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HP Reports Third Quarter 2012 Results

Aug 22, 2012 (Marketwire via COMTEX) -- HP (NYSE: HPQ)

  • Third quarter non-GAAP diluted earnings per share of $1.00, above previously provided outlook of $0.94 to $0.97 per share and in line with pre-announcement
  • Third quarter GAAP loss per share of $4.49
  • Third quarter net revenue of $29.7 billion, down 5% from the prior-year period and down 2% when adjusted for the effects of currency
  • Returned $625 million in cash to shareholders in the form of dividends and share repurchases

HP third quarter fiscal 2012 financial performance 

             
    Q3 FY12   Q3 FY11   Y/Y
GAAP net revenue ($B)   $29.7   $31.2   (5%)
GAAP operating margin   (29.7%)   8.1%   (37.8 pts.)
GAAP net (loss) earnings ($B)   ($8.9)   $1.9   (568%)
GAAP (loss) diluted EPS   ($4.49)   $0.93   (583%)
Non-GAAP operating margin   9.2%   9.8%   (0.6 pts.)
Non-GAAP net earnings ($B)   $2.0   $2.3   (14%)
Non-GAAP diluted EPS   $1.00   $1.10   (9%)
             

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

HP (NYSE: HPQ) today announced financial results for its third fiscal quarter ended July 31, 2012. For the quarter, net revenue of $29.7 billion was down 5% year over year and down 2% when adjusted for the effects of currency.

GAAP loss per share was $4.49, down from earnings per share (EPS) of $0.93 in the prior-year period. Non-GAAP diluted EPS was $1.00, down 9% from the prior-year period. Third quarter non-GAAP earnings information excludes after-tax costs of $10.8 billion, or $5.49 per diluted share, related to the amortization and impairment of purchased intangible assets, the impairment of goodwill, restructuring charges, acquisition-related charges and charges relating to the wind-down of certain retail publishing business activities, including the previously announced charges related to the impairment of goodwill within HP's Services segment, the restructuring program announced in May 2012, and the impairment of the purchased intangible asset associated with the "Compaq" trade name.

"HP is still in the early stages of a multi-year turnaround, and we're making decent progress despite the headwinds," said Meg Whitman, HP president and chief executive officer. "During the quarter we took important steps to focus on strategic priorities, manage costs, drive needed organizational change, and improve the balance sheet. We continue to deliver on what we say we will do."

Business Group Results 

  • Personal Systems Group (PSG) revenue was down 10% year over year with a 4.7% operating margin. Commercial revenue decreased 9%, and Consumer revenue declined 12%. Desktop units were down 6%, notebook units were down 12% and total units were down 10%.
  • Imaging and Printing Group (IPG) revenue declined 3% year over year with a 15.8% operating margin. Commercial hardware revenue and units were up 4% year over year. Consumer hardware revenue was down 13% year over year with a 23% decline in printer units.
  • Services revenue declined 3% year over year with an 11.0% operating margin. Technology Services revenue was down 1% year over year, Application and Business Services revenue was flat, and IT Outsourcing revenue declined 6% year over year.
  • Enterprise Servers, Storage and Networking (ESSN) revenue declined 4% year over year with a 10.9% operating margin. Networking revenue was up 6%, Industry Standard Servers revenue was down 3%, Business Critical Systems revenue was down 16%, and Storage revenue was down 5% year over year.
  • Software revenue grew 18% year over year with an 18.0% operating margin, including the results of Autonomy. Software revenue was driven by 2% license growth, 16% support growth, and 65% growth in services.
  • HP Financial Services revenue was flat year over year as the 2% increase in net portfolio assets was offset by a 2% decrease in financing volume. The business delivered a 10.4% operating margin.

HP generated $2.8 billion in cash flow from operations in the third quarter. Inventory ended the quarter at $7.3 billion, with days of inventory up 1 day year over year to 29 days. Accounts receivable of $15.7 billion was down 4 days year over year to 48 days. Accounts payable ended the quarter at $12.6 billion, down 4 days from the prior-year period to 50 days. HP's dividend payment of $0.132 per share in the third quarter resulted in cash usage of $260 million. HP also utilized $365 million of cash during the quarter to repurchase approximately 16.5 million shares of common stock in the open market. HP exited the quarter with $9.9 billion in gross cash.

