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--Fourth quarter net revenue up 19%, or $5.3 billion, from a year earlier to $33.6 billion
--Fiscal 2008 net revenue up 13%, or $14.1 billion, to $118.4 billion
--Fourth quarter GAAP operating profit up 4% to $2.7 billion; $0.84 earnings per share, up from $0.81 a year earlier
--Fourth quarter non-GAAP operating profit up 21% to $3.4 billion; $1.03 earnings per share, up from $0.86 a year earlier
--Fourth quarter cash flow from operations of $3.3 billion; fiscal 2008 cash flow from operations of $14.6 billion, up 52% from a year earlier
--Closed EDS acquisition; integration on track
PALO ALTO, Calif., Nov 24, 2008 (BUSINESS WIRE) -- HP (NYSE:HPQ) today announced financial results for its fourth fiscal
quarter ended Oct. 31, 2008, with net revenue of $33.6 billion, up 19%
from a year earlier and up 16% when adjusted for the effects of
currency. Excluding EDS revenue, net revenue grew 5% year over year or
2% when adjusted for the effects of currency.
In the fourth quarter, GAAP operating profit was $2.7 billion and GAAP
diluted earnings per share (EPS) was $0.84, up from $0.81 in the
prior-year period. Non-GAAP operating profit was $3.4 billion, with
non-GAAP diluted EPS of $1.03, up from $0.86 in the prior-year period.
Non-GAAP financial information excludes $482 million of adjustments on
an after-tax basis, or $0.19 per diluted share, related primarily to
amortization of purchased intangible assets, restructuring charges,
acquisition-related charges and in-process research and development
charges.
"HP capped off a strong year by delivering another solid quarter led by
strength in our services segment and disciplined expense management,"
said Mark Hurd, HP chairman and chief executive officer. "Our global
reach, broad portfolio, numerous cost initiatives and consistent
execution differentiate HP in the current economic environment."
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.
Revenue grew 17% in the Americas, 22% in Europe, the Middle East and
Africa and 14% in Asia Pacific to $14.0 billion, $14.1 billion and $5.5
billion, respectively. When adjusted for the effects of currency,
revenue grew 17% in the Americas, 15% in Europe, the Middle East and
Africa and 12% in Asia Pacific. Revenue from outside of the United
States in the fourth quarter accounted for 68% of total revenue, with
revenue in the BRIC countries (Brazil, Russia, India and China) growing
23% over the prior-year period and accounting for 9% of total revenue.
Personal Systems Group
Personal Systems Group (PSG) revenue grew 10% to $11.2 billion, with
unit shipments up 19%. Notebook
revenue for the quarter grew 21%, while Desktop
revenue declined 2%. Commercial client revenue grew 7%, while Consumer
client revenue increased 15%. Operating profit was $616 million, or 5.5%
of revenue, up from $589 million, or 5.8% of revenue, in the prior-year
period.
Imaging and Printing Group
Imaging and Printing Group (IPG) revenue declined 1% to $7.5 billion.
Supplies revenue grew 9%, while Commercial hardware revenue and Consumer
hardware revenue declined 10% and 21%, respectively. Printer
unit shipments decreased 8%, with Consumer printer hardware units down
8% and Commercial printer hardware units down 9%. Operating profit was
$1.2 billion, or 15.5% of revenue, versus $1.1 billion, or 14.5% of
revenue, in the prior-year period.
Enterprise Storage and Servers
Enterprise Storage and Servers (ESS) reported total revenue of $5.1
billion, down 1%. Storage revenue grew 13% led by 16% revenue growth in
the midrange EVA product line and 9% revenue growth in the high-end XP
product line. Industry Standard Server
revenue declined 3% and Business Critical Systems revenue declined 10%
while ESS blade revenue increased 43%. Operating profit was $705
million, or 13.9% of revenue, down from $736 million, or 14.4% of
revenue, in the prior-year period.
