HP Reports Fourth Quarter 2010 Results
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HP Reports Fourth Quarter 2010 Results

PALO ALTO, Calif. — (BUSINESS WIRE) — November 22, 2010 — HP (NYSE: HPQ) today announced financial results for its fourth fiscal quarter ended October 31, 2010, with net revenue of $33.3 billion, up 8% from the prior-year period including a slight negative currency impact of about one percentage point.

In the fourth quarter, GAAP diluted earnings per share (EPS) was $1.10, up 11% from $0.99 in the prior-year period. Non-GAAP diluted EPS was $1.33, up 17% from $1.14 in the prior-year period. Non-GAAP financial information excludes after-tax costs of approximately $0.23 per share and $0.15 per share in the fourth quarter of fiscal 2010 and 2009, respectively, related primarily to the amortization of purchased intangibles, restructuring charges and acquisition-related charges.

“HP proved once again that it is able to execute given its market strengths and technology leadership,” said Léo Apotheker, HP president and chief executive officer. “I have seen firsthand that we have talented people who are focused on delivering value for our customers. Our market opportunity is vast, and I am confident that we will extend our leadership into the future.”

      Q4 FY10     Q4 FY09     Y/Y       FY10     FY09     Y/Y
Net revenue ($B)     $33.3     $30.8     8%       $126.0     $114.6     10%
GAAP operating margin     9.9%     10.2%     (0.3 pts)       9.1%     8.8%     0.3 pts
GAAP net earnings ($B)     $2.5     $2.4     5%       $8.8     $7.7     14%
GAAP diluted EPS     $1.10     $0.99     11%       $3.69     $3.14     18%
Non-GAAP operating margin     12.0%     11.8%     0.2 pts       11.4%     11.0%     0.4 pts
Non-GAAP net earnings ($B)     $3.1     $2.8     11%       $10.9     $9.4     16%
Non-GAAP diluted EPS     $1.33     $1.14     17%       $4.58     $3.85     19%

“HP continued to execute in the fourth quarter, delivering growth, expanding margins and increasing earnings per share double digits,” said Cathie Lesjak, HP executive vice president and chief financial officer. “We continue to invest in the business, in sales and in R&D, while driving further efficiencies.”

Information about HP’s use of non-GAAP financial information is provided under “Use of non-GAAP financial information” below. Unless otherwise noted, all growth rates included in the narrative below reflect year-over-year comparisons.

Full Year Fiscal 2010

Net revenue for the full fiscal year 2010 was $126.0 billion, up 10% compared with the prior-year or up 8% when adjusted for the effects of currency. GAAP operating profit was $11.5 billion, and GAAP diluted EPS was $3.69, up from $3.14 in the prior year. Non-GAAP operating profit was $14.4 billion, and non-GAAP diluted EPS was $4.58, up from $3.85 in the prior-year. Non-GAAP financial information excludes $2.1 billion of adjustments on an after-tax basis, or $0.89 per diluted share, related to the amortization of purchased intangible assets, restructuring charges and acquisition-related charges.

Fourth Quarter Fiscal 2010

Fourth quarter revenue was up 10% in the Americas to $15.1 billion. Revenue was up 6% in Europe, the Middle East and Africa and up 8% in Asia Pacific to $12.4 billion and $5.8 billion, respectively. When adjusted for the effects of currency, revenue was up 9% in the Americas, up 11% in Europe, the Middle East and Africa and up 3% in Asia Pacific. Revenue from outside of the United States in the fourth quarter accounted for 64% of total HP revenue, with revenue in the BRIC countries (Brazil, Russia, India and China) increasing 12% while accounting for 10% of total HP revenue.

Services

Services revenue increased 0.4% to $9.0 billion in the fourth quarter. Revenue in each of Infrastructure Technology Outsourcing, Application Services and Technology Services grew roughly 1%. Business Process Outsourcing revenue was down 11%, including a 7% negative impact due to the divestiture of ExcellerateHRO, LLP (EHRO). Operating profit was $1.5 billion, or 16.7% of revenue, up from $1.4 billion, or 16.2% of revenue, in the prior-year period.

Enterprise Storage and Servers

Enterprise Storage and Servers (ESS) reported total revenue of $5.3 billion in the fourth quarter, up 25%. Industry Standard Server revenue increased 32%, while Storage revenue increased 14% and Business Critical Systems revenue grew 10%. ESS blade revenue was up 51%. Operating profit was $730 million, or 13.9% of revenue, up from $481 million, or 11.4% of revenue, in the prior-year period.

