HPQ » Topics » Operating Expenses

This excerpt taken from the HPQ 10-Q filed Mar 11, 2010.

Operating Expenses

    Research and Development

        Total research and development ("R&D") expense decreased for the three months ended January 31, 2010 as compared to the prior-year period, due primarily to continued cost controls and efficiencies as we lowered structural costs. R&D expense as a percentage of net revenue decreased for ESS, HP Software, IPG, PSG and Corporate Investments, and increased for Services for the three months ended January 31, 2010.

    Selling, General and Administrative

        Selling, general and administrative ("SG&A") expense increased for the three months ended January 31, 2010 as compared to the prior-year period due primarily to higher field selling and marketing costs as a result of our investments in sales resources to improve revenue. SG&A expense as a percentage of net revenue decreased for each of our segments except for IPG for the three months ended January 31, 2010.

    Amortization of Purchased Intangible Assets

        The decrease in amortization expense for the three months ended January 31, 2010 as compared to the prior-year period was due primarily to certain intangible assets associated with prior acquisitions reaching the end of their amortization periods.

    Restructuring Charges

        Restructuring charges for the three months ended January 31, 2010 were $131 million. These charges included $130 million of severance and facility costs related to our fiscal 2008 restructuring plan and $1 million of severance costs associated with our fiscal 2009 restructuring plan.

        Restructuring charges for the three months ended January 31, 2009 were $146 million, which included $150 million for severance and facility costs related to the fiscal 2008 restructuring plan and a reduction of $4 million related to adjustments to prior fiscal year plans.

        In addition to restructuring charges, as part of our ongoing business operations we incurred workforce rebalancing charges for severance and related costs within certain business segments during the first quarter of fiscal 2010. Workforce rebalancing activities are considered part of normal operations as we continue to optimize our cost structure. Workforce rebalancing costs are included in our business segment results, and we expect to incur additional workforce rebalancing costs in the future.

    Acquisition-related Charges

        For the three months ended January 31, 2010 and 2009, we recorded acquisition-related charges of $38 million and $48 million, respectively, primarily for consulting and integration costs as well as retention bonuses associated with the EDS acquisition.

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Interest and Other, Net

        Interest and other, net improved by $33 million for the three months ended January 31, 2010 as compared to the prior-year period. The improvement was driven primarily by lower currency losses on balance sheet remeasurement items and lower interest expenses due to lower average debt balances, the effect of which was partially offset by an increase to our litigation reserves and lower interest income as a result of lower interest rates.

This excerpt taken from the HPQ 10-K filed Dec 17, 2009.

Operating Expenses

    Research and Development

        Total research and development ("R&D") expense decreased in fiscal 2009 as compared to fiscal 2008 due primarily to favorable currency impacts related to the movement of the dollar against the euro, as well as effective cost controls, the effect of which was partially offset by additional expenses related primarily to Services. In fiscal 2009, R&D expense as a percentage of net revenue decreased for ESS, PSG, and IPG, and increased for HP Software, Services and Corporate Investments.

        Total R&D decreased in fiscal 2008 as compared to fiscal 2007, due primarily to effective cost controls, the impact of which was partially offset by the unfavorable currency impacts related to the movement of the dollar against the euro. Each of our major segments experienced a year-over-year decrease in R&D expense as a percentage of net revenue in fiscal 2008.

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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)

    Selling, General and Administrative

        Selling, general and administrative ("SG&A") expense decreased in fiscal 2009 from fiscal 2008 due primarily to favorable currency impacts related to the movement of the dollar against the euro, lower compensation expense as well as effective cost management, the impact of which was partially offset by additional expenses related to the EDS acquisition. In fiscal 2009, SG&A expense as a percentage of net revenue decreased for each of our segments, except for Corporate Investments.

        Total SG&A expense increased in fiscal 2008 due primarily to higher field selling costs as a result of our investments in sales resources, unfavorable currency impacts related to the movement of the dollar against the euro, and additional expenses related to the EDS acquisition. Each of our major segments experienced a year-over-year decrease in SG&A expense as a percentage of net revenue during fiscal 2008.

    Amortization of Purchased Intangible Assets

        The increase in amortization expense in fiscal 2009 from fiscal 2008 was due primarily to amortization expenses related to the intangible assets purchased as part of the EDS acquisition.

        The increase in amortization expense during fiscal 2008 as compared to fiscal 2007 was due primarily to amortization expenses related to the intangible assets purchased as part of the EDS acquisition as well as other acquisitions made in fiscal 2008.

        For more information on our amortization of purchased intangibles assets, see Note 7 to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

    In-Process Research and Development Charges

        We record IPR&D charges in connection with acquisitions accounted for as business combinations as more fully described in Note 6 to the Consolidated Financial Statements in Item 8. In fiscal 2009, fiscal 2008 and fiscal 2007, we recorded IPR&D charges of $7 million, $45 million and $190 million, respectively, related to acquisitions. The decrease in IPR&D in fiscal 2009 from fiscal 2008 was due primarily to higher IPR&D expenses in the prior year as a result of our EDS acquisition in the fourth quarter of fiscal 2008.

    Restructuring

        Restructuring charges for fiscal 2009 were $640 million. These charges included $346 million of severance and facility costs related to our fiscal 2008 restructuring plan, $297 million of severance costs associated with our fiscal 2009 restructuring plan, and a reduction of $3 million related to adjustments to other restructuring plans.

        Restructuring charges for fiscal 2008 were $270 million, which included $246 million of charges due primarily to severance and facility costs related to the EDS acquisition and a net charge of $24 million relating to adjustments for existing restructuring programs.

        Restructuring charges for fiscal 2007 were $387 million, which included $354 million of expenses related to severance and other benefit costs associated with those employees who elected to participate in the early retirement program implemented in fiscal 2007 and a net charge of $33 million relating to adjustments to our previous restructuring programs.

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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)

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

    Workforce Rebalancing

        As part of our ongoing business operations, we incurred workforce rebalancing charges for severance and related costs within certain business segments in fiscal 2009. Workforce rebalancing activities are considered part of normal operations as we continue to optimize our cost structure. Workforce rebalancing costs are included in our business segment results, and we expect to incur additional workforce rebalancing costs in the future.

    Acquisition-related Charges

        We recorded acquisition-related charges of $242 million and $41 million in fiscal 2009 and fiscal 2008, respectively, related primarily to consulting and integration costs as well as retention bonuses associated with the EDS acquisition. The increase in the acquisition-related charges in fiscal 2009 was due primarily to our acquisition of EDS in August 2008.

    Pension Curtailments and Pension Settlements, Net

        In fiscal 2007, we recognized a net gain on pension curtailments and settlements of $517 million, relating primarily to a $542 million curtailment gain associated with a modification to our U.S. defined benefit pension plan and post-retirement benefit plan. This curtailment gain was offset partially by net settlement losses related to our other pension plan design changes.

