- Net revenue up 13% year-over-year to $25.5 billion
- GAAP operating profit of $2.1 billion, or $0.65 earnings per
share, up 27% year-over-year excluding a $0.15 tax settlement
gain in Q2 FY06
- Non-GAAP operating profit of $2.3 billion, or $0.70 earnings
per share, up 30% year-over-year excluding a $0.15 tax
settlement gain in Q2 FY06
- Record cash flow from operations of $4.2 billion
PALO ALTO, Calif.--(BUSINESS WIRE)--May 16, 2007--HP (NYSE:HPQ)
today announced financial results for its second fiscal quarter ended
April 30, 2007, with net revenue of $25.5 billion, representing growth
of 13% year-over-year, or 10% when adjusted for the effects of
currency.
GAAP operating profit was $2.1 billion and GAAP diluted earnings
per share (EPS) was $0.65 per share, down from $0.66 in the prior year
period and up 27% excluding a $0.15 tax settlement gain recorded in
the prior year period. Non-GAAP operating profit was $2.3 billion,
with non-GAAP diluted EPS of $0.70, up from $0.69 in the prior year
period and up 30% excluding the $0.15 tax settlement gain. Non-GAAP
financial information excludes $145 million of adjustments on an
after-tax basis, or $0.05 per diluted share, related primarily to
restructuring charges and amortization of purchased intangibles, and
offset partially by a pension curtailment gain resulting from changes
to the company's U.S. defined benefit pension plan. GAAP and non-GAAP
financial information include all stock-based compensation expense in
both current and prior year periods.
"This was a strong performance for HP," said Mark Hurd, HP
chairman and chief executive officer. "We generated $3 billion of
revenue growth, continued to expand earnings and achieved record cash
flow from operations. While we still have considerable work ahead of
us, I am confident we can continue to execute with discipline and
deliver strong financial returns."
Q2 FY07 Q2 FY06 Y/Y
----------------------------- ------------- ------------- ------------
Net revenue ($B) $ 25.5 $ 22.6 13%
----------------------------- ------------- ------------- ------------
GAAP operating margin 8.3% 7.3% 1.0 pts
----------------------------- ------------- ------------- ------------
GAAP net earnings ($B) $ 1.8 $ 1.9 -7%
----------------------------- ------------- ------------- ------------
GAAP diluted EPS $ 0.65 $ 0.66 -2%
----------------------------- ------------- ------------- ------------
Non-GAAP operating margin 9.0% 8.0% 1.0 pts
----------------------------- ------------- ------------- ------------
Non-GAAP net earnings ($B) $ 1.9 $ 2.0 -4%
----------------------------- ------------- ------------- ------------
Non-GAAP diluted EPS $ 0.70 $ 0.69 1%
----------------------------- ------------- ------------- ------------
Information about HP's use of non-GAAP financial information is
provided under "Use of non-GAAP financial information" below.
During the quarter, on a year-over-year basis, revenue in the
Americas grew 11% to $10.7 billion, revenue in Europe, the Middle East
and Africa grew 14% to $10.3 billion, and revenue in Asia Pacific grew
16% to $4.5 billion. When adjusted for the effects of currency,
revenue in the Americas grew 11%, revenue in Europe, the Middle East
and Africa grew 7%, and revenue in Asia Pacific grew 13%.
Personal Systems Group
Personal Systems Group (PSG) revenue grew 24% year-over-year to
$8.7 billion, with unit shipments up 30% on a year-over-year basis.
Notebook revenue grew 45% over the prior year period, while desktop
revenue grew 9%. Commercial client revenue grew 13% year-over-year,
while Consumer client revenue increased 41%. Operating profit was $417
million, or 4.8% of revenue, up from a profit of $248 million, or 3.6%
of revenue, in the prior year period.
