Fitch Upgrades Hewlett-Packard’s IDR to ‘A+’; Outlook Stable

Fitch Ratings has upgraded Hewlett-Packard Company’s (HP) ratings as follows:

–Issuer Default Rating (IDR) to ‘A+’ from ‘A’;

–Senior unsecured debt to ‘A+’ from ‘A’;

–Senior credit facility to ‘A+’ from ‘A’.

In addition, Fitch has affirmed HP’s and Hewlett-Packard International Bank PLC’s commercial paper ratings at ‘F1′.

The Rating Outlook is Stable. Approximately $11 billion of debt is affected by Fitch’s actions, including the undrawn, $3 billion credit facility.

The ratings and Outlook are supported by HP’s:

–Consistently solid credit protection measures;

–Strong financial flexibility and liquidity provided by a significant cash position and robust free cash flow;

–Solid revenue growth and material margin expansion across all segments, excluding HP Financial Services, which Fitch believes provides greater diversity, balance, and stability to HP’s future consolidated financial results by alleviating the company’s historical reliance on the Imaging and Printing Group (IPG).

–Significant recurring revenue primarily via its printer supplies business, outsourcing services, technology services, and software maintenance, which in aggregate account for greater than one-third of total revenue;

–Broad product portfolio with strong market share positions in printing, personal computers (PC) and enterprise systems;

–Multi-channel distribution model, which enables HP to benefit from strong worldwide consumer PC demand, especially for notebooks; and

–Geographically diversified revenue base as over 60% of revenue is derived from outside the U.S.

Rating concerns include:

–HP’s increasingly aggressive share repurchase program;

–Significant debt-financed acquisitions and/or integration risk associated with acquisitions;

–The highly competitive nature of the information technology industry;

–Necessity for continual new product introductions due to relatively short product lifecycles;

–The potential long-term threat to HP’s highly profitable printer supplies business from providers of remanufactured cartridges and/or new printer business models from competitors that offer discounted ink cartridges; and

–Permanent changes in financial policies that result in greater dependency on financial leverage to achieve business objectives and/or maximize returns to shareholders, which would result in negative rating actions.

HP has ample financial flexibility and liquidity due to a strong balance sheet with $12.2 billion of cash and equivalents (primarily located offshore) as of April 30, 2007. Liquidity is further supported by strong and increasing free cash flow (post-dividends), which increased to nearly $6.1 billion for the latest 12 months (LTM) ended April 30, 2007 from an average of approximately $5 billion for the last three fiscal years. HP also has a $3 billion, five-year credit facility expiring Dec. 15, 2010 and multiple revolving trade receivables facilities with aggregate maximum capacity and availability of $486 million and $173 million, respectively, as of Jan. 31, 2007. Fitch expects HP to continue to use excess cash to repurchase shares and/or pursue acquisitions to further strengthen its position in the software and services industries.

Total debt was approximately $8.3 billion as of April 30, 2007, consisting of approximately $4.4 billion of short-term debt, including current portion of long-term debt, and nearly $4 billion of long-term debt. Fitch estimates $6.4 billion (77% of total debt) is attributable to HP’s customer-financing business. Long-term debt maturities for the remaining six months of fiscal 2007 ending Oct. 31, 2007 consist of $1 billion of senior notes due July 2007, while approximately $550 million of long-term debt matures in fiscal 2008. Furthermore, HP has $3.4 billion of short-term debt due in the next 12 months ending April 30, 2008.

HP has ample liquidity to satisfy these obligations and is likely to refinance a portion of this debt in order to maintain a targeted debt/equity of approximately 6 times (x) for the financing business. Fitch estimates leverage (total debt to operating EBITDA) was approximately 0.8x for the LTM ended April 30, 2007, relatively unchanged from the year-ago period. Total interest coverage (operating EBITDA/total interest expense) remains strong at 21x for the LTM ended April 30, 2007, but is down from 30x in the year-ago period due to increased debt balances.

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