering  into  business  relationships  with  parties  other  than
us.  These  disruptions  could  have  a  material  and  adverse  effect  on  our  businesses,  financial  condition,
results of operations and prospects. The effect of such disruptions could be exacerbated by any  delays
in the completion of the separation.

The separation could result in substantial tax liability.

We  intend to obtain an opinion of outside counsel  to  the effect that,  for U.S. federal income tax
purposes, the separation will qualify,  for both  HP and  its  stockholders, as a reorganization  within the
meaning of Sections 368(a)(1)(D) and  355 of the U.S.  Internal Revenue  Code  of 1986, as  amended. In
addition,  we  intend  to  obtain  a  private  letter  ruling  from  the  Internal  Revenue  Service  (the  ‘‘IRS’’)
and/or one or more opinions of outside  counsel regarding certain  matters impacting the  U.S. federal
income  tax  treatment  of  the  separation  for  HP  and  certain  related  transactions  as  transactions  that  are
generally tax-free for U.S. federal income tax  purposes. The opinions of outside  counsel and  any IRS
private  letter ruling will be based, among other things, on  various factual assumptions we have
authorized  and  representations  we  have  made  to  outside  counsel  or  the  IRS.  If  any  of  these
assumptions  or  representations  are,  or  become,  inaccurate  or  incomplete,  reliance  on  the  opinions
and/or IRS private letter ruling may  be affected. An opinion of outside counsel represents  their legal
judgment but is not binding on the IRS or any court.  Accordingly, there can  be  no assurance that the
IRS will not challenge the conclusions  reflected in  the opinions or  that a court  would not sustain such
a challenge. In addition, we may incur  certain tax costs in connection  with the separation, including
non-U.S.  tax expense resulting from  separations in  multiple non-U.S.  jurisdictions that do not legally
provide for tax-free separations, which  may be material.

21

Economic weakness and uncertainty could adversely affect our revenue,  gross  margin and expenses.

Our revenue and gross margin depend  significantly  on worldwide  economic conditions and the
demand for technology hardware, software and services in the  markets in which  we compete.  Economic
weakness and uncertainty have resulted, and may result in  the future,  in decreased revenue,  gross
margin, earnings or growth rates and  in  increased expenses and  difficulty in managing  inventory  levels.
For example, we are continuing to experience macroeconomic weakness across many geographic
regions, particularly in the Europe, the  Middle  East  and Africa (‘‘EMEA’’)  region, China and other
high-growth markets. The U.S. federal  government spending cuts that went into effect on March 1,
2013 may further reduce demand for  our products, services and solutions from organizations  that
receive funding from the U.S. government and could negatively affect macroeconomic conditions  in the
United States, which could further reduce demand for our products,  services and  solutions.  Economic
weakness and uncertainty may adversely  affect demand for our products, services and  solutions,  may
result in increased expenses due to higher allowances for  doubtful accounts and potential goodwill and
asset impairment charges, and may make it more difficult for us to make accurate forecasts of revenue,
gross  margin, cash flows and expenses.

We  also have experienced, and may experience in  the future,  gross margin  declines in certain

businesses, reflecting the effect of items such as  competitive  pricing pressures and  increases in
component and manufacturing costs resulting  from higher labor and material costs borne by our
manufacturers and suppliers that, as a result of competitive pricing pressures or other  factors, we  are
unable to pass on to our customers. In addition, our business may be disrupted if we are unable  to
obtain equipment, parts or components from our  suppliers—and our suppliers from their suppliers—
due to the insolvency of key suppliers  or  the inability of key suppliers  to  obtain  credit.

Economic weakness and uncertainty  could cause our expenses  to  vary  materially from our

expectations. Any financial turmoil affecting the  banking system and  financial markets or any significant
financial services institution failures could negatively  impact our  treasury operations, as the  financial
condition of such parties may deteriorate  rapidly and  without  notice in times  of market  volatility  and
disruption. Poor financial performance of  asset markets combined with lower interest rates and the
adverse effects of fluctuating currency exchange rates could lead to higher  pension and post-retirement
benefit expenses. Interest and other expenses  could vary materially from expectations depending  on
changes in interest rates, borrowing costs, currency exchange rates,  costs  of  hedging activities and the
fair value of derivative instruments. Economic downturns also may lead to restructuring  actions and
associated  expenses.

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 therefore will likely be different in future periods than  our current results.  Our
revenue depends on the overall demand  for our products  and services. Delays or reductions in  IT
spending could have a material adverse  effect on demand for our products and  services,  which could
result in a significant decline in revenue. In  addition,  revenue declines in some  of our  businesses,
particularly our services businesses, may affect revenue in our other businesses  as we  may lose cross-
selling opportunities. Overall gross margins and profitability in any given period are  dependent partially
on the product, service, customer and geographic mix reflected  in that period’s net revenue.
Competition, lawsuits, investigations and  other risks affecting  those businesses  therefore may have a
significant impact on our overall gross  margin and  profitability. Certain  segments have a higher fixed
cost structure and more variation in gross margins across their business units and product portfolios
than others and may therefore experience  significant operating profit volatility on a quarterly basis. In
addition, newer geographic markets may be relatively less profitable due to investments  associated with
entering those markets and local pricing  pressures, and we  may have difficulty establishing and

22

maintaining the operating infrastructure  necessary  to  support the high growth rate  associated with  some
of those markets. Market trends, industry shifts, competitive pressures, commoditization  of  products,
seasonal rebates, increased component  or  shipping costs, regulatory impacts and other factors may
result in reductions in revenue or pressure  on gross margins  of  certain segments in  a given period,
which  may lead to adjustments to our  operations. Moreover, our efforts to address the  challenges
facing our business could increase the level of variability  in our  financial results  because the rate at
which  we are able to realize the benefits from those efforts may vary from period to period.

If we fail to manage the distribution of  our products and services  properly, our  revenue, gross margins 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 enterprise accounts and consumers.
Successfully managing the interaction  of our direct  and indirect channel efforts  to  reach various
potential customer segments for our products and services  is a complex process. Moreover, since each
distribution method has distinct risks and  gross margins,  our  failure to implement the  most
advantageous balance in the delivery  model  for our products and services could adversely affect our
revenue and gross margins and therefore our profitability.  Other distribution risks are described below.

• Our financial results could be materially adversely affected due to channel conflicts  or if  the

financial conditions of our channel partners were to weaken.

Our results of operations may be adversely  affected by any  conflicts that might  arise between
our  various sales channels, the loss or deterioration of any  alliance  or distribution arrangement
or the loss of retail shelf space. Moreover, some of our  wholesale and retail distributors may
have insufficient financial resources and  may  not  be  able  to withstand  changes in  business
conditions, including economic weakness and industry consolidation. Many of our significant
distributors operate on narrow product  margins and have been negatively  affected by business
pressures. Considerable trade receivables  that are not covered  by collateral or credit insurance
are outstanding with our distribution  and retail channel partners. Revenue from indirect sales
could suffer, and we could experience disruptions in distribution, if  our distributors’ financial
conditions, abilities to borrow funds in the credit markets or operations weaken.

• Our inventory management is complex as we continue  to  sell  a  significant mix of  products

through  distributors.

We  must manage inventory effectively, particularly with respect to sales to distributors, which
involves forecasting demand and pricing issues.  Distributors may increase orders during periods
of product shortages, cancel orders if their inventory is too high  or  delay orders in anticipation
of new products. Distributors also may adjust their orders in response to the supply of our
products and the products of our competitors and seasonal fluctuations in end-user demand. Our
reliance upon indirect distribution methods may reduce visibility  to  demand and  pricing issues,
and therefore make forecasting more difficult. If we  have excess or obsolete  inventory,  we may
have to reduce our prices and write down inventory.  Moreover, our  use of indirect distribution
channels may limit our willingness or ability to adjust prices quickly and  otherwise to respond to
pricing changes by competitors. We also may  have limited ability to estimate  future product
rebate redemptions in order to price our products  effectively.

We depend on third-party suppliers, and our  financial results  could suffer if we fail to manage suppliers
properly.

Our operations depend on our ability  to  anticipate our needs for components, products  and
services, as well as our suppliers’ ability  to deliver sufficient quantities of quality components,  products
and services at reasonable prices and in  time  for us  to  meet  critical  schedules. Given the wide  variety

23

of systems, products and services that we offer,  the large number of our suppliers and contract
manufacturers that are located around  the world, and the long lead times required  to  manufacture,
assemble and deliver certain components and products, problems could  arise in  production, planning,
and inventory management that could  seriously harm us.  In  addition, our ongoing efforts to optimize
the efficiency of our supply chain could  cause supply disruptions and be more expensive,
time-consuming and resource intensive  than expected.  Other supplier problems  that  we could face
include component shortages, excess supply,  risks related to the terms  of our contracts  with suppliers,
risks associated with contingent workers, and risks  related to our relationships with single source
suppliers, as described below.

• Shortages. Occasionally we may experience a shortage  of,  or a delay in receiving, certain

components as a result of strong demand,  capacity constraints, supplier financial weaknesses,
inability of suppliers to borrow funds in the  credit markets,  disputes with suppliers  (some of
whom are also customers), disruptions in the operations of component suppliers, other problems
experienced by suppliers or problems faced during the transition to new suppliers.  For example,
our PC business relies heavily upon OMs  to  manufacture its products and is therefore
dependent upon the continuing operations of  those OMs to  fulfill demand  for our PC products.
HP represents a substantial portion of the business  of  some  of these  OMs, and any changes to
the nature or volume of business transacted  by HP with  a  particular OM  could  adversely affect
the operations and financial condition of the OM and lead to shortages or delays in receiving
products from that OM. If shortages or delays persist, the  price of certain components  may
increase, and we may be exposed to quality  issues  or  the components  may  not  be  available at all.
We may not be able to secure enough  components at reasonable prices  or of acceptable  quality
to build products or provide services in a  timely  manner  in  the quantities or according to the
specifications needed. Accordingly, 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 services offerings, which could result in further costs and  delays.

• Oversupply. In order to secure components for the provision of products or services, at  times we

may make advance payments to suppliers or enter into non-cancelable  commitments with
vendors. In addition, we may purchase components  strategically in advance  of  demand to take
advantage of favorable pricing or to  address  concerns about  the availability of  future
components. If we fail to anticipate customer demand properly,  a  temporary oversupply could
result in excess or obsolete components, which could adversely affect our gross margin.

• Contractual  terms. As a result of binding price or purchase commitments with vendors, we may

be obligated to purchase components  or services at prices that  are  higher than those  available in
the current market and be limited in  our ability  to  respond to changing market conditions. If we
commit to purchasing components or services for prices  in excess of the then-current  market
price, we may be at a disadvantage to competitors  who have access to components or services  at
lower prices, our gross margin could suffer,  and  we could incur additional charges  relating to
inventory obsolescence. In addition, many of our competitors obtain  products or  components
from the same OMs and suppliers that we utilize. Our competitors may obtain better pricing,
more favorable contractual terms and conditions, 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 components and  transferring  those components to its OMs  may create large
supplier receivables with the OMs that,  depending on the financial  condition  of  the OMs, may
create  collectibility risks. In addition,  certain of our OMs  and suppliers  may decide  to
discontinue conducting business with us. Any of these actions by our  competitors,  OMs or
suppliers could adversely affect our future results of operations and financial condition.

24

• Contingent  workers. We also rely on third-party suppliers for  the provision of contingent workers,
and our failure to manage our use of such workers effectively could adversely affect our  results
of operations. We have been exposed  to  various legal  claims relating to the  status  of  contingent
workers in the past and could face similar claims  in the future. We may  be subject  to  shortages,
oversupply or fixed contractual terms relating  to  contingent workers.  Our  ability  to  manage the
size of, and costs associated with, the contingent workforce may  be  subject to additional
constraints imposed by local laws.

• Single source suppliers. Our use of single source suppliers for certain  components  could

exacerbate any supplier issues. We obtain a significant number  of  components from single
sources due to technology, availability, price, quality or  other  considerations. For example,  we
rely on Intel to provide us with a sufficient  supply of processors for many of our PCs,
workstations and servers and AMD to provide us  with a sufficient supply of processors for other
products. Some of those processors are customized  for  our products. New products  that  we
introduce may utilize custom components obtained from only  one source initially until we  have
evaluated whether there is a need for additional suppliers.  Replacing a single source supplier
could delay production of some products  as replacement suppliers may be subject  to  capacity
constraints or other output limitations. For  some components,  such as customized components
and some of the processors that we obtain from Intel, alternative sources either may not exist  or
may be unable to produce the quantities of those components  necessary  to satisfy our
production requirements. In addition, we sometimes purchase  components from single source
suppliers under short-term agreements that contain  favorable pricing and other terms but that
may be unilaterally modified or terminated by the supplier with limited notice and  with little  or
no penalty. The performance of such single source  suppliers under those agreements (and the
renewal or extension of those agreements upon similar terms) may affect the quality, quantity
and price of components to HP. The loss of a  single source supplier, the  deterioration of our
relationship with a single source supplier, or any unilateral modification to the  contractual  terms
under which we are supplied components by a single source supplier could adversely affect  our
revenue, gross margin and cash flows.

Business disruptions could seriously harm our future  revenue and  financial condition  and increase our  costs
and expenses.

Our worldwide operations could be disrupted by earthquakes, telecommunications  failures, power

or water shortages, tsunamis, floods,  hurricanes, typhoons, fires, extreme weather conditions, medical
epidemics or pandemics and other natural or manmade disasters or catastrophic events, for which  we
are predominantly self-insured. The occurrence of  any of these business disruptions  could  result in
significant losses, seriously harm our revenue,  profitability and  financial condition, adversely  affect our
competitive position, increase our costs  and  expenses, and require substantial expenditures  and recovery
time in order to fully resume operations. 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  major earthquake faults  known  for seismic
activity. In addition, six of our principal worldwide IT data centers are  located in the southern United
States, making our operations more vulnerable to natural disasters or other business disruptions
occurring in that geographical area. The manufacture  of product components,  the final  assembly  of  our
products and other critical operations are concentrated in certain  geographic locations,  including
Shanghai, Singapore and India. We also rely on major  logistics hubs primarily in Asia to manufacture
and distribute our products and in the  southwestern United  States to import products  into  the
Americas region. Our operations could  be  adversely affected  if manufacturing, logistics or other
operations in these locations are disrupted for  any  reason, including natural  disasters, information
technology system failures, military actions or economic,  business, labor,  environmental, public health,
regulatory or political issues. The ultimate impact  on us, our significant suppliers and our  general

25

infrastructure of being located near locations  more vulnerable to the occurrence of the aforementioned
business disruptions, such as near major  earthquake faults, and being consolidated in  certain
geographical areas is unknown and remains  uncertain.

Our sales cycle makes planning and inventory  management difficult and future financial results less
predictable.

In some of our segments, our quarterly sales often have reflected a pattern  in which a

disproportionate percentage of each  quarter’s total sales occurs towards  the end of such quarter. This
uneven  sales pattern makes predicting 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.  If predicted
demand is substantially greater than orders, there may  be  excess  inventory. Alternatively, if orders
substantially exceed predicted demand,  we may  not  be  able  to  fulfill all of the  orders  received in the
last few weeks of each quarter. Depending on when they  occur in  a  quarter, developments such as a
systems failure, component pricing movements, component shortages  or  global logistics  disruptions,
could adversely impact inventory levels and results of operations in  a manner that is disproportionate
to the number of days in the quarter  affected.

We  experience some seasonal trends  in  the sale  of  our  products that  also may produce variations

in quarterly results and financial condition. For  example,  sales  to  governments (particularly  sales to the
U.S. government) are often stronger in  the third calendar quarter, consumer sales are  often  stronger  in
the fourth calendar quarter, and many customers whose fiscal and calendar  years  are the same  spend
their remaining capital budget authorizations  in the fourth calendar quarter  prior to new  budget
constraints in the first calendar quarter  of the  following  year. European  sales are often weaker during
the summer months. Demand during the  spring  and  early summer also may be adversely  impacted  by
market anticipation of seasonal trends. Moreover, to the  extent that  we  introduce new products  in
anticipation of seasonal demand trends,  our  discounting of existing  products may  adversely affect our
gross  margin prior to or shortly after  such product launches. Typically, our third fiscal quarter is our
weakest and our fourth fiscal quarter is  our strongest.  Many of the factors  that  create and affect
seasonal trends are beyond our control.

Due to the international nature of our  business,  political or economic changes  or other factors  could harm
our future revenue, 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, expenses and financial condition could
suffer due to a variety of international  factors, including:

• ongoing instability or changes in a country’s  or region’s economic or political conditions,

including inflation, recession, interest rate  fluctuations and actual or  anticipated military  or
political  conflicts;

• longer collection cycles and financial  instability among customers;

• trade regulations and procedures and actions affecting production, pricing and  marketing of

products;

• local labor conditions and regulations, including local labor  issues  faced by specific  HP suppliers

and OMs;

• managing a geographically dispersed  workforce;

• changes in the regulatory or legal environment;

26

• differing technology standards or customer  requirements;

• import, export or other business licensing requirements  or requirements  relating to making

foreign direct investments, which could  increase our cost  of  doing business in certain
jurisdictions, prevent us from shipping products to particular countries or  markets,  affect our
ability to obtain favorable terms for components, increase our  operating costs or lead to
penalties or restrictions;

• difficulties associated with repatriating  earnings generated or held abroad in a tax-efficient

manner and changes in tax laws; and

• fluctuations in freight costs, limitations on shipping and receiving capacity,  and other  disruptions
in the transportation and shipping infrastructure at important geographic points of exit  and entry
for our products and shipments.

The factors described above also could disrupt our product and  component manufacturing and key
suppliers located outside of the United States.  For example, we rely on manufacturers in  Taiwan for  the
production of notebook computers and other suppliers in Asia for  product assembly and manufacture.

Currencies other than the U.S. dollar, including the euro,  the British pound,  Chinese  yuan
renminbi and the Japanese Yen, can have an impact  on our  results (expressed in U.S.  dollars).  In
particular, the economic uncertainties relating to European sovereign and other debt obligations and
the related European financial restructuring efforts may cause the  value of  the euro to fluctuate.
Currency variations also contribute to variations in sales of products and services in impacted
jurisdictions. For example, in the event that one or more European  countries were  to  replace the euro
with another currency, our sales into  such  countries, or into Europe generally, would likely  be  adversely
affected until stable exchange rates are established. Accordingly, fluctuations  in foreign currency rates,
most notably the strengthening of the dollar against  the euro, could adversely  affect our revenue
growth in future periods. In addition, currency variations can adversely affect margins on sales of our
products in countries 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 effectiveness of  our  hedges depends on our ability to accurately forecast future
cash flows, which is particularly difficult during periods of uncertain demand for our products  and
services and highly volatile exchange rates.  We  may incur significant  losses from our hedging activities
due to factors such as volatility and currency variations. In addition, our hedging  activities may be
ineffective or may not offset any or more  than  a portion of the adverse  financial impact resulting from
currency variations. Losses associated  with  hedging activities also may impact our revenue  and to a
lesser extent our cost of sales and financial condition.

In many foreign countries, particularly in those with developing economies, it is common  to  engage

in business practices that are prohibited by  laws and regulations  applicable to us, such as the Foreign
Corrupt Practices Act (the ‘‘FCPA’’). For example, as discussed in Note 15 to the  Consolidated
Financial Statements, the German Public  Prosecutor’s Office has been investigating  allegations  that
certain current and former employees of HP  engaged  in bribery,  embezzlement and  tax evasion. In
addition, the Polish Central Anti-Corruption Bureau is  conducting investigations into potential FCPA
violations by a former employee of an  HP  subsidiary in  connection with certain public-sector
transactions in Poland. Although we  implement policies and procedures designed to facilitate
compliance with these laws, our employees, contractors and agents,  as well  as those  companies to which
we outsource certain of our business operations,  may take actions in  violation of our policies. Any such
violation, even if prohibited by our policies, could have  an adverse effect on our business and
reputation.

27

Any failure by us to identify, manage, complete and integrate acquisitions, divestitures and other significant
transactions successfully could harm our  financial  results,  business and prospects, and  the costs, expenses and
other financial and  operational effects associated  with managing,  completing and integrating acquisitions may
result in financial results that are different  than expected.

As part of our business strategy, we may  acquire companies or businesses, divest  businesses or

assets, enter into strategic alliances and joint ventures  and  make investments  to  further our business
(collectively, ‘‘business combination and  investment transactions’’). In order  to  pursue this strategy
successfully, we must identify candidates  for and successfully  complete business combination and
investment transactions, some of which may be large  or complex, and manage post-closing issues such
as the integration of acquired businesses, products, services or  employees. Risks associated  with
business combination and investment  transactions include  the following, any  of  which could adversely
affect our revenue, gross margin, profitability and financial results:

• Managing business combination and investment transactions  requires varying levels of

management resources, which may divert our attention from other business  operations.

• We may not fully realize all of the anticipated  benefits of any business combination and

investment transaction, and the timeframe for realizing benefits  of a business combination and
investment transaction may depend  partially upon the actions of employees, advisors,  suppliers
or other third-parties.

• Business combination and investment  transactions have resulted,  and in the future may result,  in
significant costs and expenses and charges to earnings,  including  those related to severance pay,
early retirement costs, employee benefit costs,  goodwill and  asset  impairment charges, charges
from the elimination of duplicative facilities and contracts, asset impairment 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.

• Any increased or unexpected costs, unanticipated delays  or failure to meet contractual

obligations could make business combination and  investment transactions  less  profitable  or
unprofitable.

• Our ability to conduct due diligence with respect to business combination and investment

transactions, and our ability to evaluate the results  of  such due diligence, is  dependent upon the
veracity and completeness of statements  and  disclosures made or actions taken by third-parties
or their representatives.

• Our due diligence process may fail to identify significant  issues with the acquired company’s
product quality, financial disclosures, accounting  practices  or internal  control deficiencies.

• The pricing and other terms of our contracts for business combination and investment

transactions require us to make estimates and assumptions at the  time we enter into these
contracts, and, during the course of our  due  diligence, we may  not  identify all of  the factors
necessary to estimate accurately our costs, timing and other  matters or we may incur costs if a
business combination is not consummated.

• In  order to complete a business combination and investment transaction,  we may issue common

stock, potentially creating dilution for existing stockholders.

• We may borrow to finance business combination and investment transactions, and  the amount
and terms of any potential future acquisition-related  or other borrowings,  as well as  other
factors, could affect our liquidity and  financial  condition.

• Our effective tax rate on an ongoing basis is uncertain, and business combination and  investment

transactions could  adversely impact our effective tax rate.

28

• An announced business combination and investment transaction may not  close timely or at all,

which  may cause our financial results to differ from expectations in a  given quarter.

• Business combination and investment  transactions may lead to litigation.

• If we fail to identify and successfully complete and  integrate  business combination  and

investment transactions that further our strategic objectives, we  may  be  required  to  expend
resources to develop products, services  and technology internally, which  may put us at  a
competitive  disadvantage.

We  have incurred  and will incur additional depreciation and amortization expense over the  useful

lives of certain assets acquired in connection with business combination  and investment  transactions,
and, to the extent that the value of goodwill or intangible assets acquired in  connection with  a business
combination and investment transaction becomes impaired, we may be required to incur additional
material charges relating to the impairment of those assets. For example, in our third fiscal quarter of
2012, we recorded an $8.0 billion impairment charge relating to the goodwill associated  with our
enterprise services reporting unit within  our former Services segment and a  $1.2 billion impairment
charge  as a result of an asset impairment analysis  of  the ‘‘Compaq’’ trade name acquired in  2002. In
addition, in our fourth fiscal quarter  of  2012,  we recorded an $8.8 billion  impairment charge  relating to
the goodwill and intangible assets associated with Autonomy. If there are  future decreases in our stock
price or significant changes in the business climate or results  of  operations of our reporting units,  we
may incur additional charges, which may include  goodwill impairment  or  intangible asset charges.

Integration issues are often complex, time-consuming  and  expensive  and,  without proper planning
and implementation, could significantly  disrupt our business and the acquired business. The challenges
involved in integration include:

• combining product and service offerings  and  entering or  expanding into markets in  which we are

not experienced or are developing expertise;

• convincing customers and distributors that the  transaction will not diminish client service

standards or business focus, persuading  customers and distributors to not defer purchasing
decisions or switch to other suppliers  (which could  result in  our incurring additional obligations
in order to address customer uncertainty),  minimizing  sales force attrition  and expanding 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  and  business processes;

• minimizing the diversion of management  attention from ongoing business concerns;

• persuading employees that business cultures  are compatible, maintaining employee morale and

retaining 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  and  development and  other
operations, subsidiaries, facilities and relationships with  third-parties in  accordance with local
laws and other obligations while maintaining  adequate standards, controls and  procedures;

• achieving savings from supply chain integration;  and

• managing integration issues shortly after or  pending the  completion  of other independent

transactions.

While we do not currently plan to divest any of our major businesses, we do regularly evaluate the
potential disposition of assets and businesses that may no longer help  us meet our objectives. When we
decide to sell assets or a business, we may encounter  difficulty in  finding buyers or alternative exit
strategies on acceptable terms in a timely manner, which  could delay the achievement of our strategic

29

objectives. We may also dispose of a  business at  a price or on terms  that are less desirable than  we had
anticipated. In addition, we may experience greater dis-synergies than expected,  and the  impact  of  the
divestiture on our revenue growth may  be  larger than projected. After  reaching an  agreement with a
buyer or seller for the acquisition or  disposition of  a business,  we  are  subject to satisfaction of
pre-closing conditions as well as to necessary regulatory and  governmental approvals on  acceptable
terms, which, if not satisfied or obtained, may  prevent us from completing the transaction.  Dispositions
may also involve continued financial  involvement in the  divested business, such as  through continuing
equity ownership, guarantees, indemnities  or other financial  obligations. Under  these arrangements,
performance by the divested businesses or other conditions outside of our control could affect our
future financial results.

Our revenue, cost of sales, and expenses may  suffer if  we cannot continue to license or enforce the intellectual
property rights on which our businesses depend  or if third parties assert  that we violate their  intellectual
property rights.

We  rely  upon patent, copyright, trademark and trade  secret  laws 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 products and services we sell,  provide or
otherwise use in our operations. However, any of our intellectual property rights  could  be  challenged,
invalidated, infringed or circumvented,  or  such intellectual  property rights  may not be sufficient to
permit us to take advantage of current market trends or to otherwise provide competitive advantages,
either of which could result in costly  product redesign  efforts, discontinuance of certain  product
offerings or other harm to our competitive position.  Further,  the  laws of certain countries do not
protect proprietary rights to the same  extent as  the laws of the United States. Therefore, in  certain
jurisdictions we may be unable to protect  our  proprietary technology adequately  against unauthorized
third-party copying or use; this, too,  could adversely affect  our competitive position.

Because of the rapid pace of technological change  in the information technology  industry,  much  of
our  business and many of our products rely on key technologies  developed or  licensed by third-parties.
We  may not be able to obtain or continue  to obtain licenses and technologies from  these  third-parties
at all or on reasonable terms, or such third-parties may demand cross-licenses to our  intellectual
property. In addition, it is possible that as a  consequence of a  merger or acquisition, third-parties  may
obtain licenses to some of our intellectual property rights or our business may be subject  to  certain
restrictions that were not in place prior  to  the transaction. Consequently,  we may  lose a competitive
advantage with respect to these intellectual property rights  or we  may be required to enter into costly
arrangements in order to terminate or limit these rights.

Third-parties also may claim that we  or customers indemnified by  us are infringing upon  their
intellectual property rights. For example, individuals  and groups  may  purchase intellectual  property
assets for the purpose of asserting claims of infringement  and attempting to extract settlements  from
companies such as HP and its customers. The number  of these claims has increased in recent periods
and may continue  to increase in the future. If we cannot  or do not license infringed intellectual
property at all or on reasonable terms, or if we are  required to substitute similar technology  from
another source, our operations could  be  adversely affected. Even if we  believe that intellectual  property
claims are without merit, they can be time-consuming and costly to defend  against and may divert
management’s attention and resources away from our business. Claims of intellectual property
infringement also might require us to redesign affected  products, enter into  costly  settlement or license
agreements, pay costly damage awards,  or  face a temporary or  permanent injunction  prohibiting us
from importing, marketing or selling  certain of our products.  Even if we  have an agreement to
indemnify us  against such costs, the indemnifying party  may  be  unable  or  unwilling to uphold its
contractual obligations to us.

30

Finally, our results of operations and cash flows have been and could continue  to  be  affected in

certain periods and on an ongoing basis  by the imposition, accrual and  payment of copyright levies or
similar fees. In certain countries (primarily in Europe), proceedings are ongoing or have  been
concluded involving HP in which groups representing  copyright  owners have  sought or  are seeking to
impose upon and collect from HP levies upon  equipment (such as PCs, MFDs and  printers) alleged to
be copying devices under applicable laws. Other such groups have also  sought to modify existing  levy
schemes to increase the amount of the levies that can be collected from us. Other countries  that  have
not imposed levies on these types of  devices are  expected to extend existing levy  schemes, and countries
that do not currently have levy schemes may  decide to impose copyright levies on  these  types of
devices. The total amount of the copyright levies will depend on  the types of products determined to be
subject to the levy, the number of units of those products sold during the  period covered by the levy,
and the per unit fee for each type of  product, all of which are affected by several factors, including  the
outcome of ongoing litigation involving  us and other industry participants and possible action by the
legislative bodies in the applicable countries, and could be substantial. Consequently, the  ultimate
impact of these copyright levies or similar fees, and our ability to recover such  amounts  through
increased prices, remains uncertain.

Our revenue and profitability could suffer if  we  do not manage the risks  associated with our services business
properly.

The risks that accompany our services  business differ from those  of  our other  businesses and

include the following:

• The success of our services business  is to a significant degree dependent  on our ability to retain
our  significant services clients and maintain or increase the level  of revenues from these clients.
We  may lose clients due to their merger or acquisition, business failure,  contract  expiration or
their selection of a competing service provider or decision  to  in-source services. In addition, we
may not be able to retain or renew relationships with our significant  clients. As a result  of
business downturns or for other business  reasons,  we are  also vulnerable to reduced processing
volumes from our clients, which can  reduce the scope of  services provided and the prices for
those services. We may not be able to replace  the revenue and earnings from  any such lost
clients or reductions in services. In addition,  our contracts may  allow a client  to  terminate  the
contract for convenience, and we may not be able to fully recover our  investments in  such
circumstances.

• The pricing and other terms of some of our IT services  agreements,  particularly our long-term
IT outsourcing services agreements, require us to make estimates and assumptions  at the time
we enter into these contracts that could  differ  from actual results. Any increased or unexpected
costs or unanticipated delays in connection  with the performance of  these engagements,
including delays caused by factors outside  our control, could  make these agreements less
profitable or unprofitable, which could have  an adverse effect  on the profit margin of our IT
services business.

• Some of our IT services agreements  require significant  investment in the early stages  that  is
expected to be recovered through billings over the  life of the agreement.  These agreements
often involve the construction of new IT systems and communications  networks  and the
development and deployment of new technologies. Substantial performance risk  exists in  each
agreement with these characteristics, and some or all elements  of service  delivery under these
agreements are dependent upon successful completion of  the development, construction and
deployment phases. Any failure to perform satisfactorily  under these agreements may  expose us
to legal liability, result in the loss of customers and  harm our reputation, which could decrease
the revenues and profitability of our IT services business.

31

• Some of our outsourcing services agreements contain  pricing provisions that permit a client to
request a benchmark study by a mutually acceptable third-party.  The benchmarking process
typically compares the contractual price of our  services against the price of similar services
offered by other specified providers in a  peer comparison group, subject to agreed upon
adjustment and normalization factors. Generally, if the benchmarking study shows that our
pricing has a difference outside a specified range,  and the  difference is not  due  to  the unique
requirements of the client, then the parties will negotiate in good  faith  any  appropriate
adjustments to the pricing. This may result  in the reduction of our rates  for  the benchmarked
services performed after the implementation of those  pricing  adjustments, which could decrease
the cash flows of our IT services business.

• If we do not hire, train, motivate and  effectively utilize  employees  with the  right mix of skills
and experience in the right geographic regions to meet the needs of our services  clients, our
profitably could suffer. For example,  if our employee  utilization rate is too low, our profitability
and the level of engagement of our employees  could suffer. If that utilization rate  is too high, it
could have an adverse effect on employee engagement and attrition  and  the  quality of the  work
performed, as well as our ability to staff projects. If we  are unable to hire and retain a sufficient
number of employees with the skills or backgrounds to meet current  demand, we might  need  to
redeploy existing personnel, increase our  reliance on  subcontractors or increase employee
compensation levels, all of which could also  negatively affect our  profitability. In addition, if we
have more employees than we need with  certain skill  sets or  in certain geographies, we may
incur increased costs as we work to rebalance our supply of skills and resources  with client
demand in those geographies.

Failure to comply with our customer contracts or  government contracting regulations could adversely affect
our revenue and results of operations.

Our contracts with our customers may include unique and specialized performance  requirements.
In particular, our contracts with federal, state,  provincial and  local  governmental customers are subject
to various procurement regulations, contract provisions and  other requirements relating to their
formation, administration and performance. Any failure  by us  to  comply with the  specific provisions in
our  customer contracts or any violation of government contracting  regulations could result in the
imposition of various civil and criminal penalties, which may include termination of  contracts, forfeiture
of profits, suspension of payments and, in  the case  of our government  contracts, fines and  suspension
from future government contracting. In  addition, we have in the  past  been, and may in  the future  be,
subject to qui tam litigation brought  by  private  individuals on  behalf of the government relating  to  our
government contracts, which could include claims for up to  treble damages.  Further,  any negative
publicity related to our customer contracts  or any proceedings surrounding them, regardless of its
accuracy, may damage our business by affecting our ability to compete  for new contracts.  If our
customer contracts are terminated, if  we are suspended or disbarred from government work, or if our
ability to compete for new contracts  is  adversely affected, we  could suffer a reduction in expected
revenue.

HP’s stock price has historically fluctuated and may continue to fluctuate, which  may make future  prices of
HP’s stock difficult to predict.

HP’s stock price, like that of other technology companies,  can be volatile. Some of the  factors that

could affect our stock price are:

• speculation, coverage or sentiment in the media or the  investment community about, or actual
changes in, our business, strategic position,  market  share, organizational structure, operations,
financial condition, financial reporting and results,  effectiveness  of cost-cutting  efforts, value  or
liquidity of our investments, exposure to market volatility, prospects, business combination  or

32

investment transactions, future stock  price  performance, board of directors, executive team,  our
competitors or our industry in general;

• the announcement of new, planned or contemplated 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 flows, changes in
estimates by the investment community or  financial  outlook provided by HP and variations
between actual and estimated financial results;

• announcements  of actual and anticipated financial  results by HP’s  competitors  and other

companies in the IT industry;

• developments relating to pending investigations, claims and disputes; and

• the timing and amount of share repurchases by HP.

General or industry specific market conditions or stock market performance or domestic or
international macroeconomic and geopolitical factors unrelated to HP’s performance  also may affect
the price of HP stock. For these reasons,  investors  should  not rely on recent or historical trends to
predict future stock prices, financial  condition, results of operations or cash flows. In addition,  as
discussed in Note 15 to the Consolidated  Financial Statements, we are  involved in  several securities
class action litigation matters. Additional volatility  in the price  of  our securities could result in the filing
of additional securities class action litigation matters, which  could result in  substantial costs and  the
diversion of management time and resources.

Failure to maintain our credit ratings could  adversely affect  our liquidity, capital position, borrowing  costs
and access to capital markets.

Our credit risk is evaluated by the major independent rating agencies. Two of those rating
agencies, Moody’s Investors Service and  Standard  & Poor’s Ratings Services,  downgraded our ratings
once during fiscal 2012, and a third rating agency, Fitch Ratings, downgraded  our ratings twice during
that fiscal year. In addition, Moody’s  Investors Service downgraded our ratings  again in November
2012.  Our  credit  ratings  remain  under  negative  outlook  by  Moody’s  Investors  Service.  Past  downgrades
have increased the cost of borrowing  under  our credit facilities, have reduced market  capacity for  our
commercial paper, and may require the posting of  additional collateral under some  of  our  derivative
contracts. There can be no assurance  that we  will  be  able to maintain our current credit  ratings, and
any additional actual or anticipated changes or downgrades  in our credit ratings, including any
announcement that our ratings are under  further  review for a downgrade,  may further impact us  in a
similar manner and may have a negative impact on our liquidity, capital position  and access to capital
markets.

We make estimates and assumptions in  connection with the preparation of HP’s Consolidated Financial
Statements, and any changes to those estimates  and assumptions could adversely affect  our results of
operations.

In connection with the preparation 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 Item 7  of  this  report. In  addition,  as discussed in Note 15 to the
Consolidated Financial Statements, we make certain  estimates, including decisions related to provisions
for legal proceedings and other contingencies. While  we believe that  these estimates  and assumptions
are reasonable under the circumstances, they are subject to significant  uncertainties, some of which are
beyond our control. Should any of these estimates  and assumptions  change or prove to have been
incorrect, it could adversely affect our results  of  operations.

33

Unanticipated changes in our tax provisions, the adoption of new tax legislation or  exposure to  additional  tax
liabilities  could affect our profitability.

We  are subject to income and other taxes in  the United  States  and  numerous foreign jurisdictions.

Our tax liabilities are affected by the  amounts we charge in  intercompany transactions for  inventory,
services, licenses, funding and other  items. We are subject to ongoing tax  audits  in various jurisdictions.
Tax  authorities may disagree with our  intercompany charges, cross-jurisdictional transfer pricing or
other matters and assess additional taxes.  We  regularly  assess the likely  outcomes of these audits in
order to determine the appropriateness of  our tax provision. However, there can be no  assurance that
we will accurately predict the outcomes of  these audits, and the amounts  ultimately paid upon
resolution of audits could be materially  different from the  amounts previously  included in our  income
tax expense and therefore could have  a material impact on  our tax provision, net income and cash
flows. In addition, our effective tax rate in  the future  could be adversely affected  by  changes to our
operating structure, changes in the mix of  earnings in countries with differing statutory tax rates,
changes in the valuation of deferred tax  assets  and liabilities, changes  in tax laws and the discovery of
new information in the course of our tax return preparation process.  In particular,  the carrying value of
deferred tax assets, which are predominantly in the United States,  is dependent  on our ability to
generate future taxable income in the  United States.  In  addition, there  are proposals for  tax legislation
that have been introduced or that are  being  considered that could have  a significant adverse effect  on
our  tax rate, the carrying value of deferred  tax  assets, or our deferred  tax  liabilities. Any of these
changes could affect our profitability.

In order to be successful, we must attract, retain, train, motivate, develop and  transition key employees, and
failure to do so could seriously harm us.

In order to be successful, we must attract, retain, train, motivate, develop and transition qualified
executives and other key employees, including those  in managerial, technical, sales, marketing and IT
support positions. Identifying, developing  internally or hiring externally,  training and  retaining qualified
executives, engineers, skilled solutions  providers in the  IT support business and qualified sales
representatives are critical to our future, and competition  for experienced employees  in the IT industry
can be intense. In order to attract and  retain executives and other key employees in a competitive
marketplace, we must provide a competitive compensation package, 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  future value of those awards
uncertain. If the anticipated value of  such share-based incentive awards  does  not  materialize,  if  our
share-based compensation otherwise ceases  to  be  viewed  as a  valuable benefit,  if our total
compensation package is not viewed as  being competitive, or  if we do not obtain the  shareholder
approval needed to continue granting share-based incentive awards in  the amounts we  believe are
necessary, our ability to attract, retain, and  motivate  executives  and  key  employees could be weakened.
The failure to successfully hire executives  and  key  employees  or the loss of any executives and  key
employees could have a significant impact on our operations.  Further, changes  in our management
team may be disruptive to our business, and any failure to successfully transition and assimilate  key
new hires or promoted employees could  adversely affect our  business and results of operations.

System security risks, data protection breaches, cyber attacks  and systems integration issues could  disrupt our
internal operations or information technology  services provided to customers,  and any such disruption  could
reduce our expected revenue, increase our  expenses, damage our reputation and  adversely affect our stock
price.

Experienced computer programmers and hackers  may be able  to  penetrate our network security

and misappropriate or compromise our  confidential information or that of third-parties, create  system
disruptions or cause shutdowns. Computer  programmers and  hackers  also may be able to develop and

34

deploy viruses, worms, and other malicious  software programs that attack our products  or otherwise
exploit any security vulnerabilities of  our products. In addition, sophisticated hardware and operating
system software and applications that we  produce  or procure from third-parties may contain defects  in
design or manufacture, including ‘‘bugs’’ and other problems  that could unexpectedly interfere with  the
operation of the system. The costs to  us  to eliminate or  alleviate cyber or other security problems,
bugs, viruses, worms, malicious software programs  and  security vulnerabilities  could  be  significant, and
our  efforts to address these problems may not be successful and could  result in interruptions, delays,
cessation of service and loss of existing  or  potential customers  that may  impede  our sales,
manufacturing, distribution or other critical functions.

We  manage and store various proprietary  information and sensitive  or confidential  data  relating  to

our  business. In addition, our outsourcing services business routinely processes,  stores and transmits
large amounts of data for our clients,  including  sensitive and  personally identifiable information.
Breaches of our security measures or  the accidental  loss, inadvertent disclosure or unapproved
dissemination of proprietary information  or  sensitive or confidential data about  us, our  clients or
customers, including the potential loss  or  disclosure of such information or  data  as a result  of fraud,
trickery or other forms of deception, could expose  us,  our customers or  the individuals affected  to  a
risk of loss or misuse of this information, result in litigation and  potential liability for  us, damage our
brand and reputation or otherwise harm our business.  We  also  could lose existing or  potential
customers of outsourcing services or other IT solutions or incur  significant expenses in connection  with
our  customers’ system failures or any actual or perceived security vulnerabilities  in our products  and
services. In addition, the cost and operational consequences of  implementing  further data protection
measures could be significant.

Portions  of our IT infrastructure also  may experience interruptions,  delays or cessations of  service
or produce errors in connection with  systems integration or migration work  that  takes place from time
to time. We may not be successful in  implementing new systems and transitioning data, which  could
cause  business disruptions and be more expensive, time-consuming, disruptive and resource intensive.
Such disruptions could adversely impact  our ability to fulfill orders and respond  to  customer requests
and interrupt other processes. Delayed sales, lower  margins or  lost customers resulting from these
disruptions could reduce our expected  revenue, increase our expenses, damage our reputation and
adversely affect our stock price.

Terrorist acts, conflicts, wars and geopolitical uncertainties  may seriously harm our business and revenue,
costs and expenses and financial condition  and stock price.

Terrorist acts, conflicts or wars (wherever located around the  world)  may  cause  damage or
disruption to our business, our employees, facilities, partners, suppliers, distributors,  resellers  or
customers or adversely affect our ability to manage logistics,  operate our  transportation and
communication systems or conduct certain other critical business operations. The potential for future
attacks, the national and international responses to attacks or perceived threats to national  security,
and other actual or potential conflicts  or  wars have created many economic and political  uncertainties.
In addition, as a major multinational  company with  headquarters and  significant operations located in
the United States, actions against or  by  the United States may impact our business or employees.
Although it is impossible to predict the occurrences or consequences of any such events, if  they occur,
they could result in a decrease in demand  for our products, make  it difficult or impossible to provide
services or deliver products to our customers or  to  receive components from  our suppliers,  create
delays and inefficiencies in our supply  chain and result in the need to impose employee travel
restrictions. We are predominantly uninsured for losses and interruptions caused by terrorist acts,
conflicts and wars.

35

Unforeseen environmental costs could adversely affect our business and  results of operations.

We  are subject to various federal, state, local  and foreign  laws and regulations concerning

environmental protection, including laws  addressing the discharge of pollutants into the air and water,
the management and disposal of hazardous substances and wastes, the  cleanup  of contaminated sites,
the content of our products and the recycling, treatment and disposal  of  our products,  including
batteries. In particular, we face increasing  complexity in  our product design  and procurement
operations as we adjust to new and future requirements relating to the chemical and materials
composition of our products, their safe use, the  energy consumption associated with those products,
climate change laws and regulations,  and product take-back legislation. If we were to violate or become
liable under environmental laws or if  our products become non- compliant with environmental laws, we
could incur substantial costs or face other  sanctions,  which may include restrictions  on our products
entering certain jurisdictions. Our potential  exposure includes fines  and civil or criminal  sanctions,
third-party property damage, personal  injury claims and clean-up  costs.  Further,  liability  under some
environmental laws relating to contaminated sites can be imposed  retroactively,  on a joint and several
basis, and without any finding of noncompliance or fault. The  amount  and timing  of costs to comply
with environmental laws are difficult to predict.

Some anti-takeover provisions contained  in our  certificate of incorporation and bylaws,  as  well as provisions
of Delaware law, could impair a takeover  attempt.

We  have provisions in our certificate  of  incorporation and bylaws, each of which  could  have the

effect of rendering more difficult or  discouraging an acquisition of  HP deemed undesirable by our
Board of Directors. These include provisions:

• authorizing blank check preferred stock, which we  could issue with  voting, liquidation, dividend

and other rights superior to our common stock;

• limiting the liability of, and providing indemnification to, our directors and  officers;

• specifying that our stockholders may  take  action only at  a  duly called annual  or special  meeting

of stockholders and otherwise in accordance with  our  bylaws and  limiting the ability of our
stockholders to call special meetings;

• requiring advance notice of proposals by our stockholders  for business  to  be  conducted at

stockholder meetings and for nominations of  candidates for election to our Board  of  Directors;
and

• controlling the procedures for conduct  of our Board of Directors and stockholder meetings and

election, appointment and removal of  our directors.

These provisions, alone or together,  could  deter or  delay hostile takeovers,  proxy contests  and
changes in control or management of HP. As a  Delaware corporation, we are also subject to provisions
of Delaware law, including Section 203 of the Delaware General Corporation Law, which  prevents
some stockholders from engaging in certain business combinations without approval  of the holders of
substantially all of our outstanding common  stock.

Any provision of our certificate of incorporation or bylaws or  Delaware law that has the effect of

delaying or deterring a change in control of  HP could limit the opportunity  for our stockholders to
receive a premium for their shares of  HP stock and also  could affect the price that some  investors are
willing to pay for HP stock.

ITEM 1B. Unresolved Staff Comments.

None.

36

ITEM 2. Properties.

As of October 31, 2014, we owned or  leased approximately 66 million square feet of space

worldwide, a summary of which is provided below. We believe  that our  existing properties are in good
condition and are  suitable for the conduct  of our business.

As of October 31, 2014

Owned

Leased

Total

Administration and support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Core data centers, manufacturing plants,  research and development facilities,
and warehouse operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Square feet in millions
19
63%

11
37%

30
100%

15
52%
26
44%

14
48%
33
56%

29
100%
59
100%

(1) Excludes 7 million square feet of vacated space, of which 2 million square feet  is leased to third

parties.

We  have seven business segments: Personal  Systems, Printing, the Enterprise Group,  Enterprise
Services, Software, HP Financial Services and Corporate Investments. Because of the  interrelation of
these segments, a majority of these segments use  substantially all  of the properties  at least in part,  and
we retain the flexibility to use each of  the  properties in whole  or in part for each of the  segments.

Principal Executive Offices

Our principal executive offices, including our  global headquarters, are located at  3000 Hanover

Street, Palo Alto, California, United States  of  America.

Headquarters of Geographic Operations

The locations of our geographic headquarters at October 31, 2014  were as  follows:

Americas
Houston, United States
Miami, United States
Mississauga,  Canada

Europe, Middle East, Africa
Geneva, Switzerland

Asia Pacific
Singapore
Tokyo, Japan

37

Product  Development, Services and Manufacturing

The locations of our major product development, manufacturing, data centers, and HP Labs

facilities at October 31, 2014, were as  follows:

Americas

Europe,  Middle East,  Africa

Canada—Markham,  Mississauga

Puerto Rico—Aguadilla

France—Grenoble

Ireland—Leixlip

United States—Alpharetta, Andover, Auburn Hills,
Austin,  Blue Ash, Boise, Charlotte, Colorado
Springs, Corvallis, Des Moines, Fort  Collins,
Hockley, Houston, Indianapolis, LaVergne, Palo United Kingdom—Billingham,  Erskine,  Norwich,
Alto, Plano, Rancho Cordova, Roseville, San
Diego, Sandston, Suwanee, Tulsa

Israel—Kiryat-Gat, Nes Ziona, Netanya

Spain—Sant Cugat del Valles

Sunderland

Asia Pacific

India—Udham Singh Nagar

Japan—Tokyo

New Zealand—Auckland

Singapore—Singapore

Taiwan—Taipei

ITEM 3. Legal Proceedings.

HP Labs

Israel—Haifa

United Kingdom—Bristol

United States—Palo Alto

Information with respect to this item may be found in  Note 15  to  the Consolidated Financial

Statements in Item 8, which is incorporated  herein  by reference.

ITEM 4. Mine Safety Disclosures.

Not applicable.

38

PART II

ITEM 5. Market 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-K, respectively, which are incorporated  herein  by reference. We  have declared and  paid cash
dividends each fiscal year since 1965.  Dividends declared and paid per share by fiscal quarter in 2014
and 2013 were as follows:

2014

2013

Q4

Q3

Q2

Q1

Q4

Q3

Q2

Q1

Dividends  declared . . . . . . . . . . . . . . . . . . . . . . . . — $0.32 — $0.29 — $0.29 — $0.26
Dividends  paid . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.16 $0.16 $0.15 $0.15 $0.15 $0.15 $0.13 $0.13

As  of  November  30,  2014,  there  were  approximately  95,719  stockholders  of  record.  Additional
information concerning dividends may be found in ‘‘Selected Financial Data’’ in Item  6 and  Note 13  to
the Consolidated Financial Statements in Item  8, which are incorporated herein by reference.

Recent  Sales of Unregistered Securities

There were no unregistered sales of equity  securities in fiscal 2014.

Issuer  Purchases of Equity Securities

Period

Month #1

Total Number
of Shares
Purchased

Average
Price Paid
per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced
Plans  or
Programs

Approximate
Dollar Value of Shares
that May Yet Be
Purchased under the
Plans or Programs

In thousands, except per share amounts

(August 2014) . . . . . . . . . . . . . . . . . .

Month #2

(September  2014) . . . . . . . . . . . . . . .

—

—

$ —

$ —

Month #3

(October  2014) . . . . . . . . . . . . . . . . .

21,661

$34.61

Total . . . . . . . . . . . . . . . . . . . . . . . .

21,661

$34.61

—

—

21,661

21,661

$5,666,443

$5,666,443

$4,916,793

On July 21, 2011, HP’s Board of Directors authorized a  $10.0  billion share  repurchase  program.

HP may choose to repurchase shares  when sufficient  liquidity exists and the shares are trading  at a
discount relative to estimated intrinsic  value. This program, which does  not  have a specific expiration
date,  authorizes repurchases in the open market or in  private transactions. All  share repurchases settled
in the fourth quarter of fiscal 2014 were open market transactions. As  of October 31, 2014, HP  had
remaining authorization of $4.9 billion  for  future share repurchases.

39

Stock Performance Graph and Cumulative Total  Return

The graph below shows the cumulative  total stockholder return assuming  the investment of $100  at

the market close on October 31, 2009  (and the reinvestment of dividends thereafter)  in each of HP
common stock, the S&P 500 Index, and the S&P Information Technology  Index.  The comparisons in
the graph below are based on historical data and are not indicative of, or intended to forecast, future
performance of our common stock.

$250

$200

$150

$100

$50

$0

10/2009

10/2010

10/2011

10/2012

10/2013

10/2014

Hewlett-Packard Company

S&P 500 Index

S&P Information Technology Index

26NOV201400153880

Hewlett-Packard Company . . . . . . . . . . . . . . . . .
S&P 500 Index . . . . . . . . . . . . . . . . . . . . . . . . .
S&P Information Technology Index . . . . . . . . . . .

100.00
100.00
100.00

89.19
116.51
118.23

57.17
125.93
128.59

30.45
145.06
142.37

55.10
184.48
170.72

82.69
216.31
214.60

10/09

10/10

10/11

10/12

10/13

10/14

40

ITEM 6. Selected Financial Data.

