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-- Third quarter net revenue up 10%, or $2.7 billion, from a year earlier to $28.0 billion
-- Third quarter GAAP operating profit up 20% to $2.5 billion; $0.80 earnings per share, up from $0.66 a year earlier
-- Third quarter non-GAAP operating profit up 20% to $2.7 billion; $0.86 earnings per share, up from $0.71 a year earlier
-- Strong third quarter cash flow from operations of $3.4 billion
PALO ALTO, Calif.--(BUSINESS WIRE)--Aug. 19, 2008--HP (NYSE:HPQ) today announced financial results for its third fiscal quarter ended July 31, 2008, with net revenue of $28.0 billion, up 10% from a year earlier and up 5% when adjusted for the effects of currency.
In the third quarter, GAAP operating profit was $2.5 billion and GAAP diluted earnings per share (EPS) was $0.80, up from $0.66 in the prior-year period. Non-GAAP operating profit was $2.7 billion, with non-GAAP diluted EPS of $0.86, up from $0.71 in the prior-year period. Non-GAAP financial information excludes $161 million of adjustments on an after-tax basis, or $0.06 per diluted share, related primarily to amortization of purchased intangibles.
"By accelerating our enterprise growth and executing well across the portfolio, HP delivered a strong third quarter performance," said Mark Hurd, HP chairman and chief executive officer. "Our global position, broad product and services offerings and incremental cost saving opportunities make us confident that we'll continue to meaningfully expand earnings."
------------- ------------ ------------ Q3 FY08 Q3 FY07 Y/Y------------------------------ ------------- ------------ ------------Net revenue ($B) $ 28.0 $ 25.4 10%------------------------------ ------------- ------------ ------------GAAP operating margin 9.0% 8.3% 0.7 pts------------------------------ ------------- ------------ ------------GAAP net earnings ($B) $ 2.0 $ 1.8 14%------------------------------ ------------- ------------ ------------GAAP diluted EPS $ 0.80 $ 0.66 21%------------------------------ ------------- ------------ ------------Non-GAAP operating margin 9.8% 9.0% 0.8 pts------------------------------ ------------- ------------ ------------Non-GAAP net earnings ($B) $ 2.2 $ 1.9 14%------------------------------ ------------- ------------ ------------Non-GAAP diluted EPS $ 0.86 $ 0.71 21%------------------------------ ------------- ------------ ------------
Information about HP's use of non-GAAP financial information is provided under "Use of non-GAAP financial information" below.
Revenue in the Americas grew 4% on a year-over-year basis to $11.6 billion. Revenue grew 16% in Europe, the Middle East and Africa to $11.2 billion. Revenue grew 14% in Asia Pacific to $5.2 billion. When adjusted for the effects of currency, revenue in the Americas grew 3%, revenue in Europe, the Middle East and Africa grew 5%, and revenue in Asia Pacific grew 8%. Revenue from outside of the United States in the third quarter was 68% of the total, with revenue in the BRIC countries (Brazil, Russia, India and China) growing 24% over the prior-year period and accounting for 10% of total revenue.
Personal Systems Group
Personal Systems Group (PSG) revenue grew 15% year over year to $10.3 billion, with unit shipments up 20% on a year-over-year basis. Notebook revenue for the quarter grew 26% over the prior-year period, while Desktop revenue increased 6%. Commercial client revenue grew 15% year over year, while Consumer client revenue increased 17%. Operating profit was $587 million, or 5.7% of revenue, up from $519 million, or 5.8% of revenue, in the prior-year period.
Imaging and Printing Group
Imaging and Printing Group (IPG) revenue grew 3% year over year to $7.0 billion. On a year-over-year basis, supplies revenue grew 11%, Commercial hardware revenue declined 5% and Consumer hardware revenue declined 14%. Printer unit shipments declined 2% year over year, with Consumer printer hardware units flat and Commercial printer hardware units down 9%. Operating profit was $1.0 billion, or 15.0% of revenue, versus $981 million, or 14.5% of revenue, in the prior-year period.
Enterprise Storage and Servers
Enterprise Storage and Servers (ESS) reported revenue of $4.7 billion, up 5% over the prior-year period fueled by ESS blades, which grew 66%, and Storage, which grew 16%. Storage revenue growth was fueled by the midrange EVA line and the low-end MSA line, which each grew 19%. On a year-over-year basis, Industry Standard Server revenue grew 2%. Business Critical Systems revenue increased 2%. Operating profit was $544 million, or 11.5% of revenue, up from $507 million, or 11.2% of revenue, in the prior-year period.
HP Services
HP Services (HPS) revenue increased 14% year over year to $4.8 billion. Revenue in Technology Services grew 13% with Consulting and Integration and Outsourcing Services up 13% and 18%, respectively, compared with the prior-year period. Operating profit was $574 million, or 12.1% of revenue, up from $417 million, or 10.0% of revenue, in the prior-year period.
