Hewlett-Packard (HPQ)

Narrative to the Fiscal 2007 Pension Benefits Table

Changes to U.S. Pension Plans at HP, 2002 through 2007

        In an effort to reduce costs and provide benefits more in line with our peer technology companies, HP has made significant changes to its U.S. pension programs over the past few years. These changes have applied to the NEOs at the same time and on the same terms as the changes have applied to other eligible U.S. employees.

        In general, U.S. employees hired before January 1, 2003 were eligible to participate in the HP Retirement Plan (the "RP"), a traditional defined benefit pension plan. Of the NEOs, Ms. Lesjak, Ms. Livermore, Mr. Joshi and Mr. Wayman are in this category. Employees who joined HP as part of the merger with Compaq Computer Corporation ("Compaq") became participants in the RP effective January 1, 2003 and began accruing benefits on and after that date. Mr. Robison is in this category.

        Employees who joined HP between January 1, 2003 and December 31, 2005, including Mr. Hurd, were eligible to participate in the HP Cash Account Pension Plan (the "CAPP"). The CAPP is a cash-balance plan that is the successor to the Digital Equipment Corporation ("Digital") cash balance plan; HP assumed sponsorship of this plan following HP's acquisition of Compaq.

        Each of the RP and the CAPP is a qualified retirement plan within the meaning of Section 401(a) of the Code, and for each plan there is a parallel "excess" or non-qualified plan that provides benefits for the NEOs and other eligible employees who earn pension-eligible compensation in excess of the IRS limits applicable to the qualified plans. The excess plan for the RP is called the HP Excess Benefit Plan (the "EBP"); the excess plan for the CAPP is the HP Cash Account Restoration Pension Plan (the "CARP").

        The assets of the RP and the CAPP were merged in November 2005, and the combined plan is now called the HP Pension Plan, but the benefits continue to be determined separately for the RP and the CAPP portions of the HP Pension Plan.

        In connection with certain cost reduction and restructuring efforts that were announced in July 2005, HP ceased pension accruals in both the RP and the CAPP (and correspondingly in the EBP and the CARP) effective December 31, 2005 for employees whose combination of age and qualifying service was less than 62. Employees with 62 or more "age plus service points" continued to accrue benefits in their existing pension plan after that date (either the traditional RP or the cash-balance CAPP, and, with respect to amounts in excess of IRS limits, the corresponding non-qualified EBP and CARP). Under these changes, Mr. Hurd and Mr. Robison ceased benefit accruals effective December 31, 2005 in the CAPP/CARP and RP/EBP, respectively, and the other NEOs continued to accrue pension benefits in the RP/EBP.

        In February 2007, HP announced further benefit changes, including the cessation of pension accruals for all remaining U.S. employees effective December 31, 2007. HP's NEOs were subject to these changes on the same basis as other U.S. employees. As a result, Ms. Lesjak, Ms. Livermore and Mr. Joshi ceased accruing benefits in the RP/EBP effective December 31, 2007. On and after January 1, 2008, no U.S. employee will earn a pension benefit.

49

        U.S. employees who ceased pension accruals in 2005 (including Messrs. Hurd and Robison) became eligible for a higher matching contribution under the HP 401(k) Plan beginning in 2006, as well as a 6% matching contribution on certain base pay deferrals under the non-qualified HP Executive Deferred Compensation Plan (the "EDCP"). The remaining NEOs became eligible for the 6% matching contribution in the HP 401(k) Plan and the EDCP effective January 1, 2008.

Terms of the HP Retirement Plan

        The RP is a traditional defined benefit plan providing a benefit based on years of service and the participant's "highest average pay rate," reduced by a portion of Social Security earnings. "Highest average pay rate" is determined based on the 20 consecutive fiscal quarters when pay is the highest. Pay for this purpose includes base pay and bonus paid under the Pay-for-Results Plan, as reported in the Fiscal 2007 Summary Compensation Table. Up to 30 years of HP service is taken into account in calculating benefits under the RP. Ms. Lesjak, Ms. Livermore and Mr. Joshi earned benefit accruals under the RP, and its nonqualified counterpart, the EBP, during fiscal 2007. Mr. Wayman earned benefit accruals under the RP and the EBP through the date of his retirement on April 30, 2007.

