Hewlett-Packard (HPQ)

Key Performance Metrics

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In the second quarter of fiscal 2009, we reclassified certain activity within Other accrued liabilities to Accounts payable as this better represents the nature of the activity. All prior periods have been revised to conform to the current presentation.

        Days of sales outstanding in accounts receivable ("DSO") measures the average number of days our receivables are outstanding. DSO is calculated by dividing ending accounts receivable, net of allowance for doubtful accounts, by a 90-day average net revenue. The accounts receivable balance was $13.6 billion as of April 30, 2008.

        Days of supply in inventory ("DOS") measures the average number of days from procurement to sale of our product. DOS is calculated by dividing ending inventory by a 90-day average cost of goods sold. The inventory balance was $7.7 billion as of April 30, 2008.

        Days of purchases outstanding in accounts payable ("DPO") measures the average number of days our accounts payable balances are outstanding. DPO is calculated by dividing ending accounts payable by a 90-day average cost of goods sold. The accounts payable balance was $13.1 billion as of April 30, 2008.

        Our working capital requirements depend upon our effective management of the cash conversion cycle, which represents effectively the number of days that elapse from the day we pay for the purchase of raw materials to the collection of cash from our customers. The cash conversion cycle is the sum of DSO and DOS less DPO.

        The increase in DSO was due primarily to higher billings in the latter part of the current quarter as compared to the second quarter of fiscal 2008 and an increased number of enterprise accounts with longer repayment terms due to the addition of EDS. The decrease in DOS was due primarily to lower inventory levels driven primarily by improved inventory management, and higher Services revenue in the overall revenue mix as our services business has lower inventory levels than our product businesses. The decrease in DPO was due primarily to higher Services revenue in the overall revenue mix as Services has a higher salaries and wages component in cost of goods sold, which is not reflected in accounts payable. These changes contributed to the increase in the cash conversion cycle for the three

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months ended April 30, 2009 compared to the three months ended April 30, 2008. Without the impact of EDS, the cash conversion cycle improved by two days.

Key Performance Metrics

        Days of sales outstanding in accounts receivable ("DSO") measures the average number of days our receivables are outstanding. DSO is calculated by dividing ending accounts receivable, net of allowance for doubtful accounts, by a 90-day average net revenue.

        Days of supply in inventory ("DOS") measures the average number of days from procurement to sale of our product. DOS is calculated by dividing ending inventory by a 90-day average cost of goods sold.

        Days of purchases outstanding in accounts payable ("DPO") measures the average number of days our accounts payable balances are outstanding. DPO is calculated by dividing ending accounts payable by a 90-day average cost of goods sold.

        Our working capital requirements depend upon our effective management of the cash conversion cycle, which represents effectively the number of days that elapse from the day we pay for the purchase

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of raw materials to the collection of cash from our customers. The cash conversion cycle is the sum of DSO and DOS less DPO.

        The slight increase in DSO was due primarily to lower net revenue, offset by lower billings in the latter part of the current quarter as compared to the fourth quarter of fiscal 2008. The increase in DOS was due primarily to lower cost of sales in the current quarter as compared to the fourth quarter of 2008 and strategic buys, partially offset by lower inventory levels. The decrease in DPO was due primarily to lower purchases in the latter part of the current quarter as compared to the fourth quarter of fiscal 2008 as indicated by lower inventory levels, partially offset by lower revenue and cost of sales in the current quarter as compared to the fourth quarter of fiscal 2008. These changes contributed to the increase in our current year cash conversion cycle compared to the prior year.

Key Performance Metrics

        Days of sales outstanding in accounts receivable ("DSO") measures the average number of days our receivables are outstanding. DSO is calculated by dividing accounts receivable, net of allowance for doubtful accounts, by a 90-day average net revenue.

        Days of supply in inventory ("DOS") measures the average number of days from procurement to sale of our product. DOS is calculated by dividing inventory by a 90-day average cost of goods sold.

        Days of purchases outstanding in accounts payable ("DPO") measures the average number of days our accounts payable balances are outstanding. DPO is calculated by dividing accounts payable by a 90-day average cost of goods sold.

        Our working capital requirements depend upon our effective management of the cash conversion cycle, which represents effectively the number of days that elapse from the day we pay for the purchase of raw materials to the collection of cash from our customers. The cash conversion cycle is the sum of DSO and DOS less DPO.