Imaging and Printing Group
Imaging and Printing Group (IPG) revenue grew 6% year-over-year to
$7.2 billion. On a year-over-year basis, supplies revenue grew 10%,
commercial hardware revenue grew 3% and consumer hardware revenue
declined 2%. Printer unit shipments increased 11% year-over-year, with
consumer printer hardware units up 7% and commercial printer hardware
units up 21%. Momentum in key growth initiatives continued, with
printer-based multi-function printers up 40%, and color laser printers
up 19%. HP Indigo Press printed page volume grew 43% over the prior
year period. Operating profit was $1.2 billion, or 16.3% of revenue,
up from a profit of $1.0 billion, or 15.5% of revenue, in the prior
year period.
Enterprise Storage and Servers
Enterprise Storage and Servers (ESS) reported revenue of $4.6
billion, up 8% over the prior year period. On a year-over-year basis,
industry-standard server revenue increased 17%, with blade revenue up
58%. Storage revenue grew 1%, with revenue growth of 10% in the
midrange EVA line offset by declines in the high-end array and tape
businesses. Business critical systems revenue declined 6%, with
Integrity systems growth of 60% offset by declines in PA-RISC and
Alpha. Operating profit was $407 million, or 8.8% of revenue, up from
a profit of $322 million, or 7.5% of revenue, in the prior year
period.
HP Services
HP Services (HPS) revenue increased 7% year-over-year to $4.1
billion. Revenue in Technology Services grew 3% over the prior year
period, while Consulting and Integration revenue rose 8% and
Outsourcing Services revenue rose 12%. Operating profit was $459
million, or 11.1% of revenue, up from a profit of $345 million, or
8.9% of revenue, in the prior year period.
HP Software
HP Software revenue grew 58% over the prior year period to $523
million, led by strong growth from the businesses acquired in HP's
purchase of Mercury Interactive. On a year-over-year basis, HP
OpenView grew 6% excluding Mercury, and HP OpenCall declined 13%.
Operating profit was $42 million, or 8.0% of revenue, up from a profit
of $3 million, or 0.9% of revenue, in the prior year period.
Financial Services
HP Financial Services (HPFS) reported revenue of $550 million, an
increase of 6% year-over-year. Financing volume and net portfolio
assets increased 8% and 6% respectively, over the prior year period.
Operating profit was $36 million, or 6.5% of revenue, down from a
profit of $39 million, or 7.5% of revenue, in the prior year period.
Asset management
HP generated $4.2 billion in cash flow from operations. Inventory
ended the quarter at $7.3 billion, down $1.1 billion sequentially and
up $510 million year-over-year. Accounts receivable increased $1.2
billion sequentially and increased $1.8 billion over the prior year
period to $11.6 billion. Accounts payable increased $145 million
sequentially and grew $1.4 billion over the prior year period to $11.5
billion. HP's dividend payment of $0.08 per share in the second
quarter resulted in cash usage of $213 million. During the quarter, HP
repurchased $2.2 billion of shares in the open market and completed
the prepaid variable share purchase program with the receipt of the
final 6 million shares. In addition, HP entered into an accelerated
share repurchase program for $1.8 billion. In total, approximately 100
million shares were acquired during the quarter. HP exited the quarter
with $12.3 billion in gross cash, which includes cash and cash
equivalents of $12.2 billion, short-term investments of $74 million,
and certain long-term investments of $23 million.
Outlook
HP estimates Q3 FY07 revenue will be approximately $23.7 billion
to $23.9 billion.
Third quarter FY07 GAAP diluted EPS is expected to be in the range
of $0.60 to $0.61, and non-GAAP diluted EPS is expected to be in the
range of $0.64 to $0.65. Non-GAAP diluted EPS estimates exclude
after-tax costs of approximately $0.04 per share, related primarily to
the amortization of purchased intangible assets.
HP estimates FY07 revenue will be approximately $100.5 billion to
$100.9 billion.
FY07 GAAP diluted EPS is expected to be in the range of $2.51 to
$2.53, and FY07 non-GAAP diluted EPS is expected to be in the range of
$2.75 to $2.77. FY07 non-GAAP diluted EPS estimates exclude after-tax
costs of approximately $0.24 per share, related primarily to the
amortization of purchased intangible assets, in process research and
development charges, restructuring charges and pension curtailment
gains.
