EX-99.1 2 q2exhibit99-1_052012.htm EXHIBIT 99.1 q2exhibit99-1_052012.htm
 
     EXHIBIT 99.1
     
 
 
Hewlett-Packard Company
3000 Hanover Street
Palo Alto, CA 94304

hp.com
     
     
  News Release  
  HP Reports Second Quarter 2012 Results
 
Editorial contacts
Second quarter non-GAAP diluted earnings per share of $0.98, above previously provided
outlook of $0.88 to $0.91 per share
Michael Thacker, HP    
+1 650 857 2254
corpmediarelations@hp.com
Second quarter GAAP diluted earnings per share of $0.80, above previously provided outlook
of $0.68 to $0.71 per share
     
HP Investor Relations
investor.relations@hp.com
Second quarter net revenue of $30.7 billion, down 3% from the prior-year period
  Returned $601 million in cash to shareholders in the form of dividends and share repurchases
www.hp.com/go/newsroom    
  Company announces multi-year restructuring to fuel innovation and enable investment see
separate release for details
 
  HP second quarter fiscal 2012 financial performance  
     
Q2 FY12
 
Q2 FY11
     Y/Y    
 
GAAP net revenue ($B)
  $ 30.7     $ 31.6       (3 %)  
 
GAAP operating margin
    7.2 %     9.4 %  
(2.2
 pts)  
 
GAAP net earnings ($B)
  $   1.6     $ 2.3       (31 %)  
 
GAAP diluted EPS
  $ 0.80     $ 1.05       (24 %)  
 
Non-GAAP operating margin
  8.9 %     11.3 %  
(2.4
 pts)  
 
Non-GAAP net earnings ($B)
$ 1.9     $ 2.7       (28 %)  
 
Non-GAAP diluted EPS
  $ 0.98     $ 1.24       (21 %)  
 
Information about HP’s use of non-GAAP financial information is provided under “Use of non-GAAP financial information” below.
   
 
   
PALO ALTO, Calif., May 23, 2012 — HP today announced financial results for its second fiscal quarter ended April 30, 2012.  For the quarter, net revenue of $30.7 billion was down 3% year over year both as reported and when adjusted for the effects of currency.
 
GAAP diluted earnings per share (EPS) was $0.80, down 24% from the prior-year period. Non-GAAP diluted EPS was $0.98, down 21% from the prior-year period. Second quarter non-GAAP earnings information excludes after-tax costs of $356 million, or $0.18 per diluted share, related to amortization of purchased intangible assets, restructuring charges and acquisition-related charges.
 
“We are making progress in our multi-year effort to make HP simpler, more efficient and better for customers, employees, and shareholders,” said Meg Whitman, HP president and chief executive officer. “This quarter we exceeded our previously provided outlook and are executing against our strategy, but we still have a lot of work to do.”
                       
 
 
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Business Group Results
   
   Personal Systems Group (PSG) revenue was flat year over year with a 5.5% operating margin. Commercial revenue increased 3%, and Consumer revenue declined 4% while Workstations revenue was down 1% year over year.  Desktop units were up 5%, notebook units were down 6% and total units were down 1%.
 
Services revenue declined 1% year over year with an 11.3% operating margin.  Technology Services revenue was flat year over year, Application and Business Services revenue grew 1% and IT Outsourcing revenue declined 3% year over year.
 
Imaging and Printing Group (IPG) revenue declined 10% year over year with a 13.2% operating margin.  Commercial hardware revenue was down 4% year over year with commercial printer units down 7%.  Consumer hardware revenue was down 15% year over year with a 13% decline in printer units.
 
Enterprise Servers, Storage and Networking (ESSN) revenue declined 6% year over year with an 11.2% operating margin. Networking revenue was up 2%, Industry Standard Servers revenue was down 6%, Business Critical Systems revenue was down 23%, and Storage revenue was up 1% year over year.
  HP Financial Services revenue grew 9% year over year driven by a 4% increase in net portfolio assets and a 5% increase in financing volume.  The business delivered a 9.9% operating margin.
  Software revenue grew 22% year over year with a 17.7% operating margin, including the results of Autonomy. Software revenue was driven by 7% license growth, 17% support growth, and 72% growth in services.  Autonomy saw a significant decline in license revenue.
     
 
To help improve Autonomy’s performance, Bill Veghte, HP’s chief strategy officer and executive vice president of HP Software, will step in to lead Autonomy.  Veghte is an experienced software leader who will help develop the right processes and discipline to scale Autonomy and fulfill its promise.   Mike Lynch, Autonomy’s founder and executive vice president for Information Management, will leave HP after a transition period.  The market and competitive positioning for Autonomy remain strong, particularly in cloud offerings.                           
   
   
 
Asset Management
HP generated $2.5 billion in cash flow from operations in the second quarter. Inventory ended the quarter at $7.3 billion, with days of inventory up 2 days year over year to 28 days. Accounts receivable of $16.6 billion was down 4 days year over year to 49 days. Accounts payable ended the quarter at $12.9 billion, down 5 days from the prior-year period to 49 days. HP’s dividend payment of $0.12 per share in the second quarter resulted in cash usage of $251 million. HP also utilized $350 million of cash during the quarter to repurchase approximately 13 million shares of common stock in the open market. HP exited the quarter with $8.7 billion in gross cash.
   