        For participants employed by HP before 1993, including Ms. Lesjak, Ms. Livermore, Mr. Joshi, and Mr. Wayman, benefits calculated under the RP are offset by the value of benefits earned under the HP Deferred Profit Sharing Plan ("DPSP"). Together, the RP and the DPSP constitute a "floor-offset" arrangement for periods before 1993.

        Benefits under the RP may be taken in one of several different annuity forms or in an actuarially equivalent lump sum.

        Benefits not payable from the RP and the DPSP due to IRS limits are paid from the nonqualified EBP, under which benefits are unfunded and unsecured. When an EBP participant terminates employment, an account is created for him or her in the amount not able to be paid from the RP and/or DPSP due to IRS limits. The account for this amount is then transferred to the EDCP, where it is credited with investment earnings (gains or losses) based upon the investment election made by participants from among investment options available under the HP 401(k) Plan. There is no formula which would result in above-market earnings or payment of a preferential interest rate on this benefit.

        At time of termination, amounts representing EBP benefits are paid from the EDCP in a lump sum or installment form, according to pre-existing elections made by those participants, except that participants with a small benefit or who have not qualified for retirement status (age 55 with at least 15 years of service) are paid their EBP benefit in January of the year following their termination, subject to any delay required by Section 409A of the Code.

Terms of the HP Cash Account Pension Plan

        The CAPP, a cash balance plan, is a successor to a pension plan originally established by Digital in 1966. Digital had converted its traditional pension plan to a cash balance plan in 1997, before Digital's acquisition by Compaq. The CAPP provides pension benefits determined by reference to a hypothetical account balance.

        Participants in the CAPP who have not ceased accruals receive "pay credits" equal to four percent of base pay credited quarterly to their accounts and "interest credits" credited daily to each account. Interest credits are credited at the rate equal to the one-year rate for Treasury securities plus one percent and are adjusted annually. Benefits under the CAPP may be taken in one of several different annuity forms or in a lump sum equal to the hypothetical account balance.

        Participants in the CAPP who continue to earn accruals and who earn base pay in excess of the IRS limits receive pay credits and interest credits to a hypothetical account balance established for them under the CARP at the same rates as credited under the CAPP. Amounts under the CARP are unfunded and unsecured. Upon termination of employment, a CARP participant is paid his or her account balance in the

50

form of a lump sum in January of the year following termination, subject to any delay required by Section 409A of the Code.

        Participants in the CAPP/CARP who have ceased accruing benefits (including Mr. Hurd) do not receive pay credits, but do receive interest credits to their accounts. In addition, they continue to earn service toward the five-year vesting requirement of the plans.

        HP does not sponsor any other supplemental pension plans or special retiree medical benefit plans.

Fiscal 2007 Nonqualified Deferred Compensation Table

        The following table provides information about contributions, earnings, withdrawals and distributions relating to the HP Executive Deferred Compensation Plan (the "EDCP"):

(1)

The amounts deferred under the EDCP for each individual are reported as compensation to such NEO in the Fiscal 2007 Summary Compensation Table above.

(2)

Because Mr. Hurd and Mr. Robison are in the category of U.S. employees who did not accrue pension benefits during fiscal 2007, they were eligible for a 6% matching contribution on deferrals of base pay amounts up to two times the IRS limit on compensation that can be taken into account under the qualified HP 401(k) Plan, with the matching contribution on such amounts in excess of such IRS limits provided under the EDCP. For example, Mr. Hurd was credited with a 6% matching contribution under the EDCP on his base pay deferrals between $220,000 and $440,000; matching contributions on his base pay deferrals up to $220,000 were made into the qualified HP 401(k) Plan.