Hewlett-Packard (HPQ)

Debt Levels

        We maintain debt levels that we establish through consideration of a number of factors, including cash flow expectations, cash requirements for operations, investment plans (including acquisitions), share repurchase activities, overall cost of capital, and targeted capital structure. Outstanding borrowings increased to $15.9 billion as of January 31, 2010 as compared to $15.8 billion at October 31, 2009, bearing weighted average interest rates of 2.7% each at January 31, 2010 and October 31, 2009. During the first three months of fiscal 2010, we issued $2.5 billion and repaid $2.4 billion of commercial paper. As of January 31, 2010, we had $22 million in total borrowings collateralized by certain financing receivable assets.

        Our weighted-average interest rate reflects the average effective rate on our borrowings prevailing during the period; it factors in the impact of swapping some of our global notes with fixed interest rates for global notes with floating interest rates. For more information on our interest rate swaps, see Note 9 to the Consolidated Condensed Financial Statements in Item 1, which is incorporated herein by reference.

        For more information on our borrowings, see Note 12 to the Consolidated Condensed Financial Statements in Item 1, which is incorporated herein by reference.

Debt Levels

        We maintain debt levels that we establish through consideration of a number of factors, including cash flow expectations, cash requirements for operations, investment plans (including acquisitions), share repurchase activities, overall cost of capital, and targeted capital structure.

        In fiscal 2009 short-term debt decreased by $8.3 billion and long-term debt increased by $6.3 billion as compared to fiscal 2008. This was primarily due to the replacement of short-term debt with long-term debt as capital market conditions improved from last year, which was partially offset by a reclassification of $1 billion from long-term to short-term. Short-term debt and long-term debt increased by $7.0 billion and $2.7 billion respectively, for fiscal 2008 as compared to fiscal 2007. The net increase in total debt is due mainly to commercial paper issued in conjunction with the EDS acquisition.

        Our debt-equity ratio is calculated as the carrying value of debt divided by the carrying value of equity. Our debt-equity ratio decreased by 0.07x in fiscal 2009, due primarily to the net repayment of $2.0 billion debt. It increased by 0.25x in fiscal 2008 due primarily to funding the EDS acquisition by debt.

        Our weighted-average interest rate reflects the average effective rate on our borrowings prevailing during the year; it factors in the impact of swapping some of our global notes with fixed interest rates for global notes with floating interest rates. For more information on our interest rate swaps, see Note 10 to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference. The slightly lower weighted average interest rates over the past three years is a result of the combination of lower market interest rates and swapping some of our fixed interest obligations

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Table of Contents

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

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

associated with some of our fixed global notes for variable rate obligations through interest rate swaps in a declining rates environment.

        For more information on our borrowings, see Note 13 to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.