HP Software
HP Software revenue grew 29% compared with the prior-year period to $781 million, led by 32% growth in the Business Technology Optimization portfolio. Operating profit was $122 million, or 15.6% of revenue, up from $51 million, or 8.4% of revenue, in the prior-year period.
Financial Services
HP Financial Services (HPFS) reported revenue of $680 million, an increase of 17% year over year. Financing volume and net portfolio assets increased 15% and 13%, respectively, over the prior-year period. Operating margin was 7.5% of revenue, up from 6.7% in the comparable period last year.
Asset management
HP generated $3.4 billion in cash flow from operations for the quarter. Inventory ended the quarter at $8.2 billion, down 3 days over the prior year. Accounts receivable of $13.8 billion was up 2 days over the prior-year period. Accounts payable ended the quarter at $14 billion up 5 days from the prior-year period. HP's dividend payment of $0.08 per share in the third quarter resulted in cash usage of $197 million. HP utilized $1.6 billion of cash during the third quarter to repurchase approximately 34 million shares of common stock from the open market. HP exited the quarter with $14.9 billion in gross cash, which includes cash and cash equivalents of $14.8 billion, short-term investments of $64 million, and certain long-term investments of $101 million.
Outlook
HP estimates fourth quarter FY08 revenue will be approximately $30.2 billion to $30.3 billion.
Fourth quarter FY08 GAAP diluted EPS is expected to be approximately $0.95 to $0.97 and non-GAAP diluted EPS is expected to be approximately $1.01 to $1.03. Fourth quarter FY08 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.06 per share, related primarily to the amortization of purchased intangibles.
These estimates do not reflect the anticipated financial impact of HP's acquisition of Electronic Data Systems Corporation, which is expected to be completed in the fourth quarter of FY08.
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 FY08 earnings conference call is accessible via an audio webcast at www.hp.com/investor/q32008webcast.
About HP
HP focuses on simplifying technology experiences for all of its customers - from individual consumers to the largest businesses. With a portfolio that spans printing, personal computing, software, services and IT infrastructure, HP is among the world's largest IT companies, with revenue totaling $113.1 billion for the four fiscal quarters ended July 31, 2008. More information about HP is available at http://www.hp.com/.
Use of non-GAAP financial information
To supplement HP's consolidated condensed financial statements presented on a GAAP basis, HP provides non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share and gross cash. HP also provides forecasts of non-GAAP diluted earnings per share. A reconciliation of the adjustments to GAAP results for this quarter and prior periods is included in the tables below. In addition, an explanation of the ways in which HP management uses these non-GAAP measures to evaluate its business, the substance behind HP management's decision to use these non-GAAP measures, the material limitations associated with the use of these non-GAAP measures, the manner in which HP management compensates for those limitations, and the substantive reasons why HP management believes that these non-GAAP measures provide useful information to investors is included under "Use of Non-GAAP Financial Measures" after the tables below. This additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for operating profit, operating margin, net earnings, diluted earnings per share, or cash and cash equivalents prepared in accordance with GAAP.
Forward-looking statements
This news release contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of HP may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including but not limited to any projections of revenue, margins, expenses, earnings, tax provisions, cash flows, benefit obligations, share repurchases, acquisition synergies or other financial items; any statements of the plans, strategies, and objectives of management for future operations, including execution of cost reduction programs and restructuring and integration plans; any statements concerning the expected development, performance or market share relating to products or services; any statements regarding pending business combination transactions; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include macroeconomic and geopolitical trends and events; execution and performance of contracts by suppliers, customers and partners; the challenge of managing asset levels, including inventory; the difficulty of aligning expense levels with revenue changes; assumptions related to pension and other post-retirement costs; expectations and assumptions relating to the execution and timing of cost reduction programs and restructuring and integration plans; the possibility that the expected benefits of pending business combination transactions may not materialize as expected or that the transactions may not be timely completed; the resolution of pending investigations, claims and disputes; and other risks that are described in HP's Annual Report on Form 10-K for the fiscal year ended October 31, 2007 and HP's other filings with the Securities and Exchange Commission, including HP's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2008. As in prior periods, the financial information set forth in this release, including tax-related items, reflects estimates based on information available at this time. While HP believes these estimates to be meaningful, these amounts could differ materially from actual reported amounts in HP's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2008. In particular, determining HP's actual tax balances and provisions as of July 31, 2008 and for the fiscal quarter then ended 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.
Note to editors: More news from HP, including links to RSS feeds, is available at http://www.hp.com/hpinfo/newsroom/.