For fiscal 2012, HP now estimates non-GAAP diluted EPS to be in the range of $4.05 to $4.07, at the low end of the previously provided outlook.

Full year fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $6.30 per share, related primarily to the amortization and impairment of purchased intangible assets, the impairment of goodwill, restructuring charges and acquisition-related charges.

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 Q3 FY12 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2012q3webcast.

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 (NYSE: HPQ) is available at http://www.hp.com.

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.

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 projections of the amount, timing or impact of cost savings, restructuring charges, early retirement programs, workforce reductions or impairment charges; any statements of the plans, strategies and objectives of management for future operations, including the execution of restructuring plans and any resulting cost savings or revenue or profitability improvements; any statements concerning the expected development, performance, market share or competitive performance 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 and retirement programs; the execution, timing and results of restructuring plans, including estimates and assumptions related to the cost and the anticipated benefits of implementing those 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, including HP's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2012. 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 July 31, 2012. In particular, determining HP's actual tax balances and provisions as of July 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.

   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS  
(Unaudited)  
(In millions except per share amounts)  
                 
                 
                 
  Three months ended  
  July 31,
2012
    April 30,
2012
    July 31,
2011
 
                       
Net revenue $ 29,669     $ 30,693     $ 31,189  
                       
Costs and expenses:(a)                      
  Cost of sales   22,820       23,541       23,901  
  Research and development   854       850       812  
  Selling, general and administrative   3,366       3,540       3,430  
  Amortization of purchased intangible assets   476       470       358  
  Impairment of goodwill and purchased intangible assets   9,188       -       -  
  Restructuring charges   1,795       53       150  
  Acquisition-related charges   3       17       18  
    Total costs and expenses   38,502       28,471       28,669  
                       
(Loss) earnings from operations   (8,833 )     2,222       2,520  
                       
Interest and other, net   (224 )     (243 )     (121 )
                       
(Loss) earnings before taxes   (9,057 )     1,979       2,399  
                       
(Benefit) provision for taxes   (200 )     386       473  
                       
Net (loss) earnings $ (8,857 )   $ 1,593     $ 1,926  
                       
Net (loss) earnings per share:                      
  Basic $ (4.49 )   $ 0.80     $ 0.94  
  Diluted $ (4.49 )   $ 0.80     $ 0.93  
                       
Cash dividends declared per share $ 0.26     $ -     $ 0.24  
                       
Weighted-average shares used to compute net (loss) earnings per share:                      
  Basic   1,971       1,979       2,054  
  Diluted   1,971       1,987       2,080  
                       
(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  
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS  
(Unaudited)  
(In millions except per share amounts)  
           
           
           
  Nine months ended  
  July 31,  
  2012     2011  
               
Net revenue $ 90,398     $ 95,123  
               
Costs and expenses:(a)              
  Cost of sales   69,674       72,114  
  Research and development   2,490       2,425  
  Selling, general and administrative   10,273       9,972  
  Amortization of purchased intangible assets   1,412       1,196  
  Impairment of goodwill and purchased intangible assets   9,188       -  
  Restructuring charges   1,888       466  
  Acquisition-related charges   42       68  
    Total costs and expenses   94,967       86,241  
               
(Loss) earnings from operations   (4,569 )     8,882  
               
Interest and other, net   (688 )     (294 )
               
(Loss) earnings before taxes   (5,257 )     8,588  
               
Provision for taxes   539       1,753  
               
Net (loss) earnings $ (5,796 )   $ 6,835  
               
Net (loss) earnings per share:              
  Basic $ (2.93 )   $ 3.21  
  Diluted $ (2.93 )   $ 3.16  
               
Cash dividends declared per share $ 0.50     $ 0.40  
               
Weighted-average shares used to compute net (loss) earnings per share:              
  Basic   1,977       2,129  
  Diluted   1,977       2,161  
                 