        For more information on our retirement and post-retirement benefit plans, see Note 16 to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

This excerpt taken from the HPQ 10-Q filed Jun 5, 2009.

Operating Expenses

    Research and Development

        Total research and development ("R&D") expense decreased in the second quarter and first half of fiscal 2009 as compared to the prior-year periods due primarily to favorable currency impacts related to the movement of the dollar against the euro as well as effective cost controls. The decrease in R&D expense in the first half of fiscal 2009 was also due to lower compensation expense. For the three and six months ended April 30, 2009, R&D expense as a percentage of net revenue decreased for IPG and increased for HP Software and Corporate Investments. For all the other remaining segments, R&D expense as a percentage of net revenue remained approximately flat for both periods.

    Selling, General and Administrative

        Selling, general and administrative ("SG&A") expense decreased in the three and six months ended April 30, 2009 from the corresponding prior-year periods, due primarily to favorable currency impacts related to the movement of the dollar against the euro as well as effective cost management, the effect of which was partially offset by additional expenses related to the EDS acquisition and higher bad debt expense. As a percentage of net revenue, except for ESS and Corporate Investments, each of our other segments experienced a year-over-year decrease in SG&A expense for the three months ended April 30, 2009. For the six months ended April 30, 2009, SG&A expense as a percentage of net revenue remained approximately flat for ESS, increased for Corporate Investments, and decreased for each of our other segments.

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    Amortization of Purchased Intangible Assets

        The increase in amortization expense for the three and six months ended April 30, 2009 as compared to the same periods in the prior year was due primarily to amortization expenses related to the EDS acquisition, as well as other acquisitions made subsequent to the second quarter of fiscal 2008.

    In-Process Research and Development Charges

        For the three months ended April 30, 2009, we had no in-process research and development ("IPR&D") charges. For the six months ended April 30, 2009 we recorded $6 million of IPR&D charges. For both the three and six months ended April 30, 2008, we recorded $13 million of IPR&D charges. IPR&D charges are incurred in connection with our acquisitions.

    Restructuring

        For the three months ended April 30, 2009, we recorded $94 million in restructuring charges associated primarily with severance and facility costs related to the fiscal 2008 restructuring plan. Restructuring charges for the six months ended April 30, 2009 were $240 million, which included $243 million for severance and facility costs related to the fiscal 2008 restructuring plan and a reduction of $3 million related to adjustments to other restructuring plans.

        Restructuring charges for the three and six months ended April 30, 2008 were $4 million and $14 million, respectively. These charges were due primarily to adjustments for severance and facility costs associated with restructuring programs implemented in fiscal years 2005, 2003, 2002 and 2001, as well as in relation to our acquisition of Mercury Interactive Corporation in November 2006.

    Workforce Rebalancing

        As part of our ongoing business operations, we incurred workforce rebalancing charges for severance and related costs within certain business segments during the first six months of fiscal 2009. Workforce rebalancing activities are considered part of normal operations as we continue to optimize our cost structure. Workforce rebalancing costs are included in our business segment results, and we expect to incur additional workforce rebalancing costs in the future.

    Acquisition-related Charges

        In the three and six months ended April 30, 2009, we recorded acquisition-related charges of $75 million and $123 million, respectively. These charges were related primarily to retention bonuses, consulting and integration costs associated with the EDS acquisition.

This excerpt taken from the HPQ 10-Q filed Mar 10, 2009.

Operating Expenses

    Research and Development

        Total research and development ("R&D") expense decreased in the first quarter of fiscal 2009 as compared to the prior-year period due primarily to favorable currency impacts related to the movement of the dollar against the euro as well as effective cost controls. As a percentage of net revenue, except for HP Software, each of our major segments experienced a year-over-year decrease in R&D expense for the three months ended January 31, 2009.

    Selling, General and Administrative

        Selling, general and administrative ("SG&A") expense decreased in the first quarter of fiscal 2009 from the corresponding prior-year period, due primarily to favorable currency impacts related to the movement of the dollar against the euro as well as effective cost management, partially offset by

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additional expenses related to the EDS acquisition. As a percentage of net revenue, each of our major segments experienced a year-over-year decrease in SG&A expense for the three months ended January 31, 2009.

    Amortization of Purchased Intangible Assets

        The increase in amortization expense for the three months ended January 31, 2009 as compared to the same period in the prior year was due primarily to amortization expenses related to the EDS acquisition as well as other acquisitions made subsequent to the first quarter of fiscal 2008.

    In-Process Research and Development Charges

        We recorded $6 million of in-process research and development ("IPR&D") charges for the first quarter of fiscal 2009. IPR&D charges are incurred in connection with our acquisitions.

    Restructuring

        Restructuring charges for the three months ended January 31, 2009 were $146 million, which included $150 million for severance and facility costs related to the fiscal 2008 restructuring plan and a reduction of $4 million related to adjustments to prior fiscal year plans.

        Restructuring charges for the three months ended January 31, 2008 were $10 million. These charges were due primarily to adjustments for severance and facility costs associated with restructuring programs implemented in fiscal years 2005, 2003, 2002 and 2001.

    Workforce Rebalancing

        As part of our ongoing business operations, we incurred workforce rebalancing charges for severance and related costs within certain business segments during the first three months of fiscal 2009. Workforce rebalancing activities are considered part of normal operations as we continue to optimize our cost structure. Workforce rebalancing costs are included in our business segment results, and we expect to incur additional workforce rebalancing costs in the future.

    Acquisition-related Charges

        In the first quarter of fiscal 2009, we recorded acquisition-related charges of $48 million for consultant integration costs and retention bonuses associated with our acquisition of EDS.

These excerpts taken from the HPQ 10-K filed Dec 18, 2008.

Operating Expenses

    Research and Development

        Total research and development ("R&D") decreased in fiscal 2008 as compared to fiscal 2007, due primarily to effective cost controls, the effect of which was partially offset by the unfavorable currency impacts related to the movement of the dollar against the euro. Each of our major segments experienced a year-over-year decrease in R&D expense as a percentage of net revenue in fiscal 2008.

        Total R&D expense increased in fiscal 2007 due primarily to additional R&D expense as a result of the Mercury acquisition in the first quarter of fiscal 2007. As a percentage of net revenue, each of our major segments experienced a year-over-year decrease in R&D expense in fiscal 2007.

    Selling, General and Administrative

        Total selling, general and administrative ("SG&A") expense increased in fiscal 2008 due primarily to higher field selling costs as a result of our investments in sales resources, unfavorable currency impacts related to the movement of the dollar against the euro, and additional expenses related to the EDS acquisition. Each of our major segments experienced a year-over-year decrease in SG&A expense as a percentage of net revenue during fiscal 2008.

