HP Reports Fourth Quarter 2008 Results

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© 2008 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice. 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
	October 31, 2008			July 31, 2008			October 31, 2007

Net revenue	$	33,603		$	28,032		$	28,293

Costs and expenses ^(a) :
Cost of sales		25,908			21,253			21,304
Research and development		842			895			914
Selling, general and administrative		3,451			3,137			3,272
Amortization of purchased intangible assets		337			213			187
In-process research and development charges		32			-			4
Restructuring		251			5			(20	)
Acquisition-related charges		41			-			-
Total costs and expenses		30,862			25,503			25,661

Earnings from operations		2,741			2,529			2,632

Interest and other, net		(98	)		23			67

Earnings before taxes		2,643			2,552			2,699

Provision for taxes ^(b)		531			525			535

Net earnings	$	2,112		$	2,027		$	2,164

Net earnings per share:
Basic	$	0.87		$	0.82		$	0.84
Diluted	$	0.84		$	0.80		$	0.81


Cash dividends declared per share	$	-		$	0.16		$	-

Weighted-average shares used to compute net earnings per share:
Basic		2,440			2,459			2,576
Diluted		2,516			2,533			2,678

(a) Stock-based compensation expense included under SFAS 123(R) was as follows:
Cost of sales	$	46		$	34		$	40
Research and development		17			16			18
Selling, general and administrative		94			90			110
Total costs and expenses	$	157		$	140		$	168

(b) Tax benefit from stock-based compensation	$	(37	)	$	(38	)	$	(54	)

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(In millions except per share amounts)



	Twelve months ended
	October 31,
	2008			2007
	(unaudited)

Net revenue	$	118,364		$	104,286

Costs and expenses ^(a) :
Cost of sales		89,921			78,887
Research and development		3,543			3,611
Selling, general and administrative		13,104			12,226
Amortization of purchased intangible assets		967			783
In-process research and development charges		45			190
Restructuring charges		270			387
Acquisition-related charges		41			-
Pension curtailments and pension settlements, net		-			(517	)
Total costs and expenses		107,891			95,567

Earnings from operations		10,473			8,719

Interest and other, net		-			458

Earnings before taxes		10,473			9,177

Provision for taxes ^(b)		2,144			1,913

Net earnings	$	8,329		$	7,264

Net earnings per share:
Basic	$	3.35		$	2.76
Diluted	$	3.25		$	2.68


Cash dividends declared per share	$	0.32		$	0.32

Weighted-average shares used to compute net earnings per share:
Basic		2,483			2,630
Diluted		2,567			2,716

(a) Stock-based compensation expense included under SFAS 123(R) was as follows:
Cost of sales	$	152		$	161
Research and development		72			74
Selling, general and administrative		382			394
Total costs and expenses	$	606		$	629

(b) Tax benefit from stock-based compensation	$	(167	)	$	(182	)

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 October 31, 2008			Diluted earnings per share			Three months ended July 31, 2008			Diluted earnings per share			Three months ended October 31, 2007			Diluted earnings per share

GAAP net earnings	$	2,112		$	0.84		$	2,027		$	0.80		$	2,164		$	0.81

Non-GAAP adjustments:
Amortization of purchased intangible assets		337			0.13			213			0.08			187			0.07
In-process research and development charges		32			0.01			-			-			4			-
Restructuring		251			0.10			5			-			(20	)		(0.01	)
Acquisition-related charges		41			0.02			-			-			-			-
Adjustments for taxes		(179	)		(0.07	)		(57	)		(0.02	)		(39	)		(0.01	)

Non-GAAP net earnings	$	2,594		$	1.03		$	2,188		$	0.86		$	2,296		$	0.86


GAAP earnings from operations	$	2,741					$	2,529					$	2,632

Non-GAAP adjustments:
Amortization of purchased intangible assets		337						213						187
In-process research and development charges		32						-						4
Restructuring		251						5						(20	)
Acquisition-related charges		41						-						-

Non-GAAP earnings from operations	$	3,402					$	2,747					$	2,803

GAAP operating margin		8	%					9	%					9	%
Non-GAAP adjustments		2	%					1	%					1	%

Non-GAAP operating margin		10	%					10	%					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)

	Twelve months ended October 31, 2008		Diluted earnings per share		Twelve months ended October 31, 2007		Diluted earnings per share