HP Services
HP
Services (HPS) revenue increased 99% to $8.6 billion, led by $3.9
billion revenue resulting from the EDS acquisition for the period
between the Aug. 26 acquisition date and Oct. 31. Excluding EDS, HPS
revenue grew 10%. Revenue in Technology Services and Outsourcing
Services grew 10% and 15%, respectively, with revenue in Consulting and
Integration up 2%. Operating profit was $920 million, or 10.6% of
revenue, compared to $515 million, or 11.8% of revenue, in the
prior-year period.
HP Software
HP
Software revenue grew 13% to $855 million, led by 15% growth in the
Business Technology Optimization portfolio. Operating profit was $195
million, or 22.8% of revenue, up from $145 million, or 19.1% of revenue,
in the prior-year period.
HP Financial Services
HP
Financial Services (HPFS) reported revenue of $691 million, up 5%.
Financing volume increased 5%, and net portfolio assets declined 2%.
Operating margin was 7.4% of revenue, up from 7.3% in the prior-year
period.
Asset management
HP generated $3.3 billion in cash flow from operations for the fourth
quarter. Inventory ended the quarter at $7.9 billion, down 7 days.
Accounts receivable of $16.9 billion was up 2 days. Accounts payable
ended the quarter at $14.1 billion, down 1 day. HP's dividend payment of
$0.08 per share in the fourth quarter resulted in cash usage of $196
million. HP utilized $1.9 billion of cash during the fourth quarter to
repurchase approximately 45 million shares of common stock in the open
market. HP exited the quarter with $10.3 billion in gross cash, which
includes cash and cash equivalents of $10.2 billion, short-term
investments of $93 million, and certain long-term investments of $95
million.
Full year fiscal 2008
Net revenue for the full fiscal year was $118.4 billion, representing
growth of 13% or 8% when adjusted for the effects of currency. GAAP
operating profit was $10.5 billion and GAAP diluted EPS was $3.25, up
from $2.68 in the prior year. Non-GAAP operating profit was $11.8
billion, with non-GAAP diluted EPS of $3.62, up from $2.93 in the prior
year. Non-GAAP financial information excludes $973 million of
adjustments on an after-tax basis, or $0.37 per diluted share, related
primarily to the amortization of purchased intangible assets,
restructuring charges, acquisition-related charges and in-process
research and development charges.
Outlook
In providing its outlook for the first fiscal quarter and full year
2009, the company has taken into consideration the current challenging
economic environment and the relative strength of the U.S. dollar. Based
on current exchange rates, the company now expects an unfavorable
year-over-year currency impact on revenue of approximately 5 percentage
points in the first quarter and roughly 6-7 percentage points for the
full fiscal year and this impact is reflected in its outlook.
For the first fiscal quarter of 2009, HP expects revenue of
approximately $32.0 billion to $32.5 billion, GAAP diluted EPS in the
range of $0.80 to $0.82, and non-GAAP diluted EPS in the range of $0.93
to $0.95. Q109 non-GAAP diluted EPS estimates exclude after-tax costs of
approximately $0.13 per share, related primarily to the amortization of
purchased intangibles.
For the full fiscal year 2009, HP expects revenue of approximately
$127.5 billion to $130.0 billion, GAAP diluted EPS in the range of $3.38
to $3.53, and non-GAAP diluted EPS in the range of $3.88 to $4.03. FY09
non-GAAP diluted EPS estimates exclude after-tax costs of approximately
$0.50 per share, related primarily to the amortization of purchased
intangibles.
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 Q4 FY08 earnings conference call is accessible via an audio webcast
at www.hp.com/investor/q42008webcast.
