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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                            ------------------------

                                   FORM 10-Q

(MARK ONE)


        
   /X/     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934.


                 FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2001
                                       OR


        
   / /     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                                     94-1081436
    (State or other jurisdiction of                       (IRS Employer
    incorporation or organization)                     Identification No.)

    3000 HANOVER STREET, PALO ALTO,                           94304
              CALIFORNIA
    (Address of principal executive                         (Zip Code)
               offices)


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

   (Former name, former address and former fiscal year, if changed since last
                                    report)

                            ------------------------

    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 /X/ No / /

    Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.


                                    
                CLASS                       OUTSTANDING AT MAY 31, 2001
-------------------------------------  -------------------------------------
    Common Stock, $0.01 par value              1,943,541,568 shares


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                    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
                                     INDEX



                                                                                 PAGE NO.
                                                                                 --------
                                                                        
Part I.   Financial Information

          Item 1.  Financial Statements.

                   Consolidated Condensed Statement of Earnings
                   Three and six months ended April 30, 2001 and 2000
                   (Unaudited).................................................      3

                   Consolidated Condensed Balance Sheet
                   April 30, 2001 (Unaudited) and October 31, 2000.............      4

                   Consolidated Condensed Statement of Cash Flows
                   Six months ended April 30, 2001 and 2000 (Unaudited)........      5

                   Notes to Consolidated Condensed Financial Statements
                   (Unaudited).................................................      6

          Item 2.  Management's Discussion and Analysis of Financial Condition
                   and Results of Operations...................................     18

          Item 3.  Quantitative and Qualitative Disclosures About Market
                   Risk........................................................     31

Part II.  Other Information

          Item 1.  Legal Proceedings...........................................     32

          Item 6.  Exhibits and Reports on Form 8-K............................     32

Signature......................................................................     33

Exhibit Index..................................................................     34


                                       2

                         PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

                    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
                  CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
                                  (UNAUDITED)
                    (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)



                                                               THREE MONTHS ENDED      SIX MONTHS ENDED
                                                                    APRIL 30,              APRIL 30,
                                                              ---------------------   -------------------
                                                                2001        2000        2001       2000
                                                              ---------   ---------   --------   --------
                                                                                     
Net revenue:
  Products..................................................   $ 9,640     $10,229    $19,637    $20,190
  Services..................................................     1,967       1,799      3,918      3,511
                                                               -------     -------    -------    -------
    Total net revenue.......................................    11,607      12,028     23,555     23,701

Costs and expenses:
  Cost of products sold and services........................     8,667       8,595     17,370     16,944
  Research and development..................................       685         671      1,358      1,278
  Selling, general and administrative.......................     1,931       1,872      3,866      3,637
                                                               -------     -------    -------    -------
    Total costs and expenses................................    11,283      11,138     22,594     21,859
                                                               -------     -------    -------    -------
Earnings from operations....................................       324         890        961      1,842
Interest income and other, net..............................       154         210        366        373
Interest expense............................................        71          40        160         96
Litigation settlement.......................................       400          --        400         --
Impairment losses on investments............................        --          --        365         --
                                                               -------     -------    -------    -------
Earnings from continuing operations before extraordinary
  item and taxes............................................         7       1,060        402      2,119
(Benefit) provision for taxes...............................       (48)        244         42        509
                                                               -------     -------    -------    -------
Net earnings from continuing operations before extraordinary
  item......................................................        55         816        360      1,610
Net earnings from discontinued operations...................        --         119         --        119
                                                               -------     -------    -------    -------
Net earnings before extraordinary item......................        55         935        360      1,729
Extraordinary item--gain on early extinguishment of debt,
  net of taxes..............................................        12          --         35         --
                                                               -------     -------    -------    -------
Net earnings................................................   $    67     $   935    $   395    $ 1,729
                                                               =======     =======    =======    =======
Basic net earnings per share:
  Net earnings from continuing operations before
    extraordinary item......................................   $  0.03     $  0.41    $  0.18    $  0.81
  Net earnings from discontinued operations.................        --        0.06         --       0.06
  Extraordinary item--gain on early extinguishment of debt,
    net of taxes............................................        --          --       0.02         --
                                                               -------     -------    -------    -------
  Net earnings..............................................   $  0.03     $  0.47    $  0.20    $  0.87
                                                               =======     =======    =======    =======
Diluted net earnings per share:
  Net earnings from continuing operations before
    extraordinary item......................................   $  0.03     $  0.39    $  0.18    $  0.78
  Net earnings from discontinued operations.................        --        0.06         --       0.06
  Extraordinary item--gain on early extinguishment of debt,
    net of taxes............................................        --          --       0.02         --
                                                               -------     -------    -------    -------
  Net earnings..............................................   $  0.03     $  0.45    $  0.20    $  0.84
                                                               =======     =======    =======    =======

Cash dividends declared per share...........................   $    --     $    --    $  0.16    $  0.16

Average number of shares and share equivalents:
  Basic.....................................................     1,935       1,988      1,934      1,992
  Diluted...................................................     1,987       2,084      1,996      2,085


  The accompanying notes are an integral part of these consolidated condensed
                             financial statements.

                                       3

                    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEET
                        (IN MILLIONS, EXCEPT PAR VALUE)



                                                               APRIL 30,    OCTOBER 31,
                                                                 2001          2000
                                                              -----------   -----------
                                                              (UNAUDITED)
                                                                      
                           ASSETS
Current assets:
  Cash and cash equivalents.................................    $ 3,606       $ 3,415
  Short-term investments....................................        563           592
  Accounts receivable, net..................................      5,686         6,394
  Financing receivables, net................................      2,196         2,174
  Inventory.................................................      5,704         5,699
  Other current assets......................................      4,989         4,970
                                                                -------       -------
    Total current assets....................................     22,744        23,244
                                                                -------       -------
Property, plant and equipment (net of accumulated
  depreciation of $5,265 and $5,005 at April 30, 2001 and
  October 31, 2000, respectively)...........................      4,572         4,500
Long-term investments and other assets......................      6,269         6,265
                                                                -------       -------
Total assets................................................    $33,585       $34,009
                                                                =======       =======

            LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Notes payable and short-term borrowings...................    $ 3,221       $ 1,555
  Accounts payable..........................................      3,888         5,049
  Employee compensation and benefits........................      1,574         1,584
  Taxes on earnings.........................................      1,365         2,046
  Deferred revenues.........................................      1,988         1,759
  Other accrued liabilities.................................      3,630         3,204
                                                                -------       -------
    Total current liabilities...............................     15,666        15,197
                                                                -------       -------
Long-term debt..............................................      2,843         3,402
Other liabilities...........................................        979         1,201

Stockholders' equity:
  Preferred stock, $0.01 par value (300 shares authorized;
    none issued)............................................         --            --
  Common stock, $0.01 par value (9,600 and 4,800 shares
    authorized at April 30, 2001 and October 31, 2000,
    respectively; 1,939 and 1,947 shares issued and
    outstanding at April 30, 2001 and October 31, 2000,
    respectively)...........................................         19            19
  Retained earnings.........................................     13,993        14,097
  Accumulated other comprehensive income....................         85            93
                                                                -------       -------
    Total stockholders' equity..............................     14,097        14,209
                                                                -------       -------
Total liabilities and stockholders' equity..................    $33,585       $34,009
                                                                =======       =======


  The accompanying notes are an integral part of these consolidated condensed
                             financial statements.

                                       4

                    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
                                  (UNAUDITED)
                                 (IN MILLIONS)



                                                               SIX MONTHS ENDED
                                                                   APRIL 30,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                   
Cash flows from operating activities:
  Net earnings, excluding net earnings from discontinued
    operations..............................................   $  395     $1,610
  Adjustments to reconcile net earnings from continuing
    operations to net cash provided by operating activities:
    Depreciation and amortization...........................      632        564
    Impairment losses on investments........................      365         --
    Deferred taxes on earnings..............................     (120)      (128)
    Gain on early extinguishment of debt, net of taxes......      (35)        --
    Changes in assets and liabilities:
      Accounts and financing receivables....................      697         18
      Inventory.............................................       (5)      (131)
      Accounts payable......................................   (1,164)       356
      Taxes on earnings.....................................     (695)      (428)
      Other current assets and liabilities..................      597        146
      Other, net............................................       21          6
                                                               ------     ------
      Net cash provided by operating activities.............      688      2,013
                                                               ------     ------
Cash flows from investing activities:
  Investment in property, plant and equipment...............     (889)      (763)
  Proceeds from sale of property, plant and equipment.......      274        219
  Purchases of investments..................................     (207)      (650)
  Maturities and sales of investments.......................      134        751
  Cash acquired through business acquisition................      163         --
  Other, net................................................       --         32
                                                               ------     ------
      Net cash used in investing activities.................     (525)      (411)
                                                               ------     ------
Cash flows from financing activities:
  Increase (decrease) in notes payable and short-term
    borrowings..............................................    1,762     (2,315)
  Issuance of long-term debt................................       29        324
  Payment of long-term debt.................................     (252)      (342)
  Repurchase of zero-coupon subordinated convertible
    notes...................................................     (478)        --
  Issuance of common stock under employee stock plans.......      115        504
  Repurchase of common stock................................     (838)    (2,254)
  Dividends.................................................     (310)      (321)
                                                               ------     ------
      Net cash provided by (used in) financing activities...       28     (4,404)
                                                               ------     ------
Net cash provided by discontinued operations................       --      1,069
                                                               ------     ------
Increase (decrease) in cash and cash equivalents............      191     (1,733)
Cash and cash equivalents at beginning of period............    3,415      5,411
                                                               ------     ------
Cash and cash equivalents at end of period..................   $3,606     $3,678
                                                               ======     ======


  The accompanying notes are an integral part of these consolidated condensed
                             financial statements.

                                       5

                    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

                                  (UNAUDITED)

NOTE 1: BASIS OF PRESENTATION

    In the opinion of management, the accompanying Consolidated Condensed
Financial Statements for Hewlett-Packard Company and its consolidated
subsidiaries ("HP") contain all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly its financial position as of April 30,
2001 and October 31, 2000, its results of operations for the three- and
six-month periods ended April 30, 2001 and 2000, and its cash flows for the
six-month periods ended April 30, 2001 and 2000. All share and per-share amounts
for prior periods have been adjusted to reflect the two-for-one stock split in
the form of a stock dividend effective October 27, 2000. In addition, certain
reclassifications have been made to prior year balances in order to conform to
the current year presentation.

    The results of operations for the three- and six-month periods ended
April 30, 2001 are not necessarily indicative of the results to be expected for
the full year. The information included in this Form 10-Q should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and notes
thereto included in Items 7 and 8, respectively, of the Hewlett-Packard Company
Annual Report on Form 10-K for the fiscal year ended October 31, 2000.

    The preparation of financial statements in accordance with accounting
principles generally accepted in the U.S. requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS

    In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in applying
accounting principles generally accepted in the U.S. to revenue recognition in
financial statements. In June 2000, the SEC issued SAB No. 101B, which delayed
the implementation date of SAB 101. In October 2000, the SEC issued additional
guidance to supplement SAB 101. HP is required to adopt SAB 101 in the fourth
quarter of fiscal year 2001 and is continuing to evaluate the potential impact
that adoption will have on its consolidated financial statements.

