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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 JULY 31, 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 Identification No.)
    incorporation or organization)

    3000 HANOVER STREET, PALO ALTO,                           94304
              CALIFORNIA                                    (Zip Code)
    (Address of principal executive
               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 AUGUST 31, 2001
-----------------------------  ------------------------------
                            
Common Stock, $0.01 par value       1,940,026,955 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 nine months ended July 31, 2001 and 2000
            (Unaudited)...............................................      3

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

          Consolidated Condensed Statement of Cash Flows
                  Nine months ended July 31, 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.........................     21

          Item 3.  Quantitative and Qualitative Disclosures About
                   Market Risk........................................     36

Part II.  Other Information

          Item 1.  Legal Proceedings..................................     37

          Item 6.  Exhibits and Reports on Form 8-K...................     37

Signature.............................................................     39

Exhibit Index.........................................................     40


                                       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        NINE MONTHS ENDED
                                                                     JULY 31,                 JULY 31,
                                                              -----------------------   ---------------------
                                                                 2001         2000        2001        2000
                                                              ----------   ----------   ---------   ---------
                                                                                        
Net revenue:
  Products..................................................   $ 8,219       $9,919      $27,856     $30,109
  Services..................................................     1,928        1,899        5,846       5,410
                                                               -------       ------      -------     -------
    Total net revenue.......................................    10,147       11,818       33,702      35,519

Costs and expenses:
  Cost of products sold and services........................     7,520        8,308       24,890      25,252
  Research and development..................................       662          663        2,020       1,941
  Selling, general and administrative.......................     1,820        1,755        5,686       5,392
                                                               -------       ------      -------     -------
    Total costs and expenses................................    10,002       10,726       32,596      32,585
                                                               -------       ------      -------     -------
Earnings from operations....................................       145        1,092        1,106       2,934
Interest income and other, net..............................       159          276          525         641
Interest expense............................................        73           60          233         156
Litigation settlement.......................................        --           --          400          --
Impairment losses on investments............................        --           --          365          --
Losses (gains) on divestitures..............................       131           --          131          (8)
                                                               -------       ------      -------     -------
Earnings from continuing operations before extraordinary
  item and taxes............................................       100        1,308          502       3,427
(Benefit) provision for taxes...............................        (3)         279           39         788
                                                               -------       ------      -------     -------
Net earnings from continuing operations before extraordinary
  item......................................................       103        1,029          463       2,639
Net earnings from discontinued operations...................        --           17           --         136
                                                               -------       ------      -------     -------
Net earnings before extraordinary item......................       103        1,046          463       2,775
Extraordinary item--gain on early extinguishment of debt,
  net of taxes..............................................         8           --           43          --
                                                               -------       ------      -------     -------
Net earnings................................................   $   111       $1,046      $   506     $ 2,775
                                                               =======       ======      =======     =======
Basic net earnings per share:
  Net earnings from continuing operations before
    extraordinary item......................................   $  0.05       $ 0.52      $  0.24     $  1.33
  Net earnings from discontinued operations.................        --         0.01           --        0.07
  Extraordinary item--gain on early extinguishment of debt,
    net of taxes............................................      0.01           --         0.02          --
                                                               -------       ------      -------     -------
  Net earnings..............................................   $  0.06       $ 0.53      $  0.26     $  1.40
                                                               =======       ======      =======     =======
Diluted net earnings per share:
  Net earnings from continuing operations before
    extraordinary item......................................   $  0.05       $ 0.50      $  0.24     $  1.28
  Net earnings from discontinued operations.................        --         0.01           --        0.06
  Extraordinary item--gain on early extinguishment of debt,
    net of taxes............................................      0.01           --         0.02          --
                                                               -------       ------      -------     -------
  Net earnings..............................................   $  0.06       $ 0.51      $  0.26     $  1.34
                                                               =======       ======      =======     =======

Cash dividends declared per share...........................   $  0.16       $ 0.16      $  0.32     $  0.32

Average number of shares and share equivalents:
  Basic.....................................................     1,936        1,975        1,935       1,987
  Diluted...................................................     1,967        2,089        1,976       2,086


  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)



                                                               JULY 31,     OCTOBER 31,
                                                                 2001          2000
                                                              -----------   -----------
                                                              (UNAUDITED)
                                                                      
                                        ASSETS
Current assets:
  Cash and cash equivalents.................................    $ 2,727       $ 3,415
  Short-term investments....................................        513           592
  Accounts receivable, net..................................      4,900         6,394
  Financing receivables, net................................      2,153         2,174
  Inventory.................................................      5,489         5,699
  Other current assets......................................      5,180         4,970
                                                                -------       -------
    Total current assets....................................     20,962        23,244
                                                                -------       -------
Property, plant and equipment (net of accumulated
  depreciation of $5,340 and $5,005 at July 31, 2001 and
  October 31, 2000, respectively)...........................      4,613         4,500
Long-term investments and other assets......................      6,799         6,265
                                                                -------       -------
Total assets................................................    $32,374       $34,009
                                                                =======       =======

                         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Notes payable and short-term borrowings...................    $ 2,012       $ 1,555
  Accounts payable..........................................      3,238         5,049
  Employee compensation and benefits........................      1,442         1,584
  Taxes on earnings.........................................      2,067         2,046
  Deferred revenues.........................................      1,879         1,759
  Other accrued liabilities.................................      3,312         3,204
                                                                -------       -------
    Total current liabilities...............................     13,950        15,197
                                                                -------       -------
Long-term debt..............................................      3,511         3,402
Other liabilities...........................................      1,044         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 July 31, 2001 and October 31, 2000,
    respectively; 1,939 and 1,947 shares issued and
    outstanding at July 31, 2001 and October 31, 2000,
    respectively)...........................................         19            19
  Additional paid-in capital................................         18            --
  Retained earnings.........................................     13,792        14,097
  Accumulated other comprehensive income....................         40            93
                                                                -------       -------
    Total stockholders' equity..............................     13,869        14,209
                                                                -------       -------
Total liabilities and stockholders' equity..................    $32,374       $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)



                                                               NINE MONTHS ENDED
                                                                   JULY 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                   
Cash flows from operating activities:
  Net earnings, excluding net earnings from discontinued
    operations..............................................  $   506    $ 2,639
  Adjustments to reconcile net earnings from continuing
    operations to net cash provided by operating activities:
    Depreciation and amortization...........................    1,006        907
    Impairment losses on investments........................      365         --
    Deferred taxes on earnings..............................     (817)       291
    Gain on early extinguishment of debt, net of taxes......      (43)        --
    Losses (gains) on divestitures..........................      131         (8)
    Changes in assets and liabilities:
      Accounts and financing receivables....................    1,458       (255)
      Inventory.............................................      179       (709)
      Accounts payable......................................   (1,796)       886
      Taxes on earnings.....................................       29       (684)
      Other current assets and liabilities..................      (65)      (217)
      Other, net............................................     (134)       (40)
                                                              -------    -------
      Net cash provided by operating activities.............      819      2,810
                                                              -------    -------
Cash flows from investing activities:
    Investment in property, plant and equipment.............   (1,335)    (1,197)
    Proceeds from sale of property, plant and equipment.....      355        284
    Purchases of investments................................     (240)      (949)
    Maturities and sales of investments.....................      223        851
    Cash acquired through business acquisition..............      163         --
    Other, net..............................................       37         81
                                                              -------    -------
      Net cash used in investing activities.................     (797)      (930)
                                                              -------    -------
Cash flows from financing activities:
    Increase (decrease) in notes payable and short-term
      borrowings............................................      569     (1,338)
    Issuance of long-term debt..............................      763      1,883
    Payment of long-term debt...............................     (271)      (355)
    Repurchase of zero-coupon subordinated convertible
      notes.................................................     (581)        --
    Issuance of common stock under employee stock plans.....      314        659
    Repurchase of common stock..............................   (1,038)    (3,781)
    Dividends...............................................     (466)      (481)
                                                              -------    -------
      Net cash used in financing activities.................     (710)    (3,413)
                                                              -------    -------
Net cash provided by discontinued operations................       --        964
                                                              -------    -------
Decrease in cash and cash equivalents.......................     (688)      (569)
Cash and cash equivalents at beginning of period............    3,415      5,411
                                                              -------    -------
Cash and cash equivalents at end of period..................  $ 2,727    $ 4,842
                                                              =======    =======


  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 July 31,
2001 and October 31, 2000, its results of operations for the three- and
nine-month periods ended July 31, 2001 and 2000, and its cash flows for the
nine-month periods ended July 31, 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 nine-month periods ended
July 31, 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 currently evaluating the impact on its
consolidated financial position and results of operations. Upon adoption, HP
anticipates that it will restate its consolidated financial position and results
of operations for the first three quarters of fiscal year 2001, including a
cumulative effect of a change in accounting principle, which will be recorded
retroactively as of the beginning of the first quarter of fiscal year 2001.