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 FY07 earnings conference call is accessible via an audio
webcast at www.hp.com/investor/q22007webcast.
About HP
HP focuses on simplifying technology experiences for all of its
customers - from individual consumers to the largest businesses. With
a portfolio that spans printing, personal computing, software,
services and IT infrastructure, HP is among the world's largest IT
companies, with revenue totaling $97.1 billion for the four fiscal
quarters ended April 30, 2007. More information about HP is available
at 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 or other financial
items; any statements of the plans, strategies, and objectives of
management for future operations, including 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 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
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 Quarterly Report on Form
10-Q for the fiscal quarter ended January 31, 2007 and HP's other
filings with the Securities and Exchange Commission, including HP's
Annual Report on Form 10-K for the fiscal year ended October 31, 2006.
As in prior quarters, 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, 2007. In particular, determining HP's actual tax balances and
provisions as of April 30, 2007 and for the fiscal quarter then ended
requires extensive internal and external review of tax data (including
consolidating and reviewing the tax provisions of numerous domestic
and foreign entities) which is being completed in the ordinary course
of preparing HP's Form 10-Q. HP assumes no obligation and does not
intend to update these forward-looking statements.
Note to editors: More news from HP, including links to RSS feeds,
is available at www.hp.com/hpinfo/newsroom/.
(C) 2007 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
--------------------------------------
April 30, January 31, April 30,
2007 2007 2006
------------ ------------- -----------
Net revenue $25,534 $25,082 $22,554
Costs and expenses(a):
Cost of sales 19,283 19,136 16,970
Research and development 903 877 930
Selling, general and
administrative 3,044 2,908 2,858
Amortization of purchased
intangible assets 212 201 151
In-process research and
development charges 19 167 2
Restructuring 453 (41) (14)
Pension curtailments and
pension settlements, net (508) (9) -
------------ ------------- -----------
Total costs and
expenses 23,406 23,239 20,897
------------ ------------- -----------
Earnings from operations 2,128 1,843 1,657
Interest and other, net 87 111 157
Gains on investments 13 10 6
------------ ------------- -----------
Earnings before taxes 2,228 1,964 1,820
Provision for (benefit from)
taxes(b) 453 417 (79)
------------ ------------- -----------
Net earnings $1,775 $1,547 $1,899
============ ============= ===========
Net earnings per share:
Basic $0.67 $0.57 $0.68
Diluted $0.65 $0.55 $0.66
Cash dividends declared per
share $- $0.16 $-
Weighted-average shares used to compute net earnings per share:
Basic 2,638 2,705 2,809
Diluted 2,731 2,801 2,887
(a) Stock-based compensation expense included under SFAS 123R was as
follows:
Cost of sales $42 $45 $33
Research and development 18 19 15
Selling, general and
administrative 94 99 76
------------ ------------- -----------
Total costs and
expenses $154 $163 $124
(b) Tax benefit from stock-
based compensation $(44) $(48) $(39)
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In millions except per share amounts)
Six months ended
-------------------
April 30, April 30,
2007 2006
--------- ---------
Net revenue $50,616 $45,213
Costs and expenses(a):
Cost of sales 38,419 34,362
Research and development 1,780 1,801
Selling, general and administrative 5,952 5,550
Amortization of purchased intangible assets 413 298
In-process research and development charges 186 52
Restructuring 412 1
Pension curtailments and pension settlements,
net (517) -
--------- ---------
Total costs and expenses 46,645 42,064
--------- ---------
Earnings from operations 3,971 3,149
Interest and other, net 198 195
Gains on investments 23 4
--------- ---------
Earnings before taxes 4,192 3,348
Provision for taxes(b) 870 222
--------- ---------
Net earnings $3,322 $3,126
========= =========
Net earnings per share:
Basic $1.24 $1.11