The information set forth below is not necessarily  indicative  of  results of future operations and

should be read in conjunction with Item  7, ‘‘Management’s Discussion and  Analysis  of Financial
Condition and Results of Operations,’’ and the  Consolidated  Financial Statements  and notes thereto
included in Item 8, ‘‘Financial Statements  and Supplementary Data,’’ of this Annual Report  on
Form 10-K, which are incorporated herein by reference,  in order  to  understand further the factors  that
may affect the comparability of the financial data  presented below.

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES
Selected  Financial  Data

Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings (loss) from operations(1)
. . . . . . . . . .
Net earnings (loss)(1)
. . . . . . . . . . . . . . . . . . .
Net earnings (loss) per share

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared per share . . . . . . . . . .
At year-end:

Total assets(2)
Long-term debt
Total debt(3)

. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .

For the fiscal years ended October 31

2014

2013

2012

2011

2010

$111,454
7,185
$
5,013
$

In millions, except per share amounts
$127,245
$120,357
$112,298
9,677
$ (11,057) $
7,131
$
7,074
$ (12,650) $
5,113
$

$126,033
$ 11,479
8,761
$

$
$
$

2.66
2.62
0.61

$
$
$

2.64
2.62
0.55

$
$
$

(6.41) $
(6.41) $
$
0.50

3.38
3.32
0.40

$
$
$

3.78
3.69
0.32

$103,206
$ 16,039
$ 19,525

$105,676
$ 16,608
$ 22,587

$108,768
$ 21,789
$ 28,436

$129,517
$ 22,551
$ 30,634

$124,503
$ 15,258
$ 22,304

(1) Earnings (Loss) from operations and  net  earnings (loss) include  the  following  items:

2014

2013

2012

2011

2010

Amortization of intangible assets . . . . . . . . . . . . . . .
Impairment of goodwill and intangible assets . . . . . .
Wind down of webOS device business . . . . . . . . . . .
Wind down of non-strategic businesses . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related charges . . . . . . . . . . . . . . . . . . .

$1,000
—
—
—
1,619
11

$1,373

In millions
$ 1,784
— 18,035
(36)
—
108
—
2,266
990
45
22

$1,607
885
755
—
645
182

$1,484
—
—
—
1,144
293

Total charges before taxes . . . . . . . . . . . . . . . . . . . .

$2,630

$2,385

$22,202

$4,074

$2,921

Total charges, net of taxes . . . . . . . . . . . . . . . . . . . .

$2,132

$1,825

$20,685

$3,130

$2,105

(2) Total assets decreased in fiscal 2012 due  primarily to goodwill and intangible asset impairment
charges associated with the Autonomy reporting  unit within  the Software segment, a goodwill
impairment charge associated with the Enterprise  Services segment and an  intangible  asset
impairment charge associated with the ‘‘Compaq’’ trade name within the Personal Systems
segment. Total assets increased in fiscal 2011 due  primarily to the acquisition of Autonomy.

(3)

In fiscal 2014 and 2013, total debt decreased due to maturities. Total debt increased in fiscal 2011
due  primarily  to  acquisitions  and  repurchases.

41

ITEM 7. Management’s Discussion and  Analysis  of Financial Condition and Results of Operations.

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

This Management’s Discussion and Analysis  of  Financial Condition  and Results  of Operations

(‘‘MD&A’’) is organized as follows:

• Overview. A discussion of our business and overall analysis of financial and other highlights

affecting the company to provide context  for  the remainder of MD&A.  The  overview  analysis
compares fiscal 2014 to fiscal 2013.

• Critical Accounting Policies and Estimates. A discussion of accounting policies and  estimates that
we believe are important to understanding  the assumptions and judgments incorporated in  our
reported  financial  results.

• Results of Operations. An analysis of our financial results comparing fiscal 2014  and fiscal  2013
to the prior years. A discussion of the results of operations at the consolidated level is  followed
by a more detailed discussion of the  results of operations by segment.

• Liquidity and Capital Resources. An analysis of changes in our cash flows and  a discussion of our

financial condition and liquidity.

• Contractual and Other Obligations. An overview of contractual obligations, retirement and

post-retirement benefit plan funding, restructuring plans, uncertain tax  positions and  off-balance
sheet arrangements.

We  intend the discussion of our financial condition and results of operations  that  follows  to

provide information that will assist the  reader in  understanding our Consolidated Financial  Statements,
the changes in certain key items in those  financial statements  from year to year, and the primary
factors that accounted for those changes, as  well as  how certain accounting  principles,  policies  and
estimates affect our Consolidated Financial Statements. This discussion should be read  in conjunction
with our Consolidated Financial Statements and the related  notes that appear elsewhere  in this
document.

October 2014 Announcement of HP Separation Transaction

On  October  6,  2014,  we  announced  plans  to  separate  into  two  independent  publicly-traded
companies: one comprising our enterprise  technology infrastructure, software, services and financing
businesses,  which  will  conduct  business  as  Hewlett-Packard  Enterprise  and  one  that  will  comprise  our
printing  and  personal  systems  businesses,  which  will  conduct  business  as  HP  Inc.  The  separation  is
subject to certain conditions, including,  among others, obtaining  final  approval  from HP’s Board of
Directors,  receipt  of  a  favorable  opinion  and/or  rulings  with  respect  to  the  tax-free  nature  of  the
transaction for federal income tax purposes and  the effectiveness of a  Form 10 filing with  the SEC. The
separation is expected to be completed by  the end  of  fiscal  2015. Under the separation plan,  HP
shareholders will own shares of both Hewlett-Packard Enterprise and HP Inc.  The following  chart
provides  an  overview  of  the  planned  separation  and  segment  revenues  of  the  respective  businesses
based on HP’s fiscal 2014 results, excluding Corporate Investments  and intercompany  eliminations.

42

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

Hewlett-Packard Enterprise

HP Inc.

Revenue Mix
(based on
fiscal 2014 results)

Enterprise Group

Enterprise Services

Software

Financial Services

48%

39%

7%

6%

Personal Systems

Printing

60%

40%

Financial Metrics

•  Segment Revenue: $57.6B

•  Segment Revenue: $57.3B

5DEC201423560915

The following Overview, Results of Operations and Liquidity discussions and  analysis compare
fiscal 2014 to fiscal 2013 and fiscal 2013  to fiscal 2012, unless otherwise noted. The Capital Resources
and Contractual and Other Obligations  discussions present  information as of October  31, 2014, unless
otherwise  noted.

OVERVIEW

We  are a leading global provider of products, technologies, software, solutions and services to

individual consumers, small- and medium-sized  businesses (‘‘SMBs’’) and large enterprises,  including
customers in the government, health  and  education  sectors.  Our offerings span the following:  personal
computing and other access devices;  imaging- and printing-related  products  and services; enterprise
information technology (‘‘IT’’) infrastructure, including enterprise server and storage technology,
networking products and solutions, technology support  and maintenance; multi-vendor customer
services, including technology consulting,  outsourcing  and  support services across  infrastructure,
applications and business process domains; and IT management software, application testing and
delivery software, information management solutions, big data analytics  and  security intelligence/risk
management solutions. We have seven segments for  financial reporting purposes: Personal Systems,
Printing, the Enterprise Group (‘‘EG’’), Enterprise Services  (‘‘ES’’), Software,  HP Financial  Services
(‘‘HPFS’’) and Corporate Investments.

43

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

The following provides an overview of our key financial  metrics by segment for fiscal 2014:

Printing and Personal
Systems Group

HP
Consolidated

Personal
Systems

Printing

Total

Enterprise
Group

Enterprise
Services

Software

HPFS

Corporate
Investments(2)

$111,454

$ 34,303

$22,979

$ 57,282

$ 27,814

$ 22,398

$ 3,933

$ 3,498

$ 302

Dollars in millions, except per share amounts

(0.8)%

6.6%

(3.8)%

2.2%

(1.0)%

(6.9)%

(2.2)%

(3.6)%

NM

$

7,185

$ 1,270

$ 4,185

$ 5,455

$ 4,008

$

803

$

872

$

389

$ (199)

6.4%

3.7%

18.2%

9.5%

14.4%

3.6%

22.2%

11.1%

NM

0.0pts

0.7pts

1.7pts

0.7pts

(0.8) pts

0.8pts

0.6pts

0.1pts

NM

$

5,013

$
$

2.66
2.62

Net revenue(1) .
Year-over-year
change % . .

Earnings from

operations(1) .
Earnings from
operations
as a % of
net revenue
Year-over-year

change
percentage
points . . . .
Net earnings .
Net earnings
per share
Basic . . . .
Diluted . . .

(1)

(2)

HP consolidated net revenue excludes  intersegment net revenue and other. Segment  earnings from operations exclude corporate
and unallocated costs, stock-based compensation expense,  amortization  of intangible  assets, restructuring charges and acquisition-
related charges.

‘‘NM’’ represents not meaningful.

HP net revenue declined 0.8% (decreased 0.4%  on a constant currency basis)  in fiscal 2014  as
compared to fiscal 2013. The leading contributors to the HP  net revenue decline were key account
runoff in ES and lower Printing supplies  volume.  Partially  offsetting  the net revenue decline was growth
in Personal Systems from commercial  personal  computers (‘‘PCs’’), which  experienced growth across all
product  categories,  along  with  growth  in  consumer  notebooks.  HP’s  gross  margin  increased  by
0.8 percentage points in fiscal 2014 due  primarily to service delivery  efficiencies and improvements in
underperforming  contracts  in  ES  and  favorable  currency  impacts  from  the  Japanese  Yen  and  continued
cost structure improvements in Printing.  We continue to experience gross margin pressures resulting
from a competitive pricing environment  across our hardware portfolio.  HP’s  operating margin  was  flat
for  fiscal  2014  as  compared  to  fiscal  2013  due  to  the  gross  margin  increase,  improved  business
performance primarily in Printing, ES and Personal Systems, and lower intangible asset amortization,
offset  by  higher  restructuring  charges,  investments  in  research  and  development  (‘‘R&D’’),  and  higher
selling, general and administrative (‘‘SG&A’’) expenses.  The increase in  SG&A  expenses was partially
offset by gains from sales of real estate.

Our business continues to produce significant cash flow from  operations, generating  $12.3 billion in

fiscal 2014. Additionally, we invested $3.0  billion  in property, plant and equipment net  of proceeds
from sales, repurchased $2.7 billion of common  stock  and paid  dividends  of  $1.2 billion  to  stockholders.
As of October 31, 2014, cash and cash  equivalents and  short- and long-term investments  were
$15.5  billion,  representing  an  increase  of  approximately  $3.0  billion  from  October  31,  2013.

We  continue to experience challenges  that are representative of  trends and  uncertainties that may
affect our business and results of operations. One  set of challenges relates to continuing dynamic and
accelerating market trends. Another  set  of  challenges relates  to  changes  in the  competitive landscape.
Our major competitors are expanding their product and  service offerings  with integrated products and

44

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

solutions, our business-specific competitors are  exerting increased competitive pressure in targeted
areas and are entering new markets, our  emerging competitors are introducing new technologies and
business models, and our alliance partners in some businesses are increasingly becoming  our
competitors in others. A third set of challenges relates  to  business model changes  and our go-to-market
execution.  The  macroeconomic  weakness  we  have  experienced  has  moderated  in  some  geographic
regions but remains an overall challenge. A discussion  of  some  of  these  challenges at  the segment level
is set forth below.

• In  Personal Systems, we have been  negatively impacted  by the market shift  towards tablet

products within mobility products, which has reduced the demand for PCs, particularly consumer
notebooks. If benefits from our new  product investments in this area do not materialize, we will
continue  to  be  negatively  impacted  by  this  trend.  However,  the  pace  of  the  market  decline  is
slowing with signs of stabilization and  HP is gaining market share. In Personal Systems, we  are
maintaining our strategic focus on profitable growth through improved market segmentation with
respect to multi-OS, multi-architecture, geography, customer segments  and other key attributes.
In fiscal  2014, Personal Systems experienced  revenue growth in commercial PCs with growth
across all product categories, particularly  notebooks, along with  growth in consumer notebooks.
The increase in demand was due in part  to  customers migrating from the Windows XP operating
system, benefits from the delayed installed base refresh cycle  and new product  introductions.

• In  Printing, we are experiencing the  impact of the growth in mobility and demand challenges in
consumer and commercial markets, as well as an  overall competitive pricing environment. To be
successful  in  addressing  these  challenges,  we  need  to  continue  to  execute  on  our  key  initiatives
of focusing on products targeted at  high usage categories, developing emerging market
opportunities and introducing new revenue  delivery models to consumer customers. In fiscal
2014, Printing experienced a revenue  decline and an increase in operating profit as we continued
our  print strategies, with a focus on driving high value printer unit placements. In the consumer
market,  our  Ink  in  the  Office  products  are  driving  unit  volume  due  to  demand  for  our  OfficeJet
Pro product lines,  particularly our OfficeJet  Pro X printers which  leverage our Page-Wide Array
technology. The Ink in the Office initiative targets shifting ink into SMBs more profitably. In the
commercial market, our focus is on placing higher value  printer units  which also offer a positive
annuity of toner. We are accomplishing  this  in two growth areas, in multi-function printers with
recently introduced products that are  increasing demand and in managed print services, which
presents a strong after-market supplies opportunity. We  plan to continue this focus on
replenishing the installed base with value-added  units, and expanding our innovative ink and
laser programs.

• In  EG,  we  are  experiencing  revenue  challenges  due  to  multiple  market  trends,  including  the
increasing  demand  for  hyperscale  computing  infrastructure  products,  the  transition  to  cloud
computing and a highly competitive pricing  environment. In addition, demand for our Business
Critical  Systems  (‘‘BCS’’)  products  continues  to  weaken  along  with  the  overall  market  for  UNIX
products and the effect of lower BCS revenue  is impacting Technology Services (‘‘TS’’). To be
successful in overcoming these challenges, we must address business model shifts and
go-to-market  execution  challenges,  and  continue  to  pursue  new  product  innovation  in  areas  such
as  cloud  and  data  center  computing,  software-defined  networking,  storage,  blade  servers  and
wireless networking. In fiscal 2014, EG experienced a decline in revenue and operating profit
due to the previously mentioned challenging market environment, in particular weak market
demand  in  BCS  and  market  shifts  impacting  Storage.  Elsewhere  in  EG,  we  experienced  areas  of

45

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

growth in Industry Standard Servers (‘‘ISS’’),  Networking and TS, due in part to product
innovation  and  new  product  introductions  in  cloud  and  data  center  computing.  These  products
build on our existing capabilities in cloud, security, big data and converged infrastructure and
include CloudSystem 8, HP Helion, HP Apollo and support solutions such as  Proactive data
center and flexible capacity services.

• In  ES, we are facing execution challenges, including managing the revenue runoff from several

large contracts, pressured public sector  spending, a  competitive pricing environment and market
pressures from a mixed economic recovery in Europe, the Middle East and Africa (‘‘EMEA’’).
To be successful in addressing these challenges, we  must execute on the ES  multi-year
turnaround plan, which includes a cost reduction  initiative to align our costs  to  our revenue
trajectory, a focus on new logo wins  and Strategic Enterprise Services (‘‘SES’’) and initiatives to
improve execution in sales performance and accountability, contracting practices and  pricing. In
fiscal  2014  these  factors  continued  to  impact  both  ES  revenue  and  operating  profit.

• In  Software, we are facing challenges,  including the  market shift to software-as-a-service

(‘‘SaaS’’) and go-to-market execution challenges. To be successful  in addressing these challenges,
we  must  improve  our  go-to-market  execution  with  multiple  product  delivery  models  which  better
address customer needs and achieve broader integration across our overall product portfolio as
we work to capitalize on important market  opportunities in cloud, big data  and security. In fiscal
2014  these  factors  continued  to  impact  Software  revenue  and  operating  profit.

To address these challenges, we continue to pursue innovation with a view towards developing new
products and services aligned with market demand, industry trends and the needs of our customers and
partners. In addition, we need to continue  to  improve our  operations, with a particular  focus on
enhancing our end-to-end processes  and efficiencies. We also need to continue to optimize our sales
coverage models, align our sales incentives with our  strategic goals, improve channel execution,
strengthen our capabilities in our areas of  strategic  focus, and develop and capitalize on market
opportunities.

For a  further discussion of trends, uncertainties  and other  factors  that could impact our operating
results, see the section entitled ‘‘Risk Factors’’ in Item 1A, which  is incorporated herein by reference.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

General

The  Consolidated  Financial  Statements  of  HP  are  prepared  in  accordance  with  United  States
(‘‘U.S.’’) generally accepted accounting principles (‘‘GAAP’’), which require management to make
estimates, judgments and assumptions  that affect the  reported amounts of assets,  liabilities, net revenue
and expenses, and the disclosure of contingent liabilities. Management bases its estimates on  historical
experience and on various other assumptions that it believes to be reasonable under the circumstances,
the results of which form the basis for making judgments  about the carrying amount of assets and
liabilities that are not readily apparent  from other  sources. Management has discussed the
development, selection and disclosure of  these estimates  with  the Audit Committee of HP’s Board of
Directors. Management believes that the  accounting  estimates employed and the resulting amounts are
reasonable; however, actual results may  differ  from these estimates. Making estimates and  judgments
about future events is inherently unpredictable and is subject to significant uncertainties, some of which
are beyond our control. Should any of  these estimates  and assumptions  change  or prove  to  have been
incorrect, it could have a material impact  on our results of operations, financial position and cash flows.

46

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

A summary of significant accounting policies is  included in Note 1 to the Consolidated Financial

Statements in Item 8, which is incorporated  herein by reference. An accounting policy is  deemed to be
critical if it requires an accounting estimate to be made based on assumptions about matters that are
highly uncertain at the time the estimate is made,  if different estimates  reasonably could have been
used, or if changes in the estimate that are reasonably possible could materially impact the  financial
statements. 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  recognize revenue when persuasive  evidence of  an arrangement exists, delivery has occurred or

services are rendered, the sales price or fee is fixed or determinable and collectibility is reasonably
assured, as well as other revenue recognition  principles, including industry specific revenue recognition
guidance.

We  enter into contracts to sell our products and services, and  while many of our sales agreements
contain standard terms and conditions,  there are  agreements we enter into which contain non-standard
terms and conditions. Further, many of our arrangements include multiple  elements. As a result,
significant contract interpretation may be required to determine  the appropriate accounting, including
the identification of deliverables considered to be separate units of accounting, the allocation  of the
transaction price among elements in  the arrangement and the timing of revenue  recognition for each of
those elements.

We  recognize revenue for delivered elements as  separate  units of accounting  when the delivered

elements have standalone value to the  customer. For elements with no standalone value,  we recognize
revenue consistent with the pattern of the associated deliverables. If the arrangement includes a
customer-negotiated refund or return  right or  other contingency relative to the delivered items and  the
delivery and performance of the undelivered  items is  considered probable and substantially  within our
control,  the  delivered  element  constitutes  a  separate  unit  of  accounting.  In  arrangements  with
combined units of accounting, changes  in the  allocation of the transaction price between elements  may
impact the timing of revenue recognition  for the  contract but will  not change  the total revenue
recognized for the contract.

We  establish the selling prices used for each deliverable based on vendor-specific objective

evidence (‘‘VSOE’’) of selling price,  if  available, third-party evidence  (‘‘TPE’’), if VSOE of selling price
is not available, or estimated selling price  (‘‘ESP’’), if neither  VSOE of selling price nor TPE is
available. We establish VSOE of selling  price using the price charged for a deliverable when sold
separately and, in rare instances, using the  price  established by management having the relevant
authority. TPE of selling price is established by  evaluating largely similar and interchangeable
competitor products or services in standalone  sales  to  similarly situated  customers. ESP is established
based on management’s judgment 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.
We  may modify or develop new go-to-market  practices in the future, which may  result in changes in
selling prices, impacting both VSOE  of selling price and ESP. In most arrangements with multiple
elements, the transaction price is allocated  to  the individual units of accounting at inception of the
arrangement based on their relative selling  price. However, the aforementioned factors  may result in a
different allocation of the transaction  price to deliverables  in multiple element arrangements entered
into in future periods. This may change the  pattern and  timing of revenue recognition for identical

47

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

arrangements executed in future periods, but will not change  the total revenue recognized for any given
arrangement.

We  reduce revenue for customer and distributor programs and incentive offerings, including price
protection, promotions, other volume-based incentives and expected returns. Future market conditions
and product transitions may require  us to take actions to increase customer incentive offerings, possibly
resulting in an incremental reduction  of  revenue  at the  time the  incentive is offered. For  certain
incentive programs, we estimate the number  of  customers expected to redeem the incentive  based on
historical experience and the specific terms and conditions of the incentive.

For hardware products, we recognize revenue generated  from direct sales to end customers and

indirect sales to channel partners (including resellers, distributors and value-added solution providers)
when the revenue  recognition criteria are satisfied. For indirect sales to channel partners, we recognize
revenue at the time of delivery when the  channel partner has economic substance apart from HP  and
HP has completed its obligations related to the  sale.

For the various software products we  sell (e.g., operating system software, network enabling
software, IT and management software and enterprise security software), we assess whether the
software products  were sold standalone or  with hardware products. If the software sold  with a hardware
product  is not essential to the functionality of the  hardware and is more-than-incidental, we treat it as  a
software  deliverable.

We  recognize revenue from the sale of perpetual software licenses at  inception of the license term,

assuming all revenue recognition criteria  have been  satisfied. Term-based software license revenue is
generally recognized ratably over the  term of the  license. We use the residual method to allocate
revenue to software licenses at inception of  the arrangement when  VSOE of fair value for all
undelivered elements, such as post-contract support,  exists and all other revenue recognition  criteria
have been satisfied. Revenue from maintenance and unspecified upgrades or  updates provided on an
if-and-when-available basis is recognized ratably  over the  period during which  such items are delivered.

For hosting or SaaS arrangements, we recognize revenue  as the service is delivered,  generally on a
straight-line basis, over the contractual period of performance.  In hosting  arrangements where software
licenses are sold, license revenue is generally recognized according to whether  perpetual or  term
licenses are sold, when all other revenue  recognition criteria  are satisfied. In hosting arrangements  that
include software licenses, we consider  the rights provided to the customer (e.g., ownership  of a license,
contract termination provisions and feasibility of the customer  to  operate the software) in determining
when to recognize revenue for the licenses.

We  recognize revenue from fixed-price support or maintenance contracts, including extended
warranty contracts and software post-contract customer support agreements, ratably over the contract
period. For certain fixed-price contracts,  such as consulting arrangements, we recognize  revenue as
work progresses using a proportional  performance method. We estimate the total expected labor costs
in order to determine the amount of  revenue earned  to  date.  We apply a proportional performance
method because reasonably dependable  estimates of  the labor costs  applicable to various stages of a
contract can be made. On fixed-price contracts  for design and build projects (to design, develop and
construct software infrastructure and systems), we  recognize revenue as work progresses using the
percentage-of-completion method. We use the cost-to-cost method to measure progress toward
completion as determined by the percentage of cost incurred to date compared to the total estimated
costs of the project. Total project costs are subject to revision throughout the life of a fixed-price
contract. Provisions for estimated losses  on fixed-price contracts are recognized  in the period when  such

48

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

losses become known and are recorded  as a  component of cost of sales. In circumstances  when
reasonable and reliable cost estimates for a project  cannot be made we recognize  revenue using the
completed  contract  method.

Outsourcing services revenue is generally recognized in the period when  the service is provided
and the amount earned is not contingent  on the occurrence of any future event.  We  recognize revenue
using an objective measure of output  for per unit-priced  contracts. Revenue for fixed-price outsourcing
contracts with periodic billings is recognized  on a  straight-line basis if the service is provided evenly
over the contract term. Provisions for  estimated  losses on outsourcing arrangements are  recognized in
the period when such losses become  probable  and  estimable and are recorded  as a component of cost
of sales.

Warranty

We  accrue the estimated cost of product warranties at  the time we recognize  revenue. We evaluate

our  warranty obligations on a product group  basis.  Our standard  product warranty terms  generally
include post-sales support and repairs  or  replacement  of  a product at no additional  charge for a
specified period of time. While we engage in extensive product quality programs and processes,
including actively monitoring and evaluating  the quality  of our component suppliers, we base our
estimated warranty obligation on contractual  warranty terms, repair costs, product call rates, average
cost per call, current period product  shipments and ongoing product failure rates, as  well as specific
product  class failure outside of our baseline experience. Warranty  terms generally range from  90 days
to three years for parts and labor, depending  upon the  product. Over the  last three  fiscal years, the
annual warranty expense and actual warranty costs  have averaged  approximately 2.7% and 2.9% of
annual net product revenue, respectively.

Restructuring

We  have  engaged  in  restructuring  actions  which  require  management  to  estimate  the  timing  and

amount  of  severance  and  other  employee  separation  costs  for  workforce  reduction  and  enhanced  early
retirement programs, fair value of assets made redundant or  obsolete, and  the fair value of lease
cancellation  and  other  exit  costs.  We  accrue  for  severance  and  other  employee  separation  costs  under
these actions when it is probable that  benefits will  be  paid and the amount is  reasonably estimable. The
rates used in determining severance accruals  are based on existing plans, historical experiences and
negotiated  settlements.  For  a  full  description  of  our  restructuring  actions,  refer  to  our  discussions  of
restructuring in ‘‘Results of Operations’’ below and in Note 3 to the Consolidated Financial Statements
in Item 8, which are incorporated herein  by reference.

Retirement and Post-Retirement Benefits

Our pension and other post-retirement benefit costs and obligations  depend on various
assumptions.  Our  major  assumptions  relate  primarily  to  discount  rates,  mortality  rates,  expected
increases in compensation levels and  the expected  long-term return on plan assets. The discount rate
assumption is based on current investment yields of high-quality fixed-income securities with  maturities
similar  to  the  expected  benefits  payment  period.  Mortality  rates  help  predict  the  expected  life  of  plan
participants  and  are  based  on  a  historical  demographic  study  of  the  plan.  As  a  result  of  a  historical
study  of  the  U.S.  plans,  in  fiscal  2014,  HP  adopted  a  new  mortality  rate  table  which  incorporated  newly
released mortality rates published by  the Society  of  Actuaries. This resulted in an increase to the
projected benefit obligation of approximately  $870  million for the  U.S. defined benefit plans. The

49

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

expected increase in the compensation  levels assumption reflects our long-term actual experience and
future  expectations.  The  expected  long-term  return  on  plan  assets  is  determined  based  on  asset
allocations,  historical  portfolio  results,  historical  asset  correlations  and  management’s  expected  returns
for each  asset class. In any fiscal year,  significant differences may arise between the actual return and
the  expected  long-term  return  on  plan  assets.  Historically,  differences  between  the  actual  return  and
expected long-term return on plan assets have resulted from  changes in target or actual asset
allocation, short-term performance relative  to  expected long-term performance, and to a lesser extent,
differences  between  target  and  actual  investment  allocations,  the  timing  of  benefit  payments  compared
to expectations, and the use of derivatives intended  to  effect asset allocation changes or hedge certain
investment or liability exposures. For the  recognition  of  net periodic benefit  cost, the calculation of the
expected long-term return on plan assets uses the fair value of plan  assets as of  the beginning of the
fiscal  year.

Our  major  assumptions  vary  by  plan,  and  the  weighted-average  rates  used  are  set  forth  in  Note 4

to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference. The
following  table  provides  the  impact  changes  in  the  weighted-average  assumptions  of  discount  rates,  the
expected increase in compensation levels  and  the expected long-term return on plan assets would have
had on our net periodic benefit cost for fiscal 2014:

Change in
percentage points

Change  in
Net Periodic
Benefit Cost
in millions

Assumptions:

Discount  rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected increase in compensation levels . . . . . . . . . . . . . . . . . . . . . . .
Expected long-term return on plan assets . . . . . . . . . . . . . . . . . . . . . . .

(25)
25
(25)

$83
$20
$68

Taxes on Earnings

We  calculate  our  current  and  deferred  tax  provisions  based  on  estimates  and  assumptions  that
could differ from the final positions reflected in  our  income tax returns. We  adjust our current and
deferred tax provisions based on income  tax returns which  are generally  filed in  the third  or fourth
quarters of the subsequent fiscal year.

We  recognize  deferred  tax  assets  and  liabilities  for  the  expected  tax  consequences  of  temporary
differences between the tax bases of  assets and liabilities and their reported amounts using enacted tax
rates in effect for the year in which we  expect  the differences to reverse.

We  record  a  valuation  allowance  to  reduce  deferred  tax  assets  to  the  amount  that  we  are  more
likely than not to realize. In determining the need for a valuation allowance, we consider  future market
growth, forecasted  earnings, future taxable  income,  the mix of earnings in the jurisdictions  in which  we
operate  and  prudent  and  feasible  tax  planning  strategies.  In  the  event  we  were  to  determine  that  it  is
more likely than not that we will be  unable  to  realize all or  part of  our deferred tax  assets in  the
future, we would increase the valuation allowance and  recognize a  corresponding  charge to earnings or
other  comprehensive  income  in  the  period  in  which  we  make  such  a  determination.  Likewise,  if  we
later determine that we are more likely than not to realize  the deferred tax assets, we  would reverse
the applicable portion of the previously recognized valuation allowance. In order for  us to realize our
deferred  tax  assets,  we  must  be  able  to  generate  sufficient  taxable  income  in  the  jurisdictions  in  which
the deferred tax assets are located.

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HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

Our  effective  tax  rate  includes  the  impact  of  certain  undistributed  foreign  earnings  for  which  we

have not provided U.S. federal taxes because  we plan  to  reinvest such earnings indefinitely outside the
U.S.  We  plan  distributions  of  foreign  earnings  based  on  projected  cash  flow  needs  as  well  as  the
working capital and long-term investment requirements of our foreign subsidiaries and our domestic
operations.  Based  on  these  assumptions,  we  estimate  the  amount  we  expect  to  indefinitely  invest
outside  the  U.S.  and  the  amounts  we  expect  to  distribute  to  the  U.S.  and  provide  the  U.S.  federal  taxes
due on amounts expected to be distributed to the U.S.  Further, as  a result of certain employment
actions and capital investments we have  undertaken, income from manufacturing activities in certain
jurisdictions  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  requirements  in  the  various  jurisdictions  in  which  we  do  business  could  impact  how  future
earnings are repatriated to the U.S., and our  related future effective tax rate.

We  are subject to income taxes in the U.S.  and approximately 105 other countries, and we  are
subject to routine corporate income tax  audits in many  of  these jurisdictions. We  believe that positions
taken on our tax returns are fully supported, but  tax  authorities may  challenge these positions, which
may  not  be  fully  sustained  on  examination  by  the  relevant  tax  authorities.  Accordingly,  our  income  tax
provision  includes amounts intended to satisfy assessments  that may result  from these challenges.
Determining the income tax provision  for  these potential assessments and recording the related effects
requires  management  judgments  and  estimates.  The  amounts  ultimately  paid  on  resolution  of  an  audit
could be materially different from the  amounts previously included in our income tax provision and,
therefore, could have a material impact  on our income tax provision, net income and cash  flows. Our
accrual  for  uncertain  tax  positions  is  attributable  primarily  to  uncertainties  concerning  the  tax  treatment
of our international operations, including the allocation of income among  different jurisdictions,
intercompany transactions and related interest. For a further discussion  on taxes  on earnings, refer to
Note 6 to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

Inventory

We  state our inventory at the lower of cost or market on a first-in, first-out basis. We make
adjustments to reduce the cost of inventory  to  its net realizable value at the product  group level  for
estimated excess, obsolescence or impaired  balances. Factors influencing these adjustments include
changes  in  demand,  technological  changes,  product  life  cycle  and  development  plans,  component  cost
trends,  product  pricing,  physical  deterioration  and  quality  issues.

Goodwill

We  review goodwill for impairment annually and whenever events or changes in circumstances
indicate the carrying amount of goodwill  may not be recoverable. While we are permitted  to  conduct a
qualitative assessment to determine whether  it is necessary to perform a two-step quantitative goodwill
impairment test, for our annual goodwill impairment test  in the fourth  quarter of  fiscal 2014, we
performed a quantitative test for all of  our reporting units.

Goodwill is tested for impairment at  the reporting  unit  level. At the  beginning  of the first quarter
of fiscal 2014, we changed our reporting units. In connection with continued operational synergies and
interdependencies  between  the  Enterprise  Servers,  Storage  and  Networking  reporting  unit  and  the  TS
reporting unit within the EG segment,  we  combined these reporting units to create  the EG reporting
unit. As of October 31, 2014, our reporting  units  are consistent with  the reportable segments identified

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HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

in Note 2, except for ES, which includes two  reporting  units: MphasiS Limited; and the remainder of
ES.

In the first step of the goodwill impairment test,  we compare the fair value of each  reporting unit

to its carrying amount. We estimate the  fair  value of our  reporting units using  a weighting of fair values
derived most significantly from the income approach and, to a lesser extent, the market approach.
Under the income approach, we estimate  the fair value of a reporting unit based on  the present value
of estimated future cash flows. Cash flow  projections are based on management’s  estimates of revenue
growth rates and operating margins, taking into consideration  industry  and market conditions.  The
discount rate used is based on the weighted-average cost of capital adjusted  for the  relevant risk
associated with business-specific characteristics and the uncertainty  related to the reporting  unit’s ability
to execute on the projected cash flows. Under  the market approach, we estimate  fair value based on
market multiples of revenue and earnings  derived  from comparable publicly-traded  companies with
operating and investment characteristics  similar to the reporting unit. We weight the  fair value derived
from the market approach depending on  the level  of  comparability of these  publicly-traded companies
to the reporting unit. When market comparables are not meaningful or not available, we  estimate the
fair value of a reporting unit using only the income approach. For the MphasiS  Limited reporting unit,
we utilized the quoted market price in  an  active  market  to estimate fair value.

In order to assess the reasonableness of  the estimated fair value of our reporting units, we

compare the aggregate reporting unit fair value to HP’s market capitalization  and calculate an implied
control premium (the excess of the sum of the reporting units’ fair value over HP’s market
capitalization). We evaluate the control  premium  by comparing it to observable control premiums from
recent comparable transactions. If the  implied  control  premium is not believed  to  be  reasonable in light
of these  recent transactions, we reevaluate  reporting unit fair values, which may result in  an adjustment
to  the  discount  rate  and/or  other  assumptions.  This  reevaluation  could  result  in  a  change to  the
estimated fair value for certain or all of our  reporting units.

Estimating the fair value of a reporting unit  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 discount rates,  future
economic  and  market  conditions  and  the  determination  of  appropriate  comparable  publicly-traded
companies. In addition, we make certain  judgments and assumptions in allocating shared assets and
liabilities  to  individual  reporting  units  to  determine  the  carrying  amount  of  each  reporting  unit.

If the fair value of a reporting unit exceeds the carrying  amount  of the net assets assigned to that

reporting unit, goodwill is not impaired and no further testing  is required. If the fair value  of the
reporting  unit  is  less  than  its  carrying  amount,  then  we  perform  the  second  step  of  the  goodwill
impairment test to measure the amount  of impairment  loss, if any. In the second step, the reporting
unit’s assets, including any unrecognized intangible assets, liabilities and non-controlling interests are
measured at fair value in a hypothetical analysis to calculate the implied fair value of  goodwill for the
reporting unit in the same manner as if  the reporting unit was being acquired in a  business
combination. If the implied fair value of the reporting unit’s goodwill is  less  than its carrying amount,
the difference is recorded as an impairment loss.

Our annual goodwill impairment analysis, which we performed as  of  the first day of the fourth
quarter of fiscal 2014, did not result  in  any impairment charges. The excess of fair value over carrying
amount for our reporting units ranged from 18% to approximately 12,000% of carrying  amounts. The
Software reporting unit has the lowest  excess  of fair value over carrying amount at 18%.

52

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

In order to evaluate the sensitivity of the estimated fair value of our reporting  units in the goodwill

impairment test, we applied a hypothetical 10% decrease to the  fair value of each reporting unit. This
hypothetical  10%  decrease  resulted  in  an  excess  of  fair  value  over  carrying  amount  for  our  reporting
units ranging from 6% to approximately  10,000%  of  the carrying amounts with  the Software  reporting
unit having the lowest excess  of fair value  over carrying  amount of  6%. The fair value of the Software
reporting unit is estimated using a weighting of both the income and market approaches. Our Software
business  is  facing  multiple  challenges  including  the  market  shift  to  SaaS  and  go-to-market  execution
challenges. If we are not successful in  addressing  these  challenges, our  projected revenue growth rates
could decline resulting in a decrease  in  the fair value of the Software reporting unit. The fair value  of
the  Software  reporting  unit  could  also  be  negatively  impacted  by  declines  in  market  multiples  of
revenue for comparable publicly-traded companies, changes in management’s business strategy or
significant declines in our stock price,  which could  result in an indicator of impairment.

Intangible  Assets

We  review intangible assets with finite lives for impairment whenever events or  changes in
circumstances indicate the carrying amount of an  asset may not be recoverable. Recoverability of our
finite-lived intangible assets is assessed  based on the estimated undiscounted future cash  flows expected
to result from the use and eventual disposition  of the asset. If the undiscounted future cash flows are
less  than the carrying amount, the finite-lived intangible assets are  considered to be impaired. The
amount of the impairment loss, if any, is measured as the  difference between the carrying amount of
the asset and its fair value. We estimate the fair value of  finite-lived  intangible assets by using an
income approach or, when available  and appropriate, using a  market  approach.

Fair Value of Derivative Instruments

We  use  derivative  instruments  to  manage  a  variety  of  risks,  including  risks  related  to  foreign
currency exchange rates and interest rates.  We use forwards, swaps and options to hedge certain
foreign currency and interest rate exposures. We do not use derivative financial instruments for
speculative purposes. At October 31,  2014, the gross  notional of our derivative portfolio was
$54.7 billion. Assets and liabilities related to derivative  instruments are measured at fair value, and
were $980 million and $405 million, respectively as of October 31, 2014.

Fair value is the price we would receive to sell an asset or pay to transfer a  liability  in an orderly

transaction between market participants at the measurement  date. In the absence of active markets for
the identical assets or liabilities, such  measurements involve developing assumptions based on market
observable data and, in the absence of such  data, internal information that is consistent with what
market participants would use in a hypothetical transaction that occurs at the measurement date.  The
determination of fair value often involves  significant judgments about assumptions  such as determining
an appropriate discount rate that factors  in both  risk and liquidity premiums, identifying  the similarities
and differences in market transactions, weighting those differences accordingly and then making the
appropriate adjustments to those market  transactions  to  reflect the  risks specific to the asset or liability
being valued. We generally use industry  standard valuation models to measure the fair value of  our
derivative positions. When prices in active  markets  are not available for the  identical asset or liability,
we use industry standard valuation models to measure  fair  value. Where applicable, these models
project future cash flows and discount the  future amounts  to  present value using market-based
observable inputs, including interest rate  curves,  HP and counterparty credit risk, foreign currency
exchange rates, and forward and spot prices.

53

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

For  a  further  discussion  on  fair  value  measurements  and  derivative  instruments,  refer  to  Note  10
and Note 11, respectively, to the Consolidated Financial Statements in Item 8,  which are incorporated
herein by reference.

Loss  Contingencies

We  are  involved  in  various  lawsuits,  claims,  investigations  and  proceedings  including  those

consisting of IP, commercial, securities, employment, employee benefits and environmental matters that
arise in the ordinary course of business.  We  record a liability  when we believe that it is both probable
that  a  liability  has  been  incurred  and  the  amount  of  loss  can  be  reasonably  estimated.  Significant
judgment is required to determine both  the probability of having  incurred a  liability  and the  estimated
amount  of  the  liability.  We  review  these  matters  at  least  quarterly  and  adjust  these  liabilities  to  reflect
the  impact  of  negotiations,  settlements,  rulings,  advice  of  legal  counsel  and  other  updated  information
and events, pertaining to a particular  case. Based on our  experience, we believe that any  damage
amounts  claimed  in  the  specific  litigation  and  contingencies  matters  further  discussed  in  Note 15  to  the
Consolidated Financial Statements in  Item 8, which is incorporated herein by reference, are not a
meaningful indicator of HP’s potential liability. Litigation is inherently unpredictable. However, we
believe  we  have  valid  defenses  with  respect  to  legal  matters  pending  against  us.  Nevertheless,  cash  flows
or results of operations could be materially affected in any particular period by the resolution of one or
more  of  these  contingencies.  We  believe  we  have  recorded  adequate  provisions  for  any  such  matters
and, as of October 31, 2014, it was not  reasonably possible that a material loss had been incurred in
excess  of  the  amounts  recognized  in  our  financial  statements.

ACCOUNTING  PRONOUNCEMENTS

For a  summary of recent accounting pronouncements applicable to our consolidated financial
statements see Note 1 to the Consolidated Financial Statements in Item 8,  which is  incorporated herein
by reference.

RESULTS OF OPERATIONS

Revenue from our international operations has historically  represented, and we expect will

continue to represent, a majority of our overall net revenue. As a result, our revenue growth has been
impacted, and we expect will continue  to  be impacted, by fluctuations  in foreign currency exchange
rates. In order to provide a framework for assessing performance excluding the impact of foreign
currency fluctuations, we present the  year-over-year  percentage change in revenue on a constant
currency basis, which assumes no change in foreign currency exchange rates from the prior-year period.
This information is provided so that revenue  can be viewed without the effect of fluctuations in foreign
currency exchange rates, which is consistent with  how  management  evaluates our revenue results and
trends.  This constant currency disclosure is  provided in addition  to,  and  not as a substitute for, the
year-over-year percentage change in revenue  on  a GAAP basis. Other companies may  calculate and
define similarly labeled items differently, which may limit  the usefulness of this measure for
comparative  purposes.

54

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

Results of operations in dollars and as a  percentage of net revenue were  as follows:

For the fiscal years ended October 31

2014

2013

2012

Dollars in millions

Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . $111,454
Cost of sales(1)
84,839

. . . . . . . . . . . . . . . . . . . . . . .

100.0% $112,298
76.1% 86,380

100.0% $120,357
76.9% 92,385

100.0%
76.8%

Gross profit

. . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . .
Amortization of intangible assets . . . . . . . . . .
Impairment of goodwill and intangible

assets(2) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . .
Acquisition-related charges . . . . . . . . . . . . . .

Earnings (loss) from operations . . . . . . .
. . . . . . . . . . . . . . . . .

Interest and other, net

Earnings (loss) before taxes . . . . . . . . . .
Provision for taxes . . . . . . . . . . . . . . . . . . . .

26,615
3,447
13,353
1,000

—
1,619
11

7,185
(628)

6,557
(1,544)

23.9% 25,918
3,135
3.1%
12.0% 13,267
1,373
0.9%

23.1% 27,972
3,399
2.8%
11.8% 13,500
1,784
1.2%

—
1.5%
—

—
990
22

—
0.9%
—

18,035
2,266
45

23.2%
2.8%
11.2%
1.5%

15.0%
1.9%
—

6.4%
(0.6)%

7,131
(621)

6.4% (11,057)
(876)
(0.6)%

(9.2)%
(0.8)%

5.8%
6,510
(1.3)% (1,397)

5.8% (11,933)
(717)
(1.2)%

(10.0)%
(0.5)%

Net earnings (loss) . . . . . . . . . . . . . . . $

5,013

4.5% $

5,113

4.6% $ (12,650)

(10.5)%

(1) Cost of products, cost of services and  financing  interest.

(2) Fiscal 2012, includes an $8.8 billion goodwill and  intangible asset  impairment  charge associated

with the Autonomy reporting unit within  the Software  segment, an $8.0 billion goodwill
impairment within the ES segment and  a $1.2 billion intangible asset impairment  associated with
the ‘‘Compaq’’ trade name within the  Personal Systems segment.

Net Revenue

The components of the weighted net revenue  change were as follows:

Enterprise  Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Printing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Enterprise  Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
HP Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate  Investments/Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Personal Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

For the fiscal
years ended
October 31

2014

2013

Percentage Points
(1.7)
(1.5)
(0.5)
(0.8)
(1.3)
(0.2)
(0.1)
(0.1)
(0.2)
(0.1)
0.1
0.1
(3.0)
1.8

Total HP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(0.8)

(6.7)

55

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

Fiscal 2014 compared with Fiscal 2013

In fiscal  2014, total HP net revenue declined 0.8%  (decreased 0.4%  on a  constant currency basis)

as compared with fiscal 2013. U.S. net  revenue decreased 3.7% to $38.8 billion, while net revenue from
outside of the U.S. increased 0.9% to  $72.6 billion. The leading contributors to the HP net revenue
decline  were key account runoff in ES and lower Printing supplies volume. Partially offsetting the net
revenue decline was growth in Personal Systems from commercial PCs,  which experienced  growth
across all product categories, along with  growth  in consumer notebooks.

From a segment perspective, the primary factors contributing to the change in  HP net revenue for

fiscal 2014 compared with fiscal 2013  are  summarized as follows:

• ES net revenue declined due primarily  to  revenue  runoff in key accounts,  weak growth in new

and  existing  accounts,  particularly  in  EMEA,  and  contractual  price  declines;

• Printing net revenue decreased due primarily  to  a decline in  Supplies;

• EG net revenue decreased due to  net revenue declines  in TS, BCS and  Storage;

• Software net revenue decreased due to lower  net revenue from licenses, support and

professional  services;

• HPFS net revenue decreased due primarily  to  lower portfolio revenue  from lower average

portfolio assets and lower asset management activity,  primarily in customer buyouts;

• Corporate  Investments  net  revenue  increased  due  to  the  sale  of  intellectual  property  (‘‘IP’’);  and

• Personal Systems net revenue increased due to growth in commercial PCs, particularly

notebooks, along with growth in consumer notebooks.

Fiscal 2013 compared with Fiscal 2012

In fiscal  2013, total HP net revenue declined 6.7%  (decreased 5.5%  on a  constant currency basis)

as compared with fiscal 2012. U.S. net  revenue decreased 4.4% to $40.3 billion, while net revenue from
outside of the U.S. decreased 7.9% to  $72.0 billion.  The net revenue decline was due primarily to
declines of approximately 10%, 7%, 5% and 3% in our Personal Systems, ES, EG  and Printing
segments,  respectively.

From a segment perspective, the primary factors contributing to the change in  HP net revenue for

fiscal 2013 compared with fiscal 2012  are  summarized as follows:

• Personal Systems net revenue declined  due to the  decline in the overall PC  market as a result  of

a customer shift, particularly consumers, to tablet products;

• ES net revenue declined due primarily  to  net service revenue runoff and contractual price
declines in ongoing contracts due in part to weak  public sector spending and enterprise IT
demand;

• EG net revenue declined due to multiple factors,  including  competitive pricing  challenges in ISS,
a market decline for UNIX products impacting BCS, declines in TS due in  part to lower support
for BCS products, product transitions in  Storage and overall weak enterprise IT  demand;

• Printing net revenue declined due to unfavorable currency impacts, particularly the euro, and

declines in supplies and commercial printers;

56

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

• HPFS net revenue decreased due primarily  to  lower rental revenue from a decrease in operating

lease assets; and

• Software net revenue declined due  to  lower license and professional services revenues from IT/

cloud management and information management products.

A more detailed discussion of segment revenue  is  included under ‘‘Segment Information’’ below.

Gross Margin

Fiscal 2014 compared with Fiscal 2013

HP’s gross margin  increased by 0.8 percentage points  for fiscal year 2014 compared  with fiscal

2013. From a segment perspective, the primary factors impacting gross margin performance are
summarized as follows:

• ES gross margin increased due primarily to our continued focus on service delivery efficiencies,
improving profit performance in under-performing contracts and labor savings as a result of
restructuring;

• Printing  gross  margin  increased  due  primarily  to  favorable  currency  impacts  from  the  Japanese
Yen, continued cost structure improvements and a favorable mix from a higher proportion  of
graphics and ink supplies;

• Corporate Investments gross margin increased due to the  sale of IP;

• Software gross margin increased due  to  the shift to more profitable contracts and improved

workforce utilization in professional  services;

• HPFS  gross  margin  increased  due  to  a  higher  portfolio  margin,  primarily  from lower  bad  debt

expense, a lower cost of funds and improved margins  in  remarketing sales;

• Personal  Systems  gross  margin  increased  due  primarily  to  operational  cost  improvements, a

favorable  mix  of  commercial  products  and  the  sale  of  IP;  and

• EG gross margin decreased due primarily to the impact of a  higher mix of ISS products, lower

mix of BCS products and competitive pricing  pressure in ISS and Networking.

Fiscal 2013 compared with Fiscal 2012

HP’s gross margin  decreased by 0.2 percentage points for fiscal year 2013 compared  with fiscal

2012. From a segment perspective, the primary factors impacting gross margin performance are
summarized as follows:

• EG experienced a gross margin decline due primarily  to  competitive pricing pressures in ISS,

and to a lesser extent, mix impacts from lower BCS and Storage revenue;

• Personal Systems experienced a gross margin decline  due primarily to unfavorable currency

impacts and competitive pricing pressures;

• ES gross margin decreased due to net service revenue runoff and contractual price declines;

• Software gross margin decreased slightly due  to  higher  development costs in IT/cloud

management  products;

57

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

• HPFS gross margin increased slightly due primarily  to  higher portfolio margins from  a lower mix

of operating leases and higher margins on early buyouts; and

• Printing gross margin increased due primarily  to  improvement in toner gross margins as a result

of lower discounting and higher average  revenue  per  unit (‘‘ARU’’)  in consumer printers.

A more detailed discussion of segment gross margins  and operating margins  is included under

‘‘Segment  Information’’  below.

Operating  Expenses

Research and Development

R&D expense increased 10% in fiscal 2014 as compared to fiscal 2013 with increases  across each

of our segments as we make investments  in our strategic  focus areas of cloud, security, big data and
mobility.

R&D expense decreased 8% in fiscal  2013 as compared  to fiscal 2012 due primarily to the
rationalization of R&D in EG for BCS,  cost savings from restructuring and higher  value added  R&D
tax subsidy credits. The decrease was  partially offset by  increased R&D  expense in our Storage and ISS
business units and in Software for innovation-focused spending in the areas of  converged infrastructure
and  cloud.

Selling, General and Administrative

SG&A  expense  increased  1%  in  fiscal  2014  as  compared  to  fiscal  2013  due  primarily  to  higher
compensation costs, litigation expenses and higher selling  costs from investments in the areas of  cloud,
networking and storage, partially offset by  gains from sales of real estate and lower program spending
in marketing.

SG&A expense decreased 2% in fiscal 2013  as  compared  to fiscal 2012  due  primarily to cost
savings associated with our ongoing restructuring efforts that  impacted all of our segments. Partially
offsetting the decline were higher marketing  expenses  to  support new product introductions and
increased administrative expenses due in  part  to  higher consulting project spending.

Amortization of Intangible Assets

Amortization expense decreased in fiscal 2014 due primarily to certain  intangible assets associated

with prior acquisitions reaching the end  of their respective  amortization periods.

Amortization expense decreased in fiscal 2013 due primarily to the  intangible asset impairment

recorded  in the fourth quarter of fiscal  2012 related to Autonomy and certain intangible assets
associated with prior acquisitions reaching the end of their amortization periods.

Impairment of Goodwill and Intangible Assets

In fiscal  2012, we recorded goodwill  impairment charges of $8.0 billion and $5.7 billion associated

with ES and the acquisition of Autonomy, respectively.  In addition, we recorded intangible asset
impairment charges of $3.1 billion and $1.2  billion  associated with the acquisition of Autonomy  and the
‘‘Compaq’’  trade  name,  respectively.  For  more  information  on  our  impairment  charges,  see  Note  9  to
the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

58

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

Restructuring Charges

Restructuring  charges  increased  in  fiscal  2014  due  primarily  to  higher  charges  in  connection  with

the multi-year restructuring plan initially  announced in May 2012 (the ‘‘2012 Plan’’) and from increases
to the 2012 Plan announced in fiscal 2014. During fiscal  2014,  HP increased the total for positions
expected to be eliminated under the  2012  Plan from 34,000 to 55,000 positions. With  these changes, HP
expects  to  recognize  additional  restructuring  charges  in  fiscal  2015.