   
 
Outlook
In connection with the restructuring efforts discussed in a separate press release issued today (http://www8.hp.com/us/en/hp-news/press-release.html?id+1247078), HP expects to record a pre-tax charge of approximately $1.7 billion in fiscal 2012 that will be included in its GAAP financial results for that period.  Of that amount, HP expects to record a pre-tax
   
 
 
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charge of approximately $1.0 billion in its third fiscal quarter.  The cash impact associated with the restructuring efforts is expected to be approximately $400 million in fiscal year 2012. Through fiscal 2014, HP expects to record additional pre-tax charges approximating $1.8 billion that will be included in its GAAP financial results for the applicable periods.       
 
In May 2012, HP committed to a change in its PC branding strategy.  As a result, HP has commenced an asset impairment analysis to determine the current value of the Compaq trade name acquired in 2002.  Based on the preliminary results of that analysis, HP expects to record an impairment charge of up to approximately $1.2 billion that will be included in its GAAP financial results for its third fiscal quarter.  There will be no cash impact associated with the impairment charge.
 
For the third quarter of fiscal 2012, HP estimates non-GAAP diluted EPS to be in the range of $0.94 to $0.97 and GAAP diluted EPS to be in the range of $0.00 to $0.03.
 
Third quarter fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.94 per share, related primarily to the amortization and impairment of purchased intangible assets, restructuring charges, and acquisition-related charges.
 
For the full year fiscal 2012, HP now estimates non-GAAP diluted EPS to be in the range of $4.05 to $4.10 and GAAP diluted EPS to be in the range of $2.25 to $2.30.
 
Full year fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $1.80 per share, related primarily to the amortization and impairment of purchased intangible assets, restructuring charges and acquisition-related charges.
 
More information on HP’s quarterly earnings, including additional financial analysis and an earnings overview presentation, is available on HP’s Investor Relations website at www.hp.com/investor/home.
 
HP’s Q2 FY12 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2012q2webcast.
 
 
About HP
HP creates new possibilities for technology to have a meaningful impact on people, businesses, governments and society. The world’s largest technology company, HP brings together a portfolio that spans printing, personal computing, software, services and IT infrastructure to solve customer problems. More information about HP (NYSE: HPQ) is available at http://www.hp.com.

 
Use of non-GAAP financial information
To supplement HP’s consolidated condensed financial statements presented on a GAAP basis, HP provides non-GAAP net revenue, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share, gross cash and free cash flow. HP also provides forecasts of non-GAAP diluted earnings per share. A reconciliation of the adjustments to GAAP results for this quarter and prior periods is included in the tables below. In addition, an explanation of the ways in which HP management uses these non-GAAP measures to evaluate its  
   
 
 
 
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business, the substance behind HP management’s decision to use these non-GAAP measures, the material limitations associated with the use of these non-GAAP measures, the manner in which HP management compensates for those limitations, and the substantive reasons why HP management believes that these non-GAAP measures provide useful information to investors is included under “Use of Non-GAAP Financial Measures” after the tables below. This additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for revenue, operating profit, operating margin, net earnings, diluted earnings per share, cash and cash equivalents or cash flow from operations prepared in accordance with GAAP.
 
 
Forward-looking statements
This news release contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of HP may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including but not limited to any projections of revenue, margins, expenses, earnings, earnings per share, tax provisions, cash flows, benefit obligations, share repurchases, currency exchange rates, the impact of acquisitions or other financial items; any projections of the amount, timing or impact of cost savings, restructuring charges, early retirement programs, workforce reductions or impairment charges; any statements of the plans, strategies and objectives of management for future operations, including the execution of restructuring plans and any resulting cost savings or revenue or profitability improvements; any statements concerning the expected development, performance, market share or competitive performance relating to products or services; any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on HP and its financial performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include the impact of macroeconomic and geopolitical trends and events; the competitive pressures faced by HP’s businesses; the development and transition of new products and services and the enhancement of existing products and services to meet customer needs and respond to emerging technological trends; the execution and performance of contracts by HP and its suppliers, customers and partners; the protection of HP’s intellectual property assets, including intellectual property licensed from third parties; integration and other risks associated with business combination and investment transactions; the hiring and retention of key employees; assumptions related to pension and other post-retirement costs and retirement programs; the execution, timing and results of restructuring plans, including estimates and assumptions related to the cost and the anticipated benefits of implementing those plans; the resolution of pending investigations, claims and disputes; and other risks that are described in HP’s Annual Report on Form 10-K for the fiscal year ended October 31, 2011 and HP’s other filings with the Securities and Exchange Commission, including HP’s Quarterly Report on Form 10–Q for the fiscal quarter ended January 31, 2012.  As in prior periods, the financial information set forth in this release, including tax-related items, reflects estimates based on information available at this time. While HP believes these estimates to be meaningful, these amounts could differ materially from actual reported amounts in HP’s Form 10-Q for the fiscal quarter ended April 30, 2012. In particular, determining HP’s actual tax balances and provisions as of April 30, 2012 requires extensive internal and external review of tax data (including consolidating 
   
 
 
 
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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.
                   
