HP (NYSE: HPQ)
- Third quarter non-GAAP diluted earnings per share of $0.86,
down 14% from the prior year, within previously provided outlook of
$0.84 to $0.87 per share
- Third quarter GAAP diluted earnings per share of $0.71, up from
GAAP diluted loss per share of $4.49 in the prior year, above
previously provided outlook of $0.56 to $0.59 per share
- Third quarter net revenue of $27.2 billion, down 8% from the
prior year and down 7% when adjusted for the effects of
currency
- Cash flow from operations of $2.7 billion, down 6% from the
prior year
- Returned $283 million to shareholders in the form of dividends
and share repurchases
- Improved operating company net debt position by $1.7 billion,
the sixth consecutive quarterly reduction of over $1 billion
HP third quarter fiscal 2013 financial
performance
Q3 FY13 Q3 FY12 Y/Y
GAAP net revenue ($B) $ 27.2 $ 29.7 (8%)
GAAP operating margin 6.8% (29.7%) 36.5 pts.
GAAP net earnings (loss) ($B) $ 1.4 $ (8.9)
GAAP diluted earnings (loss) per share $ 0.71 $ (4.49)
Non-GAAP operating margin 8.4% 9.2% (0.8 pts.)
Non-GAAP net earnings ($B) $ 1.7 $ 2.0 (15%)
Non-GAAP diluted earnings per share $ 0.86 $ 1.00 (14%)
Cash flow from operations ($B) $ 2.7 $ 2.8 (6%)
Information about HP's use of non-GAAP financial information is
provided under "Use of non-GAAP financial information" below.
HP today announced financial results for its third fiscal
quarter ended July 31, 2013. Third quarter GAAP diluted earnings
per share (EPS) was $0.71, up from a GAAP diluted loss per share of
$4.49 in the prior-year period and above its previously provided
outlook of $0.56 to $0.59 per share. Third quarter non-GAAP diluted
EPS was $0.86, down from $1.00 in the prior-year period and within
its previously provided outlook of $0.84 to $0.87 per share. Third
quarter non-GAAP earnings information excludes after-tax costs of
$286 million, or $0.15 per diluted share, related to amortization
of purchased intangible assets, restructuring charges and
acquisition-related charges.
For the third quarter, net revenue of $27.2 billion was down 8%
year over year and down 7% when adjusted for the effects of
currency.
"We once again achieved the financial performance we said we
would, delivering $0.86 in non-GAAP diluted earnings per share,
within our previously provided outlook of $0.84 to $0.87," said Meg
Whitman, HP president and chief executive officer. "I remain
confident that we are making progress in our turnaround. We are
already seeing significant improvement in our operations, we are
successfully rebuilding our balance sheet, our cost structure is
more closely aligned with our revenue and we have reignited
innovation at HP, with a focus on the customer."
Outlook For the full year fiscal 2013, HP
estimates non-GAAP diluted EPS to be in the range of $3.53 to $3.57
and GAAP diluted EPS to be in the range of $2.67 to $2.71, in line
with HP's previously communicated outlook. Full year fiscal 2013
non-GAAP diluted EPS estimates exclude after-tax costs of
approximately $0.86 per share, related to the amortization of
purchased intangible assets, restructuring charges and
acquisition-related charges.
Asset management HP generated $2.7 billion
in cash flow from operations in the third quarter, down 6% from the
prior-year period. Inventory ended the quarter at $6.5 billion,
down 1 day year over year to 28 days. Accounts receivable ended the
quarter at $14.3 billion, down 1 day year over year to 47 days.
Accounts payable ended the quarter at $13.3 billion, up 7 days year
over year to 57 days. HP's dividend payment of $0.1452 per share in
the third quarter resulted in cash usage of $280 million. HP also
utilized $3 million of cash during the quarter to repurchase
approximately 168,000 shares of common stock in the open market. HP
exited the quarter with $13.7 billion in gross cash.
Third quarter fiscal 2013 segment
results
- Personal Systems revenue was down 11%
year over year with a 3.0% operating margin. Commercial revenue
decreased 3% and Consumer revenue declined 22%. Total units were
down 8% with Desktops units down 9% and Notebooks units down
14%.
- Printing revenue declined 4% year over
year with a 15.6% operating margin. Total hardware units were up 5%
with Commercial hardware units up 12% and Consumer hardware units
up 2%. Supplies revenue was down 4%.
- Enterprise Group revenue declined 9% year
over year with a 15.2% operating margin. Networking revenue was
flat, Industry Standard Servers revenue was down 11%, Business
Critical Systems revenue was down 26%, Storage revenue was down 10%
and Technology Services revenue was down 7%.
- Enterprise Services revenue declined 9%
year over year with a 3.3% operating margin. Application and
Business Services revenue was down 11% and Infrastructure
Technology Outsourcing revenue declined 7%.
- Software revenue was up 1% year over year
with a 20.5% operating margin. Support revenue was up 4%, license
revenue was flat, professional services revenue was down 11% and
SaaS revenue was up 4%.