    In April 2001, the Emerging Issues Task Force ("EITF") reached a consensus
on EITF Issue No. 00-25, "Vendor Income Statement Characterization of
Consideration Paid to a Reseller of the Vendor's Products" ("EITF 00-25"). The
consensus concluded that consideration from a vendor to a reseller of the
vendor's products is generally presumed to be an adjustment to the selling
prices of the vendor's products and, therefore, should be classified as a
reduction of revenue. EITF 00-25 is effective for annual or interim financial
statements of periods beginning after December 15, 2001. HP is currently in the
process of evaluating the impact that adoption will have on its results of
operations.

    In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Intangible Assets." SFAS 141
requires that all business combinations be accounted for by the purchase

                                       6

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

                                  (UNAUDITED)

NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
method of accounting and changes the criteria for recognition of intangible
assets acquired in a business combination. The provisions of SFAS 141 apply to
all business combinations initiated after June 30, 2001. HP does not expect that
the adoption of SFAS 141 will have a material effect on its consolidated
financial position or results of operations. SFAS 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized but tested
for impairment at least annually, while intangible assets with finite useful
lives continue to be amortized over their respective useful lives. The standard
also establishes specific guidance for testing goodwill and intangible assets
with indefinite useful lives for impairment. The provisions of SFAS 142 will be
effective for HP's fiscal year 2003, with early adoption permitted at the
beginning of HP's fiscal year 2002. However, goodwill and intangible assets
acquired after June 30, 2001 will be subject immediately to the provisions of
SFAS 142. HP is currently in the process of evaluating the potential impact the
adoption of SFAS 142 will have on its consolidated financial position or results
of operations.

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 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 the 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

                                       7

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

                                  (UNAUDITED)

NOTE 3: LITIGATION SETTLEMENT AND CONTINGENCIES (CONTINUED)
"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. required that
the $400 million settlement charge be recorded in HP's consolidated condensed
financial statements for the second quarter ended April 30, 2001 as the
Quarterly Report on Form 10-Q for that quarter 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: RESTRUCTURING CHARGES

    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 were 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 employee benefits related to the
elimination of approximately 1,500 marketing positions worldwide, across many
regions and job classes. As of July 31, 2001, HP had paid out approximately
$40 million of the accrued costs. HP expects that the remainder of the accrual
will be paid out during the fourth quarter of fiscal year 2001.

    In July 2001, HP's management announced plans for a workforce reduction in
order to improve HP's cost structure by simplifying its organizational model,
prioritizing its resources on strategic areas of its business and retaining the
skills base it believes will best serve HP for the future. HP expects to record
a restructuring charge of approximately $250 million to $300 million in
connection with the plan. This charge consists of severance and other employee
benefits related to the elimination of approximately 6,000 positions worldwide,
across many regions, business functions and job classes, and related costs for
consolidation of excess facilities. The majority of the restructuring charge is
expected to be recorded and paid out in the fourth quarter of fiscal 2001, while
HP expects to incur the remainder in the first quarter of fiscal 2002 as it
works through country-specific labor laws and regulations outside of the U.S.

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

                                       8

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

                                  (UNAUDITED)

NOTE 5: DISCONTINUED OPERATIONS (CONTINUED)
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 condensed 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.

    Net earnings from discontinued operations were $17 million for the third
quarter and $136 million for the first nine months of fiscal 2000. Of the
$136 million, net earnings of Agilent Technologies for the period from the
July 31, 1999 measurement date through the June 2, 2000 spin-off date totaled
$287 million (net of related tax expense of $174 million), and the net costs to
effect the spin-off were $151 million (net of related tax benefit of
$23 million). The $17 million recorded in the third quarter of fiscal 2000
consisted mainly of a final true-up of the net costs to effect the spin-off.

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.

                                       9

                    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        NINE MONTHS ENDED
                                                                     JULY 31,                 JULY 31,
                                                              -----------------------   ---------------------
                                                                 2001         2000        2001        2000
                                                              ----------   ----------   ---------   ---------
                                                                   (IN MILLIONS, EXCEPT PER SHARE DATA)
                                                                                        
Numerator:
  Net earnings from continuing operations before
    extraordinary item......................................    $  103       $1,029      $  463      $2,639
  Adjustment for interest expense on zero-coupon
    subordinated convertible notes, net of income tax
    effect..................................................         3            8          13          22
                                                                ------       ------      ------      ------
  Net earnings from continuing operations before
    extraordinary item, adjusted............................       106        1,037         476       2,661
  Net earnings from discontinued operations.................        --           17          --         136
                                                                ------       ------      ------      ------
  Net earnings before extraordinary item, adjusted..........       106        1,054         476       2,797
  Extraordinary item--gain on early extinguishment of debt,
    net of taxes............................................         8           --          43          --
                                                                ------       ------      ------      ------
  Net earnings, adjusted....................................    $  114       $1,054      $  519      $2,797
                                                                ======       ======      ======      ======
Denominator:
  Weighted-average shares used to compute basic EPS.........     1,936        1,975       1,935       1,987
  Effect of dilutive securities:
    Dilutive options and other stock-based awards...........        16           84          21          69
    Zero-coupon subordinated convertible notes..............        15           30          20          30
                                                                ------       ------      ------      ------
  Dilutive potential common shares..........................        31          114          41          99
                                                                ------       ------      ------      ------
  Weighted-average shares used to compute diluted EPS.......     1,967        2,089       1,976       2,086
                                                                ======       ======      ======      ======
Basic net earnings per share:
  Net earnings from continuing operations before
    extraordinary item......................................    $ 0.05       $ 0.52      $ 0.24      $ 1.33
  Net earnings from discontinued operations.................        --         0.01          --        0.07
  Extraordinary item--gain on early extinguishment of debt,
    net of taxes............................................      0.01           --        0.02          --
                                                                ------       ------      ------      ------
  Net earnings..............................................    $ 0.06       $ 0.53      $ 0.26      $ 1.40
                                                                ======       ======      ======      ======
Diluted net earnings per share:
  Net earnings from continuing operations before
    extraordinary item......................................    $ 0.05       $ 0.50      $ 0.24      $ 1.28
  Net earnings from discontinued operations.................        --         0.01          --        0.06
  Extraordinary item--gain on early extinguishment of debt,
    net of taxes............................................      0.01           --        0.02          --
                                                                ------       ------      ------      ------
  Net earnings..............................................    $ 0.06       $ 0.51      $ 0.26      $ 1.34
                                                                ======       ======      ======      ======


NOTE 7: ACQUISITIONS AND DIVESTITURES

   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 $350 million of goodwill and identified intangibles in
conjunction with the transaction. These intangible assets are being amortized on
a straight-line basis over three years. Amortization of the goodwill, which
represents a majority of these intangible assets, will cease upon HP's adoption
of SFAS 142. 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

                                       10

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

                                  (UNAUDITED)

NOTE 7: ACQUISITIONS AND DIVESTITURES (CONTINUED)
future 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. Pro forma
results of operations reflecting this acquisition have not been presented as
such disclosure is not material.

    In July 2001, HP sold its ownership of the VeriFone business to Gores
Technology Group. HP recognized a loss on this divestiture of $131 million
(before related tax benefit of $65 million).

    In July 2001, HP signed a definitive agreement to acquire all of the
outstanding stock of StorageApps in exchange for approximately $350 million of
HP common stock valued as of the signing of the agreement. This acquisition is
expected to strengthen HP's storage offering by adding virtualization
technology, which is a key component of HP's Federated Storage Area Management
("FSAM") strategy. FSAM is designed to give customers the ability to expand
storage capacity without increasing the number of employees, and storage
virtualization technology is designed to allow customers to easily mix and match
their storage needs from different vendors. The transaction is expected to close
in the fourth quarter of fiscal 2001. The completion of this transaction is
subject to regulatory approval and other customary closing conditions.