 
 
 
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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In millions except per share amounts)
                   
                   
   
Three months ended
   
April 30,
2012
 
January 31,
2012
 
April 30,
2011
                   
Net revenue
  $ 30,693     $ 30,036     $ 31,632  
                         
Costs and expenses: (a)
                       
        Cost of sales
    23,541       23,313       23,832  
        Research and development
    850       786       815  
        Selling, general and administrative     3,540       3,367        3,425  
        Amortization of purchased intangible assets      470        466        413  
        Restructuring charges
    53       40       158  
        Acquisition-related charges
    17       22       21  
                Total costs and expenses
    28,471       27,994       28,664  
                         
Earnings from operations
    2,222       2,042       2,968  
                         
Interest and other, net
    (243 )     (221 )     (76 )
                         
Earnings before taxes
    1,979       1,821       2,892  
                         
Provision for taxes
    386       353       588  
                         
Net earnings
  $ 1,593     $ 1,468     $ 2,304  
                         
Net earnings per share:
                       
        Basic
  $ 0.80     $ 0.74     $ 1.07  
        Diluted
  $ 0.80     $ 0.73     $ 1.05  
                         
                         
Cash dividends declared per share
  $ -     $ 0.24     $ -  
                         
Weighted-average shares used to compute net earnings per share:
         
        Basic
    1,979       1,981       2,150  
        Diluted
    1,987       1,998       2,184  
 
(a)
In connection with organizational realignments implemented in the first quarter of fiscal year 2012, certain costs previously reported as Cost of Sales have been reclassified as Selling, General and Administrative expenses to better align those costs with the functional areas that benefit from those expenditures.
 
 
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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In millions except per share amounts)
             
             
   
Six months ended April 30,
   
2012
 
2011
             
Net revenue
  $ 60,729     $ 63,934  
                 
Costs and expenses: (a)
               
        Cost of sales
    46,854       48,213  
        Research and development
    1,636       1,613  
        Selling, general and administrative
    6,907       6,542  
        Amortization of purchased intangible assets
    936       838  
        Restructuring charges
    93       316  
        Acquisition-related charges
    39       50  
                Total costs and expenses
    56,465       57,572  
                 
Earnings from operations
    4,264       6,362  
                 
Interest and other, net
    (464 )     (173 )
                 
Earnings before taxes
    3,800       6,189  
                 
Provision for taxes
    739       1,280  
                 
Net earnings
  $ 3,061     $ 4,909  
                 
Net earnings per share:
               
        Basic
  $ 1.55     $ 2.27  
        Diluted
  $ 1.53     $ 2.23  
                 
                 
Cash dividends declared per share
  $ 0.24     $ 0.16  
                 
Weighted-average shares used to compute net earnings per share:
         
        Basic
    1,980       2,166  
        Diluted
    1,995       2,203  
 
(a)
In connection with organizational realignments implemented in the first quarter of fiscal year 2012, certain costs previously reported as Cost of Sales have been reclassified as Selling, General and Administrative expenses to better align those costs with the functional areas that benefit from those expenditures.
 
 
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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS,
OPERATING MARGIN AND EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
                                     
                                     
   
Three months
ended
April 30,
2012
Diluted earnings
per share
 
Three months
ended
January 31,
2012
Diluted earnings
per share
 
Three months
ended
April 30,
2011
Diluted
earnings
per share
                                     
GAAP net earnings
  $ 1,593     $ 0.80     $ 1,468     $ 0.73     $ 2,304     $ 1.05  
                                                 
Non-GAAP adjustments:
                                               
       Amortization of purchased intangible assets
470       0.23       466       0.24       413       0.19  
       Restructuring charges
    53       0.03       40       0.02       158       0.07  
       Acquisition-related charges
    17       0.01       22       0.01       21       0.01  
       Wind down of the webOS device business (a)
(36 )     (0.02 )     -       -       -       -  
       Adjustments for taxes
    (148 )     (0.07 )     (164 )     (0.08 )     (179 )     (0.08 )
Non-GAAP net earnings
  $ 1,949     $ 0.98     $ 1,832     $ 0.92     $ 2,717     $ 1.24  
                                                 
                                                 
GAAP earnings from operations
  $ 2,222             $ 2,042             $ 2,968          
                                                 
Non-GAAP adjustments:
                                               
       Amortization of purchased intangible assets 470               466               413          
       Restructuring charges
    53               40               158          
       Acquisition-related charges
    17               22               21          
       Wind down of the webOS device business (a)
  (36 )             -               -          
Non-GAAP earnings from operations
  $ 2,726             $ 2,570             $ 3,560          
                                                 
GAAP operating margin
    7 %             7 %             9 %        
Non-GAAP adjustments
    2 %             2 %             2 %        
                                                 
Non-GAAP operating margin
    9 %             9 %             11 %        
 
(a)
Primarily includes adjustments to expenses for supplier-related obligations related to winding down the webOS device business.
 

 
8

 
 
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)
                           
                           
     
Six months
ended
April 30,
2012
 
Diluted
earnings
per share
 
Six months
ended
April 30,
2011
 
Diluted
earnings
per share
                           
GAAP net earnings
  $ 3,061     $ 1.53     $ 4,909     $ 2.23  
                                   
Non-GAAP adjustments:
                               
       Amortization of purchased intangible assets   936       0.47       838       0.39  
       Restructuring charges     93       0.05       316       0.14  
       Acquisition-related charges     39       0.02       50       0.02  
       Wind down of the webOS device business (a)     (36 )     (0.02 )     -       -  
       Adjustments for taxes     (312 )     (0.15 )     (366 )     (0.17 )
Non-GAAP net earnings
  $ 3,781     $ 1.90     $ 5,747     $ 2.61  
                                   
                                   
GAAP earnings from operations
  $ 4,264             $ 6,362          
                                   
Non-GAAP adjustments:
                               
       Amortization of purchased intangible assets     936               838          
       Restructuring charges     93               316          
       Acquisition-related charges     39               50          
       Wind down of the webOS device business (a)     (36 )             -          
Non-GAAP earnings from operations
  $ 5,296             $ 7,566          
                                   
GAAP operating margin
    7 %             10 %        
Non-GAAP adjustments
    2 %             2 %        
                                   
Non-GAAP operating margin
    9 %             12 %        
 
(a)  
Primarily includes adjustments to expenses for supplier-related obligations related to winding down the webOS device business.
 