NOTE 3: LITIGATION SETTLEMENT AND CONTINGENCIES

    On June 4, 2001, HP and Pitney Bowes Inc. ("Pitney Bowes") announced that
they had entered into agreements which resolve all pending patent litigation
between the parties without admission of infringement and in connection
therewith HP paid Pitney Bowes $400 million in cash on June 7, 2001. In
addition, the companies entered into a technology licensing agreement and expect
to pursue business and commercial relationships. Pitney Bowes filed its patent
infringement case against HP on August 23, 1995 in the U.S. District Court for
the District of Connecticut, alleging that HP's LaserJet printers infringed
Pitney Bowes' character edge smoothing patent, and HP filed one case against
Pitney Bowes on August 23, 1995 in the U.S. District Court for the District of
Idaho to invalidate the Pitney Bowes patent and four cases on March 21, 2001 in
the U.S. District Court for the Northern District of California (San Francisco
Division), on March 28, 2001 in the U.S. District Court for the District of
Idaho, on April 4, 2001 in the U.S. District Court for the Western District of
Texas and on May 11, 2001 in the U.S. District Court for the Northern District
of California (San Jose Division), alleging that

                                       6

                    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

NOTE 3: LITIGATION SETTLEMENT AND CONTINGENCIES (CONTINUED)
Pitney Bowes' copiers, fax machines, document management software and a postal
metering machine infringed HP's patents. On May 29, 1996, HP answered the
complaint filed by Pitney Bowes and counterclaimed for a declaratory judgment
that the Pitney Bowes patent was invalid, unenforceable, and not infringed.
During the following 15 months, the parties engaged in extensive discovery. On
August 11, 1997, HP moved for summary judgment of non-infringement. On
February 9, 1998, the Connecticut District Court denied HP's motion. On
November 7, 1997, HP moved for summary judgment of invalidity of the Pitney
Bowes patent, and for summary judgment of noninfringement. On March 23, 1998,
the Connecticut District Court denied the motion for summary judgment of
invalidity, but granted the motion for summary judgment of noninfringement, and
entered judgment in favor of HP. Pitney Bowes appealed that judgment, and on
June 23, 1999 the Court of Appeals for the Federal Circuit reversed the judgment
in favor of HP and remanded the case to the trial court. On July 7, 1999, HP
petitioned the Patent and Trademark Office ("PTO") to reexamine the validity of
the Pitney Bowes patent. That petition was granted on August 27, 1999, and the
litigation in the Connecticut District Court was thereafter stayed pending
reexamination of the patent. On June 14, 2000, the PTO issued an Office Action
initially rejecting the claims of the Pitney Bowes patent asserted against HP as
invalid. On September 9, 2000, the PTO issued a Statement of Reasons for
Patentability affirming the claims of Pitney Bowes patent. The stay on the
litigation was thereafter lifted, and on November 13, 2000, the Connecticut
District Court set a June 4, 2001 trial date for the case Pitney Bowes filed. A
"Markman" hearing was held on April 24, 2001 to determine the scope of the
Pitney Bowes patent claims which would affect the outcome of the litigation on
the issues of patent infringement as well as patent validity. The suits by HP
were pending. HP and Pitney Bowes had settlement discussions as the trial date
approached, resulting in the settlement agreement described above.

    Prior to reaching a settlement agreement, HP did not believe that a
materially adverse judgment or settlement was reasonably possible, or that a
loss was reasonably estimable. Although the settlement was not reached until
June 4, 2001, accounting principles generally accepted in the U.S. require that
the $400 million settlement charge be reflected in HP's accompanying
consolidated financial statements for the second quarter of fiscal 2001 as the
company's related Quarterly Report on Form 10-Q had not yet been filed.

    HP is involved in other lawsuits, claims, investigations and proceedings
including patent, commercial and environmental matters, which arise in the
ordinary course of business. There are no such matters pending that HP expects
to be material in relation to its business, financial position or results of
operations.

NOTE 4: MARKETING REALIGNMENT

    In January 2001, HP's management approved a marketing realignment program to
bring marketing resources in line with HP's streamlined organizational
structure. The purpose of the program was to eliminate redundancies and focus
marketing investments on programs that increase market impact. This marketing
realignment program was implemented under the existing terms of an overall
Workforce Management Program which defined the severance benefits for which
employees are eligible based on years of service. Accrued costs of approximately
$102 million before taxes were recorded as selling, general and administrative
expense in the first quarter of fiscal year 2001. These costs represented
estimated severance and other benefits related to the elimination of
approximately 1,500 marketing positions worldwide, across all regions and job
classes. As of April 30, 2001, HP had paid out

                                       7

                    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

NOTE 4: MARKETING REALIGNMENT (CONTINUED)
approximately $25 million of the accrued costs. HP expects that the remainder of
the accrual will be paid out during the second half of fiscal year 2001.

NOTE 5: DISCONTINUED OPERATIONS

    On March 2, 1999, HP announced its intention to launch a new company,
subsequently named Agilent Technologies, through a distribution of Agilent
Technologies common stock to HP's stockholders in the form of a tax-free
spin-off. Agilent Technologies was composed of HP's former Measurement
Organization, which included the test-and-measurement, semiconductor products,
chemical analysis and healthcare solutions businesses. Effective July 31, 1999,
HP's management and Board of Directors completed the plan of disposition for
Agilent Technologies. HP's consolidated financial statements for all periods
present Agilent Technologies as a discontinued business segment through the
spin-off date of June 2, 2000.

    In November 1999, Agilent Technologies completed an initial public offering
of approximately 16% of its common stock and distributed the net proceeds of
approximately $2.1 billion to HP. HP distributed substantially all of its
remaining interest in Agilent Technologies through a stock dividend to HP
stockholders on June 2, 2000.

    In the second quarter of fiscal 2000, the cumulative net earnings of Agilent
Technologies since the July 31, 1999 measurement date began to exceed the total
estimated net costs to effect the spin-off. Net earnings from discontinued
operations for the second quarter and first half of fiscal 2000 were
$119 million. Of this $119 million, net earnings of Agilent Technologies for the
period from July 31, 1999 through April 30, 2000 totaled $287 million (net of
related tax expense of $174 million), and the net costs to effect the spin-off
were $168 million (net of related tax benefit of $32 million).

NOTE 6: NET EARNINGS PER SHARE

    HP's basic earnings per share ("EPS") is calculated based on net earnings
and the weighted-average number of shares outstanding during the reporting
period. Diluted EPS includes additional dilution from potential issuance of
common stock, such as stock issuable pursuant to the exercise of stock options
outstanding and the conversion of debt.

                                       8

                    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

NOTE 6: NET EARNINGS PER SHARE (CONTINUED)
    The following table includes a reconciliation of the numerators and
denominators of the basic and diluted EPS calculations. All share and per-share
amounts reflect the two-for-one stock split in the form of a stock dividend
effective October 27, 2000.



                                                                THREE MONTHS ENDED       SIX MONTHS ENDED
                                                                     APRIL 30,               APRIL 30,
                                                              -----------------------   -------------------
                                                                 2001         2000        2001       2000
                                                              ----------   ----------   --------   --------
                                                                  (IN MILLIONS, EXCEPT PER SHARE DATA)
                                                                                       
Numerator:
  Net earnings from continuing operations before
    extraordinary item......................................    $   55       $  816      $  360     $1,610
  Adjustment for interest expense on zero-coupon
    subordinated convertible notes, net of income tax
    effect..................................................         4            8          10         15
                                                                ------       ------      ------     ------
  Net earnings from continuing operations before
    extraordinary item, adjusted............................        59          824         370      1,625
  Net earnings from discontinued operations.................        --          119          --        119
                                                                ------       ------      ------     ------
  Net earnings before extraordinary item, adjusted..........        59          943         370      1,744
  Extraordinary item--gain on early extinguishment of debt,
    net of taxes............................................        12           --          35         --
                                                                ------       ------      ------     ------
  Net earnings, adjusted....................................    $   71       $  943      $  405     $1,744
                                                                ======       ======      ======     ======
Denominator:
  Weighted-average shares used to compute basic EPS.........     1,935        1,988       1,934      1,992
  Effect of dilutive securities:
    Dilutive options and other stock-based awards...........        34           74          40         71
    Zero-coupon subordinated convertible notes due 2017.....        18           22          22         22
                                                                ------       ------      ------     ------
  Dilutive potential common shares..........................        52           96          62         93
                                                                ------       ------      ------     ------
  Weighted-average shares used to compute diluted EPS.......     1,987        2,084       1,996      2,085
                                                                ======       ======      ======     ======
Basic net earnings per share:
  Net earnings from continuing operations before
    extraordinary item......................................    $ 0.03       $ 0.41      $ 0.18     $ 0.81
  Net earnings from discontinued operations.................        --         0.06          --       0.06
  Extraordinary item--gain on early extinguishment of debt,
    net of taxes............................................        --           --        0.02         --
                                                                ------       ------      ------     ------
  Net earnings..............................................    $ 0.03       $ 0.47      $ 0.20     $ 0.87
                                                                ======       ======      ======     ======
Diluted net earnings per share:
  Net earnings from continuing operations before
    extraordinary item......................................    $ 0.03       $ 0.39      $ 0.18     $ 0.78
  Net earnings from discontinued operations.................        --         0.06          --       0.06
  Extraordinary item--gain on early extinguishment of debt,
    net of taxes............................................        --           --        0.02         --
                                                                ------       ------      ------     ------
  Net earnings..............................................    $ 0.03       $ 0.45      $ 0.20     $ 0.84
                                                                ======       ======      ======     ======


NOTE 7: ACQUISITION

   In January 2001, HP acquired all of the outstanding stock of Bluestone
Software, Inc. ("Bluestone") in exchange for $528 million of HP common stock and
options. With this acquisition, HP expanded its Internet software offering by
adding Bluestone's XML-based web application server and tools to its portfolio,
forming the core of HP's middleware offering. The acquisition was recorded under
the purchase method of accounting, and accordingly, the purchase price was
allocated to the net assets acquired based on their estimated fair values. HP
recorded approximately $345 million of goodwill and identified intangibles in
conjunction with the transaction. These intangible assets will be amortized on a
straight-line basis over three years. In addition, HP recorded a pre-tax charge
of approximately $19 million for in-process research and development at the time
of acquisition in the first quarter of fiscal 2001 because technological
feasibility had not been established and no future alternative uses existed. The
fair value assigned to intangible assets acquired, including in-process research
and development, was based on a

                                       9

                    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

NOTE 7: ACQUISITION (CONTINUED)
valuation prepared by an independent third party appraisal firm. Pro forma
results of operations reflecting this acquisition have not been presented as
such disclosure is not material.

NOTE 8: DERIVATIVE FINANCIAL INSTRUMENTS

    On November 1, 2000, HP adopted Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The standard requires that all derivatives be recorded on the
balance sheet at fair value and establishes criteria for designation and
effectiveness of hedging relationships. The cumulative effect of adopting
SFAS 133 as of November 1, 2000 was not material to HP's consolidated financial
statements.

    HP is exposed to foreign currency exchange rate risk inherent in forecasted
sales, cost of sales, and assets and liabilities denominated in currencies other
than the U.S. dollar. HP is also exposed to interest rate risk inherent in its
debt and investment portfolios. HP's risk management strategy uses derivative
financial instruments, including forwards, swaps and purchased options, to hedge
certain foreign currency and interest rate exposures. HP's intent is to offset
gains and losses that occur on the underlying exposures, with gains and losses
on the derivative contracts hedging these exposures. HP does not enter into any
speculative positions with regard to derivative instruments. HP enters into
foreign exchange contracts, primarily forwards and purchased options, to hedge
against exposure to changes in foreign currency exchange rates. Such contracts
are designated at inception to the related foreign currency exposures being
hedged, which include sales by subsidiaries, and assets and liabilities that are
denominated in currencies other than the U.S. dollar. HP's foreign currency
hedges generally mature within six months. HP issues long-term debt in either
U.S. dollars or foreign currencies based on market conditions at the time of
financing. Interest rate and foreign currency swaps are then used to modify the
market risk exposures in connection with the debt to achieve primarily U.S.
dollar LIBOR-based floating interest expense and to neutralize exposure to
changes in foreign currency exchange rates. The swap transactions generally
involve the exchange of fixed for floating interest payment obligations and,
when the underlying debt is denominated in a foreign currency, exchange of the
foreign currency principal and interest obligations for U.S. dollar-denominated
amounts.

    HP records all derivatives on the balance sheet at fair value. For
derivative instruments that are designated and qualify as cash flow hedges, the
effective portion of the gain or loss on the derivative instrument is recorded
in accumulated other comprehensive income as a separate component of
stockholders' equity and reclassified into earnings in the period during which
the hedged transaction affects earnings. For derivative instruments that are
designated and qualify as fair value hedges, the gain or loss on the derivative
instrument, as well as the offsetting gain or loss on the hedged item
attributable to the hedged risk, are recognized in earnings in the current
period. For derivative instruments not designated as hedging instruments,
changes in their fair values are recognized in earnings in the current period,
and generally offset changes in the fair values of related assets and
liabilities.

    For foreign currency forward contracts, hedge effectiveness is measured by
comparing the cumulative change in the hedge contract with the cumulative change
in the hedged item, both of which are based on forward rates. For interest rate
swaps, the critical terms of the interest rate swap and hedged item are designed
to match up when possible, enabling the short-cut method of accounting as
defined by SFAS 133. To the extent that the critical terms of the hedged item
and the derivative are not identical, hedge ineffectiveness is reported in
earnings immediately.