    In July 2001, HP signed a definitive agreement with Comdisco, Inc.
("Comdisco") to acquire substantially all of Comdisco's business continuity
services for approximately $610 million in cash, subject to certain closing
adjustments. With this acquisition, HP expects to become a leading provider of
business continuity services worldwide. The agreement between HP and Comdisco
remains subject to bankruptcy court sales process and approvals since Comdisco's
parent company and a number of its U.S. subsidiaries filed voluntary petitions
on July 16, 2001 for relief under Chapter 11 of the U.S. Bankruptcy Code. If HP
is selected as the successful bidder, the transaction is expected to close in
the first quarter of fiscal 2002.

    In August 2001, HP acquired all of the outstanding stock of Trinagy, Inc.
("Trinagy"). Trinagy will be integrated into HP's OpenView e-services management
software business unit. The acquisition is part of HP's ongoing strategy to
enhance its software portfolio in order to help customers adapt quickly to
change and manage complexity in their businesses. This transaction will be
recorded in the fourth quarter of fiscal 2001 and is not material to HP's
consolidated financial position.

    In September 2001, HP signed a definitive agreement with Compaq Computer
Corporation ("Compaq") to acquire all of the outstanding stock of Compaq in
exchange for 0.6325 shares of HP common stock for each outstanding share of
Compaq stock. Compaq is a leading global provider of enterprise technology and
solutions. HP believes the merger will strengthen the scope of its IT solutions
and will improve its cost structure. The transaction is expected to close in the
first half of 2002, and its completion is subject to regulatory approval and
shareholder approval from both HP and Compaq, as well as other customary closing
conditions. More information on this transaction is available in HP's Form 8-K
filed with the SEC on September 4, 2001, as amended, which is incorporated
herein by reference.

    In September 2001, HP signed a definitive agreement with Indigo N.V.
("Indigo") to commence an exchange offer to acquire all of the outstanding
shares of Indigo not already owned by HP (the "Shares") in exchange for a
combination of shares of HP's common stock and non-transferable contingent value
rights ("CVR") entitling the holder to a contingent cash payment based on the

                                       11

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

                                  (UNAUDITED)

NOTE 7: ACQUISITIONS AND DIVESTITURES (CONTINUED)
achievement by the Indigo business of certain revenue milestones over a
three-year post-closing period. HP currently owns 14.8 million of Indigo's
common shares, representing approximately 13 percent of Indigo's outstanding
shares. In exchange for each share of Indigo stock, shareholders of Indigo will
receive either $7.50 in HP common stock or $6.00 in HP common stock plus one CVR
entitling its holder to a cash payment of up to $4.50 per share if the Indigo
business achieves a total of $1.6 billion in revenue over a three-year
post-closing period. The future cash pay-out for each CVR increases linearly
from $0 to $4.50 as cumulative revenues increase from $1.0 billion to
$1.6 billion. The number of shares of HP's common stock to be issued will be
determined based on the average closing price of HP common stock during the 20
consecutive trading days ending 3 trading days prior to the closing of the
exchange offer, with the average trading price to be used in such calculation to
be not less than $16.69 nor more than $23.68. Based on the terms of the
agreement, HP's closing share price on the date of the agreement, and current
assumptions on the quantity of each consideration alternative, the total
potential consideration to acquire the Shares is approximately $630 million in
HP common stock plus approximately 56 million CVRs; the future cash pay-out, if
any, of such CVRs will be determined and payable after a three-year period
commencing shortly after the closing of the exchange offer. Indigo is a leading
provider of high performance digital color printing systems. HP believes this
acquisition will extend HP's printing systems portfolio beyond Inkjet and
LaserJet technology into a third high-speed color print technology and will
accelerate HP's efforts to transform and lead the rapidly evolving commercial
printing market. The transaction is expected to close in the first half of 2002.
The completion of this transaction is subject to regulatory approval and other
customary closing conditions. More information on this transaction is available
in HP's Form 8-K filed with the SEC on September 9, 2001, which is incorporated
herein by reference.

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'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 as a result of these underlying exposures with gains and losses on
the derivative contracts used to hedge them. HP does not enter into any
speculative positions with regard to derivative instruments. 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 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 includes 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 is
also exposed to interest rate risk inherent in its debt and investment
portfolios. 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

                                       12

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

                                  (UNAUDITED)

NOTE 8: DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
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.

    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 three and nine months ended July 31,
2001. The effective portion of all derivatives is reported in the same financial
statement line item as the changes in the hedged item.

    At July 31, 2001, the net fair value of derivatives designated as fair value
hedges of debt and investment instruments was $114 million, of which
$143 million was recorded in long-term investments and other assets and
$29 million in other accrued liabilities. The net fair value of foreign
currency-related derivatives designated as cash flow hedges or fair value hedges
was $174 million. Of this amount, $82 million was recorded in other current
assets, $151 million in long-term investments and other assets, $58 million in
other accrued liabilities and $1 million in other liabilities. At July 31, 2001,
HP also had $(32) million in net fair value of derivatives which it elected not
to designate as hedges, of which $45 million was recorded in other current
assets, $1 million in long-term investments and other assets and $78 million in
other accrued 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.

                                       13

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

                                  (UNAUDITED)

    At July 31, 2001, HP had approximately $15 million of unrealized gains on
derivative instruments, net of taxes, in accumulated other comprehensive income.
HP estimates that $1 million of net gains after taxes will be reclassified into
earnings within 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 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.

    HP's available-for-sale securities consist of 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 July 31, 2001, these securities were
recorded at an estimated fair value of $1,075 million, with a cost basis of
$1,026 million. As of July 31, 2001, gross unrealized gains were $68 million and
gross unrealized losses were $23 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 July 31, 2001 is due primarily to the reclassification of debt securities
discussed above.

    For the three months ended July 31, 2001, proceeds from sales of
available-for-sale securities and gross realized gains were each less than
$1 million. For the nine months ended July 31, 2001, proceeds from sales of
available-for-sale securities were $17 million and gross realized gains were
$16 million. For the three and nine months ended July 31, 2000, proceeds from
sales of available-for-sale securities were $26 million and $73 million,
respectively, and gross realized gains were $24 million and $69 million,
respectively. 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 $133 million as of July 31, 2001 and $1,106 million as of
October 31, 2000. The estimated fair value of held-to-maturity securities
approximated their cost basis at July 31, 2001 and October 31, 2000. The
decrease in held-to-maturity securities from October 31, 2000 to July 31, 2001
is due primarily to the reclassification of debt securities discussed above.

                                       14

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

                                  (UNAUDITED)

NOTE 9: INVESTMENTS IN EQUITY AND DEBT SECURITIES (CONTINUED)
    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 July 31, 2001, the cost
basis of the portion of HP's remaining investment portfolio related to emerging
market companies was approximately $290 million. Given current market
conditions, HP may incur additional charges on this investment portfolio in the
future.

NOTE 10: INVENTORY



                                                              JULY 31,   OCTOBER 31,
                                                                2001        2000
                                                              --------   -----------
                                                                  (IN MILLIONS)
                                                                   
Finished goods..............................................   $3,953       $4,251
Purchased parts and fabricated assemblies...................    1,536        1,448
                                                               ------       ------
                                                               $5,489       $5,699
                                                               ======       ======


NOTE 11: BORROWINGS

    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 third
quarter of fiscal 2001, HP repurchased $192 million in face value of the notes
with a book value of $116 million, resulting in an extraordinary gain on the
early extinguishment of debt of $8 million (net of related taxes of
$5 million). In the first nine months of fiscal 2001, HP repurchased
$1.1 billion in face value of the notes with a book value of $650 million,
resulting in an extraordinary gain on the early extinguishment of debt of
$43 million (net of related taxes of $26 million). As of July 31, 2001, the
notes had a remaining book value of $541 million.