 
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HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
             
             
   
April 30,
2012
 
October 31,
2011
   
(unaudited)
       
             
ASSETS
           
             
Current assets:
           
        Cash and cash equivalents
  $ 8,311     $ 8,043  
        Accounts receivable
    16,609       18,224  
        Financing receivables
    3,139       3,162  
        Inventory
    7,306       7,490  
        Other current assets
    14,324       14,102  
                 
             Total current assets
    49,689       51,021  
                 
Property, plant and equipment
    12,236       12,292  
                 
Long-term financing receivables and other assets
    11,018       10,755  
                 
Goodwill and purchased intangible assets
    54,746       55,449  
                 
Total assets
  $ 127,689     $ 129,517  
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
Current liabilities:
               
        Notes payable and short-term borrowings
  $ 4,252     $ 8,083  
        Accounts payable
    12,900       14,750  
        Employee compensation and benefits
    3,609       3,999  
        Taxes on earnings
    871       1,048  
        Deferred revenue
    7,582       7,449  
        Other accrued liabilities
    13,585       15,113  
                 
             Total current liabilities
    42,799       50,442  
                 
Long-term debt
    25,825       22,551  
                 
Other liabilities
    17,368       17,520  
                 
Stockholders' equity:
               
        HP stockholders' equity
    41,288       38,625  
        Non-controlling interests
    409       379  
                 
             Total stockholders' equity
    41,697       39,004  
                 
Total liabilities and stockholders' equity
  $ 127,689     $ 129,517  

 
10

 

 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
             
             
   
Three months
ended
April 30,
2012
 
Six months
ended
April 30,
2012
             
Cash flows from operating activities:
           
      Net earnings
  $ 1,593     $ 3,061  
      Adjustments to reconcile net earnings to net cash provided by operating activities:
 
          Depreciation and amortization
    1,285       2,588  
          Stock-based compensation expense
    169       344  
          Provision for bad debt and inventory
    95       147  
          Restructuring charges
    53       93  
          Deferred taxes on earnings
    (45 )     (155 )
          Excess tax benefit from stock-based compensation
    (1 )     (12 )
          Other, net
    196       240  
                 
          Changes in operating assets and liabilities:
               
              Accounts and financing receivables
    (832 )     1,479  
              Inventory
    (91 )     89  
              Accounts payable
    525       (1,851 )
              Taxes on earnings
    (42 )     (54 )
              Restructuring
    (100 )     (274 )
              Other assets and liabilities
    (332 )     (2,029 )
                  Net cash provided by operating activities
    2,473       3,666  
                 
Cash flows from investing activities:
               
          Investment in property, plant and equipment
    (1,080 )     (1,963 )
          Proceeds from sale of property, plant and equipment
    128       224  
          Purchases of available-for-sale securities and other investments
    (565 )     (565 )
          Maturities and sales of available-for-sale securities and other investments
    250       346  
          Payments made in connection with business acquisitions, net of cash acquired
    -       (141 )
          Proceeds from business divestiture, net
    -       81  
                  Net cash used in investing activities
    (1,267 )     (2,018 )
                 
Cash flows from financing activities:
               
          Repayment of commercial paper and notes payable, net
    (185 )     (2,792 )
          Issuance of debt
    2,017       5,052  
          Payment of debt
    (2,561 )     (2,661 )
          Issuance of common stock under employee stock plans
    321       634  
          Repurchase of common stock
    (350 )     (1,130 )
          Excess tax benefit from stock-based compensation
    1       12  
          Cash dividends paid
    (251 )     (495 )
                  Net cash used in financing activities
    (1,008 )     (1,380 )
                 
Increase in cash and cash equivalents
    198       268  
Cash and cash equivalents at beginning of period
    8,113       8,043  
Cash and cash equivalents at end of period
  $ 8,311     $ 8,311  
 
 
11

 
 
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
                   
                   
   
Three months ended
   
April 30,
2012
 
January 31,
2012
 
April 30,
2011
                   
Net revenue: (a)                  
                   
       Personal Systems Group
  $ 9,452     $ 8,873     $ 9,415  
       Services
    8,831       8,626       8,916  
       Imaging and Printing Group
    6,132       6,258       6,843  
       Enterprise Servers, Storage and Networking
    5,211       5,018       5,516  
       Software
    970       946       797  
       HP Financial Services
    968       950       885  
       Corporate Investments
    18       58       42  
             Total segments
    31,582       30,729       32,414  
       Eliminations of intersegment net revenue and other (889 )     (693 )     (782 )
                         
             Total HP consolidated net revenue
  $ 30,693     $ 30,036     $ 31,632  
                         
                         
Earnings before taxes: (a)                        
                         
