- Second quarter net revenue of $30.8 billion, up 13%, or $3.5 billion, from a year earlier
- Second quarter GAAP operating profit up 25% to $2.9 billion; GAAP diluted earnings per share of $0.91, up 28% from $0.71 a year earlier
- Second quarter non-GAAP operating profit up 22% to $3.5 billion; non-GAAP diluted earnings per share of $1.09, up 27% from $0.86 a year earlier
- Broad-based year-over-year growth driven by ESS at 31%, PSG at 21%, and IPG at 8%
- Delivered 31% year-over-year organic growth in HP Networking
- Double-digit year-over-year growth across all regions
- Raises full-year outlook
PALO ALTO, Calif. — (BUSINESS WIRE) — May 18, 2010 — HP (NYSE: HPQ) today announced financial results for its second fiscal quarter ended April 30, 2010, with net revenue of $30.8 billion, up 13% from a year earlier including a favorable currency benefit of four percentage points.
In the second quarter, GAAP diluted earnings per share (EPS) was $0.91, up from $0.71 in the prior-year period. Non-GAAP diluted EPS was $1.09, up from $0.86 in the prior-year period. Non-GAAP financial information excludes after-tax costs of approximately $0.18 per share and $0.15 per share in the second quarter of fiscal 2010 and 2009, respectively, related primarily to the amortization of purchased intangibles, restructuring charges and acquisition-related charges.
“HP had an exceptional quarter with strong performance across every region,” said Mark Hurd, HP chairman and chief executive officer. “We’ve built the best portfolio in the industry, and our customers are responding. We’re winning in the marketplace, investing for the future and confident in the enormous opportunity that lies ahead.”
| Q2 FY10 | Q2 FY09 | Y/Y | ||||
| Net revenue ($B) | $30.8 | $27.4 | 13% | |||
| GAAP operating margin | 9.3% | 8.4% | 0.9 pts | |||
| GAAP net earnings ($B) | $2.2 | $1.7 | 28% | |||
| GAAP diluted EPS | $0.91 | $0.71 | 28% | |||
| Non-GAAP operating margin | 11.2% | 10.4% | 0.8 pts | |||
| Non-GAAP net earnings ($B) | $2.6 | $2.1 | 25% | |||
| Non-GAAP diluted EPS | $1.09 | $0.86 | 27% |
Information about HP’s use of non-GAAP financial information is provided under “Use of non-GAAP financial information” below. Unless otherwise noted, all growth rates included in the narrative below reflect year-over-year comparisons.
Second quarter revenue was up 11% in the Americas to $13.5 billion. Revenue was up 11% in Europe, the Middle East and Africa and up 19% in Asia Pacific to $11.8 billion and $5.5 billion, respectively. When adjusted for the effects of currency, revenue was up 9% in the Americas, up 7% in Europe, the Middle East and Africa and up 10% in Asia Pacific. Revenue from outside of the United States in the second quarter accounted for 66% of total HP revenue, with revenue in the BRIC countries (Brazil, Russia, India and China) increasing 25% while accounting for 10% of total HP revenue.
“HP drove double-digit revenue growth and improving profits, contributing to our twentieth consecutive quarter of year-over-year operating margin expansion,” said Cathie Lesjak, HP executive vice president and chief financial officer. “With the improving demand environment, we are accelerating investments for growth while raising our full-year outlook.”
Services
Services revenue increased 2% to $8.7 billion. Infrastructure Technology Outsourcing revenue increased 6%, while revenue in Technology Services and Business Process Outsourcing were roughly flat year over year. Application Services revenue was down 2% versus the prior-year period. Operating profit was $1.4 billion, or 15.9% of revenue, up from $1.2 billion, or 13.8% of revenue, in the prior-year period.
Enterprise Storage and Servers
Enterprise Storage and Servers (ESS) reported total revenue of $4.5 billion, up 31%. Industry Standard Server revenue increased 54%, while Storage revenue increased 16% with the midrange EVA product line up 3%. Business Critical Systems revenue declined 17%, while ESS blade revenue was up 45%. Operating profit was $571 million, or 12.6% of revenue, up from $250 million, or 7.2% of revenue, in the prior-year period.
HP Software
HP Software revenue declined 1% to $871 million. Business Technology Optimization revenue increased 3%, and Other Software revenue decreased 8%. Operating profit was $162 million, or 18.6% of revenue, up from $157 million, or 17.8% of revenue, in the prior-year period.
Personal Systems Group
Personal Systems Group (PSG) posted a 20% increase in unit shipments and maintained the leading market share position in PCs worldwide. PSG revenue increased 21% to $10.0 billion. Notebook revenue for the quarter was up 17%, while Desktop revenue increased 27%. Commercial client revenue was up 19%, while Consumer client revenue increased 25%. Operating profit was $465 million, or 4.7% of revenue, up from $378 million, or 4.6% of revenue, in the prior-year period.
Imaging and Printing Group
Imaging and Printing Group (IPG) revenue increased 8% to $6.4 billion. Supplies revenue was up 6%, while Commercial hardware revenue and Consumer hardware revenue increased 13% and 16%, respectively. Printer unit shipments increased 9%, with Commercial printer hardware units down 8% and Consumer printer hardware units up 15%. Operating profit was $1.1 billion, or 17.2% of revenue, versus $1.1 billion, or 18.2% of revenue, in the prior-year period.
Corporate Investments
ProCurve revenue increased 31%, and HP Networking overall increased 58% year-over-year including the impact of the 3Com acquisition.
HP Financial Services
HP Financial Services (HPFS) revenue increased 18% to $755 million. Financing volume increased 20%, and net portfolio assets increased 21%. Operating margin was 9.1%, up from 7.2% in the prior-year period.
Asset management
HP generated $3.1 billion in cash flow from operations for the second quarter. Inventory ended the quarter at $6.4 billion, flat year over year in days of inventory. Accounts receivable of $14.8 billion was down 5 days year-over-year. Accounts payable ended the quarter at $13.4 billion, up 2 days over the prior-year period. HP’s dividend payment of $0.08 per share in the second quarter resulted in cash usage of $196 million. HP also utilized $1.8 billion of cash during the quarter to repurchase approximately 35 million shares of common stock in the open market. HP exited the quarter with $14.3 billion in gross cash.