                                       10

                    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

NOTE 8: DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
    HP reports hedge ineffectiveness from foreign currency derivatives for both
options and forward contracts in other income or expense. Ineffectiveness
related to interest rate swaps is reported in interest income or expense. Hedge
ineffectiveness was not material in the second quarter or first half of fiscal
2001. The effective portion of all derivatives is reported in the same financial
statement line item as the changes in the hedged item.

    At April 30, 2001, the net fair value of derivatives designated as fair
value hedges of debt and investment instruments was $90 million, of which $117
million was recorded in long-term investments and other assets and $27 million
in other accrued liabilities. The net fair value of foreign currency-related
derivatives designated as cash flow hedges or fair value hedges was $212
million. Of this amount, $98 million was recorded in other current assets, $146
million in long-term investments and other assets, $30 million in other accrued
liabilities and $2 million in other liabilities. At April 30, 2001, HP also had
$7 million in net fair value of derivatives which it elected not to designate as
hedges, of which $43 million was recorded in other current assets, $1 million in
long-term investments and other assets, $36 million in other accrued liabilities
and $1 million in other liabilities. Derivatives that were not designated as
hedges under SFAS 133 consisted primarily of forwards used to hedge foreign
currency balance sheet exposures and warrants in companies acquired as part of
strategic partnerships. Although forward contracts for balance sheet hedging are
not specifically designated as hedges, the gains and losses on forward contracts
used to hedge balance sheet exposures are recognized in other income and expense
in the same period as the remeasurement on the related foreign currency
denominated assets and liabilities. Warrants which contain net settlement
provisions or are readily convertible to cash are recorded at fair value with
changes in fair value recognized in other income and expense in the current
period. HP estimates the fair values on derivatives based on quoted market
prices or pricing models using current market rates.

    At April 30, 2001, HP had approximately $58 million of unrealized gains on
derivative instruments, net of taxes, in accumulated other comprehensive income.
HP estimates that $40 million of net gains after taxes will be reclassified into
earnings within one year, and approximately $18 million of net gains after taxes
will be reclassified into earnings after one year.

NOTE 9: INVESTMENTS IN EQUITY AND DEBT SECURITIES

    HP's investments in marketable equity securities are classified as
available-for-sale and investments in debt securities are classified as either
available-for-sale or held-to-maturity. Investments classified as
available-for-sale securities are carried at fair value. For the majority of
available-for-sale securities, changes in fair value are recorded as unrealized
gains and losses, net of taxes, included in accumulated other comprehensive
income as a separate component of stockholders' equity. The remainder of
available-for-sale securities are hedged and, in accordance with SFAS 133, the
changes in fair value of these securities are recognized in earnings and offset
by gains or losses on the related derivative instruments. Fair values for
available-for-sale securities are estimated based on quoted market prices or
pricing models using current market rates. Investments classified as
held-to-maturity securities are carried at amortized cost.

    In connection with the adoption of SFAS 133 on November 1, 2000, HP elected
to reclassify investments in debt securities with a net book value of
$967 million from held-to-maturity to available-for-sale. The unrealized loss on
these securities, net of taxes, was $5 million at the time of the
reclassification and was recorded in accumulated other comprehensive income as
part of the cumulative

                                       11

                    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

NOTE 9: INVESTMENTS IN EQUITY AND DEBT SECURITIES (CONTINUED)
effect of adopting SFAS 133. This election was made because HP may sell these
securities in the future due to changes in related tax laws. No sales of these
investments have been made to date.

    HP's available-for-sale securities consist of long-term corporate equity
securities and investments in debt securities which are classified as short-term
investments and long-term investments and other assets in the accompanying
Consolidated Condensed Balance Sheet. As of April 30, 2001, these securities
were recorded at an estimated fair value of $1,076 million, with a cost basis of
$1,025 million. As of April 30, 2001, gross unrealized gains were $93 million
and gross unrealized losses were $45 million. As of October 31, 2000,
available-for-sale securities were recorded at an estimated fair value of
$328 million, with a cost basis of $176 million. As of October 31, 2000, gross
unrealized gains were $216 million and gross unrealized losses were
$64 million. The increase in available-for-sale securities from October 31, 2000
to April 30, 2001 is due primarily to the reclassification of debt securities
discussed above.

    For the three months ended April 30, 2001, proceeds from sales of
available-for-sale securities were $1 million and gross realized gains were
$1 million. For the six months ended April 30, 2001, proceeds from sales of
available-for-sale securities were $17 million and gross realized gains were
$16 million. For the three and six months ended April 30, 2000, proceeds from
sales of available-for-sale securities were $47 million and gross realized gains
were $45 million. The specific identification method is used to account for
gains and losses on available-for-sale securities.

    Investments in debt securities held-to-maturity are included in short-term
investments and long-term investments and other assets in the accompanying
Consolidated Condensed Balance Sheet. The amortized cost basis of these
securities was $193 million as of April 30, 2001 and $1,106 million as of
October 31, 2000. The estimated fair value of held-to-maturity securities
approximated their cost basis at April 30, 2001 and October 31, 2000. The
decrease in held-to-maturity securities from October 31, 2000 to April 30, 2001
is due primarily to the reclassification of debt securities discussed above.

    HP's investment portfolio includes the marketable equity securities and debt
securities discussed above, as well as equity and debt investments in
privately-held emerging market companies. Many of these private companies are
still in the start-up or development stage. These investments are inherently
risky because the markets for the technologies or products they have under
development are typically in the early stages and may never develop. These
private company investments are carried at cost, subject to adjustment for
impairment. Due to the economic downturn, HP recorded an impairment loss of
$365 million on its investments in both public and private emerging market
companies in the first quarter of fiscal 2001. As of April 30, 2001, the cost
basis of the portion of HP's remaining investment portfolio related to emerging
market companies was approximately $300 million. Given current market
conditions, HP may incur additional charges on this investment portfolio in the
future.

NOTE 10: INVENTORY



                                                              APRIL 30,   OCTOBER 31,
                                                                2001         2000
                                                              ---------   -----------
                                                                   (IN MILLIONS)
                                                                    
Finished goods..............................................   $4,113       $4,251
Purchased parts and fabricated assemblies...................    1,591        1,448
                                                               ------       ------
                                                               $5,704       $5,699
                                                               ======       ======


                                       12

                    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

NOTE 11: SUPPLEMENTAL CASH FLOW INFORMATION



                                                               SIX MONTHS ENDED
                                                                   APRIL 30,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                 (IN MILLIONS)
                                                                   
Non-cash transactions:
  Net issuances (forfeitures) of common stock for employee
    benefit plans:
    Restricted stock and other..............................    $(12)      $(73)
    Employer matching contributions for 401(k) and employee
      stock purchase plans..................................      25         47
  Issuance of common stock and options for business
    acquisition.............................................     528         --


NOTE 12: INCOME TAXES

    Income tax provisions for interim periods are based on estimated effective
annual income tax rates. The low effective tax rate of 10% for the first half of
fiscal year 2001 and the tax benefit in the second quarter of 2001 resulted
mainly from tax benefits associated with the $400 million litigation settlement
charge recorded in the second quarter of fiscal year 2001. Excluding the impact
of this settlement charge in fiscal year 2001, the effective income tax rates in
fiscal years 2001 and 2000 vary from the U.S. federal statutory income tax rate
primarily because of the mix of HP's pre-tax earnings in various tax
jurisdictions throughout the world.

NOTE 13: EXTRAORDINARY ITEM

    In December 2000, the Board of Directors authorized a repurchase program for
HP's zero-coupon subordinated convertible notes. Under the repurchase program,
HP may repurchase the notes from time to time at varying prices. In the second
quarter of fiscal 2001, HP repurchased $298 million in face value of the notes
with a book value of $178 million, resulting in an extraordinary gain on the
early extinguishment of debt of $12 million (net of related taxes of
$7 million). In the first half of fiscal 2001, HP repurchased $898 million in
face value of the notes with a book value of $534 million, resulting in an
extraordinary gain on the early extinguishment of debt of $35 million (net of
related taxes of $21 million). As of April 30, 2001, the notes had a remaining
book value of $652 million.

    Between May 1 and June 12, 2001, HP repurchased an additional $56 million in
face value of the notes with a book value of $34 million, resulting in an
extraordinary gain on the early extinguishment of debt of $2 million (net of
related taxes of $1 million). As of June 12, 2001, the notes had a remaining
book value of $621 million.

NOTE 14: STOCKHOLDERS' EQUITY

    As of October 31, 2000, HP had 4.8 billion shares of authorized common
stock. At the Annual Meeting of Shareowners held on February 27, 2001, HP
stockholders approved an amendment of HP's Certificate of Incorporation to
increase the number of authorized shares of common stock to 9.6 billion shares.

    HP repurchases shares of its common stock under a systematic program to
manage the dilution created by shares issued under employee stock plans and a
separate incremental plan. These plans authorize purchases in the open market or
in private transactions. At October 31, 2000, HP had

                                       13

                    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

NOTE 14: STOCKHOLDERS' EQUITY (CONTINUED)
authorization for future repurchases of $868 million of common stock under the
two programs. In November 2000, HP's Board of Directors authorized an additional
$2.0 billion of future repurchases under these two programs in the aggregate.
During the second quarter of fiscal 2001, 6,703,600 shares were repurchased
under these plans for an aggregate price of $202 million. In the first half of
fiscal 2001, 25,303,600 shares were repurchased for an aggregate price of
$838 million. As of April 30, 2001, HP had authorization for remaining future
repurchases under the two programs of approximately $2.0 billion. In fiscal
2000, 19,644,000 shares were repurchased for an aggregate price of $1.3 billion
in the second quarter, and 37,358,200 shares were repurchased for $2.3 billion
in the first half of the year. The number of shares repurchased for the second
quarter and first half of fiscal 2000 has been adjusted to reflect the
two-for-one stock split in the form of a stock dividend effective October 27,
2000.

NOTE 15: COMPREHENSIVE INCOME

    Comprehensive income includes net earnings as well as other comprehensive
income. HP's other comprehensive income consists of changes in unrealized gains
and losses on available-for-sale securities and derivative instruments, which
also include the cumulative effect of adopting SFAS 133. Comprehensive income,
net of taxes, for the three- and six-month periods ended April 30 were as
follows:



                                                 THREE MONTHS ENDED     SIX MONTHS ENDED
                                                      APRIL 30,             APRIL 30,
                                                 -------------------   -------------------
                                                   2001       2000       2001       2000
                                                 --------   --------   --------   --------
                                                               (IN MILLIONS)
                                                                      
Net earnings...................................    $ 67       $935       $395      $1,729
Change in net unrealized gain on derivative
  instruments..................................      43         --         96          --
Net losses (gains) on derivative instruments
  reclassified from accumulated other
  comprehensive income into revenues...........      52         --        (38)         --
Change in net unrealized (loss) gain on
  available-for-sale securities................     (27)       (19)       (66)        124
                                                   ----       ----       ----      ------
Comprehensive income...........................    $135       $916       $387      $1,853
                                                   ====       ====       ====      ======


    The components of accumulated other comprehensive income, net of taxes, were
as follows:



                                                              APRIL 30,   OCTOBER 31,
                                                                2001         2000
                                                              ---------   -----------
                                                                   (IN MILLIONS)
                                                                    
Net unrealized gain on available-for-sale securities........     $27          $93
Net unrealized gain on derivative instruments...............      58           --
                                                                 ---          ---
Accumulated other comprehensive income......................     $85          $93
                                                                 ===          ===


                                       14

                    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

NOTE 16: SEGMENT INFORMATION

    HP is a leading global provider of computing and imaging solutions and
services for business and home, and is focused on capitalizing on the
opportunities of the Internet and the emergence of next-generation appliances,
e-services and infrastructure. As of April 30, 2001, HP organized its operations
into three major businesses: Imaging and Printing Systems, Computing Systems and
IT Services.

    In the second and third quarters of fiscal 2000 and the first quarter of
fiscal 2001, HP made certain strategic changes to its organizational structure.
The changes to the organizational structure included the movement of its
Embedded and Personal Systems and VeriFone businesses from the Computing Systems
segment to separate operating segments, and the movement of the majority of its
services business related to imaging and printing from the Imaging and Printing
Systems segment to its IT Services segment. The Embedded and Personal Systems
and VeriFone operating segments are now included in "All Other" as they do not
meet the materiality threshold for a reportable segment. Segment financial data
for the three- and six-month periods ended April 30, 2000 has been restated to
reflect these organizational changes.