- HP Financial Services revenue was down 6%
year over year with a 4% decrease in net portfolio assets and a 9%
decrease in financing volume. The business delivered an operating
margin of 11.3%.
More information on HP's 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 FY13 earnings conference call is accessible via an audio
webcast at www.hp.com/investor/2013Q3webcast.
About HP HP creates new possibilities for
technology to have a meaningful impact on people, businesses,
governments and society. With the broadest technology portfolio
spanning printing, personal systems, software, services and IT
infrastructure, HP delivers solutions for customers' most complex
challenges in every region of the world. 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, gross cash, free cash flow, net debt and
operating company net debt. 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 or elsewhere in the materials accompanying this news
release. 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, cash and cash
equivalents, cash flow from operations or total company debt
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 or other financial items; any
projections of the amount, timing or impact of cost savings or
restructuring 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 need to address
the many challenges facing HP's businesses; the competitive
pressures faced by HP's businesses; risks associated with executing
HP's strategy; the impact of macroeconomic and geopolitical trends
and events; the need to manage third-party suppliers and the
distribution of HP's products and services effectively; the
protection of HP's intellectual property assets, including
intellectual property licensed from third parties; risks associated
with HP's international operations; 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
hiring and retention of key employees; integration and other risks
associated with business combination and investment transactions;
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, 2012 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, 2013. 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, 2013. In particular, determining HP's actual
tax balances and provisions as of July 31, 2013 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,
2013 2013 2012
---------- ---------- ----------
Net revenue $ 27,226 $ 27,582 $ 29,669
Costs and expenses:
Cost of sales 20,859 21,055 22,820
Research and development 797 815 854
Selling, general and administrative 3,274 3,342 3,366
Amortization of purchased intangible
assets 356 350 476
Impairment of goodwill and purchased
intangible assets - - 9,188
Restructuring charges 81 408 1,795
Acquisition-related charges 4 11 3
---------- ---------- ----------
Total costs and expenses 25,371 25,981 38,502
---------- ---------- ----------
Earnings (loss) from operations 1,855 1,601 (8,833)
Interest and other, net (146) (193) (224)
---------- ---------- ----------
Earnings (loss) before taxes 1,709 1,408 (9,057)
(Provision) benefit for taxes (319) (331) 200
---------- ---------- ----------
Net earnings (loss) $ 1,390 $ 1,077 $ (8,857)
========== ========== ==========
Net earnings (loss) per share:
Basic $ 0.72 $ 0.56 $ (4.49)
Diluted $ 0.71 $ 0.55 $ (4.49)
Cash dividends declared per share $ 0.29 $ - $ 0.26
Weighted-average shares used to compute
net earnings (loss) per share:
Basic 1,929 1,935 1,971
Diluted 1,948 1,947 1,971
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In millions except per share amounts)
Nine months ended
July 31,
------------------------
2013 2012
----------- -----------
Net revenue $ 83,167 $ 90,398
Costs and expenses:
Cost of sales 63,943 69,674
Research and development 2,406 2,490
Selling, general and administrative 9,916 10,273
Amortization of purchased intangible assets 1,056 1,412
Impairment of goodwill and purchased intangible
assets - 9,188
Restructuring charges 619 1,888
Acquisition-related charges 19 42
----------- -----------
Total costs and expenses 77,959 94,967
----------- -----------
Earnings (loss) from operations 5,208 (4,569)
Interest and other, net (518) (688)
----------- -----------
Earnings (loss) before taxes 4,690 (5,257)
Provision for taxes (991) (539)
----------- -----------
Net earnings (loss) $ 3,699 $ (5,796)
=========== ===========
Net earnings (loss) per share:
Basic $ 1.91 $ (2.93)
Diluted $ 1.89 $ (2.93)
Cash dividends declared per share $ 0.55 $ 0.50
Weighted-average shares used to compute net
earnings (loss) per share:
Basic 1,939 1,977
Diluted 1,952 1,977
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
2013 share 2013 share 2012 share
-------- -------- -------- -------- -------- --------
GAAP net earnings
(loss) $ 1,390 $ 0.71 $ 1,077 $ 0.55 $ (8,857) $ (4.49)
Non-GAAP
adjustments:
Amortization of
purchased
intangible
assets 356 0.19 350 0.17 476 0.25
Impairment of
goodwill and
purchased
intangible
assets(a) - - - - 9,188 4.66
Restructuring
charges 81 0.04 408 0.21 1,795 0.91
Acquisition-
related
charges 4 - 11 0.01 3 -
Wind down of
non-strategic
businesses(b) - - - - 108 0.05
Adjustments for
taxes(c) (155) (0.08) (148) (0.07) (740) (0.38)
-------- -------- -------- -------- -------- --------
Non-GAAP net
earnings $ 1,676 $ 0.86 $ 1,698 $ 0.87 $ 1,973 $ 1.00
======== ======== ======== ======== ======== ========
GAAP earnings
(loss) from
operations $ 1,855 $ 1,601 $ (8,833)
Non-GAAP
adjustments:
Amortization of
purchased
intangible
assets 356 350 476
Impairment of
goodwill and
purchased
intangible
assets(a) - - 9,188
Restructuring
charges 81 408 1,795
Acquisition-
related
charges 4 11 3
Wind down of
non-strategic
businesses(b) - - 108
-------- -------- --------
Non-GAAP earnings
from operations $ 2,296 $ 2,370 $ 2,737
======== ======== ========
GAAP operating
margin 7% 6% (30%)
Non-GAAP
adjustments 1% 3% 39%
-------- -------- --------
Non-GAAP
operating margin 8% 9% 9%
======== ======== ========
(a) For the period ended July 31, 2012, represents a goodwill impairment
charge of $8 billion associated with the Enterprise 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 Printing
segment.