(C) 2008 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice. HP shall not be liable for technical or editorial errors or omissions contained herein.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (Unaudited) (In millions except per share amounts) Three months ended --------------------------- July 31, April 30, July 31, 2008 2008 2007 -------- --------- --------Net revenue $28,032 $ 28,262 $25,377Costs and expenses(a): Cost of sales 21,253 21,261 19,164 Research and development 895 908 917 Selling, general and administrative 3,137 3,275 3,002 Amortization of purchased intangible assets 213 211 183 In-process research and development charges - 13 - Restructuring 5 4 (5) -------- --------- -------- Total costs and expenses 25,503 25,672 23,261 -------- --------- --------Earnings from operations 2,529 2,590 2,116Interest and other, net 23 3 170 -------- --------- --------Earnings before taxes 2,552 2,593 2,286Provision for taxes(b) 525 536 508 -------- --------- --------Net earnings $ 2,027 $ 2,057 $ 1,778 ======== ========= ========Net earnings per share: Basic $ 0.82 $ 0.83 $ 0.68 Diluted $ 0.80 $ 0.80 $ 0.66Cash dividends declared per share $ 0.16 $ - $ 0.16Weighted-average shares used to compute net earnings per share: Basic 2,459 2,473 2,600 Diluted 2,533 2,557 2,697(a) Stock-based compensation expense included under SFAS 123(R) was as follows: Cost of sales $ 34 $ 36 $ 34 Research and development 16 19 19 Selling, general and administrative 90 97 91 -------- --------- -------- Total costs and expenses $ 140 $ 152 $ 144(b) Tax benefit from stock-based compensation $ (38) $ (45) $ (36)
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (Unaudited) (In millions except per share amounts) Nine months ended ----------------- July 31, July 31, 2008 2007 -------- --------Net revenue $84,761 $75,993Costs and expenses(a): Cost of sales 64,013 57,583 Research and development 2,701 2,697 Selling, general and administrative 9,653 8,954 Amortization of purchased intangible assets 630 596 In-process research and development charges 13 186 Restructuring 19 407 Pension curtailments and pension settlements, net - (517) -------- -------- Total costs and expenses 77,029 69,906 -------- --------Earnings from operations 7,732 6,087Interest and other, net 98 391 -------- --------Earnings before taxes 7,830 6,478Provision for taxes(b) 1,613 1,378 -------- --------Net earnings $ 6,217 $ 5,100 ======== ========Net earnings per share: Basic $ 2.49 $ 1.93 Diluted $ 2.41 $ 1.87Cash dividends declared per share $ 0.32 $ 0.32Weighted-average shares used to compute net earnings per share: Basic 2,497 2,648 Diluted 2,577 2,734(a) Stock-based compensation expense included under SFAS 123(R) was as follows: Cost of sales $ 106 $ 121 Research and development 55 56 Selling, general and administrative 288 284 -------- -------- Total costs and expenses $ 449 $ 461(b) Tax benefit from stock-based compensation $ (130) $ (128)
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 Three months months months ended Diluted ended Diluted ended Diluted July earnings April earnings July earnings 31, per 30, per 31, per 2008 share 2008 share 2007 share ----------------- ----------------- -----------------GAAP net earnings $2,027 $ 0.80 $2,057 $ 0.80 $1,778 $ 0.66Non-GAAP adjustments: Amortization of purchased intangible assets 213 0.08 211 0.08 183 0.07 In-process research and development charges - - 13 0.01 - - Restructuring 5 - 4 - (5) - Pension curtailments and pension settlements, net - - - - - - Adjustments for taxes (57) (0.02) (56) (0.02) (44) (0.02) ------- --------- ------- --------- ------- ---------Non-GAAP net earnings $2,188 $ 0.86 $2,229 $ 0.87 $1,912 $ 0.71 ======= ========= ======= ========= ======= =========GAAP earnings from operations $2,529 $2,590 $2,116Non-GAAP adjustments: Amortization of purchased intangible assets 213 211 183 In-process research and development charges - 13 - Restructuring 5 4 (5) Pension curtailments and pension settlements, net - - - ------- ------- -------Non-GAAP earnings from operations $2,747 $2,818 $2,294 ======= ======= =======GAAP operating margin 9% 9% 8%Non-GAAP adjustments 1% 1% 1% ------- ------- -------Non-GAAP operating margin 10% 10% 9% ======= ======= =======
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 months ended ended July Diluted July Diluted 31, earnings 31, earnings 2008 per share 2007 per share ----------------- -----------------GAAP net earnings $6,217 $ 2.41 $5,100 $ 1.87Non-GAAP adjustments: Amortization of purchased intangible assets 630 0.24 596 0.22 In-process research and development charges 13 0.01 186 0.07 Restructuring 19 0.01 407 0.15 Pension curtailments and pension settlements, net - - (517) (0.19) Adjustments for taxes (171) (0.07) (114) (0.05) ------- --------- ------- ---------Non-GAAP net earnings $6,708 $ 2.60 $5,658 $ 2.07 ======= ========= ======= =========GAAP earnings from operations $7,732 $6,087Non-GAAP adjustments: Amortization of purchased intangible assets 630 596 In-process research and development charges 13 186 Restructuring 19 407 Pension curtailments and pension settlements, net - (517) ------- -------Non-GAAP earnings from operations $8,394 $6,759 ======= =======GAAP operating margin 9% 8%Non-GAAP adjustments 1% 1% ------- -------Non-GAAP operating margin 10% 9% ======= =======