Outlook
For the third quarter of fiscal 2010, HP estimates revenue of approximately $29.7 billion to $30.0 billion, GAAP diluted EPS in the range of $0.87 to $0.89, and non-GAAP diluted EPS in the range of $1.05 to $1.07. Third quarter fiscal 2010 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.18 per share, related primarily to the amortization of purchased intangibles, restructuring charges and acquisition-related charges.
HP expects full year fiscal 2010 revenue growth of approximately eight to nine percent. HP expects full year fiscal 2010 GAAP diluted EPS to be in the range of $3.76 to $3.81, down from its previous estimate of $3.79 to $3.86, and non-GAAP diluted EPS to be in the range of $4.45 to $4.50, up from its previous estimate of $4.37 to $4.44. Full year fiscal 2010 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.69 per share, related primarily to the amortization of purchased intangibles, restructuring charges and acquisition-related charges.
The non-GAAP diluted EPS estimates for both the third quarter and the full year fiscal 2010 include the expected dilution associated with the proposed acquisition of Palm, Inc. that HP announced on April 28, 2010. However, HP has not included any revenue associated with the Palm acquisition in its revenue outlook for either the third quarter or the full year fiscal 2010.
More information on HP’s quarterly earnings, including additional financial analysis and an earnings overview presentation, is available on HP’s Investor Relations website at www.hp.com/investor/home.
HP’s Q2 FY10 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2010q2webcast.
About HP
HP creates new possibilities for technology to have a meaningful impact on people, businesses, governments and society. As the world’s largest technology company, HP brings together a portfolio that spans printing, personal computing, software, services and IT infrastructure to solve customer problems. More information about HP 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 earnings, non-GAAP diluted earnings per share and gross cash. HP also provides forecasts of non-GAAP diluted earnings per share. A reconciliation of the adjustments to GAAP results for this quarter and prior periods is included in the tables below. In addition, an explanation of the ways in which HP management uses these non-GAAP measures to evaluate its business, the substance behind HP management’s decision to use these non-GAAP measures, the material limitations associated with the use of these non-GAAP measures, the manner in which HP management compensates for those limitations, and the substantive reasons why HP management believes that these non-GAAP measures provide useful information to investors is included under “Use of Non-GAAP Financial Measures” after the tables below. This additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for operating profit, operating margin, net earnings, diluted earnings per share, or cash and cash equivalents prepared in accordance with GAAP.
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, earnings, tax provisions, cash flows, benefit obligations, share repurchases, currency exchange rates, the impact of acquisitions or other financial items; any statements of the plans, strategies and objectives of management for future operations, including the execution of cost reduction programs and restructuring plans; any statements concerning the expected development, performance or market share relating to products or services; any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on HP and its financial performance; any statements regarding pending investigations, claims or disputes; 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 HP and its suppliers, customers and partners; 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; expectations and assumptions relating to the execution and timing of cost reduction programs and restructuring plans; the resolution of pending investigations, claims and disputes; and other risks that are described in HP’s Annual Report on Form 10-K for the fiscal year ended October 31, 2009 and HP’s other filings with the Securities and Exchange Commission, including HP’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2010. As in prior periods, the financial information set forth in this release, including tax-related items, reflects 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 Form 10-Q for the fiscal quarter ended April 30, 2010. In particular, determining HP’s actual tax balances and provisions as of April 30, 2010 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.
© 2010 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice.
The only warranties for HP products and services are set forth in the express warranty statements accompanying such products and services. Nothing herein should be construed as constituting an additional warranty. HP shall not be liable for technical or editorial errors or omissions contained herein.
| HEWLETT-PACKARD COMPANY AND SUBSIDIARIES | ||||||||||||||||||
| CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS | ||||||||||||||||||
| (Unaudited) | ||||||||||||||||||
| (In millions except per share amounts) | ||||||||||||||||||
| Three months ended | ||||||||||||||||||
|
April 30,
2010 |
January 31,
2010 |
April 30,
2009 |
||||||||||||||||
| Net revenue | $ | 30,849 | $ | 31,177 | $ | 27,383 | ||||||||||||
| Costs and expenses(a): | ||||||||||||||||||
| Cost of sales | 23,601 | 24,062 | 20,945 | |||||||||||||||
| Research and development | 722 | 681 | 716 | |||||||||||||||