        The increase in DSO was due primarily to a higher accounts receivable balance during the fourth quarter of fiscal 2008 compared to the same period in fiscal 2007 and the effect of the EDS acquisition. The decrease in DOS was due primarily to more efficient inventory management, higher cost of goods sold during the fourth quarter of 2008 as a result of increased revenues and the effect of the EDS acquisition. The slight decrease in DPO was due primarily to purchasing linearity and improved

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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)

accounts payable management. These changes contributed to the decrease in our current year cash conversion cycle compared to the prior year.

Key Performance Metrics

        Days
of sales outstanding in accounts receivable ("DSO") measures the average number of days our receivables are outstanding. DSO is calculated by dividing accounts receivable, net of
allowance for doubtful accounts, by a 90-day average net revenue.

        Days
of supply in inventory ("DOS") measures the average number of days from procurement to sale of our product. DOS is calculated by dividing inventory by a 90-day average
cost of goods sold.

        Days
of purchases outstanding in accounts payable ("DPO") measures the average number of days our accounts payable balances are outstanding. DPO is calculated by dividing accounts
payable by a 90-day average cost of goods sold.

        Our
working capital requirements depend upon our effective management of the cash conversion cycle, which represents effectively the number of days that elapse from the day we pay for
the purchase of raw materials to the collection of cash from our customers. The cash conversion cycle is the sum of DSO and DOS less DPO.

        The
increase in DSO was due primarily to a higher accounts receivable balance during the fourth quarter of fiscal 2008 compared to the same period in fiscal 2007 and the effect of the
EDS acquisition. The decrease in DOS was due primarily to more efficient inventory management, higher cost of goods sold during the fourth quarter of 2008 as a result of increased revenues and the
effect of the EDS acquisition. The slight decrease in DPO was due primarily to purchasing linearity and improved

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HREF="#bg72001a_main_toc">Table of Contents

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

accounts
payable management. These changes contributed to the decrease in our current year cash conversion cycle compared to the prior year.

Key Performance Metrics

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        Days of sales outstanding in accounts receivable ("DSO") measures the average number of days our receivables are outstanding. DSO is calculated by dividing accounts receivable, net of allowance for doubtful accounts, by a 90-day average net revenue.

        Days of supply in inventory ("DOS") measures the average number of days from procurement to sale of our product. DOS is calculated by dividing net inventory by a 90-day average cost of goods sold.

        Days of purchases outstanding in accounts payable ("DPO") measures the average number of days our accounts payable balances are outstanding. DPO is calculated by dividing accounts payable by a 90-day average cost of goods sold.

        Our working capital requirements depend upon our effective management of the cash conversion cycle, which represents effectively the number of days that elapse from the day we pay for the purchase of raw materials to the collection of cash from our customers. The cash conversion cycle is the sum of DSO and DOS less DPO.

        The slight increase in DSO was due primarily to a higher accounts receivable balance resulting from the timing of revenue during the three months ended July 31, 2008 compared to the three months ended October 31, 2007, and extended payment terms to certain customers. The slight increase in DOS in inventory was due primarily to a higher inventory balance as a result of strategic buys. The increase in DPO was due primarily to a higher accounts payable balance resulting from better accounts payable management and increased purchasing activity in the last month of the quarter. These changes contributed to the decrease in the cash conversion cycle for the third quarter ended July 31, 2008 compared to the fourth quarter ended October 31, 2007.

Key Performance Metrics

        Days of sales outstanding in accounts receivable ("DSO") measures the average number of days our receivables are outstanding. DSO is calculated by dividing accounts receivable, net of allowance for doubtful accounts, by a 90-day average net revenue.

        Days of supply in inventory ("DOS") measures the average number of days from procurement to sale of our product. DOS is calculated by dividing net inventory by a 90-day average cost of goods sold.

        Days of purchases outstanding in accounts payable ("DPO") measures the average number of days our accounts payable balances are outstanding. DPO is calculated by dividing accounts payable by a 90-day average cost of goods sold.

        Our working capital requirements depend upon our effective management of the cash conversion cycle, which represents effectively the number of days that elapse from the day we pay for the purchase of raw materials to the collection of cash from our customers. The cash conversion cycle is the sum of DSO and DOS less DPO.

        DSO did not change as higher sales in the last month of the quarter were offset by improved collections. The decrease in DOS in inventory was due primarily to lower inventories. The increase in DPO was due primarily to a higher accounts payable balance resulting from increased purchasing activity in the second half of the quarter. These changes contributed to the decrease in the cash conversion cycle for the second quarter ended April 30, 2008 compared to the fourth quarter ended October 31, 2007.

Key Performance Metrics

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        Days of sales outstanding in accounts receivable ("DSO") measures the average number of days our receivables are outstanding. DSO is calculated by dividing accounts receivable, net of allowance for doubtful accounts, by a 90-day average net revenue.

