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HP Reports First Quarter 2012 Results

PALO ALTO, CA, Feb 22, 2012 (MARKETWIRE via COMTEX) --HP (NYSE: HPQ)

--  First quarter non-GAAP diluted earnings per share of $0.92, down 32%
    from the prior-year period and above previously provided outlook of
    $0.83 to $0.86 per share


--  First quarter GAAP diluted earnings per share of $0.73, down 38% from
    the prior-year period and above previously provided outlook of $0.61
    to $0.64 per share


--  First quarter net revenue of $30.0 billion, down 7% from the
    prior-year period


--  Returned $1.0 billion in cash to shareholders in the form of dividends
    and share repurchases


HP (NYSE: HPQ) today announced financial results for its first fiscal quarter ended January 31, 2012. For the quarter, net revenue of $30.0 billion was down 7% from the prior-year period, and down 8% when adjusted for the effects of currency.

GAAP diluted earnings per share (EPS) was $0.73, down 38% from the prior-year period. Non-GAAP diluted EPS was $0.92, down 32% from the prior-year period. First quarter non-GAAP earnings information excludes after-tax costs of $364 million, or $0.19 per diluted share, related to amortization of purchased intangible assets, restructuring charges and acquisition-related charges.

"In the first quarter, we delivered on our Q1 outlook and remained focused on the fundamentals to drive long-term sustainable returns," said Meg Whitman, HP president and chief executive officer. "We are taking the necessary steps to improve execution, increase effectiveness and capitalize on emerging opportunities to reassert HP's technology leadership."

Earnings highlights



                           ------------------------------
                             Q1 FY12   Q1 FY11     Y/Y
-------------------------- ------------------------------
GAAP net revenue ($B)         $30.0     $32.3     (7%)
-------------------------- ------------------------------
GAAP operating margin         6.8%      10.5%   (3.7 pts)
-------------------------- ------------------------------
GAAP net earnings ($B)        $1.5      $2.6      (44%)
-------------------------- ------------------------------
GAAP diluted EPS              $0.73     $1.17     (38%)
-------------------------- ------------------------------
Non-GAAP operating margin     8.6%      12.4%   (3.8 pts)
-------------------------- ------------------------------
Non-GAAP net earnings ($B)    $1.8      $3.0      (40%)
-------------------------- ------------------------------
Non-GAAP diluted EPS          $0.92     $1.36     (32%)
-------------------------- ------------------------------



Information about HP's use of non-GAAP financial information is provided under "Use of non-GAAP financial information" below.

Trends and regional performance In the Americas, first quarter revenue was $13.2 billion, down 9% year over year and down 8% when adjusted for the effects of currency. Europe, the Middle East and Africa revenue of $11.7 billion was down 4% year over year and down 5% when adjusted for the effects of currency. Revenue in Asia Pacific was $5.2 billion, representing a 10% decrease year over year and down 12% when adjusted for the effects of currency.

Revenue from outside of the United States in the first quarter accounted for 66% of total HP revenue. BRIC countries (Brazil, Russia, India and China) generated revenue of $3.1 billion, down 13% from the year-ago period, and representing 10% of total HP revenue.

Revenue in HP's commercial businesses declined 4% year over year. Revenue in HP's consumer businesses, within PSG and IPG, was collectively down 23% year over year.

Business group results

--  Personal Systems Group (PSG) revenue declined 15% year over year with
    a 5.2% operating margin. Commercial client revenue declined 7%,
    Consumer client revenue declined 25% and Workstations revenue was
    flat. Total units were down 18%, with a 19% decline in desktop units
    and an 18% decline in notebook units.


--  Services revenue of $8.6 billion grew 1% year over year with a 10.5%
    operating margin. Technology Services revenue grew 2%, Application and
    Business Services revenue was flat and IT Outsourcing revenue grew 2%
    year over year.


--  Imaging and Printing Group (IPG) revenue declined 7% year over year
    with a 12.2% operating margin. Commercial hardware revenue was down 5%
    year over year with commercial printer units down 10%. Consumer
    hardware revenue was down 15% year over year with a 15% decline in
    printer units.


--  Enterprise Servers, Storage and Networking (ESSN) revenue declined 10%
    year over year with an 11.2% operating margin. Networking revenue was
    flat, Industry Standard Servers revenue was down 11%, Business
    Critical Systems revenue was down 27% and Storage revenue was down 6%
    year over year.


