HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements

(Unaudited)

Note 1: Basis of Presentation

        In the opinion of management, the accompanying Consolidated Condensed Financial Statements for Hewlett-Packard Company and its consolidated subsidiaries ("HP") contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly its financial position as of April 30, 2002 and October 31, 2001, its results of operations for the three- and six-month periods ended April 30, 2002 and 2001, and its cash flows for the six-month periods ended April 30, 2002 and 2001. Certain reclassifications have been made to prior year balances in order to conform to the current year presentation.

        The results of operations for the three- and six-month periods ended April 30, 2002 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," "Quantitative and Qualitative Disclosures About Market Risk" and the Consolidated Financial Statements and notes thereto included in Items 7, 7A and 8, respectively, of the Hewlett-Packard Company Annual Report on Form 10-K, as amended on January 30, 2002, for the fiscal year ended October 31, 2001.

        The preparation of financial statements in accordance with accounting principles generally accepted in the United States 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: Accounting Changes

        HP adopted Securities and Exchange Commission ("SEC") Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements" in the fourth quarter of fiscal 2001, retroactive to November 1, 2000. SAB 101 summarizes certain of the SEC's views in applying accounting principles generally accepted in the United States to revenue recognition in financial statements. The primary impact of HP's adoption of SAB 101 was to delay the recognition of product revenue from the date of shipment until the date of delivery, when title and risk of loss transfer to the customer, provided that no significant obligations exist upon delivery. HP has restated its consolidated results of operations for the first three quarters of fiscal 2001, including a cumulative effect of a change in accounting principle of $272 million, net of income taxes of $108 million, which was recorded as a reduction of net income as of the beginning of the first quarter of fiscal 2001.

Note 3: Recent Accounting Pronouncements

        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 Other Intangible Assets." SFAS 141 requires that all business combinations be accounted for by the purchase 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. SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized; however, these assets must be reviewed at least annually for impairment. Intangible assets with finite useful lives will continue to be amortized over their respective useful lives. The standard also establishes specific guidance for testing for impairment of goodwill and intangible assets with indefinite useful lives. The provisions of SFAS 142 will be effective for HP's fiscal year 2003.

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However, goodwill and intangible assets acquired after June 30, 2001 are subject immediately to the non-amortization provisions of SFAS 142. HP is currently in the process of evaluating the potential impact that the adoption of SFAS 142 will have on its consolidated financial position and results of operations.

        In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144 amends existing accounting guidance on asset impairment and provides a single accounting model for long-lived assets to be disposed of. Among other provisions, the new rules change the criteria for classifying an asset as held-for-sale. The standard also broadens the scope of businesses to be disposed of that qualify for reporting as discontinued operations, and changes the timing of recognizing losses on such operations. The provisions of SFAS 144 will be effective for HP's fiscal year 2003 and will be applied prospectively. HP is currently in the process of evaluating the potential impact that the adoption of SFAS 144 will have on its consolidated financial position and results of operations.

        In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." Among other provisions, SFAS 145 rescinds SFAS 4 "Reporting Gains and Losses from Extinguishment of Debt." Accordingly, gains or losses from extinguishment of debt shall not be reported as extraordinary items unless the extinguishment qualifies as an extraordinary item under the criteria of Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." Gains or losses from extinguishment of debt that do not meet the criteria of APB 30 should be reclassified to income from continuing operations in all prior periods presented. The provisions of SFAS 145 will be effective for HP's fiscal year 2003. Upon adoption, HP anticipates that it will reclassify gains on early extinguishment of debt and related taxes previously recorded as an extraordinary item to interest and other, net and provision for taxes, respectively.

Note 4: 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.

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        The following table includes a reconciliation of the numerators and denominators of the basic and diluted EPS calculations.