| Selling, general and administrative | 3,064 | 2,932 | 2,880 | |||||||||||||||
| Amortization of purchased intangible assets | 347 | 330 | 380 | |||||||||||||||
| Restructuring charges | 180 | 131 | 94 | |||||||||||||||
| Acquisition-related charges | 77 | 38 | 75 | |||||||||||||||
| Total costs and expenses | 27,991 | 28,174 | 25,090 | |||||||||||||||
| Earnings from operations | 2,858 | 3,003 | 2,293 | |||||||||||||||
| Interest and other, net | (91 | ) | (199 | ) | (180 | ) | ||||||||||||
| Earnings before taxes | 2,767 | 2,804 | 2,113 | |||||||||||||||
| Provision for taxes(b) | 567 | 554 | 392 | |||||||||||||||
| Net earnings | $ | 2,200 | $ | 2,250 | $ | 1,721 | ||||||||||||
| Net earnings per share: | ||||||||||||||||||
| Basic | $ | 0.94 | $ | 0.95 | $ | 0.72 | ||||||||||||
| Diluted | $ | 0.91 | $ | 0.93 | $ | 0.71 | ||||||||||||
| Cash dividends declared per share | $ | - | $ | 0.16 | $ | - | ||||||||||||
| Weighted-average shares used to compute net earnings per share: | ||||||||||||||||||
| Basic | 2,345 | 2,358 | 2,394 | |||||||||||||||
| Diluted | 2,406 | 2,427 | 2,438 | |||||||||||||||
| (a) Stock-based compensation expense was as follows: | ||||||||||||||||||
| Cost of sales | $ | 48 | $ | 47 | $ | 48 | ||||||||||||
| Research and development | 16 | 14 | 18 | |||||||||||||||
| Selling, general and administrative | 136 | 119 | 109 | |||||||||||||||
| Acquisition-related charges | - | 1 | 16 | |||||||||||||||
| Total costs and expenses | $ | 200 | $ | 181 | $ | 191 | ||||||||||||
| (b) Tax benefit from stock-based compensation | $ | (64 | ) | $ | (58 | ) | $ | (59 | ) | |||||||||
| HEWLETT-PACKARD COMPANY AND SUBSIDIARIES | ||||||||||||
| CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS | ||||||||||||
| (Unaudited) | ||||||||||||
| (In millions except per share amounts) | ||||||||||||
| Six months ended | ||||||||||||
|
April 30,
2010 |
April 30,
2009 |
|||||||||||
| Net revenue | $ | 62,026 | $ | 56,190 | ||||||||
| Costs and expenses(a): | ||||||||||||
| Cost of sales | 47,663 | 43,018 | ||||||||||
| Research and development | 1,403 | 1,448 | ||||||||||
| Selling, general and administrative | 5,996 | 5,773 | ||||||||||
| Amortization of purchased intangible assets | 677 | 792 | ||||||||||
| In-process research and development charges | - | 6 | ||||||||||
| Restructuring charges | 311 | 240 | ||||||||||
| Acquisition-related charges | 115 | 123 | ||||||||||
| Total costs and expenses | 56,165 | 51,400 | ||||||||||
| Earnings from operations | 5,861 | 4,790 | ||||||||||
| Interest and other, net | (290 | ) | (412 | ) | ||||||||
| Earnings before taxes | 5,571 | 4,378 | ||||||||||
| Provision for taxes(b) | 1,121 | 801 | ||||||||||
| Net earnings | $ | 4,450 | $ | 3,577 | ||||||||
| Net earnings per share: | ||||||||||||
| Basic | $ | 1.89 | $ | 1.49 | ||||||||
| Diluted | $ | 1.84 | $ | 1.46 | ||||||||
| Cash dividends declared per share | $ | 0.16 | $ | 0.16 | ||||||||
| Weighted-average shares used to compute net earnings per share: | ||||||||||||
| Basic | 2,352 | 2,402 | ||||||||||
| Diluted | 2,412 | 2,448 | ||||||||||
| (a) Stock-based compensation expense was as follows: | ||||||||||||
| Cost of sales | $ | 95 | $ | 100 | ||||||||
| Research and development | 30 | 35 | ||||||||||
| Selling, general and administrative | 255 | 194 | ||||||||||
| Acquisition-related charges | 1 | 22 | ||||||||||
| Total costs and expenses | $ | 381 | $ | 351 | ||||||||
| (b) Tax benefit from stock-based compensation | $ | (122 | ) | $ | (107 | ) | ||||||
| HEWLETT-PACKARD COMPANY AND SUBSIDIARIES | ||||||||||||||||||||||||||||||||
| ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS, | ||||||||||||||||||||||||||||||||
| OPERATING MARGIN AND EARNINGS PER SHARE | ||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| (In millions except per share amounts) | ||||||||||||||||||||||||||||||||
|
Three months ended
April 30,
|
Diluted earnings per share |
Three months ended
January 31,
|
Diluted earnings per share |
Three months ended
April 30,
|
Diluted earnings per share | |||||||||||||||||||||||||||
| GAAP net earnings | $ | 2,200 | $ | 0.91 | $ | 2,250 | $ | 0.93 | $ | 1,721 | $ | 0.71 | ||||||||||||||||||||
| Non-GAAP adjustments: | ||||||||||||||||||||||||||||||||
|
Amortization of purchased
intangible assets |
347 | 0.14 | 330 | 0.14 | 380 | 0.15 | ||||||||||||||||||||||||||
| Restructuring charges | 180 | 0.08 | 131 | 0.05 | 94 | 0.04 | ||||||||||||||||||||||||||
| Acquisition-related charges | 77 | 0.03 | 38 | 0.01 | 75 | 0.03 | ||||||||||||||||||||||||||
| Adjustments for taxes | (171 | ) | (0.07 | ) | (155 | ) | (0.06 | ) | (167 | ) | (0.07 | ) | ||||||||||||||||||||
| Non-GAAP net earnings | $ | 2,633 | $ | 1.09 | $ | 2,594 | $ | 1.07 | $ | 2,103 | $ | 0.86 | ||||||||||||||||||||
| GAAP earnings from operations | $ | 2,858 | $ | 3,003 | $ | 2,293 | ||||||||||||||||||||||||||
| Non-GAAP adjustments: | ||||||||||||||||||||||||||||||||
|
Amortization of purchased
intangible assets |
347 | 330 | 380 | |||||||||||||||||||||||||||||
| Restructuring charges | 180 | 131 | 94 | |||||||||||||||||||||||||||||
| Acquisition-related charges | 77 | 38 | 75 | |||||||||||||||||||||||||||||
| Non-GAAP earnings | ||||||||||||||||||||||||||||||||
| from operations | $ | 3,462 | $ | 3,502 | $ | 2,842 | ||||||||||||||||||||||||||
| GAAP operating margin | 9 | % | 10 | % | 8 | % | ||||||||||||||||||||||||||
| Non-GAAP adjustments | 2 | % | 1 | % | 2 | % | ||||||||||||||||||||||||||
| Non-GAAP operating margin | 11 | % | 11 | % | 10 | % | ||||||||||||||||||||||||||
