HP Reports First Quarter 2010 Results

These estimates for both the second quarter and full year fiscal 2010 do not reflect the potential impact of the proposed acquisition of 3Com Corporation that HP announced on Nov. 11, 2009.

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 Q1 FY10 earnings conference call is accessible via an audio webcast at www.hp.com/investor/q12010webcast.

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, acquisition synergies, currency exchange rates 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. 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 January 31, 2010. In particular, determining HP’s actual tax balances and provisions as of January 31, 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.

Note to editors: More news from HP, including links to RSS feeds, is available at http://www.hp.com/hpinfo/newsroom/.

© 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 inn the express warranty statements accompanying such products and services. Nothing herein should be constructed as constructing 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
January 31,
2010
October 31,
2009
January 31,
2009
 
Net revenue

$

31,177

$ 30,777 $ 28,807
 

Costs and expenses (a) :

Cost of sales 24,062 23,475 22,073
Research and development 681 704 732
Selling, general and administrative 2,932 2,966 2,893
Amortization of purchased intangible assets 330 400 412
In-process research and development charges - 1 6
Restructuring charges 131 38 146
Acquisition-related charges   38     60     48  
Total costs and expenses   28,174     27,644     26,310  
 
Earnings from operations 3,003 3,133 2,497
 
Interest and other, net   (87 )   (132 )   (232 )
 
Earnings before taxes 2,916 3,001 2,265
 
Provision for taxes (b)   593     589     409  
 
Net earnings $ 2,323   $ 2,412   $ 1,856  
 
Net earnings per share:
Basic $ 0.99 $ 1.02 $ 0.77
Diluted $ 0.96 $ 0.99 $ 0.75
 
 
Cash dividends declared per share $ 0.16 $ - $ 0.16
 
Weighted-average shares used to compute net earnings per share:
Basic 2,358 2,366 2,410
Diluted 2,427 2,433 2,464
 
(a) Stock-based compensation expense was as follows:
Cost of sales $ 47 $ 37 $ 52
Research and development 14 10 17
Selling, general and administrative 119 86 85
Acquisition-related charges   1     1     6  
Total costs and expenses $ 181 $ 134 $ 160
 
(b) Tax benefit from stock-based compensation $ (58 ) $ (41 ) $ (48 )
 
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
January 31,
2010

Diluted
earnings
per share

Three
months
ended
October 31,
2009

Diluted
earnings
per share

Three
months
ended
January 31,
2009

 

Diluted
earnings
per share

 
GAAP net earnings $ 2,323 $ 0.96 $ 2,412 $ 0.99 $ 1,856 $ 0.75
 
Non-GAAP adjustments:
Amortization of purchased
intangible assets
330 0.14 400 0.16 412 0.17
In-process research and
development charges
- - 1 - 6 -
Restructuring charges 131 0.05 38 0.02 146 0.06
Acquisition-related charges 38 0.01 60 0.03 48 0.02
Adjustments for taxes   (155 )  

(0.06

)

  (147 )  

(0.06

)

  (181 )  

(0.07

)

 
Non-GAAP net earnings $ 2,667   $ 1.10   $ 2,764   $ 1.14   $ 2,287   $ 0.93  
 
 
GAAP earnings from operations $ 3,003 $ 3,133 $ 2,497
 
Non-GAAP adjustments:
Amortization of purchased
intangible assets
330 400 412
In-process research and
development charges
- 1 6
Restructuring charges 131 38 146
Acquisition-related charges   38     60     48  

Non-GAAP earnings from operations

$ 3,502   $ 3,632   $ 3,109  
 
GAAP operating margin 10 % 10 % 9 %
Non-GAAP adjustments   1 %   2 %   2 %
 
Non-GAAP operating margin   11 %   12 %   11 %
 

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
   
 
January 31,
2010
October 31,
2009
(unaudited)
 
ASSETS
 
Current assets:
Cash and cash equivalents $ 13,547 $ 13,279
Short-term investments 60 55
Accounts receivable 14,503 16,537
Financing receivables 2,765 2,675
Inventory 6,630 6,128
Other current assets   14,192   13,865
 
Total current assets   51,697   52,539
 
Property, plant and equipment 11,164 11,262
Long-term financing receivables and other assets 11,423 11,289
Goodwill and purchased intangible assets   39,334   39,709
 
Total assets $ 113,618 $ 114,799
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
Notes payable and short-term borrowings $ 1,862 $ 1,850
Accounts payable 13,557 14,809
Employee compensation and benefits 3,038 4,071
Taxes on earnings 1,014 910
Deferred revenue 6,412 6,182
Other accrued liabilities   14,909   15,181
 
Total current liabilities   40,792   43,003
 
Long-term debt 14,009 13,980
Other liabilities 16,853 17,052

(a)

 
Stockholders' equity
HP Stockholders' equity 41,701 40,517
Noncontrolling interests   263   247

(a)

 
Total stockholders' equity   41,964   40,764
 
Total liabilities and stockholders' equity $ 113,618 $ 114,799
 
(a) Reflects the adoption of the accounting standard related to noncontrolling interests in consolidated financial statements.
 