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Note 5: Acquisitions

        HP records acquisitions under the purchase method of accounting, and accordingly the purchase price is allocated to the tangible assets and liabilities and intangible assets acquired, including in-process research and development, based on their estimated fair values. The excess purchase price over those fair values is recorded as goodwill. The fair value assigned to intangible assets acquired is based on valuations prepared by independent third party appraisal firms. The goodwill recorded as a result of these acquisitions is not expected to be deductible for tax purposes. In accordance with SFAS 142, goodwill and purchased intangibles with indefinite lives acquired after June 30, 2001 are not amortized but will be reviewed periodically for impairment. Purchased intangibles with definite lives will be amortized on a straight-line basis over their respective useful lives.

        In the second quarter of fiscal 2002, HP acquired substantially all of the outstanding stock of Indigo N.V. ("Indigo") not previously owned by HP in exchange for HP common stock, options, and non-transferable contingent value rights ("CVR"). Each CVR entitles the holder to a one-time contingent cash payment of up to $4.50 per CVR, based on the achievement of certain cumulative revenue results over a three-year period. The total consideration for Indigo was $719 million, which included the fair value of HP common stock issued and options assumed, as well as direct transaction costs and the cost of an equity investment made by HP in Indigo in October 2000. The liability related to the CVRs will be recorded as additional goodwill as payout thresholds are achieved. Approximately 32 million shares of HP common stock and 53 million CVRs were issued in connection with this transaction. The future cash pay-out, if any, of the CVRs will be payable after a three-year period commencing on April 1, 2002. This acquisition is intended to strengthen HP's printer offering by adding high performance digital color printing systems. HP recorded approximately $499 million of goodwill and $153 million of purchased intangibles in conjunction with the acquisition and the previous equity investment. The purchased intangibles will be amortized over their useful lives, which range from five to eight years. In addition, HP recorded a pre-tax charge of approximately $59 million for in-process research and development at the time of acquisition in the second quarter of fiscal 2002 because technological feasibility had not been established and no future alternative uses existed. Results of operations for Indigo have been included prospectively from the date of the acquisition. Pro forma results of operations reflecting this acquisition have not been presented because the results of operations of Indigo are not material to HP's results of operations.

        In May 2002, HP acquired all of the outstanding stock of Compaq Computer Corporation ("Compaq"), a leading global provider of information technology products, services and solutions for enterprise customers, in exchange for 0.6325 shares of HP common stock for each outstanding share of Compaq stock and the assumption of options based on the same ratio. In addition, HP assumed certain Compaq stock plans. This transaction resulted in the issuance of approximately 1.1 billion shares of HP common stock and the assumption of options to purchase approximately 200 million shares of HP common stock. The total consideration was approximately $24.2 billion, which included the fair value of HP common stock issued and options assumed, as well as direct transaction costs. The fair value of HP common stock was derived using an average market price per share of HP common stock of $20.92, which was based on an average of the closing prices for a range of trading days (August 30, August 31, September 4, and September 5, 2001) around the announcement date (September 3, 2001) of the merger. Results of operations of Compaq will be included prospectively from the date of acquisition beginning with the third quarter of fiscal 2002.

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        In connection with the merger, management has begun to assess and formulate restructuring plans to exit certain activities of both HP and Compaq and to terminate or relocate certain employees of HP and Compaq. These assessments are still in process and management expects to adopt a formal restructuring plan in the third quarter of fiscal 2002. A significant portion of the exit costs related to HP activities and employees is expected to be recorded as a restructuring charge in the third quarter of fiscal 2002. Exit costs related to Compaq activities and employees will be accrued by HP as a liability in conjunction with recording the initial purchase of Compaq in the third quarter of fiscal 2002, with no impact on results of operations. In addition to restructuring charges, HP will incur charges related to payments to executive officers and key employees under a retention plan adopted in connection with the acquisition, as well as costs related to integration efforts. HP may also incur charges for inventory writedowns or other asset impairments, as a result of product roadmap decisions related to overlapping product offerings between the two companies or other integration decisions.