HP Software

HP Software revenue increased roughly 1% to $974 million in the fourth quarter. Business Technology Optimization revenue increased 4%, and Other Software revenue decreased 6%. Operating profit was $247 million, or 25.4% of revenue, up from $234 million, or 24.2% of revenue, in the prior-year period.

Personal Systems Group

Personal Systems Group (PSG) revenue increased 4% to $10.3 billion in the fourth quarter. HP maintained the leading market share position in PCs worldwide with a 2% increase in unit shipments. Notebook revenue for the quarter was down 3% from the prior year period, while Desktop revenue increased 13%. Commercial client revenue was up 20%, while Consumer client revenue declined 10%. Operating profit improved to $568 million, or 5.5% of revenue, up from $460 million, or 4.7% of revenue, in the prior-year period.

Imaging and Printing Group

Imaging and Printing Group (IPG) revenue increased 8% to $7.0 billion in the fourth quarter. Supplies revenue was up 6%, while Commercial hardware revenue and Consumer hardware revenue were up 22% and down 2%, respectively. Printer unit shipments increased 14%, with Commercial printer hardware units up 43% and Consumer printer hardware units up 7%. Operating profit was $1.2 billion, or 17.4% of revenue, versus $1.2 billion, or 18.1% of revenue, in the prior-year period.

Corporate Investments

HP Networking revenue increased 227% overall in the fourth quarter including the impact of the 3Com acquisition, which was completed last April. ProCurve revenue grew 50% over the prior-year period.

HP Financial Services

HP Financial Services (HPFS) revenue increased 11% to $809 million in the fourth quarter. Financing volume increased 11%, and net portfolio assets increased 14%. Operating profit was $73 million, up from $66 million in the prior-year period.

Asset management

HP generated $3.2 billion in cash flow from operations for the fourth quarter. Inventory ended the quarter at $6.5 billion, with days of inventory flat year over year at 23 days. Accounts receivable of $18.5 billion was up 2 days year over year. Accounts payable ended the quarter at $14.4 billion, down 5 days from the prior-year period. HP’s dividend payment of $0.08 per share in the fourth quarter resulted in cash usage of $181 million. HP also utilized $4.0 billion of cash during the quarter to repurchase approximately 96 million shares of common stock in the open market. HP exited the quarter with $11.0 billion in gross cash.

Outlook

For the first quarter of fiscal 2011, HP estimates revenue of approximately $32.8 billion to $33.0 billion, GAAP diluted EPS in the range of $1.06 to $1.08, and non-GAAP diluted EPS in the range of $1.28 to $1.30. First quarter fiscal 2011 GAAP and non-GAAP diluted EPS estimates include a one-time gain of approximately $0.04 per share primarily related to the disposition of real estate.

First quarter fiscal 2011 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.22 per share, related primarily to the amortization of purchased intangibles, restructuring charges and acquisition-related charges.

HP expects full year fiscal 2011 revenue in the range $132 billion to $133.5 billion, GAAP diluted EPS in the range of $4.42 to $4.52, and non-GAAP diluted EPS in the range of $5.16 to $5.26. GAAP and non-GAAP diluted EPS includes a one-time gain of approximately $0.04 per share primarily related to the disposition of real estate.

Full year fiscal 2011 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.74 per share, related primarily to the amortization of purchased intangibles, 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 Q4 FY10 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2010q4webcast.

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 operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share and gross cash. HP also provides forecasts of non-GAAP diluted earnings per share. A reconciliation of the adjustments to GAAP results for this quarter and prior periods is included in the tables below. In addition, an explanation of the ways in which HP management uses these non-GAAP measures to evaluate its business, the substance behind HP management’s decision to use these non-GAAP measures, the material limitations associated with the use of these non-GAAP measures, the manner in which HP management compensates for those limitations, and the substantive reasons why HP management believes that these non-GAAP measures provide useful information to investors is included under “Use of Non-GAAP Financial Measures” after the tables below. This additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for operating profit, operating margin, net earnings, diluted earnings per share, or cash and cash equivalents prepared in accordance with GAAP.