        Total SG&A expense increased during fiscal 2007 due primarily to additional expense as a result of the acquisition of Mercury in the first quarter of fiscal 2007, unfavorable currency impacts related to the movement of the dollar against the euro and additional investments in our sales forces. The ESS,

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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)


HPS, PSG and IPG segments experienced a year-over-year decrease in SG&A expense as a percentage of net revenue during fiscal 2007, while HP Software experienced a year-over-year increase in SG&A expense.

    Amortization of Purchased Intangible Assets

        The increase in amortization expense during fiscal 2008 as compared to fiscal 2007 was due primarily to amortization expenses related to the EDS acquisition as well as other acquisitions made in fiscal 2008.

        The increase in amortization expense in fiscal 2007 as compared to fiscal 2006 was due primarily to amortization expense related to the acquisition of Mercury in the first quarter of fiscal 2007. This increase was partially offset by a decrease in amortization expense related to certain intangible assets associated with prior acquisitions, including the Compaq Computer Corporation ("Compaq") acquisition, that had reached the end of their amortization period.

        For more information on our amortization of purchased intangibles assets, see Note 7 to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

    In-Process Research and Development Charges

        We record in-process research and development ("IPR&D") charges in connection with acquisitions accounted for as business combinations as more fully described in Note 6 to the Consolidated Financial Statements in Item 8. In fiscal 2008, 2007 and 2006 we recorded IPR&D charges of $45 million, $190 million and $52 million, respectively, related to acquisitions. The decrease in IPR&D in fiscal 2008 was due primarily to higher IPR&D expenses in the prior year as a result of our acquisition of Mercury in the first quarter of fiscal 2007.

    Restructuring Charges

        Restructuring charges for fiscal 2008 were $270 million, which included $246 million of charges due primarily to severance and facility costs related to the EDS acquisition and a net charge of $24 million relating to adjustments for existing restructuring programs.

        Restructuring charges for fiscal 2007 were $387 million, which included $354 million of expenses related to severance and other benefit costs associated with those employees who elected to participate in the early retirement program implemented in fiscal 2007 and a net charge of $33 million relating to adjustments to our previous restructuring programs.

        Restructuring charges in fiscal year 2006 were $158 million. This included a net charge of $233 million related to true-ups of severance and other related restructuring charges for all restructuring plans, a $6 million termination benefits expense and a $3 million settlement and curtailment loss from our non-U.S. pension plans related to the fiscal 2005 restructuring plan approved by our Board of Directors in the fourth quarter of fiscal 2005. These charges were partially offset by a $46 million settlement gain from the U.S. pension plans, a $24 million curtailment gain from the U.S. retiree medical program and a $14 million adjustment to reduce our non-cash stock-based compensation expense, all related to our fiscal 2005 restructuring plan.

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

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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)

Operating Expenses





    Research and Development





        Total
research and development ("R&D") decreased in fiscal 2008 as compared to fiscal 2007, due primarily to effective cost controls, the effect of which was
partially offset by the unfavorable currency impacts related to the movement of the dollar against the euro. Each of our major segments experienced a year-over-year decrease in
R&D expense as a percentage of net revenue in fiscal 2008.




        Total
R&D expense increased in fiscal 2007 due primarily to additional R&D expense as a result of the Mercury acquisition in the first quarter of fiscal 2007. As a percentage of net
revenue, each of our major segments experienced a year-over-year decrease in R&D expense in fiscal 2007.





    Selling, General and Administrative





        Total
selling, general and administrative ("SG&A") expense increased in fiscal 2008 due primarily to higher field selling costs as a result of our investments
in sales resources, unfavorable currency impacts related to the movement of the dollar against the euro, and additional expenses related to the EDS acquisition. Each of our major segments experienced
a year-over-year decrease in SG&A expense as a percentage of net revenue during fiscal 2008.



        Total
SG&A expense increased during fiscal 2007 due primarily to additional expense as a result of the acquisition of Mercury in the first quarter of fiscal 2007, unfavorable currency
impacts related to the movement of the dollar against the euro and additional investments in our sales forces. The ESS,



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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES



Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)






HPS,
PSG and IPG segments experienced a year-over-year decrease in SG&A expense as a percentage of net revenue during fiscal 2007, while HP Software experienced a
year-over-year increase in SG&A expense.





    Amortization of Purchased Intangible Assets





        The
increase in amortization expense during fiscal 2008 as compared to fiscal 2007 was due primarily to amortization expenses related to the EDS acquisition as
well as other acquisitions made in fiscal 2008.



        The
increase in amortization expense in fiscal 2007 as compared to fiscal 2006 was due primarily to amortization expense related to the acquisition of Mercury in the first quarter of
fiscal 2007. This increase was partially offset by a decrease in amortization expense related to certain intangible assets associated with prior acquisitions, including the Compaq Computer Corporation
("Compaq") acquisition, that had reached the end of their amortization period.



        For
more information on our amortization of purchased intangibles assets, see Note 7 to the Consolidated Financial Statements in Item 8, which is incorporated herein by
reference.





    In-Process Research and Development Charges





        We
record in-process research and development ("IPR&D") charges in connection with acquisitions accounted for as business combinations as more
fully described in Note 6 to the Consolidated Financial Statements in Item 8. In fiscal 2008, 2007 and 2006 we recorded IPR&D charges of $45 million, $190 million and
$52 million, respectively, related to acquisitions. The decrease in IPR&D in fiscal 2008 was due primarily to higher IPR&D expenses in the prior year as a result of our acquisition of Mercury
in the first quarter of fiscal 2007.





    Restructuring Charges





        Restructuring
charges for fiscal 2008 were $270 million, which included $246 million of charges due primarily to severance and facility costs
related to the EDS acquisition and a net charge of $24 million relating to adjustments for existing restructuring programs.



        Restructuring
charges for fiscal 2007 were $387 million, which included $354 million of expenses related to severance and other benefit costs associated with those
employees who elected to participate in the early retirement program implemented in fiscal 2007 and a net charge of $33 million relating to adjustments to our previous restructuring programs.



        Restructuring
charges in fiscal year 2006 were $158 million. This included a net charge of $233 million related to true-ups of severance and other related
restructuring charges for all restructuring plans, a $6 million termination benefits expense and a $3 million settlement and curtailment loss from our non-U.S. pension plans
related to the fiscal 2005 restructuring plan approved by our Board of Directors in the fourth quarter of fiscal 2005. These charges were partially offset by a $46 million settlement gain from
the U.S. pension plans, a $24 million curtailment gain from the U.S. retiree medical program and a $14 million adjustment to reduce our non-cash stock-based compensation
expense, all related to our fiscal 2005 restructuring plan.



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



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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)





This excerpt taken from the HPQ 10-Q filed Sep 5, 2008.

