HP (HPQ) 8-K Results of Operations and Financial Condition

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

	Three months ended
	July 31, 2006			April 30, 2006			July 31, 2005
Net revenue	$	21,890		$	22,554		$	20,759
Costs and expenses(a):
Cost of sales		16,472			16,970			15,942
Research and development		920			930			863
Selling, general and administrative		2,830			2,858			2,761
Restructuring		5			(14	)		112
Amortization of purchased intangible assets		153			151			168
In-process research and development charges		--			2			--
Total costs and expenses		20,380			20,897			19,846
Earnings from operations		1,510			1,657			913
Interest and other, net		221			157			119
Gains (losses) on investments		7			6			(6	)
Dispute settlement		--			--			7
Earnings before taxes		1,738			1,820			1,033
Provision for (benefit from) taxes(b)		363			(79	)		960
Net earnings	$	1,375		$	1,899		$	73
Net earnings per share:
Basic	$	0.50		$	0.68		$	0.03
Diluted	$	0.48		$	0.66		$	0.03
Cash dividends declared per share	$	0.16		$	--		$	0.16
Weighted-average shares used to compute net earnings per share:
Basic		2,768			2,809			2,873
Diluted		2,839			2,887			2,907
(a) Stock-based compensation expense included under SFAS 123(R) was as follows:
Cost of sales	$	35		$	33		$	--
Research and development		17			15			--
Selling, general and administrative		76			76			--
Total costs and expenses	$	128		$	124		$	--
(b) Tax benefit from stock-based compensation	$	(39	)	$	(39	)	$	--

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

	Nine months ended July 31,
	2006			2005
Net revenue	$	67,103		$	63,783
Costs and expenses(a):
Cost of sales		50,834			48,908
Research and development		2,721			2,631
Selling, general and administrative		8,380			8,398
Restructuring		6			119
Amortization of purchased intangible assets		451			486
In-process research and development charges		52			--
Total costs and expenses		62,444			60,542	��
Earnings from operations		4,659			3,241
Interest and other, net		416			57
Gains (losses) on investments		11			(27	)
Dispute settlement		--			(109	)
Earnings before taxes		5,086			3,162
Provision for taxes(b)		585			1,180
Net earnings	$	4,501		$	1,982
Net earnings per share:
Basic	$	1.61		$	0.69
Diluted	$	1.57		$	0.68
Cash dividends declared per share	$	0.32		$	0.32
Weighted-average shares used to compute net earnings per share:
Basic		2,799			2,889
Diluted		2,870			2,919
(a) Stock-based compensation expense included under SFAS 123(R) was as follows:
Cost of sales	$	107		$	--
Research and development	$	50			--
Selling, general and administrative		239			--
Total costs and expenses	$	396		$	--
(b) Tax benefit from stock-based compensation	$	(121	)	$	--

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

	July 31, 2006		October 31, 2005
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	15,981	$	13,911
Short-term investments		14		18
Accounts receivable		9,631		9,903
Financing receivables		2,561		2,551
Inventory		7,464		6,877
Other current assets		8,674		10,074
Total current assets		44,325		43,334
Property, plant and equipment		6,369		6,451
Long-term financing receivables and other assets		8,154		7,502
Goodwill and purchased intangible assets		20,344		20,030
Total assets	$	79,192	$	77,317
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and short-term borrowings	$	4,316	$	1,831
Accounts payable		10,695		10,223
Employee compensation and benefits		2,813		2,343
Taxes on earnings		1,848		2,367
Deferred revenue		4,212		3,815
Accrued restructuring		678		1,119
Other accrued liabilities		10,420		9,762
Total current liabilities		34,982		31,460
Long-term debt		2,451		3,392
Other liabilities		5,411		5,289
Stockholders' equity		36,348		37,176
Total liabilities and stockholders' equity	$	79,192	$	77,317

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

	Three months ended
	July 31, 2006			April 30, 2006			July 31, 2005(a)
Net revenue:
Enterprise Storage and Servers	$	4,133		$	4,265		$	4,003
HP Services		3,888			3,892			3,837
Software		318			330			245
Technology Solutions Group		8,339			8,487			8,085
Personal Systems Group		6,917			6,977			6,386
Imaging and Printing Group		6,234			6,724			5,913
HP Financial Services		519			518			489
Corporate Investments		155			122			143
Total Segments		22,164			22,828			21,016
Eliminations of intersegment net revenue and other		(274	)		(274	)		(257	)
Total HP Consolidated	$	21,890		$	22,554		$	20,759
Earnings from operations:
Enterprise Storage and Servers	$	296		$	322		$	147
HP Services		364			345			256
Software		13			3			(37	)
Technology Solutions Group		673			670			366
Personal Systems Group		275			248			163
Imaging and Printing Group		884			1,041			771
HP Financial Services		35			39			58
Corporate Investments		(33	)		(49	)		(37	)
Total Segments		1,834			1,949			1,321
Corporate and unallocated costs and eliminations, excluding
stock-based compensation expense		(53	)		(50	)		(128	)
Unallocated costs related to stock-based compensation expense		(113	)		(103	)		--
Restructuring		(5	)		14			(112	)
In-process research and development charge		--			(2	)		--
Amortization of purchased intangible assets		(153	)		(151	)		(168	)
Interest and other, net		221			157			119
Gains (losses) on investments		7			6			(6	)
Dispute settlement		--			--			7
Total HP Consolidated Earnings Before Taxes	$	1,738		$	1,820		$	1,033

(a) Reflects certain fiscal 2006 organizational realignments retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2005, the realignments resulted primarily in revenue and operating profit movement of $5 million or less between ESS and SW segments within TSG. There was no impact to the remaining segments.

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

	Nine months ended July 31,
	2006			2005(a)
Net revenue:
Enterprise Storage and Servers	$	12,638		$	12,241
HP Services		11,537			11,636
Software		952			755
Technology Solutions Group		25,127			24,632
Personal Systems Group		21,343			19,628
Imaging and Printing Group		19,503			18,370
HP Financial Services		1,533			1,588
Corporate Investments		406			381
Total Segments		67,912			64,599
Eliminations of intersegment net revenue and other		(809	)		(816	)
Total HP Consolidated	$	67,103		$	63,783
Earnings from operations:
Enterprise Storage and Servers	$	944		$	396
HP Services		1,002			829
Software		25			(77	)
Technology Solutions Group		1,971			1,148
Personal Systems Group		816			457
Imaging and Printing Group		2,898			2,517
HP Financial Services		112			161
Corporate Investments		(115	)		(139	)
Total Segments		5,682			4,144
Corporate and unallocated costs and eliminations, excluding
stock-based compensation expense		(175	)		(298	)
Unallocated costs related to stock-based compensation expense		(339	)		--
Restructuring		(6	)		(119	)
In-process research and development charge		(52	)		--
Amortization of purchased intangible assets		(451	)		(486	)
Interest and other, net		416			57
Gains (losses) on investments		11			(27	)
Dispute settlement		--			(109	)
Total HP Consolidated Earnings Before Taxes	$	5,086		$	3,162

(a) Reflects certain fiscal 2006 organizational realignments retroactively to provide improved visibility and comparability. For fiscal year 2005, the realignments resulted primarily in revenue and operating profit movement of $16 million or less between ESS and SW segments within TSG. There was no impact to the remaining segments.