        Days of supply in inventory ("DOS") measures the average number of days from procurement to sale of our product. DOS is calculated by dividing inventory by a 90-day average cost of goods sold.

        Days of purchases outstanding in accounts payable ("DPO") measures the average number of days our accounts payable balances are outstanding. DPO is calculated by dividing accounts payable by a 90-day average cost of goods sold.

        Our working capital requirements depend upon our effective management of the cash conversion cycle, which represents effectively the number of days that elapse from the day we pay for the purchase of raw materials to the collection of cash from our customers. The cash conversion cycle is the sum of DSO and DOS less DPO.

        The improvement in DSO was due primarily to a lower accounts receivable balance resulting from the timing of revenue during the three months ended January 31, 2008 compared to the three months ended October 31, 2007. The decrease in DOS was due primarily to a lower inventory balance as a result of our focus on improving execution and working capital management. The decrease in DPO was due primarily to a lower accounts payable balance resulting from lower purchases in the second half of the current quarter as compared to the three months ended October 31, 2007. These changes contributed to the decrease in the cash conversion cycle for the first quarter ended January 31, 2008 compared to the fourth quarter ended October 31, 2007.

Key Performance Metrics

        Days of sales outstanding in accounts receivable ("DSO") measures the average number of days our receivables are outstanding. DSO is calculated by dividing accounts receivable, net of allowance for doubtful accounts, by a 90-day average net revenue.

        Days of supply in inventory ("DOS") measures the average number of days from procurement to sale of our product. DOS is calculated by dividing inventory by a 90-day average cost of goods sold.

        Days of purchases outstanding in accounts payable ("DPO") measures the average number of days our accounts payable balances are outstanding. DPO is calculated by dividing accounts payable by a 90-day average cost of goods sold.

        Our working capital requirements depend upon our effective management of the cash conversion cycle, which represents effectively the number of days that elapse from the day we pay for the purchase of raw materials to the collection of cash from our customers. The cash conversion cycle is the sum of DSO and DOS less DPO.

        The increase in DSO was due primarily to selectively extending payment terms and reducing cash discount rates for early payments for certain customers. The decrease in DOS was due primarily to more efficient inventory management and higher cost of goods sold during the fourth quarter as a result of increased revenues. The decrease in DPO was due primarily to purchasing linearity and reduced payment terms and cash discounts from our major contract manufacturers. These changes contributed to the increase in our current year cash conversion cycle compared to the prior year.

Key Performance Metrics

        Days of sales outstanding in accounts receivable ("DSO") measures the average number of days our receivables are outstanding. DSO is calculated by dividing accounts receivable, net of allowance for doubtful accounts, by a 90-day average net revenue.

        Days of supply in inventory ("DOS") measures the average number of days from procurement to sale of our product. DOS is calculated by dividing net inventory by a 90-day average cost of goods sold.

        Days of purchases outstanding in accounts payable ("DPO") measures the average number of days our accounts payable balances are outstanding. DPO is calculated by dividing accounts payable by a 90-day average cost of goods sold.

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        Our working capital requirements depend upon our effective management of the cash conversion cycle, which represents effectively the number of days that elapse from the day we pay for the purchase of raw materials to the collection of cash from our customers. The cash conversion cycle is the sum of DSO and DOS less DPO.

        The increase in DSO was due primarily to an increased accounts receivable balance as a result of strong shipments towards the end of the current quarter, higher currency impacts from Europe, as well as some extended payment terms and lower cash discount rates for early payments on accounts receivable to certain customers. DOS remained flat compared to the fourth quarter of fiscal 2006. The decrease in DPO was due primarily to a lower accounts payable balance as compared to that at October 31, 2006 resulting from the high purchase activities in the later part of the fourth quarter of fiscal 2006 and an increased cost of goods sold during the third quarter of fiscal 2007 as a result of increased revenue. These changes contributed to the increase in the cash conversion cycle for the third quarter ended July 31, 2007 compared to the fourth quarter ended October 31, 2006.

Key Performance Metrics

        Days of sales outstanding in accounts receivable ("DSO") measures the average number of days our receivables are outstanding. DSO is calculated by dividing accounts receivable, net of allowance for doubtful accounts, by a 90-day average net revenue.

        Days of supply in inventory ("DOS") measures the average number of days from procurement to sale of our product. DOS is calculated by dividing net inventory by a 90-day average cost of goods sold.

        Days of purchases outstanding in accounts payable ("DPO") measures the average number of days our accounts payable balances are outstanding. DPO is calculated by dividing accounts payable by a 90-day average cost of goods sold.