Diluted $1.20 $1.08
Cash dividends declared per share $0.16 $0.16
Weighted-average shares used to compute net earnings per share:
Basic 2,672 2,815
Diluted 2,763 2,890
(a) Stock-based compensation expense included under SFAS 123R was as
follows:
Cost of sales $87 $72
Research and development 37 33
Selling, general and administrative 193 163
--------- ---------
Total costs and expenses $317 $268
(b) Tax benefit from stock-based compensation $(92) $(82)
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 Three Three
months months months
ended Diluted ended Diluted ended Diluted
April Earnings January Earnings April Earnings
30, Per 31, Per 30, Per
2007 Share 2007 Share 2006 Share
---------------- ----------------- -----------------
GAAP net earnings $1,775 $0.65 $1,547 $0.55 $1,899 $0.66
Non-GAAP
adjustments:
Amortization of
purchased
intangible
assets 212 0.08 201 0.07 151 0.05
In-process
research and
development
charges 19 0.01 167 0.06 2 -
Restructuring 453 0.16 (41) (0.02) (14) (0.01)
Pension
curtailments
and pension
settlements,
net (508) (0.19) (9) - - -
Gains on
investments(a) - - - - (6) -
Adjustments for
taxes (31) (0.01) (39) (0.01) (36) (0.01)
------- -------- -------- -------- -------- --------
Non-GAAP net
earnings $1,920 $0.70 $1,826 $0.65 $1,996 $0.69
======= ======== ======== ======== ======== ========
GAAP earnings
from operations $2,128 $1,843 $1,657
Non-GAAP
adjustments:
Amortization of
purchased
intangible
assets 212 201 151
In-process
research and
development
charges 19 167 2
Restructuring 453 (41) (14)
Pension
curtailments
and pension
settlements,
net (508) (9) -
------- -------- --------
Non-GAAP earnings
from operations $2,304 $2,161 $1,796
======= ======== ========
GAAP operating
margin 8% 7% 7%
Non-GAAP
adjustments 1% 2% 1%
------- -------- --------
Non-GAAP
operating margin 9% 9% 8%
======= ======== ========
(a) Beginning in fiscal 2007, HP no longer excludes gains or losses on
investments when calculating financial measures presented on a non-
GAAP basis.
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 Diluted Six months Diluted
ended Earnings ended Earnings
April 30, Per April 30, Per
2007 Share 2006 Share
-------------------- -------------------
GAAP net earnings $3,322 $1.20 $3,126 $1.08
Non-GAAP adjustments:
Amortization of
purchased intangible
assets 413 0.15 298 0.10
In-process research and
development charges 186 0.07 52 0.02
Restructuring 412 0.15 1 -
Pension curtailments and
pension settlements,
net (517) (0.19) - -
Gains on investments(a) - - (4) -
Adjustments for taxes (70) (0.02) (84) (0.03)
---------- --------- ---------- --------
Non-GAAP net earnings $3,746 $1.36 $3,389 $1.17
========== ========= ========== ========
GAAP earnings from operations $3,971 $3,149
Non-GAAP adjustments:
Amortization of
purchased intangible
assets 413 298
In-process research and
development charges 186 52
Restructuring 412 1
Pension curtailments and
pension settlements,
net (517) -
---------- ----------
Non-GAAP earnings from
operations $4,465 $3,500
========== ==========
GAAP operating margin 8% 7%
Non-GAAP adjustments 1% 1%
---------- ----------
Non-GAAP operating margin 9% 8%
========== ==========
(a) Beginning in fiscal 2007, HP no longer excludes gains or losses on
investments when calculating financial measures presented on a non-
GAAP basis.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
April 30, October 31,
2007 2006
----------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $12,236 $16,400
Short-term investments 74 22
Accounts receivable 11,577 10,873
Financing receivables 2,532 2,440
Inventory 7,278 7,750
Other current assets 10,177 10,779
----------- -----------
Total current assets 43,874 48,264
----------- -----------
Property, plant and equipment 7,339 6,863
Long-term financing receivables and other
assets 7,751 6,649
Goodwill and purchased intangible assets 24,449 20,205
----------- -----------
Total assets $83,413 $81,981
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and short-term borrowings $4,360 $2,705
Accounts payable 11,505 12,102
Employee compensation and benefits 2,559 3,148
Taxes on earnings 1,744 1,905
Deferred revenue 4,900 4,309
Accrued restructuring 236 547
Other accrued liabilities 11,609 11,134
----------- -----------
Total current liabilities 36,913 35,850