GAAP net earnings	$	8,329	$	3.25	$	7,264	$	2.68

Non-GAAP adjustments:
Amortization of purchased intangible assets		967		0.38		783		0.29
In-process research and development charges		45		0.02		190		0.07
Restructuring charges		270		0.10		387		0.14
Acquisition-related charges		41		0.01		-		-
Pension curtailments and pension settlements, net		-		-		(517)		(0.19)
Adjustments for taxes		(350 )		(0.14 )		(153 )		(0.06 )

Non-GAAP net earnings	$	9,302	$	3.62	$	7,954	$	2.93


GAAP earnings from operations	$	10,473			$	8,719

Non-GAAP adjustments:
Amortization of purchased intangible assets		967				783
In-process research and development charges		45				190
Restructuring charges		270				387
Acquisition-related charges		41				-
Pension curtailments and pension settlements, net		-				(517 )

Non-GAAP earnings from operations	$	11,796			$	9,562

GAAP operating margin		9%				8%
Non-GAAP adjustments		1%				1%

Non-GAAP operating margin		10%				9%

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)


	October 31, 2008		October 31, 2007
	(unaudited)

ASSETS

Current assets:
Cash and cash equivalents	$	10,153	$	11,293
Short-term investments		93		152
Accounts receivable		16,928		13,420
Financing receivables		2,314		2,507
Inventory		7,879		8,033
Other current assets		14,361		11,997

Total current assets		51,728		47,402

Property, plant and equipment		10,838		7,798

Long-term financing receivables and other assets		10,468		7,647

Goodwill and purchased intangible assets		40,297		25,852

Total assets	$	113,331	$	88,699


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Notes payable and short-term borrowings	$	10,176	$	3,186
Accounts payable		14,138		11,787
Employee compensation and benefits		4,159		3,465
Taxes on earnings		869		1,891
Deferred revenue		6,287		5,025
Other accrued liabilities		17,310		13,906

Total current liabilities		52,939		39,260

Long-term debt		7,676		4,997
Other liabilities		13,774		5,916

Stockholders' equity		38,942		38,526

Total liabilities and stockholders' equity	$	113,331	$	88,699

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (In millions)


	Three months ended October 31, 2008			Twelve months ended October 31, 2008

Cash flows from operating activities:
Net earnings	$	2,112		$	8,329
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		1,088			3,356
Stock-based compensation expense		157			606
Provision for bad debt and inventory		193			489
In-process research and development charges		32			45
Acquisition-related charges		41			41
Restructuring charges		251			270
Deferred taxes on earnings		(128	)		1,035
Excess tax benefit from stock-based compensation		(80	)		(293	)
Other, net		(47	)		(72	)

Changes in assets and liabilities:
Accounts and financing receivables		176			(261	)
Inventory		344			89
Accounts payable		(518	)		1,630
Taxes on earnings		226			(43	)
Restructuring		(96	)		(165	)
Other assets and liabilities		(475	)		(465	)
Net cash provided by operating activities		3,276			14,591

Cash flows from investing activities:
Investment in property, plant and equipment		(1,024	)		(2,990	)
Proceeds from sale of property, plant and equipment		154			425
Purchases of available-for-sale securities and other investments		(92	)		(178	)
Maturities and sales of available-for-sale securities and other investments		68			280
Payments made in connection with business acquisitions, net		(9,770	)		(11,248	)
Net cash used in investing activities		(10,664	)		(13,711	)

Cash flows from financing activities:
Issuance of commercial paper and notes payable, net		5,036			5,015
Issuance of debt		67			3,121
Payment of debt		(792	)		(1,843	)
Issuance of common stock under employee stock plans		463			1,810
Repurchase of common stock		(1,900	)		(9,620	)
Excess tax benefit from stock-based compensation		80			293
Dividends		(196	)		(796	)
Net cash provided by (used in) financing activities		2,758			(2,020	)

Decrease in cash and cash equivalents		(4,630	)		(1,140	)
Cash and cash equivalents at beginning of period		14,783			11,293
Cash and cash equivalents at end of period	$	10,153		$	10,153

	HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
	SEGMENT INFORMATION
	(Unaudited)
	(In millions)