Forward-looking statements

This news release contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of HP may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including but not limited to any projections of revenue, margins, expenses, earnings, tax provisions, cash flows, benefit obligations, share repurchases, 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 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 plans; the resolution of pending investigations, claims and disputes; and other risks that are described in HP’s Annual Report on Form 10-K for the fiscal year ended October 31, 2009 and HP’s other filings with the Securities and Exchange Commission, including HP’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2010. 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-K for the fiscal year ended October 31, 2010. In particular, determining HP’s actual tax balances and provisions as of October 31, 2010 requires extensive internal and external review of tax data (including consolidating and reviewing the tax provisions of numerous domestic and foreign entities), which is being completed in the ordinary course of preparing HP’s Form 10-K. HP assumes no obligation and does not intend to update these forward-looking statements.

© 2010 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice.

HP shall not be liable for technical or editorial errors or omissions contained herein.

 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In millions except per share amounts)
             
    Three months ended
    October 31,
2010
  July 31,
2010
  October 31,
2009
             
Net revenue   $ 33,278     $ 30,729     $ 30,777  
             
Costs and expenses(a):            
Cost of sales     25,024       23,402       23,475  
Research and development     814       742       704  
Selling, general and administrative     3,435       3,154       2,966  
Amortization of purchased intangible assets     424       383       401  
Restructuring charges     235       598       38  
Acquisition-related charges     51       127       60  
Total costs and expenses     29,983       28,406       27,644  
             
Earnings from operations     3,295       2,323       3,133  
             
Interest and other, net     (81 )     (134 )     (132 )
             
Earnings before taxes     3,214       2,189       3,001  
             
Provision for taxes(b)     676       416       589  
             
Net earnings   $ 2,538     $ 1,773     $ 2,412  
             
Net earnings per share:            
Basic   $ 1.13     $ 0.76     $ 1.02  
Diluted   $ 1.10     $ 0.75     $ 0.99  
             
             
Cash dividends declared per share   $ -     $ 0.16     $ -  
             
Weighted-average shares used to compute net earnings per share:    
Basic     2,249       2,322       2,366  
Diluted     2,297       2,376       2,433  
             
(a) Stock-based compensation expense was as follows:    
Cost of sales   $ 31     $ 43     $ 37  
Research and development     14       11       10  
Selling, general and administrative     77       111       86  
Acquisition-related charges     -       1       1  
Total costs and expenses   $ 122     $ 166     $ 134  
             
(b) Tax benefit from stock-based compensation   $ (39 )   $ (54 )   $ (41 )
                         
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(In millions except per share amounts)
         
    Twelve months ended
October 31,
   

2010

 

2009

    (unaudited)    
         
Net revenue   $ 126,033     $ 114,552  
         
Costs and expenses(a):        
Cost of sales     96,089       87,524  
Research and development     2,959       2,819  
Selling, general and administrative     12,585       11,613  
Amortization of purchased intangible assets     1,484       1,578  
Restructuring charges     1,144       640  
Acquisition-related charges     293       242  
Total costs and expenses     114,554       104,416  
         
Earnings from operations     11,479       10,136  
         
Interest and other, net     (505 )     (721 )
         
Earnings before taxes     10,974       9,415  
         
Provision for taxes(b)     2,213       1,755  
         
Net earnings   $ 8,761     $ 7,660  
         
Net earnings per share:        
Basic   $ 3.78     $ 3.21  
Diluted   $ 3.69     $ 3.14  
         
         
Cash dividends declared per share   $ 0.32     $ 0.32  
         
Weighted-average shares used to compute net earnings per share:    
Basic     2,319       2,388  
Diluted     2,372       2,437  
         
(a) Stock-based compensation expense was as follows:    
Cost of sales   $ 169     $ 178  
Research and development     55       57  
Selling, general and administrative     443       374  
Acquisition-related charges     2       26  
Total costs and expenses   $ 669     $ 635  
         
(b) Tax benefit from stock-based compensation   $ (215 )   $ (199 )
                 
 
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
October 31, 2010

 

Diluted earnings
per share

   

Three months ended
July 31, 2010

 

Diluted earnings
per share

   

Three months ended
October 31, 2009

 

Diluted earnings
per share

                             
GAAP net earnings   $ 2,538     $ 1.10       $ 1,773     $ 0.75       $ 2,412     $ 0.99  
                             
Non-GAAP adjustments:                            

Amortization of purchased intangible assets

    424       0.19         383       0.16         401    

 