(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 Enterprise 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 months
ended Diluted ended Diluted
July 31, earnings July 31, earnings
2013 per share 2012 per share
--------- --------- --------- ---------
GAAP net earnings (loss) $ 3,699 $ 1.89 $ (5,796) $ (2.93)
Non-GAAP adjustments:
Amortization of purchased
intangible assets 1,056 0.54 1,412 0.71
Impairment of goodwill and
purchased intangible
assets(a) - - 9,188 4.65
Restructuring charges 619 0.32 1,888 0.95
Acquisition-related charges 19 0.01 42 0.02
Wind down of non-strategic
businesses(b) - - 72 0.04
Adjustments for taxes(c) (414) (0.21) (1,052) (0.55)
--------- --------- --------- ---------
Non-GAAP net earnings $ 4,979 $ 2.55 $ 5,754 $ 2.89
========= ========= ========= =========
GAAP earnings (loss) from
operations $ 5,208 $ (4,569)
Non-GAAP adjustments:
Amortization of purchased
intangible assets 1,056 1,412
Impairment of goodwill and
purchased intangible
assets(a) - 9,188
Restructuring charges 619 1,888
Acquisition-related charges 19 42
Wind down of non-strategic
businesses(b) - 72
--------- ---------
Non-GAAP earnings from
operations $ 6,902 $ 8,033
========= =========
GAAP operating margin 6% (5%)
Non-GAAP adjustments 2% 14%
--------- ---------
Non-GAAP operating margin 8% 9%
========= =========
(a) For the period ended July 31, 2012, represents a goodwill impairment
charge of $8 billion associated with the Enterprise 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 Printing
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 for certain deferred tax
assets related to the Enterprise Services segment.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
July 31, October 31,
2013 2012
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 13,251 $ 11,301
Accounts receivable 14,336 16,407
Financing receivables 3,113 3,252
Inventory 6,540 6,317
Other current assets 12,718 13,360
----------- -----------
Total current assets 49,958 50,637
----------- -----------
Property, plant and equipment 11,328 11,954
Long-term financing receivables and other assets 9,913 10,593
Goodwill and purchased intangible assets 34,601 35,584
----------- -----------
Total assets $ 105,800 $ 108,768
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and short-term borrowings $ 7,624 $ 6,647
Accounts payable 13,293 13,350
Employee compensation and benefits 4,075 4,058
Taxes on earnings 979 846
Deferred revenue 6,571 7,494
Other accrued liabilities 13,470 14,271
----------- -----------
Total current liabilities 46,012 46,666
----------- -----------
Long-term debt 17,124 21,789
Other liabilities 17,686 17,480
Stockholders' equity:
HP stockholders' equity 24,603 22,436
Non-controlling interests 375 397
----------- -----------
Total stockholders' equity 24,978 22,833
----------- -----------
Total liabilities and stockholders' equity $ 105,800 $ 108,768
=========== ===========
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Three months Nine months
ended ended
July 31, July 31,
2013 2013
------------ ------------
Cash flows from operating activities:
Net earnings $ 1,390 $ 3,699
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 1,158 3,491
Stock-based compensation expense 107 398
Provision for bad debt and inventory 48 265
Restructuring charges 81 619
Deferred taxes on earnings 70 542
Excess tax benefit from stock-based
compensation (1) (1)
Other, net 117 343
Changes in operating assets and liabilities:
Accounts and financing receivables 492 2,640
Inventory (585) (445)
Accounts payable 980 (70)
Taxes on earnings (94) (520)
Restructuring (242) (644)
Other assets and liabilities (847) (1,525)
------------ ------------
Net cash provided by operating
activities 2,674 8,792
------------ ------------
Cash flows from investing activities:
Investment in property, plant and equipment (880) (2,280)
Proceeds from sale of property, plant and
equipment 233 507
Purchases of available-for-sale securities
and other investments (296) (793)
Maturities and sales of available-for-sale
securities and other investments 282 874
Payments made in connection with business
acquisitions, net of cash acquired - (167)
------------ ------------
Net cash used in investing activities (661) (1,859)
------------ ------------
Cash flows from financing activities:
Repayment of commercial paper and notes
payable, net (37) (170)
Issuance of debt 55 254
Payment of debt (1,805) (3,473)
Issuance of common stock under employee
stock plans 67 279
Repurchase of common stock (3) (1,053)
Excess tax benefit from stock-based
compensation 1 1
Cash dividends paid (280) (821)
------------ ------------
Net cash used in financing activities (2,002) (4,983)
------------ ------------