       Personal Systems Group
  $ 524     $ 464     $ 533  
       Services
    997       905       1,372  
       Imaging and Printing Group
    808       761       1,136  
       Enterprise Servers, Storage and Networking
    585       562       760  
       Software
    172       162       158  
       HP Financial Services
    96       91       83  
       Corporate Investments
    (49 )     (48 )     (199 )
             Total segment earnings from operations
    3,133       2,897       3,843  
                         
                         
       Corporate and unallocated costs and eliminations
    (203 )     (153 )     (153 )
       Unallocated costs related to stock-based compensation expense
     (168
)     (174 )     (130 )
       Amortization of purchased intangible assets
    (470 )     (466 )     (413 )
       Restructuring charges
    (53 )     (40 )     (158 )
       Acquisition-related charges
    (17 )     (22 )     (21 )
       Interest and other, net
    (243 )     (221 )     (76 )
                         
             Total HP consolidated earnings before taxes
  $ 1,979     $ 1,821     $ 2,892  
 
(a)
Certain fiscal 2012 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2011, the reclassifications resulted in the transfer of revenue and operating profit among the Services, Imaging and Printing Group, Enterprise Servers, Storage and Networking, Software and Corporate Investments financial reporting segments. Reclassifications between segments included the transfer of the Indigo Scitex support and the LaserJet and enterprise solutions trade support businesses from Services to the Imaging and Printing Group, the transfer of the business intelligence services business from Corporate Investments to Services, the transfer of the information management services business from Software to Services, and the transfer of the TippingPoint business from Enterprise Servers, Storage and Networking to Software. There was no impact on the previously reported financial results for the Personal Systems Group and HP Financial Services segments.
 
 
12

 

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
             
             
   
Six months ended
   
April 30,
   
2012
 
2011
             
Net revenue: (a)
           
             
       Personal Systems Group
  $ 18,325     $ 19,864  
       Services
    17,457       17,445  
       Imaging and Printing Group
    12,390       13,574  
       Enterprise Servers, Storage and Networking
    10,229       11,115  
       Software
    1,916       1,522  
       HP Financial Services
    1,918       1,712  
       Corporate Investments
    76       104  
             Total Segments
    62,311       65,336  
       Eliminations of intersegment net revenue and other
    (1,582 )     (1,402 )
                 
             Total HP consolidated net revenue
  $ 60,729     $ 63,934  
                 
                 
Earnings before taxes: (a)                
                 
       Personal Systems Group
  $ 988     $ 1,205  
       Services
    1,902       2,753  
       Imaging and Printing Group
    1,569       2,255  
       Enterprise Servers, Storage and Networking
    1,147       1,590  
       Software
    334       278  
       HP Financial Services
    187       162  
       Corporate Investments
    (97 )     (377 )
             Total segment earnings from operations
    6,030       7,866  
                 
       Corporate and unallocated costs and eliminations
    (356 )     (4 )
       Unallocated costs related to stock-based compensation expense
    (342 )     (296 )
       Amortization of purchased intangible assets
    (936 )     (838 )
       Restructuring charges
    (93 )     (316 )
       Acquisition-related charges
    (39 )     (50 )
       Interest and other, net
    (464 )     (173 )
                 
             Total HP consolidated earnings before taxes
  $ 3,800     $ 6,189  
 
(a)
Certain fiscal 2012 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2011, the reclassifications resulted in the transfer of revenue and operating profit among the Services, Imaging and Printing Group, Enterprise Servers, Storage and Networking, Software and Corporate Investments financial reporting segments. Reclassifications between segments included the transfer of the Indigo Scitex support and the LaserJet and enterprise solutions trade support businesses from Services to the Imaging and Printing Group, the transfer of the business intelligence services business from Corporate Investments to Services, the transfer of the information management services business from Software to Services, and the transfer of the TippingPoint business from Enterprise Servers, Storage and Networking to Software. There was no impact on the previously reported financial results for the Personal Systems Group and HP Financial Services segments.
 
 
 
13

 

 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT / BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)
 
   
Three months ended
 
Growth rate (%)
   
April 30,
2012
 
January 31,
2012
 
April 30,
2011
    Q/Q     Y/Y
                                   
Net revenue: (a)
                                 
                                   
       Personal Systems Group
                                 
              Notebooks
  $ 4,900     $ 4,942     $ 5,039       (1 %)     (3 %)
              Desktops
    3,827       3,206       3,641       19 %     5 %
              Workstations
    537       535       541       0 %     (1 %)
              Other
    188       190       194       (1 %)     (3 %)
                     Total Personal Systems Group
    9,452       8,873       9,415       7 %     0 %
                                         
       Services
                                       
              Infrastructure Technology Outsourcing
    3,669       3,701       3,786       (1 %)     (3 %)
              Technology Services
    2,638       2,562       2,629       3 %     0 %
              Application and Business Services (b)
    2,524       2,363       2,501       7 %     1 %
                     Total Services
    8,831       8,626       8,916       2 %     (1 %)
                                         
       Imaging and Printing Group
                                       
              Supplies
    4,060       4,079       4,612       0 %     (12 %)
              Commercial Hardware
    1,479       1,489       1,536       (1 %)     (4 %)
              Consumer Hardware
    593       690       695       (14 %)     (15 %)
                     Total Imaging and Printing Group
    6,132       6,258       6,843       (2 %)     (10 %)
                                         