Note 6: Legal Proceedings

Litigation Settlement

        On June 4, 2001, HP and Pitney Bowes Inc. ("Pitney Bowes") announced that they had entered into agreements which resolved 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. The litigation related to Pitney Bowes' claims that HP's LaserJet printers infringed Pitney Bowes' character edge smoothing patent, and HP's claims that Pitney Bowes' copiers, fax machines, document management software and a postal metering machine infringed HP's patents.

Pending Litigation

        On or about March 23, 1998, an individual filed a lawsuit against HP in federal court in California claiming HP's LaserJet printers infringe his U.S. patent 5,424,780, which he asserts covers portions of the resolution enhancement technology employed in these printers. HP believes, based on an opinion from outside counsel, that it does not infringe the patent. HP has held discussions with the plaintiff but has not resolved the matter. HP filed a lawsuit to obtain a ruling that it does not infringe. Thereafter, the U.S. Patent Office agreed to reexamine the patent based on prior art identified by HP. The litigation is stayed pending the outcome of the Patent Office reexamination.

        On or about July 31, 2000, HP was sued in an unfair business practices consumer class action filed by three residents of San Bernardino, California in federal court in California. Consumer class action lawsuits have been filed, in coordination with the original plaintiffs, in over 30 states. The various plaintiffs throughout the country claim to have purchased different models of HP inkjet printers over the past three years. The basic factual allegation of these actions is that when the affected consumer purchased HP printers, they received half-full or "economy" ink cartridges instead of full cartridges. Plaintiffs claim that HP's advertising, packaging and marketing representations for the printers led the consumers to believe they would receive full cartridges. These actions seek injunctive relief, disgorgement of profits, compensatory damages, punitive damages and attorney fees under various state unfair business practices statutes and common law claims of fraud and negligent misrepresentation. HP

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recently obtained summary judgment against plaintiffs in the California action, which the plaintiffs are appealing.

        On or about April 10, 2001, a nationwide defective product consumer class action was filed against HP in a Texas state district court by a resident of eastern Texas. This action is one of five similar suits filed against several computer manufacturers on the same day. The basic allegation in the action against HP is that it knowingly sold computers containing floppy disk controller chips that fail to detect both overruns and underruns if either occurs on the last byte of a read/write operation. That failure is alleged to result in data loss, data corruption or system failure. This suit seeks injunctive relief, declaratory relief, rescission and attorney fees. After filing this action, related actions were filed in the State of Illinois, the State of California and the United States of America.

        On or about December 27, 2001, Cornell University and the Cornell Research Foundation, Inc. filed an action against HP in federal court in New York alleging that HP's PA-RISC 8000 family of microprocessors infringes a Cornell patent that describes a way of executing microprocessor instructions. This action seeks declaratory, injunctive and other relief. After reviewing the pertinent materials, HP believes that it does not infringe the patent. Furthermore, HP believes Cornell's patent is invalid.

        HP is involved in lawsuits, claims, investigations and proceedings, including those identified above, consisting of patent, commercial and environmental matters, which arise in the ordinary course of business. Any possible adverse outcome arising from these matters, either individually or in the aggregate, is not expected to have a material adverse impact on the results of operations or financial position of HP. However, HP's evaluation of the likely impact of these pending disputes could change in the future.

Note 7: Net Investment Losses

        HP's investment portfolio includes equity and debt investments in public and privately-held emerging technology companies. Many of these emerging technology companies are still in the start-up or development stage. HP's investments in these companies are inherently risky because the technologies or products they have under development are typically in the early stages and may never become successful.

        HP monitors its investment portfolio for impairment on a periodic basis. In the event that the carrying value of an investment exceeds its fair value and the decline in value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis for the investment is established. Fair values for investments in public companies are determined using quoted market prices. Fair values for investments in privately-held companies are estimated based upon one or more of the following: pricing models using historical and forecasted financial information and current market rates, liquidation values, the values of recent rounds of financing or quoted market prices of comparable public companies. In order to determine whether a decline in value is other-than-temporary, HP evaluates, among other factors: the duration and extent to which the fair value has been less than carrying value; the financial condition of and business outlook for the company, including key operational and cash flow metrics, current market conditions and future trends in the company's industry, and the company's relative competitive position within the industry; and HP's intent and

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ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value.