| HEWLETT-PACKARD COMPANY AND SUBSIDIARIES | ||||||||||||||||||||||||
| ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS, | ||||||||||||||||||||||||
| OPERATING MARGIN AND EARNINGS PER SHARE | ||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||
| (In millions except per share amounts) | ||||||||||||||||||||||||
|
Six months ended
April 30, 2010 |
Diluted earnings
|
Six months ended
April 30, 2009 |
Diluted earnings
|
|||||||||||||||||||||
| GAAP net earnings | $ | 4,450 | $ | 1.84 | $ | 3,577 | $ | 1.46 | ||||||||||||||||
| Non-GAAP adjustments: | ||||||||||||||||||||||||
|
Amortization of purchased
intangible assets |
677 | 0.28 | 792 | 0.32 | ||||||||||||||||||||
|
In-process research and
development charges |
- | - | 6 | - | ||||||||||||||||||||
| Restructuring charges | 311 | 0.13 | 240 | 0.10 | ||||||||||||||||||||
| Acquisition-related charges | 115 | 0.05 | 123 | 0.05 | ||||||||||||||||||||
| Adjustments for taxes | (326 | ) | (0.13 | ) | (348 | ) | (0.14 | ) | ||||||||||||||||
| Non-GAAP net earnings | $ | 5,227 | $ | 2.17 | $ | 4,390 | $ | 1.79 | ||||||||||||||||
| GAAP earnings from operations | $ | 5,861 | $ | 4,790 | ||||||||||||||||||||
| Non-GAAP adjustments: | ||||||||||||||||||||||||
|
Amortization of purchased
intangible assets |
677 | 792 | ||||||||||||||||||||||
|
In-process research and
development charges |
- | 6 | ||||||||||||||||||||||
| Restructuring charges | 311 | 240 | ||||||||||||||||||||||
| Acquisition-related charges | 115 | 123 | ||||||||||||||||||||||
| Non-GAAP earnings | ||||||||||||||||||||||||
| from operations | $ | 6,964 | $ | 5,951 | ||||||||||||||||||||
| GAAP operating margin | 9 | % | 9 | % | ||||||||||||||||||||
| Non-GAAP adjustments | 2 | % | 2 | % | ||||||||||||||||||||
| Non-GAAP operating margin | 11 | % | 11 | % | ||||||||||||||||||||
| HEWLETT-PACKARD COMPANY AND SUBSIDIARIES | |||||||||||
| CONSOLIDATED CONDENSED BALANCE SHEETS | |||||||||||
| (In millions) | |||||||||||
|
April 30,
2010 |
October 31,
2009 |
||||||||||
| (unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 14,131 | $ | 13,279 | |||||||
| Short-term investments | 39 | 55 | |||||||||
| Accounts receivable | 14,753 | 16,537 | |||||||||
| Financing receivables | 2,795 | 2,675 | |||||||||
| Inventory | 6,436 | 6,128 | |||||||||
| Other current assets | 13,541 | 13,865 | |||||||||
| Total current assets | 51,695 | 52,539 | |||||||||
| Property, plant and equipment | 11,242 | 11,262 | |||||||||
| Long-term financing receivables and other assets | 11,726 | 11,289 | |||||||||
| Goodwill and purchased intangible assets | 41,331 | 39,709 | |||||||||
| Total assets | $ | 115,994 | $ | 114,799 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Notes payable and short-term borrowings | $ | 3,934 | $ | 1,850 | |||||||
| Accounts payable | 13,350 | 14,809 | |||||||||
| Employee compensation and benefits | 3,410 | 4,071 | |||||||||
| Taxes on earnings | 1,043 | 910 | |||||||||
| Deferred revenue | 6,526 | 6,182 | |||||||||
| Other accrued liabilities | 14,008 | 15,181 | |||||||||
| Total current liabilities | 42,271 | 43,003 | |||||||||
| Long-term debt | 13,728 | 13,980 | |||||||||
| Other liabilities | 16,183 | 17,052 | (a) | ||||||||
| Stockholders' equity | |||||||||||
| HP Stockholders' equity | 43,511 | 40,517 | |||||||||
| Noncontrolling interests | 301 | 247 | (a) | ||||||||
| Total stockholders' equity | 43,812 | 40,764 | |||||||||
| Total liabilities and stockholders' equity | $ | 115,994 | $ | 114,799 | |||||||
| (a) Reflects the adoption of the accounting standard related to the presentation of noncontrolling interests in consolidated financial statements. | |||||||||||
| HEWLETT-PACKARD COMPANY AND SUBSIDIARIES | ||||||||||||
| CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS | ||||||||||||
| (Unaudited) | ||||||||||||
| (In millions) | ||||||||||||
|
Three months ended
April 30, 2010 |
Six months ended
April 30, 2010 |
|||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net earnings | $ | 2,200 | $ | 4,450 | ||||||||
|
Adjustments to reconcile net earnings to
net cash provided by operating activities: |
||||||||||||
| Depreciation and amortization | 1,184 | 2,346 | ||||||||||
| Stock-based compensation expense | 200 | 381 | ||||||||||
| Provision for bad debt and inventory | 101 | 193 | ||||||||||
| Restructuring charges | 180 | 311 | ||||||||||
| Deferred taxes on earnings | (94 | ) | (286 | ) | ||||||||
| Excess tax benefit from stock-based compensation | (135 | ) | (263 | ) | ||||||||
| Other, net | 62 | 149 | ||||||||||
| Changes in assets and liabilities: | ||||||||||||
| Accounts and financing receivables | (166 | ) | 1,709 | |||||||||
| Inventory | 353 | (190 | ) | |||||||||
| Accounts payable | (280 | ) | (1,548 | ) | ||||||||
| Taxes on earnings | 247 | 726 | ||||||||||
| Restructuring | (383 | ) | (783 | ) | ||||||||
| Other assets and liabilities | (378 | ) | (1,697 | ) | ||||||||
| Net cash provided by operating activities | 3,091 | 5,498 | ||||||||||
| Cash flows from investing activities: | ||||||||||||
| Investment in property, plant and equipment | (950 | ) | (1,771 | ) | ||||||||
| Proceeds from sale of property, plant and equipment | 156 | 268 | ||||||||||
| Purchases of available-for-sale securities and other investments | (19 | ) | (28 | ) | ||||||||
|
Maturities and sales of available-for-sale securities and
other investments |
103 | 103 | ||||||||||
| Payments made in connection with business acquisition, net |
(2,519 |
) |
(2,512 |
) |
||||||||
| Net cash used in investing activities |