----------- -----------
Long-term debt 3,977 2,490
Other liabilities 6,037 5,497
Stockholders' equity 36,486 38,144
----------- -----------
Total liabilities and stockholders' equity $83,413 $81,981
=========== ===========
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Three months ended Six months ended
April 30, 2007 April 30, 2007
------------------ ----------------
Cash flows from operating
activities:
Net earnings $1,775 $3,322
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 678 1,321
Stock-based compensation
expense 154 317
Provision for bad debt and
inventory 110 187
Gains on investments (13) (23)
In-process research and
development charges 19 186
Restructuring 453 412
Pension curtailments and
pension settlements, net (508) (517)
Deferred taxes on earnings 149 240
Excess tax benefit from
stock-based compensation (75) (175)
Other, net (41) (44)
Changes in assets and
liabilities:
Accounts and financing
receivables (1,203) (655)
Inventory 995 297
Accounts payable 145 (614)
Taxes on earnings 20 151
Restructuring (161) (442)
Other assets and
liabilities 1,664 176
------------------ ----------------
Net cash provided by
operating activities 4,161 4,139
------------------ ----------------
Cash flows from investing
activities:
Investment in property, plant
and equipment (758) (1,476)
Proceeds from sale of
property, plant and
equipment 161 300
Purchases of available-for-
sale securities and other
investments (3) (16)
Maturities and sales of
available-for-sale
securities and other
investments 253 345
Payments made in connection
with business acquisitions,
net (372) (4,836)
------------------ ----------------
Net cash used in investing
activities (719) (5,683)
------------------ ----------------
Cash flows from financing
activities:
Issuance of commercial paper
and notes payable, net 783 2,046
Issuance of debt 2,002 2,071
Payment of debt (305) (1,361)
Issuance of common stock
under employee stock plans 419 1,216
Repurchase of common stock (4,024) (6,336)
Excess tax benefit from
stock-based compensation 75 175
Dividends (213) (431)
------------------ ----------------
Net cash used in financing
activities (1,263) (2,620)
------------------ ----------------
Increase (decrease) in cash and
cash equivalents 2,179 (4,164)
Cash and cash equivalents at
beginning of period 10,057 16,400
------------------ ----------------
Cash and cash equivalents at end
of period $12,236 $12,236
================== ================
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
Three months ended
-------------------------------
April 30, January 31, April 30,
2007 2007 2006(a)
--------- ----------- ---------
Net revenue:
Enterprise Storage and Servers $4,619 $4,453 $4,265
HP Services 4,145 3,948 3,892
HP Software 523 550 330
--------- ----------- ---------
Technology Solutions Group 9,287 8,951 8,487
--------- ----------- ---------
Personal Systems Group 8,663 8,719 6,977
Imaging and Printing Group 7,161 6,999 6,724
HP Financial Services 550 547 518
Corporate Investments 175 157 122
--------- ----------- ---------
Total Segments 25,836 25,373 22,828
Eliminations of intersegment net
revenue and other (302) (291) (274)
--------- ----------- ---------
Total HP Consolidated $25,534 $25,082 $22,554
========= =========== =========
Earnings from operations:
Enterprise Storage and Servers $407 $416 $322
HP Services 459 414 345
HP Software 42 47 3
--------- ----------- ---------
Technology Solutions Group 908 877 670
--------- ----------- ---------
Personal Systems Group 417 414 248
Imaging and Printing Group 1,167 1,073 1,041
HP Financial Services 36 32 39
Corporate Investments (18) (29) (49)
--------- ----------- ---------
Total Segments 2,510 2,367 1,949
Corporate and unallocated costs
and eliminations (75) (66) (50)
Unallocated costs related to
stock-based compensation expense (131) (140) (103)
Amortization of purchased
intangible assets (212) (201) (151)
In-process research and
development charges (19) (167) (2)
Restructuring (453) 41 14
Pension curtailments and pension
settlements, net 508 9 -
Interest and other, net 87 111 157
Gains on investments 13 10 6
--------- ----------- ---------
Total HP Consolidated Earnings
Before Taxes $2,228 $1,964 $1,820
========= =========== =========
(a) Certain fiscal 2007 organizational realignments have been