    In February 2000, HP filed a shelf registration statement with the SEC to
register $3.0 billion of debt securities, common stock, preferred stock,
depositary shares and warrants. On May 24, 2001, HP filed a prospectus
supplement to this registration statement, which allows HP 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. On June 27, 2001, HP issued $100 million of 3.77%
Medium-Term Notes under the shelf registration statement which mature on
June 27, 2003. As of the date of this filing, HP has the remaining capacity to
issue $1.4 billion of Medium-Term Notes, or other securities as described above,
under the shelf registration statement.

    HP and Hewlett-Packard Finance Company, a wholly-owned subsidiary of HP
("HPFC"), have the ability to offer from time to time up to $3.0 billion of
Medium-Term Notes under a Euro Medium Term Note Programme 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.

                                       15

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

                                  (UNAUDITED)

NOTE 11: BORROWINGS (CONTINUED)
On July 5, 2001, $636 million of 5.25% Medium-Term Notes were issued under this
program which mature on July 5, 2006. As of the date of this filing, HP and HPFC
have the remaining capacity to issue approximately $2.3 billion of Medium-Term
Notes under the program.

NOTE 12: SUPPLEMENTAL CASH FLOW INFORMATION



                                                               NINE MONTHS ENDED
                                                                   JULY 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                 (IN MILLIONS)
                                                                   
Non-cash transactions:
  Net issuances (forfeitures) of common stock for employee
    benefit plans:
    Restricted stock and other..............................    $(17)      $(88)
    Employer matching contributions for 401(k) and employee
      stock purchase plans..................................      39         61
  Issuance of common stock and options for business
    acquisition.............................................     528         --


NOTE 13: INCOME TAXES

    Income tax provisions for interim periods are based on estimated effective
annual income tax rates. The tax benefit in the third quarter of 2001 was due
primarily to tax benefits related to the $131 million pre-tax loss on the
divestiture of VeriFone. The low effective tax rate of 8% for the first nine
months of fiscal 2001 resulted mainly from tax benefits associated with the
$400 million litigation settlement charge recorded in the second quarter of
fiscal 2001 and the loss on divestiture recorded in the third quarter of fiscal
2001. Excluding the impact of the settlement charge and the loss on divestiture
in fiscal 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 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 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 third
quarter of fiscal 2001, 7,163,000 shares were repurchased under these plans for
an aggregate price of $200 million. In the first nine months of fiscal 2001,
32,466,600 shares were repurchased for an aggregate price of approximately
$1.0 billion. As of July 31, 2001, HP had authorization for remaining future
repurchases under the two programs of

                                       16

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

                                  (UNAUDITED)

NOTE 14: STOCKHOLDERS' EQUITY (CONTINUED)
approximately $1.8 billion. In fiscal 2000, 25,299,800 shares were repurchased
for an aggregate price of $1.5 billion in the third quarter, and 62,658,000
shares were repurchased for $3.8 billion in the first nine months of the year.
The number of shares repurchased for the third quarter and first nine months 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.

    HP has 300,000,000 authorized shares of preferred stock. On August 31, 2001,
HP classified 4,500,000 of these shares as Series A Preferred Stock in
connection with HP's adoption of a shareholder rights plan. Information
regarding the shareholder rights plan and the potential issuance of Series A
Preferred Stock is provided in HP's Form 8-A dated as of August 31, 2001, as
amended, and is incorporated herein by reference.

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 nine-month periods ended July 31 were as
follows:



                                                THREE MONTHS ENDED     NINE MONTHS ENDED
                                                     JULY 31,              JULY 31,
                                                -------------------   -------------------
                                                  2001       2000       2001       2000
                                                --------   --------   --------   --------
                                                              (IN MILLIONS)
                                                                     
Net earnings..................................    $111      $1,046      $506      $2,775
Change in net unrealized gain on derivative
  instruments.................................     (27)         --        69          --
Net gains on derivative instruments
  reclassified from accumulated other
  comprehensive income into revenues..........     (16)         --       (54)         --
Change in net unrealized (loss) gain on
  available-for-sale securities...............      (2)        (73)      (68)         51
                                                  ----      ------      ----      ------
Comprehensive income..........................    $ 66      $  973      $453      $2,826
                                                  ====      ======      ====      ======


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



                                                              JULY 31,   OCTOBER 31,
                                                                2001        2000
                                                              --------   -----------
                                                                  (IN MILLIONS)
                                                                   
Net unrealized gain on available-for-sale securities........    $25          $93
Net unrealized gain on derivative instruments...............     15           --
                                                                ---          ---
Accumulated other comprehensive income......................    $40          $93
                                                                ===          ===


                                       17

                    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 July 31, 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 nine months ended July 31, 2000 has been restated to reflect
these organizational changes. The VeriFone business was divested in the third
quarter of 2001 and, therefore, will not be included in HP's results in future
quarters.

    The reportable segments disclosed in this Form 10-Q are based on HP's
management organizational structure as of July 31, 2001. Future changes to this
organizational structure may result in changes to the reportable segments
disclosed.

    A significant portion of each segment's expenses arises 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 nine months ended July 31, 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.

                                       18

                    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 JULY 31, 2001:
Net revenue from external customers..........    $ 4,318      $ 3,897     $1,879     $  199    $10,293
Intersegment net revenue.....................         --           59         --         --         59
                                                 -------      -------     ------     ------    -------
  Total net revenue..........................    $ 4,318      $ 3,956     $1,879     $  199    $10,352
                                                 =======      =======     ======     ======    =======
Earnings (loss) from operations..............    $   386      $  (178)    $   36     $ (128)   $   116
                                                 =======      =======     ======     ======    =======
FOR THE THREE MONTHS ENDED JULY 31, 2000:
Net revenue from external customers..........    $ 4,801      $ 4,968     $1,829     $  383    $11,981
Intersegment net revenue.....................          1           97          2          2        102
                                                 -------      -------     ------     ------    -------
  Total net revenue..........................    $ 4,802      $ 5,065     $1,831     $  385    $12,083
                                                 =======      =======     ======     ======    =======
Earnings (loss) from operations..............    $   596      $   405     $  149     $    2    $ 1,152
                                                 =======      =======     ======     ======    =======
FOR THE NINE MONTHS ENDED JULY 31, 2001:
Net revenue from external customers..........    $14,338      $13,323     $5,683     $  842    $34,186
Intersegment net revenue.....................         --          216         --         --        216
                                                 -------      -------     ------     ------    -------
  Total net revenue..........................    $14,338      $13,539     $5,683     $  842    $34,402
                                                 =======      =======     ======     ======    =======
Earnings (loss) from operations..............    $ 1,440      $  (327)    $  252     $ (274)   $ 1,091
                                                 =======      =======     ======     ======    =======
FOR THE NINE MONTHS ENDED JULY 31, 2000:
Net revenue from external customers..........    $14,976      $14,677     $5,254     $1,063    $35,970
Intersegment net revenue.....................          5          228         11         43        287
                                                 -------      -------     ------     ------    -------
  Total net revenue..........................    $14,981      $14,905     $5,265     $1,106    $36,257
                                                 =======      =======     ======     ======    =======
Earnings (loss) from operations..............    $ 1,976      $   778     $  390     $  (46)   $ 3,098
                                                 =======      =======     ======     ======    =======


                                       19

                    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     NINE MONTHS ENDED
                                                                 JULY 31,              JULY 31,
                                                            -------------------   -------------------
                                                              2001       2000       2001       2000
                                                            --------   --------   --------   --------
                                                                          (IN MILLIONS)
                                                                                 
NET REVENUE:

Total segments............................................  $10,352    $12,083    $34,402    $36,257
Financing interest income reclassification................      (99)       (97)      (301)      (268)
Elimination of intersegment net revenue and other.........     (106)      (168)      (399)      (470)
                                                            -------    -------    -------    -------
  Total HP consolidated...................................  $10,147    $11,818    $33,702    $35,519
                                                            =======    =======    =======    =======

EARNINGS FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEM AND TAXES:

Total segment earnings from operations....................  $   116    $ 1,152    $ 1,091    $ 3,098
Net financing interest reclassification...................      (36)       (42)      (112)      (120)
Interest income and other, net............................      159        276        525        641
Interest expense..........................................      (73)       (60)      (233)      (156)
Litigation settlement.....................................       --         --       (400)        --
Impairment losses on investments..........................       --         --       (365)        --
(Losses) gains on divestitures............................     (131)        --       (131)         8
Corporate and unallocated costs, and eliminations.........       65        (18)       127        (44)
                                                            -------    -------    -------    -------
  Total HP consolidated...................................  $   100    $ 1,308    $   502    $ 3,427
                                                            =======    =======    =======    =======


                                       20

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 AND DOES NOT INTEND 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 third quarter ended July 31, 2001 was $10.1 billion, a
decrease of 14% 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 22% in
the third quarter of 2001 compared to the same period a year ago. Revenue from
Imaging and Printing Systems declined 10% and IT Services grew 3%. Overall,
product sales for the third quarter of 2001 decreased 17%, while service revenue
grew 2% over the corresponding period in fiscal 2000. U.S. revenue declined 19%
to $4.3 billion, while international revenue decreased 10% to $5.8 billion
compared to the same period a year ago. The global economic downturn contributed
significantly to the decline in both U.S. and international revenues. On a
foreign currency-adjusted basis, net revenue declined 10% year over year for HP
as a whole. The majority of the foreign currency effect was due to the weakening
of the Euro.