(3,229 |
) |
(3,940 |
) |
||||||||
| Cash flows from financing activities: | ||||||||||||
| Issuance of commercial paper and notes payable, net | 1,777 | 1,855 | ||||||||||
| Issuance of debt | 21 | 50 | ||||||||||
| Payment of debt | (164 | ) | (244 | ) | ||||||||
| Issuance of common stock under employee stock plans | 947 | 2,266 | ||||||||||
| Repurchase of common stock | (1,798 | ) | (4,511 | ) | ||||||||
| Excess tax benefit from stock-based compensation | 135 | 263 | ||||||||||
| Dividends | (196 | ) | (385 | ) | ||||||||
| Net cash provided by (used in) financing activities | 722 |
(706 |
) |
|||||||||
| Increase in cash and cash equivalents | 584 | 852 | ||||||||||
| Cash and cash equivalents at beginning of period | 13,547 | 13,279 | ||||||||||
| Cash and cash equivalents at end of period | $ | 14,131 | $ | 14,131 | ||||||||
| HEWLETT-PACKARD COMPANY AND SUBSIDIARIES | |||||||||||||||||||
| SEGMENT INFORMATION | |||||||||||||||||||
| (Unaudited) | |||||||||||||||||||
| (In millions) | |||||||||||||||||||
| Three months ended | |||||||||||||||||||
|
April 30,
2010 |
January 31,
2010 |
April 30,
2009(a) |
|||||||||||||||||
| Net revenue: | |||||||||||||||||||
| Services | $ | 8,712 | $ | 8,651 | $ | 8,500 | |||||||||||||
| Enterprise Storage and Servers | 4,542 | 4,391 | 3,457 | ||||||||||||||||
| HP Software | 871 | 878 | 880 | ||||||||||||||||
| HP Enterprise Business | 14,125 | 13,920 | 12,837 | ||||||||||||||||
| Personal Systems Group | 9,956 | 10,584 | 8,210 | ||||||||||||||||
| Imaging and Printing Group | 6,396 | 6,206 | 5,916 | ||||||||||||||||
| HP Financial Services | 755 | 719 | 641 | ||||||||||||||||
| Corporate Investments | 315 | 236 | 188 | ||||||||||||||||
| Total Segments | 31,547 | 31,665 | 27,792 | ||||||||||||||||
|
Eliminations of intersegment
net revenue and other |
(698 | ) | (488 | ) | (409 | ) | |||||||||||||
| Total HP Consolidated | $ | 30,849 | $ | 31,177 | $ | 27,383 | |||||||||||||
| Earnings from operations: | |||||||||||||||||||
| Services | $ | 1,382 | $ | 1,364 | $ | 1,174 | |||||||||||||
| Enterprise Storage and Servers | 571 | 552 | 250 | ||||||||||||||||
| HP Software | 162 | 167 | 157 | ||||||||||||||||
| HP Enterprise Business | 2,115 | 2,083 | 1,581 | ||||||||||||||||
| Personal Systems Group | 465 | 530 | 378 | ||||||||||||||||
| Imaging and Printing Group | 1,098 | 1,054 | 1,074 | ||||||||||||||||
| HP Financial Services | 69 | 67 | 46 | ||||||||||||||||
| Corporate Investments | 12 | 19 | (19 | ) | |||||||||||||||
| Total Segments | 3,759 | 3,753 | 3,060 | ||||||||||||||||
| Corporate and unallocated costs and eliminations | (112 | ) | (88 | ) | (62 | ) | |||||||||||||
|
Unallocated costs related to stock-based
compensation expense |
(185 | ) | (163 | ) | (156 | ) | |||||||||||||
| Amortization of purchased intangible assets | (347 | ) | (330 | ) | (380 | ) | |||||||||||||
| Restructuring charges | (180 | ) | (131 | ) | (94 | ) | |||||||||||||
| Acquisition-related charges | (77 | ) | (38 | ) | (75 | ) | |||||||||||||
| Interest and other, net | (91 | ) | (199 | ) | (180 | ) | |||||||||||||
| Total HP Consolidated Earnings Before Taxes | $ | 2,767 | $ | 2,804 | $ | 2,113 | |||||||||||||
| (a) As a result of HP's adoption in fiscal 2009 of the revenue recognition standards related to multiple-deliverable revenue arrangements and revenue arrangements that included software, certain previously reported segment and business unit results have been restated. The adoption primarily impacted the Services, Enterprise Storage and Servers and Personal Systems Group financial reporting segments. | |||||||||||||||||||
| HEWLETT-PACKARD COMPANY AND SUBSIDIARIES | |||||||||||||
| SEGMENT INFORMATION | |||||||||||||
| (Unaudited) | |||||||||||||
| (In millions) | |||||||||||||
| Six months ended | |||||||||||||
|
April 30,
2010 |
April 30,
2009(a) |
||||||||||||
| Net revenue: | |||||||||||||
| Services | $ | 17,363 | $ | 17,247 | |||||||||
| Enterprise Storage and Servers | 8,933 | 7,406 | |||||||||||
| HP Software | 1,749 | 1,758 | |||||||||||
| HP Enterprise Business | 28,045 | 26,411 | |||||||||||
| Personal Systems Group | 20,540 | 17,002 | |||||||||||
| Imaging and Printing Group | 12,602 | 11,897 | |||||||||||
| HP Financial Services | 1,474 | 1,277 | |||||||||||
| Corporate Investments | 551 | 384 | |||||||||||
| Total Segments | 63,212 | 56,971 | |||||||||||
|
Eliminations of intersegment
net revenue and other |
(1,186 | ) | (781 | ) | |||||||||
| Total HP Consolidated | $ | 62,026 | $ | 56,190 | |||||||||
| Earnings from operations: | |||||||||||||
| Services | $ | 2,746 | $ | 2,298 | |||||||||
| Enterprise Storage and Servers | 1,123 | 656 | |||||||||||
| HP Software | 329 | 297 | |||||||||||
| HP Enterprise Business | 4,198 | 3,251 | |||||||||||
| Personal Systems Group | 995 | 814 | |||||||||||
| Imaging and Printing Group | 2,152 | 2,179 | |||||||||||
| HP Financial Services | 136 | 87 | |||||||||||
| Corporate Investments | 31 | (38 | ) | ||||||||||
| Total Segments | 7,512 | 6,293 | |||||||||||
| Corporate and unallocated costs and eliminations | (200 | ) | (38 | ) | |||||||||
|
Unallocated costs related to stock-based
compensation expense |
(348 | ) | (304 | ) | |||||||||
| Amortization of purchased intangible assets | (677 | ) | (792 | ) | |||||||||
| In-process research and development charges | - | (6 | ) | ||||||||||
| Restructuring charges | (311 | ) | (240 | ) | |||||||||
| Acquisition-related charges | (115 | ) | (123 | ) | |||||||||
| Interest and other, net | (290 | ) | (412 | ) | |||||||||