    A significant portion of each segment's expenses arise from shared services
and infrastructure that HP has historically provided to the segments in order to
realize economies of scale and to use resources efficiently. These expenses
include costs of centralized research and development, legal, accounting,
employee benefits, real estate, insurance services, information technology
services, treasury and other corporate and infrastructure costs. In the first
quarter of fiscal year 2001, HP implemented a new management reporting system.
This change in the reporting environment included a revised allocation
methodology for shared services and infrastructure. HP believes these allocation
changes resulted in a better reflection of the utilization of services provided
to or benefits received by the segments. Segment financial data for the three-
and six-month periods ended April 30, 2000 has been restated to reflect these
changes.

    The results of the reportable segments are derived directly from HP's
management reporting system. These results are based on HP's method of internal
reporting and are not necessarily in conformity with accounting principles
generally accepted in the U.S. Management measures the performance of each
segment based on several metrics, including earnings from operations. These
results are used, in part, to evaluate the performance of, and allocate
resources to, each of the segments.

                                       15

                    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

NOTE 16: SEGMENT INFORMATION (CONTINUED)
    The table below presents selected financial information for each reportable
segment:



                                                IMAGING AND
                                                 PRINTING     COMPUTING      IT        ALL       TOTAL
                                                  SYSTEMS      SYSTEMS    SERVICES    OTHER     SEGMENTS
                                                -----------   ---------   --------   --------   --------
                                                                     (IN MILLIONS)
                                                                                 
FOR THE THREE MONTHS ENDED APRIL 30, 2001:
Net revenue from external customers...........    $ 4,978      $4,572      $1,913     $ 312     $11,775
Intersegment net revenue......................         --          90          --        --          90
                                                  -------      ------      ------     -----     -------
  Total net revenue...........................    $ 4,978      $4,662      $1,913     $ 312     $11,865
                                                  =======      ======      ======     =====     =======

Earnings (loss) from operations...............    $   410      $ (130)     $  115     $ (86)    $   309
                                                  =======      ======      ======     =====     =======
FOR THE THREE MONTHS ENDED APRIL 30, 2000:
Net revenue from external customers...........    $ 5,143      $4,924      $1,752     $ 381     $12,200
Intersegment net revenue......................          2          79           6        22         109
                                                  -------      ------      ------     -----     -------
  Total net revenue...........................    $ 5,145      $5,003      $1,758     $ 403     $12,309
                                                  =======      ======      ======     =====     =======

Earnings (loss) from operations...............    $   697      $  183      $  116     $ (20)    $   976
                                                  =======      ======      ======     =====     =======
FOR THE SIX MONTHS ENDED APRIL 30, 2001:
Net revenue from external customers...........    $10,020      $9,426      $3,804     $ 643     $23,893
Intersegment net revenue......................         --         157          --        --         157
                                                  -------      ------      ------     -----     -------
  Total net revenue...........................    $10,020      $9,583      $3,804     $ 643     $24,050
                                                  =======      ======      ======     =====     =======

Earnings (loss) from operations...............    $ 1,054      $ (149)     $  216     $(146)    $   975
                                                  =======      ======      ======     =====     =======
FOR THE SIX MONTHS ENDED APRIL 30, 2000:
Net revenue from external customers...........    $10,175      $9,709      $3,425     $ 680     $23,989
Intersegment net revenue......................          4         131           9        41         185
                                                  -------      ------      ------     -----     -------
  Total net revenue...........................    $10,179      $9,840      $3,434     $ 721     $24,174
                                                  =======      ======      ======     =====     =======

Earnings (loss) from operations...............    $ 1,380      $  373      $  241     $ (48)    $ 1,946
                                                  =======      ======      ======     =====     =======


                                       16

                    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

NOTE 16: SEGMENT INFORMATION (CONTINUED)
    The following is a reconciliation of segment information to HP consolidated
totals:



                                                 THREE MONTHS ENDED     SIX MONTHS ENDED
                                                      APRIL 30,             APRIL 30,
                                                 -------------------   -------------------
                                                   2001       2000       2001       2000
                                                 --------   --------   --------   --------
                                                               (IN MILLIONS)
                                                                      
NET REVENUE:

Total segments.................................  $11,865    $12,309    $24,050    $24,174
Financing interest income reclassification.....      (99)       (89)      (202)      (171)
Elimination of intersegment net revenue and
  other........................................     (159)      (192)      (293)      (302)
                                                 -------    -------    -------    -------
  Total HP consolidated........................  $11,607    $12,028    $23,555    $23,701
                                                 =======    =======    =======    =======

EARNINGS FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEM AND
  TAXES:

Total segment earnings from operations.........  $   309    $   976    $   975    $ 1,946
Net financing interest reclassification........      (36)       (39)       (76)       (78)
Interest income and other, net.................      154        210        366        373
Interest expense...............................      (71)       (40)      (160)       (96)
Litigation settlement..........................     (400)        --       (400)        --
Impairment losses on investments...............       --         --       (365)        --
Corporate and unallocated costs, and
  eliminations.................................       51        (47)        62        (26)
                                                 -------    -------    -------    -------
  Total HP consolidated........................  $     7    $ 1,060    $   402    $ 2,119
                                                 =======    =======    =======    =======


                                       17

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS.

                    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

    THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS AND THE RELATED NOTES THAT APPEAR ELSEWHERE IN
THIS DOCUMENT.

    THIS DOCUMENT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, AS WELL AS ASSUMPTIONS THAT, IF THEY NEVER MATERIALIZE OR PROVE
INCORRECT, COULD CAUSE THE RESULTS OF HP TO DIFFER MATERIALLY FROM THOSE
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. ALL STATEMENTS OTHER
THAN STATEMENTS OF HISTORICAL FACT ARE STATEMENTS THAT COULD BE DEEMED
FORWARD-LOOKING STATEMENTS, INCLUDING ANY PROJECTIONS OF EARNINGS, REVENUES OR
OTHER FINANCIAL ITEMS; ANY STATEMENTS OF THE PLANS, STRATEGIES AND OBJECTIVES OF
MANAGEMENT FOR FUTURE OPERATIONS; ANY STATEMENTS CONCERNING PROPOSED NEW
PRODUCTS, SERVICES OR DEVELOPMENTS; ANY STATEMENTS REGARDING FUTURE ECONOMIC
CONDITIONS OR PERFORMANCE; ANY STATEMENTS OF BELIEF; AND ANY STATEMENT OF
ASSUMPTIONS UNDERLYING ANY OF THE FOREGOING. THE RISKS, UNCERTAINTIES AND
ASSUMPTIONS REFERRED TO ABOVE INCLUDE THE ABILITY OF HP TO RETAIN AND MOTIVATE
KEY EMPLOYEES; THE TIMELY DEVELOPMENT, PRODUCTION AND ACCEPTANCE OF PRODUCTS AND
SERVICES AND THEIR FEATURE SETS; THE CHALLENGE OF MANAGING ASSET LEVELS,
INCLUDING INVENTORY; THE FLOW OF PRODUCTS INTO THIRD-PARTY DISTRIBUTION
CHANNELS; THE DIFFICULTY OF KEEPING EXPENSE GROWTH AT MODEST LEVELS WHILE
INCREASING REVENUES; AND OTHER RISKS THAT ARE DESCRIBED FROM TIME TO TIME IN
HP'S SECURITIES AND EXCHANGE COMMISSION REPORTS, INCLUDING BUT NOT LIMITED TO
THE ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED OCTOBER 31, 2000 AND
SUBSEQUENTLY FILED REPORTS. HP ASSUMES NO OBLIGATION TO UPDATE THESE
FORWARD-LOOKING STATEMENTS.

RESULTS OF OPERATIONS

OVERVIEW

    The following is a summary of operating results at the HP consolidated
level. This discussion is followed by a more detailed discussion of operating
results by segment.

NET REVENUE

    Net revenue for the second quarter ended April 30, 2001 was $11.6 billion, a
decrease of 4% from the same period in fiscal 2000. This decrease resulted
primarily from revenue declines in both the Computing Systems and Imaging and
Printing Systems business segments, partially offset by growth in the IT
Services segment. Net revenue for the Computing Systems segment decreased 7% in
the second quarter of 2001 compared to the same period a year ago. Revenue from
Imaging and Printing Systems declined 3% and IT Services' revenue grew 9%.
Overall, product sales for the second quarter decreased 6%, while service
revenue grew 9% over the corresponding period in fiscal 2000. U.S. revenue
declined 7% to $4.9 billion, while international revenue was relatively flat
compared to the same period a year ago. The economic downturn contributed
significantly to the decline in U.S. revenues. International revenue was
negatively impacted by softening consumer IT spending in Europe, offset by
growth in the Asia Pacific region and in Latin America. Fluctuations in foreign
currency rates adversely impacted year-over-year revenue growth for the company
as a whole by approximately 4 percentage points due mainly to the weakening of
the Euro.

    For the first half of fiscal 2001, net revenue was $23.6 billion, a decrease
of 1% from the first half of 2000. This decrease resulted primarily from revenue
declines in the Computing Systems and Imaging and Printing Systems business
segments, partially offset by growth in the IT Services segment. Net revenue for
Computing Systems decreased 3% in the first half of 2001 compared to the same
period a year ago. Imaging and Printing Systems' revenue declined 2% and IT
Services' revenue grew 11%. Product sales for the first half of 2001 decreased
3% over the same period in 2000, while service revenue grew 12%. International
revenue grew 4% to $14.0 billion, while U.S. revenue declined 7% to
$9.6 billion from the same period a year ago. On a year-to-date basis,
fluctuations in foreign currency

                                       18

rates adversely impacted year-over-year revenue growth for the company as a
whole by approximately 4 percentage points due mainly to the weakening of the
Euro.

COSTS, EXPENSES AND EARNINGS

    Costs, expenses and earnings as a percentage of net revenue were as follows:



                                      THREE MONTHS ENDED     SIX MONTHS ENDED
                                           APRIL 30,             APRIL 30,
                                      -------------------   -------------------
                                        2001       2000       2001       2000
                                      --------   --------   --------   --------
                                                           
Cost of products sold and
  services..........................    74.7%      71.5%      73.7%      71.5%
Research and development............     5.9%       5.6%       5.8%       5.4%
Selling, general and
  administrative....................    16.6%      15.6%      16.4%      15.3%
Earnings from operations............     2.8%       7.4%       4.1%       7.8%
Net earnings from continuing
  operations before extraordinary
  item..............................     0.5%       6.8%       1.5%       6.8%


COST OF PRODUCTS SOLD AND SERVICES

    Cost of products sold and services as a percentage of net revenue was 74.7%
in the second quarter of fiscal 2001 compared to 71.5% in the same period for
fiscal 2000, and was 73.7% in the first half of fiscal 2001 compared to 71.5% in
the first half of 2000. In the second quarter of fiscal 2001, we incurred
approximately $155 million of charges in cost of sales related to a business
slowdown. The $155 million of charges consisted of approximately $103 million in
inventory write-downs in our consumer business and approximately $52 million of
charges related to cancellation of planned production line expansion in our
Inkjet printing business. In the second quarter of fiscal 2000, we incurred
charges related to an enhanced early retirement program, a portion of which was
included in cost of products sold and services. After adjusting for these items,
cost of products sold and services as a percentage of net revenue was 73.3% in
the second quarter of fiscal 2001 compared to 71.2% in the same period for
fiscal 2000, and was 73.1% for the first half of fiscal 2001 compared to 71.3%
in 2000. The increase in the adjusted ratio for the quarter was driven primarily
by the Imaging and Printing Systems and Computing Systems segments. The increase
in the ratio for the six-month period was due to increases in cost of sales
across all of HP's segments.

    We expect continued upward pressure on the cost of sales ratio for the
second half of fiscal 2001 given the current economic uncertainty and its
potential impact on sales volumes, coupled with competitive pricing pressures,
particularly in low-end printers and PCs. These negative factors may be offset
in part by gross margin improvements resulting from reduced component costs in
our printer business due to favorable currency effects, new product
introductions and a favorable product mix.

OPERATING EXPENSES

    In January 2001, HP's management approved a marketing realignment program to
bring marketing resources in line with our streamlined organizational structure.
The purpose of the program was to eliminate redundancies and focus marketing
investments on programs that increase market impact. This marketing realignment
program was implemented under the existing terms of an overall Workforce
Management Program which defined the severance benefits for which employees are
eligible based on years of service. Accrued costs of approximately $102 million
before taxes were recorded as selling, general and administrative expense in the
first quarter of fiscal year 2001. These costs represent estimated severance and
other benefits related to the elimination of approximately 1,500 marketing
positions worldwide, across all regions and job classes.