About HP
HP, the world's largest technology company, provides printing and
personal computing products and IT services, software and solutions that
simplify the technology experience for consumers and businesses. HP
completed its acquisition of EDS on Aug. 26, 2008. 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 execution of cost reduction programs and restructuring and
integration plans; any statements concerning the expected development,
performance or market share relating to products or services; any
statements regarding 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 and integration plans; the
possibility that the expected benefits of business combination
transactions may not materialize as expected; 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,
2007 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 July 31, 2008. 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 Annual Report on Form 10-K for the
fiscal year ended October 31, 2008. In particular, determining HP's
actual tax balances and provisions as of October 31, 2008 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-K. 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/.
(C) 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, July 31, October 31,
2008 2008 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 Diluted earnings per share Three months ended Diluted earnings per share Three months ended Diluted earnings per share
October 31, July 31, October 31,
2008 2008 2007
GAAP net earnings $ 2,112 $ 0.84 $ 2,027 $ 0.80 $ 2,164 $ 0.81
Non-GAAP adjustments:
Amortization of purchased 337 0.13 213 0.08 187 0.07
intangible assets
In-process research and 32 0.01 - - 4 -
development charges
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 32 - 4
development charges
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 Diluted earnings Twelve months ended Diluted earnings
October 31, 2008 per share October 31, 2007 per share
GAAP net earnings $ 8,329 $ 3.25 $ 7,264 $ 2.68
Non-GAAP adjustments:
Amortization of purchased 967 0.38 783 0.29
intangible assets
In-process research and 45 0.02 190 0.07
development charges
Restructuring charges 270 0.10 387 0.14
Acquisition-related charges 41 0.01 - -
Pension curtailments and - - (517) (0.19)
pension settlements, net
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 967 783
intangible assets
In-process research and 45 190
development charges
Restructuring charges 270 387
Acquisition-related charges 41 -
Pension curtailments and - (517)
pension settlements, net
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, October 31,
2008 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 Twelve months
ended ended
October 31, 2008 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 (92 ) (178 )
and other investments
Maturities and sales of available-for-sale 68 280
securities and other
investments
Payments made in connection with business (9,770 ) (11,248 )
acquisitions, net
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, July 31, October 31,
2008 2008 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 (104 ) (120 ) (122 )
expense
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 (479 ) (507 )
expense
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, July 31, October 31,
2008 2008 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, July 31, October 31,
2008 2008 2007
Numerator:
Net earnings $ 2,112 $ 2,027 $ 2,164
Adjustment for interest expense on zero-coupon - - 2
subordinated
convertible notes, net of taxes
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 2,516 2,533 2,678
diluted EPS
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 3 7
subordinated
convertible notes, net of taxes
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 2,567 2,716
diluted EPS
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, July 31, October 31,
2008 2008 2007
Numerator:
Non-GAAP net earnings $ 2,594 $ 2,188 $ 2,296
Adjustment for interest expense on zero- - - 2
coupon subordinated
convertible notes,
net of taxes
Non-GAAP net earnings, adjusted $ 2,594 $ 2,188 $ 2,298
Denominator:
Weighted-average shares used to compute 2,440 2,459 2,576
basic EPS
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 2,516 2,533 2,678
diluted EPS
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- 3 7
coupon subordinated
convertible notes,
net of taxes
Non-GAAP net earnings, adjusted $ 9,305 $ 7,961
Denominator:
Weighted-average shares used to compute 2,483 2,630
basic EPS
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 2,567 2,716
diluted EPS
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
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 and
settlement gains and losses, 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 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.
--
In the fourth quarter of fiscal 2008, HP incurred costs related to
its acquisition of Electronic Data Systems Corporation ("EDS"), some
of which were 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 relating to the EDS acquisition 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.
SOURCE: HP
HP
David Shane, +1 650-857-3859
david.shane@hp.com
or
Christina Schneider, +1 650-857-8222
corpmediarelations@hp.com
or
Asa Svanstrom, +1 650-857-2246 (Investors)
Investor.relations@hp.com
or
HP Media Hotline
+1 866-266-7272
pr@hp.com
www.hp.com/go/newsroom