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (In millions) July 31, October 31, 2008 2007 ----------- ----------- (unaudited)ASSETSCurrent assets: Cash and cash equivalents $ 14,783 $ 11,293 Short-term investments 64 152 Accounts receivable 13,754 13,420 Financing receivables 2,594 2,507 Inventory 8,160 8,033 Other current assets 11,681 11,997 ----------- ----------- Total current assets 51,036 47,402 ----------- -----------Property, plant and equipment 7,971 7,798Long-term financing receivables and other assets 10,306 7,647Goodwill and purchased intangible assets 26,581 25,852 ----------- -----------Total assets $ 95,894 $ 88,699 =========== ===========LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities: Notes payable and short-term borrowings $ 3,591 $ 3,186 Accounts payable 14,021 11,787 Employee compensation and benefits 3,206 3,465 Taxes on earnings 806 1,891 Deferred revenue 5,664 5,025 Other accrued liabilities 14,612 13,906 ----------- ----------- Total current liabilities 41,900 39,260 ----------- -----------Long-term debt 6,628 4,997Other liabilities 8,871 5,916Stockholders' equity 38,495 38,526 ----------- -----------Total liabilities and stockholders' equity $ 95,894 $ 88,699 =========== ===========
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (In millions) Three months ended Nine months ended July 31, 2008 July 31, 2008 ------------------ -----------------Cash flows from operating activities: Net earnings $ 2,027 $ 6,217 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 759 2,268 Stock-based compensation expense 140 449 Provision for bad debt and inventory 111 296 In-process research and development charges - 13 Restructuring 5 19 Deferred taxes on earnings 177 1,163 Excess tax benefit from stock-based compensation (50) (213) Other, net (2) (25) Changes in assets and liabilities: Accounts and financing receivables (239) (437) Inventory (541) (255) Accounts payable 1,590 2,148 Taxes on earnings 101 (269) Restructuring (14) (69) Other assets and liabilities (701) 10 ------------------ ----------------- Net cash provided by operating activities 3,363 11,315 ------------------ -----------------Cash flows from investing activities: Investment in property, plant and equipment (651) (1,966) Proceeds from sale of property, plant and equipment 78 271 Purchases of available-for- sale securities and other investments (8) (86) Maturities and sales of available-for-sale securities and other investments 21 212 Payments made in connection with business acquisitions, net (213) (1,478) ------------------ ----------------- Net cash used in investing activities (773) (3,047) ------------------ -----------------Cash flows from financing activities: Issuance (repayment) of commercial paper and notes payable, net 1,877 (21) Issuance of debt 36 3,054 Payment of debt (43) (1,051) Issuance of common stock under employee stock plans 430 1,347 Repurchase of common stock (1,551) (7,720) Excess tax benefit from stock-based compensation 50 213 Dividends (197) (600) ------------------ ----------------- Net cash provided by (used in) financing activities 602 (4,778) ------------------ -----------------Increase in cash and cash equivalents 3,192 3,490Cash and cash equivalents at beginning of period 11,591 11,293 ------------------ -----------------Cash and cash equivalents at end of period $ 14,783 $ 14,783 ================== =================
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES SEGMENT INFORMATION (Unaudited) (In millions) Three months ended --------------------------- July 31, April 30, July 31, 2008 2008 2007(a) -------- --------- --------Net revenue: Enterprise Storage and Servers $ 4,741 $ 4,780 $ 4,516 HP Services 4,753 4,627 4,165 HP Software 781 727 606 -------- --------- -------- Technology Solutions Group 10,275 10,134 9,287 -------- --------- -------- Personal Systems Group 10,254 10,071 8,894 Imaging and Printing Group 6,979 7,591 6,751 HP Financial Services 680 685 582 Corporate Investments 271 230 220 -------- --------- -------- Total Segments 28,459 28,711 25,734 Eliminations of intersegment net revenue and other (427) (449) (357) -------- --------- --------Total HP Consolidated $28,032 $28,262 $25,377 ======== ========= ========Earnings (Loss) from operations: Enterprise Storage and Servers $ 544 $ 655 $ 507 HP Services 574 508 417 HP Software 122 93 51 -------- --------- -------- Technology Solutions Group 1,240 1,256 975 -------- --------- -------- Personal Systems Group 587 544 519 Imaging and Printing Group 1,048 1,230 981 HP Financial Services 51 47 39 Corporate Investments 26 6 (5) -------- --------- -------- Total Segments 2,952 3,083 2,509 Corporate and unallocated costs and eliminations (85) (134) (101) Unallocated costs related to stock-based compensation expense (120) (131) (114) Amortization of purchased intangible assets (213) (211) (183) In-process research and development charges - (13) - Restructuring (5) (4) 5 Pension curtailments and pension settlements, net - - - Interest and other, net 23 3 170 -------- --------- --------Total HP Consolidated Earnings Before Taxes $ 2,552 $ 2,593 $ 2,286 ======== ========= ========(a) Certain fiscal 2008 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2007, the reclassifications resulted in the transfer of revenue and operating profit among the Enterprise Storage and Servers, HP Services and HP Software segments within the Technology Solutions Group. There was no impact on the previously reported financial results for the other segments.