    Research and development expense increased 2% in the second quarter over the
corresponding period last year. After adjusting for costs related to the
enhanced early retirement program recorded in

                                       19

the second quarter of fiscal 2000, research and development expense growth was
5%. Research and development expense increased 6% in the first half of fiscal
2001 over the corresponding period last year. After adjusting for $19 million of
in-process research and development costs related to the Bluestone acquisition
in the first quarter of fiscal 2001 and $16 million of costs related to the
enhanced early retirement program recorded in the second quarter of fiscal 2000,
research and development expense growth remained at 6%. The adjusted growth for
both the quarter and year-to-date periods was due primarily to an increase in
spending related to research and development for new server, enterprise storage
and software products in the Computing Systems segment in conjunction with HP's
"Always-On Infrastructure" strategy.

    Selling, general and administrative expenses increased 3% in the second
quarter over the corresponding period in fiscal 2000 and increased 7% after
adjusting for costs related to the enhanced early retirement program and the
spin-off of Agilent Technologies in the second quarter of fiscal 2000. Selling,
general and administrative expenses increased 6% in the first half of fiscal
2001 over the corresponding period in fiscal 2000. The increase remained at 6%
after adjusting for the marketing realignment costs in the first quarter of
2001, and costs related to the enhanced early retirement program and the
spin-off of Agilent Technologies in the first half of fiscal 2000. The growth
for the second quarter and first half of the year resulted primarily from
significant hiring in our sales organization during the first quarter of fiscal
2001.

INTEREST INCOME AND OTHER, NET

    Interest income and other, net, decreased by $56 million in the second
quarter of fiscal 2001 and $7 million in the first six months of 2001, compared
to the same periods in fiscal 2000. The decrease for the three-month period was
mainly attributable to gains on sales of equity securities in the second quarter
of 2000 and lower interest rates on cash and investments in the second quarter
of 2001. The slight decline in the six-month period was due to gains on sales of
equity securities in 2000, partially offset by gains on unhedged foreign
currency exposure on balance sheet remeasurement in 2001.

INTEREST EXPENSE

    Interest expense increased by $31 million in the second quarter of fiscal
2001 and $64 million in the first six months of 2001, compared to the same
periods in fiscal 2000. The increase for both the three- and six-month periods
was due primarily to higher average balances of short- and long-term borrowings.

LITIGATION SETTLEMENT

    On June 4, 2001, HP and Pitney Bowes announced that they had entered into
agreements which resolve all pending patent litigation betweeen the parties
without admission of infringement and in connection therewith HP paid Pitney
Bowes $400 million in cash on June 7, 2001. For further discussion regarding the
litigation see Note 3 to the Consolidated Condensed Financial Statements.
Although the settlement was not reached until June 4, 2001, accounting
principles generally accepted in the U.S. require that the $400 million
settlement charge be reflected in HP's accompanying consolidated financial
statements for the second quarter of fiscal 2001 as the company's related
Quarterly Report on Form 10-Q had not yet been filed.

IMPAIRMENT LOSSES ON INVESTMENTS

    HP's investment portfolio includes equity and debt investments in public and
privately-held emerging market companies. Many of these companies are still in
the start-up or development stage. These investments are inherently risky
because the markets for the technologies or products they have under development
are typically in the early stages and may never develop. Due to the economic

                                       20

downturn, we recorded an impairment loss of $365 million on our investments in
both public and private emerging market companies in the first quarter of fiscal
2001. Given current market conditions, we may incur additional charges on our
investment portfolio in the future.

TAXES BEFORE DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEM

    HP's provision for taxes was $42 million for the first half of fiscal 2001,
resulting in an effective tax rate of 10%. For the second quarter of fiscal
2001, HP recorded a benefit for taxes of $48 million. The low effective tax rate
for the first half and the tax benefit in the second quarter of 2001 resulted
mainly from tax benefits associated with the $400 million litigation settlement
charge. Excluding the impact of the settlement charge, non-deductible charges
for amortization of goodwill, in-process research and development and other
acquisition-related charges, our effective tax rate was 22% for both the first
half and second quarter of fiscal 2001, down from the corresponding tax rate of
approximately 24% for the first half and second quarter of fiscal 2000. This
decline was primarily the result of changes in the mix of our pre-tax earnings
in various tax jurisdictions throughout the world.

NET EARNINGS FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEM

    Net earnings from continuing operations before extraordinary item decreased
93% to $55 million in the second quarter of fiscal 2001 compared to the same
period in fiscal 2000. As a percentage of net revenue, net earnings from
continuing operations before extraordinary item was 0.5% in the second quarter
of 2001, compared to 6.8% in the same quarter of 2000. For the first six months
of 2001, net earnings from continuing operations before extraordinary item
decreased 78% to $360 million from $1.6 billion in 2000. As a percentage of net
revenue, net earnings from continuing operations before extraordinary item for
the six-month period decreased to 1.5% in 2001, compared to 6.8% in the same
period in 2000.

NET EARNINGS FROM DISCONTINUED OPERATIONS

    In the second quarter of fiscal 2000, the cumulative net earnings of Agilent
Technologies since the July 31, 1999 measurement date began to exceed the total
estimated net costs to effect the spin-off. Net earnings from discontinued
operations for the second quarter and first half of fiscal 2000 were
$119 million. Of this $119 million, net earnings of Agilent Technologies for the
period from July 31, 1999 through April 30, 2000 totaled $287 million (net of
related tax expense of $174 million), and the estimated net costs to effect the
spin-off were $168 million (net of related tax benefit of $32 million). See
Note 5 to the Consolidated Condensed Financial Statements for further
discussion.

EXTRAORDINARY ITEM

    In December 2000, the Board of Directors authorized a repurchase program for
HP's zero-coupon subordinated convertible notes. Under the repurchase program,
we may repurchase the notes from time to time at varying prices. In the second
quarter of fiscal 2001, we repurchased $298 million in face value of the notes
with a book value of $178 million, resulting in an extraordinary gain on the
early extinguishment of debt of $12 million (net of related taxes of
$7 million). In the first half of fiscal 2001, we repurchased $898 million in
face value of the notes with a book value of $534 million, resulting in an
extraordinary gain on the early extinguishment of debt of $35 million (net of
related taxes of $21 million).

SEGMENT INFORMATION

    The following is a discussion of operating results for each of HP's business
segments. A description of the products and services for each segment can be
found in Note 16 to the Consolidated Financial Statements in the Hewlett-Packard
Company Annual Report on Form 10-K for the fiscal year ended

                                       21

October 31, 2000. Quarterly financial data for each segment can be found in
Note 16 to the Consolidated Condensed Financial Statements. Segment financial
data for the three- and six-month periods ended April 30, 2000 has been restated
to reflect changes in HP's organizational structure and management reporting
system that occurred in the second and third quarters of fiscal 2000 and the
first quarter of fiscal 2001. These changes are more fully described in Note 16
to the Consolidated Condensed Financial Statements. The reportable segments
disclosed in this Form 10-Q are based on HP's management organizational
structure as of April 30, 2001. Future changes to this organizational structure
may result in changes to the reportable segments disclosed.

IMAGING AND PRINTING SYSTEMS



                                                         THREE MONTHS ENDED     SIX MONTHS ENDED
                                                              APRIL 30,             APRIL 30,
                                                         -------------------   -------------------
                                                           2001       2000       2001       2000
                                                         --------   --------   --------   --------
                                                                       (IN MILLIONS)
                                                                              
Net revenue............................................   $4,978     $5,145    $10,020    $10,179
Earnings from operations...............................   $  410     $  697    $ 1,054    $ 1,380


    Imaging and Printing Systems' net revenue declined 3% in the second quarter
and 2% in the first half of fiscal 2001 compared to the same periods in fiscal
2000. On a foreign currency-adjusted basis, net revenue growth was flat in the
second quarter and 1% in the first half of fiscal 2001 compared to the same
periods in 2000. The net revenue decline in both the three- and six-month
periods was driven by decreases in Inkjet and LaserJet printer hardware revenue.
These declines were offset in part by growth in printer supplies and, for the
six-month period, growth in imaging products. Overall, slowing markets in all
geographic regions, as well as unfavorable foreign currency effects,
particularly in Europe, contributed to the segment's revenue decline.

    Inkjet and LaserJet printer hardware revenue declined in both the second
quarter and first half of fiscal 2001, reflecting lower unit shipments due to
softening in both the consumer and business markets, and declining average
selling prices in the consumer printer category. The decrease in average selling
prices in Inkjet printers was driven by a demand shift to lower-priced products.
The decline in LaserJet printer revenue reflected softening demand, in part due
to transitions to new products late in the second quarter of fiscal 2001. Net
revenue growth for printer supplies reflected a mix shift to higher-priced
Inkjet supplies, currency-driven price increases on selected LaserJet supplies,
and higher volumes due to continued expansion in the installed base. This growth
was dampened in part by adjustments in inventory levels made by our European
channel partners in the second quarter of fiscal 2001 resulting from increased
purchases by the channel at the end of the first quarter in response to
anticipation of our currency-driven pricing moves. Imaging products also
contributed slightly to the net revenue increase in the first half of 2001,
driven primarily by strong unit sales of all-in-one products and PhotoSmart
cameras, offset by declines in average selling prices due to growing demand for
lower-priced products.

    Earnings from operations as a percentage of net revenue was 8.2% for the
second quarter of fiscal 2001 compared with 13.5% for the same period in 2000.
For the first half of the year, the segment's earnings from operations ratio was
10.5% in fiscal 2001 compared with 13.6% in 2000. The decrease in both periods
resulted from a decline in gross margins. A portion of these gross margin
declines was attributable to inventory write-downs in the Inkjet and imaging
businesses and charges related to the cancellation of planned production line
expansion in the Inkjet business, both resulting from the overall economic
downturn. After adjusting for these charges, which were recorded in the second
quarter of fiscal 2001, the earnings from operations ratio would have been 10.9%
in the second quarter of fiscal 2001 and 11.9% for the first half of the year.
The remaining gross margin declines in both periods were due primarily to a
shift toward lower-priced Inkjet and imaging devices. These unfavorable factors
were

                                       22

partially offset by gross margin improvements in printer supplies due to
economies of scale from production levels, as well as improved gross margins for
the segment as a whole due to supplies becoming a larger portion of the
segment's product mix. Operating expenses as a percentage of net revenue for the
segment were relatively flat compared to the prior year for both the three- and
six-months periods due to effective expense management.

COMPUTING SYSTEMS



                                                         THREE MONTHS ENDED     SIX MONTHS ENDED
                                                              APRIL 30,             APRIL 30,
                                                         -------------------   -------------------
                                                           2001       2000       2001       2000
                                                         --------   --------   --------   --------
                                                                       (IN MILLIONS)
                                                                              
Net revenue............................................   $4,662     $5,003     $9,583     $9,840
Earnings from operations...............................   $ (130)    $  183     $ (149)    $  373


    Computing Systems' net revenue declined 7% in the second quarter and 3% in
the first half of 2001 compared to the same periods in fiscal 2000. On a foreign
currency-adjusted basis, net revenue declined 2% in the second quarter and grew
2% in the first half of 2001 compared to the same periods in fiscal 2000. The
decrease in net revenue in the three- and six-month periods reflected a decline
in home PCs, commercial desktop PCs, and Unix servers. These declines were
partially offset by revenue growth in notebook PCs, software, and enterprise
storage. Weak demand in the PC markets contributed significantly to the overall
segment revenue decline.

    Within the PC business, for both the second quarter and first half of fiscal
2001 compared to the prior year, significant revenue declines in home and
commercial desktop PCs were offset in part by growth in notebook PCs. The
revenue declines in home and commercial desktop PCs reflected a decrease in unit
sales due primarily to the overall PC market slowdown and lower average selling
prices resulting from competitive pricing pressures. In addition, commercial
desktop PC revenue was negatively impacted by the continued shift toward mobile
computing. Consequently, notebook PC revenue increased due to higher volumes,
but was moderated by decreasing average selling prices. In the second quarter
and first half of fiscal 2001, Unix server revenue declined over the same
periods a year ago due mainly to weakness in mid-range servers, partially offset
by growth in the low-end. The mid-range category was unfavorably impacted by
overall softness in the economy, demand shifts to other server categories, and
competitive pricing pressures. In addition, on a year-to-date basis, high-end
Unix server revenue was down slightly due to the slowdown in enterprise capital
spending and because our new high-end server, Superdome, did not begin shipping
in volume until January 2001. For the three- and six-month periods, software
revenue growth was driven by sales of OpenView, our services management
offering. Enterprise storage revenue growth was fueled by continued strength in
sales of our core XP line of products.