--  Software revenue grew 30% year over year with a 17.1% operating
    margin, including the results of Autonomy. Software revenue was driven
    by 12% license growth, 22% support growth and 108% growth in
    services.


--  HP Financial Services revenue grew 15% year over year driven by an 8%
    increase in net portfolio assets and flat financing volume. The
    business delivered a 9.6% operating margin.

Asset management HP generated $1.2 billion in cash flow from operations in the first quarter. Inventory ended the quarter at $7.3 billion, with days of inventory up 3 days year over year to 28 days. Accounts receivable of $15.9 billion was up 2 days year over year to 48 days. Accounts payable ended the quarter at $12.4 billion, down 2 days from the prior-year period at 48 days. HP's dividend payment of $0.12 per share in the first quarter resulted in cash usage of $244 million. HP also utilized $780 million of cash during the quarter to repurchase approximately 29 million shares of common stock in the open market. HP exited the quarter with $8.2 billion in gross cash.

Outlook For the second quarter of fiscal 2012, HP estimates non-GAAP diluted EPS to be in the range of $0.88 to $0.91 and GAAP diluted EPS to be in the range of $0.68 to $0.71.

Second quarter fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.20 per share, related primarily to the amortization of purchased intangible assets, restructuring charges and acquisition-related charges.

There is no change to HP's previously provided full year fiscal 2012 outlook of non-GAAP diluted EPS of at least $4.00 and GAAP diluted EPS of approximately $3.20.

Full year fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.80 per share, related primarily to the amortization of purchased intangible assets, restructuring charges and acquisition-related charges.

As part of its annual financial review process, HP implemented several organizational realignments effective Q1 FY12. To provide improved visibility and comparability, HP has reflected these realignments in prior financial reporting periods on an as-if basis. These realignments resulted in, among other things, the transfer of revenue within and among various financial reporting segments and business units. The changes do not impact HP's previously reported consolidated net revenue, earnings from operations, net earnings or earnings per share at the company level. To reflect these changes, HP released modified quarterly and annual consolidated condensed statements of earnings, segment financial results and statements of business unit revenue for fiscal 2010 and 2011, which are available on HP's Investor Relations website at www.hp.com/investor/home.

More information on HP's quarterly earnings, including additional financial analysis and an earnings overview presentation, is available on HP's Investor Relations website at www.hp.com/investor/home.

HP's Q1 FY12 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2012Q1webcast.

About HP HP creates new possibilities for technology to have a meaningful impact on people, businesses, governments and society. The world's largest technology company, HP brings together a portfolio that spans printing, personal computing, software, services and IT infrastructure to solve customer problems. More information about HP is available at http://www.hp.com.

Use of non-GAAP financial information To supplement HP's consolidated condensed financial statements presented on a GAAP basis, HP provides non-GAAP net revenue, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share, gross cash and free cash flow. 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 revenue, operating profit, operating margin, net earnings, diluted earnings per share, cash and cash equivalents or cash flow from operations 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, earnings per share, tax provisions, cash flows, benefit obligations, share repurchases, currency exchange rates, the impact of acquisitions or other financial items; any statements of the plans, strategies and objectives of management for future operations, including the execution of cost reduction programs and restructuring and integration plans; any statements concerning the expected development, performance or market share relating to products or services; any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on HP and its financial performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include the impact of macroeconomic and geopolitical trends and events; the competitive pressures faced by HP's businesses; the development and transition of new products and services and the enhancement of existing products and services to meet customer needs and respond to emerging technological trends; the execution and performance of contracts by HP and its suppliers, customers and partners; the protection of HP's intellectual property assets, including intellectual property licensed from third parties; integration and other risks associated with business combination and investment transactions; the hiring and retention of key employees; 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 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, 2011 and HP's other filings with the Securities and Exchange Commission. As in prior periods, the financial information set forth in this release, including tax-related items, reflects estimates based on information available at this time. While HP believes these estimates to be meaningful, these amounts could differ materially from actual reported amounts in HP's Form 10-Q for the fiscal quarter ended January 31, 2012. In particular, determining HP's actual tax balances and provisions as of January 31, 2012 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.