Restructuring charges decreased in fiscal 2013  due primarily  to  the $2.1 billion charge recorded in

fiscal 2012 for the 2012 Plan. Restructuring charges  for fiscal 2013 were approximately $1.0  billion,
which  included $1.2 billion of charges related to the 2012  Plan that were partially offset  by  a reversal of
$190 million of severance charges related  to  our fiscal 2010 ES  restructuring plan.

Interest and Other, Net

Interest and other, net expense increased  by $7 million in fiscal 2014. The increase was  due
primarily to higher currency transaction  losses  partially offset  by lower interest expense from  a lower
average debt balance.

Interest and other, net expense decreased by $255  million in fiscal  2013. The decrease was driven

primarily by lower currency transaction losses coupled with lower interest expense due to lower average
debt balances and  lower investment losses.

Provision for Taxes

Our effective tax rates were 23.5%, 21.5%, and (6.0)% in fiscal 2014, 2013  and 2012, respectively.
Our effective tax rate generally differs  from the  U.S. federal statutory rate of 35% due to favorable tax
rates associated with certain earnings from our  operations in lower-tax jurisdictions throughout the
world. The jurisdictions with favorable tax rates  that had the most significant effective tax rate  impact
in the periods presented were Puerto  Rico, Singapore,  Netherlands, China and Ireland. We plan to
reinvest  certain  earnings  of  these  jurisdictions  indefinitely  outside  the  U.S.  and  therefore  have  not
provided U.S. taxes on those indefinitely reinvested  earnings.

In addition to the above factors, the effective  tax  rate in fiscal 2012  was  impacted  by  nondeductible

goodwill impairments and increases in valuation allowances against certain  deferred tax assets.

For a  reconciliation of our effective tax rate to the  U.S. federal statutory  rate of 35% and  further
explanation of our provision for taxes, see Note 6 to the Consolidated Financial Statements in Item 8,
which  is incorporated herein by reference.

Segment  Information

A  description  of  the  products  and  services  for  each  segment  can  be  found  in  Note  2  to  the

Consolidated Financial Statements in  Item 8, which  is incorporated herein by reference. Future changes
to this organizational structure may result  in  changes to the segments disclosed.

Effective at the beginning of the first quarter of fiscal 2014, we implemented certain organizational
changes to align the segment financial reporting  more closely with our current business structure. These
organizational  changes  include:

• transferring the HP Exstream business  from the  Commercial  Hardware business unit  within the

Printing segment to the Software segment;

59

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

• transferring  the  Personal  Systems  trade  and  warranty  support  business  from  the  TS  business  unit

within the EG segment to the Other business unit within the Personal Systems  segment;

• transferring the spare and replacement parts supporting  the Personal Systems and Printing

segments from the TS business unit within the EG segment to the Other business unit within the
Personal Systems segment and the Commercial Hardware business unit within the Printing
segment,  respectively;  and

• transferring certain cloud-related incubation activities previously reported  in Corporate and
unallocated costs and eliminations and  in  the EG segment  to  the Corporate Investments
segment.

In addition, we transferred certain intrasegment eliminations  from the ES segment and the EG

segment  to  corporate  intersegment  revenue  eliminations.

HP  has  reflected  these  changes  to  its  segment  information  retrospectively  to  the  earliest  period
presented, which has resulted in the transfer of revenue among the Printing, Personal  Systems,  EG, ES
and Software segments and the transfer of operating profit  among the Printing, Personal Systems, EG,
Software  and  Corporate  Investments  segments.  These  changes  had  no  impact  on  the  previously
reported financial results for the HPFS  segment. In addition,  none of these changes impacted HP’s
previously reported consolidated net revenue, earnings from  operations, net earnings, net  EPS or
consolidated  assets.

Printing and Personal Systems Group

The Personal Systems segment and the  Printing  segment are structured beneath a broader Printing

and Personal Systems Group (‘‘PPS’’). We  describe the results of the business segments  within PPS
below.

Personal Systems

For the fiscal years ended October 31

2014

2013

2012

Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings from operations as a % of net  revenue . . . . . . . . . . . . . . . .

$34,303
$ 1,270

Dollars in millions
$32,179
980
$
3.0%

3.7%

$35,843
$ 1,724

4.8%

The  components  of  the  weighted  net  revenue  change  by  business  unit  were  as  follows:

Notebook  PCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Desktop  PCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Workstations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

For the fiscal
years ended
October 31

2014

2013

Percentage Points
4.7
1.1
0.2
0.6

(7.8)
(2.9)
—
0.5

Total Personal Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.6

(10.2)

60

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

Fiscal 2014 compared with Fiscal 2013

Personal Systems net revenue increased 6.6% (increased 7.2% on a constant currency basis) in
fiscal 2014. While the Personal Systems  business continues to be challenged  by  the market shift towards
mobility products, the pace of the PC  market decline is  slowing with signs of  stabilization driven by
growth in commercial PCs, the effects of which were partially offset by  weakness in consumer PCs. The
revenue  increase  in  Personal  Systems  was  due  to  growth  in  commercial  PCs,  particularly  notebooks,
along with growth in consumer notebooks. Personal  Systems experienced revenue growth across all
regions led by double digit revenue growth in EMEA, which experienced  improved demand. The
revenue increase was driven by an 8.2% increase in unit volume, the effects of which were partially
offset by a 1.5% decline in average selling  prices  (‘‘ASPs’’). The unit volume increase was primarily led
by growth in commercial notebooks as  well as strength in commercial desktops, consumer  notebooks
and thin client products. The decline in  ASPs was  due primarily  to  a competitive pricing environment
and unfavorable currency impacts, the  effects of  which  were partially offset by a favorable mix of
commercial PCs. Net revenue for commercial clients increased 10.2% due  primarily to the benefits
from the delayed installed base refresh cycle, the effects  of customers migrating  from the Windows XP
operating  system  and  growth  in  all  product  categories  partly  driven  by  new  product  introductions,
including the HP Elite products. Net  revenue for consumer clients remained flat as growth in consumer
notebooks,  partly  driven  by  our  new  product  lineup  including  Chromebooks  and  hybrid  products,  was
offset by a decline in consumer desktops.  For fiscal  2014, net revenue for Notebook PCs increased 9%,
Desktop PCs increased 3%, Workstations increased 3% and Other net revenue increased 16%. The net
revenue increase in Other was due to the  sale of IP and growth in mobility products,  primarily
consumer tablets which were introduced  in the second  half  of fiscal 2013.

Personal Systems earnings from operations as  a percentage of net revenue increased 0.7 percentage

points for fiscal 2014. The increase was driven by  an increase in gross margin and a decline in
operating expenses as a percentage of net  revenue. The  increase in gross margin was due primarily to
operational cost improvements, a favorable  commercial mix and the sale  of IP, the  effects of which
were partially offset by unfavorable currency impacts. Operating expenses as a percentage of net
revenue decreased due primarily to our cost structure optimization efforts, the effects of which were
partially  offset  by  increased  research  and  development  investments  for  commercial, mobility  and
immersive  computing  products,  as  well  as  higher  administrative  expenses  driven  by  lower  bad  debt
recoveries as compared to fiscal 2013.

Fiscal 2013 compared with Fiscal 2012

Personal Systems net revenue decreased 10.2% (decreased 9.0% on a  constant currency basis) in

fiscal 2013. The Personal Systems business  continued to experience significant challenges due to the
overall PC market decline as a result of  a customer  shift,  particularly consumers, to tablet products.
The business also experienced broad-based  regional demand weakness, particularly in the EMEA
region. The decline in Personal Systems revenue  was  driven by an  8% decline in unit volume along
with a 3% decline  in ASPs. The unit volume  decrease was  led by declines in consumer and notebook
products as a result of the market shift to tablet products.  The decline in ASPs was due primarily to a
competitive pricing environment. Net revenue for  consumer clients decreased 19%, while net  revenue
for commercial clients decreased 4%. Notebook PCs net revenue decreased 15%, while Desktop PCs
net revenue decreased 8%. Workstations net revenue  growth was flat, while  Other net revenue
increased 19%. The net revenue increase  in Other  was  related to increased sales of extended warranties
and third-party branded options and  sales of  consumer tablets.

61

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

Personal Systems earnings from operations as  a percentage of net revenue decreased 1.8

percentage points in fiscal 2013. The  decrease was  driven  by a decline  in gross margin combined with
an increase in operating expenses as a  percentage of net revenue. The decline in gross margin was due
to unfavorable currency impacts and competitive pricing pressures. These  unfavorable impacts to gross
margin were partially offset by lower component and  warranty costs and a  favorable mix of higher-
margin commercial products. Operating expenses as a percentage  of  net revenue increased due
primarily to the size of the revenue decline as  well as  slightly higher R&D costs. However, operating
expenses  declined  across  most  other  expense  categories  as  a  result  of  benefits  from  our  ongoing
restructuring  efforts.

Printing

Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings from operations as a % of net  revenue . . . . . . . . . . . .

For the fiscal years ended October 31

2014

2013

2012

$22,979
$ 4,185

Dollars in millions
$23,896
$ 3,933

$24,538
$ 3,612

18.2%

16.5%

14.7%

The  components  of  the  weighted  net  revenue  change  by  business  unit  were  as  follows:

Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer  Hardware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial  Hardware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

For the fiscal
years ended
October 31

2014

2013

Percentage Points
(1.8)
(3.3)
—
(0.4)
(0.8)
(0.1)

Total Printing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3.8)

(2.6)

Fiscal 2014 compared with Fiscal 2013

In fiscal  2014, Printing experienced a  decline in  revenue and an increase in operating profit as we

continued to push our print strategies,  which  includes driving high value printer unit  placements  and
expanding our graphics products and  managed print services portfolio. Printing net revenue decreased
3.8% (decreased 3.4% on a constant  currency basis) for  fiscal 2014. The decline  in net revenue was
primarily driven by a decline in Supplies,  the effects of which were partially offset by growth in graphics
products and managed print services.  Net  revenue for  Supplies decreased 5%  driven by demand
weakness in toner and ink, and a reduction in channel inventory  in the fourth quarter of fiscal 2014,
the effects of which were partially offset by growth in graphics supplies. Printer unit volume remained
flat while average revenue per unit (‘‘ARU’’) decreased 1%. Printer unit volume was flat due primarily
to  our  continued  efforts  to  target  high  value  areas  of  the  market,  which  resulted  in  a  decline  in  home
printer  units and low-value LaserJet printer units,  the effects of which were  offset by increased units  in
SMB, multifunction laser and graphics printers. The decline in  ARU was due primarily to increased
discounting  driven  by  competitive  pricing  pressures.  Net  revenue  for  Commercial  Hardware  was  flat  as
a 3% increase in printer unit volume  was offset by a 3%  decline in printer ARU.  The unit volume in
Commercial  Hardware  increased  due  primarily  to  growth  in  our  multifunction  laser  printers  and
graphics  printers.  The  ARU  decline  in  Commercial  Hardware  was  due  primarily  to  a  decline  in

62

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

LaserJet and graphics printers driven by a  competitive pricing environment.  Net revenue  for Consumer
Hardware decreased 4% driven by a 1% decline  in printer unit volume and a 1%  decline in ARU,
along with a decline in other peripheral printing solutions. The unit  volume decline in Consumer
Hardware was due to lower sales of home printers,  the effects of which were partially  offset by growth
in SMB printers. The ARU decline in  Consumer Hardware was due primarily to increased discounting
for SMB printers due to a competitive pricing environment,  the effects of which were  partially offset by
a  favorable  mix  of  high  value  home  printers.

Printing earnings from operations as  a percentage of net revenue increased  by  1.7 percentage
points for fiscal 2014 as an increase in gross  margin  more than offset an increase  in operating expenses
as a percentage of net revenue. The gross margin increase  was due to favorable  currency  impacts
primarily driven by the Japanese Yen, continued cost structure improvements and a favorable mix from
a higher proportion of graphics and ink supplies,  the effects  of  which were partially offset  by  a
competitive pricing environment. Operating expenses  as a percentage of net revenue increased due
primarily to higher R&D expenses as a result of our  investments in  enterprise products and 3-D
printing, the effects of which were partially  offset by reduced marketing expenses.

Fiscal 2013 compared with Fiscal 2012

Printing net revenue decreased 2.6% (decreased 1% on a constant currency basis) in fiscal 2013.

The decrease was driven by unfavorable  currency impacts,  particularly weakness in the  euro, and
declines in supplies and commercial printers. Net  revenue for Supplies  decreased 3% due to
unfavorable currency impacts and lower  volumes of toner and ink supplies. These effects were partially
offset by growth in large format printing  supplies. Printer unit volumes declined  by  3% while ARU
increased by 1%. Printer unit volumes decreased largely due to declines  in low-end consumer printers
as we continued our focus on higher-value Ink in  the Office and Ink Advantage products. The increase
in ARU was driven by a mix shift to  high-value consumer printers, the effect  of which was partially
offset by higher discounting in commercial printers. Net revenue  for Commercial Hardware decreased
3%, which was driven by a 6% decline in ARU that was partially offset by a volume  increase of 2%.
The decline in Commercial Hardware net revenue  was partially offset by net revenue growth in  the
graphics services and managed print services businesses. Net revenue for  Consumer Hardware
remained flat due to a 7% increase in  ARU, the effect  of  which was offset by a 5% reduction in
volume. Unit volume and ARU increased within  high-value consumer printers as a result of  our
continued focus on those more profitable  printers.

Printing earnings from operations as  a percentage of net revenue increased  by  1.8 percentage
points in fiscal 2013 due to an increase in gross  margin  combined with lower operating expenses as a
percentage of net revenue. The gross  margin increase was due to improvement in toner gross margins
resulting from lower discounting, higher  ARU  in  consumer printers, and lower cost of  sales in toner
and  commercial  printers  due  to  a  favorable  currency  impact  from  the  Japanese  Yen.  These  positive
effects were partially offset by an unfavorable mix  of  lower-margin  consumer printers. Operating
expenses as a percentage of net revenue decreased due  to  lower administrative, R&D and field selling
costs as a result of benefits from our  ongoing restructuring efforts. These effects were partially offset by
higher  marketing expenses to support  new product introductions.

63

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

Enterprise  Group

Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings from operations as a % of net  revenue . . . . . . . . . . . . . . . .

For the fiscal years ended October 31

2014

2013

2012

$27,814
$ 4,008

Dollars in millions
$28,081
$ 4,259

$29,643
$ 5,123

14.4%

15.2%

17.3%

The components of the weighted net revenue  change by business  unit were as follows for the

following fiscal years ended October  31:

Technology Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business Critical Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Networking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industry  Standard  Servers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

For the fiscal
years ended
October 31

2014

2013

Percentage Points
(1.3)
(1.1)
(1.4)
(0.9)
(1.1)
(0.6)
0.1
0.3
(1.6)
1.3

Total Enterprise Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1.0)

(5.3)

Fiscal 2014 compared with Fiscal 2013

EG net revenue decreased 1.0% (decreased  0.6% on  a constant currency  basis) in fiscal  2014. In

EG, we continue to experience revenue  challenges  due  to  market  trends, including the transition to
cloud computing, as well as product and  technology  transitions, along with a highly competitive pricing
environment. The  decline in EG net  revenue  was  due  to  net revenue  declines in TS, BCS  and Storage
partially offset by net revenue growth  in  ISS and Networking.

TS net revenue decreased 4% due primarily  to  a continued reduction  in support for BCS,
traditional storage products and lower support in  networking services, partially offset by growth in
support  solutions  for  converged storage  solutions  and  ISS.  BCS  net  revenue  decreased  22%  as  a  result
of  ongoing  pressures  from  the  overall  UNIX  market  contraction.  Storage  net  revenue  decreased  by  5%
as we continue to experience multiple  challenges including product transitions from traditional storage
products  which  include  our  tape,  storage  networking  and  legacy  external  disk  products,  to  converged
solutions, which include our 3PAR StoreServ, StoreOnce, and StoreVirtual products,  other  challenges
include market weakness in high-end converged solutions and sales execution  challenges, the effects  of
which  were partially offset by revenue growth in our Converged Storage  solutions. Networking net
revenue  increased  4%  due  to  higher  switching  product  revenue  as  a  result  of  growth  in  our  data  center
products, partially offset by lower revenue  from wireless local area  network products. ISS  net revenue
increased by 3% due primarily to higher  volume and higher average unit prices  in rack and  blade
server products driven by higher option  attach rates for  memory,  processors  and hard drives.

EG earnings from operations as a percentage of  net revenue  decreased  by 0.8  percentage points in

fiscal 2014 due to a decrease in gross  margin coupled with  an increase in operating expenses as  a
percentage of net revenue. The gross  margin  decline was due primarily to a higher  mix  of  ISS  products,
a lower mix of BCS products and competitive pricing pressure in  ISS and Networking, partially offset

64

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

by supply chain cost optimization and  improved  cost  management in TS. The increase  in operating
expenses  as  a  percentage  of  net  revenue  was  driven  by  higher  R&D  investments  in  storage, networking
and ISS, partially offset by continued  cost  savings associated  with our ongoing restructuring efforts.

Fiscal 2013 compared with Fiscal 2012

EG net revenue decreased 5.3% (decreased 4.2%  on a  constant currency basis) in fiscal  2013 due

primarily to the macroeconomic demand challenges  the business faced  during the fiscal year.
Additionally, new product and technology transitions in Storage and ISS  and a competitive pricing
environment contributed to the revenue  decline. EG also experienced execution challenges that
impacted revenue growth in fiscal 2013,  although  those  challenges  moderated in the fourth quarter due
to improved sales execution. Each of the  business units within EG experienced year-over-year revenue
declines in fiscal 2013 except Networking.  ISS net  revenue decreased by 4% due to competitive pricing
and soft demand. Within ISS, we experienced a revenue  decline in our core mainstream  products that
was partially offset by revenue growth  in our hyperscale server products. TS net  revenue decreased by
4% due to revenue declines in the support and consulting businesses and, to a lesser extent,  to
unfavorable currency impacts. Support revenue declined  due to a reduction in support for BCS
products. The consulting revenue decline was a result of unfavorable currency impacts, the divestiture
of a service product line and a shift to more profitable services such as data center and storage
consulting. BCS net revenue decreased by  26% as a  result of ongoing pressures from  the decline in the
overall UNIX market along with lower  demand for  our Itanium-based servers. Storage net revenue
decreased by 9% due to declines in traditional storage products, which include our tape, storage
networking, and legacy external disk  products, the effects of which were partially offset by growth in
Converged Storage solutions, which include  our 3PAR, StoreOnce, StoreVirtual and StoreAll products.
Networking revenue increased by 2%  due  to  higher  demand for our switching, routing, and wireless
products, the effect of which was partially  offset by the  impact of the divestiture of  our video
surveillance business in the first quarter  of fiscal 2012.

EG earnings from operations as a percentage of  net revenue  decreased  by 2.1 percentage points in

fiscal 2013 driven by a decrease in gross  margin and, to a lesser extent, an  increase in operating
expenses as a percentage of net revenue. The gross margin decrease was  due primarily to competitive
pricing pressures in ISS and, to a lesser extent,  pricing pressures in Storage and mix impacts from lower
BCS revenue. Operating expenses as a  percentage of net revenue increased due to the decline in EG
net revenue and increased field selling costs and administrative expenses. R&D expenses as a
percentage of net revenue decreased due  primarily to the rationalization of R&D specifically for BCS
and a value-added  tax subsidy credit in  BCS. EG  also benefited from cost savings resulting from our
ongoing  restructuring  efforts.

Enterprise  Services

Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings from operations as a % of net  revenue . . . . . . . . . . . . . . . .

For the fiscal years ended October 31

2014

2013

2012

$22,398
803
$
3.6%

Dollars in millions
$24,061
679
$
2.8%

$25,993
$ 1,045

4.0%

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:

Infrastructure Technology Outsourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Application and Business Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

For the fiscal
years ended
October 31

2014

2013

Percentage Points
(3.7)
(4.9)
(3.7)
(2.0)

Total Enterprise Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6.9)

(7.4)

Fiscal 2014 compared with Fiscal 2013

ES net revenue decreased 6.9% (decreased 6.8% on a constant currency basis)  in fiscal 2014.
Performance  in  ES  remains  challenged  by  the  impact  of  several  large  contracts  winding  down  and  lower
public sector spending in EMEA, particularly in the United  Kingdom,  and several other countries in
EMEA. The net revenue decrease in  ES  was due primarily to revenue runoff  in key accounts, weak
growth in new and existing accounts, particularly  in EMEA, and  contractual  price declines. These
effects were partially offset by net revenue growth in our SES portfolio, which includes information
management and analytics, security and  cloud services.  Net revenue  in Infrastructure Technology
Outsourcing (‘‘ITO’’) decreased by 8% in  fiscal 2014 due  to  revenue runoff in  key  accounts, weak
growth in new and existing accounts, particularly  in EMEA, and  contractual  price declines in  ongoing
contracts partially offset by growth in cloud and security revenue and favorable currency impacts. Net
revenue in Application and Business Services (‘‘ABS’’) decreased by 5% in fiscal  2014, due to revenue
runoff in a key account, weak growth  in new and existing accounts, particularly in EMEA,  and
unfavorable currency impacts, partially offset  by growth in information management  and analytics and
cloud revenue.

ES earnings from operations as a percentage  of net revenue increased 0.8 percentage points in
fiscal 2014. The increase in operating  margin was due to an  increase in  gross margin, partially offset by
an increase in operating expenses as a  percentage  of  net revenue.  Gross margin  increased due primarily
to our continued focus on service delivery  efficiencies, improving  profit  performance in under-
performing contracts and labor savings as  a result  of  restructuring, partially offset by unfavorable
impacts from revenue runoff in key accounts  and  weak growth in  new  and existing  accounts. The
increase in operating expenses as a percentage of net  revenue was primarily driven by the size of the
revenue  decline  and  higher  administrative  expenses  and  field  selling  costs.  The  increase  in  current  year
administrative  expenses  was  due  to  the  prior-year  period  containing  higher  bad  debt  recoveries  and
insurance recoveries. The increase in selling  costs was the  result of expanding the sales force coverage
as we transition from a reactive sales  model to a  more proactive approach.

Fiscal 2013 compared with Fiscal 2012

ES net revenue decreased 7.4% (decreased 6.3% on a constant currency basis)  in fiscal 2013.
Revenue performance in ES continues to be challenged by several  factors that impact the demand
environment,  including  weak  public  sector  spending  in  the  U.S.  and  austerity  measures  in  other
countries, particularly in the United Kingdom,  and weak  IT services spend due to the mixed global
recovery, particularly in the EMEA region.  The net revenue decrease in  ES was  driven primarily by net
service revenue runoff, contractual price  declines in  ongoing contracts and unfavorable currency
impacts. ITO net revenue decreased by  6% in fiscal  2013, due to net service revenue  runoff,

66

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

contractual price declines in ongoing  contracts and unfavorable currency impacts, the effects of which
were partially offset by net revenue growth  in security and cloud offerings. ABS net revenue declined
10% in fiscal 2013. The net revenue decline was due primarily to net  service  revenue runoff and
unfavorable currency impacts, the effects of which were partially offset by revenue  growth in cloud and
information and analytics offerings. Revenue in ABS was also  negatively impacted by weakness in
public-sector  spending.

ES earnings from operations as a percentage  of net  revenue decreased 1.2 percentage points in
fiscal 2013. The decrease was due to  a decline  in  gross  margin combined with  an increase in  operating
expenses as a percentage of net revenue. Gross margin declined  due primarily to net service revenue
runoff and contractual price declines. These unfavorable impacts  to  gross margin were partially offset
by our continued focus on improving resource management and profit improvements on under-
performing contracts. Operating expenses as a  percentage  of net revenue increased due to higher
administrative, marketing and R&D costs. These  effects were partially offset by reduced field  selling
costs due to lower headcount-related  costs  during  the year  and other  savings from our  ongoing
restructuring  efforts.

Software

Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings from operations
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings from operations as a % of net  revenue . . . . . . . . . . . . . . .

Fiscal 2014 compared with Fiscal 2013

For the fiscal years ended October 31

2014

2013

2012

$3,933
$ 872

Dollars in millions
$4,021
$ 868

$4,171
$ 836

22.2%

21.6%

20.0%

Software net revenue decreased 2.2% (decreased 2.1% on a  constant currency basis)  in fiscal 2014.

Revenue  growth  in  Software  is  being  challenged  by the  overall  market  and  customer  shift  to  SaaS
solutions, which is impacting growth in  license and support revenue. In fiscal 2014,  net revenue from
licenses, support and professional services  decreased  by 3%, 2% and  5% respectively, while SaaS  net
revenue increased by 5%.

The  decline  in  license  net  revenue  was  due  to  the  market  and  customer  shift  to  SaaS  solutions,
which  resulted in lower revenue from IT/cloud management  and information management products,
partially offset by strength in some of our key focus areas of big data  analytics and  security. The
decrease in support net revenue was due to past declines in  license  revenue. Professional services net
revenue  decreased  as  we  continue  our  focus  on  higher-margin  engagements.  These  declines  were
partially  offset  by  higher  SaaS  revenue  due  to  improving  demand  for  our  SaaS  solutions  in  IT/cloud
management  products  and  security  products.

In fiscal  2014, Software earnings from operations as a  percentage of net  revenue increased by
0.6 percentage points due to an increase  in gross margin, the  effect of which  was  partially  offset by an
increase in operating expenses as a percentage of net  revenue. The increase in gross margin was due to
the shift  to more profitable contracts and improved workforce utilization in  professional  services.  The
increase in operating expenses as a percentage of net  revenue was due primarily to investments  in
R&D partially offset by lower SG&A  expenses  due to cost savings associated with our ongoing
restructuring efforts and improved operational  expense management.

67

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

Fiscal 2013 compared with Fiscal 2012

Software net revenue decreased 3.6% (decreased 2.6% on a  constant currency basis)  in fiscal 2013.
Net revenue from licenses and professional services  decreased  by 16% and 13%, respectively, while net
revenue from SaaS and support increased  by 10% and  7%, respectively.

The decline in software revenue was  driven primarily  by lower license  revenue from IT/cloud
management and information management products, due  primarily to a large deal  entered into in the
prior year and the market shift to SaaS  offerings.  The revenue decline was also  due  to  lower
professional services revenue from IT/cloud management and information management products as we
manage the professional services portfolio to focus on higher-margin solutions.  These declines  were
partially offset by higher growth in support revenue from  our information management and security
products and higher revenue growth in our SaaS offerings  from IT/cloud management and  information
management products as we shift with the  market  to  providing more SaaS offerings.

Software earnings from operations as a percentage of net revenue increased by 1.6 percentage
points in fiscal 2013 due to a decrease in  operating expense  as a percentage of net revenue, the effect
of which was partially offset by a decrease in gross  margin. The decrease in gross  margin was due
primarily to higher development costs  in IT/cloud  management  products and the comparative impact of
a highly profitable software deal entered  into in the prior  year. These  decreases were  partially offset by
a lower mix of lower-margin professional services  revenue. The decrease in operating expense as a
percentage of revenue was driven primarily by  lower field  selling costs due to cost  savings  associated
with our ongoing restructuring efforts.

HP Financial  Services

Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings from operations
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings from operations as a % of net  revenue . . . . . . . . . . . . . . .

Fiscal 2014 compared with Fiscal 2013

For the fiscal years ended October 31

2014

2013

2012

$3,498
$ 389

Dollars in millions
$3,629
$ 399

$3,819
$ 388

11.1%

11.0%

10.2%

HPFS net revenue decreased by 3.6%  (decreased 3.3% on a  constant currency basis) in fiscal 2014

due primarily to lower portfolio revenue from lower average portfolio assets  and lower asset
management activity, primarily in customer buyouts.

HPFS earnings from operations as a percentage of net revenue increased by 0.1 percentage points

in fiscal 2014. The increase was due primarily to an  increase in gross  margin, partially offset by an
increase in operating expenses as a percentage of net  revenue. The increase in gross margin was the
result of a higher portfolio margin, primarily  from lower  bad  debt expense and  a lower cost  of funds
and improved margins in remarketing  sales. The increase in operating  expenses as a percentage  of net
revenue  was  due  primarily  to  higher  go-to-market  investments.

Fiscal 2013 compared with Fiscal 2012

HPFS net revenue decreased by 5.0%  (decreased 4.2% on a  constant currency basis) in fiscal 2013

due primarily to lower rental revenue from a decrease in  average operating lease assets,  lower asset
recovery services revenue, and unfavorable currency impacts. These  effects were partially offset  by
higher  revenue from remarketing sales  and higher finance income  from  an increase in  finance lease
assets.

68

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

HPFS earnings from operations as a percentage of net revenue increased by 0.8 percentage points

in fiscal 2013. The increase was due primarily  to  an  increase in gross margin, the  effect of which was
partially offset by an increase in operating expenses  as a percentage of net revenue as a result of higher
IT investments. The increase in gross  margin  was the result of  higher portfolio margin from  a lower
mix of operating leases, higher margin  on early buyouts  and lower bad debt expense.

Financing Originations

For the fiscal years ended October 31

2014

2013

2012

Total financing originations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$6,425

Dollars in millions
$5,603

$6,590

New financing originations, which represent the  amount  of  financing provided to customers for
equipment and related software and services,  including intercompany activity,  increased  14.7% in fiscal
2014 and decreased 15.0% in fiscal 2013, respectively.  The  increase in  fiscal  2014 was driven  by  higher
financing associated with HP product sales  and  related services offerings,  while the decrease in fiscal
2013 was primarily driven by lower financing associated  with HP product sales and services offerings,
and to a lesser extent unfavorable currency  impacts.

Portfolio Assets and Ratios

The HPFS business model is 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  used  to  derive  HPFS
amounts are substantially the same as  those used by HP. However, intercompany loans  and certain
accounts that are reflected in the segment  balances are eliminated in our Consolidated Financial
Statements.

69

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

The portfolio assets and ratios derived from the segment  balance sheet for HPFS were as follows:

As of October 31

2014

2013

Dollars in millions

Financing  receivables,  gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net equipment under operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized profit on intercompany equipment transactions(1) . . . . . . . . . . . . . . . . .
Intercompany  leases(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 6,670
2,595
783
2,199

$ 7,153
2,370
715
2,202

Gross portfolio assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease equipment reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12,247

12,440

111
68

179

131
76

207

Net portfolio assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$12,068

$12,233

Reserve coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt-to-equity  ratio(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.5%
7.0x

1.7%
7.0x

(1)

Intercompany activity is eliminated in consolidation.

(2) Allowance for doubtful accounts for  financing receivables includes both the  short- and long-term

portions.

(3) Debt attributable to HPFS consists of intercompany  equity that is treated as  debt  for segment

reporting purposes, intercompany debt, and borrowing- and funding-related activity associated  with
HPFS and its subsidiaries. Debt attributable to HPFS totaled $10.7  billion and  $10.8 billion  at
October 31, 2014 and October 31, 2013, respectively. HPFS equity at  both October  31, 2014 and
October 31, 2013 was $1.5 billion. We believe the  HPFS debt-to-equity ratio is  comparable to that
of other similar financing companies.

At October 31, 2014 and October 31,  2013, HPFS cash balances  were $829  million and

$697 million, respectively.

Net portfolio assets at October 31, 2014 decreased 1.3%  from October 31, 2013.  The  decrease
generally resulted from unfavorable currency impacts, partially offset by  new financing volume in excess
of portfolio runoff.

HPFS recorded net bad debt expenses and operating  lease equipment reserves of $40 million,

$50 million and $62 million in fiscal 2014, 2013 and 2012, respectively.

70

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

Corporate  Investments

Net revenue
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations as a % of net revenue(1) . . . . . . . . . . . . . . . . . .

(1)

‘‘NM’’ represents not meaningful.

Fiscal 2014 compared with Fiscal 2013

For the fiscal years ended October 31

2014

2013

2012

$ 302
$ (199)
(66.0)%

Dollars in millions
$ 24
$(316)
NM

$ 58
$(233)
NM

The revenue increase for fiscal 2014 was due  primarily to the  sale of IP related to the Palm

acquisition.

The decrease in the loss from operations for  fiscal 2014 was due primarily to the  sale of IP, the

benefits  of  which  were  partially  offset  by  higher  expenses  associated  with  cloud-related  incubation
activities, corporate strategy, HP Labs  and  global alliances.

Fiscal 2013 compared with Fiscal 2012

In fiscal  2013, Corporate Investments net revenue was primarily  related  to  licensing revenue from

HP Labs. Net revenue decreased from fiscal 2012 due primarily to lower  residual activity  from the
webOS  device business and lower revenue from  business  intelligence products.

Costs and expenses in Corporate Investments are due to activities  in the  segment from residual
activity  related  to  the  webOS  device  business,  HP  Labs,  certain  incubation  projects,  corporate  strategy,
and global alliances.

LIQUIDITY AND CAPITAL RESOURCES

We  use cash generated by operations  as our primary source  of  liquidity. We believe  that  internally
generated cash flows are generally sufficient  to  support our  operating businesses, capital expenditures,
restructuring activities, maturing debt, income  tax  payments and  the payment  of stockholder  dividends,
in addition to investments and share  repurchases. We are able to supplement this short-term liquidity,
if necessary, with broad access to capital markets and  credit facilities  made available by various
domestic and foreign financial institutions. Our access to capital markets may be constrained and our
cost of borrowing may increase under certain business, market and economic conditions; however,  our
access to a variety of funding sources to meet our liquidity needs is  designed  to  facilitate continued
access to capital resources under all such conditions. Our  liquidity is subject  to  various risks including
the risks identified in the section entitled ‘‘Risk  Factors’’ in Item 1A and market  risks  identified in the
section entitled ‘‘Quantitative and Qualitative  Disclosures  about  Market Risk’’ in  Item 7A, which is
incorporated herein by reference.

Our cash  balances are held in numerous locations  throughout the world,  with substantially all of
those amounts held outside of the U.S.  We utilize a  variety  of planning and financing strategies in  an
effort to ensure that our worldwide cash  is available when and where it  is needed.  Our cash position
remains strong, and we expect that our cash balances, anticipated  cash flow generated from  operations
and access to capital markets will be sufficient to cover  our expected near-term cash outlays.

71

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

Amounts held outside of the U.S. are generally  utilized  to  support non-U.S.  liquidity needs,
although a portion of those amounts may  from time to time be subject to short-term intercompany
loans into the U.S. Most of the amounts  held outside of the U.S. could be repatriated to the U.S. but,
under current law, some would be subject  to U.S. federal income taxes, less applicable foreign tax
credits. Repatriation of some foreign  earnings is  restricted by local  law.  Except for  foreign earnings that
are considered indefinitely reinvested outside  of  the U.S.,  we have provided  for the  U.S. federal tax
liability on these earnings for financial statement purposes. Repatriation could result in  additional
income tax payments in future years.  Where local  restrictions prevent an efficient intercompany transfer
of funds, our intent is that cash balances  would remain outside of the  U.S. and we would meet liquidity
needs through ongoing cash flows, external  borrowings, or  both. We do not  expect restrictions or
potential taxes incurred on repatriation  of amounts held outside of the U.S. to have a material effect
on our overall liquidity, financial condition  or results of operations.

Liquidity

Our cash and cash equivalents, total  debt and available borrowing resources were as follows:

As of October 31

2014

2013

2012

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available borrowing resources(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$15.1
$19.5
$17.8

In billions
$12.2
$22.6
$17.8

$11.3
$28.4
$17.4

(1)

In addition to these available borrowing resources,  we  are  able  to  offer for sale, from time to time,
in one or more offerings, an unspecified amount of debt securities, common stock, preferred stock,
depositary shares and warrants under  a shelf  registration statement filed with the  Securities  and
Exchange Commission in May 2012 (the ‘‘2012  Shelf Registration Statement’’).

Our key cash flow metrics were as follows:

For the fiscal years ended
October 31

2014

2013

2012

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .

$12,333
(2,792)
(6,571)

In millions
$11,608
(2,803)
(7,943)

$10,571
(3,453)
(3,860)

Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . .

$ 2,970

$

862

$ 3,258

Operating  Activities

Net cash provided by operating activities  increased by $0.7 billion for fiscal 2014  as compared  to

fiscal 2013, due primarily to improvements in working capital management. Net cash provided  by
operating activities increased by $1.0  billion  for fiscal 2013 compared to fiscal  2012, due primarily to
improvements in working capital management and a  reduction in  payments associated  with webOS
contract  cancellations.

72

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

Our key working capital metrics were as follows:

As of October 31

2014

2013

2012

Days of sales outstanding in accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .
Days of supply in inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Days of purchases outstanding in accounts payable . . . . . . . . . . . . . . . . . . . . . . . . .

44
27
(67)

49
24
(56)

49
25
(53)

Cash conversion cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4

17

21

Days of sales outstanding in accounts receivable  (‘‘DSO’’) measures the  average number  of  days

our  receivables are outstanding. DSO  is  calculated by dividing ending accounts receivable, net of
allowance for doubtful accounts, by a  90-day average  of net revenue. For  fiscal  2014, the decrease  in
DSO was due primarily to the impact  of  currency and the expansion of our factoring  programs.

Days of supply in inventory (‘‘DOS’’) measures the average number of  days  from procurement to

sale  of  our  product.  DOS  is  calculated  by  dividing  ending  inventory  by  a  90-day  average  of  cost  of
goods sold. For fiscal 2014, the increase in  DOS  was due to  a higher inventory balance in Personal
Systems due in part to strategic and advanced buys.

Days of purchases outstanding in accounts payable (‘‘DPO’’)  measures the average  number of days

our  accounts payable balances are outstanding.  DPO is calculated by dividing ending accounts payable
by a 90-day average of cost of goods  sold.  For fiscal 2014,  the  increase in  DPO was primarily the result
of an extension of payment terms with our product suppliers.

The cash conversion cycle is the sum  of DSO and DOS less DPO. The cash  conversion  cycle
ended fiscal 2014 below what we expect to be a long-term  sustainable rate.  Items which may  cause  the
cash conversion cycle in a particular period to differ from a long-term sustainable rate  include, but are
not limited to, changes in business mix, changes  in payment  terms, extent of  receivables factoring,
seasonal trends and the timing of revenue recognition and inventory purchases  within the period.

Investing  Activities

Net cash used in investing activities was flat for fiscal 2014  as compared  to fiscal  2013, due

primarily to higher cash utilization for purchases  of  property,  plant and equipment offset  by  cash
generated from sales of available-for-sale  securities. Net  cash used in  investing  activities decreased by
$0.7 billion for fiscal 2013 as compared  to  fiscal 2012, due primarily to lower  investments in property,
plant and equipment and higher net  sales  and maturities of available-for-sale securities.

Financing Activities

Net cash used in financing activities decreased by approximately  $1.4 billion  for fiscal 2014 as
compared to fiscal 2013. The decrease  was due primarily to proceeds from the issuance of  U.S. Dollar
Global  Notes  in  January  2014,  partially  offset  by  higher  debt  repayments  and  repurchases  of  common
stock. Net cash used in financing activities increased by $4.1 billion for fiscal 2013 as compared to fiscal
2012. The increase was due primarily  to  higher maturities  of  debt and net  repayments of  commercial
paper. For more information on our  share  repurchase programs,  see Item 5  and Note 13 to the
Consolidated Financial Statements in  Item 8, which are  incorporated herein by reference.

73

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

Capital Resources

Debt Levels

Short-term  debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt-to-equity  ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

As of October 31

2014

2013

2012

$ 3,486
$16,039
0.72x

Dollars in millions
$ 5,979
$16,608
0.82x

$ 6,647
$21,789
1.25x

2.7%

3.0%

3.0%

We  maintain debt 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, our cost of  capital and targeted capital structure.

Short-term debt and long-term debt decreased by $2.5  billion and $0.6 billion,  respectively, for
fiscal  2014  as  compared  to  fiscal  2013.  The  net  decrease  in  total  debt  was  due  primarily  to  maturities  of
debt. During fiscal 2014, we issued $2.0  billion of U.S. Dollar Global Notes under  the 2012 Shelf
Registration Statement which mature in  2019 and repaid $4.9 billion  of  U.S.  Dollar Global Notes. We
also issued $11.6 billion and repaid $11.5  billion  of  commercial paper  in fiscal 2014. Short-term  debt
and long-term debt decreased by $0.6  billion  and $5.2  billion, respectively,  for fiscal 2013 as compared
to fiscal 2012. Both net decreases were  due primarily to maturities  of debt and  net repayments  of
commercial paper. The issuances and  repayments  of  commercial paper were  $16.1 billion and
$16.2 billion in fiscal 2013 and $12.2  billion  and $15.0  billion in fiscal  2012, respectively.

During  fiscal 2015, $2.5 billion of U.S. Dollar  Global Notes are scheduled to mature, of which
$650 million matured in December 2014.  For more information  on our borrowings, see Note  12 to the
Consolidated Financial Statements in  Item  8, which  is incorporated herein by reference.

Our debt-to-equity ratio is calculated  as the carrying amount of debt divided by total stockholders’

equity. Our debt-to-equity ratio decreased by 0.10x in fiscal  2014, due to a decrease in total debt
balances of $3.1 billion partially offset by a decrease  in stockholders’  equity  by  $0.5 billion  at the end of
fiscal  2014.  Our  debt-to-equity  ratio  decreased  by  0.43x  in  fiscal  2013,  due  to  a  decrease  in  total  debt
balances of $5.8 billion coupled with an  increase in stockholders’ equity by  $4.8 billion  at the end of
fiscal 2013.

For  more  information  on  our  borrowings,  see  Note  12  to  the  Consolidated  Financial  Statements  in

Item 8, which is incorporated herein  by reference.

Our  weighted-average  interest  rate  reflects  the  effective  interest  rate  on  our  borrowings  prevailing

during the period and reflects the effect of interest rate swaps. For  more  information on our interest
rate swaps, see Note 11 to the Consolidated  Financial Statements in  Item 8, which  is incorporated
herein by reference.

74

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

Available Borrowing Resources

We  had the following resources available to obtain short-  or long-term  financing if we need

additional  liquidity:

2012 Shelf Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Uncommitted lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

As of October 31, 2014

In millions
Unspecified
$16,202
$ 1,587

For  more  information  on  our  available  borrowings  resources,  see  Note  12  to  the  Consolidated

Financial Statements in Item 8, which is  incorporated herein by reference.

Credit Ratings

Our credit risk is evaluated by major  independent  rating agencies  based on publicly available
information as well as information obtained  in our ongoing discussions  with them.  Our credit ratings as
of October 31, 2014, were as follows:

Standard & Poor’s Moody’s Investors

Ratings  Services

Service

Fitch Ratings
Services

Short-term debt ratings . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Long-term debt ratings

A-2
BBB+

Prime-2
Baa1

F2
A(cid:5)

After the announcement of our separation in  October 2014, our credit ratings were assigned  a

negative outlook by Standard & Poor’s  Rating Services and Fitch Rating  Services. Additionally,
Moody’s  Investors  Service  placed  us  under  review  for  downgrade. In  December  2013,  Moody’s
Investors Service affirmed its negative  outlook assigned in November 2012.  While  we do not have  any
rating downgrade triggers that would  accelerate the  maturity of a material amount of our debt,
previous downgrades have increased the  cost of borrowing  under  our credit facilities, have  reduced
market capacity for our commercial paper  and have required the  posting of additional collateral  under
some of our derivative contracts. In addition, any further downgrade to our credit ratings by any of
these rating agencies may further impact  us in  a similar manner,  and, depending on the extent  of  the
downgrade, could have a negative impact on our liquidity and  capital  position. We can rely on
alternative sources of funding, including  drawdowns under our credit  facilities or the  issuance  of  debt
or other  securities under our existing 2012 Shelf Registration  Statement, if necessary, to offset  potential
reductions in the market capacity for  our commercial paper.

75

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

CONTRACTUAL AND OTHER OBLIGATIONS

Our contractual and other obligations as of October  31, 2014, were as follows:

Principal payments on long-term debt(1)
. . . . . . . . .
Interest payments on long-term debt(2)
. . . . . . . . . .
Operating lease obligations . . . . . . . . . . . . . . . . . .
Purchase  obligations(3) . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations . . . . . . . . . . . . . . . . . . . .
Total(4)(5)(6)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Payments Due by Period

Total

1 Year or
Less

1-3 Years

3-5  Years

More  than
5 Years

$18,539
3,990
3,001
2,113
48

$2,647
480
721
1,383
8

In millions
$5,938
793
951
518
12

$2,785
601
534
212
7

$ 7,169
2,116
795
—
21

$27,691

$5,239

$8,212

$4,139

$10,101

(1) Amounts represent the principal cash  payments relating to  our long-term debt and  do  not  include

any fair value adjustments, discounts  or premiums.

(2) Amounts represent the expected interest payments relating to our long-term  debt. We have
outstanding interest rate swap agreements accounted for as  fair value hedges that have the
economic effect of changing fixed interest rates associated  with some of our U.S. Dollar Global
Notes to variable interest rates. The impact of our outstanding interest rate  swaps at October  31,
2014 was factored into the calculation of the future interest payments on long-term  debt.

(3) Purchase obligations include agreements  to  purchase goods or services that  are enforceable  and
legally binding on us and that specify all significant  terms, including fixed or minimum  quantities
to be purchased; fixed, minimum or variable price  provisions; and the approximate timing  of the
transaction. These purchase obligations are  related principally to inventory and  other items.
Purchase obligations exclude agreements that are cancelable without  penalty.  Purchase obligations
also exclude open purchase orders that are routine arrangements entered into in the  ordinary
course of business as they are difficult to quantify  in a meaningful way. Even  though open
purchase orders are considered enforceable  and legally binding, the terms generally allow us the
option to cancel, reschedule, and adjust terms  based on our business  needs  prior to the delivery  of
goods or performance of services.

(4)

In fiscal 2015, HP anticipates making contributions of  $686 million to its  non-U.S. pension  plans,
expects to pay benefits of $35 million to its U.S. non-qualified pension plan  participants  and
expects to pay claims of $47 million under its post-retirement benefit  plans. Our policy  is to fund
our  pension plans so that we meet at least  the minimum contribution  requirements, as established
by local government, funding and taxing  authorities. Expected contributions  and payments to our
pension and post-retirement benefit plans  are excluded  from the contractual obligations table
because they do not represent contractual cash outflows as they are dependent  on numerous
factors which may  result in a wide range of outcomes. For more  information on our retirement
and post-retirement benefit plans, see Note 4 to the  Consolidated  Financial Statements  in Item 8,
which  is incorporated herein by reference.

(5) We expect future cash payments of $1.8 billion in connection with our  approved restructuring plans
which  includes $1.0 billion expected to be paid in  fiscal  2015 with  the remaining approximately
$800 million cash payments to be made through fiscal 2021. Payments  for restructuring have  been

76

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Management’s Discussion and Analysis of
Financial Condition  and Results of Operations (Continued)

excluded from the contractual obligations table, because  they do not represent contractual cash
outflows and there is uncertainty as to the timing  of these payments. For more information on our
restructuring activities, see Note 3 to  the Consolidated Financial Statements in Item 8, which is
incorporated herein by reference.

(6) As of October 31, 2014, we had approximately  $3.5 billion of recorded  liabilities  and related

interest and penalties pertaining to uncertain  tax  positions.  These liabilities and related  interest
and penalties include $27 million expected  to  be  paid  within one year.  For the  remaining amount,
we are unable to make a reasonable  estimate as  to  when cash settlement with the tax authorities
might occur due to the uncertainties  related to these tax matters. Payments of these obligations
would result from settlements with taxing  authorities. For more information on our uncertain  tax
positions, see Note 6 to the Consolidated  Financial Statements in Item 8,  which is  incorporated
herein by reference.

OFF-BALANCE SHEET ARRANGEMENTS

As part of our ongoing business, we have not participated in transactions that generate  material

relationships with unconsolidated entities  or financial partnerships,  such as  entities often referred  to  as
structured finance or special purpose  entities, established for the purpose of facilitating  off-balance
sheet arrangements or other contractually  narrow or limited purposes.

We  have third-party revolving short-term financing  arrangements intended to facilitate the working

capital requirements of certain customers. The total aggregate  maximum capacity of the  financing
arrangements was $3.0 billion as of October  31, 2014, including an aggregate  maximum capacity of
$1.1 billion in non-recourse financing arrangements and an aggregate maximum capacity of $1.9  billion
in partial-recourse facilities. For more information on our  third-party revolving short-term  financing
arrangements, see Note 7 to the Consolidated Financial Statements in Item  8, which  is incorporated
herein by reference.

77

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.

In the normal course of business, we  are  exposed to foreign  currency exchange  rate and interest

rate risks that could impact our financial  position and results  of  operations. Our risk management
strategy with respect to these market  risks  may include  the use  of  derivative financial instruments. We
use derivative contracts only to manage  existing  underlying  exposures. Accordingly, we do not use
derivative contracts for speculative purposes. Our risks, risk  management strategy and  a sensitivity
analysis estimating the effects of changes in fair value  for each  of these exposures is outlined below.

Actual gains and losses in the future may differ  materially from the sensitivity  analyses based on
changes in the timing and amount of foreign currency exchange rate and interest rate  movements and
our  actual exposures and derivatives  in  place at the time of the change,  as well as  the effectiveness of
the derivative to hedge the related exposure.

Foreign currency exchange rate risk

We  are exposed to foreign currency exchange  rate  risk inherent in our sales commitments,

anticipated sales, anticipated purchases and  assets and liabilities denominated in  currencies other than
the U.S.  dollar. We transact business  in approximately  75 currencies  worldwide,  of  which the most
significant  foreign  currencies  to  our  operations  for  fiscal  2014  were  the  euro,  the  British  pound,
Chinese yuan renminbi and the Japanese  Yen. For most currencies, we are a  net receiver of the foreign
currency and therefore benefit from  a  weaker  U.S. dollar and  are  adversely affected by a stronger U.S.
dollar relative to the foreign currency. Even where we are a net receiver of the  foreign currency, a
weaker U.S. dollar may adversely affect certain  expense figures, if  taken alone.

We  use a combination of forward contracts and  options  designated as  cash flow hedges to protect
against the foreign currency exchange rate risks  inherent in  our forecasted  net revenue and, to a lesser
extent, cost of sales and intercompany  loans denominated in currencies other  than the  U.S. dollar.  In
addition, when debt is denominated in a foreign currency, we may use  swaps to exchange the foreign
currency principal and interest obligations  for U.S. dollar-denominated amounts  to  manage  the
exposure to changes in foreign currency  exchange rates. We also  use other derivatives not designated as
hedging instruments consisting primarily of forward contracts  to  hedge foreign currency balance sheet
exposures. Alternatively, we may choose  not  to  hedge the  risk associated with our foreign currency
exposures, primarily if such exposure  acts as  a natural hedge for offsetting  amounts denominated in  the
same currency or if the currency is too  difficult  or too expensive to hedge.

We  have performed sensitivity analyses as  of October 31, 2014  and 2013, using  a modeling
technique that measures the change in  the fair values arising from a hypothetical 10% adverse
movement in the levels of foreign currency exchange rates relative to the U.S. dollar, with all other
variables held constant. The analyses cover  all  of our foreign currency  derivative contracts offset by
underlying exposures. The foreign currency exchange rates we  used  in performing the sensitivity
analysis were based on market rates  in  effect at  October 31, 2014 and 2013. The sensitivity analyses
indicated that a hypothetical 10% adverse movement in  foreign currency  exchange rates  would result  in
a foreign exchange fair value loss of $62 million  and  $80 million  at  October 31, 2014 and  October 31,
2013, respectively.

Interest rate risk

We  also are exposed to interest rate risk related to debt we  have issued and our  investment

portfolio and financing receivables.

We  issue long-term debt in either U.S. dollars  or foreign currencies based on  market  conditions at

the time of financing. We often use interest rate and/or  currency swaps to modify the market risk
exposures in connection with the debt  to  achieve U.S. dollar  LIBOR-based  floating interest  expense.