    For the first nine months of fiscal 2001, net revenue was $33.7 billion, a
decrease of 5% from the corresponding period in fiscal 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 9% in the first
nine months of 2001 compared to the same period a year ago. Imaging and Printing
Systems' revenue declined 4% and IT Services' revenue increased 8%. Product
sales for the first nine months of 2001 declined 7% over the same period in
2000, while service revenue increased 8%. International revenue was down 1% to
$19.8 billion, while U.S. revenue declined 11% to $13.9 billion from the same
period a year ago. On a

                                       21

foreign currency-adjusted basis, net revenue declined 1% year over year for HP
as a whole. The foreign currency effect was due primarily 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     NINE MONTHS ENDED
                                                    JULY 31,              JULY 31,
                                               -------------------   -------------------
                                                 2001       2000       2001       2000
                                               --------   --------   --------   --------
                                                                    
Cost of products sold and services...........    74.1%      70.3%      73.9%      71.1%
Research and development.....................     6.5%       5.6%       6.0%       5.5%
Selling, general and administrative..........    17.9%      14.9%      16.9%      15.2%
Earnings from operations.....................     1.4%       9.2%       3.3%       8.3%
Net earnings from continuing operations
  before extraordinary item..................     1.0%       8.7%       1.4%       7.4%


COST OF PRODUCTS SOLD AND SERVICES

    Cost of products sold and services as a percentage of net revenue was 74.1%
in the third quarter of fiscal 2001 compared to 70.3% in the same period for
fiscal 2000, and was 73.9% in the first nine months of fiscal 2001 compared to
71.1% in the corresponding period a year ago. 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 and recorded
related pension settlement gains in the third quarter of 2000. Approximately
$29 million of these net costs were included in cost of products sold and
services in the first nine months of fiscal 2000. After adjusting for these
items, cost of products sold and services as a percentage of net revenue was
73.4% for the first nine months of fiscal 2001 and 71.0% for the same period in
2000. The increase in the ratio for both the third quarter and first nine months
of fiscal 2001 was due to increases in cost of sales as a percentage of net
revenue across all of HP's business segments.

    We expect continued upward pressure on the cost of sales ratio for the
fourth quarter 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.

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 were
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 employee benefits related to the elimination of approximately 1,500
marketing positions worldwide, across many regions and job classes.

    In July 2001, HP's management announced plans for a workforce reduction in
order to improve our cost structure by simplifying our organizational model,
prioritizing our resources on strategic areas of our business and retaining the
skills base we believe will best serve HP for the future. We expect to record a
restructuring charge of approximately $250 million to $300 million in connection
with the plan.

                                       22

This charge consists of severance and other employee benefits related to the
elimination of approximately 6,000 positions worldwide, across many regions,
business functions and job classes, and related costs for consolidation of
excess facilities. The majority of the restructuring charge is expected to be
recorded and paid out in the fourth quarter of fiscal 2001, while we expect to
incur the remainder in the first quarter of fiscal 2002 as we work through
country-specific labor laws and regulations outside of the U.S. The workforce
reduction program is expected to result in an annualized cost savings of
approximately $500 million.

    Research and development expense was essentially flat in the third quarter
of fiscal 2001 compared to the same period last year, and increased 4% in the
first nine months of 2001. After adjusting for $19 million of in-process
research and development costs related to the Bluestone acquisition recorded in
fiscal 2001 and $13 million of net costs related to the enhanced early
retirement program recorded in fiscal 2000, research and development expense
growth for the nine-month period remained at 4%. There was growth for both the
quarter and year-to-date periods which was due primarily to an increase in
spending related to research and development for new software and server
products in the Computing Systems segment in conjunction with HP's "Always-On
Infrastructure" strategy. Declines in research and development spending in our
Imaging and Printing Systems and IT Services segments fully offset growth in the
third quarter and partially offset growth for the nine-month period due to
focused spending in key areas and reductions in less strategic programs.

    Selling, general and administrative expense increased 4% in the third
quarter of fiscal 2001 over the same period a year ago, and increased 5% in the
first nine months of fiscal 2001 over the corresponding period in fiscal 2000.
The increase for the nine-month period remained at 5% after adjusting for
$102 million of marketing realignment costs recorded in the first quarter of
2001, as well as $41 million of net costs related to the enhanced early
retirement program and $56 million of costs related to the spin-off of Agilent
Technologies in fiscal 2000. Selling, general and administrative expense growth
for the third quarter and first nine months resulted primarily from an increase
in bad debt write-offs and additions to reserves in our financing portfolio due
to weakened economic conditions, as well as significant hiring in our sales
organization over the past year to promote future growth in key areas. Overall,
expense controls moderated selling, general and administrative expense growth in
2001.

INTEREST INCOME AND OTHER, NET

    Interest income and other, net, decreased by $117 million in the third
quarter of fiscal 2001 and $116 million in the first nine months of 2001,
compared to the same periods in fiscal 2000. The decrease for the third quarter
was due mainly to lower interest rates on cash and investments in 2001, as well
as gains on unhedged foreign currency exposure on balance sheet remeasurement
and gains on sales of equity securities in 2000. The decline for the first nine
months was primarily attributable to the gains on sales of equity securities in
fiscal 2000 and lower interest rates on cash and investments in 2001.

INTEREST EXPENSE

    Interest expense increased by $13 million in the third quarter of fiscal
2001 and $77 million in the first nine months of 2001, compared to the
corresponding periods in fiscal 2000. The increase for both the three- and
nine-month periods was due primarily to higher average balances of short- and
long-term borrowings, offset in part by a decline in average interest rates.

LITIGATION SETTLEMENT

    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

                                       23

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. required that
the $400 million settlement charge be recorded in HP's consolidated condensed
financial statements for the second quarter ended April 30, 2001 as the
Quarterly Report on Form 10-Q for that quarter 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
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.

LOSS ON DIVESTITURE

    In July 2001, HP sold its ownership of the VeriFone business to Gores
Technology Group. HP recognized a loss on this divestiture of $131 million
(before related tax benefit of $65 million).

TAXES BEFORE DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEM

    HP's provision for taxes was $39 million for the first nine months of fiscal
2001, resulting in an effective tax rate of 8%. For the third quarter of fiscal
2001, HP recorded a benefit for taxes of $3 million. The low effective tax rate
for the first nine months resulted mainly from tax benefits associated with the
$400 million litigation settlement charge in the second quarter of fiscal 2001
and the $131 million pre-tax loss from the VeriFone divestiture in the third
quarter of fiscal 2001. The tax benefit in the third quarter of 2001 was due
primarily to tax benefits related to the loss from the VeriFone divestiture.
Excluding the impact of the settlement charge, the VeriFone loss on sale,
non-deductible charges for amortization of goodwill, in-process research and
development and other acquisition-related charges, and other non-recurring
items, our effective tax was 22% for both the first nine months and third
quarter of fiscal 2001, compared to corresponding tax rates of approximately 23%
for the first nine months and 21% for the third quarter of fiscal 2000. The
decline for the first nine months was primarily the result of changes in the mix
of our pre-tax earnings in various tax jurisdictions throughout the world. The
lower effective rate in the third quarter of 2000 reflected the true-up for the
reduction of the annual effective tax rate from 24% for the first half of fiscal
2000 to 23% for the nine-month period.