Operating Expenses

    Research and Development

        Total research and development ("R&D") expense decreased in the third quarter of fiscal 2008 as compared to the same period of fiscal 2007. The decrease in R&D expense in the current quarter was due primarily to effective cost controls, partially offset by additional expenses associated with acquisitions. Total R&D expense increased in the first nine months of fiscal 2008 as compared to the same period in fiscal 2007, due primarily to the unfavorable currency impacts related to the movement of the dollar against the euro and additional expenses related to acquisitions. As a percentage of net revenue, each of our major segments experienced a year-over-year decrease in R&D expense for the three and nine months ended July 31, 2008, except for PSG, which remained approximately flat for the first nine months ended July 31, 2008.

    Selling, General and Administrative

        Total selling, general and administrative ("SG&A") expense increased in the third quarter and first nine months of fiscal 2008 due primarily to higher field selling costs as a result of our investments in sales resources, unfavorable currency impacts related to the movement of the dollar against the euro, and additional expenses related to recent acquisitions. As a percentage of net revenue, each of our major segments experienced a year-over-year decrease in SG&A expense for the three and nine months ended July 31, 2008, except for IPG, which remained approximately flat for the three months ended July 31, 2008.

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    Amortization of Purchased Intangible Assets

        The increases in amortization expense for the three and nine months ended July 31, 2008 as compared to the same periods of fiscal 2007 were due primarily to amortization expenses related to the acquisitions made subsequent to the third quarter of fiscal 2007.

    In-Process Research and Development Charges

        We recorded $13 million of in-process research and development ("IPR&D") charges for the nine months ended July 31, 2008 as compared to $186 million in the prior-year comparable period. IPR&D charges are incurred in connection with our acquisitions.

    Restructuring

        Restructuring charges for the three and nine months ended July 31, 2008 were $5 million and $19 million, respectively. These charges were due primarily to adjustments for severance and facility costs associated with restructuring programs implemented in fiscal years 2005, 2003, 2002 and 2001, as well as in relation to our acquisition of Mercury Interactive Corporation in November 2006.

        Restructuring charges for the three months ended July 31, 2007 resulted in a credit of $5 million. This included a curtailment gain of $16 million related to a reduction in the eligible plan population under our U.S. post-retirement benefit plans stemming from the 2007 U.S. Enhanced Early Retirement program (the "2007 EER"). Such gain was partially offset by a net charge of $11 million related to our 2005, 2003, 2002 and 2001 restructuring programs. Restructuring charges for the nine months ended July 31, 2007 were $407 million. These charges included $379 million of expenses related to severance and other benefit costs associated with those employees who elected to participate in the 2007 EER and a net charge of $28 million relating to adjustments to our fiscal 2005, 2003, 2002 and 2001 restructuring programs.

    Workforce Rebalancing

        As part of our ongoing business operations, we incurred workforce rebalancing charges for severance and related costs within certain business segments during the first nine months of fiscal 2008. Workforce rebalancing activities are considered part of normal operations as we continue to optimize our cost structure. Workforce rebalancing costs are included in our business segment results, and we expect to incur additional workforce rebalancing costs through the remainder of fiscal 2008.

    Pension Curtailments and Pension Settlements, Net

        In the first nine months of fiscal 2007, we recognized a net gain on pension curtailments and settlements of $517 million relating primarily to a $542 million curtailment gain associated with a modification to our U.S. defined benefit pension plan. This curtailment gain was offset partially by settlement losses related to our other pension plan design changes.

This excerpt taken from the HPQ 10-Q filed Jun 6, 2008.

Operating Expenses

    Research and Development

        Total research and development ("R&D") expense increased in the second quarter and first half of fiscal 2008 as compared to the same periods in fiscal 2007 due primarily to the unfavorable currency impacts related to the movement of the dollar against the euro and additional expenses related to acquisitions. As a percentage of net revenue, each of our major segments experienced a year-over-year decrease in R&D expense for the three and six months ended April 30, 2008, except PSG, which experienced a slight increase for the six months ended April 30, 2008.

    Selling, General and Administrative

        Total selling, general and administrative ("SG&A") expense increased in the second quarter and first half of fiscal 2008 due primarily to higher field selling costs as a result of our investments in sales resources, unfavorable currency impacts related to the movement of the dollar against the euro, and additional expenses related to recent acquisitions. As a percentage of net revenue, each of our major segments experienced a year-over-year decrease in SG&A expense for the three and six months ended April 30, 2008, except PSG, which experienced a slight increase for the six months ended April 30, 2008.

    Amortization of Purchased Intangible Assets

        The increase in amortization expense for the six months ended April 30, 2008 as compared to the same period in the prior year was due primarily to amortization expenses related to the acquisitions made subsequent to the second quarter of fiscal 2007. Amortization expense decreased slightly for the three months ended April 30, 2008 as compared to the same period in fiscal 2007.

    In-Process Research and Development Charges

        We recorded $13 million of in-process research and development ("IPR&D") charges for both the three and six months ended April 30, 2008 as compared to $19 million and $186 million, respectively, in the prior year comparable periods. IPR&D charges are incurred in connection with our acquisitions.

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    Restructuring

        Restructuring charges for the three and six months ended April 30, 2008 were $4 million and $14 million, respectively. These charges were due primarily to adjustments for severance and facility costs associated with restructuring programs implemented in fiscal years 2005, 2003, 2002 and 2001, as well as in relation to our acquisition of Mercury Interactive Corporation in November 2006.

        Restructuring charges for the three and six months ended April 30, 2007 were $453 million and $412 million, respectively. The charges for both periods included a $395 million restructuring charge related to severance and other benefit costs associated with those employees who elected to participate in our 2007 early retirement program. For the three months ended April 30, 2007, the charges also included restructuring charge adjustments of $58 million related to our fiscal 2005, 2003, 2002 and 2001 restructuring programs. For the six months ended April 30, 2007, the above charges were partially offset by a net $41 million expense reduction in the first quarter of fiscal 2007, which included severance adjustments for employees whose positions were eliminated but who found other positions within HP, a non-cash stock-based compensation expense adjustment and a curtailment gain from our U.S. retiree medical program, all related to our fiscal 2005 restructuring plan approved in the fourth quarter of fiscal 2005.

    Workforce Rebalancing

        As part of our ongoing business operations, we incurred workforce rebalancing charges for severance and related costs within certain business segments during the first six months of fiscal 2008. Workforce rebalancing activities are considered part of normal operations as we continue to optimize our cost structure. Workforce rebalancing costs are included in our business segment results, and we expect to incur additional workforce rebalancing costs through the remainder of fiscal 2008.

    Pension Curtailments and Pension Settlements, Net

        In the second quarter and first half of fiscal 2007, we recognized a net gain on pension curtailments and settlements of $508 million and $517 million, respectively, relating primarily to a modification to our U.S. defined benefit pension plan. This curtailment gain was offset partially by settlement losses related to our other pension plan design changes.