78

The swap transactions generally involve  the  exchange of fixed for floating interest payments.  However,
we may choose not to swap fixed for  floating interest payments  or may  terminate a  previously  executed
swap if we believe a larger proportion of  fixed-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  on certain variable-rate investments.  We
may also enter into interest rate swaps that  convert  variable  rate  interest returns  into  fixed-rate interest
returns.

We  have performed sensitivity analyses as  of October 31, 2014  and 2013, using  a modeling
technique that measures the change in  the fair values arising from a hypothetical 10% adverse
movement in the levels of interest rates  across the  entire yield curve,  with all other  variables held
constant. The analyses cover our debt, investments,  financing receivables  and interest rate swaps.  The
analyses use actual or approximate maturities for the debt, investments,  financing  receivables and
interest rate swaps. The discount rates  used  were based on  the market interest rates  in effect at
October 31, 2014 and 2013. The sensitivity analyses indicated  that a hypothetical 10%  adverse
movement in interest rates would result  in  a loss in the fair  values of our debt, investments and
financing receivables, net of interest rate  swaps, of  $80 million at October 31,  2014 and  $95 million at
October 31, 2013.

79

ITEM 8. Financial Statements and Supplementary Data.

Table of Contents

Reports of Independent Registered Public  Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Management’s Report on Internal Control Over Financial Reporting . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated  Balance  Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Stockholders’  Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 1: Summary of Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 2: Segment Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 3: Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 4: Retirement and Post-Retirement Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 5: Stock-Based Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 6: Taxes on Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 7: Balance Sheet Details . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 8: Financing Receivables and Operating Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 9: Acquisitions, Goodwill and Intangible  Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 10: Fair Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 11: Financial Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 12: Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 13: Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 14: Net Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 15: Litigation and Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 16: Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 17: Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Quarterly  Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

81

83

84

85

86

87

88

89

89

99

106

107

117

122

127

131

135

139

142

149

152

155

156

167

168

170

80

Report of Independent Registered Public  Accounting Firm

To the Board of Directors and Stockholders of

Hewlett-Packard Company

We  have audited the accompanying consolidated balance sheets of Hewlett-Packard Company and

subsidiaries as of October 31, 2014 and 2013,  and  the related consolidated statements  of  earnings,
comprehensive income, stockholders’ equity,  and  cash flows for each of the three years in  the period
ended October 31, 2014. These financial  statements are  the responsibility of the  Company’s
management. Our responsibility is to express an  opinion on  these financial  statements  based on our
audits.

We  conducted our audits in accordance with the standards  of  the Public Company Accounting
Oversight Board (United States). Those  standards require that we  plan and perform the audit to obtain
reasonable assurance about whether  the  financial  statements are free  of material misstatement.  An
audit includes examining, on a test basis, evidence  supporting the amounts and disclosures  in the
financial statements. An audit also includes assessing the accounting  principles used  and significant
estimates made by management, as well as  evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable  basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects,
the consolidated financial position of  Hewlett-Packard  Company and subsidiaries  at October 31, 2014
and 2013, and the consolidated results of  their  operations and their cash flows for  each  of the three
years in the period ended October 31, 2014, in conformity with  U.S. generally accepted accounting
principles.

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, 2014, based on criteria  established in Internal Control—Integrated Framework issued
by the Committee  of Sponsoring Organizations of the Treadway Commission (1992 framework)  and our
report dated December 17, 2014 expressed an  unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

San Jose, California
December 17, 2014

81

Report of Independent Registered Public  Accounting Firm

To the Board of Directors and Stockholders of

Hewlett-Packard Company

We  have audited Hewlett-Packard Company’s internal  control over  financial reporting  as of
October 31, 2014, based on criteria established in Internal Control—Integrated Framework issued  by
the Committee of Sponsoring Organizations  of the Treadway Commission  (1992  framework) (the
COSO criteria). Hewlett-Packard Company’s management is  responsible for  maintaining  effective
internal control over financial reporting, and for its assessment of  the  effectiveness  of internal control
over financial reporting included in the  accompanying Management’s Report on Internal Control Over
Financial Reporting. Our responsibility  is to express an opinion  on the company’s internal  control  over
financial reporting based on our audit.

We  conducted our audit in accordance with the standards of  the Public Company Accounting
Oversight Board (United States). Those  standards require that we  plan and perform the audit to obtain
reasonable assurance about whether  effective  internal control over financial reporting was maintained
in all material respects. Our audit included  obtaining an understanding  of internal control  over
financial reporting, assessing the risk that a  material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based  on the assessed risk, and performing such other
procedures as we considered necessary in  the circumstances. We  believe that our audit provides a
reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide  reasonable

assurance regarding the reliability of  financial  reporting and the preparation  of  financial  statements  for
external  purposes in accordance with  generally accepted accounting  principles. A company’s internal
control over financial reporting includes those policies and procedures that (1)  pertain to the
maintenance of records that, in reasonable  detail, accurately and fairly reflect the  transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions  are
recorded  as necessary to permit preparation of financial statements in  accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made  only
in accordance with authorizations of management and directors of the company; and  (3) provide
reasonable assurance regarding prevention  or timely detection of unauthorized acquisition, use or
disposition of the company’s assets that  could have a material effect on the financial statements.

Because of its inherent limitations, internal control over  financial  reporting may not prevent or

detect misstatements. Also, projections  of any evaluation  of  effectiveness to future periods are  subject
to the risk that controls may become inadequate  because of changes in conditions, or  that  the degree
of compliance with the policies or procedures may deteriorate.

In our opinion, Hewlett-Packard Company maintained,  in all material respects,  effective internal

control over financial reporting as of  October 31, 2014,  based on the COSO criteria.

We  also have audited, in accordance  with the standards of  the Public Company Accounting
Oversight Board (United States), the  accompanying  consolidated  balance  sheets  of Hewlett-Packard
Company and subsidiaries as of October  31, 2014  and  2013,  and the related  consolidated  statements of
earnings, comprehensive income, stockholders’ equity and cash flows  for each of the three  years  in the
period  ended  October  31,  2014  and  our  report  dated  December  17,  2014  expressed  an  unqualified
opinion thereon.

/s/ ERNST & YOUNG LLP

San Jose, California
December 17, 2014

82

Management’s Report on Internal Control  Over Financial Reporting

HP’s management is responsible for  establishing  and maintaining  adequate internal control over

financial reporting for HP. HP’s internal control over  financial reporting is a  process  designed to
provide reasonable assurance regarding  the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with  U.S.  generally  accepted accounting
principles. HP’s internal control over financial  reporting includes those  policies and  procedures  that
(i) pertain to the maintenance of records that, in  reasonable detail, accurately and  fairly reflect  the
transactions and dispositions of the assets of  HP; (ii) provide  reasonable assurance that transactions  are
recorded  as necessary to permit preparation of financial statements in  accordance with generally
accepted accounting principles, and that receipts and expenditures of HP are  being  made only in
accordance with authorizations of management and directors  of  HP; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or  disposition of
HP’s assets that could have a material  effect on the financial  statements.

Because of its inherent limitations, internal control over  financial  reporting may not prevent or

detect misstatements. Also, projections  of any evaluation  of  effectiveness to future periods are  subject
to the risk that controls may become inadequate  because of changes in conditions, or  that  the degree
of compliance with the policies or procedures may deteriorate.

HP’s management assessed the effectiveness of HP’s  internal control over financial reporting as  of

October 31, 2014, utilizing the criteria  set  forth by  the Committee of Sponsoring  Organizations  of the
Treadway Commission (COSO) in Internal Control—Integrated Framework  (1992  framework). Based
on the assessment by HP’s management,  we determined  that HP’s internal  control  over financial
reporting was effective as of October  31,  2014. The  effectiveness  of HP’s  internal control  over financial
reporting as of October 31, 2014 has been audited by  Ernst &  Young LLP,  HP’s independent registered
public  accounting  firm,  as  stated  in  their  report  which  appears  on  page  82  of  this  Annual  Report  on
Form 10-K.

/s/ MARGARET C. WHITMAN

/s/ CATHERINE A. LESJAK

Margaret C. Whitman
Chairman, President and Chief Executive  Officer
December 17, 2014

Catherine A. Lesjak
Executive Vice President and Chief  Financial Officer
December 17, 2014

83

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Consolidated Statements of Earnings

For the fiscal years ended October 31

2014

2013

2012

In millions, except per share amounts

Net revenue:

Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing  income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 73,726
37,327
401

$ 72,398
39,453
447

$ 77,887
42,008
462

Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

111,454

112,298

120,357

Costs and expenses:

Cost of products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing  interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of goodwill and intangible assets . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

56,469
28,093
277
3,447
13,353
1,000
—
1,619
11

55,632
30,436
312
3,135
13,267
1,373
—
990
22

59,468
32,600
317
3,399
13,500
1,784
18,035
2,266
45

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

104,269

105,167

131,414

Earnings (loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interest and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Earnings (loss) before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7,185

(628)

6,557
(1,544)

Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 5,013

Net earnings (loss) per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

2.66

2.62

7,131

(11,057)

(621)

6,510
(1,397)

(876)

(11,933)
(717)

5,113

$ (12,650)

2.64

2.62

$

$

(6.41)

(6.41)

$

$

$

Weighted-average shares used to compute net earnings (loss) per

share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,882

1,912

1,934

1,950

1,974

1,974

The accompanying notes are an integral part of these Consolidated  Financial Statements.

84

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Consolidated Statements of Comprehensive  Income

For the fiscal years ended
October  31

2014

2013

2012

Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 5,013

In millions
$5,113

$(12,650)

Other comprehensive (loss) income before taxes:

Change in unrealized gains on available-for-sale securities:

Unrealized gains arising during the period . . . . . . . . . . . . . . . . . .
Gains reclassified into earnings . . . . . . . . . . . . . . . . . . . . . . . . . .

Change in unrealized gains (losses) on  cash flow hedges:

Unrealized gains (losses) arising during  the period . . . . . . . . . . . .
Losses (gains) reclassified into earnings . . . . . . . . . . . . . . . . . . . .

Change in unrealized components of  defined benefit plans:

(Losses) gains arising during the period . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial loss and prior service benefit . . . . . . . . .
Curtailments, settlements and other . . . . . . . . . . . . . . . . . . . . . . .

7
(1)

6

337
151

488

52
(49)

3

(243)
106

(137)

(2,756)
259
51

1,953
326
25

(2,446)

2,304

Change in cumulative translation adjustment . . . . . . . . . . . . . . . . . .

(85)

(150)

Other  comprehensive  (loss)  income  before  taxes . . . . . . . . . . . . . . . . .
(Provision) benefit for taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2,037)
(66)

2,020
(239)

Other  comprehensive  (loss)  income,  net  of  taxes . . . . . . . . . . . . . . . . . . .

(2,103)

1,781

25
—

25

335
(399)

(64)

(2,457)
172
122

(2,163)

(47)

(2,249)
188

(2,061)

Comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,910

$6,894

$(14,711)

The accompanying notes are an integral part of these Consolidated  Financial Statements.

85

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Consolidated  Balance  Sheets

As of October 31

2014

2013

In millions, except
par value

Current  assets:

ASSETS

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing  receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 15,133
13,832
2,946
6,415
11,819

$ 12,163
15,876
3,144
6,046
13,135

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term financing receivables and other assets . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible  assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

50,145

11,340
8,454
31,139
2,128

50,364

11,463
9,556
31,124
3,169

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$103,206

$105,676

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current  liabilities:

Notes payable and short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes on earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred  revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies
Stockholders’  equity:
HP stockholders’ equity

Preferred stock, $0.01 par value (300 shares authorized; none issued) . . . . . . .
Common stock, $0.01 par value (9,600 shares  authorized;  1,839 and  1,908

shares issued and outstanding at October 31, 2014 and October  31, 2013,
respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total HP stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-controlling  interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

3,486
15,903
4,209
1,017
6,143
898
12,079

43,735

16,039
16,305

$

5,979
14,019
4,436
1,203
6,477
901
12,506

45,521

16,608
15,891

—

—

18
3,430
29,164
(5,881)

26,731
396

27,127

19
5,465
25,563
(3,778)

27,269
387

27,656

Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$103,206

$105,676

The accompanying notes are an integral part of these Consolidated  Financial Statements.

86

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Consolidated Statements of Cash Flows

For the fiscal years ended October 31

2014

2013

2012

In millions

Cash flows from operating activities:

Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile  net  earnings  (loss)  to  net cash provided by operating

$ 5,013

$ 5,113

$(12,650)

activities:

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of goodwill and intangible assets . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for  doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring  charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes on earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit from stock-based compensation . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net
Changes in operating assets and liabilities (net of acquisitions):

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes on earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4,334
—
560
55
211
1,619
(34)
(58)
81

2,017
420
(580)
1,912
310
(1,506)
(2,021)

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . .

12,333

Cash flows from investing activities:

Investment in property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . .
Proceeds  from sale  of property, plant  and equipment . . . . . . . . . . . . . . . . .
Purchases of available-for-sale securities and other investments . . . . . . . . . . .
Maturities and sales of available-for-sale securities and other investments . . . .
Payments  made in connection with business  acquisitions, net of cash acquired .
Proceeds  from business  divestiture, net . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . .

Cash flows from financing activities:

Short-term borrowings with original maturities less than 90 days, net . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . .
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . .

Increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . .

(3,853)
843
(1,086)
1,347
(49)
6

(2,792)

148
2,875
(6,037)
297
(2,728)
58
(1,184)

(6,571)

2,970
12,163

4,611
—
500
61
275
990
(410)
(2)
443

530
484
(4)
541
417
(904)
(1,037)

11,608

(3,199)
653
(1,243)
1,153
(167)
—

(2,803)

(154)
279
(5,721)
288
(1,532)
2
(1,105)

(7,943)

862
11,301

5,095
18,035
635
142
277
2,266
(711)
(12)
265

1,687
(418)
890
(1,414)
(320)
(840)
(2,356)

10,571

(3,706)
617
(972)
662
(141)
87

(3,453)

(2,775)
5,154
(4,333)
716
(1,619)
12
(1,015)

(3,860)

3,258
8,043

Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . .

$15,133

$12,163

$ 11,301

Supplemental cash flow disclosures:

Income taxes paid (net of refunds) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,267
678

$ 1,391
837

$ 1,750
856

Supplemental schedule of non-cash investing and financing activities:

Purchase of assets under capital leases . . . . . . . . . . . . . . . . . . . . . . . . .

$

113

$

3

$

12

The accompanying notes are an integral part of these  Consolidated Financial Statements.

87

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

Common Stock

Number of
Shares

Par Value

Additional
Paid-in
Capital

Accumulated
Other

Total HP

Non-

Retained Comprehensive Stockholders’ controlling
Interests
Earnings

(Loss) Income

Equity

Balance October 31, 2011 .
.

.
.
.
Net loss .
Other comprehensive loss .

.
.

.

.

.

.

.

.

Comprehensive loss .

.

.

.

.

.

1,990,506

$20

.
.
.

.

.
.
.

.

.
.
.

.

.
.
.

.

.
.
.

.

.
.
.

.

.
.
.

.

.
.
.

.

In millions, except number of shares in thousands
$ 38,625
$ 6,837
(12,650)
(2,061)

$ 35,266
(12,650)

$(3,498)

(2,061)

Issuance of common stock in connection
with employee stock plans and  other
.

.
.
Repurchases of common  stock .
Tax deficiency from  employee stock plans .
.
Cash dividends declared .
.
.
Stock-based compensation expense .
.
Changes in non-controlling interest .

.
.
.

.
.
.

.
.
.

.
.

.

.

.

.

.

.

.

.

39,068
(66,736)

682
(1,525)
(175)

635

1
(101)

(995)

Balance October 31, 2012 .
.

.
.
.
Net earnings
Other comprehensive income .

.
.

.
.

.
.

.

.

.

.

Comprehensive income .

.

.

.

.

.

1,962,838

$20

$ 6,454

$ 21,521
5,113

$(5,559)

1,781

.
.
.

.

.
.
.

.

.
.
.

.

.
.
.

.

.
.
.

.

.
.
.

.

Issuance of common stock in connection
with employee stock plans and  other
.

.
Repurchases of common  stock .
.
Tax deficiency from  employee stock plans .
.
Cash dividends declared .
.
.
Stock-based compensation expense .
.
Changes in non-controlling interest .

.
.
.

.
.
.

.
.
.

.
.

.

.

.

.

.

.

.

.

22,950
(77,905)

(1)

210
(1,550)
(149)

500

(2)
5

(1,074)

Balance October 31, 2013 .
.

.
Net earnings
.
.
Other comprehensive income .

.
.

.
.

.
.

.

.

.

.

Comprehensive income .

.

.

.

.

.

1,907,883

$19

$ 5,465

$ 25,563
5,013

$(3,778)

(2,103)

.
.
.

.

.
.
.

.

.
.
.

.

.
.
.

.

.
.
.

.

.
.
.

.

Issuance of common stock in connection
with employee stock plans and other
.

.
Repurchases of common  stock .
.
Tax deficiency from  employee stock plans .
.
Cash dividends declared .
.
.
Stock-based compensation expense .
.
Changes in non-controlling interest .

.
.
.

.
.
.

.
.
.

.
.

.

.

.

.

.

.

.

.

23,785
(92,380)

(1)

142
(2,694)
(43)

560

1
(262)

(1,151)

Total

$ 39,004
(12,650)
(2,061)

(14,711)

683
(1,626)
(175)
(995)
635
18

$ 22,833
5,113
1,781

6,894

208
(1,546)
(149)
(1,074)
500
(10)

$ 27,656
5,013
(2,103)

2,910

143
(2,957)
(43)
(1,151)
560
9

$379

18

$397

(10)

$387

9

(14,711)

683
(1,626)
(175)
(995)
635

$ 22,436
5,113
1,781

6,894

208
(1,546)
(149)
(1,074)
500

$ 27,269
5,013
(2,103)

2,910

143
(2,957)
(43)
(1,151)
560

Balance October 31, 2014 .

.

.

.

.

.

.

.

.

.

.

1,839,288

$18

$ 3,430

$ 29,164

$(5,881)

$ 26,731

$396

$ 27,127

The accompanying notes are an integral part of these  Consolidated Financial Statements.

88

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 1: Summary of Significant Accounting Policies

Principles of Consolidation

The Consolidated  Financial Statements include  the accounts of Hewlett-Packard Company (‘‘HP’’)

and the subsidiaries and affiliates in which  HP  has a  controlling financial interest or is the primary
beneficiary. HP accounts for investments  in companies over which HP has the ability to exercise
significant influence but does not hold a  controlling interest under the equity method,  and HP records
its  proportionate share of income or losses in Interest and other,  net in the Consolidated Statements of
Earnings. HP presents non-controlling interests as  a separate component within Total stockholder’s
equity in the Consolidated Balance Sheets.  Net earnings  attributable to the non-controlling interests are
eliminated within Interest and other,  net in the Consolidated Statements  of Earnings and are  not
presented separately as they were not material  for any period presented. HP has eliminated all
intercompany accounts and transactions.

Reclassifications

HP has made certain segment and business unit realignments in order to optimize its operating
structure. Reclassifications of certain prior-year  segment and business unit financial information have
been made to conform to the current-year presentation. None of the changes impacts HP’s previously
reported consolidated net revenue, earnings from operations, net earnings or net earnings per share
(‘‘EPS’’). See Note 2 for a further discussion of HP’s segment reorganization.

Use of Estimates

The  preparation  of  financial  statements  in  accordance  with  United  States (‘‘U.S.’’)  generally
accepted accounting principles (‘‘GAAP’’)  requires management to make  estimates and assumptions
that affect the amounts reported in HP’s  Consolidated Financial  Statements and  accompanying notes.
Actual results could differ materially from  those estimates.

Foreign Currency Translation

HP predominately  uses the U.S. dollar as  its  functional  currency. Assets and liabilities
denominated in non-U.S. dollars are  remeasured  into U.S. dollars at current exchange rates for
monetary assets and liabilities and at historical exchange rates for nonmonetary assets and liabilities.
Net  revenue,  costs  and  expenses  denominated  in  non-U.S.  dollars  are  recorded  in  U.S.  dollars  at
monthly average exchange rates prevailing during the period. HP includes gains or losses from foreign
currency remeasurement in Interest and other, net in the Consolidated Statements  of Earnings. Certain
non-U.S.  subsidiaries designate the local currency as their functional currency, and HP records the
translation of their assets and liabilities into U.S. dollars at the balance sheet date as translation
adjustments and includes them as a component of Accumulated  other comprehensive loss in  the
Consolidated  Balance  Sheets.

Accounting  Pronouncements

In May 2014, the Financial Accounting Standards Board (‘‘FASB’’) amended the existing

accounting standards for revenue recognition. The amendments are based on  the principle  that  revenue
should be recognized to depict the transfer of promised goods or services to customers in  an amount
that reflects the consideration to which the  entity expects to  be  entitled in exchange for those goods or
services. HP is required to adopt the  amendments in the first  quarter of fiscal 2018. Early adoption  is

89

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 1:  Summary of Significant Accounting  Policies (Continued)

not permitted. The amendments may be applied retrospectively  to  each  prior period  presented  or
retrospectively with the cumulative effect recognized as  of  the date  of initial application. HP  is
currently evaluating the impact of these amendments  and the transition alternatives on its  Consolidated
Financial  Statements.

In April 2014, the FASB issued guidance which changes the  criteria for  identifying a discontinued

operation. The guidance limits the definition of a discontinued  operation  to  the disposal  of  a
component or group of components that  is disposed  of  or is classified as held for  sale and represents a
strategic shift that has, or will have, a  major effect on  an entity’s operations and financial results. HP is
required to adopt the guidance in the  first quarter  of fiscal 2016, with early adoption permitted for
transactions that have not been reported in financial  statements previously issued.

In July 2013, the FASB issued a new  accounting standard requiring  the presentation of  certain

unrecognized tax benefits as reductions  to  deferred  tax  assets  rather than as liabilities in  the
Consolidated Balance Sheets when a net operating  loss carryforward, a similar tax  loss or  a tax  credit
carryforward exists. HP is required to adopt this new  standard on a prospective basis in the first
quarter  of  fiscal  2015;  however,  early  adoption  is  permitted  as  is  retrospective  application.  HP  will
adopt the new standard in the first fiscal  quarter of  2015 on a  prospective basis.  Adoption of the  new
standard is not expected to have a material effect  on HP’s Consolidated Financial Statements.

Revenue Recognition

General

HP recognizes revenue when persuasive evidence of an arrangement exists,  delivery has occurred
or services are rendered, the sales price  or  fee is fixed or  determinable, and collectibility  is reasonably
assured. Additionally, HP recognizes  hardware revenue on sales to channel partners, including resellers,
distributors or value-added solution providers  at the  time of delivery when the channel partners have
economic substance apart from HP, and HP has completed its obligations  related to the  sale. HP
generally  recognizes revenue for its standalone software  sales to channel partners on  receipt of
evidence that the software has been sold to a specific end user.  HP limits the amount of revenue
recognized for delivered elements to the amount that is not  contingent on the  future delivery  of
products or services, future performance  obligations  or subject to customer-specified  refund  or return
rights.

HP reduces revenue for customer and distributor programs and  incentive offerings, including  price

protection, rebates, promotions, other volume-based incentives  and  expected returns. Future market
conditions and product transitions may  require  HP to take actions to increase customer incentive
offerings, possibly resulting in an incremental reduction of revenue at the time the incentive is  offered.
For certain incentive programs, HP estimates the number  of  customers expected to redeem the
incentive based on historical experience and the specific terms  and conditions of the incentive.

In instances when revenue is derived from sales of third-party  vendor products or services,  HP
records revenue on a gross basis when HP  is a principal to the transaction  and on a net basis when  HP
is acting as an agent between the customer  and  the vendor. HP considers several factors to determine
whether it is acting as a principal or an  agent, most notably whether HP  is the primary obligor to the
customer, has established its own pricing and has inventory and credit  risks.

90

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 taxes collected from customers and remitted to government
authorities, with the collected taxes recorded as current liabilities until  remitted to the  relevant
government  authority.

Multiple element arrangements

When a sales arrangement contains multiple elements  or deliverables, such as  hardware  and
software products,  and/or services, HP allocates  revenue to each  element based  on a  selling price
hierarchy. The selling price for a deliverable is based on its vendor  specific objective evidence
(‘‘VSOE’’) of selling price, if available, third party evidence (‘‘TPE’’) if  VSOE of selling  price is  not
available, or estimated selling price (‘‘ESP’’) if  neither VSOE  of selling price nor TPE is available. HP
establishes VSOE of selling price using  the price charged for a deliverable  when sold separately  and, in
rare instances, using the price established  by management having the relevant  authority.  HP establishes
TPE of selling price by evaluating largely similar and interchangeable competitor  products or  services in
standalone sales to similarly situated customers. HP establishes ESP  based on management judgment
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 technology life  cycles.  In arrangements with multiple elements,  HP
allocates the transaction price to the  individual units of accounting at inception of the arrangement
based on  their relative selling price.

In multiple element arrangements that include  software that is  more-than-incidental, HP  allocates
the transaction price to the individual units of accounting for the  non-software deliverables and to the
software deliverables as a group using  the relative selling price of each of the  deliverables in the
arrangement based on the selling price  hierarchy. If the arrangement contains more than one software
deliverable, the transaction price allocated to the group of software deliverables  is then allocated to
each component software deliverable.

HP evaluates each deliverable in an arrangement to determine whether it represents  a separate
unit of accounting. A deliverable constitutes a separate unit of accounting when it has  standalone value
to the customer. For elements with no  standalone value, HP recognizes revenue consistent with the
pattern of the associated deliverables.  If the  arrangement  includes a customer-negotiated refund or
return right or other contingency relative  to  the delivered  items, and the  delivery and  performance of
the undelivered items is considered probable and  substantially  within HP’s control, the  delivered
element  constitutes  a  separate  unit  of  accounting.  In  arrangements  with  combined  units  of  accounting,
changes in the allocation of the transaction  price between elements may impact the timing  of revenue
recognition  for  the  contract  but  will  not  change  the  total  revenue  recognized  for  the  contract.

Product revenue

Hardware

Under HP’s standard terms and conditions  of  sale, HP transfers title  and  risk of loss to the
customer at the time product is delivered  to  the customer and recognizes revenue accordingly,  unless
customer acceptance is uncertain or  significant obligations to the  customer remain. HP reduces revenue
for estimated customer returns, price protection, rebates and  other programs offered under sales
agreements established by HP with its distributors and resellers. HP records revenue  from the sale of
equipment under sales-type leases as product  revenue at  the inception of  the  lease. HP accrues the

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Notes to Consolidated Financial Statements  (Continued)

Note 1:  Summary of Significant Accounting  Policies (Continued)

estimated cost of post-sale obligations, including standard product  warranties, based on historical
experience at the time HP recognizes  revenue.

Software

HP recognizes revenue from perpetual software licenses at the  inception of the license term,
assuming all revenue recognition criteria  have been satisfied.  Term-based  software license revenue is
generally  recognized ratably over the term of the license. HP  uses the  residual method  to  allocate
revenue to software licenses at inception of  the arrangement when  VSOE of fair value for all
undelivered elements, such as post-contract support, exists and  all other revenue recognition  criteria
have  been satisfied. HP recognizes revenue from maintenance and unspecified upgrades or updates
provided on a when-and-if-available basis  ratably over the period during which such items are
delivered.

HP recognizes revenue for hosting or software-as-a-service (‘‘SaaS’’) arrangements as  the service is

delivered, generally on a straight-line  basis, over the  contractual  period  of  performance. In hosting
arrangements where software licenses are sold, HP  recognizes the license  revenue according  to  whether
perpetual or term licenses are sold, when all other revenue recognition criteria are satisfied.  In hosting
arrangements that include software licenses,  HP considers the rights provided  to  the customer
(e.g., ownership of a license, contract termination provisions and  the feasibility  of  the customer  to
operate the software) in determining  when  to  recognize revenue for  the licenses.

Services revenue

HP recognizes revenue from fixed-price support  or maintenance contracts, including extended
warranty contracts and software post-contract  customer support agreements, ratably  over the contract
period  and recognizes the costs associated with these contracts as incurred. For time and material
contracts, HP recognizes revenue as services are rendered and recognizes costs as they are  incurred.

HP recognizes revenue from certain fixed-price contracts, such as consulting arrangements,  as work

progresses over the contract period on a proportional  performance basis,  as  determined by the
percentage of labor costs incurred to  date compared to the total estimated  contract labor costs of a
contract. HP recognizes revenue on fixed-price contracts for design  and  build projects (to design,
develop and construct software and systems)  using the percentage-of-completion method.  HP uses the
cost-to-cost method to measure progress  toward completion as determined  by  the percentage of  cost
incurred to date compared to the total estimated costs of the project.  Estimates of total project costs
for fixed-price contracts are regularly revised during  the life of a contract.  Provisions for estimated
losses on fixed-priced contracts are recognized in  the period when such losses  become known. If
reasonable and reliable cost estimates for a project cannot be made, HP uses the completed contract
method and recognizes revenue and costs upon service completion.

HP generally recognizes outsourcing  services revenue in the  period  when the service is provided
and  the amount earned is not contingent on  the occurrence  of  any future event.  HP recognizes revenue
using  an objective measure of output  for unit-priced  contracts.  Revenue for fixed-price  outsourcing
contracts with periodic billings is recognized on a straight-line  basis if the service is provided  evenly
during the contract term. Provisions for estimated losses on outsourcing arrangements are recognized in
the period when such losses become  probable  and estimable.

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Notes to Consolidated Financial Statements  (Continued)

Note 1:  Summary of Significant Accounting  Policies (Continued)

HP recognizes revenue from operating  leases  on  a  straight-line basis as  service revenue over the

rental period.

Financing income

Sales-type and direct-financing leases produce financing income, which HP  recognizes at  consistent

rates of return over the lease term.

Deferred revenue and deferred costs

HP records amounts invoiced to customers in excess of  revenue recognized as  deferred revenue
until  the revenue recognition criteria  are  satisfied.  HP records revenue that is  earned and  recognized in
excess of amounts invoiced on services contracts as trade receivables.

Deferred revenue  represents amounts invoiced  in advance for product support contracts,  software

customer support contracts, outsourcing  startup services  work, consulting and integration projects,
product sales or leasing income.

HP recognizes costs associated with outsourcing  contracts  as  incurred, unless such costs are
considered direct and incremental to the  startup phase of the contract,  in which  case HP defers these
costs during the startup phase and subsequently amortizes such costs over  the period  that  outsourcing
services are provided, once those services commence. HP  amortizes deferred contract  costs on a
straight-line basis over the remaining term of the contract unless facts and circumstances  of  the
contract indicate a shorter period is more  appropriate. Based on actual  and projected contract financial
performance indicators, HP analyzes the recoverability  of  deferred  contract  costs using the
undiscounted estimated cash flows of the contract over  its remaining term. If  such undiscounted cash
flows are insufficient to recover the carrying amount of  deferred contract costs  and long-lived assets
directly  associated  with  the  contract,  the  deferred  contract  costs  are  first  impaired.  If  a  cash  flow
deficiency remains after reducing the carrying amount of the deferred contract costs to zero, HP
evaluates any remaining long-lived assets related to that contract  for  impairment.

Shipping and Handling

HP includes costs related to shipping and handling in cost of  sales.

Stock-Based Compensation

HP determines stock-based compensation expense  based on  the measurement date fair value of
the award. HP recognizes compensation cost only for those  awards expected to meet the service and
performance vesting conditions on a straight-line basis over the requisite  service period  of  the award.
HP determines compensation costs at the  aggregate  grant level for service-based awards and at the
individual vesting tranche level for awards with performance and/or market conditions. HP estimates
the forfeiture rate based on its historical experience.

Retirement and Post-Retirement Plans

HP has various defined benefit, other contributory  and noncontributory retirement and post-
retirement plans. HP generally amortizes unrecognized  actuarial gains and losses  on a  straight-line basis
over the average remaining estimated  service life of participants. In some cases, HP  amortizes actuarial

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Notes to Consolidated Financial Statements  (Continued)

Note 1:  Summary of Significant Accounting  Policies (Continued)

gains and losses using the corridor approach.  See  Note 4  for  a  full description  of  these  plans and the
accounting and funding policies.

Advertising

Costs  to  produce  advertising  are  expensed  as  incurred  during  production.  Costs  to  communicate
advertising are expensed when the advertising is first run.  Such costs  totaled  approximately  $784 million
in fiscal 2014, $878 million in fiscal 2013 and $1.0  billion in fiscal 2012.

Restructuring

HP records charges associated with management-approved restructuring plans to reorganize one or

more of HP’s business segments, to remove duplicative headcount and infrastructure associated with
business acquisitions or to simplify business processes and accelerate  innovation. Restructuring  charges
can include severance costs to eliminate a specified number of employees,  infrastructure charges to
vacate facilities and consolidate operations, and contract cancellation costs. HP records restructuring
charges based on estimated employee  terminations and site closure and consolidation plans. HP accrues
for severance and other employee separation costs under these  actions when it  is probable that benefits
will be paid and the amount is reasonably estimable. The rates  used  in determing  severance accruals
are based on  existing plans, historical experiences  and negotiated settlements.

Taxes on  Earnings

HP recognizes deferred tax assets and liabilities  for the expected tax consequences  of  temporary

differences between the tax bases of  assets and liabilities  and their reported amounts using enacted tax
rates in effect for the year the differences are expected to reverse. HP  records a valuation allowance to
reduce the deferred tax assets to the amount that is more likely than not to be realized.

HP records accruals for uncertain tax  positions  when  HP believes that it is not more likely than

not that the tax position will be sustained  on  examination  by the taxing authorities based on the
technical merits of the position. HP makes adjustments  to these  accruals  when  facts and circumstances
change,  such as the closing of a tax audit or the  refinement  of  an estimate. The provision  for income
taxes includes the effects of adjustments for uncertain tax positions, as well  as any  related interest and
penalties.

Accounts  Receivable

HP establishes an allowance for doubtful accounts for  accounts  receivable. HP  records a specific

reserve for individual accounts when  HP becomes aware  of specific  customer  circumstances, such as  in
the case of a bankruptcy filing or deterioration in  the customer’s  operating results or financial position.
If there are additional changes in circumstances related to the  specific customer, HP further adjusts
estimates of the recoverability of receivables. HP maintains bad debt reserves for all other customers
based on  a variety of factors, including the  use of third-party credit  risk models  that  generate
quantitative measures of default probabilities based on market factors, the financial condition of
customers, the length of time receivables are past  due, trends in the weighted-average  risk rating  for
the portfolio, macroeconomic conditions, information derived from  competitive  benchmarking,
significant one-time events and historical experience. The past due or delinquency  status  of  a receivable
is based on the contractual payment  terms of the receivable.

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Notes to Consolidated Financial Statements  (Continued)

Note 1:  Summary of Significant Accounting  Policies (Continued)

HP has third-party revolving short-term financing arrangements intended to facilitate the working

capital requirements of certain customers. These financing arrangements,  which in certain  cases provide
for partial recourse, result in the transfer  of  HP’s  trade receivables to a third party. HP  reflects
amounts transferred to, but not yet collected from, the third party  in accounts receivable  in the
Consolidated Balance Sheets. For arrangements involving an element of recourse, the  fair value  of the
recourse obligation is measured using  market  data from similar transactions and reported as  a current
liability  in the Consolidated Balance Sheets.

Concentrations of Risk

Financial instruments that potentially subject  HP to significant concentrations of  credit risk consist

principally of cash and cash equivalents, investments, receivables from trade customers  and contract
manufacturers, financing receivables and derivatives.

HP maintains cash and cash equivalents, investments, derivatives and  certain  other  financial
instruments with various financial institutions.  These financial  institutions  are located in many  different
geographic regions, and HP’s policy is designed  to  limit exposure from any particular institution. As
part of its risk management processes,  HP performs periodic  evaluations of the  relative credit standing
of these financial institutions. HP has  not  sustained material credit losses  from instruments  held at
these financial institutions. HP utilizes  derivative contracts to protect against the effects of  foreign
currency and interest rate exposures. Such contracts involve the risk  of non-performance  by  the
counterparty, which could result in a  material loss.

HP sells a significant portion of its products  through third-party distributors and resellers and,  as a
result, maintains individually significant receivable  balances with these parties. If the  financial condition
or operations of these distributors’ and resellers’  aggregated business  deteriorates substantially, HP’s
operating results could be adversely affected.  The ten largest  distributor  and  reseller  receivable
balances,  which were concentrated primarily in  North America and Europe,  collectively represented
approximately 20% and 21% of gross accounts  receivable at October  31, 2014  and 2013, respectively.
No single customer accounts for more than 10% of gross accounts receivable. Credit risk  with respect
to other accounts receivable and financing  receivables  is generally  diversified due to the large  number
of entities comprising HP’s customer base and their dispersion  across many  different  industries and
geographic regions. HP performs ongoing credit  evaluations of the financial condition of  its third-party
distributors, resellers and other customers and may require  collateral, such as letters  of  credit and bank
guarantees, in certain circumstances.

HP utilizes outsourced manufacturers  around  the world to manufacture HP-designed products. HP

may purchase product components from suppliers  and sell those components to its outsourced
manufacturers thereby creating receivable balances from the outsourced manufacturers.  The three
largest  outsourced  manufacturer  receivable  balances  collectively  represented  90%  and  82%  of  HP’s
supplier receivables of $1.0 billion and $1.0 billion at  October 31, 2014 and 2013, respectively. HP
includes  the  supplier  receivables  in  Other  current  assets  in  the  Consolidated  Balance  Sheets  on  a  gross
basis. HP’s credit risk associated with these receivables is  mitigated wholly or  in part,  by  the amount
HP owes to these outsourced manufacturers, as  HP generally  has the  legal right to offset its payables to
the outsourced manufacturers against these receivables. HP does  not  reflect the sale of these
components  in  revenue  and  does  not  recognize  any  profit  on  these  component  sales  until  the  related
products are sold by HP, at which time any profit is  recognized as a reduction  to  cost of sales.

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Notes to Consolidated Financial Statements  (Continued)

Note 1:  Summary of Significant Accounting  Policies (Continued)

HP obtains a significant number of components from  single  source suppliers  due  to  technology,
availability, price, quality or other considerations. The loss of a single source  supplier, the deterioration
of HP’s relationship with a single source supplier, or any unilateral modification to the contractual
terms under which HP is supplied components by a single source supplier could adversely affect HP’s
revenue and gross margins.

Inventory

HP values inventory at the lower of cost or market. Cost  is computed using  standard cost which

approximates actual cost on a first-in, first-out  basis. Adjustments  to  reduce the  cost of inventory to its
net realizable value are made, if required, for  estimated  excess,  obsolete or impaired balances.

Property, Plant and Equipment

HP states property, plant and equipment at cost less accumulated depreciation.  HP capitalizes
additions and improvements and expenses maintenance and repairs as incurred. Depreciation expense
is recognized on a straight-line basis over the estimated useful  lives of the  assets. Estimated  useful lives
are five  to 40 years for buildings and  improvements and three to 15 years for machinery  and
equipment. HP depreciates leasehold improvements over the  life  of the lease  or the asset, whichever is
shorter. HP depreciates equipment held  for lease over  the initial term  of  the lease to the equipment’s
estimated residual value. The estimated useful lives of assets  used  solely to support a  customer services
contract generally do not exceed the term of the customer contract. On  retirement or disposition,  the
asset cost and related accumulated depreciation are removed from the Consolidated  Balance Sheets
with any gain or loss recognized in the Consolidated Statements of Earnings.

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 and testing
of the software. HP amortizes capitalized  internal  use software costs using  the straight-line method over
the estimated useful lives of the software, generally from three to five years.

Software  Development  Costs

HP capitalizes costs incurred to acquire or develop  software for resale  subsequent to establishing
technological feasibility for the software, if significant. HP amortizes capitalized software development
costs using the greater of the straight-line  amortization method  or the ratio that current  gross revenues
for a product bear to the total current and anticipated future  gross revenues  for that product. The
estimated useful life for capitalized software for  resale is generally three years  or less. Software
development  costs  incurred  subsequent  to  establishing  technological  feasibility  are  generally  not
significant.

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Notes to Consolidated Financial Statements  (Continued)

Note 1:  Summary of Significant Accounting  Policies (Continued)

Business  Combinations

HP includes the results of operations of  acquired businesses in HP’s consolidated results

prospectively from the date of acquisition. HP allocates the fair value of purchase consideration to the
assets acquired, liabilities assumed, and non-controlling interests  in the acquired entity generally based
on their fair values at the acquisition date. The excess of the fair value  of  purchase  consideration over
the fair value of these assets acquired, liabilities assumed  and non-controlling interests in  the acquired
entity is recorded as goodwill. The primary items  that generate  goodwill  include the value of the
synergies  between  the  acquired  company  and  HP  and  the  value  of  the  acquired  assembled  workforce,
neither of which qualifies for recognition as an intangible asset.  Acquisition-related  expenses and
post-acquisition restructuring costs are recognized separately  from the business combination  and are
expensed as incurred.

Goodwill

HP reviews goodwill for impairment  annually and whenever events or changes in  circumstances

indicate the carrying amount of goodwill  may not be recoverable. While HP  is permitted to conduct a
qualitative assessment to determine whether it  is necessary  to  perform a two-step quantitative goodwill
impairment test, for its annual goodwill  impairment  test in the  fourth quarter of  fiscal  2014, HP
performed a quantitative test for all of its reporting  units.

Goodwill is tested for impairment at  the reporting  unit level. At the  beginning  of  its  first  quarter

of fiscal 2014, HP made a change to  its reporting  units. In connection with  continued  operational
synergies and interdependencies between the Enterprise Servers,  Storage and Networking reporting unit
and  the Technology Services (‘‘TS’’) reporting unit  within the Enterprise Group (‘‘EG’’) segment, HP
combined these reporting units to create the EG reporting unit. As  of October 31, 2014,  HP’s reporting
units  are  consistent  with  the  reportable  segments  identified  in  Note  2,  except  for  Enterprise  Services
(‘‘ES’’), which consists of two reporting units: MphasiS Limited and the remainder of  ES.

In the first step of the impairment test,  HP compares  the fair value  of  each  reporting unit to its

carrying amount. HP estimates the fair value  of  its  reporting units using a weighting of fair  values
derived most significantly from the income approach, and to a lesser extent, the market approach.
Under the income approach, HP estimates the  fair value of a reporting unit based on the  present  value
of estimated future cash flows. HP bases cash flow projections on management’s estimates of revenue
growth rates and operating margins, taking into consideration  industry  and market conditions.  HP bases
the discount rate on the weighted-average cost  of  capital  adjusted  for  the relevant risk associated  with
business-specific characteristics and the  uncertainty related to the reporting  unit’s ability to execute  on
the projected cash flows. Under the market approach,  HP estimates fair value  based on  market
multiples of revenue and earnings derived  from comparable publicly-traded  companies with  similar
operating and investment characteristics as the reporting unit.  HP weights the  fair value  derived from
the market approach depending on the level of comparability  of these publicly-traded companies to the
reporting unit. When market comparables are not meaningful  or  not  available, HP estimates the fair
value of a reporting unit using only the  income approach. For  the  MphasiS Limited reporting unit, HP
utilized the quoted market price in an active market to estimate fair  value.

In order to assess the reasonableness of  the estimated fair value of HP’s reporting units, HP
compares the aggregate reporting unit fair  value to HP’s market capitalization  and calculates  an
implied control premium (the excess  of  the sum of the reporting units’ fair value over HP’s  market

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Notes to Consolidated Financial Statements  (Continued)

Note 1:  Summary of Significant Accounting  Policies (Continued)

capitalization). HP evaluates the control premium by comparing it to observable control premiums from
recent comparable transactions. If the  implied control premium is  not  believed  to  be  reasonable  in light
of these recent transactions, HP reevaluates reporting  unit fair values,  which may result in an
adjustment  to  the  discount  rate  and/or  other  assumptions.  This  reevaluation  could  result  in  a  change  to
the estimated fair value for certain or all reporting  units.

If the  fair value of a reporting unit exceeds the carrying amount  of the net assets assigned to that

reporting unit, goodwill is not impaired and no further testing  is required. If the fair value  of  the
reporting unit is less than its carrying amount, then  HP performs the second step of the goodwill
impairment test to measure the amount  of impairment loss, if any.  In the second step, HP measures
the reporting unit’s assets, including any unrecognized intangible  assets, liabilities and non-controlling
interests at fair value in a hypothetical analysis to calculate the  implied fair value of goodwill for  the
reporting unit in the same manner as if the reporting unit was being acquired in a  business
combination. If the implied fair value of the reporting unit’s goodwill is  less  than its carrying amount,
the difference is recorded as an impairment loss.

Intangible Assets and Long-Lived Assets

HP reviews intangible assets with finite lives and long-lived assets for  impairment whenever  events

or changes in circumstances indicate the  carrying  amount  of  an asset may  not  be  recoverable. HP
assesses  the  recoverability  of  assets  based  on  the  estimated  undiscounted  future  cash  flows  expected  to
result from the use and eventual disposition  of the  asset.  If the  undiscounted future cash flows are less
than  the carrying amount, the asset is impaired. HP measures the amount of impairment loss, if any, as
the difference between the carrying amount of the asset and its fair  value using an  income  approach  or,
when available and appropriate, using  a  market  approach. HP  amortizes intangible assets with finite
lives using the straight-line method over  the estimated economic lives  of  the assets, ranging from one  to
ten years.

Debt and Marketable Equity Securities Investments

Debt  and  marketable  equity  securities  are  generally  considered  available-for-sale  and  are  reported

at fair value with unrealized gains and losses, net of  applicable  taxes, in Accumulated  other
comprehensive loss in the Consolidated Balance  Sheets.  Realized gains and losses for available-for-sale
securities are calculated based on the specific identification method  and included in Interest and other,
net in  the Consolidated Statements of Earnings. HP monitors its investment portfolio for potential
impairment on a quarterly basis. When the  carrying  amount  of  an investment in debt  securities exceeds
its fair value and the decline in value  is determined to be other-than-temporary (i.e., when HP does not
intend to sell the debt securities and it is not more likely than  not  that HP will be required  to  sell the
debt securities prior to anticipated recovery of its amortized cost  basis), HP records  an impairment
charge to Interest and other, net in the amount of the credit loss and the balance, if any,  is recorded in
Accumulated other comprehensive loss in the  Consolidated Balance Sheets.

Derivatives

HP uses derivative financial instruments, primarily forwards, swaps, and  options, to hedge certain

foreign currency and interest rate exposures. HP  also  may use other derivative instruments  not
designated as hedges, such as forwards used to hedge foreign  currency balance  sheet  exposures. HP

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Notes to Consolidated Financial Statements  (Continued)

Note 1:  Summary of Significant Accounting  Policies (Continued)

does  not  use  derivative  financial  instruments  for  speculative  purposes.  See  Note  11  for  a  full
description of HP’s derivative financial instrument activities and related accounting  policies.

Loss Contingencies

HP is involved in various lawsuits, claims, investigations and proceedings  that arise  in the ordinary

course  of  business.  HP  records  a  liability  for  contingencies  when  it  believes  it  is  both  probable  that  a
liability  has been incurred and the amount of  the loss can be reasonably estimated.  See Note 15 for a
full description of  HP’s loss contingencies and  related  accounting policies.

Note 2:  Segment Information

HP is a  leading global provider of products, technologies, software, solutions and services to
individual consumers, small- and medium-sized businesses (‘‘SMBs’’) and large enterprises,  including
customers in the government, health  and education  sectors.  HP’s offerings span personal computing
and  other access devices; imaging- and printing-related products and services; enterprise information
technology (‘‘IT’’) infrastructure, including  enterprise server  and storage  technology, networking
products and solutions, and technology support and maintenance;  multi-vendor customer services,
including technology consulting, outsourcing and support services across infrastructure, applications and
business process domains; and IT management software, application testing and delivery software,
information management solutions, big data  analytics, security  intelligence and  risk management
solutions.

HP’s  operations are organized into seven segments for  financial reporting purposes: Personal
Systems,  Printing,  the  EG,  ES,  Software,  HP  Financial  Services  (‘‘HPFS’’)  and  Corporate  Investments.
HP’s organizational structure is based on a number of factors that  management uses  to  evaluate, view
and  run its business operations, which include, but are not  limited  to,  customer base and homogeneity
of products and technology. The segments are based on this organizational structure  and information
reviewed by HP’s management to evaluate  segment results.

The Personal Systems segment and the Printing segment are structured beneath a broader Printing

and  Personal Systems Group (‘‘PPS’’). While PPS is  not  a reportable segment, HP may  provide
financial data aggregating the Personal Systems and the  Printing  segments in order to provide a
supplementary view of its business.

A  summary  description  of  each  segment  follows.

The Printing and Personal Systems Group’s mission is to leverage the respective strengths of the
Personal Systems business and the Printing business by creating  a  unified organization  that  is customer-
focused and poised to capitalize on rapidly shifting  industry  trends. Each of the segments  within PPS  is
described  below.

Personal Systems  provides  commercial  Personal  Computers  (‘‘PCs’’),  consumer  PCs,  workstations,

thin clients, tablets, retail point-of-sale  systems, calculators and  other related accessories,  software,
support and services for the commercial and consumer  markets.  HP groups  commercial notebooks,
commercial desktops, commercial tablets, workstations and thin clients into commercial clients and
consumer notebooks, consumer desktops and consumer tablets  into consumer  clients when describing
performance in these markets. Described below are HP’s  global business capabilities within Personal
Systems.

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Notes to Consolidated Financial Statements  (Continued)

Note 2:  Segment Information (Continued)

• Commercial  PCs are optimized for use by customers, including  enterprise  and SMB customers,

and  for connectivity, reliability and manageability in networked environments.

• Consumer  PCs include the HP Spectre, HP ENVY, HP Pavilion, HP Chromebook, HP Split  and
HP Slate series of multi-media consumer  notebooks, consumer tablets, hybrids and desktops.

Printing provides consumer and commercial printer  hardware,  supplies,  media, software  and
services, as well as scanning devices. Printing is also focused on imaging  solutions  in the commercial
markets. HP groups LaserJet, large format printers and commercial  inkjet printers into commercial
hardware and consumer inkjet printers into consumer hardware when  describing performance in these
markets. Described below are HP’s global business capabilities within Printing.

• LaserJet and Enterprise Solutions deliver HP’s LaserJet and enterprise products,  services  and
solutions to the SMB and enterprise  segments. Managed  Print Services provides printing
equipment, supplies, support, workflow optimization and  security services for SMB and
enterprise  customers  around  the  world,  utilizing  proprietary  HP  tools  and  fleet  management
solutions as well as third-party software.

• Inkjet and Printing Solutions deliver HP’s consumer and SMB inkjet  solutions (hardware,

supplies, media, and web-connected hardware and services). Ongoing  initiatives  and programs
such  as  Ink in the Office and Ink Advantage and newer initiatives such as Instant Ink provide
innovative printing solutions to consumers and SMBs.

• Graphics  Solutions delivers large format printers (Designjet, Large Format Production, and
Scitex Industrial), specialty printing, digital press solutions  (Indigo and Inkjet Webpress),
supplies  and  services  to  print  service  providers  and  design  &  rendering  customers.

• Software and Web Services delivers a suite of offerings, including photo-storage and printing

offerings (such as Snapfish), document  storage, entertainment  services, web-connected printing,
and PC back-up and related services.

The Enterprise  Group provides servers, storage, networking and technology services that, when
combined with HP’s Cloud solutions,  enable customers to manage applications  across public cloud,
virtual private cloud, private cloud and  traditional IT environments. Described below are HP’s business
units and capabilities within EG.

• Industry  Standard  Servers offers a range of products from entry-level  servers through premium

ProLiant servers, which run primarily Windows, Linux and  virtualization platforms from software
providers such as Microsoft and VMware and open sourced software from other major vendors
while leveraging x86 processors from Intel and  AMD.

• Business Critical Systems offers HP Integrity servers based on the Intel(cid:4) Itanium(cid:4) processor,  HP

Integrity NonStop solutions and mission-critical  x86 ProLiant  servers.

• Storage offers traditional storage and Converged  Storage solutions. Traditional storage  includes
tape, storage networking and legacy external  disk products such as EVA  and XP. Converged
Storage solutions include 3PAR StoreServ, StoreOnce  and  StoreVirtual products.