		Three months ended
		October 31, 2008			July 31, 2008			October 31, 2007 ^(a)

Net revenue:

	Enterprise Storage and Servers	$	5,059		$	4,741		$	5,108
	HP Services		8,639			4,753			4,348
	HP Software		855			781			759
	Technology Solutions Group		14,553			10,275			10,215
	Personal Systems Group		11,179			10,254			10,133
	Imaging and Printing Group		7,503			6,979			7,554
	HP Financial Services		691			680			657
	Corporate Investments		246			271			210
	Total Segments		34,172			28,459			28,769
	Eliminations of intersegment net revenue and other		(569	)		(427	)		(476	)

Total HP Consolidated		$	33,603		$	28,032		$	28,293

Earnings (Loss) from operations:

	Enterprise Storage and Servers	$	705		$	544		$	736
	HP Services		920			574			515
	HP Software		195			122			145
	Technology Solutions Group		1,820			1,240			1,396
	Personal Systems Group		616			587			589
	Imaging and Printing Group		1,162			1,048			1,094
	HP Financial Services		51			51			48
	Corporate Investments		9			26			(5	)
	Total Segments		3,658			2,952			3,122

	Corporate and unallocated costs and eliminations		(152	)		(85	)		(197	)
	Unallocated costs related to stock-based compensation expense		(104	)		(120	)		(122	)
	Amortization of purchased intangible assets		(337	)		(213	)		(187	)
	In-process research and development charges		(32	)		-			(4	)
	Restructuring		(251	)		(5	)		20
	Acquisition-related charges		(41	)		-			-
	Interest and other, net		(98	)		23			67

Total HP Consolidated Earnings Before Taxes		$	2,643		$	2,552		$	2,699


(a)	Certain fiscal 2008 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2007, the reclassifications resulted in the transfer of revenue and operating profit among the Enterprise Storage and Servers, HP Services and HP Software segments within the Technology Solutions Group. There was no impact on the previously reported financial results for the other segments.

	HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
	SEGMENT INFORMATION
	(Unaudited)
	(In millions)

		Twelve months ended October 31,
			2008			2007 ^(a)

Net revenue:

	Enterprise Storage and Servers	$	19,400		$	18,639
	HP Services		22,397			16,570
	HP Software		3,029			2,531
	Technology Solutions Group		44,826			37,740
	Personal Systems Group		42,295			36,409
	Imaging and Printing Group		29,385			28,465
	HP Financial Services		2,698			2,336
	Corporate Investments		965			762
	Total Segments		120,169			105,712
	Eliminations of intersegment net revenue and other		(1,805	)		(1,426	)

Total HP Consolidated		$	118,364		$	104,286

Earnings (Loss) from operations:

	Enterprise Storage and Servers	$	2,577		$	2,148
	HP Services		2,491			1,787
	HP Software		461			221
	Technology Solutions Group		5,529			4,156
	Personal Systems Group		2,375			1,939
	Imaging and Printing Group		4,590			4,315
	HP Financial Services		192			155
	Corporate Investments		49			(57	)
	Total Segments		12,735			10,508

	Corporate and unallocated costs and eliminations		(460	)		(439	)
	Unallocated costs related to stock-based compensation expense		(479	)		(507	)
	Amortization of purchased intangible assets		(967	)		(783	)
	In-process research and development charges		(45	)		(190	)
	Restructuring charges		(270	)		(387	)
	Acquisition-related charges		(41	)		-
	Pension curtailments and pension settlements, net		-			517
	Interest and other, net		-			458

Total HP Consolidated Earnings Before Taxes		$	10,473		$	9,177


(a)	Certain fiscal 2008 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For fiscal year 2007, the reclassifications resulted in the transfer of revenue and operating profit among the Enterprise Storage and Servers, HP Services and HP Software segments within the Technology Solutions Group. There was no impact on the previously reported financial results for the other segments.