(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 EARNINGS, EARNINGS FROM OPERATIONS,  
OPERATING MARGIN AND EARNINGS PER SHARE  
(Unaudited)  
(In millions except per share amounts)  
                                   
                                   
  Three months ended
July 31,
2012
    Diluted earnings per share     Three months ended
April 30,
2012
    Diluted earnings per share     Three months ended
July 31,
2011
    Diluted earnings per share  
                                               
GAAP net (loss) earnings $ (8,857 )   $ (4.49 )   $ 1,593     $ 0.80     $ 1,926     $ 0.93  
                                               
Non-GAAP adjustments:                                              
  Amortization of purchased intangible assets   476       0.25       470       0.23       358       0.17  
  Impairment of goodwill and purchased intangible assets(a)   9,188       4.66       -       -       -       -  
  Restructuring charges   1,795       0.91       53       0.03       150       0.07  
  Acquisition-related charges   3       -       17       0.01       18       0.01  
  Wind down of non-strategic businesses(b)   108       0.05       (36 )     (0.02 )     -       -  
  Adjustments for taxes(c)   (740 )     (0.38 )     (148 )     (0.07 )     (170 )     (0.08 )
Non-GAAP net earnings $ 1,973     $ 1.00     $ 1,949     $ 0.98     $ 2,282     $ 1.10  
                                               
                                               
GAAP (loss) earnings from operations $ (8,833 )           $ 2,222             $ 2,520          
                                               
Non-GAAP adjustments:                                              
  Amortization of purchased intangible assets   476               470               358          
  Impairment of goodwill and purchased intangible assets(a)   9,188               -               -          
  Restructuring charges   1,795               53               150          
  Acquisition-related charges   3               17               18          
  Wind down of non-strategic businesses(b)   108               (36 )             -          
Non-GAAP earnings from operations $ 2,737             $ 2,726             $ 3,046          
                                               
GAAP operating margin   (30 %)             7 %             8 %        
Non-GAAP adjustments   39 %             2 %             2 %        
Non-GAAP operating margin   9 %             9 %             10 %        
                                               
(a)   Represents a goodwill impairment charge of $8 billion associated with the Services segment and an intangible asset impairment charge of $1.2 billion associated with the "Compaq" trade name.
     
(b)   For the period ended July 31, 2012, represents primarily contract-related charges, including inventory write-downs, related to winding down certain retail publishing business activities within the Imaging and Printing Group segment. For the period ended April 30, 2012, includes primarily adjustments to expenses for supplier-related obligations related to winding down the webOS device business.
     
(c)    For the period ended July 31, 2012, adjustments for taxes is net of a valuation allowance of $823 million provided for certain deferred tax assets related to the Services segment. 
     
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)  
                         
                         
    Nine months ended
July 31,
2012
    Diluted earnings per share     Nine months ended
July 31,
2011
    Diluted earnings per share  
                                 
GAAP net (loss) earnings   $ (5,796 )   $ (2.93 )   $ 6,835     $ 3.16  
                                 
Non-GAAP adjustments:                                
  Amortization of purchased intangible assets     1,412       0.71       1,196       0.55  
  Impairment of goodwill and purchased intangible assets(a)     9,188       4.65       -       -  
  Restructuring charges     1,888       0.95       466       0.22  
  Acquisition-related charges     42       0.02       68       0.03  
  Wind down of non-strategic businesses(b)     72       0.04       -       -  
  Adjustments for taxes(c)     (1,052 )     (0.55 )     (536 )     (0.24 )
Non-GAAP net earnings   $ 5,754     $ 2.89     $ 8,029     $ 3.72  
                                 
                                 
GAAP (loss) earnings from operations   $ (4,569 )           $ 8,882          
                                 
Non-GAAP adjustments:                                
  Amortization of purchased intangible assets     1,412               1,196          
  Impairment of goodwill and purchased intangible assets(a)     9,188               -          
  Restructuring charges     1,888               466          
  Acquisition-related charges     42               68          
  Wind down of non-strategic businesses(b)     72               -          
Non-GAAP earnings from operations   $ 8,033             $ 10,612          
                                 
GAAP operating margin     (5 %)             9 %        
Non-GAAP adjustments     14 %             2 %        
Non-GAAP operating margin     9 %             11 %        
                                 
(a)   Represents a goodwill impairment charge of $8 billion associated with the Services segment and an intangible asset impairment charge of $1.2 billion associated with the "Compaq" trade name.
     