reflected retroactively to provide improved visibility and
comparability. For each of the quarters in fiscal year 2006, the
realignments primarily resulted in revenue movement within business
units within the ESS and HPS segments. There was no impact to total
segment revenue.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
Six months ended
April 30,
------------------------------
2007 2006(a)
-------------- --------------
Net revenue:
Enterprise Storage and Servers $9,072 $8,505
HP Services 8,093 7,649
HP Software 1,073 634
-------------- --------------
Technology Solutions Group 18,238 16,788
-------------- --------------
Personal Systems Group 17,382 14,426
Imaging and Printing Group 14,160 13,269
HP Financial Services 1,097 1,014
Corporate Investments 332 251
-------------- --------------
Total Segments 51,209 45,748
Eliminations of intersegment net
revenue and other (593) (535)
-------------- --------------
Total HP Consolidated $50,616 $45,213
============== ==============
Earnings from operations:
Enterprise Storage and Servers $823 $648
HP Services 873 638
HP Software 89 12
-------------- --------------
Technology Solutions Group 1,785 1,298
-------------- --------------
Personal Systems Group 831 541
Imaging and Printing Group 2,240 2,014
HP Financial Services 68 77
Corporate Investments (47) (82)
-------------- --------------
Total Segments 4,877 3,848
Corporate and unallocated costs
and eliminations (141) (122)
Unallocated costs related to
stock-based compensation expense (271) (226)
Amortization of purchased
intangible assets (413) (298)
In-process research and
development charges (186) (52)
Restructuring (412) (1)
Pension curtailments and pension
settlements, net 517 -
Interest and other, net 198 195
Gains on investments 23 4
-------------- --------------
Total HP Consolidated Earnings
Before Taxes $4,192 $3,348
============== ==============
(a) Certain fiscal 2007 organizational realignments have been
reflected retroactively to provide improved visibility and
comparability. For fiscal year 2006, the realignments primarily
resulted in revenue movement within business units within the ESS and
HPS segments. There was no impact to total segment revenue.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT / BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)
Three months ended
---------------------------------
April 30, January 31, April 30,
2007 2007 2006(a)
---------- ----------- ----------
Net revenue:
Industry Standard Servers $2,818 $2,689 $2,413
Business Critical Systems 862 848 920
Storage 939 916 932
---------- ----------- ----------
Enterprise Storage and Servers 4,619 4,453 4,265
---------- ----------- ----------
Technology Services 2,155 2,093 2,086
Outsourcing Services(b) 1,195 1,125 1,070
Consulting and Integration 795 730 736
---------- ----------- ----------
HP Services 4,145 3,948 3,892
---------- ----------- ----------
OpenView 434 457 228
OpenCall and Other 89 93 102
---------- ----------- ----------
HP Software 523 550 330
---------- ----------- ----------
Technology Solutions Group 9,287 8,951 8,487
---------- ----------- ----------
Desktops 3,904 3,812 3,569
Notebooks 4,084 4,144 2,815
Workstations 402 405 338
Handhelds 105 183 129
Other 168 175 126
---------- ----------- ----------
Personal Systems Group 8,663 8,719 6,977
---------- ----------- ----------
Commercial Hardware 1,786 1,689 1,739
Consumer Hardware 996 1,227 1,015
Supplies 4,367 4,069 3,957
Other 12 14 13
---------- ----------- ----------
Imaging and Printing Group 7,161 6,999 6,724
---------- ----------- ----------
HP Financial Services 550 547 518
Corporate Investments 175 157 122
---------- ----------- ----------
Total Segments 25,836 25,373 22,828
---------- ----------- ----------
Eliminations of intersegment net
revenue and other (302) (291) (274)
---------- ----------- ----------
Total HP Consolidated $25,534 $25,082 $22,554
========== =========== ==========
(a) Certain fiscal 2007 organizational realignments have been
reflected retroactively to provide improved visibility and
comparability. For each of the quarters in fiscal year 2006, the
realignments primarily resulted in revenue movement within business
units within the ESS and HPS segments. There was no impact to total
segment revenue.