• Networking offers switches, routers, wireless local area  network  and network management

products that span the data center, campus and branch environments and  deliver software-
defined networking and unified communications capabilities.

100

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 2:  Segment Information (Continued)

• Technology Services provides support services and technology consulting optimizing  EG’s

hardware platforms, and focuses on cloud,  mobility and big  data. These services are  available in
the form of service contracts, pre-packaged offerings or  on a customized  basis.

Enterprise  Services provides technology consulting, outsourcing and support services  across

infrastructure,  applications  and  business  process  domains.  ES  is  comprised  of  Infrastructure  Technology
Outsourcing, Application and Business Services.

• Infrastructure Technology Outsourcing delivers comprehensive services that encompass  the

management of data centers, IT security, cloud computing, workplace technology, networks,
unified communications and enterprise service  management.

• Application  and  Business  Services helps clients develop, revitalize and manage their applications

and information assets.

Software provides IT management, application  testing and delivery, information management, big
data analytics, security intelligence and  risk management solutions for businesses and enterprises of all
sizes.  Our  software  offerings  include  licenses,  support,  professional  services  and  SaaS.

HP Financial Services provides flexible investment solutions, such  as leasing,  financing, utility
programs  and  asset  management  services,  for  customers  to  enable  the  creation  of  unique  technology
deployment models and acquire complete IT solutions, including hardware, software and services from
HP and others. Providing flexible services and capabilities that support the entire IT  lifecycle, HPFS
partners with customers globally to help  build investment  strategies  that enhance their business agility
and  support  their  business  transformation.  HPFS  offers  a  wide  selection  of  investment  solution
capabilities for large enterprise customers  and  channel  partners, along with an array of financial options
to SMBs  and educational and governmental entities.

Corporate  Investments includes HP Labs and certain cloud-related business incubation projects

among others.

Segment  Policy

HP derives the results of the business segments directly from its internal management reporting
system. The accounting policies HP uses to derive  segment results  are  substantially the same  as those
the consolidated company uses. Management measures the performance of each segment based on
several metrics, including earnings from operations.  Management  uses these results, in part, to evaluate
the performance of, and to allocate resources  to,  each of the segments.

Segment revenue includes revenues from sales to external customers  and  intersegment revenues

that  reflect  transactions  between  the  segments  on  an  arm’s-length  basis.  Intersegment  revenues
primarily  consist of sales of hardware  and  software that are sourced internally and,  in the majority  of
the cases, are financed as operating leases  by HPFS. HP’s consolidated net  revenue is derived and
reported after the elimination of intersegment revenues from  such arrangements.

HP  periodically  engages  in  intercompany  licensing  arrangements  that  may  result  in  advance
payments between subsidiaries. Revenues from intercompany licensing arrangements  are deferred  and
recognized ratably over the term of the  arrangement  by the legal entities involved in such  transactions;
however,  these  payments  are  eliminated  from  revenues  as  reported  by  HP  and  its  business  segments.
As  disclosed  in  Note  6,  during  fiscal  2014,  HP  executed  a  multi-year  intercompany  licensing

101

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 2:  Segment Information (Continued)

arrangement on which advanced royalty payments of $10.4 billion were received  in the U.S. from a
foreign  consolidated  affiliate.  Deferred  intercompany  royalty  revenues  of  $9.9  billion  will  be  recognized
over the life of the arrangement through 2029 in  the respective legal  entities, but  eliminated from both
HP  consolidated  and  segment  revenues.

Financing interest in the Consolidated Statements  of  Earnings  reflects interest expense  on debt
attributable to HPFS. Debt attributable to HPFS  consists of intercompany equity  that  is treated as  debt
for segment reporting purposes, intercompany  debt, and borrowing- and  funding-related activity
associated with HPFS and its subsidiaries.

HP does not allocate to its segments  certain operating expenses, which  it manages  at the  corporate

level. These unallocated costs include  certain corporate governance  costs, stock-based compensation
expense,  amortization  of  intangible  assets,  impairment  of  goodwill  and  intangible  assets, restructuring
charges and acquisition-related charges.

Segment  Realignment

Effective at the beginning of its first quarter of  fiscal  2014,  HP implemented certain organizational

changes to align its segment financial reporting more closely with its current business structure. These
organizational  changes  include:

• transferring the HP Exstream business from the  Commercial  Hardware business unit  within the

Printing segment to the Software segment;

• transferring the Personal Systems trade and  warranty support business from  the TS business unit

within the EG segment to the Other business unit within the  Personal Systems  segment;

• transferring the spare and replacement parts business  supporting the  Personal Systems and

Printing segments  from the TS business  unit within  the EG segment to the Other business unit
within the Personal Systems segment and the Commercial Hardware business unit within the
Printing segment, respectively;

• transferring certain cloud-related incubation activities previously reported  in Corporate and
unallocated costs and eliminations and  in the EG segment to  the Corporate Investments
segment.

In addition, HP transferred certain intrasegment  eliminations from the  ES  segment and  the EG

segment  to  corporate  intersegment  revenue  eliminations.

HP has reflected these changes to its segment information retrospectively to the earliest period
presented, which has resulted in the transfer of revenue among the Printing,  Personal  Systems,  EG, ES
and  Software segments and the transfer of operating  profit  among the  Printing,  Personal Systems, EG,
Software and Corporate Investments segments. These changes had no impact on  the previously
reported financial results for the HPFS segment. In  addition,  none  of  these changes impacted HP’s
previously reported consolidated net revenue,  earnings from  operations, net earnings or  net EPS.

102

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 2:  Segment Information (Continued)

Segment  Operating  Results

Printing and
Personal Systems

Personal
Systems Printing

Enterprise Enterprise

Group

Services

Software

HP Financial Corporate
Investments

Services

Total

In millions

2014
Net revenue . . . . . . . . . . . . . . . . . . . . . $33,304
999
Intersegment net revenue and other . . . . . . . .

$22,719
260

$26,809
1,005

$21,297
1,101

$3,607
326

Total segment net revenue . . . . . . . . . . . $34,303

$22,979

$27,814

$22,398

$3,933

Earnings (loss) from operations . . . . . . . . $ 1,270

$ 4,185

$ 4,008

$

803

$ 872

2013
Net revenue . . . . . . . . . . . . . . . . . . . . . $31,232
947
Intersegment net revenue and other . . . . . . . .

$23,685
211

$27,045
1,036

$23,041
1,020

$3,701
320

Total segment net revenue . . . . . . . . . . . $32,179

$23,896

$28,081

$24,061

$4,021

Earnings (loss) from operations . . . . . . . . $

980

$ 3,933

$ 4,259

$

679

$ 868

2012
Net revenue . . . . . . . . . . . . . . . . . . . . . $34,892
951
Intersegment net revenue and other . . . . . . . .

$24,317
221

$28,349
1,294

$25,090
903

$3,868
303

Total segment net revenue . . . . . . . . . . . $35,843

$24,538

$29,643

$25,993

$4,171

Earnings (loss) from operations . . . . . . . . $ 1,724

$ 3,612

$ 5,123

$ 1,045

$ 836

$3,416
82

$3,498

$ 389

$3,570
59

$3,629

$ 399

$3,784
35

$3,819

$ 388

$ 302
—

$ 302

$111,454
3,773

$115,227

$(199)

$ 11,328

$ 24
—

$ 24

$112,298
3,593

$115,891

$(316)

$ 10,802

$ 57
1

$ 58

$120,357
3,708

$124,065

$(233)

$ 12,495

The reconciliation of segment operating results to HP consolidated results  was  as follows:

Net Revenue:
Total segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Elimination of intersegment net revenue  and other . . . . . . . . . . . . . .

$115,227
(3,773)

$115,891
(3,593)

$124,065
(3,708)

Total HP consolidated net revenue . . . . . . . . . . . . . . . . . . . . . . . .

$111,454

$112,298

$120,357

For the fiscal years ended October 31

2014

2013

2012

In millions

Earnings before taxes:
Total segment earnings from operations . . . . . . . . . . . . . . . . . . . . . .
Corporate and unallocated costs and  eliminations . . . . . . . . . . . . . . .
Stock-based  compensation  expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of goodwill and intangible assets . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 11,328
(953)
(560)
(1,000)
—
(1,619)
(11)
(628)

$ 10,802
(786)
(500)
(1,373)

$ 12,495
(787)
(635)
(1,784)
— (18,035)
(2,266)
(45)
(876)

(990)
(22)
(621)

Total HP consolidated earnings (loss)  before  taxes . . . . . . . . . . . . .

$

6,557

$

6,510

$ (11,933)

103

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 2:  Segment Information (Continued)

Segment  Assets

HP allocates assets to its business segments based on  the segments primarily  benefiting from the

assets. Total assets by segment and the reconciliation of segment assets to HP  consolidated  assets were
as follows:

As of October 31

2014

2013(1)

In millions

Personal Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Printing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 12,104
10,063

$ 11,690
11,088

Printing and Personal Systems Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Enterprise  Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Enterprise  Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
HP Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate  Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and unallocated assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

22,167

27,236
13,472
11,575
13,529
34
15,193

22,778

29,759
16,217
11,940
12,746
105
12,131

Total HP consolidated assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$103,206

$105,676

(1) HP has revised the presentation for the fiscal year ended  October 31,  2013 in order to present

comparable  information  with  the  current  year  period.

Major Customers

No single customer represented 10% or  more of HP’s total net revenue in  any fiscal year

presented.

Geographic  Information

Net revenue by country is based upon the  sales  location that predominately represents  the

customer location. For each of the fiscal years of 2014, 2013  and  2012, other than  the U.S.,  no country
represented more than 10% of HP net  revenue.

Net revenue by country in which HP  operates was  as follows:

For the fiscal years ended October 31

2014

2013

2012

U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 38,805
72,649

In millions
$ 40,284
72,014

$ 42,140
78,217

Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$111,454

$112,298

$120,357

As of October 31, 2014, the U.S., Netherlands  and  Ireland  each represented more than 10% of  net

assets.  As  of  October  31,  2013,  the  U.S.,  the  Cayman  Islands  and  Ireland  each  represented  10%  or
more of net assets.

104

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 2:  Segment Information (Continued)

Net property, plant and equipment by country  in which  HP operates was as follows:

As of October 31

2014

2013

In millions

U.S.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The United Kingdom. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 5,668
1,053
4,619

$ 5,546
1,090
4,827

Total net property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$11,340

$11,463

Net revenue by segment and business unit was as follows:

For the fiscal years ended October 31

2014

2013

2012

Notebooks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Desktops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Workstations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 17,540
13,197
2,218
1,348

In millions
$ 16,029
12,844
2,147
1,159

$ 18,830
13,888
2,148
977

Personal Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial  Hardware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer  Hardware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Printing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total Printing and Personal Systems Group . . . . . . . . . . . . . . . .

Industry  Standard  Servers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Networking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business Critical Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Enterprise  Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Infrastructure Technology Outsourcing . . . . . . . . . . . . . . . . . . . . . . .
Application and Business Services . . . . . . . . . . . . . . . . . . . . . . . . . .

Enterprise  Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
HP Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate  Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

34,303

14,917
5,717
2,345

22,979

57,282

12,474
8,466
3,316
2,629
929

27,814

14,038
8,360

22,398

3,933
3,498
302

32,179

15,716
5,744
2,436

23,896

56,075

12,102
8,788
3,475
2,526
1,190

28,081

15,223
8,838

24,061

4,021
3,629
24

35,843

16,151
5,946
2,441

24,538

60,381

12,582
9,152
3,815
2,482
1,612

29,643

16,176
9,817

25,993

4,171
3,819
58

Total segment net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . .

115,227

115,891

124,065

Eliminations of intersegment net revenue and other . . . . . . . .

(3,773)

(3,593)

(3,708)

Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$111,454

$112,298

$120,357

105

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 3:  Restructuring

Summary of Restructuring Plans

HP’s  restructuring activities in fiscal 2014  summarized by plan were as follows:

Fiscal 2014

As of October 31,
2014

Balance,
October 31,
2013

Other
Adjustments
and Non-Cash October  31, Incurred Costs to  Be

Total
Expected

Total
Costs

Balance,

Cash

Charges Payments

Settlements

2014

to Date

Incurred

In millions

Fiscal 2012 Plan

Severance and EER . . . . . . . .
Infrastructure and other . . . . . .

$ 945
40

$1,357 $(1,233)
(208)

268

$(114)
(2)

$ 955
98

$4,393
515

$5,000
540

Total 2012 Plan . . . . . . . . . . . .

985

1,625

(1,441)

(116)

1,053

4,908

5,540

Other Plans:

Severance . . . . . . . . . . . . . . . .
Infrastructure . . . . . . . . . . . . .

Total Other Plans . . . . . . . . . .

10
122

132

—
(6)

(6)

(3)
(62)

(65)

—
—

—

7
54

61

2,629
1,433

4,062

2,629
1,437

4,066

Total restructuring plans . . . . . . .

$1,117

$1,619 $(1,506)

$(116)

$1,114

$8,970

$9,606

Reflected in Consolidated

Balance  Sheets:
Accrued restructuring . . . . . . .

$ 901

Other liabilities . . . . . . . . . . . .

$ 216

Fiscal 2012 Restructuring Plan

$ 898

$ 216

On May 23, 2012, HP adopted a multi-year restructuring plan (the ‘‘2012 Plan’’) designed to
simplify business processes, accelerate  innovation and deliver better results  for customers, employees
and  stockholders. As of October 31, 2013,  HP estimated that it would  eliminate approximately 34,000
positions in connection with the 2012 Plan through fiscal  2014,  with a portion of those employees
exiting the company as part of voluntary enhanced  early retirement (‘‘EER’’) programs in the  U.S. and
in certain other countries. As of October 31, 2013, HP estimated  that it  would recognize approximately
$4.1 billion in aggregate charges in connection with  the 2012 Plan.

In  fiscal  2014,  HP  increased  the  expected  number  of  positions  to  be  eliminated  to  55,000  as  HP
continued  to  optimize  the  workforce  and  reengineer  business  processes  to  be  more  competitive  and
meet its objectives. As a result, as of  October 31,  2014, HP estimates that it will recognize
approximately $5.5 billion in aggregate charges in connection with the  2012 Plan. As  of  October 31,
2014, HP had recorded $4.9 billion in  aggregate  charges  of which $4.4 billion  related to workforce
reductions and $515 million related to  infrastructure, including  data center  and real  estate
consolidation, and other items. As of October 31,  2014, HP had eliminated approximately  40,900
positions for which a severance payment has been or will be  made as part of  the 2012 Plan. The
severance- and infrastructure-related cash payments associated with  the 2012 Plan are expected to be
paid out through fiscal 2021.

106

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 3:  Restructuring (Continued)

Other Plans

Restructuring plans initiated by HP in fiscal 2008 and 2010 were substantially completed as of
October  31, 2014. Severance- and infrastructure-related cash payments associated with  the other plans
are expected to be paid out through  fiscal  2019.

Note 4:  Retirement and Post-Retirement Benefit Plans

Defined 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 Pension Plan (‘‘Pension Plan’’),  a defined benefit pension plan
under which benefits are based on pay and years of service, and  the HP Company Cash Account
Pension Plan (‘‘Cash Account Pension Plan’’), under which benefits are accrued  pursuant to a formula
based on  a percentage of pay plus interest, were frozen effective January 1, 2008. The Cash Account
Pension Plan was merged into the HP Pension Plan in  2005  for certain  funding  and investment
purposes.  Effective  October  30,  2009  the  Electronic  Data  Systems  Corporation  (‘‘EDS’’)  U.S.  qualified
pension plan was also merged into the  Pension  Plan. The EDS pension plan was frozen effective
January 1, 2009.

HP reduces the benefit payable to certain  U.S. employees under the Pension Plan  for service
before 1993, if any, by any amounts due to the employee under HP’s  frozen defined contribution
Deferred Profit-Sharing Plan (‘‘DPSP’’). HP closed the DPSP to new  participants in 1993.  The DPSP
plan  obligations  are  equal  to  the  plan  assets  and  are  recognized  as  an  offset  to  the  Pension  Plan  when
HP calculates its defined benefit pension cost  and obligations. The  fair value of plan assets and
projected benefit obligations for the U.S. defined  benefit  plans combined with the  DPSP were as
follows:

For the fiscal years ended October 31

2014

2013

Projected
Benefit

Projected
Benefit

Plan Assets Obligation

Plan Assets Obligation

In millions

U.S. defined benefit plans . . . . . . . . . . . . . . . . . . . . . . .
DPSP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$11,979
828

$13,756
828

$10,866
837

$11,866
837

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$12,807

$14,584

$11,703

$12,703

107

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 4:  Retirement and Post-Retirement Benefit Plans (Continued)

Post-Retirement Benefit Plans

HP  sponsors  retiree  health  and  welfare  benefit  plans,  of  which  the  most  significant  are  in  the  U.S.
Under the HP Retiree Welfare Benefits Plan, certain pre-2003 retirees and grandfathered  participants
with continuous service to HP since 2002 are eligible to receive partially-subsidized  medical  coverage
based on  years of service at retirement. Former grandfathered employees  of Digital  Equipment
Corporation also receive partially-subsidized medical benefits that  are  not service-based. HP’s share of
the premium cost is capped for all subsidized medical  coverage provided  under the  HP Retiree Welfare
Benefits Plan. HP currently leverages the employer group  waiver plan  process  to  provide HP Retiree
Welfare Benefits Plan post-65 prescription  drug coverage  under Medicare Part D, thereby giving  HP
access to federal subsidies to help pay for retiree benefits.

Certain employees not grandfathered under the  above programs, as  well as  employees hired after

2002 but before August 2008, are eligible for credits under the HP Retirement Medical Savings
Account Plan (‘‘RMSA’’) upon attaining  age  45. Credits offered after September 2008 are provided  in
the form of matching credits on employee contributions  made to a voluntary  employee beneficiary
association. On retirement, former employees  may use these credits  for the  reimbursement of certain
eligible medical expenses, including premiums required for coverage.

Defined  Contribution  Plans

HP offers various defined contribution plans  for U.S. and non-U.S. employees. Total defined

contribution expense was $573 million in fiscal 2014,  $603 million in fiscal 2013  and $628 million  in
fiscal 2012. U.S. employees are automatically enrolled in the  Hewlett-Packard  Company 401(k) Plan
(‘‘HP 401(k) Plan’’) when they meet eligibility requirements, unless they  decline participation.

The quarterly employer matching contributions in the HP 401(K) Plan are 100% of an employee’s

contributions, up to a maximum of 4%  of  eligible compensation.

108

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 4:  Retirement and Post-Retirement Benefit Plans (Continued)

Pension and Post-Retirement Benefit Expense

HP’s  net pension and post-retirement  benefit  (credit) cost recognized  in the Consolidated

Statements of Earnings was as follows:

For the fiscal years ended October 31

2014

2013

2012

2014

2013

2012

2014

2013

2012

U.S. Defined
Benefit Plans

Non-U.S. Defined
Benefit Plans

Post-Retirement
Benefit Plans

Service cost
. . . . . . . . . . . . . . . .
Interest  cost . . . . . . . . . . . . . . . .
Expected return  on plan assets . .
Amortization and deferrals:

Actuarial loss (gain) . . . . . . . .
Prior service benefit . . . . . . . . .

$

1
569
(811)

$

1
560
(845)

$

1
566
(793)

$

15
—

77
—

43
—

Net periodic  benefit (credit) cost .

(226)

(207)

(183)

Curtailment (gain) loss . . . . . .
Settlement loss (gain) . . . . . . .
Special termination benefits . . .

—
1
—

—
—
12
11
— 833

In millions
$

308
737
(1,140)

337
676
(1,007)

$ 294
690
(816)

$ 5
32
(34)

$ 6
31
(34)

$ 7
35
(38)

318
(23)

200

(7)
12
50

341
(27)

320

(3)
18
31

235
(24)

379

(10)
(41)

(48)

2
(67)

(62)

4 —

(7)
(18) — —
(5)
32
17

(3)
(79)

(78)

(30)
—
227

Net benefit (credit) cost . . . . . . .

$(225) $(195) $ 661

$

255

$

366

$ 382

$(16) $(74) $119

The weighted-average assumptions used to calculate  net benefit (credit)  cost were  as follows:

For the fiscal years ended October 31

2014

2013

2012

2014

2013

2012

2014

2013

2012

U.S. Defined
Benefit Plans

Non-U.S. Defined
Benefit Plans

Post-Retirement
Benefit Plans

Discount  rate . . . . . . . . . . . . . . . . . . . . .
Expected increase in compensation levels
Expected  long-term  return  on  plan  assets

4.9% 4.1% 4.8% 3.9% 3.8% 4.5% 3.9% 3.0% 4.4%
2.0% 2.0% 2.0% 2.4% 2.4% 2.5% —
7.7% 7.8% 7.6% 7.0% 7.2% 6.4% 8.9% 9.0% 10.0%

—

—

109

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 4:  Retirement and Post-Retirement Benefit Plans (Continued)

Funded Status

The funded status of the defined benefit and post-retirement  benefit plans was as follows:

As of October 31

2014

2013

2014

2013

2014

2013

U.S. Defined
Benefit Plans

Non-U.S. Defined
Benefit Plans

Post-Retirement
Benefit Plans

In millions

Change in fair value of plan assets:

Fair value—beginning of year . . . . . . . . . .
Acquisition/addition of plans . . . . . . . . . . .
Actual return on plan assets . . . . . . . . . . .
Employer  contributions . . . . . . . . . . . . . . .
Participant contributions . . . . . . . . . . . . . .
Benefits  paid . . . . . . . . . . . . . . . . . . . . . .
Settlement . . . . . . . . . . . . . . . . . . . . . . . .
Currency  impact . . . . . . . . . . . . . . . . . . . .

$10,866
—
1,648
27
—
(558)
(4)
—

$11,536
—
629
54
—
(1,320)
(33)
—

$16,083
8
1,814
1,019
64
(568)
(49)
(801)

$14,021
7
1,842
634
63
(504)
(96)
116

$ 396
—
83
92
54
(167)
—
—

$ 395
—
32
102
72
(205)
—
—

Fair value—end of year . . . . . . . . . . . . . . .

11,979

10,866

17,570

16,083

458

396

Change in benefit obligation:

Projected benefit obligation—beginning of

year . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition/addition of plans . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Service cost
Interest  cost . . . . . . . . . . . . . . . . . . . . . . .
Participant contributions . . . . . . . . . . . . . .
Actuarial loss (gain) . . . . . . . . . . . . . . . . .
Benefits  paid . . . . . . . . . . . . . . . . . . . . . .
Plan amendments . . . . . . . . . . . . . . . . . . .
Curtailment . . . . . . . . . . . . . . . . . . . . . . .
Settlement . . . . . . . . . . . . . . . . . . . . . . . .
Special termination benefits . . . . . . . . . . . .
Currency  impact . . . . . . . . . . . . . . . . . . . .

11,866
—
1
569
—
1,882
(558)
—
—
(4)
—
—

14,237
—
1
560
—
(1,579)
(1,320)
—
—
(33)
—
—

19,152
10
308
737
64
2,500
(568)
—
(49)
(49)
50
(935)

18,097
14
337
676
63
343
(504)
6
13
(100)
31
176

867
—
5
32
54
22
(167)
—
—
—
32
(5)

1,056
—
6
31
72
(85)
(205)
—
—
—
(5)
(3)

Projected benefit obligation—end of year

. . .

13,756

11,866

21,220

19,152

840

867

Funded status at end of year . . . . . . . . . . . . .

$ (1,777) $ (1,000) $ (3,650) $ (3,069) $(382) $ (471)

Accumulated benefit obligation . . . . . . . . . . .

$13,755

$11,865

$20,207

$18,254

110

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 4:  Retirement and Post-Retirement Benefit Plans (Continued)

The weighted-average assumptions used to calculate the projected  benefit obligations were as

follows:

For the fiscal years ended October 31

2014

2013

2014

2013

2014

2013

U.S. Defined
Benefit Plans

Non-U.S.
Defined
Benefit Plans

Post-Retirement
Benefit Plans

Discount  rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected increase in compensation levels . . . . . . . . . .

4.4% 4.9% 3.2% 3.9% 3.6% 3.9%
2.0% 2.0% 2.5% 2.4% —

—

For the U.S. defined benefit plan, HP adopted  a new  mortality rate  table  in fiscal 2014 to better

reflect expected lifetimes of its U.S.  plan  participants.  The table used is  based on  a historical
demographic  study  of  the  plans  and  increased  the  projected  benefit  obligation  by  approximately
$870 million. The increase in the projected benefit  obligation  was  recognized  as a part of the net
actuarial  loss  as  included  in  the  other  comprehensive  loss  which  will  be  amortized  over  the  remaining
estimated  life  of  plan  participants  (approximately  26.5 years).

The net amounts recognized for HP’s  defined benefit and post-retirement benefit plans in HP’s

Consolidated  Balance  Sheets  were  as  follows:

As of October 31

2014

2013

2014

2013

2014

2013

U.S. Defined
Benefit Plans

Non-U.S. Defined
Benefit Plans

Post-Retirement
Benefit Plans

Noncurrent  assets . . . . . . . . . . . . . . . . . . . . . .
Current  liabilities . . . . . . . . . . . . . . . . . . . . . .
Noncurrent  liabilities . . . . . . . . . . . . . . . . . . . .

$ — $ — $

(35)
(1,742)

(33)
(967)

In millions
$

421
(43)
(4,028)

479
(46)
(3,502)

$ — $ —
(109)
(362)

(47)
(335)

Funded status at end of year . . . . . . . . . . . . . .

$(1,777) $(1,000) $(3,650) $(3,069)

(382) $(471)

The following table summarizes the pretax net actuarial loss (gain) and  prior service benefit

recognized in accumulated other comprehensive loss  for  the defined benefit  and post-retirement  benefit
plans:

For the fiscal year ended October 31, 2014

U.S. Defined
Benefit Plans

Non-U.S. Defined
Benefit Plans

Post-Retirement
Benefit Plans

Net actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total recognized in accumulated other comprehensive  loss

$1,405
—

$1,405

In millions
$5,423
(186)

$5,237

$(115)
(119)

$(234)

111

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 4:  Retirement and Post-Retirement Benefit Plans (Continued)

The following table summarizes the net actuarial loss (gain) and prior service benefit that are
expected to be amortized from accumulated other comprehensive loss  (income) and recognized  as
components of net periodic benefit cost (credit)  during  the next fiscal year.

U.S. Defined
Benefit Plans

Non-U.S. Defined
Benefit Plans

Post-Retirement
Benefit Plans

Net actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total expected to be recognized in net  periodic benefit

cost (credit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$54
—

$54

In millions
$452
(22)

$430

$(10)
(20)

$(30)

Defined benefit plans with projected benefit obligations exceeding the  fair value of plan  assets

were as follows:

As of October 31

2014

2013

2014

2013

U.S. Defined
Benefit Plans

Non-U.S. Defined
Benefit Plans

In millions

Aggregate fair value of plan assets . . . . . . . . . . . . . . . . . . . . .
Aggregate projected benefit obligation . . . . . . . . . . . . . . . . . .

$11,979
$13,756

$10,866
$11,866

$12,701
$16,774

$10,462
$14,010

Defined benefit plans with accumulated benefit obligations exceeding the  fair value  of plan assets

were as follows:

As of October 31

2014

2013

2014

2013

U.S. Defined
Benefit Plans

Non-U.S. Defined
Benefit Plans

In millions

Aggregate fair value of plan assets . . . . . . . . . . . . . . . . . . . . .
Aggregate accumulated benefit obligation . . . . . . . . . . . . . . . .

$11,979
$13,755

$10,866
$11,865

$12,578
$15,797

$ 9,926
$12,703

Retirement Incentive Program

As part of the 2012 restructuring plan, the company announced  a voluntary enhanced early

retirement program for its U.S employees.  Participation  in the EER program  was  limited to those
employees whose combined age and  years of service equaled 65 or more.  Approximately  8,500
employees elected to participate in the  EER  program  and left the company on dates designated  by  the
company, with the majority of the EER  participants  having left the company  on August 31,  2012 and
others exiting through August 31, 2013. The HP  Pension Plan was  amended to provide for an EER
benefit from the plan for electing EER participants who were current participants in the plan. The
retirement incentive benefit was calculated as a  lump  sum and ranged between five and  fourteen
months of pay depending on years of service at the time of retirement  under the  program. As a result
of this retirement incentive, HP recognized a special termination benefit (‘‘STB’’) of $833 million,
which  reflected the present value of all  additional benefits that HP would distribute from  the HP
Pension Plan. HP recorded these expenses as  a restructuring charge. In addition, the HP  Pension Plan
was remeasured on June 30, 2012, which resulted in no material change to the  2012 net periodic
benefit cost or funded status.

112

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 4:  Retirement and Post-Retirement Benefit Plans (Continued)

HP extended to all employees participating  in the EER program the opportunity to continue
health care coverage at active employee contribution rates for up  to  24 months  following retirement. In
addition, for employees not grandfathered into certain employer-subsidized  retiree medical plans, HP
provided up to $12,000 in employer credits under  the RMSA.  These items resulted in an additional
special termination benefit STB expense of $227  million, which was  offset by net curtailment gains of
$37  million,  due  primarily  to  the  resulting  accelerated  recognition  of  the  existing  prior  service  benefit.
The entire STB and approximately $30  million in curtailment gains were  recognized in fiscal  2012. HP
reported this net expense as a restructuring  charge in the  Consolidated Statements  of Earnings.

Fair Value of Plan Assets

The table below sets forth the fair value of plan assets by asset  category within the fair value

hierarchy.

Asset  Category:
Equity securities

U.S.  Defined  Benefit Plans

Non-U.S. Defined  Benefit  Plans

Post-Retirement  Benefit  Plans

Level 1 Level 2 Level 3

Total

Level 1 Level 2 Level 3

Total

Level 1 Level 2 Level 3 Total

As of October 31, 2014

In millions

$

30
742

$ — $ 2,965
4,872

80

$—
—

$ — $ — $ —
—

—

—

U.S.
Non-U.S.
Debt  securities

. . . . . . . . . . . . . . . . . . . $1,787
1,268

. . . . . . . . . . . . . . . .

$ — $ — $ 1,787 $2,935
4,050

— 1,268

—

Corporate . . . . . . . . . . . . . . . .
Government(1) . . . . . . . . . . . . . .

— 3,283
— 2,204

7

3,290
— 2,204

— 2,935
— 1,787

— 2,935
— 1,787

Alternative Investments

Private Equity(2)
. . . . . . . . . . . .
Hybrids(3)
. . . . . . . . . . . . . . . .
Hedge Funds(4)
. . . . . . . . . . . . .
Real Estate Funds
. . . . . . . . . . . .
Insurance Group Annuity Contracts . .
Common Collective Trusts and 103-12

Investment Entities(5)

. . . . . . . . .
Registered Investment Companies(6)
. .
Cash and Cash Equivalents(7)
. . . . . .
Other(8) . . . . . . . . . . . . . . . . . . .

—
—
—
—
—

—
68
161
(24)

— 1,284
3
—
263
346
—
—
—
—

854
314
66
95

—
—
—
—

1,284
3
609
—
—

854
382
227
71

—
114
—
220
—

—
—
573
79

2
2,466
103
277
44

—
—
—
130

51
43
285
543
79

—
—
—
2

53
2,623
388
1,040
123

—
—
573
211

—
—

—
—
—
—
—

—
86
—
(4)

20
22

—
—
—
—
—

55
1
6
—

—
—

271
1
—
—
—

—
—
—
—

20
22

271
1
—
—
—

55
87
6
(4)

Total

. . . . . . . . . . . . . . . . . . . . $3,260

$7,162

$1,557 $11,979 $7,971

$8,516

$1,083 $17,570

$82

$104

$272

$458

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

Includes debt issued by national, state and local governments and agencies.

Includes limited partnerships such as equity, buyout, venture capital, real estate and other similar funds that invest in the U.S.  and
internationally where foreign currencies are hedged.

Includes a fund that invests in both private and public equities primarily in the U.S. and the United Kingdom, as well as emerging
markets across all sectors. The fund also holds fixed income and derivative instruments to hedge interest rate and inflation risk. In
addition, the fund includes units in transferable securities, collective investment schemes, money market funds, cash and deposits.

Includes limited partnerships that invest both long and short primarily in common stocks and credit, relative value, event driven  equity,
distressed debt and macro strategies. Management of the hedge funds has the ability to shift investments from value to growth strategies,
from small to large capitalization stocks and bonds, and from a net long position to a net short position.

Department of Labor 103-12 IE (Investment Entity) designation is for plan assets held by two or more unrelated employee benefit plans
which includes limited partnerships and venture capital partnerships.

Includes publicly and privately traded Registered Investment Entities.

Includes cash and cash equivalents such as short-term marketable securities.

Includes international insured contracts, derivative instruments and unsettled transactions.

113

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 4:  Retirement and Post-Retirement Benefit Plans (Continued)

Changes in fair value measurements of  Level 3 investments were as  follows:

For  the  fiscal  year  ended  October 31,  2014

U.S.  Defined  Benefit  Plans

Non-U.S.  Defined  Benefit  Plans

Debt
Securities

Alternative
Investments

Equity

Alternative
Investments

Corporate Private

Hedge

Non  U.S. Private Hedge

Real

Insurance
Group

Post-Retirement
Benefit  Plans

Alternative
Investments

Private

Debt

Equity Hybrids Funds Total Equities Equity Funds Hybrids Estate Annuities Other Total Equity Hybrids Total

In  millions

$—

$1,250

$ 2

$113

$1,365

$77

$48

$204

$—

$325

$81

$ 2

$ 737

$234

$ 1

$235

—

—

7

—

92

169

(227)

—

1

—

—

—

10

—

140

—

103

169

(80)

—

3

—

—

—

2

2

(1)

—

14

(1)

68

—

—

—

43

—

46

—

108

64

(8)

—

(2)

8

—

—

—

—

57

1

51

21

216

(35)

72

—

—

—

—

—

51

21

(35)

—

.

.

.

.

Beginning balance
at October 31,
.
.
2013 .
Actual return on
plan assets:
Relating to assets
still held at the
reporting date .
Relating to assets
sold  during the
period
.
Purchases, sales,

.

.

.

and  settlements
.
.
(net)
Transfers in and/or
out of Level 3 .

.

.

.

.

.

Ending  balance at

October 31,  2014

$ 7

$1,284

$ 3

$263

$1,557

$80

$51

$285

$43

$543

$79

$ 2

$1,083

$271

$ 1

$272

The table below sets forth the fair value of plan assets by asset  category within the fair value

hierarchy.

Asset Category:
Equity securities

U.S. Defined Benefit Plans

Non-U.S. Defined Benefit Plans

Post-Retirement Benefit  Plans

Level 1 Level 2 Level 3

Total

Level 1 Level 2 Level 3

Total

Level 1 Level 2 Level 3 Total

As of October 31, 2013

In  millions

U.S.
Non-U.S.
Debt securities

. . . . . . . . . . . . . . . . . $1,711
1,274

. . . . . . . . . . . . . .

$ — $ — $ 1,711 $2,456
4,059

— 1,274

—

$

31
670

$ — $ 2,487
4,806

77

$—
—

$—
—

$ — $ —
—

—

Corporate . . . . . . . . . . . . . .
Government(1)
. . . . . . . . . . .

— 3,028
— 1,849

— 3,028
— 1,849

— 3,347
— 1,751

Alternative Investments

Private Equity(2)
Hybrids(3)
Hedge Funds(4)
Real Estate Funds
Insurance Group Annuity

. . . . . . . . . .
. . . . . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . .

Contracts

. . . . . . . . . . . . . .

Common Collective Trusts and

—
—
—
—

—

— 1,250
2
—
113
—
—
—

1,250
2
113
—

—
2
— 1,223
226
—
237
470

—

—

—

103-12 Investment Entities(5) . . .

— 1,233

— 1,233

Registered Investment

Companies(6)

. . . . . . . . . . . .
Cash and Cash Equivalents(7) . . . .
Other(8) . . . . . . . . . . . . . . . . .

61
11
(37)

329
62
(20)

—
—
—

390
73
(57)

—

—

—
648
110

50

—

—
4
62

—
—

48
—
204
325

81

—

—
—
2

3,347
1,751

50
1,223
430
1,032

131

—

—
652
174

—
5

—
—
—
—

—

—

79
—
(2)

17
17

—
—
—
—

—

42

—
3
—

—
—

234
1
—
—

—

—

—
—
—

17
22

234
1
—
—

—

42

79
3
(2)

Total . . . . . . . . . . . . . . . . . . . $3,020

$6,481

$1,365 $10,866 $7,743

$7,603

$737

$16,083

$82

$79

$235

$396

(1)

(2)

Includes debt issued by national, state and local  governments and agencies.

Includes limited partnerships such as  equity,  buyout,  venture capital, real estate and other similar  funds that invest in the U.S. and
internationally where foreign currencies are  hedged.

114

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 4:  Retirement and Post-Retirement Benefit Plans (Continued)

(3)

(4)

(5)

(6)

(7)

(8)

Includes a fund that invests in both private  and  public equities  primarily in the U.S. and the  United Kingdom,  as well  as emerging
markets across all  sectors. The fund  also holds fixed  income and derivative instruments to hedge interest rate and inflation  risk. In
addition, the fund includes units in transferable securities, collective investment  schemes, money market funds, cash and  deposits.

Includes limited partnerships that invest both long and short primarily  in common stocks and credit,  relative value, event driven
equity, distressed debt and macro strategies.  Management  of the hedge funds has the ability  to  shift investments from value to
growth strategies, from small to large  capitalization stocks and bonds, and from a net  long position to a net short position.

Department of Labor 103-12 IE (Investment Entity) designation is for plan assets held by two or  more unrelated employee benefit
plans which includes limited partnerships and venture  capital partnerships.

Includes publicly and privately traded Registered Investment Entities.

Includes cash and cash equivalents such as short-term marketable securities.

Includes international insured contracts, derivative instruments and unsettled transactions.

Changes in fair value measurements of  Level 3 investments were as  follows:

For the fiscal year ended October 31, 2013

U.S. Defined Benefit Plans

Non-U.S. Defined Benefit Plans

Post-Retirement
Benefit Plans

Alternative
Investments

Debt
Securities

Alternative
Investments

Equity

Alternative
Investments

Corporate Private

Hedge
Equity Hybrids Funds

Debt

Total

Non U.S. Private Hedge Real
Equities Equity Funds Estate Annuities Other Total Equity Hybrids Total

Private

Insurance
Group

Beginning  balance  at
October 31, 2012 .

.
Actual return on plan assets:
Relating to assets still held
.
at the reporting date .

.

.

.

.

Relating to assets sold
during  the  period .

.

Purchases,  sales,  and
settlements  (net) .

.
Transfers in and/or out of
.
.

Level 3 .

.

.

.

.

.

.

.

.

Ending  balance  at

October 31, 2013 .

.

.

.

.

.

.

.

.

.

.

.

$ 1

$1,300

$ 2

$ 65

$1,368

$76

$21

$233

$194

$88

$ 2

$614

$235

$ 1

$236

In millions

—

—

—

(9) —

143

—

(184) —

(1)

—

—

13

—

35

—

4

143

(149)

(1)

1

—

—

—

8

—

19

—

—

11

16

—

(40)

115

—

—

(5)

—

(2)

—

—

—

—

—

20

11

92

—

5

21

(27)

—

—

—

—

—

5

21

(27)

—

$—

$1,250

$ 2

$113

$1,365

$77

$48

$204

$325

$81

$ 2

$737

$234

$ 1

$235

The following is a description of the  valuation  methodologies used to measure plan  assets at fair

value. There have been no changes in  the methodologies  used  during the reporting period.

Investments in publicly-traded equity  securities are valued using  the closing price on the

measurement date as reported on the  stock exchange on which  the individual securities  are traded. For
corporate, government and asset-backed  debt securities, fair value is based  on observable inputs of
comparable market transactions. For corporate and government debt securities traded on  active
exchanges, fair value is based on observable  quoted prices. The  valuation  of  alternative  investments,
such as limited partnerships and joint ventures,  may require significant management judgment. For
alternative investments, valuation is based on  net asset value (‘‘NAV’’) as  reported by the Asset
Manager and adjusted for cash flows,  if  necessary. In making such an assessment, a variety of factors
are reviewed by management, including,  but not limited to, the timeliness  of  NAV as reported  by  the
asset manager and changes in general  economic  and  market conditions subsequent to the last NAV
reported by the asset manager. Depending on  the amount of management  judgment, the  lack  of
near-term liquidity, and the absence of  quoted  market  prices, these assets are  classified in Level 2  or
Level 3 of the fair value hierarchy. Further,  depending  on how quickly HP can redeem its hedge fund
investments, and the extent of any adjustments  to  NAV,  hedge funds  are classified in  either Level 2 or
Level 3 of the fair value hierarchy. Common  collective trusts, interests in  103-12  entities and  registered
investment companies are valued at NAV. The valuation for some of these assets  requires judgment  due

115

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 4:  Retirement and Post-Retirement Benefit Plans (Continued)

to the absence of quoted market prices, and these assets  are generally classified in Level 2  of the fair
value hierarchy. Cash and cash equivalents includes money market funds, which  are valued based  on
NAV. Other assets, including insurance group annuity contracts, were classified in the  fair value
hierarchy based on the lowest level input (e.g., quoted prices  and observable inputs)  that  is significant
to the fair value measure in its entirety.

Plan Asset Allocations

The weighted-average target and actual asset allocations across  the  benefit plans at the  respective

measurement dates were as follows:

Asset  Category

Public equity securities . . . . .
Private/other equity securities .
Real estate and other . . . . . .

Equity-related investments . . .
Debt securities . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . .

U.S. Defined Benefit Plans

Non-U.S. Defined
Benefit Plans

Post-Retirement
Benefit Plans

2014
Target
Allocation

Plan Assets

2014

2013

2014
Target
Allocation

Plan Assets

2014

2013

2014
Target
Allocation

Plan Assets

2014

2013

31.3% 36.7%
15.8% 12.6%
0.6% —

46.8% 48.0%
15.2% 7.9%
7.1% 7.5%

10.2% 9.5%
58.6% 59.1%

—

—

47.5% 47.7% 49.3% 67.7% 69.1% 63.4% 71.1% 68.8% 68.6%
52.5% 49.2% 48.2% 31.6% 27.6% 32.5% 27.0% 27.5% 29.0%
3.7% 2.4%

3.1% 2.5%

3.3% 4.1%

1.9%

0.7%

—

Total . . . . . . . . . . . . . . . .

100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Investment  Policy

HP’s investment strategy is to seek a  competitive  rate  of  return relative  to an appropriate level of

risk depending on the funded status of  each plan and the timing of expected benefit  payments. The
majority of the plans’ investment managers employ active investment management strategies  with the
goal  of outperforming the broad markets  in which  they invest. Risk management practices include
diversification across asset classes and  investment styles and periodic rebalancing  toward asset
allocation targets. A number of the plans’ investment managers  are  authorized to utilize  derivatives for
investment or liability exposures, and HP  may utilize derivatives to effect  asset allocation changes  or to
hedge certain investment or liability exposures.

The target asset allocation selected for each  U.S. plan reflects  a  risk/return profile HP believes  is

appropriate relative to each plan’s liability structure and  return goals.  HP conducts periodic asset-
liability studies for U.S. plans in order  to  model various potential asset  allocations in comparison to
each  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 private  equity
funds  to provide diversification and a higher expected return on  assets.

Outside the U.S., asset allocation decisions  are typically made by an independent board  of trustees

for the specific plan. As in the U.S., investment objectives are designed  to generate returns that will
enable the plan to meet its future obligations. In some  countries, local regulations may restrict asset
allocations, typically leading to a higher percentage of investment in  fixed  income  securities than would
otherwise be deployed. HP reviews the  investment strategy  and provides a recommended list of
investment managers for each country  plan,  with final decisions on asset allocation and investment
managers made by the board of trustees  for the specific plan.

116

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 4:  Retirement and Post-Retirement Benefit Plans (Continued)

Basis for Expected Long-Term Rate of Return on Plan  Assets

The expected long-term rate of return on  plan assets  reflects the expected returns for each major

asset class in which the plan invests and the  weight of  each asset class in  the target mix. Expected asset
returns reflect the current yield on government  bonds, risk premiums for  each asset class and  expected
real returns which considers each country’s specific inflation outlook.  Because HP’s investment policy is
to employ primarily active investment managers who  seek to outperform the broader market, the
expected returns are adjusted to reflect the  expected additional returns  net of fees.

Future Contributions and Funding Policy

In fiscal 2015, HP expects to contribute approximately $686 million to its non-U.S.  pension plans
and  approximately $35 million to cover benefit payments to  U.S. non-qualified plan participants. HP
expects to pay approximately $47 million  to  cover benefit claims for HP’s post-retirement benefit  plans.
HP’s policy is to fund its pension plans  so  that it  makes  at  least the minimum  contribution required  by
local government, funding and taxing authorities.

Estimated Future Benefits Payments

As of October 31, 2014, HP estimates that the future benefits payments  for  the retirement and

post-retirement  plans  are  as  follows:

Fiscal year

U.S. Defined
Benefit Plans

Non-U.S.
Defined
Benefit Plans

Post-Retirement
Benefit Plans

2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Next five fiscal years to October 31, 2024 . . . . . . . . . . . . . . .

$ 801
588
613
648
694
3,850

In millions
$ 567
528
560
606
659
3,980

$ 91
94
82
71
68
278

Note 5: Stock-Based Compensation

HP’s stock-based compensation plans  include incentive compensation plans and  an employee stock

purchase plan (‘‘ESPP’’).

117

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 5:  Stock-Based Compensation (Continued)

Stock-Based Compensation Expense and Related Income Tax Benefits

Stock-based compensation expense and the  resulting  tax  benefits  were as follows:

For the fiscal years ended
October 31

2014

2013

2012

Stock-based  compensation  expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 560
(179)

In millions
$ 500
(158)

$ 635
(197)

Stock-based compensation expense, net of tax . . . . . . . . . . . . . . . . . . . . . . . . .

$ 381

$ 342

$ 438

Cash received from option exercises  and  purchases under the Hewlett-Packard Company 2011
Employee Stock Purchase Plan (the ‘‘2011 ESPP’’)  was  $0.3 billion  in fiscal 2014, $0.3 billion in  fiscal
2013 and $0.7 billion in fiscal 2012. The benefit realized for the tax deduction  from option  exercises in
fiscal 2014, 2013 and 2012 was $51 million, $13 million and $57 million, respectively.

Stock-Based Incentive Compensation Plans

HP’s stock-based incentive compensation plans  include equity plans adopted in 2004,  2000 and

1995, as amended (‘‘principal equity  plans’’), as well as various equity  plans assumed  through
acquisitions under which stock-based awards are outstanding. Stock-based  awards  granted from the
principal equity plans include restricted  stock awards, stock options and performance-based  awards.
Employees meeting certain employment qualifications are eligible  to  receive stock-based awards.

Restricted stock awards are non-vested  stock awards that may include grants of restricted  stock  or

restricted stock units. Restricted stock awards and cash-settled awards are  generally  subject to forfeiture
if employment terminates prior to the lapse  of  the restrictions.  Such  awards generally vest one to three
years from the date of grant. During the  vesting  period, ownership  of  the restricted stock cannot  be
transferred. Restricted stock has the same  dividend  and voting rights  as common stock and is
considered  to  be  issued  and  outstanding  upon  grant.  The  dividends  paid  on  restricted  stock  are  non-
forfeitable. Restricted stock units have  forfeitable dividend equivalent  rights equal  to  the dividend  paid
on common stock. Restricted stock units do not have  the voting rights of common stock,  and the  shares
underlying restricted stock units are not  considered issued and outstanding upon grant. However, shares
underlying  restricted  stock  units  are  included  in  the  calculation  of  diluted  net  EPS.  HP  expenses  the
fair value of restricted stock awards ratably  over the period during which the restrictions lapse.

Stock options granted under the principal equity  plans are generally non-qualified stock  options,
but  the  principal  equity  plans  permit  some  options  granted  to  qualify  as  incentive  stock  options  under
the U.S.  Internal Revenue Code. Stock options generally  vest  over three to four  years  from the date of
grant. The exercise price of a stock option is  equal  to  the closing price of  HP’s stock on the option
grant date. The majority of stock options  issued  by  HP contain only service vesting conditions.
However, starting in fiscal 2011, HP  began  granting performance-contingent stock  options that vest only
on the satisfaction of both service and  market conditions  prior to the expiration of the awards.

118

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 5:  Stock-Based Compensation (Continued)

Restricted Stock Awards

A  summary  of  restricted  stock  awards  activity  is  as  follows:

2014

As of October 31

2013

2012

Outstanding  at  beginning  of
year . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . .

Shares

In thousands

32,262
26,036
(14,253)
(3,237)

Outstanding at end of year .

40,808

Weighted-
Average
Grant Date
Fair Value
Per Share

$21
$28
$24
$22

$24

Weighted-
Average
Grant Date
Fair Value
Per  Share

$31
$15
$33
$24

$21

Weighted-
Average
Grant Date
Fair Value
Per  Share

$39
$27
$38
$34

$31

Shares

In thousands

16,813
20,316
(8,521)
(3,076)

25,532

Shares

In thousands

25,532
20,707
(10,966)
(3,011)

32,262

The total grant date fair value of restricted stock awards vested in  fiscal 2014, 2013 and 2012  was

$234 million, $247 million and $229 million, respectively,  net of taxes. As of October 31, 2014,  total
unrecognized pre-tax stock-based compensation expense  related to non-vested restricted  stock awards
was $511 million, which is expected to  be  recognized  over the remaining weighted-average vesting
period of 1.4 years.

Stock Options

HP utilizes the Black-Scholes-Merton  option pricing formula to estimate the fair value of stock
options subject to service-based vesting  conditions. HP estimates the fair value  of  stock options  subject
to performance-contingent vesting conditions using a combination of a Monte Carlo simulation model
and a lattice model as these awards contain market conditions.  The  weighted-average fair  value and the
assumptions used to measure fair value were as follows:

For the fiscal years ended
October 31

2014

2013

2012

Weighted-average fair value(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected  volatility(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free  interest  rate(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected  dividend  yield(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term in years(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$9

$7

$4
33.1% 41.7% 41.9%
1.8% 1.1% 1.2%
2.1% 3.6% 1.8%
5.9
5.7

5.6

(1) The weighted-average fair value was based on stock options granted during  the period.

(2) For awards granted in fiscal 2014, expected  volatility for awards subject to service-based vesting
was estimated using the implied volatility derived from options  traded on HP’s  common stock,
whereas for performance-contingent  awards, expected volatility  was  estimated using the historical
volatility of HP’s common stock. For  awards  granted in  fiscal 2013 and  fiscal 2012, expected

119

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 5:  Stock-Based Compensation (Continued)

volatility for all awards was estimated using the implied volatility derived from options traded on
HP’s  common stock.

(3) The risk-free interest rate was estimated  based on the yield  on U.S.  Treasury zero-coupon issues.

(4) The expected dividend yield represents a constant dividend yield applied  for the  duration of the

expected term of the award.

(5) For awards subject to service-based vesting, the expected term was  estimated using  historical

exercise and post-vesting termination patterns;  and for performance-contingent  awards, the
expected term represents an output from the lattice  model.

A  summary  of  stock  option  activity  is  as  follows:

2014

As of October 31

2013

2012

Weighted-
Average

Weighted-
Average
Exercise Contractual

Remaining Aggregate
Intrinsic
Value

Term

Shares

Price

Weighted-
Average

Weighted-
Average
Exercise Contractual

Remaining Aggregate
Intrinsic
Value

Term

Shares

Price

Weighted-
Average

Weighted-
Average
Exercise Contractual

Remaining Aggregate
Intrinsic
Value

Term

Shares

Price

Outstanding  at

In thousands

In years

In millions In thousands

In years

In millions In thousands

In years

In millions

beginning of  year .
.
.
Granted .
.
Exercised .
.
.
Forfeited/cancelled/
.

expired .

.
.

.
.

.
.

.

.

.

.

Outstanding  at end of
.
.

year

.