        Our working capital requirements depend upon our effective management of the cash conversion cycle, which represents effectively the number of days that elapse from the day we pay for the purchase of raw materials to the collection of cash from our customers. The cash conversion cycle is the sum of DSO and DOS less DPO.

        The increase in DSO was due primarily to an increased accounts receivable balance as a result of higher revenue in the three months ended April 30, 2007, higher currency impacts from Europe, as well as lower cash discount rates for early payments on accounts receivable. The decrease in DOS was due primarily to a lower inventory balance as a result of higher revenue at the end of the period and improved inventory control. The decrease in DPO was due primarily to a lower accounts payable balance as compared to that at October 31, 2006 resulting from the high purchase activities during the fourth quarter of fiscal 2006. These changes contributed to the increase in the cash conversion cycle for the second quarter ended April 30, 2007 compared to the fourth quarter ended October 31, 2006.

Key Performance Metrics

Days of sales outstanding in accounts receivable (“DSO”) measures the average number of days our receivables are outstanding. DSO is calculated by dividing accounts receivable, net of allowance for doubtful accounts, by a 90-day average net revenue.

Days of supply in inventory (“DOS”) measures the average number of days from procurement to sale of our product. DOS is calculated by dividing net inventory by a 90-day average cost of goods sold.

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Days of purchases outstanding in accounts payable (“DPO”) measures the average number of days our accounts payable balances are outstanding. DPO is calculated by dividing accounts payable by a 90-day average cost of goods sold.

Our working capital requirements depend upon our effective management of the cash conversion cycle, which represents effectively the number of days that elapse from the day we pay for the purchase of raw materials to the collection of cash from our customers. The cash conversion cycle is the sum of DSO and DOS less DPO.

The improvement in DSO was due primarily to a lower accounts receivable balance resulting from the timing of revenue during the three months ended January 31, 2007 compared to the three months ended October 31, 2006. The increase in DOS was due primarily to higher inventory balance as a result of strategic buys. The decrease in DPO was due primarily to a lower accounts payable balance as a result of large pay downs in the first quarter of fiscal 2007 for the high purchase activities during the fourth quarter of fiscal 2006, which was partially offset by increased inventory purchases toward the end of the first quarter of fiscal 2007. These changes contributed to the increase in the cash conversion cycle for the first quarter ended January 31, 2007 compared to the fourth quarter ended October 31, 2006.

Key Performance Metrics

        Days of sales outstanding in accounts receivable ("DSO") measures the average number of days our receivables are outstanding. DSO is calculated by dividing accounts receivable, net of allowance for doubtful accounts, by a 90-day average net revenue.

        Days of supply in inventory ("DOS") measures the average number of days from procurement to sale of our product. DOS is calculated by dividing inventory by a 90-day average cost of goods sold.

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        Days of purchases outstanding in accounts payable ("DPO") measures the average number of days our accounts payable balances are outstanding. DPO is calculated by dividing accounts payable by a 90-day average cost of goods sold.

        Our working capital requirements depend upon our effective management of the cash conversion cycle, which represents effectively the number of days that elapse from the day we pay for the purchase of raw materials to the collection of cash from our customers. The cash conversion cycle is the sum of DSO and DOS less DPO.

Key Performance Metrics

        Days of sales outstanding in accounts receivable ("DSO") measures the average number of days our receivables are outstanding. DSO is calculated by dividing accounts receivable, net of allowance for doubtful accounts, by a 90-day average net revenue.

        Days of supply in inventory ("DOS") measures the average number of days from procurement to sale of our product. DOS is calculated by dividing inventory by a 90-day average cost of goods sold.

        Days of purchases outstanding in accounts payable ("DPO") measures the average number of days our accounts payable balances are outstanding. DPO is calculated by dividing accounts payable by a 90-day average cost of goods sold.

        Our working capital requirements depend upon our effective management of the cash conversion cycle, which represents effectively the number of days that elapse from the day we pay for the purchase of raw materials to the collection of cash from our customers. The cash conversion cycle is the sum of DSO and DOS less DPO.

        DSO increased mainly due to seasonally lower revenue during the three months ended July 31, 2006 compared to the three months ended October 31, 2005. The increase in DOS resulted primarily from higher inventory balance due to strategic buys of components as well as volume growth, and lower cost of sales due to improved operational effectiveness during the third quarter of fiscal 2006 compared to the fourth quarter of fiscal 2005. The increase in DPO resulted primarily from higher accounts payable balance due to inventory increase, and lower cost of sales due to improved operational effectiveness. As a result, the cash conversion cycle increased for the three months ended July 31, 2006 compared to the fourth quarter ended October 31, 2005.

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