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
   
 
Three months ended
January 31,
2010
January 31,
2009
 
Cash flows from operating activities:
Net earnings $ 2,323 $ 1,856
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 1,162 1,214
Stock-based compensation expense 181 160
Provision for bad debt and inventory 92 168
In-process research and development charges - 6
Restructuring charges 131 146
Deferred taxes on earnings (184 ) (63 )
Excess tax benefit from stock-based compensation (128 ) (13 )
Other, net 87 3
 
Changes in assets and liabilities:
Accounts and financing receivables 1,875 1,780
Inventory (543 ) 156
Accounts payable (1,268 ) (3,089 )
Taxes on earnings 510 263
Restructuring (400 ) (209 )
Other assets and liabilities   (1,431 )   (1,252 )
Net cash provided by operating activities   2,407     1,126  
 
Cash flows from investing activities:
Investment in property, plant and equipment (821 ) (816 )
Proceeds from sale of property, plant and equipment 112 152
Purchases of available-for-sale securities
and other investments
(9 ) -
Maturities and sales of available-for-sale
securities and other investments
- 46
Payments made in connection with business
acquisitions, net
  7     (345 )
Net cash used in investing activities   (711 )   (963 )
 
Cash flows from financing activities:
Issuance of commercial paper and notes payable, net 78 57
Issuance of debt 29 2,004
Payment of debt (80 ) (69 )
Issuance of common stock under employee stock plans 1,319 299
Repurchase of common stock (2,713 ) (1,238 )
Excess tax benefit from stock-based compensation 128 13
Dividends   (189 )   (193 )
Net cash (used in) provided by financing activities   (1,428 )   873  
 
Increase in cash and cash equivalents 268 1,036
Cash and cash equivalents at beginning of period   13,279     10,153  
Cash and cash equivalents at end of period $ 13,547   $ 11,189  
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

SEGMENT INFORMATION

(Unaudited)
(In millions)
     
Three months ended
January 31,
2010
October 31,
2009
January 31,
2009 (a)
 
Net revenue:
 
Services $ 8,651 $ 8,926 $ 8,747
Enterprise Storage and Servers 4,391 4,218 3,949
HP Software   878     967     878  
HP Enterprise Business   13,920     14,111     13,574  
Personal Systems Group 10,584 9,862 8,792
Imaging and Printing Group 6,206 6,454 5,981
HP Financial Services 719 726 636
Corporate Investments   236     191     196  
Total Segments 31,665 31,344 29,179
Eliminations of intersegment
net revenue and other
  (488 )   (567 )   (372 )
 
Total HP Consolidated $ 31,177   $ 30,777   $ 28,807  
 
Earnings from operations:
 
Services $ 1,364 $ 1,444 $ 1,124
Enterprise Storage and Servers 552 481 406
HP Software   167     234     140  
HP Enterprise Business   2,083     2,159     1,670  
Personal Systems Group 530 460 436
Imaging and Printing Group 1,054 1,171 1,105
HP Financial Services 67 66 41
Corporate Investments   19     (8 )   (19 )
Total Segments 3,753 3,848 3,233
 
Corporate and unallocated costs and eliminations (88 ) (100 ) 24
Unallocated costs related to
stock-based compensation expense
(163 ) (116 ) (148 )
Amortization of purchased intangible assets (330 ) (400 ) (412 )
In-process research and development charges - (1 ) (6 )
Restructuring charges (131 ) (38 ) (146 )
Acquisition-related charges (38 ) (60 ) (48 )
Interest and other, net   (87 )   (132 )   (232 )
 
Total HP Consolidated Earnings Before Taxes $ 2,916   $ 3,001   $ 2,265  
 
 

(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
January 31,
2010
  October 31,
2009 (a)
  January 31,
2009 (a)(b)
 
Net revenue:
 
Infrastructure Technology Outsourcing $ 3,933 $ 4,043 $ 3,843
Technology Services 2,406 2,459 2,453
Application Services 1,509 1,579 1,632
Business Process Outsourcing 734 785 754
Other   69     60     65  
Services   8,651     8,926     8,747  
Industry Standard Servers 2,946 2,669 2,322
Storage 889 918 913
Business Critical Systems   556     631     714  
Enterprise Storage and Servers   4,391     4,218     3,949  
Business Technology Optimization 591 660 594
Other Software   287     307     284  
HP Software   878     967     878  
HP Enterprise Business   13,920     14,111     13,574  
Notebooks 6,125 5,794 4,907
Desktops 3,840 3,481 3,308
Workstations 375 342 333
Handhelds 25 36 57
Other   219     209     187  
Personal Systems Group   10,584     9,862     8,792  
Supplies 4,081 4,430 4,050
Commercial Hardware 1,291 1,261 1,239
Consumer Hardware   834     763     692  
Imaging and Printing Group   6,206     6,454     5,981  
HP Financial Services 719 726 636
Corporate Investments   236     191     196  
Total Segments   31,665     31,344     29,179  
 
Eliminations of intersegment net revenue and other  

(488

)

 

(567

)

 

(372

)

 
Total HP Consolidated $ 31,177   $ 30,777   $ 28,807  
 
 
(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
January 31,
2010
October 31,
2009
January 31,
2009
 
Numerator:
Net earnings $ 2,323 $ 2,412 $ 1,856
 
Denominator:
Weighted-average shares used to compute
basic EPS 2,358 2,366 2,410
Dilutive effect of employee stock plans   69   67   54
Weighted-average shares used to compute
diluted EPS
  2,427   2,433   2,464
 
Net earnings per share:
Basic (a) $ 0.99 $ 1.02 $ 0.77
Diluted (b) $ 0.96 $ 0.99 $ 0.75
 
 
(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 awards.
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NON-GAAP NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
     
 
 
Three months ended
January 31,
2010
October 31,
2009
January 31,
2009
 
Numerator:
Non-GAAP net earnings $ 2,667 $ 2,764 $ 2,287
 
Denominator:
Weighted-average shares used to compute
basic EPS
2,358 2,366 2,410
Dilutive effect of employee stock plans   69   67   54
Weighted-average shares used to compute
diluted EPS
  2,427   2,433   2,464
 
Non-GAAP net earnings per share:
Basic (a) $ 1.13 $ 1.17 $ 0.95
Diluted (b) $ 1.10 $ 1.14 $ 0.93
 
 
(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 awards.

Use of Non-GAAP Financial Measures

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