    Earnings from operations as a percentage of net revenue was (2.8)% for the
quarter ended April 30, 2001 compared to 3.7% for the same period in 2000. For
the first six months of the year, the earnings from operations ratio was (1.6)%
in 2001 compared to 3.8% in the prior year. On an overall basis, the decline in
the earnings from operations ratio in both periods was mainly attributable to
higher operating expenses as a percentage of net revenue, and to a lesser
degree, gross margin declines. The increase in operating expenses for both the
quarter and year-to-date periods was largely the result of significant hiring in
the sales organization to support future growth, as well as investments in
research and development for new server, enterprise storage, and software
products in conjunction with our "Always-On Infrastructure" strategy. Gross
margin declines in Unix servers, PC servers, and home and commercial PCs for
both the three- and six-month periods reflected the overall market slowdown and
competitive pricing pressures. Unix server gross margins also decreased due in
part to the current shift away from our higher-margin mid-range servers.
Partially offsetting these gross margin declines were gross margin improvements
in our software and enterprise storage businesses resulting from a favorable
product mix.

                                       23

IT SERVICES



                                                           THREE MONTHS ENDED     SIX MONTHS ENDED
                                                                APRIL 30,             APRIL 30,
                                                           -------------------   -------------------
                                                             2001       2000       2001       2000
                                                           --------   --------   --------   --------
                                                                         (IN MILLIONS)
                                                                                
Net revenue..............................................   $1,913     $1,758     $3,804     $3,434
Earnings from operations.................................   $  115     $  116     $  216     $  241


    IT Services' net revenue increased 9% in the second quarter and 11% in the
first half of fiscal 2001 compared to the same periods in fiscal 2000. On a
foreign currency-adjusted basis, net revenue growth was 16% in the second
quarter and 18% in the first half of fiscal 2001 compared to the same periods in
fiscal 2000. The growth in net revenue in both the three- and six-month periods
was driven primarily by strong performance in consulting services as well as
solid sales in customer support, technology financing, and outsourcing. This
growth was partially offset by a revenue decline in complementary third party
products delivered with sales of HP solutions.

    Net revenue growth in consulting in both the second quarter and first half
of fiscal 2001 was fueled by the investment in headcount during 2000, which has
enabled HP to pursue an increased number of, as well as larger, engagements in
2001. Consulting revenue for both the three- and six-month periods reflected
strong demand from the financial services and communications industries. The
increase in customer support revenue was driven by growth in mission critical
services and emerging businesses such as networking services. Our financing
business has been favorably impacted by the mix shift toward operating leases.
Revenue growth in outsourcing reflected larger, more comprehensive deals, while
the selective outsourcing business also grew steadily. Partially offsetting the
IT Services revenue increases was a decline in sales of complementary third
party products, due primarily to softened demand for networking products in
fiscal 2001.

    Earnings from operations as a percentage of net revenue was 6.0% for the
quarter ended April 30, 2001, compared to 6.6% for the same period in fiscal
2000. For the first half of fiscal 2001, earnings from operations as a
percentage of net revenue decreased to 5.7% from 7.0% in 2000. The decrease in
both the three- and six-month periods was driven largely by growth in operating
expenses, and to a lesser degree, declines in gross margins. The growth in
operating expenses resulted primarily from an increase in bad debt write-offs
and additions to reserves in our financing portfolio. Declines in gross margins
in our customer support business were partially offset by gross margin
improvements in consulting and outsourcing. Gross margin declines in support
resulted from mix shifts to higher-cost services. The increase in gross margin
for consulting resulted from improved labor utilization and overall engagement
cost management, while gross margin improvement in outsourcing reflected
increased process standardization and delivery efficiency.

LIQUIDITY AND CAPITAL RESOURCES

    Our financial position remained strong, with cash and cash equivalents and
short-term investments of $4.2 billion at April 30, 2001, compared to
$4.0 billion at October 31, 2000. During the first six months of fiscal 2001,
cash flows from operating activities and short-term borrowings were used mainly
to fund purchases of property, plant and equipment, repurchases of our common
stock, repurchases of our zero-coupon subordinated convertible notes and
payments of dividends.

    Cash flows from operating activities were $0.7 billion during the first six
months of fiscal 2001 compared to $2.0 billion for the corresponding period of
fiscal 2000. The decrease in cash flows from operating activities in the first
six months of fiscal 2001 resulted primarily from timing of payments on accounts
payable and a decline in net earnings due to the economic downturn, partially
offset by collections on receivables.

                                       24

    Inventory as a percentage of net revenue was 11.7% at April 30, 2001,
compared to 11.0% as of April 30, 2000, and 11.7% as of October 31, 2000. The
increase in the ratio year over year is primarily attributable to the economic
slowdown. However, the inventory ratio at April 30, 2001 has decreased from
12.4% as of January 31, 2001 resulting mainly from active inventory management.
Trade and financing receivables as a percentage of net revenue were 16.2%, down
from 16.5% in the same period a year ago and from 17.6% as of October 31, 2000.
The ratio at year-end reflected a relatively high level of receivables due to
seasonal fluctuations.

    Capital expenditures for the first six months of fiscal 2001 were
$889 million, compared to $763 million for the corresponding period in fiscal
2000. Net property, plant and equipment as a percentage of net revenue was 9.4%
as of April 30, 2001 compared to 9.6% as of April 30, 2000 and 9.2% at
October 31, 2000. This ratio has generally remained stable over the past twelve
months, reflecting our continuous effort to streamline operations through
outsourcing and consolidating activities, improving space utilization and
reducing asset intensity to build flexibility into our balance sheet.

    We invest excess cash in short- and long-term investments, depending on our
projected cash needs for operations, capital expenditures and other business
purposes. We also supplement our internally generated cash flow with a
combination of short- and long-term borrowings. Short- and long-term borrowings
in the first six months of fiscal 2001 increased by $1.1 billion, as short-term
debt borrowings were partially offset by repurchases of our zero-coupon
subordinated convertible notes and payments on other long-term debt. Long-term
debt totaling $252 million matured as scheduled in the first six months of
fiscal 2001. At April 30, 2001, we had an unused committed borrowing facility in
place totaling $1.0 billion.

    In December 2000, the Board of Directors authorized a repurchase program for
HP's zero-coupon subordinated convertible notes. Under the repurchase program,
we may repurchase the notes from time to time at varying prices. In the second
quarter of fiscal 2001, we repurchased $298 million in face value of the notes
with a book value of $178 million, resulting in an extraordinary gain on the
early extinguishment of debt of $12 million (net of related taxes of
$7 million). In the first half of fiscal 2001, we repurchased $898 million in
face value of the notes with a book value of $534 million, resulting in an
extraordinary gain on the early extinguishment of debt of $35 million (net of
related taxes of $21 million). Between May 1 and June 12, 2001, we repurchased
an additional $56 million in face value of the notes with a book value of $34
million, resulting in an extraordinary gain on the early extinguishment of debt
of $2 million (net of related taxes of $1 million).

    In February 2000, we filed a shelf registration statement with the SEC to
register $3.0 billion of debt securities, common stock, preferred stock,
depositary shares and warrants. This registration statement was declared
effective on March 17, 2000. On June 6, 2000, we offered under the registration
statement $1.5 billion of unsecured 7.15% Global Notes which mature on June 15,
2005, unless previously redeemed. This offering closed on June 9, 2000. We have
the capacity to issue an additional $1.5 billion of securities under the shelf
registration statement. On May 24, 2001, we filed a prospectus supplement to
this registration statement, which allows us to offer from time to time up to
$1.5 billion of Medium-Term Notes, Series A, due nine months or more from the
date of issue. As of the date of this filing, no Medium-Term Notes have been
issued under the shelf registration statement.

    HP and Hewlett-Packard Finance Company, a wholly-owned subsidiary of HP,
have the ability to offer from time to time up to $3.0 billion of Medium-Term
Notes under a Euro Medium Term Note Program filed with the Luxembourg Stock
Exchange. These notes can be denominated in any currency including the Euro.
However, these notes have not been and will not be registered in the U.S. As of
the date of this filing, we have the remaining capacity to issue approximately
$2.9 billion of Medium-Term Notes under the program.

                                       25

    We repurchase shares of our common stock under a systematic program to
manage the dilution created by shares issued under employee stock plans and a
separate incremental plan. These plans authorize purchases in the open market or
in private transactions. At October 31, 2000, we had authorization for future
repurchases of $868 million of common stock under the two programs. In
November 2000, the Board of Directors authorized an additional $2.0 billion of
future repurchases under these two programs in the aggregate. During the second
quarter of fiscal 2001, 6,703,600 shares were repurchased under these plans for
an aggregate price of $202 million. In the first half of fiscal 2001,
25,303,600 shares were repurchased for an aggregate price of $838 million. As of
April 30, 2001, we had authorization for remaining future repurchases under the
two programs of approximately $2.0 billion. In fiscal 2000, 19,644,000 shares
were repurchased for an aggregate price of $1.3 billion in the second quarter,
and 37,358,200 shares were repurchased for $2.3 billion in the first half of the
year. The number of shares repurchased for the second quarter and first half of
fiscal 2000 has been adjusted to reflect the two-for-one stock split in the form
of a stock dividend effective October 27, 2000.

    In January 2001, we acquired all of the outstanding stock of Bluestone in
exchange for $528 million of HP common stock and options. With this acquisition,
we expanded our Internet software offering by adding Bluestone's XML-based web
application server and tools to our portfolio, forming the core of HP's
middleware offering. The acquisition was recorded under the purchase method of
accounting, and accordingly, the purchase price was allocated to the net assets
acquired based on their estimated fair values. We recorded approximately
$345 million of goodwill and identified intangibles in conjunction with the
transaction. These intangible assets will be amortized on a straight-line basis
over three years. In addition, we recorded a pre-tax charge of approximately
$19 million for in-process research and development at the time of acquisition
because technological feasibility had not been established and no further
alternative uses existed. The fair value assigned to intangible assets acquired,
including in-process research and development, was based on a valuation prepared
by an independent third party appraisal firm.

    On June 4, 2001, HP and Pitney Bowes announced that they had entered into
agreements which resolve all pending patent litigation between the parties
without admission of infringement and in connection therewith HP paid Pitney
Bowes $400 million in cash on June 7, 2001. This payment did not have a material
impact on HP's cash and investments or liquidity. For further discussion
regarding the litigation see Note 3 to the Consolidated Condensed Financial
Statements.

FACTORS THAT COULD AFFECT FUTURE RESULTS

COMPETITION

    We encounter aggressive competition in all areas of our business. We have
numerous competitors, ranging from some of the world's largest corporations to
many relatively small and highly specialized firms. We compete primarily on the
basis of technology, performance, price, quality, reliability, distribution,
customer service and support. Product life cycles are short. To remain
competitive, we must be able to develop new products, services and support, as
well as periodically enhance our existing products, services and support. In
particular, we anticipate that we will have to continue to lower the prices of
many of our products, services and support to stay competitive and effectively
manage financial returns with resulting reduced gross margins. In some of our
markets, we may not be able to compete successfully against current and future
competitors, and the competitive pressures we face could harm our business and
prospects.

NEW PRODUCT AND SERVICE INTRODUCTIONS

    If we cannot continue to rapidly develop, manufacture and market innovative
products and services that meet customer requirements for performance and
reliability, we may lose market share and our

                                       26

future revenue and earnings may suffer. The process of developing new high
technology products and services is complex and uncertain. We must accurately
anticipate customers' changing needs and emerging technological trends. We
consequently must make long-term investments and commit significant resources
before knowing whether our predictions will eventually result in products that
the market will accept. After a product is developed, we must be able to
manufacture sufficient volumes quickly at low enough costs. To do this we must
accurately forecast volumes, mix of products and configurations. Additionally,
the supply and timing of a new product or service must match customers' demand
and timing for the particular product or service. Given the wide variety of
systems, products and services that HP offers, the process of planning
production and managing inventory levels becomes increasingly difficult.

RELIANCE ON THIRD PARTY DISTRIBUTION CHANNELS AND INVENTORY MANAGEMENT

    We use third-party distributors to sell our products, especially printers
and personal computers, in order to accommodate changing customer preferences.
As a result, the financial soundness of our wholesale and retail distributors,
and our continuing relationships with these distributors, are important to HP's
success. Some of these distributors may have insufficient financial resources
and may not be able to withstand changes in business conditions. Our revenue and
earnings could suffer if our distributors' financial condition or operations
weaken or if our relationships with them deteriorate.