This excerpt taken from the HPQ 10-Q filed Mar 10, 2008.

Operating Expenses

        Research and Development

        Total research and development ("R&D") expense as a percentage of net revenue decreased slightly in the first quarter of fiscal 2008 as compared to the prior-year period due primarily to revenue growing faster than R&D expense. R&D expense increased slightly in the first quarter of fiscal 2008 as compared to the prior-year period due primarily to the unfavorable currency impacts related to the movement of the dollar against the euro. As a percentage of net revenue, each of our major segments experienced a year-over-year decrease in R&D expense for the three months ended January 31, 2008, except that PSG experienced a slight year-over-year increase in R&D expense.

        Selling, General and Administrative

        Selling, general and administrative ("SG&A") expense as a percentage of net revenue declined in the first quarter of fiscal 2008 from the prior-year comparable period due primarily to the increase in net revenue outpacing SG&A expense growth. Total SG&A expense increased due primarily to higher field selling costs as a result of our investment in sales resources, additional expenses related to the acquisitions and unfavorable currency impacts related to the movement of the dollar against the euro. As a percentage of net revenue, the ESS, HPS and IPG segments experienced a year-over-year decrease in SG&A expense for the three months ended January 31, 2008, while PSG and HP Software experienced a year-over-year increase in SG&A expense.

        Amortization of Purchased Intangible Assets

        The increase in amortization expense for the three months ended January 31, 2008 as compared to the same period in the prior year was due primarily to amortization expenses related primarily to the acquisitions made subsequent to the first quarter of fiscal 2007.

        In-Process Research and Development Charges

        In the first quarter of fiscal 2007, we recorded $167 million of in-process research and development ("IPR&D") charges in connection with the acquisitions completed during that period.

        Restructuring

        Restructuring charges for the three months ended January 31, 2008 were $10 million. These charges were due primarily to adjustments for severance and facility costs associated with restructuring programs implemented in fiscal years 2005, 2003, 2002 and 2001.

        Restructuring charges for the three months ended January 31, 2007 resulted in a net credit of $41 million. The credit was due primarily to severance adjustments for employees who were expected to be terminated but who found new positions within HP, a non-cash stock-based compensation expense adjustment and a curtailment gain from our U.S. retiree medical program, all related to our fiscal 2005 restructuring plan. These adjustments were partially offset by a restructuring charge related to our fiscal 2003, 2002 and 2001 restructuring programs.

        Workforce Rebalancing

        As part of our ongoing business operations, we incurred workforce rebalancing charges for severance and related costs within certain business segments during the first three months of fiscal 2008. Workforce rebalancing activities are considered part of normal operations as we continue to optimize our cost structure. Workforce rebalancing costs are included in our business segment results, and we expect to incur additional workforce rebalancing costs through the remainder of fiscal 2008.

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        Pension Curtailments and Pension Settlements, Net

        In the first three months of fiscal 2007, we recognized a net gain on pension curtailments and settlements of $9 million, relating primarily to a modification to our U.S. defined benefit pension plan. This curtailment gain was offset partially by settlement losses related to our other pension plan design changes.

This excerpt taken from the HPQ 10-K filed Dec 18, 2007.

Operating Expenses

    Research and Development

        Total research and development ("R&D") expense increased in fiscal 2007 due primarily to additional R&D expense as a result of the Mercury acquisition in the first quarter of fiscal 2007. As a percentage of net revenue, each of our major segments experienced a year-over-year decrease in R&D expense in fiscal 2007.

        Total R&D expense increased in fiscal 2006 due primarily to higher bonus accruals and stock-based compensation expense, the impact of which was partially offset by expense controls and cost savings from restructuring actions. As a percentage of net revenue, each of our major segments experienced a year-over-year decrease in R&D expense in fiscal 2006.

    Selling, General and Administrative

        Total SG&A expense increased during fiscal 2007 due primarily to additional expense as a result of the acquisition of Mercury in the first quarter of fiscal 2007, unfavorable currency impacts related to the movement of the dollar against the euro and additional investments in our sales forces. As a percentage of net revenue, the ESS, HPS, PSG and IPG segments experienced a year-over-year decrease in SG&A expense during fiscal 2007, while HP Software experienced a year-over-year increase in SG&A expense.

        Total SG&A expense increased slightly during fiscal 2006 as higher bonus accruals and stock-based compensation expenses as well as increased marketing spending were offset in part by savings from expense controls and restructuring actions and favorable currency impacts due to movement of the

48



dollar against the euro and the yen. As a percentage of net revenue, each of our segments experienced a year-over-year decrease or no change in fiscal 2006.

    Amortization of Purchased Intangible Assets

        The increase in amortization expense in fiscal 2007 as compared to fiscal 2006 was due primarily to amortization expense related to the acquisition of Mercury in the first quarter of fiscal 2007. This increase was partially offset by a decrease in amortization expense related to certain intangible assets associated with prior acquisitions, including the Compaq Computer Corporation ("Compaq") acquisition, that had reached the end of their amortization period.

        The decrease in amortization expense in fiscal 2006 as compared to fiscal 2005 was due primarily to a decrease in amortization expense related to certain intangible assets associated with prior acquisitions including the Compaq acquisition that had reached the end of their amortization period, which decrease was partially offset by an increase in amortization expense related primarily to the acquisitions of Scitex Vision Ltd. ("Scitex"), Peregrine Systems, Inc. ("Peregrine"), and OuterBay Technologies, Inc. ("OuterBay") in fiscal year 2006.

        For more information on our amortization of purchased intangibles assets, see Note 7 to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

    In-Process Research and Development Charges

        We record in-process research and development ("IPR&D") charges in connection with acquisitions accounted for as business combinations, as more fully described in Note 6 to the Consolidated Financial Statements in Item 8. In fiscal 2007, 2006 and 2005 we recorded IPR&D charges of $190 million, $52 million, and $2 million, respectively, related to acquisitions during those years. The increase in IPR&D in fiscal 2007 was due primarily to our acquisition of Mercury in the first quarter of fiscal 2007.

    Restructuring Charges

        Restructuring charges for fiscal 2007 were $387 million, which included $354 million of expenses related to severance and other benefit costs associated with those employees who elected to participate in the 2007 EER and a net charge of $33 million relating to adjustments to our fiscal 2005, 2003, 2002 and 2001 restructuring programs.

        Restructuring charges in fiscal year 2006 were $158 million. This included a net charge of $233 million related to true-ups of severance and other related restructuring charges for all restructuring plans, a $6 million termination benefits expense and a $3 million settlement and curtailment loss from our non-U.S. pension plans related to the fiscal 2005 restructuring plan, which was approved by our Board of Directors in the fourth quarter of fiscal 2005. These charges were partially offset by a $46 million settlement gain from the U.S. pension plans, a $24 million curtailment gain from the U.S. retiree medical program and a $14 million adjustment to reduce our non-cash stock-based compensation expense, all related to our fiscal 2005 restructuring plan approved in the fourth quarter of fiscal 2005.