(b) Reflects name change from Managed Services to Outsourcing Services
effective in fiscal 2007.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT / BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)
Six months ended
April 30,
--------------------------
2007 2006(a)
------------- ------------
Net revenue:
Industry Standard Servers $5,507 $4,861
Business Critical Systems 1,710 1,826
Storage 1,855 1,818
------------- ------------
Enterprise Storage and Servers 9,072 8,505
------------- ------------
Technology Services 4,248 4,167
Outsourcing Services(b) 2,320 2,081
Consulting and Integration 1,525 1,401
------------- ------------
HP Services 8,093 7,649
------------- ------------
OpenView 891 433
OpenCall and Other 182 201
------------- ------------
HP Software 1,073 634
------------- ------------
Technology Solutions Group 18,238 16,788
------------- ------------
Desktops 7,716 7,423
Notebooks 8,228 5,769
Workstations 807 667
Handhelds 288 345
Other 343 222
------------- ------------
Personal Systems Group 17,382 14,426
------------- ------------
Commercial Hardware 3,475 3,394
Consumer Hardware 2,223 2,238
Supplies 8,436 7,609
Other 26 28
------------- ------------
Imaging and Printing Group 14,160 13,269
------------- ------------
HP Financial Services 1,097 1,014
Corporate Investments 332 251
------------- ------------
Total Segments 51,209 45,748
------------- ------------
Eliminations of intersegment net revenue
and other (593) (535)
------------- ------------
Total HP Consolidated $50,616 $45,213
============= ============
(a) Certain fiscal 2007 organizational realignments have been
reflected retroactively to provide improved visibility and
comparability. For fiscal year 2006, the realignments primarily
resulted in revenue movement within business units within the ESS and
HPS segments. There was no impact to total segment revenue.
(b) Reflects name change from Managed Services to Outsourcing Services
effective in fiscal 2007.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
Three months ended
--------------------------------
April 30, January 31, April 30,
2007 2007 2006
---------- ----------- ---------
Numerator:
Net earnings $1,775 $1,547 $1,899
Adjustment for interest expense on
zero-coupon subordinated
convertible notes, net of taxes 2 2 2
---------- ----------- ---------
Net earnings, adjusted $1,777 $1,549 $1,901
========== =========== =========
Denominator:
Weighted-average shares used to
compute basic EPS 2,638 2,705 2,809
Effect of dilutive securities:
Dilution from employee stock
plans 85 88 71
Zero-coupon subordinated
convertible notes 8 8 7
---------- ----------- ---------
Dilutive potential common shares 93 96 78
---------- ----------- ---------
Weighted-average shares used to
compute diluted EPS 2,731 2,801 2,887
========== =========== =========
Net earnings per share:
Basic(a) $0.67 $0.57 $0.68
Diluted(b) $0.65 $0.55 $0.66
(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 and conversion of debt, except when such
issuances would be antidilutive.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
Six months ended
April 30,
------------------------
2007 2006
----------- ------------
Numerator:
Net earnings $3,322 $3,126
Adjustment for interest expense on zero
coupon subordinated convertible notes, net
of taxes 4 4
----------- ------------
Net earnings, adjusted $3,326 $3,130
=========== ============
Denominator:
Weighted-average shares used to compute
basic EPS 2,672 2,815
Effect of dilutive securities:
Dilution from employee stock plans 83 67
Zero-coupon subordinated convertible
notes 8 8
----------- ------------
Dilutive potential common shares 91 75
----------- ------------
Weighted-average shares used to compute
diluted EPS 2,763 2,890
=========== ============
Net earnings per share:
Basic(a) $1.24 $1.11
Diluted(b) $1.20 $1.08
(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 and conversion of debt, except when such
issuances would be antidilutive.