NET EARNINGS FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEM

    Net earnings from continuing operations before extraordinary item decreased
90% to $103 million in the third quarter of fiscal 2001 compared to the same
period a year ago. As a percentage of net revenue, net earnings from continuing
operations before extraordinary item was 1.0% in the third quarter of 2001,
compared to 8.7% in the same quarter of 2000. For the first nine months of 2001,
net earnings from continuing operations before extraordinary item decreased 82%
to $463 million from $2.6 billion in 2000. As a percentage of net revenue, net
earnings from continuing operations before extraordinary item for the nine-month
period decreased to 1.4% in 2001, compared to 7.4% in the same period in 2000.

                                       24

NET EARNINGS FROM DISCONTINUED OPERATIONS

    Net earnings from discontinued operations were $17 million for the third
quarter and $136 million for the first nine months of fiscal 2000. Of the
$136 million, net earnings of Agilent Technologies for the period from the
July 31, 1999 measurement date through the June 2, 2000 spin-off date totaled
$287 million (net of related tax expense of $174 million), and the net costs to
effect the spin-off were $151 million (net of related tax benefit of
$23 million). The $17 million recorded in the third quarter of fiscal 2000
consisted mainly of a final true-up of the net costs to effect the spin-off. 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 third
quarter of fiscal 2001, we repurchased $192 million in face value of the notes
with a book value of $116 million, resulting in an extraordinary gain on the
early extinguishment of debt of $8 million (net of related taxes of
$5 million). In the first nine months of fiscal 2001, we repurchased
$1.1 billion in face value of the notes with a book value of $650 million,
resulting in extraordinary gain on the early extinguishment of debt of
$43 million (net of related taxes of $26 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 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 nine months ended July 31, 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 July 31,
2001. Future changes to this organizational structure may result in changes to
the reportable segments disclosed.

IMAGING AND PRINTING SYSTEMS



                                                        THREE MONTHS ENDED     NINE MONTHS ENDED
                                                             JULY 31,              JULY 31,
                                                        -------------------   -------------------
                                                          2001       2000       2001       2000
                                                        --------   --------   --------   --------
                                                                      (IN MILLIONS)
                                                                             
Net revenue...........................................   $4,318     $4,802    $14,338    $14,981
Earnings from operations..............................   $  386     $  596    $ 1,440    $ 1,976


    Imaging and Printing Systems' net revenue declined 10% in the third quarter
and 4% in the first nine months of fiscal 2001 compared to the same periods in
fiscal 2000. On a foreign currency-adjusted basis, net revenue declined 8% in
the third quarter and 1% in the first nine months of fiscal 2001 compared to the
corresponding periods in 2000. The net revenue decline in the three-month period
was driven by decreases in Inkjet and LaserJet printer hardware revenues, as
well as a slight decline in printer supplies and imaging products. For the
nine-month period, the net revenue decline was attributed to the decrease in
Inkjet and LaserJet printer hardware offset in part by growth in printer
supplies and imaging products in the first half of fiscal 2001. Overall, slowing
markets in all geographic

                                       25

regions, unfavorable foreign currency effects, particularly in Europe, as well
as declining average selling prices, contributed to the segment's revenue
decline.

    Inkjet and LaserJet printer hardware revenue declined in both the third
quarter and the first nine months of fiscal 2001, reflecting declining average
selling prices driven by a demand shift to lower-priced products and lower unit
shipments due to softening in both the consumer and business markets. In the
three-month period, printer supplies experienced a slight decline in net
revenue, compared to very strong revenue growth in the year-ago quarter, due to
weakened market conditions and efforts by our channel partners to lower their
inventory levels. Imaging products also contributed slightly to the revenue
decline in the third quarter primarily reflecting declining average selling
prices due to growing demand for lower-priced products. For the nine-month
period, the Inkjet and LaserJet printer hardware revenue decline was offset in
part by net revenue growth in printer supplies and imaging products. Net revenue
growth for printer supplies reflected higher volumes due to continued expansion
in the installed base, as well as a shift to higher-priced supplies. However,
weakened market conditions in the third quarter of fiscal 2001 moderated
supplies growth in the nine-month period. The imaging products revenue growth
for the first nine months was driven by strong unit sales across all product
lines partially offset by a decrease in average selling prices.

    Earnings from operations as a percentage of net revenue was 8.9% for the
third quarter of fiscal 2001 compared with 12.4% for the same period in 2000.
For the first nine months of the year, the segment's earnings from operations
ratio was 10.0% in fiscal 2001 compared to 13.2% in 2000. The decrease in both
periods resulted from a decline in gross margins, and to a lesser degree, an
increase in operating expenses as a percentage of net revenue. A portion of the
gross margin decline for the nine-month period 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. These
charges were recorded in the second quarter of fiscal 2001 as a result of the
overall economic downturn. After adjusting for these charges, the earnings from
operations ratio would have been 11.0% for the first nine months of fiscal 2001.
The gross margin declines in both periods were due primarily to a shift toward
lower-priced printers and imaging devices. These unfavorable factors were
partially offset by gross margin improvements in printer supplies due to
improved production efficiency, lower component costs due to a weaker Japanese
Yen, and supplies becoming a larger portion of the segment's product mix.
Although operating expenses decreased in total, operating expenses as a
percentage of net revenue for the segment increased compared to the prior year
for both the quarter and year-to-date periods as the decrease in revenues
exceeded the rate of decrease in expenses.

COMPUTING SYSTEMS



                                                        THREE MONTHS ENDED     NINE MONTHS ENDED
                                                             JULY 31,              JULY 31,
                                                        -------------------   -------------------
                                                          2001       2000       2001       2000
                                                        --------   --------   --------   --------
                                                                      (IN MILLIONS)
                                                                             
Net revenue...........................................   $3,956     $5,065    $13,539    $14,905
Earnings from operations..............................   $ (178)    $  405    $  (327)   $   778


    Computing Systems' net revenue declined 22% in the third quarter and 9% in
the first nine months of fiscal 2001 compared to the same periods in fiscal
2000. On a foreign currency-adjusted basis, net revenue declined 18% in the
third quarter and 4% in the first nine months of fiscal 2001 compared to the
corresponding periods in fiscal 2000. The decrease in net revenue in the three-
and nine-month periods reflected a decline in home PCs, commercial desktop PCs,
Unix servers and PC servers, and enterprise storage. These declines were
partially offset by revenue growth in notebook PCs. Weak demand in the PC
markets contributed significantly to the overall segment revenue decline.

                                       26

    Within the PC business, for both the three- and nine-month periods compared
to the prior year, significant revenue declines in home PCs and commercial
desktop PCs were offset in part by growth in notebook PCs. The revenue declines
in home PCs and commercial desktop PCs reflected a decrease in unit sales due
primarily to the overall economic slowdown and lower average selling prices
resulting from competitive pricing pressures. Commercial desktop PC revenue was
also 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 quarter and year-to-date
periods, 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 in both periods, as well as growth of high-end server revenue in the
third quarter. The mid-range category was unfavorably impacted by overall
softness in the economy, demand shifts to other server categories and
competitive pricing pressures. The high-end Unix server revenue increase in the
third quarter reflected solid sales of our new Superdome server, moderated by a
slowdown in enterprise capital spending. On a year-to-date basis, high-end Unix
server revenue was down slightly due to the enterprise market slowdown and
because Superdome did not begin shipping in volume until January 2001. The PC
server revenue decline for both the three- and nine-month periods reflected a
decrease in unit sales due to the economic slowdown as well as a decline in
average selling prices driven by competitive pricing pressures and a mix shift
to the low-end. Enterprise storage revenues declined as a result of the decline
in IT spending and overall weakness in the Unix sector.

    Earnings from operations as a percentage of net revenue was (4.5)% for the
quarter ended July 31, 2001 compared to 8.0% for the same period in fiscal 2000.
For the first nine months of fiscal 2001, earnings from operations as a
percentage of net revenue decreased to (2.4)% in 2001 from 5.2% in 2000. 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 across most product categories. The
increase in the operating expense ratio for both the three- and nine-month
periods was largely the result of significant hiring in the sales organizations
over the past year to promote future growth in key areas, as well as investments
in research and development activities for software and server products in
conjunction with our "Always-On Infrastructure" strategy. Gross margin declines
in commercial PCs, PC servers and Unix servers for both the three- and
nine-month periods, as well as enterprise storage and workstations for the
three-month period, reflected the overall market slowdown and competitive
pricing pressures. Additionally, gross margins for PC servers and workstations
reflected a mix shift toward lower-margin products.