        Due to the economic downturn, the decline in value of certain investments in emerging technology companies was determined to be other-than-temporary. Accordingly, HP recorded impairment losses of $16 million on its investments in privately-held emerging technology companies in the second quarter of fiscal 2002. HP recorded impairment losses of $365 million on its investments in both public and privately-held emerging technology companies in the first quarter of fiscal 2001. As of April 30, 2002, the carrying value of the portion of HP's remaining investment portfolio related to emerging technology companies was $163 million. Depending on market conditions, HP may incur additional charges on this investment portfolio in the future.

Note 8: Restructuring Charges

        In fiscal 2001, HP's management approved restructuring actions to respond to the global economic downturn and to improve HP's cost structure by streamlining operations and prioritizing resources in strategic areas of HP's business. The company recorded a restructuring charge of $384 million in fiscal 2001, including $102 million in the first half of the year, to reflect these actions. The fiscal 2001 charge consisted of severance and other employee benefits related to the planned termination of approximately 7,500 employees worldwide, across many regions, business functions and job classes, as well as costs related to the consolidation of excess facilities. Offsetting the fiscal 2001 charge were $38 million of related net pension and post-retirement settlement and curtailment gains. In the second quarter of fiscal 2002, HP recorded an $18 million restructuring charge as an adjustment to the expected severance cost of our fiscal 2001 restructuring plans. As of April 30, 2002, 7,300 employees were terminated and HP had paid out $368 million of the accrued costs. HP expects to pay out the remainder of the accrual during the last half of fiscal 2002.

        As of April 30, 2002, the balance of the accrued restructuring charges recorded primarily in fiscal 2001 consisted of the following:

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Note 10: Investments

        At October 31, 2001, HP held a 49.5% equity interest in Liquidity Management Corporation ("LMC"), which was accounted for under the equity method of accounting. The remaining 50.5% of equity interest was held by a third party investor. On November 1, 2001, LMC redeemed the outstanding equity of the third party investor, leaving HP as the remaining shareholder of LMC. Accordingly, effective November 1, 2001, the assets, liabilities and results of operations of LMC have been included in HP's consolidated financial statements. At November 1, 2001, the assets of LMC consisted primarily of $879 million of cash and cash equivalents.

Note 11: Borrowings

        In December 2000, the Board of Directors authorized a repurchase program for HP's zero-coupon subordinated convertible notes due 2017. Under the repurchase program, HP may repurchase the notes from time to time at varying prices. In the second quarter of fiscal 2002, HP repurchased $188 million in face value of the notes with a book value of $116 million for an aggregate price of $94 million, resulting in an extraordinary gain on the early extinguishment of debt of $14 million (net of related taxes of $8 million). In the first half of fiscal 2002, HP repurchased $257 million in face value of the notes with a book value of $158 million for an aggregate purchase price of $127 million, resulting in an extraordinary gain on the early extinguishment of debt of $20 million (net of related taxes of $11 million). As of April 30, 2002, the notes had a remaining book value of $313 million.

        In February 2000, HP filed a shelf registration statement (the "2000 Shelf Registration Statement") with the SEC to register $3.0 billion of debt securities, common stock, preferred stock, depositary shares and warrants. The 2000 Shelf Registration Statement was declared effective in March 2000. In May 2001, HP filed a prospectus supplement to the 2000 Shelf Registration Statement, which allowed HP to offer from time to time Medium-Term Notes, Series A, due nine months or more from the date of issue, in addition to the other types of securities described above. In June 2000, HP offered under the 2000 Shelf Registration Statement $1.5 billion of unsecured 7.15% Global Notes, which mature on June 15, 2005 unless previously redeemed. In December 2001, HP offered under the 2000 Shelf Registration Statement $1.0 billion of unsecured 5.75% Global Notes, which mature on December 15, 2006 unless previously redeemed. As of April 30, 2002, HP had the remaining capacity to issue approximately $290 million of securities under the 2000 Shelf Registration Statement.

