- 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 (
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.
Asset Management
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.
Outlook
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.
HP now estimates its fiscal 2012 GAAP loss per share to be in the range of $2.23 to $2.25.
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 (
Use of non-GAAP financial information
To supplement HP's consolidated condensed financial statements presented on a GAAP basis, HP provides non-GAAP net revenue, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share, gross cash and free cash flow. HP also provides forecasts of non-GAAP diluted earnings per share. A reconciliation of the adjustments to GAAP results for this quarter and prior periods is included in the tables below. In addition, an explanation of the ways in which HP management uses these non-GAAP measures to evaluate its business, the substance behind HP management's decision to use these non-GAAP measures, the material limitations associated with the use of these non-GAAP measures, the manner in which HP management compensates for those limitations, and the substantive reasons why HP management believes that these non-GAAP measures provide useful information to investors is included under "Use of Non-GAAP Financial Measures" after the tables below. This additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for revenue, operating profit, operating margin, net earnings, diluted earnings per share, cash and cash equivalents or cash flow from operations prepared in accordance with GAAP.
Forward-looking statements
This news release contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of HP may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including but not limited to any projections of revenue, margins, expenses, earnings, earnings per share, tax provisions, cash flows, benefit obligations, share repurchases, currency exchange rates, the impact of acquisitions or other financial items; any 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, April 30, July 31,
2012 2012 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
Three months Three
months Diluted ended Diluted months Diluted
ended earnings April earnings ended earnings
July 31, per 30, per July 31, per
2012 share 2012 share 2011 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 Nine
months Diluted months Diluted
ended earnings ended earnings
July 31, per July 31, per
2012 share 2011 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, October 31,
2012 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 Nine months
ended ended
July 31, July 31,
2012 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, April 30, July 31,
2012 2012 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)
Growth rate
Three months ended (%)
----------------------------- -------------
July 31, April 30, July 31,
2012 2012 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 Change in Operating
ended 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, April 30, July 31,
2012 2012 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.
Use of Non-GAAP Financial Measures
To supplement HP's consolidated condensed financial statements presented on a GAAP basis, HP provides non-GAAP net revenue, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share, gross cash and free cash flow. HP also provides forecasts of non-GAAP diluted earnings per share. These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The GAAP measure most directly comparable to non-GAAP net revenue is net revenue. The GAAP measure most directly comparable to non-GAAP operating profit is earnings from operations. The GAAP measure most directly comparable to non-GAAP operating margin is operating margin. The GAAP measure most directly comparable to non-GAAP net earnings is net earnings. The GAAP measure most directly comparable to non-GAAP diluted earnings per share is diluted net earnings per share. The GAAP measure most directly comparable to gross cash is cash and cash equivalents. The GAAP measure most directly comparable to free cash flow is cash flow from operations. Reconciliations of each of these non-GAAP financial measures to GAAP information are included in the tables above.
Use and Economic Substance of Non-GAAP Financial Measures Used by HP
Non-GAAP net revenue reflects the elimination of contra revenue associated with sales incentive programs implemented in the fourth fiscal quarter of 2011 in connection with the wind down of HP's webOS device business, net of webOS device revenue for the period. Non-GAAP operating profit and non-GAAP operating margin are defined to exclude the effects of any restructuring charges, charges relating to the impairment of goodwill and purchased intangible assets, charges relating to the amortization of purchased intangible assets, and acquisition-related charges recorded during the relevant period. Non-GAAP net earnings and non-GAAP diluted earnings per share consist of net earnings or diluted net earnings per share excluding those same charges. In addition, non-GAAP net earnings and non-GAAP diluted earnings per share are adjusted by the amount of additional taxes or tax benefit associated with each non-GAAP item. HP's management uses these non-GAAP financial measures for purposes of evaluating HP's historical and prospective financial performance, as well as HP's performance relative to its competitors. HP's management also uses these non-GAAP measures to further its own understanding of HP's segment operating performance. HP believes that excluding those items mentioned above from these non-GAAP financial measures allows HP management to better understand HP's consolidated financial performance in relationship to the operating results of HP's segments, as management does not believe that the excluded items are reflective of ongoing operating results. More specifically, HP's management excludes each of those items mentioned above for the following reasons:
- In the fourth quarter of fiscal 2011, HP announced that it would wind down its webOS device business. Non-GAAP net revenue reported in the fourth quarter of fiscal 2011 reflects the elimination of contra revenue associated with sales incentive programs implemented in connection with the wind down of that business, net of webOS device revenue for the period. Because the winding down of HP businesses is inconsistent in amount and frequency, HP believes that eliminating these amounts for purposes of calculating non-GAAP net revenue facilitates a more meaningful evaluation of HP's current operating performance and comparisons to HP's past and future operating performance.
- 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.
Material Limitations Associated with Use of Non-GAAP Financial Measures
These non-GAAP financial measures may have limitations as analytical tools, and these measures should not be considered in isolation or as a substitute for analysis of HP's results as reported under GAAP. Some of the limitations in relying on these non-GAAP financial measures are:
- Items such as amortization of purchased intangible assets, though not directly affecting HP's cash position, represent the loss in value of intangible assets over time. The expense associated with this loss in value is not included in non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings and non-GAAP diluted earnings per share and therefore does not reflect the full economic effect of the loss in value of those intangible assets.
- Items such as restructuring charges that are excluded from non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings and non-GAAP diluted earnings per share can have a material impact on cash flows and earnings per share.
- HP may not be able to liquidate immediately the long-term investments included in gross cash, which may limit the usefulness of gross cash as a liquidity measure.
- Other companies may calculate non-GAAP net revenue, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share, gross cash and free cash flow differently than HP does, limiting the usefulness of those measures for comparative purposes.
Compensation for Limitations Associated with Use of Non-GAAP Financial Measures
HP compensates for the limitations on its use of non-GAAP net revenue, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share, gross cash and free cash flow by relying primarily on its GAAP results and using non-GAAP financial measures only supplementally. HP also provides robust and detailed reconciliations of each non-GAAP financial measure to its most directly comparable GAAP measure within this press release and in other written materials that include these non-GAAP financial measures, and HP encourages investors to review carefully those reconciliations.
Usefulness of Non-GAAP Financial Measures to Investors
HP believes that providing non-GAAP net revenue, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share, gross cash and free cash flow to investors in addition to the related GAAP measures provides investors with greater transparency to the information used by HP's management in its financial and operational decision-making and allows investors to see HP's results "through the eyes" of management. HP further believes that providing this information better enables HP's investors to understand HP's operating performance and to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance. Disclosure of these non-GAAP financial measures also facilitates comparisons of HP's operating performance with the performance of other companies in HP's industry that supplement their GAAP results with non-GAAP financial measures that are calculated in a similar manner.
© 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.
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