Copyright 2012 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
                                 ------------------------------------------
                                  January 31,    October 31,    January 31,
                                     2012           2011           2011
                                 ------------   ------------   ------------

Net revenue                      $     30,036   $     32,122   $     32,302

Costs and Expenses:(a)
  Cost of sales                        23,313         25,304         24,381
  Research and development                786            829            798
  Selling, general and
   administrative                       3,367          3,605          3,117
  Amortization of purchased
   intangible assets                      466            411            425
  Restructuring charges                    40            179            158
  Acquisition-related charges              22            114             29
  Impairment of goodwill and
   purchased intangible assets              -            885              -
                                 ------------   ------------   ------------
    Total costs and expenses           27,994         31,327         28,908
                                 ------------   ------------   ------------

Earnings from operations                2,042            795          3,394

Interest and other, net                  (221)          (401)           (97)
                                 ------------   ------------   ------------

Earnings before taxes                   1,821            394          3,297

Provision for taxes                       353            155            692
                                 ------------   ------------   ------------

Net earnings                     $      1,468   $        239   $      2,605
                                 ============   ============   ============

Net earnings per share:
  Basic                          $       0.74   $       0.12   $       1.19
  Diluted                        $       0.73   $       0.12   $       1.17


Cash dividends declared per
 share                           $       0.24   $          -   $       0.16

Weighted-average shares used to
 compute net earnings per share:
  Basic                                 1,981          1,989          2,182
  Diluted                               1,998          2,005          2,226


(a)  In connection with organizational realignments implemented in the first
     quarter of fiscal year 2012, certain costs previously reported as Cost
     of Sales have been reclassified as Selling, General and Administrative
     expenses to better align those costs with the functional areas that
     benefit from those expenditures.


                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
  ADJUSTMENTS TO GAAP NET REVENUE, 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
                    January  earnings  October  earnings  January  earnings
                      31,       per      31,       per      31,       per
                      2012     share     2011     share     2011     share
                    -----------------  -----------------  -----------------

GAAP net revenue    $30,036            $32,122            $32,302

Non GAAP
 adjustment:
  webOS device
   contra revenue,
   net(a)                 -                142                  -
                    -------            -------            -------
Non GAAP net
 revenue            $30,036            $32,264            $32,302
                    =======            =======            =======


GAAP net earnings   $ 1,468  $   0.73  $   239  $   0.12  $ 2,605  $   1.17

Non-GAAP
 adjustments:
  Amortization of
   purchased
   intangible
   assets               466      0.24      411      0.20      425      0.19
  Restructuring
   charges               40      0.02      179      0.09      158      0.07
  Acquisition-
   related charges
   in earnings from
   operations            22      0.01      114      0.06       29      0.01
  Impairment of
   goodwill and
   purchased
   intangible
   assets(b)              -         -      885      0.44        -         -
  Wind down of the
   webOS device
   business(c)            -         -      755      0.38        -         -
  Acquisition-
   related charges
   in interest and
   other, net(d)          -         -      276      0.14        -         -
  Adjustments for
   taxes               (164)    (0.08)    (509)    (0.26)    (187)    (0.08)
                    -------  --------  -------  --------  -------  --------
Non-GAAP net
 earnings           $ 1,832  $   0.92  $ 2,350  $   1.17  $ 3,030  $   1.36
                    =======  ========  =======  ========  =======  ========


GAAP earnings from
 operations         $ 2,042            $   795            $ 3,394

Non-GAAP
 adjustments:
  Amortization of
   purchased
   intangible
   assets               466                411                425
  Restructuring
   charges               40                179                158
  Acquisition-
   related charges
   in earnings from
   operations            22                114                 29
  Impairment of
   goodwill and
   purchased
   intangible
   assets(b)              -                885                  -
  Wind down of the
   webOS device
   business(c)            -                755                  -
                    -------            -------            -------
Non-GAAP earnings
 from operations    $ 2,570            $ 3,139            $ 4,006
                    =======            =======            =======

GAAP operating
 margin                   7%                 2%                11%
Non-GAAP
 adjustments              2%                 8%                 1%
                    -------            -------            -------

Non-GAAP operating
 margin                   9%                10%                12%
                    =======            =======            =======


(a)  Includes contra revenue primarily associated with sales incentive
     programs to wind down the webOS device business, net of webOS device
     revenue.

(b)  Includes impairment charges to goodwill and purchased intangible assets
     associated with the acquisition of Palm Inc. on July 1, 2010 recorded
     as a result of the decision announced on August 18, 2011 to wind down
     the webOS device business.

(c)  Includes primarily expenses for supplier-related obligations and contra
     revenue associated with sales incentive programs related to winding
     down the webOS device business.