       Enterprise Servers, Storage and Networking
                                 
              Industry Standard Servers
    3,186       3,072       3,387       4 %     (6 %)
              Storage
    990       955       980       4 %     1 %
              Business Critical Systems
    421       405       546       4 %     (23 %)
              Networking
    614       586       603       5 %     2 %
                     Total Enterprise Servers, Storage and Networking   5,211       5,018       5,516       4 %     (6 %)
                                         
       Software
    970       946       797       3 %     22 %
                                         
       HP Financial Services
    968       950       885       2 %     9 %
                                         
       Corporate Investments
    18       58       42       (69 %)     (57 %)
              Total segments
    31,582       30,729       32,414       3 %     (3 %)
                                         
       Elimination of intersegment net revenue and other
    (889 )     (693 )     (782 )     28 %     14 %
                                         
              Total HP consolidated net revenue
  $ 30,693     $ 30,036     $ 31,632       2 %     (3 %)
 
(a)
Certain fiscal 2012 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2011, the reclassifications resulted in the transfer of revenue among the Services, Imaging and Printing Group, Enterprise Servers, Storage and Networking, Software and Corporate Investments financial reporting segments. Reclassifications between segments included the transfer of Indigo Scitex support and the LaserJet and enterprise solutions trade support businesses from Services to the Imaging and Printing Group, the transfer of the business intelligence services business from Corporate Investments to Services, the transfer of the information management services business from Software to Services, and the transfer of the TippingPoint business from Enterprise Servers, Storage and Networking to Software. In addition, revenue was transferred among the business units within the Services segment.There was no impact on the previously reported financial results for the Personal Systems Group and HP Financial Services segments.
     
(b)
The former Application Services, Business Process Outsourcing and Other Services business units were consolidated into a new Application and Business Services business unit in fiscal 2012.
 
 
14

 

 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT / BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)
 
   
Six months ended
   
April 30,
   
2012
 
2011
             
Net revenue: (a)
           
             
       Personal Systems Group
           
              Notebooks
  $ 9,842     $ 10,847  
              Desktops
    7,033       7,537  
              Workstations
    1,072       1,076  
              Other
    378       404  
                     Total Personal Systems Group
    18,325       19,864  
    
               
       Services
               
              Infrastructure Technology Outsourcing
    7,370       7,430  
              Technology Services
    5,200       5,143  
              Application and Business Services (b)
    4,887       4,872  
                     Total Services
    17,457       17,445  
                 
       Imaging and Printing Group
               
              Supplies
    8,139       8,970  
              Commercial Hardware
    2,968       3,101  
              Consumer Hardware
    1,283       1,503  
                     Total Imaging and Printing Group
    12,390       13,574  
                 
       Enterprise Servers, Storage and Networking
         
              Industry Standard Servers
    6,258       6,835  
              Storage
    1,945       1,992  
              Business Critical Systems
    826       1,101  
              Networking
    1,200       1,187  
                     Total Enterprise Servers, Storage and Networking
    10,229       11,115  
                 
       Software
    1,916       1,522  
                 
       HP Financial Services
    1,918       1,712  
                 
       Corporate Investments
    76       104  
              Total segments
    62,311       65,336  
                 
       Elimination of intersegment net revenue and other
    (1,582 )     (1,402 )
                 
              Total HP consolidated net revenue
  $ 60,729     $ 63,934  
 
(a)
Certain fiscal 2012 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2011, the reclassifications resulted in the transfer of revenue among the Services, Imaging and Printing Group, Enterprise Servers, Storage and Networking, Software and Corporate Investments financial reporting segments. Reclassifications between segments included the transfer of Indigo Scitex support and the LaserJet and enterprise solutions trade support businesses from Services to the Imaging and Printing Group, the transfer of the business intelligence services business from Corporate Investments to Services, the transfer of the information management services business from Software to Services, and the transfer of the TippingPoint business from Enterprise Servers, Storage and Networking to Software. In addition, revenue was transferred among the business units within the Services segment.There was no impact on the previously reported financial results for the Personal Systems Group and HP Financial Services segments.
     
(b)
The former Application Services, Business Process Outsourcing and Other Services business units were consolidated into a new Application and Business Services business unit in fiscal 2012.
 
 
15

 
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT NON-GAAP OPERATING MARGIN SUMMARY DATA
(Unaudited)
(In millions)
                   
                   
   
Three months
ended
 
Change in Operating Margin (pts)
   
April 30,
2012
    Q/Q     Y/Y
                       
Non-GAAP operating margin: (a)
                     
           Personal Systems Group
    5.5 %  
0.3 pts
   
(0.2 pts)
 
           Services
    11.3 %  
0.8 pts
   
(4.1 pts)
 
           Imaging and Printing Group
    13.2 %  
1.0 pts
   
(3.4 pts)
 
           Enterprise Servers, Storage and Networking
    11.2 %  
0.0 pts
   
(2.6 pts)
 
           Software
    17.7 %  
0.6 pts
   
(2.1 pts)
 
           HP Financial Services
    9.9 %  
0.3 pts
   
0.5 pts
 
           Corporate Investments
    (472.2 %)  
(389.4 pts)
 
1.6 pts
 
                  Total segments
    9.8 %  
0.4 pts
   
(2.1 pts)
 
                         
                  Total HP consolidated non-GAAP operating margin
    8.9 %  
0.3 pts
   
(2.4 pts)
 
 
(a)
Certain fiscal 2012 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2011, the reclassifications resulted in the transfer of revenue and operating profit among the Services, Imaging and Printing Group, Enterprise Servers, Storage and Networking, Software and Corporate Investments financial reporting segments. Reclassifications between segments included the transfer of Indigo Scitex support and the LaserJet and enterprise solutions trade support businesses from Services to the Imaging and Printing Group, the transfer of the business intelligence services business from Corporate Investments to Services, the transfer of the information management services business from Software to Services, and the transfer of the TippingPoint business from Enterprise Servers, Storage and Networking to Software. There was no impact on the previously reported financial results for the Personal Systems Group and HP Financial Services segments.
 