0.16  
Restructuring charges     235       0.10         598       0.25         38       0.02  
Acquisition-related charges     51       0.02         127       0.05         60       0.03  
Adjustments for taxes     (184 )     (0.08 )       (306 )     (0.13 )       (147 )     (0.06 )
Non-GAAP net earnings   $ 3,064     $ 1.33       $ 2,575     $ 1.08       $ 2,764     $ 1.14  
                             
                             
GAAP earnings from operations   $ 3,295           $ 2,323           $ 3,133      
                             
Non-GAAP adjustments:                            

Amortization of purchased intangible assets

    424             383             401      
Restructuring charges     235             598             38      
Acquisition-related charges     51             127             60      

Non-GAAP earnings from operations

  $ 4,005           $ 3,431           $ 3,632      
                             
GAAP operating margin     10 %           8 %           10 %    
Non-GAAP adjustments    

2

%

          3 %           2 %    
                             
Non-GAAP operating margin     12 %           11 %           12 %    
                             
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS,
OPERATING MARGIN AND EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
                   
                   
   

Twelve months ended
October 31, 2010

 

Diluted earnings
per share

   

Twelve months ended
October 31, 2009

 

Diluted earnings
per share

                   
GAAP net earnings   $ 8,761     $ 3.69       $ 7,660     $ 3.14  
                   
Non-GAAP adjustments:                  

Amortization of purchased intangible assets

    1,484       0.63         1,578       0.65  
Restructuring charges     1,144       0.48         640       0.26  
Acquisition-related charges     293       0.12         242       0.10  
Adjustments for taxes     (816 )     (0.34 )       (727 )     (0.30 )
Non-GAAP net earnings   $ 10,866     $ 4.58       $ 9,393     $ 3.85  
                   
                   
GAAP earnings from operations   $ 11,479           $ 10,136      
                   
Non-GAAP adjustments:                  

Amortization of purchased intangible assets

    1,484             1,578      
Restructuring charges     1,144             640      
Acquisition-related charges     293             242      

Non-GAAP earnings from operations

  $ 14,400           $ 12,596      
                   
GAAP operating margin     9 %           9 %    
Non-GAAP adjustments     2 %           2 %    
                   
Non-GAAP operating margin     11 %           11 %    
                           
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
             
    October 31,
2010
  October 31,
2009
   
    (unaudited)        
ASSETS            
             
Current assets:            
Cash and cash equivalents   $ 10,929   $ 13,279    
Short-term investments     5     55    
Accounts receivable     18,481     16,537    
Financing receivables     2,986     2,675    
Inventory     6,466     6,128    
Other current assets     15,317     13,865    
             
Total current assets     54,184     52,539    
             
Property, plant and equipment     11,763     11,262    
             
Long-term financing receivables and other assets     12,225     11,289    
             
Goodwill and purchased intangible assets     46,331     39,709    
             
Total assets   $ 124,503   $ 114,799    
             
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
             
Current liabilities:            
Notes payable and short-term borrowings   $ 7,046   $ 1,850    
Accounts payable     14,365     14,809    
Employee compensation and benefits     4,256     4,071    
Taxes on earnings     802     910    
Deferred revenue     6,727     6,182    
Other accrued liabilities     16,207     15,181    
             
Total current liabilities     49,403     43,003    
             
Long-term debt     15,258     13,980    
Other liabilities     19,061     17,052   (a)
             
Stockholders' equity            
HP stockholders' equity     40,449     40,517    
Noncontrolling interests     332     247   (a)
             
Total stockholders' equity     40,781     40,764    
             
Total liabilities and stockholders' equity   $ 124,503   $ 114,799    
             

(a) Reflects the adoption of the accounting standard related to the presentation of noncontrolling interests in consolidated financial statements.

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

Three months ended
October 31, 2010

 

Twelve months ended
October 31, 2010

         
Cash flows from operating activities:        
Net earnings   $ 2,538     $ 8,761  

Adjustments to reconcile net earnings to net cash provided by operating activities:

       
Depreciation and amortization     1,264       4,820  
Stock-based compensation expense     121       668  
Provision for bad debt and inventory     96       345  
Restructuring charges     235       1,144  
Deferred taxes on earnings     388       197  
Excess tax benefit from stock-based compensation     (11 )     (294 )
Other, net     (24 )     169  
         
Changes in assets and liabilities:        
Accounts and financing receivables     (3,243 )     (2,398 )
Inventory     711       (270 )
Accounts payable     (570 )     (698 )
Taxes on earnings     82       723  
Restructuring     (281 )     (1,334 )
Other assets and liabilities     1,845       89  
Net cash provided by operating activities     3,151       11,922  
         