(d)  Includes primarily the cost of the British pound options bought to
     limit foreign exchange rate risk in connection with the Autonomy
     acquisition.


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


                                                January 31,     October 31,
                                                   2012            2011
                                              --------------  --------------
                                                (unaudited)
ASSETS

Current assets:
  Cash and cash equivalents                   $        8,113  $        8,043
  Accounts receivable                                 15,892          18,224
  Financing receivables                                3,123           3,162
  Inventory                                            7,271           7,490
  Other current assets                                14,350          14,102
                                              --------------  --------------

    Total current assets                              48,749          51,021
                                              --------------  --------------

Property, plant and equipment                         12,122          12,292

Long-term financing receivables and other
 assets                                               11,057          10,755

Goodwill and purchased intangible assets              54,668          55,449
                                              --------------  --------------

Total assets                                  $      126,596  $      129,517
                                              ==============  ==============


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Notes payable and short-term borrowings     $        5,438  $        8,083
  Accounts payable                                    12,375          14,750
  Employee compensation and benefits                   3,136           3,999
  Taxes on earnings                                      929           1,048
  Deferred revenue                                     7,530           7,449
  Other accrued liabilities                           14,885          15,113
                                              --------------  --------------

    Total current liabilities                         44,293          50,442
                                              --------------  --------------

Long-term debt                                        25,462          22,551

Other liabilities                                     17,269          17,520

Stockholders' equity:
  HP stockholders' equity                             39,162          38,625
  Non-controlling interests                              410             379
                                              --------------  --------------

    Total stockholders' equity                        39,572          39,004
                                              --------------  --------------

Total liabilities and stockholders' equity    $      126,596  $      129,517
                                              ==============  ==============



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


                                                   Three months ended
                                            -------------------------------
                                              January 31,      January 31,
                                                 2012             2011
                                            --------------   --------------

Cash flows from operating activities:
  Net earnings                              $        1,468   $        2,605
  Adjustments to reconcile net earnings to
   net cash provided by operating
   activities:
    Depreciation and amortization                    1,303            1,255
    Stock-based compensation expense                   175              180
    Provision for bad debt and inventory                52               86
    Restructuring charges                               40              158
    Deferred taxes on earnings                        (110)             632
    Excess tax benefit from stock-based
     compensation                                      (11)             (64)
    Other, net                                          44             (104)

    Changes in assets and liabilities:
      Accounts and financing receivables             2,311            1,752
      Inventory                                        180             (333)
      Accounts payable                              (2,376)            (912)
      Taxes on earnings                                (12)            (242)
      Restructuring                                   (174)            (272)
      Other assets and liabilities                  (1,697)          (1,671)
                                            --------------   --------------
      Net cash provided by operating
       activities                                    1,193            3,070
                                            --------------   --------------

Cash flows from investing activities:
  Investment in property, plant and
   equipment                                          (883)            (926)
  Proceeds from sale of property, plant and
   equipment                                            96              543
  Purchases of available-for-sale
   securities and other investments                      -              (19)
  Maturities and sales of available-for-
   sale securities and other investments                96               53
  Payments made in connection with business
   acquisitions, net of cash acquired                 (141)             (14)
  Proceeds from business divestiture, net               81                -
                                            --------------   --------------
    Net cash used in investing activities             (751)            (363)
                                            --------------   --------------

Cash flows from financing activities:
  Repayment of commercial paper and notes
   payable, net                                     (2,607)          (3,710)
  Issuance of debt                                   3,035            2,117
  Payment of debt                                     (100)            (138)
  Issuance of common stock under employee
   stock plans                                         313              430
  Repurchase of common stock                          (780)          (2,290)
  Excess tax benefit from stock-based
   compensation                                         11               64
  Cash dividends paid                                 (244)            (175)
                                            --------------   --------------
    Net cash used in financing activities             (372)          (3,702)
                                            --------------   --------------

Increase (decrease) in cash and cash
 equivalents                                            70             (995)
Cash and cash equivalents at beginning of
 period                                              8,043           10,929
                                            --------------   --------------
Cash and cash equivalents at end of period  $        8,113   $        9,934
                                            ==============   ==============



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

                                          Three months ended
                           ------------------------------------------------
                             January 31,      October 31,      January 31,
                                2012             2011             2011
                           --------------   --------------   --------------

Net revenue:(a)