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES SEGMENT INFORMATION (Unaudited) (In millions) Nine months ended July 31, ----------------- 2008 2007(a) -------- --------Net revenue: Enterprise Storage and Servers $14,341 $13,531 HP Services 13,758 12,222 HP Software 2,174 1,772 -------- -------- Technology Solutions Group 30,273 27,525 -------- -------- Personal Systems Group 31,116 26,276 Imaging and Printing Group 21,882 20,911 HP Financial Services 2,007 1,679 Corporate Investments 719 552 -------- -------- Total Segments 85,997 76,943 Eliminations of intersegment net revenue and other (1,236) (950) -------- --------Total HP Consolidated $84,761 $75,993 ======== ========Earnings (Loss) from operations: Enterprise Storage and Servers $ 1,872 $ 1,412 HP Services 1,571 1,272 HP Software 266 76 -------- -------- Technology Solutions Group 3,709 2,760 -------- -------- Personal Systems Group 1,759 1,350 Imaging and Printing Group 3,428 3,221 HP Financial Services 141 107 Corporate Investments 40 (52) -------- -------- Total Segments 9,077 7,386 Corporate and unallocated costs and eliminations (308) (242) Unallocated costs related to stock-based compensation expense (375) (385) Amortization of purchased intangible assets (630) (596) In-process research and development charges (13) (186) Restructuring (19) (407) Pension curtailments and pension settlements, net - 517 Interest and other, net 98 391 -------- --------Total HP Consolidated Earnings Before Taxes $ 7,830 $ 6,478 ======== ========(a) Certain fiscal 2008 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2007, the reclassifications resulted in the transfer of revenue and operating profit among the Enterprise Storage and Servers, HP Services and HP Software segments within the Technology Solutions Group. There was no impact on the previously reported financial results for the other segments.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES SEGMENT / BUSINESS UNIT INFORMATION (Unaudited) (In millions) Three months ended --------------------------- July 31, April 30, July 31, 2008 2008 2007(a) -------- --------- --------Net revenue: Industry standard servers $ 2,874 $ 2,818 $ 2,814 Business critical systems 829 919 811 Storage 1,038 1,043 891 -------- --------- -------- Enterprise Storage and Servers 4,741 4,780 4,516 -------- --------- -------- Technology services 2,394 2,331 2,128 Outsourcing services 1,456 1,370 1,239 Consulting and integration 903 926 798 -------- --------- -------- HP Services 4,753 4,627 4,165 -------- --------- -------- Business technology optimization(b) 642 593 487 Other(b) 139 134 119 -------- --------- -------- HP Software 781 727 606 -------- --------- -------- Technology Solutions Group 10,275 10,134 9,287 -------- --------- -------- Notebooks 5,350 5,373 4,254 Desktops 4,158 3,921 3,933 Workstations 468 494 441 Handhelds 90 102 116 Other 188 181 150 -------- --------- -------- Personal Systems Group 10,254 10,071 8,894 -------- --------- -------- Commercial Hardware 1,567 1,811 1,658 Consumer Hardware 861 974 996 Supplies 4,551 4,812 4,097 Other - (6) - -------- --------- -------- Imaging and Printing Group 6,979 7,591 6,751 -------- --------- -------- HP Financial Services 680 685 582 Corporate Investments 271 230 220 -------- --------- -------- Total Segments 28,459 28,711 25,734 -------- --------- -------- Eliminations of intersegment net revenue and other (427) (449) (357) -------- --------- --------Total HP Consolidated $28,032 $ 28,262 $25,377 ======== ========= ========(a) Certain fiscal 2008 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2007, the reclassifications resulted in the transfer of revenue among Enterprise Storage and Servers, HP Services and HP Software segments within the Technology Solutions Group. In addition, revenue was transferred among the business units within the Imaging and Printing Group and among the business units within the Personal Systems Group, but there was no change to the previously reported revenue for either segment as a whole. There was no impact on the previously reported financial results for the HP Financial Services and Corporate Investments segments.(b) The OpenView business unit was renamed as "Business Technology Optimization" and the OpenCall and Other business unit was renamed as "Other" effective in fiscal 2008. The renamed "Other" business unit includes primarily the OpenCall and Business Information Optimization products.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES SEGMENT / BUSINESS UNIT INFORMATION (Unaudited) (In millions) Nine months ended July 31, ----------------- 2008 2007(a) -------- --------Net revenue: Industry standard servers $ 8,680 $ 8,321 Business critical systems 2,603 2,519 Storage 3,058 2,691 -------- -------- Enterprise Storage and Servers 14,341 13,531 -------- -------- Technology services 6,966 6,310 Outsourcing services 4,129 3,568 Consulting and integration 2,663 2,344 -------- -------- HP Services 13,758 12,222 -------- -------- Business technology optimization(b) 1,783 1,384 Other(b) 391 388 -------- -------- HP Software 2,174 1,772 -------- -------- Technology Solutions Group 30,273 27,525 -------- -------- Notebooks 16,387 12,486 Desktops 12,480 11,667 Workstations 1,429 1,248 Handhelds 281 423 Other 539 452 -------- -------- Personal Systems Group 31,116 26,276 -------- -------- Commercial Hardware 5,104 4,983 Consumer Hardware 3,015 3,245 Supplies 