.

.

.

.

.
.
.

.

.

Vested and expected to
vest  at  end of  year .

Exercisable  at end of
.
.

year

.

.

.

.

.

.

.
.
.

.

.

.

.

84,042
9,575
(11,145)

(24,619)

57,853

$27
$28
$18

$31

$27

54,166

$27

30,459

$33

87,296
25,785
(10,063)

(18,976)

$629

84,042

$29
$15
$19

$25

$27

$571

80,004

$27

$197

49,825

$33

4.3

4.1

2.3

120,243
7,529
(29,683)

(10,793)

$303

87,296

$28
$27
$20

$35

$29

$274

85,935

$29

$ 58

68,437

$31

3.9

3.7

1.8

3.0

2.9

1.9

$15

$15

$12

The aggregate intrinsic value in the table  above represents the total pre-tax intrinsic value that

option holders would have received had  all option holders exercised  their options on the last trading
day of fiscal 2014,  2013 and 2012. The  aggregate  intrinsic  value  is the difference between  HP’s closing
stock price on the  last trading day of  the fiscal  year and the  exercise  price, multiplied by the number of
in-the-money options. The total intrinsic  value of options exercised  in fiscal 2014,  2013 and  2012 was
$151 million, $36 million and $176 million, respectively.  The total grant  date fair  value of options
vested in fiscal 2014, 2013 and 2012 was $53  million, $64  million  and  $104 million,  respectively, net  of
taxes.

120

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 5:  Stock-Based Compensation (Continued)

The following table summarizes significant ranges of outstanding and exercisable  stock  options:

Range of Exercise Prices

$0-$9.99 . . . . . . . . . . . . . . . . . . . . . . .
$10-$19.99 . . . . . . . . . . . . . . . . . . . . .
$20-$29.99 . . . . . . . . . . . . . . . . . . . . .
$30-$39.99 . . . . . . . . . . . . . . . . . . . . .
$40-$49.99 . . . . . . . . . . . . . . . . . . . . .
$50-$59.99 . . . . . . . . . . . . . . . . . . . . .
$60 and over . . . . . . . . . . . . . . . . . . .

As of October 31, 2014

Options  Outstanding

Options  Exercisable

Shares
Outstanding

In thousands

324
18,387
21,077
2,502
14,910
511
142

57,853

Weighted-
Average
Remaining
Contractual Term

Weighted-
Average
Exercise
Price

In years
3.7
5.8
5.8
3.5
0.4
2.3
0.1

4.3

$ 7
$14
$26
$36
$43
$52
$71

$27

Weighted-
Average
Exercise
Price

Shares
Exercisable

In thousands

323
3,620
9,358
1,628
14,877
511
142

30,459

$ 7
$14
$25
$36
$43
$52
$71

$33

As of October 31, 2014, total unrecognized pre-tax stock-based compensation expense related to

stock options was $61 million, which is expected to be recognized over  a weighted-average vesting
period  of  2.0 years.

Employee Stock Purchase Plan

HP sponsors the 2011 ESPP, pursuant to which eligible employees may contribute up to 10% of

base compensation, subject to certain income limits,  to  purchase shares of HP’s  common stock.

Pursuant to the terms of the 2011 ESPP, employees purchase stock under the 2011  ESPP at  a price

equal to 95% of HP’s closing stock price on  the purchase date. No  stock-based  compensation expense
was recorded in connection with those purchases because the criteria of a non-compensatory plan were
met.

Shares Reserved

Shares  available  for  future  grant  and  shares  reserved  for  future  issuance  under  the  stock-based

incentive compensation plans and the  2011 ESPP were as  follows:

Shares available for future grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

246,852

In thousands
300,984

152,837

Shares reserved for future issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . .

344,848

417,642

270,498

As of October 31

2014

2013

2012

121

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 6:  Taxes on Earnings

Provision for Taxes

The domestic and foreign components of earnings (loss) before  taxes were as follows:

U.S.
Non-U.S.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,565
3,992

In millions
$2,618
3,892

$ (3,192)
(8,741)

For the fiscal years ended
October 31

2014

2013

2012

The provision for (benefit from) taxes on earnings was as follows:

$6,557

$6,510

$(11,933)

For the fiscal years ended
October 31

2014

2013

2012

In millions

U.S. federal taxes:

Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 381
210

$ 475
(666)

$ 330
81

Non-U.S.  taxes:

Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

984
(42)

1,275
89

1,139
(787)

State taxes:

Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

212
(201)

57
167

(41)
(5)

$1,544

$1,397

$ 717

The differences between the U.S. federal statutory income tax  rate  and  HP’s effective tax rate

were as follows:

U.S. federal statutory income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes, net of federal tax benefit . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lower rates in other jurisdictions, net
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nondeductible  goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Uncertain tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

For the fiscal years ended
October 31

2014

2013

2012(1)

35.0% 35.0% 35.0%
0.4% 0.1% 0.5%
(12.9)% (24.5)% 13.9%
1.7% 3.8% (14.0)%
— (40.3)%
—
(2.3)% 4.1% (1.4)%
1.6% 3.0% 0.3%

23.5% 21.5% (6.0)%

(1) Positive numbers represent tax benefits and negative numbers represent tax expense as HP

recorded income tax expense on a pretax  loss.

122

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 6:  Taxes on Earnings (Continued)

The jurisdictions with favorable tax rates that have  the most significant impact on HP’s effective

tax  rate  in  the  periods  presented  include  Puerto  Rico,  Singapore,  Netherlands,  China  and  Ireland.  HP
plans  to  reinvest  some  of  the  earnings  of  these  jurisdictions  indefinitely  outside  the  U.S.  and  therefore
has not provided U.S. taxes on those indefinitely reinvested  earnings.

In fiscal 2014, HP recorded $53 million of net income tax charges related to items  unique to the

year.

In fiscal 2013, HP recorded $471 million of net income tax charges related to items  unique to the
year. These amounts included $214 million of  net increases to valuation allowances, $406  million of  tax
charges for adjustments to uncertain tax positions and  the settlement  of  tax  audit matters and
$47 million of tax charges for various  prior period adjustments. In addition, HP  recorded $146 million
of tax benefits from adjustments to prior  year foreign income tax accruals  and a  tax benefit  of
$50 million arising from the retroactive  research and development credit resulting  from the American
Taxpayer Relief Act of 2012, which was signed into law in  January 2013.

In fiscal 2012, HP recorded a $1.3 billion income tax  charge  to  record  valuation  allowances  on
certain U.S. deferred tax assets related to the ES  segment, which was unique to the  year.  Other unique
items included charges of $297 million for various foreign valuation allowances, as  well as $26  million
of income tax benefits related to adjustments  to  prior year  foreign income tax  accruals,  settlement of
tax audit matters, and miscellaneous  other items.

As a  result of certain employment actions  and capital investments  HP has  undertaken,  income
from manufacturing and services in certain countries  is subject to reduced tax rates, and in some cases
is wholly  exempt from taxes, through 2024.  The  gross income tax benefits attributable to these actions
and  investments  were  estimated  to  be  $1.2  billion  ($0.61  diluted  net  EPS)  in  fiscal  2014,  $827  million
($0.42  diluted  net  EPS)  in  fiscal  2013  and  $900  million  ($0.46  diluted  net  EPS)  in  fiscal  2012.

Uncertain Tax Positions

A reconciliation of unrecognized tax benefits is  as follows:

As of October 31

2014

2013

2012

Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$3,484

Increases:

In millions
$2,573

$2,118

For current year’s tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For prior years’ tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Decreases:

For prior years’ tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Statute of limitations expiration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements with taxing authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . .

304
593

(125)
(46)
(82)

290
997

(146)
(11)
(219)

209
651

(321)
(1)
(83)

Balance at end of  year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$4,128

$3,484

$2,573

Up to $2.2 billion, $1.9 billion and $1.4  billion of  HP’s  unrecognized tax benefits at  October 31,

2014, 2013 and 2012, respectively, would  affect  HP’s effective tax rate if realized.

123

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 6:  Taxes on Earnings (Continued)

HP recognizes interest income from favorable settlements and interest  expense and penalties
accrued on unrecognized tax benefits in  Provision for taxes in the Consolidated Statements of Earnings.
HP had accrued $254 million and $196 million  for interest and penalties as of October 31, 2014  and
October  31, 2013, respectively.

HP engages in continuous discussion and negotiation with taxing authorities regarding  tax matters
in various jurisdictions. HP does not expect complete resolution of any  U.S.  Internal Revenue  Service
(‘‘IRS’’)  audit  cycle  within  the  next  12  months.  However,  it  is  reasonably  possible  that  certain  federal,
foreign and state tax issues may be concluded in the  next 12 months, including issues involving  transfer
pricing and other matters. Accordingly, HP believes it  is reasonably possible that its  existing
unrecognized tax benefits may be reduced by  an amount up to $1.4 billion within  the next 12  months.

HP is subject to income tax in the U.S.  and  approximately 105 other  countries  and is subject to

routine corporate income tax audits in many of these jurisdictions.  In addition,  HP is  subject to
numerous ongoing audits by federal, state and foreign tax authorities.  The  IRS is  conducting  an audit
of HP’s 2009, 2010 and 2011 income  tax returns. HP has received  from the IRS Notices of Deficiency
for its fiscal 1999, 2000, 2003, 2004 and 2005 tax years, and Revenue Agent Reports  (‘‘RAR’’) for its
fiscal 2001, 2002, 2006, 2007 and 2008 tax years. The proposed  IRS adjustments  for these tax years
would, if sustained, reduce the benefits of tax refund claims HP has  filed for net operating loss
carrybacks to earlier fiscal years and  tax  credit carryforwards to subsequent years by approximately
$445 million. In addition, HP expects the IRS  to  issue an RAR  for 2009 relating to certain tax
positions  taken  on  the  filed  tax  returns,  including  matters  related  to  the  U.S.  taxation  of  certain
intercompany loans. While the RAR may be material in amount, HP believes it has valid  positions
supporting its tax returns and, if necessary, it will vigorously defend such  matters.

HP has filed petitions with the U.S. Tax Court  regarding certain  proposed IRS  adjustments

regarding tax years 1999 through 2003  and  is continuing to contest additional adjustments  proposed by
the IRS for other tax years. The U.S.  Tax Court ruled in May 2012 against HP regarding one of  the
IRS adjustments for which HP has filed a formal Notice of Appeal. The Court  proceedings are
expected to begin in fiscal 2015.

Pre-acquisition tax years of HP’s U.S.  group of subsidiaries providing enterprise  services  through
2004 have been audited by the IRS, and  all proposed  adjustments have been  resolved. RARs have been
received for tax years 2005, 2006, 2007 and the short period ended August 26, 2008, proposing total tax
deficiencies of $274 million. HP is contesting  certain of these issues.

The IRS began an audit in fiscal 2013 of the  2010 income  tax return for HP’s U.S. group of

subsidiaries providing enterprise services,  and has issued  an RAR for the short period ended October 31,
2008 and the period ending October 31, 2009 proposing  a total  tax deficiency of $62 million. HP is
contesting  certain of these issues.

With respect to major foreign and state  tax  jurisdictions, HP  is no longer subject to tax  authority
examinations for years prior to 1999. HP is subject  to  a  foreign tax audit concerning  an intercompany
transaction for fiscal 2009. The relevant taxing authority has proposed an  assessment of approximately
$680 million. HP is contesting this proposed assessment.

HP believes it has provided adequate reserves for all tax deficiencies  or  reductions in tax  benefits

that could result from federal, state and foreign tax audits.  HP regularly assesses the likely outcomes of
these audits in order to determine the appropriateness  of HP’s  tax  provision. HP  adjusts  its uncertain

124

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 6:  Taxes on Earnings (Continued)

tax positions to reflect the impact of negotiations, settlements,  rulings, advice  of legal counsel, and
other  information and events pertaining to a particular audit.  However,  income  tax audits are
inherently unpredictable and there can be no  assurance that  HP will accurately  predict the outcome of
these audits. The amounts ultimately paid on resolution of an audit  could  be  materially different from
the amounts previously included in the Provision  for taxes and therefore the  resolution  of  one or more
of these uncertainties in any particular period could have a material  impact on net income or cash
flows.

HP has not provided for U.S. federal  income and foreign withholding taxes  on $42.9  billion of
undistributed earnings from non-U.S.  operations as of October 31,  2014 because HP intends  to  reinvest
such  earnings indefinitely outside of the U.S. If  HP were  to distribute these earnings, foreign  tax credits
may become available under current  law to reduce the resulting U.S. income  tax liability.
Determination of the amount of unrecognized deferred tax liability related to these  earnings is  not
practicable. HP will remit non-indefinitely reinvested earnings of its non-U.S. subsidiaries for  which
deferred U.S. federal and withholding  taxes have been provided where excess  cash has accumulated  and
HP determines that it is advantageous for business operations,  tax  or cash management reasons.

Deferred Income Taxes

The significant components of deferred tax assets and deferred tax liabilities were as follows:

As of October 31

2014

2013

Deferred
Tax
Assets

Deferred
Tax
Liabilities

Deferred
Tax
Assets

Deferred
Tax
Liabilities

Loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit  carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unremitted earnings of foreign subsidiaries . . . . . . . . . . . .
Inventory  valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intercompany transactions—profit in inventory . . . . . . . . . .
Intercompany  transactions—excluding  inventory . . . . . . . . .
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee and retiree benefits . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable allowance . . . . . . . . . . . . . . . . . . . . . .
Intangible  assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred  revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 9,476
2,377
—
152
136
4,403
383
616
2,790
107
212
354
1,143
1,573

In millions
$ — $ 9,807
4,261
—
128
125
1,923
289
622
2,350
185
224
340
1,119
1,443

—
7,828
8
—
—
74
—
57
1
596
—
12
1,145

Gross deferred tax assets and liabilities . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23,722
(11,915)

9,721
—

22,816
(11,390)

$ —
—
7,469
13
—
—
72
—
11
1
886
—
19
759

9,230
—

Net deferred tax assets and liabilities . . . . . . . . . . . . . . . . .

$ 11,807

$9,721

$ 11,426

$9,230

125

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 6:  Taxes on Earnings (Continued)

Current  and  long-term  deferred  tax  assets  and  liabilities  included  in  the  Consolidated  Balance

Sheets as follows:

As of October 31

2014

2013

In millions

Current deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,754
(284)
740
(1,124)

$ 3,893
(375)
1,346
(2,668)

Net deferred tax assets net of deferred  tax liabilities . . . . . . . . . . . . . . . . . . . . . . .

$ 2,086

$ 2,196

Tax  deficits of approximately $43 million, $149 million  and $175 million were recorded as  a result

of employee stock program activity and exercise  of  employee stock options, as a  decrease in
stockholders’ equity in fiscal 2014, 2013 and 2012,  respectively.

HP periodically engages in intercompany licensing arrangements that  may result  in advance
payments between subsidiaries in different  tax  jurisdictions. When the local tax  treatment of the
intercompany licensing arrangements  differs from  their  U.S. GAAP  treatment, deferred taxes are
recognized. During fiscal 2014, HP executed a multi-year intercompany licensing  arrangement on which
advanced royalty payments of $10.4 billion were received in  the U.S., the result of  which was the
recognition of net U.S. long-term deferred  tax  assets of $1.3 billion. The remaining intercompany
royalty revenues of $9.9 billion will be  recognized over the life of the  arrangement through 2029 in the
respective  legal  entities  and  eliminated  in  consolidation.  The  amortization  expense  related  to  the
licensing rights will also be eliminated  in  consolidation. The  decrease in deferred tax assets for credit
carryforwards and increase in deferred tax assets for intercompany transactions excluding  inventory
include the deferred tax attributable to this  transaction. This results in  an increase in  long-term
deferred tax assets which is presented  as a component of HP’s long-term deferred  tax liabilities  due  to
the effects of jurisdictional netting.

As of October 31, 2014, HP had $858 million, $4.2 billion and $29.7 billion  of  federal, state and
foreign  net  operating  loss  carryforwards,  respectively.  Amounts  included  in  federal  net  operating  loss
carryforwards  will  begin  to  expire  in  fiscal  2021  and  amounts  included  in  state  and  foreign  net
operating loss carryforwards will begin  to  expire in  2015. HP  also  has a capital loss  carryforward of
approximately $272 million which will  expire in fiscal 2015. HP has  provided a  valuation allowance of
$133  million  and  $8.7  billion  for  deferred  tax  assets  related  to  state  and  foreign  net  operating  losses
carryforwards, respectively and $104  million for deferred tax assets related  to  capital loss  carryforwards
that HP does not expect to realize.

126

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 6:  Taxes on Earnings (Continued)

As of October 31, 2014, HP had recorded deferred tax assets for various tax credit carryforwards

as follows:

U.S. foreign tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. research and development and other  credits . . . . . . . . . . . . . .
Tax  credits in state and foreign jurisdictions . . . . . . . . . . . . . . . . . .

Balance at end of  year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Carryforward

Valuation
Allowance

Initial
Year of
Expiration

In millions

$1,321
662
394

$2,377

$ 47
—
204

$251

2021
2018
2015

Deferred Tax Asset Valuation Allowance

The  deferred  tax  asset  valuation  allowance  and  changes  were  as  follows:

Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other  comprehensive  income,  currency  translation  and  charges  to  other

As of October 31

2014

2013

2012

$11,390
184

In millions
$10,223
1,644

$ 9,057
865

accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

341

(477)

301

Balance at end of  year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$11,915

$11,390

$10,223

Total valuation allowances increased  by  $525 million and  $1.2 billion  in fiscal 2014  and 2013,

respectively. These increases were associated  primarily  with foreign  net operating losses.

Note 7: Balance Sheet Details

Balance  sheet  details  were  as  follows:

Accounts  Receivable, Net

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$14,064
(232)

$16,208
(332)

$13,832

$15,876

As of October 31

2014

2013

In millions

127

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 7:  Balance Sheet Details (Continued)

The  allowance  for  doubtful  accounts  related  to  accounts  receivable  and  changes  were  as  follows:

Balance  at  beginning  of  year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deductions, net of recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

As of October 31

2014

2013

2012

In millions
$ 464
23
(155)

$ 332
25
(125)

$ 470
100
(106)

Balance  at  end  of  year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 232

$ 332

$ 464

HP has third-party revolving short-term financing arrangements intended to facilitate the working

capital requirements of certain customers. In the second quarter of fiscal  2014, HP expanded its
revolving short-term financing arrangements, adding $1.6 billion of capacity. The maximum, utilized and
available program capacity under these revolving short-term financing arrangements was as follows:

As of October 31

2014

2013

In millions

Non-recourse  arrangements:

Maximum  program  capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Utilized  capacity(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,083
(613)

$ 764
(314)

Available capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

470

$ 450

Partial-recourse arrangements:

Maximum  program  capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Utilized  capacity(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,877
(1,500)

$ 631
(454)

Available capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

377

$ 177

Total arrangements:

Maximum  program  capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Utilized  capacity(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,960
(2,113)

$1,395
(768)

Available capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

847

$ 627

(1) Utilized capacity represents the receivables sold to third parties, but  not  collected  from the

customer by the third parties. Transferred  trade receivables  included in the  utilized  capacity that
HP has not collected from third parties are  as follows:

Non-recourse  arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Partial-recourse arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

As of
October  31

2014

2013

In millions

$ 78
381

$ 54
118

Total arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$459

$172

128

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 7:  Balance Sheet Details (Continued)

The activity related to HP’s revolving short-term financing arrangements was  as follows:

Balance at beginning of period(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade receivables sold(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash receipts(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of  period(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

As of October 31

2014

2013

2012

$

172
9,627
(9,306)
(34)

In millions
228
$
4,241
(4,305)
8

$

245
3,510
(3,510)
(17)

$

459

$

172

$

228

(1) Beginning  and  ending  balance  represents  amounts  for  trade  receivables  sold  but  not  yet  collected.

(2) HP has revised the presentation for the trade receivables sold and the  cash received under the

short-term financing arrangements for the fiscal years ended  October 31, 2013  and 2012  in order
to present comparable information with the current year period.

Inventory

Finished  goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased parts and fabricated assemblies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$3,973
2,442

$3,847
2,199

As of October  31

2014

2013

In millions

Other Current Assets

$6,415

$6,046

As of October 31

2014

2013

In millions

Deferred tax assets—short-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Value-added taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplier and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,754
2,169
2,378
4,518

$ 3,893
2,425
2,579
4,238

$11,819

$13,135

129

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 7:  Balance Sheet Details (Continued)

Property, Plant and Equipment

Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment, including  equipment held for  lease . . . . . . . . . . . . . .

$

As of October 31

2014

2013

$

In millions
540
9,048
16,664

626
8,942
16,565

Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(14,912)

(14,670)

$ 11,340

$ 11,463

26,252

26,133

Depreciation expense was $3.3 billion, $3.2 billion and $3.3 billion  in fiscal 2014, 2013 and  2012,

respectively. The change in gross property, plant and equipment was due primarily to purchases of
$3.9 billion, which were partially offset  by sales  and  retirements totaling  $3.5 billion.  Accumulated
depreciation associated with the assets sold and retired in fiscal 2014  was  $2.9 billion.

Long-Term Financing Receivables and Other  Assets

Financing  receivables,  net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets—long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred  costs—long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$3,613
740
755
3,346

$3,878
1,346
999
3,333

As of October  31

2014

2013

In millions

Other Accrued Liabilities

$8,454

$9,556

As of October 31

2014

2013

In millions

Accrued taxes—other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,269
1,325
2,986
5,499

$ 2,703
1,390
2,823
5,590

$12,079

$12,506

130

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 7:  Balance Sheet Details (Continued)

Other Liabilities

As of October 31

2014

2013

In millions

Pension, post-retirement, and post-employment liabilities . . . . . . . . . . . . . . . . . . . .
Deferred  revenue—long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liability—long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax  liability—long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 6,379
3,931
1,124
2,861
2,010

$ 5,098
3,907
2,668
2,213
2,005

$16,305

$15,891

Note 8: Financing Receivables and Operating Leases

Financing  receivables  represent  sales-type  and  direct-financing  leases  of  HP  and  third-party

products. These receivables typically  have terms ranging from two  to  five  years  and are  usually
collateralized by a security interest in  the underlying assets. Financing  receivables also  include billed
receivables from operating leases. The components  of  financing receivables  were as  follows:

As of October 31

2014

2013

In millions

Minimum lease payments receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unguaranteed  residual  value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned  income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 6,982
235
(547)

$ 7,505
252
(604)

Financing  receivables,  gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Financing  receivables,  net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: current portion(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts due after one year, net(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6,670
(111)

6,559
(2,946)

7,153
(131)

7,022
(3,144)

$ 3,613

$ 3,878

(1) HP includes the current portion in Financing receivables and amounts  due after  one  year,  net in
Long-term financing receivables and other assets in the accompanying Consolidated Balance
Sheets.

As of October 31, 2014, scheduled maturities of HP’s  minimum lease payments receivable were as

follows for the fiscal years ended October  31:

Scheduled maturities of minimum lease

payments  receivable . . . . . . . . . . . . . . . . . . . $3,220 $1,959 $1,112 $483 $174

$34

$6,982

2015

2016

2017

2018

2019 Thereafter

Total

In millions

131

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 8:  Financing Receivables and Operating Leases (Continued)

Credit Quality Indicators

Due to the homogenous nature of its leasing transactions, HP manages its financing receivables  on
an aggregate basis when assessing and monitoring credit risk.  Credit risk is  generally  diversified due to
the large number of entities comprising  HP’s customer base and  their  dispersion across many different
industries and geographic regions. HP  evaluates the credit quality  of an obligor at  lease inception and
monitors that credit quality over the term of a transaction.  HP assigns risk ratings  to  each lease based
on the creditworthiness of the obligor and  other variables that  augment  or mitigate the inherent  credit
risk of a particular transaction. Such variables include the underlying value and  liquidity of the
collateral, the essential use of the equipment, the  term of the lease, and the inclusion of credit
enhancements, such as guarantees, letters of  credit or security deposits.

The credit risk profile of gross financing  receivables,  based on internally assigned ratings, was as

follows:

Risk Rating:
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Moderate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

As of October 31

2014

2013

In millions

$3,536
3,022
112

$3,948
3,084
121

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$6,670

$7,153

Accounts rated low risk typically have the  equivalent of a Standard  & Poor’s rating of BBB(cid:5)  or
higher, while accounts rated moderate  risk generally have the  equivalent of  BB+ or lower. HP classifies
accounts as high risk when it considers  the financing  receivable to be impaired or when management
believes there is a significant near-term  risk of impairment.

Allowance  for  Doubtful  Accounts

The allowance for doubtful accounts for financing receivables is comprised of a general reserve
and a specific reserve. HP maintains general reserve  percentages on a  regional basis  and bases such
percentages on several factors, including consideration of historical credit losses and portfolio
delinquencies, trends in the overall weighted-average risk rating of  the  portfolio,  current economic
conditions and information derived from competitive  benchmarking.  HP excludes accounts evaluated as
part of the specific reserve from the general reserve analysis.  HP establishes a specific reserve for
financing receivables with identified exposures,  such as  customer defaults, bankruptcy or other events,
that make it unlikely HP will recover its  investment. For  individually  evaluated receivables, HP
determines the expected cash flow for  the receivable,  which includes  consideration of estimated
proceeds from disposition of the collateral, and calculates  an estimate of the potential loss and  the
probability of loss. For those accounts where a  loss is  considered probable,  HP records a  specific
reserve.  HP generally writes off a receivable or  records a specific  reserve when a  receivable becomes
180 days past due, or sooner if HP determines that  the receivable is  not  collectible.

132

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 8:  Financing Receivables and Operating Leases (Continued)

The  allowance  for  doubtful  accounts  related  to  financing  receivables  and  changes  were  as  follows:

Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deductions, net of recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

As of October 31

2014

2013

2012

In millions
$149
38
(56)

$131
30
(50)

$130
42
(23)

Balance at end of  year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$111

$131

$149

The gross financing receivables and related allowance evaluated  for loss were as follows:

As of
October 31

2014

2013

In millions

Gross financing receivables collectively evaluated for loss . . . . . . . . . . . . . . . . . . . . .
Gross financing receivables individually evaluated  for loss . . . . . . . . . . . . . . . . . . . . .

$6,378
292

$6,773
380

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$6,670

$7,153

Allowance for financing receivables collectively  evaluated for  loss . . . . . . . . . . . . . . .
Allowance for financing receivables individually evaluated for  loss . . . . . . . . . . . . . . .

$

92
19

$

95
36

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 111

$ 131

Non-Accrual and Past-Due Financing  Receivables

HP considers a financing receivable to be past due when  the minimum payment is not received by

the contractually specified due date. HP generally places financing receivables on non-accrual status,
which  is suspension of interest accrual,  and considers such  receivables to be non-performing at  the
earlier of the time at which full payment of principal and interest  becomes doubtful or  the receivable
becomes 90 days past due. Subsequently,  HP may recognize revenue  on non-accrual financing
receivables as payments are received, which is on a cash basis, if  HP deems  the recorded financing
receivable to be fully collectible; however,  if there is doubt regarding the ultimate  collectability of  the
recorded  financing receivable, all cash  receipts  are applied to the carrying amount of the financing
receivable, which is the cost recovery  method. In  certain circumstances, such as when HP deems a
delinquency to be of an administrative  nature,  financing receivables may accrue interest after  becoming
90 days past due. The non-accrual status  of  a financing receivable  may not impact a customer’s risk
rating. After all of a customer’s delinquent  principal  and  interest balances  are settled,  HP may return
the related financing receivable to accrual status.

133

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 8:  Financing Receivables and Operating Leases (Continued)

The following table summarizes the aging and non-accrual status of  gross financing receivables:

As of
October 31

2014

2013

In millions

Billed(1):

Current 1-30 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Past due 31-60 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Past due 61-90 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Past due >90 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unbilled sales-type and direct-financing  lease receivables . . . . . . . . . . . . . . . . . . . . .

$ 243
46
12
49
6,320

$ 217
50
15
46
6,825

Total gross financing receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$6,670

$7,153

Gross financing receivables on non-accrual  status(2)

. . . . . . . . . . . . . . . . . . . . . . . . .

$ 130

$ 199

Gross financing receivables 90 days past  due and still accruing interest(2) . . . . . . . . . .

$ 162

$ 181

(1)

(2)

Includes  billed operating lease receivables and billed sales-type and  direct-financing lease
receivables.

Includes  billed operating lease receivables and billed and unbilled sales-type and  direct-financing
lease receivables.

Operating  Leases

Operating lease assets included in machinery and equipment in the Consolidated Balance Sheets

were as follows:

As of
October 31

2014

2013

In millions

Equipment leased to customers
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 3,977
(1,382)

$ 3,822
(1,452)

$ 2,595

$ 2,370

As of October 31, 2014, minimum future rentals on  non-cancelable operating leases related to

leased equipment were as follows for  the fiscal years ended October 31:

Minimum future rentals on non-cancelable  operating

leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,487 $958 $467 $156 $50

$6

$3,124

2015

2016

2017

2018

2019 Thereafter

Total

In millions

134

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 9:  Acquisitions, Goodwill and Intangible Assets

Acquisitions

In fiscal 2014, HP completed two acquisitions with a combined purchase price  of $55 million, of
which $12 million was recorded as goodwill and $25 million  was  recorded as  intangible  assets related to
these acquisitions. In fiscal 2013, MphasiS Limited, a majority-owned subsidiary of HP, acquired Digital
Risk LLC for $174 million. HP recorded $112  million of goodwill and  $48 million of intangible assets
related to this acquisition.

Goodwill

Goodwill allocated to HP’s reportable segments and changes in the  carrying amount of goodwill

were as follows:

HP

Personal
Systems Printing

Enterprise Enterprise

Group

Services(3) Software Services

Financial Corporate
Investments

Total

Balance at October 31,

2012(1)(2)

. . . . . . . . . . . . . . . $2,588 $2,591 $16,825

$ — $8,921

$144

$— $31,069

In millions

Goodwill acquired during the

period . . . . . . . . . . . . . . . . .
Goodwill  adjustments . . . . . . .

Balance at October 31,

—
—

—
—

—
39

112
(15)

—
—
(81) —

—
—

112
(57)

2013(1)(2)

. . . . . . . . . . . . . . . $2,588 $2,591 $16,864

$ 97

$8,840

$144

$— $31,124

Goodwill acquired during the

period . . . . . . . . . . . . . . . . .
—
Goodwill  adjustments . . . . . . .
3
Balance at October 31, 2014(1) . $2,588 $2,591 $16,867

—
—

—
—

—
—

12
—

—
—

—
—

12
3

$ 97

$8,852

$144

$— $31,139

(1) Goodwill is net of accumulated impairment  losses  of $14.5 billion. Of that amount, $8.0 billion

relates to the ES segment, $5.7 billion relates to Software,  and  the  remaining  $0.8 billion  relates to
Corporate  Investments.

(2) Effective at the beginning of its first quarter of fiscal 2014,  HP implemented certain organizational
changes to align its segment financial reporting more closely with its current business structure. As
a  result  of  these  organizational  realignments,  HP  transferred  $126  million  of  goodwill  related  to
the transfer of the Printing spare and replacement parts business from the  EG segment to the
Printing segment, $48 million of goodwill related to the transfer of the  Personal Systems spare and
replacement parts business from the  EG  segment to the Personal Systems segment, $42  million  of
goodwill related to the transfer of the Personal Systems trade and warranty support  business  from
the EG segment to the Personal Systems  segment and  $22 million of goodwill related  to  the
transfer of the HP Exstream business from the  Printing segment to the Software segment. See
Note 2 for a full description of the segment realignments.

(3) Goodwill relates to the MphasiS Limited  reporting unit.

135

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 9:  Acquisitions, Goodwill and Intangible Assets  (Continued)

Goodwill is tested for impairment at  the reporting  unit level. At the  beginning  of  its  first  quarter

of fiscal 2014, HP made a change to  its reporting  units. In connection with  continued  operational
synergies and interdependencies between the Enterprise Servers,  Storage and Networking reporting unit
and  the TS reporting unit within the EG segment,  HP combined these reporting units to create the  EG
reporting unit. As of October 31, 2014,  HP’s reporting units are consistent with  the reportable
segments identified in Note 2, except for ES, which  includes two reporting units: MphasiS Limited; and
the remainder of ES.

Based on the results of its annual impairment tests,  HP determined  that no  impairment of
goodwill existed as of August 1, 2014. However, future goodwill impairment  tests  could  result in a
charge to earnings. HP will continue to evaluate goodwill  on an  annual  basis as of the  beginning  of its
fourth fiscal quarter and whenever events or changes in circumstances indicate there may  be  a potential
impairment.

Goodwill  impairments

There were no goodwill impairments in fiscal 2014 and 2013.

During  fiscal  2012,  HP  determined  that  sufficient  indicators  of  potential  impairment  existed  to

require  an  interim  goodwill  impairment  analysis  for  the  ES  reporting  unit.  These  indicators  included
the trading values of HP’s stock at the time of the impairment test, coupled with market conditions  and
business  trends  within  ES.  The  fair  value  of  the  ES  reporting  unit  was  based  on  the  income  approach.
The decline in the fair value of the ES reporting  unit resulted from lower projected revenue growth
rates and profitability levels as well as an increase in the risk  factor that was  included in the discount
rate  used  to  calculate  the  discounted  cash  flows.  The  increase  in  the  discount  rate  was  due  to  the
implied  control  premium  resulting  from  trading  values  of  HP  stock  at  the  time  of  the  impairment  test.
The resulting adjustments to discount rates  caused a significant reduction in the  fair value  for the  ES
reporting unit. Based on the step one  and step  two analyses, HP recorded an $8.0 billion goodwill
impairment  charge  in  fiscal  2012,  and  there  was  no  remaining  goodwill  in  the  ES  reporting  unit  as  of
October 31, 2012.  Prior to completing the goodwill  impairment test, HP  tested the  recoverability of the
ES long-lived assets (other than goodwill) and concluded that such assets were  not  impaired.

Also  during  fiscal  2012,  the  Software  segment  included  two  reporting  units,  which  were  Autonomy
and  the legacy HP Software business. HP initiated its annual  goodwill impairment analysis in  the fourth
quarter of fiscal 2012 and concluded that  fair value was below carrying  amount  for the  Autonomy
reporting unit. The fair value of the Autonomy reporting  unit was based  on the  income  approach.

The decline in the estimated fair value of the Autonomy reporting unit resulted from lower
projected revenue growth rates and profitability levels as  well as an increase  in the risk factor that was
included in the discount rate used to calculate  the discounted  cash flows.  The increase  in the discount
rate  was  due  to  the  implied  control  premium  that  resulted  from  trading  values  of  HP  stock  at  the  time
of  the  impairment  test.  The  lower  projected  operating  results  reflected  changes  in  assumptions  related
to organic revenue growth rates, market trends, business mix, cost structure, expected  deal  synergies
and  other expectations about the anticipated  short-term and long-term operating results of  the
Autonomy business. These assumptions incorporated  HP’s analysis of  what it  believes were accounting
improprieties, incomplete disclosures and misrepresentations at Autonomy that occurred  prior to the
Autonomy  acquisition  with  respect  to  Autonomy’s  pre-acquisition  business  and  related  operating  results.
In addition, as noted above, when estimating the fair value of a reporting unit HP  may need  to  adjust

136

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 9:  Acquisitions, Goodwill and Intangible Assets  (Continued)

discount rates and/or other assumptions in order  to  derive a  reasonable implied control premium  when
comparing the sum of the fair values  of  HP’s  reporting units to HP’s market capitalization. Due to the
trading  values  of  HP  stock  at  the  time  of  the  impairment  test,  the  resulting  adjustments  to  the  discount
rate to arrive at an appropriate control premium caused a significant reduction in the  fair value  for the
Autonomy reporting unit as well as the fair  values for HP’s  other reporting units.

Prior to  conducting step one of the goodwill  impairment  test  for the Autonomy  reporting unit, HP
first evaluated the recoverability of the  long-lived assets,  including intangible assets.  When indicators  of
impairment  are  present,  HP  tests  long-lived  assets  (other  than  goodwill)  for  recoverability  by  comparing
the  carrying  amount  of  an  asset  group  to  its  undiscounted  cash  flows.  HP  considered  the  lower-than-
expected revenue and profitability levels over a sustained  period  of  time,  the trading  values of  HP stock
and  downward revisions to management’s short- and long-term forecasts for the Autonomy business to
be indicators of impairment for the Autonomy long-lived assets. Based on  the results  of  the
recoverability test, HP determined that the carrying amount  of the Autonomy  asset group exceeded its
undiscounted cash flows and was therefore not recoverable. HP then compared  the fair value of the
asset  group  to  its  carrying  amount  and  determined  the  impairment  loss.  The  impairment  loss  was
allocated  to the carrying values of the long-lived assets but not below their individual fair values.  Based
on the analysis, HP recorded an impairment charge of $3.1 billion on  intangible  assets, which  resulted
in a  remaining carrying amount of approximately $0.8 billion  as of October 31, 2012. The  decline  in the
fair value of the Autonomy intangible  assets was attributable  to  the  same factors as discussed above  for
the fair value of the Autonomy reporting  unit.

The decline in the fair value of the Autonomy reporting unit and Autonomy  intangibles, as well  as

fair value changes for other assets and liabilities  in the step two  goodwill impairment test, resulted in
an implied fair value of goodwill substantially below  the carrying amount of the  goodwill  for the
Autonomy  reporting  unit.  As  a  result,  HP  recorded  a  goodwill  impairment  charge  of  $5.7 billion,  which
resulted in a $1.2 billion remaining carrying amount of  Autonomy  goodwill  as of October 31,  2012.
Both  the  goodwill  impairment  charge  and  the  intangible  assets  impairment  charge,  totaling  $8.8 billion,
were  included  in  the  Impairment  of  goodwill  and  intangible  assets  line  item  in  the  Consolidated
Statements of Earnings.

Subsequent  to  the  Autonomy  purchase  price  allocation  period,  which  concluded  in  the  first  quarter

of fiscal 2012, and in conjunction with HP’s  annual goodwill impairment testing,  HP identified certain
indicators of impairment. The indicators of impairment included lower-than-expected revenue  and
profitability  levels  over  a  sustained  period  of  time,  the  trading  values  of  HP  stock  and  downward
revisions to management’s short- and  long-term forecasts for the Autonomy  business.  HP revised its
multi-year forecast for the Autonomy  business, and the timing of  this forecast revision  coincided  with
the timing of HP’s overall forecasting process for  all reporting units,  which is completed each year in
the fourth fiscal quarter in conjunction  with the annual goodwill impairment analysis.  The change in
assumptions used in the revised forecast and the fair  value  estimates utilized in the impairment testing
of the Autonomy goodwill and long-lived assets incorporated insights gained from having owned the
Autonomy  business  for  the  preceding  year.  The  revised  forecast  reflected  changes  related  to  organic
revenue growth rates, current market trends, business  mix, cost structure, expected  deal  synergies and
other  expectations about the anticipated short-  and long-term  operating results of the Autonomy
business, driven by HP’s analysis regarding certain  accounting improprieties, incomplete disclosures  and
misrepresentations at Autonomy that occurred prior to the Autonomy acquisition with respect to
Autonomy’s  pre-acquisition  business  and  related  operating  results.  Accordingly,  the  change  in  fair
values represented a change in accounting estimate that  occurred outside the  purchase  price allocation
period, resulting in the recorded impairment charge.

Based  on  the  results  of  the  annual  impairment  test  for  all  other  reporting  units,  HP  concluded  that

no other goodwill impairment existed as of August 1,  2012,  apart from the  impairment charges
discussed  above.

137

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 9:  Acquisitions, Goodwill and Intangible Assets  (Continued)

Intangible  Assets

HP’s  intangible assets are composed of:

As of October 31, 2014

Accumulated
Accumulated Impairment
Amortization

Loss

Gross

As of  October 31, 2013

Accumulated
Accumulated Impairment
Amortization

Loss

Net

Net

Gross

In millions

Customer  contracts,
customer lists and
distribution
agreements . . . . . . . . $ 5,289

$(3,228)

$ (856) $1,205 $ 5,321

$(2,709)

$ (856) $1,756

Developed and core
technology  and
patents . . . . . . . . . . .

Trade name and trade

marks . . . . . . . . . . . .
In-process  research  and
development . . . . . . .

4,266

(1,301)

(2,138)

827

5,331

(1,966)

(2,138)

1,227

1,693

(261)

(1,336)

—

—

—

96

—

1,730

(211)

(1,336)

183

3

—

—

3

Total intangible assets . . $11,248

$(4,790)

$(4,330) $2,128 $12,385

$(4,886)

$(4,330) $3,169

For fiscal 2014, $855 million of intangible assets became fully amortized and  have been eliminated

from gross intangible assets and accumulated amortization. HP also  eliminated gross intangible assets
and accumulated amortization related  to  the sale  of  a portfolio of intellectual property  (‘‘IP’’) in the
first quarter of fiscal 2014.

For  fiscal  2013,  the  majority  of  the  decrease  in  gross  intangible  assets  was  related  to  $1.7 billion  of

fully  amortized  intangible  assets  that  were  eliminated  from  both  the  gross  and  accumulated  amounts.

In  fiscal  2012,  HP  recorded  total  intangible  asset  impairment  charges  of  $4.3 billion,  of  which
$3.1 billion was related to the Autonomy  reporting unit as described  above. The remaining $1.2 billion
was  related  to  a  change  in  the  Compaq  branding  strategy.  In  May  2012,  HP  approved  a  change  to  its
branding strategy for PCs, which has  resulted in a more limited  and focused use of  the ‘‘Compaq’’
trade name acquired in fiscal  2002. In conjunction with the change  in branding  strategy, HP revised its
assumption  as  to  the  useful  life  of  that  intangible  asset,  which  resulted  in  a  reclassification  of  the  asset
from an indefinite-lived intangible to a  finite- lived  intangible. These changes triggered an impairment
review  of  the  ‘‘Compaq’’  trade  name  intangible  asset.  In  conducting  an  impairment  review  of  an
intangible asset, HP compares the fair  value of the asset to its carrying amount. If the fair value of the
asset is  less than the carrying amount,  the difference is  recorded as  an impairment loss. HP estimated
the  fair  value  of  the  ‘‘Compaq’’  trade  name  by  calculating  the  present  value  of  the  royalties  saved  that
would have been paid to a third party  had HP not owned  the trade  name. Following the  completion  of
that analysis, HP determined that the  fair  value of the trade name asset was less than the carrying
amount due primarily to the change  in the  useful life assumption and a decrease  in expected future
revenues related to Compaq-branded  products resulting from the more  focused branding strategy. As a
result, HP recorded an impairment charge of $1.2 billion  in the  third quarter of  fiscal 2012, which  was
included  in  the  Impairment  of  goodwill  and  intangible  assets  line  item  in  the  Consolidated  Statements
of Earnings.

138

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 9:  Acquisitions, Goodwill and Intangible Assets  (Continued)

The weighted-average useful lives of intangible assets are as follows:

Finite-Lived  Intangible  Assets

Customer contracts, customer lists and distribution agreements . . . . . . . . . . . . . . . . . .
Developed and core technology and  patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade name and trade marks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

As of
October 31, 2014

Weighted-Average
Useful Lives

In years
8
8
7

As of October 31, 2014, estimated future amortization expense related to finite-lived  intangible

assets was as follows:

Fiscal year

2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

In millions

$ 872
653
244
147
110
102

$2,128

Note 10: Fair Value

Fair value is defined as the price that  would be received to  sell an asset or paid to transfer a
liability (an exit price) in an orderly  transaction between  market  participants  at the  measurement date.

Fair Value Hierarchy

HP uses valuation  techniques that are based upon observable and  unobservable inputs. Observable

inputs are developed using market data  such  as publicly available information and reflect the
assumptions market participants would use, while unobservable inputs are developed using the best
information available about the assumptions market participants would use. Assets and  liabilities  are
classified in the fair value hierarchy based on the lowest  level input that is significant to the  fair value
measurement:

Level 1—Quoted prices (unadjusted)  in active markets for identical assets or  liabilities.

Level 2—Quoted prices for similar assets  or liabilities in  active  markets, quoted prices for  identical

or similar assets or liabilities in markets  that  are not active, inputs other than quoted prices that are
observable for the asset or liability and market-corroborated inputs.

Level 3—Unobservable inputs for the asset or  liability.

The fair value hierarchy gives the highest priority to observable inputs  and lowest  priority to

unobservable  inputs.

139

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 10:  Fair Value (Continued)

The following table presents HP’s assets and liabilities that are measured  at fair  value on a

recurring  basis:

As of October 31, 2014

As of October  31, 2013

Fair Value
Measured Using

Fair  Value
Measured Using

Level 1 Level 2 Level 3

Total

Level 1 Level 2 Level 3

Total

In millions

Assets
Cash Equivalents and Investments:

. . . . . . . . . . . . . . . . . . $ — $2,865

$— $ 2,865 $ — $2,221

Time deposits
Money market funds
. . . . . . . . . . . . .
Mutual funds . . . . . . . . . . . . . . . . . . .
Marketable equity  securities . . . . . . . .
Foreign bonds . . . . . . . . . . . . . . . . . .
Other debt securities . . . . . . . . . . . . .

9,857

— —
— 244 —
5 —
14
367 —
9
46
—

1

Derivatives:

Interest rate contracts . . . . . . . . . . . . .
Foreign exchange contracts . . . . . . . . .
Other derivatives . . . . . . . . . . . . . . . .

— 105 —
6
— 862
7 —
—

6,819

— —
— 313 —
10
5 —
387 —
9
47
—

$— $ 2,221
6,819
313
15
396
49

2

— 156 —
3
— 284
9 —
—

156
287
9

9,857
244
19
376
47

105
868
7

Total assets . . . . . . . . . . . . . . . . . . . $9,880 $4,456

$52

$14,388 $6,838 $3,377

$50

$10,265

Liabilities
Derivatives:

Interest rate contracts . . . . . . . . . . . . . $ — $
Foreign exchange contracts . . . . . . . . .

55
— 348

$— $
2

55 $ — $ 107
— 547
350

$— $
2

Total liabilities . . . . . . . . . . . . . . . . $ — $ 403

$ 2

$

405 $ — $ 654

$ 2

$

107
549

656

For the year ended October 31, 2014,  there were no  transfers between levels within the  fair value

hierarchy.

Valuation Techniques

Cash Equivalents and Investments: HP holds time deposits, money market funds, mutual funds,

other debt securities primarily consisting  of corporate and foreign government  notes and bonds, and
common stock and equivalents. HP values cash  equivalents and equity investments using quoted  market
prices, alternative pricing sources, including NAV, or models utilizing market observable inputs. The fair
value of debt investments was based on  quoted market prices or model-driven valuations using inputs
primarily derived from or corroborated by observable market data, and, in certain instances,  valuation
models  that utilize assumptions which cannot be corroborated with observable market data.

Derivative Instruments: HP uses forward  contracts, interest rate and total return swaps and

option contracts to hedge certain foreign currency and interest rate exposures. HP uses industry
standard valuation models to measure fair  value. Where applicable, these models project future cash
flows and discount the future amounts  to  present value using market-based observable  inputs,  including
interest rate curves, HP and counterparty credit risk, foreign exchange  rates,  and forward and  spot
prices for currencies and interest rates.  See  Note 11  for a  further discussion of HP’s use  of derivative
instruments.

140

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 10:  Fair Value (Continued)

Other Fair Value Disclosures

Short- and Long-Term Debt: HP estimates the  fair value of its debt primarily using an expected

present value technique, which is based on observable market inputs using interest rates currently
available to companies of similar credit  standing for  similar terms and remaining maturities,  and
considering its own credit risk. The portion of HP’s debt that  is hedged is  reflected  in the Consolidated
Balance Sheets as an amount equal to  the debt’s carrying amount and a fair value  adjustment
representing changes in the fair value of the hedged debt obligations  arising from movements in
benchmark interest rates. The estimated fair value of HP’s  short-  and long-term debt was $19.9 billion
at October 31, 2014, compared to its carrying  amount  of $19.5 billion at that  date. The estimated fair
value of HP’s short- and long-term debt was $22.7 billion at October 31, 2013,  compared to its carrying
amount of $22.6 billion at that date.  If  measured at fair value in  the Consolidated Balance  Sheets,
short- and long-term debt would be classified  in Level  2 of the fair  value hierarchy.

Other Financial Instruments: For the balance of  HP’s financial instruments,  primarily  accounts
receivable, accounts payable and financial liabilities included  in other accrued liabilities,  the carrying
amounts approximate fair value due  to  their  short maturities. If measured  at fair  value in the
Consolidated Balance Sheets, these other financial  instruments would be classified in  Level  2 or
Level 3 of the fair value hierarchy.

Non-Marketable Equity Investments and Non-Financial  Assets: HP’s non-marketable  equity

investments and non-financial assets, such as  intangible assets, goodwill  and  property, plant and
equipment, are recorded at fair value in the  period an  impairment charge is recognized.  If measured  at
fair value in the Consolidated Balance  Sheets, these would generally be classified  in Level 3 of the fair
value hierarchy.

In  fiscal  2012,  HP  recognized  a  goodwill  and  intangible  asset  impairment  charge  of  $8.8 billion

associated with the Autonomy reporting unit, a goodwill impairment charge of $8.0 billion  associated
with the ES reporting unit, and an intangible asset impairment charge of  $1.2 billion associated  with
the Compaq trade name. The fair value of these reporting units  was  classified in Level 3 of the fair
value  hierarchy  due  to  the  significance  of  unobservable  inputs  developed  using  company-specific
information.  HP  used  the  income  approach  to  measure  the  fair  value  of  the  ES  and  Autonomy
reporting units. Under the income approach,  HP calculated the  fair value of a reporting  unit based on
the present value of the estimated future cash  flows. Cash flow projections were  based on
management’s  estimates  of  revenue  growth  rates  and  operating  margins,  taking  into  consideration
industry  and  market  conditions.  The  discount  rate  used  was  based  on  the  weighted-average  cost  of
capital adjusted for the relevant risk associated with  business-specific characteristics and the uncertainty
related  to  the  business’s  ability  to  execute  on  the  projected  cash  flows.  The  discount  rate  also  reflected
adjustments required when comparing  the sum of the fair  values of HP’s reporting units to HP’s
market  capitalization  as  discussed  in  Note 9.  The  unobservable  inputs  used  to  estimate  the  fair  value
these  reporting  units  included  projected  revenue  growth  rates,  profitability  and  the  risk  factor  added  to
the discount rate.

The  inputs  used  to  estimate  the  fair  value  of  the  intangible  assets  of  Autonomy  and  the  ‘‘Compaq’’
trade name were largely unobservable,  and,  accordingly, these measurements were classified in  Level 3
of the fair value hierarchy. The fair value of the intangible assets for Autonomy were estimated using
an  income  approach,  which  is  based  on  management’s  cash  flow  projections  of  revenue  growth  rates
and  operating margins, taking into consideration industry and market conditions. HP estimated the fair
value of the ‘‘Compaq’’ trade name by calculating the present value of  the  royalties saved that would

141

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 10:  Fair Value (Continued)

have  been paid to a third party had HP not owned the  trade name. The discount  rates used  in the fair
value calculations for the Autonomy  intangibles and the ‘‘Compaq’’ trade name were based  on a
weighted average cost of capital adjusted for  the relevant  risk associated with those assets. The
unobservable inputs used in these valuations  include projected revenue growth rates,  operating margins,
royalty  rates  and  the  risk  factor  added  to  the  discount  rate.  The  discount  rates  ranged  from  11%  to
16%.  Projected  revenue  growth  rates  ranged  from  (61)%  to  13%.  The  (61)%  rate  reflected  the
significant decline in expected future revenues for  Compaq-branded products  from fiscal 2013 to fiscal
2014 due to the change in branding strategy discussed  in Note 9.