    Additionally, inventory management becomes increasingly complex as we
continue to sell a significant mix of products through distributors. Third party
distributors constantly adjust their product orders from us in response to:

    - The supply of our products and our competitors' products available to the
      distributor,

    - The timing of new product introductions and relative features of the
      products, and

    - Seasonal fluctuations in end-user demand, such as back-to-school and
      holiday buying.

    Distributors may increase orders during times of product shortages, cancel
orders if their inventory is too high, or delay orders in anticipation of new
products. If we have excess inventory, we may have to reduce our prices and
write down inventory, which in turn could result in lower gross margins.

SHORT PRODUCT LIFE CYCLES

    The short life cycles of many of our products pose a challenge for us to
manage effectively the transition from existing products to new products. If we
do not manage the transition effectively, our revenue and earnings could suffer.
Among the factors that make a smooth transition from current products to new
products difficult are delays in product development or manufacturing,
variations in product costs and delays in customer purchases of existing
products in anticipation of new product introductions. Our revenue and earnings
could also suffer due to the timing of product or service introductions by our
suppliers and competitors. This is especially true when a competitor introduces
a new product just before our own product introduction. Furthermore, our new
products may replace or compete with a certain number of our own current
products.

INTELLECTUAL PROPERTY

    We generally rely upon patent, copyright, trademark and trade secret laws in
the U.S. and in certain other countries, and agreements with our employees,
customers and partners, to establish and maintain our proprietary rights in our
technology and products. However, any of our intellectual proprietary rights
could be challenged, invalidated or circumvented. Our intellectual property may
not necessarily provide significant competitive advantages. Also, because of the
rapid pace of technological change in the information technology industry, many
of our products rely on key technologies developed by third parties, and we may
not be able to continue to obtain licenses from these third

                                       27

parties. Third parties may claim that we are infringing their intellectual
property. Even if we do not believe that our products are infringing third
parties' intellectual property rights, the claims can be time-consuming and
costly to defend and divert management's attention and resources away from our
business. Claims of intellectual property infringement might also require us to
enter into costly royalty or license agreements. If we cannot or do not license
the infringed technology or substitute similar technology from another source,
our business could suffer.

RELIANCE ON SUPPLIERS

    Our manufacturing operations depend on our suppliers' ability to deliver
quality components and products in time for us to meet critical manufacturing
and distribution schedules. We sometimes experience a short supply of certain
component parts as a result of strong demand in the industry for those parts. If
shortages or delays persist, our operating results could suffer until other
sources can be developed. In order to secure components for the production of
new products, at times we make advance payments to suppliers, or we may enter
into non-cancelable purchase commitments with vendors. If the prices of these
component parts then decrease after we have entered into binding price
agreements, our earnings could suffer. Furthermore, we may not be able to secure
enough components at reasonable prices to build new products in a timely manner
in the quantities and configurations needed. Conversely, a temporary oversupply
of these parts also could adversely affect our operating results.

INTERNATIONAL

    Sales outside the U.S. make up more than half of our revenues. A portion of
our product and component manufacturing, along with key suppliers, are also
located outside of the U.S. Our future earnings or financial position could be
adversely affected by a variety of international factors, including:

    - Changes in a country's or region's political or economic conditions,

    - Trade protection measures,

    - Import or export licensing requirements,

    - The overlap of different tax structures,

    - Unexpected changes in regulatory requirements,

    - Differing technology standards,

    - Problems caused by the conversion of various European currencies to the
      Euro (see "Adoption of the Euro" section below), and

    - Natural disasters.

MARKET RISK

    We are exposed to foreign currency exchange rate risk inherent in our sales
commitments, anticipated sales and assets and liabilities denominated in
currencies other than the U.S. dollar. We are also exposed to interest rate risk
inherent in our debt and investment portfolios. Our risk management strategy
includes the use of derivative financial instruments, including forwards, swaps
and purchased options, to hedge certain foreign currency and interest rate
exposures. Our intent is to offset gains and losses that occur on the underlying
exposures, with gains and losses on the derivative contracts hedging these
exposures. We do not enter into derivatives for trading purposes. We are also
exposed to equity securities price risk on our portfolio of marketable equity
securities. We typically do not attempt to reduce or eliminate our market
exposure on these securities. See also Notes 8 and 9 to the Consolidated
Condensed Financial Statements in Item 1 above for more detailed information.

                                       28

    We have performed a sensitivity analysis as of April 30, 2001 assuming a
hypothetical 10% adverse movement in foreign exchange rates applied to the
hedging contracts and underlying exposures described above, and a hypothetical
10% adverse movement in interest rates applied to our debt and investment
portfolios. This analysis indicated that these hypothetical market movements
would not have a material effect on our consolidated financial position, results
of operations or cash flows. However, actual gains and losses in the future may
differ materially from that analysis based on changes in the timing and amount
of interest rate and foreign currency exchange rate movements and our actual
exposures and hedges.

IMPAIRMENT OF INVESTMENT AND FINANCING PORTFOLIOS

    We have an investment portfolio which includes minority equity and debt
investments in numerous emerging market companies. In particular, we have
invested in various privately held companies, many of which are still in the
start-up or development stage. These investments are inherently risky because
the markets for the technologies or products they have under development are
typically in the early stages and may never develop. Furthermore, the values of
our investments in publicly-traded companies are subject to significant market
price volatility. We may incur losses related to our investments in these
companies. Our investments in technology companies are often coupled with a
strategic commercial relationship. Our commercial agreements with these
companies may not be sufficient to allow us to obtain and integrate such
products or technology into our technology or product lines, and these companies
may be subsequently acquired by third parties, including competitors of ours.

    Moreover, we often provide financing for the purchase of our products and
services to technology companies. Due to the economic downturn and difficulties
that may be faced by some of these companies, our financing portfolio could be
further impaired.

ACQUISITIONS, STRATEGIC ALLIANCES, JOINT VENTURES AND DIVESTITURES

    In the normal course of business, we frequently engage in discussions with
third parties relating to possible acquisitions, strategic alliances, joint
ventures and divestitures. Although completion of any one transaction may not
have a material effect on our financial position, results of operations or cash
flows taken as a whole, it may contribute to our financial results differing
from the investment community's expectations in a given quarter. Divestiture of
a part of our business may result in the cancellation of orders and charges to
earnings. Acquisitions and strategic alliances may require us to integrate with
a different company culture, management team and business infrastructure. We may
also have to develop, manufacture and market products with our products in a way
that enhances the performance of the combined business or product line.
Depending on the size and complexity of an acquisition, our successful
integration of the entity into HP depends on a variety of factors, including:

    - The hiring and retention of key employees,

    - Management of facilities and employees in separate geographic areas, and

    - The integration or coordination of different research and development and
      product manufacturing facilities.

    All of these efforts require varying levels of management resources, which
may divert our attention from other business operations.

EARTHQUAKES AND POWER OUTAGES

    Our corporate headquarters, a portion of our research and development
activities, other critical business operations and a certain number of our
suppliers are located in California. The ultimate impact on HP, our significant
suppliers and our general infrastructure of being located near major earthquake
faults is unknown, but operating results could be materially adversely affected
in the event

                                       29

of a major earthquake. In addition, California has experienced, and continues to
experience, ongoing power shortages, which have resulted in "rolling blackouts."
These blackouts could cause disruptions to our operations and the operations of
our suppliers, distributors and resellers, and customers. We are predominantly
uninsured for losses and interruptions caused by earthquakes and power outages.

ENVIRONMENTAL

    Some of our operations use substances regulated under various federal, state
and international laws governing the environment. It is our policy to apply
strict standards for environmental protection to sites inside and outside the
U.S., even when not subject to local government regulations. We record a
liability for environmental remediation and related costs when we consider the
costs to be probable and the amount of the costs can be reasonably estimated.
Environmental costs are presently not material to our results of operations or
financial position.

PROFIT MARGIN

    Our profit margins vary somewhat among our products, customer groups and
geographic markets. Consequently, our overall profitability in any given period
is partially dependent on the product, customer and geographic mix reflected in
that period's net revenue.

STOCK PRICE

    HP's stock price, like that of other technology companies, can be volatile.
Some of the factors that can affect our stock price are:

    - Our, or a competitor's, announcement of new products, services or
      technological innovations,

    - Quarterly increases or decreases in our revenue or earnings,

    - Changes in revenue or earnings estimates by the investment community, and

    - Speculation in the press or investment community about our financial
      condition or results of operations.

    General market conditions and domestic or international macroeconomic
factors unrelated to our performance may also affect our stock price. For these
reasons, investors should not rely on recent trends to predict future stock
prices or financial results. In addition, following periods of volatility in a
company's securities, securities class action litigation against a company is
sometimes instituted. This type of litigation could result in substantial costs
and the diversion of management time and resources.

ECONOMIC UNCERTAINTY

    The revenue growth and profitability of our business depends significantly
on the overall demand for computing and imaging products and services,
particularly in the product and service segments in which we compete. Softening
demand for these products and services caused by ongoing economic uncertainty
has resulted, and may further result, in decreased revenues, earnings levels or
growth rates or inventory writedowns. The global economy has weakened and market
conditions continue to be challenging. This has resulted in individuals and
companies delaying or reducing expenditures, such as for information technology.
Further delays or reductions in information technology spending could have a
material adverse effect on demand for our products and services, and
consequently on our business, operating results, financial condition, prospects
and stock price.

                                       30

EARNINGS FLUCTUATIONS

    Although we believe that we have the products and resources needed for
continuing success, we cannot reliably predict future revenue and margin trends.
Actual trends may cause us to adjust our operations, which could cause
period-to-period fluctuations in our earnings.

SPIN-OFF OF AGILENT TECHNOLOGIES

    On June 2, 2000, we distributed to our stockholders of record as of the
close of business on May 2, 2000, substantially all of the common stock of
Agilent Technologies owned by HP. We may not obtain the benefits we expect as a
result of this distribution, such as greater strategic focus on our core
computing and imaging and printing businesses.

    In conjunction with the spin-off of Agilent Technologies, we entered into
transitional service agreements with Agilent Technologies to support ongoing
operations of Agilent Technologies relating to certain administrative processes.
These transitional service agreements generally have terms of two years or less
following the spin-off. As each of these service agreements expires, the fees
and cost reimbursements currently being paid to us by Agilent Technologies for
the associated services will also cease.

ADOPTION OF THE EURO

    We had established a dedicated task force to address the issues raised by
the introduction of a European single currency, the Euro. The Euro's initial
implementation was effective as of January 1, 1999, and the transition period
will continue through January 1, 2002. On January 1, 1999, we began converting
our product prices from local currencies to Euros as required. We implemented
system changes to give multi-currency capability to internal applications and to
ensure that external partners' systems processing Euro conversions are compliant
with the European Council regulations. In addition, we have implemented design
changes to support display and printing of the Euro character by impacted HP
products.

    The introduction and use of the Euro has not had a material effect on our
foreign exchange and hedging activities or our use of derivative instruments,
and we do not presently expect that it will. All costs associated with the
conversion to the Euro are expensed to operations as incurred. While we will
continue to evaluate the impact of the Euro over time, based on currently
available information, we do not believe that the introduction of the Euro
currency will have a material adverse impact on our consolidated financial
condition, cash flows or results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

    For quantitative and qualitative disclosures about market risk affecting HP,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Factors That Could Affect Future Results--Market Risk" in Item 2
above, which is incorporated herein by reference.

                                       31

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

    The information set forth under Note 3 contained in the "Notes to
Consolidated Condensed Financial Statements" of this Quarterly Report on
Form 10-Q is incorporated herein by reference.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

    (a) Exhibits:

    A list of exhibits is set forth in the Exhibit Index found on page 34 of
    this report.

    (b) Reports on Form 8-K:

    On February 8, 2001, HP filed a report on Form 8-K, which reported under
Item 5 that on February 2, 2001, HP's Audit Committee of the Board of Directors
selected and appointed Ernst & Young LLP as HP's independent public accountants
with respect to HP's audit for the fiscal year ending October 31, 2001.

    On February 15, 2001, HP filed a report on Form 8-K, which reported under
Item 5 the issuance of a press release containing financial information for the
first quarter of fiscal year 2001 and forward-looking statements relating to
fiscal year 2001.

    On April 18, 2001, HP filed a report on Form 8-K, which reported under Item
5 the issuance of a press release containing revised forward-looking statements
related to the second and third quarters of fiscal year 2001.