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT / BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)

	Three months ended
	October 31, 2008			July 31, 2008				October 31, 2007 ^(a)

Net revenue:

Industry standard servers	$ 2,977			$ 2,874				$	3,059
Business critical systems	935			829					1,034
Storage	1,147			1,038					1,015
Enterprise Storage and Servers	5,059			4,741					5,108
Technology services	2,447			2,394					2,229
Outsourcing services	1,468			1,456					1,271
Consulting and integration	868			903					848
EDS ^(b)	3,856			-					-
HP Services	8,639			4,753					4,348
Business technology optimization ^(c)	714			642					620
Other ^(c)	141			139					139
HP Software	855			781					759
Technology Solutions Group	14,553			10,275					10,215
Notebooks	6,270			5,350					5,164
Desktops	4,146			4,158					4,222
Workstations	473			468					473
Handhelds	79			90					108
Other	211			188					166
Personal Systems Group	11,179			10,254					10,133
Commercial Hardware	1,695			1,567					1,880
Consumer Hardware	983			861					1,251
Supplies	4,825			4,551					4,423
Imaging and Printing Group	7,503			6,979					7,554
HP Financial Services	691			680					657
Corporate Investments	246			271					210
Total Segments	34,172			28,459					28,769

Eliminations of intersegment net revenue and other	(569		)	(427			)		(476	)

Total HP Consolidated	$ 33,603			$ 28,032				$	28,293


(a) Certain fiscal 2008 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2007, the reclassifications resulted in the transfer of revenue among Enterprise Storage and Servers, HP Services and HP Software segments within the Technology Solutions Group. In addition, revenue was transferred among the business units within the Imaging and Printing Group and among the business units within the Personal Systems Group, but there was no change to the previously reported revenue for either segment as a whole. There was no impact on the previously reported financial results for the HP Financial Services and Corporate Investments segments.

(b) On August 26, 2008, HP completed its acquisition of Electronic Data Systems Corporation ("EDS"). HP has included the results of EDS for the period following the completion of the acquisition within HP Services for financial reporting purposes.

(c) The OpenView business unit was renamed as “Business Technology Optimization” and the OpenCall and Other business unit was renamed as “Other” effective fiscal 2008. The renamed "Other" business unit includes primarily the OpenCall and Business Information Optimization products.

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT / BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)

		Twelve months ended October 31,
		2008				2007 ^(a)

Net revenue:

Industry standard servers		$ 11,657				$ 11,380
Business critical systems		3,538				3,553
Storage		4,205				3,706
Enterprise Storage and Servers		19,400				18,639
Technology services		9,413				8,539
Outsourcing services		5,597				4,839
Consulting and integration		3,531				3,192
EDS ^(b)		3,856				-
HP Services		22,397				16,570
Business technology optimization ^(c)		2,497				2,004
Other ^(c)		532				527
HP Software		3,029				2,531
Technology Solutions Group		44,826				37,740
Notebooks		22,657				17,650
Desktops		16,626				15,889
Workstations		1,902				1,721
Handhelds		360				531
Other		750				618
Personal Systems Group		42,295				36,409
Commercial Hardware		6,799				6,863
Consumer Hardware		3,998				4,496
Supplies		18,588				17,106
Imaging and Printing Group		29,385				28,465
HP Financial Services		2,698				2,336
Corporate Investments		965				762
Total Segments		120,169				105,712

Eliminations of intersegment net revenue and other		(1,805			)	(1,426				)

Total HP Consolidated		$ 118,364				$ 104,286


(a) Certain fiscal 2008 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For fiscal year 2007, the reclassifications resulted in the transfer of revenue among Enterprise Storage and Servers, HP Services and HP Software segments within the Technology Solutions Group. In addition, revenue was transferred among the business units within the Imaging and Printing Group and among the business units within the Personal Systems Group, but there was no change to the previously reported revenue for either segment as a whole. There was no impact on the previously reported financial results for the HP Financial Services and Corporate Investments segments.

(b) On August 26, 2008, HP completed its acquisition of Electronic Data Systems Corporation ("EDS"). HP has included the results of EDS for the period following the completion of the acquisition within HP Services for financial reporting purposes.

(c) The OpenView business unit was renamed as “Business Technology Optimization” and the OpenCall and Other business unit was renamed as “Other” effective fiscal 2008. The renamed "Other" business unit includes primarily the OpenCall and Business Information Optimization products.