13,762 12,683 Other 1 - -------- -------- Imaging and Printing Group 21,882 20,911 -------- -------- HP Financial Services 2,007 1,679 Corporate Investments 719 552 -------- -------- Total Segments 85,997 76,943 -------- -------- Eliminations of intersegment net revenue and other (1,236) (950) -------- --------Total HP Consolidated $84,761 $75,993 ======== ========(a) Certain fiscal 2008 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2007, the reclassifications resulted in the transfer of revenue among Enterprise Storage and Servers, HP Services and HP Software segments within the Technology Solutions Group. In addition, revenue was transferred among the business units within the Imaging and Printing Group and among the business units within the Personal Systems Group, but there was no change to the previously reported revenue for either segment as a whole. There was no impact on the previously reported financial results for the HP Financial Services and Corporate Investments segments.(b) The OpenView business unit was renamed as "Business Technology Optimization" and the OpenCall and Other business unit was renamed as "Other" effective in fiscal 2008. The renamed "Other" business unit includes primarily the OpenCall and Business Information Optimization products.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CALCULATION OF NET EARNINGS PER SHARE (Unaudited) (In millions except per share amounts) Three months ended --------------------------- July 31, April 30, July 31, 2008 2008 2007 -------- --------- --------Numerator: Net earnings $2,027 $2,057 $1,778 Adjustment for interest expense on zero- coupon subordinated convertible notes, net of taxes - 1 1 -------- --------- -------- Net earnings, adjusted $2,027 $2,058 $1,779 ======== ========= ========Denominator: Weighted-average shares used to compute basic EPS 2,459 2,473 2,600 Effect of dilutive securities: Dilution from employee stock plans 74 79 89 Zero-coupon subordinated convertible notes - 5 8 -------- --------- -------- Dilutive potential common shares 74 84 97 -------- --------- -------- Weighted-average shares used to compute diluted EPS 2,533 2,557 2,697 ======== ========= ========Net earnings per share: Basic(a) $ 0.82 $ 0.83 $ 0.68 Diluted(b) $ 0.80 $ 0.80 $ 0.66(a) HP's basic earnings per share was calculated based on net earnings and the weighted-average number of shares outstanding during the reporting period.(b) The diluted earnings per share included additional dilution from potential issuance of common stock, such as stock issuable pursuant to exercise of stock options and conversion of debt, except when such issuances would be antidilutive.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CALCULATION OF NET EARNINGS PER SHARE (Unaudited) (In millions except per share amounts) Nine months ended July 31, ------------- 2008 2007 ------ ------Numerator: Net earnings $6,217 $5,100 Adjustment for interest expense on zero-coupon subordinated convertible notes, net of taxes 3 5 ------ ------ Net earnings, adjusted $6,220 $5,105 ====== ======Denominator: Weighted-average shares used to compute basic EPS 2,497 2,648 Effect of dilutive securities: Dilution from employee stock plans 76 78 Zero-coupon subordinated convertible notes 4 8 ------ ------ Dilutive potential common shares 80 86 ------ ------ Weighted-average shares used to compute diluted EPS 2,577 2,734 ====== ======Net earnings per share: Basic(a) $ 2.49 $ 1.93 Diluted(b) $ 2.41 $ 1.87(a) HP's basic earnings per share was calculated based on net earnings and the weighted-average number of shares outstanding during the reporting period.(b) The diluted earnings per share included additional dilution from potential issuance of common stock, such as stock issuable pursuant to exercise of stock options and conversion of debt, except when such issuances would be antidilutive.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CALCULATION OF NON-GAAP NET EARNINGS PER SHARE (Unaudited) (In millions except per share amounts) Three months ended --------------------------- July 31, April 30, July 31, 2008 2008 2007 -------- --------- --------Numerator: Non-GAAP net earnings $ 2,188 $ 2,229 $ 1,912 Adjustment for interest expense on zero- coupon subordinated convertible notes, net of taxes - 1 1 -------- --------- -------- Non-GAAP net earnings, adjusted $ 2,188 $ 2,230 $ 1,913 ======== ========= ========Denominator: Weighted-average shares used to compute basic EPS 2,459 2,473 2,600 Effect of dilutive securities: Dilution from employee stock plans 74 79 89 Zero-coupon subordinated convertible notes - 5 8 -------- --------- -------- Dilutive potential common shares 74 84 97 -------- --------- -------- Weighted-average shares used to compute diluted EPS 2,533 2,557 2,697 ======== ========= ========Non-GAAP net earnings per share: Basic(a) $ 0.89 $ 0.90 $ 0.74 Diluted(b) $ 0.86 $ 0.87 $ 0.71(a) HP's basic non-GAAP earnings per share was calculated based on non-GAAP net earnings and the weighted-average number of shares outstanding during the reporting period.(b) HP's diluted non-GAAP earnings per share included additional dilution from potential issuance of common stock, such as stock issuable pursuant to exercise of stock options and conversion of debt, except when such issuances would be antidilutive.