(b)   For the period ended July 31, 2012, represents primarily contract-related charges, including inventory write-downs, related to winding down certain retail publishing business activities within the Imaging and Printing Group segment net of adjustments to expenses for supplier-related obligations related to winding down the webOS device business.
     
(c)   For the period ended July 31, 2012, adjustments for taxes is net of a valuation allowance of $823 million provided in the third fiscal quarter for certain deferred tax assets related to the Services segment.
     
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
       
       
  July 31,
2012
  October 31,
2011
  (unaudited)    
ASSETS          
           
Current assets:          
  Cash and cash equivalents $ 9,509   $ 8,043
  Accounts receivable   15,686     18,224
  Financing receivables   3,116     3,162
  Inventory   7,292     7,490
  Other current assets   14,634     14,102
           
    Total current assets   50,237     51,021
           
Property, plant and equipment   12,069     12,292
           
Long-term financing receivables and other assets   10,479     10,755
           
Goodwill and purchased intangible assets   44,771     55,449
           
Total assets $ 117,556   $ 129,517
           
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
           
Current liabilities:          
  Notes payable and short-term borrowings $ 5,681   $ 8,083
  Accounts payable   12,554     14,750
  Employee compensation and benefits   3,701     3,999
  Taxes on earnings   712     1,048
  Deferred revenue   7,598     7,449
  Other accrued liabilities   14,673     15,113
           
    Total current liabilities   44,919     50,442
           
Long-term debt   24,063     22,551
           
Other liabilities   16,564     17,520
           
Stockholders' equity:          
  HP stockholders' equity   31,601     38,625
  Non-controlling interests   409     379
           
    Total stockholders' equity   32,010     39,004
           
Total liabilities and stockholders' equity $ 117,556   $ 129,517
           
           
           
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS  
(Unaudited)  
(In millions)  
             
   
    Three months ended
July 31,
2012
    Nine months ended
July 31,
2012
 
Cash flows from operating activities:                
  Net loss   $ (8,857 )   $ (5,796 )
  Adjustments to reconcile net earnings to net cash provided by operating activities:                
    Depreciation and amortization     1,306       3,894  
    Impairment of goodwill and purchased intangible assets     9,188       9,188  
    Stock-based compensation expense     150       494  
    Provision for bad debt and inventory     107       254  
    Restructuring charges     1,795       1,888  
    Deferred taxes on earnings     (535 )     (690 )
    Excess tax benefit from stock-based compensation     -       (12 )
    Other, net     90       330  
                 
    Changes in operating assets and liabilities:                
    Accounts and financing receivables     956       2,435  
    Inventory     (91 )     (2 )
    Accounts payable     (345 )     (2,196 )
    Taxes on earnings     14       (40 )
    Restructuring     (198 )     (472 )
    Other assets and liabilities     (734 )     (2,763 )
      Net cash provided by operating activities     2,846       6,512  
                 
Cash flows from investing activities:                
  Investment in property, plant and equipment     (870 )     (2,833 )
  Proceeds from sale of property, plant and equipment     97       321  
  Purchases of available-for-sale securities and other investments     (228 )     (793 )
  Maturities and sales of available-for-sale securities and other investments     170       516  
  Payments made in connection with business acquisitions, net of cash acquired     -       (141 )
  Proceeds from business divestiture, net     6       87  
  Net cash used in investing activities     (825 )     (2,843 )
                 
Cash flows from financing activities:                
  Issuance (repayment) of commercial paper and notes payable, net     239       (2,553 )
  Issuance of debt     48       5,100  
  Payment of debt     (561 )     (3,222 )
  Issuance of common stock under employee stock plans     76       710  
  Repurchase of common stock     (365 )     (1,495 )
  Excess tax benefit from stock-based compensation     -       12  
  Cash dividends paid     (260 )     (755 )
  Net cash used in financing activities     (823 )     (2,203 )
                 