IT SERVICES



                                                        THREE MONTHS ENDED     NINE MONTHS ENDED
                                                             JULY 31,              JULY 31,
                                                        -------------------   -------------------
                                                          2001       2000       2001       2000
                                                        --------   --------   --------   --------
                                                                      (IN MILLIONS)
                                                                             
Net revenue...........................................   $1,879     $1,831     $5,683     $5,265
Earnings from operations..............................   $   36     $  149     $  252     $  390


    IT Services' net revenue increased 3% in the third quarter and 8% in the
first nine months of fiscal 2001 compared to the same periods in fiscal 2000. On
a foreign currency-adjusted basis, net revenue growth was 9% in the third
quarter and 15% in the first nine months compared to the corresponding periods
in fiscal 2000. The growth in net revenue for both the three- and nine-month
periods was fueled by solid sales in customer support, technology financing,
consulting, and outsourcing. Our consulting business was the primary driver of
growth for the nine-month period due to strong performance in the first half of
fiscal 2001. Although consulting growth was still solid in the third quarter,
growth rates have slowed due to a reduction in discretionary IT spending given
the current uncertainty in global economic conditions. Growth in our support
business was the main contributor to increased revenues in the third quarter.
The overall revenue increase for both the quarter and

                                       27

year-to-date periods was partially offset by a revenue decline in complementary
third-party products delivered with sales of HP solutions.

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

    Earnings from operations as a percentage of net revenue was 1.9% for the
quarter ended July 31, 2001 compared to 8.1% for the same period in fiscal 2000.
For the first nine months of fiscal 2001, earnings from operations as a
percentage of net revenue decreased to 4.4% in 2001 from 7.4% in 2000. The
decrease in both the three- and nine-month periods was driven by growth in
operating expenses as a percentage of net revenue, and to a lesser degree,
declines in gross margins. The growth in the operating expense ratio,
particularly in the third quarter, was mainly the result of an increase in bad
debt write-offs and additions to reserves in our financing portfolio due to
weakened economic conditions. The overall gross margin decline was driven
primarily by our financing and customer support businesses partially offset by
gross margin improvements in consulting and outsourcing. The gross margin
decline in our financing business reflected the mix shift toward operating
leases, which have lower margins, as well as write-downs resulting from changes
in residual value assumptions. Customer support gross margin was negatively
impacted by a mix shift toward higher cost services and unfavorable foreign
currency effects. The increase in gross margin for consulting resulted from
improved labor utilization and overall engagement cost management, while the
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 $3.2 billion at July 31, 2001, compared to
$4.0 billion at October 31, 2000. During the first nine months of fiscal 2001,
cash flows from operating activities and short-term and long-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 $819 million during the first nine
months of fiscal 2001 compared to $2.8 billion for the corresponding period of
fiscal 2000. The decrease in cash flows from operating activities in the first
nine 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 and a decrease in inventory due
to active inventory management.

    Inventory as a percentage of the last twelve months net revenue was 11.7% at
July 31, 2001, compared to 11.9% as of July 31, 2000, and 11.7% as of
October 31, 2000. The slight decrease in the ratio year over year is mainly
attributable to active inventory management. Trade and financing receivables as
a percentage of the last twelve months net revenue were 15.0%, down from 16.6%
in the same period a year ago and from 17.6% as of October 31, 2000. The
year-over-year decline is due in part to an increase in bad debt write-offs and
additions to reserves in our financing portfolio resulting from weakened
economic conditions. The ratio at year-end reflected a relatively high level of
receivables due to seasonal fluctuations.

                                       28

    Capital expenditures for the first nine months of fiscal 2001 were
$1.3 billion, compared to $1.2 billion for the corresponding period in fiscal
2000. Net property, plant and equipment as a percentage of the last twelve
months net revenue was 9.8% as of July 31, 2001, compared to 9.4% as of
July 31, 2000 and 9.2% at October 31, 2000. The slight increase in this ratio is
due mainly to planned expansion in our Inkjet business and investment in
customer financing rental assets.

    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 nine months of fiscal 2001 increased by $566 million, as short-term
and long-term debt issuances were partially offset by repurchases of our
zero-coupon subordinated convertible notes and payments on other long-term debt.
Long-term debt totaling $271 million matured as scheduled in the first nine
months of fiscal 2001. At July 31, 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 third
quarter of fiscal 2001, we repurchased $192 million in face value of the notes
with a book value of $116 million, resulting in an extraordinary gain on the
early extinguishment of debt of $8 million (net of related taxes of
$5 million). In the first nine months of fiscal 2001, we repurchased
$1.1 billion in face value of the notes with a book value of $650 million,
resulting in an extraordinary gain on the early extinguishment of debt of
$43 million (net of related taxes of $26 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.
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. On
June 27, 2001, we issued $100 million of 3.77% Medium-Term Notes under the shelf
registration statement which mature on June 27, 2003. As of the date of this
filing, we have the remaining capacity to issue $1.4 billion of Medium-Term
Notes, or other securities as described above, under the shelf registration
statement.

    HP and HPFC have the ability to offer from time to time up to $3.0 billion
of Medium-Term Notes under a Euro Medium Term Note Programme 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. On July 5, 2001, $636 million of 5.25% Medium-Term Notes
were issued under this program which mature on July 5, 2006. As of the date of
this filing, HP and HPFC have the remaining capacity to issue approximately
$2.3 billion of Medium-Term Notes under the program.

    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 third
quarter of fiscal 2001, 7,163,000 shares were repurchased under these plans for
an aggregate price of $200 million. In the first nine months of fiscal 2001,
32,466,600 shares were repurchased for an aggregate price of approximately
$1.0 billion. As of July 31, 2001, we had authorization for remaining future
repurchases under the two programs of approximately $1.8 billion. In fiscal
2000, 25,299,800 shares were repurchased for an aggregate price of

                                       29

$1.5 billion in the third quarter, and 62,658,000 shares were repurchased for
$3.8 billion in the first nine months of the year. The number of shares
repurchased for the third quarter and first nine months 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
$350 million of goodwill and identified intangibles in conjunction with the
transaction. These intangible assets are being amortized on a straight-line
basis over three years. Amortization of the goodwill, which represents a
majority of these intangible assets, will cease upon HP's adoption of SFAS 142.
In addition, we 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 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.

    In July 2001, HP signed a definitive agreement to acquire all of the
outstanding stock of StorageApps in exchange for approximately $350 million of
HP common stock valued as of the signing of the agreement. This acquisition is
expected to strengthen our storage offering by adding virtualization technology,
which is a key component of HP's Federated Storage Area Management ("FSAM")
strategy. FSAM is designed to give customers the ability to expand storage
capacity without increasing the number of employees, and storage virtualization
technology is designed to allow customers to easily mix and match their storage
needs from different vendors. The transaction is expected to close in the fourth
quarter of fiscal 2001. The completion of this transaction is subject to
regulatory approval and other customary closing conditions.

    In July 2001, HP signed a definitive agreement with Comdisco to acquire
substantially all of Comdisco's business continuity services for approximately
$610 million in cash, subject to certain closing adjustments. With this
acquisition, we expect to become a leading provider of business continuity
services worldwide. The agreement between HP and Comdisco remains subject to
bankruptcy court sales process and approvals since Comdisco's parent company and
a number of its U.S. subsidiaries filed voluntary petitions on July 16, 2001 for
relief under Chapter 11 of the U.S. Bankruptcy Code. If HP is selected as the
successful bidder, the transaction is expected to close in the first quarter of
fiscal 2002.

    In August 2001, HP acquired all of the outstanding stock of Trinagy. Trinagy
will be integrated into HP's OpenView e-services management software business
unit. The acquisition is part of our ongoing strategy to enhance our software
portfolio in order to help customers adapt quickly to change and manage
complexity in their businesses. This transaction will be recorded in the fourth
quarter of fiscal 2001 and is not material to HP's consolidated financial
position.