  Personal Systems Group   $        8,873   $       10,118   $       10,449
  Services                          8,626            9,227            8,529
  Imaging and Printing
   Group                            6,258            6,419            6,731
  Enterprise Servers,
   Storage and Networking           5,018            5,601            5,599
  Software                            946            1,023              725
  HP Financial Services               950              952              827
  Corporate Investments                58             (131)              62
                           --------------   --------------   --------------
    Total segments                 30,729           33,209           32,922
  Elimination of
   intersegment net
   revenue and other                 (693)          (1,087)            (620)
                           --------------   --------------   --------------

    Total HP consolidated
     net revenue           $       30,036   $       32,122   $       32,302
                           ==============   ==============   ==============

Earnings from
 operations:(a)

  Personal Systems Group   $          464   $          578   $          672
  Services                            905            1,210            1,381
  Imaging and Printing
   Group                              761              793            1,119
  Enterprise Servers,
   Storage and Networking             562              717              830
  Software                            162              284              120
  HP Financial Services                91               98               79
  Corporate Investments               (48)            (908)            (178)
                           --------------   --------------   --------------
    Total segments                  2,897            2,772            4,023

  Corporate and
   unallocated costs,
   gains and eliminations            (153)            (196)             149
  Unallocated costs
   related to stock-based
   compensation expense              (174)            (192)            (166)
  Amortization of
   purchased intangible
   assets                            (466)            (411)            (425)
  Restructuring charges               (40)            (179)            (158)
  Acquisition-related
   charges                            (22)            (114)             (29)
  Impairment of goodwill
   and purchased
   intangible assets                    -             (885)               -
  Interest and other, net            (221)            (401)             (97)
                           --------------   --------------   --------------

Total HP consolidated
 earnings before taxes     $        1,821   $          394   $        3,297
                           ==============   ==============   ==============


(a)  Certain fiscal 2012 organizational reclassifications have been
     reflected retroactively to provide improved visibility and
     comparability. For each of the quarters in fiscal year 2011, the
     reclassifications resulted in the transfer of revenue and operating
     profit among the Services, Imaging and Printing Group, Enterprise
     Servers, Storage and Networking, Software and Corporate Investments
     financial reporting segments. Reclassifications between segments
     included the transfer of the Indigo Scitex support and the LaserJet and
     enterprise solutions trade support businesses from Services to the
     Imaging and Printing Group, the transfer of the business intelligence
     services business from Corporate Investments to Services, the transfer
     of the information management services business from Software to
     Services, and the transfer of the Tipping Point business from
     Enterprise Servers, Storage and Networking to Software. There was no
     impact on the previously reported financial results for the Personal
     Systems Group and HP Financial Services segments.


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

                              Three months ended           Growth rate (%)
                    -------------------------------------  ---------------
                    January 31,  October 31,  January 31,
                        2012         2011         2011       Q/Q      Y/Y
                    -----------  -----------  -----------  ------   ------

Net revenue:(a)

  Personal Systems
   Group
    Notebooks       $     4,942  $     5,390  $     5,808      (8%)    (15%)
    Desktops              3,206        3,946        3,896     (19%)    (18%)
    Workstations            535          593          535     (10%)      -%
    Other                   190          189          210       1%     (10%)
                    -----------  -----------  -----------
      Total Personal
       Systems Group      8,873       10,118       10,449     (12%)    (15%)
                    -----------  -----------  -----------

  Services
    Infrastructure
     Technology
     Outsourcing          3,701        3,895        3,644      (5%)      2%
    Technology
     Services             2,562        2,728        2,514      (6%)      2%
    Application and
     Business
     Services(b)          2,363        2,604        2,371      (9%)      -%
                    -----------  -----------  -----------
      Total Services      8,626        9,227        8,529      (7%)      1%
                    -----------  -----------  -----------

  Imaging and
   Printing Group
    Supplies              4,079        4,041        4,358       1%      (6%)
    Commercial
     Hardware             1,489        1,694        1,565     (12%)     (5%)
    Consumer
     Hardware               690          684          808       1%     (15%)
                    -----------  -----------  -----------
      Total Imaging
       and Printing
       Group              6,258        6,419        6,731      (3%)     (7%)
                    -----------  -----------  -----------

  Enterprise
   Servers, Storage
   and Networking
    Industry
     Standard
     Servers              3,072        3,384        3,448      (9%)    (11%)
    Storage                 955        1,088        1,012     (12%)     (6%)
    Business
     Critical
     Systems                405          535          555     (24%)    (27%)
    Networking              586          594          584      (1%)      -%
                    -----------  -----------  -----------
      Total
       Enterprise
       Servers,
       Storage and
       Networking         5,018        5,601        5,599     (10%)    (10%)
                    -----------  -----------  -----------