Increase in cash and cash equivalents 11 1,950
Cash and cash equivalents at beginning of period 13,240 11,301
------------ ------------
Cash and cash equivalents at end of period $ 13,251 $ 13,251
============ ============
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
Three months ended
-------------------------------------
July 31, April 30, July 31,
2013 2013 2012
----------- ----------- -----------
Net revenue:(a)
Personal Systems $ 7,704 $ 7,584 $ 8,636
Printing 5,803 6,081 6,017
----------- ----------- -----------
Total Printing and Personal
Systems Group(b) 13,507 13,665 14,653
Enterprise Group 6,786 6,819 7,492
Enterprise Services 5,843 5,999 6,397
Software 982 941 973
HP Financial Services 879 881 935
Corporate Investments 5 10 11
----------- ----------- -----------
Total segments 28,002 28,315 30,461
Elimination of intersegment net
revenue and other (776) (733) (792)
----------- ----------- -----------
Total HP consolidated net revenue $ 27,226 $ 27,582 $ 29,669
=========== =========== ===========
Earnings before taxes:(a)
Personal Systems $ 228 $ 239 $ 405
Printing 908 958 949
----------- ----------- -----------
Total Printing and Personal
Systems Group(b) 1,136 1,197 1,354
Enterprise Group 1,033 1,082 1,284
Enterprise Services 192 156 240
Software 201 180 175
HP Financial Services 99 97 97
Corporate Investments (58) (56) (57)
----------- ----------- -----------
Total segment earnings from
operations 2,603 2,656 3,093
Corporate and unallocated costs and
eliminations (200) (179) (314)
Unallocated costs related to stock-
based compensation expense (107) (107) (150)
Amortization of purchased
intangible assets (356) (350) (476)
Impairment of goodwill and
purchased intangible assets - - (9,188)
Restructuring charges (81) (408) (1,795)
Acquisition-related charges (4) (11) (3)
Interest and other, net (146) (193) (224)
----------- ----------- -----------
Total HP consolidated earnings
(loss) before taxes $ 1,709 $ 1,408 $ (9,057)
=========== =========== ===========
(a) HP has implemented certain organizational realignments in the first
quarter of fiscal 2013. As a result of these realignments, HP has re-
evaluated its segment financial reporting structure and, effective in
the first quarter of fiscal 2013, created two new financial reporting
segments, the Enterprise Group segment and the Enterprise Services
segment, and eliminated two other financial reporting segments, the
Enterprise Servers, Storage and Networking ("ESSN") segment and the
Services segment. The Enterprise Group segment consists of the business
units within the former ESSN segment and most of the services offerings
of the Technology Services ("TS") business unit, which was previously a
part of the former Services segment. The Enterprise Services segment
consists of the Applications and Business Services ("ABS") and
Infrastructure Technology Outsourcing ("ITO") business units from the
former Services segment, along with the end-user workplace support
services business that was previously a part of the TS business unit.
Taking into account these changes, HP has the following seven financial
reporting segments: Personal Systems, Printing, the Enterprise Group,
Enterprise Services, Software, HP Financial Services and Corporate
Investments.
Also as a result of these realignments, the financial results of the
Personal Systems commercial products support business, which were
previously reported as part of the TS business unit, will now be
reported as part of the Other business unit within the Personal Systems
segment, and the financial results of the portion of the business
intelligence services business that had continued to be reported as part
of the Corporate Investments segment following the implementation of
prior realignment actions will now be reported as part of the ABS
business unit. In addition, the end-user workplace support services
business, which, as noted above, was previously a part of the TS
business unit and will now become a part of the Enterprise Services
segment, will be reported as part of the ITO business unit within that
segment.
To provide improved visibility and comparability, HP has reflected these
changes to its reporting structure in prior financial reporting periods
on an as-if basis, which has resulted in the transfer of revenue and
operating profit among the Personal Systems, the Enterprise Group,
Enterprise Services and Corporate Investments segments. These changes
had no impact on the previously reported financial results for the
Printing, Software or HP Financial Services segments. In addition, none
of these changes impacted HP's previously reported consolidated net
revenue, earnings from operations, net earnings or net earnings per
share.