 
16

 
 

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
                     
                     
     
Three months ended
     
April 30,
2012
 
January 31,
2012
 
April 30,
2011
                     
Numerator:
                 
        GAAP net earnings
  $ 1,593     $ 1,468     $ 2,304  
                           
        Non-GAAP net earnings
  $ 1,949     $ 1,832     $ 2,717  
                           
Denominator:
                       
        Weighted-average shares used to compute basic EPS
    1,979       1,981       2,150  
        Dilutive effect of employee stock plans
    8       17       34  
                Weighted-average shares used to compute diluted EPS
    1,987       1,998       2,184  
                           
GAAP net earnings per share:
                       
        Basic (a)
  $ 0.80     $ 0.74     $ 1.07  
        Diluted (c)
  $ 0.80     $ 0.73     $ 1.05  
                           
Non-GAAP net earnings per share:
                       
        Basic (b)
  $ 0.98     $ 0.92     $ 1.26  
        Diluted (c)
  $ 0.98     $ 0.92     $ 1.24  
 
(a)
GAAP basic earnings per share were calculated based on GAAP net earnings and the weighted-average number of shares outstanding during the reporting period.
                           
(b)
Non-GAAP basic earnings per share were calculated based on non-GAAP net earnings and the weighted-average number of shares outstanding during the reporting period.
                           
(c)
Diluted net earnings per share included any dilutive effect of outstanding stock options, performance-based restricted units, restricted stock units and restricted stock.
 
 
17

 
 

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
               
               
     
Six months ended
     
April 30,
     
2012
 
2011
               
Numerator:
           
        GAAP net earnings
  $ 3,061     $ 4,909  
                   
        Non-GAAP net earnings
  $ 3,781     $ 5,747  
                   
Denominator:
               
        Weighted-average shares used to compute basic EPS
    1,980       2,166  
        Dilutive effect of employee stock plans
    15       37  
                Weighted-average shares used to compute diluted EPS
    1,995       2,203  
                   
GAAP net earnings per share:
               
        Basic (a)
  $ 1.55     $ 2.27  
        Diluted (c)
  $ 1.53     $ 2.23  
                   
Non-GAAP net earnings per share:
               
        Basic (b)
  $ 1.91     $ 2.65  
        Diluted (c)
  $ 1.90     $ 2.61  
 
(a)
GAAP basic earnings per share were calculated based on GAAP net earnings and the weighted-average number of shares outstanding during the reporting period.
                   
(b)
Non-GAAP basic earnings per share were calculated based on non-GAAP net earnings and the weighted-average number of shares outstanding during the reporting period.
                   
(c)
Diluted net earnings per share included any dilutive effect of outstanding stock options, performance-based restricted units, restricted stock units and restricted stock.
 
 
18

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

Use and Economic Substance of Non-GAAP Financial Measures Used by HP
Non-GAAP net revenue reflects the elimination of contra revenue associated with sales incentive programs implemented in the fourth fiscal quarter of 2011 in connection with the wind down of HP’s webOS device business, net of webOS device revenue for the period.  Non-GAAP operating profit and non-GAAP operating margin are defined to exclude the effects of any restructuring charges, charges relating to the impairment of goodwill and purchased intangible assets, charges relating to the amortization of purchased intangible assets, and acquisition-related charges recorded during the relevant period. Non-GAAP net earnings and non-GAAP diluted earnings per share consist of net earnings or diluted net earnings per share excluding those same charges. In addition, non-GAAP net earnings and non-GAAP diluted earnings per share are adjusted by the amount of additional taxes or tax benefit associated with each non-GAAP item. HP’s management uses these non-GAAP financial measures for purposes of evaluating HP’s historical and prospective financial performance, as well as HP’s performance relative to its competitors. HP’s management also uses these non-GAAP measures to further its own understanding of HP’s segment operating performance. HP believes that excluding those items mentioned above from these non-GAAP financial measures allows HP management to better understand HP’s consolidated financial performance in relationship to the operating results of HP’s segments, as management does not believe that the excluded items are reflective of ongoing operating results. More specifically, HP’s management excludes each of those items mentioned above for the following reasons:            
   
 
In the fourth quarter of fiscal 2011, HP announced that it would wind down its webOS device business.  Non-GAAP net revenue reported in the fourth quarter of fiscal 2011 reflects the elimination of contra revenue associated with sales incentive programs implemented in connection with the wind down of that business, net of webOS device revenue for the period.  Because the winding down of HP businesses is inconsistent in amount and frequency, HP believes that eliminating these amounts for purposes of calculating non-GAAP net revenue facilitates a more meaningful evaluation of HP's current operating performance and comparisons to HP's past and future operating performance.
 