  Software                  946        1,023          725      (8%)     30%
                    -----------  -----------  -----------

  HP Financial
   Services                 950          952          827       -%      15%
                    -----------  -----------  -----------

  Corporate
   Investments               58         (131)          62    (144%)     (6%)
                    -----------  -----------  -----------
    Total segments       30,729       33,209       32,922      (7%)     (7%)
                    -----------  -----------  -----------
Elimination of
 intersegment net
 revenue and other         (693)      (1,087)        (620)    (36%)     12%
                    -----------  -----------  -----------

    Total HP
     consolidated
     net revenue    $    30,036  $    32,122  $    32,302      (6%)     (7%)
                    ===========  ===========  ===========


(a)  Certain fiscal 2012 organizational reclassifications have been
     reflected retroactively to provide improved visibility and
     comparability. For each of the quarters in fiscal year 2011, the
     reclassifications resulted in the transfer of revenue among the
     Services, Imaging and Printing Group, Enterprise Servers, Storage and
     Networking, Software and Corporate Investments financial reporting
     segments. Reclassifications between segments included the transfer of
     Indigo Scitex support and the LaserJet and enterprise solutions trade
     support businesses from Services to the Imaging and Printing Group, the
     transfer of the business intelligence services business from Corporate
     Investments to Services, the transfer of the information management
     services business from Software to Services, and the transfer of the
     Tipping Point business from Enterprise Servers, Storage and Networking
     to Software. In addition, revenue was transferred among the business
     units within the Services segment. There was no impact on the
     previously reported financial results for the Personal Systems Group
     and HP Financial Services segments.

(b)  The former Application Services, Business Process Outsourcing and Other
     Services business units were consolidated into a new Application and
     Business Services business unit in fiscal 2012.


                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
               SEGMENT NON-GAAP OPERATING MARGIN SUMMARY DATA
                                (Unaudited)
                               (In millions)




                                Three months    Change in Operating Margin
                                   ended                   (pts)
                               -------------   ----------------------------
                                January 31,
                                    2012            Q/Q            Y/Y
                               -------------   -------------  -------------

Non-GAAP operating margin:(a)
  Personal Systems Group                 5.2%       (0.5 pts)      (1.2 pts)
  Services                              10.5%       (2.6 pts)      (5.7 pts)
  Imaging and Printing Group            12.2%       (0.2 pts)      (4.4 pts)
  Enterprise Servers, Storage
   and Networking                       11.2%       (1.6 pts)      (3.6 pts)
  Software                              17.1%      (10.7 pts)       0.5 pts
  HP Financial Services                  9.6%       (0.7 pts)         - pts
  Corporate Investments                (82.8%)            NM      204.3 pts
    Total segments                       9.4%       (1.2 pts)      (2.8 pts)

    Total HP consolidated non-
     GAAP operating margin               8.6%       (1.1 pts)      (3.8 pts)


(a)  Certain fiscal 2012 organizational reclassifications have been
     reflected retroactively to provide improved visibility and
     comparability. For each of the quarters in fiscal year 2011, the
     reclassifications resulted in the transfer of revenue and operating
     profit among the Services, Imaging and Printing Group, Enterprise
     Servers, Storage and Networking, Software and Corporate Investments
     financial reporting segments. Reclassifications between segments
     included the transfer of Indigo Scitex support and the LaserJet and
     enterprise solutions trade support businesses from Services to the
     Imaging and Printing Group, the transfer of the business intelligence
     services business from Corporate Investments to Services, the transfer
     of the information management services business from Software to
     Services, and the transfer of the Tipping Point business from
     Enterprise Servers, Storage and Networking to Software. There was no
     impact on the previously reported financial results for the Personal
     Systems Group and HP Financial Services segments.