Note 11:  Financial Instruments

Cash Equivalents and Available-for-Sale Investments

Cash equivalents and available-for-sale investments were  as  follows:

As of October 31, 2014

Gross

Gross

Unrealized Unrealized

Cost

Gain

Loss

Fair
Value

As of  October 31, 2013

Gross

Gross

Unrealized Unrealized

Cost

Gain

Loss

Fair
Value

In millions

Cash Equivalents:

Time deposits . . . . . . . . . . . $ 2,720
9,857
Money market funds . . . . . .
110
Mutual funds . . . . . . . . . . .

Total cash equivalents . . . . . . .

12,687

Available-for-Sale Investments:
Debt  securities:

Time deposits . . . . . . . . . . .
Foreign bonds . . . . . . . . . . .
Other debt securities . . . . . .

Total debt securities . . . . . . . .

Equity securities:

Mutual funds . . . . . . . . . . .
Equity securities in public

companies . . . . . . . . . . . .

Total equity securities . . . . . . .

Total available-for-sale

145
286
61

492

134

8

142

$—
—
—

—

—
90
—

90

—

7

7

$ — $ 2,720 $2,207
6,819
13

9,857
110

—
—

—

12,687

9,039

—
—
(14)

(14)

—

—

—

145
376
47

568

14
310
64

388

134

300

15

149

5

305

$—
—
—

—

—
86
—

86

—

6

6

$ — $2,207
6,819
13

—
—

—

9,039

—
—
(15)

(15)

—

—

—

14
396
49

459

300

11

311

investments . . . . . . . . . . . . .

634

97

(14)

717

693

92

(15)

770

Total cash equivalents and

available-for-sale
investments . . . . . . . . . . . . . $13,321

$97

$(14)

$13,404 $9,732

$92

$(15)

$9,809

142

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 11:  Financial Instruments (Continued)

All highly liquid investments with original maturities of three  months  or  less  at the  date of

acquisition are considered cash equivalents. As of October  31, 2014 and  October 31, 2013, the carrying
amount of cash equivalents approximated fair value due  to  the short period  of  time to maturity.
Interest income related to cash, cash equivalents  and debt securities was approximately $136  million in
fiscal 2014, $148 million in fiscal 2013 and $155  million in  fiscal  2012. Time deposits were  primarily
issued  by institutions outside the U.S. as of October 31, 2014 and  October  31, 2013. The estimated  fair
value of the available-for-sale investments  may  not  be  representative of  values that will be realized in
the future.

The gross unrealized loss as of October 31,  2014 and October 31, 2013  was due primarily to
decline in the fair value of a debt security of $14 million and $15 million, respectively,  that  has been  in
a continuous loss position for more than twelve months. HP  does not intend to sell  this  debt security,
and  it is not likely that HP will be required to sell this debt security  prior to the recovery of the
amortized  cost.

Contractual maturities of investments in  available-for-sale  debt securities were as follows:

Due in one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due in one to five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due in  more than five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

As of October 31, 2014

Amortized
Cost

Fair Value

In millions

$129
3
360

$492

$129
3
436

$568

Equity securities in privately held companies  include cost basis and equity  method investments and

are included in Long-term financing receivables  and  other  assets in the Consolidated Balance Sheets.
These amounted to $97 million and $50 million at October 31, 2014  and  October 31,  2013, respectively.

Derivative  Instruments

HP is a global company exposed to foreign currency exchange  rate  fluctuations and  interest  rate

changes in the normal course of its business.  As part of its risk management strategy,  HP uses
derivative instruments, primarily forward  contracts, option contracts, interest rate swaps  and total
return  swaps, to hedge certain foreign  currency, interest  rate and, to a lesser extent, equity exposures.
HP’s objective is to offset gains and losses resulting from  these exposures with losses  and gains on the
derivative contracts used to hedge them,  thereby  reducing  volatility of earnings or protecting  the fair
value of assets and liabilities. HP does not have any leveraged derivatives  and does not use  derivative
contracts for speculative purposes. HP may  designate  its  derivative contracts as fair  value hedges, cash
flow hedges or hedges of the foreign  currency exposure  of a  net investment in a  foreign operation
(‘‘net investment hedges’’). Additionally, for derivatives not  designated as  hedging instruments,  HP
categorizes those economic hedges as other derivatives. HP  recognizes all derivative instruments at fair
value in the Consolidated Balance Sheets.  HP classifies cash flows from  its derivative programs as
operating activities in the Consolidated  Statements  of  Cash Flows.

As a result of its use of derivative instruments, HP is  exposed to the risk that its counterparties
will fail  to meet their contractual obligations. To mitigate counterparty  credit risk, HP has  a policy of
only entering into derivative contracts with carefully selected  major financial institutions based  on their

143

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 11:  Financial Instruments (Continued)

credit ratings and other factors, and  HP maintains dollar risk limits that  correspond  to  each  financial
institution’s credit rating and other factors. HP’s established policies and procedures for mitigating
credit risk include reviewing and establishing limits for credit  exposure and periodically re-assessing the
creditworthiness of its counterparties. Master netting agreements further mitigate credit exposure to
counterparties by permitting HP to net amounts due from HP  to  counterparty  against amounts due to
HP from the same counterparty under  certain conditions.

To further mitigate credit exposure to counterparties, HP has collateral security  agreements that
allow HP to hold collateral from, or require HP  to  post  collateral to, counterparties when aggregate
derivative fair values exceed contractually established  thresholds which are generally based on  the credit
ratings  of HP and its counterparties. If  HP’s or the counterparty’s credit rating falls below a specified
credit rating, either party has the right  to  request full collateralization of the derivatives’  net liability
position. Collateral is generally posted within  two  business days. The fair value  of  derivatives  with
credit contingent features in a net liability position  was $38 million  and  $207 million  at October 31,
2014 and October 31, 2013, respectively, all  of  which were  fully collateralized within  two business days.

Under HP’s derivative contracts, the counterparty can terminate all outstanding trades  following  a

covered change of control event affecting HP that  results in the  surviving  entity  being  rated below a
specified credit rating. This credit contingent provision did not affect HP’s financial position or cash
flows as of October 31, 2014 and October 31,  2013.

Fair Value Hedges

HP issues long-term debt in U.S. dollars  based on market conditions at the  time of  financing.  HP

may enter into fair value hedges, such  as interest rate swaps, to reduce the exposure of  its debt
portfolio to changes in fair value resulting from changes in  interest rates  by achieving a primarily U.S.
dollar LIBOR-based floating interest expense. The swap transactions  generally  involve  principal  and
interest obligations for U.S. dollar-denominated amounts.  Alternatively, HP  may choose  not  to  swap
fixed for floating interest payments or may  terminate a previously  executed swap if  it believes a larger
proportion of fixed-rate debt would be  beneficial.

When investing in  fixed-rate instruments, HP may  enter  into interest rate swaps  that  convert  the

fixed interest payments into variable interest payments and  may  designate  these  swaps as  fair value
hedges.

For derivative instruments that are designated and qualify as  fair value hedges, HP recognizes  the

change  in fair value of the derivative  instrument, as well as the offsetting change in  the fair value of
the hedged item, in Interest and other, net in the  Consolidated  Statements of Earnings in  the period of
change.

Cash Flow Hedges

HP uses a combination of forward contracts  and option contracts designated as cash flow hedges
to protect against the foreign currency exchange rate risks inherent  in its  forecasted net revenue  and, to
a lesser extent, cost of sales, operating expenses, and intercompany loans denominated  in currencies
other  than the U.S. dollar. HP’s foreign currency  cash flow hedges mature generally within  twelve
months; however, hedges related to longer term  procurement arrangements extend several  years  and
forward contracts associated with sales-type and direct-financing  leases  and  intercompany  loans extend
for the duration of the lease or loan term, which typically  range  from two to five  years.

144

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 11:  Financial Instruments (Continued)

For derivative instruments that are designated and qualify as  cash flow hedges, HP initially records

changes in fair value for the effective  portion of the derivative instrument  in Accumulated other
comprehensive loss as a separate component of stockholders’ equity in the  Consolidated Balance  Sheets
and  subsequently reclassifies these amounts into earnings  in the period  during which the  hedged
transaction is recognized in earnings. HP reports  the effective portion of  its cash flow  hedges  in the
same financial statement line item as changes in  the fair  value  of  the hedged item.

Net Investment Hedges

HP uses forward contracts designated as  net investment  hedges  to  hedge  net  investments in certain
foreign  subsidiaries  whose  functional  currency  is  the  local  currency.  HP  records  the  effective  portion  of
such  derivative instruments together  with changes in the fair  value of the hedged  items in Cumulative
translation adjustment as a separate component of stockholders’ equity in the Consolidated Balance
Sheets.

Other Derivatives

Other derivatives not designated as hedging instruments consist primarily of forward  contracts used

to hedge foreign currency-denominated balance sheet  exposures. HP also uses total return swaps and,
to a lesser extent, interest rate swaps, based  on equity or fixed  income  indices, to hedge its executive
deferred compensation plan liability.

For derivative instruments not designated as hedging  instruments, HP  recognizes changes in fair
value of the derivative instrument, as well  as the offsetting change in  the fair value of the hedged  item,
in Interest and other net in the Consolidated Statements  of Earnings  in the period of change.

Hedge Effectiveness

For interest rate swaps designated as fair  value hedges, HP  measures hedge effectiveness by
offsetting the change in fair value of the hedged instrument with the change in fair value of the
derivative. For foreign currency options  and forward  contracts  designated  as cash  flow or  net
investment hedges, HP measures hedge effectiveness by comparing the cumulative  change in fair  value
of the hedge contract with the cumulative change in fair  value  of  the hedged item, both of which  are
based on  forward rates. HP recognizes any ineffective portion  of  the hedge in the  Consolidated
Statements of Earnings in the same period  in which  ineffectiveness occurs. Amounts excluded  from the
assessment of effectiveness are recognized  in the  Consolidated Statements  of Earnings in the period
they arise.

145

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 11:  Financial Instruments (Continued)

Fair Value of Derivative Instruments in  the  Consolidated Balance  Sheets

The gross notional and fair value of derivative instruments  in the Consolidated Balance Sheets was

as follows:

As of October  31, 2014

As  of October  31, 2013

Long-Term
Financing
Outstanding Other Receivables
and  Other
Current
Assets
Assets

Gross
Notional

Long-Term
Financing
Long-Term Outstanding Other Receivables
and  Other
Assets

Gross
Notional

Current
Assets

Other
Accrued
Liabilities Liabilities

Other

Other
Accrued
Liabilities Liabilities

Long-Term
Other

Derivatives  designated  as  hedging

In  millions

instruments
Fair value hedges:

Interest  rate  contracts

.

.

.

Cash  flow  hedges:

Foreign currency contracts .

Net  investment  hedges:

Foreign currency contracts .

Total derivatives designated as
.

hedging  instruments

.

.

.

Derivatives  not  designated  as

hedging  instruments
Foreign currency contracts
Other  derivatives

.

.

.

.

.
.

.
.

.

Total derivatives not designated
.
as  hedging  instruments .

.

Total derivatives .

.

.

.

.

.

.

.

.

.

.

.

.
.

.

.

.

.

.

.

.
.

.

.

$10,800

$

3

$102

$ —

$ 55

$11,100

$ 31

$125

$ —

$107

20,196

1,952

32,948

21,384
361

21,745

539

44

586

82
6

88

124

47

273

32
1

33

131

10

141

82
—

82

94

8

22,463

1,920

79

30

40

40

157

35,483

140

205

25
—

25

16,048
344

16,392

72
8

80

26
1

27

341

20

361

76
—

76

80

12

199

20
—

20

$54,693

$674

$306

$223

$182

$51,875

$220

$232

$437

$219

Offsetting of Derivative Instruments

HP recognizes all derivative instruments on  a gross basis in the  Consolidated  Balance Sheets. HP

does not offset the fair value of its derivative instruments against the fair value  of cash  collateral
posted under its collateral security agreements. As of October  31, 2014 and October 31, 2013,

146

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 11:  Financial Instruments (Continued)

information related to the potential effect of HP’s master netting agreements and  collateral  security
agreements was as follows:

As of October 31, 2014

In the Consolidated Balance Sheets
(iii) = (i)(cid:6)(ii)

(ii)

(i)

(iv)
(v)
Gross Amounts
Not Offset

(vi) = (iii)(cid:6)(iv)(cid:6)(v)

Gross
Amount

Gross
Amount Net Amount

Recognized Offset

Presented

Derivative  assets . . . . . . . . . . . . .
Derivative  liabilities . . . . . . . . . . .

$980
$405

$—
$—

$980
$405

Financial
Derivatives Collateral

Net Amount

In millions
$361
$361

$452
$ 29(1)

$167
$ 15

(1) Collateral posted through re-use of counterparty cash collateral.

As of October 31, 2013

(i)

In the Consolidated Balance Sheets
(iii) = (i)(cid:6)(ii)

(ii)

Gross
Amount
Recognized

Gross
Amount
Offset

Net Amount
Presented

Derivatives

Financial
Collateral

Net Amount

(iv)
(v)
Gross Amounts
Not Offset

(vi) =  (iii)(cid:6)(iv)(cid:6)(v)

Derivative  assets . . . . . . .
Derivative  liabilities . . . . .

$452
$656

$—
$—

$452
$656

In millions
$372
$372

$ 30
$283(1)

$50
$ 1

(1) Of  the $283 million of collateral posted, $30 million  was  through  re-use of counterparty cash

collateral and $253 million was in cash.

Effect of  Derivative Instruments on the  Consolidated Statements of Earnings

The pre-tax effect of derivative instruments and related hedged  items in  a fair value hedging

relationship  for  fiscal  years  ended  October  31,  2014,  2013  and  2012  was  as  follows:

Derivative  Instrument

Location

2014 2013

2012 Hedged  Item

Location

2014 2013 2012

(Loss) Gain Recognized in Income on Derivative and Related Hedged  Item

Interest  rate  contracts . . Interest and other, net

$1

$(270) $(130) Fixed-rate debt Interest  and  other, net

In millions

In millions
$(1) $270 $134

147

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 11:  Financial Instruments (Continued)

The pre-tax effect of derivative instruments in cash flow and net investment hedging  relationships

for  fiscal  years  ended  October  31,  2014,  2013  and  2012  was  as  follows:

Gain (Loss)
Recognized in OCI
on Derivatives
(Effective Portion)

Gain (Loss)  Reclassified from  Accumulated OCI
Into  Earnings (Effective Portion)

2014

2013

2012

Location

2014

2013

2012

In millions

In  millions

Cash flow hedges:

Foreign currency contracts . . . . $ 593 $ (53) $415 Net revenue
Foreign currency contracts . . . .
Foreign currency contracts . . . .
Foreign  currency  contracts . . . .

(65) Cost of products
(7) Other operating  expenses
(8) Interest and other, net

(203)
7
(60)

(192)
(19)
21

$ (21) $ 48 $423
(15)
(6)
(3)

(165)
1
10

(71)
(9)
(50)

Total currency hedges . . . . . . $ 337 $(243) $335

$(151) $(106) $399

Net investment hedges:

Foreign  currency  contracts . . . . $ 57 $ 38 $ 37 Interest and other, net

$ — $ — $ —

As of October 31, 2014 and October 31,  2013, no  portion of the  hedging instruments’  gain or loss

was excluded from the assessment of effectiveness for fair  value, cash flow or  net investment hedges.
As of October 31, 2012 the portion of the  hedging instruments’ gain or loss excluded from the
assessment of effectiveness was not material  for  fair value, cash flow  or net investment  hedges.  Hedge
ineffectiveness for fair value, cash flow  and net  investment hedges was not material for fiscal 2014, 2013
and 2012.

As of October 31, 2014, HP expects to reclassify an estimated net  Accumulated other

comprehensive gain of approximately  $185 million, net of taxes, to earnings in the next twelve months
along with the earnings effects of the related forecasted transactions associated with cash flow hedges.

The pre-tax effect of derivative instruments not designated  as hedging instruments on  the
Consolidated  Statements  of  Earnings  for  fiscal  years  ended  October  31,  2014,  2013  and  2012  was  as
follows:

Foreign currency contracts . . . . . . . . . . . . . . . . . . . . . . .
Other derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . .

Interest and other, net
$56
Interest and other, net —
Interest and other, net —

In millions
$166
11
3

$171
(32)
13

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$56

$180

$152

Gain (Loss) Recognized in Income on  Derivatives

Location

2014

2013

2012

148

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 12:  Borrowings

Notes Payable and Short-Term Borrowings

Notes payable and short-term borrowings, including  the current portion of  long-term debt,  were as

follows:

Current portion of long-term debt . . . . . . . .
Commercial  paper(1) . . . . . . . . . . . . . . . . . .
Notes payable to banks, lines of credit and

other(1) . . . . . . . . . . . . . . . . . . . . . . . . . .

As of October 31

2014

2013

Amount
Outstanding

Weighted-Average
Interest  Rate

Amount
Outstanding

Weighted-Average
Interest  Rate

In millions
$2,655
298

533

$3,486

2.2%
0.5%

4.0%

In  millions
$5,226
327

426

$5,979

2.8%
0.4%

1.7%

(1) Commercial paper includes $298 million and $327 million and Notes payable to banks, lines of

credit and other includes $404 million and  $368 million at October  31, 2014 and October 31, 2013,
respectively, of borrowing- and funding-related activity associated with  HPFS  and its subsidiaries.

149

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 12:  Borrowings (Continued)

Long-Term Debt

As of October 31

2014

2013

In millions

U.S. Dollar Global Notes(1)

2006 Shelf Registration Statement:

$500 issued at discount to par at a price of 99.694%  in February 2007 at 5.4%, due March 2017 . . . . .
$750 issued at discount to par at a price of 99.932%  in March 2008 at  5.5%, due March 2018 . . . . . .
$2,000 issued at discount to par at a price of 99.561% in December 2008 at 6.125%, paid March 2014 .
$1,500 issued at discount to par at a price of 99.993% in February 2009 at 4.75%, paid June 2014 . . . .

$

500
750
—
—

$

499
750
1,999
1,500

2009 Shelf Registration Statement:

$1,100 issued at discount to par at a price of 99.887% in September 2010 at 2.125%, due September

2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$650 issued at discount to par at a price of 99.911%  in December  2010 at 2.2%, due December 2015 . .
$1,350 issued at discount to par at a price of 99.827% in December 2010 at 3.75%, due December

2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$500 issued at par in May 2011 at three-month USD LIBOR plus 0.4%, paid May 2014 . . . . . . . . . .
$500 issued at discount to par at a price of 99.971%  in May  2011 at 1.55%, paid May 2014 . . . . . . . .
$1,000 issued at discount to par at a price of 99.958% in May 2011  at 2.65%, due June 2016 . . . . . . .
$1,250 issued at discount to par at a price of 99.799% in May 2011  at 4.3%, due June 2021 . . . . . . . .
$350 issued at par in September 2011 at three-month USD LIBOR plus 1.55%, paid September 2014 .
$750 issued at discount to par at a price of 99.977%  in September 2011 at 2.35%, due March 2015 . . .
$1,300 issued at discount to par at a price of 99.784% in September 2011 at 3.0%, due September 2016
$1,000 issued at discount to par at a price of 99.816% in September 2011 at 4.375%, due September

2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,200 issued at discount to par at a price of 99.863% in September 2011 at 6.0%, due September 2041
$650 issued at discount to par at a price of 99.946%  in December  2011 at 2.625%, paid December

2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$850 issued at discount to par at a price of 99.790%  in December  2011 at 3.3%, due December 2016 . .
$1,500 issued at discount to par at a price of 99.707% in December 2011 at 4.65%, due December

2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,500 issued at discount to par at a price of 99.985% in March 2012 at 2.6%, due September 2017 . . .
$500 issued at discount to par at a price of 99.771%  in March 2012 at  4.05%, due September 2022 . . .

2012 Shelf Registration Statement:

$750 issued at par in January 2014 at three-month USD LIBOR plus 0.94%, due January 2019 . . . . . .
$1,250 issued at discount to par at a price of 99.954% in January  2014 at 2.75%, due January 2019 . . .

1,100
650

1,349
—
—
1,000
1,248
—
750
1,298

999
1,199

650
849

1,496
1,500
499

750
1,250

1,100
650

1,349
500
500
1,000
1,248
350
750
1,298

999
1,198

650
849

1,496
1,500
499

—
—

EDS Senior Notes(1)

$300 issued October 1999 at 7.45%, due October 2029 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, including capital lease obligations, at 0.00%-8.30%, due in calendar years 2014-2024(2) . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair  value adjustment related to hedged debt
Less: current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

313
424
120
(2,655)

314
689
147
(5,226)

Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$16,039

$16,608

17,837

20,684

(1)

(2)

HP may  redeem some or all of the fixed-rate U.S. Dollar Global Notes and EDS Senior Notes at any time in accordance
with the terms thereof. The U.S. Dollar Global Notes and EDS Senior Notes are senior unsecured debt.

Other, including capital lease obligations includes $123 million and $244 million as of October 31, 2014 and 2013,
respectively, of borrowing- and funding-related activity associated  with HPFS and its subsidiaries that are collateralized by
receivables and underlying assets associated with the related capital and  operating leases. For both the periods presented,
the carrying amount of the assets approximated the carrying amount of the borrowings.

150

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 12:  Borrowings (Continued)

As disclosed in Note 11, HP uses interest rate  swaps  to  mitigate  the exposure  of  its  debt portfolio

to changes in fair value resulting from changes  in interest rates by achieving a primarily U.S. dollar
LIBOR-based floating interest expense. Interest rates  shown in the  table of long-term debt have not
been adjusted to reflect the impact of  any interest  rate swaps.

In May 2012, HP filed a shelf registration statement (the ‘‘2012 Shelf Registration Statement’’)

with the Securities and Exchange Commission (‘‘SEC’’) to enable the  company to offer  for sale, from
time to time, in one or more offerings, an unspecified  amount  of  debt  securities, common  stock,
preferred stock, depositary shares and warrants.

HP’s  Board of Directors has authorized the  issuance  of up to $16.0 billion  in aggregate principal

amount of commercial paper by HP. HP’s  subsidiaries are authorized to issue  up to an additional
$1.0 billion  in  aggregate  principal  amount  of  commercial  paper.  HP  maintains  two  commercial  paper
programs, and a wholly-owned subsidiary  maintains a  third program.  HP’s  U.S. program provides  for
the  issuance  of  U.S.  dollar-denominated  commercial  paper  up  to  a  maximum  aggregate  principal
amount of $16.0 billion. HP’s euro commercial paper program provides for the  issuance  of  commercial
paper  outside  of  the  U.S.  denominated  in  U.S.  dollars,  euros  or  British  pounds  up  to  a  maximum
aggregate principal amount of $3.0 billion or the  equivalent in those  alternative currencies. The
combined aggregate principal amount of commercial  paper  outstanding under  those programs at  any
one time cannot exceed the $16.0 billion  authorized by  HP’s Board of Directors. The HP subsidiary’s
Euro Commercial Paper/Certificate of Deposit Programme  provides  for  the issuance of commercial
paper in various currencies of up to a maximum  aggregate principal amount of $500 million.

HP maintains senior unsecured committed  credit facilities primarily  to  support the issuance of

commercial paper. HP has a $3.0 billion  five-year  credit facility that expires in March  2017 and  a
$4.5 billion five-year credit facility that  expires  in April 2019. The  $4.5 billion credit facility expiring in
April 2019 was executed in the second quarter of fiscal 2014 and  replaced a previous $4.5 billion  credit
facility that was to expire in February 2015.  Both facilities support  the U.S. commercial paper  program
and  the euro commercial paper program. Commitment  fees, interest rates and other terms of
borrowing under the credit facilities vary  based on HP’s external  credit ratings. HP’s  ability  to  have an
outstanding U.S. commercial paper balance that exceeds  the $7.5 billion  supported by these credit
facilities is subject to a number of factors,  including liquidity  conditions and business performance. In
addition, the $3.0 billion five-year credit  facility was amended in September 2012 to permit borrowings
in euros  and British pounds, with the amounts  available in  euros and  British pounds  being  limited to
the U.S. dollar equivalent of $2.2 billion  and  $300 million,  respectively.

151

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 12:  Borrowings (Continued)

HP’s  and  the  HP  subsidiary’s resources  available  to  obtain  short-  or  long-term  financing  were  as

follows:

As of
October 31,
2014

In millions

2012 Shelf Registration Statement(1)
Commercial paper programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Uncommitted lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unspecified
$16,202
$ 1,587

(1) HP has the capacity to issue an unspecified amount  of  additional  debt  securities, common  stock,
preferred stock, depositary shares and warrants under  the 2012 Shelf Registration Statement.

The extent to which HP is able to utilize the 2012 Shelf Registration Statement and the

commercial paper programs as sources of liquidity  at any given  time is  subject to a number of factors,
including market demand for HP securities and commercial  paper, HP’s financial performance, HP’s
credit ratings and market conditions  generally.

As of October 31, 2014, aggregate future  maturities of long-term debt at face value (excluding a

fair value adjustment related to hedged debt  of $120 million, a premium on  debt  issuance  of
$13  million  and  a  discount  on  debt  issuance  of  $13  million)  were  as  follows:

Aggregate future maturities of debt outstanding

including capital lease obligations . . . . . . . . . . $2,652 $3,027 $2,920 $786 $2,003

$7,186

$18,574

Interest expense on borrowings recognized in the Consolidated Statements of  Earnings  during the

2015

2016

2017

2018

2019

Thereafter

Total

In millions

fiscal years was as follows:

Expense

Location

Financing  interest
Interest  expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . Financing  interest

Interest and other, net

Total interest expense . . . . . . . . . . . . . . . . . . . . . . . .

Note 13: Stockholders’ Equity

Dividends

2014

2013

2012

In millions
$312
426

$277
344

$317
514

$621

$738

$831

The stockholders of HP common stock are entitled to receive  dividends when and  as declared by

HP’s Board of Directors. Dividends declared were $0.61 per common share in fiscal 2014, $0.55 per
common share in fiscal 2013 and $0.50  per  common  share in  fiscal  2012.

152

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 13:  Stockholders’ Equity (Continued)

Share Repurchase Program

HP’s  share repurchase program authorizes both open market and  private  repurchase transactions.

In  fiscal  2014,  HP  executed  share  repurchases  of  92  million  shares  which  were  settled  for  $2.7  billion
and  included 7 million shares expected  to  settle in the  first quarter  of fiscal 2015.  In fiscal  2013, HP
executed share repurchases of 77 million shares  which were settled for $1.5  billion. In fiscal 2012,  HP
executed share repurchases of 67 million shares  which were settled for $1.6  billion. The shares
repurchased and settled in fiscal 2014, fiscal 2013  and fiscal 2012 were all open market  repurchase
transactions. As of October 31, 2014, HP had remaining authorization of $4.9  billion for future  share
repurchases under the $10.0 billion repurchase authorization approved by HP’s Board  of Directors on
July 21, 2011.

Taxes  related  to  Other  Comprehensive  (Loss)  Income

Tax  (provision) benefit on change in unrealized gains  on available-for-sale

securities:
Tax  (provision) benefit on unrealized gains  arising during the period . . . . . .

Tax  (provision) benefit on change in unrealized gains (losses) on  cash flow

hedges:
Tax  (provision) benefit on unrealized gains (losses) arising during  the period
Tax  (benefit) provision on losses (gains) reclassified into earnings . . . . . . . . .

Tax  benefit (provision) on change in  unrealized components of defined benefit

plans:
Tax  benefit (provision) on (losses) gains arising during the period . . . . . . . . .
Tax  benefit on amortization of actuarial loss  and prior  service benefit . . . . . .
Tax  provision on curtailments, settlements  and  other . . . . . . . . . . . . . . . . . .

Tax  (provision) benefit on change in cumulative  translation adjustment

. . . . . .

For the fiscal years ended
October 31

2014

2013

2012

In millions

$

(1) $ (14) $ 25

(1)

(14)

25

(174)
(18)

(192)

97
(49)

48

(137)
143

6

181
(18)
(9)

154

(27)

(258)
(35)
(5)

(298)

25

261
(31)
(48)

182

(25)

Tax  (provision)  benefit  on  other  comprehensive  (loss)  income . . . . . . . . . .

$ (66) $(239) $ 188

153

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 13:  Stockholders’ Equity (Continued)

Changes  and reclassifications related to Other  Comprehensive (Loss) Income,  net of taxes

Other comprehensive (loss) income,  net  of taxes:

Change in unrealized gains on available-for-sale securities:

Unrealized gains arising during the period . . . . . . . . . . . . . . . . . . . . .
Gains reclassified into earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

Change in unrealized gains (losses) on  cash flow hedges:

Unrealized gains (losses) arising during  the period . . . . . . . . . . . . . . .
Losses (gains) reclassified into earnings(1)
. . . . . . . . . . . . . . . . . . . . .

For the fiscal years ended
October 31

2014

2013

2012

In millions

$

6
(1)

5

$

38
(49)

(11)

50
—

50

163
133

296

(146)
57

(89)

198
(256)

(58)

Change in unrealized components of  defined benefit plans:

(Losses) gains arising during the period . . . . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial loss and prior  service  benefit(2)
. . . . . . . . . .
Curtailments, settlements and other . . . . . . . . . . . . . . . . . . . . . . . . .

(2,575)
241
42

1,695
291
20

(2,196)
141
74

(2,292)

2,006

(1,981)

Change in cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . .

(112)

(125)

(72)

Other  comprehensive (loss) income, net  of taxes . . . . . . . . . . . . . .

$(2,103) $1,781

$(2,061)

(1) Reclassification of pre-tax losses (gains) on  cash flow hedges  into  the Consolidated Statements of

Earnings was as follows:

Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2014

2013

2012

In millions

$ 21
71
9
50

$ (48) $(423)
15
165
6
(1)
3
(10)

$151

$106

$(399)

(2) These components are included in the computation of net pension and post-retirement benefit

(credit)  cost  in  Note  4.

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HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 13:  Stockholders’ Equity (Continued)

The components of accumulated other comprehensive loss,  net of taxes  as of October  31, 2014 and

changes during fiscal year 2014 were as  follows:

Net unrealized
gain on
available-for-sale
securities

Net unrealized
loss on cash
flow hedges

Unrealized
components
of defined
benefit plans

In millions

Cumulative
translation
adjustment

Accumulated
other
comprehensive
loss

Balance at beginning of period . .
Other comprehensive income

(loss) before reclassifications . .
Reclassifications of (gains) losses
. . . . . . . . . . . . .

into earnings

Balance at end of  period . . . . . .

$76

6

(1)

$81

$(188)

$(3,084)

$(582)

$(3,778)

163

133

(2,533)

(112)

(2,479)

241

—

376

$ 108

$(5,376)

$(694)

$(5,881)

Note 14: Net Earnings Per Share

HP calculates basic net EPS using net earnings (loss) and  the weighted-average number  of  shares

outstanding during the reporting period.  Diluted net EPS includes any dilutive  effect of restricted stock
awards, stock options, performance-based awards and shares purchased under the 2011  ESPP.

The reconciliations of the numerators and denominators of each of the  basic and diluted net EPS

calculations  were  as  follows:

For the fiscal years ended
October 31

2014

2013

2012

In millions, except per share
amounts

Numerator:

Net earnings (loss)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$5,013

$5,113

$(12,650)

Denominator:

Weighted-average shares used to compute  basic net EPS . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Dilutive  effect of employee stock plans

Weighted-average shares used to compute diluted net EPS . . . . . . . . . .

1,882
30

1,912

1,934
16

1,950

1,974
—

1,974

Net earnings (loss) per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2.66

$ 2.64

Diluted(2)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2.62

$ 2.62

$

$

(6.41)

(6.41)

Anti-dilutive  weighted  average  options(3)

. . . . . . . . . . . . . . . . . . . . . . . . .

26

52

57

(1) Net earnings allocated to participating securities were  not significant  in fiscal 2014,  2013 and  2012.
HP considers restricted stock awards  that provide the holder with a non-forfeitable right to receive
dividends to be participating securities.

(2) For fiscal 2012, HP excluded from the calculation  of  diluted  net  loss per share 10 million shares
potentially issuable under stock-based incentive compensation plans and  the  2011 ESPP,  as their
effect, if  included, would have been anti-dilutive.

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HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 14:  Net Earnings Per Share (Continued)

(3) HP excludes options where the assumed proceeds exceed the average  market price from the

calculation of diluted net EPS, because  their effect would be anti-dilutive. The assumed proceeds
of an option include the sum of its exercise price, average unrecognized compensation cost and
excess tax benefits.

Note 15: Litigation and Contingencies

HP is involved in lawsuits, claims, investigations and proceedings, including those identified below,
consisting of IP, commercial, securities, employment, employee benefits and environmental matters that
arise in the ordinary course of business.  HP accrues a liability  when management  believes that it is both
probable that a liability has been incurred and the amount of loss can be reasonably  estimated.  HP
believes it has recorded adequate provisions  for any such matters  and,  as of October  31, 2014, it was
not reasonably possible that a material  loss  had been incurred in excess of the amounts  recognized in
HP’s financial statements. HP reviews these matters at least quarterly and adjusts its accruals to reflect
the impact of negotiations, settlements, rulings,  advice  of legal counsel, and other information and
events pertaining to a particular case. Based on its  experience, HP believes that any  damage amounts
claimed in the specific matters discussed  below  are not a  meaningful  indicator of HP’s potential
liability. Litigation is inherently unpredictable. However, HP  believes  it has  valid  defenses with respect
to legal matters pending against it. Nevertheless, cash flows or results  of operations could be materially
affected in any particular period by the  resolution  of  one or more of  these  contingencies.

Litigation, Proceedings and Investigations

Copyright  Levies. As described below, proceedings are ongoing or  have been concluded involving

HP in certain European Union (‘‘EU’’) member countries, including litigation in Germany, Belgium
and  Austria, seeking to impose or modify levies upon  equipment (such as multi-function devices
(‘‘MFDs’’), personal computers (‘‘PCs’’) and printers) and alleging that these devices enable producing
private copies of copyrighted materials. Descriptions  of some of the  ongoing proceedings are  included
below. The levies are generally based  upon the  number of products sold and the per-product amounts
of the levies, which vary. Some EU member  countries that  do not yet have  levies on digital devices are
expected to implement similar legislation to enable  them to extend  existing levy  schemes, while  some
other  EU member countries have phased out levies or are expected to limit  the scope of levy schemes
and  applicability in the digital hardware environment, particularly with  respect to sales to business
users. HP, other companies and various industry associations  have opposed the extension  of  levies  to
the digital environment and have advocated alternative  models of compensation to rights  holders.

VerwertungsGesellschaft Wort (‘‘VG Wort’’),  a collection agency  representing  certain  copyright
holders, instituted legal proceedings  against HP in the  Stuttgart Civil Court  seeking to impose levies on
printers. On December 22, 2004, the court held that HP is  liable  for payments regarding  all  printers
using  ASCII code sold in Germany but did  not  determine the  amount  payable per unit.  HP appealed
this decision in January 2005 to the Stuttgart  Court  of  Appeals. On May 11, 2005,  the Stuttgart Court
of Appeals issued a decision confirming that levies  are  due. On  June  6, 2005, HP  filed an  appeal to the
German Federal Supreme Court in Karlsruhe. On December 6, 2007, the German Federal  Supreme
Court issued a judgment that printers are not subject  to  levies under existing  law. VG Wort appealed
the decision by filing a claim  with the German Federal Constitutional Court challenging the ruling  that
printers are not subject to levies. On  September 21, 2010, the Constitutional Court published a decision
holding that the German Federal Supreme Court erred by  not referring questions  on interpretation  of
German copyright law to the Court of Justice  of  the  European Union (‘‘CJEU’’) and  therefore revoked

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HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 15:  Litigation and Contingencies (Continued)

the German Federal Supreme Court decision and remitted the matter to it.  On July  21, 2011, the
German Federal Supreme Court stayed the proceedings and  referred several  questions to the CJEU
with regard to the interpretation of the  European Copyright Directive.  On June 27,  2013, the CJEU
issued  its decision responding to those questions.  The  German  Federal Supreme Court subsequently
scheduled a joint hearing on this matter with other cases relating to reprographic levies on  printers and
PCs that was held on October 31, 2013. The German Federal Supreme Court issued  a decision on
July 3, 2014 partially granting the claim  of  VG  Wort.  The German Federal Supreme Court decision
provides that levies are due where the  printer is used with  a PC to make  permitted reprographic copies
in a  single process under the control  of the  same  person, but no levies are due on a  printer  for
reprographic  copies  made  with  a  ‘‘scanner-PC-printer’’  product  chain.  The  case  has  been  remitted  to
lower courts to assess the amount to be paid per printer unit.

In September 2003, VG Wort filed a lawsuit against Fujitsu Technology Solutions GmbH

(‘‘Fujitsu’’) in the Munich Civil Court in Munich, Germany  seeking to impose levies on PCs.  This is an
industry test case in Germany, and HP has  agreed not  to  object to the delay if VG Wort  sues HP for
such  levies on PCs following a final decision against Fujitsu. On December  23, 2004, the  Munich Civil
Court held that PCs are subject to a levy and that Fujitsu must pay A12 plus compound interest for
each  PC sold in Germany since March  2001. Fujitsu  appealed this decision in January  2005 to the
Munich Court of Appeals. On December  15, 2005,  the Munich  Court  of  Appeals affirmed the Munich
Civil Court decision. Fujitsu filed an appeal with  the German Federal  Supreme Court  in February 2006.
On October 2, 2008, the German Federal Supreme Court issued a judgment that PCs were  not
photocopiers within the meaning of the  German  copyright  law  that was in effect until  December 31,
2007 and, therefore, were not subject to the  levies  on photocopiers established  by  that  law. VG Wort
subsequently filed a claim with the German Federal  Constitutional Court  challenging that ruling. In
January 2011, the Constitutional Court published a decision holding that the  German Federal  Supreme
Court decision was inconsistent with the  German Constitution and revoking the German Federal
Supreme Court decision. The Constitutional  Court  also remitted the matter  to  the German Federal
Supreme Court for further action. On July  21, 2011, the  German  Federal Supreme Court stayed the
proceedings and referred several questions to the CJEU with  regard to the  interpretation of the
European Copyright Directive. On June  27, 2013, the  CJEU issued its decision  responding  to  those
questions. The German Federal Supreme Court subsequently scheduled a joint hearing on that matter
with other cases relating to reprographic levies on printers  that was held on  October 31,  2013. The
German Federal Supreme Court issued a decision on  July 3, 2014 partially granting the claim of  VG
Wort. The German Federal Supreme  Court decision provides that levies are  due  for audio-visual
copying of standing text and pictures  using a PC as the  last device in a single  reproduction  process
under the control of the same person,  but  no levies are  due on a PC for reprographic copies made
using  a  ‘‘PC-printer’’  or  a  ‘‘scanner-PC-printer’’  chain.  The  case  has  been  remitted  to  lower  courts  to
assess the amount to be paid per PC unit.

Reprobel, a cooperative society with  the authority to collect and  distribute the  remuneration for

reprography to Belgian copyright holders, requested by extra-judicial means that HP amend certain
copyright levy declarations submitted  for inkjet MFDs sold in  Belgium from  January 2005 to December
2009 to enable it to collect copyright levies calculated  based on the generally higher  copying  speed
when the MFDs are operated in draft  print mode rather than when operated  in normal  print mode.  In
March 2010, HP filed a lawsuit against  Reprobel in the  French-speaking chambers of the Court of First
Instance of Brussels seeking a declaratory judgment that no copyright levies are payable on sales of
MFDs in Belgium or, alternatively, that copyright levies payable on such MFDs must be assessed based

157

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 15:  Litigation and Contingencies (Continued)

on the copying speed when operated in the normal print mode set by  default in  the device.  On
November 16, 2012, the court issued  a decision holding that  Belgium law is  not  in conformity  with EU
law in a number of respects and ordered that, by November  2013, Reprobel substantiate that the
amounts claimed by Reprobel are commensurate with the  harm resulting  from legitimate copying under
the reprographic exception. HP subsequently appealed  that court decision to the  Courts  of  Appeal in
Brussels  seeking to confirm that the Belgian  law  is not  in conformity with EU law and that, if  Belgian
law is interpreted in a manner consistent  with EU law, no payments  by HP  are required or,
alternatively, the payments already made by  HP are sufficient to comply with its  obligations under
Belgian law. On October 23, 2013, the Court of Appeal in Brussels stayed  the proceedings  and referred
several questions to the CJEU relating to whether the  Belgian reprographic copyright levies system  is
in conformity with EU law.

Based on industry opposition to the  extension of  levies to digital  products,  HP’s assessments  of  the
merits of various proceedings and HP’s estimates  of  the number of  units  impacted and  the amounts of
the levies, HP has accrued amounts that it believes are adequate to address the matters described
above. However, the ultimate resolution of these matters and the associated financial impact on HP,
including the number of units impacted  and the amount of levies imposed,  remains  uncertain.

Fair Labor Standards Act Litigation. HP is involved in several lawsuits in which  the plaintiffs are

seeking unpaid overtime compensation and other damages based on allegations that various employees
of Electronic Data Systems Corporation  (‘‘EDS’’) or HP have been misclassified as exempt employees
under the Fair Labor Standards Act and/or in violation of the California Labor Code or other  state
laws. Those matters include the following:

• Cunningham and Cunningham, et al. v. Electronic Data Systems Corporation is a purported

collective action filed on May 10, 2006 in the  United States District  Court  for the  Southern
District 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, was  filed on October 23, 2007 in the same court alleging similar facts. The Steavens
case has been consolidated for pretrial purposes with the Cunningham case. On December 14,
2010, the court granted conditional certification  of  a class  consisting of employees  in 20 legacy
EDS job codes in the consolidated Cunningham and Steavens matter. On December 11, 2013,
HP and plaintiffs’ counsel in the consolidated Cunningham/Steavens matter, and the Salva matter
described below, mediated these cases and reached  a settlement agreement.  The court
preliminarily approved the settlement on November 4,  2014. The final  approval hearing  is
scheduled for June 8, 2015.

• Salva v. Hewlett-Packard Company is a purported collective action filed  on June 15,  2012 in the

United States District Court for the Western District of New York alleging that certain
information technology employees allegedly involved in installing and/or maintaining computer
software and hardware were misclassified  as exempt employees under the Fair Labor  Standards
Act. On December 11, 2013, HP and plaintiffs’ counsel in  the consolidated Cunningham/Steavens
matter  and  the Salva  matter  mediated  these  cases  and  reached  a  settlement  agreement.  The
court consolidated the Salva matter into the  Cunningham/Steavens matter and preliminarily
approved the settlement on November 4, 2014. The final approval hearing is  scheduled for
June 8, 2015.

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HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 15:  Litigation and Contingencies (Continued)

• Karlbom, et al. v. Electronic Data Systems  Corporation is a class action filed on March 16, 2009 in
California Superior Court alleging facts similar to the Cunningham and Steavens  matters.  The
parties  are  currently  engaged  in  discovery.

• Blake,  et al. v. Hewlett-Packard Company was filed as a purported nationwide collective action  on
February 17, 2011 in the United States District Court for  the Southern  District of Texas  claiming
that a class of information technology support personnel had been  misclassified as  exempt
employees under the Fair Labor Standards Act. On February 10, 2012, the plaintiffs filed a
motion requesting that the court conditionally certify  the case as a collective  action. On July 11,
2013, the court denied the plaintiffs’ motion for conditional  certification in  its entirety.  Following
the denial of class certification, the case has continued as  an individual  action on  behalf of the
named plaintiff and one other employee. The  parties have reached an agreement to resolve this
matter with the two plaintiffs agreeing  to  settle  their  individual  claims and release any  other
claims they may have against HP. The court approved  the settlement on  August 19, 2014, and
dismissed the case  with prejudice on September 9, 2014.

• Benedict v. Hewlett-Packard Company is a purported collective action filed  on January 10, 2013 in

the United States District Court for the  Northern District of California alleging that certain
technical support employees allegedly involved in installing, maintaining  and/or supporting
computer software and/or hardware for HP were  misclassified as exempt employees under the
Fair Labor Standards Act. The plaintiff has  also alleged  that HP violated  California law by,
among other things, allegedly improperly classifying these employees as exempt. On February 13,
2014, the court granted the plaintiff’s motion for conditional class certification. The parties are
engaged in discovery.

State of  South Carolina Department of Social  Services Contract  Dispute.

In October 2012, the State

of South Carolina Department of Social Services and related government  agencies (‘‘SCDSS’’) filed a
proceeding before  South Carolina’s Chief Procurement Officer (‘‘CPO’’) against Hewlett-Packard
State & Local Enterprise Services, Inc., a  subsidiary of HP (‘‘HPSLES’’). The dispute arises from a
contract between SCDSS and HPSLES  for the design,  implementation and maintenance of  a Child
Support Enforcement and a Family Court Case Management System  (the  ‘‘CFS System’’).  SCDSS seeks
aggregate damages of approximately  $275 million,  a declaration that  HPSLES is  in material breach of
the contract and, therefore, that termination of the contract for cause by  SCDSS would be appropriate,
and a declaration that HPSLES is required to perform certain additional  disputed work that expands
the scope of the original contract. In November 2012, HPSLES  filed responsive pleadings  asserting
defenses and seeking payment of past-due  invoices totaling more  than $12  million.  On July  10, 2013,
SCDSS terminated the contract with  HPSLES for  cause, and, in  its  termination notice, SCDSS asserted
that HPSLES is responsible for all future  federal penalties until the CFS System  achieves federal
certification, sought an immediate order  requiring HPSLES to transfer  to SCDSS  all  work completed
and in progress, and indicated that it  intends to seek suspension and debarment  of  HPSLES from
contracting with the State of South Carolina. HPSLES  is disputing the  termination as improper  and
defective. In addition, on August 9, 2013,  HPSLES  filed its own  affirmative claim within the proceeding
alleging  that SCDSS materially breached the contract by its  improper termination and that SCDSS was
a primary and material cause of the project delays.  On September  4, 2013, the  CPO denied  SCDSS’s
motion for injunctive relief seeking immediate transfer of the system  assets to SCDSS  and indicated
that the CPO would address that request  following  a hearing on the merits. The hearing on the merits
before the CPO concluded on February 25, 2014 and closing briefs were submitted  on July 18, 2014.

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HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 15:  Litigation and Contingencies (Continued)

On August 15, 2014, the CPO agreed  to  the parties’  joint  request that  the  CPO not issue an order
unless and until the parties, with the  guidance of the mediator, report to the CPO  that  their  ongoing
mediation has reached a final impasse.

On  September 10,  2014,  the  parties  reached  an  agreement  in  principle  to  resolve  this  matter  and
on December 15, 2014, the parties submitted a settlement agreement and time and  materials  agreement
to the CPO for approval.

India Directorate of Revenue Intelligence  Proceedings. On April 30 and May 10, 2010, the India

Directorate of Revenue Intelligence (the  ‘‘DRI’’) issued show cause notices  to  Hewlett-Packard India
Sales Private Ltd (‘‘HPI’’), a subsidiary  of HP,  seven  then-current HP employees and  one  former HP
employee alleging that HP underpaid customs duties while importing products and spare parts into
India and seeking to recover an aggregate of  approximately  $370 million,  plus penalties. Prior to the
issuance of the show cause notices, HP  deposited approximately $16  million with the DRI and agreed
to post a provisional bond in exchange  for the  DRI’s agreement to not seize HP products  and spare
parts and to not interrupt the transaction  of business by HP  in India.

On April 11, 2012, the Bangalore Commissioner  of  Customs  issued an order  on the  products-
related show cause notice affirming certain duties and penalties  against  HPI and the named individuals
of approximately $386 million, of which  HPI had already deposited $9  million. On  December 11,  2012,
HPI  voluntarily deposited an additional $10 million in  connection with  the products-related  show cause
notice.

On April 20, 2012, the Commissioner issued an  order on the  parts-related  show cause notice

affirming certain duties and penalties against HPI and certain of the named  individuals of
approximately $17 million, of which HPI had already deposited $7 million. After the  order,  HPI
deposited an additional $3 million in  connection with the parts-related show cause notice so as to avoid
certain penalties.

HPI  filed appeals of the Commissioner’s orders before the Customs Tribunal along with

applications for waiver of the pre-deposit  of remaining demand amounts as  a condition for hearing the
appeals. The Customs Department has also filed cross-appeals  before  the  Customs  Tribunal.  On
January 24, 2013, the Customs Tribunal ordered  HPI to deposit  an additional $24 million against  the
products order, which HPI deposited in  March 2013. The  Customs Tribunal did not order any
additional deposit to be made under the parts order. In December 2013,  HPI filed applications before
the Customs Tribunal seeking early hearing  of the appeals  as well  as an extension  of  the stay of deposit
as to HP and the individuals already  granted until  final  disposition of the appeals. On February 7, 2014,
the application for extension of the stay of deposit  was  granted by the Customs Tribunal until disposal
of the appeals. On October 27, 2014,  the Customs Tribunal  commenced hearings on the cross-appeals
of the Commissioner’s orders. The Customs Tribunal rejected  HP’s request to remand the  matter to the
Commissioner  on  procedural  grounds,  and  is  scheduled  to  reconvene  hearings  on  the  merits  beginning
on April 6, 2015.

Russia GPO and Other FCPA 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 Germany, a former subsidiary  of HP, and the General Prosecutor’s  Office of the Russian
Federation. The approximately A35 million transaction, which was referred  to  as the Russia GPO deal,
spanned the years 2001 to 2006 and was  for the  delivery and  installation of an IT  network. The

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HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 15:  Litigation and Contingencies (Continued)

German PPO has issued an indictment of  four  individuals, including one current and  two former  HP
employees, on charges including bribery, breach of  trust  and tax  evasion. The German PPO has  also
requested that HP be made an associated  party to the case, and, if that request is granted, HP would
participate in any portion of the court proceedings that could  ultimately bear on  the question of
whether HP should be subject to potential  disgorgement  of  profits based  on the conduct of the  indicted
current  and former employees. The Polish  Central Anti-Corruption Bureau  is also  conducting an
investigation into potential corruption  violations by  an employee  of Hewlett-Packard Polska Sp. z o.o.,
an indirect subsidiary of HP, in connection with certain  public-sector transactions  in Poland. HP is
cooperating with these investigating agencies.

The DOJ and the SEC also conducted an investigation into the  Russia GPO deal and potential

violations of the Foreign Corrupt Practices Act (‘‘FCPA’’). In addition, the same U.S.  enforcement
agencies conducted investigations into certain  other public-sector transactions  in Russia, Poland, the
Commonwealth of Independent States and  Mexico,  among other  countries.  On April  9, 2014, HP
announced a  resolution of the DOJ and  SEC FCPA investigations. Pursuant to the  terms of the
resolution of the DOJ and SEC FCPA investigation announced in April 2014, on September 11, 2014,
an HP subsidiary in Russia, ZAO Hewlett  Packard  A.O., entered  a guilty  plea in the United States
District Court, Northern District of California, to criminal violations  of  the FCPA.  HP paid the  SEC
approximately $31 million, and paid approximately $77 million in  fines and penalties pursuant to its
agreements  with  the  DOJ.  HP  also  has  agreed  to  undertake  certain  compliance,  reporting  and
cooperation  obligations.

On December 2, 2014, plaintiffs Petroleos Mexicanos and  Pemex  Exploracion filed a complaint
against HP and HP Mexico in the United States District  Court for the Northern District of California
alleging violations of the Racketeer Influenced and Corrupt Organizations Act  (RICO  Act), fraudulent
concealment,  tortious  interference,  and  violations  of  the  California  Unfair  Competition  Law  in
connection  with  alleged  improper  payments  provided  to  Pemex  officials  by  third-parties  retained  by  HP
Mexico.  These  allegations  arise  from  the  same  subject-matter  as  a  previously  disclosed  2014  Non-
Prosecution  Agreement  between  HP  Mexico  and  the  DOJ  and  a  simultaneous  cease-and-desist  order
against HP issued by the SEC. HP is investigating this claim,  however, HP  does not believe  that  the
resolution of this matter will have a material impact on  its financial statements.

ECT Proceedings.