Cash flows from investing activities:        
Investment in property, plant and equipment     (1,232 )     (4,133 )
Proceeds from sale of property, plant and equipment     249       602  
Purchases of available-for-sale securities and other investments     (1 )     (51 )

Maturities and sales of available-for-sale securities and other investments

    3       200  
Payments made in connection with business acquisition, net     (4,085 )     (8,102 )
Proceeds from business divestiture, net     -       125  
Net cash used in investing activities     (5,066 )     (11,359 )
         
Cash flows from financing activities:        
(Repayment) issuance of commercial paper and notes payable, net     (837 )     4,156  
Issuance of debt     3,035       3,156  
Payment of debt     (49 )     (1,323 )
Issuance of common stock under employee stock plans     110       2,617  
Repurchase of common stock     (3,963 )     (11,042 )
Excess tax benefit from stock-based compensation     11       294  
Dividends     (181 )     (771 )
Net cash used in financing activities     (1,874 )     (2,913 )
         
Decrease in cash and cash equivalents     (3,789 )     (2,350 )
Cash and cash equivalents at beginning of period     14,718       13,279  
Cash and cash equivalents at end of period   $ 10,929     $ 10,929  
                 
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
             
    Three months ended
    October 31,
2010
  July 31,
2010
  October 31,
2009
             
Net revenue:            
             
Services   $ 8,963     $ 8,609     $ 8,926  
Enterprise Storage and Servers     5,269       4,449       4,218  
HP Software     974       863       967  
HP Enterprise Business     15,206       13,921       14,111  
Personal Systems Group     10,283       9,918       9,862  
Imaging and Printing Group     6,995       6,167       6,454  
HP Financial Services     809       764       726  
Corporate Investments     705       607       191  
Total Segments     33,998       31,377       31,344  

Eliminations of intersegment net revenue and other

    (720 )     (648 )     (567 )
             
Total HP Consolidated   $ 33,278     $ 30,729     $ 30,777  
             
Earnings from operations:            
             
Services   $ 1,497     $ 1,366     $ 1,444  
Enterprise Storage and Servers     730       549       481  
HP Software     247       183       234  
HP Enterprise Business     2,474       2,098       2,159  
Personal Systems Group     568       469       460  
Imaging and Printing Group     1,220       1,040       1,171  
HP Financial Services     73       72       66  
Corporate Investments     18       83       (8 )
Total Segments     4,353       3,762       3,848  
             

Corporate and unallocated costs and eliminations

    (239 )     (175 )     (100 )

Unallocated costs related to stock-based compensation expense

    (109 )     (156 )     (116 )

Amortization of purchased intangible assets

    (424 )     (383 )     (401 )
Restructuring charges     (235 )     (598 )     (38 )
Acquisition-related charges     (51 )     (127 )     (60 )
Interest and other, net     (81 )     (134 )     (132 )
             
Total HP Consolidated Earnings Before Taxes   $ 3,214     $ 2,189     $ 3,001  
                         
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
         
    Twelve months ended
October 31,
   

2010

 

2009

         
Net revenue:        
         
Services   $ 34,935     $ 34,693  
Enterprise Storage and Servers     18,651       15,359  
HP Software     3,586       3,572  
HP Enterprise Business     57,172       53,624  
Personal Systems Group     40,741       35,305  
Imaging and Printing Group     25,764       24,011  
HP Financial Services     3,047       2,673  
Corporate Investments     1,863       768  
Total Segments     128,587       116,381  

Eliminations of intersegment net revenue and other

    (2,554 )     (1,829 )
         
Total HP Consolidated   $ 126,033     $ 114,552  
         
Earnings from operations:        
         
Services   $ 5,609     $ 5,044  
Enterprise Storage and Servers     2,402       1,518  
HP Software     759       684  
HP Enterprise Business     8,770       7,246  
Personal Systems Group     2,032       1,661  
Imaging and Printing Group     4,412       4,310  
HP Financial Services     281       206  
Corporate Investments     132       (56 )
Total Segments     15,627       13,367  
         

Corporate and unallocated costs and eliminations

    (614 )     (219 )

Unallocated costs related to stock-based compensation expense

    (613 )     (552 )

Amortization of purchased intangible assets

    (1,484 )     (1,578 )
Restructuring charges     (1,144 )     (640 )
Acquisition-related charges     (293 )     (242 )
Interest and other, net     (505 )     (721 )
         