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


                                            Three months ended
                              ----------------------------------------------
                                January 31,     October 31,    January 31,
                                   2012            2011            2011
                              --------------  --------------  --------------

Numerator:

  GAAP net earnings           $        1,468  $          239  $        2,605
                              ==============  ==============  ==============

  Non-GAAP net earnings       $        1,832  $        2,350  $        3,030
                              ==============  ==============  ==============

Denominator:
  Weighted-average shares
   used to compute basic EPS           1,981           1,989           2,182
  Dilutive effect of employee
   stock plans                            17              16              44
                              --------------  --------------  --------------
  Weighted-average shares
   used to compute diluted
   EPS                                 1,998           2,005           2,226
                              ==============  ==============  ==============

GAAP net earnings per share:
  Basic(a)                    $         0.74  $         0.12  $         1.19
  Diluted(c)                  $         0.73  $         0.12  $         1.17

Non-GAAP net earnings per
 share:
  Basic(b)                    $         0.92  $         1.18  $         1.39
  Diluted(c)                  $         0.92  $         1.17  $         1.36


(a)  GAAP basic earnings per share were calculated based on GAAP net
     earnings and the weighted-average number of shares outstanding during
     the reporting period.

(b)  Non-GAAP basic earnings per share were calculated based on non-GAAP net
     earnings and the weighted-average number of shares outstanding during
     the reporting period.

(c)  Diluted net earnings per share included any dilutive effect of
     outstanding stock options, performance-based restricted units,
     restricted stock units and restricted stock.

Use of Non-GAAP Financial Measures

To supplement HP's consolidated condensed financial statements presented on a GAAP basis, HP provides non-GAAP net revenue, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share, gross cash and free cash flow. 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 net revenue is net revenue. 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. The GAAP measure most directly comparable to free cash flow is cash flow from operations. 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 net revenue reflects the elimination of contra revenue associated with sales incentive programs implemented in the fourth fiscal quarter of 2011 in connection with the wind down of HP's webOS device business, net of webOS device revenue for the period. Non-GAAP operating profit and non-GAAP operating margin are defined to exclude the effects of any restructuring charges, charges relating to the impairment of goodwill and purchased intangible assets, charges relating to the amortization of purchased intangible assets, and acquisition-related 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:

--  In the fourth quarter of fiscal 2011, HP announced that it would wind
    down its webOS device business. Non-GAAP net revenue reported in the
    fourth quarter of fiscal 2011 reflects the elimination of contra
    revenue associated with sales incentive programs implemented in
    connection with the wind down of that business, net of webOS device
    revenue for the period. Because the winding down of HP businesses is
    inconsistent in amount and frequency, HP believes that eliminating
    these amounts for purposes of calculating non-GAAP net revenue
    facilitates a more meaningful evaluation of HP's current operating
    performance and comparisons to HP's past and future operating
    performance.


--  Goodwill is the excess of the purchase price of acquired companies
    over the estimated fair value of the tangible and intangible assets
    acquired and liabilities assumed. 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. In the fourth quarter
    of fiscal 2011, HP recorded impairment charges to goodwill and certain
    intangible assets associated with the acquisition of Palm Inc. The
    charges relate to HP's decision to wind-down the webOS device
    business. Impairment charges are inconsistent in amount and frequency.
    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 and future
    operating performance.


--  HP incurs charges relating to the amortization of purchased
    intangibles. HP also incurs charges relating to the amortization of
    amounts assigned to intangible assets to be used in research and
    development projects. All of those charges are included in HP's GAAP
    presentation of earnings from operations, operating margin, net
    earnings and net earnings per share. Such charges 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 and future operating
    performance.


--  Restructuring charges consist of costs associated with a formal
    restructuring plan and are primarily related to (i) employee
    termination costs and benefits, and (ii) costs to vacate duplicative
    facilities. 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 and future operating
    performance.


--  HP incurs costs related to its acquisitions, most of which are treated
    as non-capitalized expenses. Because non-capitalized,
    acquisition-related expenses are inconsistent in amount and frequency
    and are significantly impacted by the timing and nature of HP's
    acquisitions, HP believes that eliminating the non-capitalized
    expenses for purposes of calculating these non-GAAP measures
    facilitates a more meaningful evaluation of HP's current operating
    performance and comparisons to HP's past and future 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. Free cash flow is defined as cash flow from operations less net capital expenditures. HP's management uses gross cash and free cash flow 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 and free cash flow 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. Because free cash flow includes the effect of capital expenditures that are not reflected in GAAP cash flow from operations, HP believes that free cash flow provides a more accurate and complete assessment of HP's liquidity and capital resources.

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 net revenue, non-GAAP operating
    profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP
    diluted earnings per share, gross cash and free cash flow 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 net revenue, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share, gross cash and free cash flow 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 net revenue, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share, gross cash and free cash flow 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