Increase in cash and cash equivalents     1,198       1,466  
Cash and cash equivalents at beginning of period     8,311       8,043  
Cash and cash equivalents at end of period   $ 9,509     $ 9,509  
                 
                 
                 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
SEGMENT INFORMATION  
(Unaudited)  
(In millions)  
                 
  Three months ended  
  July 31,
2012
    April 30,
2012
    July 31,
2011
 
                       
Net revenue:(a)                      
                       
  Personal Systems Group $ 8,620     $ 9,452     $ 9,592  
  Services   8,754       8,831       9,030  
  Imaging and Printing Group   6,017       6,132       6,183  
  Enterprise Servers, Storage and Networking   5,143       5,211       5,348  
  Software   973       970       822  
  HP Financial Services   935       968       932  
  Corporate Investments   19       18       235  
    Total segments   30,461       31,582       32,142  
  Eliminations of intersegment net revenue and other   (792 )     (889 )     (953 )
                       
    Total HP consolidated net revenue $ 29,669     $ 30,693     $ 31,189  
                       
Earnings before taxes:(a)                      
                       
  Personal Systems Group $ 409     $ 524     $ 567  
  Services   959       997       1,240  
  Imaging and Printing Group   949       808       879  
  Enterprise Servers, Storage and Networking   562       585       690  
  Software   175       172       160  
  HP Financial Services   97       96       88  
  Corporate Investments   (58 )     (49 )     (334 )
    Total segment earnings from operations   3,093       3,133       3,290  
                           
  Corporate and unallocated costs and eliminations   (314 )     (203 )     (114 )
  Unallocated costs related to stock-based compensation expense   (150 )     (168 )     (130 )
  Amortization of purchased intangible assets   (476 )     (470 )     (358 )
  Impairment of goodwill and purchased intangible assets   (9,188 )     -       -  
  Restructuring charges   (1,795 )     (53 )     (150 )
  Acquisition-related charges   (3 )     (17 )     (18 )
  Interest and other, net   (224 )     (243 )     (121 )
                       
    Total HP consolidated (loss) earnings before taxes $ (9,057 )   $ 1,979     $ 2,399  
                       
(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 TippingPoint 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 INFORMATION  
(Unaudited)  
(In millions)  
           
  Nine months ended  
  July 31,  
  2012     2011  
               
Net revenue:(a)              
               
  Personal Systems Group $ 26,945     $ 29,456  
  Services   26,211       26,475  
  Imaging and Printing Group   18,407       19,757  
  Enterprise Servers, Storage and Networking   15,372       16,463  
  Software   2,889       2,344  
  HP Financial Services   2,853       2,644  
  Corporate Investments   95       339  
    Total Segments   92,772       97,478  
  Eliminations of intersegment net revenue and other   (2,374 )     (2,355 )
               
    Total HP consolidated net revenue $ 90,398     $ 95,123  
               
Earnings before taxes:(a)              
               
  Personal Systems Group $ 1,397     $ 1,772  
  Services   2,861       3,993  
  Imaging and Printing Group   2,518       3,134  
  Enterprise Servers, Storage and Networking   1,709       2,280  
  Software   509       438  
  HP Financial Services   284       250  
  Corporate Investments   (155 )     (711 )
    Total segment earnings from operations   9,123       11,156  
                   
  Corporate and unallocated costs and eliminations   (670 )     (118 )
  Unallocated costs related to stock-based compensation expense   (492 )     (426 )
  Amortization of purchased intangible assets   (1,412 )     (1,196 )
  Impairment of goodwill and purchased intangible assets   (9,188 )     -  
  Restructuring charges   (1,888 )     (466 )
  Acquisition-related charges   (42 )     (68 )
  Interest and other, net   (688 )     (294 )
               
    Total HP consolidated (loss) earnings before taxes $ (5,257 )   $ 8,588  
               
(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 TippingPoint 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 (%)  
  July 31,
2012
    April 30,
2012
    July 31,
2011
    Q/Q     Y/Y  
                                   