| Total HP Consolidated Earnings Before Taxes | $ | 5,571 | $ | 4,378 | |||||||||
| (a) As a result of HP's adoption in fiscal 2009 of the revenue recognition standards related to multiple-deliverable revenue arrangements and revenue arrangements that included software, certain previously reported segment and business unit results have been restated. The adoption primarily impacted the Services, Enterprise Storage and Servers and Personal Systems Group financial reporting segments. | |||||||||||||
| HEWLETT-PACKARD COMPANY AND SUBSIDIARIES | |||||||||||||||
| SEGMENT / BUSINESS UNIT INFORMATION | |||||||||||||||
| (Unaudited) | |||||||||||||||
| (In millions) | |||||||||||||||
| Three months ended | |||||||||||||||
|
April 30,
2010 |
January 31,
2010 |
April 30,
2009(a) (b) |
|||||||||||||
| Net revenue: | |||||||||||||||
| Infrastructure Technology Outsourcing | $ | 3,998 | $ | 3,933 | $ | 3,762 | |||||||||
| Technology Services | 2,420 | 2,406 | 2,418 | ||||||||||||
| Application Services | 1,512 | 1,509 | 1,541 | ||||||||||||
| Business Process Outsourcing | 716 | 734 | 719 | ||||||||||||
| Other | 66 | 69 | 60 | ||||||||||||
| Services | 8,712 | 8,651 | 8,500 | ||||||||||||
| Industry Standard Servers | 3,056 | 2,946 | 1,989 | ||||||||||||
| Storage | 948 | 889 | 818 | ||||||||||||
| Business Critical Systems | 538 | 556 | 650 | ||||||||||||
| Enterprise Storage and Servers | 4,542 | 4,391 | 3,457 | ||||||||||||
| Business Technology Optimization | 584 | 591 | 568 | ||||||||||||
| Other Software | 287 | 287 | 312 | ||||||||||||
| HP Software | 871 | 878 | 880 | ||||||||||||
| HP Enterprise Business | 14,125 | 13,920 | 12,837 | ||||||||||||
| Notebooks | 5,513 | 6,125 | 4,706 | ||||||||||||
| Desktops | 3,788 | 3,840 | 2,977 | ||||||||||||
| Workstations | 423 | 375 | 287 | ||||||||||||
| Handhelds | 24 | 25 | 47 | ||||||||||||
| Other | 208 | 219 | 193 | ||||||||||||
| Personal Systems Group | 9,956 | 10,584 | 8,210 | ||||||||||||
| Supplies | 4,331 | 4,081 | 4,103 | ||||||||||||
| Commercial Hardware | 1,348 | 1,291 | 1,193 | ||||||||||||
| Consumer Hardware | 717 | 834 | 620 | ||||||||||||
| Imaging and Printing Group | 6,396 | 6,206 | 5,916 | ||||||||||||
| HP Financial Services | 755 | 719 | 641 | ||||||||||||
| Corporate Investments | 315 | 236 | 188 | ||||||||||||
| Total Segments | 31,547 | 31,665 | 27,792 | ||||||||||||
| Eliminations of intersegment net revenue and other |
(698 |
) |
(488 |
) |
(409 |
) |
|||||||||
| Total HP Consolidated | $ | 30,849 | $ | 31,177 | $ | 27,383 | |||||||||
| (a) Certain fiscal 2010 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2009, the reclassifications resulted in the transfer of revenue among the business units within the Services segment only. There was no impact to the previously reported segment financial results. | |||||||||||||||
| (b) As a result of HP's adoption in fiscal 2009 of the revenue recognition standards related to multiple-deliverable revenue arrangements and revenue arrangements that included software, certain previously reported segment and business unit results have been restated. The adoption primarily impacted the Services, Enterprise Storage and Servers and Personal Systems Group financial reporting segments. | |||||||||||||||
| HEWLETT-PACKARD COMPANY AND SUBSIDIARIES | ||||||||||
| SEGMENT / BUSINESS UNIT INFORMATION | ||||||||||
| (Unaudited) | ||||||||||
| (In millions) | ||||||||||
| Six months ended | ||||||||||
|
April 30,
2010 |
April 30,
2009(a)(b) |
|||||||||
| Net revenue: | ||||||||||
| Infrastructure Technology Outsourcing | $ | 7,931 | $ | 7,605 | ||||||
| Technology Services | 4,826 | 4,871 | ||||||||
| Application Services | 3,021 | 3,173 | ||||||||
| Business Process Outsourcing | 1,450 | 1,473 | ||||||||
| Other | 135 | 125 | ||||||||
| Services | 17,363 | 17,247 | ||||||||
| Industry Standard Servers | 6,002 | 4,311 | ||||||||
| Storage | 1,837 | 1,731 | ||||||||
| Business Critical Systems | 1,094 | 1,364 | ||||||||
| Enterprise Storage and Servers | 8,933 | 7,406 | ||||||||
| Business Technology Optimization | 1,175 | 1,162 | ||||||||
| Other Software | 574 | 596 | ||||||||
| HP Software | 1,749 | 1,758 | ||||||||
| HP Enterprise Business | 28,045 | 26,411 | ||||||||
| Notebooks | 11,638 | 9,613 | ||||||||
| Desktops | 7,628 | 6,285 | ||||||||
| Workstations | 798 | 620 | ||||||||
| Handhelds | 49 | 104 | ||||||||
| Other | 427 | 380 | ||||||||
| Personal Systems Group | 20,540 | 17,002 | ||||||||
| Supplies | 8,412 | 8,153 | ||||||||
| Commercial Hardware | 2,639 | 2,432 | ||||||||
| Consumer Hardware | 1,551 | 1,312 | ||||||||
| Imaging and Printing Group | 12,602 | 11,897 | ||||||||
| HP Financial Services | 1,474 | 1,277 | ||||||||
| Corporate Investments | 551 | 384 | ||||||||
| Total Segments | 63,212 | 56,971 | ||||||||
| Eliminations of intersegment net revenue and other | (1,186 | ) | (781 | ) | ||||||
| Total HP Consolidated | $ | 62,026 | $ | 56,190 | ||||||
| (a) Certain fiscal 2010 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2009, the reclassifications resulted in the transfer of revenue among the business units within the Services segment only. There was no impact to the previously reported segment financial results. | ||||||||||
| (b) As a result of HP's adoption in fiscal 2009 of the revenue recognition standards related to multiple-deliverable revenue arrangements and revenue arrangements that included software, certain previously reported segment and business unit results have been restated. The adoption primarily impacted the Services, Enterprise Storage and Servers and Personal Systems Group financial reporting segments. | ||||||||||