        Restructuring charges in fiscal 2005 were $1.7 billion, which included a $1.6 billion charge for the fiscal 2005 restructuring plan approved in the fourth quarter of fiscal 2005. The fiscal 2005 restructuring plan was designed to simplify our structure, reduce costs and place greater focus on our customers. We initially estimated that 15,300 positions would be eliminated in the fiscal 2005 restructuring plan.

49



Subsequent to the initial estimate, we reduced the number of total positions to be eliminated to 14,985. We had substantially completed eliminating these positions as of October 31, 2007. The remaining charge for fiscal 2005 of $109 million was related to severance and related costs associated with the termination of approximately 1,450 employees in connection with a restructuring plan approved by our management in the third quarter of fiscal 2005. All employees under this restructuring plan were terminated as of October 31, 2005. We paid all of the costs associated with the fiscal 2005 third quarter restructuring plan as of January 31, 2007.

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

This excerpt taken from the HPQ 10-Q filed Sep 7, 2007.

Operating Expenses

    Research and Development

        Total research and development ("R&D") expense decreased in the third quarter and first nine months of fiscal 2007 due primarily to effective cost controls. The favorable impact of the cost controls was offset in part by additional R&D expense as a result of the Mercury acquisition in the first quarter of fiscal 2007. As a percentage of net revenue, each of our major segments experienced a year-over-year decrease in R&D expense for the three and nine months ended July 31, 2007.

    Selling, General and Administrative

        Total SG&A expense increased in the third quarter and first nine months of fiscal 2007 due primarily to additional expense as a result of the acquisition of Mercury in the first quarter of fiscal 2007 and unfavorable currency impacts related to the movement of the dollar against the euro. As a percentage of net revenue, the ESS, HPS, PSG and IPG segments experienced a year-over-year decrease in SG&A expense for the three and nine months ended July 31, 2007, while HP Software experienced a year-over-year increase in SG&A expense.

    Amortization of Purchased Intangible Assets

        The increase in amortization expense for the three and nine months ended July 31, 2007 as compared to the same periods in the prior year was due primarily to amortization expense related to the acquisition of Mercury in the first quarter of fiscal 2007. This increase was partially offset by a decrease in amortization expense related to certain intangible assets associated with prior acquisitions, including the Compaq Computer Corporation ("Compaq") acquisition, that had reached the end of their amortization period.

        For more information on our amortization of purchased intangibles assets, see Note 6 to the Consolidated Condensed Financial Statements in Item 1, which is incorporated herein by reference.

    In-Process Research and Development Charges

        For the nine months ended July 31, 2007, we recorded $186 million of in-process research and development charges ("IPR&D") as compared to $52 million for the nine months ended July 31, 2006. IPR&D charges are incurred in connection with our acquisitions. The increase in IPR&D during the first nine months of fiscal 2007 was due primarily to our acquisition of Mercury in the first quarter of fiscal 2007.

    Restructuring

        Restructuring charges for the three months ended July 31, 2007 resulted in a credit of $5 million. This included a curtailment gain of $16 million related to a reduction in the eligible plan population under our U.S. post-retirement benefit plans stemming from the 2007 EER. Such gain was partially offset by a net charge of $11 million related to our 2005, 2003, 2002 and 2001 restructuring programs. Restructuring charges for the nine months ended July 31, 2007 were $407 million. These charges include $379 million of expenses related to severance and other benefit costs associated with those employees who elected to participate in the 2007 EER and a net charge of $28 million relating to adjustments to our fiscal 2005, 2003, 2002 and 2001 restructuring programs.

        Restructuring charges for the three months ended July 31, 2006 were $5 million. This amount included a net charge of $14 million for adjustments to severance and other related restructuring charges for all plans, which were partially offset by a $2 million curtailment gain from the U.S. retiree medical program and a $7 million settlement gain from the U.S. pension plans, both related to the fiscal 2005 restructuring plan. The restructuring charges for the nine months ended July 31, 2006 were

53



$6 million. This amount included $69 million in adjustments to severance and other related restructuring charges, which were partially offset by a $19 million curtailment gain and a $44 million settlement gain from our U.S. retiree medical program and U.S. pension plans.

        For more information, see Note 7 to the Consolidated Condensed Financial Statements in Item 1, which is incorporated herein by reference.

    Workforce Rebalancing

        As part of our ongoing business operations, we incurred workforce rebalancing charges for severance and related costs within certain business segments during the first nine months of fiscal 2007. Workforce rebalancing activities are considered part of normal operations as we continue to optimize our cost structure. Workforce rebalancing costs are included in our business segment results, and we expect to incur additional workforce rebalancing costs through the remainder of fiscal 2007.

    Pension Curtailments and Pension Settlements, Net

        In the first nine months of fiscal 2007, we recognized a net gain on pension curtailments and settlements of $517 million, relating primarily to a $542 million curtailment gain associated with a modification to our U.S. defined benefit pension plan. This curtailment gain was offset partially by settlement losses related to our other pension plan design changes. For more information, see Note 13 to the Consolidated Condensed Financial Statements in Item 1, which is incorporated herein by reference.

This excerpt taken from the HPQ 10-Q filed Jun 8, 2007.

Operating Expenses

    Research and Development

        Total research and development ("R&D") expense decreased in the second quarter and first half of fiscal 2007 due primarily to effective cost controls, which was offset in part by additional R&D expenses related to the Mercury acquisition. As a percentage of net revenue, each of our major segments experienced a year-over-year decrease in R&D expense for the three and six months ended April 30, 2007.

    Selling, General and Administrative

        Total SG&A expense increased in the second quarter and first half of fiscal 2007 due primarily to additional expenses related to the acquisition of Mercury, investments in incremental sales resources and unfavorable currency impacts related to the movement of the dollar against the euro. As a percentage of net revenue, the ESS, HPS, PSG and IPG segments experienced a year-over-year decrease or no change in SG&A expense for the three and six months ended April 30, 2007, while HP Software experienced a year-over-year increase in SG&A expense.

    Amortization of Purchased Intangible Assets

        The increase in amortization expense for the three and six months ended April 30, 2007 as compared to the same periods in the prior year was due primarily to amortization expenses related to the acquisition of Mercury in the first quarter of fiscal 2007, partially offset by a decrease in amortization expense related to certain intangible assets associated with prior acquisitions, including the Compaq Computer Corporation ("Compaq") acquisition, that had reached the end of their amortization period.