Net revenue:(a)                                  
                                   
  Personal Systems Group                                  
    Notebooks $ 4,416     $ 4,900     $ 5,082     (10 %)   (13 %)
    Desktops   3,486       3,827       3,777     (9 %)   (8 %)
    Workstations   526       537       547     (2 %)   (4 %)
    Other   192       188       186     2 %   3 %
      Total Personal Systems Group   8,620       9,452       9,592     (9 %)   (10 %)
                                   
  Services                                  
    Infrastructure Technology Outsourcing   3,665       3,669       3,899     0 %   (6 %)
    Technology Services   2,634       2,638       2,671     0 %   (1 %)
    Application and Business Services(b)   2,455       2,524       2,460     (3 %)   0 %
      Total Services   8,754       8,831       9,030     (1 %)   (3 %)
                                   
  Imaging and Printing Group                                  
    Supplies   4,005       4,060       4,143     (1 %)   (3 %)
    Commercial Hardware   1,445       1,479       1,388     (2 %)   4 %
    Consumer Hardware   567       593       652     (4 %)   (13 %)
      Total Imaging and Printing Group   6,017       6,132       6,183     (2 %)   (3 %)
                                   
  Enterprise Servers, Storage and Networking                                  
    Industry Standard Servers   3,187       3,186       3,302     0 %   (3 %)
    Storage   924       990       976     (7 %)   (5 %)
    Business Critical Systems   385       421       459     (9 %)   (16 %)
    Networking   647       614       611     5 %   6 %
      Total Enterprise Servers, Storage and Networking   5,143       5,211       5,348     (1 %)   (4 %)
                                   
  Software   973       970       822     0 %   18 %
                                   
  HP Financial Services   935       968       932     (3 %)   0 %
                                   
  Corporate Investments   19       18       235     6 %   (92 %)
    Total segments   30,461       31,582       32,142     (4 %)   (5 %)
                                   
  Elimination of intersegment net revenue and other   (792 )     (889 )     (953 )   (11 %)   (17 %)
                                   
    Total HP consolidated net revenue $ 29,669     $ 30,693     $ 31,189     (3 %)   (5 %)
                                   
                                   
(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 TippingPoint 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 / BUSINESS UNIT INFORMATION  
(Unaudited)  
(In millions)  
     
  Nine months ended  
  July 31,  
 
2012
   
2011
 
               
Net revenue:(a)              
               
  Personal Systems Group              
    Notebooks $ 14,258     $ 15,929  
    Desktops   10,519       11,314  
    Workstations   1,598       1,623  
    Other   570       590  
      Total Personal Systems Group   26,945       29,456  
                   
  Services              
    Infrastructure Technology Outsourcing   11,035       11,329  
    Technology Services   7,834       7,814  
    Application and Business Services(b)   7,342       7,332  
      Total Services   26,211       26,475  
               
  Imaging and Printing Group              
    Supplies   12,144       13,113  
    Commercial Hardware   4,413       4,489  
    Consumer Hardware   1,850       2,155  
      Total Imaging and Printing Group   18,407       19,757  
               
  Enterprise Servers, Storage and Networking              
    Industry Standard Servers   9,445       10,137  
    Storage   2,869       2,968  
    Business Critical Systems   1,211       1,560  
    Networking   1,847       1,798  
      Total Enterprise Servers, Storage and Networking   15,372       16,463  
               
  Software   2,889       2,344  
               
  HP Financial Services   2,853       2,644  
               
  Corporate Investments   95       339  
    Total segments   92,772       97,478  
               
  Elimination of intersegment net revenue and other   (2,374 )     (2,355 )
               
    Total HP consolidated net revenue $ 90,398     $ 95,123  
               
     
(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 TippingPoint 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 ended     Change in Operating Margin (pts)  
  July 31,
2012
    Q/Q     Y/Y  
                 