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CALCULATION OF NON-GAAP NET EARNINGS PER SHARE (Unaudited) (In millions except per share amounts) Nine months ended July 31, ------------- 2008 2007 ------ ------Numerator: Non-GAAP net earnings $6,708 $5,658 Adjustment for interest expense on zero-coupon subordinated convertible notes, net of taxes 3 5 ------ ------ Non-GAAP net earnings, adjusted $6,711 $5,663 ====== ======Denominator: Weighted-average shares used to compute basic EPS 2,497 2,648 Effect of dilutive securities: Dilution from employee stock plans 76 78 Zero-coupon subordinated convertible notes 4 8 ------ ------ Dilutive potential common shares 80 86 ------ ------ Weighted-average shares used to compute diluted EPS 2,577 2,734 ====== ======Non-GAAP net earnings per share: Basic(a) $ 2.69 $ 2.14 Diluted(b) $ 2.60 $ 2.07(a) HP's basic non-GAAP earnings per share was calculated based on non-GAAP net earnings and the weighted-average number of shares outstanding during the reporting period.(b) HP's diluted non-GAAP earnings per share included additional dilution from potential issuance of common stock, such as stock issuable pursuant to exercise of stock options and conversion of debt, except when such issuances would be antidilutive. Use of Non-GAAP Financial Measures
To supplement HP's consolidated condensed financial statements presented on a GAAP basis, HP provides non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share and gross cash. HP also provides forecasts of non-GAAP diluted earnings per share. These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The GAAP measure most directly comparable to non-GAAP operating profit is earnings from operations. The GAAP measure most directly comparable to non-GAAP operating margin is operating margin. The GAAP measure most directly comparable to non-GAAP net earnings is net earnings. The GAAP measure most directly comparable to non-GAAP diluted earnings per share is diluted net earnings per share. The GAAP measure most directly comparable to gross cash is cash and cash equivalents. Reconciliations of each of these non-GAAP financial measures to GAAP information are included in the tables above.
Use and Economic Substance of Non-GAAP Financial Measures Used by HP
Non-GAAP operating profit and non-GAAP operating margin are defined to exclude the effects of any restructuring charges, charges relating to the amortization of purchased intangible assets, pension curtailment and settlement gains and losses, and in-process research and development charges recorded during the relevant period. Non-GAAP net earnings and non-GAAP diluted earnings per share consist of net earnings or diluted net earnings per share excluding those same charges. In addition, non-GAAP net earnings and non-GAAP diluted earnings per share are adjusted by the amount of additional taxes or tax benefit associated with each non-GAAP item. HP's management uses these non-GAAP financial measures for purposes of evaluating HP's historical and prospective financial performance, as well as HP's performance relative to its competitors. HP's management also uses these non-GAAP measures to further its own understanding of HP's segment operating performance. HP believes that excluding those items mentioned above from these non-GAAP financial measures allows HP management to better understand HP's consolidated financial performance in relationship to the operating results of HP's segments, as management does not believe that the excluded items are reflective of ongoing operating results. More specifically, HP's management excludes each of those items mentioned above for the following reasons:
-- Restructuring charges consist of costs primarily related to severance and benefits for employees terminated pursuant to a formal restructuring plan, including strategic reallocations or workforce reductions and early retirement programs. HP excludes these restructuring costs (and any reversals of charges recorded in prior periods) for purposes of calculating these non-GAAP measures because it believes that these historical costs do not reflect expected future operating expenses and do not contribute to a meaningful evaluation of HP's current operating performance or comparisons to HP's past operating performance. -- Purchased intangible assets consist primarily of customer contracts, customer lists, distribution agreements, technology patents, and products, trademarks and trade names purchased in connection with acquisitions. HP incurs charges relating to the amortization of these intangibles, and those charges are included in HP's GAAP presentation of earnings from operations, operating margin, net earnings and net earnings per share. Amortization charges for HP's purchased intangible assets are inconsistent in amount and frequency and are significantly impacted by the timing and magnitude of HP's acquisitions. Consequently, HP excludes these charges for purposes of calculating these non-GAAP measures to facilitate a more meaningful evaluation of HP's current operating performance and comparisons to HP's past operating performance. -- In the first quarter of fiscal 2007, HP recognized a net curtailment gain for its non-U.S. pension plans. The net gain primarily reflects a plan design change in Mexico where HP ceased pension accruals for current employees who did not meet defined criteria based on age and years of service (calculated as of December 31, 2006). In the second quarter of fiscal 2007, HP recorded a pension curtailment gain primarily