    In September 2001, HP signed a definitive agreement with Compaq to acquire
all of the outstanding stock of Compaq in exchange for 0.6325 shares of HP
common stock for each outstanding share of Compaq stock. Compaq is a leading
global provider of enterprise technology and solutions. We believe the merger
will strengthen the scope of our IT solutions and will improve our cost
structure.

                                       30

The transaction is expected to close in the first half of 2002, and its
completion is subject to regulatory approval and shareholder approval from both
HP and Compaq, as well as other customary closing conditions. More information
on this transaction is available in HP's Form 8-K filed with the SEC on
September 4, 2001, as amended, which is incorporated herein by reference.

    In September 2001, HP signed a definitive agreement with Indigo to commence
an exchange offer to acquire all of the outstanding shares of Indigo not already
owned by HP (the "Shares") in exchange for a combination of shares of HP's
common stock and non-transferable contingent value rights ("CVR") entitling the
holder to a contingent cash payment based on the achievement by the Indigo
business of certain revenue milestones over a three-year post-closing period. HP
currently owns 14.8 million of Indigo's common shares, representing
approximately 13 percent of Indigo's outstanding shares. In exchange for each
share of Indigo stock, shareholders of Indigo will receive either $7.50 in HP
common stock or $6.00 in HP common stock plus one CVR entitling its holder to a
cash payment of up to $4.50 per share if the Indigo business achieves a total of
$1.6 billion in revenue over a three-year post-closing period. The future cash
pay-out for each CVR increases linearly from $0 to $4.50 as cumulative revenues
increase from $1.0 billion to $1.6 billion. The number of shares of HP's common
stock to be issued will be determined based on the average closing price of HP
common stock during the 20 consecutive trading days ending 3 trading days prior
to the closing of the exchange offer, with the average trading price to be used
in such calculation to be not less than $16.69 nor more than $23.68. Based on
the terms of the agreement, HP's closing share price on the date of the
agreement, and current assumptions on the quantity of each consideration
alternative, the total potential consideration to acquire the Shares is
approximately $630 million in HP common stock plus approximately 56 million
CVRs; the future cash pay-out, if any, of such CVRs will be determined and
payable after a three-year period commencing shortly after the closing of the
exchange offer. Indigo is a leading provider of high performance digital color
printing systems. We believe this acquisition will extend our printing systems
portfolio beyond Inkjet and LaserJet technology into a third high-speed color
print technology and will accelerate our efforts to transform and lead the
rapidly evolving commercial printing market. The transaction is expected to
close in the first half of 2002. The completion of this transaction is subject
to regulatory approval and other customary closing conditions. More information
on this transaction is available in HP's Form 8-K filed with the SEC on
September 9, 2001, which is incorporated herein by reference.

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 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

                                       31

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 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

                                       32

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.

                                       33

    We have performed a sensitivity analysis as of July 31, 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. Recently, these discussions have culminated in a
number of agreements to acquire or merge with other companies, including an
agreement to merge with Compaq. 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.
Large, complex transactions such as the agreement to merge with Compaq may have
a material effect on our financial position, results of operations or cash flows
taken as a whole. 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.

    Even if an acquisition or alliance is successfully integrated, there can be
no assurance that we will receive the expected benefits of the transaction.
Integration of acquisitions and alliances and dis-integration of divestitures
all require varying levels of management resources, which may divert our
attention from other business operations. In addition, the uncertainties
associated with a pending

                                       34

transaction and the product and integration decisions to be made in connection
with a transaction may cause customers to delay purchases or cause them to buy
from other vendors, which could have a material adverse effect on our financial
position, results of operations or cash flows in the pre-closing period. Also, a
transaction may not close at all, in which case HP will not realize the intended
benefits of the transaction.

    Currently, HP has several acquisitions pending closing, including HP's
agreement to merge with Compaq. The number of pending transactions and the size
and scope of the Compaq merger increase both the scope and consequences of our
integration risks and our pre-closing financial risks.

BUSINESS DISRUPTIONS

    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 of a major earthquake. In addition, California has experienced, and
may continue 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.

    In addition, terrorist acts or acts of war (wherever located around the
world) may cause damage or disruption to HP, its employees, facilities,
partners, suppliers, distributors and resellers, and customers which could have
a material adverse effect on HP's operations and financial results.

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.

                                       35

    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.

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.

                                       36

                           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 40 of
this report.

    (b) Reports on Form 8-K:

    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.

    On July 5, 2001, HP filed a report on Form 8-K, relating to the issuance of
approximately $636 million principal amount notes issued from its $3 billion
Euro Medium Term Note Programme. The notes mature on July 5, 2006.

    On July 26, 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
relating to the third quarter of fiscal year 2001 and announcing a workforce
reduction of 6,000 employees.

    On July 26, 2001, HP filed a report on Form 8-K, which reported under
Item 5 the issuance of a transcript of a conference call held on July 26, 2001
at 9:00 a.m. EST, discussing its press release dated July 26, 2001 containing
revised forward-looking statements relating to the third quarter of fiscal year
2001 and announcing a workforce reduction of 6,000 employees.

    On August 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 third
quarter and first nine months of fiscal year 2001 and forward-looking statements
relating to the fourth quarter of fiscal year 2001.

    On September 4, 2001, HP filed a report on Form 8-K which reported under
Item 5, (1) a declaration by HP's Board of Directors on August 31, 2001 of a
dividend of one Preferred Share Purchase Right on each share of Common Stock of
HP outstanding as of the close of business on

                                       37

September 17, 2001, and (2) the issuance of a joint press release with Compaq
Computer Corporation announcing the execution of a definitive merger agreement
between the two companies.

    On September 7, 2001, HP filed a report on Form 8-K, which reported under
Item 5 the issuance of a press release on September 6, 2001 with Indigo N.V.
announcing an Offer Agreement between the two companies. Under the terms of the
Offer Agreement, HP will commence an exchange offer to acquire the outstanding
common shares of Indigo N.V. stock not already owned by HP.

    On September 13, 2001, HP filed a report on Form 8-K/A, which amended the
Form 8-K filed on September 4, 2001.

                                       38

                                   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: September 13, 2001

                                       39

                    HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
                                 EXHIBIT INDEX



       EXHIBIT
       NUMBER                                   DESCRIPTION
---------------------   ------------------------------------------------------------
                     
1                       Not applicable.

2(a)                    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.

2(b)                    Agreement and Plan of Reorganization by and among
                        Hewlett-Packard Company, Heloise Merger Corporation and
                        Compaq Computer Corporation dated as of September 4, 2001,
                        which appears as Exhibit 2.1 to Registrant's Form 8-K dated
                        August 31, 2001, 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 and Restated By-Laws, which appears as
                        Exhibit 3.3 to Registrant's Form 8-A dated September 4,
                        2001, which exhibit is incorporated herein by reference.

3(d)                    Registrant's Certificate of Designation of Rights,
                        Preferences and Privileges of Series A Participating
                        Preferred Stock, which appears as Exhibit 3.4 to
                        Registrant's Form 8-A dated September 4, 2001, 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.

4(f)                    Preferred Stock Rights Agreement, dated as of August 31,
                        2001, between Hewlett-Packard Company and Computershare
                        Investor Services, LLC., which appears as Exhibit 4.1 to
                        Registrant's Form 8-K dated August 31, 2001, which exhibit
                        is incorporated herein by reference.


                                       40




       EXHIBIT
       NUMBER                                   DESCRIPTION
---------------------   ------------------------------------------------------------
                     
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, which
                        appears as Exhibit 10(d) to Registrant's Quarterly Report on
                        Form 10-Q for the fiscal quarter ended April 30, 2001, which
                        exhibit is incorporated herein by reference.*

10(e)                   Registrant's 1990 Incentive Stock 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, which
                        appears as Exhibit 10(f) to Registrant's Quarterly Report on
                        Form 10-Q for the fiscal quarter ended April 30, 2001, which
                        exhibit is incorporated herein by reference.*

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.*


                                       41




       EXHIBIT
       NUMBER                                   DESCRIPTION
---------------------   ------------------------------------------------------------
                     
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.*

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.


                                       42




       EXHIBIT
       NUMBER                                   DESCRIPTION
---------------------   ------------------------------------------------------------
                     
23-27                   Not applicable.

28                      None.

99                      Not applicable.


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

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

                                       43