| HEWLETT-PACKARD COMPANY AND SUBSIDIARIES | ||||||||||||
| CALCULATION OF NET EARNINGS PER SHARE | ||||||||||||
| (Unaudited) | ||||||||||||
| (In millions except per share amounts) | ||||||||||||
| Three months ended | ||||||||||||
|
April 30,
2010 |
January 31,
2010 |
April 30,
2009 |
||||||||||
| Numerator: | ||||||||||||
| Net earnings | $ | 2,200 | $ | 2,250 | $ | 1,721 | ||||||
| Denominator: | ||||||||||||
| Weighted-average shares used to compute | ||||||||||||
| basic EPS | 2,345 | 2,358 | 2,394 | |||||||||
| Dilutive effect of employee stock plans | 61 | 69 | 44 | |||||||||
|
Weighted-average shares used to compute
diluted EPS |
2,406 | 2,427 | 2,438 | |||||||||
| Net earnings per share: | ||||||||||||
| Basic(a) | $ | 0.94 | $ | 0.95 | $ | 0.72 | ||||||
| Diluted(b) | $ | 0.91 | $ | 0.93 | $ | 0.71 | ||||||
| (a) Basic earnings per share was calculated based on net earnings and the weighted-average number of shares outstanding during the reporting period. | ||||||||||||
| (b) Diluted earnings per share included any dilutive effect of outstanding stock options, performance-based restricted units, restricted stock units and restricted stock. | ||||||||||||
| HEWLETT-PACKARD COMPANY AND SUBSIDIARIES | ||||||||||
| CALCULATION OF NET EARNINGS PER SHARE | ||||||||||
| (Unaudited) | ||||||||||
| (In millions except per share amounts) | ||||||||||
| Six months ended | ||||||||||
|
April 30,
2010 |
April 30,
2009 |
|||||||||
| Numerator: | ||||||||||
| Net earnings | $ | 4,450 | $ | 3,577 | ||||||
| Denominator: | ||||||||||
| Weighted-average shares used to compute | ||||||||||
| basic EPS | 2,352 | 2,402 | ||||||||
| Dilutive effect of employee stock plans | 60 | 46 | ||||||||
|
Weighted-average shares used to compute
diluted EPS |
2,412 | 2,448 | ||||||||
| Net earnings per share: | ||||||||||
| Basic(a) | $ | 1.89 | $ | 1.49 | ||||||
| Diluted(b) | $ | 1.84 | $ | 1.46 | ||||||
| (a) Basic earnings per share was calculated based on net earnings and the weighted-average number of shares outstanding during the reporting period. | ||||||||||
| (b) Diluted earnings per share included any dilutive effect of outstanding stock options, performance-based restricted units, restricted stock units and restricted stock. | ||||||||||
| HEWLETT-PACKARD COMPANY AND SUBSIDIARIES | |||||||||||||
| CALCULATION OF NON-GAAP NET EARNINGS PER SHARE | |||||||||||||
| (Unaudited) | |||||||||||||
| (In millions except per share amounts) | |||||||||||||
| Three months ended | |||||||||||||
|
April 30,
2010 |
January 31,
2010 |
April 30,
2009 |
|||||||||||
| Numerator: | |||||||||||||
| Non-GAAP net earnings | $ | 2,633 | $ | 2,594 | $ | 2,103 | |||||||
| Denominator: | |||||||||||||
|
Weighted-average shares used to compute
basic EPS |
2,345 | 2,358 | 2,394 | ||||||||||
| Dilutive effect of employee stock plans | 61 | 69 | 44 | ||||||||||
|
Weighted-average shares used to compute
diluted EPS |
2,406 | 2,427 | 2,438 | ||||||||||
| Non-GAAP net earnings per share: | |||||||||||||
| Basic(a) | $ | 1.12 | $ | 1.10 | $ | 0.88 | |||||||
| Diluted(b) | $ | 1.09 | $ | 1.07 | $ | 0.86 | |||||||
| (a) Basic non-GAAP earnings per share was calculated based on non-GAAP net earnings and the weighted-average number of shares outstanding during the reporting period. | |||||||||||||
| (b) Diluted non-GAAP earnings per share included any dilutive effect of outstanding stock options, performance-based restricted units, restricted stock units and restricted stock. | |||||||||||||
| HEWLETT-PACKARD COMPANY AND SUBSIDIARIES | |||||||||
| CALCULATION OF NON-GAAP NET EARNINGS PER SHARE | |||||||||
| (Unaudited) | |||||||||
| (In millions except per share amounts) | |||||||||
| Six months ended | |||||||||
|
April 30,
2010 |
April 30,
2009 |
||||||||
| Numerator: | |||||||||
| Non-GAAP net earnings | $ | 5,227 | $ | 4,390 | |||||
| Denominator: | |||||||||
|
Weighted-average shares used to compute
basic EPS |
2,352 | 2,402 | |||||||
| Dilutive effect of employee stock plans | 60 | 46 | |||||||
|
Weighted-average shares used to compute
diluted EPS |
2,412 | 2,448 | |||||||
| Non-GAAP net earnings per share: | |||||||||
| Basic(a) | $ | 2.22 | $ | 1.83 | |||||
| Diluted(b) | $ | 2.17 | $ | 1.79 | |||||
| (a) Basic non-GAAP earnings per share was calculated based on non-GAAP net earnings and the weighted-average number of shares outstanding during the reporting period. | |||||||||
| (b) Diluted non-GAAP earnings per share included any dilutive effect of outstanding stock options, performance-based restricted units, restricted stock units and restricted stock. | |||||||||
Use of Non-GAAP Financial Measures
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 earnings, non-GAAP diluted earnings per share and gross cash. HP also provides forecasts of non-GAAP diluted earnings per share. These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The GAAP measure most directly comparable to non-GAAP operating profit is earnings from operations. The GAAP measure most directly comparable to non-GAAP operating margin is operating margin. The GAAP measure most directly comparable to non-GAAP net earnings is net earnings. The GAAP measure most directly comparable to non-GAAP diluted earnings per share is diluted net earnings per share. The GAAP measure most directly comparable to gross cash is cash and cash equivalents. Reconciliations of each of these non-GAAP financial measures to GAAP information are included in the tables above.