resulting from the decision to cease pension accruals under its U.S. defined benefit pension plan for all employees who were still accruing benefits under that plan. The curtailment gain was partially offset primarily by a settlement expense associated with the distribution and subsequent transfer of accrued pension benefits from HP's U.S. Excess Benefit Plan to HP's U.S. Executive Deferred Compensation Plan for the terminated vested plan participants. Because pension curtailment gains and pension settlement losses are inconsistent in amount and frequency, HP believes that eliminating these gains and losses for purposes of calculating these non-GAAP measures facilitates a more meaningful evaluation of HP's current operating performance and comparisons to HP's past operating performance. -- In-process research and development charges relate to amounts assigned to tangible and intangible assets to be used in research and development projects that have no alternative future use and therefore are charged to expense at the acquisition date. Charges for in-process research and development in connection with HP's acquisitions are reflected in HP's GAAP presentation of earnings from operations, operating margin, net earnings and net earnings per share. In-process research and development expenses are not indicative of HP's ongoing operating costs and are generally unpredictable. Accordingly, HP believes that eliminating these expenses for purposes of calculating these non-GAAP measures contributes to a meaningful evaluation of HP's current operating performance and comparisons to HP's past operating performance.
Gross cash is a non-GAAP measure that is defined as cash and cash equivalents plus short-term investments and certain long-term investments that may be liquidated within 90 days pursuant to the terms of existing put options or similar rights. HP's management uses gross cash for the purpose of determining the amount of cash available for investment in HP's businesses, funding strategic acquisitions, repurchasing stock and other purposes. HP's management also uses gross cash for the purposes of evaluating HP's historical and prospective liquidity, as well as to further its own understanding of HP's segment operating results. Because gross cash includes liquid assets that are not included in GAAP cash and cash equivalents, HP believes that gross cash provides a more accurate and complete assessment of HP's liquidity and segment operating results.
Material Limitations Associated with Use of Non-GAAP Financial Measures
These non-GAAP financial measures may have limitations as analytical tools, and these measures should not be considered in isolation or as a substitute for analysis of HP's results as reported under GAAP. Some of the limitations in relying on these non-GAAP financial measures are:
-- Items such as amortization of purchased intangible assets, though not directly affecting HP's cash position, represent the loss in value of intangible assets over time. The expense associated with this loss in value is not included in non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings and non-GAAP diluted earnings per share and therefore does not reflect the full economic effect of the loss in value of those intangible assets. -- Items such as restructuring charges that are excluded from non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings and non-GAAP diluted earnings per share can have a material impact on cash flows and earnings per share. -- HP may not be able to liquidate immediately the long-term investments included in gross cash, which may limit the usefulness of gross cash as a liquidity measure. -- Other companies may calculate non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share and gross cash differently than HP does, limiting the usefulness of those measures for comparative purposes.
Compensation for Limitations Associated with Use of Non-GAAP Financial Measures
HP compensates for the limitations on its use of non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share and gross cash by relying primarily on its GAAP results and using non-GAAP financial measures only supplementally. HP also provides robust and detailed reconciliations of each non-GAAP financial measure to its most directly comparable GAAP measure within this press release and in other written materials that include these non-GAAP financial measures, and HP encourages investors to review carefully those reconciliations.
Usefulness of Non-GAAP Financial Measures to Investors
HP believes that providing non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share and gross cash to investors in addition to the related GAAP measures provides investors with greater transparency to the information used by HP's management in its financial and operational decision-making and allows investors to see HP's results "through the eyes" of management. HP further believes that providing this information better enables HP's investors to understand HP's operating performance and to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance. Disclosure of these non-GAAP financial measures also facilitates comparisons of HP's operating performance with the performance of other companies in HP's industry that supplement their GAAP results with non-GAAP financial measures that are calculated in a similar manner.
CONTACT: HP
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