        For more information on our amortization of purchased intangibles assets, see Note 6 to the Consolidated Condensed Financial Statements in Item 1, which is incorporated herein by reference.

50



    In-Process Research and Development Charges

        For the three and six months ended April 30, 2007, we recorded $19 million and $186 million respectively, of in-process research and development ("IPR&D") compared to $2 million and $52 million in the prior year comparable periods. IPR&D charges are incurred in connection with our acquisitions. The increase in IPR&D during the first six months of fiscal 2007 was due primarily to our acquisition of Mercury in the first quarter of fiscal 2007.

    Restructuring

        Restructuring charges for the three and six months ended April 30, 2007 were $453 million and $412 million, respectively. The charges for both periods included a $395 million restructuring charge related to severance and other benefit costs associated with those employees who elected to participate in the 2007 EER. For the three months ended April 30, 2007, the charges also included restructuring charge adjustments of $58 million related to our fiscal 2005, 2003, 2002 and 2001 restructuring programs. For the six months ended April 30, 2007, the above charges were partially offset by a net $41 million expense reduction in the first quarter of fiscal 2007, which included severance adjustments for employees whose positions were eliminated but who found other positions within HP, a non-cash stock-based compensation expense adjustment and a curtailment gain from our U.S. retiree medical program, all related to our fiscal 2005 restructuring plan approved in the fourth quarter of fiscal 2005.

        Restructuring charges for the three months ended April 30, 2006 resulted in a net gain of $14 million, due primarily to a $4 million curtailment gain from the U.S. retiree medical program and a $37 million settlement gain from the U.S. pension plans, both related to the fiscal 2005 restructuring plan, partially offset by a net charge of $27 million related to adjustments of severance and other related restructuring charges for the fiscal 2001, 2002, 2003 and 2005 restructuring plans. The restructuring charges for the six months ended April 30, 2006 were $1 million, which included adjustments of severance and other related restructuring charges in the first six months of fiscal 2006, partially offset by the curtailment and settlement gains from our U.S. retiree medical program and U.S. pension plans.

        For more information, see Note 7 to the Consolidated Condensed Financial Statements in Item 1, which is incorporated herein by reference.

    Workforce Rebalancing

        As part of our ongoing business operations, we incurred workforce rebalancing charges during the first six months of fiscal 2007 within certain business segments for severance and related costs. Workforce rebalancing activities are considered part of normal operations as we continue to optimize our cost structure. Workforce rebalancing costs are included in our business segment results, and we expect to incur additional workforce rebalancing costs through the remainder of fiscal 2007.

    Pension Curtailments and Pension Settlements, Net

        In the second quarter and first half of fiscal 2007, we recognized a net gain on pension curtailments and settlements of $508 million and $517 million, respectively, relating primarily to a $542 million curtailment gain associated with a modification to our U.S. defined benefit pension plan. This curtailment gain was offset partially by settlement losses related to our other pension plan design changes. For more information, see Note 13 to the Consolidated Condensed Financial Statements in Item 1, which is incorporated herein by reference.

51


This excerpt taken from the HPQ 10-Q filed Sep 11, 2006.

Operating Expenses

    Research and Development

        Total research and development ("R&D") expense as a percentage of net revenue remained flat for both the three months and nine months ended July 31, 2006 as compared to the same prior year periods. R&D expense increased during both the three and nine months ended July 31, 2006 due primarily to higher bonus accruals and stock-based compensation, which were partially offset by expense controls and cost savings from workforce reductions.

    Selling, General and Administrative

        Selling, general and administrative ("SG&A") expense declined as a percentage of net revenue in both the third quarter and first nine months of fiscal 2006 from comparable periods in the prior year, due primarily to revenue growing faster than SG&A expenses. The increase in SG&A spending for the third quarter was attributable primarily to higher bonus accruals and stock-based compensation expense, which were partially offset by expense controls and the savings from our workforce reductions. Total expense decreased slightly for the first nine months of fiscal 2006 as savings from workforce reductions and expense controls and favorable currency impacts associated with the strengthening of the dollar against the euro and the yen were partially offset by higher bonus accruals and stock-based compensation expense. As a percentage of net revenue, each of our major segments experienced a year-over-year decrease or little or no change in SG&A expense for both the third quarter and first nine months ended July 31, 2006.

    Amortization of Purchased Intangible Assets

        Amortization expense decreased in both the third quarter and first nine months of fiscal 2006 as compared to the same periods in the prior year. The decrease in amortization expense for both periods was due primarily to a decrease in amortization expense related to certain intangible assets associated with prior acquisitions including Compaq Computer Corporation ("Compaq") acquisition that had reached the end of their amortization period, partially offset by an increase in amortization expense related primarily to the Scitex Vision Ltd. ("Scitex"), Peregrine Systems, Inc. ("Peregrine") and OuterBay Technologies, Inc. ("OuterBay") acquisitions in the first nine months of fiscal 2006. See Note 5 to the Consolidated Condensed Financial Statements in Item 1, which is incorporated herein by reference.

    Restructuring

        Restructuring charges for the three months ended July 31, 2006 were $5 million. This included a net charge of $14 million related to true-ups of severance and other related restructuring charges for all plans, which was partially offset by a $2 million curtailment gain from the U.S. retiree medical program and a $7 million settlement gain from the U.S. pension plans, both related to the fiscal 2005 restructuring plan. The restructuring charges for the nine months ended July 31, 2006 were $6 million. This included $69 million true-ups of severance and other related restructuring charges, which was partially offset by a $19 million curtailment gain and a $44 million settlement gain from our U.S. retiree medical program and U.S. pension plans.

        Restructuring charges for the three and nine months ended July 31, 2005 were $112 million and $119 million, respectively. Of the total charges for the three and nine months ended July 31, 2005, $109 million was related to severance and related costs associated with the termination of approximately 1,450 employees in connection with a restructuring plan approved by our management in

50



the third quarter of fiscal 2005. All employees under this restructuring plan were terminated as of October 31, 2005. Of the initial restructuring amount, we have paid substantially all of it as of July 31, 2006. The remaining $3 million and $10 million in restructuring charges for the third quarter and first nine months, respectively, of fiscal 2005 were related to revisions to estimates for the 2003, 2002, and 2001 restructuring plans.

        For more information, see Note 7 to the Consolidated Condensed Financial Statements in Item 1, which is incorporated herein by reference.

    Workforce Rebalancing

        As part of our ongoing cost structure evaluation, our various business segments routinely review the size of their workforces and make adjustments they deem appropriate. For the nine months ended July 31, 2005, we incurred approximately $236 million in workforce rebalancing charges within certain business segments, primarily for severance and related costs. We recorded these costs during the six months ended April 30, 2005. As part of this effort, we reduced headcount by approximately 3,000 employees in certain business segments as of October 31, 2005 and expect to pay out majority of the remaining severance and other employee benefits of $12 million during fiscal 2006. We included the workforce rebalancing charges in the business segment results.