(b) The Personal Systems segment and the Printing segment are structured
beneath a broader Printing and Personal Systems Group ("PPS"). While PPS
is not a financial reporting segment, HP provides financial data
aggregating the segments within it in order to provide a supplementary
view of its business.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
Nine months ended
July 31,
------------------------
2013 2012
----------- -----------
Net revenue:(a)
Personal Systems $ 23,492 $ 26,998
Printing 17,810 18,407
----------- -----------
Total Printing and Personal Systems Group(b) 41,302 45,405
Enterprise Group 20,589 22,320
Enterprise Services 17,761 19,257
Software 2,849 2,889
HP Financial Services 2,717 2,853
Corporate Investments 19 48
----------- -----------
Total Segments 85,237 92,772
Elimination of intersegment net revenue and
other (2,070) (2,374)
----------- -----------
Total HP consolidated net revenue $ 83,167 $ 90,398
=========== ===========
Earnings before taxes:(a)
Personal Systems $ 690 $ 1,380
Printing 2,819 2,518
----------- -----------
Total Printing and Personal Systems Group(b) 3,509 3,898
Enterprise Group 3,199 3,965
Enterprise Services 424 622
Software 538 509
HP Financial Services 297 284
Corporate Investments (179) (155)
----------- -----------
Total segment earnings from operations 7,788 9,123
Corporate and unallocated costs and eliminations (488) (670)
Unallocated costs related to stock-based
compensation expense (398) (492)
Amortization of purchased intangible assets (1,056) (1,412)
Impairment of goodwill and purchased intangible
assets - (9,188)
Restructuring charges (619) (1,888)
Acquisition-related charges (19) (42)
Interest and other, net (518) (688)
----------- -----------
Total HP consolidated earnings (loss) before
taxes $ 4,690 $ (5,257)
=========== ===========
(a) HP has implemented certain organizational realignments in the first
quarter of fiscal 2013. As a result of these realignments, HP has re-
evaluated its segment financial reporting structure and, effective in
the first quarter of fiscal 2013, created two new financial reporting
segments, the Enterprise Group segment and the Enterprise Services
segment, and eliminated two other financial reporting segments, the
Enterprise Servers, Storage and Networking ("ESSN") segment and the
Services segment. The Enterprise Group segment consists of the business
units within the former ESSN segment and most of the services offerings
of the Technology Services ("TS") business unit, which was previously a
part of the former Services segment. The Enterprise Services segment
consists of the Applications and Business Services ("ABS") and
Infrastructure Technology Outsourcing ("ITO") business units from the
former Services segment, along with the end-user workplace support
services business that was previously a part of the TS business unit.
Taking into account these changes, HP has the following seven financial
reporting segments: Personal Systems, Printing, the Enterprise Group,
Enterprise Services, Software, HP Financial Services and Corporate
Investments.
Also as a result of these realignments, the financial results of the
Personal Systems commercial products support business, which were
previously reported as part of the TS business unit, will now be
reported as part of the Other business unit within the Personal Systems
segment, and the financial results of the portion of the business
intelligence services business that had continued to be reported as part
of the Corporate Investments segment following the implementation of
prior realignment actions will now be reported as part of the ABS
business unit. In addition, the end-user workplace support services
business, which, as noted above, was previously a part of the TS
business unit and will now become a part of the Enterprise Services
segment, will be reported as part of the ITO business unit within that
segment.
To provide improved visibility and comparability, HP has reflected these
changes to its reporting structure in prior financial reporting periods
on an as-if basis, which has resulted in the transfer of revenue and
operating profit among the Personal Systems, the Enterprise Group,
Enterprise Services and Corporate Investments segments. These changes
had no impact on the previously reported financial results for the
Printing, Software or HP Financial Services segments. In addition, none
of these changes impacted HP's previously reported consolidated net
revenue, earnings from operations, net earnings or net earnings per
share.
