GOVERNMENT

PALO ALTO, CA -- HP (NYSE:HPQ) today reported its financial results for its second fiscal quarter ended April 30, 2002, the company's last pre-merger earnings report. The company reported second quarter revenue of $10.6 billion compared to $11.4 billion in its first fiscal quarter. Sequentially, pro forma revenue declined 7%, while gross margin increased from 26.9% to 28.7%. The company generated cash from operations of $2.1 billion for the quarter. Pro forma operating expenses were essentially flat on a sequential basis and were 22.2% of net revenue. Pro forma earnings per share (EPS) for the quarter was 25 cents, in line with current consensus analyst estimates, compared to 29 cents in the first quarter and 17 cents in the year-ago period, excluding acquisition-related charges, in-process research and development charges, amortization of goodwill and purchased intangibles, restructuring charges and investment losses. Including these items, reported GAAP EPS before an extraordinary item was 12 cents per diluted share, compared to 25 cents last quarter and 2 cents in the year-ago quarter. U.S. revenue for the second quarter was down 11% sequentially and 16% year-over-year. Revenue from outside the U.S. was down 4% both sequentially and year-over-year. In Europe, revenue was down 6% sequentially, but up 2% year-over-year, the only region of the world to show year-over-year improvement. Asia Pacific was down 2% sequentially and down 13% year-over-year. Latin America was up 3% sequentially and down 12% year-over-year. "We stayed focused and executed well during a difficult quarter," said Carly Fiorina, HP chairman and chief executive officer. "The IT spending environment remains tough around the world. On top of this, in the final weeks of the quarter, 400 senior managers were named to their assignments in the new HP, and we were involved in a highly visible lawsuit. While there was real potential for distraction, HP delivered. "Weakness in our computing systems business, embedded and personal systems business and our consulting services business persisted in the second quarter, but was offset by solid performance in our imaging and printing and IT outsourcing and support businesses. "Despite the tough enterprise spending environment, during the quarter HP held its own relative to our competitors in key segments of the enterprise market, including UNIX servers, storage and printing. While revenues in our consumer business were down slightly, operating profit for the business was strong with all regions of the world posting profitable results. "Continued focus on cost structure and expense management resulted in significant gross margin improvement led by our imaging and printing business. "Meanwhile, our ongoing efforts to aggressively manage the balance sheet are paying off. We again reduced inventory by almost $500 million in the quarter. Cash flow from operations was a healthy $2.1 billion for the quarter, and we exit the period with nearly $9 billion in cash and short-term investments. "Today, we announced HP employees will receive a Company Performance Bonus for the first time in 18 months. Looking back at our performance during the first-half of our fiscal year, there is a lot to be proud of. Nevertheless, we are realistic about the hard work ahead of us," said Fiorina. More information on this quarter's earnings is available on HP's Investor Relations site at http://www.hp.com/hpinfo/investor/quarters/quarters.html