        In February 2002, HP filed a shelf registration statement (the "2002 Shelf Registration Statement") with the SEC to register $3.0 billion of debt securities, common stock, preferred stock, depositary shares and warrants. The 2002 Shelf Registration Statement was declared effective in March 2002. As of April 30, 2002, HP had not issued securities under the 2002 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 United States. As of April 30, 2002, there was remaining capacity to issue approximately $2.3 billion of Medium-Term Notes under the program, subject to completion of annual updates required under the program.

        Effective March 15, 2002, HP replaced its $1.0 billion committed borrowing facility, which was due to expire in April 2002, with two senior unsecured credit facilities totaling $4.0 billion in borrowing

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capacity, including a $2.7 billion 364-day facility and a $1.3 billion three-year facility. Until the consummation of the Compaq merger in May 2002, borrowing capacity under the 364-day facility was limited to $1.7 billion and borrowing capacity under the three-year facility was limited to $0.8 billion. Interest rates and other terms of borrowing under these lines of credit vary based on HP's external credit ratings.

        HP occasionally repurchases its debt prior to maturity based upon its assessment of current market conditions and financing alternatives.

Note 12: Income Taxes

        Income tax provisions for interim periods are based on estimated effective annual tax rates. The effective tax rate before extraordinary item was approximately 33% in the second quarter of fiscal 2002 and 28% in the first half of fiscal 2002. HP's effective tax rates differ from the federal statutory rate due to tax rate benefits of operating in lower-tax jurisdictions throughout the world. These benefits were partially offset in these periods by non-deductible charges for amortization of goodwill and purchased intangibles and certain merger- and other acquisition-related charges.

Note 13: Stockholders' Equity

        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, 2001, HP had authorization for future repurchases of approximately $1.6 billion of common stock under the two programs. HP did not repurchase any shares during the second quarter of fiscal 2002. In the first half of fiscal 2002, HP repurchased 9,402,000 shares for an aggregate price of $204 million. As of April 30, 2002, HP had authorization for remaining future repurchases under the two programs of approximately $1.4 billion. In fiscal 2001, HP repurchased 6,703,600 shares for an aggregate price of $202 million in the second quarter, and HP repurchased 25,303,600 shares for $838 million in the first half of the year.

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        The components of accumulated other comprehensive (loss) income, net of taxes, was as follows:

Note 16: Segment Information

Description of Segments

        HP is a leading global provider of products, technologies, solutions and services to consumers and businesses.

        As of April 30, 2002, HP organized its operations into five businesses: Imaging and Printing Systems, Embedded and Personal Systems, Computing Systems, IT Services and Financing. The segments were determined in accordance with how management views and evaluates HP's businesses. The factors that management uses to identify HP's separate businesses include customer base, homogeneity of products, technology and delivery channels. A description of the types of products and services provided by each reportable segment is as follows:

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Imaging and Printing Systems provides printer hardware, digital imaging products, printer supplies, and related professional and consulting services. Printer hardware consists of business and home printing devices, which include color and monochrome printers for shared and personal use, multi-function laser and all-in-one inkjet devices, personal color copiers and faxes, wide- and large-format inkjet printers and digital presses. Digital imaging products include scanners and digital photography products. Supplies offer laser and inkjet printer cartridges and other related printing media. Professional and consulting services are provided to customers on the optimal use of printing and imaging assets.



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Embedded and Personal Systems provides commercial personal computers ("PCs"), home PCs, a range of handheld computing devices, digital entertainment systems, calculators and other

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related accessories, software and services for commercial and consumer markets. Commercial PCs include the Vectra and e-PC desktop series, as well as OmniBook notebook PCs. Home PCs include the Pavilion series of multi-media consumer desktop PCs and notebook PCs. Handheld computing devices include the Jornada handheld products that run on Pocket PC® software. Digital entertainment systems offer the DVD+RW drives as well as digital entertainment center products.