In January 2011, the postal service of Brazil,  Empresa Brasileira de Correios  e

Tel´egrafos  (‘‘ECT’’), notified an HP subsidiary in Brazil (‘‘HP Brazil’’)  that it had  initiated
administrative proceedings to consider whether to suspend HP Brazil’s right to bid and  contract with
ECT related to alleged improprieties  in the bidding  and contracting processes  whereby employees  of
HP Brazil and employees of several other  companies allegedly  coordinated their bids and fixed results
for three ECT contracts in 2007 and 2008. In late July  2011, ECT notified  HP Brazil it had decided to
apply  the penalties against HP Brazil and  suspend HP  Brazil’s right  to  bid  and contract with ECT  for
five years, based upon the evidence before it. In August 2011, HP  Brazil appealed ECT’s decision. In
April 2013, ECT rejected HP Brazil’s  appeal,  and the  administrative proceedings were closed with the
penalties against HP Brazil remaining  in  place. In parallel, in September 2011,  HP Brazil filed a civil
action against ECT seeking to have ECT’s decision revoked. HP  Brazil also requested an injunction
suspending the application of the penalties until a  final  ruling on  the merits of  the case. The court of
first instance has not issued a decision on  the merits  of the case, but it  has denied HP Brazil’s request
for injunctive relief. HP Brazil appealed the denial of  its request for injunctive relief to the
intermediate appellate court, which issued a preliminary ruling  denying the  request for  injunctive relief

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Notes to Consolidated Financial Statements  (Continued)

Note 15:  Litigation and Contingencies (Continued)

but reducing the length of the sanctions from five to two years. HP Brazil  appealed that decision and,
in December 2011, obtained a ruling  staying  enforcement of ECT’s sanctions until a final ruling on the
merits of the case. HP expects this decision to be issued  in 2015 and any  subsequent  appeal on the
merits to last several years.

Stockholder  Litigation. As described below, HP is involved in various  stockholder litigation

matters commenced against certain current  and  former HP executive  officers and/or certain current and
former members of HP’s Board of Directors in which the plaintiffs  are  seeking to recover  damages
related to HP’s allegedly inflated stock  price, certain  compensation  paid  by HP to the defendants,  other
damages and/or injunctive relief:

• Saginaw Police & Fire Pension Fund v.  Marc  L. Andreessen, et al. is a lawsuit filed on October 19,
2010 in the United States District Court  for  the Northern District of  California  alleging, among
other things, that the defendants breached their fiduciary  duties and  were  unjustly enriched by
consciously disregarding HP’s alleged violations  of the FCPA. On August 15, 2011,  the
defendants filed a motion to dismiss the  lawsuit. On March  21, 2012, the  court granted the
defendants’ motion to dismiss, and the court entered judgment in  the defendants’ favor and
closed the case on May 29, 2012. On  June  28, 2012, the  plaintiff  filed an appeal with the United
States Court of Appeals for the Ninth  Circuit.  On September 8, 2014, the  plaintiff  voluntarily
dismissed its appeal, which concluded the  case.

• A.J. Copeland v. Raymond J. Lane, et  al. (‘‘Copeland I’’) is a lawsuit filed on March 7, 2011 in the
United States District Court for the Northern District  of  California  alleging, among other  things,
that the defendants breached their fiduciary  duties and  wasted corporate  assets  in connection
with HP’s alleged violations of the FCPA, HP’s  severance payments  made  to  Mark Hurd (a
former Chairman of HP’s Board of Directors  and HP’s Chief  Executive  Officer), and  HP’s
acquisition of 3PAR Inc. The lawsuit also alleges  violations of Section 14(a) of the  Securities
Exchange Act of 1934 (the ‘‘Exchange Act’’)  in connection  with HP’s 2010 and 2011 proxy
statements. On February 8, 2012, the defendants filed a  motion to dismiss the lawsuit. On
October 10, 2012, the court granted the  defendants’  motion to dismiss  with leave to file an
amended complaint. On November 1,  2012, the plaintiff filed an  amended complaint adding  an
unjust enrichment claim and claims that the defendants  violated Section 14(a)  of the Exchange
Act and breached their fiduciary duties in connection  with HP’s 2012  proxy statement. On
December 13, 14 and 17, 2012, the defendants moved to dismiss the  amended complaint. On
December 28, 2012, the plaintiff moved for leave  to  file a  third amended complaint. On May 6,
2013, the court denied the motion for leave to amend,  granted the motions to dismiss with
prejudice and entered judgment in the defendants’ favor. On May  31, 2013,  the plaintiff filed  an
appeal with the United States Court of  Appeals for the Ninth Circuit. The appeal has been fully
briefed, but a date has not yet been set for oral argument.

• A.J. Copeland v. L´eo Apotheker, et al. (‘‘Copeland II’’) is a lawsuit filed on February 10, 2014 in
the United States District Court for the Northern District of California alleging, among other
things, that the defendants used their control over  HP and its corporate  suffrage process  in
effectuating, directly participating in and/or aiding  and abetting violations of Section 14(a) of the
Exchange Act and Rule 14a-9 promulgated  thereunder, violations of Sections  10(b) and 20(a)  of
the Exchange Act and Rule 10b-5 promulgated thereunder. The complaint asserts claims for
breach of fiduciary duty, waste of corporate assets, unjust enrichment, and breach of the  duty  of
candor. The claims arise out of the  circumstances at  HP relating to its 2013 and 2014 proxy

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Notes to Consolidated Financial Statements  (Continued)

Note 15:  Litigation and Contingencies (Continued)

statements, the departure of Mr. Hurd as Chairman of HP’s Board of Directors  and HP’s Chief
Executive Officer, alleged violations of  the FCPA, and HP’s acquisition of  3PAR Inc.  and
Autonomy Corporation plc (‘‘Autonomy’’). On February 25, 2014, the court issued an  order
granting HP’s administrative motion to relate Copeland  II to Copeland  I. On April 8, 2014, the
court granted the parties’ stipulation to stay the action pending resolution of Copeland  I by the
United States Court of Appeals for the  Ninth  Circuit.

• Richard Gammel v. Hewlett-Packard Company, et al. is a putative securities class action filed on
September 13, 2011 in the United States District Court for the  Central District of California
alleging, among other things, that from  November  22, 2010 to August 18, 2011, the defendants
violated Sections 10(b) and 20(a) of the  Exchange Act by concealing material information and
making false statements about HP’s business model, the  future of the webOS operating  system,
and HP’s commitment to developing and integrating webOS products,  including  the TouchPad
tablet PC. On April 11, 2012, the defendants filed a motion  to  dismiss the lawsuit. On
September 4, 2012, the court granted the defendants’  motion to dismiss and gave  the plaintiff
30 days to file an amended complaint.  On October 19, 2012,  the plaintiff filed an amended
complaint asserting the same causes of action but dropping one of the  defendants and
shortening the period that the alleged violations  of  the Exchange Act occurred  to  February 9,
2011 to August 18, 2011. On December 3, 2012,  the defendants moved  to  dismiss the  amended
complaint. On May 8, 2013, the court granted the defendants’ motion to dismiss in part and
denied it in part. As a result of the  court’s ruling, the alleged class period in  the action runs
from June 1, 2011 to August 18, 2011.  The parties commenced mediation before a  private
mediator and on March 31, 2014, the  parties executed  a settlement stipulation.  On
September 15,  2014,  the  court  granted  final  approval  of  the  settlement  and  HP  and  certain  of  its
insurers paid approximately $57 million  pursuant to the  terms of  the settlement agreement. The
deadline to appeal the court’s grant of final approval has passed and the court’s judgment is now
final.

• Ernesto Espinoza v. L´eo Apotheker, et al. and Larry Salat v. L´eo Apotheker, et al. are consolidated
lawsuits filed on September 21, 2011 in  the United  States  District Court for  the Central District
of California alleging, among other things,  that the defendants violated Section  10(b) and 20(a)
of the Exchange Act by concealing material information and making false statements  about HP’s
business model and the future of webOS,  the TouchPad  and HP’s PC business. The  lawsuits  also
allege that the defendants breached their fiduciary  duties, wasted corporate assets and  were
unjustly enriched when they authorized HP’s repurchase of  its own  stock on August 29,  2010 and
July 21, 2011. These lawsuits were previously  stayed pending developments in the Gammel
matter, but those stays have been lifted.  The plaintiffs filed  an amended consolidated complaint
on August 21, 2013, and, on October  28, 2013, the  defendants filed a motion  to  stay these
matters. In an order dated February 13, 2014,  the court granted the motion to stay. At the
August  11,  2014  status  conference,  the  stay  was  lifted.  The  plaintiffs  informed  the  court  that  they
will  move  forward  with  their  complaint.  HP  filed  a  motion  to  dismiss  on  November 21,  2014.

• Luis Gonzalez v. L´eo Apotheker, et al. and Richard Tyner v. L´eo Apotheker, et al. are consolidated
lawsuits filed on September 29, 2011 and October  5, 2011, respectively, in  California Superior
Court alleging, among other things, that the  defendants  breached their fiduciary duties,  wasted
corporate assets and were unjustly enriched by concealing  material  information  and making  false
statements about HP’s business model and the future of webOS,  the TouchPad  and HP’s  PC

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Notes to Consolidated Financial Statements  (Continued)

Note 15:  Litigation and Contingencies (Continued)

business and by authorizing HP’s repurchase of its own stock on  August 29, 2010 and July  21,
2011. The lawsuits are currently stayed pending resolution of the Espinoza/Salat consolidated
action  in  federal  court.  The  court  held  a  status  conference  on  November  17,  2014.

• Cement & Concrete Workers District Council Pension Fund  v. Hewlett-Packard Company,  et al. is a

putative securities class action filed on August  3, 2012 in the United States  District Court for  the
Northern District of California alleging, among other things, that from  November 13, 2007 to
August  6, 2010 the defendants violated Sections 10(b) and 20(a)  of  the Exchange Act  by  making
statements regarding HP’s Standards of Business Conduct (‘‘SBC’’) that were false and
misleading because Mr. Hurd, who was serving as HP’s Chairman and Chief Executive Officer
during that period, had been violating the  SBC  and  concealing his misbehavior  in a manner that
jeopardized his continued employment with  HP. On February 7, 2013,  the defendants moved to
dismiss the amended complaint. On August  9, 2013, the  court granted the defendants’ motion to
dismiss with leave to amend the complaint  by September 9,  2013. The plaintiff filed  an amended
complaint on September 9, 2013, and the  defendants  moved to dismiss that complaint on
October  24,  2013.  On  June  25,  2014,  the  court  issued  an  order  granting  the  defendants’  motions
to dismiss and on July 25, 2014, plaintiff filed a notice of  appeal to the United States Court of
Appeals for the Ninth Circuit. On November 4, 2014, the  plaintiff-appellant filed  its opening
brief in the Court of Appeals for the Ninth Circuit.

Autonomy-Related Legal Matters

Investigations. As a result of the findings of an ongoing  investigation, HP has provided
information to the U.K. Serious Fraud  Office, the DOJ and the SEC related  to  the accounting
improprieties, disclosure failures and  misrepresentations at Autonomy that occurred prior  to  and in
connection with HP’s acquisition of Autonomy. On November  21, 2012, representatives  of the U.S.
Department of Justice advised HP that  they had opened an  investigation relating to Autonomy.  On
February 6, 2013, representatives of the  U.K. Serious Fraud  Office advised HP  that  they had also
opened an investigation relating to Autonomy. HP is  cooperating with  the three investigating agencies.

Litigation. As described below, HP is involved in  various stockholder litigation relating to, among

other  things, its November 20, 2012 announcement that  it recorded a non-cash  charge for the
impairment of goodwill and intangible assets  within its Software  segment of approximately $8.8 billion
in the  fourth quarter of its 2012 fiscal  year and HP’s statements that, based on HP’s  findings from an
ongoing investigation, the majority of this impairment charge related to accounting improprieties,
misrepresentations to the market and disclosure failures at Autonomy that occurred prior  to  and in
connection with HP’s acquisition of Autonomy and the impact  of  those improprieties, failures and
misrepresentations on the expected future financial  performance of the Autonomy business over the
long term. This stockholder litigation was commenced against, among others, certain  current and
former HP executive officers, certain  current and former members of HP’s Board  of  Directors, and
certain advisors to HP. The plaintiffs in these litigation matters are seeking to recover certain
compensation paid by HP to the defendants and/or other damages. These matters  include the
following:

• In re HP Securities  Litigation consists of two consolidated putative class  actions filed on

November 26 and 30, 2012 in the United States District  Court for the Northern District of
California alleging, among other things, that from August  19,  2011 to November 20, 2012, the
defendants violated Sections 10(b) and 20(a) of  the Exchange Act by concealing material

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Notes to Consolidated Financial Statements  (Continued)

Note 15:  Litigation and Contingencies (Continued)

information and making false statements related to HP’s acquisition of  Autonomy and the
financial performance of HP’s enterprise services  business. On May 3, 2013, the lead plaintiff
filed  a consolidated complaint alleging  that, during that  same period, all  of  the defendants
violated Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5(b) by concealing
material information and making false statements related to HP’s  acquisition of Autonomy and
that certain defendants violated SEC Rule  10b-5(a) and (c) by engaging in  a ‘‘scheme’’ to
defraud investors.  On July 2, 2013, HP filed  a  motion  to  dismiss the lawsuit. On November 26,
2013, the court granted in part and denied  in part HP’s motion to dismiss, allowing claims to
proceed against HP and Margaret C. Whitman  based on alleged statements and/or omissions
made on or after May 23, 2012. The court dismissed  all of the plaintiff’s claims that were based
on alleged statements and/or omissions  made  between August 19,  2011 and  May 22,  2012. The
plaintiffs filed a motion for class certification on  November 4, 2014 and,  on December 15, 2014,
defendants filed their opposition to the motion. The hearing on  the motion  for class certification
is scheduled for February 20, 2015.

• In re Hewlett-Packard Shareholder Derivative Litigation consists of seven consolidated lawsuits
filed beginning on November 26, 2012 in the United States  District Court for the Northern
District of California alleging, among other things, that the  defendants violated Sections  10(b)
and 20(a) of the Exchange Act by concealing  material  information  and  making  false statements
related to HP’s acquisition of Autonomy and the financial performance of HP’s enterprise
services business. The lawsuits also allege  that the defendants breached their fiduciary duties,
wasted corporate assets and were unjustly enriched in  connection with HP’s acquisition of
Autonomy and by causing HP to repurchase its own stock at allegedly inflated prices between
August  2011 and October 2012. One  lawsuit further  alleges that certain individual defendants
engaged in or assisted insider trading and thereby  breached their fiduciary duties,  were unjustly
enriched and violated Sections 25402 and 25403 of the California Corporations Code. On  May 3,
2013, the lead plaintiff filed a consolidated  complaint  alleging, among other things, that the
defendants concealed material information and made false statements related to HP’s acquisition
of Autonomy and Autonomy’s Intelligent  Data  Operating Layer technology and thereby violated
Sections 10(b) and 20(a) of the Exchange Act, breached their fiduciary  duties, engaged in ‘‘abuse
of control’’ over HP and corporate waste  and were unjustly enriched. The  litigation was stayed
by agreement until July 31, 2013. On July  30, 2013,  HP filed  a motion  to  further stay  the
litigation until HP’s Board of Directors decides  whether to  pursue any of the claims  asserted  in
the litigation or the court rules on HP’s motion  to  dismiss the consolidated complaint in the In
re HP Securities Litigation matter. The court extended the stay of  the litigation until June 16,
2014. Lead plaintiff filed a stipulation of  proposed settlement on  June 30, 2014. The court has
held hearings on the motion for preliminary approval of the proposed  settlement, but has not
issued  a  decision.  The  parties  and  other  interested  parties  have  submitted  further  briefing  and
await a ruling from the court. The court  is also expected to rule  on the  motion to sever filed  in
an  additional  derivative  action  captioned Steinberg and Vogel v. Apotheker, et. al. that contains
substantially  similar  allegations  and  seeking  substantially  similar  relief;  the  motion  to  intervene
filed by the California state court plaintiff Vincent  Ho  for  the  limited  purpose of applying for
attorneys’  fees;  the  motion  to  intervene  filed  by  Sushovan  Hussain  for  the  purposes  of  objecting
to  the  proposed  settlement  and  obtaining  discovery;  and  the  motion  to  intervene  filed  by
purported HP shareholder Rodney Cook for the purposes of  removing  the lead plaintiff and
having  himself  appointed  as  the  lead  plaintiff.

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Notes to Consolidated Financial Statements  (Continued)

Note 15:  Litigation and Contingencies (Continued)

• In re HP ERISA Litigation consists of three consolidated putative  class actions filed beginning on
December 6, 2012 in the United States District Court for  the Northern District of California
alleging, among other things, that from August  18, 2011 to November 22, 2012, the defendants
breached their fiduciary obligations to HP’s  401(k) Plan and its participants and thereby violated
Sections 404(a)(1) and 405(a) of the Employee Retirement  Income Security Act of 1974, as
amended, by concealing negative information  regarding the financial performance of Autonomy
and HP’s enterprise services business and by failing to restrict participants from  investing in HP
stock. On August 16, 2013, HP filed a motion to dismiss the lawsuit. On March  31, 2014, the
court granted HP’s motion to dismiss this action with leave to amend. On July 16, 2014, the
plaintiffs filed a second amended complaint containing substantially similar allegations  and
seeking substantially similar relief as the first amended complaint. HP moved to dismiss the
second amended complaint and a hearing on the motion is scheduled for January 23, 2015.

• Vincent Ho v. Margaret C. Whitman, et al.is a lawsuit filed on January 22, 2013 in California

Superior Court alleging, among other  things,  that the defendants breached their  fiduciary duties
and wasted corporate assets in connection  with HP’s acquisition of Autonomy and  by  causing
HP to repurchase its own stock at allegedly  inflated prices between August 2011 and October
2012. On April 22, 2013, the court stayed the lawsuit pending resolution of the In re Hewlett-
Packard Shareholder Derivative Litigation matter in federal court. Two additional derivative
actions, James  Gould v. Margaret C. Whitman, et al. and Leroy Noel v. Margaret C. Whitman, et
al., were filed in California Superior Court on July 26, 2013 and August 16,  2013, respectively,
containing substantially similar allegations  and seeking substantially  similar relief. Those  actions
also have been stayed pending resolution of the In re Hewlett-Packard Shareholder Derivative
Litigation matter. If the settlement of the federal derivative  case is approved, it will result in a
release  of  the  claims  asserted  in  all  three  actions  other  than  claims  asserted  against  Michael
Lynch, the former chief executive officer of Autonomy.

• Cook v. Whitman, et al. is a lawsuit filed on March 18, 2014 in the Delaware Chancery Court,
alleging, among other things, that the defendants breached  their  fiduciary duties and  wasted
corporate assets in connection with HP’s  acquisition of Autonomy.  On May 15, 2014,  HP moved
to dismiss or stay the  Cook matter. On July 22, 2014, the Delaware  Chancery  Court stayed the
motion pending the United States District  Court’s hearing on preliminary approval  of the
proposed settlement in the In re Hewlett-Packard Shareholder Derivative Litigation matter. If the
District Court approves the settlement, it  will result in  a release of all  the claims asserted in the
Cook matter other than those asserted against Michael Lynch, Sushovan  Hussain, the former
chief financial officer of Autonomy, and  Deloitte LLP.

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Notes to Consolidated Financial Statements  (Continued)

Note 15:  Litigation and Contingencies (Continued)

Environmental

HP’s  operations and products are subject to various federal, state, local and foreign laws and
regulations concerning environmental protection,  including laws addressing  the discharge of pollutants
into the air and water, the management  and  disposal of hazardous substances and wastes, the cleanup
of contaminated sites, the content of  HP’s products  and the recycling,  treatment and disposal  of  those
products. In particular, HP faces increasing complexity in  its product  design and  procurement
operations as it adjusts to new and future requirements relating to the  chemical  and materials
composition of its products, their safe use, and the energy consumption associated  with those  products,
including requirements relating to climate  change. HP is also subject  to  legislation in an  increasing
number of jurisdictions that makes producers of electrical goods,  including  computers and  printers,
financially responsible for specified collection, recycling, treatment  and disposal of past and future
covered products (sometimes referred  to  as ‘‘product take-back  legislation’’). HP  could  incur  substantial
costs, its products could be restricted  from entering certain jurisdictions, and it could face other
sanctions, if it were to violate or become  liable  under environmental  laws or  if  its products become
non-compliant with environmental laws. HP’s  potential exposure includes  fines and civil or criminal
sanctions, third-party property damage or personal injury  claims and  clean-up costs. The  amount  and
timing of costs to comply with environmental laws are difficult to predict.

HP is party to, or  otherwise involved in, proceedings  brought by  U.S.  or  state environmental

agencies under the Comprehensive Environmental Response, Compensation and  Liability  Act
(‘‘CERCLA’’), known as ‘‘Superfund,’’ or state laws similar to CERCLA,  and may  become a  party to, or
otherwise involved in, proceedings brought by private parties for  contribution towards  clean-up  costs.
HP is also conducting environmental  investigations or remediations at  several current  or former
operating sites pursuant to administrative orders or consent agreements  with state  environmental
agencies.

Note 16:  Guarantees

Guarantees

In the ordinary course of business, HP may issue performance  guarantees to certain of its clients,

customers and other parties pursuant  to  which HP  has guaranteed  the performance  obligations of third
parties. Some of those guarantees may be backed by  standby letters of credit or surety bonds. In
general, HP would be obligated to perform over the term of the guarantee in the event a  specified
triggering event occurs as defined by the guarantee. HP believes the likelihood of having to perform
under a material guarantee is remote.

HP has entered into service contracts with certain  of its  clients that  are  supported by financing

arrangements. If a service contract is terminated as  a  result of HP’s non-performance under the
contract or failure  to comply with the terms of the  financing  arrangement, HP could, under certain
circumstances, be required to acquire  certain assets  related  to  the  service  contract. HP  believes the
likelihood of having to acquire a material amount of assets under these arrangements is remote.

Indemnifications

In the ordinary course of business, HP enters  into  contractual  arrangements under which  HP may
agree to indemnify a third party to such arrangement from any losses incurred relating to the  services

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Notes to Consolidated Financial Statements  (Continued)

Note 16:  Guarantees (Continued)

they perform on behalf of HP or for losses arising from certain events as defined within the  particular
contract, which may include, for example,  litigation  or  claims relating to past performance.  HP also
provides  indemnifications  to  certain  vendors  and  customers  against  claims  of  IP  infringement  made  by
third parties arising from the vendor’s and customer’s use  of  HP’s software products  and services  and
certain other matters. Some indemnifications may not be subject to maximum loss clauses. Historically,
payments made related to these indemnifications have been immaterial.

Warranty

HP accrues the estimated cost of product warranties  at  the time it  recognizes revenue. HP engages

in extensive product quality programs and processes,  including actively  monitoring  and evaluating the
quality of its component suppliers; however,  contractual warranty terms,  repair costs,  product call  rates,
average cost per call, current period  product shipments  and ongoing  product failure  rates,  as well as
specific product class failures outside of HP’s baseline  experience, affect  the estimated warranty
obligation.

HP’s  aggregate product warranty liabilities and changes  during  the fiscal years were as follows:

As of October 31

2014

2013

In millions

Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accruals for warranties issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments related to pre-existing warranties  (including changes in estimates) . . . .
Settlements made  (in cash or in kind) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,031
1,840
12
(1,927)

$ 2,170
2,007
(4)
(2,142)

Balance at end of  year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,956

$ 2,031

Note 17: Commitments

Lease Commitments

HP leases certain real and personal property under  non-cancelable operating leases.  Certain leases
require HP to pay  property taxes, insurance and routine maintenance and include renewal  options and
escalation clauses. Rent expense was approximately $1.0 billion in  fiscal  2014, 2013  and 2012.

Property under capital leases comprised primarily of equipment  and  furniture. Capital lease assets

included in Property, plant and equipment in  the Consolidated Balance  Sheets were $229 million and
$437 million as of October 31, 2014 and October 31,  2013, respectively. Accumulated depreciation on
the property under capital lease was $207  million  and $404 million  as of October 31, 2014  and
October 31, 2013, respectively.

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HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Note 17:  Commitments (Continued)

As of October 31, 2014, future minimum  lease commitments were as  follows:

Operating  Lease

In millions

Fiscal year
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Sublease rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 744
555
416
308
237
804
(63)

$3,001

Unconditional  Purchase  Obligations

At October 31, 2014, HP had unconditional purchase  obligations of  approximately  $2.1 billion.
These unconditional purchase obligations  include agreements  to  purchase goods or  services that are
enforceable and legally binding on HP and that specify all significant terms, including  fixed  or
minimum quantities to be purchased,  fixed, minimum  or variable  price provisions and the approximate
timing of  the transaction. These unconditional  purchase obligations are related principally to inventory
and other items. Unconditional purchase obligations exclude agreements that are cancelable without
penalty.

As  of  October 31,  2014,  future  unconditional  purchase  obligations  were  as  follows:

Unconditional  purchase  obligations . . . . . . . . . . . . . . . $1,383 $289 $229 $212 $— $— $2,113

2015

2016

2017

2018

2019 Thereafter

Total

In millions

169

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES
Quarterly  Summary
(Unaudited)
(In millions, except per share amounts)

Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total costs and expenses
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for taxes
Net earnings
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net earnings per share:(2)

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid per share . . . . . . . . . . . . . . . . . . . . . . . . . .
Range of per share stock prices  on the New York Stock Exchange

For the three-month fiscal periods
ended in fiscal 2014

January 31

April 30

July 31

October 31

$28,154
21,736
811
3,210
283
114
3
26,157
1,997
(163)
1,834
(409)
$ 1,425

$ 0.75
$ 0.74
$ 0.15

$27,309
20,704
873
3,391
264
252
3
25,487
1,822
(174)
1,648
(375)
$ 1,273

$27,585
20,974
887
3,388
227
649
2
26,127
1,458
(145)
1,313
(328)
985

$

$
$
$

0.67
0.66
0.15

$
$
$

0.53
0.52
0.16

$28,406
21,425
876
3,364
226
604
3
26,498
1,908
(146)
1,762
(432)
$ 1,330

$
$
$

0.71
0.70
0.16

Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 24.50
$ 30.13

$ 27.89
$ 33.90

$ 31.21
$ 36.21

$ 31.62
$ 38.25

Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total costs and expenses
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision  for taxes
Net earnings
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net earnings per share:(2)

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid per share . . . . . . . . . . . . . . . . . . . . . . . . . .
Range of per share stock prices  on the New York Stock Exchange

For the three-month fiscal periods
ended in fiscal 2013

January 31

April 30

July 31

October 31

$28,359
22,029
794
3,300
350
130
4
26,607
1,752
(179)
1,573
(341)
$ 1,232

$ 0.63
$ 0.63
$ 0.13

$27,582
21,055
815
3,342
350
408
11
25,981
1,601
(193)
1,408
(331)
$ 1,077

$27,226
20,859
797
3,274
356
81
4
25,371
1,855
(146)
1,709
(319)
$ 1,390

$
$
$

0.56
0.55
0.13

$
$
$

0.72
0.71
0.15

$29,131
22,437
729
3,351
317
371
3
27,208
1,923
(103)
1,820
(406)
$ 1,414

$
$
$

0.74
0.73
0.15

Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 11.35
$ 17.45

$ 16.03
$ 24.05

$ 20.15
$ 26.71

$ 20.25
$ 27.78

(1) Cost of products, cost  of services  and  financing interest.

(2) Net EPS for each  quarter is computed using  the  weighted-average  number of shares  outstanding during  that
quarter, while EPS for the fiscal year is computed using the weighted-average number of shares outstanding
during the year. Thus the sum  of the  EPS for each  of  the four  quarters may  not  equal the  EPS for  the  fiscal
year.

170

ITEM 9. Changes in and Disagreements  with Accountants on Accounting and  Financial Disclosure.

None.

ITEM 9A. Controls and Procedures.

Under the supervision and with the participation of  our management, including  our  principal
executive officer and principal financial officer, we conducted  an evaluation of  the effectiveness  of the
design and operation of our disclosure  controls  and procedures, as  defined  in Rules 13a-15(e) and
15d-15(e) under the Exchange Act as  of  the  end of the period covered  by  this  report (the  ‘‘Evaluation
Date’’). Based on this evaluation, our principal executive officer and principal financial officer
concluded as of the Evaluation Date that  our disclosure controls  and procedures  were effective such
that the information relating to HP, including our consolidated subsidiaries, required  to  be  disclosed in
our  SEC reports (i) is recorded, processed,  summarized  and reported within the  time periods specified
in SEC rules and forms, and (ii) is accumulated and communicated  to  HP’s management,  including our
principal executive officer and principal financial officer, as appropriate  to allow timely decisions
regarding  required  disclosure.

Under the supervision and with the participation of  our management, including  our  principal
executive officer and principal financial officer, we conducted  an evaluation of  any changes  in our
internal control over financial reporting (as such term is defined in Rules 13a-15(f) and  15d-15(f) under
the Exchange Act) that occurred during  our most recently completed fiscal quarter. Based on that
evaluation, our principal executive officer and principal financial officer concluded that there  has not
been any change in our internal control  over financial reporting during that quarter that has materially
affected, or is reasonably likely to materially affect, our internal  control over financial reporting.

See Management’s Report on Internal  Control over  Financial Reporting and the Report of
Independent Registered Public Accounting  Firm on our internal control over financial reporting in
Item 8, which are incorporated herein  by reference.

ITEM 9B. Other Information.

None.

171

ITEM 10. Directors, Executive Officers and Corporate Governance.

PART III

The names of the  executive officers of HP  and  their  ages,  titles and biographies 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 2015 Annual Meeting

of Stockholders to be filed within 120  days after  HP’s fiscal year end of October 31, 2014  (the  ‘‘Proxy
Statement’’) and is incorporated herein by reference:

• Information regarding directors of  HP who are standing for reelection  and any persons

nominated to become directors of HP is  set forth under ‘‘Proposals to be Voted On—Proposal
No. 1—Election of Directors.’’

• Information regarding HP’s Audit  Committee and designated ‘‘audit  committee financial

experts’’ is set forth under ‘‘Board Structure and Committee Composition—Audit Committee.’’

• Information on HP’s code of business conduct and  ethics for  directors, officers and employees,

also known as the ‘‘Standards of Business Conduct,’’ and on HP’s  Corporate Governance
Guidelines is set forth under ‘‘Corporate  Governance Principles  and Board Matters.’’

• Information regarding Section 16(a) beneficial ownership reporting compliance is  set forth under

‘‘Section 16(a) Beneficial Ownership  Reporting Compliance.’’

ITEM 11. Executive Compensation.

The following information is included in the  Proxy Statement and is incorporated herein by

reference:

• Information regarding HP’s compensation of its named executive officers is  set forth under

‘‘Executive  Compensation.’’

• Information regarding HP’s compensation of its directors is  set  forth under  ‘‘Director

Compensation and Stock Ownership Guidelines.’’

• The report of HP’s HR and Compensation Committee is set forth under ‘‘HR  and

Compensation Committee Report on  Executive Compensation.’’

ITEM 12. Security Ownership of Certain  Beneficial Owners  and  Management  and Related Stockholder

Matters.

The following information is included in the  Proxy Statement and is incorporated herein by

reference:

• Information regarding security ownership of certain  beneficial owners,  directors and executive

officers is set forth under ‘‘Common Stock  Ownership of Certain Beneficial Owners  and
Management.’’

• Information regarding HP’s equity compensation plans, including both stockholder approved

plans and non-stockholder approved plans, is set forth in the section entitled  ‘‘Equity
Compensation Plan Information.’’

172

ITEM 13. Certain Relationships and  Related Transactions, and Director Independence.

The following information is included in the  Proxy Statement and is incorporated herein by

reference:

• Information regarding transactions  with  related persons  is set forth under ‘‘Transactions with

Related Persons.’’

• Information regarding director independence  is set forth  under ‘‘Corporate Governance

Principles and Board Matters—Director  Independence.’’

ITEM 14. Principal Accounting Fees  and  Services.

Information regarding principal accounting fees and services is set forth under  ‘‘Principal
Accounting Fees and Services’’ in the Proxy Statement, which  information is incorporated herein by
reference.

173

PART IV

ITEM 15. Exhibits and Financial Statement Schedules.

(a) The following documents are filed as part of this report:

1. All Financial Statements:

The following financial statements are filed as  part of  this  report  under Item  8—‘‘Financial

Statements and Supplementary Data.’’

Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . .
Management’s Report on Internal Control Over Financial Reporting . . . . . . . . . . . . . . .
Consolidated Statements of Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated  Balance  Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’  Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarterly  Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

81
83
84
85
86
87
88
89
170

2.

Financial Statement Schedules:

All schedules are omitted as the required information is not  applicable  or the information is

presented in the Consolidated Financial Statements and notes thereto  in Item  8 above.

3. Exhibits:

A list of exhibits filed or furnished with  this Annual Report on Form 10-K (or incorporated by

reference to exhibits previously filed or furnished by HP) is provided in the accompanying  Exhibit
Index. HP will furnish copies of exhibits for a reasonable fee  (covering the expense of furnishing
copies)  upon request. Stockholders may  request  exhibits copies  by contacting:

Hewlett-Packard Company
Attn: Investor Relations
3000 Hanover Street
Palo Alto, CA 94304

174

SIGNATURES

Pursuant to the requirements of Section  13  or 15(d) of the Securities Exchange Act of 1934, the

registrant has duly caused this report to be signed on its  behalf  by the undersigned,  thereunto duly
authorized.

Date: December 17, 2014

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 whose signature appears
below constitutes and appoints Catherine  A.  Lesjak, John F. Schultz and Rishi  Varma,  or any  of them,
his or  her attorneys-in-fact, for such person in any and  all capacities, to sign any amendments to this
report and to file the same, with exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, hereby  ratifying and confirming all that either of said
attorneys-in-fact, or substitute or substitutes, may do or  cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange  Act of 1934, this report has been signed

below by the following persons on behalf of  the registrant and in the capacities  and on the dates
indicated.

Signature

Title(s)

Date

/s/ MARGARET C. WHITMAN

Margaret C. Whitman

Chairman,  President  and  Chief

Executive Officer
(Principal Executive Officer)

December 17, 2014

/s/ CATHERINE A. LESJAK

Catherine A. Lesjak

/s/ JEFF T. RICCI

Jeff T. Ricci

/s/ MARC L.  ANDREESSEN

Marc L. Andreessen

/s/ SHUMEET BANERJI

Shumeet  Banerji

/s/ ROBERT R. BENNETT

Robert R. Bennett

/s/ RAJIV L.  GUPTA

Rajiv L. Gupta

Executive Vice President and Chief

Financial Officer
(Principal Financial Officer)

December 17, 2014

Senior Vice President and Controller
(Principal Accounting Officer)

December 17, 2014

Director

Director

Director

Director

175

December 17, 2014

December 17, 2014

December 17, 2014

December 17, 2014

Signature

Title(s)

Date

/s/ KLAUS KLEINFELD

Klaus Kleinfeld

/s/ RAYMOND J.  LANE

Raymond J. Lane

/s/ ANN M. LIVERMORE

Ann M. Livermore

/s/ RAYMOND E. OZZIE

Raymond E. Ozzie

/s/ GARY M.  REINER

Gary M. Reiner

/s/ PATRICIA F. RUSSO

Patricia F. Russo

/s/ JAMES A. SKINNER

James A. Skinner

Director

Director

Director

Director

Director

Director

Director

December 17, 2014

December 17, 2014

December 17, 2014

December 17, 2014

December 17, 2014

December 17, 2014

December 17, 2014

176

HEWLETT-PACKARD COMPANY AND  SUBSIDIARIES
EXHIBIT  INDEX

Exhibit
Number

Exhibit Description

Form

File No.

Exhibit(s)

Filing Date

Incorporated by Reference

3(a) Registrant’s Certificate of

10-Q 001-04423

3(a)

June  12, 1998

Incorporation.

3(b) Registrant’s Amendment to the
Certificate of Incorporation.

10-Q 001-04423

3(b)

March  16, 2001

3(c) Registrant’s Amended and

8-K 001-04423

3.1

November  26, 2013

Restated Bylaws effective
November 20, 2013.

4(a) Senior Indenture between the

S-3 333-134327

4.9

June  7, 2006

Registrant and The Bank of New
York Mellon Trust Company,
National Association, as successor
in interest to J.P. Morgan Trust
Company,  National  Association
(formerly known as Chase
Manhattan Bank and Trust
Company,  National  Association),
as Trustee, dated June 1, 2000.

4(b) Form of Subordinated Indenture.

S-3

333-30786

4(c) Form of Registrant’s 5.40%

8-K 001-04423

Global Note due March 1, 2017.

4(d) Form of Registrant’s 5.50%

8-K 001-04423

Global Note due March 1, 2018.

4.2

4.3

4.3

March  17, 2000

February 28,  2007

February 29, 2008

4(e) Form of Registrant’s 2.125%

8-K 001-04423

4.3  and 4.4 September 13, 2010

Global Note due September 13,
2015 and form of related Officers’
Certificate.

4(f) Form of Registrant’s 2.200%

Global Note due December 1,
2015 and 3.750% Global Note
due December 1, 2020 and form
of related Officers’ Certificate.

8-K 001-04423 4.1,  4.2 and December 2, 2010
4.3

4(g) Form of Registrant’s 2.650%

8-K 001-04423 4.4, 4.5  and June 1, 2011

Global Note due June 1, 2016
and 4.300% Global Note due
June 1, 2021 and form of related
Officers’  Certificate.

4.6

177

Exhibit
Number

Exhibit Description

Form

File No.

Exhibit(s)

Filing Date

Incorporated by Reference

4(h) Form of Registrant’s 2.350%

8-K 001-04423 4.2, 4.3, 4.4, September 19, 2011

Global Note due March 15, 2015,
3.000% Global Note due
September 15, 2016, 4.375%
Global Note due September 15,
2021 and 6.000% Global Note
due September 15, 2041 and form
of related Officers’ Certificate.

4.5 and 4.6

4(i) Form of Registrant’s 3.300%

8-K 001-04423 4.2, 4.3  and December 12, 2011

Global Note due December 9,
2016, 4.650% Global Note due
December 9, 2021 and related
Officers’  Certificate.

4(j) Form of Registrant’s 2.600%

Global Note due September 15,
2017 and 4.050% Global Note
due September 15, 2022 and
related Officers’ Certificate.

4(k) Form of Registrant’s 2.750%

Global Note due January 14, 2019
and Floating Rate Global Note
due January 14, 2019 and related
Officers’  Certificate.

4.4

8-K 001-04423 4.1,  4.2 and March 12, 2012
4.3

8-K 001-04423 4.1,  4.2 and January 14, 2014
4.3

4(l) Specimen certificate for the
Registrant’s common stock.

8-A/A 001-04423

10(a) Registrant’s 2004 Stock Incentive

S-8 333-114253

4.1

4.1

June 23, 2006

April  7, 2004

Plan.*

10(b) Registrant’s 2000 Stock Plan,

10-K 001-04423

10(b)

December 18,  2008

amended and restated effective
September 17, 2008.*

10(c) Registrant’s Excess Benefit

8-K 001-04423

10.2

September 21, 2006

Retirement Plan, amended and
restated  as of January 1, 2006.*

10(d) Hewlett-Packard Company Cash
Account Restoration Plan,
amended and restated as of
January 1, 2005.*

8-K 001-04423

99.3

November 23, 2005

10(e) Registrant’s 2005 Pay-for-Results

10-K 001-04423

10(h)

December 14,  2011

Plan, as amended.*

10(f) Registrant’s 2005 Executive

8-K 001-04423

10.1

September 21, 2006

Deferred Compensation Plan, as
amended and restated effective
October 1, 2006.*

178

Exhibit
Number

Exhibit Description

Form

File No.

Exhibit(s)

Filing Date

Incorporated by Reference

10(g) First Amendment to the

10-Q 001-04423

10(q)

June 8, 2007

Registrant’s 2005 Executive
Deferred Compensation Plan, as
amended and restated effective
October 1, 2006.*

10(h) Employment Agreement, dated

10-Q 001-04423

10(x)

September  8, 2005

June 9, 2005, between Registrant
and R.  Todd Bradley.*

10(i) Registrant’s Executive Severance

10-Q 001-04423

10(u)(u)

June 13, 2002

Agreement.*

10(j) Registrant’s Executive Officers
Severance  Agreement.*

10-Q 001-04423

10(v)(v)

June 13, 2002

10(k) Form letter regarding severance

8-K 001-04423

10.2

March 22,  2005

offset for restricted stock and
restricted  units.*

10(l) Form of Restricted Stock

10-Q 001-04423

10(b)(b)

June 8, 2007

Agreement for Registrant’s 2004
Stock Incentive Plan, Registrant’s
2000 Stock Plan, as amended, and
Registrant’s 1995 Incentive Stock
Plan, as amended.*

10(m) Form of Restricted Stock Unit

10-Q 001-04423

10(c)(c)

June 8, 2007

Agreement for Registrant’s 2004
Stock Incentive Plan.*

10(n) Second Amendment to the
Registrant’s 2005 Executive
Deferred Compensation Plan, as
amended and restated effective
October 1, 2006.*

10-K 001-04423

10(l)(l)

December 18,  2007

10(o) Form of Agreement Regarding

8-K 001-04423

10.2

January 24,  2008

Confidential  Information  and
Proprietary Developments
(California).*

10(p) Form of Agreement Regarding

10-Q 001-04423

10(o)(o) March 10, 2008

Confidential  Information  and
Proprietary Developments
(Texas).*

10(q) Form of Restricted Stock

10-Q 001-04423

10(p)(p) March 10, 2008

Agreement for Registrant’s 2004
Stock Incentive Plan.*

10(r) Form of Restricted Stock Unit

10-Q 001-04423

10(q)(q) March  10, 2008

Agreement for Registrant’s 2004
Stock Incentive Plan.*

179

Exhibit
Number

Exhibit Description

Form

File No.

Exhibit(s)

Filing Date

Incorporated by Reference

10(s) Form of Stock Option Agreement
for Registrant’s 2004 Stock
Incentive  Plan.*

10-Q 001-04423

10(r)(r) March 10, 2008

10(t) Form of Option Agreement for

10-Q 001-04423

10(t)(t)

June 6, 2008

Registrant’s 2000 Stock Plan.*

10(u) Form of Common Stock Payment
Agreement for Registrant’s 2000
Stock Plan.*

10-Q 001-04423

10(u)(u)

June 6, 2008

10(v) Third Amendment to the

10-K 001-04423

10(v)(v)

December 18,  2008

Registrant’s 2005 Executive
Deferred Compensation Plan, as
amended and restated effective
October 1, 2006.*

10(w) Form of Stock Notification and
Award Agreement for awards of
restricted stock units.*

10(x) Form of Stock Notification and
Award Agreement for awards of
non-qualified stock options.*

10(y) Form of Stock Notification and
Award Agreement for awards of
restricted  stock.*

10-K 001-04423

10(w)(w) December 18, 2008

10-K 001-04423

10(y)(y)

December 18, 2008

10-K 001-04423

10(z)(z)

December 18, 2008

10(z) Form of Restricted Stock Unit

10-Q 001-04423

10(a)(a)(a) March 10, 2009

Agreement for Registrant’s 2004
Stock Incentive Plan.*

10(a)(a) First Amendment to the Hewlett-
Packard Company Excess Benefit
Retirement Plan.*

10(b)(b) Fourth Amendment to the
Registrant’s 2005 Executive
Deferred Compensation Plan, as
amended and restated effective
October 1, 2006.*

10-Q 001-04423

10(b)(b)(b) March  10, 2009

10-Q 001-04423

10(c)(c)(c)

June 5, 2009

10(c)(c) Fifth Amendment to the

10-Q 001-04423

10(d)(d)(d) September  4, 2009

Registrant’s 2005 Executive
Deferred Compensation Plan, as
amended and restated effective
October 1, 2006.*

10(d)(d) Amended and Restated Hewlett-

8-K 001-04423

10.2

March  23, 2010

Packard Company 2004 Stock
Incentive  Plan.*

10(e)(e) Form of Stock Notification and
Award Agreement for awards of
restricted stock units.*

10-K 001-04423

10(f)(f)(f) December 15, 2010

180

Exhibit
Number

Exhibit Description

Form

File No.

Exhibit(s)

Filing Date

Incorporated by Reference

10(f)(f) Form of Stock Notification and
Award Agreement for awards of
performance-based  restricted
units.*

10(g)(g) Form of Stock Notification  and
Award Agreement for awards of
restricted  stock.*

10(h)(h) Form of Stock Notification and
Award Agreement for awards of
non-qualified stock options.*

10-K 001-04423

10(g)(g)(g) December 15, 2010

10-K 001-04423

10(h)(h)(h) December  15, 2010

10-K 001-04423

10(i)(i)(i) December  15, 2010

10(i)(i) Form of Agreement Regarding

10-K 001-04423

10(j)(j)(j) December 15,  2010

Confidential  Information  and
Proprietary Developments
(California—new  hires).*

10(j)(j) Form of Agreement Regarding

10-K 001-04423

10(k)(k)(k) December 15, 2010

Confidential  Information  and
Proprietary Developments
(California—current  employees).*

10(k)(k) First Amendment to the

10-Q 001-04423

10(o)(o)(o) September 9, 2011

Registrant’s Executive Deferred
Compensation Plan, as amended
and restated effective October 1,
2004.*

10(l)(l) Sixth Amendment to the

10-Q 001-04423

10(p)(p)(p) September 9, 2011

Registrant’s 2005 Executive
Deferred Compensation Plan, as
amended and restated effective
October 1, 2006.*

10(m)(m) Employment offer letter, dated

8-K 001-04423

10.2

September 29, 2011

September 27, 2011, between the
Registrant and Margaret C.
Whitman.*

10(n)(n) Letter Agreement, dated

8-K 001-04423

99.1

November 17,  2011

November 17, 2011, among the
Registrant, Relational
Investors LLC and the other
parties named therein.*

10(o)(o) Seventh Amendment to the
Registrant’s 2005 Executive
Deferred Compensation Plan, as
amended and restated effective
October 1, 2006.*

10(p)(p) Registrant’s Severance Plan  for
Executive Officers, as amended
and restated September 18,
2013.*

10-K 001-04423

10(e)(e)(e) December 14, 2011

10-K 001-04423

10(q)(q)

December 30, 2013

181

Exhibit
Number

Exhibit Description

Form

File No.

Exhibit(s)

Filing Date

Incorporated by Reference

10(q)(q) Aircraft Time Sharing Agreement,

10-Q 001-04423

10(h)(h)(h)

June 8, 2012

dated March 16, 2012, between
the Registrant and Margaret C.
Whitman.*

10(r)(r) Second Amended and Restated
Hewlett-Packard Company 2004
Stock Incentive Plan, as amended
effective February 28, 2013.*

10(s)(s) Aircraft Time Sharing Agreement,
dated April 22, 2013, between the
Registrant and John M.
Hinshaw.*

10(t)(t) Aircraft Time Sharing Agreement,
dated April 22, 2013, between the
Registrant and R.  Todd Bradley.*

10(u)(u) Form of Stock Notification  and
Award Agreement for awards of
restricted stock units.*

10(v)(v) Form of Stock Notification and
Award Agreement for awards of
foreign stock appreciation rights.*

10(w)(w) Form of Stock Notification and
Award Agreement for long-term
cash awards.*

10(x)(x) Form of Stock Notification and
Award Agreement for awards of
non-qualified stock options.*

10(y)(y) Form of Grant Agreement for
grants of performance-adjusted
restricted stock units.*

10(z)(z) Form of Stock Notification and
Award Agreement for awards of
restricted  stock.*

10(a)(a)(a) Form of Stock Notification and
Award Agreement for awards of
performance-contingent
non-qualified stock options.*

8-K 001-04423

10.2

March  21, 2013

10-Q 001-04423

10(t)(t)

June 6, 2013

10-Q 001-04423

10(u)(u)

June 6,  2013

10-Q 001-04423

10(u)(u) March 11, 2014

10-Q 001-04423

10(v)(v) March 11, 2014

10-Q 001-04423

10(w)(w) March 11, 2014

10-Q 001-04423

10(x)(x) March 11,  2014

10-Q 001-04423

10(y)(y) March 11, 2014

10-Q 001-04423

10(z)(z) March 11, 2014

10-Q 001-04423

10(a)(a)(a) March 11, 2014

10(b)(b)(b) Form of Grant Agreement  for

10-Q 001-04423

10(b)(b)(b) March 11, 2014

grants of performance-contingent
non-qualified stock options.*

10(c)(c)(c) Eighth Amendment to the
Registrant’s 2005 Executive
Deferred  Compensation  Plan,  as
amended and restated effective
October 1, 2006.*

10-Q 001-04423

10(c)(c)(c) March 11, 2014

182

Exhibit
Number

Exhibit Description

Form

File No.

Exhibit(s)

Filing Date

Incorporated by Reference

10(d)(d)(d) Ninth Amendment to the

10-Q 001-04423

10(d)(d)(d) March 11,  2014

Registrant’s 2005 Executive
Deferred  Compensation  Plan,  as
amended and restated effective
October 1, 2006.*

10(e)(e)(e) Tenth Amendment to the

Registrant’s 2005 Executive
Deferred  Compensation  Plan,  as
amended and restated effective
October 1, 2006.*‡

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, 2014.‡

22 None.

23 Consent of Independent

Registered Public Accounting
Firm.‡

24 Power of Attorney (included on

the signature page).

31.1 Certification of Chief Executive

Officer pursuant to
Rule 13a-14(a) and
Rule 15d-14(a) of the Securities
Exchange Act of 1934, as
amended.‡

31.2 Certification of Chief Financial

Officer pursuant to
Rule 13a-14(a) and
Rule 15d-14(a) of the Securities
Exchange Act of 1934, as
amended.‡

32 Certification of Chief Executive
Officer and Chief Financial
Officer pursuant to 18 U.S.C.
1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002.†

101.INS XBRL Instance Document.‡

183

Exhibit
Number

Exhibit Description

Form

File No.

Exhibit(s)

Filing Date

Incorporated by Reference

101.SCH XBRL Taxonomy Extension

Schema Document.‡

101.CAL XBRL Taxonomy Extension

Calculation  Linkbase  Document.‡

101.DEF XBRL Taxonomy Extension

Definition  Linkbase  Document.‡

101.LAB XBRL Taxonomy Extension Label

Linkbase  Document.‡

101.PRE XBRL Taxonomy Extension

Presentation Linkbase
Document.‡

*

‡

†

Indicates management contract or compensatory plan,  contract or arrangement.

Filed herewith.

Furnished herewith.

The registrant agrees to furnish to the Commission supplementally upon  request  a copy of (1)  any
instrument with respect to long-term debt not filed herewith as  to  which the total  amount  of  securities
authorized thereunder does not exceed  10% 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
reorganization set forth above.

184

[THIS PAGE INTENTIONALLY LEFT BLANK]

[THIS PAGE INTENTIONALLY LEFT BLANK]

6

hp.com

Forward-Looking Statements
This document contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or 
uncertainties ever materialize or the assumptions prove incorrect, the results of Hewlett-Packard Company and its 
(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:76)(cid:71)(cid:76)(cid:68)(cid:85)(cid:76)(cid:72)(cid:86)(cid:3)(cid:11)(cid:112)(cid:43)(cid:51)(cid:113)(cid:12)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:71)(cid:76)(cid:427)(cid:72)(cid:85)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:87)(cid:75)(cid:82)(cid:86)(cid:72)(cid:3)(cid:72)(cid:91)(cid:83)(cid:85)(cid:72)(cid:86)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:85)(cid:3)(cid:76)(cid:80)(cid:83)(cid:79)(cid:76)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:73)(cid:82)(cid:85)(cid:90)(cid:68)(cid:85)(cid:71)(cid:16)(cid:79)(cid:82)(cid:82)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)

and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking 
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(cid:83)(cid:85)(cid:82)(cid:77)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:15)(cid:3)(cid:87)(cid:76)(cid:80)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:85)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:3)(cid:86)(cid:68)(cid:89)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:86)(cid:15)(cid:3)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:76)(cid:72)(cid:86)(cid:3)

and objectives of management for future operations, including the previously announced separation transaction and the future 
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assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include the need to address the many 
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such products and services. Nothing herein should be construed as constituting an additional warranty. HP shall not be liable for technical or editorial errors 
or omissions contained herein.

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