Non-GAAP operating margin:(a)                
  Personal Systems Group 4.7 %   (0.8 pts )   (1.2 pts )
  Services 11.0 %   (0.3 pts )   (2.7 pts )
  Imaging and Printing Group 15.8 %   2.6 pts     1.6 pts  
  Enterprise Servers, Storage and Networking 10.9 %   (0.3 pts )   (2.0 pts )
  Software 18.0 %   0.3 pts     (1.5 pts )
  HP Financial Services 10.4 %   0.5 pts     1.0 pts  
  Corporate Investments (357.9 %)   114.3 pts     (215.8 pts )
    Total segments 10.1 %   0.3 pts     (0.1 pts )
                 
    Total HP consolidated non-GAAP operating margin 9.2 %   0.3 pts     (0.6 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 TippingPoint 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
  July 31,
2012
    April 30,
2012
  July 31,
2011
                   
Numerator:                  
  GAAP net (loss) earnings $ (8,857 )   $ 1,593   $ 1,926
                   
  Non-GAAP net earnings $ 1,973     $ 1,949   $ 2,282
                   
Denominator:                  
  Weighted-average shares used to compute basic net (loss) earnings per share and diluted net (loss) per share   1,971       1,979     2,054
  Dilutive effect of employee stock plans   4       8     26
    Weighted-average shares used to compute diluted net earnings per share   1,975       1,987     2,080
                   
GAAP net (loss) earnings per share:                  
  Basic $ (4.49 )   $ 0.80   $ 0.94
  Diluted(a) $ (4.49 )   $ 0.80   $ 0.93
                   
Non-GAAP net earnings per share:                  
  Basic $ 1.00     $ 0.98   $ 1.11
  Diluted(b) $ 1.00     $ 0.98   $ 1.10
                   
     
(a)   GAAP diluted net earnings per share reflects any dilutive effect of outstanding stock options, performance-based restricted units, restricted stock units and restricted stock, but that effect is excluded when calculating GAAP diluted net (loss) per share because it would be anti-dilutive.
     
(b)   Non-GAAP diluted net earnings per share reflects any dilutive effect of outstanding stock options, performance-based restricted units, restricted stock units and restricted stock.
     
     
     
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
         
         
  Nine months ended
  July 31,
 
2012
   
2011
             
             
Numerator:            
  GAAP net (loss) earnings $ (5,796 )   $ 6,835
             
  Non-GAAP net earnings $ 5,754     $ 8,029
             
Denominator:            
  Weighted-average shares used to compute basic net (loss) earnings per share and diluted net (loss) per share   1,977       2,129
  Dilutive effect of employee stock plans   15       32
    Weighted-average shares used to compute diluted net earnings per share   1,992       2,161
             
GAAP net (loss) earnings per share:            
  Basic $ (2.93 )   $ 3.21
  Diluted(a) $ (2.93 )   $ 3.16
             
Non-GAAP net earnings per share:            
  Basic $ 2.91     $ 3.77
  Diluted(b) $ 2.89     $ 3.72
             
             
(a)   GAAP diluted net earnings per share reflects any dilutive effect of outstanding stock options, performance-based restricted units, restricted stock units and restricted stock, but that effect is excluded when calculating GAAP diluted net (loss) per share because it would be anti-dilutive.
     
(b)   Non-GAAP diluted net earnings per share reflects any dilutive effect of outstanding stock options, performance-based restricted units, restricted stock units and restricted stock.
     

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.

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.
  • In the third quarter of fiscal 2012, HP decided to wind down certain retail publishing business activities. Non-GAAP operating profit reported in the third quarter of fiscal 2012 reflects the elimination of certain contract-related charges, including inventory write-downs, in connection with the wind down of that business. 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 operating profit 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 third quarter of fiscal 2012, HP recorded an impairment charge for the goodwill associated with its Services segment following an impairment review driven by, among other things, the recent trading values of its stock, market conditions and business trends within that segment. In addition, in that same quarter, HP recorded an impairment charge related to the intangible asset associated with the "Compaq" trade name acquired in 2002 in conjunction with a change in branding strategy. 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.

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.

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.

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.

© 2012 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice. The only warranties for HP products and services are set forth in the express warranty statements accompanying such products and services. Nothing herein should be construed as constituting an additional warranty. HP shall not be liable for technical or editorial errors or omissions contained herein.