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)


	Three months ended
	October 31, 2008		July 31, 2008		October 31, 2007

Numerator:
Net earnings	$	2,112	$	2,027	$	2,164
Adjustment for interest expense on zero-coupon subordinated convertible notes, net of taxes		-		-		2

Net earnings, adjusted	$	2,112	$	2,027	$	2,166

Denominator:
Weighted-average shares used to compute
basic EPS		2,440		2,459		2,576
Effect of dilutive securities:
Dilution from employee stock plans		76		74		94
Zero-coupon subordinated convertible notes		-		-		8
Dilutive potential common shares		76		74		102

Weighted-average shares used to compute diluted EPS		2,516		2,533		2,678

Net earnings per share:
Basic ^(a)	$	0.87	$	0.82	$	0.84
Diluted ^(b)	$	0.84	$	0.80	$	0.81


(a) HP's basic earnings per share was calculated based on net earnings and the weighted-average number of shares outstanding during the reporting period. (b) The diluted earnings per share included additional dilution from potential issuance of common stock, such as stock issuable pursuant to exercise of stock options, vesting of restricted stock units and conversion of debt, except when such issuances would be anti-dilutive.

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NET EARNINGS PER SHARE
(In millions except per share amounts)


	Twelve months ended October 31,
		2008		2007
	(unaudited)

Numerator:
Net earnings	$	8,329	$	7,264
Adjustment for interest expense on zero-coupon subordinated convertible notes, net of taxes		3		7

Net earnings, adjusted	$	8,332	$	7,271

Denominator:
Weighted-average shares used to compute
basic EPS		2,483		2,630
Effect of dilutive securities:
Dilution from employee stock plans		81		78
Zero-coupon subordinated convertible notes		3		8
Dilutive potential common shares		84		86

Weighted-average shares used to compute diluted EPS		2,567		2,716

Net earnings per share:
Basic ^(a)	$	3.35	$	2.76
Diluted ^(b)	$	3.25	$	2.68


(a) HP's basic earnings per share was calculated based on net earnings and the weighted-average number of shares outstanding during the reporting period. (b) The diluted earnings per share included additional dilution from potential issuance of common stock, such as stock issuable pursuant to exercise of stock options, vesting of restricted stock units and conversion of debt, except when such issuances would be anti-dilutive.

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NON-GAAP NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)




	Three months ended
	October 31, 2008	July 31, 2008	October 31, 2007

Numerator:
Non-GAAP net earnings	$ 2,594	$ 2,188	$ 2,296
Adjustment for interest expense on zero- coupon subordinated convertible notes, net of taxes	-	-	2

Non-GAAP net earnings, adjusted	$ 2,594	$ 2,188	$ 2,298

Denominator:
Weighted-average shares used to compute basic EPS	2,440	2,459	2,576
Effect of dilutive securities:
Dilution from employee stock plans	76	74	94
Zero-coupon subordinated convertible notes	-	-	8
Dilutive potential common shares	76	74	102

Weighted-average shares used to compute diluted EPS	2,516	2,533	2,678

Non-GAAP net earnings per share:
Basic ^(a)	$ 1.06	$ 0.89	$ 0.89
Diluted ^(b)	$ 1.03	$ 0.86	$ 0.86


(a) HP's 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) HP’s diluted non-GAAP earnings per share included additional dilution from potential issuance of common stock, such as stock issuable pursuant to exercise of stock options, vesting of restricted stock units and conversion of debt, except when such issuances would be anti-dilutive.

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NON-GAAP NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)


	Twelve months ended October 31,
		2008		2007

Numerator:
Non-GAAP net earnings	$	9,302	$	7,954
Adjustment for interest expense on zero- coupon subordinated convertible notes, net of taxes		3		7

Non-GAAP net earnings, adjusted	$	9,305	$	7,961

Denominator:
Weighted-average shares used to compute basic EPS		2,483		2,630
Effect of dilutive securities:
Dilution from employee stock plans		81		78
Zero-coupon subordinated convertible notes		3		8
Dilutive potential common shares		84		86

Weighted-average shares used to compute diluted EPS		2,567		2,716

Non-GAAP net earnings per share:
Basic ^(a)	$	3.75	$	3.02
Diluted ^(b)	$	3.62	$	2.93

(a) HP's 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) HP’s diluted non-GAAP earnings per share included additional dilution from potential issuance of common stock, such as stock issuable pursuant to exercise of stock options, vesting of restricted stock units and conversion of debt, except when such issuances would be anti-dilutive.

Use of Non-GAAP Financial Measures

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