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, January 31, April 30,
2007 2007 2006
---------- ----------- ---------
Numerator:
Non-GAAP net earnings $1,920 $1,826 $1,996
Adjustment for interest expense on
zero-coupon subordinated
convertible notes, net of taxes 2 2 2
---------- ----------- ---------
Non-GAAP net earnings, adjusted $1,922 $1,828 $1,998
========== =========== =========
Denominator:
Weighted-average shares used to
compute basic EPS 2,638 2,705 2,809
Effect of dilutive securities:
Dilution from employee stock
plans 85 88 71
Zero-coupon subordinated
convertible notes 8 8 7
---------- ----------- ---------
Dilutive potential common shares 93 96 78
---------- ----------- ---------
Weighted-average shares used to
compute diluted EPS 2,731 2,801 2,887
========== =========== =========
Non-GAAP net earnings per share:
Basic(a) $0.73 $0.68 $0.71
Diluted(b) $0.70 $0.65 $0.69
(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 and conversion of
debt, except when such issuances would be antidilutive.
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,
----------------
2007 2006
-------- -------
Numerator:
Non-GAAP net earnings $3,746 $3,389
Adjustment for interest expense on zero coupon
subordinated convertible notes, net of taxes 4 4
-------- -------
Non-GAAP net earnings, adjusted $3,750 $3,393
======== =======
Denominator:
Weighted-average shares used to compute basic EPS 2,672 2,815
Effect of dilutive securities:
Dilution from employee stock plans 83 67
Zero-coupon subordinated convertible notes 8 8
-------- -------
Dilutive potential common shares 91 75
-------- -------
Weighted-average shares used to compute diluted EPS 2,763 2,890
======== =======
Non-GAAP net earnings per share:
Basic(a) $1.40 $1.20
Diluted(b) $1.36 $1.17
(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 EPS included additional dilution from
potential issuance of common stock, such as stock issuable pursuant
to exercise of stock options and conversion of debt, except when such
issuances would be antidilutive.
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, pension
curtailment gains 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 as well as any
gains or losses on investments recorded for periods ending on or
before October 31, 2006. 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 the first quarter of fiscal 2007, HP recognized a net
curtailment gain for its non-U.S. pension plans. The net gain
primarily reflects a plan design change in Mexico where HP
ceased pension accruals for current employees who did not meet
defined criteria based on age and years of service (calculated
as of December 31, 2006). In the second quarter of fiscal
2007, HP recorded a pension curtailment gain primarily
resulting from the decision to cease pension accruals under
its U.S. defined benefit pension plan for all employees who
were still accruing benefits under that plan. The curtailment
gain was partially offset primarily by a settlement expense
associated with the distribution and subsequent transfer of
accrued pension benefits from HP's U.S. Excess Benefit Plan to
HP's U.S. Executive Deferred Compensation Plan for the
terminated vested plan participants. Because pension
curtailment gains and pension settlement losses are
inconsistent in amount and frequency, HP believes that
eliminating these gains and losses 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.
-- 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's investments consist principally of time deposits, other
debt securities and equity securities of publicly traded and
privately held companies. HP sells investments or adjusts the
value of investments from time to time based on market
conditions and, in the case of investments in equity
securities, the strategic value of such investments. HP's
activities in this regard are included in its GAAP
presentation of net income and net earnings per share. Because
the amount and timing of these gains or losses and adjustments
are unpredictable, HP eliminated these gains or losses and
adjustments for purposes of calculating non-GAAP net earnings
and non-GAAP diluted earnings per share for periods ending on
or before October 31, 2006. Beginning in fiscal 2007, HP no
longer excludes gains or losses on investments when
calculating non-GAAP net earnings and non-GAAP diluted
earnings per share, as the amounts of those gains and losses
have been immaterial in recent periods.
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 our 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.
CONTACT: HP
Robert Sherbin, +1-650-857-2381
robert.sherbin@hp.com
Ryan J. Donovan, +1-650-857-8410
ryan.j.donovan@hp.com
or
HP Media Hotline, +1-866-266-7272
pr@hp.com
www.hp.com/go/newsroom
SOURCE: HP
|