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Computing Systems provides workstations, UNIX® servers, PC servers, storage and software solutions. Workstations provide UNIX®, Windows and Linux-based systems. The UNIX® server offering ranges from low-end servers to high-end scalable systems such as the Superdome line, all of which run on HP's PA-RISC architecture and HP-UX operating system. PC servers offer primarily low-end and mid-range products that run on the Windows and Linux operating systems. Storage provides mid-range and high-end array offerings, storage area networks and storage area management and virtualization software, as well as tape and optical libraries, tape drive mechanisms and tape media. The software category offers OpenView and other solutions designed to manage large-scale systems and networks. In addition, software includes telecommunications infrastructure solutions and middleware.



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IT Services provides customer support, consulting and outsourcing. Customer support offers a range of high-value solutions from mission-critical and networking services that span the entire IT environment to low-cost, high volume product support. Consulting provides industry-specific business and IT consulting and system integration services in areas such as financial services, telecommunications and manufacturing, as well as cross-industry solution expertise in Customer Relationship Management ("CRM"), e-commerce and IT infrastructure. Consulting also includes complementary third-party products delivered with the sales of HP solutions. Outsourcing offers a range of IT management services, both comprehensive and selective, including transformational infrastructure services, client-computing managed services, managed web services and application services to medium and large companies.



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Financing supports and enhances HP's global product and services solutions. As a strategic enabler to HP, Financing provides a broad range of value-added financial services and computing and printing utility offerings to large global and enterprise customers as well as small and medium businesses. Financing offers innovative, personalized and flexible alternatives to balance individual customer cash flow, technology obsolescence and capacity needs.

        Prior to 2002, HP's immaterial operating segments were aggregated to form an "All Other" category as they did not meet the materiality threshold for a reportable segment. This category included primarily the VeriFone business prior to its divestiture in the third quarter of 2001.

        In the first quarter of 2002, HP made certain strategic changes to its organizational structure. These changes included the movement of the PC business from the Computing Systems segment to the Embedded and Personal Systems segment and movement of the Financing business from the IT Services segment to a separate operating segment. Segment financial data for the three- and six-month periods ended April 30, 2001 has been restated to reflect these organizational changes.

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        The reportable segments disclosed in this Form 10-Q are based on HP's management organizational structure as of April 30, 2002. Future changes to this organizational structure may result in changes to the reportable segments disclosed.

Segment Revenue and Profit

        The accounting policies used to derive reportable segment results are generally the same as those described in Note 1 to the Notes to the Consolidated Financial Statements in the Annual Report on Form 10-K, as amended on January 30, 2002, for the fiscal year ending October 31, 2001. Intersegment net revenue and earnings from operations include transactions between segments that are intended to reflect an arm's length transfer at the best price available from comparable external customers.

        A significant portion of each segment's expenses arise from shared services and infrastructure that HP has historically provided to the segments in order to realize economies of scale and to use resources efficiently. These expenses include costs of centralized research and development, legal, accounting, employee benefits, real estate, insurance services, information technology services, treasury and other corporate and infrastructure costs. In the first quarter of fiscal 2002, HP revised its allocation methodology for shared services and infrastructure. HP believes these allocation changes resulted in a better reflection of the utilization of services provided to or benefits received by the segments. Segment financial data for the three- and six-month periods ended April 30, 2001 has been restated to reflect these changes.

Segment Data

        The results of the reportable segments are derived directly from HP's management reporting system. The results are based on HP's method of internal reporting and are not necessarily in conformity with accounting principles generally accepted in the United States. 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. Certain operating expenses, which are separately managed at the corporate level, are not allocated to segments. These unallocated costs include corporate infrastructure costs, restructuring charges, investment gains and losses, amortization of goodwill and purchased intangibles, charges for purchased in-process research and development, certain other acquisition-related charges, and the amount by which profit-dependent bonus expenses and certain employee-related benefit program costs differ from a targeted level recorded by the segments.

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        The table below presents selected financial information for each reportable segment:

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        The following is a reconciliation of segment information to HP consolidated totals:

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