Total HP Consolidated Earnings Before Taxes   $ 10,974     $ 9,415  
                 
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT / BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)
 
    Three months ended
   

October 31,
2010

 

July 31,
2010

 

October 31,
2009(a)

             
Net revenue:            
             
Infrastructure Technology Outsourcing   $ 4,095     $ 3,937     $ 4,043  
Technology Services     2,489       2,366       2,459  
Application Services     1,601       1,501       1,579  
Business Process Outsourcing     695       727       785  
Other     83       78       60  
Services(a)     8,963       8,609       8,926  
Industry Standard Servers     3,530       3,042       2,669  
Storage     1,044       904       918  
Business Critical Systems     695       503       631  
Enterprise Storage and Servers     5,269       4,449       4,218  
Business Technology Optimization     684       581       660  
Other Software     290       282       307  
HP Software     974       863       967  
HP Enterprise Business     15,206       13,921       14,111  
Notebooks     5,609       5,298       5,794  
Desktops     3,920       3,930       3,481  
Workstations     529       459       342  
Handhelds     20       18       36  
Other     205       213       209  
Personal Systems Group     10,283       9,918       9,862  
Supplies     4,707       4,130       4,430  
Commercial Hardware     1,541       1,389       1,261  
Consumer Hardware     747       648       763  
Imaging and Printing Group     6,995       6,167       6,454  
HP Financial Services     809       764       726  
Corporate Investments     705       607       191  
Total Segments     33,998       31,377       31,344  
Eliminations of intersegment net revenue and other     (720 )     (648 )     (567 )
             
Total HP Consolidated   $ 33,278     $ 30,729     $ 30,777  
             

(a) Certain fiscal 2010 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2009, the reclassifications resulted in the transfer of revenue among the business units within the Services segment only. There was no impact to the previously reported segment financial results.

 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT / BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)
 
    Twelve months ended
October 31,
   

2010

 

2009(a)

         
Net revenue:        
         
Infrastructure Technology Outsourcing   $ 15,963     $ 15,554  
Technology Services     9,681       9,719  
Application Services     6,123       6,194  
Business Process Outsourcing     2,872       2,977  
Other     296       249  
Services(a)     34,935       34,693  
Industry Standard Servers     12,574       9,296  
Storage     3,785       3,473  
Business Critical Systems     2,292       2,590  
Enterprise Storage and Servers     18,651       15,359  
Business Technology Optimization     2,440       2,385  
Other Software     1,146       1,187  
HP Software     3,586       3,572  
HP Enterprise Business     57,172       53,624  
Notebooks     22,545       20,210  
Desktops     15,478       12,864  
Workstations     1,786       1,261  
Handhelds     87       172  
Other     845       798  
Personal Systems Group     40,741       35,305  
Supplies     17,249       16,532  
Commercial Hardware     5,569       4,778  
Consumer Hardware     2,946       2,701  
Imaging and Printing Group     25,764       24,011  
HP Financial Services     3,047       2,673  
Corporate Investments     1,863       768  
Total Segments     128,587       116,381  
Eliminations of intersegment net revenue and other     (2,554 )     (1,829 )
         
Total HP Consolidated   $ 126,033     $ 114,552  
         

(a) Certain fiscal 2010 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2009, the reclassifications resulted in the transfer of revenue among the business units within the Services segment only. There was no impact to the previously reported segment financial results.

 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
             
    Three months ended
    October 31,
2010
  July 31,
2010
  October 31,
2009
             
Numerator:            
             
Net earnings   $ 2,538   $ 1,773   $ 2,412
             
Denominator:            

Weighted-average shares used to compute basic EPS

    2,249     2,322     2,366
Dilutive effect of employee stock plans     48     54     67

Weighted-average shares used to compute diluted EPS

    2,297     2,376     2,433
             
Net earnings per share:            
Basic(a)   $ 1.13   $ 0.76   $ 1.02
Diluted(b)   $ 1.10   $ 0.75   $ 0.99
             

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

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

 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NET EARNINGS PER SHARE
(In millions except per share amounts)
         
    Twelve months ended
October 31,
   

2010

 

2009

    (unaudited)    
         
Numerator:        
Net earnings   $ 8,761   $ 7,660
         
Denominator:        