(b) The Personal Systems segment and the Printing segment are structured
beneath a broader Printing and Personal Systems Group ("PPS"). While PPS
is not a financial reporting segment, HP provides financial data
aggregating the segments within it in order to provide a supplementary
view of its business.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT / BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)
Growth rate
Three months ended (%)
------------------------------- -------------
July 31, April 30, July 31,
2013 2013 2012 Q/Q Y/Y
--------- --------- --------- ----- -----
Net revenue:(a)
Printing and Personal
Systems Group(b)
Personal Systems
Notebooks $ 3,722 $ 3,718 $ 4,416 0% (16%)
Desktops 3,147 3,103 3,486 1% (10%)
Workstations 537 521 526 3% 2%
Other 298 242 208 23% 43%
--------- --------- ---------
Total Personal
Systems 7,704 7,584 8,636 2% (11%)
--------- --------- ---------
Printing
Supplies 3,839 4,122 4,005 (7%) (4%)
Commercial Hardware 1,399 1,398 1,445 0% (3%)
Consumer Hardware 565 561 567 1% 0%
--------- --------- ---------
Total Printing 5,803 6,081 6,017 (5%) (4%)
--------- --------- ---------
Total Printing
and Personal
Systems Group 13,507 13,665 14,653 (1%) (8%)
--------- --------- ---------
Enterprise Group
Industry Standard
Servers 2,851 2,806 3,187 2% (11%)
Technology Services 2,174 2,272 2,349 (4%) (7%)
Storage 833 857 924 (3%) (10%)
Networking 644 618 647 4% 0%
Business Critical
Systems 284 266 385 7% (26%)
--------- --------- ---------
Total Enterprise
Group 6,786 6,819 7,492 0% (9%)
--------- --------- ---------
Enterprise Services
Infrastructure
Technology
Outsourcing 3,662 3,721 3,934 (2%) (7%)
Application and
Business Services 2,181 2,278 2,463 (4%) (11%)
--------- --------- ---------
Total Enterprise
Services 5,843 5,999 6,397 (3%) (9%)
--------- --------- ---------
Software 982 941 973 4% 1%
--------- --------- ---------
HP Financial Services 879 881 935 0% (6%)
--------- --------- ---------
Corporate Investments 5 10 11 (50%) (55%)
--------- --------- ---------
Total segments 28,002 28,315 30,461 (1%) (8%)
--------- --------- ---------
Elimination of
intersegment net
revenue and other (776) (733) (792) 6% (2%)
--------- --------- ---------
Total HP consolidated
net revenue $ 27,226 $ 27,582 $ 29,669 (1%) (8%)
========= ========= ========= ===== =====
(a) HP has implemented certain organizational realignments in the first
quarter of fiscal 2013. As a result of these realignments, HP has re-
evaluated its segment financial reporting structure and, effective in
the first quarter of fiscal 2013, created two new financial reporting
segments, the Enterprise Group segment and the Enterprise Services
segment, and eliminated two other financial reporting segments, the
Enterprise Servers, Storage and Networking ("ESSN") segment and the
Services segment. The Enterprise Group segment consists of the business
units within the former ESSN segment and most of the services offerings
of the Technology Services ("TS") business unit, which was previously a
part of the former Services segment. The Enterprise Services segment
consists of the Applications and Business Services ("ABS") and
Infrastructure Technology Outsourcing ("ITO") business units from the
former Services segment, along with the end-user workplace support
services business that was previously a part of the TS business unit.
Taking into account these changes, HP has the following seven financial
reporting segments: Personal Systems, Printing, the Enterprise Group,
Enterprise Services, Software, HP Financial Services and Corporate
Investments.
Also as a result of these realignments, the financial results of the
Personal Systems commercial products support business, which were
previously reported as part of the TS business unit, will now be
reported as part of the Other business unit within the Personal Systems
segment, and the financial results of the portion of the business
intelligence services business that had continued to be reported as part
of the Corporate Investments segment following the implementation of
prior realignment actions will now be reported as part of the ABS
business unit. In addition, the end-user workplace support services
business, which, as noted above, was previously a part of the TS
business unit and will now become a part of the Enterprise Services
segment, will be reported as part of the ITO business unit within that
segment.
To provide improved visibility and comparability, HP has reflected these
changes to its reporting structure in prior financial reporting periods
on an as-if basis, which has resulted in the transfer of revenue and
operating profit among the Personal Systems, the Enterprise Group,
Enterprise Services and Corporate Investments segments. These changes
had no impact on the previously reported financial results for the
Printing, Software or HP Financial Services segments. In addition, none
of these changes impacted HP's previously reported consolidated net
revenue, earnings from operations, net earnings or net earnings per
share.
(b) The Personal Systems segment and the Printing segment are structured
beneath a broader Printing and Personal Systems Group ("PPS"). While PPS
is not a financial reporting segment, HP provides financial data
aggregating the segments within it in order to provide a supplementary
view of its business.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT / BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)
Nine months ended
July 31,
------------------------
2013 2012
----------- -----------
Net revenue:(a)
Printing and Personal Systems Group(b)
Personal Systems
Notebooks $ 11,568 $ 14,258
Desktops 9,571 10,519
Workstations 1,593 1,598
Other 760 623
----------- -----------
Total Personal Systems 23,492 26,998
----------- -----------
Printing
Supplies 11,854 12,144
Commercial Hardware 4,151 4,413
Consumer Hardware 1,805 1,850
----------- -----------
Total Printing 17,810 18,407
----------- -----------
Total Printing and Personal Systems
Group 41,302 45,405
----------- -----------
Enterprise Group
Industry Standard Servers 8,651 9,445
Technology Services 6,689 6,948
Storage 2,523 2,869
Networking 1,870 1,847
Business Critical Systems 856 1,211
----------- -----------
Total Enterprise Group 20,589 22,320
----------- -----------
Enterprise Services
Infrastructure Technology Outsourcing 11,119 11,868
Application and Business Services 6,642 7,389
----------- -----------
Total Enterprise Services 17,761 19,257
----------- -----------
Software 2,849 2,889
----------- -----------
HP Financial Services 2,717 2,853
----------- -----------
Corporate Investments 19 48
----------- -----------
Total segments 85,237 92,772
----------- -----------
Elimination of intersegment net revenue and
other (2,070) (2,374)
----------- -----------
Total HP consolidated net revenue $ 83,167 $ 90,398
=========== ===========
(a) HP has implemented certain organizational realignments in the first
quarter of fiscal 2013. As a result of these realignments, HP has re-
evaluated its segment financial reporting structure and, effective in
the first quarter of fiscal 2013, created two new financial reporting
segments, the Enterprise Group segment and the Enterprise Services
segment, and eliminated two other financial reporting segments, the
Enterprise Servers, Storage and Networking ("ESSN") segment and the
Services segment. The Enterprise Group segment consists of the business
units within the former ESSN segment and most of the services offerings
of the Technology Services ("TS") business unit, which was previously a
part of the former Services segment. The Enterprise Services segment
consists of the Applications and Business Services ("ABS") and
Infrastructure Technology Outsourcing ("ITO") business units from the
former Services segment, along with the end-user workplace support
services business that was previously a part of the TS business unit.