    On May 16, 2001, HP filed a report on Form 8-K, which reported under Item 5
the issuance of a press release containing financial information for the second
quarter and first half of fiscal year 2001 and forward-looking statements
relating to the third quarter of fiscal year 2001.

    On May 24, 2001, HP filed a report on Form 8-K, relating to the offering of
up to $1.5 billion of Medium-Term Notes, Series A, due nine months or more from
the date of issue under HP's shelf registration statement on Form S-3
(No. 333-30786), declared effective on March 17, 2000.

    On June 4, 2001, HP filed a report on Form 8-K, which reported under Item 5
the issuance of a joint press release with Pitney Bowes Inc. announcing the
settlement of litigation between the two companies and ongoing business and
technology opportunities for both firms.

    On June 5, 2001, HP filed a report on Form 8-K, which reported under Item 5
the issuance of a press release updating HP's previously released earnings per
share for the second fiscal quarter ended April 30, 2001, due to a litigation
settlement with Pitney Bowes Inc.

    On June 6, 2001, HP filed a report on Form 8-K, which reported under Item 5
the issuance of a press release regarding the global slowdown in IT spending and
its possible impact on previous forward-looking statements relating to the third
quarter of fiscal year 2001.

                                       32

                                   SIGNATURE

    Pursuant to the requirements 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.


                                                   
                                                                  HEWLETT-PACKARD COMPANY

                                                                    /S/ ROBERT P. WAYMAN
                                                      ------------------------------------------------
                                                                      Robert P. Wayman
                                                                 EXECUTIVE VICE PRESIDENT,
                                                        FINANCE AND ADMINISTRATION, CHIEF FINANCIAL
                                                                        OFFICER AND
                                                           DIRECTOR (PRINCIPAL FINANCIAL OFFICER)


Date: June 13, 2001

                                       33

                    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
                                 EXHIBIT INDEX



       EXHIBIT
       NUMBER                                   DESCRIPTION
---------------------   ------------------------------------------------------------
                     
1                       Not applicable.
2                       Master Separation and Distribution Agreement between
                        Hewlett-Packard Company and Agilent Technologies, Inc.
                        effective as of August 12, 1999, which appears as Exhibit 2
                        to Registrant's Annual Report on Form 10-K for the fiscal
                        year ended October 31, 1999, which exhibit is incorporated
                        herein by reference.
3(a)                    Registrant's Certificate of Incorporation, which appears as
                        Exhibit 3(a) to Registrant's Quarterly Report on Form 10-Q
                        for the fiscal quarter ended April 30, 1998, which exhibit
                        is incorporated herein by reference.
3(b)                    Registrant's Amendment to the Certificate of Incorporation,
                        which appears as Exhibit 3(b) to Registrant's Quarterly
                        Report on Form 10-Q for the fiscal quarter ended
                        January 31, 2001, which exhibit is incorporated herein by
                        reference.
3(c)                    Registrant's Amended By-Laws, which appears as Exhibit 3(b)
                        to Registrant's Annual Report on Form 10-K for the fiscal
                        year ended October 31, 1999, which exhibit is incorporated
                        herein by reference.
4(a)                    Indenture dated as of October 14, 1997 among Registrant and
                        Chase Trust Company of California regarding Liquid Yield
                        Option Notes due 2017 which appears as Exhibit 4.2 to
                        Registrant's Registration Statement on Form S-3
                        (Registration No. 333-44113), which exhibit is incorporated
                        herein by reference.
4(b)                    Supplemental Indenture dated as of March 16, 2000 among
                        Registrant and Chase Trust Company of California regarding
                        Liquid Yield Option Notes due 2017, which appears as Exhibit
                        4(b) to Registrant's Quarterly Report on Form 10-Q for the
                        fiscal quarter ended July 31, 2000, which exhibit is
                        incorporated herein by reference.
4(c)                    Form of Registrant's 7.15% Global notes due June 15, 2005
                        and related Officers' Certificate, which appear as Exhibits
                        4.1 and 4.3 to Registrant's Form 8-K filed on June 15, 2000,
                        which exhibits are incorporated herein by reference.
4(d)                    Senior Indenture, which appears as Exhibit 4.1 to
                        Registrant's Registration Statement on Form S-3 dated
                        February 18, 2000, as amended by Amendment No. 1 thereto
                        dated March 17, 2000 (Registration No. 333-30786), which
                        exhibit is incorporated herein by reference.
4(e)                    Form of Registrant's Fixed Rate Note and Floating Rate Note
                        and related Officers' Certificate, which appear as Exhibits
                        4.1, 4.2 and 4.4 to Registrant's Form 8-K filed on May 24,
                        2001, which exhibits are incorporated herein by reference.
5-8                     Not applicable.
9                       None.
10(a)                   Registrant's 1985 Incentive Compensation Plan, as amended,
                        which appears as Exhibit 10(a) to Registrant's Annual Report
                        on Form 10-K for the fiscal year ended October 31, 1999,
                        which exhibit is incorporated herein by reference.*
10(b)                   Registrant's 1985 Incentive Compensation Plan, as amended,
                        stock option agreement, which appears as Exhibit 10(b) to
                        Registrant's Annual Report on Form 10-K for the fiscal year
                        ended October 31, 1999, which exhibit is incorporated herein
                        by reference.*
10(c)                   Registrant's Excess Benefit Retirement Plan, amended and
                        restated as of November 1, 1999, which appears as Exhibit
                        10(c) to Registrant's Quarterly Report on Form 10-Q for the
                        fiscal quarter ended July 31, 2000, which exhibit is
                        incorporated herein by reference.*
10(d)                   Registrant's 1990 Incentive Stock Plan, as amended.*


                                       34




       EXHIBIT
       NUMBER                                   DESCRIPTION
---------------------   ------------------------------------------------------------
                     
10(e)                   Registrant's 1990 Incentive Stock Option Plan, as amended,
                        stock option agreement, which appears as Exhibit 10(e) to
                        Registrant's Annual Report on Form 10-K for the fiscal year
                        ended October 31, 1999, which exhibit is incorporated herein
                        by reference.*
10(f)                   Registrant's 1995 Incentive Stock Plan, as amended.*
10(g)                   Registrant's 1995 Incentive Stock Plan, as amended, stock
                        option and restricted stock agreements, which appears as
                        Exhibit 10(g) to Registrant's Annual Report on Form 10-K for
                        the fiscal year ended October 31, 1999, which exhibit is
                        incorporated herein by reference.*
10(h)                   Registrant's 1997 Director Stock Plan which appears as
                        Exhibit 99 to Registrant's Form S-8 filed on March 7, 1997,
                        which exhibit is incorporated herein by reference.*
10(i)                   Registrant's Executive Deferred Compensation Plan, Amended
                        and Restated effective November 1, 2000, which appears as
                        Exhibit 10(i) to Registrant's Annual Report on Form 10-K for
                        the fiscal year ended October 31, 2000, which exhibit is
                        incorporated herein by reference.*
10(j)                   VeriFone, Inc. Amended and Restated 1992 Non-Employee
                        Directors' Stock Option Plan which appears as Exhibit 99.1
                        to Registrant's Form S-8 filed on July 1, 1997, which
                        exhibit is incorporated herein by reference.*
10(k)                   VeriFone, Inc. Amended and Restated Incentive Stock Option
                        Plan and form of agreement which appears as Exhibit 99.2 to
                        Registrant's Form S-8 filed on July 1, 1997, which exhibit
                        is incorporated herein by reference.*
10(l)                   VeriFone, Inc. Amended and Restated 1987 Supplemental Stock
                        Option Plan and form of agreement which appears as Exhibit
                        99.3 to Registrant's Form S-8 filed on July 1, 1997, which
                        exhibit is incorporated herein by reference.*
10(m)                   Enterprise Integration Technologies Corporation 1991 Stock
                        Plan and form of agreement which appears as Exhibit 99.4 to
                        Registrant's Form S-8 filed on July 1, 1997, which exhibit
                        is incorporated herein by reference.*
10(n)                   VeriFone, Inc. Amended and Restated Employee Stock Purchase
                        Plan which appears as Exhibit 99.1 to Registrant's Form S-8
                        filed on July 1, 1997, which exhibit is incorporated herein
                        by reference.*
10(o)                   Registrant's 1998 Subsidiary Employee Stock Purchase Plan
                        and the Subscription Agreement which appear as Appendices E
                        and E-1 to Registrant's Proxy Statement dated January 12,
                        1998, respectively, which appendices are incorporated herein
                        by reference.*
10(p)                   Transition Agreement, dated May 20, 1999, between Registrant
                        and Lewis E. Platt which appears as Exhibit 10(ee) to
                        Registrant's Quarterly Report on Form 10-Q for the fiscal
                        quarter ended July 31, 1999, which exhibit is incorporated
                        herein by reference.*
10(q)                   Employment Agreement, dated May 20, 1999, between Registrant
                        and Robert P. Wayman which appears as Exhibit 10(ff) to
                        Registrant's Quarterly Report on Form 10-Q for the fiscal
                        quarter ended July 31, 1999, which exhibit is incorporated
                        herein by reference.*
10(r)                   Employment Agreement, dated July 17, 1999, between
                        Registrant and Carleton S. Fiorina which appears as Exhibit
                        10(gg) to Registrant's Quarterly Report on Form 10-Q for the
                        fiscal quarter ended July 31, 1999, which exhibit is
                        incorporated herein by reference.*
10(s)                   Executive Transition Program which appears as Exhibit 10(hh)
                        to Registrant's Quarterly Report on Form 10-Q for the fiscal
                        quarter ended July 31, 1999, which exhibit is incorporated
                        herein by reference.*
10(t)                   Incentive Stock Plan Stock Option Agreement (Non-Qualified),
                        dated July 17, 1999, between Registrant and Carleton S.
                        Fiorina which appears as Exhibit 10(ii) to Registrant's
                        Quarterly Report on Form 10-Q for the fiscal quarter ended
                        July 31, 1999, which exhibit is incorporated herein by
                        reference.*


                                       35




       EXHIBIT
       NUMBER                                   DESCRIPTION
---------------------   ------------------------------------------------------------
                     
10(u)                   Restricted Stock Agreement, dated July 17, 1999, between
                        Registrant and Carleton S. Fiorina which appears as Exhibit
                        10(jj) to Registrant's Quarterly Report on Form 10-Q for the
                        fiscal quarter ended July 31, 1999, which exhibit is
                        incorporated herein by reference.*
10(v)                   Restricted Stock Unit Agreement, dated July 17, 1999,
                        between Registrant and Carleton S. Fiorina which appears as
                        Exhibit 10(kk) to Registrant's Quarterly Report on Form 10-Q
                        for the fiscal quarter ended July 31, 1999, which exhibit is
                        incorporated herein by reference.*
10(w)                   Registrant's 2000 Stock Plan which appears as Exhibit 4.1 to
                        Registrant's Form S-8 filed on April 28, 2000, which exhibit
                        is incorporated herein by reference.*
10(x)                   Registrant's 2000 Employee Stock Purchase Plan which appears
                        as Exhibit 4.2 to Registrant's Form S-8 filed on April 28,
                        2000, which exhibit is incorporated herein by reference.*
10(y)                   Registrant's Executive Pay-For-Results Plan (Amended and
                        Restated as of November 1, 2000), which appears as Exhibit
                        10(y) to Registrant's Annual Report on Form 10-K for the
                        fiscal year ended October 31, 2000, which exhibit is
                        incorporated herein by reference.*
10(z)                   Registrant's Pay-For-Results Short-Term Bonus Plan
                        (Effective November 1, 2000), which appears as Exhibit 10(z)
                        to Registrant's Annual Report on Form 10-K for the fiscal
                        year ended October 31, 2000, which exhibit is incorporated
                        herein by reference.*
10(aa)                  Executive Transition Program General Waiver, Release and
                        Agreement, dated February 13, 2001, between Registrant and
                        Carolyn Ticknor, which appears as Exhibit 10(aa) to
                        Registrant's Quarterly Report on Form 10-Q for the fiscal
                        quarter ended January 31, 2001, which exhibit is
                        incorporated herein by reference.*
11                      Not applicable.
12                      Statement of Computation of Ratio of Earnings to Fixed
                        Charges.
13-17                   Not applicable.
18                      None.
19-21                   Not applicable.
22                      None.
23-27                   Not applicable.
28                      None.
99                      Not applicable.


------------------------

*   Indicates management contract or compensatory plan, contract or arrangement.

                                       36