HP Revises Upward Second Quarter Earnings Following Tax Settlement

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PALO ALTO, Calif., June 6, 2006 - HP today stated that it has revised upward its previously announced financial results for the fiscal second quarter ended April 30, 2006, following the signing of a settlement agreement on June 1 with the Internal Revenue Service (IRS) relating to an audit of its federal tax returns for 1996 through 1998.

The revisions resulted in a positive impact on HP's second quarter net income of approximately $443 million, or $0.15 per diluted share.

As the settlement agreement was signed by the IRS after the end of HP's second fiscal quarter and before the company had filed its financial statements as part of its Quarterly Report on Form 10-Q, applicable accounting rules required HP to update its financial results for that quarter to reflect the impact of the settlement agreement. The updated financial results do not reflect any other changes or adjustments to HP's previously announced second quarter financial results.

As a result of the settlement, the company's GAAP net income for the quarter has been revised to $1.9 billion and GAAP diluted earnings per share (EPS) has been revised to $0.66 per share - up from GAAP net income of $1.5 billion and GAAP diluted EPS of $0.51 - as previously reported on May 16, 2006.

Non-GAAP net income has been revised to $2.0 billion, with non-GAAP diluted EPS of $0.69 - up from the previously reported non-GAAP net income of $1.6 billion and non-GAAP diluted EPS of $0.54. Non-GAAP financial information excludes $97 million of adjustments on an after-tax basis, or $0.03 per diluted share, related primarily to amortization of purchased intangibles.

Due to the revised results for the fiscal second quarter, HP has revised upward its EPS expectations for full year fiscal 2006 (FY06).

For FY06, GAAP diluted EPS is expected to be in the range of $2.02 to $2.06, and non-GAAP diluted EPS is expected to be in the range of $2.19 to $2.23. FY06 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.17 per share, related primarily to the amortization of purchased intangible assets. FY06 GAAP and non-GAAP diluted EPS estimates include an expense of $0.13 related to stock-based compensation.

Below is updated financial information for HP's second fiscal quarter ended April 30, 2006 that reflects the financial impact of the IRS settlement agreement. Additional information about HP's updated fiscal second quarter earnings is available on HP's Investor Relations website at www.hp.com/hpinfo/investor/.

About HP

HP is a technology solutions provider to consumers, businesses and institutions globally. The company's offerings span IT infrastructure, global services, business and home computing, and imaging and printing. For the four fiscal quarters ended April 30, 2006, HP revenue totaled $88.9 billion. More information about HP (NYSE, Nasdaq: HPQ) is available at http://www.hp.com.

Use of Non-GAAP Financial Information

To supplement HP's consolidated condensed financial statements presented on a GAAP basis, HP provides non-GAAP operating profit, non-GAAP operating margin, non-GAAP net income and non-GAAP diluted earnings per share. HP also provides forecasts of non-GAAP diluted earnings per share.

These non-GAAP financial measures are defined to exclude the effects of restructuring charges, charges relating to the amortization of intangible assets, in-process research and development charges and gains or losses on investments. A reconciliation of adjustments to GAAP results for this quarter, fiscal year-to-date, and prior periods is included in the tables below.

HP's management uses these non-GAAP financial measures to evaluate and forecast HP's baseline performance before gains, losses or other charges that are considered by management to be outside of HP's core business segment operating results. Each of these non-GAAP measures is among the primary indicators management uses as a basis for planning and forecasting future periods. HP's management believes that these non-GAAP measures provide both management and investors with a more complete understanding of the underlying operating results and trends and an enhanced overall understanding of HP's financial performance and prospects for the future.

This additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for operating profit, operating margin, net income or diluted earnings per share prepared in accordance with GAAP. In addition, there may be limitations associated with the use of these non-GAAP financial measures. For example, items such as restructuring charges that are excluded from these non-GAAP financial measures can have a material impact on cash flows. These effects are reflected in HP's GAAP financial statements, including HP's consolidated statements of cash flows. The non-GAAP financial information that HP has provided also may differ from the non-GAAP financial information provided by other companies.

Forward-Looking Statements

This news release contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of HP may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including but not limited to any projections of revenue, margins, expenses, charges, earnings or other financial items; any statements of the plans, strategies, and objectives of management for future operations, including execution of any restructuring plans; any statements concerning the expected development, performance or market share relating to products or services; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include macroeconomic and geopolitical trends and events; execution and performance of contracts by suppliers, customers and partners; employee management issues; the challenge of managing asset levels, including inventory; the difficulty of aligning expense levels with revenue changes; assumptions related to pension and other post-retirement costs; and other risks that are described from time to time in HP's Securities and Exchange Commission reports, including but not limited to the risks described in HP's Annual Report on Form 10-K for the fiscal year ended October 31, 2005, HP's Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2006 and other reports filed after that report. As in prior quarters, the financial information set forth in this release, including tax-related items, are estimates based on information available at this time. While HP believes these estimates to be meaningful, these amounts could differ materially from actual reported amounts in HP's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2006. In particular, determining HP's actual tax balances and provisions as of April 30, 2006 and for the fiscal quarter then ended requires extensive internal and external review of tax data (including consolidating and reviewing the tax provisions of numerous domestic and foreign entities) which is being completed in the ordinary course of preparing HP's Form 10-Q. HP assumes no obligation and does not intend to update these forward-looking statements.