Taking into account these changes, HP has the following seven financial
reporting segments: Personal Systems, Printing, the Enterprise Group,
Enterprise Services, Software, HP Financial Services and Corporate
Investments.
Also as a result of these realignments, the financial results of the
Personal Systems commercial products support business, which were
previously reported as part of the TS business unit, will now be
reported as part of the Other business unit within the Personal Systems
segment, and the financial results of the portion of the business
intelligence services business that had continued to be reported as part
of the Corporate Investments segment following the implementation of
prior realignment actions will now be reported as part of the ABS
business unit. In addition, the end-user workplace support services
business, which, as noted above, was previously a part of the TS
business unit and will now become a part of the Enterprise Services
segment, will be reported as part of the ITO business unit within that
segment.
To provide improved visibility and comparability, HP has reflected these
changes to its reporting structure in prior financial reporting periods
on an as-if basis, which has resulted in the transfer of revenue and
operating profit among the Personal Systems, the Enterprise Group,
Enterprise Services and Corporate Investments segments. These changes
had no impact on the previously reported financial results for the
Printing, Software or HP Financial Services segments. In addition, none
of these changes impacted HP's previously reported consolidated net
revenue, earnings from operations, net earnings or net earnings per
share.
(b) The Personal Systems segment and the Printing segment are structured
beneath a broader Printing and Personal Systems Group ("PPS"). While PPS
is not a financial reporting segment, HP provides financial data
aggregating the segments within it in order to provide a supplementary
view of its business.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT NON-GAAP OPERATING MARGIN SUMMARY DATA
(Unaudited)
Three months Change in Operating
ended Margin (pts)
------------- ----------------------
July 31,
2013 Q/Q Y/Y
------------- ---------- ----------
Non-GAAP operating margin:(a)
Personal Systems 3.0% (0.2 pts) (1.7 pts)
Printing 15.6% (0.2 pts) (0.2 pts)
Printing and Personal Systems
Group(b) 8.4% (0.4 pts) (0.8 pts)
Enterprise Group 15.2% (0.7 pts) (1.9 pts)
Enterprise Services 3.3% 0.7 pts (0.5 pts)
Software 20.5% 1.4 pts 2.5 pts
HP Financial Services 11.3% 0.3 pts 0.9 pts
Corporate Investments NM NM NM
Total segments 9.3% (0.1 pts) (0.8 pts)
Total HP consolidated non-GAAP
operating margin 8.4% (0.2 pts) (0.8 pts)
(a) HP has implemented certain organizational realignments in the first
quarter of fiscal 2013. As a result of these realignments, HP has re-
evaluated its segment financial reporting structure and, effective in
the first quarter of fiscal 2013, created two new financial reporting
segments, the Enterprise Group segment and the Enterprise Services
segment, and eliminated two other financial reporting segments, the
Enterprise Servers, Storage and Networking ("ESSN") segment and the
Services segment. The Enterprise Group segment consists of the business
units within the former ESSN segment and most of the services offerings
of the Technology Services ("TS") business unit, which was previously a
part of the former Services segment. The Enterprise Services segment
consists of the Applications and Business Services ("ABS") and
Infrastructure Technology Outsourcing ("ITO") business units from the
former Services segment, along with the end-user workplace support
services business that was previously a part of the TS business unit.
Taking into account these changes, HP has the following seven financial
reporting segments: Personal Systems, Printing, the Enterprise Group,
Enterprise Services, Software, HP Financial Services and Corporate
Investments.
Also as a result of these realignments, the financial results of the
Personal Systems commercial products support business, which were
previously reported as part of the TS business unit, will now be
reported as part of the Other business unit within the Personal Systems
segment, and the financial results of the portion of the business
intelligence services business that had continued to be reported as part
of the Corporate Investments segment following the implementation of
prior realignment actions will now be reported as part of the ABS
business unit. In addition, the end-user workplace support services
business, which, as noted above, was previously a part of the TS
business unit and will now become a part of the Enterprise Services
segment, will be reported as part of the ITO business unit within that
segment.