    In-Process Research and Development Charges

        For the third quarter and first nine months of fiscal 2006, we recorded $0 and $52 million, respectively, of in-process research and development charges in connection with the acquisitions completed during the periods.

This excerpt taken from the HPQ 10-Q filed Jun 8, 2006.

Operating Expenses

        Research and Development

        Total research and development ("R&D") expense as a percentage of net revenue remained flat for the three months ended April 30, 2006. R&D expense increased during both the three and six months ended April 30, 2006 due primarily to higher bonus accruals and stock-based compensation partially offset by cost savings from workforce reductions and expense controls. For the six months ended April 30, 2006, total R&D expense as a percentage of net revenue decreased from the same period in the prior year due to the year-over-year increase in net revenue exceeding the year-over-year increase in R&D spending. As a percentage of net revenue, each of our segments experienced a year-over-year decline or little or no change in R&D expense.

45



    Selling, General and Administrative

        Selling, general and administrative ("SG&A") expense declined as a percentage of net revenue in both the second quarter and first six months of fiscal 2006 from the prior year comparable periods, due primarily to revenue growing faster than SG&A expenses. Total expense decreased slightly for both periods as savings from workforce reductions and expense controls and favorable currency impacts associated with the strengthening of the dollar against the euro and the yen were partially offset by higher bonus accruals and stock-based compensation expense. For both the second quarter and first six months of fiscal 2006, each of our major segments experienced a decline in expenses compared to the prior year comparable periods.

    Amortization of Purchased Intangible Assets

        The amortization expense remained unchanged in the second quarter of fiscal 2006, as compared to the same period in the prior year, while it decreased during the first six months in fiscal 2006 from the same period in the prior year. The decrease in amortization expense for the six months ended April 30, 2006 was due to a decrease in amortization expense related to certain intangible assets associated with the Compaq Computer Corporation ("Compaq") acquisition that had reached the end of their amortization period, partially offset by an increase in amortization expense related primarily to the Scitex Vision Ltd. ("Scitex"), Peregrine Systems, Inc. ("Peregrine") and OuterBay Technologies, Inc. ("OuterBay") acquisitions in the first six months of fiscal 2006. See Note 5 to the Consolidated Condensed Financial Statements in Item 1, which is incorporated herein by reference.

    In-Process Research and Development Charges

        In the second quarter and first six months of fiscal 2006, we recorded $2 million and $52 million, respectively, of in-process research & development charges in connection with the acquisitions completed during the periods.

    Restructuring

        Restructuring charges for the three months ended April 30, 2006 resulted in a net credit of $14 million, due primarily to a $4 million curtailment gain from the U.S. retiree medical program and a $37 million settlement gain from the U.S. pension plans, both related to the fiscal 2005 restructuring plan, partially offset by a net charge of $27 million related to true-ups of severance and other related restructuring charges for the fiscal 2001, 2002, 2003 and 2005 plans. The restructuring charges for the six months ended April 30, 2006 were $1 million, which included true-ups of severance and other related restructuring charges in the first six months of fiscal 2006, partially offset by the curtailment and settlement gains from our U.S. retiree medical program and U.S. pension plans. For more information, see Note 7 to the Consolidated Condensed Financial Statements in Item 1, which is incorporated herein by reference.

    Workforce Rebalancing

        As part of our ongoing cost structure evaluation, our various business segments routinely review the size of their workforces and make adjustments they deem appropriate. As part of this effort, we reduced headcount by approximately 1,600 employees in certain business segments as of April 30, 2005, and recorded approximately $177 million and $236 million, respectively, for the three and six months ended April 30, 2005, in workforce rebalancing charges for employee severance and related costs. Workforce rebalancing charges are included in the business segment results.

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Interest and Other, Net

        Interest and other, net increased by $244 million and $257 million, respectively, in the second quarter and first six months of fiscal 2006 compared to the corresponding periods in fiscal 2005, resulting primarily from a charge of $101 million recorded in the second quarter of fiscal 2005 for estimated sales and use taxes and related interest associated with pre-acquisition Compaq sales and use tax audits, higher net interest income over the prior year related to higher short-term interest rates in fiscal 2006, favorable currency impacts on various balance sheet items and lower interest expense in fiscal 2006 related to our debt repayments made after April 30, 2005.

This excerpt taken from the HPQ 10-Q filed Mar 10, 2006.

Operating Expenses

    Research and Development

        Total research and development expense for the three months ended January 31, 2006 remained relatively flat compared to the prior year period. Cost savings from workforce reductions and tight expense controls were partially offset by higher bonus accruals and stock-based compensation expense. In addition, the prior year period included charges related to workforce rebalancing actions.

    Selling, General and Administrative

        Selling, general and administrative expense declined as a percentage of net revenue in the first quarter of fiscal 2006 from the prior-year comparable period, due primarily to the increase in net revenue. Total expense decreased slightly as savings from workforce reductions and expense controls and favorable currency impacts associated with the strengthening of the dollar against the euro and the yen were partially offset by higher bonus accruals and stock-based compensation expense. Each of our major segments experienced a decline in expenses compared to the prior year period.

    Amortization of Purchased Intangible Assets

        The decrease in amortization expense for the three months ended January 31, 2006 as compared to the same period in the prior year was due primarily to a decrease in amortization expense related to certain intangible assets associated with the Compaq Computer Corporation ("Compaq") acquisition that had reached the end of their amortization period. The decrease was partially offset by an increase in amortization expense related to our acquisition of substantially all of the assets of Scitex Vision Ltd. ("Scitex") and our acquisition of Peregrine Systems Inc., ("Peregrine") in the first quarter of fiscal 2006 and our acquisition of SAC, LLC ("Snapfish") in April 2005.

    Restructuring Charges

        The restructuring charges for the three months ended January 31, 2006 were due primarily to charges of $18 million related to true-ups of the facility accrual for the fiscal 2001 and 2003 programs, offset by a net reduction of $3 million related to the fiscal 2005 program. The credit resulted mainly from the curtailment gain on the U.S. post-retiree medical program. For more information, see Note 7 to the Consolidated Condensed Financial Statements in Item 1, which is incorporated herein by reference.

    Workforce Rebalancing

        As part of our ongoing cost structure evaluation, our various business segments routinely review the size of their workforces and make adjustments they deem appropriate. As part of this effort in the first quarter of fiscal 2005, we reduced headcount by approximately 900 employees in certain business segments and recorded approximately $60 million in workforce rebalancing charges for employee severance and related costs. Workforce rebalancing charges are included in the business segment results.

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In-Process Research and Development Charges

        In the first quarter of fiscal 2006, we recorded $50 million of in-process research & development ("IPR&D") charges in connection with the acquisitions completed during the period.

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