Use and Economic Substance of Non-GAAP Financial Measures Used by HP
Non-GAAP operating profit and non-GAAP operating margin are defined to exclude the effects of any restructuring charges, charges relating to the amortization of purchased intangible assets, acquisition-related charges and in-process research and development charges recorded during the relevant period. Non-GAAP net earnings and non-GAAP diluted earnings per share consist of net earnings or diluted net earnings per share excluding those same charges. In addition, non-GAAP net earnings and non-GAAP diluted earnings per share are adjusted by the amount of additional taxes or tax benefit associated with each non-GAAP item. HP’s management uses these non-GAAP financial measures for purposes of evaluating HP’s historical and prospective financial performance, as well as HP’s performance relative to its competitors. HP’s management also uses these non-GAAP measures to further its own understanding of HP’s segment operating performance. HP believes that excluding those items mentioned above from these non-GAAP financial measures allows HP management to better understand HP’s consolidated financial performance in relationship to the operating results of HP’s segments, as management does not believe that the excluded items are reflective of ongoing operating results. More specifically, HP’s management excludes each of those items mentioned above for the following reasons:
- Restructuring charges consist of costs primarily related to severance and benefits for employees terminated pursuant to a formal restructuring plan, including strategic reallocations or workforce reductions and early retirement programs. HP excludes these restructuring costs (and any reversals of charges recorded in prior periods) for purposes of calculating these non-GAAP measures because it believes that these historical costs do not reflect expected future operating expenses and do not contribute to a meaningful evaluation of HP’s current operating performance or comparisons to HP’s past operating performance.
- Purchased intangible assets consist primarily of customer contracts, customer lists, distribution agreements, technology patents, and products, trademarks and trade names purchased in connection with acquisitions. HP incurs charges relating to the amortization of these intangibles, and those charges are included in HP’s GAAP presentation of earnings from operations, operating margin, net earnings and net earnings per share. Amortization charges for HP’s purchased intangible assets are inconsistent in amount and frequency and are significantly impacted by the timing and magnitude of HP’s acquisitions. Consequently, HP excludes these charges for purposes of calculating these non-GAAP measures to facilitate a more meaningful evaluation of HP’s current operating performance and comparisons to HP’s past operating performance.
- In-process research and development charges relate to amounts assigned to tangible and intangible assets to be used in research and development projects that have no alternative future use and therefore are charged to expense at the acquisition date. Charges for in-process research and development in connection with HP’s acquisitions are reflected in HP’s GAAP presentation of earnings from operations, operating margin, net earnings and net earnings per share. In-process research and development expenses are not indicative of HP’s ongoing operating costs and are generally unpredictable. Accordingly, HP believes that eliminating these expenses for purposes of calculating these non-GAAP measures contributes to a meaningful evaluation of HP’s current operating performance and comparisons to HP’s past operating performance.
-
HP incurs costs related to its acquisitions, some of which are treated as non-capitalized expenses. Because non-capitalized, acquisition-related expenses are inconsistent in amount and frequency and are significantly impacted by the timing and nature of HP’s acquisitions, HP believes that eliminating the non-capitalized expenses for purposes of calculating these non-GAAP measures facilitates a more meaningful evaluation of HP’s current operating performance and comparisons to HP’s past operating performance.
Gross cash is a non-GAAP measure that is defined as cash and cash equivalents plus short-term investments and certain long-term investments that may be liquidated within 90 days pursuant to the terms of existing put options or similar rights. HP’s management uses gross cash for the purpose of determining the amount of cash available for investment in HP’s businesses, funding strategic acquisitions, repurchasing stock and other purposes. HP’s management also uses gross cash for the purposes of evaluating HP’s historical and prospective liquidity, as well as to further its own understanding of HP’s segment operating results. Because gross cash includes liquid assets that are not included in GAAP cash and cash equivalents, HP believes that gross cash provides a more accurate and complete assessment of HP’s liquidity and segment operating results.
Material Limitations Associated with Use of Non-GAAP Financial Measures
These non-GAAP financial measures may have limitations as analytical tools, and these measures should not be considered in isolation or as a substitute for analysis of HP’s results as reported under GAAP. Some of the limitations in relying on these non-GAAP financial measures are:
- Items such as amortization of purchased intangible assets, though not directly affecting HP’s cash position, represent the loss in value of intangible assets over time. The expense associated with this loss in value is not included in non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings and non-GAAP diluted earnings per share and therefore does not reflect the full economic effect of the loss in value of those intangible assets.
- Items such as restructuring charges that are excluded from non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings and non-GAAP diluted earnings per share can have a material impact on cash flows and earnings per share.
- HP may not be able to liquidate immediately the long-term investments included in gross cash, which may limit the usefulness of gross cash as a liquidity measure.
- Other companies may calculate non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share and gross cash differently than HP does, limiting the usefulness of those measures for comparative purposes.
Compensation for Limitations Associated with Use of Non-GAAP Financial Measures
HP compensates for the limitations on its use of non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share and gross cash by relying primarily on its GAAP results and using non-GAAP financial measures only supplementally. HP also provides robust and detailed reconciliations of each non-GAAP financial measure to its most directly comparable GAAP measure within this press release and in other written materials that include these non-GAAP financial measures, and HP encourages investors to review carefully those reconciliations.
Usefulness of Non-GAAP Financial Measures to Investors
HP believes that providing non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share and gross cash to investors in addition to the related GAAP measures provides investors with greater transparency to the information used by HP’s management in its financial and operational decision-making and allows investors to see HP’s results “through the eyes” of management. HP further believes that providing this information better enables HP’s investors to understand HP’s operating performance and to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance. Disclosure of these non-GAAP financial measures also facilitates comparisons of HP’s operating performance with the performance of other companies in HP’s industry that supplement their GAAP results with non-GAAP financial measures that are calculated in a similar manner.
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