To provide improved visibility and comparability, HP has reflected these
changes to its reporting structure in prior financial reporting periods
on an as-if basis, which has resulted in the transfer of revenue and
operating profit among the Personal Systems, the Enterprise Group,
Enterprise Services and Corporate Investments segments. These changes
had no impact on the previously reported financial results for the
Printing, Software or HP Financial Services segments. In addition, none
of these changes impacted HP's previously reported consolidated net
revenue, earnings from operations, net earnings or net earnings per
share.
(b) The Personal Systems segment and the Printing segment are structured
beneath a broader Printing and Personal Systems Group ("PPS"). While PPS
is not a financial reporting segment, HP provides financial data
aggregating the segments within it in order to provide a supplementary
view of its business.
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,
2013 2013 2012
---------- ---------- ----------
Numerator:
GAAP net earnings (loss) $ 1,390 $ 1,077 $ (8,857)
========== ========== ==========
Non-GAAP net earnings $ 1,676 $ 1,698 $ 1,973
========== ========== ==========
Denominator:
Weighted-average shares used to
compute basic net earnings (loss) per
share and diluted net (loss) per
share 1,929 1,935 1,971
Dilutive effect of employee stock
plans 19 12 4
---------- ---------- ----------
Weighted-average shares used to
compute diluted net earnings per
share 1,948 1,947 1,975
========== ========== ==========
GAAP net earnings (loss) per share:
Basic $ 0.72 $ 0.56 $ (4.49)
Diluted(a) $ 0.71 $ 0.55 $ (4.49)
Non-GAAP net earnings per share:
Basic $ 0.87 $ 0.88 $ 1.00
Diluted(b) $ 0.86 $ 0.87 $ 1.00
(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,
------------------------
2013 2012
----------- -----------
Numerator:
GAAP net earnings (loss) $ 3,699 $ (5,796)
=========== ===========
Non-GAAP net earnings $ 4,979 $ 5,754
=========== ===========
Denominator:
Weighted-average shares used to compute basic
net earnings (loss) per share and diluted net
(loss) per share 1,939 1,977
Dilutive effect of employee stock plans 13 15
----------- -----------
Weighted-average shares used to compute
diluted net earnings per share 1,952 1,992
=========== ===========
GAAP net earnings (loss) per share:
Basic $ 1.91 $ (2.93)
Diluted(a) $ 1.89 $ (2.93)
Non-GAAP net earnings per share:
Basic $ 2.57 $ 2.91
Diluted(b) $ 2.55 $ 2.89
(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 operating profit,
non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted
earnings per share, gross cash, free cash flow, net debt and
operating company net debt. 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. The
GAAP measure most directly comparable to free cash flow is cash
flow from operations. The GAAP measure most directly comparable to
net debt and operating company net debt is total company debt.
Reconciliations of each of these non-GAAP financial measures to
GAAP information are included in the tables above or elsewhere in
the materials accompanying this news release.
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 impairment of
goodwill and purchased intangible assets, charges relating to the
amortization of purchased intangible assets, acquisition-related
charges and charges related to the wind-down of HP businesses
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 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 consideration paid for acquired
companies over the estimated fair value of the tangible and
intangible assets acquired, liabilities assumed and any
noncontrolling interests in the acquiree. Purchased intangible
assets consist primarily of customer contracts, customer lists,
distribution agreements, technology patents, and products,
trademarks and trade names purchased in connection with
acquisitions. In the fourth quarter of fiscal 2012, HP recorded a
non-cash charge for the impairment of goodwill and intangible
assets associated with the acquisition of Autonomy Corporation plc.
In the third quarter of fiscal 2012, HP recorded an impairment
charge for the goodwill associated with its Services segment
following an impairment review. 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. 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
significantly impacted by the timing and magnitude of HP's
acquisitions and any impairment charges. 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. As
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 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 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.
Operating company net debt is a non-GAAP measure that is defined
as total company net debt less HP Financial Services ("HPFS") net
debt. Total company net debt consists of total debt (including the
effect of hedging) less gross cash, which includes cash and cash
equivalents, short-term investments, and certain liquid long-term
investments. HPFS net debt consists of HPFS debt, which includes
primarily intercompany equity that is treated as debt for segment
reporting purposes, intercompany debt and debt issued directly by
HPFS, less HPFS cash. Total company net debt provides useful
information to management about the state of HP's consolidated
balance sheet. Operating company net debt provides additional
useful information to management about the state of HP's
consolidated balance sheet by providing more transparency into the
financial components of the operating company separate from HP's
financing business, which has different capital structure
requirements and requires much greater leverage to run
effectively.
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, gross cash, free cash flow, net debt and
operating company net debt 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, gross cash, free cash flow, net debt and operating
company net debt 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, gross cash, free cash flow, net debt
and operating company net debt 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.
© 2013 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.
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