 
 
19

 
 
 
 
Goodwill is the excess of the purchase price of acquired companies over the estimated fair value of the tangible and intangible assets acquired and liabilities assumed.  Purchased intangible assets consist primarily of customer contracts, customer lists, distribution agreements, technology patents, and products, trademarks and trade names purchased in connection with acquisitions.  In the fourth quarter of fiscal 2011, HP recorded impairment charges to goodwill and certain intangible assets associated with the acquisition of Palm Inc.  The charges relate to HP’s decision to wind-down the webOS device business.  Impairment charges are inconsistent in amount and frequency.  HP excludes these charges for purposes of calculating these non-GAAP measures to facilitate a more meaningful evaluation of HP’s current operating performance and comparisons to HP’s past and future operating performance.
 
HP incurs charges relating to the amortization of purchased intangibles. HP also incurs charges relating to the amortization of amounts assigned to intangible assets to be used in research and development projects. All of those charges are included in HP’s GAAP presentation of earnings from operations, operating margin, net earnings and net earnings per share. Such charges are inconsistent in amount and frequency and are significantly impacted by the timing and magnitude of HP’s acquisitions. Consequently, HP excludes these charges for purposes of calculating these non-GAAP measures to facilitate a more meaningful evaluation of HP’s current operating performance and comparisons to HP’s past and future operating performance.
 
Restructuring charges consist of costs associated with a formal restructuring plan and are primarily related to (i) employee termination costs and benefits, and (ii) costs to vacate duplicative facilities. HP excludes these restructuring costs (and any reversals of charges recorded in prior periods) for purposes of calculating these non-GAAP measures because it believes that these historical costs do not reflect expected future operating expenses and do not contribute to a meaningful evaluation of HP’s current operating performance or comparisons to HP’s past and future operating performance.
 
HP incurs costs related to its acquisitions, most of which are treated as non-capitalized expenses. Because non-capitalized, acquisition-related expenses are inconsistent in amount and frequency and are significantly impacted by the timing and nature of HP’s acquisitions, HP believes that eliminating the non-capitalized expenses for purposes of calculating these non-GAAP measures facilitates a more meaningful evaluation of HP’s current operating performance and comparisons to HP’s past and future operating performance.
     
 
Gross cash is a non-GAAP measure that is defined as cash and cash equivalents plus short-term investments and certain long-term investments that may be liquidated within 90 days pursuant to the terms of existing put options or similar rights. Free cash flow is defined as cash flow from operations less net capital expenditures.  HP’s management uses gross cash and free cash flow for the purpose of determining the amount of cash available for investment in HP’s businesses, funding strategic acquisitions, repurchasing stock and other purposes. HP’s management also uses gross cash and free cash flow for the purposes of evaluating HP’s historical and prospective liquidity, as well as to further its own understanding of HP’s segment operating results. Because gross cash includes liquid assets that are not included in GAAP cash and cash equivalents, HP believes that gross cash provides a more accurate and complete assessment of HP’s liquidity and segment operating results. Because free cash flow includes the effect of capital expenditures that are not reflected in GAAP cash flow from operations, HP believes that free cash flow provides a more accurate and complete assessment of HP’s liquidity and capital resources.
   
 
 
 
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Material Limitations Associated with Use of Non-GAAP Financial Measures
These non-GAAP financial measures may have limitations as analytical tools, and these measures should not be considered in isolation or as a substitute for analysis of HP’s results as reported under GAAP. Some of the limitations in relying on these non-GAAP financial measures are:
 
 
 
Items such as amortization of purchased intangible assets, though not directly affecting HP’s cash position, represent the loss in value of intangible assets over time. The expense associated with this loss in value is not included in non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings and non-GAAP diluted earnings per share and therefore does not reflect the full economic effect of the loss in value of those intangible assets.
 
Items such as restructuring charges that are excluded from non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings and non-GAAP diluted earnings per share can have a material impact on cash flows and earnings per share.
 
HP may not be able to liquidate immediately the long-term investments included in gross cash, which may limit the usefulness of gross cash as a liquidity measure.
 
Other companies may calculate non-GAAP net revenue, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share, gross cash and free cash flow differently than HP does, limiting the usefulness of those measures for comparative purposes.
 
   
 
Compensation for Limitations Associated with Use of Non-GAAP Financial Measures
HP compensates for the limitations on its use of non-GAAP net revenue, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share, gross cash and free cash flow by relying primarily on its GAAP results and using non-GAAP financial measures only supplementally. HP also provides robust and detailed reconciliations of each non-GAAP financial measure to its most directly comparable GAAP measure within this press release and in other written materials that include these non-GAAP financial measures, and HP encourages investors to review carefully those reconciliations.
   
   
 
Usefulness of Non-GAAP Financial Measures to Investors
HP believes that providing non-GAAP net revenue, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share, gross cash and free cash flow to investors in addition to the related GAAP measures provides investors with greater transparency to the information used by HP’s management in its financial and operational decision-making and allows investors to see HP’s results “through the eyes” of management. HP further believes that providing this information better enables HP’s investors to understand HP’s operating performance and to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance. Disclosure of these non-GAAP financial measures also facilitates comparisons of HP’s operating performance with the performance of other companies in HP’s industry that supplement their GAAP results with non-GAAP financial measures that are calculated in a similar manner.
 
© 2012 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice. The only warranties for HP products and services are set forth in the express warranty statements accompanying such products and services. Nothing herein should be construed as constituting an additional warranty. HP shall not be liable for technical or editorial errors or omissions contained herein.
   
 
 
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