Weighted-average shares used to compute basic EPS

    2,319     2,388
Dilutive effect of employee stock plans     53     49

Weighted-average shares used to compute diluted EPS

    2,372     2,437
         
Net earnings per share:        
Basic(a)   $ 3.78   $ 3.21
Diluted(b)   $ 3.69   $ 3.14
         

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

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

 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NON-GAAP NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
             
    Three months ended
    October 31,
2010
  July 31,
2010
  October 31,
2009
             
Numerator:    
Non-GAAP net earnings   $ 3,064   $ 2,575   $ 2,764
             
Denominator:            

Weighted-average shares used to compute basic EPS

    2,249     2,322     2,366
Dilutive effect of employee stock plans     48     54     67

Weighted-average shares used to compute diluted EPS

    2,297     2,376     2,433
             
Non-GAAP net earnings per share:            
Basic(a)   $ 1.36   $ 1.11   $ 1.17
Diluted(b)   $ 1.33   $ 1.08   $ 1.14
             

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

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

 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NON-GAAP NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
         
    Twelve months ended
October 31,
   

2010

 

2009

         
Numerator:
Non-GAAP net earnings   $ 10,866   $ 9,393
         
Denominator:        

Weighted-average shares used to compute basic EPS

    2,319     2,388
Dilutive effect of employee stock plans     53     49

Weighted-average shares used to compute diluted EPS

    2,372     2,437
         
Non-GAAP net earnings per share:        
Basic(a)   $ 4.69   $ 3.93
Diluted(b)   $ 4.58   $ 3.85
         

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

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

Use of Non-GAAP Financial Measures

To supplement HP’s consolidated condensed financial statements presented on a GAAP basis, HP provides non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share and gross cash. HP also provides forecasts of non-GAAP diluted earnings per share. These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The GAAP measure most directly comparable to non-GAAP operating profit is earnings from operations. The GAAP measure most directly comparable to non-GAAP operating margin is operating margin. The GAAP measure most directly comparable to non-GAAP net earnings is net earnings. The GAAP measure most directly comparable to non-GAAP diluted earnings per share is diluted net earnings per share. The GAAP measure most directly comparable to gross cash is cash and cash equivalents. Reconciliations of each of these non-GAAP financial measures to GAAP information are included in the tables above.

Use and Economic Substance of Non-GAAP Financial Measures Used by HP

Non-GAAP operating profit and non-GAAP operating margin are defined to exclude the effects of any restructuring charges, charges relating to the amortization of purchased intangible assets, 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:

Gross cash is a non-GAAP measure that is defined as cash and cash equivalents plus short-term investments and certain long-term investments that may be liquidated within 90 days pursuant to the terms of existing put options or similar rights. HP’s management uses gross cash for the purpose of determining the amount of cash available for investment in HP’s businesses, funding strategic acquisitions, repurchasing stock and other purposes. HP’s management also uses gross cash for the purposes of evaluating HP’s historical and prospective liquidity, as well as to further its own understanding of HP’s segment operating results. Because gross cash includes liquid assets that are not included in GAAP cash and cash equivalents, HP believes that gross cash provides a more accurate and complete assessment of HP’s liquidity and segment operating results.

Material Limitations Associated with Use of Non-GAAP Financial Measures

These non-GAAP financial measures may have limitations as analytical tools, and these measures should not be considered in isolation or as a substitute for analysis of HP’s results as reported under GAAP. Some of the limitations in relying on these non-GAAP financial measures are:

Compensation for Limitations Associated with Use of Non-GAAP Financial Measures

HP compensates for the limitations on its use of non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share and gross cash by relying primarily on its GAAP results and using non-GAAP financial measures only supplementally. HP also provides robust and detailed reconciliations of each non-GAAP financial measure to its most directly comparable GAAP measure within this press release and in other written materials that include these non-GAAP financial measures, and HP encourages investors to review carefully those reconciliations.

Usefulness of Non-GAAP Financial Measures to Investors

HP believes that providing non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share and gross cash to investors in addition to the related GAAP measures provides investors with greater transparency to the information used by HP’s management in its financial and operational decision-making and allows investors to see HP’s results “through the eyes” of management. HP further believes that providing this information better enables HP’s investors to understand HP’s operating performance and to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance. Disclosure of these non-GAAP financial measures also facilitates comparisons of HP’s operating performance with the performance of other companies in HP’s industry that supplement their GAAP results with non-GAAP financial measures that are calculated in a similar manner.

 

 



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